-----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, DO0eopXvpXd90uQnMNulM0FIESqMOZt/KsH7xF56/XspxxfsfY6cOG19vvRJR8yN tD1TyH7GntyoGBDCA36piw== 0001047469-99-017402.txt : 19990512 0001047469-99-017402.hdr.sgml : 19990512 ACCESSION NUMBER: 0001047469-99-017402 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 16 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990430 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALLIED PRODUCTS CORP /DE/ CENTRAL INDEX KEY: 0000003941 STANDARD INDUSTRIAL CLASSIFICATION: 3523 IRS NUMBER: 380292230 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-05530 FILM NUMBER: 99607107 BUSINESS ADDRESS: STREET 1: 10 S RIVERSIDE PLZ STREET 2: SUITE 400 CITY: CHICAGO STATE: IL ZIP: 60606 BUSINESS PHONE: 3124541020 10-K405 1 10-K405 - - -------------------------------------------------------------------------------- - - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) ----- OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) ----- OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______ TO _______ Commission file number 1-5530 Allied Products Corporation (Exact name of Registrant as specified in its charter) DELAWARE 38-0292230 -------- ---------- (State or other jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 10 SOUTH RIVERSIDE PLAZA, CHICAGO, ILLINOIS 60606 ------------------------------------------- ----- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (312) 454-1020 Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Name of Each Exchange on Which Registered ------------------- ----------------------------------------- COMMON STOCK-$.01 PAR VALUE NEW YORK AND PACIFIC Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. X --- Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No X --- --- As of March 31, 1999, 10,075,413 shares of common stock were outstanding, and the aggregate market value of the shares of common stock (based upon the closing price on the New York Stock Exchange) held by nonaffiliates of the Company was approximately $30,226,239. Determination of common stock ownership by affiliates was made solely for the purpose of responding to this requirement, and the Registrant is not bound by this determination for any other purpose. The Company's definitive Proxy Statement (which will be filed at a later date) for the Annual Meeting of Stockholders scheduled to be held June 18, 1999 and Annual Report to security holders for the year ended December 31, 1998 are incorporated by reference in Part III and Part IV herein. The Exhibit Index is located on page 45. - - -------------------------------------------------------------------------------- - - -------------------------------------------------------------------------------- PART I ITEM 1. BUSINESS Allied Products Corporation (Company) was organized under Delaware law in 1967 as the successor to a Michigan corporation which was formed in 1928. Its principal executive offices are at 10 South Riverside Plaza, Chicago, Illinois 60606 and its telephone number is (312) 454-1020. The Company's operations are divided into two business segments - the Agricultural Products Group (which consists of the Bush Hog and Great Bend divisions) and the Industrial Products Group (which consists of the Verson, Precision Press Industries and Verson Pressentechnik operations as well as the Coz division which was sold in the last quarter of 1997). Reference is made to Note 11 of Notes to Consolidated Financial Statements for an analysis of operations by industry segment. Approximately 3%, 6% and 16% of the Company's net sales in 1998, 1997 and 1996, respectively, were exported principally to Canada and Mexico. AGRICULTURAL PRODUCTS GROUP PRODUCTS. The Bush Hog division offers a comprehensive line of implements and machinery used by farmers, ranchers, large estate owners, commercial turf mowing and landscape contractors, golf courses and municipalities. Implements and machinery sold by Bush Hog include rotary cutters, tractor mounted loaders, hay mowers, tillers, cultivators, backhoes, zero-turn mowers, landscape tools, and turf and golf course mowing equipment. Bush Hog-Registered Trademark- rotary cutters are used to shred stalks after the crop has been harvested, to mow pasture, for land maintenance and for governmental right-of-way mowing. The use season for rotary cutters extends from early spring to late fall, and even longer in warmer climates. Bush Hog has a major market share (approximately 40%) of rotary cutters sold in North America. Front end loaders are used by farmers and ranchers for material handling. Cultivators are used for weed control after crops have been planted. In April 1998, the Company purchased the assets of Great Bend Manufacturing Company (Great Bend) located in Great Bend, Kansas. Great Bend is a manufacturer of front end loaders with significant geographical marketing emphasis in the Midwest, Southwest and high plains areas of the United States. Like Bush Hog, Great Bend offers a complete line of quality front end loaders, with particular emphasis on high lift loaders which adapt to higher horsepower tractors. Due to the separation of dealer networks, the Company's plans are to take advantage of both Bush Hog and Great Bend trade names by maintaining separate manufacturing and marketing identities. Certain products have been selected for cross marketing under both name brands and joint engineering efforts will be utilized in specific new product development. The Company believes that the combined sales of front end loaders generated by Bush Hog and Great Bend places it among the top five front end loader manufacturers in total North America market share. In addition to the acquisition of Great Bend, the Company also acquired in April 1998 the assets of Universal Turf Corporation (Universal Turf) located in Opp, Alabama. Universal Turf is a manufacturer of turf maintenance products for golf courses, athletic complexes and sod farms. Products manufactured by Universal Turf include reel mowers, verti-cut mowers, chemical sprayers and reel grinders. The acquisition of Universal Turf not only broadened Bush Hog's turf equipment offering but also provides additional manufacturing capacity for components utilized in the manufacturing of agricultural implements at Bush Hog's two facilities in Selma, Alabama. Implements tend to have a shorter life than tractors and other self-propelled machines, and purchases of implements are less likely to be deferred in times of economic uncertainty, somewhat dampening cyclical swings in demand. Sales of replacement parts accounted for approximately 14% of the Agricultural Products Group's revenue in 1998. In order to maintain and expand their market position, the divisions of the Agricultural Products Group continually update and improve their product offerings. This is done through a combination of internal development and external acquisition of technology. Contributing to Bush Hog's record sales in 1998 were several new products released during the past twenty-four months. Products of major significance were a series of five, six, seven and eight-foot rotary cutters, which received widespread customer acceptance. A new line of backhoes, which are used by farmers and contractors, was released in 1998, and also gained widespread customer acceptance. The introduction of the acquired Universal Turf product line under the Bush Hog-Registered Trademark- name complemented the revolutionary new mulching mower which Bush Hog introduced to the golf industry in 1998. A network of forty turf product distributors has been established to market the broadened line of turf maintenance products. Other products that were developed in 1998 and are expected to generate substantial sales in 1999 include an eight-foot mulching mower, a new line of five, six, and seven-foot economy rotary cutters, and a new line of zero-turn mowers for use by homeowners and landscape mowing contractors. Zero-turn mowers were previously outsourced from other manufacturers. The new line of zero-turn mowers will be manufactured by Bush Hog at its Selfield manufacturing operation in Selma, Alabama. In keeping with Bush Hog's philosophy of being among the industry leaders in new product introductions, currently twenty-eight new product or product enhancement projects are scheduled for release during the next twenty-four months. MARKETING. Bush Hog and Great Bend market their products, except for commercial turf and golf course mowing equipment, through commissioned manufacturer's representatives, operating as independent contractors within defined territories. The Bush Hog sales force consists of fifty-eight representatives and the Great Bend sales force consists of thirty representatives. None of the 2 total eighty-eight representatives market both lines. The manufacturer's representatives call on dealers located within their territories which have been approved to carry either Bush Hog-Registered Trademark- or Great Bend product lines. In all, there are approximately 2,600 Bush Hog-Registered Trademark- dealers and 1,000 Great Bend dealers. In general, the dealers are independent, local businessmen who have an established local clientele developed over the years and represent almost 50% of the total farm equipment dealerships in the United States and Canada. The Bush Hog-Registered Trademark- brand name is particularly strong in the southeastern and southwestern states while the Great Bend name is strong in the southwestern, high plains, and portions of the Midwestern states. Bush Hog has also contracted with independent distributors to market commercial turf and golf course mowing equipment within defined territories. To balance the seasonal variations in its production cycles, both Bush Hog and Great Bend provide incentives for off- season purchases, including extended payment terms to dealers in the form of floor plan financing. A security interest is maintained on this floor-planned equipment. Under certain state and provincial statutes, a dealer may return floor plan equipment to a manufacturer upon termination of the dealership. Bush Hog services its network of dealers through three manufacturing facilities and eight service parts distribution centers strategically located in the United States and Canada. Great Bend services its dealer network through its manufacturing facility in Great Bend, Kansas. COMPETITION. Competition for the type of equipment sold by Bush Hog and Great Bend includes the major line manufacturers of tractors and landscape equipment, along with several hundred companies producing one or more models of shortline farm or landscape implements and machinery. Price, quality, service and availability are all factors in brand selection. The objective of Bush Hog and Great Bend is to be a low cost producer of high quality products. To do this they continue to modernize their facilities to improve efficiency. INDUSTRY. The agricultural equipment industry in North America is a mature industry engaged in producing replacement equipment for a declining number of farmers. It is dominated by a small number of major line manufacturers, which market a full range of farm machinery, including tractors, grain combines and various implements through their own dealer organizations and account for approximately 60% of the dollar volume of industry shipments. The remaining 40% of the market is shared by approximately 700 companies that generally concentrate their production on shortline implements such as plows, harrows, cultivators, livestock equipment, grain handling equipment or hay equipment. INDUSTRIAL PRODUCTS GROUP PRODUCTS. The Verson division manufactures a broad line of both medium and large technologically advanced mechanical and hydraulic metal forming presses. These products are used in the manufacture of components for the automotive, appliance, office equipment, farm equipment, ordnance, aerospace and general metal working industries. A transfer press is a specialized mechanical press that combines a series of operations by transferring a work piece from one station to another inside of a single press. Each station in the press has a separate die that is individually adjustable. This process allows all operations, from initial draw to finished product, to take place in one press, resulting in increased output and reduced labor expense. Prices vary by type and size. Size categories for transfer presses range from "A" (largest) to "D" (smallest). An "A" transfer press is generally 13 to 15 feet wide, 80 to 90 feet long and stands four stories tall. By comparison, a "B" transfer press is approximately 10 feet wide, 60 feet long and four stories tall. The difference between these machines is the component part size they stamp. Investment in a large transfer press can range from $15-$35 million. Approximately 10-15% of Verson's revenue was generated by customer special services. Items included in the special services area are: repair parts, complete remanufacturing of used presses, contract machining and manufacturing, die consultation and training. In addition to the fabrication and machining of components, Verson provides complete tooling and engineering services necessary for turnkey systems. 3 Complimenting the manufacturing of presses by Verson, a new division of Allied Products, Precision Press Industries (PPI), began operation in November 1997. PPI is engaged in the fabrication of large components weighing up to 240,000 pounds and is located in a 40,000 square foot facility in Hobart, Indiana. The Company believes PPI uses some of the most sophisticated welding machinery and processes available. Supplier agreements, production scheduling and control methods enable PPI to work in a just-in-time format. Extensive employee training and ongoing process documentation activities are intended to provide that PPI operates in accordance with ISO9000 guidelines. The division currently does work exclusively for the Verson division, but retains the capability to perform custom fabrication work for third party customers. During the fourth quarter of 1998, the Company announced that its Verson division formed a joint venture with Theodor Grabener GmbH & Co. KG of Germany and Automatic Feed Company of Napoleon, Ohio, that will help the two American companies more effectively penetrate the European market for large stamping presses and related systems. The new entity, Verson Pressentechnik GmbH, is located in Netphen-Werthenbach, Germany, and is expected to benefit from the resources of the Grabener group of companies. The joint venture, in which Verson holds a 60% stake, will act as the main commercial and technical support arm for the activities of both Verson and Automatic Feed in Europe. Its European staff will have the responsibility of marketing Verson and Automatic Feed products to customers throughout Europe. Drawing on the strengths of the Grabener group of companies, the joint venture also will assist in customizing Verson and Automatic Feed equipment to meet the requirements of European customers, and it will provide ongoing training and service support once the equipment is up and running at a customer's plant. On October 14, 1997, the Company sold its Coz division. Coz provided a complete line of thermoplastic resins and related services to the plastic molding and extrusion industry. MARKETING. Verson's marketing group department is headed by a Vice President of Marketing and Sales, with responsibility for all Verson products and services. Verson sells and promotes its products by using a direct sales force that concentrates in strategically significant markets and contract representatives which focus on lower volume potential markets. Verson's major customers are the U.S. automobile manufacturers (both U.S. and foreign owned) and first and second tier automotive parts producing companies, which, on average, account for approximately 85% of Verson's annual revenue. The other major market served by Verson is the appliance industry where the division's customers include all major brand names. The Company believes Verson is the technology leader, having designed the world's first transfer press in 1939, the world's first electronic feed in 1981, a cross bar feed in 1992 which significantly improves production, and most recently, a Dynamic Orientation-Registered Trademark- system which further improves production and saves space. COMPETITION. There are only a few companies in the world that supply large transfer press systems similar to those provided by Verson. Verson is now the only American owned company competing in this upper end segment. Principal competition comes from German and Japanese manufacturers. Press manufacturers compete on the basis of technology, capability, reliability and price. The barriers to entry for new competitors are high due to the large capital expenditures required. INDUSTRY. Domestic automobile manufacturers are seeking to become more cost-effective by requiring quality parts, implementing just-in-time concepts, obtaining price reductions from suppliers, redesigning cost out of automobiles, and restructuring and automating their manufacturing processes. Demand from the appliance industry remains strong as the major manufacturers seek to increase capacity, reduce costs and gear up to produce water conserving clothes washers. The Company believes the Verson division is in a strong position to capitalize on major retooling and modernization programs as they come on stream. The second wave of this demand is being felt now as the major suppliers to the automakers convert to new technology. In response to these market factors and an unprecedented incoming order rate in 1994, the Verson division completed a 40,000 square foot expansion of its assembly facilities in 1995. An additional 117,000 square foot expansion of its assembly facilities was completed at the end of 1998. These additions have and will significantly expand the division's capacity for manufacturing large transfer presses. SALES BACKLOG Sales backlog as of December 31, 1998 was $180,617,000 compared to $204,988,000 at December 31, 1997. Over 80% of the backlog orders are expected to be filled prior to the end of 1999. EMPLOYEES Allied Products currently employs approximately 1,800 individuals. Approximately 30% of Allied Products' employees are represented by a union. RAW MATERIALS AND SOURCES OF SUPPLY The principal raw materials used by all of the Company's manufacturing operations include steel and other metals and purchased components. During 1998, the materials needed by Allied Products generally were available from a variety of sources in adequate quantities and at prevailing market prices. No one supplier is responsible for supplying more than 10% of the principal raw materials used by Allied Products. PATENTS, TRADEMARKS AND LICENSES Allied Products owns the federally registered trademarks "Bush Hog," which is used on its agricultural, landscape, and turf and golf course equipment, "Verson," which is used on its metal forming presses, and "ETF", "MultiMode" and "Dynamic Orientation" which are used on the electronically controlled transfer feeds manufactured by the Verson division. Allied Products considers each of the above registered trademarks to be material to its business. While Allied Products believes that the other trademarks used by each of its operations are important, none of the patents, licenses, franchises or such other trademarks are considered material to the operations of its business. 4 MAJOR CUSTOMERS Approximately 26%, 31% and 39% of the Company's net sales in 1998, 1997 and 1996, respectively, were derived from sales by the Industrial Products Group to the three major U.S. automobile manufacturers. With the exception of the three major automobile manufacturers, no material part of Allied Products' business is dependent upon a single customer. SEASONALITY Retail sales of and cash collected for farm equipment tend to occur during or just preceding the use seasons previously described. Sales and cash receipts for the other divisions are not affected by seasonality. ENVIRONMENTAL FACTORS Reference is made to Note 10 of Notes to Consolidated Financial Statements regarding environmental factors and matters. FORWARD-LOOKING STATEMENTS Some of the information contained in the above discussion may contain forward-looking statements that are subject to certain risks, uncertainties and assumptions. Such forward-looking statements are intended to be identified in this document by the words "anticipate," "expect," "estimate," "objective," "possible" and similar expressions. Actual results may vary. Reference is made to the "Safe Harbor Statement" contained under Item 7--Management Discussion and Analysis of Financial Condition and Results of Operations. 5 EXECUTIVE OFFICERS OF THE COMPANY The following table sets forth the names and ages of the Company's Executive Officers, together with all positions and offices held with the Company by such officers as of March 31, 1999.
Name Position with Allied Products Age ---- ----------------------------- --- Richard A. Drexler............ Chairman, President and Chief Executive Officer 51 Bobby M. Middlebrooks......... Senior Vice President 63 Robert J. Fleck............... Vice President-Accounting, Chief Accounting and Administrative Officer 51 Mark C. Standefer............. Vice President, General Counsel and Secretary 44
No family relationships exist among the executive officers, however, Mr. Richard A. Drexler is the son of Lloyd A. Drexler, a director of the Company. In early 1999, Richard W. Metzger resigned from the Company. Each executive officer has been employed by Allied Products for over 10 years. Pursuant to Allied Products' By-laws, each officer is elected annually by the Board of Directors. Mr. Drexler, who became Chairman in 1993, has been President and a Director of Allied Products since 1982 and has been Chief Executive Officer since 1986. Mr. Drexler served as Acting Chief Financial Officer from 1991 to 1992, Chief Financial Officer from 1989 to 1990 and Chief Operating Officer from 1981 to 1986. He was also Chief Financial Officer from 1977 to 1987. Prior to becoming President, Mr. Drexler served as Executive Vice President, Senior Vice President of Administration, Vice President of Administration, Staff Vice President-Development, and Director of Planning. Mr. Drexler is also acting Chairman and Chief Executive Officer of the Verson division of the Industrial Products Group. Mr. Middlebrooks has been Senior Vice President since 1985 and was Vice President of Allied Products from 1984 to 1985 in charge of the former Agricultural Equipment Group. Prior to that, he was President-Bush Hog Implements Division. He joined Bush Hog in 1955. Mr. Fleck has been Vice President-Accounting since 1985, Chief Accounting Officer since 1986 and Chief Administrative Officer since 1997. From 1983 to 1985 he was Staff Vice President-Accounting and prior to that he served as Corporate Controller and in various other accounting positions for Allied Products. Prior to joining Allied Products in 1974, he was an internal auditor with Marquette Cement Company, a national cement manufacturing company. Mr. Standefer was elected Vice President, General Counsel and Secretary in 1997. From 1995 to 1997 he was Staff Vice President, Assistant General Counsel and Assistant Secretary, and from 1986 to 1995 Assistant General Counsel and Assistant Secretary. Mr. Standefer joined Allied Products in 1984 as Staff Attorney. Prior to joining Allied Products, he was Staff Attorney for Sun Electric Corporation. 6 ITEM 2. PROPERTIES Allied Products leases one and owns five manufacturing facilities in four states for the production of its various products and maintains warehouse facilities in various locations throughout the United States and Canada. Management is of the opinion that all facilities are of sound construction, in good operating condition and are adequately equipped for carrying on the business of the Company. Operations of the Agricultural Products Group are conducted in Selma and Opp, Alabama and Great Bend, Kansas in three owned facilities and one leased facility containing approximately 940,000 square feet in total. The group also maintains several leased facilities in various states and Canada which are used as warehouses and parts depots. Operations of the Industrial Products Group are conducted in Chicago, Illinois and Hobart, Indiana in owned facilities containing approximately 561,000 square feet. In addition, a small office located in Netphen-Werthenbach, Germany is being leased by Verson Pressentechnik. ITEM 3. LEGAL PROCEEDINGS Reference is made to Note 10 of Notes to Consolidated Financial Statements with respect to the Company's involvement in legal proceedings as a defending party. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 7 PART II ITEM 5. MARKET PRICE OF THE COMPANY'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS The Company's common stock is listed on the New York and Pacific Stock Exchanges. The price range of the common stock on the New York Stock Exchange, as adjusted for the three-for-two stock split effected on August 15, 1997, is as follows:
Beginning of 1998 Year End of Year 1998 Qtr High Low Dividend - - ------------------------------------------------------------------------------------------------------------------------------ Common $24 $6 5/16 1 $25 3/16 $20 1/4 $.0400 - - ------------------------------------------------------------------------------------------------------------------------------ 2 24 3/4 20 1/16 .0400 - - ------------------------------------------------------------------------------------------------------------------------------ 3 22 7/8 6 3/16 .0400 - - ------------------------------------------------------------------------------------------------------------------------------ 4 8 7/8 5 7/8 .0400 - - ------------------------------------------------------------------------------------------------------------------------------ Beginning of 1997 Year End of Year 1997 Qtr High Low Dividend - - ------------------------------------------------------------------------------------------------------------------------------ Common $19 13/16 $24 1 $21 13/16 $18 1/2 $.0333 - - ------------------------------------------------------------------------------------------------------------------------------ 2 23 5/16 18 9/16 .0333 - - ------------------------------------------------------------------------------------------------------------------------------ 3 26 21 3/16 .0400 - - ------------------------------------------------------------------------------------------------------------------------------ 4 27 23 1/4 .0400 - - ------------------------------------------------------------------------------------------------------------------------------
As of March 31, 1999, the approximate number of holders of record of the Company's common stock ($.01 par value) was 2,200. The Company paid no dividends from 1982 until 1995. Restrictions from paying dividends were removed in 1995. Subsequent to the end of 1995, the Company increased its quarterly dividend from $.0167 per share to $.0333 per share. During the third quarter of 1997, the Company increased its quarterly dividend to $.04 per share. Subsequent to the end of 1998, dividend payments are limited to $2,000,000 per year under the Second Amended and Restated Credit Agreement and the First Amendment and Waiver to the Credit Agreement -- see Note 5 of Notes to Consolidated Financial Statements. ITEM 6. SELECTED FINANCIAL DATA
1998 1997 1996 1995 1994 ---------------- ---------------- ---------------- ---------------- ---------------- Net sales from continuing operations....................... $273,834,000 $270,562,000 $274,414,000 $260,861,000 $215,529,000 Income (loss) from continuing operations....................... $(14,113,000) $ 15,646,000(C) $ 16,089,000(C) $ 33,989,000 $ 19,687,000 Earnings (loss) per common share (diluted) from continuing operations (A)(B)................ $(1.19) $1.27(C) $1.17(C) $2.34 $1.28 Total assets........................ $275,804,000 $195,064,000(C) $172,509,000(C) $167,303,000(C) $150,555,000 Long-term debt (including capitalized leases and redeemable preferred stock)...... $ 2,298,000 $ 670,000 $ 489,000 $ 315,000 $ 12,130,000 Cash dividend declared per common share (A)................. $.16 $.147 $.133 $.05 $- - - -----------------------
(A) Restated prior to 1997 to reflect the effect of a three-for-two stock split in 1997. (B) Restated prior to 1997 to reflect the effect of adopting SFAS 128-Earnings per Share - in 1997. (C) Restated - See Note 1 of Notes to Consolidated Financial Statements The accompanying Notes to Consolidated Financial Statements are an integral part of this summary. 8 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Subsequent to the end of 1998, the Company determined that the accounting for certain stock option exercise transactions during 1996 and 1997 was incorrect. Non-cash compensation expense for certain option exercises during 1996 and 1997 which was not recognized in previously issued financial statements is now reflected in the accompanying restated financial statements. The Company also determined that gross profit margins at the Verson division of the Industrial Products Group were incorrectly reported in 1997 as noted below. Reference is made to Note 1 of Notes to Consolidated Financial Statements for a reconciliation of the amounts previously reported to the amounts currently being reported in the consolidated statements of income (loss) for the years ended December 31, 1997 and 1996. Reference is also made to Note 13 of Notes to Consolidated Financial Statements regarding the reconciliation of amounts previously reported to the amounts currently being reported in the quarterly consolidated statements of income (loss) for the years ended December 31, 1998 and 1997. It was further determined that the Company should have accrued for product liability claims incurred but not reported prior to 1996. The product liability adjustment ($1,040,000 net of tax) had no impact on operating results reported on within this report and is reflected as an adjustment to retained earnings at December 31, 1995. OPERATING RESULTS Reference is made to Note 11 of Notes to Consolidated Financial Statements regarding the disclosure of segmental information with respect to the Company's operations. The Company's operations consist of two business segments, the Agricultural Products Group and the Industrial Products Group. The Agricultural Products Group consists of the Company's Bush Hog division (including products manufactured by Universal Turf which was acquired in 1998) and the recently acquired Great Bend division. Since the sale of the Company's Coz division in 1997, the Industrial Products Group consists of the Company's Verson, Precision Press Industries (PPI) and Verson Pressentechnik operations. PPI was established in the fourth quarter of 1997 and is engaged in the fabrication of large components for the Verson division. In October 1998, the Company's Verson division formed a joint venture with Theodor Grabener GmbH & Co. KG of Germany and Automatic Feed Company of Napoleon, Ohio, that will help the two American companies more effectively penetrate the European market for large stamping presses and related systems. The new entity, Verson Pressentechnik GmbH, is located in Netphen-Werthenbach, Germany. 1998 COMPARED TO 1997 Net sales for 1998 were $273,834,000 compared to net sales of $270,562,000 reported in 1997. Loss before taxes in 1998 was $21,643,000 compared to income before taxes of $24,835,000 in 1997. The net loss in 1998 was $14,113,000 ($1.19 per diluted share) versus net income of $15,646,000 ($1.27 per diluted share) in 1997. Within the Agricultural Products Group, net sales in 1998 increased to $136,814,000 from $119,471,000 in 1997. Approximately half of the increase was related to the acquisitions of the Great Bend and Universal Turf operations in the second quarter of 1998. The remainder of the increase was principally associated with increased cutter sales by the Bush Hog division to cattle ranchers, particularly in the first half of the year. Cattle ranchers use the cutters for grazing pasture maintenance. Cutter sales in 1998 were also favorably affected by new/redesigned products for the turf and landscaping market for utilization by commercial turf (sod) growers and by golf courses for maintenance. During the last half of 1998, sales were negatively affected by lower prices for major crops (corn, wheat, soybeans) and livestock commodities (cattle and hogs), which reduced farm income. Strong crop yields in the Midwest and fewer exports are expected to keep crop and livestock prices at a low level in 1999. Within the Agricultural Products Group, income before taxes decreased slightly in 1998 compared to the prior year. Gross profit margins decreased slightly in 1998. Decreases were principally related to increased discounts offered to dealers and the impact of the mix of products sold. These decreases were partially offset by favorable manufacturing variances resulting from increased facility utilization and increased labor efficiencies at the Bush Hog division in 1998 and the effect of increased sales volume noted above from the acquisitions of Great Bend and Universal Turf. Selling and administrative expenses increased in 1998 within the Agricultural Products Group compared to the prior year. The majority of the increase related to the acquired operations of Great Bend and Universal Turf. Other increases were associated with increased commissions (due to increased sales volume) and advertising costs in 1998. Within the Industrial Products Group, sales decreased in 1998 to $137,020,000 compared to net sales of $151,091,000 reported in 1997. The entire decrease was related to the loss of revenue from the Coz division which was sold in the early part of the fourth quarter of 1997. Revenue and profits are recognized on a percentage of completion basis at the Verson division. Loss before taxes for the Industrial Products Group was $23,129,000 in 1998 compared to income before taxes of $16,584,000 in 1997. Operating results in 1998 and 1997 were favorably affected by the Company's recovery of a claim associated with prior periods. During 1996, 1997 and 1998, the Company's Verson division received three major orders for automated, multi-station stamping presses, each of which contained significant new features Verson had not previously 1 manufactured. Two of the major orders were for the design and manufacture of several automated, multi-station stamping presses incorporating a new state-of- the art "three-slide" design. Verson believes that it is the first manufacturer to design and manufacture a stamping press incorporating this design. These orders were to be completed over a three-year period from 1997 through 1999 and involved projected revenues of approximately $190 million. When added to Verson's other press business, the orders severely strained Verson's then existing press manufacturing capacity. While the Company took steps during 1997 and 1998 to expand Verson's facility, hire more engineering and manufacturing staff and increase its total capacity, the expansion was not completed early enough to alleviate production scheduling difficulties. In addition, Verson experienced significant difficulties during 1998 in the manufacturing of the presses under these three orders in a timely and cost effective manner. These manufacturing delays in turn caused delays and additional costs in the manufacture of presses in 1998. As described below, difficulties primarily associated with the manufacture of presses under the three orders described above and the resulting stresses on manufacturing capacity caused Verson and the Company to incur losses in 1998. These difficulties are expected to continue to have a negative impact on earnings in 1999 and to a lesser extent, in 2000. Verson began work in 1997 on the two presses covered by the first order. In February 1998, Verson significantly revised its cost estimates on the presses in view of difficulties experienced in manufacturing the presses during 1997. The revision of the cost estimates made in February 1998 ($5,300,000) should have been reflected in the Company's 1997 financial statements, which were restated accordingly. By the third quarter of 1998, the first of these presses was assembled and was in the final test phase. In the testing process, the electronic controls furnished by subcontractors proved to be incompatible, causing the press to physically crash on more than one occasion, resulting in extensive damage to the press and requiring replacement of many press components. The crashes caused a significant escalation in Verson's costs and resulted in a production bottleneck, delaying the work on the presses being manufactured behind it and requiring Verson to incur overtime and increase the amount of work subcontracted out rather than done in house. Also during the third quarter of 1998, while the presses to be manufactured pursuant to the last two of the three major orders were still in a preliminary stage, Verson significantly revised its cost estimates on the presses to be manufactured under two of the three orders. As a consequence, the Company announced the recognition of a pretax charge of approximately $16,000,000. Approximately $5,300,000 of this charge was subsequently recorded in 1997 as noted above. In the fourth quarter of 1998, events of the third quarter continued to have a significant negative impact on costs to complete projects. Given these ongoing circumstances and concern over further escalation of costs, Verson undertook a comprehensive review of the compilation of costs and revenue recognition associated with each press in relation to revised delivery schedules, current estimated costs to complete the presses in production and available manufacturing capacity. Verson recorded additional changes to cost estimates of approximately $21,000,000 to reflect the recognition of estimated losses on certain orders in process and a revision of estimated costs on other orders. The Company restated its financial statements for the first three quarters of 1998. Reference is made to Note 13 of Notes to Consolidated Financial Statements. Verson's backlog as of December 31, 1998, composed of revenues to be recorded in future years on orders received, included revenues of approximately $50,000,000 on orders for which estimated losses were recorded in 1998 and on which no gross margin is expected to be recognized in 1999 and 2000. Uncertainties associated with these contracts make it reasonably possible that additional losses could occur. The December 31, 1998 backlog for Verson also included future revenue of approximately $95,000,000 to be recorded principally in 1999 for which Verson anticipates gross margins lower than historical levels. In view of the difficulties in estimating costs encountered by Verson in 1998, the Company has determined that on press orders where margin levels could not be reasonably estimated, the Company will not recognize any gross profit margin until the particular press in process reaches a point in production where the gross profit margin can be reasonably estimated. Reference is made to Note 1 of Notes to Consolidated Financial Statements - Revenue Recognition and Inventories. This method of accounting for gross margins on presses will be continued until such time as Verson is satisfied that its methods of estimating costs have been validated. The backlog of low margin and no margin work in process as of December 31, 1998 will have a substantial negative effect on Verson's earnings in 1999 and, to a lesser extent, in 2000. In addition, the deferral of the recognition of gross margins until the later stages of the production of a press may result in fluctuations in quarter-to-quarter results. Because of the difficulties Verson encountered in 1998, Verson has failed to meet delivery date requirements provided in several press orders. Verson incurred penalties of approximately $1.2 million in 1998 as a result of delays in shipments and expects that it may receive additional claims for significant penalty payments or damages in 1999 and 2000. Reference is made to Note 10 of Notes to Consolidated Financial Statements. The Company's difficulties in completing orders during 1998 could adversely affect its relationships with one or more of its customers and therefore could have a negative impact on the Company's ability to obtain future business from such customers. Selling and administrative expenses increased within the Industrial Products Group in 1998 due to staff 2 expansions in these areas at the Verson division. During 1997, Verson established an international sales and marketing department, resulting in increased salaries and travel costs. Corporate expenses consisted primarily of administrative charges and other (income) expense. Administrative expenses decreased due to a reduction in staffing levels, the subleasing of a portion of the Corporate Office during 1998 and decreased compensation expense related to stock option exercises -- see Note 11 of Notes to Consolidated Financial Statements. Reference is made to Note 12 of Notes to Consolidated Financial Statements for an analysis of other (income) expense in 1998 and 1997. Interest expense in 1998 was $6,201,000 compared to interest expense of $3,306,000 in the prior year. Increased borrowing needs were related to higher consolidated receivable levels (associated with increases at all manufacturing operations of the Company) and increased inventory levels (primarily associated with the Verson division where orders for a total of 9 multi-station transfer presses are currently in production and shipment and production delays have occurred). Other borrowing needs include fixed asset additions over the past year ($38,837,000 including the Verson plant expansion), the acquisitions of Great Bend and Universal Turf in the second quarter of 1998 and the impact of the stock buyback program from the prior years. Interest expense in 1998 was partially offset by the capitalization of $979,000 of interest costs relating to the Company's building expansion project at the Verson division. Reference is made to Note 4 of Notes to Consolidated Financial Statements for an analysis and explanation of the current and deferred provision (benefit) for income taxes in 1998 and 1997. 1997 COMPARED TO 1996 The Company's net sales in 1997 were $270,562,000 compared to net sales of $274,414,000 in 1996. The decrease in consolidated net sales in 1997 was associated with the effects of the sale of the Coz division as noted above. Net sales of the Coz division for 1997 were $11,000,000 less than net sales of the prior year. Income before taxes in 1997 was $24,835,000 compared to income before taxes of $25,223,000 for the prior year. Net income in 1997 was $15,646,000 ($1.27 per diluted share) compared to net income of $16,089,000 ($1.17 per diluted share) in 1996. Earnings per common share and weighted average shares outstanding for 1996 have been adjusted to reflect the effects of a three-for-two stock split which occurred during the third quarter of 1997. Net sales within the Agricultural Products Group increased to $119,471,000 in 1997 compared to net sales of $108,355,000 in 1996. The majority of the increase was associated with the cutter and loader product lines. Sales increases in the cutter and loader product lines were associated with the upturn in cow/calf prices in the spring of 1997. Cattle ranchers use the cutters and loaders for grazing pasture and feed lot maintenance, respectively. Cutter sales were also favorably affected by new/redesigned products introduced in prior years aimed at the turf and landscaping market for utilization by commercial turf (sod) growers and for maintenance of golf courses. Service parts sales also increased in 1997. Gross profits and gross profit margins increased within the Agricultural Products Group in 1997 compared to the prior year. Approximately half of the increase in the gross profit was associated with the increased sales volume discussed above. The improved gross profit margin resulted primarily from continued improvements in the manufacturing process resulting in greater direct labor efficiencies and better control of overhead costs. The group also benefitted from increased facility utilization during 1997. Selling and administrative expenses decreased within the Agricultural Products Group in 1997. These decreases were associated with a commission rate decrease in 1997 and lower advertising costs. At the Industrial Products Group, net sales decreased to $151,091,000 in 1997 compared to net sales of $166,059,000 reported in 1996. The decrease in net sales was associated with the effects of the disposition of the Coz division in the fourth quarter of 1997 and lower revenue recognized on press production at the Verson division due to the mix of products in process during each respective year. Revenue and profits are recognized on a percentage of completion basis for press production at the Verson division. During the first quarter of 1997, production was completed on the last press of an order for three "A" size transfer presses for Chrysler. The first two presses related to this order were produced and shipped in 1996. Production in 1997 reflected a smaller portion of production against this order and a larger portion of production related to smaller presses with lower margins. Production was also affected in 1997 by a four week strike in the middle of the year. Production continued on a limited basis during the strike through the use of supervisory employees. Gross profits and gross profit margins decreased within the Industrial Products Group in 1997 compared to 1996. The decrease in gross profits and gross profit margins was primarily associated with decreased facility utilization at the Verson division in 1997. Production hours decreased by 14% in 1997 due to the effects of the impact of outsourced production, a four week strike and the mix of products manufactured as noted above. Also impacting gross profits and margins were increased overtime costs necessary to meet delivery schedules following the strike and costs associated with a program undertaken to identify improvements in the manufacturing process. These cost increases were offset in part by the recovery of a claim associated with prior periods and lower warranty costs. Selling and administrative expenses increased within the Industrial Products Group in 1997. These increases included the effect of the establishment of an international sales and marketing department at the Verson division 3 during 1997 resulting in personnel and travel cost additions. Administrative staffing levels were also increased at this operation during 1997. These increases were partially offset by the effect of the sale of the Coz division as noted above. Corporate expenses consisted primarily of administrative charges and other (income) expense. Administrative expenses decreased due to a reduction in compensation expenses related to stock option exercises -- see Note 11 of Notes to Consolidated Financial Statements. Reference is made to Note 12 of Notes to Consolidated Financial Statements for an analysis of other (income) expense in 1997 and 1996. Interest expense in 1997 increased to $3,306,000 from $1,557,000 in the prior year. Increased borrowing needs were associated with the Verson division where the number of presses in process increased and the division was awaiting final payment on presses being installed. The Company also purchased over $21,500,000 of treasury stock during 1997 as a part of a program to purchase up to 2,250,000 shares of the Company's common stock. Reference is made to Note 4 of Notes to Consolidated Financial Statements for an analysis and explanation of the current and deferred provisions for income taxes in 1997 and 1996. FINANCIAL CONDITION 1998 Working capital at December 31, 1998 was $(14,955,000) and the current ratio was .92 to 1.00. Net accounts receivable increased by $14,098,000 since the end of 1997. Approximately two-thirds of this increase was related to the Agricultural Products Group. Receivable levels within this group have been impacted by the overall downturn in the agricultural economy in the United States brought about by lower commodity prices, excess grain inventory levels and decreased exports of grain, particularly to the far eastern countries. These economic factors have led to decreased agricultural equipment sales by dealers and, in turn increased dealer receivable levels. Other factors leading to increased receivables within the Agricultural Products Group include record sales to dealers by the Bush Hog division and the effect of the acquisitions of the Great Bend and Universal Turf operations during 1998. The remainder of the net receivable increase was associated with the Industrial Products Group where a large press order was shipped in the last quarter of 1998. Net inventory levels increased by $23,421,000 during 1998. Approximately 30% of this increase was related to the Agricultural Products Group. Cutter sales at the Bush Hog division decreased in the last half of 1998 beyond production expectations resulting in increased inventory levels. The previously mentioned acquisitions in 1998 also contributed to the group's inventory level increase. Within the Industrial Products Group, inventory levels also increased as a large number of presses were in production at the end of 1998. Fixed asset additions ($38,837,000) included construction costs associated with an assembly building expansion project at the Verson division. The project approximately doubled the size of Verson's assembly facility and is expected to increase the division's assembly capacity by approximately 30%. A new powder paint system was installed at the Bush Hog division during 1998. The system is expected to result in a higher quality finish on equipment manufactured and overall reduced paint costs and environmental emissions. Remaining capital expenditures included improved production machinery and equipment, which are expected to result in reduced manufacturing costs and improvements in product quality, and upgrades in computer hardware and software. Funds to finance these additions include borrowings under the Amended and Restated Credit Agreement. Other than the sale of the former White-New Idea facility in Coldwater, Ohio (which had been leased to the purchaser of the operation since 1994), there were no major asset dispositions in 1998. The changes in the net deferred tax assets (classified as both current and other assets) were associated with changes in timing differences between book and tax income. The Company continued to evaluate the appropriateness of the net deferred tax asset valuation allowance associated with net operating loss and tax credit carryforwards, particularly in light of current operating results. Such evaluation is performed periodically in conjunction with the Company's periodic financial reporting. Reference is made to Note 4 of Notes to Consolidated Financial Statements regarding the Company's current tax position. Net borrowings under the Amended and Restated Credit Agreement increased by $68,900,000 since the end of 1997. These borrowings were used to finance working capital needs and fixed asset additions as described above, the acquisitions of the Great Bend and Universal Turf operations and the purchase of approximately 145,000 treasury shares during 1998. During 1998, the Company completed the purchase of treasury shares under a plan announced in 1996 to purchase 2,250,000 shares of common stock. During the third quarter of 1998, the Company announced the authorization to purchase an additional 500,000 shares, of which approximately 74,000 shares have been purchased through the end of 1998. Subsequent to the end of 1998, the Company entered into a Second Amended and Restated Credit Agreement and a subsequent amendment thereto -- see Note 5 of Notes to Consolidated Financial Statements -- replacing the then current Amended and Restated Credit Agreement. Under the terms of the new agreement, the purchase of additional shares of the Company's common stock is not permitted. 1997 Working capital at December 31, 1997 was $46,213,000 and the current ratio was 1.48 to 1.0. Net accounts receivables increased by $1,815,000 in 1997. Within the Agricultural Products Group, net receivables increased by approximately $7,000,000 in 1997. Net sales levels increased to record levels in 1997, including an increase in net sales of over 20% in the fourth quarter, resulting in increased receivable levels at the end of 1997. Within the Industrial Products Group, net receivables 4 decreased in 1997. The majority of the decrease was related to the sale of the Coz division as noted above. On a consolidated basis, net inventories increased by $16,633,000 in 1997. Agricultural Products Group inventories decreased slightly in 1997. Within the Industrial Products Group, inventories increased by over $17,000,000 in 1997. The entire increase was associated with the Verson division. While the level of accumulated costs of presses in process decreased at the end of 1997, the level of customer deposits and progress payments decreased by a greater amount (over $36,000,000) at the end of 1997, resulting in a net increase in the work in process inventory level. The above noted increase was partially offset by the effects of the sale of the Coz division as noted above. Fixed asset additions ($15,334,000) included the purchase of a 40,000 square foot facility for the PPI division (for manufacturing capabilities and the opportunity to expand the Verson business with the manufacturing of other related equipment), the upgrade of the Verson engineering area and new machinery and equipment at the Bush Hog and Verson operations (to reduce manufacturing costs and improve product quality). During the fourth quarter of 1997, the Company announced a $28,000,000 capital expansion project as part of a three-year program to increase production capacity at the Verson division. This project more than doubled the size of Verson's assembly facility and is expected to increase the division's capacity by approximately 30%. This expansion was completed at the end of 1998. Funds to finance these additions include borrowings under the Amended and Restated Credit Agreement. Other than the sale of the Coz division (cash proceeds in excess of $14,700,000), there were no major asset dispositions in 1997. The changes in the net deferred tax assets (classified as both current and other assets) were associated with changes in timing differences between book and tax income. The continued earnings history of the Company and prospects for future earnings makes it more likely than not that the Company will utilize the benefits arising from the deferred tax assets noted above. See Note 4 of Notes to Consolidated Financial Statements. Net borrowings under the Amended and Restated Credit Agreement increased by $23,400,000 since the end of 1996. These borrowings, along with the proceeds from the sale of the Coz division and internally generated cash, were used to finance working capital needs and fixed asset additions described above and the purchase of approximately 975,000 treasury shares during 1997. Through the end of 1997, the Company had purchased approximately 2,182,000 shares of its common stock under the 1996 authorization to repurchase up to 2,250,000 shares of the common stock. Some treasury shares purchased have been reissued upon the exercise of stock options. During the third quarter of 1997, the Company's Board of Directors authorized a three-for-two stock split for stockholders of record on August 15, 1997. The Board also authorized a dividend increase of 20% over the second quarter's dividend. LIQUIDITY AND CAPITAL RESOURCES At the end of 1998, the Company's sales backlog was $180,617,000. The majority of this amount was related to the Industrial Products Group and consists of orders for new presses as well as revenue not yet recorded representing the uncompleted portion of presses currently being manufactured. Production against these orders (and orders received subsequent to the end of 1998) extends out to the middle part of 2000. Accumulated production costs of these orders are not invoiced until shipment of the related press. Orders for new presses recorded in 1998 exceeded $100,000,000 and a significant portion of the new orders were accompanied by deposits and/or progress payments. Cash requirements for these new press orders will be less dependent on internally generated cash and borrowings under current loan arrangements. However, the production and delivery of many press orders currently in process have been delayed by numerous factors including late delivery of subcontracted and internally manufactured components, capacity constraints in the assembly area related to the number of presses in this phase of production and revised delivery schedules at the request of customers. These situations will result in delayed invoicing of the presses and final collection of amounts due as well as the possible cancellations of orders, imposition of penalties or claims for damages under certain contracts. Within the Agricultural Products Group, cash collections associated with machine sales are generally dependent upon the retail sale of the product by the dealer. Extended payment terms are offered in the form of floor plan financing which is customary within the industry. Net farm cash income decreased in 1998 as prices for major crops (corn, wheat, soybeans) decreased. This condition was brought about by strong crop yields in the Midwest and a significant reduction in commodity exports to the Far East. Livestock (cattle and hogs) prices also decreased during 1998. Extreme weather conditions (flooding in California, severe drought in Texas and Oklahoma and moderate drought conditions in the South) also resulted in lower crop yields and loss of income to farmers during 1998. The Company expects farm income to continue to decline in 1999 despite a recently enacted emergency government aid package and anticipates that retail demand for agricultural equipment will decline in 1999. The Company anticipates that the Agricultural Products Group's financial results for 1999 will be adversely affected by decreased production of certain product lines associated with the lower level of demand. These decreases may be partially offset by expansions within the loader product line and improved sales in the turf and landscape product lines associated with new products developed in 1998. Due to significant losses in the last quarter, no 5 current Federal tax provision was recorded in 1998. Reference is made to Note 4 of Notes to Consolidated Financial Statements for an explanation of the $5,639,000 deferred tax benefit recorded in 1998. The Company projects that future Federal income tax provisions and payments will be based upon the Alternative Minimum Tax rate as substantial tax loss carryforwards still exist for tax reporting purposes. Reference is made to Note 10 of Note to Consolidated Financial Statements for a current discussion of outstanding environmental and legal issues and other contingent liabilities. Subsequent to the end of 1998, the Company entered into a Second Amended and Restated Credit Agreement replacing the former Amended and Restated Credit Agreement. This new agreement was amended in April 1999. Reference is made to Note 5 of Notes to Consolidated Financial Statements for a description of the major terms of this agreement. The loan agreement as amended obligates the Company to repay all outstanding borrowings on expiration of the agreement on February 28, 2000. Before that date the Company must either negotiate an extension of the loan with its current lenders, refinance the loan with other lenders or develop other sources of liquidity to repay the loan. The Company's ability to achieve any of these three options may depend upon the results of its operations during 1999. As of December 31, 1998, the Company had cash and cash equivalents of $727,000 and additional funds of $23,863,000 available under its Amended and Restated Credit Agreement. Had the Second Amended and Restated Credit Agreement and the related amendment been in effect at December 31, 1998, additional funds of $18,863,000 would have been available under this agreement. The Company believes that its expected operating cash flow and funds available under the Second Amended and Restated Credit Agreement and the related amendment are adequate to finance its operations and capital expenditures in 1999. At the end of the third and fourth quarters of 1998, the Company was not in compliance with certain provisions under the Amended and Restated Credit Agreement. Subsequent to the end of each of these quarters, the lenders waived compliance. MARKET RISK The Company manages its ratio of fixed to floating rate debt with the objective of achieving a mix that management believes is appropriate. To manage this mix, the Company in 1998 entered into an interest rate swap agreement for a fixed portion ($50,000,000) of the amount outstanding under the Amended and Restated Credit Agreement and, subsequent to the end of 1998, the Second Amended and Restated Credit Agreement. The terms of this swap agreement expires on May 14, 2001. At December 31, 1998, the interest rate under the swap agreement exceeded the average borrowing rate under the portion of the Amended and Restated Credit Agreement not covered by the swap agreement by .64%. The fair value of the Company's fixed rate debt described above is sensitive to changes in interest rates. Interest rate changes would result in gains/losses in the market value of this interest rate swap obligation due to differences between the market interest rates and rates at the inception of the debt obligation. Based on a hypothetical immediate 100 basis point increase (decrease) in interest rates at December 31, 1998, the market value of the Company's interest rate swap obligation would be impacted by a net decrease (increase) of approximately $1,200,000. IMPACT FROM NOT YET EFFECTIVE RULES In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) No. 133-Accounting for Derivative Instruments and Hedging Activities. This statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities. This statement is effective for all quarters of fiscal years beginning after June 15, 1999. The Company is in the process of evaluating the impact of this statement on its financial reporting. 