0000950130-95-001819.txt : 19950914 0000950130-95-001819.hdr.sgml : 19950914 ACCESSION NUMBER: 0000950130-95-001819 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19950731 FILED AS OF DATE: 19950908 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: VARITY CORP CENTRAL INDEX KEY: 0000063118 STANDARD INDUSTRIAL CLASSIFICATION: FARM MACHINERY & EQUIPMENT [3523] IRS NUMBER: 223091314 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-05190 FILM NUMBER: 95571865 BUSINESS ADDRESS: STREET 1: 672 DELAWARE AVE CITY: BUFFALO STATE: NY ZIP: 14209 BUSINESS PHONE: 7168888000 FORMER COMPANY: FORMER CONFORMED NAME: MASSEY FERGUSON LTD DATE OF NAME CHANGE: 19600201 10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended JULY 31, 1995 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: 1-5190 VARITY CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 22-3091314 ------------------------------ ------------------------------ (State or other jurisdiction (IRS Employer of Incorporation) Identification No.) 672 DELAWARE AVENUE, BUFFALO, NEW YORK 14209 -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Telephone number including area code: (716) 888-8000 -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No . --- --- THE NUMBER OF SHARES OF COMMON STOCK OUTSTANDING AS OF AUGUST 16, 1995 WAS 40,971,759 SHARES. ================================================================================ Exhibit index appears on page 16. VARITY CORPORATION QUARTERLY REPORT ON FORM 10-Q TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION: PAGE Item 1. Financial Statements Consolidated Condensed Statements of Operations................ 3 Consolidated Condensed Balance Sheets.......................... 4 Consolidated Condensed Statements of Cash Flows................ 5 Notes to Consolidated Condensed Financial Statements........... 6 Item 2. Management's Discussion and Analysis........................... 9 PART II. OTHER INFORMATION: Item 1. - Legal Proceedings....................................... 14 Item 2. - Changes in Registered Securities........................ 14 Item 3. - Defaults upon Senior Securities......................... 14 Item 4. - Submission of Matters to a Vote of Security Holders..... 14 Item 5. - Other Information....................................... 14 Item 6.(a) - Exhibits................................................ 14 Item 6.(b) - Reports on Form 8-K..................................... 14 SIGNATURES............................................................ 15
UNLESS OTHERWISE INDICATED REFERENCES TO "COMPANY" MEAN VARITY CORPORATION AND ITS SUBSIDIARIES AND REFERENCES TO "FISCAL" MEAN THE COMPANY'S YEAR ENDED JANUARY 31 (E.G. FISCAL 1995 REPRESENTS THE PERIOD FEBRUARY 1, 1995 TO JANUARY 31, 1996). Page 2 Part I. FINANCIAL INFORMATION Item 1. Financial Statements VARITY CORPORATION CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS THREE AND SIX MONTHS ENDED JULY 31, (Unaudited) (Dollars in millions except per share amounts)
Three Months Six Months Ended July 31, Ended July 31, ------------------ ------------------- 1995 1994 1995 1994 -------- -------- --------- -------- Sales $ 572.4 $ 504.3 $1,167.7 $ 998.4 -------- -------- --------- -------- Expenses: Cost of goods sold 463.4 414.7 949.4 821.5 Marketing, general and administration 44.2 39.9 86.6 76.7 Engineering and product development 23.1 21.0 46.5 41.3 Interest, net 4.6 5.7 9.6 11.5 Other income, net (1.2) (0.1) (1.5) (2.4) -------- -------- --------- ------- 534.1 481.2 1,090.6 948.6 -------- -------- --------- ------- Income before income taxes, earnings of associated companies and discontinued operations 38.3 23.1 77.1 49.8 Income tax provision (8.8) (3.8) (17.7) (8.4) -------- -------- --------- ------- Income before earnings of associated companies and discontinued operations 29.5 19.3 59.4 41.4 Equity in earnings of associated companies 3.2 3.4 7.0 6.8 -------- -------- --------- ------- Income before discontinued operations 32.7 22.7 66.4 48.2 -------- -------- --------- ------- Discontinued operations (Note 2): Earnings from discontinued operations - 0.1 0.5 4.0 Gain on sale of discontinued operation - 23.2 - 23.2 -------- -------- --------- -------- - 23.3 0.5 27.2 -------- -------- --------- -------- Net income $ 32.7 $ 46.0 $ 66.9 $ 75.4 ======== ======== ========= ======== Income attributable to common stockholders $ 32.1 $ 45.4 $ 65.7 $ 74.2 Earnings per common share: Before discontinued operations $ 0.78 $ 0.50 $ 1.58 $ 1.06 Discontinued operations - 0.52 0.01 0.61 -------- -------- --------- -------- Net income $ 0.78 $ 1.02 $ 1.59 $ 1.67 ======== ======== ========= ======== Weighted average shares of common stock and equivalents (in thousands) 41,392 44,385 41,387 44,447
See accompanying Notes to Consolidated Condensed Financial Statements. Page 3 VARITY CORPORATION CONSOLIDATED CONDENSED BALANCE SHEETS (Unaudited) (Dollars in millions)
July 31, January 31, 1995 1995 --------- ----------- Assets Current assets: Cash and cash equivalents $ 108.0 $ 147.0 Marketable securities 42.8 42.7 Receivables 347.1 358.7 Inventories (Note 3) 158.1 146.0 Prepaid expenses and other 19.5 19.9 Net assets of discontinued operation (Note 2) 22.0 20.2 ----------- ---------- Total current assets 697.5 734.5 Investments in associated and other companies 112.5 103.1 Fixed assets, net 644.0 613.2 Other assets and intangibles 359.8 361.7 ----------- ---------- $ 1,813.8 $ 1,812.5 =========== ========== Liabilities Current liabilities: Current portion of long-term debt and notes payable $ 5.0 $ 5.3 Accounts payable 262.5 286.2 Accrued liabilities 230.9 255.1 ----------- ---------- Total current liabilities 498.4 546.6 ----------- ---------- Non-current liabilities: Long-term debt 163.6 163.4 Other long-term liabilities 321.8 318.8 ----------- ---------- Total non-current liabilities 485.4 482.2 ----------- ---------- Stockholders' equity (Note 4): Preferred stock 6.8 6.8 Common stock 641.8 638.4 Contributed surplus 656.3 656.3 Deficit (353.3) (419.0) Other (6.8) (14.1) Less treasury stock at cost (114.8) (84.7) ----------- ---------- Total stockholders' equity 830.0 783.7 ----------- ---------- $ 1,813.8 $ 1,812.5 =========== ==========
See accompanying Notes to Consolidated Condensed Financial Statements. Page 4 VARITY CORPORATION CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS SIX MONTHS ENDED JULY 31, (Unaudited) (Dollars in millions) 1995 1994 --------- ---------- Cash flows from operating activities: Net income $ 66.9 $ 75.4 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization 41.7 35.5 Other (52.3) (75.5) --------- ---------- Cash provided by operating activities 56.3 35.4 --------- ---------- Cash flows from investing activities: Purchases of marketable securities (18.5) (14.0) Proceeds from sales of marketable securities 20.1 12.5 Additions to fixed assets (68.2) (98.0) Proceeds from sales of businesses - 333.2 Increase in advances receivable - (36.9) Acquisition of business, net of cash acquired - (42.7) Other (1.5) 9.0 --------- ---------- Cash provided (used) by investing activities (68.1) 163.1 --------- ---------- Cash flows from financing activities: Proceeds from bank borrowings 14.6 26.3 Repayments of bank borrowings (14.8) (92.4) Proceeds from long-term debt 0.4 86.9 Repayments of long-term debt (1.8) (116.9) Repurchases of common stock (30.1) - Other 2.2 (0.9) --------- ---------- Cash used by financing activities (29.5) (97.0) --------- ---------- Effect of foreign currency translation on cash and cash equivalents 2.3 2.4 --------- ---------- Increase (decrease) in cash and cash equivalents during the period (39.0) 103.9 Cash and cash equivalents at beginning of period 147.0 51.2 --------- ---------- Cash and cash equivalents at end of period $ 108.0 $ 155.1 ========= ========== Cash paid for: Interest $ 10.1 $ 11.9 Income taxes $ 4.3 $ 2.4 See accompanying Notes to Consolidated Condensed Financial Statements. Page 5 VARITY CORPORATION NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS Three and Six Months Ended July 31, 1995 and 1994 (Unaudited) (Dollars in millions unless otherwise stated) 1. BASIS OF PRESENTATION The accompanying unaudited consolidated condensed financial statements have been prepared by management and in the opinion of management contain all adjustments, consisting of normal recurring adjustments, necessary to present fairly the financial position of the Company as of July 31, 1995 and January 31, 1995, the results of its operations for the three and six months ended July 31, 1995 and 1994 and its cash flows for each of the six month periods ended July 31, 1995 and 1994. The consolidated condensed financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Form 10-K for the fiscal year ended January 31, 1995. Results for interim periods are not necessarily indicative of those to be expected for the year. 2. DISCONTINUED OPERATIONS During the first quarter of fiscal 1995, the Company discontinued its Pacoma components operations (Pacoma). Pacoma manufactures hydraulic cylinders and hydraulic valves and to a lesser degree allied equipment, primarily for producers of construction machines. Such operations had historically been referred to as the Company's 'other' segment. The Company's plan is to sell Pacoma and is working actively to effect such a sale. Although the ultimate gain or loss on disposal cannot be quantified currently, the Company estimates that the disposal, including the results of Pacoma's operations until the sale is completed, will not result in a loss. As a result of the aforementioned plan, the 'other' segment has been presented as a discontinued operation in the accompanying financial statements. Prior year financial statements have been restated to conform to the current year presentation. The operating results of the discontinued Pacoma operation are as follows:
Three Months Ended Six Months Ended July 31, July 31, ------------------ ---------------- 1995 1994 1995 1994 -------- -------- ------ ------ Sales $16.4 $13.1 $34.2 $24.8 ======== ===== ===== ===== Income (loss) before income taxes $ - $ .1 $ .5 $ (.4) Income tax provision - - - - -------- ----- ----- ----- Net income (loss) $ - $ .1 $ .5 $ (.4) ======== ===== ===== =====
Page 6 A summary of the assets and liabilities of the discontinued Pacoma operation is as follows:
July 31, January 31, 1995 1995 -------- ----------- Current assets $21.9 $19.4 Noncurrent assets 12.1 11.8 ----- ----- 34.0 31.2 ----- ----- Current liabilities 10.2 9.2 Noncurrent liabilities 1.8 1.8 ----- ----- 12.0 11.0 ----- ----- Net assets of discontinued operation $22.0 $20.2 ===== =====
Additionally, pursuant to a plan to dispose of its farm equipment segment, during the second quarter of fiscal 1994, the Company completed the sale of its worldwide Massey Ferguson farm machinery business resulting in a gain of $23.2 million. The transaction excluded cash, indebtedness and certain liabilities, primarily pertaining to pension and retiree medical benefits for all former North American Massey Ferguson employees, for which the Company continued to be responsible. Subsequent to the sale, the Company settled its pension benefit obligation related to former Massey Ferguson employees in North America through the purchase of annuity contracts. As a result of the aforementioned plan, the farm equipment segment has been presented as a discontinued operation in the accompanying financial statements. The operating results of the discontinued Massey Ferguson operation are as follows:
Three Months Ended Six Months Ended July 31, 1994 /(1)/ July 31, 1994 ------------------------ ---------------- Sales $ - $253.1 ====== ====== Income before income taxes $ - $ 5.0 Income tax provision - (.6) ------ ------ Net income $ - $ 4.4 ====== ======
/(1)/Results for the three months ended July 31, 1994 are not included in the consolidated condensed statements of operations as the sale of the Company's farm machinery business, although completed in June 1994, was effective as of April 30, 1994. 3. INVENTORIES The major classes of inventory are as follows:
July 31, January 31, 1995 1995 -------- ----------- Raw material $ 53.3 $ 52.3 Work in process 41.3 36.5 Finished goods 63.5 57.2 ------ ------ $158.1 $146.0 ====== ======
Page 7 4. STOCKHOLDERS' EQUITY The following table summarizes changes in stockholders' equity that occurred during the six months ended July 31, 1995:
Thousands of shares outstanding Equity (Dollars in millions) ------------------------- --------------------------------------------------------------------- Total Class II Class II Contri- stock- preferred Common preferred Common buted Treasury holders' stock stock stock stock surplus Deficit Other stock equity ----------- ------- ---------- ------ ------- --------- --------- -------- ------- Balance, January 31, 1995 2,001 41,661 $ 6.8 $638.4 $656.3 $(419.0) $(14.1) $ (84.7) $783.7 Exercise of stock options 182 3.4 3.4 Repurchases of common stock (871) (30.1) (30.1) Foreign currency translation adjustment 5.6 5.6 Dividends on Class II preferred stock (1.2) (1.2) Unrealized gains on marketable securities 1.7 1.7 Net income 66.9 66.9 ----- ------ ------ ------ ------ ------- ------- ------- ------ Balance, July 31, 1995 2,001 40,972 $ 6.8 $641.8 $656.3 $(353.3) $ (6.8) $(114.8) $830.0 ===== ====== ====== ====== ====== ======= ======= ======= ======
As of July 31, 1995 options to purchase 2.5 million shares of common stock were outstanding. Page 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION OVERVIEW During the first quarter of fiscal 1995, the Company discontinued its Pacoma components operations (Pacoma). Pacoma manufactures hydraulic cylinders and hydraulic valves and to a lesser degree allied equipment, primarily for producers of construction machines. Such operations have historically been referred to as the Company's 'other' segment. The Company's plan is to sell Pacoma and is working actively to effect such a sale. Although the ultimate gain or loss on disposal cannot be quantified currently, the Company estimates that the disposal, including the results of Pacoma's operations until the sale is completed, will not result in a loss. As a result of the aforementioned plan, the 'other' segment has been presented as a discontinued operation in the accompanying financial statements. Prior year financial statements have been restated to conform to the current year presentation. In addition, in June 1994, the Company, pursuant to a plan to dispose of its farm equipment segment, completed the sale of its worldwide Massey Ferguson farm machinery business resulting in a gain of $23.2 million. As a result of the plan and subsequent sale, the farm equipment segment has been presented as a discontinued operation in the accompanying financial statements. For the three months ended July 31, 1995, the Company earned $32.7 million ($.78 per share) before the aforementioned discontinued operations on sales of $572.4 million, compared with income before discontinued operations of $22.7 million ($.50 per share) on sales of $504.3 million for the comparable period in the prior year. Net income in the prior year second quarter of $46.0 million ($1.02 per share) included income from discontinued operations of $23.3 million, resulting primarily from the sale of the farm equipment segment. For the six months ended July 31, 1995, the Company earned $66.4 million ($1.58 per share) before the aforementioned discontinued operations on sales of $1,167.7 million, compared with income of $48.2 million ($1.06 per share) on sales of $998.4 million for the comparable period in fiscal 1994. Fiscal 1994 sales did not include $21 million of intercompany sales from the engines segment to the discontinued farm equipment operation. Sales to this same customer are reflected as third party sales in fiscal 1995. Income from discontinued operations was $.5 million ($.01 per share) for the six months ended July 31, 1995 as compared to $27.2 million ($.61 per share) in the prior year, which included $4.4 million of earnings from the discontinued farm equipment segment and the related gain on sale of $23.2 million, for which no similar amounts exist in fiscal 1995. Page 9 SEGMENT OPERATING REVIEW
(Dollars in millions) Three Months Ended Six Months Ended July 31, July 31, ---------------------- ------------------- % % 1995 1994 Change 1995 1994 Change ---- ---- ------ ---- ---- ------ Sales: Automotive products: Brake Systems $ 283 $ 271 4 $ 604 $ 566 7 Heavy Duty Brakes 31 41 (24) 65 87 (25) Eliminations (1) (5) - (2) (11) - ----- ----- ------- ----- 313 307 2 667 642 4 Engines 259 197 31 500 377 33 Intercompany sales to discontinued farm equipment operation - - - - (21) - ----- ----- ------- ----- Total $ 572 $ 504 13 $ 1,167 $ 998 17 ===== ===== ======= ===== Operating income (loss): Automotive products: Brake Systems $ 28 $ 24 17 $ 60 $ 50 20 Heavy Duty Brakes - (2) - - (1) - ----- ----- ------- ----- 28 22 27 60 49 22 Engines 23 16 44 43 29 48 ----- ----- ------- ----- Total $ 51 $ 38 34 $ 103 $ 78 32 ===== ===== ======= =====
AUTOMOTIVE PRODUCTS United States light vehicle demand during the second quarter of fiscal 1995 improved modestly as measured by a 2% increase in vehicle sales over the comparable fiscal 1994 period, with sales of light trucks increasing 4%. However, North American industry production of light vehicles which incorporate Kelsey-Hayes' products and influences the Company's automotive products segment, decreased 3% during the same period with light truck production being flat. Despite this decrease, within Varity's automotive products segment, Kelsey-Hayes brake systems benefitted from secular anti-lock braking systems (ABS) growth and its strategic position as a supplier of ABS and foundation (conventional) brakes for several stronger selling pickup trucks, vans and sport utility vehicles. As a result, Kelsey-Hayes brake systems recorded sales of $283 million in the quarter ended July 31, 1995, an increase of 4% over fiscal 1994. Year to date, Kelsey-Hayes brake systems sales increased 7% to $604 million despite a 1% decrease in North American production of light trucks from the prior year's first half. The increase in sales is attributable to secular ABS growth and replacement of two-wheel ABS with higher value four-wheel systems. Kelsey-Hayes brake systems segment operating income in the second quarter increased by 17% to $28 million from $24 million in the second quarter of the prior year. Year to date, such earnings improved 20% to $60 million as compared to the first half of fiscal 1994. Earnings improvement over the prior year's same periods is a direct result of increased sales and the continued focus on implementing cost reductions and productivity improvements. The automotive products segment also includes sales of products for the heavy and medium duty truck and trailer market by Dayton Walther, a wholly-owned subsidiary of the Company. Sales of this unit declined $10 million to $31 million in the second quarter of 1995. Year to date, sales decreased $22 million to $65 million. These decreases were primarily a result of the cessation of an unprofitable light-duty truck contract which was completed in the fourth quarter of fiscal 1994. Operating profits were breakeven for the three and six months ended July 31, 1995, as compared to losses of $2 million and $1 million in the second quarter and first half, respectively, of fiscal 1994. Page 10 ENGINES Demand for diesel engines in the major market sectors in which the Company's Perkins engines segment participates (agricultural, construction, industrial and power generation) continued to improve during the second quarter of fiscal 1995 as manufacturers that incorporate such equipment in their products experienced an increase in demand, particularly in the United States and Europe. For Perkins, this was particularly apparent in the European agricultural sector and the United States and European construction markets, all of which experienced higher sales, reflecting both increased sales to certain existing accounts in connection with new engine applications and an expanding customer base. In addition, during the second quarter of fiscal 1994, Perkins acquired Dorman Diesels Limited (Dorman), a manufacturer of diesel and natural gas powered engines in the 1,000 to 2,500 horsepower range, designed primarily for the power generation sector, which added approximately $19 million and $37 million of incremental sales in the second quarter and first half, respectively, of fiscal 1995. As a result, total engines segment sales increased 31% to $259 million in the quarter ended July 31, 1995 and 33% to $500 million in the first half of fiscal 1995, as compared with the same periods in the prior year. Operating income for the engines segment increased 44% to $23 million in the second quarter and 48% to $43 million in the first half of fiscal 1995, reflecting the benefit of higher sales and on-going success with margin improvement and cost control programs, despite increases of $1 million and $7 million in engineering and product development expenditures for new engine programs in the current quarter and first half of fiscal 1995, respectively. Dorman contributed $2 million and $4 million of incremental operating profits in the current quarter and first half of fiscal 1995, respectively. NON-SEGMENT OPERATING REVIEW Interest expense declined $1.1 million to $4.6 million for the three months ended July 31, 1995, and $1.9 million to $9.6 million for the six months ended July 31, 1995, principally due to lower average debt outstanding in the current year as compared to the same periods of fiscal 1994. Income taxes increased to $8.8 million and $17.7 million for the three and six months ended July 31, 1995, respectively. The Company's effective tax rate increased to 23%, since, as a result of the sale of Massey Ferguson, certain foreign income is no longer sheltered against farm equipment losses within the same taxing jurisdiction. FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES Liquidity during the current quarter was provided from ongoing operations and existing cash reserves. Cash provided from operations during the first half of fiscal 1995 amounted to $56.3 million. Unused long-term and short-term lines of credit at July 31, 1995 were $164.9 million and $110.3 million, respectively. Management believes that Varity's improved financial condition and operating results will continue to improve its access to credit markets and that its credit facilities and cash flow from operations will continue to be sufficient to meet its operating needs. Certain of the Company's loan agreements provide for financial covenants relating to such matters as the maintenance of specified financial ratios and minimum net worth. Certain loan agreements also contain cross-default provisions. At July 31, 1995, the Company and each of its subsidiaries were in compliance with their financial covenants. Management expects that the Company and each of its subsidiaries will remain in compliance during the period ending July 31, 1996. Receivables decreased $11.6 million to $347.1 million at July 31, 1995 from $358.7 million at January 31, 1995, primarily due to lower sales in the current quarter (resulting from seasonal plant shutdowns in industries in which the Company participates) as compared to the fourth quarter of fiscal 1994, offset in part by fluctuations associated with foreign exchange. Page 11 Inventories of raw materials, work-in-process and finished products increased $12.1 million to $158.1 million at July 31, 1995 from $146.0 million at January 31, 1995, primarily due to fluctuations associated with foreign exchange and routine adjustments in manufacturing schedules. Accounts payable and accrued liabilities decreased during the first half of fiscal 1995 to $262.5 million and $230.9 million, respectively, at July 31, 1995, primarily due to scheduled temporary plant shutdowns occurring late in the current quarter, offset in part by fluctuations associated with foreign exchange. Net fixed assets increased $30.8 million to $644.0 million at July 31, 1995 due to capital additions exceeding depreciation and disposals. Capital expenditures for the first six months of fiscal 1995 were $68.2 million compared to $98.0 million last year, and depreciation and amortization were $41.7 million and $35.5 million, respectively, for the same periods. Capital expenditures for fiscal 1995 should approximate $175 million. These expenditures will be mainly for normal equipment replacements and operating improvements related to reducing costs and increasing output. Other long-term liabilities increased by $3.0 million to $321.8 million at July 31, 1995 from $318.8 million at January 31, 1995, primarily due to fluctuations associated with foreign exchange. Stockholders' equity increased by $46.3 million to $830.0 million at July 31, 1995. The increase resulted primarily from net income of $66.9 million and a favorable change in the cumulative foreign currency translation adjustment of $5.6 million, partially offset by repurchases of 871,000 shares of common stock amounting to $30.1 million and preferred dividends paid of $1.2 million. The Company enters into forward exchange contracts to hedge certain firm sales commitments, net of offsetting purchases, denominated in foreign currencies. In addition, forward exchange contracts are entered into for a portion of anticipated sales commitments, net of anticipated purchases, expected to be denominated in foreign currencies. The purpose of such foreign currency hedging activities is to protect the Company from the risk that the eventual cash flows resulting from the sale of products to foreign customers (net of purchases from foreign suppliers) will be adversely affected by fluctuations in exchange rates. The Company does not hold or issue forward exchange contracts or other financial instruments for trading purposes. The Company has ongoing short-term cash requirements for working capital, capital expenditures, dividends, interest and debt payments. The Company believes that its cash requirements will be met through internally and externally generated sources, existing cash balances and utilization of available borrowing facilities. As a result of the Company's concerted actions over the past three years to reduce debt and increase operating efficiencies, the Company's financial position and liquidity have improved markedly. The Company believes these actions have improved its access to capital markets and will better posture the Company to finance investment in and expansion of the growth areas of its businesses. In order to maintain financial flexibility the Company has filed with the Securities and Exchange Commission a registration statement covering $100 million of debt securities of the Company and Kelsey-Hayes but which has not yet become effective; the Company has no immediate plans to make an offering under such registration statement. During the next five years the Company believes that its cash requirements for working capital, capital expenditures, dividends, interest and debt repayments will continue to be met through internally and externally generated sources and utilization of available borrowing sources. Page 12 The Company, primarily through its automotive products segment, is involved in a limited number of remedial actions under various federal and state laws and regulations relating to the environment which impose liability on parties to clean up, or contribute to the cost of cleaning up, sites on which their hazardous wastes or materials were disposed or released. The Company believes that it has made adequate provision for costs associated with known remediation efforts in accordance with generally accepted accounting principles and does not anticipate the future cash requirements of such efforts to be significant. The Company has made no provision for any unasserted claims as it is not possible to estimate the potential size of such future claims, if any. OUTLOOK The Company continues to believe that its automotive products segment is positioned to increase sales and margins in fiscal 1995, even with weaker North American light vehicle production, as a result of secular ABS penetration and as actions taken to relieve capacity constraints and enhance productivity continue to provide positive returns. Kelsey-Hayes is aggressively pursuing additional margin enhancements and world-class manufacturing status in its foundation brakes business. Cost reduction actions will be implemented to reduce floor space and labor content concurrent with the introduction of new manufacturing processes and rationalization of work flow on the plant floor, the net effect of which will be to maintain or increase productive capacity under a lower cost structure. Several alternatives are being explored and as a result, it is likely that a pre-tax charge in the range of $10 - $25 million will be recorded during fiscal 1995 with respect to these actions. Continued improvements in manufacturing processes, in addition to an expanding customer base arising from strategic alliances developed in prior years, have positioned the Perkins engines segment for continued growth in sales and operating margins despite uncertainty as to the economic health of many markets throughout the world and anticipated increases in its new product research and development expenditures in fiscal 1995 to support new engine programs. Page 13 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS None. ITEM 2. CHANGES IN REGISTERED SECURITIES None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On May 25, 1995 at the Annual Meeting of Stockholders the following matters were voted on: 1. Election of Directors. A total of 38,379,365 votes were cast in the election of directors. The following persons received the number of votes indicated below and were all elected to be directors of Varity Corporation.
Name Votes For Votes Withheld ---- ---------- -------------- Paul M.F. Cheng 38,249,791 129,574 William A. Corbett 37,911,016 468,349 Thomas N. Davidson 38,262,306 117,059 Robert M. Gates 38,259,490 119,875 Luiz F. Kahl 38,264,008 115,357 Vincent D. Laurenzo 37,886,147 493,218 W. Darcy McKeough 38,260,256 119,109 Sir Bryan Nicholson 37,914,208 465,157 Victor A. Rice 37,885,881 493,484 Warren S. Rustand 38,260,598 118,767 William R. Teschke 38,259,746 119,619 Robin H. Warrender 38,255,175 124,190
2. Ratification of Auditors. A total of 38,312,801 votes were cast for, 16,988 votes were cast against, and 49,576 votes abstained from voting on the ratification of KPMG Peat Marwick as the Company's independent auditors. Accordingly, the appointment of the auditors was approved. ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: Exhibit 10 - Material contracts Exhibit 11 - Earnings per share computations Exhibit 27 - Financial Data Schedule (b) Reports on Form 8-K: None Page 14 SIGNATURES Pursuant to the requirements 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. VARITY CORPORATION /s/ N.D. Arnold /s/ Mark J. MacGuidwin ----------------------------------- ---------------------------------------- N.D. Arnold Mark J. MacGuidwin Senior Vice President and Vice President, Controller Chief Financial Officer (Principal Accounting Officer) (Principal Financial Officer) September 8, 1995 Page 15 VARITY CORPORATION INDEX TO EXHIBITS Exhibit Number ------ 10.0 MATERIAL CONTRACTS 10.1 LOAN AGREEMENTS (j) - Amended and restated Credit Agreement dated as of May 1, 1995 between Kelsey-Hayes Company, The Chase Manhattan Bank N.A., as agent, and The Bank of Nova Scotia, as co-agent. (k) - Amended and restated Credit Agreement dated as of July 14, 1995 between Dayton Walther Corporation, The Bank of Nova Scotia and NBD Bank, N.A. (i) Varity Corporation Guarantee dated July 14, 1995 to The Bank of Nova Scotia and NBD Bank, N.A. 11.0 PRIMARY EARNINGS PER SHARE COMPUTATIONS 11.1 PRIMARY EARNINGS PER SHARE COMPUTATIONS FOR THREE MONTHS ENDED JULY 31, 1995 AND 1994 11.2 PRIMARY EARNINGS PER SHARE COMPUTATIONS FOR SIX MONTHS ENDED JULY 31, 1995 AND 1994 27.0 FINANCIAL DATA SCHEDULE 27.1 SIX MONTHS ENDED JULY 31, 1995 27.2 SIX MONTHS ENDED JULY 31, 1994 (RESTATED) Page 16 EX-10.1(J) 2 SECOND AND AMEND. CREDIT AGTREE. DTD. 5/1/95 EXHIBIT 10.1(j) ================================================================================ KELSEY-HAYES COMPANY ------------------------------------------- SECOND AMENDED AND RESTATED CREDIT AGREEMENT Dated as of December 15, 1992 Amended and Restated as of May 1, 1995 ------------------------------------------- $75,000,000 ------------------------------------------- THE CHASE MANHATTAN BANK (NATIONAL ASSOCIATION), as Agent THE BANK OF NOVA SCOTIA, as Co-Agent ================================================================================ [MTH&M File No. 30774-00600] TABLE OF CONTENTS This Table of Contents is not part of the Agreement to which it is attached but is inserted for convenience of reference only.
Page ---- Section 1. Definitions and Accounting Matters........... 1 1.01 Certain Defined Terms......................... 1 1.02 Accounting Terms and Determinations........... 25 1.03 Classes and Types of Loans.................... 26 Section 2. Commitments, Loans, Notes and Prepayments.... 26 2.01 Loans......................................... 26 2.02 Borrowings of Syndicated Loans................ 27 2.03 Money Market Loans............................ 27 2.04 Letters of Credit............................. 32 2.05 Changes of Commitments; Etc................... 37 2.06 Facility Fee.................................. 38 2.07 Lending Offices............................... 39 2.08 Several Obligations; Remedies Independent..... 39 2.09 Notes......................................... 39 2.10 Optional Prepayments and Conversions or Continuations of Loans................. 40 2.11 Mandatory Prepayments and Reductions of Commitments............................ 40 Section 3. Payments of Principal and Interest........... 41 3.01 Repayment of Loans............................ 41 3.02 Interest...................................... 41 Section 4. Payments; Pro Rata Treatment; Computations; Etc................................ 42 4.01 Payments...................................... 42 4.02 Pro Rata Treatment............................ 43 4.03 Computations.................................. 44 4.04 Minimum Amounts............................... 44 4.05 Certain Notices............................... 44 4.06 Non-Receipt of Funds by the Agent............. 45 4.07 Sharing of Payments, Etc...................... 47
Credit Agreement ---------------- - ii -
Section 5. Yield Protection, Etc............................ 48 5.01 Additional Costs.................................. 48 5.02 Limitation on Types of Loans...................... 51 5.03 Illegality........................................ 51 5.04 Treatment of Affected Loans....................... 52 5.05 Compensation...................................... 52 5.06 Additional Costs in Respect of Letters of Credit.. 54 5.07 U.S. Taxes........................................ 54 Section 6. [Intentionally Omitted].......................... 56 Section 7. Conditions Precedent............................. 56 7.01 Conditions to Effectiveness....................... 56 7.02 Extensions of Credit.............................. 57 Section 8. Representations and Warranties................... 58 8.01 Corporate Existence............................... 58 8.02 Financial Condition............................... 58 8.03 Litigation........................................ 58 8.04 No Breach......................................... 59 8.05 Action............................................ 59 8.06 Approvals......................................... 59 8.07 Use of Credit..................................... 60 8.08 ERISA............................................. 60 8.09 Taxes............................................. 60 8.10 Investment Company Act............................ 61 8.11 Public Utility Holding Company Act................ 61 8.12 Material Agreements and Liens..................... 61 8.13 Environmental Matters............................. 61 8.14 Capitalization.................................... 62 8.15 Subsidiaries, Etc................................. 64 8.16 Title to Assets................................... 64 8.17 True and Complete Disclosure...................... 65 Section 9. Covenants of Kelsey-Hayes........................ 65 9.01 Financial Statements; Information; Etc............ 65 9.02 Litigation........................................ 70 9.03 Existence, Etc.................................... 71 9.04 Insurance......................................... 71 9.05 Prohibition of Fundamental Changes................ 72 9.06 Limitation on Liens............................... 73
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9.07 [Intentionally Omitted]........................... 75 9.08 [Intentionally Omitted]........................... 75 9.09 [Intentionally Omitted]........................... 75 9.10 Financial Covenants............................... 75 9.11 [Intentionally Omitted]........................... 76 9.12 Lines of Business................................. 76 9.13 Transactions with Affiliates...................... 76 9.14 Use of Proceeds................................... 77 9.15 [Intentionally Omitted]........................... 77 9.16 [Intentionally Omitted]........................... 77 9.17 [Intentionally Omitted]........................... 77 Section 10. Events of Default............................... 77 Section 11. The Agent....................................... 82 11.01 Appointment, Powers and Immunities............... 82 11.02 Reliance by Agent................................ 83 11.03 Defaults......................................... 84 11.04 Rights as a Bank................................. 84 11.05 Indemnification.................................. 84 11.06 Non-Reliance on Agent and Other Banks............ 85 11.07 Failure to Act................................... 85 11.08 Resignation or Removal of Agent.................. 86 11.09 Consents under Basic Documents................... 86 11.10 Co-Agent......................................... 86 11.11 Letter of Credit Collateral Account.............. 86 Section 12. Miscellaneous................................... 88 12.01 Waiver; Independence of Covenants................ 88 12.02 Notices.......................................... 88 12.03 Expenses, Etc.................................... 88 12.04 Amendments, Etc.................................. 90 12.05 Successors and Assigns........................... 91 12.06 Assignments and Participations................... 91 12.07 Survival......................................... 93 12.08 Captions......................................... 93 12.09 Counterparts..................................... 93 12.10 Governing Law; Submission to Jurisdiction........ 93 12.11 Waiver of Jury Trial............................. 94 12.12 Treatment of Certain Information; Confidentiality............................... 94
Credit Agreement ---------------- - iv - SCHEDULE I - Material Agreements and Liens SCHEDULE II - Hazardous Materials SCHEDULE III - Subsidiaries and Investments SCHEDULE IV - Litigation SCHEDULE V - Specified Account Debtors SCHEDULE VI - Certain Waivers SCHEDULE VII - Certain ERISA Matters EXHIBIT A-1 - Form of Syndicated Note EXHIBIT A-2 - Form of Money Market Note EXHIBIT B - Form of Borrowing Base Certificate EXHIBIT C-1 - Form of Legal Opinion of Cahill, Gordon & Reindel EXHIBIT C-2 - Form of Legal Opinion of General Counsel to Kelsey-Hayes EXHIBIT C-3 - Form of Legal Opinion of General Counsel to Varity EXHIBIT D - Form of Legal Opinion of Milbank, Tweed, Hadley & McCloy EXHIBIT E - Form of Varity Guarantee EXHIBIT F - Form of Confidentiality Agreement EXHIBIT G-1 - Form of Money Market Quote Request EXHIBIT G-2 - Form of Money Market Quote Credit Agreement ---------------- SECOND AMENDED AND RESTATED CREDIT AGREEMENT dated as of December 15, 1992, amended and restated as of May 1, 1995 between: KELSEY-HAYES COMPANY, a corporation duly organized and validly existing under the laws of the State of Delaware (together with its successors and assigns, "Kelsey-Hayes"); ------------ each of the lenders named under the caption "BANKS" on the signature pages hereof (together with its successors and assigns, individually, a "Bank" and, collectively, the "Banks"); ---- ----- THE CHASE MANHATTAN BANK (NATIONAL ASSOCIATION), as agent for the Banks (in such capacity, together with its successors in such capacity, the "Agent"); and ------ THE BANK OF NOVA SCOTIA, as co-agent (in such capacity, the "Co-Agent"). -------- Kelsey-Hayes, the Banks, the Agent and the Co-Agent are party to a Credit Agreement dated as of December 15, 1992 as amended and restated as of August 31, 1993 (as modified and supplemented and in effect immediately prior to the Amendment Effective Date referred to below, the "1993 Credit Agreement"). --------------------- Kelsey-Hayes has requested that the Banks, the Agent and the Co-Agent agree to amend and restate the 1993 Credit Agreement, and the Banks, the Agent and the Co-Agent are willing to amend and restate the 1993 Credit Agreement, to provide for, among other things, the increase in the amount of the credit facilities thereunder from $50,000,000 to $75,000,000, all on the terms and conditions hereinafter set forth. Accordingly, the parties hereto agree to amend and restate the 1993 Credit Agreement so that, as amended and restated, it reads in its entirety as provided herein. Accordingly, the parties hereto agree as follows: Section 1. Definitions and Accounting Matters. ---------------------------------- 1.01 Certain Defined Terms. As used herein, the following terms --------------------- shall have the following meanings (all terms defined in this Section 1.01 or in other provisions of this Agreement in the singular shall have the same meanings when used in the plural and vice versa): "Affiliate" shall mean, as to any specified Person, any other Person --------- that directly or indirectly controls, or is under common control with, or is controlled by, such specified Credit Agreement ---------------- 2 Person. As used in this definition, "control" (including, with its correlative ------- meanings, "controlled by" and "under common control with") shall mean ------------- ------------------------- possession, directly or indirectly, of power to direct or cause the direction of management or policies (whether through ownership of securities or partnership or other ownership interests, by contract or otherwise), provided that, in any -------- event, any Person that owns directly or indirectly securities having 5% or more of the voting power for the election of directors or other governing body of a corporation or 5% or more of the partnership or other ownership interests of any other Person will be deemed to control such corporation or other Person. Notwithstanding the foregoing, (a) no individual shall be an Affiliate of Kelsey-Hayes or any of its Subsidiaries solely by reason of such individual being a director, officer or employee of Kelsey-Hayes or any of its Subsidiaries, (b) Kelsey-Hayes and its Subsidiaries shall not be Affiliates of each other and (c) neither the Agent nor any Bank shall be an Affiliate of Kelsey-Hayes or any of its Subsidiaries. "Amendment Effective Date" shall mean the date on which all of the ------------------------ conditions set forth in Section 7.01 hereof shall have been satisfied or waived by the Banks, the Agent and the Co-Agent. "Applicable Facility Fee Rate" shall mean the rate for each rating ----------------------------- level set forth in the schedule below:
Facility Level Fee Rate ----- -------- Level I Period .125% Level II Period .175% Level III Period .225% Level IV Period .350%
"Applicable Lending Office" shall mean, for each Bank and for each ------------------------- Type of Loan, the "Lending Office" of such Bank (or of an affiliate of such Bank) designated for such Type of Loan on the signature pages hereof or such other office of such Bank (or of an affiliate of such Bank) as such Bank may from time to time specify to the Agent and Kelsey-Hayes as the office by which its Loans of such Type are to be made and maintained. "Applicable Margin" shall mean (a) with respect to Base Rate Loans, 0% ----------------- and (b) with respect to Eurodollar Loans, the rate for such Eurodollar Loan set forth opposite the rating level then in effect: Credit Agreement ---------------- 3
Applicable Level Margin ----- ---------- Level I Period .225% Level II Period .325% Level III Period .400% Level IV Period .525%
Any change in the Applicable Margin for any Eurodollar Loan by reason of a change in the Standard & Poor's Rating or the Moody's Rating shall become effective on the date of announcement or publication by the respective rating agencies of a change in such rating or, in the absence of such announcement or publication, on the effective date of such changed rating. "Bankruptcy Code" shall mean the Federal Bankruptcy Code of 1978, --------------- as amended from time to time. "Base Rate" shall mean, for any day, a rate per annum equal to the --------- higher of (a) the Federal Funds Rate for such day plus 1/2 of 1% and (b) the ---- Prime Rate for such day. Each change in any interest rate provided for herein based upon the Base Rate resulting from a change in the Base Rate shall take effect at the time of such change in the Base Rate. "Base Rate Loans" shall mean Syndicated Loans that bear interest at --------------- rates based upon the Base Rate. "Basic Documents" shall mean, collectively, this Agreement, the Notes, --------------- the Letter of Credit Documents and the Varity Guarantee. "Borrowing Base" shall mean, as at any date, the sum of (a) 80% of the -------------- aggregate amount of Eligible Receivables owing at said date plus (b) 50% of the ---- aggregate value of Eligible Inventory at said date plus (c) the Covered Amount ---- at said date. The "value" of Eligible Inventory shall be determined at the ----- lower of cost or market in accordance with GAAP, except that cost shall be determined on a first-in-first-out basis. "Borrowing Base Certificate" shall mean a certificate of a Senior -------------------------- Financial Officer, substantially in the form of Exhibit B hereto and appropriately completed. "Borrowing Base Entity" shall mean Kelsey-Hayes and the Domestic --------------------- Subsidiaries. Credit Agreement ---------------- 4 "Business Day" shall mean any day (a) on which commercial banks are ------------ not authorized or required to close in New York City and (b) if such day relates to the giving of notices or quotes in connection with a LIBOR Auction or to a borrowing of, a payment or prepayment of principal of or interest on, a Conversion of or into, or an Interest Period for, a Eurodollar Loan or a LIBOR Market Loan or a notice by Kelsey-Hayes with respect to any such borrowing, payment, prepayment, Conversion or Interest Period, also on which dealings in Dollar deposits are carried out in the London interbank market. "Capital Lease Obligations" shall mean, for any Person, all ------------------------- obligations of such Person to pay rent or other amounts under a lease of (or other agreement conveying the right to use) Property to the extent such obligations are required to be classified and accounted for as a capital lease on a balance sheet of such Person under GAAP, and, for purposes of this Agreement, the amount of such obligations shall be the capitalized amount thereof, determined in accordance with GAAP. "Cash Interest Expense" shall mean, for any period, the sum of the --------------------- following: (a) all interest in respect of Indebtedness actually paid in cash during such period plus (b) the net amounts paid in cash (or minus the net ---- ----- amounts received in cash) under Interest Rate Protection Agreements during such period. For the purposes of this Agreement, "Cash Interest Expense", for any period, shall include all interest on Varity Subordinated Loans accrued or capitalized during such period (whether or not actually paid during such period). "Chase" shall mean The Chase Manhattan Bank (National Association). ----- "Class" shall have the meaning assigned to such term in Section 1.03 ----- hereof. "Closing Date" shall mean December 23, 1992. ------------ "Code" shall mean the Internal Revenue Code of 1986, as amended from ---- time to time. "Collateral Account" shall have the meaning assigned to such term in ------------------ Section 11.11 hereof. "Commitment" shall mean, for each Bank, the obligation of such Bank to ---------- make Syndicated Loans pursuant to Section 2.01 hereof, and to issue or participate in Letters of Credit pursuant to Section 2.04 hereof, in an aggregate principal amount at any one time outstanding up to but not exceeding (a) in the case of a Bank that is a party to this Agreement as of the Amendment Effective Date, the amount set opposite the name of such Bank on the signature pages hereof under the caption "Commitment" or (b) in the case of any other Bank, the aggregate amount of the Commitments of other Banks acquired by it pursuant to Section 12.06(b) hereof (in Credit Agreement ---------------- 5 each case, as the same may be reduced from time to time pursuant to Section 2.05 hereof or increased or reduced from time to time pursuant to said Section 12.06(b)). "Commitment Percentage" shall mean, with respect to any Bank, the --------------------- ratio of (a) the amount of the Commitment of such Bank to (b) the aggregate amount of the Commitments of all of the Banks. "Commitment Termination Date" shall mean the Quarterly Date falling on --------------------------- or nearest to the date five (5) years after the Restatement Date. "Compensation Claims Payment Guarantee" shall mean the Michigan ------------------------------------- Workers' Compensation Claims Payment Guarantee dated as of the date hereof between Kelsey-Hayes and Hayes Wheels, relating to liability under the Michigan Workers' Disability Compensation Act of 1969, as modified and supplemented and in effect from time to time. "Consolidated Adjusted Net Worth" shall mean, as at any date, ------------------------------- consolidated shareholder's equity of Kelsey-Hayes and its Subsidiaries (determined on a consolidated basis without duplication in accordance with GAAP) minus the aggregate amount of outstanding Investments by Kelsey-Hayes and its ----- Subsidiaries in any of the Affiliates of Kelsey-Hayes. "Consolidated Capital Expenditures" shall mean, for any period, --------------------------------- expenditures made by Kelsey-Hayes or any of its Subsidiaries to acquire or construct fixed assets, plant and equipment (including renewals, improvements and replacements, but excluding repairs) during such period computed in accordance with GAAP. "Consolidated Interest Coverage Ratio" shall mean, for any period, the ------------------------------------ ratio, for Kelsey-Hayes and its Subsidiaries (determined on a consolidated basis without duplication in accordance with GAAP), of (a) the sum of (i) net operating income (calculated before taxes, Interest Expense, extraordinary and unusual items and income or loss attributable to equity in Affiliates of Kelsey- Hayes) for such period plus (ii) depreciation, amortization and other non-cash ---- charges (to the extent deducted in determining net operating income) for such period to (b) Interest Expense for such period. "Consolidated Leverage Ratio" shall mean, at any time,the ratio of (a) --------------------------- Total Debt of Kelsey-Hayes and its Subsidiaries (determined on a consolidated basis without duplication in accordance with GAAP) at such time to (b) Consolidated Adjusted Net Worth at such time. "Consolidated Total Assets" shall mean, at any time, the aggregate ------------------------- book value of all of the assets of Kelsey-Hayes and its Subsidiaries at such time (determined on a consolidated basis without duplication in accordance with GAAP). Credit Agreement ---------------- 6 "Continue", "Continuation" and "Continued" shall refer to the -------- ------------ --------- continuation pursuant to Section 2.10 hereof of a Eurodollar Loan from one Interest Period to the next Interest Period. "Convert", "Conversion" and "Converted" shall refer to a conversion ------- ---------- --------- pursuant to Section 2.10 hereof of one Type of Syndicated Loans into another Type of Syndicated Loans, which may be accompanied by the transfer by a Bank (at its sole discretion) of a Loan from one Applicable Lending Office to another. "Covered Amount" shall mean, at any time of determination thereof, the -------------- lesser of (a) the aggregate amount of funds standing to the credit of the Collateral Account as cover for Letter of Credit Liabilities immediately prior to such time of determination and (b) the aggregate amount of Letter of Credit Liabilities outstanding immediately prior to such time of determination. "date of this Agreement" and "date hereof" shall mean December 15, ---------------------- ----------- 1992. "Debt Service" shall mean, for any period, the sum of the following: ------------ (a) all payments of principal of Indebtedness scheduled to have been made during such period plus (b) all Cash Interest Expense for such period. For the ---- purposes of this Agreement, the term "Debt Service" shall exclude any payment of principal of Loans. "Deeds" shall mean (a) the Deed dated the date hereof by and between ----- Hayes Wheels, as grantor, and Kelsey-Hayes, as grantee, relating to the conveyance of certain real Property located in Ann Arbor, Michigan, (b) the Deed dated the date hereof by and between Hayes Wheels, as grantor, and Kelsey-Hayes, as grantee, relating to the conveyance of certain real Property located in Milford, Michigan, (c) the Deed dated the date hereof by and between Hayes Wheels, as grantor, and Kelsey-Hayes, as grantee, relating to the conveyance of certain real Property located in Brighton, Michigan, (d) the Deed dated the date hereof by and between Hayes Wheels, as grantor, and Kelsey-Hayes, as grantee, relating to the conveyance of certain real Property located at 1017 Dickenson, in Fremont, Ohio, (e) the Deed dated the date hereof by and between Hayes Wheels, as grantor, and Kelsey-Hayes, as grantee, relating to the conveyance of certain real Property located at 4600 Oak Harbor, in Fremont, Ohio, and (f) the Deed dated the date hereof by and between Hayes Wheels, as grantor, and Kelsey- Hayes, as grantee, relating to the conveyance of certain real Property located in Mt. Vernon, Ohio, (g) the Assignment and Assumption Agreement dated as of the date hereof by and between Hayes Wheels, as assignor, and Kelsey-Hayes, as assignee, relating to the assignment of rights under a lease of certain real Property located in Mt. Vernon, Ohio, (h) the Deed dated the date hereof by and between Hayes Wheels, as grantor, and Kelsey-Hayes, as grantee, relating to the conveyance of certain real Property located in Detroit, Michigan and (i) the Assignment and Assumption Agreement dated as of the date hereof by and between Hayes Wheels, as assignor, and Kelsey-Hayes, as assignee, relating to the assignment of rights under a lease of certain real Property located in Fenton, Credit Agreement ---------------- 7 Michigan, in each case, as modified and supplemented and in effect from time to time. "Default" shall mean an Event of Default or an event that with notice ------- or lapse of time or both would become an Event of Default. "Distributorship Agreement" shall mean the Distributorship Agreement ------------------------- dated as of the date hereof between Kelsey-Hayes and K-H, as modified and supplemented and in effect from time to time. "Dollars" and "$" shall mean lawful money of the United States of ------- - America. "Domestic Subsidiary" shall mean any Subsidiary of Kelsey-Hayes that ------------------- is organized or created under the laws of the United States of America, any state or territory thereof or the District of Columbia. "Eligible Currency" shall mean (a) Dollars and (b) lawful money of any ----------------- of Canada, England, the Republic of France, the Federal Republic of Germany, the Republic of Italy and Japan. "Eligible Inventory" shall mean, as at any date, all Inventory: ------------------ (a) that is owned by (and in the possession or under the control of) a Borrowing Base Entity as at such date, (b) that is located in a jurisdiction in the United States of America, (c) that is new and unused and is otherwise in good condition, (d) that meets all standards imposed by any governmental agency or department or division thereof having regulatory authority over such Inventory, its use or sale, (e) that is either currently usable or currently saleable in the normal course of such Borrowing Base Entity's business without any notice to, or consent of, any governmental agency or department or division thereof, and (f) that is not subject to any Lien other than Liens of the type referred to in Sections 9.06(c) and 9.06(d) hereof; provided that by notice to Kelsey-Hayes, the Majority Banks (through the Agent) -------- may at any time exclude from Eligible Inventory any type of Inventory that the Majority Banks determine (in their reasonable judgment) to be unmarketable. Credit Agreement ---------------- 8 "Eligible Receivables" shall mean, as at any date, all Receivables at -------------------- such date payable to a Borrowing Base Entity other than the following (determined without duplication): (a) any Receivable not payable in an Eligible Currency, (b) any Receivable that, at the date of issuance of the invoice therefor, was payable more than 60 days after shipment of the related Inventory (provided that Eligible Receivables (determined without reference to this clause (b)) that, at the date of issuance of the respective invoices therefor, were payable not more than one year after shipment of the related Inventory shall not be excluded pursuant to this clause (b) from the definition of "Eligible Receivables" except to the extent the aggregate amount of Eligible Receivables (determined as aforesaid) would exceed 12% of the aggregate amount of all Eligible Receivables), (c) any Receivable payable by a Subsidiary or Affiliate of such Borrowing Base Entity, (d) any Receivable payable by an account debtor whose principal place of business is located outside of the United States of America and the Province of Ontario, Canada (other than a Specified Account Debtor), (e) any Receivable payable by an account debtor (i) that has taken an action, or has become the subject of a proceeding, case or order for relief, of the type specified in clause (f) or (g) of Section 11 hereof or (ii) that does not have a satisfactory credit standing (in the reasonable determination of the Majority Banks and specified in a notice from the Agent to Kelsey-Hayes), (f) any Receivable that remains unpaid more than 60 days after the original due date of the original invoice therefor, (g) all Receivables payable by any account debtor if more than 25% of the aggregate amount of the Receivables remain unpaid more than 60 days after the original due date of the original invoice therefor, (h) any Receivable as to which there is any unresolved dispute with the respective account debtor (but only to the extent of the amount thereof in dispute), (i) any Receivable representing an obligation for goods sold on consignment, approval or a sale-or-return basis or subject to any other repurchase or return arrangement, and Credit Agreement ---------------- 9 (j) any Receivable that is subject to any Lien (other than Liens of the type referred to in Sections 9.06(c) and 9.06(d) hereof); provided that no Receivable shall be excluded from the definition of "Eligible -------- Receivables" by virtue of any of the foregoing clauses (a), (d), (e)(ii), (g) and (h) to the extent such Receivable is supported by a Specified Letter of Credit. "Environmental Claim" shall mean, with respect to any Person, any ------------------- written notice, claim, demand or other communication (collectively, a "claim") ----- by any other Person alleging or asserting such Person's liability for investigatory costs, cleanup costs, governmental response costs, damages to natural resources or other Property, personal injuries, fines or penalties arising out of, based on or resulting from (a) the presence, or Release into the environment, of any Hazardous Material at any location, whether or not owned by such Person, or (b) circumstances forming the basis of any violation, or alleged violation, by such Person of any Environmental Law. The term "Environmental Claim" shall include, without limitation, any claim by any governmental authority for enforcement, cleanup, removal, response, remedial or other actions or damages pursuant to any Environmental Law, and any claim by any third party seeking damages, contribution, indemnification, cost recovery, compensation or injunctive relief resulting from the presence of Hazardous Materials or arising from alleged injury or threat of injury to the environment. "Environmental Laws" shall mean any and all present and future ------------------ Federal, state, local and foreign laws, rules or regulations, and any orders or decrees, in each case as now or hereafter in effect, relating to the regulation or protection of the environment or to emissions, discharges, releases or threatened releases of pollutants, contaminants, chemicals or toxic or hazardous substances or wastes into the indoor or outdoor environment, including, without limitation, ambient air, soil, surface water, ground water, wetlands, land or subsurface strata, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants or toxic or hazardous substances or wastes. "Equity Rights" shall mean, with respect to any Person, any ------------- outstanding subscriptions, options, warrants, commitments, preemptive rights or agreements of any kind (including, without limitation, any stockholders' or voting trust agreements) for the issuance, sale, registration or voting of, or outstanding securities convertible into, any additional shares of capital stock of any class, or partnership or other ownership interests of any type in, such Person. "ERISA" shall mean the Employee Retirement Income Security Act of ----- 1974, as amended from time to time. "ERISA Affiliate" shall mean any corporation or trade or business that --------------- is a member of any group of organizations (a) described in Section 414(b) or (c) of the Code of which Credit Agreement ---------------- 10 Kelsey-Hayes is a member and (b) solely for purposes of potential liability under Section 302(c)(11) of ERISA and Section 412(c)(11) of the Code and the lien created under Section 302(f) of ERISA and Section 412(n) of the Code, described in Section 414(m) or (o) of the Code of which Kelsey-Hayes is a member. "Eurodollar Base Rate" shall mean, with respect to any Fixed Rate Loan -------------------- for any Interest Period therefor, the arithmetic mean (rounded upwards, if necessary, to the nearest 1/16 of 1%) of the respective rates per annum quoted by each Reference Bank at approximately 11:00 a.m. London time (or as soon thereafter as practicable) on the date two Business Days prior to the first day of such Interest Period for the offering by such Reference Bank to leading banks in the London interbank market of Dollar deposits having a term comparable to such Interest Period and in an amount comparable to the principal amount of the Eurodollar Loan or LIBOR Market Loan to be made by such Reference Bank for such Interest Period. If any Reference Bank is not participating in any Fixed Rate Loans during any Interest Period therefor, the Eurodollar Base Rate for such Loans for such Interest Period shall be determined by reference to the amount of the Loans that such Reference Bank would have made or had outstanding had it been participating in such Loans during such Interest Period; provided that in --------- the case of any LIBOR Market Loan, the Eurodollar Base Rate for such Loan shall be determined with reference to deposits of $5,000,000. If any Reference Bank does not timely furnish such information for determination of any Fixed Base Rate, the Agent shall determine such Fixed Base Rate on the basis of the information timely furnished by the remaining Reference Banks. "Eurodollar Loans" shall mean Syndicated Loans the interest rates on ---------------- which are determined on the basis of rates referred to in the definition of "Eurodollar Base Rate" in this Section 1.01. "Eurodollar Rate" shall mean, for any Eurodollar Loan for any Interest --------------- Period therefor, a rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) determined by the Agent to be equal to the quotient of (a) the Eurodollar Base Rate for such Loan for such Interest Period divided by (b) the ---------- sum of (i) 1 minus (ii) the Reserve Requirement for such Loan for such Interest ----- Period. "Event of Default" shall have the meaning assigned to such term in ---------------- Section 10 hereof. "Federal Funds Rate" shall mean, for any day, the rate per annum ------------------ (rounded upwards, if necessary, to the nearest 1/100 of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day, provided that (a) if the day for which such rate is to -------- be determined is not a Business Day, the Federal Funds Rate for such day shall be such rate on Credit Agreement ---------------- 11 such transactions on the next preceding Business Day as so published on the next succeeding Business Day and (b) if such rate is not so published for any Business Day, the Federal Funds Rate for such Business Day shall be the average rate charged to Chase on such Business Day on such transactions as determined by the Agent. "Fixed Rate Loans" shall mean Eurodollar Loans and, for the purposes ---------------- of the definition of "Eurodollar Base Rate" in this Section 1.01 and in Section 5 hereof, LIBOR Market Loans. "Foreign Subsidiary" shall mean any Subsidiary of Kelsey-Hayes that ------------------ is not a Domestic Subsidiary. "Funded Debt" shall mean all Indebtedness of Kelsey-Hayes or any of ----------- its Subsidiaries (other than Indebtedness owing to Kelsey-Hayes or any of its Subsidiaries) that (a) matures more than one year from the date of its creation or matures within one year of the date of its creation but is renewable or extendable, at the option of Kelsey-Hayes or any of its Subsidiaries, to a date more than one year from the date of its creation or (b) arises under a revolving credit or similar agreement that obligates (or, that upon the exercise of an option by Kelsey-Hayes or any of its Subsidiaries, would obligate) the lender or lenders thereunder to extend credit during a period of more than one year from the date of its creation. "GAAP" shall mean generally accepted accounting principles applied on ---- a basis consistent with those which, in accordance with Section 1.02(a) hereof, are to be used in making the calculations for purposes of determining compliance with this Agreement. "Guarantee" shall mean a guarantee, an endorsement, a contingent --------- agreement to purchase or to furnish funds for the payment or maintenance of, or otherwise to be or become contingently liable under or with respect to, the Indebtedness, other obligations, net worth, working capital or earnings of any Person, or a guarantee of the payment of dividends or other distributions upon the stock or equity interests of any Person, or an agreement to purchase, sell or lease (as lessee or lessor) Property, products, materials, supplies or services primarily for the purpose of enabling a debtor to make payment of such debtor's obligations or an agreement to assure a creditor against loss, and including, without limitation, causing a bank or other financial institution to issue a letter of credit or other similar instrument for the benefit of another Person, but excluding endorsements for collection or deposit in the ordinary course of business. The terms "Guarantee" and "Guaranteed" used as a verb shall --------- ---------- have a correlative meaning. "Hayes Wheels" shall mean Hayes Wheels International, Inc., a Delaware ------------ corporation, together with its successors and assigns. "Hazardous Material" shall mean, collectively, (a) any petroleum or ------------------ petroleum Credit Agreement ---------------- 12 products, flammable explosives, radioactive materials, asbestos in any form that is or could become friable, urea formaldehyde foam insulation and transformers or other equipment that contain dielectric fluid containing polychlorinated biphenyls, (b) any chemicals or other materials or substances which are now or hereafter subject to regulation under any Environmental Law and (c) any other chemical or other material or substance, exposure to which is now or hereafter prohibited, limited or regulated under any Environmental Law. "Headquarters Sublease" shall mean the Lease Agreement dated as of the --------------------- date hereof between K-H, as landlord, and Kelsey-Hayes, as tenant, as modified and supplemented and in effect from time to time. "Indebtedness" shall mean, for any Person (without duplication): (a) ------------ obligations created, issued or incurred by such Person for borrowed money (whether by loan, the issuance and sale of debt securities or the sale of Property to another Person subject to an understanding or agreement, contingent or otherwise, to repurchase such Property from such Person); (b) obligations of such Person to pay the deferred purchase or acquisition price of Property or services, other than trade accounts payable (other than for borrowed money) arising, and accrued expenses incurred, in the ordinary course of business so long as such trade accounts payable are payable within 90 days of the date the respective goods are delivered or the respective services are rendered; (c) Indebtedness of others secured by a Lien on the Property of such Person, whether or not the respective Indebtedness so secured has been assumed by such Person; (d) obligations (contingent or otherwise) of such Person in respect of letters of credit, bankers' acceptances or similar instruments issued or accepted by banks and other financial institutions for account of such Person; (e) Capital Lease Obligations of such Person; and (f) Indebtedness of others Guaranteed by such Person. "Interest Expense" shall mean, for any period, the sum of the ---------------- following: (a) all interest in respect of Indebtedness accrued or capitalized during such period (whether or not actually paid during such period) plus (b) ---- the net amounts payable (or minus the net amounts receivable) under Interest ----- Rate Protection Agreements accrued during such period (whether or not actually paid or received during such period). "Interest Period" shall mean: --------------- (a) with respect to any Eurodollar Loan, each period commencing on the date such Eurodollar Loan is made or Converted from a Base Rate Loan or the last day of the next preceding Interest Period for such Loan and ending on the numerically corresponding day in the first, second, third or sixth calendar month thereafter, as Kelsey-Hayes may select as provided in Section 4.05 hereof (or such longer period as may be requested by Kelsey-Hayes and agreed to by all of the Banks), except that each Interest Period that commences on the last Business Day of a calendar month (or on any day for which there Credit Agreement ---------------- 13 is no numerically corresponding day in the appropriate subsequent calendar month) shall end on the last Business Day of the appropriate subsequent calendar month. (b) With respect to any Set Rate Loan, the period commencing on the date such Set Rate Loan is made and ending on any Business Day up to 180 days thereafter, as Kelsey-Hayes may select as provided in Section 2.03(b) hereof; and (c) With respect to any LIBOR Market Loan, the period commencing on the date such LIBOR Market Loan is made and ending on the numerically corresponding day in the first, second, third or sixth calendar month thereafter, as Kelsey-Hayes may select as provided in Section 2.03(b) hereof, except that each Interest Period that commences on the last Business Day of a calendar month (or any day for which there is no numerically corresponding day in the appropriate subsequent calendar month) shall end on the last Business Day of the appropriate subsequent calendar month. Notwithstanding the foregoing: (i) no Interest Period for any Loan may end after the Commitment Termination Date; (ii) each Interest Period that would otherwise end on a day which is not a Business Day shall end on the next succeeding Business Day (or, in the case of an Interest Period for a Eurodollar Loan or a LIBOR Market Loan, if such next succeeding Business Day falls in the next succeeding calendar month, on the next preceding Business Day); and (iii) notwithstanding clause (i) above, no Interest Period for any Loan (other than a Set Rate Loan) shall have a duration of less than one month (in the case of a Eurodollar Loan or a LIBOR Market Loan) and, if the Interest Period for any Eurodollar Loan or LIBOR Market Loan would otherwise be a shorter period, such Loan shall not be available hereunder for such period. "Interest Rate Protection Agreement" shall mean, for any Person, an ---------------------------------- interest rate swap, cap, floor or collar agreement or similar arrangement between such Person and one or more financial institutions providing for the transfer or mitigation of interest risks either generally or under specific contingencies. "Inventory" shall mean readily marketable materials, including raw --------- materials and work-in-process (but excluding factory supplies), of a type manufactured or consumed by a Borrowing Base Entity in the ordinary course of its business as presently conducted. "Investment" shall mean, for any Person: (a) the acquisition (whether ---------- for cash, Property, services or securities or otherwise) of capital stock, bonds, notes, debentures, partnership or other ownership interests or other securities of any other Person or any agreement to make any such acquisition (including, without limitation, any "short sale" or any sale of any securities at a time when such securities are not owned by the Person entering into such short sale); (b) the making of any deposit with, or advance, loan or other extension of credit to, any other Person (including the purchase of Property from another Person subject to an understanding Credit Agreement ---------------- 14 or agreement, contingent or otherwise, to resell such Property to such Person, but excluding any such advance, loan or extension of credit having a term not exceeding 90 days representing the purchase price of inventory or supplies sold by such Person in the ordinary course of business) and (without duplication) the entering into of any commitment to deposit funds with, advance or lend funds to or otherwise extend credit to such Person; (c) the entering into of any Guarantee of, or other contingent obligation with respect to, Indebtedness or other liability of any other Person; or (d) the entering into of any Interest Rate Protection Agreement. "Issuing Bank" shall mean Chase, as the Bank that is the issuer of ------------ Letters of Credit under Section 2.04 hereof, together with its successors and assigns in such capacity. "Kelsey-Hayes Management Services Agreement" shall mean the Management ------------------------------------------ Services Agreement dated as of the date hereof between K-H and Kelsey-Hayes, as modified and supplemented and in effect from time to time. "Kelsey-Hayes Preferred Stock" shall mean the Redeemable Preferred ---------------------------- Stock, par value $0.01 per share and having an aggregate original liquidation preference equal to $77,131,000, issued or to be issued by Kelsey-Hayes. "Kelsey-Hayes Tax Sharing Agreement" shall mean the Tax Allocation ---------------------------------- Agreement dated as of the date hereof between Varity and Kelsey-Hayes, as modified and supplemented and in effect from time to time. "K-H" shall mean K-H Corporation, a Delaware corporation, together --- with its successors and assigns. "Letter of Credit" shall have the meaning assigned to such term in ---------------- Section 2.04 hereof. "Letter of Credit Documents" shall mean, with respect to any Letter of -------------------------- Credit, collectively, any application therefor and any other agreements, instruments, guarantees or other documents (whether general in application or applicable only to such Letter of Credit) governing or providing for (a) the rights and obligations of the parties concerned or at risk with respect to such Letter of Credit or (b) any collateral security for any of such obligations, each as the same may be modified and supplemented and in effect from time to time. "Letter of Credit Interest" shall mean, for each Bank, such Bank's ------------------------- participation interest (or, in the case of the Issuing Bank, the Issuing Bank's retained interest) in the Issuing Bank's liability under Letters of Credit and such Bank's rights and interests in Reimbursement Obligations and fees, interest and other amounts payable in connection with Letters of Credit and Reimbursement Obligations. Credit Agreement ---------------- 15 "Letter of Credit Liability" shall mean, without duplication, at any -------------------------- time and in respect of any Letter of Credit, the sum of (a) the undrawn face amount of such Letter of Credit plus (b) the aggregate unpaid principal amount of all Reimbursement Obligations of Kelsey-Hayes at such time due and payable in respect of all drawings made under such Letter of Credit. For purposes of this Agreement, a Bank (other than the Issuing Bank) shall be deemed to hold a Letter of Credit Liability in an amount equal to its participation interest in the related Letter of Credit under Section 2.04 hereof, and the Issuing Bank shall be deemed to hold a Letter of Credit Liability in an amount equal to its retained interest in the related Letter of Credit Liability after giving effect to the acquisition by the Banks other than the Issuing Bank of their participation interests under said Section 2.04. "Level I Period" shall mean any period during which (a) no Event of -------------- Default shall have occurred and be continuing and (b) the Standard & Poor's Rating is at or above A- (or any successor rating) or the Moody's Rating is at or above A3 (or any successor rating). "Level II Period" shall mean any period, other than a Level I Period, --------------- during which (a) no Event of Default shall have occurred and be continuing and (b) the Standard & Poor's Rating is at or above BBB (or any successor rating) or the Moody's Rating is at or above Baa2 (or any successor rating). "Level III Period" shall mean any period, other than a Level I Period ---------------- or a Level II Period, during which (a) no Event of Default shall have occurred and be continuing and (b) the Standard & Poor's Rating is at or above BB (or any successor rating) or the Moody's Rating is at or above Ba2 (or any successor rating). "Level IV Period" shall mean any period that is not a Level I Period, --------------- a Level II Period or a Level III Period. "LIBO Margin" shall have the meaning assigned to such term in Section ----------- 2.03(c)(ii)(C) hereof. "LIBO Rate" shall mean, for any LIBOR Market Loan, a rate per annum --------- (rounded upwards, if necessary, to the nearest 1/100 of 1%) determined by the Agent to be equal to the rate of interest specified in the definition of "Eurodollar Base Rate" in this Section 1.01 for the Interest Period for such Loan divided by 1 minus the Reserve Requirement (if any) for such Loan for such Interest Period. "LIBOR Auction" shall mean a solicitation of Money Market Quotes ------------- setting forth LIBO Margins based on the LIBO Rate pursuant to Section 2.03 hereof. "LIBOR Market Loans" shall mean Money Market Loans interest rates on ------------------ which Credit Agreement ---------------- 16 are determined on the basis of LIBO Rates pursuant to a LIBOR Auction. "Lien" shall mean, with respect to any Property, any mortgage, lien, ---- pledge, charge, security interest or encumbrance of any kind in respect of such Property. For purposes of this Agreement and the other Basic Documents, a Person shall be deemed to own subject to a Lien any Property that it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement (other than an operating lease) relating to such Property. "Loans" shall mean Syndicated Loans and Money Market Loans. ----- "Majority Banks" shall mean, Banks having at least 66-2/3% of the -------------- aggregate amount of the Commitments or, if the Commitments shall have terminated, Banks holding at least 66-2/3% of the sum of (a) the aggregate unpaid principal amount of the Loans plus (b) the aggregate amount of all Letter of Credit Liabilities. "Management Fees" shall mean all fees, salaries and other --------------- compensation, and all out-of-pocket expenses, paid, incurred or reimbursed by (a) Kelsey-Hayes or any of its Domestic Subsidiaries to any Person that is an Affiliate of Kelsey-Hayes or (b) any Foreign Subsidiary to any Person (other than another Foreign Subsidiary) that is an Affiliate of Kelsey-Hayes in respect of services rendered in connection with the management, supervision or financial or business affairs of Kelsey-Hayes or any of its Subsidiaries (including, without limitation, any loan or credit guarantee fee). "Margin Stock" shall mean "margin stock" within the meaning of ------------ Regulations U and X. "Material Adverse Effect" shall mean a material adverse effect on (a) ----------------------- the condition (financial or otherwise), business, operations, Property, liabilities or prospects of Kelsey-Hayes and its Subsidiaries taken as a whole, (b) the ability of any Obligor to perform its obligations under any of the Basic Documents to which it is a party, (c) the validity or enforceability of any of the Basic Documents, (d) the rights and remedies of the Banks and the Agent under any of the Basic Documents or (e) the timely payment of the principal of or interest on the Loans or the Reimbursement Obligations or other amounts payable in connection therewith. "MF Delaware" shall mean Varity Automotive Inc., a Delaware ----------- corporation. "Money Market Borrowing" shall have the meaning assigned to such term ---------------------- in Section 2.03(b) hereof. "Money Market Loan Limit" shall have the meaning assigned to such ----------------------- term in Credit Agreement ---------------- 17 Section 2.03(c)(ii) hereof. "Money Market Loans" shall mean the loans provided for by Section ------------------ 2.03 hereof. "Money Market Notes" shall mean the promissory notes provided for by ------------------ Section 2.09(b) hereof and all promissory notes delivered in substitution or exchange therefor, in each case as the same shall be modified and supplemented and in effect from time to time. "Money Market Quote" shall mean an offer in accordance with Section ------------------ 2.03(c) hereof by a Bank to make a Money Market Loan with one single specified interest rate. "Money Market Quote Request" shall have the meaning assigned to such -------------------------- term in Section 2.03(b) hereof. "Moody's" shall mean Moody's Investors Service, Inc. or any successor ------- corporation thereto. "Moody's Rating" shall mean, at any time, the then current rating by -------------- Moody's of the Rated Entity's senior unsecured long-term public debt; provided -------- that, if Moody's shall fail to issue any such rating or if the Rated Entity shall not then have any outstanding senior unsecured long-term public debt, then "Moody's Rating" shall mean the last such rating issued by Moody's. -------------- "Multiemployer Plan" shall mean a multiemployer plan defined as such ------------------ in Section 3(37) of ERISA to which contributions have been made by Kelsey-Hayes or any ERISA Affiliate and which is covered by Title IV of ERISA. "Notes" shall mean the Syndicated Notes and the Money Market Notes. ----- "Obligors" shall mean Varity and Kelsey-Hayes. -------- "Original Notes" shall mean the promissory notes of Kelsey-Hayes -------------- delivered to each Bank pursuant to the 1993 Credit Agreement. "Payment Default" shall mean an Event of Default of the type described --------------- in Section 10(a) hereof. "PBGC" shall mean the Pension Benefit Guaranty Corporation or any ---- entity succeeding to any or all of its functions under ERISA. "Permitted Investments" shall mean: (a) direct obligations of the --------------------- United States of America, or of any agency thereof, or obligations guaranteed as to principal and interest by the Credit Agreement ---------------- 18 United States of America, or of any agency thereof, in either case maturing not more than 90 days from the date of acquisition thereof; (b) certificates of deposit issued by any bank or trust company organized under the laws of the United States of America or any state thereof and having capital, surplus and undivided profits of at least $500,000,000, maturing not more than 90 days from the date of acquisition thereof; and (c) commercial paper rated A-1 or better or P-1 or better by Standard & Poor's or Moody's respectively (but not rated lower than A-1 or P-1 by Standard & Poor's or Moody's respectively), maturing not more than 90 days from the date of acquisition thereof. "Person" shall mean any individual, corporation, company, voluntary ------ association, partnership, joint venture, trust, unincorporated organization or government (or any agency, instrumentality or political subdivision thereof). "Plan" shall mean an employee benefit or other plan established or ---- maintained by Kelsey-Hayes or any ERISA Affiliate and that is covered by Title IV of ERISA, other than a Multiemployer Plan. "Post-Default Rate" shall mean, with respect to (a) any principal of ----------------- any Loan (whether or not then due and payable) and (b) any other amount payable under this Agreement, any Note or any other Basic Document that is not paid when due, for any period during which a Payment Default shall have occurred and be continuing, a rate per annum equal to 2% plus the Base Rate as in effect from ---- time to time plus the Applicable Margin for Base Rate Loans (provided that, if ---- -------- the amount is principal of a Eurodollar Loan or a Money Market Loan and the due date thereof is a day other than the last day of the Interest Period therefor, the "Post-Default Rate" for such principal shall be, for the period commencing with the occurrence of such Payment Default to but excluding the last day of the then current Interest Period for such Loan, 2% plus the interest rate for such ---- Loan as provided in Section 3.02 hereof and, thereafter, the rate provided for above in this definition). "Prime Rate" shall mean the rate of interest from time to time ---------- announced by Chase at the Principal Office as its prime commercial lending rate. "Principal Office" shall mean the principal office of Chase, located ---------------- on the date hereof at 1 Chase Manhattan Plaza, New York, New York 10081. "Property" shall mean any right or interest in or to property of any -------- kind whatsoever, whether real, personal or mixed and whether tangible or intangible. "Quarterly Dates" shall mean the last Business Day of each March, --------------- June, September and December in each year, the first of which shall be the first such day after the Restatement Date. Credit Agreement ---------------- 19 "Rated Entity" shall mean Kelsey-Hayes; provided that during any ------------ -------- period that Kelsey-Hayes does not have any outstanding senior unsecured long- term public debt rated by Standard & Poor's and Moody's the term "Rated Entity" shall mean Varity. "Receivable" shall mean, as at any date, the unpaid portion of the ---------- obligation, as stated on the respective invoice, of a customer of a Borrowing Base Entity in respect of Inventory sold and shipped by such Borrowing Base Entity to such customer, net of any credits, rebates or offsets owed to such customer and also net of any commissions payable to third parties (and for purposes hereof, a credit or rebate paid by check or draft of a Borrowing Base Entity shall be deemed to be outstanding until such check or draft shall have been debited to the account of such Borrowing Base Entity on which such check or draft was drawn). "Reference Banks" shall mean Chase and The Bank of Nova Scotia (or --------------- their respective Applicable Lending Offices, as the case may be). "Regulation A", "Regulation D", "Regulation U" and "Regulation X" ------------ ------------ ------------ ------------ shall mean, respectively, Regulation A, Regulation D, Regulation U and Regulation X of the Board of Governors of the Federal Reserve System (or any successor), as the same may be modified and supplemented and in effect from time to time. "Regulatory Change" shall mean, with respect to any Bank, any change ----------------- after the date of this Agreement in Federal, state or foreign law or regulations (including, without limitation, Regulation D) or the adoption or making after such date of any interpretation, directive or request applying to a class of banks including such Bank of or under any Federal, state or foreign law or regulations (whether or not having the force of law and whether or not failure to comply therewith would be unlawful) by any court or governmental or monetary authority charged with the interpretation or administration thereof. "Reimbursement Obligations" shall mean, at any time, the obligations ------------------------- of Kelsey-Hayes (and, to the extent provided by Section 2.04 hereof, one or more of its Subsidiaries) then outstanding, or which may thereafter arise in respect of all Letters of Credit then outstanding, to reimburse amounts paid by the Issuing Bank in respect of any drawings under a Letter of Credit. "Release" shall mean any release, spill, emission, leaking, pumping, ------- injection, deposit, disposal, discharge, dispersal, leaching or migration of Hazardous Materials into the indoor or outdoor environment, including, without limitation, the movement of Hazardous Materials through ambient air, soil, surface water, ground water, wetlands, land or subsurface strata. "Reorganization Agreement" shall mean the Conveyance and Transfer ------------------------ Agreement Credit Agreement ---------------- 20 dated as of the date hereof between Hayes Wheels and Kelsey-Hayes, as modified and supplemented and in effect from time to time. "Reserve Requirement" shall mean, for any Interest Period for any ------------------- Eurodollar Loan or LIBOR Market Loan, the average maximum rate at which reserves (including, without limitation, any marginal, supplemental or emergency reserves) are required to be maintained during such Interest Period under Regulation D by member banks of the Federal Reserve System in New York City with deposits exceeding one billion Dollars against "Eurocurrency liabilities" (as such term is used in Regulation D). Without limiting the effect of the foregoing, the Reserve Requirement shall include any other reserves required to be maintained by such member banks by reason of any Regulatory Change with respect to (i) any category of liabilities that includes deposits by reference to which the Eurodollar Base Rate for Eurodollar Loans or LIBOR Market Loans (as the case may be) is to be determined as provided in the definition of "Eurodollar Base Rate" in this Section 1.01 or (ii) any category of extensions of credit or other assets that includes Eurodollar Loans or LIBOR Market Loans. "Restatement Date" shall mean May 1, 1995. ---------------- "SEC" shall mean the Securities and Exchange Commission (or any --- successor agency). "Senior Financial Officer" shall mean any of (a) the chief financial ------------------------ officer of Kelsey-Hayes, (b) the Vice President-Finance of Kelsey-Hayes, (c) the Treasurer of Kelsey-Hayes and (d) the Assistant Treasurer of Kelsey-Hayes. "Set Rate" shall have the meaning assigned to such term in Section -------- 2.03(c)(ii)(D) hereof. "Set Rate Auction" shall mean a solicitation of Money Market Quotes ---------------- setting forth Set Rates pursuant to Section 2.03 hereof. "Set Rate Loans" shall mean Money Market Loans the interest rates on -------------- which are determined on the basis of Set Rates pursuant to a Set Rate Auction. "Specified Account Debtor" shall mean (a) a Person named in Schedule V ------------------------ hereto and (b) any other Person designated by the Agent (after consultation with the Banks) as a "Specified Account Debtor" in a notice from the Agent to Kelsey- Hayes. "Specified Letter of Credit" shall mean, with reference to the -------------------------- obligations of an account debtor in respect of any Receivable, a standby letter of credit (a) issued or confirmed by a banking office located in the United States of America of a bank having a capital and surplus Credit Agreement ---------------- 21 in excess of $250,000,000 (other than a bank that does not have a satisfactory credit standing (in the reasonable determination of the Majority Banks and specified in a notice from the Agent to Kelsey-Hayes)), (b) naming the Person to which such Receivable is payable as the beneficiary of such letter of credit, (c) available by drafts of the beneficiary accompanied only by certificates of the beneficiary stating that the drafts represent amounts past due on one or more Receivables of such account debtor owing to the beneficiary and (d) payable in an Eligible Currency. "Standard & Poor's" shall mean Standard & Poor's Ratings Service or ----------------- any successor thereto. "Standard & Poor's Rating" shall mean, at any time, the then current ------------------------ rating (including the failure to rate) by Standard &Poor's of the Rated Entity's senior unsecured long-term public debt; provided that, if Standard & Poor's -------- shall fail to issue any such rating or if the Rated Entity shall not then have any outstanding senior unsecured long-term public debt, the "Standard & Poor's ----------------- Rating" shall mean the last such rating issued by Standard & Poor's. ------ "Subsidiary" shall mean, with respect to any Person, any corporation, ---------- partnership or other entity of which at least a majority of the securities or other ownership interests having by the terms thereof ordinary voting power to elect a majority of the board of directors or other persons performing similar functions of such corporation, partnership or other entity (irrespective of whether or not at the time securities or other ownership interests of any other class or classes of such corporation, partnership or other entity shall have or might have voting power by reason of the happening of any contingency) is at the time directly or indirectly owned or controlled by such Person or one or more Subsidiaries of such Person or by such Person and one or more Subsidiaries of such Person. "Wholly Owned Subsidiary" shall mean, with respect to any Person, ----------------------- any such corporation, partnership or other entity of which all of the equity securities or other ownership interests (other than, in the case of a corporation, directors' qualifying shares) are owned or controlled by such Person or one or more Wholly Owned Subsidiaries of such Person. "Syndicated Loans" shall mean the loans provided for by Section 2.01 ---------------- hereof, which may be Base Rate Loans and/or Eurodollar Loans. "Syndicated Notes" shall mean the promissory notes provided for by ---------------- Section 2.09(a) hereof and all promissory notes delivered in substitution or exchange thereof, in each case as the same shall be modified and supplemented and in effect from time to time. "Tax Sharing Agreement" shall mean the Tax Sharing Agreement dated as --------------------- of the date hereof between Varity, K-H, Kelsey-Hayes and Hayes Wheels, as modified and supplemented and in effect from time to time. "Total Debt" shall mean, as at any date, the sum, for any Person, of ---------- all Credit Agreement ---------------- 22 Indebtedness of such Person of the types described in clauses (a), (b), (d) and (e) of the definition of the term "Indebtedness" in this Section 1.01. "Type" shall have the meaning assigned to such term in Section 1.03 ---- hereof. "Varity" shall mean Varity Corporation, a Delaware corporation, ------ together with its successors and assigns. "Varity Guarantee" shall mean the Varity Guarantee substantially in ---------------- the form of Exhibit E hereto between Varity and the Agent, as the same shall be modified and supplemented and in effect from time to time. "Varity 1991 Indenture" shall mean the Indenture dated as of October --------------------- 8, 1991 between Varity and Manufacturers and Traders Trust Company, as Trustee, providing for, among other things, the issuance by Varity of $150,000,000 original aggregate principal amount of its 11-3/8% Senior Notes due 1998, as modified and supplemented and in effect from time to time. "Varity Note" shall mean the promissory note dated November 15, 1991 ----------- made by Hayes Wheels (formerly named "Kelsey-Hayes Company") payable to Varity in a principal amount equal to $127,131,000, as modified and supplemented and in effect from time to time, which note was repaid in full on or before the Restatement Date. "Varity Specified Subsidiary" shall mean (a) MF Delaware and (b) any --------------------------- Subsidiary of Varity that is a "significant subsidiary" of Varity within the meaning given to such term under Regulation S-X of the SEC (as said Regulation is in effect on the date hereof). "Varity Subordinated Loans" shall mean unsecured Indebtedness of ------------------------- Kelsey-Hayes to Varity incurred after the Closing Date; provided that the documentation evidencing such Indebtedness shall provide (without limitation): (a) that no payment of any principal of, interest on, or other amount owing in respect of, such Indebtedness or under such documentation shall be payable so long as an Event of Default shall have occurred and be continuing, (b) that all amounts owing in respect of such Indebtedness shall, on terms and conditions satisfactory to the Majority Banks, be subordinate and subject in right of payment to the prior payment in full of all obligations of Kelsey-Hayes to the Banks hereunder and under the other Basic Documents and (c) that Varity will not ask, demand, sue for, take or receive from Kelsey-Hayes or any of its Subsidiaries (whether by set-off or otherwise) any payment in respect of such Indebtedness not then entitled to be received by Varity under such documentation. 1.02 Accounting Terms and Determinations. ------------------------------------ (a) Except as otherwise expressly provided herein, (i) all accounting terms used Credit Agreement ---------------- 23 herein shall be interpreted, (ii) all financial statements and all certificates and reports as to financial matters required to be delivered to the Banks hereunder shall (unless otherwise disclosed to the Banks in writing at the time of delivery thereof in the manner described in subsection (b) below) be prepared and (iii) all calculations made for the purposes of determining compliance with this Agreement shall (except as otherwise expressly provided herein) be made in accordance with or by application of generally accepted accounting principles applied on a basis consistent with those used in the preparation of the most recent financial statements furnished to the Banks under Section 9.01(c) or (d) hereof after the Restatement Date (or, prior to the first such delivery after the Restatement Date, the financial statements as at January 31, 1995) unless (x) Kelsey-Hayes shall notify the Banks of its objection thereto at the time of delivery of any financial statements pursuant to Section 9.01 hereof or (y) the Majority Banks shall notify Kelsey-Hayes (through the Agent) of their objection within 30 days after the delivery of any such financial statements, in either of which events such interpretations, statements, certificates, reports and calculations shall be made in accordance with, or by application of, generally accepted accounting principles on a basis consistent with those used in the preparation of the most recent financial statements furnished after the Restatement Date as to which no such objection shall have been made (or, prior to the first such delivery after the Restatement Date, the financial statements as at January 31, 1995). (b) Kelsey-Hayes shall deliver to the Banks at the same time as the delivery of any annual or quarterly financial statement under Section 9.01 hereof (i) a description in reasonable detail of any material variation between the application of accounting principles employed in the preparation of such statement and the application of accounting principles employed in the preparation of the next preceding annual or quarterly financial statements as to which no objection has been made in accordance with the last sentence of paragraph (a) above and (ii) reasonable estimates of the difference between such statements arising as a consequence thereof. (c) Kelsey-Hayes will not, and will not permit any of its Domestic Subsidiaries to, change the last day of its fiscal year from January 31 of each year, or the last days of the first three fiscal quarters in each of its fiscal years from April 30, July 31 and October 31 of each year, respectively. (d) [Intentionally Omitted] (e) So long as Kelsey-Hayes and its Subsidiaries shall be included in consolidated Federal income tax returns filed by Varity or K-H, whenever making determinations under this Agreement of the amount of Federal income taxes payable during any period (or the amount of refunds in respect of such taxes receivable during any period) by Kelsey-Hayes and its Subsidiaries, the amount of such taxes payable or receivable shall be deemed to be equal to the amounts payable or receivable, as the case may be, by Kelsey-Hayes and its Subsidiaries to or from Varity, K-H or Hayes Wheels under the Tax Sharing Agreement and to or from Varity under the Kelsey-Hayes Tax Sharing Agreement without reference to whether Varity, K-H or Hayes Credit Agreement ---------------- 24 Wheels shall in fact pay any amounts in respect of Federal income taxes (or receive any amounts in respect of refunds of Federal income taxes) during the relevant period. 1.03 Classes and Types of Loans. Loans hereunder are distinguished -------------------------- by "Class" and by "Type". The "Class" of a Loan refers to whether such Loan is a Money Market Loan or a Syndicated Loan, each of which constitutes a Class. The "Type" of a Loan refers to whether such Loan is a Base Rate Loan, a Eurodollar Loan, a Set Rate Loan or a LIBOR Market Loan, each of which constitutes a Type of Loan. Loans may be identified by both Class and Type. Section 2. Commitments, Loans, Notes and Prepayments. ----------------------------------------- 2.01 Loans. ----- (a) Syndicated Loans. Each Bank severally agrees, on the terms and ---------------- conditions of this Agreement, to make loans to Kelsey-Hayes in Dollars during the period from and including the Closing Date to but not including the Commitment Termination Date in an aggregate principal amount at any one time outstanding up to but not exceeding the amount of the Commitment of such Bank as in effect from time to time; provided that in no event shall the aggregate -------- principal amount of all Loans, together with the aggregate amount of all Letter of Credit Liabilities, exceed the aggregate amount of the Commitments as in effect from time to time. Subject to the terms and conditions of this Agreement, during such period Kelsey-Hayes may borrow, repay and reborrow the amount of the Commitments by means of Base Rate Loans and Eurodollar Loans and may Convert Loans of one Type into Loans of another Type (as provided in Section 2.10 hereof) or Continue Loans of one Type as Loans of the same Type (as provided in Section 2.10 hereof). (b) Limit on Eurodollar Loans. No more than six separate Interest ------------------------- Periods in respect of Eurodollar Loans from each Bank may be outstanding at any one time. 2.02 Borrowings of Syndicated Loans. Kelsey-Hayes shall give the ------------------------------ Agent (which shall promptly notify the Banks) notice of each borrowing hereunder as provided in Section 4.05 hereof. Not later than 2:00 p.m. New York time on the date specified for each borrowing of Syndicated Loans hereunder, each Bank shall make available the amount of the Syndicated Loan or Loans to be made by it on such date to the Agent, at account number NYAO-DI-900-9-000002 maintained by the Agent with Chase at the Principal Office, in Dollars and immediately available funds, for account of Kelsey-Hayes. The amount so received by the Agent shall, subject to the terms and conditions of this Agreement, be made available by the Agent to Kelsey-Hayes by depositing the same, in immediately available funds, in an account of Kelsey-Hayes maintained with Chase at the Principal Office designated by Kelsey-Hayes. 2.03 Money Market Loans. ------------------ Credit Agreement ---------------- 25 (a) In addition to borrowings of Syndicated Loans, at any time prior to the Commitment Termination Date Kelsey-Hayes may, as set forth in this Section 2.03, request the Banks to make offers to make Money Market Loans to Kelsey-Hayes in Dollars. The Banks may, but shall have no obligation to, make such offers and Kelsey-Hayes may, but shall have no obligation to, accept any such offers in the manner set forth in this Section 2.03. Money Market Loans may be LIBOR Market Loans or Set Rate Loans, provided that: (i) there may be no more than fifteen different Interest Periods for both Syndicated Loans and Money Market Loans outstanding at the same time (for which purpose Interest Periods described in different lettered clauses of the definition of the term "Interest Period" shall be deemed to be different Interest Periods even if they are coterminous); (ii) the aggregate principal amount of all Money Market Loans, together with the aggregate principal amount of all Syndicated Loans and the aggregate amount of all Letter of Credit Liabilities, at any one time outstanding shall not exceed the aggregate amount of the Commitments at such time. (b) When Kelsey-Hayes wishes to request offers to make Money Market Loans, it shall give the Agent (which shall promptly notify the Banks) notice (a "Money Market Quote Request") so as to be received no later than 11:00 a.m. New -------------------------- York time on (x) the fourth Business Day prior to the date of borrowing proposed therein, in the case of a LIBOR Auction or (y) the Business Day next preceding the date of borrowing proposed therein, in the case of a Set Rate Auction (or, in any such case, such other time and date as Kelsey-Hayes and the Agent, with the consent of the Majority Banks, may agree). Kelsey-Hayes may request offers to make Money Market Loans for up to three different Interest Periods in a single notice (for which purpose Interest Periods in different lettered clauses of the definition of the term "Interest Period" shall be deemed to be different Interest Periods even if they are coterminous); provided that the request -------- for each separate Interest Period shall be deemed to be a separate Money Market Quote Request for a separate borrowing (a "Money Market Borrowing"). Each such ---------------------- notice shall be substantially in the form of Exhibit G-1 hereto and shall specify as to each Money Market Borrowing: (i) the proposed date of such borrowing, which shall be a Business Day; (ii) the aggregate amount of such Money Market Borrowing, which shall be at least $5,000,000 (or a larger multiple of $1,000,000) but shall not cause the limits specified in Section 2.03(a) hereof to be violated; (iii) the duration of the Interest Period applicable thereto; (iv) whether the Money Market Quotes requested for a particular Interest Period are seeking quotes for LIBOR Market Loans or Set Rate Loans; and Credit Agreement ---------------- 26 (v) if the Money Market Quotes requested are seeking quotes for Set Rate Loans, the date on which the Money Market Quotes are to be submitted if it is before the proposed date of borrowing (the date on which such Money Market Quotes are to be submitted is called the "Quotation Date"). Except as otherwise provided in this Section 2.03(b), no Money Market Quote Request shall be given within five Business Days (or such other number of days as Kelsey-Hayes and the Agent, with the consent of the Majority Banks, may agree) of any other Money Market Quote Request. (c) (i) Each Bank may submit one or more Money Market Quotes, each constituting an offer to make a Money Market Loan in response to any Money Market Quote Request; provided that, if Kelsey-Hayes' request under Section 2.03(b) hereof specified more than one Interest Period, such Bank may make a single submission containing one or more Money Market Quotes for each such Interest Period. Each Money Market Quote must be submitted to the Agent not later than (x) 2:00 p.m. New York time on the fourth Business Day prior to the proposed date of borrowing, in the case of a LIBOR Auction or (y) 10:00 a.m. New York time on the Quotation Date, in the case of a Set Rate Auction (or, in any such case, such other time and date as Kelsey- Hayes and the Agent, with the consent of the Majority Banks, may agree); provided that any Money Market Quote may be submitted by Chase (or its Applicable Lending Office) only if Chase (or such Applicable Lending Office) notifies Kelsey-Hayes of the terms of the offer contained therein not later than (x) 1:00 p.m. New York time on the fourth Business Day prior to the proposed date of borrowing, in the case of a LIBOR Auction or (y) 9:45 a.m. New York time on the Quotation Date, in the case of a Set Rate Auction. Subject to Sections 5.02(b), 5.03, 7.02 and 10 hereof, any Money Market Quote so made shall be irrevocable except with the consent of the Agent given on the instructions of Kelsey-Hayes. (ii) Each Money Market Quote shall be substantially in the form of Exhibit G-2 hereto and shall specify: (A) the proposed date of borrowing and the Interest Period therefor; (B) the principal amount of the Money Market Loan for which each such offer is being made, which principal amount shall be at least $5,000,000 (or a larger multiple of $1,000,000); provided that the aggregate principal amount of all Money Market Loans for which a Bank submits Money Market Quotes (x) may be greater or less than the Commitment of such Bank but (y) may not exceed the principal amount of the Money Market Borrowing for a particular Interest Period for which offers were requested; Credit Agreement ---------------- 27 (C) in the case of a LIBOR Auction, the margin above or below the applicable LIBO Rate (the "LIBO Margin") offered for each such Money Market Loan, expressed as a percentage (rounded upwards, if necessary, to the nearest 1/10,000th of 1%) to be added to or subtracted from the applicable LIBO Rate; (D) in the case of a Set Rate Auction, the rate of interest per annum (rounded upwards, if necessary, to the nearest 1/10,000th of 1%) offered for each such Money Market Loan (the "Set Rate"); and (E) the identity of the quoting Bank. Unless otherwise agreed by the Agent and Kelsey-Hayes, no Money Market Quote shall contain qualifying, conditional or similar language or propose terms other than or in addition to those set forth in the applicable Money Market Quote Request and, in particular, no Money Market Quote may be conditioned upon acceptance by Kelsey-Hayes of all (or some specified minimum) of the principal amount of the Money Market Loan for which such Money Market Quote is being made, provided that the submission by any Bank -------- containing more than one Money Market Quote may be conditioned on Kelsey- Hayes not accepting offers contained in such submission that would result in such Bank making Money Market Loans pursuant thereto in excess of a specified aggregate amount (the "Money Market Loan Limit"). ----------------------- (d) The Agent shall (x) in the case of a Set Rate Auction, as promptly as practicable after the Money Market Quote is submitted (but in any event not later than 10:15 a.m. New York time on the Quotation Date) or (y) in the case of a LIBOR Auction, by 4:00 p.m. New York time on the day a Money Market Quote is submitted, notify Kelsey-Hayes of the terms (i) of any Money Market Quote submitted by a Bank that is in accordance with Section 2.03(c) hereof and (ii) of any Money Market Quote that amends, modifies or is otherwise inconsistent with a previous Money Market Quote submitted by such Bank with respect to the same Money Market Quote Request. Any such subsequent Money Market Quote shall be disregarded by the Agent unless such subsequent Money Market Quote is submitted solely to correct a manifest error in such former Money Market Quote. The Agent's notice to Kelsey-Hayes shall specify (A) the aggregate principal amount of the Money Market Borrowing for which offers have been received and (B) the respective principal amounts and LIBO Margins or Set Rates, as the case may be, so offered by each Bank (identifying the Bank that made each Money Market Quote). (e) Not later than 11:00 a.m. New York time on (x) the third Business Day prior to the proposed date of borrowing, in the case of a LIBOR Auction or (y) the Quotation Date, in the case of a Set Rate Auction (or, in any such case, such other time and date as Kelsey-Hayes and the Agent, with the consent of the Majority Banks, may agree), Kelsey-Hayes shall notify the Agent of its acceptance or nonacceptance of the offers so notified to it pursuant to Section 2.03(d) Credit Agreement ---------------- 28 hereof (which notice shall specify the aggregate principal amount of offers from each Bank for each Interest Period that are accepted, it being understood that the failure of Kelsey-Hayes to give such notice by such time shall constitute nonacceptance) and the Agent shall promptly notify each affected Bank. The notice from the Agent shall also specify the aggregate principal amount of offers for each Interest Period that were accepted and the lowest and highest LIBO Margins and Set Rates that were accepted for each Interest Period. Kelsey- Hayes may accept any Money Market Quote in whole or in part (provided that any Money Market Quote accepted in part shall be at least $5,000,000 or a larger multiple of $1,000,000); provided that: -------- (i) the aggregate principal amount of each Money Market Borrowing may not exceed the applicable amount set forth in the related Money Market Quote Request; (ii) the aggregate principal amount of each Money Market Borrowing shall be at least $5,000,000 (or a larger multiple of $1,000,000) but shall not cause the limits specified in Section 2.03(a) hereof to be violated; (iii) acceptance of offers may, subject to clause (v) below, be made only in ascending order of LIBO Margins or Set Rates, as the case may be, in each case beginning with the lowest rate so offered; (iv) Kelsey-Hayes may not accept any offer where the Agent has advised Kelsey-Hayes that such offer fails to comply with Section 2.03(c)(ii) hereof or otherwise fails to comply with the requirements of this Agreement (including, without limitation, Section 2.03(a) hereof); (v) the aggregate principal amount of each Money Market Borrowing from any Bank may not exceed any applicable Money Market Loan Limit of such Bank. If offers are made by two or more Banks with the same LIBO Margins or Set Rates, as the case may be, for a greater aggregate principal amount than the amount in respect of which offers are accepted for the related Interest Period, the principal amount of Money Market Loans in respect of which such offers are accepted shall be allocated by Kelsey-Hayes among such Banks as nearly as possible (in amounts of at least $5,000,000 or larger multiples of $1,000,000) in proportion to the aggregate principal amount of such offers. Determinations by the Company of the amounts of Money Market Loans shall be conclusive in the absence of manifest error. (f) Any Bank whose offer to make any Money Market Loan has been accepted in accordance with the terms and conditions of this Section 2.03 shall, not later than 1:00 p.m. New York time on the date specified for the making of such Loan, make the amount of such Loan available to the Agent at account number NYAO-DI-900-9-000002 maintained by the Agent with Chase at the Principal Office in immediately available funds, for account of Kelsey-Hayes. The Credit Agreement ---------------- 29 amount so received by the Agent shall, subject to the terms and conditions of this Agreement, be made available to Kelsey-Hayes on such date by depositing the same, in immediately available funds, in an account of Kelsey-Hayes maintained with Chase at the Principal Office designated by Kelsey-Hayes. (g) Except for the purpose and to the extent expressly stated in Section 2.05(b) hereof, the amount of any Money Market Loan made by any Bank shall not constitute a utilization of such Bank's Commitment. (h) Kelsey-Hayes shall pay to the Agent a fee of $2,000 each time Kelsey-Hayes gives a Money Market Quote Request to the Agent. 2.04 Letters of Credit. Subject to the terms and conditions of this ----------------- Agreement, the Commitments may be utilized, upon the request of Kelsey-Hayes, in addition to the Loans provided for by Section 2.01(a) hereof, by the issuance by the Issuing Bank of letters of credit (collectively, "Letters of Credit") for ----------------- account of Kelsey-Hayes (and, to the extent specified by Kelsey-Hayes, any of its Domestic Subsidiaries), provided that in no event shall (i) the aggregate -------- amount of all Letter of Credit Liabilities, together with the aggregate principal amount of all Loans, exceed the aggregate amount of the Commitments as in effect from time to time, (ii) the outstanding aggregate amount of all Letter of Credit Liabilities exceed $15,000,000 and (iii) the expiration date of any Letter of Credit extend beyond the earlier of (x) the date one year after the issuance thereof and (y) the Commitment Termination Date. The following additional provisions shall apply to Letters of Credit: (a) Kelsey-Hayes shall give the Agent and the Issuing Bank at least three Business Days' irrevocable prior notice (effective upon receipt) specifying the Business Day (which shall be no later than 30 days preceding the Commitment Termination Date) each Letter of Credit is to be issued and the account party or parties therefor and describing in reasonable detail the proposed terms of such Letter of Credit (including the beneficiary thereof) and the nature of the transactions or obligations proposed to be supported thereby (including whether such Letter of Credit is to be a commercial letter of credit or a standby letter of credit). (b) On each day during the period commencing with the issuance by the Issuing Bank of any Letter of Credit and until such Letter of Credit shall have expired or been terminated, the Commitment of each Bank shall be deemed to be utilized for all purposes of this Agreement in an amount equal to such Bank's Commitment Percentage of the then undrawn face amount of such Letter of Credit. Each Bank (other than the Issuing Bank) agrees that, upon the issuance of any Letter of Credit hereunder, it shall automatically and without any further action on the part of the Agent, the Issuing Bank or such Bank acquire a participation in the Issuing Bank's liability under such Letter of Credit in an amount Credit Agreement ---------------- 30 equal to such Bank's Commitment Percentage of such liability, and each Bank (other than the Issuing Bank) thereby shall absolutely, unconditionally and irrevocably assume, as primary obligor and not as surety, and shall be unconditionally obligated to the Issuing Bank to pay and discharge when due, its Commitment Percentage of the Issuing Bank's liability under such Letter of Credit. (c) Upon receipt from the beneficiary of any Letter of Credit of any demand for payment under such Letter of Credit, the Issuing Bank shall promptly notify Kelsey-Hayes (through the Agent) of the amount to be paid by the Issuing Bank as a result of such demand and the date on which payment is to be made by the Issuing Bank to such beneficiary in respect of such demand. Notwithstanding the identity of the account party of any Letter of Credit, Kelsey-Hayes hereby unconditionally agrees to pay and reimburse the Agent for account of the Issuing Bank for the amount of each demand for payment under such Letter of Credit at or prior to the date on which payment is to be made by the Issuing Bank to the beneficiary thereunder, without presentment, demand, protest or other formalities of any kind. (d) Forthwith upon its receipt of a notice referred to in paragraph (c) of this Section 2.04, Kelsey-Hayes shall advise the Agent whether or not Kelsey-Hayes intends to borrow hereunder to finance its obligation to reimburse the Issuing Bank for the amount of the related demand for payment and, if it does, submit a notice of such borrowing as provided in Section 4.05 hereof. In the event that Kelsey-Hayes fails to so advise the Agent, or if Kelsey-Hayes fails to reimburse the Issuing Bank for a demand for payment under a Letter of Credit by the date of such payment, the Agent shall give each Bank prompt notice of the amount of the demand for payment, specifying such Bank's Commitment Percentage of the amount of the related demand for payment. (e) Each Bank (other than the Issuing Bank) shall pay to the Agent for account of the Issuing Bank at the Principal Office in Dollars and in immediately available funds, the amount of such Bank's Commitment Percentage of any payment under a Letter of Credit upon notice by the Issuing Bank (through the Agent) to such Bank requesting such payment and specifying such amount. Each such Bank's obligation to make such payments to the Agent for account of the Issuing Bank under this paragraph (e), and the Issuing Bank's right to receive the same, shall be absolute and unconditional and shall not be affected by any circumstance whatsoever, including, without limitation, the failure of any other Bank to make its payment under this paragraph (e), the financial condition of Kelsey-Hayes (or any other account party), the existence of any Default or the termination of the Commitments. Each such payment to the Issuing Bank shall be made without any offset, abatement, withholding or reduction whatsoever. If any Bank shall default in its obligation to make any such payment to the Agent for account of the Issuing Bank, for so long as such default shall continue the Agent shall at the request of the Issuing Bank withhold from Credit Agreement ---------------- 31 any payments received by the Agent under this Agreement or any Note for account of such Bank the amount so in default and the Agent shall pay the same to the Issuing Bank in satisfaction of such defaulted obligation. (f) Upon the making of each payment by a Bank to the Issuing Bank pursuant to paragraph (e) above (including by the operation of the last sentence thereof), in respect of any Letter of Credit, such Bank shall, automatically and without any further action on the part of the Agent, the Issuing Bank or such Bank, acquire (i) a participation in an amount equal to such payment in the Reimbursement Obligation owing to the Issuing Bank by Kelsey-Hayes hereunder and under the Letter of Credit Documents relating to such Letter of Credit and (ii) a participation in a percentage equal to such Bank's Commitment Percentage in any interest or other amounts payable by Kelsey-Hayes hereunder and under such Letter of Credit Documents in respect of such Reimbursement Obligation (other than the amounts payable to the Issuing Bank pursuant to the last sentence of paragraph (g) of this Section 2.04). Upon receipt by the Issuing Bank from or for account of Kelsey-Hayes of any payment in respect of any Reimbursement Obligation or any such interest or other amount (including by way of setoff or application of proceeds of any collateral security) the Issuing Bank shall promptly pay to the Agent for account of each Bank entitled thereto, such Bank's Commitment Percentage of such payment, each such payment by the Issuing Bank to be made in the same money and funds in which received by the Issuing Bank. In the event any payment received by the Issuing Bank and so paid to the Banks hereunder is rescinded or must otherwise be returned by the Issuing Bank, each Bank shall, upon the request of the Issuing Bank (through the Agent), repay to the Issuing Bank (through the Agent) the amount of such payment paid to such Bank, with interest at the rate specified in paragraph (j) of this Section 2.04. (g) Kelsey-Hayes shall pay to the Agent for account of the Issuing Bank a letter of credit fee on the daily average undrawn amount of each Letter of Credit for the period from and including the date of issuance of such Letter of Credit to and including the date such Letter of Credit is drawn in full, expires or is terminated, at a rate per annum equal to the Applicable Margin for Eurodollar Loans (such letter of credit fee shall be non-refundable, shall be paid in arrears on each Quarterly Date and on the Commitment Termination Date and shall be calculated, for any day, after giving effect to any payments made under such Letter of Credit on such day). Promptly following its receipt of any letter of credit fee with respect to any Letter of Credit (including any such fee in respect of any period of renewal or extension thereof), the Issuing Bank shall pay to the Agent for account of each Bank (other than the Issuing Bank) an amount equal to such Bank's Commitment Percentage of such fee. In addition, Kelsey -Hayes shall pay to the Agent for account of the Issuing Bank (i) a fronting fee on the daily average undrawn amount of each Letter of Credit for the period from and including the date of issuance of such Letter of Credit to and including the date such Letter of Credit is drawn in full, expires or is Credit Agreement ---------------- 32 terminated, at a rate per annum equal to 1/4 of 1% (such fronting fee shall be non-refundable, shall be paid in arrears on each Quarterly Date and on the Commitment Termination Date and shall be calculated, for any day, after giving effect to any payments made under such Letter of Credit on such day) and (ii) all commissions, charges, costs and expenses in the amounts customarily charged by the Issuing Bank from time to time in like circumstances with respect to the issuance of each Letter of Credit and drawings and other transactions relating thereto. (h) Promptly following the issuance of any Letter of Credit, the Issuing Bank shall deliver (through the Agent) to each Bank a notice of such issuance, which notice shall set forth the face amount of such Letter of Credit. Upon the request of any Bank from time to time, the Issuing Bank shall deliver any other information reasonably requested by such Bank with respect to each Letter of Credit then outstanding. (i) The issuance by the Issuing Bank of each Letter of Credit shall, in addition to the conditions precedent set forth in Section 7 hereof, be subject to the conditions precedent that (i) such Letter of Credit shall be in such form, contain such terms and support such transactions as shall be satisfactory to the Issuing Bank consistent with its then current practices and procedures with respect to letters of credit of the same type and (ii) Kelsey-Hayes shall have executed and delivered such applications, agreements and other instruments relating to such Letter of Credit as the Issuing Bank shall have reasonably requested consistent with its then current practices and procedures with respect to letters of credit of the same type, provided that in the event of any conflict between any such -------- application, agreement or other instrument and the provisions of this Agreement, the provisions of this Agreement shall control. (j) To the extent that any Bank fails to pay any amount required to be paid pursuant to paragraph (e) or (f) of this Section 2.04 on the due date therefor, such Bank shall pay interest to the Issuing Bank (through the Agent) on such amount from and including such due date to but excluding the date such payment is made (i) during the period from and including such due date to but excluding the date three Business Days thereafter, at a rate per annum equal to the Federal Funds Rate (as in effect from time to time) and (ii) thereafter, at a rate per annum equal to the Base Rate (as in effect from time to time) plus 2%. ---- (k) The issuance by the Issuing Bank of any modification or supplement to any Letter of Credit hereunder shall be subject to the same conditions applicable under this Section 2.04 to the issuance of new Letters of Credit, and no such modification or supplement shall be issued hereunder unless either (i) the respective Letter of Credit affected thereby would have complied with such conditions had it originally been issued hereunder in such modified or supplemented form or (ii) each Bank shall have consented Credit Agreement ---------------- 33 thereto. Kelsey-Hayes hereby indemnifies and holds harmless each Bank (including the Issuing Bank) and the Agent from and against any and all claims and damages, losses, liabilities, costs or expenses which such Bank or the Agent may incur (or which may be claimed against such Bank or the Agent by any Person whatsoever) by reason of or in connection with the execution and delivery or transfer of or payment or refusal to pay by the Issuing Bank under any Letter of Credit; provided that Kelsey-Hayes shall not be required to indemnify any Bank -------- or the Agent for any claims, damages, losses, liabilities, costs or expenses to the extent, but only to the extent, caused by (x) the willful misconduct or gross negligence of the Issuing Bank in determining whether a request presented under any Letter of Credit complied with the terms of such Letter of Credit or (y) the Issuing Bank's failure to pay under any Letter of Credit after the presentation to it of a request strictly complying with the terms and conditions of such Letter of Credit. Nothing in this Section 2.04 is intended to limit the other obligations of Kelsey-Hayes, any Bank or the Agent under this Agreement. 2.05 Changes of Commitments; Etc. --------------------------- (a) The aggregate amount of the Commitments shall be automatically reduced to zero on the Commitment Termination Date. (b) Kelsey-Hayes shall have the right at any time or from time to time (i) so long as no Syndicated Loans, Money Market Loans or Letter of Credit Liabilities are outstanding, to terminate the Commitments and (ii) to reduce the aggregate unused amount of the Commitments (for which purpose use of the Commitments shall be deemed to include the aggregate amount of Letter of Credit Liabilities and the aggregate principal amount of all Money Market Loans); provided that (x) Kelsey-Hayes shall give notice of each such termination or -------- reduction as provided in Section 4.05 hereof and (y) each partial reduction shall be in an aggregate amount equal to $5,000,000 or any integral multiple of $1,000,000 in excess thereof. (c) If any Bank requests compensation pursuant to Section 5.01, 5.06 or 5.07 hereof, or such Bank's obligation to make or Continue, or to Convert Loans of any other Type into, either Type of Fixed Rate Loan shall be suspended pursuant to Section 5.01 or 5.03 hereof, Kelsey-Hayes, upon three Business Days' notice to such Bank and the Administrative Agent given not more than 30 days after such Bank requests such compensation, may require, so long as no Default shall have occurred and be continuing, that such Bank transfer, pursuant to Section 12.06(b) hereof, all of its right, title and interest under this Agreement and such Bank's Notes to any bank identified by Kelsey-Hayes in such notice (a "Proposed Bank") (i) if the Proposed Bank agrees to assume all of the ------------- obligations of such Bank for consideration equal to the aggregate principal amount of such Bank's Loans and Letter of Credit Interest outstanding on the date of such transfer, together with interest thereon to the date of such transfer, and arrangements Credit Agreement ---------------- 34 reasonably satisfactory to such Bank are made for payment to such Bank of all other amounts payable hereunder to such Bank on or prior to the date of such transfer (including any fees accrued hereunder, all amounts then due and payable to such Bank under Sections 5.01, 5.06 and 5.07 hereof and any amounts which would be payable under Section 5.05 hereof as if all of such Bank's Loans were being prepaid in full on such date) and (ii) if such Bank being replaced has requested compensation pursuant to Section 5.01, 5.06 or 5.07 hereof, such Proposed Bank's aggregate compensation that it has requested or at any time may request (with respect to any circumstance in existence on, or any event that has occurred prior to, the date of such transfer), if any, pursuant to said Section 5.01, 5.06 or 5.07 hereof in respect of the obligations and Loans to be transferred to such Proposed Bank is less than that of the Bank being replaced. If such transfer is effected in compliance with Section 12.06(b) hereof, such Proposed Bank shall be a "Bank" for all purposes hereunder. Without prejudice to the survival of any other agreement of Kelsey-Hayes hereunder, the agreements of Kelsey-Hayes contained in Sections 5.01, 5.05, 5.06, 5.07 and 12.03 hereof (without duplication of any payments made to such Bank by Kelsey-Hayes or the Proposed Bank) shall survive for the benefit of any Bank replaced under this Section 2.05(c) with respect to the time prior to such replacement. (d) The Commitments, once terminated or reduced, may not be reinstated. 2.06 Facility Fee. Kelsey-Hayes shall pay to the Agent for account ------------ of each Bank facility fee on the daily average amount of such Bank's Commitment (whether or not utilized), for the period from and including the Amendment Effective Date to but not including the earlier of the date such Commitment is terminated and the Commitment Termination Date, at a rate per annum equal to the Applicable Facility Fee Rate. Accrued facility fee shall be payable in arrears (a) on each Quarterly Date and (b) on the earlier of (i) the date the Commitments are terminated and (ii) the Commitment Termination Date. 2.07 Lending Offices. The Loans of each Type made by each Bank shall --------------- be made and maintained at such Bank's Applicable Lending Office for Loans of such Type. 2.08 Several Obligations; Remedies Independent. The failure of any ----------------------------------------- Bank to make any Loan to be made by it on the date specified therefor shall not relieve any other Bank of its obligation to make its Loan on such date, but neither any Bank nor the Agent shall be responsible for the failure of any other Bank to make a Loan to be made by such other Bank, and no Bank shall have any obligation to the Agent or any other Bank for the failure by such Bank to make any Loan required to be made by such Bank. The amounts payable by Kelsey-Hayes at any time hereunder and under the Notes to each Bank shall be a separate and independent debt and each Bank shall be entitled to protect and enforce its rights arising out of this Agreement and the Notes, and it shall not be necessary for any other Bank or the Agent to consent to, or be joined as an additional party in, any proceedings for such purposes. Credit Agreement ---------------- 35 2.09 Notes. ----- (a) The Syndicated Loans made by each Bank shall be evidenced by a single promissory note of Kelsey-Hayes substantially in the form of Exhibit A-1 hereto, dated the Restatement Date, payable to the order of such Bank in a principal amount equal to the amount of its Commitment as originally in effect and otherwise duly completed. (b) The Money Market Loans made by any Bank shall be evidenced by a single promissory note of the Company substantially in the form of Exhibit A-2 hereto, dated the Restatement Date, payable to such Bank and otherwise duly completed. (c) The date, amount, Type, interest rate and duration of Interest Period (if applicable) of each Loan of each Class made by each Bank to Kelsey- Hayes, and each payment made on account of the principal thereof, shall be recorded by such Bank on its books and, prior to any transfer of the Note evidencing Loans of such Class held by it, endorsed by such Bank on the schedule attached to such Note or any continuation thereof; provided that the failure of -------- such Bank to make any such recordation or endorsement shall not affect the obligations of Kelsey-Hayes to make a payment when due of any amount owing hereunder or under such Note in respect of the Loans to be evidenced by such Note. (d) No Bank shall be entitled to have its Notes subdivided, by exchange for promissory notes of lesser denominations or otherwise, except in connection with a permitted assignment of all or any portion of such Bank's Commitment, Loans and Notes pursuant to Section 12.06(b) hereof. 2.10 Optional Prepayments and Conversions or Continuations of Loans. -------------------------------------------------------------- Subject to Section 4.04 hereof, Kelsey-Hayes shall have the right to prepay Syndicated Loans, or to Convert Syndicated Loans of one Type into Syndicated Loans of another Type or Continue Syndicated Loans of one Type as Syndicated Loans of the same Type, at any time or from time to time, provided that: -------- (a) Kelsey-Hayes shall give the Agent notice of each such prepayment, Conversion or Continuation as provided in Section 4.05 hereof (and, upon the prepayment date specified in any such notice of prepayment, the amount to be prepaid shall become due and payable hereunder); and (b) Eurodollar Loans may be prepaid or Converted only on the last day of an Interest Period for such Loans. Money Market Loans may not be optionally prepaid. Notwithstanding the foregoing, and without limiting the rights and remedies of the Banks under Section 10 hereof, in the event that any Event Credit Agreement ---------------- 36 of Default shall have occurred and be continuing, the Agent may (and at the request of the Majority Banks shall) suspend the right of Kelsey-Hayes to borrow any Loan as a Eurodollar Loan, to Convert any Base Rate Loan into a Eurodollar Loan or to Continue any Eurodollar Loan as a Eurodollar Loan, in which event all Eurodollar Loans then outstanding shall be automatically Converted (on the last day(s) of the respective Interest Periods therefor) or Continued, as the case may be, as Base Rate Loans. 2.11 Mandatory Prepayments and Reductions of Commitments. --------------------------------------------------- (a) Borrowing Base. Kelsey-Hayes shall from time to time prepay the -------------- Loans (and/or provide cover for Letter of Credit Liabilities as specified in paragraph (b) below) in such amounts as shall be necessary so that at all times the aggregate principal amount of the Loans then outstanding, together with the aggregate amount of Letter of Credit Liabilities then outstanding, shall not exceed the Borrowing Base at such time, such amount to be applied, first to Syndicated Loans outstanding, second as cover for Letter of Credit Liabilities and third to Money Market Loans. (b) Cover for Letter of Credit Liabilities. In the event that -------------------------------------- Kelsey-Hayes shall be required pursuant to this Section 2.11 to provide cover for Letter of Credit Liabilities, Kelsey-Hayes shall effect the same by paying to the Agent immediately available funds in an amount equal to the required amount, which funds shall be retained by the Agent in the Collateral Account subject to and in accordance with Section 11.11 hereof. Section 3. Payments of Principal and Interest. ---------------------------------- 3.01 Repayment of Loans. ------------------ (a) Kelsey-Hayes hereby promises to pay to the Agent for account of the Banks the entire outstanding principal amount of the Syndicated Loans, and each Syndicated Loan shall mature, on the Commitment Termination Date. (b) The Company hereby promises to pay to the Agent for account of each Bank that makes any Money Market Loan the principal amount of such Money Market Loan, and such Money Market Loan shall mature, on the last day of the Interest Period for such Money Market Loan. 3.02 Interest. Kelsey-Hayes hereby promises to pay to the Agent for --------- account of each Bank interest on the unpaid principal amount of each Loan made by such Bank for the period from and including the date of such Loan to but excluding the date such Loan shall be paid in full, at the following rates per annum: Credit Agreement ---------------- 37 (a) during such periods as such Loan is a Base Rate Loan, the Base Rate (as in effect from time to time) plus the Applicable Margin; ---- (b) during such periods as such Loan is a Eurodollar Loan, for each Interest Period relating thereto, the Eurodollar Rate for such Loan for such Interest Period plus the Applicable Margin; ---- (c) if such Loan is a LIBOR Market Loan, the LIBO Rate for such Loan for the Interest Period therefor plus (or minus) the LIBO Margin quoted by ---- ----- the Bank making such Loan in accordance with Section 2.03 hereof; and (d) if such Loan is a Set Rate Loan, the Set Rate for such Loan for the Interest Period therefor quoted by the Bank making such Loan in accordance with Section 2.03 hereof. Notwithstanding the foregoing, Kelsey-Hayes hereby promises to pay to the Agent for account of each Bank interest, for each day so long as any Payment Default shall have occurred and be continuing, at the applicable Post-Default Rate (x) on any principal of any Loan made by such Bank (whether or not then due and payable) and (y) on any other amount payable by Kelsey-Hayes hereunder or under the Notes held by such Bank to or for account of such Bank that is not paid when due. Accrued interest on each Loan shall be payable (i) in the case of a Base Rate Loan, quarterly on the Quarterly Dates, (ii) in the case of a Eurodollar Loan or a Money Market Loan, on the last day of each Interest Period therefor and, if such Interest Period is longer than three months (in the case of a Eurodollar Loan or a LIBOR Market Loan), at three-month intervals following the first day of such Interest Period, and (iii) in the case of any Loan, upon the payment or prepayment thereof or the Conversion of such Loan to a Loan of another Type (but only on the principal amount so paid, prepaid or Converted), except that interest payable at the Post-Default Rate shall also be payable from time to time on demand of the Banks for whose account such interest is payable. Promptly after the determination of any interest rate provided for herein or any change therein, the Agent shall give notice thereof to the Banks to which such interest is payable and to Kelsey-Hayes. Section 4. Payments; Pro Rata Treatment; Computations; Etc. ----------------------------------------------- 4.01 Payments. -------- (a) Except to the extent otherwise provided herein, all payments of principal, interest, Reimbursement Obligations and other amounts to be made by Kelsey-Hayes under this Agreement and the Notes, and, except to the extent otherwise provided therein, all payments to be made by the Obligors under any other Basic Document, shall be made in Dollars, in immediately available funds, without deduction, set-off or counterclaim, to the Agent at account Credit Agreement ---------------- 38 number NYAO-DI-900-9-000002 maintained by the Agent with Chase at the Principal Office, not later than 1:00 p.m. New York time on the date on which such payment shall become due (each such payment made after such time on such due date to be deemed to have been made on the next succeeding Business Day). (b) Any Bank for whose account any such payment is to be made may (but shall not be obligated to) debit the amount of any such payment that is not made by such time to any ordinary deposit account of Kelsey-Hayes with such Bank (with notice to Kelsey-Hayes and the Agent). (c) Kelsey-Hayes shall, at the time of making each payment under this Agreement or any Note for account of any Bank, specify to the Agent (which shall notify the intended recipient(s) thereof) the Loans, Reimbursement Obligations or other amounts payable by Kelsey-Hayes hereunder to which such payment is to be applied, in which case such payment shall be, subject to Section 4.02 hereof, so applied (and in the event that Kelsey-Hayes fails to so specify, or if an Event of Default has occurred and is continuing, such payment shall be, subject to said Section 4.02, applied in such manner as is determined to be appropriate by the Majority Banks or, if the Majority Banks fail to advise the Agent of their determination promptly following a request from the Agent for such a determination, by the Agent). (d) Except to the extent otherwise provided in Section 2.04(e) hereof, each payment received by the Agent under this Agreement or any Note for account of any Bank shall be paid by the Agent promptly to such Bank, in immediately available funds, for account of such Bank's Applicable Lending Office for the Loan or other obligation in respect of which such payment is made. (e) If the due date of any payment under this Agreement or any Note would otherwise fall on a day that is not a Business Day, such date shall be extended to the next succeeding Business Day, and interest shall be payable on any principal so extended for the period of such extension. 4.02 Pro Rata Treatment. Except to the extent otherwise provided ------------------- herein: (a) each borrowing of Syndicated Loans of a particular Class under Section 2.01 hereof shall be made from the Banks, each payment of facility fee under Section 2.06 hereof in respect of Commitments shall be made for account of the Banks, and each termination or reduction of the Commitments under Section 2.05 hereof shall be applied to the respective Commitments of the Banks, pro rata according to the amounts of the respective Commitments of the Banks; (b) the making, Conversion and Continuation of Syndicated Loans of a particular Credit Agreement ---------------- 39 Type (other than Conversions provided for by Section 5.04 hereof) shall be made pro rata among the Banks according to the amounts of their respective Commitments (in the case of making of Syndicated Loans) or their respective Syndicated Loans (in the case of Conversions and Continuations of Syndicated Loans), and Eurodollar Loans of a particular Type having the same Interest Period shall be allocated pro rata among the Banks according to the amounts of their respective Commitments (in the case of the making of Syndicated Loans) or their respective Syndicated Loans (in the case of Conversions and Continuations of Loans) of such Type; (c) each payment or prepayment of principal of Syndicated Loans shall be made for account of the Banks prorata in accordance with the respective unpaid principal amounts of the Syndicated Loans held by the Banks; and (d) each payment of interest on Syndicated Loans shall be made for account of the Banks pro rata in accordance with the amounts of interest on such Loans then due and payable to the respective Banks. 4.03 Computations. Interest on Loans and Reimbursement Obligations, ------------ facility fees, letter of credit fees and fronting fees shall be computed on the basis of a year of 360 days and actual days elapsed (including the first day but (except as otherwise provided in Section 2.04(g) hereof) excluding the last day) occurring in the period for which payable. 4.04 Minimum Amounts. Except for mandatory prepayments made pursuant --------------- to Section 2.11 hereof and Conversions or prepayments made pursuant to Section 5.04 hereof, each borrowing, Conversion and partial prepayment of principal of Syndicated Loans shall be in integral multiples of $1,000,000 (borrowings, Conversions or prepayments of or into Loans of different Types or, in the case of Eurodollar Loans, having different Interest Periods at the same time hereunder to be deemed separate borrowings, Conversions and prepayments for purposes of the foregoing, one for each Type or Interest Period). Anything in this Agreement to the contrary notwithstanding, the aggregate principal amount of Eurodollar Loans having the same Interest Period shall be in an amount at least equal to $1,000,000 and, if any Eurodollar Loans having the same Interest Period would otherwise be in a lesser principal amount for any period, such Loans shall be Base Rate Loans during such period. 4.05 Certain Notices. Notices by Kelsey-Hayes to the Agent of --------------- terminations or reductions of Commitments, of borrowings, Conversions, Continuations and optional prepayments of Syndicated Loans, of Types of Syndicated Loans and of the duration of Interest Periods for Syndicated Loans shall be irrevocable and shall be effective only if received by the Agent not later than 11:00 a.m. New York time on the number of Business Days prior to the date of the relevant termination, reduction, borrowing, Conversion, Continuation or prepayment or the first day of such Interest Period specified below: Credit Agreement ---------------- 40
Number of Business Notice Days Prior ------ ---------- Termination or reduction of Commitments 1 Borrowing or prepayment of, or Conversions into, Base Rate Loans same day Borrowing or prepayment of, Conversions into, Continuations as, or duration of Interest Period for, Eurodollar Loans 3
Each such notice of termination or reduction shall specify the amount of the Commitments to be terminated or reduced. Each such notice of borrowing, Conversion, Continuation or optional prepayment shall specify the Type of Loans to be borrowed, Converted, Continued or prepaid and the amount (subject to Section 4.04 hereof) of each Loan of each Type to be borrowed, Converted, Continued or prepaid (and, in the case of a borrowing or Continuation of, or a Conversion into, Eurodollar Loans, the duration of the Interest Period for such Loans) and the date of borrowing, Conversion, Continuation or optional prepayment (which shall be a Business Day). Each such notice of the duration of an Interest Period shall specify the Loans to which such Interest Period is to relate. The Agent shall promptly (and, in the case of any notice of borrowing relating to Eurodollar Loans, not later than the close of business on the date of receipt by the Agent of such notice) notify the Banks of the contents of each such notice. In the event that Kelsey-Hayes fails to select the Type of Loan, or the duration of any Interest Period for any Eurodollar Loan, within the time period and otherwise as provided in this Section 4.05, such Loan (if outstanding as a Eurodollar Loan) will be automatically Converted into a Base Rate Loan on the last day of the then current Interest Period for such Loan or (if outstanding as a Base Rate Loan) will remain as, or (if not then outstanding) will be made as, a Base Rate Loan. 4.06 Non-Receipt of Funds by the Agent. Unless the Agent shall have --------------------------------- been notified by a Bank or Kelsey-Hayes (the "Payor") prior to the date on which the Payor is to make payment to the Agent of (in the case of a Bank) the proceeds of a Loan to be made by such Bank, or an amount payable in respect of a participation in a Letter of Credit Liability to be acquired by such Bank, hereunder or (in the case of Kelsey-Hayes) a payment to the Agent for account of one or more of the Banks hereunder (such payment being herein called the "Required Payment"), which notice shall be effective upon receipt, that the ----------------- Payor does not intend to make the Required Payment to the Agent, the Agent may assume that the Required Payment has been made and may, in reliance upon such assumption (but shall not be required to), make the amount thereof available to the intended recipient(s) on such date; and, if the Payor has not in fact made the Required Payment to the Agent, the recipient(s) of such payment shall, on demand, repay to the Agent the Credit Agreement ---------------- 41 amount so made available together with interest thereon in respect of each day during the period commencing on the date (the "Advance Date") such amount was so ------------ made available by the Agent until the date the Agent recovers such amount at a rate per annum equal to the Federal Funds Rate for such day and, if such recipient(s) shall fail promptly to make such payment, the Agent shall be entitled to recover such amount, on demand, from the Payor, together with interest as aforesaid, provided that if the recipient(s) shall fail to return, -------- and the Payor shall fail to make, the Required Payment to the Agent within three Business Days of the Advance Date, then the Payor and the recipient(s) shall each be obligated to pay interest on the Required Payment as follows: (a) if the Required Payment shall represent a payment to be made by Kelsey-Hayes to the Banks, Kelsey-Hayes and the recipient(s) shall each be obligated retroactively to the Advance Date to pay interest in respect of the Required Payment at the Post-Default Rate (and, in case the recipient(s) shall return the Required Payment to the Agent, without limiting the obligation of Kelsey-Hayes under Section 3.02 hereof to pay interest to such recipient(s) at the Post-Default Rate in respect of the Required Payment); (b) if the Required Payment shall represent proceeds of a Loan to be made by the Banks to Kelsey-Hayes, the Payor and Kelsey-Hayes shall each be obligated retroactively to the Advance Date to pay interest in respect of the Required Payment at the rate of interest provided for such Required Payment pursuant to Section 3.02 hereof (and, in case Kelsey-Hayes shall return the Required Payment to the Agent, without limiting any claim Kelsey -Hayes may have against the Payor in respect of the Required Payment); and (c) if the Required Payment shall represent a payment to be made by a Bank to the Issuing Bank in respect of a participation in a Letter of Credit Liability to be acquired by such Bank, the Payor shall be obligated retroactively to the Advance Date to pay interest in respect of the Required Payment at the rate of interest provided for such Required Payment pursuant to Section 3.02 hereof with respect to Base Rate Loans. 