6 YEAR 2000 COMPLIANCE Many older computer software programs refer to years in terms of their final two digits only. Such programs may interpret the year 2000 to mean the year 1900 instead. If not corrected, these programs could cause date-related transaction failures. The Company's program to address this year 2000 compliance issue is broken down into the following major categories: 1. Financial related hardware/software. 2. Manufacturing/engineering process controls. 3. Equipment manufactured for sale. 4. Outside source suppliers. The general phases of the year 2000 compliance program common to all of the above categories are: 1. Identifying items that are not year 2000 complaint. 2. Assigning priorities to identified items, including the assessment of items material to the operations of the Company. 3. Repairing or replacing material items determined not to be year 2000 complaint. 4. Testing of material items repaired or replaced. The Company has completed the identification process in relation to the four categories noted above. Outside service bureau financial software currently in place has been determined and tested to be year 2000 compliant. The Company recently purchased and installed financial software which is year 2000 compliant. Divisions not currently using year 2000 compliant software will be utilizing these new programs during 1999. Payroll services for the Company are currently being provided by an outside service. Payroll software is not year 2000 compliant. The Company is in the process of having this software upgraded and anticipates that it will be year 2000 compliant by June 1999. Compliance certificates have been received for non personal computer systems owned/leased by the Company. Compliance testing is currently being conducted. The majority of all personal computers used within the Company (both financial and non financial applications) have been purchased within the last two years and have been successfully tested for compliancy. Remaining non compliant personal computers will be replaced with year 2000 compliant units during 1999 as a part of the Company's normal upgrade program. Manufacturing/engineering process controls and equipment includes equipment to manufacture and design products sold by the Company. Design equipment used in the engineering of agricultural equipment has been tested and determined to be year 2000 compliant. At the Verson division, year 2000 compliance certificates have been received on all major purchased hardware and software applications for designing equipment and programs. While the intent of the division is to rely on these certificates (due to the quality of the information received and the reputation of the vendors involved), some testing will take place in 1999. The Company is giving consideration to the use of outside experts in the testing of the related software and hardware. The process will be completed in 1999. The majority of internally developed design software at Verson has been determined not to contain date fields. Programs which do contain date fields have been determined to be year 2000 compliant. The Company does not have a significant amount of manufacturing equipment with embedded computer chips or hardware/software which would present a problem at the beginning of the year 2000. Compliancy certificates have been received from the majority of equipment manufacturers and testing, where necessary, should be completed by the end of the first half of 1999. None of the equipment manufactured by the Agricultural Products Group include hardware/software or embedded computer chips. Stamping presses manufactured by the Verson division contain software and embedded computer chips. Compliance certificates have been received on all software included in the presses sold. Some internal testing has also been performed. The Company believes that it has little, if any, exposure related to equipment manufactured by its divisions in relation to the year 2000 issue. The Company has identified key outside vendors which provide services which, if not year 2000 compliant, could have an effect on the operations of the Company. Sources include banking, investment, pension obligations, insurance, utilities, etc. businesses. During 1999, these service providers will be asked to update the Company on the status of their year 2000 compliance. The Company will then need to evaluate these responses and determine if a contingency plan would be necessary should the vendor not be compliant. The total cost associated with required modifications to become year 2000 compliant (both incurred to date and to be incurred in the future) is not expected to be material to the Company's financial position. This total cost does not include the cost of internal efforts to complete the project. The costs associated with the replacement of computerized systems, substantially all of which were capitalized, are not included in the above estimate as such replacements or upgrades were necessary to operate efficiently and such costs would have been incurred even if year 2000 compliance was not an issue. The Company anticipates that additional amounts will be spent in completing the year 2000 compliance project. These costs are being funded through operating cash flow. The Company's year 2000 compliance program is an ongoing process and the estimates of costs and completion dates for 7 various components of the program described above are subject to change. Other major system projects have not been deferred due to the year 2000 compliance project. The risk to the Company from the failure of suppliers of goods and services (over which the Company does not have control) to attain year 2000 compliance is the same to other business enterprises generally. Failure of information systems by financial institutions (banks, service bureaus, insurance companies, etc.) would disrupt the flow of funds to and from the Company until systems can be remedied or replaced by these providers. Failure of delivery of critical components by suppliers and subcontractors resulting from non year 2000 compliance could result in disruptions of manufacturing processes with delays in the delivery of our products to our customers until non-compliant conditions or components can be remedied or replaced. The Company has identified major suppliers of goods and services and is in the process of determining their year 2000 compliance status. Alternate suppliers of critical components are also in the process of being identified. The Company believes it is taking the necessary steps to resolve year 2000 issues. However, given the possible consequences of failure to resolve significant year 2000 issues, there can be no assurance that any one or more such failures would not have a material adverse effect on the Company. The Company is currently assessing the need for contingency planning. The Company believes, however, that with the completion of the year 2000 project as scheduled, the possibility of significant interruptions of normal operations should be reduced. SAFE HARBOR STATEMENT Statements contained within the description of the business of the Company contained in Item 1, the Management Discussion and Analysis of Financial Conditions and Results of Operations as well as within the non 10-K portion of the 1998 Annual Report that relate to future operating periods are subject to risks and uncertainties that could cause actual results to differ from management's projections. Operations of the Company include the manufacturing and sale of agricultural and industrial machinery. In relation to the Agricultural Products Group, forward-looking statements involve certain factors that are subject to change. These elements encompass interrelated factors that affect farmers and cattle ranchers' confidence, including demand for agricultural products, grain stock levels, commodity prices, weather conditions, crop and animal diseases, crop yields, farm land values and government farm programs. Other factors affecting all operations of the Company include actions of competitors in the industries served by the Company, production difficulties including capacity and supply constraints, labor relations, interest rates and other risks and uncertainties. The Company's outlook is based upon assumptions relating to the factors discussed above. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The information required by this item is incorporated herein by reference to the section entitled, "Market Risk" in the Company's Management's Discussion and Analysis of Financial Condition and Results of Operations. 8 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholders and Board of Directors of Allied Products Corporation In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income (loss), shareholders' investment and cash flows listed in the index appearing under Part IV of Form 10-K (Item 14(a)1), present fairly, in all material respects, the consolidated financial position of Allied Products Corporation and its subsidiaries at December 31, 1998 and 1997, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1998 (1997 and prior as restated -- see Note 1), in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedule listed in the index appearing under Part IV of Form 10-K (Item 14(a)2) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and the financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and the financial statement schedule based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. As discussed in Note 1 to the consolidated financial statements, Allied Products Corporation has restated previously issued consolidated financial statements to change its accounting for certain stock option exercises, revisions to contract cost estimates impacting the percentage of completion gross profit margin computation and unreported product liability claims. PricewaterhouseCoopers LLP Chicago, Illinois April 15, 1999 14 ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (LOSS)
YEAR ENDED DECEMBER 31, --------------------------------------------------- 1998 1997 1996 --------------- -------------- -------------- Net sales........................................... $ 273,834,000 $270,562,000 $274,414,000 Cost of products sold............................... 250,169,000 210,033,000 209,118,000 --------------- -------------- -------------- Gross profit..................................... $ 23,665,000 $ 60,529,000 $ 65,296,000 --------------- -------------- -------------- Other costs and expenses: Selling and administrative expenses.............. $ 38,145,000 $ 35,499,000 $ 37,885,000 Interest expense................................. 6,201,000 3,306,000 1,557,000 Other (income) expense, net...................... 962,000 (3,111,000) 631,000 --------------- -------------- -------------- $ 45,308,000 $ 35,694,000 $ 40,073,000 --------------- -------------- -------------- Income (loss) before taxes.......................... $ (21,643,000) $ 24,835,000 $ 25,223,000 Provision (benefit) for income taxes: Current.......................................... 109,000 1,195,000 921,000 Deferred......................................... (7,639,000) 7,994,000 8,213,000 --------------- -------------- -------------- Net income (loss)................................... $ (14,113,000) $ 15,646,000 $ 16,089,000 --------------- -------------- -------------- --------------- -------------- -------------- Earnings (loss) per common share: Basic............................................ $(1.19) $1.29 $1.19 --------------- -------------- -------------- --------------- -------------- -------------- Diluted.......................................... $(1.19) $1.27 $1.17 --------------- -------------- -------------- --------------- -------------- -------------- Weighted average shares outstanding: Basic............................................ 11,895,000 12,107,000 13,505,000 --------------- -------------- -------------- --------------- -------------- -------------- Diluted.......................................... 11,895,000 12,353,000 13,718,000 --------------- -------------- -------------- --------------- -------------- --------------
The accompanying notes to consolidated financial statements are an integral part of these statements. 15 ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS
DECEMBER 31, -------------------------------- 1998 1997 -------------- -------------- Current Assets: Cash and cash equivalents.............................. $ 727,000 $ 609,000 -------------- -------------- Notes and accounts receivable, less allowances of $519,000 and $531,000, respectively.................. $ 68,827,000 $ 54,729,000 -------------- -------------- Inventories: Raw materials....................................... $ 11,529,000 $ 6,193,000 Work in process..................................... 68,296,000 52,811,000 Finished goods...................................... 17,019,000 14,419,000 -------------- -------------- $ 96,844,000 $ 73,423,000 -------------- -------------- Deferred tax asset..................................... $ 15,060,000 $ 12,773,000 -------------- -------------- Prepaid expenses....................................... $ 406,000 $ 415,000 -------------- -------------- Total current assets.............................. $181,864,000 $141,949,000 -------------- -------------- Plant and Equipment, at cost: Land................................................... $ 2,430,000 $ 2,243,000 Buildings and improvements............................. 57,022,000 40,750,000 Machinery and equipment................................ 69,196,000 51,339,000 -------------- -------------- $128,648,000 $ 94,332,000 Less-Accumulated depreciation and amortization......... 48,181,000 48,811,000 -------------- -------------- $ 80,467,000 $ 45,521,000 -------------- -------------- Other Assets: Deferred tax asset..................................... $ 4,165,000 $ 4,631,000 Deferred charges (goodwill), net of amortization....... 6,154,000 1,491,000 Other.................................................. 3,154,000 1,472,000 -------------- -------------- $ 13,473,000 $ 7,594,000 -------------- -------------- $275,804,000 $195,064,000 -------------- -------------- -------------- --------------
The accompanying notes to consolidated financial statements are an integral part of these statements. 16 ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED BALANCE SHEETS LIABILITIES AND SHAREHOLDERS' INVESTMENT
DECEMBER 31, -------------------------------- 1998 1997 -------------- -------------- Current Liabilities: Revolving credit agreement............................. $119,300,000 $ 50,400,000 Current portion of long-term debt...................... 627,000 268,000 Accounts payable....................................... 52,634,000 19,923,000 Accrued expenses....................................... 24,258,000 25,145,000 -------------- ------------- Total current liabilities......................... $196,819,000 $ 95,736,000 -------------- ------------- Long-term debt, less current portion shown above.......... $ 2,298,000 $ 670,000 -------------- ------------- Other long-term liabilities............................... $ 4,957,000 $ 10,105,000 -------------- ------------- Commitments and Contingencies Shareholders' Investment: Preferred stock: Undesignated-authorized 1,500,000 shares at December 31, 1998 and 1997; none issued............. $ - $ - Common stock, par value $.01 per share; authorized 25,000,000 shares; issued 14,047,249 shares at December 31, 1998 and 1997.......................... 140,000 140,000 Additional paid-in capital............................. 98,377,000 98,518,000 Retained earnings...................................... 16,131,000 32,148,000 -------------- -------------- $114,648,000 $130,806,000 Less: Treasury stock, at cost: 2,228,640 and 2,144,263 shares at December 31, 1998 and 1997, respectively.. (42,918,000) (42,253,000) -------------- -------------- Total shareholders' investment.................... $ 71,730,000 $ 88,553,000 -------------- -------------- $275,804,000 $195,064,000 -------------- -------------- -------------- --------------
The accompanying notes to consolidated financial statements are an integral part of these statements. 17 ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, ---------------------------------------------------- 1998 1997 1996 ---------------- ---------------- ---------------- Cash Flows from Operating Activities: Net income (loss)......................................................... $ (14,113,000) $ 15,646,000 $ 16,089,000 Adjustments to reconcile net income (loss) to net cash provided from (used for) operating activities: Gains on sales of operating and nonoperating assets.................... (1,936,000) (1,662,000) (106,000) Depreciation and amortization.......................................... 6,096,000 5,026,000 5,075,000 Amortization of deferred charges....................................... 356,000 177,000 177,000 Deferred income tax provision (benefit)................................ (7,639,000) 7,994,000 7,964,000 Provision for inventory valuation...................................... 8,813,000 - - Stock option compensation.............................................. 1,119,000 1,375,000 4,485,000 Changes in noncash assets and liabilities, net of effects of assets/businesses acquired or sold and noncash transactions: (Increase) in accounts receivable.................................... (11,577,000) (5,976,000) (8,835,000) (Increase) in inventories............................................ (29,395,000) (20,615,000) (4,384,000) (Increase) decrease in prepaid expenses.............................. 27,000 (294,000) 132,000 Increase (decrease) in accounts payable and accrued expenses......... 30,635,000 (3,230,000) (6,621,000) Other, net............................................................. (975,000) (456,000) 478,000 -------------- -------------- --------------- Net cash provided from (used for) operating activities.................... $ (18,589,000) $ (2,015,000) $ 14,454,000 -------------- -------------- --------------- Cash Flows from Investing Activities: Additions to plant and equipment.......................................... $ (38,837,000) $ (15,334,000) $ (4,684,000) Payment for businesses acquired, net of cash acquired..................... (10,953,000) - - Proceeds from sales of plant and equipment................................ 3,426,000 504,000 207,000 Proceeds from sales of assets/businesses.................................. - 14,737,000 - -------------- -------------- --------------- Net cash used for investing activities.................................... $ (46,364,000) $ (93,000) $ (4,477,000) -------------- -------------- --------------- Cash Flows from Financing Activities: Borrowings under revolving credit agreements.............................. $ 186,000,000 $ 122,000,000 $ 119,650,000 Payments under revolving credit agreements................................ (117,100,000) (98,600,000) (103,850,000) Payments of short and long-term debt...................................... (392,000) (270,000) (696,000) Common stock issued....................................................... - - 1,501,000 Purchases of treasury stock............................................... (1,624,000) (21,572,000) (25,993,000) Dividends paid............................................................ (1,904,000) (1,770,000) (1,808,000) Stock option transactions................................................. 91,000 2,096,000 1,308,000 -------------- -------------- --------------- Net cash provided from (used for) financing activities.................... $ 65,071,000 $ 1,884,000 $ (9,888,000) -------------- -------------- --------------- Net increase (decrease) in cash and cash equivalents......................... $ 118,000 $ (224,000) $ 89,000 Cash and cash equivalents at beginning of year............................... 609,000 833,000 744,000 -------------- -------------- --------------- Cash and cash equivalents at end of year..................................... $ 727,000 $ 609,000 $ 833,000 -------------- -------------- --------------- -------------- -------------- ---------------
The accompanying notes to consolidated financial statements are an integral part of these statements. 18 ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, ------------------------------------------------- 1998 1997 1996 ------------- ------------- ------------- Supplemental Information: (A) Noncash investing and financing activities: 1. Assets acquired through the assumption of debt . . . . . . . . . . . $1,559,000 $ 526,000 $ 442,000 ---------- ---------- ---------- ---------- ---------- ---------- 2. Treasury shares received in lieu of cash for stock option exercise . $ - $ - $ 86,000 ---------- ---------- ---------- ---------- ---------- ---------- 3. Treasury shares issued for non cash exercise of stock options . . . . $ - $ - $ 773,000 ---------- ---------- ---------- ---------- ---------- ---------- (B) Interest paid during year . . . . . . . . . . . . . . . . . . . . . . $6,033,000 $3,225,000 $1,636,000 ---------- ---------- ---------- ---------- ---------- ---------- (C) Income/franchise taxes paid during year, net of refunds . . . . . . . $1,072,000 $1,313,000 $1,291,000 ---------- ---------- ---------- ---------- ---------- ----------
The accompanying notes to consolidated financial statements are an integral part of these statements. 19 ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT COMMON AND TREASURY STOCK
COMMON ($.01 TREASURY PAR VALUE STOCK, PER SHARE) AT COST -------------- --------------- Balance at December 31, 1995.................................................. $ 91,000 $ - Issuance of 226,500 common shares in connection with the exercises of stock options..................................................... 3,000 - Purchase of 1,016,309 common shares for treasury purposes.................. - (26,079,000) Treasury shares issued (111,238) in connection with the exercises of stock options........................................................ - 2,540,000 ----------- ------------- Balance at December 31, 1996.................................................. $ 94,000 $(23,539,000) Issuance of 4,682,405 common shares in connection with a three-for- two stock split...................................................... 46,000 - Purchase of 974,930 common shares for treasury purposes.................... - (21,572,000) Treasury shares issued (188,273) in connection with the exercises of stock options.............................................................. - 2,858,000 ----------- ------------- Balance at December 31, 1997.................................................. $ 140,000 $(42,253,000) Purchase of 144,943 common shares for treasury purposes.................... - (1,624,000) Treasury shares issued (60,566) in connection with the exercises of stock options.............................................................. - 959,000 ----------- ------------- Balance at December 31, 1998.................................................. $ 140,000 $(42,918,000) ----------- ------------- ----------- -------------
The accompanying notes to consolidated financial statements are an integral part of these statements. 20 ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT ADDITIONAL PAID-IN CAPITAL AND RETAINED EARNINGS
ADDITIONAL RETAINED PAID-IN EARNINGS CAPITAL (DEFICIT) ---------------- ----------------- Balance at December 31, 1995, as previously reported........................................ $93,143,000 $ 5,031,000 Restatement for the cumulative effect on prior years related to product liability reserves, net of tax - (1,040,000) ------------ -------------- Balance at December 31, 1995, as restated................................................... $93,143,000 $ 3,991,000 Net income for the year.................................................................. - 16,089,000 Common dividends declared and paid-$.133 per share....................................... - (1,808,000) Issuance of 226,500 common shares in connection with the exercises of stock options...... 4,912,000 - Treasury shares issued in connection with the exercises of stock options................. (597,000) - Tax benefit associated with stock option exercises....................................... 128,000 - ------------ -------------- Balance at December 31, 1996................................................................ $97,586,000 $ 18,272,000 Net income for the year.................................................................. - 15,646,000 Common dividends declared and paid-$.147 per share....................................... - (1,770,000) Issuance of 4,682,405 common shares in connection with a three-for-two stock split....... (46,000) - Treasury shares issued in connection with the exercises of stock options................. 613,000 - Tax benefit associated with stock option exercises....................................... 365,000 - ------------ -------------- Balance at December 31, 1997................................................................ $98,518,000 $ 32,148,000 Net loss for the year.................................................................... - (14,113,000) Common dividends declared and paid-$.16 per share........................................ - (1,904,000) Treasury shares issued in connection with the exercises of stock options................. (141,000) - ------------ -------------- Balance at December 31, 1998................................................................ $98,377,000 $ 16,131,000 ------------ -------------- ------------ --------------
The accompanying notes to consolidated financial statements are an integral part of these statements 21 ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS -- Subsequent to the end of 1998, the Company determined that the accounting for certain stock option exercise transactions during 1996 and 1997 was incorrect. Compensation expense for certain stock option exercises during 1996 and 1997 should have been recognized for cashless stock option exercises and treasury stock transactions involving non-mature stock option shares acquired by the Company. Compensation expense which was not recognized in previously issued financial statements is now reflected in the accompanying restated financial statements. The Company also determined that the percentage of completion gross profit margins on contracts at the Verson division of the Industrial Products Group were incorrectly reported in 1997. Certain significant contract cost estimate revisions should have been recognized at December 31, 1997. Additionally, revisions in contract cost estimates impacting the percentage of completion gross profit margin computation were not computed correctly. The following table reconciles the amounts previously reported to the amounts currently being reported in the consolidated statement of income (loss) for the years ended December 31, 1997 and 1996:
INCOME TAX BEFORE PROVISION NET TAXES (BENEFIT) INCOME -------------- -------------- ------------- 1997 As previously reported............................. $31,489,000 $11,518,000 $19,971,000 Restatement associated with Verson gross profit margin............................................. 5,279,000) (1,848,000) (3,431,000) Restatement associated with stock option compensation....................................... (1,375,000) (481,000) (894,000) ------------ ------------- ------------ As restated........................................ $24,835,000 $ 9,189,000 $15,646,000 ------------ ------------- ------------ ------------ ------------- ------------ 1996 As previously reported.............................. $29,708,000 $ 10,704,000 $19,004,000 Restatement associated with stock option compensation........................................ 4,485,000) (1,570,000) (2,915,000) ------------ ------------- ------------ As restated......................................... $25,223,000 $ 9,134,000 $16,089,000 ------------ ------------- ------------ ------------ ------------- ------------
It was further determined that the Company should have accrued, prior to 1996, for product liability claims incurred but not reported. This adjustment ($1,600,000 less a tax benefit of $560,000) had no impact on the operating results reported on for the years ended December 31, 1998, 1997 and 1996 and is reflected as an adjustment to retained earnings at December 31, 1995. The impact of the restatement associated with Verson's gross profit margins in 1997 was offset in the current year by a like amount resulting in a restatement of operating results for the first three quarters of 1998 -- see Note 13. Operating results for the first quarter of 1998 were also restated for compensation expense not previously recognized in connection with certain stock option exercises during this period -- see Note 13. 22 ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS PRINCIPLES OF CONSOLIDATION- The consolidated financial statements include the accounts of the Company and its majority owned subsidiaries. All significant intercompany items and transactions have been eliminated. NATURE OF OPERATIONS- Allied Products Corporation manufactures large metal stamping presses (through its Industrial Products Group) and implements and machinery used in agriculture, landscaping and ground maintenance businesses (through its Agricultural Products Group). The Company's Coz division, which was part of the Industrial Products Group and supplied thermoplastic compounds and additives, was sold in the fourth quarter of 1997. All manufacturing operations are within the United States. Implements and machinery manufactured by the Agricultural Products Group are primarily sold through dealerships in the United States with some limited export sales to Canada. Metal stamping presses produced by the Industrial Products Group are sold directly to the end users which include automobile manufacturers, first and second tier automotive parts producing companies and the appliance industry. Automobile manufacturers and automotive parts producing companies account for approximately 85% of the Industrial Products Group's revenues in 1998. Press sales generally are concentrated in the United States and Mexico. USE OF ESTIMATES- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Due to the nature of percentage of completion estimates, it is reasonably possible that cost estimates will be revised in the near term. REVENUE RECOGNITION- Sales by the Agricultural Products Group are recorded when products are shipped to independent dealers in accordance with industry practices. Provisions for sales incentives and other sales related expenses are made at the time of the sale. Revenue and costs related to press manufacturing within the Industrial Products Group are recognized on the percentage of completion method. Earned revenue is based on the percentage that incurred costs to date bear to the total estimated costs after giving effect to the most recent estimates of total costs. The cumulative impact of revisions in total cost estimates during the manufacturing process is reflected in the period in which the changes become known. On press orders where margin levels cannot be reasonably estimated, the Company does not recognize any gross profit margin until the particular press in process reaches a point in production where the gross profit margin can be reasonably estimated. Margins are then recognized over the remaining period of production. Certain press orders contain penalties for late delivery. Such penalties are considered part of the cost of the press when late delivery of the press appears probable. Losses expected to be incurred on jobs in process are charged to income as soon as such losses are known. The Company has recorded contract losses of $12,079,000 (including reserves of $8,813,000 for estimated future losses expected to be incurred on jobs in process) associated with several jobs in process having a total sales value of $104,734,000 at December 31, 1998. While these contracts contain no penalty provision for late delivery, other uncertainties associated with these contacts make it reasonably possible that additional losses could occur in the near term - see Note 10. 23 ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) ACCOUNTS RECEIVABLE- Current accounts receivables for the Agricultural Products Group are net of provisions for sales incentive programs and returns and allowances. Extended payment terms (up to one year) are offered to dealers in the form of floor plan financing which is customary within the industry. Such receivables (with the exception of receivables associated with service parts) are generally not collected until the dealer sells the related piece of equipment to a retail customer. The Company maintains a security interest in the equipment related to such receivables to minimize the risk of loss. INVENTORIES- The basis of all of the Company's inventories is determined by using the lower of FIFO cost or market method. Included in work in process inventory are accumulated costs ($70,400,000 at December 31, 1998 and $47,256,000 at December 31, 1997) associated with contracts under which the Company recognizes revenue on a percentage of completion basis. These balances include unbilled actual production costs incurred plus a measure of estimated profit ($695,000 at December 31, 1998 and $13,883,000 at December 31, 1997) recognized in relation to the sales recorded, less customer payments ($25,902,000 at December 31, 1998 and $7,357,000 at December 31, 1997) associated with the work in process inventory. A significant portion of the work in process inventory will be completed, shipped and invoiced prior to the end of the following year. PLANT AND EQUIPMENT- Expenditures for the maintenance and repair of plant and equipment are charged to expense as incurred. Expenditures for major replacement or betterment are capitalized. Interest costs of $979,000 were capitalized in 1998 (none in 1997 or 1996) in relation to the construction of a building addition at the Verson division of the Industrial Products Group. The cost and related accumulated depreciation of plant and equipment replaced, retired or otherwise disposed of is removed from the accounts and any gain or loss is reflected in earnings. DEPRECIATION- Depreciation of the original cost of plant and equipment is charged to expense over the estimated useful lives of such assets calculated under the straight-line method. Estimated useful lives are 20 to 40 years for buildings and improvements and 3 to 12 years for machinery and equipment. DEFERRED CHARGES (GOODWILL)- Deferred charges (goodwill) associated with the 1998 acquisition of the Great Bend Manufacturing Company (approximately $5,019,000) and the 1986 acquisition of Verson (approximately $13,113,000) are being amortized on a straight line basis over a period of 20 years. The Company assesses at each balance sheet date whether there has been a permanent impairment in the value of goodwill. Such assessment includes obsolescence, demand, new technology, competition and other pertinent economic factors and trends that may have an impact on the value of remaining useful life of goodwill. STOCK SPLIT- On July 24, 1997, the Company announced that the Board of Directors authorized a three-for-two stock split effected by means of a stock dividend to shareholders of record on August 15, 1997. A total of 4,682,405 additional common shares were issued in conjunction with the stock split. The Company distributed cash in lieu of fractional shares resulting from the stock split. All applicable share and per share data have been adjusted for the stock split. 24 ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) EARNINGS (LOSS) PER COMMON SHARE- During 1997, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 128 (SFAS 128)-Earnings per Share. Basic earnings (loss) per common share is based on the average number of common shares outstanding - 11,895,000, 12,107,000 and 13,505,000 for the years ended December 31, 1998, 1997 and 1996, respectively. Diluted earnings (loss) per common share is based on the average number of common shares outstanding, as noted above, increased by the dilutive effect of outstanding stock options - 246,000 and 213,000 for the years ended December 31, 1997 and 1996, respectively. For the year ended December 31, 1998, dilutive securities were excluded from the calculation of diluted loss per share as their effect would have been antidilutive. INCOME TAXES- Income taxes are accounted for under the asset and liability method in accordance with FASB SFAS 109-Accounting for Income Taxes. See Note 4. STATEMENT OF CASH FLOWS- For purposes of the Consolidated Statements of Cash Flows, the Company considers investments with original maturities of three months or less to be cash equivalents. FINANCIAL INSTRUMENTS- The fair value of cash and cash equivalents approximates the carrying value of these assets due to the short maturity of these instruments. The fair value of the Company's debt, current and long-term, is estimated to approximate the carrying value of these liabilities based upon borrowing rates currently available to the Company for borrowings with similar terms. RECENTLY ISSUED ACCOUNTING STANDARDS- In June 1998, the FASB issued SFAS 133-Accounting for Derivative Instruments and Hedging Activities. This statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities. This statement is effective for all quarters of fiscal years beginning after June 15, 1999. The Company is in the process of evaluating the impact of this statement on its financial reporting. 2. ACCRUED EXPENSES: The Company's accrued expenses consist of the following:
DECEMBER 31, ----------------------------------- 1998 1997 -------------- -------------- Salaries and wages..................................... $ 6,573,000 $ 5,560,000 Warranty............................................... 5,794,000 4,938,000 Self insurance accruals................................ 2,905,000 2,858,000 Pensions, including retirees' health................... 4,644,000 6,439,000 Taxes, other than income taxes......................... 888,000 1,158,000 Environmental matters.................................. 1,225,000 1,810,000 Other.................................................. 2,229,000 2,382,000 ----------- ----------- $24,258,000 $25,145,000 ----------- ----------- ----------- -----------
25 ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 3. ACQUISITIONS AND DISPOSITIONS: ACQUISITIONS- In April 1998, the Company acquired for cash substantially all of the assets and assumed certain liabilities of Great Bend Manufacturing Company (Great Bend) located in Great Bend, Kansas. Great Bend manufactures and sells tractor-mounted front end loaders which are used principally in agricultural applications. The Company also acquired for cash in April 1998 substantially all of the assets of Universal Turf Equipment Corporation (Universal Turf) located in Opp, Alabama. Universal Turf manufactures and sells turf maintenance implements including reel mowers, verti-cut mowers, reel grinders and spraying equipment. Both operations acquired are part of the Agricultural Products Group. Total cash purchase price for both of these operations was $10,953,000. In October 1998, the Company's Verson division formed a joint venture with Theodor Grabener GmbH & Co. KG of Germany and Automatic Feed Company of Napoleon, Ohio, that will help the two American companies more effectively penetrate the European market for large stamping presses and related systems. The new entity, Verson Pressentechnik GmbH, is located in Netphen-Werthenbach, Germany. This operation, in which Verson holds a 60% stake, is part of the Industrial Products Group. These acquisitions, taken individually and in the aggregate, are not material to the Company's consolidated operations. DISPOSITIONS- During the fourth quarter of 1997, the Company sold for cash (approximately $14,700,000) substantially all of the assets of its Coz division. The purchaser also assumed certain specified liabilities associated with this division. The sale resulted in a pretax gain of approximately $1,530,000 and is included in Other (income) expense under the caption "Net gain on sales of operating and non-operating assets"-see Note 12. At the end of 1993, the Company sold for cash substantially all of the assets and liabilities of the White-New Idea Farm Equipment division. In connection with this sale, the purchaser was required to purchase the real estate located in Coldwater, Ohio upon the issuance of a covenant not to sue and related no further action letter by the Ohio Environmental Protection Agency. The Company completed the necessary environmental remediation during 1997 and, in 1998, the purchaser acquired the real estate for cash resulting in a gain of approximately $1,947,000, which is included in Other (income) expense under the caption "Net gain on sales of operating and non-operating assets"- see Note 12. RESTRUCTURING COSTS- Prior to 1994, the Company provided $14,700,000 for the impact of an operational restructuring plan designed to reduce operating losses by closing, consolidating or scaling back certain operations. The restructuring of the Company was substantially completed during 1996 with the remaining reserve being allocated to accruals associated with certain noncontinuing businesses. Net charges to the restructuring reserve in 1996 was $748,000. 4. INCOME TAXES: Provision (benefit) for income taxes in 1998, 1997 and 1996 consists of the following:
YEAR ENDED DECEMBER 31, ---------------------------------------------------------- 1998 1997 1996 ---------------- -------------- ---------------- Federal-current.................................. $ - $ 617,000 688,000 Federal-deferred................................. (7,639,000) 7,994,000 8,213,000 State-current.................................... 109,000 578,000 233,000 ------------ ----------- ----------- Total provision (benefit)........................ $(7,530,000) $ 9,189,000 $ 9,134,000 ------------ ----------- ----------- ------------ ----------- -----------
26 ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The provision (benefit) for income taxes in 1998, 1997 and 1996 differs from amounts computed by applying the statutory rate to pretax income as follows:
YEAR ENDED DECEMBER 31, --------------------------------------------------------- 1998 1997 1996 --------------- -------------- --------------- Income tax provision (benefit) at statutory rate........... $(7,575,000) $ 8,692,000 $ 8,828,000 Current net operating loss not benefitted.................. 5,598,000 - - State income tax, net of federal tax benefit............... 71,000 376,000 151,000 Permanent book over tax differences on acquired assets..... 62,000 62,000 104,000 Reversal of deferred tax liability......................... (5,639,000) - - Other, net................................................. (47,000) 59,000 51,000 ------------ ----------- ----------- Total provision (benefit).................................. $(7,530,000) $ 9,189,000 $ 9,134,000 ------------ ----------- ----------- ------------ ----------- -----------
The significant components of net deferred tax assets were as follows:
DECEMBER 31, ------------------------------------- 1998 1997 --------------- --------------- Deferred tax assets: Net operating loss and tax credit carryforwards.......................... $ 52,052,000 $ 52,845,000 Self-insurance accruals.................................................. 2,507,000 2,424,000 Inventories.............................................................. 4,635,000 2,421,000 Receivables.............................................................. 172,000 417,000 Sale/leaseback transaction............................................... 1,557,000 1,557,000 Employee benefits, including pensions.................................... 4,338,000 4,928,000 Warranty................................................................. 2,096,000 1,803,000 Sales allowances......................................................... 3,107,000 2,616,000 Environmental matters.................................................... 447,000 658,000 Other.................................................................... 366,000 580,000 ------------- ------------- Net deferred tax asset before valuation allowance ....................... $ 71,277,000 $ 70,249,000 Valuation allowance ..................................................... (52,052,000) (52,845,000) ------------- ------------- Net deferred tax asset .................................................. $ 19,225,000 $ 17,404,000 ------------- ------------- ------------- -------------
The prospects for future earnings of the Company makes it more likely than not that the Company will utilize the benefits arising from the net deferred tax asset noted above. During 1998, the Company recorded a deferred tax benefit of $5,639,000 as a part of the current year's tax provision. This benefit represents a reversal of a tax liability accumulated in years prior to 1998. The net operating loss carryforwards expire between 1999 and 2013, and investment tax credit carryforwards of $1,217,000 expire between 1999 and 2004. The Company provided a valuation allowance in both 1998 and 1997 for deferred tax assets related to net operating loss and tax credit carryforwards based upon a determination that current negative evidence out weighs positive evidence with respect to realization being more likely than not in the future for this component of the net deferred tax asset. The Company projects that future Federal income tax provisions and payments will be based upon the Alternative Minimum Tax rate as substantial tax loss carryforwards still exist for tax reporting purposes. Tax returns for the years subsequent to 1994 are potentially subject to audit by the Internal Revenue Service. 27 ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 5. FINANCIAL ARRANGEMENTS: The Company's debt consists of the following:
DECEMBER 31, ------------------------------- 1998 1997 ------------- ------------ Capitalized lease obligations, at interest rates up to 12% (weighted average of 7.8% and 10.4% at December 31, 1998 and 1997, respectively), due in varying amounts through 2004 (Note 6).................................................... $2,925,000 $938,000 Less current portion................................................................. 627,000 268,000 ---------- -------- $2,298,000 $670,000 ---------- -------- ---------- --------
Scheduled maturities of the noncurrent portion of long-term debt at December 31, 1998 are due as follows: 2000........................................................................................ $ 628,000 2001........................................................................................ 448,000 2002........................................................................................ 339,000 2003........................................................................................ 321,000 2004........................................................................................ 562,000 ---------- $2,298,000 ---------- ----------
During 1996, the Company entered into an Amended and Restated Credit Agreement with two banks. The Amended and Restated Credit Agreement was subsequently amended during 1997 and 1998. The amended agreement provided for up to $145,000,000 of borrowings and/or letters of credit at either a floating prime or fixed LIBOR (with the rate dependent on the ratio of Funded Debt to Operating Cash Flow) rate. Under the Amended and Restated Credit Agreement, the Company was required to meet certain periodic financial tests, including minimum net worth, debt coverage and fixed charge coverage ratio and maximum funded debt/operating cash flow ratio. Beginning in 1998, the Company was required to reduce revolving loans under this agreement to $60,000,000 or less for thirty (30) consecutive days during each fiscal year while the agreement remained in effect. At the end of the third and fourth quarters of 1998, the Company was not in compliance with certain provisions under the Amended and Restated Credit Agreement. Subsequent to the end of each of these quarters, the lenders waived compliance. During 1998, the Company entered into an interest rate lock in anticipation of a private debt placement of up to $75,000,000. The Company anticipated that by entering into a private placement agreement, favorable fixed interest rates could be obtained on a long-term basis and that exposure to floating interest rates under the Amended and Restated Credit Agreement would be reduced. During the fourth quarter of 1998, the Company suspended efforts to secure financing through a private placement. Hedging losses of $3,005,000 were incurred in 1998 in the final settlement of the interest rate lock and are included in Other (income) expense under the caption "Treasury lock settlement" - - - see Note 12. Also during 1998, the Company entered into an interest rate swap agreement for a notional amount of $50,000,000 as part of the Amended and Restated Credit Agreement. Under the terms of this swap agreement, which expires on May 14, 2001, the Company has fixed the interest rate on that portion of the Amended and Restated Credit Agreement. At December 31, 1998, the interest rate under the swap agreement exceeded the average borrowing rate under the portion of the Amended and Restated Credit Agreement not covered by the swap agreement by .64%. This rate differential is being recorded as interest expense on a monthly basis. The weighted average interest rate on borrowings outstanding at December 31, 1998 and 1997 were 7.2% and 6.9%, respectively. 28 ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) SUBSEQUENT EVENT- Effective February 1, 1999, the Company entered into a Second Amended and Restated Credit Agreement ("Credit Agreement") with the same two banks, replacing the Amended and Restated Credit Agreement. Effective April 15, 1999, the Company entered into a First Amendment and Waiver to the Credit Agreement ("First Amendment"). The amended agreement provides for up to $140,000,000 (decreasing at specified dates through January 31, 2000 to $110,000,000) of borrowings and/or letters of credit at either a floating prime or fixed LIBOR (LIBOR plus 3.5%) rate. The amount available under this agreement is determined monthly by a borrowing base formula related to receivable, inventory and machinery and equipment balances plus an over advance allowance of $40,000,000 initially, increasing to $47,600,000 in June 1999 then decreasing over the next seven months to $27,800,000 in January 2000. Under this agreement, the Company must, on or before May 15, 1999, grant a lien upon and security interests in all of the assets (except real estate) of the Company and its subsidiaries to the lenders and meet certain periodic financial tests, including minimum debt coverage, operating cash flow and fixed charge coverage ratio. Upon the grant of the lien and security interests to the lenders, the ratios to be met by the Company are lowered. Capital expenditures, stock purchases and dividends (limited to $2,000,000 in 1999) are also limited on an annual basis throughout the term of the loan. The agreement, which expires on February 28, 2000, permits the lenders to accelerate the obligations in the event of a material adverse event and requires prepayment in certain circumstances. The terms of the interest rate swap agreement described above as a part of the Amended and Restated Credit Agreement are applicable to the Credit Agreement and First Amendment. If the Credit Agreement and First Amendment had been in effect as of December 31, 1998, the Company had the capacity to borrow up to $18,863,000. 6. LEASES: CAPITAL LEASES- The Company leases various types of manufacturing, office and transportation equipment. Capital leases included in Machinery and equipment in the accompanying balance sheets are as follows:
DECEMBER 31, ------------------------------- 1998 1997 ------------- ------------- Capitalized cost........................................ $3,622,000 $2,490,000 Less-Accumulated amortization........................... 1,081,000 1,528,000 ---------- ---------- $2,541,000 $ 962,000 ---------- ---------- ---------- ----------
See Note 5 for information as to future debt payments relating to the above leases. OPERATING LEASES- Rent expense for operating leases, which is charged against income, was as follows:
YEAR ENDED DECEMBER 31, -------------------------------------------------- 1998 1997 1996 -------------- ------------- ------------- Minimum rentals............................................... $1,215,000 $1,989,000 $1,943,000 Contingent rentals............................................ 87,000 41,000 79,000 ---------- ---------- ---------- $1,302,000 $2,030,000 $2,022,000 ---------- ---------- ---------- ---------- ---------- ----------
Contingent rentals are composed primarily of truck fleet unit charges for actual usage. Some leases contain renewal and purchase options. The leases generally provide that the Company pay taxes, maintenance, insurance and certain other operating expenses. 29 ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) At December 31, 1998, future minimum rental payment commitments under operating leases that have initial or remaining noncancelable lease terms in excess of one year are as follows:
NET MINIMUM MINIMUM ANNUAL SUBLEASE ANNUAL RENTAL RENTAL RENTAL PAYMENTS INCOME PAYMENTS ------------- --------------- ------------- Year ending December 31, 1999..................................................... $1,376,000 $ (728,000) $ 648,000 2000..................................................... 1,424,000 (794,000) 630,000 2001..................................................... 594,000 (64,000) 530,000 2002..................................................... 447,000 (67,000) 380,000 2003..................................................... 403,000 (68,000) 335,000 Later.................................................... 123,000 (22,000) 101,000 ---------- ------------ ---------- $4,367,000 $(1,743,000) $2,624,000 ---------- ------------ ---------- ---------- ------------ ----------
7. PREFERRED STOCK: The Company has 2,000,000 shares of authorized preferred stock of which 350,000 shares are designated as Series B Variable Rate Cumulative Preferred Stock and 150,000 shares are designated as Series C Cumulative Preferred Stock. All shares of the Series B and Series C Preferred Stock have been redeemed. The remaining 1,500,000 shares of authorized preferred stock are undesignated and unissued at December 31, 1998. 8. COMMON STOCK AND OPTIONS: The Company has an incentive stock plan (the 1977 plan) which authorizes stock incentives for key employees in the form of stock awards, stock appreciation rights and stock options. Options under the 1977 plan, which are granted at fair market value at date of grant, are non-qualified options (not "incentive stock options" as defined by the Internal Revenue Code). Options currently outstanding under the 1977 plan become exercisable to the extent of 25% one year from date of grant and 25% in each of the next three years, and expire 10 years from the date of grant. There were no stock awards issued under this plan in 1998, 1997 or 1996. No stock appreciation rights have been granted to date under this plan. There are 22,065 options outstanding under this plan at December 31, 1998 and are included in the following table. Additional stock incentives will not be issued under this plan. In 1990, the Company's Board of Directors approved a new incentive stock plan, the 1990 Long Term Incentive Stock Plan (the 1990 plan) which authorizes stock incentives for key employees in the form of stock awards and stock options. The 1990 plan, as amended, authorizes the issuance of up to 1,500,000 shares of the Company's Common Stock. Options under the 1990 plan, which are granted at fair market value at date of grant, may be granted as either incentive stock options or non-statutory stock options. Options granted become exercisable to the extent of 50% one year from date of grant and the remaining 50% two years from date of grant. Since the inception of the 1990 plan, the Company has issued options to purchase 1,436,252 shares (net of forfeitures) of the Company's Common Stock at prices between $1.00 and $19.00 per share. There are 347,025 options outstanding under this plan at December 31, 1998 and are included in the following table. At December 31, 1998, the Company has the capacity to issue an additional 63,748 stock incentives under the 1990 plan. 30 ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) In 1994, shareholders approved a new incentive plan, the 1993 Directors Incentive Plan (the 1993 plan) which authorizes the issuance of stock options to members of the Board of Directors who are not employees of the Company. Options under the 1993 plan, which are granted at fair market value at date of grant, are granted as non-statutory stock options. Options granted become exercisable to the extent of 50% one year from date of grant and the remaining 50% two years from date of grant. Since the inception of the 1993 plan, the Company has issued options to purchase 114,750 shares of the Company's Common Stock at prices between $8.34 and $19.01 per share. All options issued are outstanding under this plan at December 31, 1998 and are included in the table below. In 1997, shareholders approved a new incentive stock plan, the 1997 Incentive Stock Plan (the 1997 plan) to replace the 1990 plan and the 1993 plan described above. The 1997 plan permits a committee of the Company's Board of Directors to grant incentive awards in the form of non-qualified stock options, incentive stock options, stock awards including restricted stock, stock appreciation rights and performance units to key employees and non-employee directors. The 1997 plan authorizes the issuance of up to 750,000 shares of the Company's Common Stock pursuant to the grant or exercise of stock options, stock appreciation rights, restricted stock and performance units. Non-qualified stock options issued under this plan were granted at fair market value at date of grant. Options granted become exercisable over a period of up to three years from date of grant with no option exercisable prior to one year from date of grant. Since the inception of the 1997 plan, the Company has issued options to purchase 576,100 shares (net of forfeitures) of the Company's Common Stock at prices between $7.9375 and $24.875. All options issued under this plan (net of forfeitures) are outstanding at December 31, 1998 and are included in the table below. At December 31, 1998, the Company has the capacity to issue an additional 173,900 stock incentives under the 1997 plan. Stock option transactions in 1998, 1997 and 1996 were as follows:
YEAR ENDED DECEMBER 31, -------------------------------------------------------------------------------------------- 1998 1997 1996 ---------------------------- ---------------------------- ---------------------------- WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE EXERCISE EXERCISE EXERCISE SHARES PRICE SHARES PRICE SHARES PRICE ------------ ----------- ------------ ----------- ------------ ----------- Outstanding at beginning of year............................. 810,360 $ 13.89 931,758 $ 12.15 1,148,025 $ 7.71 Granted.......................... 369,100 8.31 110,000 24.65 413,250 16.18 Exercised........................ (111,520) 12.09 (188,273) 11.14 (627,018) 6.69 Expired.......................... - - (375) 16.09 - - Forfeited........................ (8,000) 16.41 (42,750) 15.87 (2,499) 9.50 ---------- ---------- ---------- Outstanding at end of year........ 1,059,940 $ 12.11 810,360 $ 13.89 931,758 $ 12.15 ---------- ---------- ---------- ---------- ---------- ---------- Options exercisable at end of year.............................. 610,340 $ 13.09 523,529 $ 10.93 474,509 $ 9.60 Weighted average fair value of options granted during the year.. $ 1.89 $ 6.60 $ 3.81
31 ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The fair value of each option grant was estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions:
YEAR ENDED DECEMBER 31, ----------------------------------------- 1998 1997 1996 ---------- ----------- ----------- Risk free interest rate................................................ 4.29% 6.10% 5.80% Dividend yield......................................................... 0.97% 0.70% 0.80% Expected lives......................................................... 4 years 4 years 4 years Volatility............................................................. 22.50% 23.00% 22.00%
The following table summarizes information about stock options outstanding at December 31, 1998:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ------------------------------------------------- --------------------------- WEIGHTED AVERAGE WEIGHTED WEIGHTED REMAINING AVERAGE AVERAGE CONTRACTUAL EXERCISE EXERCISE RANGES OF EXERCISE PRICES SHARES LIFE PRICE SHARES PRICE - - ------------------------------ ------------ -------------- ------------ ---------- ------------ $1.75-3.84 30,525 3.0 years $ 2.62 30,525 $ 2.62 7.9375-12.92 606,850 8.0 years 8.31 252,750 8.83 15.26-24.875 422,565 7.7 years 18.27 327,065 17.37 --------- ------- $1.75-24.875 1,059,940 7.7 years $12.11 610,340 $13.09 --------- ------- --------- -------
At December 31, 1998, the Company has four stock options plans, which are described above. The Company applied Accounting Principles Board (APB) Opinion 25 and related interpretations in accounting for these plans. Compensation costs recognized in relation to certain stock option exercises discussed in Note 1 amounted to $1,119,000, $1,375,000 and $4,485,000 for the years ended December 31, 1998, 1997 and 1996, respectively. No compensation costs have been recognized for the years ended December 31, 1998, 1997 and 1996 in relation to the issuances of options in each of the respective years. Had compensation costs for the Company's stock option plans been determined based on the fair value at the grant date for options granted under these plans consistent with the method of SFAS 123-Accounting for Stock-Based Compensation, the Company's net income (loss) and earnings (loss) per share would have been revised to the pro forma amounts indicated below:
YEAR ENDED DECEMBER 31, ------------------------------------------------------- 1998 1997 1996 ----------------- -------------- -------------- Net income (loss) As reported $(14,113,000) $15,646,000 $16,089,000 Pro forma (14,978,000) 15,135,000 15,666,000 Basic earnings (loss) per share As reported $ (1.19) $ 1.29 $ 1.19 Pro forma (1.26) 1.25 1.16 Diluted earnings (loss) per share As reported $ (1.19) $ 1.27 $ 1.17 Pro forma (1.26) 1.23 1.14
On February 15, 1991, the Company declared a dividend distribution of one right ("Right") to purchase an additional 1.5 shares of the Company's Common Stock for $50 on each 1.5 shares of Common Stock outstanding. The Rights become exercisable 10 days after a person or group acquires, or tenders for, 20% or more of the Company's Common Stock. The Company is entitled to redeem the Rights at $.01 per Right at any time until 10 days after any person or group has acquired 20% of the Common Shares. If a person or group acquires 20% or more of the Company's Common Stock (other than pursuant to an acquisition from the Company or pursuant to a tender offer deemed fair by the Board of Directors), then each Right, other than Rights held by the acquiring person or group, entitles the holder to purchase for $50 that number of shares of the Company's Common Stock having a current market value of $100. If a person or group acquires 20% or more of the Company's Common Stock and prior to the person or group acquiring 50% of such outstanding stock, the Company may convert each outstanding Right, other than the Rights held by the acquiring person or group, into 1.5 new shares of the Company's Common Stock. If a 32 ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) person or group acquiring more than 20% of the Company's Common Stock merges with the Company or engages in certain other transactions with the Company, each Right, other than Rights held by the acquiring person or group, entitles the holder to purchase shares of common stock of the acquiring person or group having a current market value of $100 for $50. The Rights attach to all of the Company's Common Stock outstanding as of February 15, 1991, or subsequently issued, and have a term of 10 years. The Rights also expire upon a merger or acquisition of the Company undertaken with the consent of the Company's Board of Directors. 9. RETIREMENT, PENSION AND POSTRETIREMENT HEALTH PLANS: In 1998, the Company adopted the revised disclosure requirements of SFAS 132 -- Employers' Disclosures about Pensions and Other Postretirement Benefits. SFAS 132 standardized the disclosures of pensions and other postretirement benefits into a combined format, but did not change the accounting for these benefits. Prior years' information has been reclassified to conform to the 1998 disclosure format. The Company sponsors several defined benefit pension plans which cover certain union and office employees. Benefits under these plans generally are based on the employee's years of service and compensation during the years immediately preceding retirement. The Company's general funding policy is to contribute amounts deductible for Federal income tax purposes. The following tables provide a reconciliation of the changes in the plans' benefit obligations and fair value of assets over the two-year period ending December 31, 1998, and a statement of the financial status as of December 31, 1998 and 1997:
DECEMBER 31, ------------------------------------- 1998 1997 ---------------- ---------------- CHANGE IN BENEFIT OBLIGATION: Benefit obligation at beginning of year.................... $38,606,000 $33,762,000 Service cost............................................... 718,000 758,000 Interest cost.............................................. 2,684,000 2,717,000 Amendments................................................. 56,000 - Actuarial losses........................................... 2,227,000 3,797,000 Benefits paid.............................................. (3,690,000) (2,428,000) ------------ ------------ Benefit obligation at end of year.......................... $40,601,000 $38,606,000 ------------ ------------ ------------ ------------ CHANGE IN PLAN ASSETS: Fair value of plan assets at beginning of year............. $46,162,000 $41,270,000 Actual return on plan assets............................... (6,849,000) 7,320,000 Employer contributions..................................... 1,145,000 - Benefits paid.............................................. (3,690,000) (2,428,000) ------------ ------------ Fair value of plan assets at end of year................... $36,768,000 $46,162,000 ------------ ------------ ------------ ------------ FUNDED STATUS: Funded status at end of year............................... $(3,833,000) $ 7,556,000 Unrecognized transition obligation......................... (482,000) (954,000) Unrecognized prior service cost............................ 1,927,000 2,147,000 Adjustment for minimum liability........................... - (289,000) Unrecognized net actuarial (loss).......................... (772,000) (13,196,000) ------------ ------------ Accrued pension cost at end of year........................ $(3,160,000) $(4,736,000) ------------ ------------ ------------ ------------
33 ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The projected benefit obligation and accumulated benefit obligation for pension plans with accumulated benefit obligations in excess of plan assets were $1,484,000 and $802,000, respectively, as of December 31, 1998 and $2,200,000 and $1,815,000, respectively, as of December 31, 1997. There were no assets associated with these related plans. The expected long-term rate of return used in determining the net periodic pension cost in all years was 7.5%. The actuarial present value of the benefit obligation was determined using a discount rate of 6.75% in 1998, 7.5% in 1997 and 7.75% in 1996. The rate of compensation increase used to measure the benefit obligation in three plans was 5%. All other plans are based on current compensation levels. The plans' assets include common stocks, fixed income securities, short-term investments and cash. Common stock investments include approximately 281,810 and 246,000 shares of the Company's Common Stock at December 31, 1998 and 1997. The following table provides the amounts recognized in the balance sheet as of December 31, 1998 and 1997:
DECEMBER 31, ------------------------------------- 1998 1997 --------------- ---------------- Accrued benefit liability.................................... $(3,299,000) $(5,026,000) Intangible asset............................................. 139,000 290,000 ------------ ------------ Accrued pension cost at end of year.......................... $(3,160,000) $(4,736,000) ------------ ------------ ------------ ------------
Net periodic pension costs as they relate to defined benefit plans were as follows:
YEAR ENDED DECEMBER 31, ------------------------------------------------------ 1998 1997 1996 --------------- --------------- -------------- Service cost...................................... $ 718,000 $ 758,000 $ 658,000 Interest cost..................................... 2,684,000 2,717,000 2,438,000 Expected return on plan assets.................... (2,938,000) (2,678,000) (2,274,000) Amortization of transition obligation............. (472,000) (473,000) (473,000) Amortization of prior service costs............... 277,000 328,000 153,000 Amortization of actuarial (gain) loss............. (409,000) (327,000) 123,000 -------------- ------------- ------------- Net periodic pension cost (income)................ $ (140,000) $ 325,000 $ 625,000 Curtailment loss.................................. - 210,000 - -------------- ------------- ------------- Net periodic pension cost (income) after curtailment................................. $ (140,000) $ 535,000 $ 625,000 -------------- ------------- ------------- -------------- ------------- -------------
Curtailment loss in 1997 was related to the retirement of certain Corporate executives. Certain employees of the Company are also eligible to become participants in the Save Money and Reduce Taxes (SMART) 401(k) plan. Under terms of the plan, the trustee is directed by each employee on how to invest the employee's deposit. Investment alternatives include a money market fund, four mutual funds and a fixed income fund. As of December 31, 1998 and 1997, assets of the SMART plan include approximately 434,000 and 511,000 shares, respectively, of the Company's Common Stock. 34 ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Effective October 1, 1998, the Company instituted the Allied Products Corporation Savings Incentive 401(k) Plan for Bush Hog salaried employees. Except for supplemental contributions that are payable under the SMART Plan, terms of the plan are identical to those of the SMART plan. Employees eligible under the new plan are not eligible for the SMART plan. Also effective October 1, 1998, the Company instituted a matching provision for voluntary deposits by employees (up to 6% of their salaries) on the basis of $1 for every $2 deposited. This matching feature is available to participants in the SMART plan and the Allied Products Corporation Savings Incentive Plan. Matching funds are allocated by the employee to the investment alternatives noted above. The Company's total contribution into these plans amounted to $205,000 in 1998. Effective January 1, 1998, the Company instituted a supplemental contribution feature to the SMART plan described above. This discretionary noncontributory feature replaces the Target Benefit Plan and a defined contribution plan - see below. Currently, all employees eligible for the SMART plan receive an allocation which is based upon a percentage of the earnings of the employees. This supplemental contribution is allocated by the employee to the same investment alternatives as the SMART plan. The Company's total supplemental contribution amounted to $680,000 in 1998. Effective January 1, 1995, the Company instituted a noncontributory defined contribution retirement plan called the Target Benefit Plan. All non union employees not covered by pension plans were covered under the Target Benefit Plan. Under the terms of the Target Benefit Plan, the Company made an actuarially determined annual contribution based upon each eligible employee's years of service and earnings as defined. Employee investment alternatives include a money market fund, four mutual funds and a fixed income fund. Provisions for the contribution to this plan in 1997 and 1996 were $664,000 and $773,000, respectively. Effective January 1, 1998, this plan was terminated. On this date, all employees previously receiving benefits under this plan now receive benefits under the SMART plan described above. Benefits earned under the Target Benefit Plan were transferred to the SMART plan. The Company also has a defined contribution retirement plan which covers certain employees. There are no prior service costs associated with this plan. The Company follows the policy of funding retirement contributions under this plan as accrued. Contributions to this plan were $222,000 in 1997 and $217,000 in 1996. Benefits under this plan were frozen effective January 1, 1998. On this date, all employees previously receiving benefits under this plan now receive benefits under the SMART plan described above. The Company provides medical benefits for retirees and their spouses at one operating division and certain other former employees of several discontinued operations. Accruals for such costs are recognized in the financial statements over the service lives of these employees. Contributions are required of most retirees for medical coverage. The current obligation was determined by application of the terms of the related medical plans, including the effects of established maximums on covered costs, together with relevant actuarial assumptions and health-care cost trend rates projected at annual rates ranging ratably from 7.4% for retirees under age 65 (7% for retirees age 65 and older) in 1999 to 5.5% over 22 years. The effect of a 1% annual increase (decrease) in these assumed cost trend rates would increase the accumulated postretirement benefit obligation by approximately $68,000 and $74,000 for the years ended December 31, 1998 and 1997, respectively. The annual service and interest costs would not be materially affected. 35 ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The following table provides a reconciliation of the changes in the plans' benefit obligations over the two year period ending December 31, 1998 and a statement of the financial status as of December 31, 1998 and 1997:
DECEMBER 31, ---------------------------------------- 1998 1997 ---------------- ----------------- CHANGE IN BENEFIT OBLIGATION: Benefit obligation at beginning of year......................................... $ 799,000 $ 767,000 Service cost.................................................................... 55,000 50,000 Interest cost................................................................... 56,000 56,000 Actuarial (gains) losses........................................................ 50,000 15,000 Benefits paid................................................................... (96,000) (89,000) -------------- -------------- Benefit obligation at end of year............................................... $ 864,000 $ 799,000 -------------- -------------- -------------- -------------- FUNDED STATUS: Funded status at end of year.................................................... $ (864,000) $ (799,000) Unrecognized prior service cost................................................. 10,000 11,000 Unrecognized net actuarial (loss)............................................... (175,000) (241,000) -------------- -------------- Accrued postretirement benefit cost at end of year.............................. $ (1,029,000) $ (1,029,000) -------------- -------------- -------------- --------------
Net periodic postretirement benefit costs include the following:
YEAR ENDED DECEMBER 31, ------------------------------------------------- 1998 1997 1996 ------------- ----------- ------------- Service cost........................................................ $ 55,000 $ 50,000 $ 50,000 Interest cost....................................................... 56,000 56,000 53,000 Amortization of unrecognized net (gains) losses..................... (10,000) (11,000) (4,000) Amortization of prior plan amendments............................... 1,000 1,000 1,000 ---------- ---------- ---------- Net periodic postretirement benefit cost............................ $102,000 $96,000 $100,000 ---------- ---------- ---------- ---------- ---------- ----------
36 ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Measurement of the postretirement benefit obligation was based on a discount rate of 6.75% in 1998, 7.5% in 1997 and 7.75% in 1996. 10. ENVIRONMENTAL, LEGAL AND CONTINGENT LIABILITIES: ENVIRONMENTAL MATTERS- The Company's manufacturing plants generate both hazardous and nonhazardous wastes, the treatment, storage, transportation and disposal of which are subject to federal, state and local laws and regulations. The Company believes that its manufacturing plants are in substantial compliance with the various federal, state and local laws and regulations, and does not anticipate any material expenditures to remain in compliance. Under the Comprehensive Environmental Response Compensation and Liability Act of 1980, as amended (CERCLA), and other statutes, the United States Environmental Protection Agency (EPA) and the states have the authority to impose liability on waste generators, site owners and operators, and others regardless of fault or the legality of the original disposal activity. Accordingly, the Company has been named as a potentially responsible party (PRP), or may otherwise face potential liability for environmental remediation or cleanup, in connection with the sites described below that are in various stages of investigation or remediation. At one site, the Company is one of seven PRP's because of its apparent absentee ownership of four parcels of land from 1967 to 1969 which may have held part or all of one or more settling ponds operated by a tenant business. The Company has already paid $85,000 as its share of a settlement of an EPA demand for $415,000 in past response costs, and the EPA has sought payment from the PRP's of an additional $572,000 in response costs. The EPA has ordered the Company and one other PRP to undertake the design and construction of the remediation project. All PRP's have agreed to undertake the design and construction of the remediation project pursuant to a financial participation agreement. The EPA estimates the present value of the cost to implement its selected cleanup method to be approximately $1,869,000. The Company has accrued its estimated share of the remaining cleanup cost which is not considered significant. The Company has also filed a claim against its insurers. Pursuant to a consent decree entered into in November 1991 with the U.S. Department of Justice, the Company closed and remediated a landfill leased by the Company and formerly used for the disposal of spent foundry sands. During 1995, remedial action required by the consent decree was completed, and the EPA approved the Remedial Action Report submitted by the Company. The Company's remaining obligations under the consent decree include periodic inspections, monitoring and maintenance as needed. The Company has also been named as a PRP, along with numerous parties, at various hazardous waste sites undergoing cleanup or investigation for cleanup. The Company believes that at each of these sites, it has been improperly named or will be considered to be a "de minimis" party. The Company is a defendant in an action where a private party seeks recovery of costs associated with an environmental cleanup at a site formerly owned by the Company. At this site, which the Company or one of its subsidiaries owned from 1968 until 1976, the plaintiff and current owner seeks to recover in excess of $4,000,000, including attorney fees, from the Company and other defendants. The Company has denied liability and asserted cross-claims against the co-defendants. The Company has also filed claims against its insurers. The Company is in the process of investigating or has determined the need to perform environmental remediation or clean up at certain manufacturing sites formerly operated and still owned by the Company. At the sites where the Company has determined that some remediation or cleanup is required, the Company has provided for the estimated cost for such remediation or cleanup. One site, located in Coldwater, Ohio, was sold to the purchaser of the White-New Idea business. That sale was contingent on the issuance of a covenant not to sue and related no further action letter by the State of Ohio under the Ohio Voluntary Action Program. The Company completed all necessary investigation and remediation, and expended approximately $1,300,000 in this effort. Upon submission of the final report, a covenant not to sue and no further action letter was issued by the Ohio Environmental Protection Agency. While this project was underway, the Company entered into a series of agreements for financial contribution with both the prior owner and the purchaser of the facility, and recovered approximately 50% of the $1,300,000 spent. 37 ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED) During 1998, 1997 and 1996, the Company recorded credits of approximately $151,000, $1,181,000 and $418,000, respectively, toward various environmental matters discussed above. At December 31, 1998, the Company has accruals on a non-discounted basis, including those discussed above, of $1,225,000 for the estimated cost to resolve its potential liability with the above and other, less significant, matters. Additional liabilities are possible and the ultimate outcome of these matters may have an effect on the financial position or results of operations in a future period. However, the Company believes that the above accruals are adequate for the resolution of known environmental matters and the outcome of these matters is not expected to have a material adverse effect on the Company's financial position or its ongoing results of operations. OTHER- In connection with the sale of the business and assets of the Littell division in 1991, the Company entered into a "License Agreement" pursuant to which the Company licensed certain technology to the purchaser for which the purchaser agreed to pay royalties totaling $8,063,000 plus interest, in minimum quarterly installments of $312,500 commencing in November 1992, with a final lump sum payment of approximately $7,300,000 due May 22, 1996. The purchaser's payment obligation was secured by the technology license and was guaranteed by the purchaser's parent. The Company initially recorded this agreement as a long-term note receivable. In 1995, however, the Company established a reserve of $7,699,000 (reduced to $7,165,000 at December 31, 1996) against the receivable, due to published adverse financial information about the purchaser and its parent which raised serious concerns about the collectability of the receivable. During 1997, the Company entered into a settlement agreement with the purchaser of the business. Under the terms of the agreement, the purchaser agreed to pay the Company $3,000,000 and all parties agreed to the dismissal/release of certain actions, claims and security interests. All amounts due under this agreement were collected in 1998 ($610,000) and 1997 ($2,390,000). In 1998, an adversary proceeding was filed against the Company by a debtor in a bankruptcy proceeding. The transactions and occurrences on which the adversary proceeding is based are the Company's sale of the assets of a former division and certain financial transactions related thereto. Causes of action described in the adversary proceeding include accounting, turnover, fraudulent transfers, "alter ego," economic duress, unjust enrichment and restitution. The amount claimed by the plantiff is not specified in the pleadings. The Company is vigorously contesting all claims against it in this adversary proceeding. One case pending against the Company is a race discrimination class action lawsuit brought by seven plaintiffs who are current or former employees. The complaint alleges discrimination with respect to compensation, promotions, job assignments, discipline and other terms and conditions of employment. The potential class identified by plaintiffs could include several hundred current or former employees. No class certification hearing has been held and no order has been entered. The Company denies the allegations of the plaintiffs and is vigorously defending this claim. No estimate can currently be made as to the ultimate outcome of these two claims, therefore changes in the estimate in the near term are reasonably possible. The Company is involved in a number of other legal proceedings as a defending party, including product liability claims for which additional liability is reasonably possible. It is the Company's policy to reserve on a non-discounted basis for all known and estimated unreported product liability claims, with necessary reserves ($4,674,000 and $4,200,000 at December 31, 1998 and 1997, respectively) determined in consultation with independent insurance companies and legal counsel. Payment of these claims may take place over the next several years. Additional liabilities are possible and the ultimate outcome of these matters may have an effect on the financial position or results of operations in a future period. For all matters excluding one recently asserted claim, after consideration of relevant data, including insurance coverage and accruals, management believes that the eventual outcome of these matters will not have a material adverse effect on the Company's financial position or its ongoing results of operations. For one recently asserted product liability claim, the amount of damages claimed against all defendants exceeds the Company's liability insurance limits. No estimate can currently be made as to whether the ultimate outcome of this claim against the Company could exceed such limits, therefore changes in the estimate in the near term could be material to the financial position and results of operations if an unfavorable outcome were to occur. As described in Note 1, the Verson division may not be able to meet delivery schedules for certain presses currently on order or in production. Certain customers of this division have advised the Company that they will seek to recover damages for late delivery, which could include downtime, lost sales and lost profit. The Company cannot at this time determine the amount of any potential claim that may be asserted due to late delivery, however, such claims could have a material adverse effect on the financial position and results of operations in the near term, if an unfavorable outcome were to occur. 38 ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) At December 31, 1998, the Company was contingently liable for approximately $1,632,000 primarily relating to outstanding letters of credit. The Company has entered into agreements with certain executive officers of the Company which provide that, if within one year following a defined change in ownership or control of the Company there shall be an involuntary termination of such executive's employment, or if there shall be defined patterns of activity during such period by the Company causing such executive to resign, then, subject to prevailing tax laws and regulations, the executive shall be entitled to payments of up to approximately three years' compensation. 11. OPERATIONS BY INDUSTRY SEGMENT: During 1998, the Company adopted SFAS 131 -- Disclosures about Segments of a Business Enterprise and Related Information. The determination of business segments is based upon the nature of the products manufactured and current management and internal financial reporting. The prior years' segment information has been restated to reflect its business segments noted below. The Company's operations are divided into two business segments - the Agricultural Products Group (which consists of the Bush Hog and Great Bend divisions) and the Industrial Products Group (which consists of the Verson, Precision Press Industries and Verson Pressentechnik operations) as well as the Coz division (net sales and pretax income of $22,887,000 and $1,093,000, respectively, for the year ended December 31, 1997 and net sales and pretax income of $33,892,000 and $2,419,000, respectively, for the year ended December 31, 1996) which was sold in the last quarter of 1997. The nature of the products offered by the Company's operations is described elsewhere in this Annual Report. Approximately 3%, 6% and 16% of the Company's net sales in 1998, 1997 and 1996, respectively, were exported principally to Canada (48%, 46% and 15% of export sales in 1998, 1997 and 1996, respectively) and Mexico (48%, 43% and 84% of export sales in 1998, 1997 and 1996, respectively). Approximately 26%, 31% and 39% of the Company's total net sales in 1998, 1997 and 1996, respectively, were derived from sales by the Industrial Products Group to the three major U.S. automobile manufacturers. Information relating to operations by industry segment follows (in thousands of dollars):
AGRICULTURAL INDUSTRIAL PRODUCTS PRODUCTS CORPORATE CONSOLIDATED ------------ ----------- ------------- ------------ 1998 Net sales to unaffiliated customers.......... $136,814 $137,020 $ - $273,834 Income (loss) before taxes (a).............. 18,570(c) (23,129) (17,084)(d) (21,643) Depreciation and amortization................ 2,780 2,988 328 6,096 Capital expenditures ........................ 9,603 30,438 355 40,396 Total assets................................. 102,069 149,911 21,824 (b) 273,804 1997 Net sales to unaffiliated customers.......... $119,471 $151,091 $ - $270,562 Income (loss) before taxes (a).............. 19,735(c) 16,584 (11,484)(d) 24,835 Depreciation and amortization................ 2,159 2,254 613 5,026 Capital expenditures ........................ 4,902 10,709 249 15,860 Total assets................................. 71,700 101,061 22,303 (b) 195,064 1996 Net sales to unaffiliated customers.......... $108,355 $166,059 $ - $274,414 Income (loss) before taxes (a).............. 12,256(c) 29,382 (16,415)(d) 25,223 Depreciation and amortization................ 2,048 2,249 778 5,075 Capital expenditures ........................ 1,055 3,898 173 5,126 Total assets................................. 62,256 83,457 26,796 (b) 172,509
39 ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (a) Segment income (loss) before taxes does not reflect an allocation or charge for general corporate income or expenses, or interest expense. (b) Corporate assets consist principally of cash, deferred income taxes, other assets, properties not used in operations and investment in a unconsolidated joint venture. (c) Includes interest income of $111,000 in 1998, $77,000 in 1997 and $108,000 in 1996. (d) Corporate income (loss) before taxes consists of the following:
1998 1997 1996 ---------- --------- -------- General corporate income and expense................ $(6,845) $ (6,853) $(10,377) Treasury lock settlement (Note 5)................... (3,005) - - Stock option compensation (Note 1).................. (1,119) (1,375) (4,485) Interest expense.................................... (6,201) (3,306) (1,557) Interest income..................................... 86 50 4 ---------- --------- -------- Total............................................... $(17,084) $(11,484) $(16,415) ---------- --------- -------- ---------- --------- --------
12. SUMMARY OF OTHER (INCOME) EXPENSE: Other (income) expense consists of the following:
YEAR ENDED DECEMBER 31, -------------------------------------------- 1998 1997 1996 ------------ ------------ ----------- Interest income.......................................... $ (197,000) $ (127,000) $ (112,000) Goodwill amortization.................................... 355,000 177,000 177,000 Loan cost expenses/amortization.......................... 284,000 - 333,000 Environmental related expenses (credits)................. (151,000) (1,181,000) (418,000) Net gain on sales of operating and non-operating assets.. (1,936,000) (1,662,000) (106,000) Provision (credit) for collectability (recovery) of long-term note receivable (Note 10).................... (610,000) (2,390,000) (534,000) Idle facility income..................................... (183,000) (368,000) (147,000) Litigation settlements/insurance provisions.............. - 2,125,000 1,512,000 Treasury lock settlement................................. 3,005,000 - - Other miscellaneous...................................... 395,000 315,000 (74,000) ----------- ------------ ----------- $ 962,000 $(3,111,000) $ 631,000 ----------- ------------ ----------- ----------- ------------ -----------
40 ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 13. QUARTERLY FINANCIAL DATA (UNAUDITED): Summarized restated quarterly financial data for 1998 and 1997 are as follows (in thousands of dollars, except per share data):
QUARTER ENDING --------------------------------------------------- MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 -------- -------- ------------ ----------- 1998 Net sales.......................................... $62,831 $88,985 $77,184 $44,834 Gross profit (loss)................................ 19,155 19,215 956 (15,661) Net income (loss).................................. 5,330 7,101 (7,148) (19,396) Net income (loss) per common share-diluted......... .44 .59 (.60) (1.64) 1997 Net sales.......................................... $72,881 $76,902 $63,714 $57,065 Gross profit....................................... 18,258 18,337 16,621 7,313 Net income (loss).................................. 5,506 5,399 5,287 (546) Net income (loss) per common share-diluted ........ .44 .44 .43 (.05)
Subsequent to the end of 1998 and as discussed in Note 1, the Company determined that the accounting for certain stock option exercise transactions during 1997 and 1998 was incorrect. Compensation expense for certain option exercises during each of these periods should have been recognized. The Company also determined that gross profit margins at the Verson division were incorrect in all quarters of 1997 and the first three quarters of 1998. The following table reconciles the quarterly operating results as previously reported to the restated amounts presented above: 41 ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Quarter Ending --------------------------------------------------- March 31 June 30 September 30 December 31 -------- -------- ------------ ----------- 1998 Gross profit (loss): As previously reported.................................... $18,857 $19,077 $ (3,887) (1) Net change associated with Verson gross profit margins.... 298 138 4,843 (1) -------- ------- ---------- Restated ................................................. $19,155 $19,215 $ 956 (1) -------- ------- ---------- -------- ------- ---------- Net income (loss): As previously reported................................... $ 5,865 $ 7,010 $ (10,296) (1) Net change associated with Verson gross profit margins... 298 138 4,843 (1) Net change associated with stock option compensation..... (1,119) - - (1) Tax impact of above changes.............................. 286 (47) (1695) (1) -------- -------- ---------- Restated ................................................ $ 5,330 $ 7,101 $ (7,148) (1) -------- -------- ---------- -------- -------- ---------- 1997 Gross profit: As previously reported................................. $17,655 $ 19,579 $ 16,199 $12,375 Net change associated with Verson gross profit margins. 603 (1,242) 422 (5,062) -------- -------- --------- ------- Restated .............................................. $18,258 $ 18,337 $ 16,621 $ 7,313 -------- -------- --------- ------- -------- -------- --------- ------- Net income (loss): As previously reported................................. $ 5,171 $ 6,206 $ 5,013 $ 3,581 Net change associated with Verson gross profit margins. 603 (1,242) 422 (5,062) Net change associated with stock option compensation........................................ (87) - - (1,288) Tax impact of above changes......................... (181) 435 (148) 2,223 -------- -------- ---------- ------- Restated ........................................... $ 5,506 $ 5,399 $ 5,287 $ (546) -------- -------- ---------- ------- -------- -------- ---------- -------
(1) No restatements occurred during this quarter. Operating results in the fourth quarter of 1998 included the effects of charges to cost of sales for increased estimated costs on contracts of $9,324,000, reduced estimated gross profit margins on contracts to reflect the lower end of the range of margin of $3,516,000 and an additional contract loss estimate of $8,538,000. It also included a $3,005,000 charge to other (income) expense related to hedging losses associated with an interest rate lock -- see Note 5. 42 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY See the Company's Proxy Statement incorporated by reference as part of this Part III, under the caption "Proposal 1: Election of Directors" for information with respect to the directors. In addition, see the information under the caption "Executive Officers of the Company" as part of Part I, Item 1 of this Report which is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION See the Company's Proxy Statement incorporated by reference as part of Part III, Item 10 of this report, under the captions "Management Compensation" for information with respect to executive compensation. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (a) Security Ownership of Certain Beneficial Owners. See the Company's Proxy Statement incorporated by reference as part of Part III, Item 10 of this report, under the captions "Outstanding Stock and Voting Rights", "Beneficial Owners" and "Principal Stockholders and Management Ownership" for information with respect to the ownership of certain beneficial owners of Common Stock of the Company. (b) Security Ownership of Management. See the Company's Proxy Statement incorporated by reference as part of Part III, Item 10 of this report, under the caption "Principal Stockholders and Management Ownership" for information with respect to the beneficial ownership by management of Common Stock of the Company. (c) Changes in Control. There is no arrangement known to the Company, the operation of which may at a subsequent date result in a change in control of the Company. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS See the Company's Proxy Statement incorporated by reference as part of Part III, Item 10 of this report, under the captions "Proposal 1: Election of Directors" and "Management Compensation" for information with respect to certain relationships and related transactions with management. 43 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. FINANCIAL STATEMENTS Included in Part II of this report: Report of Independent Accountants Consolidated statements of income (loss) for the years ended December 31, 1998, 1997 and 1996 Consolidated balance sheets as of December 31, 1998 and 1997 Consolidated statements of cash flows for the years ended December 31, 1998, 1997 and 1996 Consolidated statements of shareholders' investment for the years ended December 31, 1998, 1997 and 1996 Notes to consolidated financial statements (a) 2. FINANCIAL STATEMENT SCHEDULES Included in Part IV of this report: Schedule II-Valuation and qualifying accounts for the years ended December 31, 1998, 1997 and 1996 (a) 3. EXHIBITS The following exhibits are incorporated by reference as noted below: 3(a) The Registrant's Restated Certificate of Incorporation, as amended, is incorporated by reference to Exhibit 3 of the Company's 1988 Annual Report on Form 10-K (File No. 1-5530). 3(b) The Registrant's Amendments to Restated Certificate of Incorporation is incorporated by reference to Exhibit 3 of the Company's 1990 Annual Report on Form 10-K (File No. 1-5530). 3(c) The Registrant's By-Laws of the Company, as amended, are incorporated by reference to Exhibit 3 of the Company's 1989 Annual Report on Form 10-K (File No. 1-5530). 10(a) The Registrant's 1977 Incentive Stock Plan is incorporated by reference to Exhibit 10(a) of the Company's 1980 Annual Report on Form 10-K (File No. 1-5530). 10(b) The Registrant's SMART Plan is incorporated by reference to Exhibit 10(d) of the Company's 1984 Annual Report on Form 10-K (File No. 1-5530). 10(c) The Registrant's 1990 Long-Term Incentive Stock Plan is incorporated by reference to Exhibit 10 of the Company's 1991 Annual Report on Form 10-K (File No. 1-5530). 10(d) The Registrant's Agreement for the sale of the assets of the White-New Idea Farm Equipment Division of Allied Products Corporation is incorporated by reference to Exhibit(c)(2)(a)(i) of the Company's report on Form 8-K dated January 14, 1994 (File No. 1-5530). 10(e) The Registrant's Allied Products Corporation Executive Retirement Plan dated April 4, 1994 is incorporated by reference to Exhibit 10(a) of the Company's 1994 Annual Report on Form 10-K (File No. 1-5530). 44 10(f) The Registrant's Executive Officer's Agreement in Event of Change in Control or Ownership of Allied Products Corporation dated April 1, 1994 is incorporated by reference to Exhibit 10(b) of the Company's 1994 Annual Report on Form 10-K (File No. 1-5530). 10(g) The Registrant's Allied Products Corporation Retirement Plan dated as of December 31, 1993 is incorporated by reference to Exhibit 10(d) of the Company's 1994 Annual Report on Form 10-K (File No. 1-5530). 10(h) The Registrant's Bush Hog Segment of the Allied Products Corporation Combined Retirement Plan effective December 31, 1993 is incorporated by reference to Exhibit 10(e) of the Company's 1994 Annual Report on Form 10-K (File No. 1-5530). 10(i) The Registrant's Verson Segment of the Allied Products Corporation Combined Retirement Plan effective December 31, 1993 is incorporated by reference to Exhibit 10(f) of the Company's 1994 Annual Report on Form 10-K (File No. 1-5530). 10(j) The Registrant's Littell Segment of the Allied Products Corporation Combined Retirement Plan effective December 31, 1993 is incorporated by reference to Exhibit 10(g) of the Company's 1994 Annual Report on Form 10-K (File No. 1-5530). 10(k) The Registrant's Amended and Restated Credit Agreement dated as of August 23, 1996 among Allied Products Corporation, the banks named herein and Bank of America Illinois, individually and as Agent is incorporated by reference to Exhibit 10A of the Company's 1996 Annual Report on Form 10-K (File No. 1-5530). 10(l) The Registrant's Consent to Stock Repurchases dated as of November 27, 1996 is incorporated by reference to Exhibit 10B of the Company's 1996 Annual Report on Form 10-K (File No. 1-5530). 10(m) The Registrant's 1997 Incentive Stock Plan is incorporated by reference to Exhibit 10 of the Company's June 30, 1997 Quarterly Report on Form 10-Q (File No. 1-5530). 10(n) The Registrant's Amendment No. 2 to the Registrant's Amended and Restated Credit Agreement dated as of August 23, 1996 among Allied Products Corporation, the banks named herein and Bank of America National Trust and Savings Association (as successor by merger to Bank of America Illinois) individually and as Agent is incorporated by reference to Exhibit 10A of the Company's 1997 Annual Report on Form 10-K (File No. 1-5530). 10(o) The Registrant's Amendment No. 3 to the Registrant's Amended and Restated Credit Agreement dated as of August 23, 1996 among Allied Products Corporation, the banks named herein and Bank of America National Trust and Savings Association (as successor by merger to Bank of America Illinois) individually and as Agent is incorporated by reference to Exhibit 10 of the Company's quarterly report on Form 10-Q dated August 13, 1998 (File No. 1-5530). 10(p) The Registrant's Amendment No. 4 to the Registrant's Amended and Restated Credit Agreement dated as of August 23, 1996 among Allied Products Corporation, the banks named herein and Bank of America National Trust and Savings Association (as successor by merger to Bank of America Illinois) individually and as Agent is incorporated by reference to Exhibit 10 of the Company's quarterly report on Form 10-Q dated November 13, 1998 (File No. 1-5530). The following exhibits are attached only to the copies of this report filed with the Securities and Exchange Commission: EXHIBIT NO. NAME OF EXHIBIT ----------- --------------- 3 By-Laws of Allied Products Corporation. 10A Material Contract-Second Amended and Restated Credit Agreement. 10B First Amendment and Waiver to Credit Agreement. 21 Subsidiaries of the Registrant. 23 Consent of Independent Accountants. 24 Power of Attorney. 27 Financial Data Schedules. Other financial statements, schedules and exhibits not included above have been omitted as inapplicable or because the required information is included in the consolidated financial statements or notes thereto. 45 (b) REPORTS ON FORM 8-K On October 6, 1998, the Company filed a report under Item 5-Other Events. This report was filed in connection with a press release dated September 24, 1998, reporting that the Registrant would record a pretax charge of approximately $16 million in the third quarter of 1998. No financial statements were filed with this report. ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS
YEAR ENDED DECEMBER 31, -------------------------------------------- 1998 1997 1996 ------------ ------------ ----------- Allowance for doubtful accounts- Current receivables: Balance at beginning of year................................. $ 531,000 $ 629,000 $ 948,000 Add (deduct)- Provision charged to income............................... 129,000 114,000 214,000 Allowance applicable to receivables acquired.............. 47,000 - - Receivables charged off as bad debts, net of recoveries... (188,000) (212,000) (533,000) ------------ ------------ ----------- Balance at end of year....................................... $ 519,000 $ 531,000 $ 629,000 ------------ ------------ ----------- ------------ ------------ ----------- Long-term receivables: Balance at beginning of year................................. $ 610,000 $ 7,165,000 $7,699,000 Add (deduct)- Provision charged to income............................... - - - Receivables charged off as bad debts, net of recoveries... (610,000) (6,555,000) (534,000) ------------ ------------ ----------- Balance at end of year....................................... $ - $ 610,000 $7,165,000 ------------ ------------ ----------- ------------ ------------ -----------
46 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ALLIED PRODUCTS CORPORATION (Registrant) By: /s/ RICHARD A. DREXLER ------------------------------------- Richard A. Drexler, CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER April 25, 1999 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. * /s/ [RICHARD A. DREXLER] ----------------------------------------------------------------------- Richard A. Drexler, CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER; DIRECTOR April 25, 1999 * /s/ [ROBERT J. FLECK] ----------------------------------------------------------------------- Robert J. Fleck, VICE PRESIDENT-ACCOUNTING, CHIEF ACCOUNTING AND ADMINISTRATIVE OFFICER * /s/ [LLOYD DREXLER] ----------------------------------------------------------------------- Lloyd Drexler, Director * /s/ [William D. Fisher] ----------------------------------------------------------------------- William D. Fischer, DIRECTOR * /s/ [STANLEY J. GOLDRING] ----------------------------------------------------------------------- Stanley J. Goldring, DIRECTOR * /s/ [JOHN E. JONES] ----------------------------------------------------------------------- John E. Jones, DIRECTOR * /s/ [JOHN W. PUTH] ----------------------------------------------------------------------- John W. Puth, DIRECTOR * /s/ [MITCHELL I. QUAIN] ----------------------------------------------------------------------- Mitchell I. Quain, DIRECTOR * /s/ [S. S. SHERMAN] ----------------------------------------------------------------------- S. S. Sherman, DIRECTOR * By: /s/ [MARK C. STANDEFER] ----------------------------------------------------------------------- Mark C. Standefer, ATTORNEY-IN-FACT
47 EX-3 2 EXHIBIT 3 EXHIBIT 3 (As amended on October 21, 1998) BY-LAWS OF ALLIED PRODUCTS CORPORATION (a Delaware corporation) ARTICLE I Offices The registered office of the corporation in the State of Delaware shall be located at 100 West Tenth Street, Wilmington, Delaware. The corporation may have such other offices either within or without the State of Delaware as the business of the corporation may require from time to time. ARTICLE II Shareholders SECTION 1. ANNUAL MEETING. The annual meeting of the shareholders shall be held on the last Wednesday in April in each year beginning 1968 at the hour of 10:30 A.M., Eastern Standard Time, or on such other date or at such other time as the board of directors may designate, for the purpose of electing directors and for the transaction of any other proper business. If the day fixed for the annual meeting shall be a legal holiday, such meeting shall be held on the next succeeding business day. If the election of directors shall not be held on the day designated herein for any annual meeting, or at any adjournment thereof, the board of directors shall cause the election to be held at a special meeting of the shareholders as soon thereafter as conveniently may be. SECTION 2. SPECIAL MEETINGS. Special meetings of the shareholders may be called by the president or by the board of directors. SECTION 3. PLACE OF MEETING. The board of directors may designate any place either within or without the State of Delaware as the place of meeting for any annual meeting or for any special meeting called by the board of directors. If no designation is made or if a special meeting be called otherwise than by the board of directors, the place of meeting shall be the registered office of the corporation in the State of Delaware. SECTION 4. NOTICE OF MEETINGS. Written or printed notice stating the place, date and hour of the meeting and, in case of a special meeting, the purpose or purposes for which the meeting is called, shall be delivered not less than ten nor more than sixty days before the date of the meeting, by mail, by or at the direction of the president or the secretary, to each shareholder of record entitled to vote at such meeting. If mailed, such notice shall be deemed to be given when deposited in the United States mail addressed to the shareholder at his address as it appears on the records of the corporation, with postage thereon prepaid. Business transacted at any special meeting of shareholders shall be limited to the purposes stated in the notice. SECTION 5. FIXING OF RECORD DATE. The board of directors of the corporation in order to determine the shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, may fix, in advance, a record date, which shall not be more than sixty days nor less than ten days prior to the date of such meeting, nor more than sixty days prior to any other action. SECTION 6. VOTING LISTS. It shall be the duty of the officer or agent who shall have charge of the stock ledger of the corporation to prepare and make or cause to be prepared and made, at least ten days before every meeting of shareholders, a complete list of the shareholders entitled to vote at said meeting, arranged in alphabetical order, showing the address of each shareholder and the number of shares registered in the name of each shareholder. Such list shall be open at the place where said election is to be held for at least ten days before such meeting, for examination by any shareholder, for any purpose germane to the meeting, during ordinary business hours, and shall be produced and kept at the time and place of the meeting during the whole time thereof, and shall be subject to the inspection of any shareholder who is present. The stock ledger shall be the only evidence as to who are shareholders entitled to examine such ledger, the list described above, or the books of the corporation, or to vote in person or by proxy at such meeting of shareholders. SECTION 7. QUORUM. A majority of the outstanding shares of the corporation, represented in person or by proxy, shall constitute a quorum at any meeting of shareholders; provided, that if less than a majority of the outstanding shares are represented at said meeting, the president may adjourn the meeting from time to time without further notice. SECTION 8. PROXIES. At all meetings of shareholders, a shareholder may vote by proxy executed in writing by the shareholder or by his duly authorized attorney-in-fact. Such proxy shall be filed with the secretary of the corporation before or at the time of the meeting. No proxy shall be valid after three years from the date of its execution, unless otherwise provided in the proxy. SECTION 9. VOTING OF SHARES. Unless otherwise provided in the Certificate of Incorporation and subject to the provisions of Section 213 of the General Corporation Laws of the State of Delaware, each outstanding share, regardless of class, shall be entitled to one vote upon each matter submitted to a vote at a meeting of shareholders. -2- SECTION 10. NOTICE OF SHAREHOLDER PROPOSALS. (a) At an annual meeting, only such business shall be conducted, and only such proposals shall be acted upon, as shall have been brought before the annual meeting (i) by, or at the direction of, the board of directors, or (ii) by any shareholder of the corporation who complies with the notice procedures set forth in this section of these By-Laws. For a proposal to be properly brought before an annual meeting by a shareholder, the shareholder must have given timely notice thereof in writing to the secretary of the corporation. To be timely, a shareholder's notice must be delivered to, or mailed and received at, the principal executive offices of the corporation not less than thirty days nor more than sixty days prior to the scheduled annual meeting, regardless of any postponements, deferrals or adjournments of that meeting to a later date; provided, however, that if less than forty days' notice or prior public disclosure of the date of the scheduled annual meeting is given or made, notice by the shareholder to be timely must be so delivered or received not later than the close of business on the tenth day following the earlier of the day on which such notice of the date of the scheduled annual meeting was mailed or the day on which such public disclosure was made. A shareholder's notice to the secretary shall set forth as to each matter the shareholder proposes to bring before the annual meeting (i) a brief description of the proposal desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and address, as they appear on the corporation's books, of the shareholder proposing such business and any other shareholders known by such shareholder to be supporting such proposal, (iii) the class and number of shares of the corporation's stock which are beneficially owned by the shareholder on the date of such shareholder notice and by any other shareholders known by such shareholder to be supporting such proposal on the date of such shareholder notice, and (iv) any financial interest of the shareholder in such proposal. (b) If the presiding officer of the annual meeting determines that a shareholder proposal was not made in accordance with the terms of this section, he shall so declare at the annual meeting and any such proposal shall not be acted upon at the annual meeting. (c) This provision shall not prevent the consideration and approval or disapproval at the annual meeting of reports of officers, directors and committees of the board of directors, but, in connection with such reports, no business shall be acted upon at such annual meeting unless stated, filed and received as herein provided. ARTICLE III Directors SECTION 1. GENERAL POWERS. The business and affairs of the corporation shall be managed by its board of directors. SECTION 2. NUMBER, TENURE AND QUALIFICATIONS. The number of directors of the -3- corporation shall be no fewer than five nor more than fifteen, the exact number of which shall be fixed by the board of directors. Each director shall hold office for the term for which he is named or elected and/or until his successor shall have been elected. SECTION 3. REGULAR MEETINGS. Until otherwise determined by majority of the board of directors, the regular meetings of the board of directors of this corporation shall not be held and, in lieu thereof, special meetings of this corporation's board of directors shall be held at such time and place as may be appropriately designated, either by this board of directors or pursuant to Article III, Section 4, of the by-laws of this corporation. SECTION 4. SPECIAL MEETINGS. Special meetings of the board of directors may be called by or at the request of the president or a majority of the directors. Such meeting may be held at such place whether within the State of Delaware or elsewhere as the president or as a majority of the board of directors may from time to time determine. SECTION 5. NOTICE. Notice of any special meeting of directors shall be given at least two days previously thereto by written notice delivered personally or mailed to each director at his business address, or by telegram or facsimile. If mailed, such notice shall be deemed to be given when deposited in the United States mail in a sealed envelope so addressed, with postage thereon prepaid. Any director may waive notice of any meeting. The