4.07 Sharing of Payments, Etc. ------------------------ (a) Kelsey-Hayes agrees that, in addition to (and without limitation of) any right of set-off, banker's lien or counterclaim a Bank may otherwise have, each Bank shall be entitled, at its option, to offset balances held by it for account of Kelsey-Hayes at any of its offices, in Dollars or in any other currency, against any principal of or interest on any of such Bank's Loans, Reimbursement Obligations or any other amount payable to such Bank hereunder, that is not paid when due (regardless of whether such balances are then due to Kelsey-Hayes), in which case it shall promptly thereafter notify Kelsey-Hayes and the Agent thereof, provided that such Bank's failure to give such notice shall not affect the validity thereof. (b) If any Bank shall obtain from any Obligor payment of any principal of or Credit Agreement ---------------- 42 interest on any Loan of any Class or Letter of Credit Liability owing to it or payment of any other amount under this Agreement or any other Basic Document through the exercise of any right of set-off, banker's lien or counterclaim or similar right or otherwise (other than from the Agent as provided herein), and, as a result of such payment, such Bank shall have received a greater percentage of the principal of or interest on the Loans of such Class or Letter of Credit Liabilities or such other amounts then due hereunder or thereunder by such Obligor to such Bank than the percentage received by any other Bank, it shall promptly purchase from such other Banks participations in (or, if and to the extent specified by such Bank, direct interests in) the Loans of such Class or Letter of Credit Liabilities or such other amounts, respectively, owing to such other Banks (or in interest due thereon, as the case may be) in such amounts, and make such other adjustments from time to time as shall be equitable, to the end that all the Banks shall share the benefit of such excess payment (net of any expenses that may be incurred by such Bank in obtaining or preserving such excess payment) pro rata in accordance with the unpaid principal of and/or interest on the Loans of such Class or Letter of Credit Liabilities or such other amounts, respectively, owing to each of the Banks. To such end all the Banks shall make appropriate adjustments among themselves (by the resale of participations sold or otherwise) if such payment is rescinded or must otherwise be restored. (c) Kelsey-Hayes agrees that any Bank so purchasing such a participation (or direct interest) may exercise all rights of set-off, banker's lien, counterclaim or similar rights with respect to such participation as fully as if such Bank were a direct holder of Loans or other amounts (as the case may be) owing to such Bank in the amount of such participation. (d) Nothing contained herein shall require any Bank to exercise any such right or shall affect the right of any Bank to exercise, and retain the benefits of exercising, any such right with respect to any other indebtedness or obligation of any Obligor. If, under any applicable bankruptcy, insolvency or other similar law, any Bank receives a secured claim in lieu of a set-off to which this Section 4.07 applies, such Bank shall, to the extent practicable, exercise its rights in respect of such secured claim in a manner consistent with the rights of the Banks entitled under this Section 4.07 to share in the benefits of any recovery on such secured claim. Section 5. Yield Protection, Etc. --------------------- 5.01 Additional Costs. ----------------- (a) Kelsey-Hayes shall pay directly to each Bank from time to time such amounts as such Bank may determine to be necessary to compensate such Bank for any costs that such Bank determines are attributable to its making or maintaining of any Fixed Rate Loans or its obligation to make any Fixed Rate Loans hereunder, or any reduction in any amount receivable by such Bank hereunder in respect of any of such Loans or such obligation (such increases in costs and reductions in amounts receivable being herein called "Additional ---------- Costs"), resulting from any Credit Agreement ---------------- 43 Regulatory Change that: (i) changes the basis of taxation of any amounts payable to such Bank under this Agreement or its Notes in respect of any of such Loans (other than taxes imposed on or measured by the net income of such Bank or of its Applicable Lending Office for any of such Loans by the jurisdiction in which such Bank has its principal office or such Applicable Lending Office); or (ii) imposes or modifies any reserve, special deposit or similar requirements (other than the Reserve Requirement utilized in the determination of the Eurodollar Rate or LIBO Rate, as the case may be, for such Loan) relating to any extensions of credit or other assets of, or any deposits with or other liabilities of, such Bank (including, without limitation, any of such Loans or any deposits referred to in the definition of "Eurodollar Base Rate" in Section 1.01 hereof), or any commitment of such Bank hereunder (including, without limitation, the Commitment of such Bank); or (iii) imposes any other condition affecting this Agreement or its Notes (or any of such extensions of credit or liabilities) or its Commitment. If any Bank requests compensation from Kelsey-Hayes under this Section 5.01(a), Kelsey-Hayes may, by notice to such Bank (with a copy to the Agent), suspend the obligation of such Bank thereafter to make or Continue Eurodollar Loans, or to Convert Base Rate Loans into Eurodollar Loans, until the Regulatory Change giving rise to such request ceases to be in effect (in which case the provisions of Section 5.04 hereof shall be applicable), provided that such suspension shall -------- not affect the right of such Bank to receive the compensation so requested. (b) Without limiting the effect of the provisions of paragraph (a) of this Section 5.01, in the event that, by reason of any Regulatory Change, any Bank either (i) incurs Additional Costs based on or measured by the excess above a specified level of the amount of a category of deposits or other liabilities of such Bank that includes deposits by reference to which the interest rate on Eurodollar Loans is determined as provided in this Agreement or a category of extensions of credit or other assets of such Bank that includes Eurodollar Loans or (ii) becomes subject to restrictions on the amount of such a category of liabilities or assets that it may hold, then, if such Bank so elects by notice to Kelsey-Hayes (with a copy to the Agent), the obligation of such Bank to make or Continue, or to Convert Base Rate Loans into, Eurodollar Loans hereunder shall be suspended until such Regulatory Change ceases to be in effect (in which case the provisions of Section 5.04 hereof shall be applicable). (c) Without limiting the effect of the foregoing provisions of this Section 5.01 (but without duplication), Kelsey-Hayes shall pay directly to each Bank from time to time on request such amounts as such Bank may determine to be necessary to compensate such Bank (or, without Credit Agreement ---------------- 44 duplication, the bank holding company of which such Bank is a subsidiary) for any costs that it determines are attributable to the maintenance by such Bank (or any Applicable Lending Office or such bank holding company), pursuant to any law or regulation or any interpretation, directive or request (whether or not having the force of law and whether or not failure to comply therewith would be unlawful) of any court or governmental or monetary authority (i) following any Regulatory Change or (ii) implementing any risk-based capital guideline or other requirement (whether or not having the force of law and whether or not the failure to comply therewith would be unlawful) issued by any government or governmental or supervisory authority after the Restatement Date implementing at the national level the Basel Accord (including, without limitation, the Final Risk-Based Capital Guidelines of the Board of Governors of the Federal Reserve System (12 C.F.R. Part 208, Appendix A; 12 C.F.R. Part 225, Appendix A) and the Final Risk-Based Capital Guidelines of the Office of the Comptroller of the Currency (12 C.F.R. Part 3, Appendix A)), of capital in respect of its Commitment or Loans (such compensation to include, without limitation, an amount equal to any reduction of the rate of return on assets or equity of such Bank (or any Applicable Lending Office or such bank holding company) to a level below that which such Bank (or any Applicable Lending Office or such bank holding company) could have achieved but for such law, regulation, interpretation, directive or request). For purposes of this Section 5.01(c) and Section 5.06 hereof, "Basel Accord" shall mean the proposals for risk-based capital framework ------------ described by the Basel Committee on Banking Regulations and Supervisory Practices in its paper entitled "International Convergence of Capital Measurement and Capital Standards" dated July 1988, as amended, modified and supplemented and in effect from time to time or any replacement thereof. (d) Each Bank shall notify Kelsey-Hayes of any event occurring after the date of this Agreement entitling such Bank to compensation under paragraph (a) or (c) of this Section 5.01 or under Section 5.06 hereof as promptly as practicable, but in any event within 45 days, after such Bank obtains actual knowledge thereof; provided that (i) if any Bank fails to give such notice -------- within 45 days after it obtains actual knowledge of such an event, such Bank shall, with respect to compensation payable pursuant to this Section 5.01 or Section 5.06 hereof in respect of any costs resulting from such event, only be entitled to payment under this Section 5.01 or Section 5.06 hereof, as the case may be, for costs incurred from and after the date 45 days prior to the date that such Bank does give such notice and (ii) each Bank will designate a different Applicable Lending Office for the Loans of such Bank affected by such event if such designation will avoid the need for, or reduce the amount of, such compensation and will not, in the sole opinion of such Bank, be disadvantageous to such Bank, except that such Bank shall have no obligation to designate an Applicable Lending Office located in the United States of America. Each Bank will furnish to Kelsey-Hayes a certificate setting forth the basis and amount of each request by such Bank for compensation under paragraph (a) or (c) of this Section 5.01 or under Section 5.06 hereof. Determinations and allocations by any Bank for purposes of this Section 5.01 and Section 5.06 hereof of the effect of any Regulatory Change pursuant to paragraph (a) or (b) of this Section 5.01 or to Section 5.06 hereof, or of the effect of capital maintained pursuant to paragraph (c) of Credit Agreement ---------------- 45 this Section 5.01 or to Section 5.06 hereof, on its costs or rate of return of maintaining Loans or its obligation to make Loans, or on amounts receivable by it in respect of Loans, and of the amounts required to compensate such Bank under this Section 5.01 or Section 5.06 hereof, as the case may be, shall be conclusive, provided that (x) such determinations and allocations are made on a -------- reasonable basis and (y) such determinations and allocations are made with respect to corporations or other Persons similar to Kelsey-Hayes who are then borrowers from such Bank pursuant to agreements having provisions similar to this Section 5.01 or Section 5.06 hereof, as the case may be. 5.02 Limitation on Types of Loans. Anything herein to the contrary ---------------------------- notwithstanding, if, on or prior to the determination of any Eurodollar Base Rate for any Interest Period: (a) the Agent determines, which determination shall be conclusive, that quotations of interest rates for the relevant deposits referred to in the definition of "Eurodollar Base Rate" in Section 1.01 hereof are not being provided in the relevant amounts or for the relevant maturities for purposes of determining rates of interest for either Type of Fixed Rate Loans as provided herein; or (b) the Majority Banks determine (or any Bank that has outstanding a Money Market Quote with respect to a LIBOR Market Loan determines), which determination shall be conclusive, and notify (or notifies, as the case may be) the Agent that the relevant rates of interest referred to in the definition of "Eurodollar Base Rate" in Section 1.01 hereof upon the basis of which the rate of interest for Eurodollar Loans (or LIBOR Market Loans, as the case may be) for such Interest Period is to be determined are not likely adequately to cover the cost to such Banks (or to such quoting Bank) of making or maintaining Eurodollar Loans for such Interest Period; then the Agent shall give Kelsey-Hayes and each Bank prompt notice thereof and, so long as such condition remains in effect, the Banks (or such quoting Bank) shall be under no obligation to make additional Eurodollar Loans, to Continue Eurodollar Loans or to Convert Base Rate Loans into Eurodollar Loans, and Kelsey-Hayes shall, on the last day(s) of the then current Interest Period(s) for the outstanding Eurodollar Loans, either prepay such Loans or Convert such Loans into Base Rate Loans in accordance with Section 2.10 hereof. 5.03 Illegality. Notwithstanding any other provision of this ---------- Agreement, in the event that it becomes unlawful for any Bank or its Applicable Lending Office to honor its obligation to make or maintain Eurodollar Loans or LIBOR Market Loans hereunder (and, in the sole opinion of such Bank, the designation of a different Applicable Lending Office would either not avoid such unlawfulness or would be disadvantageous to such Bank), then such Bank shall promptly notify Kelsey-Hayes thereof (with a copy to the Agent) and such Bank's obligation to Credit Agreement ---------------- 46 make or Continue, or to Convert Loans of any other Type into, Eurodollar Loans shall be suspended until such time as such Bank may again make and maintain Eurodollar Loans (in which case the provisions of Section 5.04 hereof shall be applicable), and such Bank shall no longer be obligated to make any LIBOR Market Loan that it has offered to make. 5.04 Treatment of Affected Loans. If the obligation of any Bank to --------------------------- make Eurodollar Loans or to Continue, or to Convert Base Rate Loans into, Eurodollar Loans shall be suspended pursuant to Section 5.01 or 5.03 hereof, such Bank's Eurodollar Loans shall be automatically Converted into Base Rate Loans on the last day(s) of the then current Interest Period(s) for Eurodollar Loans (or, in the case of a Conversion required by Section 5.01(b) or 5.03 hereof, on such earlier date as such Bank may specify to Kelsey-Hayes with a copy to the Agent) and, unless and until such Bank gives notice as provided below that the circumstances specified in Section 5.01 or 5.03 hereof that gave rise to such Conversion no longer exist: (a) to the extent that such Bank's Eurodollar Loans have been so Converted, all payments and prepayments of principal that would otherwise be applied to such Bank's Eurodollar Loans shall be applied instead to its Base Rate Loans; and (b) all Loans that would otherwise be made or Continued by such Bank as Eurodollar Loans shall be made or Continued instead as Base Rate Loans, and all Base Rate Loans of such Bank that would otherwise be Converted into Eurodollar Loans shall remain as Base Rate Loans. If such Bank gives notice to Kelsey-Hayes with a copy to the Agent that the circumstances specified in Section 5.01 or 5.03 hereof that gave rise to the Conversion or non-Continuation of such Bank's Eurodollar Loans pursuant to this Section 5.04 no longer exist (which such Bank agrees to do promptly upon such circumstances ceasing to exist) at a time when Eurodollar Loans made by other Banks are outstanding, such Bank's Base Rate Loans shall be automatically Converted, on the first day(s) of the next succeeding Interest Period(s) for such outstanding Eurodollar Loans, to the extent necessary so that, after giving effect thereto, all Syndicated Loans held by the Banks holding Eurodollar Loans and by such Bank are held pro rata (as to principal amounts, Types and Interest Periods) in accordance with their respective Commitments. 5.05 Compensation. Kelsey-Hayes shall pay to the Agent for account ------------ of each Bank, upon the request of such Bank through the Agent, such amount or amounts as shall be sufficient (in the reasonable opinion of such Bank) to compensate it for any loss, cost or expense that such Bank determines is attributable to: (a) any payment, mandatory or optional prepayment or Conversion of a Fixed Rate Loan or a Set Rate Loan made by such Bank for any reason (including, without limitation, the acceleration of the Loans pursuant to Section 10 hereof) on a date other than the last Credit Agreement ---------------- 47 day of the Interest Period for such Loan; (b) any failure by Kelsey-Hayes for any reason (including, without limitation, the failure of any of the conditions precedent specified in Section 7 hereof to be satisfied, but excluding the failure of such Bank to make a Fixed Rate Loan or a Set Rate Loan required to be made by it) to borrow a Fixed Rate Loan or a Set Rate Loan (with respect to which, in the case of a Money Market Loan, the Company has accepted a Money Market Quote) from such Bank on the date for such borrowing specified in the relevant notice of borrowing given under Sections 2.02 or 2.03(b) hereof; or (c) any failure for any reason (including, without limitation, as provided in Section 5.02 or 5.03 hereof) of a Syndicated Loan of such Bank to be Continued as or Converted into a Eurodollar Loan on the date for such Continuation or Conversion specified in the relevant notice given under Section 2.10 hereof. Without limiting the effect of the preceding sentence, such compensation shall include an amount equal to the excess (if any) of (i) the amount of interest that otherwise would have accrued on the principal amount so paid, prepaid or Converted or not borrowed, Continued or Converted for the period from the date of such payment, prepayment, Conversion or failure to borrow, Continue or Convert to the last day of the then current Interest Period for such Loan (or, in the case of a failure to borrow, Continue or Convert, the Interest Period for such Loan that would have commenced on the date specified for such borrowing, Continuation or Conversion) at the applicable rate of interest for such Loan provided for herein over (ii) the amount of interest that otherwise would have ---- accrued on such principal amount at a rate per annum equal to the interest component of the amount such Bank would have bid in the London interbank market (if such Loan is a Eurodollar Loan or a LIBOR Market Loan) or the United States secondary certificate of deposit market (if such Loan is a Set Rate Loan) for Dollar deposits of leading banks in amounts comparable to such principal amount and with maturities comparable to such period (as reasonably determined by such Bank). 5.06 Additional Costs in Respect of Letters of Credit. Without ------------------------------------------------ limiting the obligations of Kelsey-Hayes under Section 5.01 hereof (but without duplication), if as a result of any Regulatory Change or any risk-based capital guideline or other requirement hereafter issued by any government or governmental or supervisory authority implementing at the national level the Basel Accord there shall be imposed, modified or deemed applicable any tax (other than taxes imposed on or measured by the net income of a Bank or of its Applicable Lending Office by the jurisdiction in which such Bank has its principal office or such Applicable Lending Office), reserve, special deposit, capital adequacy or similar requirement against or with respect to or measured by reference to Letters of Credit issued or to be issued hereunder and the result shall be to increase the cost to any Bank or Banks of issuing (or purchasing participations in) or maintaining its obligation hereunder to issue (or purchase participations in) any Letter of Credit Credit Agreement ---------------- 48 or reduce any amount receivable by any Bank hereunder in respect of any Letter of Credit (which increases in cost, or reductions in amount receivable, shall be the result of such Bank's or Banks' reasonable allocation of the aggregate of such increases or reductions resulting from such event), then, upon demand by such Bank or Banks (through the Agent), Kelsey-Hayes shall pay immediately to the Agent for account of such Bank or Banks, from time to time as specified by such Bank or Banks (through the Agent), such additional amounts as shall be sufficient to compensate such Bank or Banks (through the Agent) for such increased costs or reductions in amount. A statement as to such increased costs or reductions in amount incurred by any such Bank or Banks, submitted by such Bank or Banks to Kelsey-Hayes shall be conclusive in the absence of manifest error as to the amount thereof. 5.07 U.S. Taxes. ---------- (a) Kelsey-Hayes agrees to pay to each Bank that is not a U.S. Person such additional amounts as are necessary in order that the net payment of any amount due to such non-U.S. Person hereunder after deduction for or withholding in respect of any U.S. Tax imposed with respect to such payment (or in lieu thereof, payment of such U.S. Tax by such non-U.S. Person), will not be less than the amount stated herein to be then due and payable, provided that the -------- foregoing obligation to pay such additional amounts shall not apply: (i) to any payment to a Bank hereunder unless such Bank is, on the date hereof (or on the date it becomes a Bank as provided in Section 12.06(b) hereof) and on the date of any change in the Applicable Lending Office of such Bank, either entitled to submit a Form 1001 (relating to such Bank and entitling it to a complete exemption from withholding on all interest to be received by it hereunder in respect of the Loans) or Form 4224 (relating to all interest to be received by such Bank hereunder in respect of the Loans), or (ii) to any U.S. Tax imposed solely by reason of the failure by such non-U.S. Person to comply with applicable certification, information, documentation or other reporting requirements concerning the nationality, residence, identity or connections with the United States of America of such non-U.S. Person if such compliance is required by statute or regulation of the United States of America as a precondition to relief or exemption from such U.S. Tax. For the purposes of this Section 5.07(a), (w) "Form 1001" shall mean Form 1001 --------- (Ownership, Exemption, or Reduced Rate Certificate) of the Department of the Treasury of the United States of America, (x) "Form 4224" shall mean Form 4224 --------- (Exemption from Withholding of Tax on Income Effectively Connected with the Conduct of a Trade or Business in the United States) of the Department of the Treasury of the United States of America (or in relation to either such Form such successor and related forms as may from time to time be adopted by the relevant taxing Credit Agreement ---------------- 49 authorities of the United States of America to document a claim to which such Form relates), (y) "U.S. Person" shall mean a citizen, national or resident of ----------- the United States of America, a corporation, partnership or other entity created or organized in or under any laws of the United States of America, or any estate or trust that is subject to Federal income taxation regardless of the source of its income and (z) "U.S. Taxes" shall mean any present or future tax, assessment ---------- or other charge or levy imposed by or on behalf of the United States of America or any taxing authority thereof or therein (other than taxes imposed on or measured by the net income of such Bank or of its Applicable Lending Office for any of such Loans by the jurisdiction in which such Bank has its principal office or such Applicable Lending Office). (b) Within 30 days after paying any amount to the Agent or any Bank from which it is required by law to make any deduction or withholding, and within 30 days after it is required by law to remit such deduction or withholding to any relevant taxing or other authority, Kelsey-Hayes shall deliver to the Agent for delivery to such non-U.S. Person evidence satisfactory to such Person of such deduction, withholding or payment (as the case may be). Section 6. [Intentionally Omitted]. Section 7. Conditions Precedent. --------------------- 7.01 Conditions to Effectiveness. The effectiveness of the amendment --------------------------- and restatement of the 1993 Credit Agreement provided for hereby is subject to the receipt by the Agent of the following documents, each of which shall be satisfactory to the Agent (and to the extent specified below, to each Bank) in form and substance: (a) Corporate Documents. A certificate of the corporate secretary or ------------------- assistant secretary of each Obligor, dated the Amendment Effective Date, as to (i) its charter (which charter shall be certified as of a recent date by the Secretary of State of the jurisdiction of organization of such Obligor), by-laws, existence and good standing, (ii) all corporate action taken by it in connection with the Basic Documents to which it is or is intended to be a party and (iii) the incumbency and specimen signature of the officers signing the Basic Documents to which it is or is intended to be a party and giving notices in connection therewith. (b) Officer's Certificate. A certificate of a senior officer of --------------------- Kelsey-Hayes, dated the Amendment Effective Date, to the effect set forth in the first sentence of Section 7.02 hereof. (c) Opinions of Counsel to the Obligors. Opinions, dated the ----------------------------------- Amendment Effective Date, of each of (i) Cahill Gordon & Reindel, counsel to the Obligors, substantially in the form of Exhibit C-1 hereto and covering such other matters as the Credit Agreement ---------------- 50 Agent or any Bank may reasonably request, (ii) the General Counsel to Kelsey -Hayes, substantially in the form of Exhibit C-2 hereto and covering such other matters as the Agent or any Bank may reasonably request and (iii) the General Counsel to Varity, substantially in the form of Exhibit C-3 hereto and covering such other matters as the Agent or any Bank may reasonably request (and Kelsey-Hayes hereby instructs such counsel to deliver such opinions to the Banks and the Agent). (d) Opinion of Special New York Counsel to the Banks. An opinion, ------------------------------------------------ dated the Amendment Effective Date, of Milbank, Tweed, Hadley & McCloy, special New York counsel to the Banks, substantially in the form of Exhibit D hereto. (e) Notes. The Notes, duly completed and executed dated the ----- Restatement Date in exchange for the Original Notes. (f) Varity Guarantee. The Varity Guarantee, duly executed and ---------------- delivered by Varity and the Agent. (g) Other Documents. Such other documents as the Agent or any Bank or --------------- special New York counsel to the Banks may reasonably request. The effectiveness of the amendment and restatement of the 1993 Credit Agreement is also subject to the payment by Kelsey-Hayes of (i) all commitment fees and letter of credit fees under the 1993 Credit Agreement accrued to the Amendment Effective Date and unpaid and (ii) such fees as Kelsey-Hayes shall have agreed to pay or deliver to any Bank or the Agent in connection herewith, including, without limitation, the reasonable fees and expenses of Milbank, Tweed, Hadley & McCloy, special New York counsel to the Banks in connection with the negotiation, preparation, execution and delivery of this Agreement and the Notes and the other Basic Documents and the extensions of credit hereunder (to the extent that statements for such fees and expenses have been delivered to Kelsey- Hayes). 7.02 Extensions of Credit. The obligation of the Banks to make any -------------------- Loan or otherwise extend any credit to Kelsey-Hayes upon the occasion of each borrowing or other extension of credit hereunder is subject to the conditions precedent that, both immediately prior to the making of such Loan or other extension of credit and also after giving effect thereto and to the intended use thereof: (a) no Default shall have occurred and be continuing; (b) the representations and warranties made by Kelsey-Hayes in Section 8 hereof, and by each Obligor in each of the other Basic Documents to which it is a party, shall be true and complete on and as of the date of the making of such Loan or other extension of Credit Agreement ---------------- 51 credit with the same force and effect as if made on and as of such date (or, if any such representation or warranty is expressly stated to have been made as of a specific date, as of such specific date); (c) the aggregate principal amount of the Loans outstanding, together with the aggregate amount of all Letter of Credit Liabilities outstanding, shall not exceed the Borrowing Base reflected on the most recent Borrowing Base Certificate delivered pursuant to Section 9.01(j) hereof. Each notice of borrowing or request for the issuance of a Letter of Credit by Kelsey-Hayes hereunder shall constitute a certification by Kelsey-Hayes to the effect set forth in the preceding sentence (both as of the date of such notice or request and, unless Kelsey-Hayes otherwise notifies the Agent prior to the date of such borrowing or issuance, as of the date of such borrowing or issuance). Section 8. Representations and Warranties. Kelsey-Hayes represents and ------------------------------ warrants to the Agent and the Banks that: 8.01 Corporate Existence. Each of the Obligors: (a) is a ------------------- corporation, partnership or other entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization; (b) has all requisite corporate or other power, and has all material governmental licenses, authorizations, consents and approvals, necessary to own its assets and carry on its business as now being or as proposed to be conducted; and (c) is qualified to do business and is in good standing in all jurisdictions in which the nature of the business conducted by it makes such qualification necessary and where failure so to qualify could, either individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. 8.02 Financial Condition. Kelsey-Hayes has heretofore furnished to ------------------- each of the Banks the audited consolidated balance sheet of Kelsey-Hayes and its Subsidiaries as at January 31, 1995 and the audited consolidated statements of operations, changes in stockholders' equity and cash flows of Kelsey-Hayes and its Subsidiaries for the fiscal year ended on such date. All such financial statements present fairly, in all material respects, the consolidated financial position of Kelsey-Hayes and its Subsidiaries as at said date and the consolidated results of their operations for the period covered thereby, all in accordance with generally accepted accounting principles applied on a consistent basis. None of Kelsey-Hayes and its Subsidiaries has on the Restatement Date any material contingent liabilities, liabilities for taxes, unusual forward or long-term commitments or unrealized or anticipated losses from any unfavorable commitments, except as referred to or reflected or provided for in said financial statements (or in the notes thereto) as at said date. Since January 31, 1995, there has been no material adverse change in the condition (financial or otherwise), business, operations, Property, liabilities or prospects of Kelsey-Hayes and its Subsidiaries taken as a whole from that set forth in said financial statements as at said date. Credit Agreement ---------------- 52 8.03 Litigation. Except as disclosed in Schedule IV hereto and ---------- except as may be disclosed after the Restatement Date in a notice to the Agent and the Banks (but only to the extent any information so disclosed after the Restatement Date is designated as acceptable to the Banks in a notice from the Agent (upon authorization from the Banks) to Kelsey-Hayes), there are no legal or arbitral proceedings, or any proceedings by or before any governmental or regulatory authority or agency, now pending or (to the knowledge of Kelsey- Hayes) threatened against Kelsey-Hayes or any of its Domestic Subsidiaries that, if adversely determined, could, either individually or in the aggregate, have a Material Adverse Effect. 8.04 No Breach. None of the execution and delivery of this Agreement --------- and the Notes and the other Basic Documents, the consummation of the transactions herein and therein contemplated or compliance with the terms and provisions hereof and thereof will conflict with or result in a breach of, or require any consent under, the charter or by-laws of any Obligor, or any applicable law or regulation, or any order, writ, injunction or decree of any court or governmental authority or agency, or any agreement or instrument to which Kelsey-Hayes or any of its Domestic Subsidiaries is a party or by which Kelsey-Hayes or any of its Domestic Subsidiaries or any of its Property is bound or to which Kelsey-Hayes or any of its Domestic Subsidiaries is subject, or constitute a default under any such agreement or instrument. 8.05 Action. Each Obligor has all necessary corporate power, ------ authority and legal right to execute, deliver and perform its obligations under each of the Basic Documents to which it is a party; the execution, delivery and performance by each Obligor of each of the Basic Documents to which it is a party have been duly authorized by all necessary corporate action on its part (including, without limitation, any required shareholder approvals); and this Agreement has been duly and validly executed and delivered by and constitutes, and each of the Notes and the other Basic Documents when executed and delivered by each Obligor party thereto (in the case of the Notes, for value) will constitute, the legal, valid and binding obligation of each Obligor party thereto, enforceable against such Obligors in accordance with its terms. 8.06 Approvals. No authorizations, approvals or consents of, and no --------- filings or registrations with, any governmental or regulatory authority or agency, or any securities exchange, are necessary for the execution, delivery or performance by any Obligor of the Basic Documents to which it is a party or for the legality, validity or enforceability hereof or thereof. 8.07 Use of Credit. No Obligor is engaged principally, or as one of ------------- its important activities, in the business of extending credit for the purpose, whether immediate, incidental or ultimate, of buying or carrying Margin Stock, and no part of the proceeds of any extension of credit hereunder will be used to buy or carry any Margin Stock. Not more than 25% of the value of the Properties of the Obligors subject to the provisions of Section 9.05 and/or 9.06 hereof is represented by Properties constituting Margin Stock. Credit Agreement ---------------- 53 8.08 ERISA. Except as disclosed in Schedule VII hereto and as may be ----- disclosed after the Restatement Date in a notice to the Agent and the Banks (but only to the extent any information so disclosed is designated as acceptable to the Banks in a notice from the Agent (upon authorization from the Banks) to Kelsey-Hayes), each Plan, and, to the knowledge of Kelsey-Hayes, each Multiemployer Plan, is in compliance in all material respects with, and has been administered in all material respects in compliance with, the applicable provisions of ERISA, the Code and any other Federal or State law, and no event or condition has occurred and is continuing as to which Kelsey-Hayes would be under an obligation to furnish a report to the Banks under Section 9.01(i) hereof that could reasonably be expected to have a Material Adverse Effect. 8.09 Taxes. K-H, Kelsey-Hayes and the Subsidiaries of Kelsey-Hayes ----- are members of an affiliated group of corporations filing consolidated returns for Federal income tax purposes, of which Varity is the "common parent" (within the meaning of Section 1504 of the Code) of such group. Except for the Tax Sharing Agreement and the Kelsey-Hayes Tax Sharing Agreement, there is no tax sharing, tax allocation or similar agreement currently in effect providing for the manner in which tax payments owing by the members of such affiliated group (whether in respect of Federal or state income or other taxes) are allocated among the members of the group. Kelsey-Hayes and its Subsidiaries have filed (either directly, or indirectly through Varity) all Federal income tax returns and all other material tax returns that are required to be filed by them and have paid (either directly, or indirectly through Varity) all taxes due pursuant to such returns or pursuant to any assessment received by any member of such affiliated group, except for any such tax the payment of which is being contested in good faith and by proper proceedings and against which adequate reserves are being maintained in accordance with GAAP. The charges, accruals and reserves on the books of Kelsey-Hayes and its Subsidiaries in respect of taxes and other governmental charges are, in the opinion of Kelsey-Hayes, adequate. Except as disclosed in Schedule VI hereto and as may be disclosed after the Restatement Date in a notice to the Agent and the Banks (but only to the extent any information so disclosed is designated as acceptable to the Banks in a notice from the Agent (upon authorization from the Banks) to Kelsey-Hayes), no member of such affiliated group has given or been requested to give a waiver of the statute of limitations relating to the payment of Federal, state, local and foreign taxes or other impositions. 8.10 Investment Company Act. No Obligor is an "investment company", ---------------------- or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended. 8.11 Public Utility Holding Company Act. No Obligor is a "holding ---------------------------------- company", or an "affiliate" of a "holding company" or a "subsidiary company" of a "holding company", within the meaning of the Public Utility Holding Company Act of 1935, as amended. 8.12 Material Agreements and Liens. ----------------------------- Credit Agreement ---------------- 54 (a) Part A of Schedule I hereto is a complete and correct list, as of the Restatement Date, each credit agreement, loan agreement, indenture, securities purchase agreement, guarantee, letter of credit or other arrangement providing for or otherwise relating to any Indebtedness or any extension of credit (or commitment for any extension of credit) to, or guarantee by, Kelsey- Hayes or any of its Subsidiaries the aggregate principal or face amount of which equals or exceeds (or may equal or exceed) $250,000 (or, in the case of any Foreign Subsidiary, $1,000,000), and the aggregate principal or face amount outstanding or that may become outstanding under each such arrangement is correctly described in Part A of said Schedule I. (b) Part B of Schedule I hereto is a complete and correct list, as of the Restatement Date, of each Lien securing Indebtedness of any Person the aggregate principal or face amount of which equals or exceeds (or may equal or exceed) $250,000 and covering any Property of Kelsey-Hayes or any of its Domestic Subsidiaries, and the aggregate Indebtedness secured (or which may be secured) by each such Lien and the Property covered by each such Lien is correctly described in Part B of said Schedule I. 8.13 Environmental Matters. Except as set forth on Schedule II --------------------- hereto, each of Kelsey-Hayes and its Subsidiaries has obtained all permits, licenses and other authorizations, or has applied for and is authorized to conduct its business pending receipt of such permit, license or other authorization, required under all applicable Environmental Laws currently in effect to carry on its business as now being conducted, except to the extent failure to have any such permit, license or authorization could not, either individually or in the aggregate, have a Material Adverse Effect. Except as set forth on Schedule II hereto, each of such permits, licenses and authorizations is in full force and effect, and each of Kelsey-Hayes and its Subsidiaries is in compliance with the terms and conditions thereof and is in substantial compliance with all other limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, schedules and timetables contained in any applicable Environmental Law currently in effect or in any regulation, code, plan, order, decree, judgment, injunction, notice or demand letter issued, entered, promulgated or approved thereunder, except to the extent failure to comply therewith could not, either individually or in the aggregate, have a Material Adverse Effect. In addition, except as set forth on Schedule II hereto, no written notice, notification, demand, request for information, citation, summons or order has been issued, no complaint has been filed, no penalty has been assessed and no investigation or review is (to the knowledge of Kelsey-Hayes) pending or threatened by any governmental or other entity with respect to any alleged failure by Kelsey-Hayes or any of its Subsidiaries to have any permit, license or other authorization required under any applicable Environmental Law currently in effect in connection with the conduct of the business of Kelsey-Hayes or any of its Subsidiaries or with respect to any generation, treatment, storage, recycling, transportation, discharge or disposal, or any Release of any Hazardous Materials generated by Kelsey-Hayes or any of its Subsidiaries, except to the extent any of the matters referred to in this sentence could not, either individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. There have been no environmental investigations, Credit Agreement ---------------- 55 studies, audits, tests, reviews or other analyses conducted by or that are in the possession of Kelsey-Hayes or any of its Subsidiaries in relation to any site or facility now or previously owned, operated or leased by Kelsey-Hayes or any of its Subsidiaries which, to the extent any such investigation, study, audit, test, review or other analysis has revealed a circumstance or condition that could reasonably be expected to have a Material Adverse Effect, have not been made available to the Banks. 8.14 Capitalization. -------------- (a) The authorized capital stock of MF Delaware consists, on the Restatement Date, of an aggregate of 1,000 shares of common stock, par value $1.00 per share, of which 777 shares are duly and validly issued and outstanding, each of which shares will be fully paid and nonassessable. As of the Restatement Date, all of such issued and outstanding shares of common stock are owned beneficially and of record by Varity. As of the Restatement Date, (i) there are no outstanding Equity Rights with respect to MF Delaware, (ii) there are no outstanding obligations of MF Delaware or any of its Subsidiaries to repurchase, redeem, or otherwise acquire any shares of capital stock of MF Delaware and (iii) there are no outstanding obligations of MF Delaware or any of its Subsidiaries to make payments to any Person, such as "phantom stock" payments, to the extent the amount of such payments is calculated with reference to the fair market value or equity value of MF Delaware or any of its Subsidiaries. (b) The authorized capital stock of K-H consists, on the Restatement Date, of an aggregate of 1,000 shares of common stock, par value $0.01 per share, of which 1,000 shares are duly and validly issued and outstanding, each of which shares are fully paid and nonassessable. As of the Restatement Date, all of such issued and outstanding shares of common stock are owned beneficially and of record by MF Delaware. As of the Restatement Date, (i) there are no outstanding Equity Rights with respect to K-H, (ii) there are no outstanding obligations of K-H or any of its Subsidiaries to repurchase, redeem, or otherwise acquire any shares of capital stock of K-H and (iii) there are no outstanding obligations of K-H or any of its Subsidiaries to make payments to any Person, such as "phantom stock" payments, to the extent the amount of such payments is calculated with reference to the fair market value or equity value of K-H or any of its Subsidiaries. (c) The authorized capital stock of Kelsey-Hayes consists, on the Restatement Date, of an aggregate of 2,000 shares consisting of (i) 1000 shares of common stock, par value $0.01 per share, of which 500 shares are duly and validly issued and outstanding, each of which shares are fully paid and nonassessable, and (ii) 1000 shares of Kelsey-Hayes Preferred Stock, par value $0.01 per share, of which 144 shares are duly and validly issued and outstanding, each of which shares are fully paid and nonassessable. As of the Restatement Date, all of such issued and outstanding shares of common stock are owned beneficially and of record by K-H and all of such issued and outstanding shares of Kelsey-Hayes Preferred Stock are owned beneficially and of Credit Agreement ---------------- 56 record by Varity. As of the Restatement Date, (i) there are no outstanding Equity Rights with respect to Kelsey-Hayes, (ii) there are no outstanding obligations of Kelsey-Hayes or any of its Subsidiaries to repurchase, redeem, or otherwise acquire any shares of capital stock of Kelsey-Hayes and (iii) there are no outstanding obligations of Kelsey-Hayes or any of its Subsidiaries to make payments to any Person, such as "phantom stock" payments, to the extent the amount of such payments is calculated with reference to the fair market value or equity value of Kelsey-Hayes or any of its Subsidiaries. 8.15 Subsidiaries, Etc. ----------------- (a) Set forth in Part A of Schedule III hereto is a complete and correct list, as of the Restatement Date, of all of the Subsidiaries of Kelsey- Hayes, together with, for each such Subsidiary, (i) the jurisdiction of organization of such Subsidiary, (ii) each Person holding ownership interests in such Subsidiary, (iii) the nature of the ownership interests held by each such Person and the percentage of ownership of such Subsidiary represented by such ownership interests and (iv) whether such Subsidiary is a Domestic Subsidiary. Except as disclosed in Part A of Schedule III hereto, as of the Restatement Date, (x) each of Kelsey-Hayes and its Subsidiaries owns, free and clear of Liens, and has the unencumbered right to vote, all outstanding ownership interests in each Person shown to be held by it in Part A of Schedule III hereto, (y) all of the issued and outstanding capital stock of each such Person organized as a corporation is validly issued, fully paid and nonassessable and (z) there are no outstanding Equity Rights with respect to such Person. (b) Set forth in Part B of Schedule III hereto is a complete and correct list, as of the Restatement Date, of all Investments (other than Investments disclosed in Part A of said Schedule III hereto) heldby Kelsey-Hayes or any of its Subsidiaries in any Person and, for each such Investment, (x) the identity of the Person or Persons holding such Investment and (y) the nature of such Investment. Except as disclosed in Part B of Schedule III hereto, as of the Restatement Date, each of Kelsey-Hayes and its Subsidiaries owns, free and clear of all Liens, all such Investments. (c) [Intentionally Omitted.] 8.16 Title to Assets. Each of Kelsey-Hayes and its Subsidiaries owns --------------- and has on the Restatement Date good and marketable title (subject only to Liens permitted by Section 9.06 hereof) to the Properties shown to be owned in the most recent financial statements referred to in Section 8.02 hereof (other than Properties disposed of in the ordinary course of business or otherwise permitted to be disposed of pursuant to Section 9.05 hereof). Each of Kelsey-Hayes and its Subsidiaries owns and has on the Restatement Date good and marketable title to, and enjoys on the Restatement Date peaceful and undisturbed possession of all Properties (subject only to Liens permitted by Section 9.06 hereof) that are necessary for the operation and conduct of Credit Agreement ---------------- 57 their businesses, except for Properties duly and validly held under leases none of which leases contains any unusual or burdensome provision that, either individually or in the aggregate, would be reasonably likely to have a Material Adverse Effect. 8.17 True and Complete Disclosure. The information, reports, ---------------------------- financial statements, exhibits and schedules furnished in writing by or on behalf of any Obligor to the Agent or any Bank in connection with the negotiation, preparation or delivery of this Agreement and the other Basic Documents or included herein or therein or delivered pursuant hereto or thereto, when taken as a whole, do not, as of the Restatement Date, contain any untrue statement of material fact or omit to state any material fact necessary to make the statements herein or therein, in light of the circumstances under which they were made, not misleading. All written information furnished after the Restatement Date by any Obligor to the Agent and the Banks in connection with this Agreement and the other Basic Documents and the transactions contemplated hereby and thereby will be true, complete and accurate in every material respect, or (in the case of projections) based on reasonable estimates, on the date as of which such information is stated or certified. To the knowledge of Kelsey-Hayes, there is no fact peculiar to any Obligor that could have a Material Adverse Effect that has not been disclosed herein, in the other Basic Documents or in a report, financial statement, exhibit, schedule, disclosure letter or other writing furnished to the Banks for use in connection with the transactions contemplated hereby or thereby. Section 9. Covenants of Kelsey-Hayes. Kelsey-Hayes covenants and ------------------------- agrees with the Banks and the Agent that, so long as any Commitment, Loan or Letter of Credit Liability is outstanding and until payment in full of all amounts payable by Kelsey-Hayes hereunder: 9.01 Financial Statements; Information; Etc. Kelsey-Hayes shall --------------------------------------- deliver to each of the Banks: (a) as soon as available and in any event within 45 days after the end of each of the first three quarterly fiscal periods of each fiscal year of Kelsey-Hayes, consolidated and consolidating statements of operations, changes in stockholder's equity and cash flows of Kelsey-Hayes and its Subsidiaries for such period and for the period from the beginning of the respective fiscal year to the end of such period, and the related consolidated and consolidating balance sheets of Kelsey-Hayes and its Subsidiaries as at the end of such period, setting forth in each case in comparative form the corresponding consolidated and consolidating figures for the corresponding period in the preceding fiscal year (it being understood that the balance sheets may be compared with the figures for the end of the preceding year), accompanied by a certificate of a Senior Financial Officer, which certificate shall state that said consolidated financial statements present fairly, in all material respects, the consolidated financial position and results of operations of Kelsey-Hayes and its Subsidiaries, and said consolidating financial statements present fairly , in all material respects, the respective individual unconsolidated financial position and Credit Agreement ---------------- 58 results of operations of Kelsey-Hayes and of each of its Subsidiaries, in each case in accordance with generally accepted accounting principles, consistently applied, as at the end of, and for, such period (subject to normal year-end audit adjustments); (b) as soon as available and in any event within 90 days after the end of each fiscal year of Kelsey-Hayes, consolidated and consolidating statements of operations, changes in stockholder's equity and cash flows of Kelsey-Hayes and its Subsidiaries for such fiscal year and the related consolidated and consolidating balance sheets of Kelsey-Hayes and its Subsidiaries as at the end of such fiscal year, setting forth in each case in comparative form the corresponding consolidated and consolidating figures for the preceding fiscal year, and accompanied (i) in the case of said consolidated statements and balance sheet of Kelsey-Hayes, by an opinion thereon of independent certified public accountants of recognized national standing, which opinion shall state that said consolidated financial statements present fairly, in all material respects, the consolidated financial condition and results of operations of Kelsey-Hayes and its Subsidiaries as at the end of, and for, such fiscal year in accordance with generally accepted accounting principles, and a certificate of such accountants stating that, in making the examination necessary for their opinion, they obtained no knowledge, except as specifically stated, of any Default insofar as it may relate to accounting matters, and (ii) in the case of said consolidating statements and balance sheets, by a certificate of a Senior Financial Officer, which certificate shall state that said consolidating financial statements present fairly, in all material respects, the respective individual unconsolidated financial condition and results of operations of Kelsey-Hayes and of each of its Subsidiaries, in each case in accordance with generally accepted accounting principles, consistently applied, as at the end of, and for, such fiscal year; (c) [Intentionally Omitted]; (d) [Intentionally Omitted]; (e) as soon as available and in any event within 45 days after the end of each of the first three quarterly fiscal periods of each fiscal year of Varity, consolidated statements of operations, changes in stockholder's equity and cash flows of Varity and its Subsidiaries for such period and for the period from the beginning of the respective fiscal year to the end of such period, and the related consolidated balance sheet of Varity and its Subsidiaries as at the end of such period, setting forth in each case in comparative form the corresponding figures for the corresponding period in the preceding fiscal year (or, if Varity shall then be subject to the reporting requirements of Section 13 of the Securities Exchange Act of 1934, as amended, a copy of the report of Varity required to be filed on Form 10-Q with respect to such quarterly fiscal period), accompanied by a certificate of a senior financial officer of Varity, which certificate shall state that said financial Credit Agreement ---------------- 59 statements (or the financial statements included in such Form 10-Q) present fairly the consolidated financial condition and results of operations of Varity and its Subsidiaries in accordance with generally accepted accounting principles, consistently applied, as at the end of, and for, such period (subject to normal year-end audit adjustments); (f) as soon as available and in any event within 90 days after the end of each fiscal year of Varity, consolidated statements of operations, changes in stockholder's equity and cash flows of Varity and its Subsidiaries for such fiscal year and the related consolidated balance sheet of Varity and its Subsidiaries as at the end of such fiscal year, setting forth in each case in comparative form the corresponding figures for the preceding fiscal year (or, if Varity shall then be subject to the reporting requirements of Section 13 of the Securities Exchange Act of 1934, as amended, a copy of the report of Varity required to be filed on Form 10-K with respect to such fiscal year), accompanied by a certificate of a senior financial officer of Varity, which certificate shall state that said financial statements (or the financial statements included in such Form 10-K) present fairly the consolidated financial condition and results of operations of Varity and its Subsidiaries in accordance with generally accepted accounting principles, consistently applied, as at the end of, and for, such fiscal year; (g) promptly upon their becoming available, copies of all registration statements and regular periodic reports, if any, which any Obligor shall have filed with the SEC or any national securities exchange; (h) promptly upon the mailing thereof to the shareholders of Varity generally, copies of all financial statements, reports and proxy statements so mailed; (i) as soon as possible, and in any event within 30 days after Kelsey- Hayes knows or has reason to believe that any of the events or conditions specified below with respect to any Plan or Multiemployer Plan has occurred or exists, a statement signed by a Senior Financial Officer setting forth details respecting such event or condition and the action, if any, that Kelsey-Hayes or its ERISA Affiliate proposes to take with respect thereto (and a copy of any report or notice required to be filed with or given to PBGC by Kelsey-Hayes or an ERISA Affiliate with respect to such event or condition): (i) any reportable event, as defined in Section 4043(b) of ERISA and the regulations issued thereunder, with respect to a Plan, as to which PBGC has not by regulation waived the requirement of Section 4043(a) of ERISA that it be notified within 30 days of the occurrence of such event (provided that a failure to meet the minimum funding standard of Section 412 of the Code or Section 302 of ERISA, including, without limitation, the failure to make on or before its due date a required installment under Section 412(m) of the Code or Section 302(e) of Credit Agreement ---------------- 60 ERISA, shall be a reportable event regardless of the issuance of any waivers in accordance with Section 412(d) of the Code); and any request for a waiver under Section 412(d) of the Code for any Plan; (ii) the distribution under Section 4041 of ERISA of a notice of intent to terminate any Plan or any action taken by Kelsey-Hayes or an ERISA Affiliate toterminate any Plan; (iii) the institution by PBGC of proceedings under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan, or the receipt by Kelsey-Hayes or any ERISA Affiliate of a notice from a Multiemployer Plan that such action has been taken by PBGC with respect to such Multiemployer Plan; (iv) the complete or partial withdrawal from a Multiemployer Plan by Kelsey-Hayes or any ERISA Affiliate that results in liability under Section 4201 or 4204 of ERISA (including the obligation to satisfy secondary liability as a result of a purchaser default) or the receipt by Kelsey-Hayes or any ERISA Affiliate of notice from a Multiemployer Plan that it is in reorganization or insolvency pursuant to Section 4241 or 4245 of ERISA or that it intends to terminate or has terminated under Section 4041A of ERISA; (v) the institution of a proceeding by a fiduciary of any Multiemployer Plan against Kelsey-Hayes or any ERISA Affiliate to enforce Section 515 of ERISA, which proceeding is not dismissed within 30 days; and (vi) the adoption of an amendment to any Plan that, pursuant to Section 401(a)(29) of the Code or Section 307 of ERISA, would result in the loss of tax-exempt status of the trust of which such Plan is a part if Kelsey-Hayes or an ERISA Affiliate fails to timely provide security to the Plan in accordance with the provisions of said Sections; (j) as soon as available and in any event within 20 days after the end of each calendar month (or, if the end of such calendar month is the last day of the fiscal year of Kelsey-Hayes, within 30 days after the end of such calendar month), a Borrowing Base Certificate as at the last day of such calendar month; (k) as soon as available and in any event no later than the date 60 days after the first day of each fiscal year of Kelsey-Hayes, a budget for Kelsey-Hayes and its Subsidiaries for such fiscal year (prepared on a quarterly basis) together with the business outlook for Kelsey-Hayes and its Subsidiaries for such fiscal year and the next succeeding Credit Agreement ---------------- 61 fiscal year; (l) periodically at the request of the Agent or the Majority Banks (but, unless an Event of Default shall have occurred and be continuing, no more frequently than once during any fiscal quarter of Kelsey-Hayes), a report of an independent auditor satisfactory to the Majority Banks (which may be, or be affiliated with, one of the Banks) with respect to the Receivables and Inventory components included in the Borrowing Base as at the end of any monthly accounting period which report shall indicate that, based upon a review by such auditors of the Receivables (including, without limitation, verification with respect to the amount, aging, identity and credit of the respective account debtors and the billing practices of Kelsey-Hayes and its Subsidiaries) and Inventory (including, without limitation, verification as to the value, location and respective types), the information set forth in the Borrowing Base Certificate delivered by Kelsey-Hayes as at the end of such accounting period is accurate and complete in all material respects; (m) [Intentionally Omitted]; (n) promptly after Kelsey-Hayes knows or has reason to believe that any Default has occurred, a notice of such Default specifying that such notice is a "Notice of Default" and describing the same in reasonable detail and, together with such notice or as soon thereafter as possible, a description of the action that Kelsey-Hayes has taken or proposes to take with respect thereto; and (o) from time to time such other information regarding the financial condition, operations, business or prospects of Kelsey-Hayes or any of its Subsidiaries as any Bank or the Agent may reasonably request. Kelsey-Hayes will furnish to each Bank, at the time it furnishes each set of financial statements pursuant to paragraph (a) or (b) above, a certificate of a Senior Financial Officer (i) to the effect that no Default has occurred and is continuing (or, if any Default has occurred and is continuing, describing the same in reasonable detail and describing the action that Kelsey-Hayes has taken or proposes to take with respect thereto), (ii) setting forth in reasonable detail the computations necessary to determine whether Kelsey-Hayes is in compliance with Section 9.10 hereof as of the end of the respective quarterly fiscal period or fiscal year and (iii) setting forth in reasonable detail an analysis of the variance between the consolidated and consolidating figures contained in said financial statements and the corresponding figures with respect to the corresponding period contained in the budget most recently delivered pursuant to Section 9.01(k) hereof. 9.02 Litigation. Kelsey-Hayes will promptly give to each Bank notice ---------- of all legal or arbitral proceedings, and of all proceedings by or before any governmental or regulatory authority or agency, and any material development in respect of such legal or other proceedings, Credit Agreement ---------------- 62 affecting Kelsey-Hayes or any of its Subsidiaries, except proceedings which, if adversely determined, could not, either individually or in the aggregate, have a Material Adverse Effect. Without limiting the generality of the foregoing, Kelsey-Hayes will give to each Bank notice of the assertion of any Environmental Claim by any Person against, or with respect to the activities of, Kelsey-Hayes or any of its Subsidiaries and notice of any alleged violation of or non- compliance by Kelsey-Hayes or any of its Subsidiaries with any applicable Environmental Law then in effect or any permit, license or authorization required under any such Environmental Law, other than any Environmental Claim or alleged violation that, if adversely determined, and any such non-compliance that, could not, either individually or in the aggregate, have a Material Adverse Effect. 9.03 Existence, Etc. Kelsey-Hayes will, and will cause each of its -------------- Subsidiaries to: (a) preserve and maintain its legal existence and all of its material rights, privileges, licenses and franchises (provided that nothing in this -------- Section 9.03 shall prohibit any transaction expressly permitted by Section 9.05 hereof); (b) comply with the requirements of all applicable laws, rules, regulations and orders of governmental or regulatory authorities if failure to comply with such requirements could, either individually or in the aggregate, have a Material Adverse Effect; (c) pay and discharge all taxes, assessments and governmental charges or levies imposed on it or on its income or profits or on any of its Property prior to the date on which penalties attach thereto, except for any such tax, assessment, charge or levy the payment of which is being contested in good faith and by proper proceedings and against which adequate reserves are being maintained in accordance with GAAP; (d) maintain all of its Properties used or useful in its business in good working order and condition, ordinary wear and tear excepted; (e) keep adequate records and books of account, in which entries will be made in accordance with generally accepted accounting principles consistently applied; and (f) permit representatives of any Bank or the Agent, during normal business hours, to examine, copy and make extracts from its books and records, to inspect any of its Properties, and to discuss its business and affairs with its officers, all to the extent reasonably requested by such Bank or the Agent (as the case may be). 9.04 Insurance. Kelsey-Hayes will, and will cause each of its --------- Subsidiaries to, Credit Agreement ---------------- 63 maintain insurance against such risks and in such amounts as is consistent with the insurance maintained by them on the Restatement Date. In addition, Kelsey- Hayes will, and will cause each of its Subsidiaries to, maintain such insurance as may be required by law, such insurance as is customarily maintained by companies similarly situated. 9.05 Prohibition of Fundamental Changes. ---------------------------------- (a) Kelsey-Hayes will not, and will not permit any of its Subsidiaries to, enter into any transaction of merger or consolidation or amalgamation, or liquidate, wind up or dissolve itself (or suffer any liquidation or dissolution). (b) Kelsey-Hayes will not, and will not permit any of its Subsidiaries to, acquire any business or Property from, or capital stock of, or be a party to any acquisition of, any Person. (c) Kelsey-Hayes will not, and will not permit any of its Subsidiaries to, convey, sell, lease, transfer or otherwise dispose of, all or any substantial part of its Property, whether now owned or hereafter acquired. (d) Notwithstanding the foregoing paragraphs of this Section 9.05, so long as no Default shall have occurred and be continuing or would result therefrom: (i) any Subsidiary of Kelsey-Hayes may be merged or consolidated with or into Kelsey-Hayes (if Kelsey-Hayes shall be the continuing or surviving corporation) or any other Subsidiary of Kelsey-Hayes; provided that if any such transaction shall be between a Subsidiary of -------- Kelsey-Hayes and a Wholly Owned Subsidiary of Kelsey-Hayes, such Wholly Owned Subsidiary shall be the continuing or surviving corporation; (ii) Kelsey-Hayes or any of its Subsidiaries may purchase inventory and other Property to be sold or used in the ordinary course of business and make Consolidated Capital Expenditures; (iii) any Subsidiary of Kelsey-Hayes may convey, sell, lease, transfer or otherwise dispose of any or all of its Property (upon voluntary liquidation or otherwise) to Kelsey-Hayes or a Wholly Owned Subsidiary of Kelsey-Hayes (and Kelsey-Hayes or such Wholly Owned Subsidiary may acquire such Property); (iv) in addition to any conveyance, sale, lease, transfer or other disposition permitted under clauses (iii), (v) and (vii) of this Section 9.05(d), Kelsey-Hayes or any of its Subsidiaries may convey, sell, lease, transfer or otherwise dispose of any Property (a "Disposition"); provided the proceeds of any such Disposition ----------- -------- Credit Agreement ---------------- 64 (herein, the "Current Disposition"), together with the proceeds of all ------------------- prior Dispositions since the Restatement Date, shall not exceed an aggregate amount equal to 5% of Consolidated Total Assets as set out in the most recent financial statements of Kelsey-Hayes and its Subsidiaries delivered pursuant to Section 9.01(a) or (b) hereof prior to the Current Disposition; (v) Kelsey-Hayes or any of its Subsidiaries may (x) convey, sell, lease, transfer or otherwise dispose of tools and equipment no longer used or useful in its business and (y) sell inventory in the ordinary course of business; (vi) in addition to any acquisition permitted under clause (ii) of this Section 9.05(d), Kelsey-Hayes and its Subsidiaries may acquire any business or Property from, or make Investments in, or be a party to any acquisition of, any Person (a "Consolidated Investment"); ----------------------- provided the maximum consideration expended by Kelsey-Hayes and its Subsidiaries in respect of any such Consolidated Investment (herein, the "Current Consolidated Investment"), together with the ------------------------------- consideration expended in respect of all prior Consolidated Investments since the Restatement Date, shall not exceed an aggregate amount equal to 15% of Consolidated Total Assets as set out in the most recent financial statements of Kelsey-Hayes and its Subsidiaries delivered pursuant to Section 9.01(a) and (b) hereof prior to making the Current Consolidated Investment; and (vii) Kelsey-Hayes may sell certain equipment pursuant to a sale- leaseback transaction with Bell Atlantic TriCon Leasing Corporation on terms and conditions heretofore disclosed in a letter from Kelsey- Hayes to the Agent (a copy of which has heretofore been delivered to the Banks). 9.06 Limitation on Liens. Kelsey-Hayes will not, and will not permit ------------------- any of its Domestic Subsidiaries to, create, incur, assume or suffer to exist any Lien upon any of its Property, whether now owned or hereafter acquired, except: (a) Liens created pursuant to Section 11.11 hereof; (b) Liens in existence on the date hereof and listed in Part B of Schedule I hereto (excluding, however, following the Restatement Date, Liens securing Indebtedness to be repaid with the proceeds of the Loans to be made on such date, as indicated on said Schedule I); (c) Liens imposed by any governmental authority for taxes, assessments or charges not yet due or which are being contested in good faith and by appropriate proceedings if adequate reserves with respect thereto are maintained on the books of Kelsey-Hayes or any Credit Agreement ---------------- 65 affected Subsidiary, as the case may be, in accordance with GAAP; (d) carriers', warehousemen's, mechanics', materialmen's, repairmen's or other like Liens arising in the ordinary course of business with respect to which the obligation secured by any such Lien is not overdue for a period of more than 30 days or which obligation is being contested in good faith and by appropriate proceedings, and Liens securing judgments but only to the extent, for an amount and for a period not resulting in an Event of Default under Section 10(h) hereof; (e) pledges or deposits under worker's compensation, unemployment insurance and other social security legislation; (f) deposits to secure the performance of bids, trade contracts (other than for borrowed money), leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred, and statutory or contractual bankers' Liens on monies held in bank accounts, in the ordinary course of business; (g) easements, rights-of-way, restrictions and other similar encumbrances incurred in the ordinary course of business and encumbrances consisting of zoning restrictions, easements, licenses, restrictions on the use of Property or minor imperfections in title thereto which, in the aggregate, are not material in amount, and which do not in any case materially detract from the value of the Property subject thereto or interfere with the ordinary conduct of the business of Kelsey-Hayes or any of its Subsidiaries; (h) Liens on Property of any corporation which becomes a Domestic Subsidiary of Kelsey-Hayes after the Restatement Date; provided that such -------- Liens are in existence at the time such corporation becomes a Domestic Subsidiary of Kelsey-Hayes and were not created in anticipation thereof; (i) Liens upon real and/or tangible personal Property acquired after the Restatement Date (by purchase, construction or otherwise) by Kelsey- Hayes or any of its Domestic Subsidiaries, each of which Liens either existed on such Property before the time of its acquisition and was not created in anticipation thereof or was created solely for the purpose of securing Indebtedness incurred to finance, refinance or refund the cost (including the cost of construction) of such Property; provided that (i) no -------- such Lien shall extend to or cover any Property of Kelsey-Hayes or such Domestic Subsidiary other than the Property so acquired and improvements thereon and (ii) the principal amount of Indebtedness secured by any such Lien shall not exceed 80% of the lesser of (x) the fair market value (as determined in good faith by a Senior Financial Officer) of such Property and (y) the cost of such Property, in each case, at the time such Property was acquired (by purchase, construction or otherwise); Credit Agreement ---------------- 66 (j) additional Liens upon real and/or personal Property; provided that -------- the aggregate amount of Indebtedness secured by Liens incurred pursuant to this paragraph (j) shall not exceed $1,000,000 at any one time outstanding; and (k) any extension, renewal or replacement of the foregoing; provided -------- that the Liens permitted by this paragraph shall not extend to or cover any additional Indebtedness or Property (other than a substitution of like Property). 9.07 [Intentionally Omitted] 9.08 [Intentionally Omitted] 9.09 [Intentionally Omitted] 9.10 Financial Covenants. ------------------- (a) Consolidated Leverage Ratio. Kelsey-Hayes will not permit the --------------------------- Consolidated Leverage Ratio to exceed .50 to 1. (b) Consolidated Interest Coverage Ratio. Kelsey-Hayes will not permit ------------------------------------ the Consolidated Interest Coverage Ratio for (i) the period of two consecutive fiscal quarters of Kelsey-Hayes ending on July 31, 1993 to be less than 3.00 to 1, (ii) the period of three consecutive fiscal quarters of Kelsey-Hayes ending on October 31, 1993 to be less than 3.00 to 1 and (iii) any period of four consecutive fiscal quarters of Kelsey-Hayes ending after October 31, 1993 to be less than 3.00 to 1. (c) Consolidated Adjusted Net Worth. Kelsey-Hayes will not at any ------------------------------- time permit Consolidated Adjusted Net Worth to be less than $425,000,000 plus 25% of the consolidated net income of Kelsey-Hayes and its ---- Subsidiaries for each fiscal quarter of Kelsey-Hayes from and including the fiscal quarter ending on April 30, 1995 to and including the fiscal quarter ending on or most recently ended prior to such time (for which purpose a consolidated net loss shall be deemed to be consolidated net income of zero). 9.11 [Intentionally Omitted] 9.12 Lines of Business. Kelsey-Hayes will not, and will not permit ----------------- any of its Subsidiaries to, engage to any significant extent in any line or lines of business activity other than the business of manufacturing, distributing and selling automotive brake and control systems and components and related products. 9.13 Transactions with Affiliates. Except as expressly permitted by ---------------------------- this Credit Agreement ---------------- 67 Agreement, Kelsey-Hayes will not, and will not permit any of its Subsidiaries to, directly or indirectly: (a) make any Investment in an Affiliate of Kelsey-Hayes; (b) transfer, sell, lease, assign or otherwise dispose of any Property to any such Affiliate; (c) merge into or consolidate with or purchase or acquire Property from any such Affiliate; or (d) enter into any other transaction directly or indirectly with or for the benefit of any such Affiliate (including, without limitation, Guarantees and assumptions of obligations of any such Affiliate); provided that: -------- (i) any Affiliate of Kelsey-Hayes who is an individual may serve as a director, officer or employee of Kelsey-Hayes or any of its Subsidiaries and receive reasonable compensation for his or her services in such capacity; (ii) Kelsey-Hayes and its Subsidiaries may enter into transactions (other than Investments by Kelsey-Hayes or any of its Subsidiaries in any Affiliate of Kelsey-Hayes) providing for the leasing of Property, the rendering or receipt of services or the purchase or sale of inventory and other Property in the ordinary course of business if the monetary or business consideration arising therefrom would be substantially as advantageous to Kelsey-Hayes and its Subsidiaries as the monetary or business consideration which would obtain in a comparable transaction with a Person not an Affiliate of Kelsey-Hayes; (iii) [Intentionally Omitted]; (iv) Kelsey-Hayes may make Investments to the extent permitted by Section 9.05 hereof; (v) Kelsey-Hayes may, to the extent not otherwise prohibited hereby or by the other Basic Documents, effect the transactions expressly contemplated by the Reorganization Agreement, the Tax Sharing Agreement, the Compensation Claims Payment Guarantee, the Headquarters Sublease, the Assignment Agreements, the Deeds, the Kelsey-Hayes Management Services Agreement, the Kelsey-Hayes Tax Sharing Agreement and the Distributorship Agreement; and Credit Agreement ---------------- 68 (vi) Kelsey-Hayes may pay Management Fees. Without limiting the generality of the foregoing, Kelsey-Hayes will not, and will not permit any of its Subsidiaries, to enter into any tax sharing or similar arrangement (other than the Tax Sharing Agreement and the Kelsey- Hayes Tax Sharing Agreement) with Varity or any other Subsidiary of Varity. 9.14 Use of Proceeds. Kelsey-Hayes will use the proceeds of the --------------- Loans hereunder solely for general corporate purposes (in each case, in compliance with all applicable legal and regulatory requirements); provided -------- that neither the Agent, nor the Co-Agent nor any Bank shall have any responsibility as to the use of any of such proceeds. 9.15 [Intentionally Omitted] 9.16 [Intentionally Omitted] 9.17 [Intentionally Omitted] Section 10. Events of Default. If one or more of the following events ----------------- (herein called "Events of Default") shall occur and be continuing: ----------------- (a) Kelsey-Hayes shall default in the payment when due (whether at stated maturity or upon mandatory or optional prepayment) of any principal of any Loan or any Reimbursement Obligation; or Kelsey-Hayes shall default in the payment when due (whether at stated maturity or upon mandatory or optional prepayment) of any interest on any Loan or any Reimbursement Obligation, any fee or any other amount payable by it hereunder or under any other Basic Document and such default shall continue unremedied for at least three Business Days; or (b) One or more of Kelsey-Hayes and its Subsidiaries shall default in the payment when due of any principal of or interest on any of its Indebtedness aggregating $2,500,000 or more (other than the Indebtedness referred to in paragraph (a) above), or in the payment when due of any amount under any Interest Rate Protection Agreement providing for termination or liquidation payments exceeding $2,500,000; or one or more of Varity and its Subsidiaries (other than Kelsey-Hayes and its Subsidiaries) shall default in the payment when due of any principal of or interest on any of its Indebtedness under any note, agreement, indenture or other document evidencing or relating to Indebtedness of $10,000,000 or more or under one or more notes, agreements, indentures or other documents evidencing or relating to Indebtedness aggregating $20,000,000 or more, or in the payment when due of any amount under any Interest Rate Protection Agreement providing for termination or liquidation payments exceeding $10,000,000; or any event Credit Agreement ---------------- 69 specified in any note, agreement, indenture or other document evidencing or relating to any such Indebtedness or any event specified in any Interest Rate Protection Agreement shall occur if the effect of such event is to cause, or (with the giving of any notice or the lapse of time or both) to permit the holder or holders of such Indebtedness (or a trustee or agent on behalf of such holder or holders) to cause, such Indebtedness to become due, or to be prepaid in full (whether by redemption, purchase, offer to purchase or otherwise), prior to its stated maturity or to have the interest rate thereon reset to a level so that securities evidencing such Indebtedness trade at a level specified in relation to the par value thereof or, in the case of an Interest Rate Protection Agreement, to permit termination or liquidation payments under any such Interest Rate Protection Agreement to become due; or (c) Any representation, warranty or certification made or deemed made herein or in any other Basic Document (or in any modification or supplement hereto or thereto) by any Obligor, or any certificate furnished to any Bank or the Agent pursuant to the provisions hereof or thereof, shall prove to have been false or misleading as of the time made, deemed made or furnished in any material respect; or (d) Kelsey-Hayes shall default in the performance of any of its obligations under any of Sections 9.01(i), 9.01(n) (insofar as any notice required to be delivered under said Section relates to a Default that is also an Event of Default), 9.05, 9.06, 9.10, 9.12 or 9.14 hereof; or any Obligor shall default in the performance of any of its other obligations in this Agreement or any other Basic Document and such default (if remediable) shall continue unremedied for a period of 30 days after notice thereof to Kelsey-Hayes by the Agent or any Bank (through the Agent); or (e) Any Obligor or any Varity Specified Subsidiary shall admit in writing its inability to, or be generally unable to, pay its debts as such debts become due; or (f) Any Obligor or any Varity Specified Subsidiary shall (i) apply for or consent to the appointment of, or the taking of possession by, a receiver, custodian, trustee, examiner or liquidator of itself or of all or a substantial part of its Property, (ii) make a general assignment for the benefit of its creditors, (iii) commence a voluntary case under the Bankruptcy Code, (iv) file a petition seeking to take advantage of any other law relating to bankruptcy, insolvency, reorganization, liquidation, dissolution, arrangement or winding-up, or composition or readjustment of debts, (v) fail to controvert in a timely and appropriate manner, or acquiesce in writing to, any petition filed against it in an involuntary case under the Bankruptcy Code, (vi) take any corporate action for the purpose of effecting any of the foregoing or (vii) take any action under the laws of its jurisdiction of organization analogous to any of the foregoing; or Credit Agreement ---------------- 70 (g) A proceeding or case shall be commenced, without the application or consent of any Obligor or any Varity Specified Subsidiary, in any court of competent jurisdiction, seeking (i) its reorganization, liquidation, dissolution, arrangement or winding-up, or the composition or readjustment of its debts, (ii) the appointment of a receiver, custodian, trustee, examiner, liquidator or the like of such Obligor or Varity Specified Subsidiary or of all or any substantial part of its Property, or (iii) similar relief in respect of such Obligor or Varity Specified Subsidiary under any law relating to bankruptcy, insolvency, reorganization, winding- up, or composition or adjustment of debts, and such proceeding or case shall continue undismissed, or an order, judgment or decree approving or ordering any of the foregoing (other than an order for relief in an involuntary case under the Bankruptcy Code) shall be entered and continue unstayed and in effect, for a period of 60 or more days; or an order for relief against any Obligor or any Varity Specified Subsidiary shall be entered in an involuntary case under the Bankruptcy Code; or any analogous order against any Obligor or any Varity Specified Subsidiary shall be entered under the laws of its jurisdiction of organization; or (h) A final judgment or judgments for the payment of money in excess of $2,500,000 in the aggregate (exclusive of judgment amounts fully covered by insurance where the insurer has admitted liability in respect of such judgment) or in excess of $5,000,000 in the aggregate (regardless of insurance coverage) shall be rendered by one or more courts, administrative tribunals or other bodies having jurisdiction against one or more of Kelsey -Hayes and its Subsidiaries and the same shall not be discharged (or provision shall not be made for such discharge), or a stay of execution thereof shall not be procured, within 30 days from the date of entry thereof and the relevant Persons against whom such judgment or judgments shall have been rendered shall not, within said period of 30 days, or such longer period during which execution of the same shall have been stayed, appeal therefrom and cause the execution thereof to be stayed during such appeal; or a final judgment or judgments for the payment of money in excess of $10,000,000 in the aggregate (exclusive of judgment amounts fully covered by insurance where the insurer has admitted liability in respect of such judgment) or in excess of $20,000,000 in the aggregate (regardless of insurance coverage) shall be rendered by one or more courts, administrative tribunals or other bodies having jurisdiction against one or more of the Obligors and/or Varity Specified Subsidiaries and the same shall not be discharged (or provision shall not be made for such discharge), or a stay of execution thereof shall not be procured, within 30 days from the date of entry thereof and the relevant Persons against whom such judgment or judgments shall have been rendered shall not, within said period of 30 days, or such longer period during which execution of the same shall have been stayed, appeal therefrom and cause the execution thereof to be stayed during such appeal; or (i) An event or condition specified in Section 9.01(i) hereof shall occur or exist Credit Agreement ---------------- 71 with respect to any Plan or Multiemployer Plan and, as a result of such event or condition, together with all other such events or conditions, Kelsey-Hayes or any ERISA Affiliate shall incur or in the opinion of the Majority Banks shall be reasonably likely to incur a liability to a Plan, a Multiemployer Plan or PBGC (or any combination of the foregoing) which, in the determination of the Majority Banks, could reasonably be expected to have a Material Adverse Effect of the type referred to in clause (b), (c), (d) or (e) of the definition of Material Adverse Effect; or (j) A reasonable basis shall exist for the assertion against Kelsey- Hayes or any of its Subsidiaries of (or there shall have been asserted against Kelsey-Hayes or any of its Subsidiaries) claims or liabilities, whether accrued, absolute or contingent, based on or arising from the generation, storage, transport, handling or disposal of Hazardous Materials by Kelsey-Hayes or any of its Subsidiaries or Affiliates, or any predecessor in interest of Kelsey-Hayes or any of its Subsidiaries or Affiliates, or relating to any site or facility owned, operated or leased by Kelsey-Hayes or any of its Subsidiaries or Affiliates, which claims or liabilities (insofar as they are payable by Kelsey-Hayes or any of its Subsidiaries but after deducting any portion thereof which is reasonably expected to be paid by other creditworthy Persons liable therefor) are reasonably likely to be determined adversely to Kelsey-Hayes or any of its Subsidiaries, and the amount thereof is, either individually or in the aggregate, reasonably likely to have a Material Adverse Effect of the type referred to in clause (b), (c), (d) or (e) of the definition of Material Adverse Effect; or (k) Varity shall fail to own, beneficially and of record (free and clear of all Liens and other encumbrances), and control all of the issued and outstanding capital stock of MF Delaware; or MF Delaware shall fail to own, beneficially and of record (free and clear of all Liens and other encumbrances), and control all of the issued and outstanding capital stock of K-H; or K-H shall fail to own, beneficially and of record (free and clear of all Liens and other encumbrances), and control all of the issued and outstanding capital stock of Kelsey-Hayes; THEREUPON: (1) in the case of an Event of Default other than one referred to in paragraph (f) or (g) of this Section 10 with respect to any Obligor, (A) the Agent may and, upon request of Majority Banks, shall, by notice to Kelsey-Hayes, terminate the Commitments and they shall thereupon terminate, and (B) the Agent may and, upon request of Banks holding at least 66-2/3% of the aggregate unpaid principal amount of the Loans and Reimbursement Obligations, shall, by notice to the Company declare the principal amount then outstanding of, and the accrued interest on, the Loans, the Reimbursement Obligations and all other amounts payable by the Obligors hereunder and under the Notes (including, without limitation, any amounts payable under Section 5.05 or 5.06 hereof) to be forthwith due and payable, whereupon such amounts shall be immediately due and payable without presentment, demand, protest or other formalities of any Credit Agreement ---------------- 72 kind, all of which are hereby expressly waived by each Obligor; and (2) in the case of the occurrence of an Event of Default referred to in paragraph (f) or (g) of this Section 10 with respect to any Obligor, the Commitments shall automatically be terminated and the principal amount then outstanding of, and the accrued interest on, the Loans, the Reimbursement Obligations and all other amounts payable by the Obligors hereunder and under the Notes (including, without limitation, any amounts payable under Section 5.05 or 5.06 hereof) shall automatically become immediately due and payable without presentment, demand, protest or other formalities of any kind, all of which are hereby expressly waived by Kelsey-Hayes. In addition, if the Agent (or the Majority Banks through the Agent) so requests by notice to Kelsey-Hayes upon or following a declaration by the Agent pursuant to the preceding paragraph that the principal amount then outstanding of, and accrued interest on, the Loans and Reimbursement Obligations and all other amounts payable by Kelsey-Hayes hereunder and under the Notes have become due and payable, Kelsey-Hayes shall (and, in the case of any Event of Default referred to in paragraph (f) or (g) of this Section 10 with respect to Kelsey- Hayes, forthwith, without any demand or the taking of any other action by the Agent or such Banks) provide cover for the Letter of Credit Liabilities by paying to the Agent immediately available funds in an amount equal to the then aggregate undrawn amount of all Letters of Credit, which funds shall be held by the Agent in the Collateral Account subject to and in accordance with Section 11.11 hereof. Notwithstanding anything else in this Agreement to the contrary, but only so long as no Default (other than a Default or Event of Default described in clause (b) below) shall have occurred and be continuing or would result therefrom, (a) nothing in this Agreement shall prohibit Kelsey-Hayes or any of its Subsidiaries from (i) paying dividends or other distributions on its capital stock to K-H, (ii) paying interest on or principal of any Indebtedness owing to Varity or any of its Subsidiaries (other than Kelsey-Hayes and its Subsidiaries), (iii) making loans or advances to Varity or any of its Subsidiaries (other than Kelsey-Hayes and its Subsidiaries) or (iv) transferring any of its Properties to Varity or any of its Subsidiaries (other than Kelsey- Hayes and its Subsidiaries) and (b) no such payment, loan, advance or transfer shall constitute a Default, or an Event of Default resulting from such a Default, by Kelsey-Hayes in the performance of its obligations under any of Sections 9.05(a) and 9.05(c) hereof; provided that this paragraph shall not preclude any such transaction from resulting in a Default under any other Section of this Agreement. Section 11. The Agent. ---------- 11.01 Appointment, Powers and Immunities. Each Bank hereby ---------------------------------- irrevocably (subject to Section 11.08 hereof) appoints and authorizes the Agent to act as its agent hereunder and under the other Basic Documents with such powers as are specifically delegated to the Agent by the terms of this Agreement and of the other Basic Documents, together with such other powers Credit Agreement ---------------- 73 as are reasonably incidental thereto. The Agent (which term as used in this sentence and in Section 11.05 and the first sentence of Section 11.06 hereof shall include reference to its affiliates and its own and its affiliates' officers, directors, employees and agents): (a) shall have no duties or responsibilities except those expressly set forth in this Agreement and in the other Basic Documents, and shall not by reason of this Agreement or any other Basic Document be a trustee for any Bank; (b) shall not be responsible to the Banks for any recitals, statements, representations or warranties contained in this Agreement or in any other Basic Document, or in any certificate or other document referred to or provided for in, or received by any of them under, this Agreement or any other Basic Document, or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement, any Note or any other Basic Document or any other document referred to or provided for herein or therein or for any failure by Kelsey-Hayes or any other Person to perform any of its obligations hereunder or thereunder; (c) shall not be required to initiate or conduct any litigation or collection proceedings hereunder or under any other Basic Document except to the extent expressly instructed by the majority Banks with respect to the Varity Guarantee; and (d) shall not be responsible for any action taken or omitted to be taken by it hereunder or under any other Basic Document or under any other document or instrument referred to or provided for herein or therein or in connection herewith or therewith, except for its own gross negligence or willful misconduct. The Agent may employ agents and attorneys-in-fact and shall not be responsible for the negligence or misconduct of any such agents or attorneys-in- fact selected by it in good faith. The Agent may deem and treat the payee of any Note as the holder thereof for all purposes hereof unless and until a notice of the assignment or transfer thereof shall have been filed with the Agent, together with the consent of Kelsey-Hayes to such assignment or transfer (to the extent provided in Section 12.06(b) hereof). 11.02 Reliance by Agent. The Agent shall be entitled to rely upon ----------------- any certification, notice or other communication (including, without limitation, any thereof by telephone, telecopy, telex, telegram or cable) believed by it to be genuine and correct and to have been signed or sent by or on behalf of the proper Person or Persons, and upon advice and statements of legal counsel, independent accountants and other experts selected by the Agent. As to any matters not expressly provided for by this Agreement or any other Basic Document, the Agent shall in all cases be fully protected in acting, or in refraining from acting, hereunder or thereunder in accordance with instructions given by the Majority Banks or, if provided herein, in accordance with the instructions given by all of the Banks as is required in such circumstance, and such instructions of such Banks and any action taken or failure to act pursuant thereto shall be binding on all of the Banks. 11.03 Defaults. The Agent shall not be deemed to have knowledge or -------- notice of the occurrence of a Default unless the Agent has received notice from a Bank, Kelsey-Hayes or Varity specifying such Default and stating that such notice is a "Notice of Default". In the event that the Agent receives such a notice of the occurrence of a Default, the Agent shall give prompt notice thereof to the Banks (and shall give each Bank prompt notice of each such non- payment). Credit Agreement ---------------- 74 The Agent shall (subject to Sections 11.01, 11.07 and 12.04 hereof) take such action with respect to such Default as shall be directed by the Majority Banks, provided that, unless and until the Agent shall have received such directions, -------- the Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default as it shall deem advisable in the best interest of the Banks except to the extent that this Agreement expressly requires that such action be taken, or not be taken, only with the consent or upon the authorization of the Majority Banks or all of the Banks. 11.04 Rights as a Bank. With respect to its Commitments and the ---------------- Loans made by it, Chase (and any successor acting as Agent) in its capacity as a Bank hereunder shall have the same rights and powers hereunder as any other Bank and may exercise the same as though it were not acting as the Agent, and the term "Bank" or "Banks" shall, unless the context otherwise indicates, include the Agent in its individual capacity. Chase (and any successor acting as Agent) and its affiliates may (without having to account therefor to any Bank) accept deposits from, lend money to, make investments in and generally engage in any kind of banking, trust or other business with the Obligors (and any of their Subsidiaries or Affiliates) as if it were not acting as the Agent, and Chase and its affiliates may accept fees and other consideration from the Obligors (and any of their Subsidiaries or Affiliates) for services in connection with this Agreement or otherwise without having to account for the same to the Banks. 11.05 Indemnification. The Banks agree to indemnify the Agent and --------------- the Co-Agent (to the extent not reimbursed under Section 12.03 hereof, but without limiting the obligations of Kelsey-Hayes under said Section 12.03) ratably in accordance with the aggregate principal amount of the Loans and Reimbursement Obligations held by the Banks (or, if no Loans or Reimbursement Obligations are at the time outstanding, ratably in accordance with their respective Commitments), for any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind and nature whatsoever that may be imposed on, incurred by or asserted against (including by any Bank) the Agent or the Co-Agent, as the case may be, arising out of or by reason of any investigation in or in any way relating to or arising out of this Agreement or any other Basic Document or any other documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby (including, without limitation, the costs and expenses that Kelsey-Hayes is obligated to pay under Section 12.03 hereof, but excluding, in the case of the Agent, unless a Default has occurred and is continuing, normal administrative costs and expenses incident to the performance of its agency duties hereunder) or the enforcement of any of the terms hereof or thereof or of any such other documents, provided that no Bank -------- shall be liable for any of the foregoing to the extent they arise from the gross negligence or willful misconduct of the party to be indemnified. 11.06 Non-Reliance on Agent and Other Banks. Each Bank agrees that ------------------------------------- it has, independently and without reliance on the Agent, the Co-Agent or any other Bank, and based on such documents and information as it has deemed appropriate, made its own credit analysis of Credit Agreement ---------------- 75 Kelsey-Hayes and its Subsidiaries and decision to enter into this Agreement and that it will, independently and without reliance upon the Agent, the Co-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 analysis and decisions in taking or not taking action under this Agreement. Neither the Agent nor the Co- Agent shall be required to keep itself informed as to the performance or observance by any Obligor of this Agreement or any of the other Basic Documents or any other document referred to or provided for herein or therein or to inspect the Properties or books of Kelsey-Hayes or any of its Subsidiaries. Except for notices, reports and other documents and information expressly required to be furnished to the Banks by the Agent hereunder, neither the Agent nor the Co-Agent shall have any duty or responsibility to provide any Bank with any credit or other information concerning the affairs, financial condition or business of Kelsey-Hayes or any of its Subsidiaries (or any of their affiliates) that may come into the possession of the Agent, the Co-Agent or any of their respective affiliates. 11.07 Failure to Act. Except for action expressly required of the -------------- Agent hereunder and under the other Basic Documents, the Agent shall in all cases be fully justified in failing or refusing to act hereunder and thereunder unless it shall receive further assurances to its satisfaction from the Banks of their indemnification obligations under Section 11.05 hereof against any and all liability and expense that may be incurred by it by reason of taking or continuing to take any such action. 11.08 Resignation or Removal of Agent. Subject to the appointment ------------------------------- and acceptance of a successor Agent as provided below, the Agent may resign at any time by giving notice thereof to the Banks and Kelsey-Hayes, and the Agent may be removed at any time with or without cause by the Majority Banks. Upon any such resignation or removal, the Majority Banks shall have the right to appoint a successor Agent. If no successor Agent shall have been so appointed by the Majority Banks and shall have accepted such appointment within 30 days after the retiring Agent's giving of notice of resignation or the Majority Banks' removal of the retiring Agent, then the retiring Agent may, on behalf of the Banks, appoint a successor Agent, that shall be a bank which has an office in New York, New York and which has a combined capital and surplus of at least $300,000,000. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations hereunder. After any retiring Agent's resignation or removal hereunder as Agent, the provisions of this Section 11 shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as the Agent. 11.09 Consents under Basic Documents. Except as otherwise provided ------------------------------ in Section 12.04 hereof with respect to this Agreement, the Agent may, with the prior consent of the Majority Banks (but not otherwise), consent to any modification, supplement or waiver under any Credit Agreement ---------------- 76 of the Basic Documents, provided that, without the consent of each Bank, the -------- Agent shall not (except as otherwise provided herein or in the Varity Guarantee) release Varity from any of its obligations under the Varity Guarantee. 11.10 Co-Agent. The Co-Agent shall not have any rights or -------- obligations under this Agreement except in its capacity as a "Bank" hereunder. 11.11 Letter of Credit Collateral Account. ----------------------------------- (a) In the event that Kelsey-Hayes shall be required pursuant to Section 2.11(b) hereof or the penultimate paragraph of Section 10 hereof to provide cover for Letter of Credit Liabilities, the Agent will establish with Chase a separate cash collateral account (the "Collateral Account") in the name ------------------ and under the control of the Agent into which there shall be deposited from time to time certain amounts required or contemplated to be paid to the Agent as provided in Section 2.11(b) hereof and the penultimate paragraph of Section 10 hereof or otherwise. (b) As collateral security for the prompt payment in full when due (whether at stated maturity, by acceleration or otherwise) of its obligations hereunder, Kelsey-Hayes hereby pledges and grant to the Agent, for the benefit of the Banks and the Agent as provided herein, a security interest in all of its right, title and interest in and to the Collateral Account and the balances from time to time in the Collateral Account (and the investments and reinvestments therein provided for below). The balances from time to time in the Collateral Account shall not constitute payment of any obligations hereunder until applied by the Agent as provided herein. Anything in this Agreement to the contrary notwithstanding, funds held in the Collateral Account shall be subject to withdrawal only as provided in this Section 11.11. (c) Amounts on deposit in the Collateral Account shall be invested and reinvested by the Agent in such Permitted Investments as Kelsey-Hayes shall specify to the Agent from time to time (provided that the approval of the Agent shall be required for investments and reinvestments to be made during any period while an Event of Default has occurred and is continuing), which investments and reinvestments shall be held in the Collateral Account in the name and be under the control of the Agent. (d) At any time following the occurrence and during the continuance of an Event of Default, the Agent may (and, if instructed by the Majority Banks, shall) in its (or their) discretion at any time and from time to time elect to liquidate any such investments and reinvestments and credit the proceeds thereof to the Collateral Account and apply or cause to be applied such proceeds and any other balances in the Collateral Account to the payment of the obligations of Kelsey-Hayes in respect of the Letters of Credit and thereafter to the other obligations of Kelsey-Hayes hereunder and under the Notes. Credit Agreement ---------------- 77 (e) On any date on which the aggregate amount of funds standing to the credit of the Collateral Account as cover for Letter of Credit Liabilities exceeds the sum of the aggregate principal amount of all Loans plus the aggregate amount of Letter of Credit Liabilities, the Agent shall promptly deliver to Kelsey-Hayes, against receipt but without any recourse, warranty or representation whatsoever, a portion of the balance in the Collateral Account equal to such excess. (f) Kelsey-Hayes shall pay to the Agent from time to time such fees as the Agent normally charges for similar services in connection with the Agent's administration of the Collateral Account and investments and reinvestments of funds therein. Section 12. Miscellaneous. ------------- 12.01 Waiver; Independence of Covenants. No failure on the part of --------------------------------- the Agent or any Bank to exercise and no delay in exercising, and no course of dealing with respect to, any right, power or privilege under this Agreement or any Note shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege under this Agreement or any Note preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The remedies provided herein are cumulative and not exclusive of any remedies provided by law. Each covenant contained herein, except as otherwise expressly provided herein, shall be given independent effect. Without limiting the foregoing, the fact that any covenant contained herein permits an action to be taken or a condition to exist does not, except as otherwise expressly provided herein, preclude such action or condition from being a Default under any other covenant contained herein that prohibits, either directly or indirectly, such action or condition. 12.02 Notices. All notices, requests and other communications ------- provided for herein (including, without limitation, any modifications of, or waivers, requests or consents under, this Agreement) shall be given or made in writing (including, without limitation, by telecopy) delivered to the intended recipient at the "Address for Notices" specified below its name on the signature pages hereof; or, as to any party, at such other address as shall be designated by such party in a notice to each other party. Except as otherwise provided in this Agreement, all such communications shall be deemed to have been duly given when transmitted by telecopier or personally delivered or, in the case of a mailed notice, upon receipt, in each case given or addressed as aforesaid. 