attendance of a director at any meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the board of directors need be specified in the notice or waiver of notice of such meeting. SECTION 6. QUORUM. A majority of the board of directors then in office shall constitute a quorum for the transaction of business at any meeting of the board of directors, provided, that if less than a majority of the directors are present at said meeting, a majority of the directors present may adjourn the meeting from time to time without further notice. SECTION 7. MANNER OF ACTING. The act of the majority of the directors present at a meeting at which a quorum is present shall be the act of the board of directors. SECTION 8. VACANCIES AND NEW DIRECTORSHIPS. If the office of any director becomes vacant at any time by reason of death, resignation, retirement, disqualification, removal from office or otherwise, or if any new directorship is created by any increase in the authorized number of directors, a majority of the directors then in office, although less than a quorum, or the sole remaining director, may choose a successor or fill the newly created directorship, and the director so chosen shall hold office, subject to the provisions of these By-Laws, until the expiration of the term of the class to which he has been chosen. This Section 8 may not be amended or rescinded except by the affirmative vote of the holders of at least 75% of the stock of the corporation entitled to vote, considered for the purpose as one class. -4- SECTION 9. COMPENSATION. Directors shall receive such reasonable compensation for their service as such, whether in the form of salary or a fixed fee for attendance at meetings, with expenses, if any, as the board of directors may from time to time determine. Nothing herein contained shall be construed to preclude any director from serving the corporation in any other capacity and receiving compensation therefor. SECTION 10. EXECUTIVE COMMITTEE. The board of directors may, by resolution passed by a majority of the whole board, designate one or more committees, each committee to consist of two or more of the directors as well as one or more directors designated as alternate members of any committee who may replace any absent or disqualified member at any meeting of the committee. Any such committee shall have and exercise the powers of the board of directors in the management of the business and affairs of the corporation and may authorize the seal of the corporation to be affixed to all papers which may require it. In the absence or disqualification of any member of such committee or committees, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they shall constitute a quorum, may unanimously appoint another member of the board of directors to act at the meeting in place of such absent or disqualified member. SECTION 11. CLASSES. The directors of the corporation shall be divided into three classes with the number of directors fixed by or in accordance with the By-Laws divided equally so far as possible among the three classes. At the 1975 Annual Meeting of Stockholders: (a) One-third of the number of directors shall be elected to serve until the 1976 Annual Meeting of Stockholders; (b) One-third of the number of directors shall be elected to serve until the 1977 Annual Meeting of Stockholders; and (c) One-third of the number of directors shall be elected to serve until the 1978 Annual Meeting of Stockholders. At each annual election of directors after the 1975 Annual Meeting of Stockholders, the successors to the directors of each class whose term shall expire in that year shall be elected to hold office for a term of three years from the date of their election. In case of any increase or decrease in the number of directors, the increase or decrease shall be distributed among the several classes as nearly equally as possible, as shall be determined by the affirmative vote of a majority of the whole board at the time of such increase or decrease. This Section 11 may not be amended or rescinded except by the affirmative vote of the holders of at least 75% of the stock of the corporation entitled to vote, considered for the purpose as one class. SECTION 12. TELEPHONE MEETINGS. Members of the board of directors, or any committee designated by the board of directors, may participate in a meeting of the board of directors, or any committee, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can be heard, and -5- communicate with, each other, and such participation in a meeting shall constitute presence in person at the meeting. ARTICLE IV Officers SECTION 1. NUMBER. The board of directors shall elect a president, a vice president and a secretary and may select the chairman of the board, a vice chairman of the board, the chairman of the Executive Committee, one or more executive vice presidents and one or more additional vice presidents. It may appoint a treasurer, assistant secretaries and assistant treasurer, and such officers and agents as it may deem necessary or desirable for the transaction of the business of the corporation. No one of said officers, except the president, the chairman of the board, the vice chairman of the board and the chairman of the Executive Committee need be directors. Any executive vice president or vice president who is not a director cannot succeed to or fill the office of president. Any two of the above offices may be held by the same person, but no officer shall execute, acknowledge or verify any instrument in more than one capacity. SECTION 2. ELECTION AND TERM OF OFFICE. The elective officers of the corporation shall be elected annually by the board of directors at the first meeting of the board of directors held after each annual meeting of shareholders. If the election of officers shall not be held at such meeting, such election shall be held as soon thereafter as conveniently may be. Vacancies may be filled or new offices created and filled at any meeting of the board of directors. Each officer shall hold office until his successor shall have been duly chosen and shall have qualified or until his death or until he shall resign or shall have been removed in the manner hereinafter provided. SECTION 3. REMOVAL. Any officer or agent may be removed by the board of directors whenever in their judgment the business interests of the corporation will be served thereby. SECTION 4. VACANCIES. The board of directors shall have the power to fill any vacancies in any office occurring for whatever reason. SECTION 5. (a) CHAIRMAN OF THE BOARD, VICE CHAIRMAN OF THE BOARD. The chairman of the board, when present, shall preside at all meetings of the directors and shall perform such other duties as may be designated or assigned to him by the board of directors. The vice chairman of the board shall, in the absence of the chairman of the board, preside at meetings of the board of directors and shall perform such other duties as the board of directors shall from time to time designate. SECTION 5. (b) CHAIRMAN OF THE EXECUTIVE COMMITTEE. The chairman of the Executive Committee shall preside as chairman of meetings of the Executive Committee and in the absence of the chairman of the board and vice chairman of the board, if any, shall preside at meetings of the directors. SECTION 5. (c) PRESIDENT. The president shall be the chief executive officer of the -6- corporation and in the absence of the chairman of the board and vice chairman of the board, if any, and chairman of the Executive Committee shall preside at meetings of the directors. Subject to the direction and supervision of the board of directors and/or the Executive Committee, the president shall have general management of the business of the corporation and general supervision of the other officers, shall see that all resolutions of the board of directors are carried into effect, subject, however, to the right of the board to delegate to any other officer or officers of the corporation any specific powers other than those that may be by law conferred only upon the president and shall have the general powers and duties of supervision and management usually vested in the office of president of a corporation. The president shall execute in the name of the corporation all deeds, bonds, mortgages, contracts and other documents authorized by the board of directors, except in cases where the execution thereof shall be expressly delegated by the board or these By-Laws to some other officer or agent of the corporation. SECTION 6. VICE PRESIDENTS. Unless and to the extent specified by resolution of the board of directors, no vice president of the corporation (executive or otherwise) who is not a member of the board shall by reason of his election or selection as such perform the duties or exercise the powers of the president in case of the president's sickness, disability or temporary absence from the office of the corporation nor, save by virtue of a specific enabling resolution, shall any vice president (executive or otherwise) who is not a member of the board be authorized to sign any deed, contract, or other instrument in writing purporting to be the act of the corporation and authorized by the board. Any vice president (executive or otherwise) who is a member of the board of directors may perform the duties and exercise the powers of the president in case of the president's sickness, disability or temporary absence from the office of the corporation and the signature of the corporation by any such vice president (executive or otherwise) who is a member of the board to any deed, contract, or other instrument in writing purporting to be the act of the corporation and authorized by the board of directors shall be and may be taken, received and accepted as the authorized and binding act of the corporation with like effect as if made by the president. The respective vice presidents (executive or otherwise) whether or not members of the board of directors shall have such further powers and perform such further duties as may from time to time be prescribed by the board. SECTION 7. SECRETARY. The secretary shall attend all meetings of the board and all meetings of the shareholders and record all proceedings of the meetings of shareholders and directors in a book to be kept for that purpose, and record all votes. He shall perform like duties for any standing committees when required. He shall give, or cause to be given, notice of all meetings of the shareholders and of the board of directors. He shall have custody of and attest the seal of the corporation and see that the seal is affixed to all authorized documents requiring a seal. He shall cause a stock ledger of the corporation to be kept at the corporation's transfer office and such other place, if any, as the board of directors may from time to time determine. In general, he shall perform the duties usually incident to the office of secretary and such further duties as shall from time to time be prescribed by the board of directors or the president. At any meeting of the shareholders or board of directors at which the secretary is not present, a secretary pro tempore or clerk of the meeting may be appointed by the meeting. SECTION 8. ASSISTANT SECRETARY. In case of the secretary's absence, sickness, disability, -7- or temporary absence from the office of the corporation, an assistant secretary shall perform his duties. He shall perform such further duties as may from time to time be prescribed by the board of directors or the president or the secretary. SECTION 9. TREASURER. The treasurer shall, subject to the direction of the board of directors, have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the corporation. He shall deposit all moneys and other valuable effects in the name of and to the credit of the corporation, in such depositaries as may be designated by the board of directors, and, in general, he shall perform the duties usually incident to the office of treasurer and such other duties as may be prescribed by the board of directors or the president. If required by the board of directors, the treasurer shall furnish the corporation with a proper bond, in a sum and with one or more sureties satisfactory to the board of directors, for the faithful performance of the duties of his office, and for the restoration to the corporation, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control and belonging to the corporation. SECTION 10. ASSISTANT TREASURER. In the case of the treasurer's sickness, disability, or temporary absence from the office of the corporation, an assistant treasurer shall perform his duties. He shall perform such further duties as from time to time shall be prescribed by the board of directors or the president or the treasurer. SECTION 11. SALARIES. The salaries of the officers shall be fixed from time to time by the board of directors and no officer shall be prevented from receiving such salary by reason of the fact that he is also a director of the corporation. ARTICLE V Contracts, Loans, Checks, Deposits, Etc. SECTION 1. CONTRACTS. The board of directors may authorize any officer or officers, agent or agents, to enter into any contract or execute and deliver any instrument in the name of and on behalf of the corporation and such authority may be general or confined to specific instances. SECTION 2. LOANS. No loans shall be contracted on behalf of the corporation and no evidences of indebtedness shall be issued in its name unless authorized by a resolution of the board of directors. Such authority may be general or confined to specific instances. SECTION 3. CHECKS, DRAFTS, ETC. All checks, drafts, or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the corporation, shall be signed by such officer, officers, agent, or agents of the corporation and in such manner as shall from time to time be determined by resolution of the board of directors. SECTION 4. DEPOSITS. All funds of the corporation not otherwise employed shall be -8- deposited from time to time to the credit of the corporation in such banks, trust companies or other depositaries as the board of directors may select. ARTICLE VI Certificates for Shares and Their Transfer SECTION 1. CERTIFICATES FOR SHARES. Certificates representing shares of the corporation shall be in such form as may be determined by the board of directors. Every shareholder shall be entitled to have a certificate signed by or in the name of the corporation by the chairman or the vice chairman of the board of directors, or the president or the vice president, and by the treasurer or an assistant treasurer, or the secretary or an assistant secretary of such corporation, certifying the number of shares owned by him in such corporation. If such certificate is countersigned (1) by a transfer agent other than the corporation or its employee, or (2) by a registrar other than the corporation or its employee, the signatures of the officers of the corporation may be facsimiles. In case any officer who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer at the date of issuance. All certificates for shares of each class or series within a class shall be consecutively numbered. The name of the person owning the shares represented thereby with the number of shares and the date of issue shall be entered on the books of the corporation. All certificates surrendered to the corporation for transfer shall be canceled and no new certificate shall be issued until the former certificate for a like number of shares shall have been surrendered and canceled. Notwithstanding the foregoing, if a certificate of stock be lost, stolen, or destroyed, a new certificate of the identical tenor of the one alleged to be lost, stolen, or destroyed may be issued by special order of the board of directors upon satisfactory proof of such loss, theft, or destruction, and the giving of a bond of indemnity against loss by reason thereof in form and amount to be approved by the board. If the corporation shall voluntarily and in good faith issue a new certificate in lieu of one believed to have been lost, stolen, or destroyed, it may recognize the person in whose name the new certificate or any certificate thereafter issued in exchange or substitution therefor is issued as the owner of the shares described therein for all purposes, including the right to vote and the right to receive payment of the dividends, distribution or redemption price, until the owner of the original certificate or a transferee thereof without notice and for value shall enjoin the corporation and the holder of any new certificate or any certificate issued in exchange or substitution therefor from so acting. SECTION 2. TRANSFER OF SHARES. Transfers of shares of the corporation shall be made only on the books of the corporation by the registered holder thereof or by his attorney thereunto authorized by power of attorney duly executed and filed with the secretary of the corporation, and on surrender for cancellation of the certificate for such shares. The person in whose name shares stand on the books of the corporation shall be deemed the owner thereof for all purposes as regards the corporation. -9- SECTION 3. REGULATIONS. The board of directors may make such rules and regulations as it may deem expedient concerning the issue, transfer and registration of the certificates for shares of capital stock. It may appoint one or more transfer agents or registrars, or both, and may require all certificates of stock to bear the signature of either or both. ARTICLE VII Fiscal Year The fiscal year of the corporation shall begin on the first day of January in each year and end on the thirty-first day of December in each year. ARTICLE VIII Dividends The board of directors may from time to time declare, and the corporation may pay, dividends on its outstanding shares in the manner and upon the terms and conditions provided by law and its Articles of Incorporation and in accordance with the laws of the State of Delaware. ARTICLE IX Seal The corporate seal of this corporation shall be the design impressed herein which is hereby adopted as the corporate seal of the corporation. ARTICLE X Waiver of Notice Whenever any notice whatever is required to be given under the provisions of these By-Laws or under the provisions of the Articles of Incorporation or under the provisions of the General Corporation Laws of the State of Delaware, waiver thereof in writing, signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. ARTICLE XI Amendments These By-Laws may be altered or new By-Laws may be made and adopted by an affirmative vote of the majority of the directors of the corporation at any meeting of the board of directors, or by an affirmative vote or a majority of the shareholders of the corporation at any annual or any special meeting called for that purpose. -10- EX-10.(A) 3 EXHIBIT 10(A) EXHIBIT 10 A SECOND AMENDED AND RESTATED CREDIT AGREEMENT DATED AS OF FEBRUARY 1, 1999 AMONG ALLIED PRODUCTS CORPORATION, THE BANKS NAMED HEREIN AND BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, INDIVIDUALLY AND AS AGENT TABLE OF CONTENTS
PAGE NO. -------- SECTION 1 COMMITMENTS OF THE BANKS; TYPES OF LOANS; LETTER OF CREDIT, BORROWING AND CONVERSION PROCEDURES.. . . . . . . . . . . . . 1 SECTION 1.1 Commitments . . . . . . . . . . . . . . . . . . . . . . . . . 1 SECTION 1.1.1 Revolving Loan Commitment . . . . . . . . . . . . . . . . . . 2 SECTION 1.1.2 Letter of Credit Commitments. . . . . . . . . . . . . . . . . 2 SECTION 1.1.3 Commitment Limits . . . . . . . . . . . . . . . . . . . . . . 2 SECTION 1.2 Various Types of Loans. . . . . . . . . . . . . . . . . . . . 3 SECTION 1.3 Borrowing Procedures. . . . . . . . . . . . . . . . . . . . . 3 SECTION 1.4 Conversion Procedures . . . . . . . . . . . . . . . . . . . . 4 SECTION 1.5 Pro Rata Treatment. . . . . . . . . . . . . . . . . . . . . . 4 SECTION 1.6 Letter of Credit Procedures . . . . . . . . . . . . . . . . . 4 SECTION 1.7 Participation in Letters of Credit. . . . . . . . . . . . . . 4 SECTION 1.8 Reimbursement Obligations . . . . . . . . . . . . . . . . . . 5 SECTION 1.9 Limitation on Bank of America's Obligations . . . . . . . . . 5 SECTION 1.10 Funding by Banks to Bank of America . . . . . . . . . . . . . 5 SECTION 1.11 Cash Collateral . . . . . . . . . . . . . . . . . . . . . . . 6 SECTION 1.12 Warranty. . . . . . . . . . . . . . . . . . . . . . . . . . . 6 SECTION 1.13 Conditions. . . . . . . . . . . . . . . . . . . . . . . . . . 6 SECTION 2 NOTES EVIDENCING LOANS. . . . . . . . . . . . . . . . . . . . 6 SECTION 2.1 Revolving Notes . . . . . . . . . . . . . . . . . . . . . . . 6 SECTION 2.2 Recordation of Loans. . . . . . . . . . . . . . . . . . . . . 6 SECTION 2.3 Replacement Notes . . . . . . . . . . . . . . . . . . . . . . 7 SECTION 3 INTEREST. . . . . . . . . . . . . . . . . . . . . . . . . . . 7 SECTION 3.1 Interest Rates. . . . . . . . . . . . . . . . . . . . . . . . 7 SECTION 3.2 Interest Payment Dates. . . . . . . . . . . . . . . . . . . . 7 SECTION 3.3 Interest Periods. . . . . . . . . . . . . . . . . . . . . . . 7 SECTION 3.4 Setting and Notice of Eurodollar Rates. . . . . . . . . . . . 8 SECTION 3.5 Computation of Interest . . . . . . . . . . . . . . . . . . . 8 SECTION 4 RESERVED. . . . . . . . . . . . . . . . . . . . . . . . . . . 8
-i-
PAGE NO. -------- SECTION 5 FEES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 SECTION 5.1 Letter of Credit Fees . . . . . . . . . . . . . . . . . . . . 8 SECTION 5.2 Facility Fee. . . . . . . . . . . . . . . . . . . . . . . . . 9 SECTION 5.3 Agent's Fees. . . . . . . . . . . . . . . . . . . . . . . . .10 SECTION 6 REDUCTION OR TERMINATION OF THE COMMITMENTS; VOLUNTARY PREPAYMENTS.. . . . . . . . . . . . . . . . . . . . . . . . .10 SECTION 6.1 Reduction or Termination of the Commitments . . . . . . . . .10 SECTION 6.2 Voluntary Prepayments . . . . . . . . . . . . . . . . . . . .10 SECTION 6.3 Mandatory Prepayment. . . . . . . . . . . . . . . . . . . . .11 SECTION 6.4 Certain Prepayment Mechanics. . . . . . . . . . . . . . . . .11 SECTION 7 MAKING AND PRORATION OF PAYMENTS; SETOFF. . . . . . . . . . .11 SECTION 7.1 Making of Payments. . . . . . . . . . . . . . . . . . . . . .11 SECTION 7.2 Application of Certain Payments . . . . . . . . . . . . . . .12 SECTION 7.3 Due Date Extension. . . . . . . . . . . . . . . . . . . . . .12 SECTION 7.4 Setoff. . . . . . . . . . . . . . . . . . . . . . . . . . . .12 SECTION 7.5 Proration of Payments . . . . . . . . . . . . . . . . . . . .12 SECTION 7.6 Withholding Tax . . . . . . . . . . . . . . . . . . . . . . .12 SECTION 8 INCREASED COSTS; SPECIAL PROVISIONS FOR EURODOLLAR LOANS. . .14 SECTION 8.1 Increased Costs . . . . . . . . . . . . . . . . . . . . . . .14 SECTION 8.2 Basis for Determining Interest Rate Inadequate or Unfair. . .15 SECTION 8.3 Changes in Law Rendering Certain Loans Unlawful . . . . . . .15 SECTION 8.4 Funding Losses. . . . . . . . . . . . . . . . . . . . . . . .16 SECTION 8.5 Right of Banks to Fund through Other Offices. . . . . . . . .16 SECTION 8.6 Discretion of Banks as to Manner of Funding . . . . . . . . .16 SECTION 8.7 Mitigation. . . . . . . . . . . . . . . . . . . . . . . . . .17 SECTION 8. Conclusiveness of Statements; Survival of Provisions. . . . .17 SECTION 9 WARRANTIES. . . . . . . . . . . . . . . . . . . . . . . . . .17 SECTION 9.1 Organization and Qualification. . . . . . . . . . . . . . . .17 SECTION 9.2 Authorization: No Conflict and Validity of Obligations. . . .17 SECTION 9.3 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . .17 SECTION 9.4 Financial Statements. . . . . . . . . . . . . . . . . . . . .17 SECTION 9.5 No Material Adverse Change. . . . . . . . . . . . . . . . . .18
-ii-
PAGE NO. -------- SECTION 9.6 Litigation and Contingent Liabilities . . . . . . . . . . . .18 SECTION 9.7 Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . .18 SECTION 9.8 Pension and Welfare Plans . . . . . . . . . . . . . . . . . .18 SECTION 9.9 Investment Company Act. . . . . . . . . . . . . . . . . . . .18 SECTION 9.10 Regulation U. . . . . . . . . . . . . . . . . . . . . . . . .18 SECTION 9.11 Approvals . . . . . . . . . . . . . . . . . . . . . . . . . .19 SECTION 9.12 Company's Material Agreements . . . . . . . . . . . . . . . .19 SECTION 9.13 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . .19 SECTION 9.14 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . .19 SECTION 9.15 Business Locations. . . . . . . . . . . . . . . . . . . . . .19 SECTION 9.16 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . .19 SECTION 9.17 Environmental Matters . . . . . . . . . . . . . . . . . . . .19 SECTION 9.18 Treatment and Storage . . . . . . . . . . . . . . . . . . . .19 SECTION 9.19 Compliance With Laws. . . . . . . . . . . . . . . . . . . . .20 SECTION 9.20 Information . . . . . . . . . . . . . . . . . . . . . . . . .20 SECTION 9.21 Year 2000 Problem . . . . . . . . . . . . . . . . . . . . . .20 SECTION 10 COVENANTS.. . . . . . . . . . . . . . . . . . . . . . . . . .20 SECTION 10.1 Reports, Certificates and Other Information . . . . . . . . .20 SECTION 10.1.1 Audit Report. . . . . . . . . . . . . . . . . . . . . . . . .20 SECTION 10.1.2 Quarterly Reports . . . . . . . . . . . . . . . . . . . . . .21 SECTION 10.1.3 Monthly Reports . . . . . . . . . . . . . . . . . . . . . . .21 SECTION 10.1.4 Compliance Certificates . . . . . . . . . . . . . . . . . . .21 SECTION 10.1.5 Reports to SEC and to Shareholders. . . . . . . . . . . . . .21 SECTION 10.1.6 Notice of Default, Litigation and ERISA Matters . . . . . . .21 SECTION 10.1.7 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . .22 SECTION 10.1.8 Projections . . . . . . . . . . . . . . . . . . . . . . . . .22 SECTION 10.1.9 Other Information . . . . . . . . . . . . . . . . . . . . . .22 SECTION 10.2 Books, Records and Inspections. . . . . . . . . . . . . . . .22 SECTION 10.3 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . .22 SECTION 10.5.1 Capital Expenditures. . . . . . . . . . . . . . . . . . . . .22 SECTION 10.5.2 Minimum Consolidated Operating Cash Flow. . . . . . . . . . .22 SECTION 10.5.3 Net Worth . . . . . . . . . . . . . . . . . . . . . . . . . .23
-iii-
PAGE NO. -------- SECTION 10.6 Funded Debt/Operating Cash Flow Ratio . . . . . . . . . . . .23 SECTION 10.7 Consolidated Fixed Charge Coverage. . . . . . . . . . . . . .23 SECTION 10.8 Minimum Debt Coverage . . . . . . . . . . . . . . . . . . . .23 SECTION 10.9 Purchase or Redemption of Company's Securities; Dividend Restrictions. . . . . . . . . . . . . . . . . . . . . . . . .24 SECTION 10.10 Indebtedness. . . . . . . . . . . . . . . . . . . . . . . . .24 SECTION 10.11 Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . .24 SECTION 10.12 Guaranties, Loans or Advances . . . . . . . . . . . . . . . .25 SECTION 10.13 Mergers, Consolidations, Sales. . . . . . . . . . . . . . . .25 SECTION 10.14 Investments . . . . . . . . . . . . . . . . . . . . . . . . .26 SECTION 10.15 Environmental Covenants.. . . . . . . . . . . . . . . . . . .27 SECTION 10.15.1 Environmental Response Obligation . . . . . . . . . . . . . .27 SECTION 10.15.2 Environmental Liabilities . . . . . . . . . . . . . . . . . .27 SECTION 10.16 Unconditional Purchase Obligations. . . . . . . . . . . . . .27 SECTION 10.17 Employee Benefit Plans. . . . . . . . . . . . . . . . . . . .27 SECTION 10.18 Regulation U. . . . . . . . . . . . . . . . . . . . . . . . .27 SECTION 10.19 Significant Subsidiary. . . . . . . . . . . . . . . . . . . .27 SECTION 10.20 Other Agreements. . . . . . . . . . . . . . . . . . . . . . .28 SECTION 10.21 Compliance With Laws. . . . . . . . . . . . . . . . . . . . .28 SECTION 11 EFFECTIVENESS; CONDITIONS OF LENDING. . . . . . . . . . . . .28 SECTION 11.1 Effectiveness . . . . . . . . . . . . . . . . . . . . . . . .28 SECTION 11.1.1 Revolving Notes . . . . . . . . . . . . . . . . . . . . . . .28 SECTION 11.1.2 Certificate . . . . . . . . . . . . . . . . . . . . . . . . .28 SECTION 11.1.3 Resolutions . . . . . . . . . . . . . . . . . . . . . . . . .28 SECTION 11.1.4 Consents and Approvals. . . . . . . . . . . . . . . . . . . .28 SECTION 11.1.5 Incumbency and Signatures . . . . . . . . . . . . . . . . . .29 SECTION 11.1.6 Opinions of Counsel for the Company . . . . . . . . . . . . .29 SECTION 11.1.7 Other Documents . . . . . . . . . . . . . . . . . . . . . . .29 SECTION 11.2 All Loans and Letters of Credit . . . . . . . . . . . . . . .29 SECTION 11.2.1 No Default. . . . . . . . . . . . . . . . . . . . . . . . . .29 SECTION 11.2.2 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . .29 SECTION 12 EVENTS OF DEFAULT AND THEIR EFFECT. . . . . . . . . . . . . .30
-iv-
PAGE NO. -------- SECTION 12.1 Events of Default . . . . . . . . . . . . . . . . . . . . . .30 SECTION 12.1.1 Non-Payment of Notes, etc . . . . . . . . . . . . . . . . . .30 SECTION 12.1.2 Non-Payment of Other Indebtedness for Borrowed Money. . . . .30 SECTION 12.1.3 Other Material Obligations. . . . . . . . . . . . . . . . . .30 SECTION 12.1.4 Bankruptcy, Insolvency. . . . . . . . . . . . . . . . . . . .30 SECTION 12.1.5 Non-Compliance with This Agreement. . . . . . . . . . . . . .30 SECTION 12.1.6 Warranties. . . . . . . . . . . . . . . . . . . . . . . . . .31 SECTION 12.1.7 Pension Plans . . . . . . . . . . . . . . . . . . . . . . . .31 SECTION 12.1.8 Material Adverse Change . . . . . . . . . . . . . . . . . . .31 SECTION 12.1.9 Change of Control . . . . . . . . . . . . . . . . . . . . . .31 SECTION 12.2 Effect of Event of Default. . . . . . . . . . . . . . . . . .31 SECTION 13 CERTAIN DEFINITIONS . . . . . . . . . . . . . . . . . . . . .32 SECTION 14 THE AGENT . . . . . . . . . . . . . . . . . . . . . . . . . .48 SECTION 14.1 Authorization . . . . . . . . . . . . . . . . . . . . . . . .48 SECTION 14.2 Indemnification . . . . . . . . . . . . . . . . . . . . . . .49 SECTION 14.3 Exculpation . . . . . . . . . . . . . . . . . . . . . . . . .49 SECTION 14.4 Credit Investigation. . . . . . . . . . . . . . . . . . . . .49 SECTION 14.5 Agent and Affiliates. . . . . . . . . . . . . . . . . . . . .49 SECTION 14.6 Resignation . . . . . . . . . . . . . . . . . . . . . . . . .50 SECTION 14.7 Letters of Credit . . . . . . . . . . . . . . . . . . . . . .50 SECTION 15 GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . .50 SECTION 15.1 Waiver; Amendments. . . . . . . . . . . . . . . . . . . . . .50 SECTION 15.2 Confirmations . . . . . . . . . . . . . . . . . . . . . . . .51 SECTION 15.3 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . .51 SECTION 15.4 Computations. . . . . . . . . . . . . . . . . . . . . . . . .51 SECTION 15.5 Regulation U. . . . . . . . . . . . . . . . . . . . . . . . .51 SECTION 15.6 Costs, Expenses and Taxes . . . . . . . . . . . . . . . . . .51 SECTION 15.7 Subsidiary References . . . . . . . . . . . . . . . . . . . .52 SECTION 15.8 Captions. . . . . . . . . . . . . . . . . . . . . . . . . . .52 SECTION 15.9 Indemnification . . . . . . . . . . . . . . . . . . . . . . .52 SECTION 15.10 Governing Law . . . . . . . . . . . . . . . . . . . . . . . .52 SECTION 15.11 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . .52
-iv
PAGE NO. -------- SECTION 15.12 Successors and Assigns. . . . . . . . . . . . . . . . . . . .53 SECTION 15.13 Waiver of Jury Trial. . . . . . . . . . . . . . . . . . . . .53 SECTION 15.14 Securities Laws . . . . . . . . . . . . . . . . . . . . . . .53 SECTION 15.15 Confidentiality . . . . . . . . . . . . . . . . . . . . . . .53 SECTION 15.16 Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . .54 SECTION 15.17 Assignments and Participations. . . . . . . . . . . . . . . .54
EXHIBITS - - -------- Exhibit A Commitment Limits and Percentages Exhibit B Revolving Note Exhibit C Opinion of Counsel Exhibit D Borrowing Base Report Exhibit E Assignment And Acceptance Agreement
-vi-
SCHEDULES - - --------- I. Existing Letters of Credit 9.1 Foreign Jurisdictions 9.3 Subsidiaries 9.4 Financial Statements 9.5 Adverse Change 9.6 Litigation 9.8 Pension and Welfare 9.14 Insurance 9.15 Business Locations 9.17 Environmental Matters 9.18 Treatment and Storage 10.1.3 Monthly Reports 10.10 Indebtedness 10.11 Liens 10.14 Investments 13. Verson Division Special Expenses
-vii- SECOND AMENDED AND RESTATED CREDIT AGREEMENT Dated as of February 1, 1999 THIS SECOND AMENDED AND RESTATED CREDIT AGREEMENT, dated as of February 1, 1999 (herein, as amended or otherwise modified from time to time, called this "Agreement"), is entered into among ALLIED PRODUCTS CORPORATION, a Delaware corporation (herein called the "Company"), the undersigned banks (together with Bank of America herein collectively called the "Banks" and individually each called a "Bank"), and BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION (as successor to Bank of America Illinois) (herein, in its individual capacity, called "Bank of America"), and as agent for the Banks (herein, in such capacity, called the "Agent"). Certain terms are used in this Agreement as hereinafter defined. W I T N E S S E T H: WHEREAS, the Company and the Banks are party to an Amended and Restated Credit Agreement, dated as of August 23, 1996 as amended or modified (as so amended or modified to date, the "Existing Credit Agreement"), whereby the Banks have agreed to make loans and certain other financial accommodations to the Company; WHEREAS, pursuant to the Existing Credit Agreement, Bank of America has issued, and the Banks have acquired participations in, the letters of credit listed in Schedule I hereto (the "Existing Letters of Credit"); WHEREAS, effective as of the Effective Date, the Company desires that the Banks waive for the Fiscal Quarter ending December 31, 1998 (but not any period thereafter), non-compliance by the Company with the financial covenants contained in SECTIONS 10.5, 10.6 AND 10.7 of the Existing Credit Agreement; and WHEREAS, the Company and the Banks desire to amend and restate the Existing Credit Agreement in its entirety, subject to the terms and conditions of this Agreement as hereinafter set forth. NOW, THEREFORE, in consideration of the premises and the mutual agreements herein contained, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree that as of the Effective Date the Existing Credit Agreement is amended and restated in its entirety, as follows: SECTION 1 COMMITMENTS OF THE BANKS; TYPES OF LOANS; LETTER OF CREDIT, BORROWING AND CONVERSION PROCEDURES. SECTION 1.1 COMMITMENTS. On and subject to the terms and conditions of this Agreement, each of the Banks, severally and for itself alone, agrees to make loans to the Company as follows: -1- SECTION 1.1.1 REVOLVING LOAN COMMITMENT. Loans on a revolving basis (herein collectively called the "Revolving Loans" and each individually called a "Revolving Loan") from time to time before the Revolving Termination Date in such Bank's Percentage of such aggregate amounts as the Company may from time to time request from all Banks, subject to the terms and conditions of this Agreement. SECTION 1.1.2 LETTER OF CREDIT COMMITMENTS. (a) Bank of America and the Banks agree that Bank of America will issue documentary and standby letters of credit containing such terms and conditions as shall be permitted pursuant to this Agreement and reasonably satisfactory to Bank of America (herein, together with the Existing Letters of Credit, collectively called the "Letters of Credit" and each individually called a "Letter of Credit") at the request of and for the account of the Company from time to time before the Revolving Termination Date and (b) as more fully set forth in SECTION 1.7, each Bank agrees to purchase a participation in all such Letters of Credit. SECTION 1.1.3 COMMITMENT LIMITS. Notwithstanding any other provision of this Agreement (a) the aggregate principal amount of the Revolving Loans which all Banks are committed to lend to the Company together with the Stated Amount of all Letters of Credit then outstanding shall not at any one time exceed the lesser of (i) the Borrowing Base or (ii) the following amounts (less in each case any reductions made pursuant to SECTION 6.1 or SECTION 6.3) during the following period:
PERIOD AMOUNT ------ ------ December 31, 1998 $145,000,000 February 1, 1999 $140,000,000 February 28, 1999 $140,000,000 March 31, 1999 $140,000,000 April 30, 1999 $135,000,000 May 31, 1999 $135,000,000 June 30, 1999 $135,000,000 July 31, 1999 $110,000,000 August 31, 1999 $105,000,000 September 30, 1999 $ 95,000,000 October 31, 1999 $ 95,000,000 November 30, 1999 $ 90,000,000 December 31, 1999 $ 80,000,000
(b) the aggregate Stated Amount of all Letters of Credit shall not at any time, exceed $20,000,000; (c) the aggregate principal amount of each Bank's participation in the Revolving Loans shall not exceed the amounts set forth opposite such Bank's name in Column I of EXHIBIT A (less such Bank's Percentage of any reductions made pursuant to SECTION 1.1.3(a)(ii), SECTION 6.1 or SECTION 6.3), and (d) the aggregate principal amount of each Bank's participation in all Letters of Credit shall not exceed such Bank's Percentage of the amounts set forth above for the applicable period (less such Bank's Percentage of any reductions made pursuant to SECTION 1.1.3(a)(ii), SECTION 6.1 or SECTION 6.3). SECTION 1.2 VARIOUS TYPES OF LOANS. Each Revolving Loan shall be either a Floating Rate Loan or a Eurodollar Loan as the Company shall specify in the related notice of borrowing or -2- Conversion pursuant to SECTION 1.3 or 1.4. Eurodollar Loans having the same Interest Period are sometimes called a "Group" or collectively "Groups". Floating Rate Loans and Eurodollar Loans may be outstanding at the same time, it being understood, however, that (i) there shall not at any time be more than eight Groups of Eurodollar Loans and (ii) the aggregate principal amount of each Group of Eurodollar Loans shall be at least $500,000 and in an integral multiple of $100,000. SECTION 1.3 BORROWING PROCEDURES. (a) Provided that the conditions in SECTION 11 are satisfied, the Company shall give notice to the Agent of each proposed borrowing by 11:00 A.M., Chicago time, on the proposed date of such borrowing, in the case of a Floating Rate borrowing, and on a Business Day at least two Business Days prior to the proposed date of such borrowing, in the case of a Eurodollar borrowing. Each such notice shall be effective upon receipt by the Agent, shall be in writing (or by telephone to be promptly confirmed in writing by the Company), and shall specify the date, amount and type of borrowing and, in the case of a Eurodollar borrowing, the initial Interest Period for such borrowing. Promptly upon receipt of such notice, but in any event by 12:30 P.M., the Agent shall advise each Bank thereof. Not later than 2:00 P.M. Chicago time, on the date of the proposed borrowing, each Bank shall provide the Agent at the principal office of the Agent in Chicago with immediately available funds covering such Bank's Percentage of the borrowing, and, subject to the satisfaction of the conditions precedent set forth in SECTION 11 with respect to such borrowing, the Agent shall pay over the requested amount to the Company on the requested borrowing date. Each Floating Rate Loan borrowing shall be on a Business Day and shall be in an aggregate amount of at least $100,000 and an integral multiple of $100,000. Each Eurodollar Loan borrowing shall be on a Business Day and shall be in an aggregate amount of at least $500,000 and an integral multiple of $100,000. (b) Unless the Agent shall have received notice from a Bank prior to the proposed date of any borrowing in the case of a Eurodollar borrowing, or prior to 12:30 P.M., Chicago time, on the proposed date of any Floating Rate borrowing, that such Bank will not make available to the Agent such Bank's ratable portion of such borrowing, the Agent may assume that such Bank has made such portion available to the Agent on the date of such borrowing in accordance with SUBSECTION (a) above and the Agent may, in reliance upon such assumption, make available to the Company on such date a corresponding amount. If and to the extent such Bank shall not have so made such ratable portion available to the Agent, such Bank and the Company severally agree to repay to the Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to the Company until the date such amount is repaid to the Agent, (i) in the case of the Company, at the interest rate applicable at the time to the Revolving Loans comprising such borrowing and (ii) in the case of such Bank, at the Federal Funds Rate. If such Bank shall repay to the Agent such corresponding amount, such amount so repaid shall constitute such Bank's Revolving Loan as part of such borrowing for purposes of this Agreement. Nothing in this SUBSECTION (b) shall be deemed to diminish the Commitment of any Bank. (c) The failure of any Bank to make the Revolving Loan to be made by it as part of any borrowing shall not relieve any other Bank of its obligation hereunder to make its Revolving Loan on the date of such borrowing, but no Bank shall be responsible for the failure of any other Bank to make the Revolving Loan to be made by such other Bank on the date of any borrowing. -3- SECTION 1.4 CONVERSION PROCEDURES. Subject to the provisions of SECTION 1.2, the Company may Convert all or any part of any outstanding Revolving Loan into a Revolving Loan of a different type by giving notice to the Agent of such Conversion by 11:00 A.M., Chicago time, on the proposed date of such Conversion, in the case of Conversion into a Floating Rate Loan, and at least two Business Days prior to the proposed date of such Conversion, in the case of Conversion into a Eurodollar Loan. Each such notice shall be effective upon receipt by the Agent, shall be in writing (or by telephone to be promptly confirmed in writing by the Company), shall specify the date and amount of such Conversion, the Revolving Loan or portion thereof to be so Converted, the type of Revolving Loan such Revolving Loan shall be Converted into and, in the case of a Conversion into a Eurodollar Loan, the initial Interest Period. Promptly upon receipt of such notice the Agent shall advise each Bank thereof. Subject to SECTIONS 1.12 and 1.13, such Revolving Loan shall be so Converted on the requested date of Conversion. Each Conversion shall be on a Business Day and shall be in an aggregate principal amount of at least $500,000 and an integral multiple of $100,000. SECTION 1.5 PRO RATA TREATMENT. All borrowings, Conversions and repayments shall be effected so that after giving effect thereto all types and Groups of Revolving Loans shall be pro rata among the Banks according to their respective Percentages. SECTION 1.6 LETTER OF CREDIT PROCEDURES. Provided that the conditions in SECTION 11.2 are satisfied, the Company shall give notice to Bank of America of the proposed issuance of each Letter of Credit on a Business Day which is at least two (2) Business Days prior to the proposed date of issuance of such Letter of Credit. Each such notice shall be accompanied by a Letter of Credit Application, duly executed by the Company and in all respects satisfactory to Bank of America, together with such other documentation as Bank of America may request in support thereof, it being understood that each Letter of Credit Application shall specify, among other things, the date on which the proposed Letter of Credit is to be issued, the expiration date of such Letter of Credit (which shall not extend beyond the earlier of (a) one year from the date of issuance of the Letter of Credit or (b) the Revolving Termination Date) and whether such Letter of Credit is to be transferable in whole or in part. Subject to the satisfaction of the conditions precedent set forth in SECTION 11 with respect to the issuance of such Letter of Credit, Bank of America shall issue such Letter of Credit on the requested issuance date. SECTION 1.7 PARTICIPATION IN LETTERS OF CREDIT. Concurrently with the issuance of each Letter of Credit Bank of America shall notify each Bank of such issuance and shall be deemed to have sold and transferred to each other Bank, and each other Bank shall be deemed irrevocably and unconditionally to have purchased and received from Bank of America, without recourse or warranty, an undivided interest and participation, to the extent of such other Bank's Percentage, in such Letter of Credit and the Company's reimbursement obligations with respect thereto. For the purposes hereof, all Existing Letters of Credit shall be deemed to have been issued under this Agreement and each Bank hereby acknowledges its participation therein. For the purpose of this Agreement, the unparticipated portion of each Letter of Credit shall be deemed to be Bank of America's "participation" therein. Bank of America hereby agrees to deliver to such Bank a list of outstanding Letters of Credit, copies of such Letters of Credit, Letter of Credit Applications and related documentation as such other Bank may from time to time reasonably request. -4- SECTION 1.8 REIMBURSEMENT OBLIGATIONS. The Company hereby unconditionally and irrevocably agrees to reimburse Bank of America for each payment or disbursement made by Bank of America under any Letter of Credit honoring any demand for payment made by the beneficiary thereunder, on the date that such payment or disbursement is made. Any amount not reimbursed on the date of such payment or distribution shall bear interest from and including the date of such payment or disbursement to but not including the date that Bank of America is reimbursed by the Company therefor, payable monthly in arrears, at a rate per annum equal to the Alternate Reference Rate from time to time in effect (but not less than the Alternate Reference Rate in effect at the date of such payment or disbursement by Bank of America) PLUS 2% per annum. Bank of America shall notify the Company whenever any demand for payment is made under any Letter of Credit by the beneficiary thereunder; PROVIDED, however, that the failure of Bank of America to so notify the Company shall not affect the rights of Bank of America or the Banks in any manner whatsoever. SECTION 1.9 LIMITATION ON BANK OF AMERICA'S OBLIGATIONS. In determining whether to pay under any Letter of Credit, Bank of America shall have no obligation to the Company or any Bank other than to confirm that any documents required to be delivered under such Letter of Credit appear to have been delivered and that they appear to comply on their face with the requirements of such Letter of Credit. Any action taken or omitted to be taken by Bank of America under or in connection with any Letter of Credit, if taken or omitted in the absence of gross negligence or willful misconduct, shall not impose upon Bank of America any liability to the Company or any Bank and shall not reduce or impair the Company's reimbursement obligations set forth in SECTION 1.8 or the funding obligations of the Banks pursuant to SECTION 1.10. SECTION 1.10 FUNDING BY BANKS TO BANK OF AMERICA. In the event that Bank of America makes any payment or disbursement under any Letter of Credit and the Company shall not have reimbursed Bank of America in full for such payment or disbursement by 10:00 A.M., Chicago time, on the date of such payment or disbursement, or in the event that any reimbursement received by Bank of America from the Company is or must be returned or rescinded upon or during any bankruptcy or reorganization or otherwise, each Bank shall be obligated to pay to Bank of America, in full or partial payment of the purchase price of its participation in such Letter of Credit, its pro rata share, according to its Percentage, of such payment or disbursement (but such obligation of the Banks shall not diminish the obligation of the Company under SECTION 1.8), and the Agent shall promptly notify each other Bank thereof. Each other Bank irrevocably and unconditionally agrees to so pay to the Agent in immediately available funds for Bank of America's account the amount of such other Bank's Percentage of such payment or disbursement. If and to the extent any Bank shall not have made such amount available to the Agent by 2:00 P.M., Chicago time, on the Business Day on which such Bank receives notice from the Agent of such payment or disbursement (it being understood that any such notice received after noon, Chicago time, on any Business Day shall be deemed to have been received on the next following Business Day), such Bank agrees to pay interest on such amount to the Agent for Bank of America's account forthwith on demand for each day from and including the date such amount was to have been delivered to the Agent to but not including the date such amount is paid, at a rate per annum equal to the Federal Funds Rate. Any Bank's failure to make available to the Agent its Percentage of any such payment or disbursement shall not relieve any other Bank of its obligation hereunder to make available to the Agent such other Bank's Percentage of such payment, but no Bank shall be responsible for the failure of any -5- other Bank to make available to the Agent such other Bank's Percentage of any such payment or disbursement. SECTION 1.11 CASH COLLATERAL. If any Letter of Credit remains outstanding on the Revolving Termination Date, the Company shall deposit with the Agent, as security for all outstanding Letters of Credit and pursuant to documentation in form and substance satisfactory to the Banks, cash collateral in an amount equal to the Stated Amount of all outstanding Letters of Credit, which cash collateral may be placed in an interest bearing account acceptable to the Required Banks and the Company. SECTION 1.12 WARRANTY. Each notice of borrowing and/or of Conversion pursuant to SECTION 1.3 or 1.4, and the delivery of each Letter of Credit Application pursuant to SECTION 1.6 shall automatically constitute a warranty by the Company to the Agent and each Bank to the effect that on the date of such requested borrowing or Conversion (other than any Conversion from a Eurodollar Loan to a Floating Rate Loan required by SECTION 1.13 or 8.3) or the issuance of the requested Letter of Credit, as the case may be, (a) the warranties of the Company contained in SECTION 9 of this Agreement shall be true and correct in all material respects as of such requested date as though made on the date thereof and (b) no Event of Default or Unmatured Event of Default shall have then occurred and be continuing or will result therefrom. SECTION 1.13 CONDITIONS. Notwithstanding any other provision of this Agreement, no Bank shall be obligated to make any Revolving Loan or to Convert into or permit the continuation at the end of the applicable Interest Period of any Eurodollar Loan, and Bank of America shall not be obligated to issue any Letter of Credit, if an Event of Default or Unmatured Event of Default exists or would result therefrom. SECTION 2 NOTES EVIDENCING LOANS. SECTION 2.1 REVOLVING NOTES. The Revolving Loans of each Bank shall be evidenced by a promissory note (herein individually called a "Revolving Note" or "Note", and collectively for all Banks called the "Revolving Notes" or "Notes"), substantially in the form set forth in EXHIBIT B, with appropriate insertions, dated the Effective Date payable to the order of such Bank in the principal amount of the Revolving Loan Commitment of such Bank (or, if less, in the aggregate unpaid principal amount of such Bank's Revolving Loans). Each Revolving Note (including all Revolving Loans) shall be due and payable on the Revolving Termination Date. SECTION 2.2 RECORDATION OF LOANS. Each Bank shall record in its records, or at its option on the schedule attached to its Revolving Note, the date and amount of each Revolving Loan made by such Bank, each repayment or Conversion thereof and, in the case of each Eurodollar Loan the dates on which each Interest Period for such Revolving Loan shall begin and end and, in the event that any Bank assigns or transfers its Revolving Note, such Bank shall record on the schedule attached to its Revolving Note, the aggregate unpaid principal amount of Revolving Loans of such Bank on the date of such assignment or transfer. The aggregate unpaid principal amount so recorded shall be rebuttable presumptive evidence of the principal amount owing and unpaid on such Revolving Note. The failure to so record any such amount or any error in so recording any such amount shall not, however, limit or otherwise affect the obligations of the Company hereunder -6- or under any Revolving Note to repay the principal amount of the Revolving Loans evidenced by such Revolving Note together with all interest accruing thereon. SECTION 2.3 REPLACEMENT NOTES. The Revolving Note to each Bank is issued in replacement of the Note ("Existing Note") issued to such Bank under the Existing Credit Agreement (and each Bank agrees to add a legend to such effect to its Existing Note). Each Bank is authorized to add to the schedule attached to its Revolving Note the information contained on the schedule attached to its Existing Note. SECTION 3 INTEREST. SECTION 3.1 INTEREST RATES. The Company hereby promises to pay interest on the unpaid principal amount of each Revolving Loan for the period commencing on the date of such Revolving Loan until such Revolving Loan is paid in full, as follows: (a) At all times while such Revolving Loan is a Floating Rate Loan, at a rate per annum equal to the Alternate Reference Rate from time to time in effect, plus the applicable Margin in effect from time to time; (b) At all times while such Revolving Loan is a Eurodollar Loan, at a rate per annum equal to the Eurodollar Rate (Reserve Adjusted) applicable to each Interest Period for such loan, plus the applicable Margin in effect from time to time; and (c) Notwithstanding the provisions of the preceding CLAUSES (A) and (B), in the event that any principal of any Revolving Loan is not paid when due (whether by acceleration or otherwise), interest shall accrue after the due date of such principal until such principal is paid, at a rate per annum equal to the applicable interest rate from time to time in effect (but not less than the applicable interest rate in effect for such Revolving Loan as at such due date), plus 2% per annum. SECTION 3.2 INTEREST PAYMENT DATES. Accrued interest on each Floating Rate Loan shall be payable on the last day of each calendar quarter and at maturity, commencing with the first of such dates to occur after the date hereof. Subject to SECTION 3.3 below, accrued interest on each Eurodollar Loan shall be payable on the last day of each Interest Period relating to such Loan and at maturity; provided that accrued interest on any Eurodollar Loan with an Interest Period in excess of 3 months shall also be payable at the end of each three month period of such Interest Period. After maturity, accrued interest on all Revolving Loans shall be payable on demand. SECTION 3.3 INTEREST PERIODS. Each Interest Period for a Eurodollar Loan shall commence on the date such Eurodollar Loan is made or Converted from a Floating Rate Loan, or on the expiration of the immediately preceding Interest Period for such Eurodollar Loan, and shall end on the date which is 1, 2, 3 or 6 months thereafter, as the Company may specify: (a) in the case of an Interest Period which commences on the date a Eurodollar Loan is made or Converted from a Floating Rate Loan, in the related notice of borrowing or Conversion pursuant to SECTION 1.3 or 1.4, or -7- (b) in the case of a succeeding Interest Period with respect to any Eurodollar Loan, by notice to the Agent by 11:00 A.M., Chicago time, at least two Business Days prior to the first day of such succeeding Interest Period, being understood that (i) each such notice shall be effective upon receipt by the Agent and shall be in writing (or by telephone to be promptly confirmed in writing) and (ii) if the Company fails to give such notice, such Eurodollar Loan shall automatically become a Floating Rate Loan at the end of its then-current Interest Period. Each Interest Period for a Eurodollar Loan which would otherwise end on a day which is not a Business Day shall end on the next succeeding Business Day (unless such next succeeding Business Day is the first Business Day of a calendar month, in which case such Interest Period shall end on the next preceding Business Day). Notwithstanding any other provision of this Agreement, the Company may not select any Interest Period that extends beyond the Revolving Termination Date. After giving effect to any Revolving Loan, there shall not be more than eight (8) different Interest Periods in effect for all Revolving Loans then outstanding. SECTION 3.4 SETTING AND NOTICE OF EURODOLLAR RATES. The applicable Eurodollar Rate for each Interest Period shall be determined by the Agent, and notice thereof shall be given by the Agent promptly to the Company and each Bank. Each determination of the applicable Eurodollar Rate by the Agent shall be conclusive and binding upon the parties hereto, in the absence of demonstrable error. The Agent shall, upon written request of the Company or any Bank, deliver to the Company or such Bank a statement showing the computations used by the Agent in determining any applicable Eurodollar Rate hereunder. SECTION 3.5 COMPUTATION OF INTEREST. Interest shall be computed for the actual number of days elapsed on the basis of a year of 360 days. The applicable interest rate under CLAUSES (a) and (c) of SECTION 3.1 shall (to the extent applicable in the case of CLAUSE (c)) change simultaneously with each change in the Alternate Reference Rate and/or the applicable Margin. SECTION 4 RESERVED. SECTION 5 FEES. SECTION 5.1 LETTER OF CREDIT FEES. (a) The Company agrees to pay to the Agent for the account of the Banks pro rata according to their respective Percentages a letter of credit fee for each Letter of Credit in an amount equal to the applicable Margin at the time of issuance of such Letter of Credit (computed for the actual number of days elapsed on the basis of a year of 360 days) of the face amount of such Letter of Credit, such fee to be payable in arrears on the last day of each calendar quarter and on the Revolving Termination Date for the period from and including the date of the issuance of such Letter of Credit to and including such payment date or the date upon which such Letter of Credit expired or was terminated. (b) In addition, with respect to each Letter of Credit, the Company agrees to pay to Bank of America such fees and expenses as Bank of America shall customarily require in connection with the issuance, negotiation, processing and/or administration of letters of credit in -8- similar situations, including, but not limited to, an agency administration fee for each Letter of Credit in an amount equal to 1/4% per annum (computed for the actual number of days elapsed on the basis of a 360 day year) of the face amount of such Letter of Credit, payable in arrears on the last day of each calendar quarter and on the Revolving Termination Date for the period from and including the date of the issuance of such Letter of Credit to and including such date or the date upon which such Letter of Credit expired or was terminated. SECTION 5.2 FACILITY FEE. The Company agrees to pay each Bank a facility fee, for the period from and including the Effective Date to and including the Revolving Termination Date, on the total Commitments (whether used or unused) (as the same may be reduced by SECTION 6.1 or SECTION 6.3). Such facility fee shall be payable in arrears on the last day of each Fiscal Quarter and on the Revolving Termination Date for any period then ending for which such facility fee shall not have been theretofore paid. Prior to the date (the "3Q1999 Compliance Certificate Delivery Date") which is five business days after the date by which the Company is required to furnish the compliance certificate to the Banks pursuant to Section 10.1.4 for the quarter ended September 30, 1999, the facility fee shall be computed at the rate of 0.50% per annum. On and after the 3Q1999 Compliance Certificate Delivery Date, the facility fee shall be computed for any period at the applicable facility fee rate set forth below. In all cases the facility fee rate shall be computed for the actual number of days elapsed on the basis of a year of 360 days. The facility fee shall be determined without regard to any Borrowing Base limitation or any Event of Default or Unmatured Event of Default.