12.03 Expenses, Etc. Kelsey-Hayes agrees to pay or reimburse each of ------------- the Banks and the Agent for paying: (a) all reasonable out-of-pocket costs and expenses of the Agent (including, without limitation, the reasonable fees and expenses of Milbank, Tweed, Hadley & McCloy, special New York counsel to the Banks), in connection with (i) the negotiation, preparation, execution and delivery of this Agreement and the other Basic Documents and the extensions of credit hereunder and (ii) any modification, supplement or waiver of any of the terms of this Agreement or any of the other Basic Documents; (b) all costs and expenses of each Bank Credit Agreement ---------------- 78 and the Agent (including, without limitation, reasonable fees and expenses of counsel) in connection with (i) any enforcement or collection proceedings resulting from any Default, (ii) the enforcement of this Section 12.03 or (iii) the negotiation of any restructuring or "work-out" (whether or not consummated) of the obligations of any Obligor under any of the Basic Documents (it being agreed, in the case of this clause (iii), that Kelsey-Hayes shall not be responsible for the fees and expenses of more than one counsel unless in such restructuring or "work-out" there are issues of local law or the Banks and the Agent shall have materially different interests, provided that such counsel shall be satisfactory to each Bank and the Agent in the exercise of its reasonable judgment); and (c) all transfer, mortgage, mortgage recording, intangibles, documentary, stamp or other similar taxes, assessments or charges levied by any governmental or revenue authority in respect of this Agreement or any of the other Basic Documents or any other document referred to herein or therein and all costs, expenses, taxes, assessments and other charges incurred in connection with any filing, registration, recording or perfection of any security interest contemplated by any Basic Document or any other document referred to therein. Kelsey-Hayes hereby agrees to indemnify the Agent and each Bank and their respective directors, officers, employees, attorneys, advisors and agents from, and hold each of them harmless against, any and all losses, liabilities, claims, damages or expenses incurred by any of them (including, without limitation, any and all losses, liabilities, claims, damages or expenses incurred by the Agent to any Bank, whether or not the Agent or any Bank is a party thereto) arising out of or by reason of any investigation or litigation or other proceedings (including any threatened investigation or litigation or other proceedings) relating to the negotiation, preparation, execution and delivery of this Agreement and the other Basic Documents or the extensions of credit hereunder or any actual or proposed use by Kelsey-Hayes or any of its Subsidiaries of the proceeds of any of the extensions of credit hereunder or the failure of any representation or warranty made in Section 8.04 hereof to be true in any material respect, including, without limitation, the reasonable fees and disbursements of counsel incurred in connection with any such investigation or litigation or other proceedings (but excluding any such losses, liabilities, claims, damages or expenses incurred by reason of the gross negligence or willful misconduct of the Person to be indemnified or by reason of the failure of the Agent or any Bank to make any payment required to be made by it under this Agreement or by reason of any actual conflict of interest arising with respect to its other customers), and each Obligor party hereto hereby agrees not to assert any claim against the Agent, any Bank, any of their affiliates or any of their respective directors, officers, employees, attorneys and agents, on any theory of liability, for special, indirect, consequential or punitive damages arising out of or otherwise relating to any of the transactions contemplated herein or in any other Basic Document. Without limiting the generality of the foregoing, Kelsey-Hayes will indemnify the Agent and each Bank from, and hold the Agent and each Bank harmless against, any losses, liabilities, claims, damages or expenses described in the preceding sentence (but excluding, as provided in the preceding sentence, any loss, liability, claim, damage or expense incurred by reason of the gross negligence or willful Credit Agreement ---------------- 79 misconduct of the Person to be indemnified) arising under any Environmental Law as a result of the past, present or future operations of Kelsey-Hayes or any of its Subsidiaries (or any predecessor in interest to Kelsey-Hayes or any of its Subsidiaries), or the past, present or future condition of any site or facility owned, operated or leased by Kelsey-Hayes or any of its Subsidiaries (or any such predecessor in interest), or any Release or threatened Release of any Hazardous Materials from any such site or facility. 12.04 Amendments, Etc. Except as otherwise expressly provided in --------------- this Agreement, any provision of this Agreement may be modified or supplemented only by an instrument in writing signed by Kelsey-Hayes, the Agent and the Majority Banks, or by Kelsey-Hayes and the Agent acting with the consent of the Majority Banks, and any provision of this Agreement may be waived by the Majority Banks or by the Agent acting with the consent of the Majority Banks; provided that: (a) no modification, supplement or waiver shall, unless by an -------- instrument signed by all of the Banks or by the Agent acting with the consent of all of the Banks (i) increase or extend the term of any of the Commitments, or extend the time or waive any requirement for the reduction or termination of any of the Commitments, (ii) extend any date fixed for the payment of principal of or interest on any Loan, the Reimbursement Obligations or any fee hereunder (other than any fee payable solely for account of the Agent or the Issuing Bank), (iii) reduce the amount of any such payment of principal or Reimbursement Obligations, (iv) reduce the rate at which interest is payable thereon or any fee is payable hereunder (other than any fee payable solely for account of the Agent or the Issuing Bank), (v) increase the rights or reduce the obligations of Kelsey-Hayes to prepay Loans, (vi) alter the terms of any of Sections 4.02, 4.07 and 5 hereof and this Section 12.04, (vii) modify the definition of the term "Majority Banks", or modify in any other manner the number or percentage of the Banks required to make any determinations or waive any rights hereunder or to modify any provision hereof, or (viii) waive any of the conditions precedent set forth in Section 7 hereof; and (b) any modification of any of the rights or obligations of the Agent, the Co-Agent or the Issuing Bank hereunder shall require the consent of the Agent, the Co-Agent or the Issuing Bank (as the case may be). 12.05 Successors and Assigns. This Agreement shall be binding upon ---------------------- and inure to the benefit of the parties hereto and their respective successors and permitted assigns. 12.06 Assignments and Participations. ------------------------------ (a) No Obligor party hereto may assign any of its rights or obligations hereunder or under the Notes without the prior consent of all of the Banks and the Agent. (b) Each Bank may, at any time or from time to time, assign to one or more other Persons all or any portion of its Loans, Note, Commitment and Letter of Credit Interest (but only with the consent of, in the case of an outstanding Commitment, Kelsey-Hayes and the Agent and, in the case of a Commitment or a Letter of Credit Interest, the Issuing Bank, but otherwise Credit Agreement ---------------- 80 without the consent of any thereof); provided that (i) no such consent by -------- Kelsey-Hayes or the Agent shall be required in the case of any assignment to another Bank; (ii) any such partial assignment shall be in an amount at least equal to $5,000,000; (iii) each such assignment by a Bank of any of its Loans, Note, Commitment or Letter of Credit Interest shall be made in such manner so that the same portion of such Loans, Note, Commitment and Letter of Credit Interest is assigned to the respective assignee; and (iv) no consent required to be given by Kelsey-Hayes under this paragraph shall be unreasonably withheld or delayed. Upon execution and delivery by the assignee to Kelsey-Hayes, the Agent and the Issuing Bank of an instrument in writing pursuant to which such assignee agrees to become a "Bank" hereunder (if not already a Bank) having the Commitment, Loans and Letter of Credit Interest specified in such instrument, and upon consent thereto by Kelsey-Hayes, the Agent and the Issuing Bank, to the extent required above, the assignee shall have, to the extent of such assignment (unless otherwise provided in such assignment with the consent of Kelsey-Hayes, the Agent and the Issuing Bank), the obligations, rights and benefits of a Bank hereunder holding the Commitment, Loans and Letter of Credit Interest (or portions thereof) assigned to it (in addition to the Commitment, Loans and Letter of Credit Interest, if any, theretofore held by such assignee) and the assigning Bank shall, to the extent of such assignment, be released from the Commitment (or portion thereof) so assigned. Upon each such assignment the assigning Bank shall pay the Agent an assignment fee of $3,000. (c) A Bank may, at any time or from time to time (but only with the consent of Kelsey-Hayes, which consent shall not be unreasonably withheld or delayed), sell or agree to sell to one or more other Persons a participation in all or any part of any Loans or Letter of Credit Interest held by it, or in its Commitment, in which event each purchaser of a participation (a "Participant") ----------- shall, except as otherwise provided in Section 4.07(c) hereof, not have any rights or benefits under this Agreement or any Note or any other Basic Document (the Participant's rights against such Bank in respect of such participation to be those set forth in the agreements executed by such Bank in favor of the Participant). All amounts payable by Kelsey-Hayes to any Bank under Section 5 hereof in respect of the Loans and Letter of Credit Interest held by it, and its Commitment, shall be determined as if such Bank had not sold or agreed to sell any participations in such Loans, Letter of Credit Interest and Commitment, and as if such Bank were funding each of such Loan, Letter of Credit Interest and Commitment in the same way that it is funding the portion of such Loan, Letter of Credit Interest and Commitment in which no participations have been sold. In no event shall a Bank that sells a participation agree with the Participant to take or refrain from taking any action hereunder or under any other Basic Document except that such Bank may agree with the Participant that it will not, without the consent of the Participant, agree to (i) increase or extend the term, or extend the time or waive any requirement for the reduction or termination, of such Bank's Commitment, (ii) extend any date fixed for the payment of principal of or interest on the related Loan or Loans, Reimbursement Obligations or any portion of any fee hereunder payable to the Participant, (iii) reduce the amount of any such payment of principal, (iv) reduce the rate at which interest is payable thereon, or any fee hereunder payable to the Participant, to a level below the rate at which the Participant is entitled Credit Agreement ---------------- 81 to receive such interest or fee, (v) increase the rights or reduce the obligations of Kelsey-Hayes to prepay the related Loans or (vi) consent to any modification, supplement or waiver hereof or of any of the other Basic Documents to the extent that the same, under Section 11.09 or 12.04 hereof, requires the consent of each Bank. (d) In addition to the assignments and participations permitted by the foregoing provisions of this Section 12.06, any Bank may assign and pledge all or any portion of its Loans and its Notes to any Federal Reserve Bank as collateral security pursuant to Regulation A and any Operating Circular issued by such Federal Reserve Bank. No such assignment shall release the assigning Bank from its obligations hereunder. (e) A Bank may furnish any information concerning Kelsey-Hayes or any of its Subsidiaries in the possession of such Bank from time to time to assignees and participants (including prospective assignees and participants), subject, however, to the provisions of Section 12.12(b) hereof. (f) Anything in this Section 12.06 to the contrary notwithstanding, neither Kelsey-Hayes nor any of its Subsidiaries or Affiliates may acquire (whether by assignment, participation or otherwise), and no Bank shall assign or participate to Kelsey-Hayes or any of its Subsidiaries or Affiliates, any interest in any Commitment, Loan or Reimbursement Obligation without the prior consent of each Bank. 12.07 Survival. The obligations of Kelsey-Hayes under Sections 5.01, -------- 5.05, 5.06, 5.07 and 12.03 hereof and the obligations of the Banks under Section 11.05 hereof shall survive the repayment of the Loans and Reimbursement Obligations and the termination of the Commitments. In addition, each representation and warranty made, or deemed to be made by a notice of any extension of credit (whether by means of a Loan or a Letter of Credit), herein or pursuant hereto shall survive the making of such representation and warranty, and no Bank shall be deemed to have waived, solely by reason of making any extension of credit hereunder (whether by means of a Loan or a Letter of Credit), any Default which may arise by reason of such representation or warranty proving to have been false or misleading, notwithstanding that such Bank or the Agent may have had notice or knowledge or reason to believe that such representation or warranty was false or misleading at the time such extension of credit was made. 12.08 Captions. The table of contents and captions and section -------- headings appearing herein are included solely for convenience of reference and are not intended to affect the interpretation of any provision of this Agreement. 12.09 Counterparts. This Agreement may be executed in any number of ------------ counterparts, all of which taken together shall constitute one and the same instrument and any of the parties hereto may execute this Agreement by signing any such counterpart. Credit Agreement ---------------- 82 12.10 Governing Law; Submission to Jurisdiction. This Agreement and ----------------------------------------- the Notes shall be governed by, and construed in accordance with, the law of the State of New York. Each Obligor party hereto hereby submits to the nonexclusive jurisdiction of the United States District Court for the Southern District of New York and of any New York state court sitting in New York City for the purposes of all legal proceedings arising out of or relating to this Agreement or the transactions contemplated hereby. Each Obligor party hereto irrevocably waives, to the fullest extent permitted by applicable law, any objection which it may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum. 12.11 Waiver of Jury Trial. EACH OF THE OBLIGORS PARTY HERETO, THE -------------------- AGENT AND THE BANKS HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. 12.12 Treatment of Certain Information; Confidentiality. ------------------------------------------------- (a) Kelsey-Hayes acknowledges that from time to time financial advisory, investment banking and other services may be offered or provided to Kelsey-Hayes or one or more of its Subsidiaries (in connection with this Agreement or otherwise) by any Bank or by one or more subsidiaries or affiliates of such Bank and Kelsey-Hayes hereby authorizes each Bank to share any information delivered to such Bank by Kelsey-Hayes and its Subsidiaries pursuant to this Agreement, or in connection with the decision of such Bank to enter into this Agreement, to any such subsidiary or affiliate, it being understood that any such subsidiary or affiliate receiving such information shall be bound by the provisions of paragraph (b) below as if it were a Bank hereunder. (b) Each Bank and the Agent agrees (on behalf of itself and each of its affiliates, directors, officers, employees and representatives) to use reasonable precautions to keep confidential, in accordance with their customary procedures for handling confidential information of this nature and in accordance with safe and sound banking practices, any non-public information supplied to it by Kelsey-Hayes pursuant to this Agreement, provided that nothing -------- herein shall limit the disclosure of any such information (i) to the extent required by statute, rule, regulation or judicial process, (ii) to counsel for any of the Banks or the Agent, (iii) to bank examiners, auditors or accountants, (iv) to the Agent or any other Bank (or to Chase Securities, Inc.), (v) in connection with any litigation to which any one or more of the Banks or the Agent is a party, (vi) to a subsidiary or affiliate of such Bank as provided in paragraph (a) above or (vii) to any assignee or participant (or prospective assignee or participant) so long as such assignee or participant (or prospective assignee or participant) first executes and delivers to the respective Bank a Confidentiality Agreement substantially in the form of Exhibit F hereto; provided, further, -------- ------- Credit Agreement ---------------- 83 that in no event shall any Bank or the Agent be obligated or required to return any materials furnished by Kelsey-Hayes. The obligations of each Bank under this Section 12.12 shall supersede and replace the obligations of such Bank under the confidentiality letter in respect of this financing signed and delivered by such Bank to Kelsey-Hayes prior to the date hereof. 12.13 Release of Collateral. Upon this Second Amendment and --------------------- Restatement becoming effective pursuant to Section 7.01 hereof, the Amended and Restated Guarantee and Security Agreement (as defined in the 1993 Credit Agreement, and hereinafter, the "1993 Security Agreement") and the Liens created ----------------------- thereby, will terminate and be of no further force and effect. In addition, the Banks and the Agent agree thereupon to provide promptly such releases, termination statements and other documents as Kelsey-Hayes may reasonably request in order to release the Liens of the 1993 Security Agreement and the Agent will redeliver to K-H without representation and warranty certificates representing the "Pledged Stock" (as defined in the 1993 Security Agreement). IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered as of the day and year first above written. KELSEY-HAYES COMPANY By /s/ Frederick J. Chapman Title: Treasurer By /S/ Glenn Dong Title: Assistant Treaurer Address for Notices: Kelsey-Hayes Company 11878 Hubbard Drive Livonia, Michigan 48150 Attention: Glenn Dong Telecopier No.: 313-513-4475 Telephone No.: 313-513-4304 Credit Agreement ---------------- 84 BANKS Commitment THE CHASE MANHATTAN BANK ---------- (NATIONAL ASSOCIATION), $18,750,000 as a Bank and as Issuing Bank By /s/ George Hansen Title: Vice President Lending Office for all Loans: The Chase Manhattan Bank (National Association) 1 Chase Manhattan Plaza New York, New York 10081 Address for Notices: The Chase Manhattan Bank (National Association) 1 Chase Manhattan Plaza New York, New York 10081 Attention: George Hansen Telecopier No.: 212-552-1457 Telephone No.: 212-552-7674 Credit Agreement ---------------- 85 Commitment THE BANK OF NOVA SCOTIA ---------- $18,750,000 By /s/ A.S. Norsworthy Title: Assistant Agent Lending Office for all Loans: The Bank of Nova Scotia 55 Park Place Atlanta, Georgia 30303 Address for Notices: The Bank of Nova Scotia 55 Park Place Atlanta, Georgia 30303 Attention: Joe Legista Telecopier No.: 404-888-8998 Telephone No.: 404-877-1562 with a copy to: -------------- The Bank of Nova Scotia 181 West Madison Street Suite 3700 Chicago, Illinois 60602 Attention: David Scott Telecopier No.: 312-201-4108 Telephone No.: 312-201-4116 Credit Agreement ---------------- 86 Commitment COMERICA BANK ---------- $18,750,000 By /s/ Susan A. Claiborne Title: Vice President Lending Office for all Loans: Comerica Bank 1 Detroit Center 500 Woodward Avenue Detroit, Michigan 48226-3265 Address for Notices: Comerica Bank 1 Detroit Center 500 Woodward Avenue Detroit, Michigan 48226-3265 Attention: Susan A. Claiborne Telecopier No.: 313-222-3776 Telephone No.: 313-222-9182 Credit Agreement ---------------- 87 Commitment MARINE MIDLAND BANK ---------- $18,750,000 By /s/ Hugh C. McLean Title: Vice President Lending Office for all Loans: Marine Midland Bank Regional Commercial Banking One Marine Midland Center Buffalo, New York 14203 Address for Notices: Marine Midland Bank Regional Commercial Banking One Marine Midland Center Lobby Level Buffalo, New York 14203 Attention: Hugh C. McLean Telecopier No.: 716-855-0384 Telephone No.: 716-841-2630 Credit Agreement ---------------- 88 THE CHASE MANHATTAN BANK (NATIONAL ASSOCIATION), as Agent By /s/ George Hansen Title: Vice President Address for Notices to the Agent: The Chase Manhattan Bank (National Association) 4 Metrotech Center 13th Floor Brooklyn, New York 11245 Telecopier No.: 718-242-6910 Telephone No.: 718-242-7979 Attention: New York Agency Credit Agreement ---------------- 89 THE BANK OF NOVA SCOTIA, as Co-Agent By /s/ A.S. Norsworthy Title: Assistant Agent Address for Notices to the Co-Agent: The Bank of Nova Scotia 600 Peachtree Street NE Suite 2700 Atlanta, Georgia 30308 Attention: Joe Legista Telecopier No.: 404-888-8998 Telephone No.: 404-877-1562 with a copy to: -------------- The Bank of Nova Scotia 181 West Madison Street Suite 3700 Chicago, Illinois 60602 Attention: David Scott Telecopier No.: 312-201-4108 Telephone No.: 312-201-4116 Credit Agreement ---------------- EXHIBIT A-1 [Form of Syndicated Note] PROMISSORY NOTE $_______________ May 1, 1995 New York, New York FOR VALUE RECEIVED, KELSEY-HAYES COMPANY, a Delaware corporation ("Kelsey-Hayes"), hereby promises to pay to __________________ (the "Bank"), for -------------- ---- account of its respective Applicable Lending Offices provided for by the Credit Agreement referred to below, at the principal office of The Chase Manhattan Bank (National Association) at 1 Chase Manhattan Plaza, New York, New York 10081, the principal sum of _______________ Dollars (or such lesser amount as shall equal the aggregate unpaid principal amount of the Syndicated Loans made by the Bank to Kelsey-Hayes under the Credit Agreement), in lawful money of the United States of America and in immediately available funds, on the dates and in the principal amounts provided in the Credit Agreement, and to pay interest on the unpaid principal amount of each such Syndicated Loan, at such office, in like money and funds, for the period commencing on the date of such Syndicated Loan until such Syndicated Loan shall be paid in full, at the rates per annum and on the dates provided in the Credit Agreement. The date, amount, Type, interest rate and duration of Interest Period (if applicable) of each Syndicated Loan made by the Bank to Kelsey-Hayes, and each payment made on account of the principal thereof, shall be recorded by the Bank on its books and, prior to any transfer of this Note, endorsed by the Bank on the schedule attached hereto or any continuation thereof, provided that the -------- failure of the Bank to make any such recordation or endorsement shall not affect the obligations of Kelsey-Hayes to make a payment when due of any amount owing under the Credit Agreement or hereunder in respect of the Syndicated Loans made by the Bank. This Note is one of the Syndicated Notes referred to in the Second Amended and Restated Credit Agreement dated as of December 15, 1992 amended and restated as of May 1, 1995 (as modified and supplemented and in effect from time to time, the "Credit Agreement") between Kelsey-Hayes, the lenders named ---------------- therein, The Chase Manhattan Bank (National Association), as Agent, and The Bank of Nova Scotia, as Co-Agent, and evidences Syndicated Loans made by the Bank thereunder. Terms used but not defined in this Note have the respective meanings assigned to them in the Credit Agreement. The Credit Agreement provides for the acceleration of the maturity of this Note upon the occurrence of certain events and for prepayments of Syndicated Loans upon the terms Revolving Credit Note --------------------- and conditions specified therein. Except as permitted by Section 12.06 of the Credit Agreement, this Note may not be assigned by the Bank to any other Person. This Note shall be governed by, and construed in accordance with, the law of the State of New York. KELSEY-HAYES COMPANY By____________________________ Title: Revolving Credit Note --------------------- SCHEDULE OF SYNDICATED LOANS This Note evidences Syndicated Loans made, Continued or Converted under the within-described Credit Agreement to Kelsey-Hayes, on the dates, in the principal amounts, of the Types, bearing interest at the rates and having Interest Periods (if applicable) of the durations set forth below, subject to the payments, Continuations, Conversions and prepayments of principal set forth below:
Amount Date Paid, Made, Duration Prepaid, Continued Principal Type of Continued Unpaid or Amount of Interest Interest or Principal Notation Converted of Loan Loan Rate Period Converted Amount Made by ---------- --------- ---- -------- -------- --------- --------- --------
Revolving Credit Note --------------------- EXHIBIT A-2 [Form of Money Market Note] PROMISSORY NOTE May 1, 1995 New York, New York FOR VALUE RECEIVED, KELSEY-HAYES COMPANY, a Delaware corporation ("Kelsey-Hayes"), hereby promises to pay to __________________ (the "Bank"), for ---- account of its respective Applicable Lending Offices provided for by the Credit Agreement referred to below, at the principal office of The Chase Manhattan Bank (National Association) at 1 Chase Manhattan Plaza, New York, New York 10081, the aggregate unpaid principal amount of the Money Market Loans made by the Bank to Kelsey-Hayes under the Credit Agreement, in lawful money of the United States of America and in immediately available funds, on the dates and in the principal amounts provided in the Credit Agreement, and to pay interest on the unpaid principal amount of each such Money Market Loan, at such office, in like money and funds, for the period commencing on the date of such Money Market Loan until such Money Market Loan shall be paid in full, at the rates per annum and on the dates provided in the Credit Agreement. The date, amount, Type, interest rate and maturity date of each Money Market Loan made by the Bank to Kelsey-Hayes, and each payment made on account of the principal thereof, shall be recorded by the Bank on its books and, prior to any transfer of this Note, endorsed by the Bank on the schedule attached hereto or any continuation thereof, provided that the failure of the Bank to -------- make any such recordation or endorsement shall not affect the obligations of Kelsey-Hayes to make a payment when due of any amount owing under the Credit Agreement or hereunder in respect of the Money Market Loans made by the Bank. This Note is one of the Money Market Notes referred to in the Second Amended and Restated Credit Agreement dated as of December 15, 1992 amended and restated as of May 1, 1995 (as modified and supplemented and in effect from time to time, the "Credit Agreement") between Kelsey-Hayes, the lenders named ---------------- therein, The Chase Manhattan Bank (National Association), as Agent, and The Bank of Nova Scotia, as Co-Agent, and evidences Money Market Loans made by the Bank thereunder. Terms used but not defined in this Note have the respective meanings assigned to them in the Credit Agreement. The Credit Agreement provides for the acceleration of the maturity of this Note upon the occurrence of certain events and for prepayments of Money Market Loans upon the terms and conditions specified therein. Revolving Credit Note --------------------- Except as permitted by Section 12.06 of the Credit Agreement, this Note may not be assigned by the Bank to any other Person. This Note shall be governed by, and construed in accordance with, the law of the State of New York. KELSEY-HAYES COMPANY By____________________________ Title: Revolving Credit Note --------------------- SCHEDULE OF LOANS This Note evidences Money Market Loans made under the within-described Credit Agreement to Kelsey-Hayes, on the dates, in the principal amounts, of the Types, bearing interest at the rates and maturing on the dates set forth below, subject to the payments and prepayments of principal set forth below:
Principal Type Maturity Amount Unpaid Date Amount of Interest Date of Paid or Principal Notation Made of Loan Loan Rate Loan Prepaid Amount Made by ---------- --------- ---- -------- -------- --------- --------- --------
Revolving Credit Note --------------------- EXHIBIT B [Form of Borrowing Base Certificate] BORROWING BASE CERTIFICATE KELSEY-HAYES COMPANY Calendar Month ended __________, 199__ Reference is made to the Second Amended and Restated Credit Agreement dated as of December 15, 1992 as amended and restated as of May 1, 1995 (as modified and supplemented and in effect from time to time, the "Credit ------ Agreement") between Kelsey-Hayes Company ("Kelsey-Hayes"), the Banks party ------------ thereto, The Chase Manhattan Bank (National Association), as agent for said Banks, and The Bank of Nova Scotia, as Co-Agent. Terms used herein and in the Annexes hereto but not defined herein have the respective meanings given to such terms in the Credit Agreement. This Certificate is delivered with respect to the calendar month identified above (the last day of such calendar month is hereinafter referred to as the "Specified Date"). -------------- Pursuant to Section 9.01(j) of the Credit Agreement, the undersigned, a Senior Financial Officer of Kelsey-Hayes, hereby certifies that (a) Annex 1 hereto is a true and accurate calculation of the Borrowing Base as at the Specified Date, determined in accordance with the requirements of the Credit Agreement, and (b) Annex 2 hereto is a true and accurate description of the aging of all Eligible Receivables as at the Specified Date. All Inventory covered by this Certificate has been produced in compliance with all applicable laws, including, without limitation, the minimum wage and overtime requirements of the Fair Labor Standards Act of 1938, as amended. IN WITNESS WHEREOF, the undersigned, in the undersigned's capacity as _______________ of Kelsey-Hayes, has caused this Certificate to be delivered on behalf of Kelsey-Hayes this ____ day of __________, 199__. ______________________________ Name: Borrowing Base Certificate -------------------------- ANNEX 1 KELSEY-HAYES COMPANY Borrowing Base Certificate Calendar Month ended __________, 199__ RECEIVABLES A. Aggregate amount of all Receivables payable to a Principal Obligor $__________ B. Aggregate amount of all Receivables referred to in item (A) above that do not constitute Eligible Receivables as a result of paragraphs (a) through (j) of the definition of Eligible Receivables $__________ C. Aggregate amount of all otherwise ineligible Receivables included in Eligible Receivables as a result of the proviso to the definition of Eligible Receivables $__________ D. Aggregate amount of all Eligible Receivables (item (A) minus item (B) plus item (C)) $__________ ---- E. 80% of item (D) $__________ INVENTORY F. Aggregate value (valued at the lower of cost or market in accordance with GAAP, except that cost shall be determined on a first-in-first-out basis) of all Inventory $__________ Annex 1 to Borrowing Base Certificate ------------------------------------- G. Aggregate value of all Inventory referred to in item (F) above that does not constitute Eligible Inventory as a result of paragraphs (a) through (f) of the definition of Eligible Inventory $__________ H. Aggregate amount of all Eligible Inventory (item (F) minus item (G)) $__________ ----- I. 50% of item (H) $__________ COVERED AMOUNT K. The aggregate amount of funds standing to the credit of the Collateral Account as cover for Letter of Credit Liabilities on the Specified Date $__________ L. The aggregate amount of Letter of Credit Liabilities on the Specified Date $__________ M. The lesser of item (K) and item (L) $__________ BORROWING BASE N. BORROWING BASE equals the sum of item (E) plus item (J) plus item (M) $__________ ---- ---- AVAILABILITY O. Aggregate principal amount of Loans outstanding on the Specified Date $__________ P. Repeat item L $__________ Q. AVAILABILITY equals item (N) minus ----- item (O) minus item (P) $__________ ----- Annex 1 to Borrowing Base Certificate ------------------------------------- ANNEX 2 KELSEY-HAYES COMPANY Borrowing Base Certificate Calendar Month ended __________, 199__ Aging Report for Eligible Receivables
Aggregate amount of all Eligible Receivables Portion Current Portion 1-30 Portion 31-60 ----------------------- --------------- ------------ -------------
Annex 2 to Borrowing Base Certificate ------------------------------------- EXHIBIT C-1 [Form of Legal Opinion of Cahill Gordon & Reindel] May 1, 1995 Each of the Banks party to the Credit Agreement referred to below The Chase Manhattan Bank (National Association), as Agent for said Banks 1 Chase Manhattan Plaza New York, New York 10081 The Bank of Nova Scotia, as Co-Agent Ladies and Gentlemen: We have acted as counsel to Kelsey-Hayes Company ("Kelsey-Hayes") in connection with the Second Amended and Restated Credit Agreement dated as of December 15, 1992, amended and restated as of May 1, 1995 (as so amended and restated, the "Credit Agreement") between Kelsey-Hayes, the Banks party thereto, The Chase Manhattan Bank (National Association), in its capacity as agent for said Banks (the "Agent"), and The Bank of Nova Scotia, as Co-Agent, providing for, among other things, the making of loans, and the issuance of or acquisition of interests in letters of credit, by the Banks in an aggregate principal or face amount not to exceed $75,000,000. All capitalized terms used but not defined herein have the respective meanings given to such terms in the Credit Agreement. In rendering the opinions expressed below, we have examined: (i) the Credit Agreement; (ii) the Notes (collectively with the document referred to in clause (i) above, the "Credit Documents"); and Legal Opinion of Counsel to Kelsey-Hayes ---------------------------------------- (iii) such corporate records of Kelsey-Hayes and such other documents as we have deemed necessary as a basis for the opinions expressed below. In our examination, we have assumed the genuineness of all signatures, the authenticity of all documents submitted to us as originals and the conformity with authentic original documents of all documents submitted to us as copies. When relevant facts were not independently established, we have relied upon statements of governmental officials and upon representations made in or pursuant to the Credit Documents and certificates of appropriate representatives of Kelsey-Hayes. In rendering the opinions expressed below, we have assumed, with respect to all of the documents referred to in this opinion letter, that (except, to the extent set forth in the opinions expressed below, as to Kelsey- Hayes): (i) such documents have been duly authorized by, have been duly executed and delivered by, and constitute legal, valid, binding and enforceable obligations of, all of the parties to such documents; (ii) all signatories to such documents have been duly authorized; and (iii) all of the parties to such documents are duly organized and validly existing and have the power and authority (corporate or other) to execute, deliver and perform such documents. Based upon and subject to the foregoing and subject also to the comments and qualifications set forth below, and having considered such questions of law as we have deemed necessary as a basis for the opinions expressed below, we are of the opinion that: 1. Each Credit Document (assuming, in the case of the Notes, execution and delivery thereof for value) constitutes the legal, valid and binding obligation of Kelsey-Hayes, enforceable against Kelsey-Hayes in accordance with its terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting the rights of creditors generally and except as the enforceability of the Credit Documents is subject to the application of general principles of equity (regardless of whether considered in a proceeding in equity or at law), including, without limitation, (a) the possible unavailability of specific performance, injunctive relief or any other equitable remedy and (b) concepts of materiality, reasonableness, good faith and fair dealing. 2. No authorization, approval or consent of, and no filing or registration with, any governmental or regulatory authority or agency of the United States of America or the State of New York is required on the part of Kelsey-Hayes for the execution, delivery or performance by Kelsey- Hayes of the Credit Documents to which Kelsey-Hayes is a party or for any borrowings or the application for and assumption of liability in respect of any Legal Opinion of Counsel to Kelsey-Hayes ---------------------------------------- letter of credit by Kelsey-Hayes under the Credit Agreement. 3. The execution, delivery and performance by Kelsey-Hayes of, and the consummation by Kelsey-Hayes of the transactions contemplated by, the Credit Documents do not and will not (a) violate any provision of the charter or by-laws of Kelsey-Hayes, (b) violate any applicable law, rule or regulation (other than any law, rule or regulation applicable to the Banks or the Agent by virtue of the nature of their respective businesses) or (c) result in a breach of, constitute a default under, require any consent under, or result in the acceleration or required prepayment of any indebtedness pursuant to the terms of, any of the agreements and instruments listed in Schedule I hereto, or result in the creation or imposition of any Lien upon any Property of Kelsey-Hayes pursuant to the terms of any such agreement or instrument. The foregoing opinions are subject to the following comments and qualifications: A. The enforceability of Section 12.03 of the Credit Agreement may be limited by (i) laws rendering unenforceable indemnification contrary to Federal or state securities laws and the public policy underlying such laws and (ii) laws limiting the enforceability of provisions exculpating or exempting a party, or requiring indemnification of a party for, liability for its own action or inaction, to the extent the action or inaction involves gross negligence, willful misconduct or unlawful conduct. B. The enforceability of provisions in the Credit Documents to the effect that terms may not be waived or modified except in writing may be limited under certain circumstances. C. We express no opinion as to (i) the effect of the laws of any jurisdiction in which any Bank is located (other than New York) that limit the interest, fees or other charges such Bank may impose, (ii) Section 4.07(c) of the Credit Agreement and (iii) the second sentence of Section 12.10 of the Credit Agreement, insofar as such sentence relates to the subject matter jurisdiction of the United States District Court for the Southern District of New York to adjudicate any controversy related to the Credit Documents. D. We express no opinion as to the applicability to the obligations under the Credit Documents of Kelsey-Hayes (or the enforceability of such obligations) of Section 548 of the Bankruptcy Code, Article 10 of the New York Debtor and Creditor Law or any other provisions of law relating to fraudulent conveyances, transfers or obligations. The foregoing opinions are limited to matters involving the Federal laws of the United States and the law of the State of New York, and we do not express any opinion as to the laws of any other jurisdiction. At the request of our client, this opinion letter is, pursuant to Section 7.01(c) of the Legal Opinion of Counsel to Kelsey-Hayes ---------------------------------------- Credit Agreement, provided to you by us in our capacity as counsel to Kelsey- Hayes and may not be relied upon by any Person for any purpose other than in connection with the transactions contemplated by the Credit Agreement without, in each instance, our prior written consent. Very truly yours, Legal Opinion of Counsel to Kelsey-Hayes ---------------------------------------- EXHIBIT C-2 [Form of Legal Opinion of General Counsel of Kelsey-Hayes] May 1, 1995 Each of the Banks party to the Credit Agreement referred to below The Chase Manhattan Bank (National Association), as Agent for said Banks 1 Chase Manhattan Plaza New York, New York 10081 The Bank of Nova Scotia, as Co-Agent Ladies and Gentlemen: I am the General Counsel of Kelsey-Hayes Company ("Kelsey-Hayes"), and have acted as counsel to Kelsey-Hayes in connection with the Second Amended and Restated Credit Agreement dated as of December 15, 1992, amended and restated as of May 1, 1995 (as so amended and restated, the "Credit Agreement") between Kelsey-Hayes, the Banks party thereto, The Chase Manhattan Bank (National Association), in its capacity as agent for said Banks (the "Agent"), and The Bank of Nova Scotia, as Co-Agent, providing for, among other things, the making of loans, and the issuance of or acquisition of interests in letters of credit, by the Banks in an aggregate principal or face amount not to exceed $75,000,000. All capitalized terms used but not defined herein have the respective meanings given to such terms in the Credit Agreement. In rendering the opinions expressed below, I have examined: (i) the Credit Agreement; (ii) the Notes (collectively with the document referred to in clause (i) above, the Legal Opinion of General Counsel of Kelsey-Hayes ------------------------------------------------ "Credit Documents"); and (iii) such corporate records of Kelsey-Hayes and such other documents as I have deemed necessary as a basis for the opinions expressed below. In my examination, I have assumed the genuineness of all signatures, the authenticity of all documents submitted to me as originals and the conformity with authentic original documents of all documents submitted to me as copies. When relevant facts were not independently established, I have relied upon statements of governmental officials and upon representations made in or pursuant to the Credit Documents and certificates of appropriate representatives of Kelsey-Hayes. In rendering the opinions expressed below, I have assumed, with respect to all of the documents referred to in this opinion letter, that (except, to the extent set forth in the opinions expressed below, as to Kelsey- Hayes): (i) such documents have been duly authorized by, have been duly executed and delivered by, and constitute legal, valid binding and enforceable obligations of, all of the parties to such documents; (ii) all signatories to such documents have been duly authorized; and (iii) all of the parties to such documents are duly organized and validly existing and have the power and authority (corporate or other) to execute, deliver and perform such documents. Based upon and subject to the foregoing and subject also to the comments set forth below, and having considered such questions of law as I have deemed necessary as a basis for the opinions expressed below, I am of the opinion that: 1. Kelsey-Hayes is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. 2. Kelsey-Hayes has all requisite corporate power and authority to execute and deliver, and to perform its obligations under, each Credit Document to which it is a party. Kelsey-Hayes has all requisite corporate power to borrow and apply for and assume liability in respect of letters of credit under the Credit Agreement. 3. The execution, delivery and performance by Kelsey-Hayes of each Credit Document to which it is a party, and the borrowings and the application for and assumption of liability in respect of letters of credit by Kelsey-Hayes under the Credit Agreement, have been duly authorized by all necessary corporate action on the part of Kelsey-Hayes. Legal Opinion of General Counsel of Kelsey-Hayes ------------------------------------------------ 4. Each Credit Document has been duly executed and delivered by Kelsey -Hayes. 5. No authorization, approval or consent of, and no filing or registration with, any governmental or regulatory authority or agency of the State of Michigan or Ohio is required on the part of any Obligor for the execution, delivery or performance by such Obligor of the Credit Documents to which Kelsey-Hayes is a party or for any borrowings or the application for and assumption of liability in respect of any letter of credit by Kelsey-Hayes under the Credit Agreement. 6. The execution, delivery and performance by Kelsey-Hayes of, and the consummation by Kelsey-Hayes of the transactions contemplated by, the Credit Documents do not and will not (a) violate any order, writ, injunction or decree of any court or governmental authority or agency or any arbitral award of which I have knowledge (after due inquiry) applicable to Kelsey-Hayes or (b) result in a breach of, constitute a default under, require any consent under, or result in the acceleration or required prepayment of any indebtedness pursuant to the terms of, any agreement or instrument known to me after due inquiry to which Kelsey-Hayes is a party or by which Kelsey-Hayes is bound or to which Kelsey-Hayes is subject, or result in the creation or imposition of any Lien upon any Property of Kelsey-Hayes pursuant to the terms of any such agreement or instrument. 7. I have no knowledge (after due inquiry) of any legal or arbitral proceedings, or any proceedings by or before any governmental or regulatory authority or agency, now pending or threatened against Kelsey-Hayes or any of its Properties that, if adversely determined, could have a Material Adverse Effect. The foregoing opinions are limited to matters involving the Federal laws of the United States, the law of the States of Ohio and Michigan and the statutory corporate law of the State of Delaware, and I do not express any opinion as to the laws of any other jurisdiction. At the request of Kelsey-Hayes, this opinion letter is, pursuant to Section 7.01(c) of the Credit Agreement, provided to you by me in my capacity as General Counsel to Kelsey-Hayes and may not be relied upon by any Person for any purpose other than in connection with the transactions contemplated by the Credit Agreement without, in each instance, my prior written consent. Very truly yours, Legal Opinion of General Counsel of Kelsey-Hayes ------------------------------------------------ EXHIBIT C-3 [Form of Legal Opinion of General Counsel to Varity] May 1, 1995 Each of the Banks party to the Credit Agreement referred to below The Chase Manhattan Bank (National Association), as Agent for said Banks 1 Chase Manhattan Plaza New York, New York 10081 The Bank of Nova Scotia, as Co-Agent Ladies and Gentlemen: I am the Vice President-Legal of Varity Corporation ("Varity"), and have acted as counsel to Varity in connection with the Second Amended and Restated Credit Agreement dated as of December 15, 1992, amended and restated as of May 1, 1995 (as so amended and restated, the "Credit Agreement") between Kelsey-Hayes Company ("Kelsey-Hayes"), the Banks party thereto, The Chase Manhattan Bank (National Association), in its capacity as agent for said Banks (the "Agent"), and The Bank of Nova Scotia, as Co-Agent, providing for, among other things, the making of loans, and the issuance of or acquisition of interests in letters of credit, by the Banks in an aggregate principal or face amount not to exceed $75,000,000. All capitalized terms used but not defined herein have the respective meanings given to such terms in the Credit Agreement. In rendering the opinions expressed below, I have examined: (i) the Varity Guarantee; and Legal Opinion of General Counsel to Varity ------------------------------------------ (ii) such corporate records of Varity and such other documents as I have deemed necessary as a basis for the opinions expressed below. In my examination, I have assumed the genuineness of all signatures, the authenticity of all documents submitted to me as originals and the conformity with authentic original documents of all documents submitted to me as copies. When relevant facts were not independently established, I have relied upon statements of governmental officials and upon representations made in or pursuant to the Varity Guarantee and certificates of appropriate representatives of Varity. In rendering the opinions expressed below, I have assumed, with respect to the Varity Guarantee, that (except, to the extent set forth in the opinions expressed below, as to Varity): (i) the Varity Guarantee has been duly authorized by, has been duly executed and delivered by, and constitutes the legal, valid, binding and enforceable obligation of, the Agent; (ii) the signatory on behalf of the Agent has been duly authorized; and (iii) the Agent is duly organized and validly existing and has the power and authority (corporate or other) to execute, deliver and perform the Varity Guarantee. Based upon and subject to the foregoing and subject also to the comments set forth below, and having considered such questions of law as I have deemed necessary as a basis for the opinions expressed below, I am of the opinion that: 1. Varity is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. 2. Varity has all requisite corporate power and authority to execute and deliver, and to perform its obligations under, the Varity Guarantee. 3. The execution, delivery and performance by Varity of the Varity Guarantee have been duly authorized by all necessary corporate action on the part of Varity. 4. Varity has duly executed and delivered the Varity Guarantee and the Varity Guarantee constitutes the legal, valid and binding obligation of Varity, enforceable against Varity in accordance with its terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting the rights of creditors generally and except as the enforceability of the Varity Guarantee is subject to the application of general principles of equity (regardless of whether considered in a proceeding in equity or at law), including, without limitation, (a) the possible unavailability of specific performance, injunctive relief or any other equitable remedy and Legal Opinion of General Counsel to Varity ------------------------------------------ (b) concepts of materiality, reasonableness, good faith and fair dealing and except that the enforceability of provisions in the Varity Guarantee to the effect that terms may not be waived or modified except in writing may be limited in certain circumstances. 5. No authorization, approval or consent of, and no filing or registration with, any governmental or regulatory authority or agency of the United States of America or the States of New York or Delaware is required on the part of Varity for the execution, delivery or performance by Varity of the Varity Guarantee. 6. The execution, delivery and performance by Varity of, and the consummation by Varity of the transactions contemplated by, the Varity Guarantee do not and will not (a) violate any provision of the charter or by-laws of Varity, (b) violate any applicable law, rule or regulation (other than any law, rule or regulation applicable to the Banks or the Agent by virtue of the nature of their respective businesses), (c) violate any order, writ, injunction or decree of any court or governmental authority or agency or any arbitral award of which I have knowledge (after due inquiry) applicable to Varity or (d) result in a breach of, constitute a default under, require any consent under, or result in the acceleration or required prepayment of any indebtedness pursuant to the terms of, any agreement or instrument to which any Varity is a party or by which Varity is bound or to which Varity is subject. 7. I have no knowledge (after due inquiry) of any legal or arbitral proceedings, or any proceedings by or before any governmental or regulatory authority or agency, now pending or threatened against Varity or any of its Properties that, if adversely determined, could have a Material Adverse Effect. The foregoing opinions are limited to matters involving the Federal laws of the United States, the law of the State of New York and the statutory corporate law of the State of Delaware, and I do not express any opinion as to the laws of any other jurisdiction. At the request of my client, this opinion letter is, pursuant to Section 7.01(c) of the Credit Agreement, provided to you by me in my capacity as Vice President-Legal of Varity and may not be relied upon by any Person for any purpose other than in connection with the transactions contemplated by the Credit Agreement without, in each instance, my prior written consent. Very truly yours, Legal Opinion of General Counsel to Varity ------------------------------------------ EXHIBIT D [Form of Legal Opinion of Milbank, Tweed, Hadley & McCloy] May 1, 1995 Each of the Banks party to the Credit Agreement referred to below The Chase Manhattan Bank (National Association), as Agent for said Banks The Bank of Nova Scotia, as Co-Agent Ladies and Gentlemen: We have acted as special New York counsel to the Banks in connection with the Second Amended and Restated Credit Agreement dated as of December 15, 1992, amended and restated as of May 1, 1995 (as so amended and restated, the "Credit Agreement") between Kelsey-Hayes Company, the banks party thereto, The ----------------- Chase Manhattan Bank (National Association), in its capacity as agent for said banks (the "Agent"), and The Bank of Nova Scotia, as Co-Agent, providing for, ----- among other things, the making of loans, and the issuance of or acquisition of interests in letters of credit, by the Banks in an aggregate principal or face amount not to exceed $75,000,000. All capitalized terms used but not defined herein have the respective meanings given to such terms in the Credit Agreement. In rendering the opinions expressed below, we have examined: (i) the Credit Agreement; (ii) the Notes; (iii) the Varity Guarantee (collectively with the documents referred to in clauses Legal Opinion of Milbank, Tweed, Hadley & McCloy ------------------------------------------------ (i) and (ii) above, the "Credit Documents"); and ---------------- (iv) such corporate records of the Obligors and such other documents as we have deemed necessary as a basis for the opinions expressed below. In our examination, we have assumed the genuineness of all signatures, the authenticity of all documents submitted to us as originals and the conformity with authentic original documents of all documents submitted to us as copies. When relevant facts were not independently established, we have relied upon statements of governmental officials and upon representations made in or pursuant to the Credit Documents and certificates of appropriate representatives of the Obligors. In rendering the opinions expressed below, we have assumed, with respect to all of the documents referred to in this opinion letter, that: (i) such documents have been duly authorized by, have been duly executed and delivered by, and constitute legal, valid, binding and enforceable obligations of, all of the parties to such documents; (ii) all signatories to such documents have been duly authorized; and (iii) all of the parties to such documents are duly organized and validly existing and have the power and authority (corporate or other) to execute, deliver and perform such documents. Based upon and subject to the foregoing and subject also to the comments and qualifications set forth below, and having considered such questions of law as we have deemed necessary as a basis for the opinions expressed below, we are of the opinion that each Credit Document (assuming, in the case of the Notes, execution and delivery thereof for value) constitutes the legal, valid and binding obligation of each Obligor party thereto, enforceable against each such Obligor in accordance with its terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting the rights of creditors generally and except as the enforceability of the Credit Documents is subject to the application of general principles of equity (regardless of whether considered in a proceeding in equity or at law), including, without limitation, (a) the possible unavailability of specific performance, injunctive relief or any other equitable remedy and (b) concepts of materiality, reasonableness, good faith and fair dealing. The foregoing opinion is subject to the following comments and qualifications: A. The enforceability of Section 12.03 of the Credit Agreement may be limited by (i) laws rendering unenforceable indemnification contrary to Federal or state securities laws and the public policy underlying such laws and (ii) laws limiting the enforceability of provisions exculpating or exempting a party, or requiring indemnification of a party for, Legal Opinion of Milbank, Tweed, Hadley & McCloy ------------------------------------------------ liability for its own action or inaction, to the extent the action or inaction involves gross negligence, willful misconduct or unlawful conduct. B. The enforceability of provisions in the Credit Documents to the effect that terms may not be waived or modified except in writing may be limited under certain circumstances. C. We express no opinion as to (i) the effect of the laws of any jurisdiction in which any Bank is located (other than New York) that limit the interest, fees or other charges such Bank may impose, (ii) Section 4.07(c) of the Credit Agreement and (iii) the second sentence of Section 12.10 of the Credit Agreement, insofar as such sentence relates to the subject matter jurisdiction of the United States District Court for the Southern District of New York to adjudicate any controversy related to the Credit Documents. D. We express no opinion as to the applicability to the obligations under the Credit Documents of Kelsey-Hayes (or the enforceability of such obligations) of Section 548 of the Bankruptcy Code, Article 10 of the New York Debtor and Creditor Law or any other provisions of law relating to fraudulent conveyances, transfers or obligations. The foregoing opinion is limited to matters involving the Federal laws of the United States and the law of the State of New York, and we do not express any opinion as to the laws of any other jurisdiction. This opinion letter is, pursuant to Section 7.01(d) of the Credit Agreement, provided to you by us in our capacity as special New York counsel to the Banks and may not be relied upon by any Person for any purpose other than in connection with the transactions contemplated by the Credit Agreement without, in each instance, our prior written consent. Very truly yours, Legal Opinion of Milbank, Tweed, Hadley & McCloy ------------------------------------------------ EXHIBIT E [Form of Varity Guarantee] VARITY GUARANTEE VARITY GUARANTEE dated as of May 1, 1995 between VARITY CORPORATION, a corporation duly organized and validly existing under the laws of the State of Delaware (the "Guarantor"); and THE CHASE MANHATTAN BANK (NATIONAL ASSOCIATION), --------- as agent for the lenders or other financial institutions or entities party, as lenders, to the Credit Agreement referred to below (the "Banks") (in such ----- capacity, together with its successors in such capacities, the "Agent"). ----- Kelsey-Hayes Company, a Delaware corporation ("Kelsey-Hayes"), certain lenders, the Agent and The Bank of Nova Scotia, as co-agent, are parties to a Second Amended and Restated Credit Agreement dated as of December 15, 1992 as amended and restated as of May 1, 1995 (as modified and supplemented and in effect from time to time, the "Credit Agreement"), providing, subject to the ---------------- terms and conditions thereof, for extensions of credit (by the making of revolving credit loans and/or money market loans and the issuance and/or acquisition of interests in letters of credit) to be made by said lenders to Kelsey-Hayes in an aggregate principal or face amount not exceeding $75,000,000. To induce said lenders to amend and restate the Credit Agreement and to extend credit thereunder, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Guarantor has agreed to guarantee the Guaranteed Obligations (as hereinafter defined). Accordingly, the parties hereto agree as follows: Section 1. Definitions. Terms defined in the Credit Agreement are used ----------- herein as defined therein. Section 2. The Guarantee. ------------- 2.01 The Guarantee. The Guarantor hereby guarantees to each Bank, ------------- the Issuing Bank and the Agent and their respective successors and assigns the prompt payment in full when due (whether at stated maturity, by acceleration or otherwise) of the principal of and interest on the Loans made by the Banks to, and the Note(s) held by each Bank of, Kelsey-Hayes and all other amounts from time to time owing to the Banks or the Agent by Kelsey-Hayes under the Credit Agreement and under the Notes and all Reimbursement Obligations and interest thereon, Varity Guarantee ---------------- in each case strictly in accordance with the terms thereof (such obligations being herein collectively called the "Guaranteed Obligations"). The Guarantor ---------------------- hereby further agrees that if Kelsey-Hayes shall fail to pay in full when due (whether at stated maturity, by acceleration or otherwise) any of the Guaranteed Obligations, the Guarantor will promptly pay the same, without any demand or notice whatsoever, and that in the case of any extension of time of payment or renewal of any of the Guaranteed Obligations, the same will be promptly paid in full when due (whether at extended maturity, by acceleration or otherwise) in accordance with the terms of such extension or renewal. 2.02 Obligations Unconditional. The obligations of the Guarantor ------------------------- under Section 2.01 hereof are absolute and unconditional, irrespective of the value, genuineness, validity, regularity or enforceability of the obligations of Kelsey-Hayes under the Credit Agreement, the Notes or any other agreement or instrument referred to herein or therein, or any substitution, release or exchange of any other guarantee of or security for any of the Guaranteed Obligations, and, to the fullest extent permitted by applicable law, irrespective of any other circumstance whatsoever which might otherwise constitute a legal or equitable discharge or defense of a surety or guarantor, it being the intent of this Section 2.02 that the obligations of the Guarantor hereunder shall be absolute and unconditional under any and all circumstances. Without limiting the generality of the foregoing, it is agreed that the occurrence of any one or more of the following shall not alter or impair the liability of the Guarantor hereunder which shall remain absolute and unconditional as described above: (i) at any time or from time to time, without notice to the Guarantor, the time for any performance of or compliance with any of the Guaranteed Obligations shall be extended, or such performance or compliance shall be waived; (ii) any of the acts mentioned in any of the provisions of the Credit Agreement or the Notes or any other agreement or instrument referred to herein or therein shall be done or omitted; (iii) the maturity of any of the Guaranteed Obligations shall be accelerated, or any of the Guaranteed Obligations shall be modified, supplemented or amended in any respect, or any right under the Credit Agreement or the Notes or any other agreement or instrument referred to herein or therein shall be waived or any other guarantee of any of the Guaranteed Obligations or any security therefor shall be released or exchanged in whole or in part or otherwise dealt with; or (iv) any lien or security interest granted to, or in favor of, the Agent or any Bank or Banks as security for any of the Guaranteed Obligations shall fail to be perfected. The Guarantor hereby expressly waives diligence, presentment, demand of payment, protest and all notices whatsoever, and any requirement that the Agent or any Bank exhaust any right, power or remedy or proceed against Kelsey-Hayes under the Credit Agreement or the Notes or any other Varity Guarantee ---------------- agreement or instrument referred to herein or therein, or against any other Person under any other guarantee of, or security for, any of the Guaranteed Obligations. 2.03 Reinstatement. The obligations of the Guarantor under this ------------- Section 2 shall be automatically reinstated if and to the extent that for any reason any payment by or on behalf of Kelsey-Hayes in respect of the Guaranteed Obligations is rescinded or must be otherwise restored by any holder of any of the Guaranteed Obligations, whether as a result of any proceedings in bankruptcy or reorganization or otherwise, and the Guarantor agrees that it will indemnify the Agent and each Bank on demand for all reasonable costs and expenses (including, without limitation, reasonable fees of counsel) incurred by the Agent or such Bank in connection with such rescission or restoration, including any such costs and expenses incurred in defending against any claim alleging that such payment constituted a preference, fraudulent transfer or similar payment under any bankruptcy, insolvency or similar law. 2.04 Subrogation. The Guarantor hereby waives all rights of ----------- subrogation or contribution, whether arising by contract or operation of law (including, without limitation, any such right arising under the Federal Bankruptcy Code) or otherwise by reason of any payment by it of any Guaranteed Obligations and further agrees with Kelsey-Hayes for the benefit of each of its creditors (including, without limitation, each Bank and the Agent) that any such payment by it shall constitute an equity investment by the Guarantor in Kelsey- Hayes. 2.05 Remedies. The Guarantor agrees that, as between the Guarantor -------- and the Banks, the obligations of Kelsey-Hayes under the Credit Agreement and the Notes may be declared to be forthwith due and payable as provided in Section 10 of the Credit Agreement (and shall be deemed to have become automatically due and payable in the circumstances provided in said Section 10) for purposes of Section 2.01 hereof notwithstanding any stay, injunction or other prohibition preventing such declaration (or such obligations from becoming automatically due and payable) as against Kelsey-Hayes and that, in the event of such declaration (or such obligations being deemed to have become automatically due and payable), such obligations (whether or not due and payable by Kelsey-Hayes) shall forthwith become due and payable by the Guarantor for purposes of said Section 2.01. 2.06 Continuing Guarantee. The guarantee in this Section 2 is a -------------------- continuing guarantee, and shall apply to all Guaranteed Obligations whenever arising. Section 3. Covenants. The Guarantor agrees that, until the payment --------- and satisfaction in full of the Guaranteed Obligations and the expiration or termination of the Commitments and all Letter of Credit Liabilities of the Banks under the Credit Agreement: 3.01 Certain Liens on Property of Varity. Varity shall not, and ----------------------------------- shall not permit any of its Subsidiaries to, create, incur, assume or suffer to exist any Lien upon any of the shares of capital stock of MF Delaware, K-H or Kelsey-Hayes owned by any of them, whether now owned or hereafter acquired. Varity Guarantee ---------------- 3.02 Corporate Separateness. Varity shall cause (a) the management, ----------------------- business and affairs of Varity and each of its Subsidiaries to be conducted in such manner so that (i) each of Varity and its Subsidiaries (other than MF Delaware, K-H, Kelsey-Hayes and the Subsidiaries of Kelsey-Hayes) will be treated as a corporate entity separate and distinct from MF Delaware, K-H, Kelsey-Hayes and the Subsidiaries of Kelsey-Hayes and (ii) each of Varity, MF Delaware and K-H will be treated as a corporate entity separate and distinct from Kelsey-Hayes and its Subsidiaries and (b) each of Varity and its Subsidiaries to have sufficient capital to conduct its business operations as from time to time conducted. 3.03 Tax Sharing Agreements. Varity shall duly and punctually ---------------------- perform and comply with all of its obligations under the Tax Sharing Agreement and the Kelsey-Hayes Tax Sharing Agreement. 3.04 Notice of Default. Promptly after the Guarantor knows or has ----------------- reason to believe that any Default has occurred, the Guarantor shall, unless a notice of such Default shall have theretofore been given to the Banks by Kelsey- Hayes under Section 9.01 of the Credit Agreement, give to the Agent and each Bank a notice of such Default specifying that such notice is a "Notice of Default" and describing the same in reasonable detail and, together with such notice or as soon thereafter as possible, a description of the action that the Guarantor has taken or proposes to take with respect thereto. Section 4. Miscellaneous. ------------- 4.01 No Waiver. No failure on the part of the Agent or any of its --------- agents to exercise, and no course of dealing with respect to, and no delay in exercising, any right, power or remedy hereunder shall operate as a waiver thereof; nor shall any single or partial exercise by the Agent or any of its agents of any right, power or remedy hereunder preclude any other or further exercise thereof or the exercise of any other right, power or remedy. The remedies herein are cumulative and are not exclusive of any remedies provided by law. 4.02 Governing Law. This Agreement shall be governed by, and ------------- construed in accordance with, the law of the State of New York. 4.03 Notices. All notices, requests, consents and demands hereunder ------- shall be in writing and telecopied or delivered to the intended recipient at the "Address for Notices" specified beneath its name on the signature pages hereof or, as to any party, at such other address as shall be designated by such party in a notice to each other party. Except as otherwise provided in this Agreement, all such communications shall be deemed to have been duly given when transmitted by telecopier or personally delivered or, in the case of a mailed notice, upon receipt, in each case given or addressed as aforesaid. 4.04 Waivers, Etc. The terms of this Agreement may be waived, ------------ altered or amended only by an instrument in writing duly executed by the Guarantor and the Agent (with the Varity Guarantee ---------------- consent of the Banks as specified in Section 11.09 of the Credit Agreement). Any such amendment or waiver shall be binding upon the Agent and each Bank, each holder of any of the Guaranteed Obligations and the Guarantor. 4.05 Successors and Assigns. This Agreement shall be binding upon ---------------------- and inure to the benefit of the respective successors and assigns of the parties hereto (provided that Guarantor shall not assign or transfer its rights hereunder without the prior written consent of the Agent). 4.06 Counterparts. This Agreement may be executed in any number of ------------ counterparts, all of which taken together shall constitute one and the same instrument and any of the parties hereto may execute this Agreement by signing any such counterpart. 4.07 Severability. If any provision hereof is invalid and ------------ unenforceable in any jurisdiction, then, to the fullest extent permitted by law, (i) the other provisions hereof shall remain in full force and effect in such jurisdiction and shall be liberally construed in favor of the Agent and the Banks in order to carry out the intentions of the parties hereto as nearly as may be possible and (ii) the invalidity or unenforceability of any provision hereof in any jurisdiction shall not affect the validity or enforceability of such provision in any other jurisdiction. 4.08 Credit Agreement. The Guarantor hereby agrees (for the express ----------------- benefit of the Agent, the Issuing Bank, the Banks and Kelsey-Hayes) to take all actions necessary to permit Kelsey-Hayes to comply with all covenants, agreements and other obligations made or undertaken by Kelsey-Hayes in the Credit Agreement. The Guarantor hereby agrees not to assert any claim against the Agent, the Issuing Bank, any Bank, any of their affiliates, or any of their respective directors, officers, employees, attorneys and agents, on any theory of liability, for special, indirect, consequential or punitive damages arising out of or otherwise relating to any of the transactions contemplated herein or in any other Basic Document. The Guarantor hereby instructs the counsel referred to in Section 7.01(c)(iii) of the Credit Agreement to deliver the opinion referred to in said Section to the Banks, the Issuing Bank and the Agent. IN WITNESS WHEREOF, the parties hereto have caused this Guarantee to be duly executed and delivered as of the day and year first above written. VARITY CORPORATION By____________________________ Title: By____________________________ Varity Guarantee ---------------- Title: Address for Notices: Varity Corporation World Headquarters 672 Delaware Avenue Buffalo, New York 14209 Telecopy No.: 716-888-8010 Telephone No.: 716-888-8024 Attn: Frederick J. Chapman THE CHASE MANHATTAN BANK (NATIONAL ASSOCIATION), as Agent By____________________________ Title: Address for Notices: The Chase Manhattan Bank (National Association) 4 Metrotech Center 13th Floor Brooklyn, New York 11245 Telecopier No.: 718-242-6910 Telephone No.: 718-242-7979 Attention: New York Agency Varity Guarantee ---------------- EXHIBIT F [Form of Confidentiality Agreement] CONFIDENTIALITY AGREEMENT [Date] [Insert Name and Address of Prospective Participant or Assignee] Re: Second Amended and Restated Credit Agreement dated as of December 15, 1992, amended and restated as of May 1, 1995 (as modified and supplemented and in effect from time to time, the "Credit Agreement"), between Kelsey-Hayes Company ("Kelsey-Hayes"), the lenders named therein, The Chase Manhattan Bank (National Association), as Agent and The Bank of Nova Scotia, as Co-Agent. Ladies and Gentlemen: As a Bank party to the Credit Agreement, we have agreed with Kelsey- Hayes pursuant to Section 12.12 of the Credit Agreement to use reasonable precautions to keep confidential, except as otherwise provided therein, all non- public information supplied to us pursuant to the Credit Agreement. As provided in said Section 12.12, we are permitted to provide you, as a prospective [holder of a participation in the Loans (as defined in the Credit Agreement)] [assignee Bank], with certain of such non-public information subject to the execution and delivery by you, prior to receiving such non-public information, of a Confidentiality Agreement in this form. Such information will not be made available to you until your execution and return to us of this Confidentiality Agreement. Accordingly, in consideration of the foregoing, you agree (on behalf of yourself and each of your affiliates, directors, officers, employees and representatives) that (A) such information will not be used by you except in connection with the proposed [participation][assignment] mentioned above and (B) you shall use reasonable precautions, in accordance with your customary procedures for handling confidential information and in accordance with safe and sound banking practices, to keep such information confidential, provided that nothing herein shall limit the disclosure of any such information (i) to the extent required by statute, rule, regulation or judicial process, (ii) to your counsel or to counsel for any of the Banks Confidentiality Guarantee ------------------------- or the Agent, (iii) to bank examiners, auditors or accountants, (iv) to the Agent or any other Bank, (v) in connection with any litigation to which you or any one or more of the Banks or the Agent are a party, (vi) to a subsidiary or affiliate of yours as provided in Section 12.12(a) of the Credit Agreement or (vii) to any assignee or participant (or prospective assignee or participant) so long as such assignee or participant (or prospective assignee or participant) first executes and delivers to you a Confidentiality Agreement substantially in the form hereof; provided, further, that in no event shall you be obligated to -------- ------- return any materials furnished to you pursuant to this Confidentiality Agreement. Please indicate your agreement to the foregoing by signing as provided below the enclosed copy of this Confidentiality Agreement and returning the same to us. Very truly yours, [INSERT NAME OF BANK] By___________________________ Title: AGREED AS AFORESAID: [INSERT NAME OF PROSPECTIVE PARTICIPANT OR ASSIGNEE] By___________________________ Title: Confidentiality Guarantee ------------------------- EXHIBIT G-1 [Form of Money Market Quote Request] [Date] To: The Chase Manhattan Bank (National Association), as Agent From: Kelsey-Hayes Company Re: Money Market Quote Request Pursuant to Section 2.03 of the Second Amended and Restated Credit Agreement dated as of December 15, 1992 as amended and restated as of May 1, 1995 (as modified and supplemented and in effect from time to time, the "Credit ------ Agreement") between Kelsey-Hayes Company, the Banks party thereto, The Chase --------- Manhattan Bank (National Association), as agent for said Banks and The Bank of Nova Scotia, as Co-Agent, we hereby give notice that we request Money Market Quotes for the following proposed Money Market Borrowing(s):
Quotation Date Interest Period Borrowing Date [*1} Amount [*2] Type [*3] [*4] -------------- -------------- ----------- --------- --------------
Terms used herein have the meanings assigned to them in the Credit Agreement. KELSEY-HAYES COMPANY By_________________________ Title: __________________________ * All numbered footnotes appear on the last page of this Exhibit. Money Market Quote Request -------------------------- __________________________ [1] For use if a Set Rate in a Set Rate Auction is requested to be submitted before the Borrowing Date. [2] Each amount must be $5,000,000 or a larger multiple of $1,000,000. [3] Insert either "LIBO Margin" (in the case of LIBOR Market Loans) or "Set Rate" (in the case of Set Rate Loans). [4] One, two, three or six months, in the case of a LIBOR Market Loan or, in the case of a Set Rate Loan, a period of not less than seven and not more than 180 days after the making of such Set Rate Loan and ending on a Business Day. Money Market Quote Request -------------------------- EXHIBIT G-2 [Form of Money Market Quote] To: The Chase Manhattan Bank (National Association), as Agent Attention: Re: Money Market Quote to Kelsey-Hayes Company ("Kelsey-Hayes") ------------ This Money Market Quote is given in accordance with Section 2.03(c) of the Second Amended and Restated Credit Agreement dated as of December 15, 1992 as amended and restated as of May 1, 1995 (as modified and supplemented and in effect from time to time, the "Credit Agreement") between Kelsey-Hayes, the ---------------- Banks party thereto, The Chase Manhattan Bank (National Association), as agent for said Banks and The Bank of Nova Scotia, as Co-Agent. Terms defined in the Credit Agreement are used herein as defined therein. In response to Kelsey-Hayes' invitation dated __________, 199_, we hereby make the following Money Market Quote(s) on the following terms: 1. Quoting Bank: 2. Person to contact at Quoting Bank: 3. We hereby offer to make Money Market Loan(s) in the following principal amount[s], for the following Interest Period(s) and at the following rate(s):
Borrowing Quotation Interest Rate Rate Amount [*2] Type [*3] Period [*4] Rate [*5}
provided that Kelsey-Hayes may not accept offers that would result in the -------- undersigned making Money Market Loans pursuant hereto in excess of $___________ in the aggregate (the "Money Market Loan Limit"). ----------------------- __________________________ * All numbered footnotes appear on the last page of this Exhibit. Money Market Quote ------------------ We understand and agree that the offer(s) set forth above, subject to the satisfaction of the applicable conditions set forth in the Credit Agreement, irrevocably obligate[s] us to make the Money Market Loan(s) for which any offer(s) (is/are) accepted, in whole or in part (subject to the third sentence of Section 2.03(e) of the Credit Agreement and any Money Market Loan Limit specified above). Very truly yours, [NAME OF BANK] By_________________________ Authorized Officer Dated: __________, ____ __________________________ [1] As specified in the related Money Market Quote Request. [2] The principal amount bid for each Interest period may not exceed the principal amount requested. Bids must be made for at least $5,000,000 (or a larger multiple of $1,000,000). [3] Indicate "LIBO Margin" (in the case of LIBOR Market Loans) or "Set Rate" (in the case of Set Rate Loans). [4] One, two, three or six months, in the case of a LIBOR Market Loan or, in the case of a Set Rate Loan, a period of not less than seven and not more than 180 days after the making of such Set Rate Loan and ending on a Business Day, as specified in the related Money Market Quote Request. [5] For a LIBOR Market Loan, specify margin over or under the London interbank offered rate determined for the applicable Interest Period. Specify percentage (rounded to the nearest 1/10,000 of 1%) and specify whether "PLUS" or "MINUS". For a Set Rate Loan, specify rate of interest per annum (rounded to the nearest 1/10,000 of 1%). Money Market Quote ------------------ EX-10.1(K) 3 LOAN AGREEMENT DATED 7/14/95 EXHIBIT 10.1(k) LOAN AGREEMENT, dated as of December 30, 1986 as amended and restated as of June 8, 1994 as further amended and restated as of July 14, 1995 among DAYTON WALTHER CORPORATION, as the Borrower, and THE BANK OF NOVA SCOTIA and NBD BANK as the Banks and THE BANK OF NOVA SCOTIA as the Agent || TABLE OF CONTENTS PAGE ---- I. DEFINITIONS 1.1 Defined Terms.......................................1 1.2 Use of Defined Terms...............................18 1.3 Accounting and Financial Determinations............18 II. CREDIT COMMITMENT 2.1 Credit Commitment..................................18 2.2 Total Commitment Amount............................19 2.3 Credit Commitment Fee..............................19 2.4 Termination........................................19 2.5 Letter of Credit Fees..............................20 III. LOANS AND NOTES 3.1 Borrowing Procedure................................20 3.2 Notes..............................................20 3.3 Principal Payments and Prepayments.................21 3.4 Interest...........................................22 3.5 Post-Maturity Rates................................22 3.6 Payment Dates......................................22 3.7 Payments, Computations, etc........................23 3.8 Proration of Payments..............................24 3.9 Setoff.............................................24 3.10 Taxes..............................................24 IV. BNS BASE RATE AND LIBO RATE OPTIONS FOR THE LOANS 4.1 Elections..........................................25 4.2 LIBO Rate Lending Unlawful.........................27 4.3 Deposits Unavailable...............................28 4.4 Increased Costs, etc...............................28 4.5 Funding Losses.....................................29 V. LETTERS OF CREDIT 5.1 Issuance of Letters of Credit......................30 5.2 Other Provisions Relating to Letters of Credit.....30 5.3 Security Document Confirmation.....................34 VI. CONDITIONS PRECEDENT 6.1 Fifth Restatement Date.............................34 6.1.1 Resolutions, etc............................34 6.1.2 Opinion of Counsel..........................35 PAGE ---- 6.1.3 UCC-3 Financing Statements..................35 6.1.4 The Camden Guaranty.........................35 6.1.5 The Varity Guaranty.........................35 6.1.6 The Subordination Agreement.................35 6.2 All Loans and Letters of Credit....................35 6.2.1 Compliance with Warranties, non-Default, etc. 6.2.2 Absence of Litigation, etc..................36 6.2.3 Loan Request................................36 6.2.4 Satisfactory Legal Form.....................36 6.2.5 Disclosure Schedule.........................36 VII. WARRANTIES, ETC. 7.1 Organization, etc.................................36 7.2 Due Authorization.................................37 7.3 Validity, etc.....................................37 7.4 Financial Information.............................37 7.5 Absence of Default................................38 7.6 Litigation, etc...................................38 7.7 Regulation U......................................38 7.8 Government Regulation.............................38 7.9 Burdensome Agreements.............................38 7.10 Taxes.............................................38 7.11 Pension and Welfare Plans.........................39 7.12 Labor Controversies...............................39 7.13 Senior Indebtedness...............................39 7.14 Subsidiaries......................................39 7.15 Patents, Trademarks, etc..........................39 7.16 Ownership of Properties; Liens....................40 7.17 Accuracy of Information...........................40 7.18 Environmental Warranties..........................40 VIII. COVENANTS 8.1 Certain Affirmative Covenants.....................42 8.1.1 Financial Information, etc.................42 8.1.2 Maintenance of Corporate Existences, etc........................................47 8.1.3 Foreign Qualification......................47 8.1.4 Payment of Taxes, etc......................47 8.1.5 Insurance..................................47 8.1.6 Notice of Default, Litigation, etc.........48 -ii- PAGE ---- 8.1.7 Performance of Loan Documents..............48 8.1.8 Books and Records..........................48 8.1.9 Environmental Covenant.....................48 8.2 Certain Negative Covenants........................49 8.2.1 Business Activities........................49 8.2.2 Indebtedness...............................49 8.2.3 Liens......................................51 8.2.4 Financial Condition........................52 8.2.5 Investments................................52 8.2.6 Restricted Payments, etc...................53 8.2.7 Rental Obligations.........................54 8.2.8 Fixed or Capital Assets....................54 8.2.9 Take or Pay Contracts......................54 8.2.10 Consolidation, Merger, etc.................54 8.2.11 Modification, etc. of Subordinated Debt.......................................55 8.2.12 Transactions with Affiliates...............55 8.2.13 Sale or Discount of Receivables............55 8.2.14 Negative Pledges...........................56 8.2.15 Inconsistent Agreements....................56 IX. EVENTS OF DEFAULT 9.1 Events of Default.................................56 9.1.1 Financial Information, etc.................56 9.1.2 Non-Performance of Certain Covenants.......56 9.1.3 Default on Other Indebtedness..............57 9.1.4 Bankruptcy, Insolvency, etc................57 9.1.5 Impairment, etc. of Security...............58 9.1.6 Ownership of the Borrower..................58 9.1.7 Non-Performance of Other Obligations.......58 9.1.8 Breach of Warranty.........................58 9.1.9 Pension Plans..............................58 9.1.10 Judgments..................................58 9.1.11 Varity Indebtedness........................59 9.1.12 Judgment against Varity....................59 9.2 Action if Bankruptcy..............................59 9.3 Action if Other Event of Default..................59 9.4 Collateral Account................................60 X. THE AGENT 10.1 Actions..........................................60 -iii- PAGE ---- 10.2 Funding Reliance, etc............................61 10.3 Exculpation......................................61 10.4 Successor........................................62 10.5 Loans by the Agent...............................62 10.6 Credit Decisions.................................62 10.7 Copies, etc......................................62 XI. MISCELLANEOUS 11.1 Waivers, Amendments, etc.........................63 11.2 Notices..........................................63 11.3 Costs and Expenses and Capital Adequacy..........63 11.4 Indemnification..................................64 11.5 Severability.....................................65 11.6 Cross-References.................................65 11.7 Headings.........................................65 11.8 Counterparts, Effectiveness, etc.................66 11.9 Governing Law....................................66 11.10 Confidentiality..................................66 11.11 Successors and Assigns...........................66 11.12 Waiver of Jury Trial.............................66 11.13 Not a Novation...................................67 EXHIBIT A - Note EXHIBIT B - Camden Guaranty EXHIBIT C - Loan Request EXHIBIT D - Continuation/Conversion Notice EXHIBIT E - Compliance Certificate EXHIBIT F - Disclosure Schedule EXHIBIT G - Opinion of Counsel EXHIBIT H - Borrowing Base Certificate EXHIBIT I - Varity Guaranty EXHIBIT J - Subordination Agreement || -iv- LOAN AGREEMENT THIS LOAN AGREEMENT, dated as of December 30, 1986, as amended and restated as of June 8, 1994, and as further amended and restated as of July 14, 1995, among DAYTON WALTHER CORPORATION, an Ohio corporation (the "Borrower"), and THE -------- BANK OF NOVA SCOTIA, a Canadian chartered bank acting through its Atlanta Agency ("BNS"), and NBD BANK, a national banking association ("NBD" and along with BNS --- --- individually a "Bank" and collectively the "Banks") and BNS acting as agent for ---- ----- the Banks (in such capacity, the "Agent"), ----- W I T N E S S E T H: WHEREAS, the Borrower, BNS and NBD are parties to the Loan Agreement, dated as of December 30, 1986 and amended as of December 31, 1986 and March 31, 1987 and amended and restated as of December 1, 1987 and amended and restated as of April 26, 1988 and April 29, 1988 and as further amended as of May 31, 1989, March 6, 1990, October 30, 1990, January 31, 1991, July 31, 1991 and January 31, 1992, and as amended and restated as of June 9, 1993 and June 8, 1994 (as so amended, the "Existing Agreement"), pursuant to which the Banks have made loans ------------------ to the Borrower from time to time and provided working capital; and WHEREAS, the Borrower desires, and the Banks and the Agent are willing, on the terms and conditions hereinafter set forth, to amend the Existing Agreement to extend the Credit Commitment Expiration Date (such and other capitalized terms being used herein with the meanings provided in Section 1.1) and to make ----------- certain other changes as provided herein; NOW, THEREFORE, the parties hereto hereby agree that the Existing Agreement, together with all Exhibits thereto, is hereby amended and restated in its entirety to read, effective as of the date (the "Fifth Restatement Date") ---------------------- when all of the conditions set forth in Section 6.1 have been satisfied, in the ----------- form of this Agreement, together with all Exhibits hereto. ARTICLE I DEFINITIONS SECTION 1.1 Defined Terms. The following terms (whether or not ------------- underscored) when used in this Agreement, including its preamble and recitals, shall, except where the context otherwise requires, have the following meanings (such definitions to be equally applicable to the singular and plural forms thereof): "Account Debtor" means any party who is obligated on or under any Account -------------- Receivable. "Account Receivable" means any right of the Borrower or any Subsidiary to ------------------ payment for goods sold or leased or for services rendered. "Affected Bank" means a Bank that notifies the Agent under Section 4.2 or ------------- ----------- Section 4.3 that it is so affected. ----------- "Affiliate" of any Person means any other Person which, directly or --------- indirectly, controls or is controlled by or under common control with such Person (excluding any trustee under, or any committee with responsibility for administering, any Plan). A Person shall be deemed to be "controlled by" any other Person if such other Person possesses, directly or indirectly, power: (a) to vote 10% or more of the securities having ordinary voting power for the election of directors of such Person; or (b) to direct or cause the direction of the management and policies of such Person whether by contract or otherwise. "Agent" is defined in the preamble. ----- -------- "Agreement" means the Existing Agreement as amended and restated hereby as --------- of the date hereof and in effect on the Fifth Restatement Date and as thereafter from time to time amended. -2- "Applicable Margin" means the percentage per annum set forth opposite the ----------------- then-current rating given to Varity's debt by S&P and Moody's; provided that if -------- the rating from each such agency would result in two different margins, the higher of the two ratings shall determine the applicable margin:
Rating by Rating by Applicable S&P Moody's Margin --------- --------- ---------- A- or better A3 or better 0.350% BBB or better Baa2 or better 0.500% BB or better Ba2 or better 0.625% Less than BB Less than Ba2 0.875% or unrated or unrated
The Applicable Margin on the Fifth Restatement Date shall be 0.500%. "Approval" means each and every approval, consent, filing and registration -------- by or with any Federal, state or other regulatory authority necessary to authorize or permit the execution, delivery or performance of this Agreement, the Notes or any other Loan Document or for the validity or enforceability hereof or thereof. "Authorized Officer" means, relative to any Loan Party, those of its ------------------ officers whose signatures and incumbency shall have been certified to the Agent and the Banks pursuant to Section 6.1.1. ------------- "Bank" is defined in the preamble. ---- -------- "Bank Parties" is defined in Section 11.4. ------------ ------------ "BNS" is defined in the preamble. --- -------- "BNS Base Rate" means at any time the greater of (i) rate of interest most ------------- recently announced by the Agent in Atlanta as its base rate (of which announcements the Agent shall give notice promptly to the Borrower and the Banks) and (ii) the Federal Funds Rate plus 0.50%. The BNS Base Rate is not necessarily intended to be the lowest rate of interest charged by the Agent -3- in connection with extensions of credit. Changes in the rate of interest on that portion of the Notes maintained as a BNS Rate Loan shall take effect simultaneously with each change in the BNS Base Rate. "BNS Rate Loan" is defined in Section 4.1. ------------- ----------- "Borrower" is defined in the preamble. -------- -------- "Borrowing" means the Loans made by all Banks on any Business Day in --------- accordance with Section 3.1. ----------- "Borrowing Base" means, as at any date of determination thereof, an amount -------------- equal to the sum of (x) eighty percent (80%) of the book value of all Eligible Accounts Receivable shown on the most recent Borrowing Base Certificate provided to the Agent and the Banks, plus (y) fifty percent (50%) of the value (at the ---- lower of cost determined on a LIFO basis or market, in accordance with GAAP) of all Eligible Inventory, as shown on the schedule of Inventory accompanying the most recent Borrowing Base Certificate provided to the Agent and the Banks. "Borrowing Base Certificate" means a certificate, substantially in the form -------------------------- of Exhibit I hereto. --------- "Business Day" means: ------------ (a) any day which is neither a Saturday or Sunday nor a legal holiday in the State of New York, Michigan or Georgia on which Banks are authorized or required to be closed in New York City, Detroit or Atlanta; and (b) relative to the date of (i) making or continuing any portion of a Loan as, or converting any portion of a Loan from or into a LIBO Rate Loan, (ii) making any payment or prepayment of principal of or payment of interest on the portion of the principal amount of a Loan being maintained as a LIBO Rate Loan, and -4- (iii) the Borrower's giving any notice (or the number of Business Days to elapse prior to the effectiveness thereof) in connection with any matter referred to in clause (b)(i) or (b)(ii), ------------- ------- a banking business day of the Agent at, and on which dealings in Dollars are carried on in the interbank eurodollar market of, the Agent's LIBOR Office. "Camden" means Camden Casting Center, Incorporated, a corporation organized ------ under the laws of the State of Tennessee. "Camden Guaranty" means the guaranty, dated as of the Fifth Restatement --------------- Date, in the form of Exhibit B attached hereto, as from time to time thereafter --------- amended, modified or otherwise supplemented. "Cash Equivalent Investment" means at any time: -------------------------- (a) any evidence of Indebtedness, maturing not more than one year after such time, issued or guaranteed by either the United States Government or Canadian federal or provincial governmental authorities; (b) commercial paper, maturing not more than nine months from the date of issue which is issued by a corporation (except an Affiliate of the Borrower) organized under the laws of any State of the United States of America or of the District of Columbia and rated A-1 by S&P or P-1 by Moody's or which is issued by a Bank; (c) any certificate of deposit or acceptance, maturing not more than one year after such time, which is issued by a commercial banking institution that is a member of the Federal Reserve System and has a combined capital and surplus and undivided profits of not less than $500,000,000 or which is issued by a Bank; and (d) any repurchase agreement entered into with a Bank or other commercial banking institution of the size referred to in clause (c) ---------- secured by any obligation of the type described in any of clauses (a) ----------- through (c) having a market --- -5- value at the time such repurchase agreement is entered into of not less than 100% of the repurchase obligation of a Bank or other commercial banking institution thereunder. "CERCLA" means the Comprehensive Environmental Response, Compensation, and ------ Liability Act of 1980, as amended. "CERCLIS" means the Comprehensive Environmental Response Compensation ------- Liability Information System List. "Code" means the Internal Revenue Code of 1986, and the regulations ---- thereunder, as from time to time in effect. "Commitment Fee Margin" means the percentage per annum set forth below --------------------- opposite the then-current rating given to Varity's debt by S&P and Moody's; provided that if the rating from each such agency would result in two different -------- margins, the higher of the two ratings shall determine the applicable margin:
Rating Rating Commitment by S&P by Moody's Fee Margin ------ ---------- ---------- A- or better A3 or better 0.125% BBB or better Baa2 or better 0.175% BB or better Ba2 or better 0.225% Less than BB Less than Ba2 0.350% or unrated or unrated