Funded Debt/Operating CASH FLOW RATIO FACILITY FEE RATE FDOCFR less than 1.0 0.225% FDOCFR greater than 1.0 but less than or equal to 1.5 0.250% FDOCFR greater than 1.5 but less than or equal to 2.0 0.300% FDOCFR greater than 2.0 but less than or equal to 2.5 0.325% FDOCFR greater than 2.5 but less than or equal to 3.0 0.350% FDOCFR greater than 3.0 but less than or equal to 3.5 0.375% FDOCFR greater than 3.5 but less than or equal to 3.75 0.400% FDOCFR greater than 3.75 0.400%
For purposes of the foregoing, FDOCFR means the Funded Debt/Operations Cash Flow Ratio. The applicable facility fee rate shall be adjusted, to the extent applicable, 45 days (or in the case of the last Fiscal Quarter of any fiscal year, 90 days) after the end of each Fiscal Quarter beginning on the 45th day after the first Fiscal Quarter ending after the Effective Date, based on the Funded Debt/Operating Cash Flow Ratio as of the last day of such Fiscal Quarter; IT BEING UNDERSTOOD that if the Company fails to deliver the certificate required by SECTION 10.1.4 by the 45th day (or, if applicable, the 90th day) after any Fiscal Quarter, the applicable facility fee rate shall be 0.500% per annum until such certificate is delivered. SECTION 5.3 AGENT'S FEES. The Company agrees to pay to the Agent for its own account such fees as are provided for pursuant to the terms of a letter agreement between the Company and the Agent. -9- SECTION 6 REDUCTION OR TERMINATION OF THE COMMITMENTS; VOLUNTARY PREPAYMENTS. SECTION 6.1 REDUCTION OR TERMINATION OF THE COMMITMENTS. (a) The Company may from time to time prior to the Revolving Termination Date on at least five Business Days, prior written notice received by the Agent (which shall promptly advise each Bank thereof) permanently reduce the amount of the Revolving Loan Commitments and/or the Letter of Credit Commitments (such reduction to be pro rata among the Banks according to their respective Percentages) to an amount not less than (i) the sum of the aggregate unpaid principal amount of the Revolving Loans then outstanding in the case of a reduction in the Revolving Loan Commitments, or (ii) the aggregate Stated Amount of all Letters of Credit then outstanding, in the case of a reduction in the Letter of Credit Commitments. Any such reduction shall be in an aggregate amount of at least $500,000 and an integral multiple of $500,000. The Company may at any time on like notice terminate the Revolving Loan Commitments and/or the Letter of Credit Commitments upon payment in full of the Revolving Notes and all other obligations of the Company hereunder in respect of the Revolving Loans or, in the case of obligations arising with respect to the Letters of Credit, upon cash collateralization thereof in full pursuant to documentation in form and substance satisfactory to the Banks. (b) Concurrent with each reduction of the Commitments pursuant to SECTION 1.1.3(a)(ii), the Company shall make a mandatory prepayment so that after giving effect thereto the aggregate unpaid principal amount of the Revolving Loans PLUS the aggregate Stated Amount of all Letters of Credit shall not exceed the aggregate Commitments as so reduced. (c) On any date that the aggregate unpaid principal amount of the Revolving Loans, PLUS the aggregate Stated Amount of all Letters of Credit exceeds the aggregate Commitments of the Banks, the Company shall immediately repay the Revolving Loans or, in the case of the Letters of Credit, furnish to the Agent cash collateral, in an amount equal to such excess. (d) Concurrent with each prepayment pursuant to SECTION 6.3, the Commitments shall be reduced by the amount of such prepayment, such reduction to be pro rata among the Banks according to their respective Percentages and to be applied first to the Revolving Loan Commitments prior to the Letter of Credit Commitments. SECTION 6.2 VOLUNTARY PREPAYMENTS. The Company may from time to time prepay the Revolving Loans in whole or in part, provided that (a) the Company shall give the Agent (which shall promptly advise each Bank) notice thereof no later than (i) 11:00 A.M., Chicago time, on the proposed date of prepayment with respect to Floating Rate Loans and (ii) three Business Days' prior to the proposed date of prepayment with respect to Eurodollar Loans, specifying the Revolving Loans to be prepaid and the date and amount of prepayment, (b) any prepayment of a Eurodollar Loan prior to the end of the Interest Period relating thereto shall be subject to SECTION 8.4, (c) each partial prepayment shall be in a principal amount of at least $100,000 and an integral multiple of $100,000, and (d) any prepayment of any Eurodollar Loan or of the entire principal amount of all Floating Rate Loans shall include accrued interest to the date of prepayment. -10- SECTION 6.3 MANDATORY PREPAYMENT. If the Company shall issue new common or preferred equity or any Indebtedness for borrowed money, the Company shall promptly notify the Agent of the estimated Net Issuance Proceeds of such issuance to be received by the Company in respect thereof. Promptly upon, and in no event later than 5 Business Days after, receipt by the Company of Net Issuance Proceeds of such issuance, the Company shall prepay the Revolving Loans in an aggregate amount equal to 100% of the amount of such Net Issuance Proceeds. Net Issuance Proceeds which arise from the incurrence of purchase money Indebtedness or Capital Lease Obligations shall not be required to be applied as a prepayment pursuant to this Section 6.3. SECTION 6.4 CERTAIN PREPAYMENT MECHANICS. Except to the extent otherwise specified by the Company in a prepayment notice to the Agent, but subject to Sections 6.2, 6.3 and 8.4, any prepayment pursuant to Sections 6.2 or 6.3 shall be applied first to any Floating Rate Loan then outstanding and then to Eurodollar Loans with the shortest Interest Periods remaining. The Company shall pay, together with each prepayment under this Section 6.3, accrued interest on the amount prepaid and any amounts required pursuant to Section 8.4. SECTION 7 MAKING AND PRORATION OF PAYMENTS; SETOFF. SECTION 7.1 MAKING OF PAYMENTS. All payments to be made by the Company shall be made without set-off, recoupment or counterclaim. All payments (including those made pursuant to SECTION 6.2) of principal of, or interest on, the Revolving Loans shall be made by the Company to the Agent in immediately available funds for the account of the holders of the Revolving Notes pro rata according to their respective Percentage of the unpaid principal amount of the Revolving Loans. All payments of Letter of Credit fees pursuant to SECTIONS 5.1(a) AND 5.2 shall be made by the Company to the Agent for the account of the Banks. All payments of Letter of Credit fees and expenses pursuant to SECTION 5.1(b) shall be made to the Agent for the account of Bank of America. All such payments shall be made to the Agent at its office in Chicago not later than noon, Chicago time, on the date due; and funds received after that time shall be deemed to have been received by the Agent on the next following Business Day. The Company hereby authorizes the Agent to charge any demand deposit account maintained by the Company with Bank of America for the amount of any such payment on the due date therefor, but the Agent's failure to so charge such account shall in no way affect the obligation of the Company to make any such payment. The Agent shall notify the Company after any charge is so made by the Agent against any demand deposit account maintained by the Company with Bank of America; PROVIDED that the failure of the Agent to so notify the Company shall not affect the rights of the Agent or the Banks in any manner whatsoever. The Agent shall promptly remit to each Bank or other holder of a Revolving Note its share of all such payments received in collected funds by the Agent for the account of such Bank or holder. All payments under SECTIONS 8.1 and 8.4 shall be made by the Company directly to the Bank or Banks entitled thereto. SECTION 7.2 APPLICATION OF CERTAIN PAYMENTS. Each payment of principal shall be applied to such Revolving Loans as the Company shall direct by notice to be received by the Agent on or before the date of such payment, or in the absence of such notice, as the Agent shall determine -11- in its discretion. Concurrently with each remittance to any Bank of its share of any such payment the Agent shall advise such Bank as to the application of such payment. SECTION 7.3 DUE DATE EXTENSION. If any payment of principal or interest with respect to any of the Revolving Loans or the Notes falls due on a Saturday, Sunday or other day which is not a Business Day, then such due date shall be extended to the next following Business Day, and additional interest shall accrue and be payable for the period of such extension. SECTION 7.4 SETOFF. The Company agrees that Bank of America and LaSalle, and each remaining Bank and each remaining holder of a Revolving Note provided it obtains the prior consent of the Agent (it being understood that Bank of America and LaSalle may exercise the rights provided in this Section 7.4 without obtaining the prior consent of the Agent), have all rights of setoff and bankers' lien provided by applicable law, and in addition thereto, the Company agrees that at any time (i) any payment or other amount owing by the Company under this Agreement is then due to Bank of America, LaSalle or any Bank or (ii) any Event of Default or Event of Default described in SECTION 12.1.4 exists, the Agent, Bank of America, LaSalle, and each remaining Bank and each remaining holder of a Revolving Note provided it obtains the prior consent of the Agent, may apply to the payment of such payment or other amount (or, in the case of CLAUSE (ii) above, any obligation of the Company hereunder, whether or not then due) any and all balances, credits, deposits, accounts or moneys of the Company then or thereafter with the Agent, Bank of America, LaSalle or any such Bank. The Agent, Bank of America, LaSalle and each remaining Bank shall undertake to notify the Company following the exercise by the Agent, Bank of America, LaSalle and each such Bank of any of the rights described in this SECTION 7.4; provided that the failure by the Agent, Bank of America, LaSalle, or any other Bank to so notify the Company shall not affect the rights of the Agent, Bank of America, LaSalle, the other Banks, or the holder of any Revolving Note in any manner whatsoever. SECTION 7.5 PRORATION OF PAYMENTS. If any Bank or other holder of a Revolving Note 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 Revolving Loan or Revolving Note (or on account of its participation in any Letter of Credit) in excess of its pro rata share of payments and other recoveries obtained by all Banks or other holders of on account of principal of and interest on the Revolving Loan or Revolving Notes (or such participation) then held by them, such Bank or other holder shall purchase from the other Banks or holders such participation in the Notes held by them (or sub-participation in such Letter of Credit) as shall be necessary to cause such purchasing Bank or other holder to share the excess payment or other recovery ratably 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 Bank or holder, the purchase shall be rescinded and the purchase price restored to the extent of such recovery. SECTION 7.6 WITHHOLDING TAX. (a) If any Bank is a "foreign corporation, partnership or trust" within the meaning of the Code and such Bank claims exemption from, or a reduction of, U.S. withholding tax under Sections 1441 or 1442 of the Code, such Bank agrees with and in favor of the Agent, to deliver to the Agent: -12- (i) if such Bank claims an exemption from, or a reduction of, withholding tax under a United States tax treaty, two properly completed and executed copies of IRS Form 1001 before the payment of any interest in the first calendar year and before the payment of any interest in each third succeeding calendar year during which interest may be paid under this Agreement; (ii) if such Bank claims that interest paid under this Agreement is exempt from United States withholding tax because it is effectively connected with a United States trade or business of such Bank, two properly completed and executed copies of IRS Form 4224 before the payment of any interest is due in the first taxable year of such Bank and in each succeeding taxable year of such Bank during which interest may be paid under this Agreement; and (iii) such other form or forms as may be required under the Code or other laws of the United States as a condition to exemption from, or reduction of, United States withholding tax. Such Bank agrees to promptly notify the Agent of any change in circumstances which would modify or render invalid any claimed exemption or reduction. (b) If any Bank claims exemption from, or reduction of, withholding tax under a United States tax treaty by providing IRS Form 1001 and such Bank sells, assigns, grants a participation in, or otherwise transfers all or part of the obligations of the Company under this Agreement to such Bank, such Bank agrees to notify the Agent of the percentage amount in which it is no longer the beneficial owner of obligations of the Company under this Agreement to such Bank. To the extent of such percentage amount, the Agent will treat such Bank's IRS Form 1001 as no longer valid. (c) If any Bank claiming exemption from United States withholding tax by filing IRS Form 4224 with the Agent sells, assigns, grants a participation in, or otherwise transfers all or part of the obligations of the Company under this Agreement to such Bank, such Bank agrees to undertake sole responsibility for complying with the withholding tax requirements imposed by Sections 1441 and 1442 of the Code. (d) If any Bank is entitled to a reduction in the applicable withholding tax, the Agent may withhold from any interest payment to such Bank an amount equivalent to the applicable withholding tax after taking into account such reduction. However, if the forms or other documentation required by subsection (a) of this Section are not delivered to the Agent, then the Agent may withhold from any interest payment to such Bank not providing such forms or other documentation an amount equivalent to the applicable withholding tax imposed by Sections 1441 and 1442 of the Code, without reduction. (e) If the IRS or any other governmental authority of the United States or other jurisdiction asserts a claim that the Agent did not properly withhold tax from amounts paid to or for the account of any Bank (because the appropriate form was not delivered or was not properly executed, or because such Bank failed to notify the Agent of a change in circumstances which rendered the exemption from, or reduction of, withholding tax ineffective, or for any other reason) -13- such Bank shall indemnify the Agent fully for all amounts paid, directly or indirectly, by the Agent as tax or otherwise, including penalties and interest, and including any taxes imposed by any jurisdiction on the amounts payable to the Agent under this Section, together with all costs and expenses (including attorney fees and expenses). The obligation of the Banks under this subsection shall survive the payment of all obligations of the Company under this Agreement and the resignation or replacement of the Agent. SECTION 8 INCREASED COSTS; SPECIAL PROVISIONS FOR EURODOLLAR LOANS. SECTION 8.1 INCREASED COSTS. (a) If (i) Regulation D of the Board of Governors of the Federal Reserve System, or (ii) after the Effective Date hereof, the adoption of any applicable law, rule or regulation, or any change therein, or any change 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 any Bank (or any Eurodollar Office of such Bank) with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency (A) shall subject any Bank (or any Eurodollar Office of such Bank) to any tax, duty or other charge with respect to its Eurodollar Loans, its Revolving Note or its obligation to make Eurodollar Loans, or shall change the basis of taxation of payments to any Bank of the principal of or interest on its Eurodollar Loans or any other amounts due under this Agreement in respect of its Eurodollar Loans or its obligation to make Eurodollar Loans (except for changes in the rate of tax on the overall net income of such Bank or its Eurodollar Office imposed by the jurisdiction in which such Banks principal executive office or Eurodollar Office is located); or (B) shall impose, modify or deem applicable any reserve (including, without limitation, any reserve imposed by the Board of Governors of the Federal Reserve System, but excluding any reserve included in the determination of interest rates pursuant to SECTION 3), special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Bank (or any Eurodollar Office of such Bank); or (C) shall impose on any Bank (or its Eurodollar Office) any other condition affecting its Eurodollar Loans, any of its Revolving Notes or its obligation to make Eurodollar Loans; and the result of any of the foregoing is to increase the cost to (or in the case of Regulation D referred to above, to impose a cost on) such Bank (or any Eurodollar Office of such Bank) of making or maintaining any Eurodollar Loan, or to reduce the amount of any sum received or receivable by such Bank (or its Eurodollar Office) under this Agreement or under any of its Revolving Notes with respect thereto, then within 10 days after demand by such Bank (which demand shall be accompanied by a statement setting forth the basis of such demand), the Company shall pay directly to such Bank such additional amount or amounts as will compensate such Bank for such increased cost or such reduction. -14- (b) If any Bank shall reasonably determine that after the Effective Date the adoption or phase-in of any applicable law, rule or regulation regarding capital adequacy, or any change therein, or any change 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 any Bank (or its Eurodollar Office) or any Person controlling such Bank with any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on such Bank's or such controlling Person's capital as a consequence of such Bank's obligations hereunder (including, without limitation, such Bank's Revolving Loan Commitment or Letter of Credit Commitment) to a level below that which such Bank or such controlling Person could have achieved but for such adoption, change or compliance (taking into consideration such Bank's or such controlling Person's policies with respect to capital adequacy) by an amount deemed by such Bank or such controlling Person to be material, then from time to time, within 10 days after demand by such Bank (which demand shall be accompanied by a statement setting forth the basis of such demand), the Company shall pay to such Bank such additional amount or amounts as will compensate such Bank or such controlling Person for such reduction. (c) Each Bank will promptly notify the Company and the Agent of any event of which it has knowledge which will entitle such Bank to compensation pursuant to this SECTION 8.1. SECTION 8.2 BASIS FOR DETERMINING INTEREST RATE INADEQUATE OR UNFAIR. If with respect to any Interest Period: (a) deposits in Dollars (in the applicable amounts) are not being offered to one or more Banks in the relevant market for such Interest Period, or the Agent otherwise determines (which determination shall be binding and conclusive on all parties) that by reason of circumstances affecting the interbank eurodollar market adequate and reasonable means do not exist for ascertaining the applicable Eurodollar Rate; or (b) Banks having an aggregate Percentage of 20% or more advise the Agent that the Eurodollar Rate (Reserve Adjusted) as determined by the Agent will not adequately and fairly reflect the cost to such Banks of maintaining or funding Eurodollar Loans for such Interest Period, or that the making or funding of Eurodollar Loans has become impracticable as a result of an event occurring after the date of this Agreement which in the opinion of such Banks materially affects such Loans, then the Agent shall promptly notify the other parties thereof and, so long as such circumstances shall continue, (i) no Bank shall be under any obligation to make or Convert into Eurodollar Loans and (ii) on the last day of the current Interest Period for each Eurodollar Loan, such Loan shall, unless then repaid in full, automatically Convert to a Floating Rate Loan. SECTION 8.3 CHANGES IN LAW RENDERING CERTAIN LOANS UNLAWFUL. In the event that any change in (including the adoption of any new) applicable laws or regulations, or any change in the interpretation of applicable laws or regulations by any governmental or other regulatory body charged with the administration thereof, should make it (or in the good faith judgment of any Bank raise a substantial question as to whether it is) unlawful for any Bank (an "Affected Bank") to make, maintain or fund Eurodollar Loans, then the Affected Bank shall promptly notify each of the other parties hereto and, so long as such circumstances shall continue, (a) the Affected Bank shall have no -15- obligation to make or Convert into Eurodollar Loans (but shall make Floating Rate Loans concurrently with the making of or Conversion into Eurodollar Loans by the Banks which are not Affected Banks, in each case in an amount equal to the Affected Bank's Percentage of all Eurodollar Loans which would be made or Converted into at such time in the absence of such circumstances) and (b) on the last day of the current Interest Period for each Eurodollar Loan (or, in any event, if the Affected Bank so requests, on such earlier date as may be required by the relevant law, regulation or interpretation), such Eurodollar Loan shall, unless then repaid in full, automatically Convert to a Floating Rate Loan. Each Floating Rate Loan made by an Affected Bank which, but for the circumstances described in the foregoing sentence, would be a Eurodollar Loan (an "Affected Loan") shall, notwithstanding any other provision of this Agreement, remain outstanding for the same period as the Group of Eurodollar Loans of which such Affected Loan would be a part absent such circumstances. SECTION 8.4 FUNDING LOSSES. The Company hereby agrees that upon demand by any Bank (which demand shall be accompanied by a statement setting forth the basis for the calculations of the amount being claimed) the Company will indemnify such Bank against any net loss or expense which such Bank may sustain or incur (including, without limitation, any net loss or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Bank to fund or maintain Eurodollar Loans), as reasonably determined by such Bank, as a result of (a) any payment or prepayment or Conversion of any Eurodollar Loan of such Bank on a date other than the last day of an Interest Period for such Loan (including, without limitation, any Conversion pursuant to SECTION 8.3) or (b) any failure of the Company to borrow or Convert any Revolving Loans on a date specified therefor in a notice of borrowing or Conversion pursuant to this Agreement. For this purpose, all notices to the Agent pursuant to this Agreement shall be deemed to be irrevocable. SECTION 8.5 RIGHT OF BANKS TO FUND THROUGH OTHER OFFICES. Each Bank may, if it so elects, fulfill its commitment as to any Eurodollar Loan by causing a foreign branch or Affiliate of such Bank to make such Eurodollar Loan, PROVIDED that in such event for the purposes of this Agreement such Eurodollar Loan shall be deemed to have been made by such Bank and the obligation of the Company to repay such Eurodollar Loan shall nevertheless be to such Bank and shall be deemed held by it, to the extent of such Eurodollar Loan, for the account of such branch or Affiliate. SECTION 8.6 DISCRETION OF BANKS AS TO MANNER OF FUNDING. Notwithstanding any provision of this Agreement to the contrary, each Bank shall be entitled to fund and maintain its funding of all or any part of its Revolving Loans in any manner it sees fit, it being understood, however, that for the purposes of this Agreement all determinations hereunder shall be made as if such Bank had actually funded and maintained each Eurodollar Loan during each Interest Period for such Loan through the purchase of deposits having a maturity corresponding to such Interest Period and bearing an interest rate equal to the Eurodollar Rate for such Interest Period. SECTION 8.7 MITIGATION. Any Bank claiming any additional amounts payable pursuant to Section 8.1 shall use its best efforts (consistent with its internal policy and legal and regulatory restrictions) to change its lending branch or Affiliate (as applicable) if the making of such change would avoid the need for, or reduce the amount of, any such additional amounts which may -16- thereafter accrue and would not, in the reasonable judgment of such Bank, be otherwise disadvantageous to such Bank. SECTION 8.8 CONCLUSIVENESS OF STATEMENTS; SURVIVAL OF PROVISIONS. Determinations and statements of any Bank pursuant to SECTION 8.1, 8.2, 8.3 or 8.4 shall be conclusive absent demonstrable error. Banks may use reasonable averaging and attribution methods in determining compensation under SECTIONS 8.1 and 8.4, and the provisions of such Sections shall survive termination of this Agreement. SECTION 9 WARRANTIES. To induce the Agent and the Banks to enter into this Agreement and to make Revolving Loans and issue or purchase participation in Letters of Credit hereunder, the Company warrants to the Agent and the Banks that: SECTION 9.1 ORGANIZATION AND QUALIFICATION. The Company is a corporation duly existing and in good standing under the laws of the State of Delaware; each Subsidiary is a corporation duly existing and in good standing under laws of the state of its incorporation; and the Company and each Subsidiary is duly qualified and in good standing as a foreign corporation authorized to do business in each jurisdiction where, because of the nature of its activities or properties, such qualification is required and the failure to so qualify would materially and adversely affect the financial condition, operations, or business prospects of the Company and its Subsidiaries on a consolidated basis. SCHEDULE 9.1 lists the foreign jurisdictions of the Company. SECTION 9.2 AUTHORIZATION: NO CONFLICT AND VALIDITY OF OBLIGATIONS. The Company has full right and authority to enter into this Agreement, to make the borrowings herein provided for, to request that Letters of Credit be issued hereunder, to issue its Revolving Notes and to perform all of its obligations under the Loan Documents; each Loan Document delivered by the Company has been duly authorized, executed and delivered by the Company and constitutes the valid and binding obligations of the Company, enforceable in accordance with their terms; and the Loan Documents do not, nor does the performance or observance by the Company of any of the matters or things therein provided for, contravene any provision of law or the certificate of incorporation or bylaws of the Company or any material covenant, indenture or agreement of or affecting the Company. SECTION 9.3 SUBSIDIARIES. The Subsidiaries of the Company and their respective states of incorporation and foreign jurisdictions are designated on SCHEDULE 9.3. SECTION 9.4 FINANCIAL STATEMENTS The Company's audited consolidated financial statement as at December 31, 1997 and, except as disclosed on SCHEDULE 9.4, its unaudited consolidated financial statements as at September 30, 1998 and November 30, 1998, copies of which have been furnished to the Banks, have been prepared in conformity with GAAP applied on a basis consistent with that of the preceding fiscal year, and fairly present in all material respects the consolidated financial condition of the Company and its Subsidiaries as at such dates and the results of their operations for the periods then ended. -17- SECTION 9.5 NO MATERIAL ADVERSE CHANGE. Except as disclosed in the SEC Reports or on SCHEDULE 9.5, since the dates of the financial statements referred to in SECTION 9.4 there has been no material adverse change in the condition (financial or otherwise), operations or business prospects of the Company and its Subsidiaries taken as a whole. SECTION 9.6 LITIGATION AND CONTINGENT LIABILITIES. Except as disclosed in the SEC Reports or in SCHEDULE 9.6, there is no litigation (including, without limitation, derivative actions), arbitration proceedings or governmental proceedings pending or, to the best of the Company's knowledge, threatened against the Company or any Subsidiary which if adversely determined would (i) result in any material adverse change in the financial condition, business prospects or continued operations of the Company and its Subsidiaries taken as a whole, or (ii) impair the validity or enforceability of, or materially impair the ability of the Company to perform its obligations hereunder or under any of the Loan Documents. Other than any liability incident to such litigation or proceedings, neither the Company nor any Subsidiary has any contingent liabilities singly or in the aggregate in excess of $500,000 not provided for or disclosed in the financial statements referred to in SECTION 9.4. SECTION 9.7 LIENS. None of the assets of the Company or any Subsidiary is subject to any mortgage, pledge, title retention lien, or other lien, encumbrance or security interest, EXCEPT liens permitted by SECTION 10.11. SECTION 9.8 PENSION AND WELFARE PLANS. Except as disclosed in Schedule 9.8, each of the Company and Subsidiaries is in compliance in all material respects with ERISA with respect to all employee benefit plans maintained by the Company or such Subsidiaries and has received no notice to the contrary from the PBGC or any other governmental entity or agency. During the twelve consecutive month period prior to the date of the execution and delivery of this Agreement, no steps have been taken to terminate any Pension Plan, and no contribution failure has occurred with respect to any Pension Plan sufficient to give rise to a lien under Section 302(f) of ERISA. No condition exists or event or transaction has occurred with respect to any Pension Plan which could result in the incurrence by the Company of any material liability, fine or penalty. Except as described in SCHEDULE 9.8, the Company has no contingent liability with respect to any post-retirement benefits under a Welfare Plan, other than liability for continuation coverage described in Part 6 of title I to ERISA and described in applicable state continuation coverage laws. SECTION 9.9 INVESTMENT COMPANY ACT. The Company is not an "investment company" or a company "controlled" by an "investment company" with the meaning of the Investment Company Act of 1940, as amended. SECTION 9.10 REGULATION U. The Company is not engaged principally, or as one of its important activities, in the business of extending credit, and will not use the proceeds of any of the Revolving Loans, for the purpose of purchasing or carrying Margin Stock and the Company will not use the proceeds of the Revolving Loans or the Letters of Credit in a manner that violates any provision of Regulations U or X of the Board of Governors of the Federal Reserve System. SECTION 9.11 APPROVALS. No authorization, consent, license, exemption or filing or registration with any court or governmental department, agency or instrumentality, or any approval -18- or consent from any other Person is necessary in connection with the valid execution, delivery or performance by the Company of the Loan Documents. SECTION 9.12 COMPANY'S MATERIAL AGREEMENTS. The Company is not in default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in (i) any agreement to which it is a party, which default might have a material adverse affect on the business, properties or assets, operations or condition (financial or otherwise) of the Company or (ii) any agreement or instrument evidencing or governing indebtedness. SECTION 9.13 TAXES. Each of the Company and the Subsidiaries has filed all tax returns which are required to have been filed and has paid, or made adequate provision for the payment of all of its taxes which are due and payable, except such taxes, if any, as are being contested in good faith and by appropriate proceedings and as to which such reserves or other appropriate provisions as may be required by GAAP have been maintained. The Company is not aware of any proposed assessment against the Company or any Subsidiaries for additional taxes (or any basis for any such assessment) which might be material to the Company. SECTION 9.14 INSURANCE. SCHEDULE 9.14 completely and accurately summarizes the property and casualty insurance program carried by the Company and the Subsidiaries and includes any self insurance program that is in effect. SECTION 9.15 BUSINESS LOCATIONS. The office where the Company keeps its books and records and the principal place of business of the Company is set forth on the signature pages of this Agreement. SECTION 9.16 USE OF PROCEEDS. The proceeds of the Revolving Loans and the Letters of Credit shall be used for working capital and general corporate purposes, including but not limited to, acquisitions under Section 10.13(b). SECTION 9.17 ENVIRONMENTAL MATTERS. Except as set forth on SCHEDULE 9.17, to the best of the Company's knowledge, (a) the Company and its Subsidiaries comply in all material respects with all applicable Environmental Laws, (b) the Company and its Subsidiaries have obtained all Governmental Approvals required for its operations, and its use and/or occupancy of any real property by any applicable Environmental Law, except those that would not have a Material Adverse Effect, (c) there are no pending or threatened claims, notices, investigations or litigation involving the Company or any of its Subsidiaries relating to any Release, threatened Release or disposal of any Hazardous Material which might have a Material Adverse Effect, and (d) the Company and its Subsidiaries have no pending material liability for response or corrective action, natural resource damage, or other harm pursuant to CERCLA, RCRA, or any comparable state law. SECTION 9.18 TREATMENT AND STORAGE. Except in compliance with applicable law in all material respects, or as otherwise described on SCHEDULE 9.18, any real property currently owned by or leased to the Company and any of its Subsidiaries does not contain any of the following: (a) underground storage tanks, (b) any landfills or dumps, or (c) hazardous waste management facilities as defined pursuant to RCRA or comparable state law. -19- SECTION 9.19 COMPLIANCE WITH LAWS. To the best of the Company's knowledge, the Company and its Subsidiaries are in compliance in all material respects with all applicable statutes, laws, rules and regulations applicable thereto. SECTION 9.20 INFORMATION. All information heretofore or contemporaneously herewith furnished by the Company to any Bank for purposes of or in connection with this Agreement and the transactions contemplated hereby is, and all information hereafter furnished by or on behalf of the Company to any Bank will be, true and accurate in every material respect on the date as of which such information is dated or certified, and none of such information is or will be incomplete by omitting to state any material fact necessary to make such information not misleading. SECTION 9.21 YEAR 2000 PROBLEM. The Company and its Subsidiaries have reviewed or are reviewing the areas within their business and operations (which are within their control) which could be adversely affected by, and have developed or are developing a program to address on a timely basis, the "Year 2000 Problem" (that is, the risk that computer applications used by the Company and its Subsidiaries may be unable to recognize and perform properly date-sensitive functions involving certain dates prior to and any date after December 31, 1999). Based on such review and program, the Company reasonably believes that the "Year 2000 Problem" will not have a Material Adverse Effect. SECTION 10 COVENANTS. Until the expiration or termination of the Commitments and thereafter until all obligations of the Company hereunder and under the Revolving Notes are paid in full and all Letters of Credit have been terminated, the Company agrees that, unless at any time the Banks shall otherwise expressly consent in writing, it will: SECTION 10.1 REPORTS, CERTIFICATES AND OTHER INFORMATION. Furnish to each Bank: SECTION 10.1.1 AUDIT REPORT. Within 90 days after each fiscal year of the Company, a copy of an annual audit report of the Company and the Subsidiaries for such fiscal year then ended prepared on a consolidating and consolidated basis and in conformity with GAAP (except for such consolidating statements) applied on a basis consistent with the audited consolidated financial statement of the Company and the Subsidiaries as at December 31, 1997, duly certified (except for such consolidating statements) by Coopers & Lybrand, or other independent certified public accountants of recognized standing selected by the Company and reasonably acceptable to the Banks, certified without qualification by such independent certified public accountants together with a certificate to the effect that, in making the examination necessary for the signing of such annual audit report by such independent certified public accountants, they have not become aware of any Event of Default or Unmatured Event of Default that has occurred and is continuing, or if they have become aware of any such event, stating the nature and status thereof. SECTION 10.1.2 QUARTERLY REPORTS. Within 45 days after the end of each Fiscal Quarter (except the fourth Fiscal Quarter), a copy of (a) the unaudited consolidated and consolidating balance sheets of the Company and the Subsidiaries as of the close of such Fiscal Quarter and the related consolidated changes in financial position for that portion of the fiscal year and (b) the -20- unaudited consolidated and consolidating statements of income of the Company and the Subsidiaries, in each case prepared in substantially the same manner as the audit report referred to in SECTION 10.1.1 and signed by the Chief Accounting Officer of the Company. SECTION 10.1.3 MONTHLY REPORTS. Within 30 days after the end of each calendar month, a Directors' Statement which at a minimum provides the unaudited financial statements of the Company and its Subsidiaries prepared in substantially the same manner as Schedule 10.1.3, and is signed by the Chief Accounting Officer of the Company. Notwithstanding the foregoing, the Directors' Statement for the last month of the Company's fiscal year shall be due within sixty (60) days after the end of that month. In addition, within ten (10) days after the end of each calendar month, the Company shall deliver to Agent an updated Borrowing Base Report and a receivables aging certificate in a form reasonably acceptable to the Agent. SECTION 10.1.4 COMPLIANCE CERTIFICATES. Within 45 days after the end of each Fiscal Quarter (or, in the case of the last Fiscal Quarter of any fiscal year, within 90 days), a certificate signed by the President or the Chief Accounting Officer of the Company to the effect that no Event of Default or Unmatured Event of Default has occurred and is continuing, or, if there is any, such event, describing it and the steps, if any, being taken, to cure it, and containing a computation of, and showing compliance with, each of the financial covenants set forth in Sections 10.5 through 10.8 and the other restrictions contained in SECTION 10. SECTION 10.1.5 REPORTS TO SEC AND TO SHAREHOLDERS. Copies of each filing and report made by the Company or any Subsidiary with or to any securities exchange or the Securities and Exchange Commission, and of each communication from the Company or any Subsidiary to shareholders of the Company generally, promptly upon the filing or making thereof. SECTION 10.1.6 NOTICE OF DEFAULT, LITIGATION AND ERISA MATTERS. As soon as possible, but in no event later than 30 days, after the Company learns of the occurrence of any of the following, written notice thereof, describing the same and the steps being taken by the Company or the Subsidiary affected with respect thereto: (i) the occurrence of an Event of Default or an Unmatured Event of Default, or (ii) the institution of, or any adverse determination in, any litigation, arbitration proceeding or governmental proceeding which is materially adverse to the Company and its Subsidiaries on a consolidated basis, or (iii) the institution of any steps by the Company or any other Person to terminate any Pension Plan, or the failure to make a required contribution to any Pension Plan if such failure is sufficient to give rise to a lien under Section 302(f) of ERISA, or the taking of any action with respect to a Pension Plan which could result in the requirement that the Company furnish a bond or other security to the PBGC or such Pension Plan, or the occurrence of any event with respect to any Pension Plan which could result in the incurrence by the Company of any material liability, fine or penalty, or any material increase in the contingent liability of the Company with respect to any post-retirement Welfare Plan benefit. SECTION 10.1.7 SUBSIDIARIES. A written report of any changes in the list of its Subsidiaries within thirty (30) days of such change. SECTION 10.1.8 PROJECTIONS. Within 60 days after the end of each fiscal year of the Company, a copy of the one-year projections (quarter by quarter) of the Company and its -21- Subsidiaries, including balance sheets and statements of earnings and cash flow prepared on a consolidated and on a divisional basis. SECTION 10.1.9 OTHER INFORMATION. From time to time such other information concerning the Company and its Subsidiaries as the Agent or any Bank may reasonably request. SECTION 10.2 BOOKS, RECORDS AND INSPECTIONS. Maintain, and cause each Subsidiary to maintain, complete and accurate books and records; permit, and cause each Subsidiary to permit, access by the Agent and each Bank to the books and records of the Company and of any Subsidiary; permit, and cause each Subsidiary to permit, the Agent and each Bank to inspect the properties and operations of the Company and of any Subsidiary; and, if the Agent and each Bank are unable to conduct such review, permit, and cause each Subsidiary to permit, any accounting firm selected by the Agent which is reasonably satisfactory to the Company, on a semiannual basis, to conduct, at the Company's expense, such reviews of the books and records of the Company and of any Subsidiary as the Agent shall reasonably request. SECTION 10.3 INSURANCE. Maintain, and cause each Subsidiary to maintain, such insurance as may be required by law and such other insurance, to such extent and against such hazards and liabilities, as is customarily maintained by companies similarly situated. SECTION 10.4 TAXES AND LIABILITIES. Pay, and cause each Subsidiary to pay, when due all taxes, assessments and other liabilities except as contested in good faith and by appropriate proceedings. SECTION 10.5.1 CAPITAL EXPENDITURES. Not permit the consolidated capital expenditures of the Company and its Subsidiaries (including Capital Lease Obligations) in any fiscal year to exceed the amount applicable to such fiscal year as follows:
FISCAL YEAR ENDING AMOUNT ------------------ ------ December 31, 1999 $10,000,000 December 31, 2000 $15,000,000 December 31, 2001 $20,000,000
provided; however, that the amount applicable to fiscal year 1999 shall exclude Capital Expenditures of up to $5,000,000 related to the Verson Division's facility expansion project as reflected in the Company's accounts payable as of December 31, 1998. SECTION 10.5.2 MINIMUM CONSOLIDATED OPERATING CASH FLOW. Not permit its Consolidated Operating Cash Flow in respect of any Fiscal Quarter, to be less than the amount applicable to such Fiscal Quarter, as follows:
FISCAL QUARTER ENDING AMOUNT --------------------- ------ March 31, 1999 $4,000,000 June 30, 1999 $4,000,000
-22-
FISCAL QUARTER ENDING AMOUNT --------------------- ------ September 30, 1999 $4,000,000 December 31, 1999 $3,150,000 March 31, 2000 $7,750,000 June 30, 2000 $8,500,000
SECTION 10.5.3 NET WORTH. Not permit the Company's Consolidated Net Worth at any time to be less than (a) $95,000,000, PLUS (b) twenty five percent (25%) of the Company's positive consolidated net income for each Fiscal Quarter ended after December 31, 1998, LESS (c) the amount of any cash dividends paid or declared after December 31, 1998 in an amount not to exceed $7,500,000, LESS (d) Verson Division Special Expenses up to but not exceeding $18,000,000 in the aggregate. SECTION 10.6 FUNDED DEBT/OPERATING CASH FLOW RATIO. Not permit the ratio ("Consolidated Funded Debt/Operating Cash Flow Ratio") of (x) Consolidated Total Funded Debt to (y) Consolidated Operating Cash Flow to exceed 3.75:1:00 from and after July 1, 2000 through December 30, 2000, and 3.50:1.00 thereafter. SECTION 10.7 CONSOLIDATED FIXED CHARGE COVERAGE. Not permit for any Fiscal Quarter the ratio ("Consolidated Fixed Charge Ratio") of (a) Consolidated Adjusted Operating Cash Flow to (b) interest expense (before any deferral and capitalization of such interest, but including attributable interest from Capitalized Lease Obligations) plus rental expense of the Company and its Subsidiaries on a consolidated basis during such period, to be less than the ratio applicable to such Fiscal Quarter, as follows:
FISCAL QUARTER ENDING RATIO --------------------- ----- March 31, 1999 0.80:1 June 30, 1999 0.80:1 September 30, 1999 1.00:1 December 31, 1999 1.00:1 March 31, 2000 1.75:1 June 30, 2000 1.75:1
provided, however, that on and after July 1, 2000, the Company shall not permit for any period consisting of 4 consecutive Fiscal Quarters, the Consolidated Fixed Charge Ratio to be less than 2.00:1. SECTION 10.8 MINIMUM DEBT COVERAGE. Not permit the ratio of (a) the sum of (i) the accounts receivable of the Company and its Subsidiaries, plus (ii) the book value of inventory of the Company and its Subsidiaries (provided that the value of such inventory shall not exceed 150% of the net amount of accounts receivable under clause (i) above), plus (iii) cash and cash equivalents (determined according to GAAP) of the Company and its Subsidiaries to (b) the aggregate principal amount of all Indebtedness of the Company and its Subsidiaries, to be less than 1:1.00 during the period from September 30, 1998 through September 30, 2000 or less than 1.25:1 thereafter. -23- SECTION 10.9 PURCHASE OR REDEMPTION OF COMPANY'S SECURITIES; DIVIDEND RESTRICTIONS. Not purchase or redeem any shares of the capital stock of the Company, declare or pay any dividends thereon (other than stock dividends), make any distribution to stockholders or set aside any funds for any such purpose, and not prepay, purchase or redeem, and not permit any Subsidiary to purchase, any subordinated indebtedness of the Company; PROVIDED HOWEVER , that so long as no Event of Default or Unmatured Event of Default exists or would result therefrom, the Company may, in its sole discretion pay or declare cash dividends to the holders of common stock of the Company. SECTION 10.10 INDEBTEDNESS. Not, and not permit any Subsidiary to, incur or permit to exist any Indebtedness or liability on account of deposits or advances or for borrowed money or for the deferred purchase price of any property or services, except (i) the obligations arising under the Commitments, (ii) obligations under any Capital Lease, (iii) indebtedness of any Subsidiary to the Company or any other Subsidiary, (iv) indebtedness of the Company relating to any hedging agreements entered into by the Company with respect to interest rate exposure resulting from its obligations under this Agreement, (v) current liabilities of the Company arising in the ordinary course of business, (vi) the obligations of the Company in connection with the Letter of Credit Applications or the Letters of Credit, (vii) debt in respect of taxes, assessments or governmental charges to the extent that payment thereof shall not at the time be required to be made, (viii) indebtedness subordinated to the obligations of this Agreement, with terms and conditions acceptable to Agent, (ix) indebtedness assumed by the Company in connection with acquisitions permitted by SECTION 10.13, (x) indebtedness described in SCHEDULE 10.10, (xi) Indebtedness evidenced by the 1999 Senior Notes, and (xii) other indebtedness of the Company not to exceed $10,000,000 in the aggregate. Schedule 10.10 specifically describes the indebtedness of the Company and Subsidiaries which will remain after the Effective Date. SECTION 10.11 LIENS. Not, and not permit any Subsidiary to, create or permit to exist, any mortgage, pledge, title retention lien, or other lien, encumbrance or security interest with respect to any assets now owned or hereafter acquired, EXCEPT (i) for current taxes not delinquent or for taxes being contested in good faith and by appropriate proceedings, (ii) liens arising in the ordinary course of business for sums not due or sums being contested in good faith and by appropriate proceedings and not involving any deposits or advances or borrowed money or the deferred purchase price of property or services (iii) those granted by any Subsidiary to secure indebtedness of such Subsidiary to the Company or any Subsidiary, (iv) liens in favor of the Agent and the Banks in connection herewith, (v) preexisting liens on or security interests affecting assets acquired pursuant to SECTION 10.13, (vi) liens arising in the ordinary course of business and consistent with past practices not to exceed $1,000,000 in the aggregate, (vii) liens on Verson work in progress inventory securing obligations arising from progress payments to Verson, provided that the obligations so secured shall be limited to such progress payments and that the security therefore shall be limited to the related Verson work in progress inventory, (viii) liens listed in SCHEDULE 10.11, (ix) liens representing the interests of the lessor under a Capital Lease, or (x) extensions or renewals of the forgoing. SECTION 10.12 GUARANTIES, LOANS OR ADVANCES. Not, and not permit any Subsidiary to, become or be a guarantor or surety of, or otherwise become or be responsible in any manner (whether by agreement to purchase any obligations, stock, assets, goods or services, or to supply or -24- advance any funds, assets, goods or services, or otherwise) with respect to, any undertaking of any advances to any other person or entity, EXCEPT for (i) the endorsement, in the ordinary course of collection, of instruments payable to it or to its order, (ii) loans or advances by the Company to any Subsidiary, (iii) advances not to exceed, in the aggregate for the Company and all Subsidiaries at any one time outstanding, $150,000 to officers and employees and $100,000 to subcontractors or suppliers other than Subsidiaries, (iv) customary and usual indemnities given in connection with any Permitted Dispositions, (v) indemnities of the Bush Hog and Verson Divisions given to certain of their customers and dealers in the ordinary course of business and consistent with past practices, (vi) customary and usual indemnities given by the Company in connection with past divestitures, (vii) deposits not to exceed, in the aggregate for the Company and all Subsidiaries at any one time outstanding, $1,000,000 to the sellers of fixed assets in connection with the purchase by the Company of such fixed assets. SECTION 10.13 MERGERS, CONSOLIDATIONS, SALES. Not, and not permit any Subsidiary to, be a party to any merger or consolidation, or purchase or otherwise acquire all or substantially all of the assets, or any stock of any class of, or any partnership or joint venture interest in, any other Person, or, except in the ordinary course of its business, sell, transfer, convey or lease all or any substantial part of its assets or sell or assign with or without recourse any receivables, EXCEPT for: (a) any such merger or consolidation, sale, transfer, conveyance, lease or assignment of or by any wholly-owned Subsidiary into the Company or into, with or to any other wholly-owned Subsidiary; (b) negotiated acquisitions of any Person (including any acquisition of all or substantially all of the assets of any Person or the stock or partnership interest or other ownership interest in any Person) which is in a line of business substantially similar to the businesses of the Company and its Subsidiaries, provided that (i) the written consent or approval of the Board of Directors or equivalent governing body of the Person to be acquired shall have been obtained prior to consummation and acquisition; (ii) the total consideration paid or given for all such acquisitions during any consecutive twelve month period shall not exceed $25,000,000 exclusive of (x) consideration given in respect of acquisitions consummated prior to August 1, 1998 and (y) exclusive of the value of common stock of the Company used as consideration in connection with any such acquisition); (iii) the pro-forma combined Funded Debt/Operating Cash Flow Ratio as of the effective date of any such acquisition of the Company and the acquired Person, for the four Fiscal Quarters most recently ended at the time of such effective date does not exceed 3.25:1; (iv) no Event of Default or Unmatured Event of Default shall exist before or after giving effect to such acquisition; (v) any acquisition of stock of a Person shall not be less than 80% of the issued and outstanding capital stock of such Person; and (vi) the Agent shall have received a certificate from the Company satisfactory to the Agent as to compliance by the Company with preceding clauses (i) through (v). (c) the sale, transfer or disposition of any fixed asset(s), as long as either: (i) during any fiscal year, the aggregate consideration paid or given to the Company or any Subsidiary is less than 5% of the Company's consolidated assets as reflected on the Company's then most recent audited financial statements, or (ii) the Company uses the proceeds of such transaction to finance the -25- purchase of replacement fixed asset(s), delivers to the Agent written evidence of the use of the proceeds, and such replacement fixed asset(s) is free and clear of all liens; PROVIDED, HOWEVER, that as to all mergers, consolidations, acquisitions, sales and transfers no Event of Default or Unmatured Event of Default shall have occurred and be continuing or will result therefrom. For purposes of this SECTION 10.13, for all such transactions, the term "consideration" shall include the amount of any indebtedness for borrowed money assumed by the Company or a Subsidiary, PLUS the amount, if any, by which the liabilities of the acquired Person assumed by the Company or a Subsidiary (exclusive of the amount of the indebtedness for borrowed money assumed by the Company or a Subsidiary) exceeds the value of the Tangible Assets of such acquired Person. SECTION 10.14 INVESTMENTS. Not, and not permit any Subsidiary to, make or permit any Investment in any Person, except for: (a) Extensions of credit in the nature of accounts receivable or notes receivable arising from the sale of goods and services in the ordinary course of business consistent with past practices; (b) Investments and securities with maturities of one year or less from the date of acquisition issued or fully guaranteed or insured by the United States of America or any agency thereof; (c) Investments and commercial paper maturing within 270 days or less from the date of issuance rated in the highest grade by a nationally recognized credit agency; (d) Investments and certificates of deposit maturing within one year from the date of acquisition issued by a bank or trust company organized under the laws of the United States or any State thereof having capital, surplus and undivided profits aggregating at least $100,000,000; (e) Investments of the Company outstanding on the date hereof to the extent disclosed in the financial statements referred to in SECTION 9.4 or disclosed on Schedule 10.14; (f) Investments in overnight repurchase or reverse repurchase transactions involving marketable direct obligations issued or unconditionally guaranteed by the United States of America or any agency thereof and backed by the full faith and credit of the United States, in each case maturing within one year from the date of acquisition thereof, entered into with a counter party with a net worth in excess of $100,000,000; (g) Investments of the Company evidenced by promissory or demand notes issued by purchasers of assets of the Company permitted by the terms of this Agreement; (h) Investments permitted under Sections, 10.10, 10.12 and 10.13; and (i) Investments in shares of a money market fund which (1) is a registered investment company under the Investment Company Act of 1940 (the "Act"); (2) complies with Rule 270.2(a)-7 -26- of the Act (the "Rule"); and (3) is either (a) rated in one of the two highest rating categories by Standard and Poors or Moody's Investor Service, or (b)(i) has assets of at least $200,000,000 at all times upon and after the purchase of shares by the Company, and (ii) will limit its portfolio investments to instruments that are, at the time of acquisition "First Tier Securities" or "Government Securities" as such terms are defined in this Rule. SECTION 10.15 ENVIRONMENTAL COVENANTS. SECTION 10.15.1 ENVIRONMENTAL RESPONSE OBLIGATION. (a) Comply, and cause each Subsidiary to comply, in all material respects with all applicable Environmental Laws, or judicial or administrative orders requiring the performance at any real property owned, operated, or leased by the Company or any subsidiary of activities in response to the release or threatened release of a Hazardous Material except for the period of time that the Company or such Subsidiary is diligently in good faith contesting such order; (b) notify the Bank within 30 days of the receipt of any written claim, demand, proceeding, action, or notice of material liability by any Person arising out of or relating to the release or threatened release of a Hazardous Material; and (c) notify the Bank promptly, but in no event later than thirty (30) days, after the occurrence of any release, threat of release, or disposal of Hazardous Material reported to any governmental regulatory authority at any real property owned, operated, or leased by the Company or any Subsidiary. SECTION 10.15.2 ENVIRONMENTAL LIABILITIES. Not violate in any material respect any applicable Environmental Law and, without limiting the foregoing, not commence disposal of any Hazardous Material into or onto any real property owned, operated, or leased by the Company or any Subsidiary nor allow any lien imposed pursuant to any law, regulation or order relating to Hazardous Materials or the disposal thereof to remain on such real property. SECTION 10.16 UNCONDITIONAL PURCHASE OBLIGATIONS. Not, and not permit any Subsidiary to, enter into or be a party to any contract for the purchase of materials, supplies or other property or services, if such contract requires that payment be made by it regardless of whether or not delivery is ever made of such materials, supplies or other property or services. SECTION 10.17 EMPLOYEE BENEFIT PLANS. Maintain, and cause each Subsidiary to maintain, each Pension Plan in compliance in all material respects with all applicable requirements of the law and regulations. SECTION 10.18 REGULATION U. Not use or permit any proceeds of the Revolving Loans or the Letters of Credit to be used, either directly or indirectly, for the purpose, whether immediate, incidental or ultimate, of "purchasing or carrying" any Margin Stock. SECTION 10.19 SIGNIFICANT SUBSIDIARY. Cause each present or future Significant Subsidiary to forthwith execute and deliver to the Agent a guaranty of the Company's obligations under this Agreement, such guaranty to be in form and substance satisfactory to the Agent and to be supported by such supporting documents as the Agent shall require. SECTION 10.20 OTHER AGREEMENTS. Not, and not permit any of its Subsidiaries to, enter into any agreement containing any provision which (a) would be violated or breached by the -27- performance of its obligations hereunder or under any instrument or document delivered or to be delivered by it hereunder or in connection herewith, (b) prohibits or restricts the creation or assumption of any Lien upon its properties, revenues or assets, whether now owned or hereafter acquired, (c) prohibits or restricts the ability of any Subsidiary to make dividends or advances to the Company, or (d) prohibits or restricts the ability of the Company or any Subsidiary to amend or otherwise modify this Agreement or any other document executed in connection herewith. SECTION 10.21 COMPLIANCE WITH LAWS. Comply, and cause each Subsidiary to comply in all material respects with all applicable statutes, laws, rules and regulations. SECTION 11 EFFECTIVENESS; CONDITIONS OF LENDING Section 11.1 EFFECTIVENESS. This Agreement shall become effective as of February 1, 1999 (herein called the "Effective Date") provided that each of the following conditions shall have been satisfied (it being understood that until satisfaction such conditions in the Existing Agreement shall remain in full force and effect): (i) the conditions specified in SECTION 11.2 have been satisfied, (ii) the Agent shall have received the fees described in SECTIONS 5.1, 5.2 AND 5.3 (to the extent then due), and (iii) the Agent shall have received all the following, each duly executed and dated the Effective Date (or such later date as shall be satisfactory to the Agent), in form and substance satisfactory to the Agent, and each (except for the Notes, of which only the originals shall be signed) in sufficient number of signed counterparts to provide one for each Bank: SECTION 11.1.1 REVOLVING NOTES. The Revolving Notes of the Company payable to the order of each Bank. SECTION 11.1.2 CERTIFICATE. A certificate of the Chief Accounting Officer of the Company to the effect that on the Effective Date, (i) the aggregate principal amount of the Revolving Loans together with the stated amount of all Letters of Credit does not exceed $145,000,000, and (ii) the conditions set forth in SECTION 11.2.1 are satisfied as of the Effective Date with the same effect as if a Revolving Loan were made on such date. SECTION 11.1.3 RESOLUTIONS. Certified copies of resolutions of the Board of Directors of the Company authorizing the execution, delivery and performance of this Agreement, the Notes, the Letter of Credit Applications, and the other documents to be executed by the Company pursuant to this Agreement. SECTION 11.1.4 CONSENTS AND APPROVALS. The required consents and governmental approvals (if any) with respect to this Agreement, the Revolving Notes, the Letter of Credit Applications, and the other documents to be executed by the Company pursuant to this Agreement. SECTION 11.1.5 INCUMBENCY AND SIGNATURES. A certificate of the Secretary or an Assistant Secretary of the Company certifying the names of the officer or officers of the Company authorized to sign this Agreement, the Notes, the Letter of Credit Applications, and the other documents provided for in this Agreement, together with a sample of the true signature of each such officer (it being understood that the Agent and the Banks may conclusively rely on such certificate until formally advised by a like certificate of any changes therein). -28- SECTION 11.1.6 OPINIONS OF COUNSEL FOR THE COMPANY. The opinions of Gardner, Carton & Douglas, and Mark Standefer, Esq. as counsels for the Company, substantially in the forms set forth in EXHIBIT C. SECTION 11.1.7 OTHER DOCUMENTS. Such other documents as the Agent or any Bank may reasonably request. SECTION 11.2 ALL LOANS AND LETTERS OF CREDIT. The occurrence of the Effective Date and the obligation of each Bank to make any Revolving Loan and to issue any Letter of Credit is subject to the conditions precedent that: SECTION 11.2.1 NO DEFAULT. (a) No Event of Default, or Unmatured Event of Default, has occurred and is continuing or will result from the making of such Revolving Loan or the issuance of such Letter of Credit and (b) the warranties of the Company contained in Section 9 are true and correct as of the date of such requested Revolving Loan or the issuance of such Letter of Credit, with the same effect as though made on such date. SECTION 11.2.2 LITIGATION. No litigation (including, without limitation, derivative actions), arbitration proceedings or governmental proceedings not disclosed in writing by the Company to the Banks prior to the date of the last previous Revolving Loan hereunder (or, in the case of the initial Revolving Loan prior to the date of execution and delivery of this Agreement) are pending or known to be threatened against the Company or any Subsidiary which if adversely determined could reasonably be expected to (i) result in any material adverse change in the financial condition, business prospects or continued operations of the Company and its Subsidiary on a consolidated basis or (ii) impair the validity or enforceability of, or materially impair the ability of the Company to perform its obligations hereunder or under any of the other Loan Documents, and no material development not so disclosed has occurred in any such litigation (including, without limitation, derivative actions), arbitration proceedings or governmental proceedings so disclosed, which could reasonably be expected to cause such a material adverse change. Each request by the Company for a Loan or a Letter of Credit shall automatically constitute a representation and warranty of the Company to the effect that all conditions to the making of such Loan or issuance of such Letter of Credit will be satisfied as of the date of the making of such Loan or issuance of such Letter of Credit. SECTION 12 EVENTS OF DEFAULT AND THEIR EFFECT. SECTION 12.1 EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default under this Agreement: SECTION 12.1.1 NON-PAYMENT OF NOTES, ETC. Default in the payment when due of (a) any principal of, or interest on, any Revolving Note or (b) any reimbursement obligation with respect to any Letter of Credit or any fees payable by the Company hereunder. -29- SECTION 12.1.2 NON-PAYMENT OF OTHER INDEBTEDNESS FOR BORROWED MONEY. Default in the payment when due (subject to any applicable grace period), whether by acceleration or otherwise, of any other indebtedness for borrowed money of, or guaranteed by, the Company or any Subsidiary in excess of $250,000 in the aggregate or default in the performance or observance of any obligation or condition with respect to any such other indebtedness if the effect of such default is to accelerate the maturity of any such indebtedness or to permit the holder or holders thereof, or any trustee or agent for such holders, to cause such indebtedness to become due and payable prior to its expressed maturity. SECTION 12.1.3 OTHER MATERIAL OBLIGATIONS. Default in the payment when due, or in the performance or observance of, any material obligation of, or condition agreed to by the Company or any Subsidiary with respect to any material purchase or lease of goods or services reasonably valued in excess of $750,000 in the aggregate (and not constituting an Event of Default under any of the other provisions of this SECTION 12) and except only to the extent that the existence of any such default is being contested by the Company or such Subsidiary in good faith and by appropriate proceedings. SECTION 12.1.4 BANKRUPTCY, INSOLVENCY. The Company or any Subsidiary becomes insolvent or generally fails to pay, or admits in writing its inability or refusal to pay, debts as they become due; or the Company or any Subsidiary applies for, consents to, or acquiesces in the appointment of a trustee, receiver or other custodian for the Company or such Subsidiary or any property thereof, or makes a general assignment for the benefit of creditors; or in the absence of such application, consent or acquiescence, a trustee, receiver or other custodian is appointed for the Company or any Subsidiary or for a substantial part of the property of any thereof and is not discharged within 30 days; or any bankruptcy, reorganization, debt arrangement, or other case or proceeding under any bankruptcy or insolvency law, or any dissolution or liquidation proceeding (except the voluntary dissolution, not under any bankruptcy or insolvency law, of a Subsidiary), is commenced in respect of the Company or any Subsidiary, and if such case or proceeding is not commenced by the Company or such Subsidiary, it is consented to or acquiesced in by the Company or such Subsidiary or remains for 30 days undismissed; or the Company or any Subsidiary takes any corporate action to authorize, or in furtherance of, any of the foregoing. SECTION 12.1.5 NON-COMPLIANCE WITH THIS AGREEMENT. Failure by the Company to comply with or to perform any provision of this Agreement (and not constituting an Event of Default under any other provision of this SECTION 12) and continuance of such failure for 15 days after notice thereof to the Company from the Agent, any Bank, or the holder of any Revolving Note. SECTION 12.1.6 WARRANTIES. Any warranty made by the Company herein or in any Instrument is breached or is false or misleading in any material respect, or any schedule, certificate, financial statement, report, notice, or other writing furnished by the Company to the Agent or any Bank is false or misleading in any material respect on the date as of which the facts therein set forth are stated or certified. SECTION 12.1.7 PENSION PLANS. (a) Institution of any steps by the Company or any other Person to terminate a Pension Plan if as a result of such termination the Company could be required to make a contribution to such Pension Plan, or could incur a liability or obligation to such Pension -30- Plan, in excess of $100,000, or (b) a contribution failure occurs with respect to any Pension Plan sufficient to give rise to a lien under section 302(f) of ERISA. SECTION 12.1.8 MATERIAL ADVERSE CHANGE. There is a material adverse change in the financial or business conditions or prospects of the Company and its Subsidiaries taken as a whole. SECTION 12.1.9 CHANGE OF CONTROL. The acquisition, through purchase or otherwise (including the agreement to act in concert without more), by any Person or group of Persons acting in concert directly or indirectly, in one or more transactions, of beneficial ownership or control of securities representing more than fifty percent (50%) of the combined voting power of the Company's voting stock. For purposes of this definition, "beneficial ownership" shall have the meaning set forth in Rule 13d-3 under the Securities and Exchange Act of 1934. A merger or consolidation pursuant to Section 10.13 with respect to which the voting stock of the surviving corporation is not more than fifty percent (50%) owned by the Company shall constitute a "Change of Control." SECTION 12.2 EFFECT OF EVENT OF DEFAULT. If any Event of Default described in SECTION 12.1.4 shall occur, the Commitments (if they have not theretofore terminated) shall immediately terminate and the Revolving Notes and all other obligations hereunder shall become immediately due and payable and the Company shall become immediately obligated to deliver to the Agent cash collateral in an amount equal to the outstanding face amount of all Letters of Credit, all without presentment, demand, protest or notice of any kind; and, in the case of any other Event of Default, the Agent may (and upon written request of the Banks shall) declare the Commitments (if they have not theretofore terminated) to be terminated and/or declare all Revolving Notes and all other obligations hereunder to be due and payable and/or demand that the Company immediately deliver to the Agent cash collateral in an amount equal to the outstanding face amount of all Letters of Credit, whereupon the Commitments (if they have not theretofore terminated) shall immediately terminate and/or all Revolving Notes and all other obligations hereunder shall become immediately due and payable and/or the Company shall immediately become obligated to deliver to the Agent cash collateral in an amount equal to the face amount of all Letters of Credit, all without presentment, demand, protest or notice of any kind. The Agent shall promptly advise the Company of any such declaration, but failure to do so shall not impair the effect of such declaration. Any collateral delivered by the Company to the Agent shall be held by the Agent (without liability for interest thereon) and applied to obligations arising in connection with any drawing under a Letter of Credit. After the expiration or termination of all Letters of Credit, such cash collateral shall be applied by the Agent to any remaining obligations hereunder and any excess shall be delivered to the Company or as a court of competent jurisdiction may elect. SECTION 13 CERTAIN DEFINITIONS. When used herein the following terms shall have the following meaning (such definitions to be applicable to both the singular and plural forms of such terms): ACCEPTANCE AND ASSIGNMENT - see EXHIBIT E. AFFILIATE shall mean, with respect to any Person, a Person: (a) which directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, -31- such Person; (b) which beneficially owns or holds, directly or indirectly, five percent (5%) or more of any class of the Voting Stock (or, in the case of a Person which is not a corporation, five percent (5%) or more of the equity interested such Person; or (c) five percent (5%) or more of the Voting Stock (or, in the case of a Person which is not a corporation, five percent (5%) or more of the equity interest) of which is beneficially owned or held, directly or indirectly, by such Person; PROVIDED, HOWEVER, that no Bank shall in any event be deemed to be an Affiliate of the Company or any Subsidiary. The term "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting Stock or an equity interest, by contract, or otherwise. AGENT - see PREAMBLE. AGREEMENT - see PREAMBLE. ALTERNATE REFERENCE RATE shall mean, on any date and with respect to all Floating Rate Loans, a fluctuating rate of interest per annum (rounded upward to the next highest one-eighth (1/8) of one percent (1%) if not already an integral multiple of one-eighth (1/8) of one percent (1%)) equal to the higher of (a) the rate of interest most recently announced by the Agent at its Chicago office as its Reference Rate; or (b) the Market Federal Funds Rate most recently determined by the Agent plus one-half percent (.50%). The Alternate Reference Rate is not necessarily intended to be the lowest rate of interest determined by the Agent in connection with extensions of credit. For purposes of this Agreement (i) any change in the Alternate Reference Rate due to a change in the Reference Rate shall be effective, on the date such change in the Reference Rate is announced and (ii) any change in the Alternate Reference Rate due to a change in the Market Federal Funds Rate shall be effective on the effective date of such change in the Market Federal Funds Rate. If for any reason the Agent shall have determined (which determination shall be conclusive in the absence of manifest error) that it is unable to ascertain the Market Federal Funds Rate for any reason, including, without limitation, the inability or failure of the Agent to obtain sufficient bids or publications in accordance with the terms hereof, the Alternate Reference Rate shall be the Reference Rate until the circumstances giving rise to such inability no longer exist. The Agent will give notice promptly to the Company and the Banks of changes in the Alternate Reference Rate. ASSIGNEE - see SECTION 15.17. BANK - see PREAMBLE. BANK OF AMERICA - see PREAMBLE. BORROWING BASE shall mean at any date an amount equal to the sum of the following: RECEIVABLES: (A) 80% of the Net Bush Hog 0 - 90 days Eligible Receivables; -32- (B) 75% of the Net Bush Hog 91 - 180 Days Eligible Receivables; (C) 65% of the Net Bush Hog 181 - 240 Days Eligible Receivables; (D) 50% of the Net Bush Hog Over 240 Days Eligible Receivables; (E) 85% of the Net Verson Eligible Receivables; (F) 80% of the Net Great Bend 0 -90 days Eligible Receivables; (G) 75% of the Net Great Bend 91-180 days Eligible Receivables; (H) 65% of the Net Great Bend 181-240 Days Eligible Receivables; (I) 50% of the Net Great Bend Over 240 Days Eligible Receivables; (J) 80% of the Net Precision Press Eligible Receivables; INVENTORY: (K) 45% of the Net Bush Hog Eligible Raw Material Inventory; (L) 45% of the Net Great Bend Eligible Raw Material Inventory; (M) 45% of the Net Bush Hog Purchased Parts Inventory; (N) 45% of the Net Great Bend Purchased Parts Inventory; (O) 55% of the Net Bush Hog Eligible Finished Goods Inventory; (P) 55% of the Net Great Bend Eligible Finished Goods Inventory; (Q) 50% of the Net Verson Eligible Raw Material Inventory; (R) 50% of the Net Precision Press Industries Eligible Raw Material Inventory; (S) 20% of the Net Verson Eligible Work-In-Process Inventory; (T) 20% of the Net Precision Press Industries Eligible Work-In-Process; EQUIPMENT: (U) 35% of the consolidated gross (undepreciated) value of the machinery and equipment of the Company and its Subsidiaries; and (V) the Borrowing Base Overadvance. -33- Measurement of the Borrowing Base shall be as of the close of the Company's business on the last day of each month. BORROWING BASE OVERADVANCE shall for each month set forth below mean an amount as follows:
MONTH OVERADVANCE AMOUNT ----- ------------------ January 1999 $40,000,000 February 1999 $40,000,000 March 1999 $40,000,000 April 1999 $35,000,000 May 1999 $35,000,000 June 1999 $35,000,000 July 1999 $10,000,000 August 1999 $ 5,000,000
On and after September 1, 1999 the Borrowing Base Overadvance shall be zero. BORROWING BASE REPORT shall mean the report, together with the supporting calculations attached thereto, executed on behalf of the Company by its chief accounting officer or treasurer substantially in the form of EXHIBIT D. BUSINESS DAY shall mean any day on which banks are open for commercial banking business in Chicago, Illinois and, in the case of a Business Day which relates to a Eurodollar Loan, on which dealings are carried on in the interbank eurodollar market. CAPITAL EXPENDITURES shall mean all payments for any fixed assets or improvements or for replacements, substitutions or additions thereto, that have a useful life of more than one year and which are required to be capitalized under GAAP. CAPITAL LEASE shall mean, with respect to any Person, any lease of any property (whether real, personal or mixed) by such Person as lessee that, in accordance with GAAP, either would be required to be classified and accounted for as a capital lease on a balance sheet of such Person or otherwise be disclosed as such in a note to such balance sheet, CAPITAL LEASE OBLIGATION shall mean, with respect to any Capital Lease, the amount of the obligation of the lessee thereunder that, in accordance with GAAP, would appear on a balance sheet of such lessee in respect of such Capital Lease or otherwise be disclosed in a note to such balance sheet. CERCLA shall mean the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986, 42 USC 9601 ET SEQ., and any future amendments. -34- CODE shall mean the Internal Revenue Code of 1986, and regulations promulgated thereunder. COMMITMENT shall mean the Revolving Loan Commitment and the Letter of Credit Commitment of each Bank. COMMITMENTS shall mean the Revolving Loan Commitments and the Letter of Credit Commitments of all Banks. COMPANY - see PREAMBLE. CONSOLIDATED ADJUSTED OPERATING CASH FLOW shall mean (a) the sum of (i) consolidated net income for such period, plus (ii) consolidated interest expense for such period, plus (iii) the aggregate amount which was deducted by the Company in respect of Federal, state and local income taxes by the Company and its Subsidiaries in determining the Company's consolidated net income for such period, plus (iv) all rental expense (including attributable interest from Capitalized Lease Obligations) less (b) the sum of (i) interest income for the period, plus (ii) extraordinary gains for the period, all as determined for the Company and its Subsidiaries on a consolidated basis. CONSOLIDATED FIXED CHARGE RATIO-see SECTION 10.7. CONSOLIDATED FUNDED DEBT/OPERATING CASH FLOW RATIO - see SECTION 10.6. CONSOLIDATED OPERATING CASH FLOW shall mean (a) the sum of (i) consolidated net income for such period, plus (ii) consolidated interest expense for such period, plus (iii) the aggregate amount which was deducted by the Company in respect of Federal, state and local income taxes by the Company and its Subsidiaries in determining the Company's consolidated net income for such period, plus (iv) depreciation and amortization for such period, less (b) the sum of (i) interest income for the period, plus (ii) extraordinary gains for the period, all as determined for the Company and its Subsidiaries on a consolidated basis. CONSOLIDATED NET WORTH shall mean, as of the date of any determination thereof, the assets minus the sum of the liabilities of the Company and Subsidiaries on a consolidated basis. Assets and liabilities of the Company and Subsidiaries shall have the meanings usually given to such terms in accordance with GAAP. CONSOLIDATED TOTAL FUNDED DEBT shall mean the total of all Funded Debt of the Company and such Subsidiaries outstanding on such date determined in accordance with GAAP applied on a consistent basis. CONVERT, CONVERSION AND CONVERTED shall refer to a conversion of Loans pursuant to SECTION 1.4, 3.3, 8.2 or 8.3. DEFAULTED RECEIVABLE shall mean at any time, a Receivable: (a) on which any amount (i) to the Bush Hog Division or the Great Bend Division remains unpaid sixty-one days or more, or (ii) to the Verson Division or the Precision Press Industries Division remains unpaid ninety-one days or -35- more, in each instance, after the scheduled maturity of such amount; (b) as to which any of the Related Equipment has been repossessed or returned, or the related Obligor is subject to any Insolvency Event; (c) which should have been written off in accordance with the Company's practice as of the Effective Date; or (d) in respect of which payments have been extended or rewritten (i) for a purpose other than enhancing the ultimate collectability thereof, or (ii) more than once or for an additional period longer than thirty days, it being understood that if payments are extended or rewritten by the Company, such new terms shall govern for the purpose of subsection (a) above. DIRECTORS STATEMENT shall mean the report prepared by the Company in the form of SCHEDULE 10.1.3. DIVISION as to Bush Hog, Great Bend, Precision Press Industries and/or Verson shall mean a division of the Company. DOLLAR and the sign "$" shall mean lawful money of the United States of America. EFFECTIVE DATE - see SECTION 11.1. ELIGIBLE ASSIGNEE shall mean (a) a commercial bank organized under the laws of the United States, or any state thereof, and having a combined capital and surplus of at least $100,000,000; (b) a commercial bank organized under the laws of any other country which is a member of the Organization for Economic Cooperation and Development (the "OECD"), or a political subdivision of any such country, and having a combined capital and surplus of at least $100,000,000, provided that such bank is acting through a branch or agency located in the country in which it is organized or in the United States; and (c) a Person that is primarily engaged in the business of commercial banking and that is (i) a Subsidiary of a Bank, (ii) a Subsidiary of a Person of which a Bank is a Subsidiary, or (iii) a Person of which a Bank is a Subsidiary. ELIGIBLE PROGRESS BILLING RECEIVABLE shall mean a Progress Billing Receivable which meets each of the requirements set forth in the definition of "Eligible Receivable" other than the requirement that it not be a Progress Billing Receivable. Any Progress Billing Receivable which is at any time an Eligible Progress Billing Receivable, but which subsequently fails to meet any of the foregoing requirements, shall forthwith cease to be an Eligible Progress Billing Receivable until such time as it once again meets all of the foregoing requirements. For purposes of determining the Borrowing Base, the "amount" of each Eligible Progress Billing Receivable at any time shall be the book value thereof at such time. ELIGIBLE RAW MATERIAL INVENTORY shall mean any Inventory which meets each of the following requirements; (a) it consists of raw materials; (b) it is in good condition; and (c) it is owned by the Company or a Subsidiary and is not subject to any lien or security interest whatsoever other than any security interest in favor of the Banks under the Loan Documents. Any Inventory which is at any time Eligible Raw Material Inventory, but which subsequently fails to meet any of the foregoing requirements, shall forthwith cease to be Eligible Raw Material Inventory until such time as it once again meets all of the foregoing requirements. For purposes of determining the -36- Borrowing Base, the "amount" of Eligible Raw Material Inventory at any time shall be the book value thereof at such time. ELIGIBLE RECEIVABLE shall mean each Receivable of the Company and/ or a Subsidiary: (a) which complies with all applicable legal requirements, including, without limitation, to the extent applicable, all state and federal usury laws; (b) which constitutes a legal, valid and binding payment obligation (not (i) evidencing "consumer credit" within the meaning of 12 C.F.R. 226.2(p), as amended or replaced from time to time after the Effective Date or (ii) secured by Related Equipment deemed by the Company to be "consumer use equipment") of the related obligator, enforceable in accordance with its terms; (c) with respect to which, if such Receivable arose from the sale of goods, such goods were free of any liens or encumbrances at the time of sale, and if such Receivable is secured by a security interest in the Related Equipment, such equipment has been delivered to the related Obligor and is located in one of the 50 States, the District of Columbia, Canada, Mexico, or Russia; provided that with respect to a Receivable which arises from an Obligor located in Mexico or Russia, the payment thereof is secured by a letter of credit acceptable to Agent; (d) which provides for payment by the related Obligor (other than an Obligor obligated with regard to such Receivable solely on account of a guaranty or a recourse obligation), which is a Person (which, if a corporation, the principal place of business of which is) located in one of the 50 States or the District of Columbia or Canada and is not the Company or an Affiliate of the Company, in United States dollars with terms (of payment or otherwise) which do not vary materially from industry practice for similar receivables. (e) which was originated in conformity with credit standards which were not materially lower than the standards of the Company in effect on the Effective Date; (f) which is not a Defaulted Receivable, a Progress Billing Receivable or an Unbilled Receivable; and (g) which has not been owed by any entity as to which an Insolvency Event has occurred. Notwithstanding the foregoing, if a standby or commercial letter of credit has been issued in form and substance (including amount) satisfactory to the Agent in its sole discretion to support an account receivable of the Company, such account receivable shall be deemed to meet the requirements in clause (d) above as to the location of the related Obligor. A Receivable which is at any time an Eligible Receivable, but which subsequently fails to meet any of the foregoing requirements, shall forthwith cease to be an Eligible Receivable until such time as it once again meets all of the foregoing requirements. For purposes of determining the Borrowing Base, the "amount" of each Eligible Receivable at any time shall be the net amount of such Eligible -37- Receivable (reduced by the amount of any refund, rebate, allowance, discount, or other concession to the Obligor in connection therewith) at such time. ELIGIBLE UNBILLED RECEIVABLE shall mean an Unbilled Receivable which arises in the ordinary course of business of the Company and which meets each of the requirements set forth in the definition of "Eligible Receivable" other than the requirement that it not be an Unbilled Receivable. Any Unbilled Receivable which is at any time an Eligible Unbilled Receivable, but which subsequently fails to meet any of the foregoing requirements, shall forthwith cease to be an Eligible Unbilled Receivable until such time as it once against meets all of the foregoing requirements. For purposes of determining the Borrowing Base, the "amount" of each Eligible Unbilled Receivable shall be the book value thereof at such time. ELIGIBLE WORK-IN-PROCESS INVENTORY shall mean any Inventory which meets each of the following requirements; (a) it consists of work-in-process; (b) it is in good condition; and (c) it is owned by the Company and is not subject to any lien or security interest whatsoever other than a security interest in favor of the Banks under the Loan Documents. Any Inventory which is at any time Eligible Work-In-Process Inventory, but which subsequently fails to meet any of the foregoing requirements, shall forthwith cease to be Eligible Work-In-Process Inventory until such time as it once again meets all of the foregoing requirements. For purposes of determining the Borrowing Base, the "amount" of Eligible Work-In-Process Inventory at any time shall be the book value thereof at such time (after giving effect to related contra asset accounts, including without limitation, such accounts for customer down payments). ENVIRONMENTAL LAW shall mean any current or future legal requirement pertaining to (a) the protection of health, safety, and the indoor or outdoor environment, (b) the conservation, management, or use of natural resources and wildlife, (c) the protection or use of surface water and groundwater, (d) the management, manufacture, possession, presence, use, generation, transportation, treatment, storage, disposal, Release, threatened Release, abatement, removal, remediation or handling of, or exposure to, any Hazardous Material or (e) pollution (including any Release to air, land, surface water and groundwater), and includes, without limitation, the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986, 42 USC 906 ET SEQ.; Solid Waste Disposal Act, as amended by the Resource Conservation and Recovery Act of 1976 and Hazardous and Solid Waste Amendments of 1984, 42 USC 6901 ET SEQ.; Federal Water Pollution Control Act, as amended by the Clean Water Act of 1977, 33 USC 1251 ET SEQ.; Clean Air Act of 1966, as amended, 42 USC 7401 ET SEQ.; Toxic Substances Control Act of 1976, 15 USC 2601 ET SEQ.; Hazardous Materials Transportation Act, 49 USC App. 1801 ET SEQ.; Occupational Safety and Health Act of 1970, as amended, 29 USC 651 ET SEQ.; Oil Pollution Act of 1990, 33 USC 2701 ET SEQ.; Emergency Planning and Community Right-to-Know Act of 1986, 42 USC 11001 ET SEQ.; National Environmental Policy Act of 1969, 42 USC 4321 ET SEQ.; Safe Drinking Water Act of 1974, as amended, 42 USC 300(f) ET SEQ.; and any similar, implementing or successor law, and any amendment, rule, regulation, order, or directive issued thereunder. ERISA shall mean the Employee Retirement Income Security Act of 1974, as amended, and any successor statute of similar import, together with the regulations thereunder, in each case as in effect from time to time. References to sections of ERISA also refer to any successor sections. -38- EUROCURRENCY RESERVE PERCENTAGE shall mean, with respect to each Interest Period, a percentage (expressed as a decimal) equal to the daily average during such Interest Period of the percentage in effect on each day of such Interest Period, as prescribed by the Board of Governors of the Federal Reserve System (or any successor), for determining the aggregate maximum reserve requirements applicable to "Eurocurrency Liabilities" pursuant to Regulation D or any other then applicable regulation of the Board of Governors which prescribes reserve requirements applicable to "Eurocurrency Liabilities" as presently defined in Regulation D. EURODOLLAR LOAN or Eurodollar borrowing shall mean any Revolving Loan which bears interest at a rate determined by reference to the Eurodollar Rate (Reserve Adjusted). EURODOLLAR OFFICE shall mean with respect to any Bank the office or offices of such Bank which shall be making or maintaining the Eurodollar Loans of such Bank hereunder or such other office or offices through which such Bank determines its Eurodollar Rate. A Eurodollar Office of any Bank may be, at the option of such Bank, either a domestic or foreign office. EURODOLLAR RATE shall mean, with respect to any Eurodollar Loan for any Interest Period, the rate per annum equal to the rate at which Dollar deposits in immediately available funds are offered to the Eurodollar Office of Bank of America two Business Days prior to the beginning of such Interest Period by major banks in the interbank eurodollar market as at or about the relevant local time of such Eurodollar Office, for delivery on the first day of such Interest Period, for the number of days comprised therein and in an amount equal or comparable to the amount of the Eurodollar Loan of Bank of America for such Interest Period. As used herein, "relevant local time" as to any Eurodollar Office shall mean 11:00 A.M., London time, when such Eurodollar Office is located in Europe or the Middle East, or 11:00 A.M., Chicago time, when such Eurodollar office is located in North America or the Caribbean. EURODOLLAR RATE (RESERVE ADJUSTED) shall mean, with respect to any Eurodollar Loan for any Interest Period, a rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) determined pursuant to the following formula: Eurodollar Rate = EURODOLLAR RATE (Reserve Adjusted) 1-Eurocurrency Reserve Percentage EVENT OF DEFAULT shall mean any of the events described in SECTION 12.1. EXISTING LETTERS OF CREDIT-see RECITALS. FEDERAL FUNDS RATE shall mean, for any day, the rate set forth in the weekly statistical release designated as H.15(519), or any successor publication, published by the Board of Governors of the Federal Reserve System (including any such successor publication, "H.15(519)") for such day opposite the caption "Federal Funds (Effective)". If on any relevant day such rate is not yet published in H.15(519), the rate for such day will be the rate set forth in the daily statistical release designated as the Composite 3:30 p.m. Quotations for U.S. Government Securities, or any successor publication, published by the Federal Reserve Bank of New York (including any such successor -39- publication, the "Composite 3:30 p.m. Quotations") for such day under the caption "Federal Funds Effective Rate". If on any relevant day the appropriate rate for such day is not yet published in either H.15(519) or the Composite 3:30 p.m. Quotations, that rate for such day will be the arithmetic mean of the rates for the last transaction in overnight Federal funds arranged prior to 9:00 a.m., New York City time, on such day by each of three leading brokers of Federal funds transactions in New York City, selected by the Agent. The rate for any day which is not a Business Day shall be the rate for the immediately preceding Business Day. FISCAL QUARTER shall mean the period ending on either March 31, June 30, September 30 or December 31 of each year. FLOATING RATE LOAN or Floating Rate borrowing shall mean any Revolving Loan which bears interest at or by reference to the Alternate Reference Rate. FUNDED DEBT shall mean all indebtedness of the Company and its Subsidiaries which by the terms of the agreement governing or instrument evidencing such indebtedness matures more than one year from, or is directly or indirectly renewable or extendable at the option of the debtor under a revolving credit or similar agreement obligating the lender or lenders to extend credit over a period of more than one year from the creation thereof, including current maturities of long-term debt, revolving credit, short-term debt extendable beyond one-year at the option of the debtor, the present value of all Capital Lease Obligations and without duplication, the Revolving Loans from time to time outstanding. GAAP shall mean generally accepted accounting principles in the United States of America as in effect from time to time. GOVERNMENTAL APPROVAL shall mean any permit, license, variance, certificate, consent, letter, clearance, closure, exemption, decision or action or approval of a governmental authority. GROUP - see SECTION 1.2. HAZARDOUS MATERIAL shall mean: (a) any "hazardous substance" as now defined pursuant to the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. Section 9601(14) as amended by the Superfund Amendments and Reauthorization Act, and including the judicial interpretation thereof; (b) any "pollutant or contaminant" as defined in 42 U.S.C.A. Section 9601(33); (c) any material now defined as "hazardous waste" pursuant to 40 C.F.R. Part 261; (d) any petroleum, including crude oil and any fraction thereof; (e) natural gas, natural gas liquids, liquefied natural gas, or synthetic gas usable for fuel; (f) any "hazardous chemical, as defined pursuant to 29 C.F.R. Part 1910; (g) any asbestos, polychlorinated biphenyl (PCB), or isomer or dioxin, and (h) any other substance, regardless of physical form, that is regulated under any environmentally related federal, state or local government statute, rule or regulation. INDEBTEDNESS shall mean, with respect to any Person at any date, without duplication: (i) all obligations of such Person with respect to borrowed money, (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments including, without limitation, all obligations comprising subordinated indebtedness of such Person; (iii) all reimbursement -40- obligations in respect of letters of credit, issued for the account of such Person, following any draw under such letters of credit, if not paid when due; (iv) all obligations in respect of bankers' acceptances issued for the account of such person after designation of, and delivery to, a payee; (v) all Capitalized Lease Obligations of such Person; and (vi) whether or not included as liabilities in accordance with GAAP, obligations secured by a Lien on property owned or being purchased by such Person (including obligations arising under conditional sales or other title retention agreements) whether or not such obligations shall have been assumed by such Person or are limited in recourse. INSOLVENCY EVENT shall mean, with respect to any Person, (i) the application for, consent to, or acquiescence in, the appointment of a receiver, trustee, custodian or liquidator of or for it or its business or of or for all or a substantial part of its assets; (ii) the filing of a voluntary petition or answer seeking reorganization or an arrangement with creditors or seeking to take advantage, as a debtor, of any other law (whether federal, state or foreign) relating to relief of debtors, or the admission (by answer, by default or otherwise) of the material allegations of a petition filed against it in any bankruptcy, reorganization, arrangement, insolvency or other proceeding whether federal, state or foreign) relating to relief of debtors, or the admission in writing of its inability to pay its debts generally as they become due; (iii) the permitting to continue unstayed for ten (10) days any judgment, decree or order which adjudges it a bankrupt or insolvent or approves as properly filed petition seeking its reorganization or arrangement or appoints receiver, trustee, custodian or liquidator of or for it or its business or of or for all or a substantial part of its assets or decrees the winding up or liquidation of its affairs; (iv) the filing against it, by Persons other than Banks prior to the occurrence of a Default, of any bankruptcy, reorganization, arrangement, insolvency or other proceeding (whether federal, state or foreign) relating to the relief of debtors, which proceeding shall not be dismissed within thirty (30) days after the commencement thereof; (v) the commencement by or against it of a proceeding seeking its dissolution, liquidation or winding up, and, in the case of a proceeding commenced against it, the consent to such proceeding by it or its failure to cause such proceeding to be dismissed within thirty (30) days after the commencement thereof; or (vi) the taking of any corporate action in furtherance of any of the foregoing. INTEREST PERIOD - see SECTION 3.3. INVENTORY shall mean any and all now owned or hereafter acquired inventory, goods, merchandise, and other tangible personal property intended for sale or lease, in the custody or possession, actual or constructive, of the Company or any of its Subsidiaries, or in transit to the Company or any of its Subsidiaries, including such inventory as is on consignment to third parties, leased to customers of the Company or any of its Subsidiaries, or otherwise temporarily out of the custody or possession of the Company or any of its Subsidiaries. INVESTMENT shall mean any investment, made in cash or by delivery of any kind of property or asset, in any Person, whether by acquisitions of stock or similar interest, or any other obligation or security, or by loan, advance or capital contribution, or otherwise. The term Investment shall include any joint venture investment. -41- "ISSUE" shall mean, with respect to any Letter of Credit, to issue or to extend the expiry of, or to renew or increase the amount of, such Letter of Credit; and the terms "ISSUED," "ISSUING" and "ISSUANCE" shall have corresponding meanings. LASALLE shall mean LaSalle National Bank, a national banking association. LETTER OF CREDIT - see SECTION 1.1.3. LETTER OF CREDIT APPLICATION shall mean a letter of credit application in the form then used by Bank of America for the type of letter of credit requested (with appropriate adjustments to indicate that any letter of credit issued thereunder is to be issued pursuant to, and subject to the terms and conditions of, this Agreement). LETTER OF CREDIT COMMITMENTS shall mean the commitment of Bank of America to issue, and of each Bank to participate in, the Letters of Credit pursuant to SECTION 1.1.3. LOAN DOCUMENTS shall mean this Agreement, the Revolving Notes, the Letter of Credit Applications and all schedules, certificates, exhibits and notices delivered pursuant to any of the foregoing. MARGIN shall mean, subject to the next sentence, the following rate based on the Funded Debt/Operating Cash Flow Ratio as of the end of the Fiscal Quarter most recently ended, as follows:
FUNDED DEBT/OPERATING EURODOLLAR LOAN FLOATING RATE CASH FLOW RATIO (AND LETTERS OF CREDIT) LOAN - - --------------------- ----------------------- ------------- FDOCFR less than 1.0 0.500% 0.000% FDOCFR greater than 1.0 but less than or equal to 1.5 0.625% 0.000% FDOCFR greater than 1.5 but less than or equal to 2.0 0.750% 0.000% FDOCFR greater than 2.0 but less than or equal to 2.5 1.000% 0.000% FDOCFR greater than 2.5 but less than or equal to 3.0 1.250% 0.250% FDOCFR greater than 3.0 but less than or equal to 3.5 1.500% 0.500% FDOCFR greater than 3.5 but less than or equal to 3.75 1.750% 0.750% FDOCFR greater than 3.75 2.000% 0.750%
For purposes of the foregoing, FDOCFR means the Funded Debt/Operations Cash Flow Ratio. The applicable Margin shall be adjusted, to the extent applicable, 45 days (or in the case of the last Fiscal Quarter of any fiscal year, 90 days) after the end of each Fiscal Quarter beginning on the 45th day after the first Fiscal Quarter ending after the Effective Date, based on the Funded Debt/Operating Cash Flow Ratio as of the last day of such Fiscal Quarter; IT BEING UNDERSTOOD that if the Company fails to deliver the certificate required by SECTION 10.1.4 by the 45th day (or, if applicable, the 90th day) after any Fiscal Quarter, the applicable Margin shall be 2.0% per annum until such certificate is delivered. Notwithstanding the foregoing, prior to the 3Q1999 Compliance Certificate Delivery Date, the Margin applicable to Eurodollar Loans and Letters of Credit shall be 2.5%, and the Margin applicable to Floating Rate Loans shall be 1.00%, and (b) on and after November 1, 1999, and only for so long as, if the 1999 Debt/Equity Issuance has not occurred, the -42- Margin applicable to the portion of the aggregate principal amount of Revolving Loans outstanding which is equal to $50,000,000 shall be increased by 0.25% over the margin then otherwise in effect. MARGIN STOCK shall mean any "margin stock" as defined in Regulation U of the Board of Governors of the Federal Reserve System. MARKET FEDERAL FUNDS Rate means, for any period, a fluctuating interest rate per annum equal for each day during such period to (a) 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 (b) 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 the Agent from three federal funds brokers of recognized standing selected by it. MATERIAL ADVERSE EFFECT means (a) a material adverse change in, or a material adverse effect upon, the operations, business, properties, condition (financial or otherwise) or prospects of the Company or the Company and its Subsidiaries taken as a whole; (b) a material impairment of the ability of the Company to perform under this Agreement and to avoid any Event of Default; or (c) a material adverse effect upon the legality, validity, binding effect or enforceability against the Company under this Agreement. NET BUSH HOG ELIGIBLE FINISHED GOODS INVENTORY shall mean the finished goods inventory carried on the books and records of the Bush Hog Division less: (i) reserves for excess and/or obsolete inventory; (ii) component parts manufactured by Bush Hog Division; (iii) inventory held by sales representatives for demonstration purposes; and (iv) inventory not included on the perpetual inventory records. NET BUSH HOG ELIGIBLE PURCHASED PARTS INVENTORY shall mean the book value of the purchased parts included in the Bush Hog Raw Material Inventory, less any reserves for obsolete and/or excess purchased parts. NET BUSH HOG ELIGIBLE RAW MATERIAL INVENTORY shall mean the book value of the steel in the Bush Hog Raw Material Inventory. NET BUSH HOG ELIGIBLE RECEIVABLES shall mean the Eligible Receivables of the Bush Hog Division reduced by all of the following: (i) the Eligible Receivables of any Obligors at least fifty percent (50%) of whose total Receivables are more than sixty (60) days past due; (ii) Eligible Receivables the Obligors of which are Bush Hog sales representatives or salesmen; (iii) Eligible Receivables representing interest charges and/or chargebacks to Obligors for disallowed deductions from payments; (iv) all reserves for foreign exchange, service parts, warranties, and customer deposits, (v) all Obligor prepayments not already deducted from Receivables; (vi) cash received by the Bush Hog Division but not yet applied to the reduction of Receivables; (vii) Eligible Receivables with respect to Kewanee Service Parts sales; and (viii) Eligible Receivables with extended terms beyond original date. -43- NET BUSH HOG 0 - 90 DAYS ELIGIBLE RECEIVABLES shall mean those Net Bush Hog Eligible Receivables on which the number of days elapsed from the invoice date is no more than ninety (90) days. NET BUSH HOG 91 - 180 DAYS ELIGIBLE RECEIVABLES shall mean those Net Bush Hog Eligible Receivables on which the number of days elapsed from the invoice date is between ninety-one (91) and one hundred eighty-one (181) days. NET BUSH HOG 181 - 240 DAYS ELIGIBLE RECEIVABLES shall mean those Net Bush Hog Eligible Receivables on which the number of days elapsed from the invoice date is between one hundred eighty-one (181) and two hundred forty (240) days. NET BUSH HOG OVER 240 DAYS ELIGIBLE RECEIVABLES shall mean those Net Bush Hog Eligible Receivables on which the number of days elapsed from the invoice date is more than two hundred forty (240) days. NET GREAT BEND ELIGIBLE FINISHED GOODS INVENTORY shall mean the finished goods inventory carried on the books and records of the Great Bend Division less: (i) reserves for excess and/or obsolete inventory; (ii) component parts manufactured by Great Bend Division; (iii) inventory held by sales representatives for demonstration purposes; and (iv) inventory not included on the perpetual inventory records. NET GREAT BEND ELIGIBLE PURCHASED PARTS INVENTORY shall mean the book value of the purchased parts included in the Great Bend Raw Material Inventory, less any reserves for obsolete and/or excess purchased parts. NET GREAT BEND ELIGIBLE RAW MATERIAL INVENTORY shall mean the book value of the steel in the Great Bend Raw Material Inventory. NET GREAT BEND ELIGIBLE RECEIVABLES shall mean the Eligible Receivables of the Great Bend Division reduced by all of the following: (i) the Eligible Receivables of any Obligors at least fifty percent (50%) of whose total Receivables are more than sixty (60) days past due; (ii) Eligible Receivables the Obligors of which are Great Bend sales representatives or salesmen; (iii) Eligible Receivables representing interest charges and/or chargebacks to Obligors for disallowed deductions from payments; (iv) all reserves for foreign exchange, service parts, warranties, and customer deposits, (v) all Obligor prepayments not already deducted from Receivables; (vi) cash received by the Great Bend Division but not yet applied to the reduction of Receivables; (vii) [reserved]; and (viii) Eligible Receivables with extended terms beyond original date. NET GREAT BEND 0 - 90 DAYS ELIGIBLE RECEIVABLES shall means those Net Great Bend Eligible Receivables on which the number of days elapsed from the invoice date is no more than ninety (90) days. NET GREAT BEND 91 - 180 DAYS ELIGIBLE RECEIVABLES shall mean those Net Great Bend Eligible Receivables on which the number of days elapsed from the invoice date is between ninety-one (91) and one hundred eighty-one (181) days. -44- NET GREAT BEND 181 - 240 DAYS ELIGIBLE RECEIVABLES shall mean those Net Great Bend Eligible Receivables on which the number of days elapsed from the invoice date is between one hundred eighty-one (181) and two hundred forty (240) days. NET GREAT BEND OVER 240 DAYS ELIGIBLE RECEIVABLES shall mean those Net Great Bend Eligible Receivables on which the number of days elapsed from the invoice date is more than two hundred forty (240) days. NET ISSUANCE PROCEEDS shall mean, as to any issuance of debt or equity by any Person, cash proceeds and non-cash proceeds received or receivable by such Person in connection therewith, net of reasonable out-of-pocket costs and expenses paid or incurred in connection therewith in favor of any Person, such costs and expenses not to exceed 7% of the gross proceeds of such issuance or such other amounts permitted by law which are reasonable under then current market conditions. NET PRECISION PRESS INDUSTRIES ELIGIBLE RAW MATERIAL INVENTORY shall mean the book value of the Eligible Raw material Inventory of the Precision Press Industries Division less the values of the castings and forgings, reserves for excess raw material, other raw material valuation reserves and customer rework. NET PRECISION PRESS INDUSTRIES ELIGIBLE RECEIVABLES shall mean the Eligible Receivables of the Precision Press Industries Division less any credit balances aged past ninety (90) days and less any Eligible Receivables of any Obligor fifty percent (50%) or more of whose total Receivables are more than ninety (90) days past due and less all contra advance payments. NET PRECISION PRESS INDUSTRIES ELIGIBLE WORK-IN-PROGRESS INVENTORY shall mean the Eligible Work-In-Progress Inventory of the Precision Press Industries Division. NET VERSON ELIGIBLE RAW MATERIAL INVENTORY shall mean the book value of the Eligible Raw material Inventory of the Verson Division less the values of the castings and forgings, reserves for excess raw material, other raw material valuation reserves and customer rework. NET VERSON ELIGIBLE RECEIVABLES shall mean the Eligible Receivables of the Verson Division less any credit balances aged past ninety (90) days and less any Eligible Receivables of any Obligor fifty percent (50%) or more of whose total Receivables are more than ninety (90) days past due and less all contra advance payments. NET VERSON ELIGIBLE WORK-IN-PROGRESS INVENTORY shall mean the Eligible Work-In-Progress Inventory of the Verson Division. 1999 DEBT/EQUITY ISSUANCE shall mean receipt by the Company of Net Issuance Proceeds of at least $50,000,000 arising from the issuance by the Company of (i) 1999 Senior Notes or (ii) common or preferred equity stock of the Company. -45- 1999 SENIOR NOTES shall mean the senior notes proposed to be issued by the Company, in the original aggregate amount of at least $50,000,000 on or before September 1, 1999, provided, that the terms and provisions thereof (including, without limitation, the terms and provisions as to amount, pricing, maturity, covenants, and intercreditor issues) shall be in form and substance satisfactory to the Required Banks. OBLIGOR shall mean any Person obligated in respect of any Receivable, and "RELATED OBLIGOR", when used with reference to any Receivable, shall mean any Obligor in respect thereof. PBGC shall mean the Pension Benefit Guaranty Corporation and any entity succeeding to any or all of its functions under ERISA. PENSION PLAN shall mean a "pension plan", as such term is defined in section 3(2) of ERISA, which is subject to title IV of ERISA (other than a multiemployer plan as defined in section 4001(a)(3) of ERISA), and to which the Company or any corporation, trade or business that is, along with the Company, a member of a controlled group of corporations or a controlled group of trades or businesses, as described in sections 414(b) and 414(c), respectively, of the Internal Revenue Code of 1986, as amended or section 4001 of ERISA may have any liability, including any liability by reason of having been a substantial employer within the meaning of section 4063 of ERISA at any time during the preceding five years, or by reason of being deemed to be a contributing sponsor under section 4069 of ERISA. PERCENTAGE shall mean as to any Bank the percentage set forth opposite such Banks name under COLUMN IV of EXHIBIT A. Upon any assignment pursuant to SECTION 15.17, the Agent shall appropriately revise each Bank's Percentage and EXHIBIT A so as to give effect to such assignment. PERSON shall mean any natural person, corporation, partnership, trust, association, governmental authority or unit, or any other entity, whether acting in an individual, fiduciary or other capacity. PERMITTED DISPOSITIONS shall mean the dispositions of the assets of the Company set forth on Schedule 10.13. PROGRESS BILLING RECEIVABLE shall mean a Receivable which arose from the obligation of the related Obligor to make progress payments or similar payments. RCRA shall mean the Solid Waste Disposal Act, as amended by the Resource Conservation and Recovery Act of 1976 and Hazardous and Solid Waste Amendments of 1984, 42 USC 6901 ET SEQ., and any future amendments. RECEIVABLES shall mean and include all of the present and future rights of the Company and its Subsidiaries to payment for goods, merchandise or Inventory sold or leased or for services rendered (including, without limitation, those which are not evidenced by instruments or chattel paper), whether or not they have been earned by performance, and all accounts, proceeds of any letters of credit on which the Company is named as beneficiary, contract rights, chattel paper, instruments, documents, insurance proceeds (to the extent payable to the Agent as its interest may -46- appear), and all other such obligations whatsoever, owing to the Company or its subsidiaries, together with all instruments and all documents of title representing any of the foregoing, all rights in any goods, merchandise or inventory which any of the same may represent, all rights in any returned or repossessed goods, merchandise and Inventory, and all rights, title, security and guaranties with respect to each of the foregoing, including, without limitation, any right of stoppage in transit. REFERENCE RATE shall mean at any time the rate of interest then most recently announced by Bank of America at Chicago, Illinois as its reference rate. RELATED EQUIPMENT shall mean with respect to any Receivable the equipment, the sale of which gave rise to such Receivable, and any other property which secures such Receivable. RELEASE shall mean any spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping, or disposing into the indoor or outdoor environment, including, without limitation, the abandonment or discarding of barrels, drums, containers, tanks, and other receptacles containing or previously containing any Hazardous Material. REQUIRED BANKS shall mean (I) if Bank of America and LaSalle are the only Banks, then both of the Banks, and (ii) if there are more than two (2) Banks, then Banks holding at least 51% of the then aggregate outstanding principal amount of the Revolving Loans then held by the Banks, or, if no such principal amount is then outstanding, Banks having at least 51% of the Commitments. REVOLVING LOAN - see SECTION 1.1.1. REVOLVING LOAN COMMITMENT shall mean the commitment of each Bank to make Revolving Loans pursuant to SECTION 1.1.1. REVOLVING NOTE - see SECTION 2.1. REVOLVING TERMINATION DATE shall mean September 30, 2001; provided that such date may be extended in writing by the Banks, in their sole and absolute discretion, until September 30, 2002 upon the written request by the Company to the Agent no later than June 30, 2001. Nothing contained herein shall be deemed to require the Banks to extend the Revolving Termination Date. SEC REPORT shall mean (i) the Company's 10-K report as filed with the Securities and Exchange Committee for its fiscal year ended December 31, 1997 and (ii) all of the Company's forms 10-Q and 8-K filed with the Securities and Exchange Commission since December 31, 1997. SIGNIFICANT SUBSIDIARY shall mean any Subsidiary as to which the assets or operating income exceeds 10% of the assets or operating income of the Company and its Subsidiaries on a consolidated basis. STATED AMOUNT shall mean with respect to any Letter of Credit at any date of determination thereof, the maximum aggregate amount available thereunder at any time during the then ensuing -47- term of such Letter of Credit under any and all circumstances, plus the aggregate amount of all unreimbursed payments and disbursements under such Letter of Credit. SUBSIDIARY shall mean, with respect to any Person, a corporation of which such Person and/or its other Subsidiaries own, directly or indirectly, such number of outstanding shares as have more than 50% of the ordinary voting power for the election of directors. Unless the context otherwise requires, each reference to Subsidiaries herein shall be a reference to Subsidiaries of the Company. TANGIBLE ASSETS shall mean with respect to any Person, the book value of all of the assets of such Person less the book value of any intangible assets, including without limitation, goodwill, franchises, licenses, patents, trademarks, trade names, service marks and brand names. 3Q1999 COMPLIANCE CERTIFICATE DELIVERY DATE - see SECTION 5.2. TYPE OF LOAN OR BORROWING means either Floating Rate Loans or borrowings or Eurodollar Loans or borrowings. UNMATURED EVENT OF DEFAULT shall mean any event which if it continues uncured will, with lapse of time or notice or lapse of time and notice, constitute an Event of Default. VERSON DIVISION SPECIAL EXPENSES shall mean all of the expenses identified in relation to the Verson Division, as specified in Schedule 13 hereto. VOTING STOCK shall mean securities of any class or classes of a corporation, the holders of which are ordinarily, in the absence of contingencies, or which are in fact, entitled to elect a majority of the corporate directors (or Persons performing similar functions) of such corporation. WELFARE PLAN shall mean a "welfare plan", as such term is defined in section 3(l) of ERISA. SECTION 14 THE AGENT. SECTION 14.1 AUTHORIZATION. Each Bank and the holder of each Note authorizes the Agent to take such actions on behalf of such Bank or holder and to exercise such powers hereunder, any Letter of Credit Application or any other document or instrument delivered hereunder or in connection herewith as are granted to the Agent and/or the Banks pursuant to such documents and are specifically delegated to the Agent herein and therein in connection with the administration of and the enforcement of any rights or remedies with respect to this Agreement, the Revolving Notes, the Letter of Credit Applications or any other document or instrument delivered hereunder or in connection herewith. The general administration of the Revolving Loans shall be with the Agent, subject to control by the Banks. SECTION 14.2 INDEMNIFICATION. Each Bank and the holder of each Revolving Note agrees to reimburse and indemnify the Agent for, and hold the Agent harmless against, a share (determined in accordance with the percentage which (x) the sum of (A) the participation in all outstanding Letters of Credit of such Bank plus (E) the principal amount of the Revolving Loans of such Bank -48- or holder is of (y) the sum of (A) all outstanding Letters of Credit plus (B) the aggregate principal amount of all Revolving Loans) of any loss, damages, penalty, action, judgment, obligation, cost, disbursement, liability or expense (including attorneys, fees) incurred without gross negligence or willful misconduct on the part of the Agent arising out of or in connection with the performance of its obligations or the exercise of its powers hereunder or under any document or instrument delivered hereunder or in connection herewith, as well as the costs and expenses of defending against any claim against the Agent arising hereunder or thereunder. SECTION 14.3 EXCULPATION. The Agent shall be entitled to rely upon advice of counsel concerning legal matters, and upon this Agreement and any Revolving Note, Letter of Credit Application, schedule, certificate, statement, report, notice or other writing which it believes to be genuine or to have been presented by a proper person. Neither the Agent nor any of its directors, officers, employees or agents shall (a) be responsible for any recitals, representations or warranties contained in, or for the execution, validity, genuineness, effectiveness or enforceability of, this Agreement, any Revolving Note, any Letter of Credit Application or any other instrument or document delivered hereunder or in connection herewith, (b) be responsible for the validity, genuineness, perfection, effectiveness, enforceability, existence, value or enforcement of any collateral security, (c) be under any duty to inquire into or pass upon any of the foregoing matters, or to make any inquiry concerning the performance by the Company or any other Obligor of its obligations, or (d) in any event, be liable as such for any action taken or omitted by it or them, except for its or their own gross negligence or willful misconduct. The agency hereby created shall in no way impair or affect any of the rights and powers of, or impose any duties or obligations upon Bank of America in its individual capacity. SECTION 14.4 CREDIT INVESTIGATION. Each Bank acknowledges that it has made such inquiries and taken such care on its own behalf as would have been the case had such Bank's Commitment been granted, the Letters of Credit issued and such Bank's Revolving Loans been made directly by such Bank to the Company without the intervention of the Agent or any other Bank. Each Bank agrees and acknowledges that the Agent makes no representations or warranties about the credit worthiness of the Company or any other party to this Agreement or with respect to the legality, validity, sufficiency or enforceability of this Agreement, any Revolving Note or any Letter of Credit Application. SECTION 14.5 AGENT AND AFFILIATES. The Agent shall have the same rights and powers hereunder as any other Bank and may exercise or refrain from exercising the same as though it were not the Agent, and the Agent and its Affiliates may accept deposits from and generally engage in any kind of business with the Company or any Subsidiary as if the Agent were not the Agent hereunder. SECTION 14.6 RESIGNATION. The Agent may resign as such at any time upon at least 30 days prior notice to the Company and the Banks. In the event of any such resignation, the Banks shall as promptly as practicable appoint a successor Agent. If no successor shall have been so appointed, and shall have accepted such appointment, within 30 days after the giving of notice of such resignation, then the retiring Agent may, on behalf of the Banks, appoint a successor Agent, which shall be a commercial bank organized under the laws of the United States of America having a combined capital, surplus and undivided profits of at least $400,000,000. Upon the acceptance of -49- any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from all further duties and obligations under this Agreement. After any resignation pursuant to this SECTION 14.6, the provisions of this SECTION 14 shall inure to the benefit of the retiring Agent as to any actions taken or omitted to be taken by it while it was Agent hereunder. SECTION 14.7 LETTERS OF CREDIT. The provisions of SECTION 14 hereof shall apply to Bank of America as the issuer of the Letters of Credit with the same effect as if Bank of America as issuer were the Agent. SECTION 15 GENERAL. SECTION 15.1 WAIVER; AMENDMENTS. The provisions of this Agreement and of each other Loan Document may from time to time be amended, modified or waived, if such amendment, modification or waiver is in writing and consented to by the Company and the Required Banks; PROVIDED, however, that no such amendment, modification or waiver which would: (a) modify any requirement hereunder that any particular action be taken by all the Banks or by the Required Banks shall be effective unless consented to by each Bank; (b) modify this SECTION 15.1, change the definition of "Required Banks", increase the Commitment or the Percentage of any Bank, reduce any fees described in Section 5, or extend the Revolving Termination Date shall be made without the consent of each Bank and each holder of a Revolving Note; (c) extend the due date for, or reduce the amount of, any scheduled repayment or prepayment of principal or of interest on any Revolving Loan (or reduce the principal amount of or rate of interest on any Revolving Loan) shall be made without the consent of each Bank and the holder of the Revolving Note evidencing such Revolving Loan; or (d) affect adversely the interests, rights or obligations of the Agent QUA the Agent shall be made without consent of the Agent. No failure or delay on the part of the Agent, any Bank or the, holder of any Revolving Note in exercising any power or right under this Agreement or any other Loan Document shall operate as a waiver thereof, nor shall any single or partial exercise of any such power or right preclude any other or further exercise thereof or the exercise of any other power or right. No notice to or demand on the Company in any case shall entitle it to any notice or demand in similar or other circumstances. No waiver or approval by the Agent, any Bank or the holder of any Revolving Note under this Agreement or any other Loan Document shall, except as may be otherwise stated in such waiver or approval, be applicable to subsequent transactions. No waiver or approval hereunder shall require any similar or dissimilar waiver or approval thereafter to be granted hereunder. SECTION 15.2 CONFIRMATIONS. The Company and each holder of a Revolving Note agree from time to time, upon written request received by it from the other, to confirm to the other in -50- writing (with a copy of each such confirmation to the Agent) the aggregate unpaid principal amount of the Revolving Loans then outstanding under the applicable Revolving Note. SECTION 15.3 NOTICES. Except as otherwise provided in SECTIONS 1.3, 1.4 and 3.3, all notices hereunder shall be in writing (including, without limitation, telex or facsimile transmission) and shall be sent to the applicable party at its address shown below its signature hereto or at such other address as such party may, by written notice received by the other parties hereto, have designated as its address for such purpose. Notices sent by telex or facsimile transmission shall be deemed to have been given when sent; notices sent by mail shall be deemed to have been given three Business Days after the date when sent by registered or certified mail, postage prepaid; and notices sent by hand delivery shall be deemed to have been given when received. SECTION 15.4 COMPUTATIONS. 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 is required to be made, for the purpose of this Agreement, such determination or calculation shall, to the extent applicable and except as otherwise specified in this Agreement, be made in accordance with GAAP applied on a basis consistent with those in effect as at the date of the Company's most recent financial statements referred to in SECTION 10.1.1. If there should be any material change in GAAP after the date hereof which materially affects the financial covenants in this Agreement, the parties hereto agree to negotiate in good faith appropriate revisions of such covenants. SECTION 15.5 REGULATION U. Each Bank represents that it in good faith is not relying, either directly or indirectly, upon any Margin Stock as collateral security for the extension or maintenance by it of any credit provided for in this Agreement. SECTION 15.6 COSTS, EXPENSES AND TAXES. The Company agrees to pay on demand (a) all reasonable out-of-pocket costs and expenses of the Agent (including the reasonable fees and out-of-pocket expenses of counsel for the Agent) in connection with the preparation, administration, amendment or waiver of this Agreement and the other Loan Documents and (b) all reasonable out-of-pocket costs and expenses (including reasonable attorneys fees and legal expenses and allocated costs of staff counsel) incurred by the Agent and each Bank in connection with the enforcement of this Agreement, or any other Loan Documents. Each Bank agrees to reimburse the Agent for such Banks pro rata share (based on its respective Percentage) of any such costs and expenses not paid by the Company. In addition, the Company agrees to pay, and to save the Agent and the Banks harmless from all liability for, any stamp or other taxes which may be payable in connection with the execution and delivery of this Agreement, the borrowings hereunder, the issuance of the Revolving Notes or the execution and delivery of any other Loan Documents provided for herein or delivered or to be delivered hereunder or in connection herewith. All obligations provided for in this SECTION 15.6 shall survive repayment of the Revolving Loans, cancellation of the Revolving Notes or any termination of the Commitments or this Agreement. SECTION 15.7 SUBSIDIARY REFERENCES. The provisions of this Agreement relating to Subsidiaries shall apply only during such times as the Company has one or more Subsidiaries. -51- SECTION 15.8 CAPTIONS. Section captions used in this Agreement are for convenience only and shall not affect the construction of this Agreement. SECTION 15.9 INDEMNIFICATION. (a) The Company hereby agrees to indemnify, exonerate and hold each of the Agent and each Bank and each of the officers, directors, employees and agents of each of the Agent and each Bank (collectively herein called the "Bank Parties" and individually each called a "Bank Party") free and harmless from and against any and all actions, causes of action, suits, losses, liabilities, damages and expenses, including, without limitation, reasonable attorneys, fees and disbursements (collectively herein called the "Indemnified Liabilities"), incurred by the Banks or any of them as a result of, or arising out of, or relating to this Agreement, the Revolving Notes, the Letter of Credit Applications, or any other agreements executed and delivered in connection therewith, except for any such Indemnified Liabilities arising on account of any such Bank's gross negligence or willful misconduct. If and to the extent that the foregoing undertaking may be unenforceable for any reason, the Company hereby agrees to make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities which is permissible under applicable law. (b) The Company agrees to reimburse the Agent and each Bank and each of their respective directors, officers, employees and agents (each an "Indemnified Party") against any and all losses, claims, damages, penalties, judgments, liabilities and expenses (including all reasonable attorneys and consultants fees) which any Indemnified Party may pay, incur or become subject to arising out of or relating to the use, handling, emission, discharge, transportation, storage, treatment or disposal of any Hazardous Material at any real property owned, operated or leased by the Company, except to the extent caused by the acts or omissions of any Indemnified Party. All obligations provided for in this SECTION 15.9 shall survive any termination of this Agreement. SECTION 15.10 GOVERNING LAW. This Agreement and each Revolving Note shall be a contract made under and governed by the internal laws of the State of Illinois. 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. All obligations of the Company and rights of the Agent, the Banks and any other holder of a Revolving Note expressed herein or in any Revolving Note shall be in addition to and not in limitation of those provided by applicable law. SECTION 15.11 COUNTERPARTS. This Agreement may be executed in any number of counterparts and by the different parties hereto on separate counterparts and each such counterpart shall be deemed to be an original, but all such counterparts shall together constitute but one and the same Agreement. SECTION 15.12 SUCCESSORS AND ASSIGNS. Subject to SECTION 15.17, this Agreement shall be binding upon the Company, the Banks and the Agent and their respective permitted successors and assigns, and shall inure to the benefit of the Company, the Banks and the Agent and the permitted successors and assigns of the Banks and the Agent. -52- SECTION 15.13 WAIVER OF JURY TRIAL. EACH OF THE COMPANY, THE AGENT AND EACH BANK HEREBY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS AGREEMENT, ANY REVOLVING NOTE, ANY LETTER OF CREDIT APPLICATION, AND ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR ARISING FROM ANY BANKING RELATIONSHIP EXISTING IN WITH THIS AGREEMENT, AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY. SECTION 15.14 SECURITIES LAWS. Each Bank represents that it is the present intention of such Bank to acquire each Revolving Note drawn to its order for its own account and not with a view to the distribution or sale thereof, subject, nevertheless, to the necessity that such Bank remain in control at all times of the disposition of property held by it for its own account; it being understood that the foregoing representation shall not affect the character of the Revolving Loans as commercial lending transactions. SECTION 15.15 CONFIDENTIALITY. Each Bank agrees to take and to cause its Affiliates to take normal and reasonable precautions and exercise due care to maintain the confidentiality of all information identified as "confidential" or "secret" by the Company and provided to it by the Company or any Subsidiary, or by the Agent on the Company's or such Subsidiary's behalf, under this Agreement or any other Loan Document, and neither it nor any of its Affiliates shall use any such information other than in connection with or in enforcement of this Agreement and the other Loan Documents or in connection with other business now or hereafter existing or contemplated with the Company or any Subsidiary; except to the extent such information (i) was or becomes generally available to the public other than as a result of disclosure by the Bank, or (ii) was or becomes available on a non-confidential basis from a source other than the Company, provided that such source is not bound by a confidentiality agreement with the Company known to the Bank; PROVIDED, HOWEVER, that any Bank may disclose such information (A) at the request or pursuant to any requirement of any governmental authority to which the Bank is subject or in connection with an examination of such Bank by any such authority; (B) pursuant to subpoena or other court process; (C) when required to do so in accordance with the provisions of any applicable requirement of law; (D) to the extent reasonably required in connection with any litigation or proceeding to which the Agent, any Bank or their respective Affiliates may be party; (E) to the extent reasonably required in connection with the exercise of any remedy hereunder or under any other Loan Document; (F) to such Bank's independent auditors and other professional advisors; (G) to any participant or assignee, actual or potential, provided that such Person agrees in writing to keep such information confidential to the same extent required of the Banks hereunder; (H) as to any Bank or its Affiliate, as expressly permitted under the terms of any other document or agreement regarding confidentiality to which the Company or any Subsidiary is party or is deemed party with such Bank or such Affiliate; and (I) to its Affiliates, provided that each Affiliate agrees to keep such information confidential to the same extent required of the Banks herewith. SECTION 15.16 WAIVER. Effective as of the Effective Date, the Banks hereby waive for the Fiscal Quarter ending December 31, 1998 (but not for any period thereafter), non-compliance by the -53- Company, with the financial covenants contained in SECTIONS 10.5, 10.6 AND 10.7 of the Existing Credit Agreement. SECTION 15.17 ASSIGNMENTS AND PARTICIPATIONS. (a) Any Bank may, with the written consent of the Company (at all times other than during the existence of an Event of Default) and the Agent, which consent of the Company shall not be unreasonably withheld, at any time assign and delegate to one or more Eligible Assignees (provided that no written consent of the Company or the Agent shall be required in connection with any assignment and delegation by a Bank to an Eligible Assignee that is an Affiliate of such Bank) (each an "ASSIGNEE") all, or any ratable part of all, of the Revolving Loans, the Commitment and the other rights and obligations of such Bank hereunder, in a minimum amount of $5,000,000; PROVIDED, HOWEVER, that the Company and the Agent may continue to deal solely and directly with such Bank in connection with the interest so assigned to an Assignee until (i) written notice of such assignment, together with payment instructions, addresses and related information with respect to the Assignee, shall have been given to the Company and the Agent by such Bank and the Assignee; (ii) such Bank and its Assignee shall have delivered to the Company and the Agent an Assignment and Acceptance in the form of EXHIBIT E ("ASSIGNMENT AND ACCEPTANCE") together with any Revolving Note or Revolving Notes subject to such assignment and (iii) the assignor Bank or Assignee has paid to the Agent a processing fee in the amount of $3,000. (b) From and after the date that the Agent notifies the assignor Bank that it has received (and provided its consent with respect to) an executed Assignment and Acceptance (accompanied by any written consent of the Company to the extent required) and payment of the above-referenced processing fee, (i) the Assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment and Acceptance, shall have the rights and obligations of a Bank under the Loan Documents, and (ii) the assignor Bank shall, to the extent that rights and obligations hereunder and under the other Loan Documents have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights and be released from its obligations under the Loan Documents. (c) Within five Business Days after its receipt of notice by the Agent that it has received an executed Assignment and Acceptance (accompanied by any written consent of the Company to the extent required) and payment of the processing fee, (and provided that it consents to such assignment in accordance with subsection 15.7(a)), the Company shall execute and deliver to the Agent, new Revolving Notes evidencing such Assignee's assigned Revolving Loans and Commitment and, if the assignor Bank has retained a portion of its Revolving Loans and its Commitment, replacement Revolving Notes in the principal amount of the Revolving Loans retained by the assignor Bank (such Revolving Notes to be in exchange for, but not in payment of, the Revolving Notes held by such Bank). Immediately upon each Assignee's making its processing fee payment under the Assignment and Acceptance, this Agreement shall be deemed to be amended to the extent, but only to the extent, necessary to reflect the addition of the Assignee and the resulting adjustment of the Commitments (and the related Percentage of each Bank) arising -54- therefrom. The Commitment allocated to each Assignee shall reduce such Commitment(s) of the assigning Bank PRO TANTO. (d) Any Bank may at any time sell to one or more commercial banks or other Persons not Affiliates of the Company (a "PARTICIPANT") participating interests in any Revolving Loans, the Commitment of that Bank and the other interests of that Bank (the "originating Bank") hereunder and under the other Loan Documents; PROVIDED, HOWEVER, that (i) the originating Bank's obligations under this Agreement shall remain unchanged, (ii) the originating Bank shall remain solely responsible for the performance of such obligations, (iii) the Company and the Agent shall continue to deal solely and directly with the originating Bank in connection with the originating Bank's rights and obligations under this Agreement and the other Loan Documents, and (iv) no Bank shall transfer or grant any participating interest under which the Participant has rights to approve any amendment to, or any consent or waiver with respect to, this Agreement or any other Loan Document, except to the extent such amendment, consent or waiver would require unanimous consent of the Banks as described in the PROVISO to Section 15.1. In the case of any such participation, the Participant shall be entitled to the benefit of SECTION 15.9 as though it were also a Bank hereunder, and if amounts outstanding under this Agreement are due and unpaid, or shall have been declared or shall have become due and payable upon the occurrence of an Event of Default, each Participant shall be deemed to have the right of set-off in respect of its participating interest in amounts owing under this Agreement to the same extent as if the amount of its participating interest were owing directly to it as a Bank under this Agreement. Notwithstanding any other provision in this Agreement, any Bank may at any time create a security interest in, or pledge, all or any portion of its rights under and interest in this Agreement and the Note held by it in favor of any Federal Reserve Bank in accordance with Regulation A of the FRB or U.S. Treasury Regulation 31 CFR Section 203.14, and such Federal Reserve Bank may enforce such pledge or security interest in any manner permitted under applicable law. -55- [SIGNATURE PAGES FOLLOW] -56- Delivered to Chicago, Illinois, as of the day and year first above written. ALLIED PRODUCTS CORPORATION By: /s/ RICHARD DREXLER --------------------------- Name: Richard Drexler Title: President 10 South Riverside Plaza Chicago, Illinois 60606 Facsimile No.: (312) 454-1511 Number for confirmation of facsimiles: (312) 441-5228 Attention: Gerri Lohbrandt BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Agent By: /s/ DAVID JOHANSON --------------------------- Title: Vice President 231 South LaSalle Street Chicago, Illinois 60697 Facsimile No.: (312) 974-9102 Number for confirmation of facsimiles: (312) 828-7933 Attention: David Johanson BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as a Bank By: /s/ BARABARA HAMEL --------------------------- Title: Senior Vice President 231 South LaSalle Street Chicago, Illinois 60697 Facsimile No.: (312) 828-1409 Number for confirmation of facsimiles: (312) 828-1974 Attention: Barbara Hamel LASALLE NATIONAL BANK By: /s/ MARY LOU BARTLETT --------------------------- Mary Lou Bartlett Vice President 120 South LaSalle Street Chicago, Illinois 60603 Facsimile No.: (312) 904-0432 Number for confirmation of facsimiles: (312) 904-0433 Attention: Mary Lou Bartlett EXHIBIT A COMMITMENT LIMITS AND PERCENTAGES
Column I: Column II: Column III: Column IV: Amount of Revolving Amount of Letter of Total Amount of Name of Bank Loan Commitment Credit Commitment Commitments Percentage BANK OF AMERICA $ 101,500,000* $14,000,000 $ 101,500,000* 70% NATIONAL TRUST AND SAVINGS ASSOCIATION LASALLE NATIONAL BANK $ 43,500,000* $ 6,000,000 $ 43,500,000* 30% ------------- ----------- ------------ --- TOTALS $ 145,000,000* $20,000,000 $145,000,000* 100%
* Subject to reductions pursuant to Sections 1.1.3(a)(ii) and 6.1. EXHIBIT B FORM OF RESTATED REVOLVING NOTE $ __________________ February 1, 1999 Chicago, Illinois On or before the Revolving Termination Date (as defined in the Credit Agreement referred to below), the undersigned, for value received, promises to pay to the order of __________________ _______________ Dollars ($_______) or, if less, the aggregate unpaid amount of all Revolving Loans made by the payee to the undersigned pursuant to the Credit Agreement referred to below, (as shown in the records of the payee or, at the payee's option, on the schedule attached hereto and any continuation thereof). The undersigned further promises to pay interest on the unpaid principal amount of each Revolving Loan evidenced hereby from the date of such Revolving Loan until such Revolving Loan is paid in full, payable at the rate(s) and at the time(s) set forth in the Credit Agreement. Payments of both principal and interest are to be made in lawful money of the United States of America. This Restated Revolving Note evidences indebtedness incurred under, and is subject to the terms and provisions of, the Second Amended and Restated Credit Agreement, dated as of February 1, 1999, as amended (herein, as further amended or otherwise modified from time to time, called the "Credit Agreement"), between the undersigned, various banks (including the payee) and BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as agent for the Banks, to which Credit Agreement reference is hereby made for a statement of the terms and provisions under which this Restated Revolving Note may or must be paid prior to its due date or may have its due date accelerated. Terms used but not otherwise defined herein are used herein as defined in the Credit Agreement. In addition to and not in limitation of the foregoing and the provisions of the Credit Agreement, the undersigned further agrees, subject only to any limitation imposed by applicable law, to pay all reasonable expenses, including reasonable attorneys' fees and legal expenses, incurred by the holder of this Restated Revolving Note in endeavoring to collect any amounts payable hereunder which are not paid when due, whether by acceleration or otherwise. This Restated Revolving Note is made under and governed by the internal laws of the State of Illinois. This Restated Revolving Note is issued in replacement of a Revolving Note issued pursuant to the Credit Agreement on August 21, 1998. The indebtedness evidenced by this Note represents an extension and renewal of indebtedness owing to the payee. ALLIED PRODUCTS CORPORATION By: ----------------------------------- Title: -------------------------------- Schedule Attached to Restated Revolving Note dated February 1, 1999 of THE COMPANY PAYABLE TO THE ORDER OF
Date and Amount of Date and Amount Revolving Loan or of of Repayment or of Conversion from Conversion into Unpaid another type of another type of Principal Revolving Loan Revolving Loan Interest Period Balance Notation Made by
1. FLOATING RATE LOANS _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ 2. EURODOLLAR LOANS _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ EXHIBIT C [GARDNER, CARTON & DOUGLAS Letterhead] ____________, 1999 Bank of America National Trust and Savings Association, individually and as Agent 231 South LaSalle Street Chicago, Illinois 60697 LaSalle National Bank 120 South LaSalle Street Suite 220 Chicago, Illinois 60603 Ladies and Gentlemen: We have acted as counsel to Allied Products Corporation, a Delaware corporation ("Borrower"), in connection with the transactions effected and to be effected pursuant to the following agreements and documents: (i) that certain Second Amended and Restated Credit Agreement, dated as of February 1, 1999 (the "Credit Agreement"), between the Borrower and each of you; (ii) those certain Revolving Notes evidencing loans under the Credit Agreement (the "Notes"). The Credit Agreement and the Notes are collectively referred to herein as the "Transaction Documents." All capitalized terms used herein but not defined herein shall have the meanings assigned to them in the Credit Agreement. For purposes of this opinion, we have relied as to factual matters on the representations and warranties contained in the Transaction Documents and we have assumed the completeness and accuracy of all such representations and warranties as to factual matters. Although we have made inquiries with respect to such matters, and relied upon representations of officers and employees of the Borrower, we have not, except as specifically noted herein, made any independent review or investigation of facts in connection with this opinion. Without limiting the generality of the foregoing, we have not made any independent review or investigation of any decree, order, judgment, writ or injunction to which Borrower may be a party or be subject or by which any of its properties or assets may be bound or of any court or agency docket, nor have we made any independent investigation as to the existence of any actions, suits, investigations or proceedings, if any, pending or threatened against the Borrower. While our firm represents the Borrower on a regular basis, our engagement is limited to specific matters as to which we are consulted by the Borrower from time to time. We have examined originals or copies, certified to our satisfaction, of such (i) certificates of public officials, (ii) certificates of officers and representatives of the Borrower and (iii) other documents, records, financial statements and papers, and we have made such inquiries of officers and representatives of the Borrower, as we have deemed relevant or necessary for purposes of this opinion. We have assumed the genuineness of all signatures (other than those of officers of the Borrower) and the authenticity of all documents submitted to us as originals and the conformity to original documents of all documents submitted to us as certified or photostatic copies. As to the good standing of the Borrower, we have relied exclusively upon a certificate of good standing as of recent date issued by the Secretary of State of the State of Delaware. Based upon an subject to our examination as aforesaid and subject to the qualifications hereinafter set forth, we are of the opinion that: 1. The Borrower is a corporation validly existing and in good standing under the General Corporation Law of the State of Delaware and has the requisite corporate power and authority to conduct its business and to enter into and consummate the transactions contemplated by, and perform all of its obligations under, each of the Transaction Documents to which it is a party. 2. The execution, delivery and performance by the Borrower of each of the Transaction Documents to which it is a party and the consummation by the Borrower of each of the transactions on its part contemplated by the Transaction Documents: (i) are within the corporate power of the Borrower; (ii) have been duly authorized by all necessary corporate action on the part of the Borrower and (iii) are not in contravention of any provision of the Certificate of Incorporation or by-laws of the Borrower. 3. The respective Transaction Documents to which the Borrower is a party have each been duly executed and delivered by the Borrower and, assuming due authorization, execution and delivery thereof by the Agent and the Lenders, constitute valid and binding obligations of the Borrower, enforceable in accordance with their respective terms, except to the extent that enforcement of the Transaction Documents may be limited by applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or similar laws of general application relating to or affecting the enforcement of the rights of creditors or secured parties, the application of general principles of equity or by the availability of equitable remedies and further subject to the qualifications set forth in the next succeeding sentence. We express no opinion herein as to the validity or enforceability of any provision of the Transaction Documents to the extent that such provision purports to require the Borrower to indemnify or to hold harmless you or any other person or entity from the consequences of any negligent or other wrongful act or omission of you or such other person or entity. The foregoing opinions are limited to the laws of the United States, the State of Illinois and the General Corporation Law of the State of Delaware and we have not considered and express no opinion on the laws of any other jurisdiction. This opinion is furnished by us solely for your benefit and it may not be relied upon, quoted from or delivered to any person other than counsel to you, your agents, employees, successors, assigns and participants. Very truly yours, [ALLIED PRODUCTS CORPORATION LETTERHEAD] __________, 1999 Bank of America National Trust and Savings Association, individually and as Agent 231 South LaSalle Street Chicago, Illinois 60697 LaSalle National Bank 120 South LaSalle Street Suite 220 Chicago, Illinois 60603 Ladies and Gentlemen: I am General Counsel of Allied Products Corporation, a Delaware corporation ("Borrower"), and have represented the Borrower in connection with the transactions effected and to be effected pursuant to the following agreements and documents: (i) that certain Second Amended and Restated Credit Agreement, dated as of February 1, 1999 (the "Credit Agreement"), between the Borrower and each of you; and (ii) the Revolving Notes evidencing loans under the Credit Agreement (the "Notes"). The Credit Agreement and the Notes are collectively referred to herein as the "Transaction Documents." All capitalized terms used herein but not defined herein have the meanings assigned to them in the Credit Agreement. I have examined originals or copies, certified to my satisfaction, of such (i) certificates of public officials, (ii) certificates of officers and representatives of the Borrower and (iii) other documents, records, financial statements and papers, and I have made such inquiries of officers and representatives of the Borrower, as I have deemed relevant or necessary for purposes of this opinion. I have relied upon, and assumed the accuracy of, such certificates and other statements, documents, records, financial statements and papers with respect to the factual matters set forth therein and I have assumed the genuineness of all signatures, other than those of representatives therein and I have assumed the genuineness of all signatures, other than those of representatives of the Borrower, and the authenticity of all documents submitted to me as originals and the conformity to original documents of all documents submitted to me as certified or photostatic copies. 1. The Borrower (i) is a corporation organized, validly existing and in good standing under the General Corporation Law of Delaware; (ii) is qualified to do business in each jurisdiction in which it owns or leases real property or in which it conducts any business, except for those jurisdictions in which the failure to do so qualify would not have a Material Adverse Effect; (iii) has the requisite corporate power and authority to own, pledge, mortgage and operate its properties, to lease any properties it operates under lease, to conduct its business and to enter into, consummate all of the transactions contemplated by, and perform all of its obligations under, each of the Transaction Documents; and (iv) has all licenses, permits, consents or approvals from or by, has made all filings with, and has given all notices to, all governmental authorities having jurisdiction, which are required for such ownership, operation and conduct and where a failure to have such license, permit, consent or approval would have a Material Adverse Effect. 2. Each active Subsidiary incorporated in the United States is a corporation duly organized, validly existing and in good standing under the laws of its state of incorporation and is duly qualified to do business in each jurisdiction in which it owns or leases real property or in which it conducts any business, except for those jurisdictions in which the failure to qualify would not have a Material Adverse Effect. 3. The execution, delivery and performance by the Borrower of each of the Transaction Documents, and the consummation by the Borrower of each of the transactions contemplated by such Transaction Documents, are within the corporate power of the Borrower; have been duly authorized by all necessary or proper action on the part of the Borrower; are not in contravention of any provision of the Certificate of Incorporation or by-laws of the Borrower; will not violate any law or regulation (including any order or decree of any court or governmental instrumentality) to which Borrower is subject; will not result in the breach of, or constitute a default under, any indenture, license, mortgage, deed of trust, lease or sublease agreement or other instrument of which I have knowledge after due inquiry and to which the Borrower is a party or by which any of the Borrower's properties are bound; will not result in the creation or imposition of any lien upon any of the property of the Borrower; and do not require the consent or approval of, or any filing with, any governmental body, agency, authority or any other person (other than those which have been delivered on or prior to the date hereof to you and except for any filings required to be made with the Securities and Exchange Commission). 4. To the best of my knowledge after due inquiry, except as disclosed on Schedule 9.6 of the Credit Agreement, there are no judgments outstanding against the Borrower, nor is there now pending or threatened, any action, suit or proceeding before any court or any governmental or regulatory authority, by, against or involving the Borrower, which, individually or in the aggregate, would have a Material Adverse Effect. To the best of my knowledge after due inquiry, the Borrower is not in default with respect to any order, writ, injunction or decree of any court nor is the Borrower in default under or in violation of any applicable law, order, regulation or demand of any governmental agency or instrumentality where such default or violation would result in a Material Adverse Effect. 5. To the best of my knowledge after due inquiry, there is no default by the Borrower or any Subsidiary under any contract, lease agreement, instrument or commitment to which the Borrower or any of its Subsidiaries is a party which has not been waived, or which has, or would have, a Material Adverse Effect. The opinions expressed herein are subject to (i) general principles of equity, regardless of whether enforcement is sought in a proceeding in equity or at law and (ii) bankruptcy, reorganization, insolvency, fraudulent conveyance, moratorium and similar laws affecting creditors' rights generally. The foregoing opinions are limited to the laws of the United States, the State of Illinois and the General Corporation Law of the State of Delaware. This opinion is furnished by me solely for your benefit and it may not be relied upon, quoted from or delivered to any person other than counsel to the Borrower, counsel to you, your agents, employees, successors, assigns and participants. Very truly yours, EXHIBIT D BORROWING BASE REPORT ALLIED PRODUCTS CORPORATION MONTHLY ASSET REPORT _________ 199_ Report submitted pursuant to the requirements of Section 10.1.3 of the Second Amended and Restated Credit Agreement dated as of February 1, 1999, among Allied Products Corporation, the Banks named therein, and Bank of America Illinois as Agent. Receivables as of the close of the Company's business on ______ __, 199_: 80% of the Net Bush Hog 1 - 90 Days Eligible Receivables $ 75% of the Net Bush Hog 91 - 180 Days Eligible Receivables $ 65% of the Net Bush Hog 181 - 240 Days Eligible Receivables $ 50% of the Net Bush Hog Over 240 Days Eligible Receivables $ 85% of the Verson Eligible Receivables $ 80% of the Net Great Bend 1 - 90 Days Eligible Receivables $ 75% of the Net Great Bend 91 - 180 Days Eligible Receivables $ 65% of the Net Great Bend 181 - 240 Days Eligible Receivables $ 50% of the Net Great Bend Over 240 Days Eligible Receivables $ 80% of the Net Precision Press Eligible Receivables $ Inventories as of the close of the Company's business on ______ __, 199_: 45% of the Net Bush Hog Eligible Raw Material Inventory $ 45% of the Net Great Bend Eligible Raw Material Inventory $ 45% of the Net Bush Hog Purchased Parts Inventory $ 45% of the Net Great Bend Purchased Parts Inventory $ 55% of the Net Bush Hog Eligible Finished Goods Inventory $ 55% of the Net Great Bend Eligible Finished Goods Inventory $ 50% of the Net Verson Eligible Raw Material Inventory $ 50% of the Net Precision Press Industries Eligible Raw Material Inventory $ 20% of the Net Verson Eligible Work-in-Process Inventory $ 20% of the Net Precision Press Eligible Work-in-Process Inventory $ Machinery and equipment as of the close of the Company's business on _______ __, 199_: 35% of the consolidated gross (undepreciated) value of the machinery and equipment of the Company and its Subsidiaries $______ Total Asset Report $______ ______ Capitalized terms used but not defined herein shall have the respective meanings assigned to such terms in the Credit Agreement. IN WITNESS WHEREOF, the Company has executed this Report on the __day of _____, 199_. ALLIED PRODUCTS CORPORATION By: ------------------------------ Its: Vice President EXHIBIT E [FORM OF] ASSIGNMENT AND ACCEPTANCE AGREEMENT This ASSIGNMENT AND ACCEPTANCE AGREEMENT (this "ASSIGNMENT AND ACCEPTANCE") dated as of __________, 199__ is made between _________________________ (the "ASSIGNOR") and __________________________ (the "ASSIGNEE"). RECITALS WHEREAS, the Assignor is party to that certain Second Amended and Restated Credit Agreement dated as of February 1, 1999 (as amended, amended and restated, modified, supplemented or renewed, the "CREDIT AGREEMENT") among Allied Products Corporation, a Delaware corporation (the "COMPANY"), the several financial institutions from time to time party thereto (including the Assignor, the "BANKS"), and Bank of America National Trust and Savings Association, as agent for the Banks (the "AGENT"). Any terms defined in the Credit Agreement and not defined in this Assignment and Acceptance are used herein as defined in the Credit Agreement; WHEREAS, as provided under the Credit Agreement, the Assignor has committed to making Loans (the "REVOLVING LOANS") to the Company in an aggregate amount not to exceed $__________ (the "COMMITMENT"); WHEREAS, [the Assignor has made Revolving Loans in the aggregate principal amount of $__________ to the Company] [no Revolving Loans are outstanding under the Credit Agreement]; WHEREAS, [the Assignor has acquired a participation in the Issuing Bank's liability under Letters of Credit in an aggregate principal amount of $____________ (the "L/C OBLIGATIONS")] [no Letters of Credit are outstanding under the Credit Agreement]; and WHEREAS, the Assignor wishes to assign to the Assignee [part of the] [all] rights and obligations of the Assignor under the Credit Agreement in respect of its Commitment, [together with a corresponding portion of each of its outstanding Revolving Loans and L/C Obligations,] in an amount equal to $__________ (the "ASSIGNED AMOUNT") on the terms and subject to the conditions set forth herein and the Assignee wishes to accept assignment of such rights and to assume such obligations from the Assignor on such terms and subject to such conditions; NOW, THEREFORE, in consideration of the foregoing and the mutual agreements contained herein, the parties hereto agree as follows: 1. ASSIGNMENT AND ACCEPTANCE. (a) Subject to the terms and conditions of this Assignment and Acceptance, (i) the Assignor hereby sells, transfers and assigns to the Assignee, and (ii) the Assignee hereby purchases, assumes and undertakes from the Assignor, without recourse and without representation or warranty (except as provided in this Assignment and Acceptance) __% (the "ASSIGNEE'S PERCENTAGE SHARE") of (A) the Commitment [and the Revolving Loans and the L/C Obligations] of the Assignor and (B) all related rights, benefits, obligations, liabilities and indemnities of the Assignor under and in connection with the Credit Agreement and the Loan Documents. [IF APPROPRIATE, ADD PARAGRAPH SPECIFYING PAYMENT TO ASSIGNOR BY ASSIGNEE OF OUTSTANDING PRINCIPAL OF, ACCRUED INTEREST ON, AND FEES WITH RESPECT TO, REVOLVING LOANS AND L/C OBLIGATIONS ASSIGNED.] (b) With effect on and after the Effective Date (as defined in Section 5 hereof), the Assignee shall be a party to the Credit Agreement and succeed to all of the rights and be obligated to perform all of the obligations of a Bank under the Credit Agreement, including the requirements concerning confidentiality and the payment of indemnification, with a Commitment in an amount equal to the Assigned Amount. The Assignee agrees that it will perform in accordance with their terms all of the obligations which by the terms of the Credit Agreement are required to be performed by it as a Bank. It is the intent of the parties hereto that the Commitment of the Assignor shall, as of the Effective Date, be reduced by an amount equal to the Assigned Amount and the Assignor shall relinquish its rights and be released from its obligations under the Credit Agreement to the extent such obligations have been assumed by the Assignee; provided, however, the Assignor shall not relinquish its rights under Sections __ and __ of the Credit Agreement to the extent such rights relate to the time prior to the Effective Date. (c) After giving effect to the assignment and assumption set forth herein, on the Effective Date the Assignee's Commitment will be $__________. (d) After giving effect to the assignment and assumption set forth herein, on the Effective Date the Assignor's Commitment will be $__________. 2. PAYMENTS. (a) As consideration for the sale, assignment and transfer contemplated in Section 1 hereof, the Assignee shall pay to the Assignor on the Effective Date in immediately available funds an amount equal to $__________, representing the Assignee's Pro Rata Share of the principal amount of all Revolving Loans. (b) The [Assignor] [Assignee] further agrees to pay to the Agent a processing fee in the amount specified in Section [ ](__) of the Credit Agreement. 3. REALLOCATION OF PAYMENTS. Any interest, fees and other payments accrued to the Effective Date with respect to the Commitment[,] [and] Revolving Loans [and L/C Obligations] shall be for the account of the Assignor. Any interest, fees and other payments accrued on and after the Effective Date with respect to the Assigned Amount shall be for the account of the Assignee. Each of the Assignor and the Assignee agrees that it will hold in trust for the other party any interest, fees and other amounts which it may receive to which the other party is entitled pursuant to the preceding sentence and pay to the other party any such amounts which it may receive promptly upon receipt. 4. INDEPENDENT CREDIT DECISION. The Assignee (a) acknowledges that it has received a copy of the Credit Agreement and the Schedules and Exhibits thereto, together with copies of the most recent financial statements referred to in Section 9.4 of the Credit Agreement, and such other documents and information as it has deemed appropriate to make its own credit and legal analysis and decision to enter into this Assignment and Acceptance; and (b) agrees that it will, independently and without reliance upon the Assignor, the Agent or any other Bank and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit and legal decisions in taking or not taking action under the Credit Agreement. 5. EFFECTIVE DATE; NOTICES. (a) As between the Assignor and the Assignee, the effective date for this Assignment and Acceptance shall be __________, 199__ (the "EFFECTIVE DATE"); PROVIDED that the following conditions precedent have been satisfied on or before the Effective Date: (i) this Assignment and Acceptance shall be executed and delivered by the Assignor and the Assignee; (ii) the consent of the Company and the Agent required for an effective assignment of the Assigned Amount by the Assignor to the Assignee under Section [ ](__) of the Credit Agreement shall have been duly obtained and shall be in full force and effect as of the Effective Date; (iii) the Assignee shall pay to the Assignor all amounts due to the Assignor under this Assignment and Acceptance; [(iv) the Assignee shall have complied with Section [ ](__) of the Credit Agreement (if applicable); (v) the processing fee referred to in Section 2(b) hereof and in Section [ ](__) of the Credit Agreement shall have been paid to the Agent; and (vi) the Assignor shall have assigned and the Assignee shall have assumed a percentage equal to the Assignee's Percentage Share of the rights and obligations of the Assignor under the Credit Agreement (if such agreement exists). (b) Promptly following the execution of this Assignment and Acceptance, the Assignor shall deliver to the Company and the Agent for acknowledgement by the Agent, a Notice of Assignment [substantially] in the form attached hereto as SCHEDULE 1. 6. AGENT. (a) The Assignee hereby appoints and authorizes the Assignor to take such action as agent on its behalf and to exercise such powers under the Credit Agreement as are delegated to the Agent by the Banks pursuant to the terms of the Credit Agreement. [(b) The Assignee shall assume no duties or obligations held by the Assignor in its capacity as Agent under the Credit Agreement.] [INCLUDE ONLY IF ASSIGNOR IS AGENT] 7. WITHHOLDING TAX. The Assignee (a) represents and warrants to the Assignor, the Agent and the Company that under applicable law and treaties no tax will be required to be withheld by the Assignor with respect to any payments to be made to the Assignee hereunder, (b) agrees to furnish (if it is organized under the laws of any jurisdiction other than the United States or any State thereof) to the Agent and the Company prior to the time that the Agent or Company is required to make any payment of principal, interest or fees hereunder, duplicate executed originals of either U.S. Internal Revenue Service Form 4224 or U.S. Internal Revenue Service Form 1001 (wherein the Assignee claims entitlement to the benefits of a tax treaty that provides for a complete exemption from U.S. federal income withholding tax on all payments hereunder) and agrees to provide new Forms 4224 or 1001 upon the expiration of any previously delivered form or comparable statements in accordance with applicable U.S. law and regulations and amendments thereto, duly executed and completed by the Assignee, and (c) agrees to comply with all applicable U.S. laws and regulations with regard to such withholding tax exemption. 8. REPRESENTATIONS AND WARRANTIES. (a) The Assignor represents and warrants that (i) it is the legal and beneficial owner of the interest being assigned by it hereunder and that such interest is free and clear of any Lien or other adverse claim; (ii) it is duly organized and existing and it has the full power and authority to take, and has taken, all action necessary to execute and deliver this Assignment and Acceptance and any other documents required or permitted to be executed or delivered by it in connection with this Assignment and Acceptance and to fulfill its obligations hereunder; (iii) no notices to, or consents, authorizations or approvals of, any Person are required (other than any already given or obtained) for its due execution, delivery and performance of this Assignment and Acceptance, and apart from any agreements or undertakings or filings required by the Credit Agreement, no further action by, or notice to, or filing with, any Person is required of it for such execution, delivery or performance; and (iv) this Assignment and Acceptance has been duly executed and delivered by it and constitutes the legal, valid and binding obligation of the Assignor, enforceable against the Assignor in accordance with the terms hereof, subject, as to enforcement, to bankruptcy, insolvency, moratorium, reorganization and other laws of general application relating to or affecting creditors' rights and to general equitable principles. (b) The Assignor makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with the Credit Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Credit Agreement or any other instrument or document furnished pursuant thereto. The Assignor makes no representation or warranty in connection with, and assumes no responsibility with respect to, the solvency, financial condition or statements of the Company, or the performance or observance by the Company, of any of its respective obligations under the Credit Agreement or any other instrument or document furnished in connection therewith. (c) The Assignee represents and warrants that (i) it is duly organized and existing and it has full power and authority to take, and has taken, all action necessary to execute and deliver this Assignment and Acceptance and any other documents required or permitted to be executed or delivered by it in connection with this Assignment and Acceptance, and to fulfill its obligations hereunder; (ii) no notices to, or consents, authorizations or approvals of, any Person are required (other than any already given or obtained) for its due execution, delivery and performance of this Assignment and Acceptance; and apart from any agreements or undertakings or filings required by the Credit Agreement, no further action by, or notice to, or filing with, any Person is required of it for such execution, delivery or performance; (iii) this Assignment and Acceptance has been duly executed and delivered by it and constitutes the legal, valid and binding obligation of the Assignee, enforceable against the Assignee in accordance with the terms hereof, subject, as to enforcement, to bankruptcy, insolvency, moratorium, reorganization and other laws of general application relating to or affecting creditors' rights and to general equitable principles; and (iv) it is an Eligible Assignee. 9. FURTHER ASSURANCES. The Assignor and the Assignee each hereby agree to execute and deliver such other instruments, and take such other action, as either party may reasonably request in connection with the transactions contemplated by this Assignment and Acceptance, including the delivery of any notices or other documents or instruments to the Company or the Agent, which may be required in connection with the assignment and assumption contemplated hereby. 10. MISCELLANEOUS. (a) Any amendment or waiver of any provision of this Assignment and Acceptance shall be in writing and signed by the parties hereto. No failure or delay by either party hereto in exercising any right, power or privilege hereunder shall operate as a waiver thereof and any waiver of any breach of the provisions of this Assignment and Acceptance shall be without prejudice to any rights with respect to any other or further breach thereof. (b) All payments made hereunder shall be made without any set-off or counterclaim. (c) The Assignor and the Assignee shall each pay its own costs and expenses incurred in connection with the negotiation, preparation, execution and performance of this Assignment and Acceptance. (d) This Assignment and Acceptance may be executed in any number of counterparts and all of such counterparts taken together shall be deemed to constitute one and the same instrument. (e) THIS ASSIGNMENT AND ACCEPTANCE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF CALIFORNIA [NOTE: CONFIRM CHOICE OF LAW]. The Assignor and the Assignee each irrevocably submits to the non-exclusive jurisdiction of any State or Federal court sitting in [Illinois] over any suit, action or proceeding arising out of or relating to this Assignment and Acceptance and irrevocably agrees that all claims in respect of such action or proceeding may be heard and determined in such [Illinois] State or Federal court. Each party to this Assignment and Acceptance hereby irrevocably waives, to the fullest extent it may effectively do so, the defense of an inconvenient forum to the maintenance of such action or proceeding. (f) THE ASSIGNOR AND THE ASSIGNEE EACH HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH THIS ASSIGNMENT AND ACCEPTANCE, THE CREDIT AGREEMENT, ANY RELATED DOCUMENTS AND AGREEMENTS OR ANY COURSE OF CONDUCT, COURSE OF DEALING, OR STATEMENTS (WHETHER ORAL OR WRITTEN). [OTHER PROVISIONS TO BE ADDED AS MAY BE NEGOTIATED BETWEEN THE ASSIGNOR AND THE ASSIGNEE, PROVIDED THAT SUCH PROVISIONS ARE NOT INCONSISTENT WITH THE CREDIT AGREEMENT.] IN WITNESS WHEREOF, the Assignor and the Assignee have caused this Assignment and Acceptance to be executed and delivered by their duly authorized officers as of the date first above written. [ASSIGNOR] By: -------------------------------- Title: ----------------------------- By: -------------------------------- Title: ----------------------------- Address: [ASSIGNEE] By: -------------------------------- Title: ----------------------------- By: -------------------------------- Title: ----------------------------- Address: SCHEDULE 1 NOTICE OF ASSIGNMENT AND ACCEPTANCE _______________, 19__ Bank of America National Trust and Savings Association, as Agent 231 South LaSalle Street Chicago, Illinois Attn: David Johanson [Name and Address of Company] Ladies and Gentlemen: We refer to the Second Amended and Restated Credit Agreement dated as of February 1, 1999 (as amended, amended and restated, modified, supplemented or renewed from time to time the "CREDIT AGREEMENT") among Allied Products Corporation (the "COMPANY"), the Banks referred to therein and Bank of America National Trust and Savings Association, as agent for the Banks (the "AGENT"). Terms defined in the Credit Agreement are used herein as therein defined. 1. We hereby give you notice of, and request your consent to, the assignment by __________________ (the "ASSIGNOR") to _______________ (the "ASSIGNEE") of _____% of the right, title and interest of the Assignor in and to the Credit Agreement (including, without limitation, the right, title and interest of the Assignor in and to the Commitments of the Assignor[,] [and] all outstanding Loans made by the Assignor [and the Assignor's participation in the Letters of Credit]) pursuant to the Assignment and Acceptance Agreement attached hereto (the "ASSIGNMENT AND ACCEPTANCE"). Before giving effect to such assignment the Assignor's Commitment is $ ___________[,] [and] the aggregate amount of its outstanding Loans is $_____________[, and its participation in L/C Obligations is $_____________]. 2. The Assignee agrees that, upon receiving the consent of the Agent[, the Issuing Bank] and, if applicable, [NAME OF COMPANY] to such assignment, the Assignee will be bound by the terms of the Credit Agreement as fully and to the same extent as if the Assignee were the Bank originally holding such interest in the Credit Agreement. 3. The following administrative details apply to the Assignee: (A) Notice Address: --------------------------------------------- Assignee name: --------------------------------------------- Address: --------------------------------------------- --------------------------------------------- --------------------------------------------- Attention: --------------------------------------------- Telephone: ( ) --------------------------------------------- Telecopier: ( ) --------------------------------------------- Telex (Answerback): --------------------------------------------- (B) Payment Instructions: Account No.: --------------------------------------------- At: --------------------------------------------- --------------------------------------------- --------------------------------------------- Reference: --------------------------------------------- Attention: --------------------------------------------- 4. You and the Company are entitled to rely upon the representations, warranties and covenants of each of the Assignor and Assignee contained in the Assignment and Acceptance. IN WITNESS WHEREOF, the Assignor and the Assignee have caused this Notice of Assignment and Acceptance to be executed by their respective duly authorized officials, officers or agents as of the date first above mentioned. [NAME OF ASSIGNOR] By: -------------------------------- Title: ----------------------------- By: -------------------------------- Title: ----------------------------- [NAME OF ASSIGNOR] By: -------------------------------- Title: ----------------------------- By: -------------------------------- Title: ----------------------------- ACKNOWLEDGED AND ASSIGNMENT CONSENTED TO: [COMPANY] By: -------------------------------- Title: ----------------------------- By: -------------------------------- Title: ----------------------------- BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Agent By: -------------------------------- Title: ----------------------------- EX-10.(B) 4 EXHIBIT 10(B) EXHIBIT 10 B FIRST AMENDMENT AND WAIVER DATED AS OF APRIL 15, 1999 TO CREDIT AGREEMENT DATED AS OF FEBRUARY 1, 1999 This First Amendment and Waiver (this "Amendment"), dated as of April 15, 1999, is made by and among ALLIED PRODUCTS CORPORATION, a Delaware corporation (the "Company"), the financial institutions party hereto (the "Banks"), and Bank of America National Trust and Savings Association (as successor by merger to Bank of America Illinois), as agent for the Banks (in such capacity, the "Agent"). Terms defined in the Credit Agreement shall have the same respective meanings when used herein and the provisions of SECTION 13 of the Credit Agreement shall apply, mutatis mutandis, to this Amendment. W I T N E S S E T H: WHEREAS, the parties hereto are parties to that certain Second Amended and Restated Credit Agreement, dated as of February 1, 1999 (as amended or modified and in effect on the date hereof, the "Credit Agreement"); WHEREAS, the Company has requested that the Banks and the Agent agree to amend or modify the Credit Agreement as described herein; and WHEREAS, the Banks and the Agent are willing to amend and modify the Credit Agreement on the terms and conditions contained herein; NOW, THEREFORE, in consideration of the premises, the mutual covenants herein contained and other good and valuable consideration (the receipt, adequacy and sufficiency of which is hereby acknowledged), the parties hereto, intending legally to be bound, hereby agree as follows: I. AMENDMENT 1. AMENDMENTS. Subject to the satisfaction of the conditions precedent set forth in Section 3.2 below, the Credit Agreement is hereby amended as follows: Section 1.1.3(a) of the Credit Agreement is amended to read in its entirety as follows: SECTION 1.1.3 COMMITMENT LIMITS. Notwithstanding any other provision of this Agreement (a) the aggregate principal amount of the Revolving Loans which all Banks are committed to lend to the Company together with the Stated Amount of all Letters of Credit then outstanding shall not at any one time exceed the lesser of (i) the Borrowing Base or (ii) the following amounts (less in each case any reductions made pursuant to SECTION 6.1 or SECTION 6.3) during the following period: MONTH ENDING AMOUNT February 28, 1999 $140,000,000 March 31, 1999 $140,000,000 April 30, 1999 $135,000,000 May 31, 1999 $135,000,000 June 30, 1999 $135,000,000 July 31, 1999 $118,000,000 August 31, 1999 $115,000,000 September 30, 1999 $118,000,000 October 31, 1999 $115,000,000 November 30, 1999 $115,000,000 December 31, 1999 $110,000,000 January 31, 2000 $110,000,000 February 28, 2000 Zero Section 5.2 of the Credit Agreement is amended to read in its entirety as follows: SECTION 5.2 FACILITY FEE. The Company agrees to pay each Bank a facility fee, for the period from and including the Effective Date to and including the Revolving Termination Date, on the total Commitments (whether used or unused) (as the same may be reduced by SECTION 6.1 or SECTION 6.3). Such facility fee shall be payable in arrears on the last day of each Fiscal Quarter and on the Revolving Termination Date for any period then ending for which such facility fee shall not have been theretofore paid. The facility fee shall be computed at the rate of 0.50% per annum for the actual number of days elapsed on the basis of a year of 360 days. The facility fee shall be determined without regard to any Borrowing Base limitation or any Event of Default or Unmatured Event of Default. Section 6.1(c) of the Credit Agreement is amended to read in its entirety, as follows: (c) On any date that the aggregate unpaid principal amount of the Revolving Loans, PLUS the aggregate Stated Amount of all Letters of Credit exceeds the aggregate Commitments of the Banks (whether as a result of a Borrowing Base shortfall, a reduction in the Commitments, or otherwise), the -2- Company shall immediately repay the Revolving Loans or, in the case of the Letters of Credit, furnish to the Agent cash collateral, in an amount equal to such excess. Section 6.3 of the Credit Agreement is amended to read its entirety as follows: SECTION 6.3 MANDATORY PREPAYMENTS. (a) If the Company or any Subsidiary shall issue new common or preferred equity or any Indebtedness for borrowed money, the Company shall promptly notify the Agent of the estimated Net Issuance Proceeds of such issuance to be received by the Company in respect thereof. Promptly upon, and in no event later than 5 Business Days after, receipt by the Company or a Subsidiary of Net Issuance Proceeds of such issuance, the Company shall prepay the Revolving Loans and other Liabilities in an aggregate amount equal to 100% of the amount of such Net Issuance Proceeds. Net Issuance Proceeds which arise from the incurrence of purchase money Indebtedness or Capital Lease Obligations shall not be required to be applied as a prepayment pursuant to this Section 6.3. (b) If the Company or any Subsidiary shall enter into any agreement for the sale or disposition of any substantial part of its assets outside the ordinary course of business, the Company shall promptly notify the Agent of the terms thereof, including the estimated Net Sale Proceeds (it being understood that any sale outside of the ordinary course of business of all or any substantial part of the assets of the Company or any Subsidiary is subject to the consent of the Required Banks pursuant to Section 10.13). Promptly, and in any event within 5 Business Days after receipt by the Company or any Subsidiary of the Net Sale Proceeds of such sale, the Company shall prepay the Revolving Loans and other Liabilities in an aggregate principal amount equal to 100% of the amount of such Net Sale Proceeds. (c) Notwithstanding any provision to the contrary in Section 6.3(a) or 6.3(b), the Company shall not be obligated to pay over to the Agent any Net Issuance Proceeds or Net Sale Proceeds in excess of the aggregate Liabilities then outstanding (it being understood that for this purpose the undrawn amount of Letters of Credit shall constitute Letter of Credit Liabilities and that the amounts prepaid to the Agent in respect of such Letter of Credit Liabilities shall be held by the Agent as cash collateral for such Letter of Credit Liabilities). Section 10.1.3 of the Credit Agreement is amended to read in its entirety as follows: SECTION 10.1.3 MONTHLY REPORTS. (a) Within 30 days after the end of each calendar month occurring after April 30, 1999, a Directors' Statement which at a minimum provides (i) the unaudited financial statements (including, without limitation, consolidated and consolidating balance sheets of the Company and its Subsidiaries as of the end of such month and related changes in financial position -3- together with statements of income) of the Company and its Subsidiaries, prepared in substantially the same manner as Schedule 10.1.3, (ii) a status report as to the Verson Division of the Company, (iii) an accounts payable aging by division, and (iv) a jobs in progress report. (b) Within 15 days after the end of each calendar month occurring after April 30, 1999, the Company shall deliver to Agent the following: (i) an updated Borrowing Base Report, (ii) a receivables aging certificate in a form reasonably acceptable to the Agent, and (iii) a certificate containing a computation of the debt coverage ratio in Section 10.8. (c) All items furnished pursuant to this Section 10.1.3(a) and (b) shall be in a form reasonably acceptable to the Required Banks and shall be signed by the Chief Accounting Officer of the Company. Section 10.5.1 of the Credit Agreement is amended to read in its entirety as follows: SECTION 10.5.1 CAPITAL EXPENDITURES. Not permit the consolidated capital expenditures of the Company and its Subsidiaries (including Capital Lease Obligations) in any fiscal year to exceed $10,000,000; provided, however, that the amount applicable to fiscal year 1999 shall exclude Capital Expenditures of up to $5,000,000 related to the Verson Division's facility expansion project as carried over from fiscal year 1998. Section 10.5.2 of the Credit Agreement is amended to read in its entirety as follows: SECTION 10.5.2 MINIMUM CONSOLIDATED OPERATING CASH FLOW. As of the end of any Fiscal Quarter, not permit its Consolidated Operating Cash Flow (measured quarterly on a cumulative basis for the related calendar year), to be less than the amount applicable to such Fiscal Quarter as follows:
AMOUNT BEFORE AMOUNT AFTER COLLATERAL GRANT COLLATERAL GRANT FISCAL QUARTER ENDING June 30, 1999 ($ 1,009,000) ($ 1,333,000) September 30, 1999 $ 5,150,000 $ 4,177,000 December 31, 1999 $ 14,407,000 $ 11,376,000
Section 10.5.3 (net worth) of the Credit Agreement is amended to read in its entirety as follows (it being understood that the text of such section is deleted): SECTION 10.5.3 [Reserved] -4- Section 10.6 (Funded Debt/Operating Cash Flow Ratio) of the Credit Agreement is amended to read in its entirety as follows (it being understood that the text of such Section is deleted): SECTION 10.6 [Reserved] Section 10.7 of the Credit Agreement is amended to read in its entirety as follows: SECTION 10.7 CONSOLIDATED FIXED CHARGE COVERAGE. Not permit for any Fiscal Quarter the ratio ("Consolidated Fixed Charge Ratio") of (a) Consolidated Adjusted Operating Cash Flow to (b) interest expense (before any deferral and capitalization of such interest, but including attributable interest from Capitalized Lease Obligations) plus rental expense of the Company and its Subsidiaries on a consolidated basis during such period, to be less than the ratio applicable to such Fiscal Quarter, as follows:
RATIO BEFORE RATIO AFTER FISCAL QUARTER ENDING COLLATERAL GRANT COLLATERAL GRANT September 30, 1999 1.40:1 1.15:1 December 31, 1999 2.00:1 2.00:1
Section 10.8 of the Credit Agreement is amended to read in its entirety as follows: SECTION 10.8 MINIMUM DEBT COVERAGE. As of the end of any calendar month, not permit the ratio of (a) the sum of (i) the accounts receivable of the Company and its Subsidiaries, plus (ii) the book value of inventory of the Company and its Subsidiaries (provided that the value of such inventory shall not exceed 150% of the net amount of accounts receivable under clause (i) above), plus (iii) cash and cash equivalents (determined according to GAAP) of the Company and its Subsidiaries less (iv) accounts payable of the Company and its Subsidiaries to (b) the aggregate principal amount of all Indebtedness of the Company and its Subsidiaries, to be less than the ratio applicable to such calendar month as follows: -5-
CALENDAR MONTH RATIO BEFORE RATIO AFTER ENDING COLLATERAL GRANT COLLATERAL GRANT April 30, 1999 0.85 to 1 0.62 to 1 May 31, 1999 0.80 to 1 0.60 to 1 June 30, 1999 0.80 to 1 0.60 to 1 July 31, 1999 0.75 to 1 0.57 to 1 August 31, 1999 0.75 to 1 0.56 to 1 September 30, 1999 0.80 to 1 0.60 to 1 October 31, 1999 0.80 to 1 0.61 to 1 November 30, 1999 0.85 to 1 0.64 to 1 December 31, 1999 0.85 to 1 0.66 to 1 January 31, 2000 0.85 to 1 0.66 to 1
Section 10.9 of the Credit Agreement is amended to read in its entirety as follows: SECTION 10.9 PURCHASE OR REDEMPTION OF COMPANY'S SECURITIES; DIVIDEND RESTRICTIONS. Not purchase or redeem any shares of the capital stock of the Company, declare or pay any dividends thereon (other than stock dividends), make any distribution to stockholders or set aside any funds for any such purpose, and not prepay, purchase or redeem, and not permit any Subsidiary to purchase, any subordinated indebtedness of the Company; PROVIDED HOWEVER, that so long as no Event of Default or Unmatured Event of Default exists or would result therefrom, the Company may, in its sole discretion, pay or declare cash dividends to the holders of common stock of the Company, but not in excess of $2,000,000 in the aggregate for all such dividends declared or paid in any fiscal year. Section 10 of the Credit Agreement is further amended by adding Section 10.22 as follows: SECTION 10.22. COLLATERAL. (a) On or before May 15, 1999, the Company (i) shall grant and cause each of its Subsidiaries to grant to the Agent, for the prorata benefit of the Banks, as security for the Liabilities, a lien upon and security interest in all of the assets of every description (whether now or hereafter existing or acquired) of the Company and its Subsidiaries (other than real estate interests), and (ii) at its expense, execute and deliver and cause to be executed and delivered to the Agent any and all Collateral Documents, and take all further action that may be required under applicable law, or that the Agent or the Required Banks may reasonably request, in order to grant, preserve, protect and perfect the validity and first priority of the security interests created pursuant to such Collateral Documents. (b) In addition, from time to time after May 15, 1999, the Company will, at its expense, promptly execute and deliver or cause to be executed and delivered to the Agent such additional Collateral Documents, and take such additional action, all as may from time to time be reasonably requested by the -6- Agent or the Required Banks, in order to preserve, protect and perfect the validity and first priority of the security interests created pursuant to the Collateral Documents (it being understood that it is the intent of the parties that the Liabilities shall be secured by all the assets of the Company and its Subsidiaries (other than real estate interests) and that such security interests will be created under such Collateral Documents as shall be in form and substance reasonably satisfactory to the Agent and the Required Banks). Section 12.1.5 of the Credit Agreement is amended to read in its entirety as follows: SECTION 12.1.5 NON-COMPLIANCE WITH THIS AGREEMENT. Failure by the Company to comply with or to perform any provision of this Agreement (and not constituting an Event of Default under any other provision of this SECTION 12) and (except for Section 10.22 as to which no notice or grace period shall apply) continuance of such failure for 15 days after notice thereof to the Company from the Agent, any Bank, or the holder of any Revolving Note. Section 13 of the Credit Agreement is amended so that the definition of Borrowing Base Overadvance shall read in its entirety as follows: BORROWING BASE OVERADVANCE shall for each month set forth below mean an amount as follows:
MONTH OVERADVANCE AMOUNT January 1999 $40,000,000 February 1999 $40,000,000 March 1999 $40,000,000 April 1999 $40,000,000 May 1999 $46,700,000 June 1999 $47,600,000 July 1999 $41,600,000 August 1999 $42,700,000 September 1999 $41,700,000 October 1999 $35,100,000 November 1999 $26,100,000 December 1999 $27,800,000 January 2000 $27,800,000
Section 13 of the Credit Agreement is amended so that the definition of "Margin" shall read in its entirety as follows: -7- MARGIN shall mean (i) in the case of Eurodollar Loans (and Letters of Credit) a rate equal to 3.5% per annum and (ii) in the case of Floating Rate Loans, a rate equal to 2% per annum. Section 13 of the Credit Agreement is further amended by adding thereto a definition of "Collateral Grant" as follows: COLLATERAL GRANT shall mean the receipt by the Agent of Collateral Documents duly executed and delivered and in form and substance reasonably satisfactory to the Agent, pursuant to Section 10.22. Section 13 of the Credit Agreement is further amended by adding thereto a definition of "Collateral Documents" as follows: COLLATERAL DOCUMENTS shall mean such security agreements, pledge agreements, mortgages, deeds of trusts, UCC financing statements, appraisals, landlord waivers, opinions of counsel, lock box agreements, search reports, and other documents and instruments as the Agent or the Required Banks shall reasonably require in order that the Agent shall have, as security for the Liabilities, a first perfected lien on and security interest in all of the assets of the Company and its Subsidiaries (other than real estate interests), subject only to such preexisting liens permitted under Section 10.11 as do not in the opinion of the Agent or the Required Banks materially detract from the value of the liens and security interests in favor of the Agent. The Collateral Documents shall constitute Loan Documents hereunder. Section 13 of the Credit Agreement is amended by inserting "for any period" immediately after "shall mean" in the definition of Consolidated Adjusted Operating Cash Flow. Section 13 of the Credit Agreement is amended so that the definition of "Consolidated Operating Cash Flow" shall read in its entirety as follows: CONSOLIDATED OPERATING CASH FLOW shall mean for any period (a) the sum of (i) consolidated net income for such period, plus (ii) consolidated interest expense for such period, plus (iii) the aggregate amount which was deducted by the Company in respect of Federal, state and local income taxes by the Company and its Subsidiaries in determining the Company's consolidated net income for such period, plus (iv) depreciation and amortization for such period, less (b) all interest income for the period, it being understood, however, that Consolidated Operating Cash Flow shall be determined without regard to extraordinary items for the period, and shall be determined for the Company and its Subsidiaries on a consolidated basis. Section 13 of the Credit Agreement is further amended by adding thereto a definition of "Liabilities" as follows: -8- LIABILITIES shall mean (i) the Notes, (ii) all obligations of the Company in respect of Letters of Credit (whether or not drawn), and (iii) all other obligations of the Company of every description, which arise under this Agreement or the Loan Documents or hedging agreements of the Banks permitted under the Loan Documents, including without limitation, all obligations of the Company in respect of principal, interest, fees or expenses, in each case however created, arising or evidenced, whether direct or indirect, or absolute and contingent, or now or hereafter existing, or due or to become due. The Liabilities may also be sometimes called the "Obligations". Section 13 of the Credit Agreement is amended by adding thereto a definition of "Net Sale Proceeds" as follows: NET SALE PROCEEDS shall mean with respect to any sale of assets of the Company or any Subsidiary, the cash proceeds (including cash proceeds subsequently received (as and when received) in respect of non-cash consideration initially received and including all insurance settlements and condemnation awards in excess of $250,000 from any single event or series of related events), net of (i) transaction expenses (including reasonable broker's fees or commissions, legal fees, accounting fees, investment banking fees and other professional fees, transfer and similar taxes and the Company's good faith estimate of income taxes paid or payable in connection with the receipt of such cash proceeds), (ii) amounts provided as a reserve, in accordance with GAAP, including pursuant to any escrow arrangement, against any liabilities under any indemnification liabilities associated with such sale (PROVIDED that, to the extent and at the time any such amounts are released from such reserve, such amounts shall constitute Net Sale Proceeds), (iii) in the case of insurance settlements and condemnation awards, amounts previously paid by the Company and its Subsidiaries to replace or restore the affected property, and (iv) the principal amount, premium or penalty, if any, interest and other amounts on any indebtedness for borrowed money which is secured by the asset sold in such sale and is required to be repaid with such proceeds (other than any such indebtedness assumed by the purchaser of such asset). Section 13 of the Credit Agreement is amended so that the definition of "Revolving Termination Date" shall read in its entirety as follows: REVOLVING TERMINATION DATE shall mean February 28, 2000. Section 9.5 of the Credit Agreement is amended by adding thereto the paragraph which appears in Supplemental Schedule 9.5 attached hereto. -9- II. WAIVER 2.1 WAIVER. The Banks hereby waive the following: (a) the failure of the Company to furnish to the Agent and Banks, within 90 days after the end of its fiscal year ending December 31, 1998, its audit report (and related certificate) in respect of such fiscal year as required by Section 10.1.1 of the Credit Agreement, it being understood (and the Company hereby agrees) that such audit report (and related certificate) shall be furnished to the Agent and the Banks on or before April 30, 1999; (b) the failure of the Company to furnish to the Agent and Banks, its quarterly financial statements as of December 31, 1998 and March 31, 1999, as required pursuant to Section 10.1.2; (c) the requirement of Section 10.1.3 that the Company furnish to the Agent and the Banks monthly reports (including financial statements, Borrowing Base Reports and receivables aging certificates) for the months of January through March, 1999; (d) the requirement of Section 10.1.4 that the Company furnish a compliance certificate as of December 31, 1998 and March 31, 1999; (e) noncompliance by the Company as of March 31, 1999, with the minimum consolidated operating consolidating cash flow provision of Section 10.5.2; (f) noncompliance by the Company as of March 31, 1999 with the net worth provision of Section 10.5.3; and (g) noncompliance by the Company as of March 31, 1999, with the consolidated fixed charge ratio provision of Section 10.7. 2.2 LIMITATION ON WAIVER. Except as specifically set forth in Section 2.1, the foregoing waivers are specific in time and in intent and do not constitute, nor shall any of such waivers be construed as, a waiver of any other right, power or privilege under the Credit Agreement, or under any agreement, contract, indenture, document or other instrument mentioned in the Credit Agreement; nor does any of the foregoing waivers preclude other or further exercise hereof or the exercise of any other right, power or privilege, nor shall any waiver of any right, power, privilege or default hereunder, or under any agreement, contract, indenture, document, or instrument mentioned in the Credit Agreement, constitute a waiver of any other default of the same or of any other term or provision. III. GENERAL 3.1 REPRESENTATIONS. The Company hereby represents and warrants to the Banks and the Agent that: -10- (a) The execution, delivery and performance of this Amendment are within the Company's corporate authority, have been duly authorized by all necessary corporate action, have received all necessary consents and approvals (if any shall be required), and do not and will not contravene or conflict with any provision of law or of the Certificate of Incorporation or By-laws of the Company or its Subsidiaries, or of any other agreement binding upon the Company or its Subsidiaries or their respective property; (b) This Amendment constitutes the legal, valid, and binding obligations of the Company, enforceable against the Company in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, or similar laws affecting the enforcement of creditors' rights generally or by equitable principles relating to enforceability; and (c) Except for any Event of Default or Unmatured Event of Default which will be cured by this Amendment becoming effective, no Event of Default or Unmatured Event of Default has occurred and is continuing or will result from this Amendment. 3.2 CONDITIONS PRECEDENT TO EFFECTIVENESS. This Amendment shall become effective as of April 15, 1999 (the "Effective Date"), subject, however, to the receipt by the Agent of all fees and expenses previously billed to the Company in respect of the Credit Agreement as amended hereby, together with each of the following, each appropriately completed and duly executed as required and otherwise in form and substance reasonably satisfactory to the Agent: (a) counterparts of this Amendment, executed by the Company and the Banks (together with a related fee letter between the Company and the Agent); (b) Certified copies of resolutions of the Board of Directors of the Company authorizing or ratifying the execution, delivery and performance by the Company of this Amendment; (c) A certificate of the President or a Vice-President of the Company that all necessary consents or approvals with respect to this Amendment have been obtained; (d) A certificate of the Secretary or Assistant Secretary of the Company, certifying the name(s) of the officer(s) of the Company authorized to sign this Amendment and the documents related hereto on behalf of the Company; (e) An opinion of Mark Standefer covering those matters set forth in Section 3.1(a) and 3.1(b) and such other legal matters as the Agent or its counsel may request; and (f) Such other instruments, agreements and documents as the Agent may reasonably request, in each case duly executed as required and otherwise in form and substance satisfactory to the Banks. -11- 3.3 DOCUMENTS REMAIN IN EFFECT. Except as amended or modified by this Amendment, the Credit Agreement remains in full force and effect and the Company confirms that its representations, warranties, agreements and covenants contained in, and obligations and liabilities under, the Credit Agreement and each of the other Loan Documents are true and correct in all material respects as if made on the date hereof, except where such representation, warranty, agreement or covenant speaks as of a specified date. References to the Credit Agreement in any other document shall be deemed to include a reference to the Credit Agreement as amended or modified hereby, whether or not reference is made to this Amendment. 3.4 EXPENSES. The Company covenants to pay to or reimburse the Agent, upon demand, for all costs and expenses (including legal expenses) in connection with the development, preparation, negotiation, execution and delivery of this Amendment and the Collateral Documents. 3.5 MISCELLANEOUS. (a) Section headings used in this Amendment are for convenience of reference only, and shall not affect the construction of this Amendment. (b) This Amendment shall be a contract made under and governed by the internal laws of the State of Illinois, without giving effect to principles of conflicts of laws. (c) All obligations of the Company and rights of the Banks and the Agent, that are expressed herein, shall be in addition to and not in limitation to those provided by applicable law. (d) Whenever possible, each provision of this Amendment shall be interpreted in such manner as to be effective and valid under applicable law; but if any provision of this Amendment 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 Amendment. (e) The Company acknowledges and agrees that the execution and delivery by the Agent and the Banks of this Amendment shall not be deemed (i) to create a course of dealing or otherwise obligate the Agent or the Banks to forbear or execute similar amendments under the same or similar circumstances in the future, or (ii) to amend, relinquish or impair any right of the Agent or the Banks to receive any indemnity or similar payment from any Person or entity as a result of any matter arising from or relating to this Amendment. (f) This Amendment shall be binding upon and inure to the benefit of the parties and thereto and their respective successors and assigns. No third party beneficiaries are intended in connection with this Amendment. (g) This Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. Each of the parties hereto understands and agrees that this -12- document (and any other document required herein) may be delivered by any party thereto either in the form of an executed original or an executed original sent by facsimile transmission to be followed promptly by mailing of a hard copy original, and that receipt by the Agent of a facsimile transmitted document purportedly bearing the signature of a Bank or the Company shall bind such Bank or the Company, respectively, with the same force and effect as the delivery of a hard copy original. Any failure by the Agent to receive the hard copy executed original of such document shall not diminish the binding effect of receipt of the facsimile transmitted executed original of such document of the party whose hard copy page was not received by the Agent. (h) This Amendment, together with the Credit Agreement, contains the entire and exclusive agreement of the parties hereto with reference to the matters discussed herein and therein. This Amendment supercedes all prior drafts and communications with respect thereto. This Amendment may not be amended except in accordance with the provisions of Section 15.1 of the Credit Agreement. * * * -13- IN WITNESS WHEREOF, the parties hereto have caused the execution and delivery hereof by their respective representatives thereunto duly authorized as of the date first herein appearing. ALLIED PRODUCTS CORPORATION By: /s/ Richard A. Drexler ---------------------- Name: Richard A. Drexler Title: Chairman, President & Chief Executive Officer BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION (as successor by merger to Bank of America Illinois), as Agent By: /s/ David A. Johanson Name: David A. Johanson Title: Vice President BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION (as successor by merger to Bank of America Illinois), in its individual corporate capacity By: /s/ John J. Compernolle Name: John J. Compernolle Title: Sr. Vice President LASALLE NATIONAL BANK By: /s/ Robert M. Swanson Name: Robert M. Swanson Title: SR. Vice President -14- SUPPLEMENTAL SCHEDULE 9.5 ADVERSE CHANGE -15- EX-21 5 EXHIBIT 21 EXHIBIT 21
State or Other % Of Jurisdiction Securities In Which Owned by Subsidiaries of Registrant (1) Incorporated Registrant - - ----------------------------------------------------------------------------------------- Aurora Corporation of Illinois.......... Illinois 100% (2)
- - ------------------- (1) Unnamed subsidiaries considered in the aggregate do not constitute a significant subsidiary. (2) Subsidiary included in consolidated financial statements. 04/20/99 EX-23 6 EXHIBIT 23 EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the Allied Products Corporation registration statement on Form S-8 (File No. 33-60058) of our report, dated April 15, 1999, on our audits of the consolidated financial statements and financial statement schedule of Allied Products Corporation and consolidated subsidiaries as of December 31, 1998 and 1997 and for the three years in the period December 31, 1998, which report is included in the 1998 Annual Report of Form 10-K. PricewaterhouseCoopers LLP Chicago, Illinois April 30, 1999 EX-24 7 EX 24 Exhibit 24 POWER OF ATTORNEY WHEREAS, ALLIED PRODUCTS CORPORATION, a Delaware corporation (herein referred to as the "Company"), is about to file with the Securities and Exchange Commission, under the provisions of the Securities Exchange Act of 1934, as amended, its annual report on Form 10-K for the year ended December 31, 1998 and WHEREAS, each of the undersigned holds the office or offices in the Company hereinbelow set opposite his name, respectively; NOW THEREFORE, each of the undersigned hereby constitutes and appoints Mark C. Standefer as his attorney, with full power to act for him and in his name, place and stead, to sign his name in the capacity or capacities set forth below to said Form 10-K and to any and all amendments thereto, and hereby ratifies and confirms all said attorney may or shall lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned have hereunto set their hands this 28th day of April, 1999. /s/[RICHARD A. DREXLER] --------------------------------------- Richard A. Drexler, Chairman of the Board, President and Chief Executive Officer; Director /s/[ROBERT J. FLECK] --------------------------------------- Robert J. Fleck, Vice President - Accounting, Chief Accounting and Administrative Officer /s/[LLOYD DREXLER] --------------------------------------- Lloyd Drexler, Director /s/[WILLIAM D. FISCHER] --------------------------------------- William D. Fischer, Director /s/[STANLEY J. GOLDRING] --------------------------------------- Stanley J. Goldring, Director /s/[JOHN E. JONES] --------------------------------------- John E. Jones, Director /s/[JOHN W. PUTH] --------------------------------------- John W. Puth, Director /s/[MITCHELL I. QUAIN] --------------------------------------- Mitchell I. Quain, Director /s/[S. S. SHERMAN] --------------------------------------- S. S. Sherman, Director EX-27.1 8 EXHIBIT 27.1
5 THIS STATEMENT CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 1998 AND THE CONSOLIDATED STATEMENT OF INCOME AND THE CONSOLIDATED STATEMENT OF CASH FLOW FOR THE YEAR ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-31-1998 JAN-01-1998 DEC-31-1998 727 0 69,346 519 96,844 181,864 128,648 48,181 275,804 196,819 2,298 0 0 140 71,590 275,804 273,834 273,834 250,169 250,169 45,308 129 6,201 (21,643) (7,530) (14,113) 0 0 0 (14,113) (1.19) (1.19)
EX-27.2 9 EXHIBIT 27.2
5 THIS STATEMENT CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AT SEPTEMBER 30, 1998 AND THE CONSOLIDATED STATEMENT OF INCOME AND THE CONSOLIDATED STATEMENT OF CASH FLOW FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-1998 JAN-01-1998 SEP-30-1998 428 0 65,627 699 134,025 212,694 121,043 47,792 299,378 193,441 1,168 0 0 140 92,523 299,378 229,000 229,000 189,674 189,674 31,074 161 4,339 8,252 2,969 5,283 0 0 0 5,283 .44 .44
EX-27.3 10 EXHIBIT 27.3
5 THIS STATEMENT CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AT JUNE 30, 1998 AND THE CONSOLIDATED STATEMENT OF INCOME AND THE CONSOLIDATED STATEMENT OF CASH FLOW FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-1998 JAN-01-1998 JUN-30-1998 489 0 68,376 652 125,189 206,708 111,848 46,285 286,873 169,570 1,235 0 0 140 100,387 286,873 151,816 151,816 113,446 113,446 19,322 103 2,537 19,048 6,617 12,431 0 0 0 12,431 1.04 1.03
EX-27.4 11 EXHIBIT 27.4
5 THIS STATEMENT CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AT MARCH 31, 1998 AND THE CONSOLIDATED STATEMENT OF INCOME AND THE CONSOLIDATED STATEMENT OF CASH FLOW FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-1998 JAN-01-1998 MAR-31-1998 1,273 0 75,097 566 98,478 187,512 101,388 50,150 246,769 139,827 602 0 0 140 93,646 246,769 62,831 62,831 43,676 43,676 10,752 49 1,090 8,403 3,073 5,330 0 0 0 5,330 .45 .44
EX-27.5 12 EXHIBIT 27.5
5 THIS STATEMENT CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 1997 AND THE CONSOLIDATED STATEMENT OF INCOME AND THE CONSOLIDATED STATEMENT OF CASH FLOW FOR THE YEAR ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-31-1997 JAN-01-1997 DEC-31-1997 609 0 55,260 531 73,423 141,949 94,332 48,811 195,064 95,736 670 0 0 140 88,413 195,064 270,562 270,562 210,033 210,033 35,694 114 3,306 24,835 9,189 15,646 0 0 0 15,646 1.29 1.27
EX-27.6 13 EXHIBIT 27.6
5 THIS STATEMENT CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AT SEPTEMBER 30, 1997 AND THE CONSOLIDATED STATEMENT OF INCOME AND THE CONSOLIDATED STATEMENT OF CASH FLOW FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-1997 JAN-01-1997 SEP-30-1997 503 0 63,065 685 68,652 146,242 97,225 52,777 199,360 93,107 344 0 0 140 92,734 199,360 213,497 213,497 160,281 160,281 27,989 106 2,499 25,227 9,035 16,192 0 0 0 16,192 1.33 1.30
EX-27.7 14 EXHIBIT 27.7
5 THIS STATEMENT CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AT JUNE 30, 1997 AND THE CONSOLIDATED STATEMENT OF INCOME AND THE CONSOLIDATED STATEMENT OF CASH FLOW FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-1997 JAN-01-1997 JUN-30-1997 1,168 0 75,669 680 60,668 151,533 94,698 51,865 202,972 101,468 393 0 0 94 90,577 202,972 149,783 149,783 113,188 113,188 19,548 76 1,652 17,047 6,142 10,905 0 0 0 10,905 .89 .88
EX-27.8 15 EXHIBIT 27.8
5 THIS STATEMENT CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AT MARCH 31, 1997 AND THE CONSOLIDATED STATEMENT OF INCOME AND THE CONSOLIDATED STATEMENT OF CASH FLOW FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-1997 JAN-01-1997 MAR-31-1997 1,141 0 80,454 637 55,772 151,432 90,703 50,949 199,962 106,137 441 0 0 94 85,528 199,962 72,881 72,881 54,623 54,623 9,703 19 694 8,555 3,049 5,506 0 0 0 5,506 .45 .44
EX-27.9 16 EXHIBIT 27.9
5 THIS STATEMENT CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 1996 AND THE CONSOLIDATED STATEMENT OF INCOME AND THE CONSOLIDATED STATEMENT OF CASH FLOW FOR THE YEAR ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 833 0 53,543 629 56,790 125,260 89,434 51,048 172,509 74,460 489 0 0 94 92,319 172,509 274,414 274,414 209,118 209,118 40,073 214 1,557 25,223 9,134 16,089 0 0 0 16,089 1.19 1.17
-----END PRIVACY-ENHANCED MESSAGE-----