The Commitment Fee Margin on the Fifth Restatement Date shall be 0.175%. "Compliance Certificate" means a certificate duly executed by the chief ---------------------- executive or financial Authorized Officer of the Borrower in the form of Exhibit ------- E attached hereto, with appropriate insertions, together with such changes as - the Banks may from time to time request for purposes of monitoring the Borrower's compliance herewith. "Consolidated Net Worth" means the consolidated net worth of the Borrower ---------------------- and its Subsidiaries computed in accordance with GAAP plus the then outstanding ---- principal amount of -6- Intercompany Subordinated Debt (it being understood that such amount of Intercompany Subordinated Debt shall not include capitalized interest on such Debt). "Continuation/Conversion Notice" means a notice of continuation or ------------------------------ conversion and certificate duly executed by the chief executive or financial Authorized Officer of the Borrower substantially in the form of Exhibit D --------- attached hereto. "Contractual Obligation" means, relative to any Person, any provision of ---------------------- any security issued by such Person or of any Instrument or undertaking to which such Person is a party or by which it or any of its property is bound. "Credit Commitment" means, relative to any Bank, such Bank's obligation to ----------------- make loans pursuant to Section 2.1 and to risk participate in Letters of Credit ----------- up to the amount set forth opposite its name on the signature pages hereto as such amount may be amended with the consent of such Bank. "Credit Commitment Availability" means at any time the excess of ------------------------------ (a) the lesser of (i) the then Borrowing Base and (ii) the then Total Commitment Amount over (b) the sum of (i) the then aggregate outstanding principal amount of all Loans and (ii) the then aggregate outstanding Letter of Credit Liabilities. "Credit Commitment Expiration Date" means July 10, 1996. --------------------------------- "Credit Commitment Termination Date" is defined in Section 2.1. ---------------------------------- ----------- -7- "Debt-Equity Ratio" means, at any date, the ratio, expressed as a ----------------- percentage, of: (a) all consolidated Indebtedness of the Borrower and Subsidiaries described in clauses (a) (b), (c) and (e) of the definition of the term ----------- --- --- --- "Indebtedness" (other than Guaranties described in clause (e)(ii) of such -------------- definition in respect of Indebtedness described in clause (d) of such ---------- definition); to -- (b) Consolidated Net Worth. "Default" means any Event of Default or any condition or event which, after ------- notice or lapse of time or both, would constitute an Event of Default. "Dollar" and the sign "$" mean lawful money of the United States of ------ - America. "Domestic Office" means, relative to a Bank or any Person, the office of --------------- such Person designated as such below its signature hereto or such other office of such Person (or any successor or assign of such Person) within the United States of America as may be designated from time to time by notice from such Person to each other Person party hereto. "Eligible Account Receivable" means an Account Receivable which meets each --------------------------- of the following requirements: (i) if it arises from the sale or lease of goods, such goods have been shipped or delivered to the Account Debtor under such Account Receivable; (ii) it is a valid, legally enforceable obligation of the Account Debtor thereunder, and is not subject to any offset, counterclaim or other defense on the part of such Account Debtor or to any claim on the part of such Account Debtor denying liability thereunder in whole or in part; (iii) it is not subject to any Lien whatsoever (except any such Lien in favor of the Agent or the Banks); (iv) it is evidenced by an invoice (dated within a reasonable time after the date of shipment or performance and having payment terms acceptable to the Required Banks) rendered to such Account Debtor, and is not evidenced by any Instrument or -8- chattel paper; (v) it is not owing by any Account Debtor that is a Subsidiary; (vi) it is not owing by any Account Debtor whose obligations the Required Banks, acting in their own discretion after consultation with the Borrower, shall have notified the Borrower in writing are not deemed to constitute Eligible Accounts Receivable; and (vii) payment thereon is not due more than sixty (60) days after date of invoice and is not overdue by thirty (30) days or more. An Account Receivable which is at any time an Eligible Account Receivable, but which subsequently fails to meet any of the foregoing requirements, shall forthwith cease to be an Eligible Account Receivable. "Eligible Inventory" means any Inventory which meets each of the following ------------------ requirements: (i) it is in first class condition; (ii) in case of goods held for sale or lease, it is (except as the Required Banks may otherwise consent in writing) new and unused; and (iii) it is owned by the Borrower or any Subsidiary and is not subject to any Lien whatsoever (except any such Lien in favor of the Agent or the Banks). Any Inventory which is at any time Eligible Inventory, but which subsequently fails to meet any of the foregoing requirements, shall forthwith cease to be Eligible Inventory. "Environmental Laws" means all applicable federal, state or local statutes, ------------------ laws, ordinances, codes, rules and regulations (including consent decrees and administrative orders) relating to public health and safety and protection of the environment. "ERISA" means 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. "ERISA Affiliate" means any corporation or trade or business that is a --------------- member of any group of organizations (a) described in Section 414(b) or (c) of the Code of which the Borrower is a member and (b) solely for purposes of potential liability under Section 302(c)(11) of ERISA and Section 412(c)(11) of the Code and the lien created under Section 302(f) of ERISA and Section 412(n) of the Code, described in Section 414(m) or (o) of the Code of which the Borrower is a member. -9- "Event of Default" is defined in Section 9.1. ---------------- ----------- "Existing Agreement" is defined in the first recital. ------------------ ----- ------- "Federal Funds Rate" means, for any day, a fluctuating interest rate per ------------------ annum equal 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. "Fiscal Quarter" means any quarter of a Fiscal Year. -------------- "Fiscal Year" means any period of twelve consecutive calendar months ending ----------- on January 31. "Fifth Restatement Date" is defined in the paragraph following the ---------------------- recitals. -------- "F.R.S. Board" means the Board of Governors of the Federal Reserve System ------------ (or any successor). "GAAP" means generally accepted accounting principles set forth in the ---- opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant segment of the accounting profession of the United States of America, which are applicable as of the date of determination. "Guaranty" means any agreement, undertaking or arrangement by which any -------- Person guarantees, endorses or otherwise becomes or is contingently liable upon (by direct or indirect agreement, -10- contingent or otherwise, to provide funds for payment, to supply funds to, or otherwise to invest in, a debtor, or otherwise to assure a creditor against loss) the debt, obligation or other liability of any other Person (other than by endorsements of instruments in the course of collection), or guarantees the payment of dividends or other distributions upon the shares of any other Person. The amount of the obligor's obligation under any Guaranty shall (subject to any limitation set forth therein) be deemed to be the outstanding principal amount (or maximum outstanding principal amount, if larger) of the debt, obligation or other liability thereby guaranteed. "Hazardous Material" means ------------------ (a) any "hazardous substance", as defined by CERCLA; (b) any "hazardous waste", as defined by the Resource Conservation and Recovery Act, as amended; (c) any petroleum product; or (d) any pollutant or contaminant or hazardous, dangerous or toxic chemical, material or substance within the meaning of any other applicable federal, state or local law, regulation or ordinance (including consent decrees and administrative orders) relating to or imposing liability concerning any hazardous, toxic or dangerous waste, substance or material, all as amended. "hereof", "hereto", "hereunder" and similar terms refer to this Agreement ----------------------------- and not to any particular Section or provision of this Agreement. "including" means including without limiting the generality of any --------- description preceding such term. "Indebtedness" of any Person means, without duplication, ------------ (a) all obligations of such Person for borrowed money (including all notes payable and drafts accepted representing extensions of credit and all obligations evidenced -11- by bonds, debentures, notes or other similar instruments) or on which interest charges are customarily paid; (b) all unpaid reimbursement obligations in respect of the face amount of all letters of credit, whether or not drawn, issued for the account of such Person; (c) capitalized leases; (d) all items other than as described in clause (a), (b) or (c) ---------- --- --- which, in accordance with GAAP, would be included as liabilities on the liability side of a balance sheet of such Person as of the date at which Indebtedness is to be determined; and (e) whether or not so included as liabilities in accordance with GAAP (i) all indebtedness (excluding prepaid interest thereon) secured by a Lien on property owned or being purchased by such Person (including indebtedness arising under conditional sales or other title retention agreements) whether or not such indebtedness shall have been assumed by such Person, and (ii) all Guaranties issued by such Person. "Indemnified Liabilities" is defined in Section 11.4. ----------------------- ------------ "Instrument" means any document or writing (whether by formal agreement, ---------- letter or otherwise) under which any obligation is evidenced, assumed or undertaken, or any right to any Lien is granted or perfected. "Intangible Assets" of any Person means all licenses, franchises, patents, ----------------- patent applications, trademarks, program rights, goodwill and research and development expense or other like intangibles shown on a balance sheet of such Person (excluding, in the case of the Borrower and Subsidiaries, goodwill and other intangible assets in amounts not in excess of that shown on the balance sheet referred to in Section 7.4). ----------- -12- "Intercompany Subordinated Debt" means the subordinated Indebtedness of the ------------------------------ Borrower to Varity in the total principal amount of $24,370,000 evidenced by (i) that certain Subordinated Note representing $14,370,000 in principal amount, dated January 28, 1993, executed by the Borrower in favor of Varity and (ii) that certain Subordinated Note representing $10,000,000 in principal amount, dated July 1, 1995, executed by the Borrower in favor of Varity. "Interest Coverage Ratio" means, at the close of any Fiscal Quarter for the ----------------------- four consecutive Fiscal Quarters ending on such date, the ratio expressed as a decimal of: (a) the sum for such four Fiscal Quarters of (i) Net Income, plus (ii) amounts deducted, in determining such Net Income, by the Borrower and Subsidiaries representing (q) taxes other than federal income taxes, (r) amortization of Intangible Assets, (s) Interest Expense, (t) depreciation, and (u) non-cash charges taken as a result of Financial Accounting Standards Board No. 106, plus (iii) any reserves charged to such Net Income, in connection with the Borrower's loans to or investments in Wolverine Brass Works; provided that the aggregate amount of such reserves so charged does -------- not exceed $3,000,000; to -- (b) Interest Expense of the Borrower and Subsidiaries during such period with respect to all Indebtedness of the Borrower and Subsidiaries representing any borrowing or financing. -13- "Interest Expense" means, for any Fiscal Quarter, the aggregate interest ---------------- expense of the Borrower and Subsidiaries for such Fiscal Quarter, including the portion of any obligation under capital leases allocable to interest expense, but excluding the portion of any debt discount that shall be amortized in such period. "Interest Period" means, relative to any LIBO Rate Loan, the period which --------------- shall begin on (and include) the date on which such LIBO Rate Loan is made or continued as, or converted into, a LIBO Rate Loan pursuant to Section 4.1, and, ----------- unless the final maturity of such LIBO Rate Loan is accelerated, shall end on (but exclude) the day which numerically corresponds to such date one, two, three or six months thereafter, as the Borrower may select in its relevant notice pursuant to Section 4.1; provided, however, that: ----------- -------- ------- (a) absent such selection, the Borrower shall be deemed to have selected an Interest Period of three months; (b) if there exists no numerically corresponding day in such month, such Interest Period shall end on the last Business Day of such month; (c) if such Interest Period which would otherwise end on a day which is not a Business Day, such Interest Period shall end on the Business Day next following such numerically corresponding day (unless such next following Business Day is the first Business Day of a calendar month, in which case such Interest Period shall end on the preceding Business Day); and (d) no Interest Period shall end later than the Credit Commitment Expiration Date. "Inventory" means goods held by the Borrower or any Subsidiary for sale or --------- lease, or furnished or to be furnished by the Borrower or any Subsidiary under any contract of service, or held by the Borrower or any Subsidiary as raw materials, work in process or materials used or consumed in a business. "Investment" means, relative to any Person: ---------- -14- (a) any loan or advance made by it to any other Person (excluding commission, travel and similar advances to officers and employees made in the ordinary course of business); (b) any Guaranty by it; and (c) any ownership or similar interest by it in any other Person; and the amount of any Investment shall be the original principal or capital amount thereof less all returns of principal or equity thereon (and without adjustment by reason of the financial condition of such other Person). "Letter of Credit" is defined in Section 5.1. ---------------- ----------- "Letter of Credit Liabilities" means, without duplication, at any time and ---------------------------- in respect of each Letter of Credit, the sum of (i) the unutilized face amount of such Letter of Credit plus (ii) the aggregate unpaid amount of all ---- Reimbursement Obligations at the time due and payable in respect of drawings made under such Letter of Credit. "Liabilities" means all monetary obligations (including Reimbursement ----------- Obligations) of the Borrower under this Agreement, the Notes and each other Loan Document. "LIBO Rate" means, relative to each Interest Period: --------- (i) the rate per annum which appears on Telerate Page 3750 at approximately 11:00 a.m., London time on the second Business Day prior to the beginning of such Interest Period for dollar deposits in immediately available funds. For purposes of calculating the LIBO Rate, "Telerate Page 3750" means the display page so designated on the Dow Jones Telerate Service (or such other page as may replace that page on that service, or such other service as may be nominated as the information vendor, for the purpose of displaying London interbank offered rates of major banks). If such rate appears on Telerate Page 3750, the "LIBO Rate" for such Interest Period will be such rate; or -15- (ii) if such rate does not appear on Telerate Page 3750 on such date, the LIBO Rate will be the rate per annum at which dollar deposits in immediately available funds are offered to the Agent's LIBOR Office two Business Days prior to the beginning of such Interest Period by prime banks in the interbank eurodollar market as at or about the relevant local time of such LIBOR Office, for delivery on the first day of such Interest Period, for the number of days comprised therein and in an amount equal to the amount of the Agent's LIBO Rate Loan to be outstanding during such Interest Period. "Relevant local time" shall mean 11:00 a.m., local time, in London, when the LIBOR Office selected by the Agent to determine the LIBO Rate is located in Europe, or 10:00 a.m., Nassau, Bahamas time, when such LIBOR Office is located in North America. "LIBO Rate Loan" is defined in Section 4.1. -------------- ----------- "LIBO Rate (Reserve Adjusted)" means, relative to any portion of a Loan to ---------------------------- be made, continued or maintained as, or converted into, a LIBO Rate Loan for any Interest Period, a rate per annum (rounded upwards, if necessary, to the nearest 1/16 of 1%) determined pursuant to the following formula: LIBO Rate = LIBO Rate ---------------------------- (Reserve Adjusted) 1 - LIBOR Reserve Percentage The Agent shall determine the LIBO Rate (Reserve Adjusted) for each Interest Period and promptly notify the Borrower and the Banks thereof (which determination shall, in the absence of demonstrable error, be conclusive on the Borrower) and, if requested by the Borrower, deliver a statement showing the computation used by the Agent in determining any such rate. "LIBOR Office" means, relative to any Bank, the office of such Bank ------------ designated as such below its signature hereto or such other domestic or foreign office or offices of such Bank (as designated from time to time by notice from such Bank to the Borrower and the Agent). -16- "LIBOR Reserve Percentage" means, relative to each Interest Period, a ------------------------ percentage (expressed as a decimal) equal to the daily average during such Interest Period of the percentages in effect on each day of such Interest Period, as prescribed by the F.R.S. Board, for determining reserve requirements applicable to "Eurocurrency Liabilities" pursuant to Regulation D or any other applicable regulation of the F.R.S. Board which prescribes reserve requirements applicable to "Eurocurrency Liabilities" as presently defined in Regulation D as applicable to any Bank or any participant of any Bank with respect to such participation. "Lien" means any mortgage, pledge, hypothecation, charge, assignment, ---- deposit arrangement, encumbrance, lien (statutory or other), or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including any conditional sale or other title retention agreement, any financing lease involving substantially the same economic effect as any of the foregoing, and the filing of any financing statement under the Uniform Commercial Code or comparable law of any jurisdiction). "Loans" is defined in Section 2.1. ----- ----------- "Loan Document" means each Instrument from time to time executed and ------------- delivered to the Agent or any Bank pursuant hereto, whether or not mentioned herein, including the Notes, the Camden Guaranty and the Varity Guaranty. "Loan Party" means any Person (other than the Agent or any Bank) obligated ---------- under any Loan Document; and "related Loan Party" means, relative to any Loan ------------------ Document, each Loan Party obligated thereunder. "Loan Request" means a loan request and certificate duly executed by the ------------ chief executive or financial Authorized Officer of the Borrower substantially in the form of Exhibit C attached hereto. --------- "Management Fees" means all fees, salaries and other compensation, and all --------------- out-of pocket expenses, paid, incurred or reimbursed by the Borrower or any of its Subsidiaries to any Person that is an Affiliate of the Borrower in respect of -17- services rendered in connection with the management, supervision or financial or business affairs of the Borrower or any of its Subsidiaries (including without limitation, any loan or credit guarantee fee). "Materially Adverse Effect" means, relative to any occurrence of whatever ------------------------- nature (including any adverse determination in any litigation, arbitration or governmental investigation or proceeding), a materially adverse effect on: (a) the consolidated financial condition, operations or prospects of the Borrower and Subsidiaries; or (b) the ability of the Borrower or any other Loan Party to perform any of its payment or other material obligations under this Agreement or any Loan Document. "Maturity" means, relative to any Loan, the date on which such Loan is -------- stated to be due and payable, in whole or in part (in accordance with the Note evidencing such Loan, this Agreement, or otherwise), or such earlier date when such Loan (or any portion thereof) shall be or become due and payable, in whole or in part, in accordance with the terms of this Agreement, whether by required prepayment, declaration, or otherwise. "Monthly Payment Date" means the last day of each calendar month or, if -------------------- such day is not a Business Day, the next succeeding Business Day. "Moody's" means Moody's Investors Service, Inc. ------- "Multiemployer Plan" means a multiemployer plan defined as such in Section ------------------ 3(37) of ERISA to which contributions have been made by the Borrower or any ERISA Affiliate and which is covered by Title IV of ERISA. "NBD" is defined in the preamble. --- -------- "Net Income" means for any fiscal period the excess of: ---------- (a) the gross revenues from continuing operations of the Borrower and Subsidiaries (but excluding any gain -18- arising from the sale or disposition of any fixed or capital assets or from any write-up of the book value of any assets); over (b) all of the operating and non-operating expenses of the Borrower and Subsidiaries (including taxes on income). "Note" means any promissory note of the Borrower, substantially in the form ---- of Exhibit A attached hereto (as such promissory note may be amended, endorsed, --------- or otherwise modified from time to time) and all other promissory notes accepted from time to time in substitution, replacement or renewal therefor. "Organic Document" means, relative to any corporation, its certificate of ---------------- incorporation, its by-laws and all shareholder agreements, voting trusts and similar arrangements applicable to any of its authorized shares of capital stock. "PBGC" means the Pension Benefit Guaranty Corporation, a United States ---- corporation and any entity succeeding to any or all of its functions under ERISA. "Pension Plan" means 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 Borrower or any ERISA Affiliate, 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 five years preceding this Agreement, or by reason of being deemed to be a contributing sponsor under section 4069 of ERISA. "Percentage" means, relative to any Bank, the percentage set forth opposite ---------- its signature hereto as such percentage may be adjusted hereafter. "Person" means any natural person, corporation, firm, association, ------ government, governmental agency or any other entity, whether acting in an individual, fiduciary or other capacity. -19- "Plan" means any Pension Plan or Welfare Plan. ---- "Properties" means any right or interest in or to property of any kind ---------- whatsoever, whether real, personal or mixed and whether tangible or intangible. "Quarterly Payment Date" means the last day of any Fiscal Quarter or, if ---------------------- such day is not a Business Day, the next succeeding Business Day. "Regulatory Change" means, relative to any Bank, any change after the date ----------------- hereof in any (or the adoption after the date hereof of any new): (a) United States Federal or state law or foreign law applicable to such Bank; or (b) rule, regulation, interpretation, directive or request (whether or not having the force of law) applying to such Bank of any court or governmental authority charged with the interpretation or administration of any law referred to in clause (a) or of any fiscal, monetary or other ---------- authority having jurisdiction over such Bank. "Reimbursement Obligation" is defined in Section 5.2(c). ------------------------ -------------- "Release" means a "release", as such term is defined in CERCLA. ------- "Required Banks" means Banks whose Percentages aggregate 66-2/3% or more. -------------- "Resource Conservation and Recovery Act" means the Resource Conservation -------------------------------------- and Recovery Act, 42 U.S.C. Section 690, et seq., as in effect from time to -- --- time. "S&P" means Standard & Poor's Corporation. --- "Subordinated Debt" means: ----------------- (a) the Intercompany Subordinated Debt; and -20- (b) all other unsecured Indebtedness of the Borrower for money borrowed which is Intercompany Indebtedness as that term is defined in the Subordination Agreement. "Subordination Agreement" means the Subordination Agreement, dated as of ----------------------- the Fifth Restatement Date, executed by Varity in favor of the Agent and the Banks in the form of Exhibit K attached hereto as from time to time thereafter --------- amended, modified or supplemented with the consent of the Required Banks. "Subsidiary" of any corporation means any other corporation more than 50% ---------- of the outstanding shares of capital stock of which having ordinary voting power for the election of directors is owned directly or indirectly by such corporation, and, except as otherwise indicated herein, references to Subsidiaries shall refer to Subsidiaries of the Borrower. "Taxes" is defined in Section 3.10. ----- ------------ "Third Restatement Date" means June 9, 1993. ---------------------- "Total Commitment Amount" is defined in Section 2.2. ----------------------- ----------- "type" means, relative to the outstanding principal amount of all or any ---- portion of a Loan, the portion thereof, if any, being maintained as a BNS Rate Loan or a LIBO Rate Loan. "Varity" means Varity Corporation, a Delaware corporation and the ultimate ------ corporate parent of the Borrower. "Varity Guaranty" means the Guaranty, dated June 9, 1993, executed by --------------- Varity in favor of the Agent and the Banks in the form of Exhibit J attached --------- hereto as from time to time thereafter amended, modified or supplemented. "Welfare Plan" means a "welfare plan", as such term is defined in section ------------ 3(1) of ERISA. SECTION 1.2 Use of Defined Terms . Terms for which meanings are provided --------------------- in this Agreement shall, unless otherwise defined or the context otherwise requires, have such meanings when used in Exhibit F attached hereto, each Loan --------- Request, Continuation/ -21- Conversion Notice, Compliance Certificate, notice and other communication delivered from time to time in connection with this Agreement or any Loan Document. SECTION 1.3 Accounting and Financial Determinations. Where the character --------------------------------------- or amount of any asset or liability or item of income or expense is required to be determined, or any accounting computation is required to be made, for the purpose of this Agreement (including Section 8.2.4), such determination or ------------- calculation shall, to the extent applicable and except as otherwise specified in this Agreement, be made in accordance with the GAAP used in, and consistently applied with, the financial statements referred to in Section 7.4. ----------- ARTICLE II CREDIT COMMITMENT SECTION 2.1 Credit Commitment. Subject to the terms and conditions of ----------------- this Agreement (including Article VI), each Bank severally and for itself alone ---------- agrees that it will, from time to time on any Business Day occurring during the period commencing on the Fifth Restatement Date and continuing through the date (the "Credit Commitment Termination Date") which is the earlier of the Credit ---------------------------------- Commitment Expiration Date or the date immediately preceding the termination of the Credit Commitment pursuant to Section 2.4, make loans (the "Loans") to the ----------- ----- Borrower pursuant to Section 3.1 equal to its Percentage of the amount of the ----------- Borrowing requested from the Banks on such Business Day; provided, however, that -------- ------- the Banks shall not be obligated to make any Loan if, after giving effect thereto, the Credit Commitment Availability would be less than zero and no Bank shall have any obligation to make Loans hereunder or to risk participate in Letters of Credit at any time outstanding in excess of its Credit Commitment. Subject to the terms hereof, the Borrower may from time to time borrow, prepay and reborrow amounts pursuant to the Credit Commitments. SECTION 2.2 Total Commitment Amount. The aggregate amount of all Credit ----------------------- Commitments (the "Total Commitment Amount") on any date prior to the Credit ----------------------- Commitment Termination Date shall be -22- $20,000,000 less all permanent reductions to such amount made voluntarily by the Borrower in part (in integral multiples of $100,000) or in full on at least five Business Days' prior notice to the Agent and the Banks for purposes of this Section 2.2. ----------- SECTION 2.3 Credit Commitment Fee. The Borrower agrees to pay the Agent --------------------- for the account of each Bank for the period (including any portion thereof when such Bank's Credit Commitment is suspended by reason of the Borrower's inability to satisfy any condition of Article VI), commencing on the last day through ---------- which such fee has been paid pursuant to the Existing Agreement and continuing through the Credit Commitment Termination Date, a commitment fee at the rate of the Commitment Fee Margin on the average daily amount of the Credit Commitment Availability. Such commitment fee shall be payable by the Borrower in arrears to the Agent for the account of each Bank for the period from the Fifth Restatement Date to the Credit Commitment Termination Date, on each Quarterly Payment Date, commencing with the first such day following the Fifth Restatement Date, and on the Credit Commitment Termination Date. SECTION 2.4 Termination. The Credit Commitments shall terminate and each ----------- Bank shall be relieved of its obligations to make any Loan and the Agent shall be relieved of its obligation to issue any Letter of Credit: (a) five Business Days after notice given, by the Borrower to the Agent and the Banks, for purposes of this clause, at any time when no Liabilities or Letters of Credit are outstanding; (b) immediately and without further action upon the occurrence of any Default described in Section 9.1.4; or ------------- (c) immediately when any other Event of Default shall have occurred and be continuing and any Liabilities shall be declared to be due and payable pursuant to Section 9.3 or, in the absence of such declaration, the ----------- Agent, upon direction of the Required Banks, shall so elect by notice to the Borrower for purposes of this clause (c). ---------- -23- SECTION 2.5 Letter of Credit Fees. --------------------- (a) The Borrower agrees to pay to the Agent, for the account of each Bank, a letter of credit fee on the average daily amount available for drawing under all outstanding Letters of Credit equal to the Applicable Margin, payable in arrears on each Quarterly Payment Date. (b) The Borrower agrees to pay to the Agent, for its own account, such other fees and charges in connection with the issuance, amendment or payment of Letters of Credit as the Borrower and the Agent shall agree, all such fees and charges to be payable in arrears on each Monthly Payment Date or as otherwise agreed between the Borrower and the Agent. ARTICLE III LOANS AND NOTES SECTION 3.1 Borrowing Procedure. By furnishing a Loan Request to the ------------------- Agent on or before 12:00 noon, Atlanta time, on not less than three (or on the same day in the case of a BNS Rate Loan) nor more than five Business Days' notice before the date of any Borrowing requested in such Loan Request, the Borrower may from time to time request that a Borrowing be made by all Banks in the aggregate in a minimum amount of $1,000,000 and an integral multiple of $100,000 in excess thereof. Subject to the terms and conditions of this Agreement, each Borrowing shall be made on the Business Day specified in the Loan Request therefor. On such Business Day and subject to such terms and conditions, each Bank shall provide the Agent with funds, on or before 11:00 a.m. (or 1:00 p.m. in the case of a BNS Rate Loan), Atlanta time, in an amount equal to such Bank's Percentage of the requested Borrowing by transferring same day or immediately available funds to such account as the Agent shall specify from time to time by notice to the Banks. The proceeds of each Borrowing shall be made available to the Borrower (albeit in the case of a Loan by any other Bank, the Agent shall be required to make the proceeds thereof available only to the extent received by it in same day funds from such other Bank) by wire transfer of -24- such proceeds to such transferees, or to such accounts of the Borrower, as the Borrower shall have specified in the Loan Request therefor. No Bank's obligation to make any Loan shall be affected by any other Bank's failure to make any Loan. SECTION 3.2 Notes. All Loans made by each Bank shall be evidenced by a ----- Note payable to the order of such Bank in a maximum principal amount equal to such Bank's original Credit Commitment. The Borrower hereby irrevocably authorizes each Bank to make or cause to be made, at or about the time of each Loan made by it, an appropriate notation on the grid attached to such Bank's Note (or on a continuation of such grid attached to such Bank's Note and made a part thereof) or otherwise in the records of such Bank reflecting the unpaid principal amount of all Loans. Each Bank shall make or cause to be made, at or about the time of receipt of payment of any principal of its Note, an appropriate notation on the grid attached thereto (or on such continuation) or otherwise in the records of such Bank reflecting such payment. The aggregate unpaid amount of Loans set forth on the grid attached to each Note (or on such continuation) or otherwise in the records of such Bank shall be rebuttable presumptive evidence of the principal amount thereof owing and unpaid. The failure to record any such amount on such grid (or on such continuation) or otherwise in the records of such Bank shall not limit or otherwise affect the obligations of the Borrower hereunder or under such Note to make payments of principal of or interest on such Note when due. SECTION 3.3 Principal Payments and Prepayments. The Borrower will repay ---------------------------------- the outstanding principal amount of the Notes on or before the Credit Commitment Termination Date. In addition, the Borrower: (a) may make a voluntary prepayment in part in an aggregate principal amount of not less than $1,000,000 and an integral multiple of $100,000 in excess thereof, or in full of the outstanding principal amount of the Notes from time to time at any time upon at least five Business Days' prior notice to the Agent; (b) shall, on each date when any reduction in the Total Commitment Amount shall become effective pursuant to -25- Section 2.2, make a mandatory prepayment of the Notes equal to an amount ----------- such that the Credit Commitment Availability shall not be less than zero; (c) shall, on each date when a Borrowing Base Certificate is due, make a mandatory prepayment of the Notes equal to an amount such that the Credit Commitment Availability shall not be less than zero; Each prepayment of a Note made pursuant to this Section shall be without premium or penalty, except as may be required by Section 4.5. All interest accrued on ----------- the principal amount of the Notes prepaid shall be paid on the date of such prepayment. No voluntary prepayment of principal of the Notes shall cause a reduction in the Total Commitment Amount. Each prepayment of a Note shall, except as the Borrower may otherwise have notified the Agent, be applied, to the extent of such prepayment: (x) first, to the principal amount thereof being maintained as a BNS Rate Loan; and (z) second, to the principal amount thereof being maintained as a LIBO Rate Loan. SECTION 3.4 Interest. The Borrower agrees to pay interest on the -------- principal amount of the Notes from time to time unpaid prior to and at Maturity (whether by required prepayment, declaration or otherwise) at a rate per annum: (a) on that portion of the outstanding principal amount thereof maintained from time to time as a BNS Rate Loan, equal to the sum of the BNS Base Rate from time to time most recently announced, and (b) on that portion of the outstanding principal amount thereof maintained from time to time as one or more LIBO Rate Loans during each applicable Interest Period, equal to the sum of the LIBO Rate (Reserve Adjusted) for such Interest Period plus the Applicable Margin, and -26- (c) if any LIBO Rate Loan is prepaid, or is converted to a BNS Rate Loan prior to the expiration of the Interest Period then applicable thereto, the unpaid principal amount of such LIBO Rate Loan so prepaid or converted shall bear interest during the portion of such Interest Period elapsed prior to such prepayment or conversion at the rate, if greater, which would have been payable had such LIBO Rate Loan been maintained as a BNS Rate Loan during the elapsed portion of such Interest Period. SECTION 3.5 Post-Maturity Rates. After the Maturity of all or any ------------------- portion of the principal amount of the Loans or after any other monetary Liabilities shall have become due, the Borrower shall pay interest (after as well as before judgment) on the principal amount of all types of Loans so matured or on such other monetary Liabilities, as the case may be, at a rate per annum which is determined by increasing, to the extent permitted by applicable law, each of the applicable margins set forth in clauses (a), (b) and (c) of ----------- --- --- Section 3.4 by 2% per annum for Loans so matured and at a rate per annum equal ----------- to the BNS Base Rate plus 2-3/4% for such other monetary Liabilities. SECTION 3.6 Payment Dates. Interest accrued on the Notes prior to ------------- Maturity (as aforesaid) shall be payable, without duplication: (a) on that portion of the outstanding principal amount of each thereof maintained as a BNS Rate Loan, on each Monthly Payment Date, commencing with the first such day following the date of such Notes; (b) on that portion of the outstanding principal amount thereof maintained as one or more LIBO Rate Loans, on the last day of each applicable Interest Period (and, if such Interest Period shall exceed three months, on the day in each third succeeding month numerically corresponding to the commencement date of such Interest Period); and (c) on that portion of the outstanding principal amount thereof converted into a BNS Rate Loan or a LIBO Rate Loan on a day when interest would not otherwise have been -27- payable pursuant to clause (a) or (b), on the date of such conversion. ---------- --- Interest on the Notes shall be payable at Maturity (as aforesaid) and, thereafter, on demand. The Agent shall give prompt notice to the Borrower of each computation of accrued interest before the due date thereof. SECTION 3.7 Payments, Computations, etc. All payments by the Borrower --------------------------- pursuant to this Agreement, the Notes, or any other Loan Document, whether in respect of principal or interest, shall be made by the Borrower to the Agent for the account of the holders of Notes pro rata according to their respective --- ---- unpaid principal amounts. The payment of all fees referred to in Section 2.3 ----------- and Section 2.5(a) shall be made by the Borrower to the Agent for the account of -------------- the Banks entitled thereto pro rata according to their Percentages. All other --- ---- amounts payable to the Agent or any Bank under this Agreement or any other Loan Document shall be paid to the Agent for the account of the Person entitled thereto. All such payments required to be made to the Agent shall be made, without set-off, deduction, or counterclaim, not later than 12:00 noon, Atlanta time, on the date due, in same day or immediately available funds, to such account as the Agent shall specify from time to time by notice to the Borrower. Funds received after that time shall be deemed to have been received by the Agent on the next following Business Day. The Agent shall promptly remit in same day or immediately available funds to each Bank, or other holder of a Note notified to the Agent, its share, if any, of such payments received by the Agent for the account of such Bank or holder. All interest and fees shall be computed on the basis of the actual number of days (including the first day but excluding the last day) occurring during the period for which such interest or fee is payable over a year comprised of 360 days. Whenever any payment to be made shall otherwise be due on a day which is not a Business Day, such payment shall (except as otherwise required by clause (d) of the definition of the term ---------- "Interest Period" with respect to payments then due of principal of or interest ---------------- on any Notes being maintained as LIBO Rate Loans) be made on the next succeeding Business Day and such extension of time shall be included in computing interest, if any, in connection with such payment. -28- SECTION 3.8 Proration of Payments. If any Bank or other holder of a Note --------------------- shall obtain any payment or other recovery (whether voluntary, involuntary, by application of setoff, or otherwise) on account of principal of or interest on any Loan in excess of its pro rata share of payments then or therewith obtained --- ---- by all holders upon principal of and interest on all Loans, such Bank or other holder shall purchase from the other Banks or holders such participations in Loans held by them 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 holder, the purchase shall be rescinded and the purchase price restored to the extent of such recovery, but without interest. The Borrower agrees that any Bank or other holder so purchasing a participation from another Bank or holder pursuant to this Section may, to the fullest extent permitted by law, exercise all its rights of payment (including pursuant to Section 3.9) with respect to such participation as fully ----------- as if such Bank or holder were the direct creditor of the Borrower in the amount of such participation. If under any applicable bankruptcy, insolvency or other similar law, any Bank receives a secured claim in lieu of a setoff to which this Section applies, such Bank shall, to the extent practicable, exercise its rights in respect of such secured claim in a manner consistent with the rights of the Banks entitled under this Section to share in the benefits of any recovery on such secured claim. SECTION 3.9 Setoff. In addition to and not in limitation of any rights ------ of any Bank or other holder of any Note under applicable law, each Bank and each other such holder shall, upon the occurrence of any Default described in Section ------- 9.1.4 or, with the consent of the Required Banks, upon the occurrence of any ----- other Event of Default, have the right to set off, appropriate and apply to the payment of the Liabilities owing to it any and all balances, credits, deposits, accounts, or moneys of the Borrower then maintained with such Bank or other holder; provided, however, that any such appropriation and application shall be -------- ------- subject to the provisions of Section 3.8. ----------- SECTION 3.10 Taxes. All payments by the Borrower of principal of, and ----- interest on, the Loans and all other amounts -29- payable hereunder shall be made free and clear of and without deduction for any present or future income, stamp, or other taxes, fees, duties, withholding or other charges of any nature whatsoever imposed by any taxing authority, other than taxes imposed on or measured by any Bank's net income or receipts (such non-excluded items being hereinafter referred to as "Taxes"). In the event that ----- any withholding or deduction from any payment to be made by the Borrower hereunder is required in respect of any Taxes pursuant to any applicable law, rule, or regulation, then the Borrower will: (i) pay to the relevant authority the full amount required to be so withheld or deducted; (ii) promptly forward to the Agent an official receipt or other documentation satisfactory to the Agent evidencing such payment to such authority; and (iii) pay to the Agent for the account of the Banks or the holders of the Notes such additional amount or amounts as is necessary to ensure that the net amount actually received by each Bank or the holder of each Note, after giving effect to any credit against Taxes received by each such Bank or holder as a result of such withholding or deduction, will equal the full amount such Bank or such holder would have received had no such withholding or deduction been required. Each such Bank and holder shall determine such additional amount or amounts payable to it (which determination shall, in the absence of demonstrable error, be conclusive and binding on the Borrower). Upon the request of the Borrower, each Bank and each subsequent holder of any Note that is organized under the laws of a jurisdiction other than the United States or any state thereof shall, prior to the due date of any payments under the Notes, execute and deliver to the Borrower, on or about the first scheduled payment date in each Fiscal Year, a United States Internal Revenue Service Form 1001 or Form 4224 (or any successor form), appropriately completed. -30- ARTICLE IV BNS BASE RATE AND LIBO RATE OPTIONS FOR THE LOANS SECTION 4.1 Elections. The Loans comprising any Borrowing may be made as --------- a loan having a fluctuating rate of interest determined by reference to the BNS Base Rate ("BNS Rate Loans") or, at the Borrower's election made in accordance -------------- with this Section, as a loan (a "LIBO Rate Loan") having for each particular -------------- Interest Period a fixed rate of interest determined by reference to the LIBO Rate (Reserve Adjusted), as specified in the Loan Request for such Loan. The Borrower may from time to time by delivering to the Agent a Continuation/Conversion Notice request, on not less than three nor more than five Business Days' notice: (a) that all, or any portion in a minimum amount of $1,000,000 or an integral multiple of $100,000 in excess thereof, of the outstanding principal amount of any Borrowing be converted from a BNS Rate Loan into a LIBO Rate Loan or, subject to Section 4.5, from a LIBO Rate Loan into a BNS ----------- Rate Loan; and (b) on the expiration of the Interest Period applicable to any LIBO Rate Loan, that all, or any portion in a minimum amount of $1,000,000 or an integral multiple of $100,000 in excess thereof, of the outstanding principal amount of such LIBO Rate Loan be continued as a LIBO Rate Loan or be converted into a BNS Rate Loan (in the absence of the delivery of a Continuation/Conversion Notice pursuant to this clause, the Borrower will be deemed to have requested that such LIBO Rate Loan be converted into a BNS Rate Loan); provided, however, that: -------- ------- (c) no portion of the outstanding principal amount of any Loans may be continued as, or be converted into, LIBO Rate Loans if, after giving effect to such action, the Interest Period applicable thereto shall extend beyond the date of any prepayment required by Section 3.3, unless a ----------- sufficient principal amount of such Loan is being maintained -31- as BNS Rate Loans to permit such prepayment to be applied in full to such BNS Rate Loans; (d) no portion of the outstanding principal amount of a Loan may be continued as, or be converted into, a LIBO Rate Loan when any Default has occurred and is continuing; and (e) no portion of the outstanding principal amount of any Loans may be made or continued as, or be converted into, BNS Rate Loans or LIBO Rate Loans unless, after giving effect to such action, the principal amount of Loans of each type outstanding from each Bank then being so made, continued or converted shall be equal to such Bank's Percentage of the outstanding principal amount of all Loans then being so made, continued or converted. Each Continuation/Conversion Notice requesting that all, or any portion, of the principal amount of the Loans be continued as, or be converted into, LIBO Rate Loans shall specify the duration of the Interest Period commencing upon such continuation or conversion. Each Bank may, if it so elects, fulfill its commitment to make or continue any portion of the principal amount of a Loan as, or to convert any portion of the principal amount of a Loan into, one or more LIBO Rate Loans by causing a foreign branch or Affiliate of such Bank to make any such LIBO Rate Loan; provided, however, that in such event such LIBO Rate Loan shall be deemed to have been made by such Bank, and the obligation of the Borrower to repay such LIBO Rate Loan shall nevertheless be to such Bank and shall be deemed to be held by it, to the extent of such LIBO Rate Loan, for the account of such foreign branch or Affiliate. Whenever any Bank makes any notations pursuant to Section 3.2 on the grid ----------- attached to its Note (or on the continuation of such grid) or otherwise in the records of such Bank and whenever such Bank converts a Loan into a BNS Rate Loan or a LIBO Rate Loan, such Bank will make further notations on the grid attached to such Note (or on such continuation) or otherwise in the records of such Bank reflecting the portions of the outstanding -32- principal amounts thereof being maintained as a BNS Rate Loan and LIBO Rate Loans. The Borrower understands that, if it elects that any portion of the principal amount of a Loan be made, continued as, or be converted into, a LIBO Rate Loan, each Bank may (while being entitled to fund all or any portion of such LIBO Rate Loan as it may see fit) wish to be able to fund such LIBO Rate Loan by purchasing Dollar deposits in its LIBOR Office's interbank eurodollar market. Accordingly, in connection with any determination to be made for purposes of Section 4.2, 4.3, 4.4 or 4.5, it shall be conclusively assumed that ----------- --- --- --- such Bank has elected to fund all LIBO Rate Loans by purchasing Dollar deposits in such interbank eurodollar market. SECTION 4.2 LIBO Rate Lending Unlawful. If as the result of any -------------------------- Regulatory Change any Affected Bank shall determine (which determination shall be conclusive and binding on the Borrower) that it is unlawful for the Bank to make, continue or maintain a Loan as, or to convert a Loan into, one or more LIBO Rate Loans, the obligation of such Bank under Section 4.1 to make, continue ----------- or maintain any portion of the principal amount of a Loan as, or to convert such Loan into, one or more LIBO Rate Loans shall, upon such determination (and notice thereof to the Borrower), forthwith terminate, and such Bank shall, by telephonic notice confirmed in writing to the Borrower and the Agent, declare that such obligation has so terminated, and any portion of the principal amount of a Loan then maintained as one or more LIBO Rate Loans by such Bank shall automatically convert into a BNS Rate Loan. If circumstances subsequently change so that such Bank shall no longer be so affected, such Bank shall by notice to the Borrower and the Agent reinstate its obligation under Section 4.1 ----------- to make, continue a Loan as, or to convert a Loan into, LIBO Rate Loans. SECTION 4.3 Deposits Unavailable. If prior to the date on which all or -------------------- any portion of the principal amount of a Loan is to be made, continued as, or be converted into, a LIBO Rate Loan, any Affected Bank shall determine for any reason whatsoever (which determination shall be conclusive and binding on the Borrower) that: -33- (a) Dollar certificates of deposit or Dollar deposits, as the case may be, in the relevant amount and for the relevant Interest Period are not available to such Bank in its relevant market; or (b) by reason of circumstances affecting such Bank in its relevant market, adequate means do not exist for ascertaining the interest rate applicable hereunder to LIBO Rate Loans; such Bank shall promptly give notice to the Borrower and the Agent of such determination, and: (c) the obligation of such Bank under Section 4.1 to make, continue ----------- any portion of the principal amount of a Loan as, or to convert a Loan into, one or more LIBO Rate Loans shall, upon such notification, forthwith terminate; and (d) the portion of a Loan then maintained as LIBO Rate Loans by such Bank shall on the expiration of the Interest Period applicable thereto automatically convert into a BNS Rate Loan. If circumstances subsequently change so that such Bank shall no longer be so affected, such Bank shall by notice to the Borrower and the Agent reinstate its obligations under Section 4.1 to make, continue a Loan as, or convert a Loan ----------- into, one or more LIBO Rate Loans. SECTION 4.4 Increased Costs, etc. The Borrower further agrees to -------------------- reimburse each Bank for any increase in the cost to such Bank of making, continuing or maintaining (or of its obligation to make, continue or maintain) any portion of the principal amount of a Loan as, or of converting (or of its obligation to convert) any portion of the principal amount of a Loan into, a LIBO Rate Loan and for any reduction in the amount of any sum receivable by such Bank hereunder in respect of making, continuing or maintaining any portion of the principal amount of a Loan as, or converting any portion of the principal amount of a Loan into, a LIBO Rate Loan, in either case, from time to time by reason of: -34- (a) to the extent not included in the calculation of the LIBO Rate (Reserve Adjusted), any reserve, special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, such Bank, under or pursuant to any law, treaty, rule, regulation (including any regulation of the F.R.S. Board) or requirement of any United States federal, state or local or foreign governmental authority, agency or regulatory body in effect on the date hereof, or as the result of any Regulatory Change; or (b) any Regulatory Change which shall subject such Bank to any tax (other than taxes on net income and other than taxes excluded by Section ------- 3.10), levy, impost, charge, fee, duty, deduction or withholding of any ---- kind whatsoever or change the taxation of its Note made or maintained as a LIBO Rate Loan and the interest thereon (other than any change which affects, and to the extent that it affects, the taxation of net income). In any such event, such Bank shall promptly notify the Borrower and the Agent thereof in writing stating the reasons therefor and the additional amount required fully to compensate such Bank for such increased cost or reduced amount. Such additional amounts shall be payable on demand. A certificate as to any such increased cost or reduced amount or any change therein (including calculations thereof in reasonable detail) shall be submitted by such Bank to the Borrower and the Agent and shall, in the absence of demonstrable error, be conclusive on the Borrower. SECTION 4.5 Funding Losses. In the event any Bank shall incur any loss -------------- or expense (including any loss or expense incurred by reason of the liquidation, or reemployment of deposits or other funds acquired by such Bank to make, continue or maintain any portion of the principal amount of a Loan as, or to convert any portion of the principal amount of a Loan into, a LIBO Rate Loan) as a result of: (a) payment or prepayment of the principal amount of any LIBO Rate Loan on a date other than the scheduled last day of the Interest Period applicable thereto, whether pursuant to Section 3.3 or otherwise; ----------- -35- (b) any conversion of all or any portion of the outstanding principal amount of any LIBO Rate Loan to a BNS Rate Loan pursuant to Section 4.1 or ----------- prior to the expiration of the Interest Period then applicable thereto (but excluding in each case any loss or expense resulting therefrom to the extent the Bank is reimbursed therefor by interest payable pursuant to clause (d) of Section 3.4); or ---------- ----------- (c) a Loan not being made, continued as, or converted into, a LIBO Rate Loan in accordance with a Loan Request or the Continuation/Conversion Notice given therefor; then, upon the request of such Bank, the Borrower shall pay directly to such Bank such amount as will (in the reasonable determination of such Bank) reimburse such Bank for such loss or expense. A certificate as to any such loss or expense (including calculations thereof in reasonable detail) shall be submitted by such Bank to the Borrower and the Agent and shall, in the absence of demonstrable error, be conclusive on the Borrower. ARTICLE V LETTERS OF CREDIT SECTION 5.1 Issuance of Letters of Credit . The Agent agrees, on the ------------------------------ terms of this Agreement, to issue letters of credit (such letters of credit, as amended and in effect from time to time, being herein called "Letters of ---------- Credit") for the account of the Borrower during the period from and including the Fifth Restatement Date to and including the date five Business Days preceding the Credit Commitment Termination Date and each Bank agrees to take a risk participation interest in accordance with its respective Percentage, to the extent set forth in Section 5.2(h), in such Letters of Credit; provided that at -------------- -------- no time shall the aggregate outstanding amount of the Letter of Credit Liabilities of the Borrower together with the aggregate outstanding principal amount of the Loans to the Borrower exceed the lesser of (a) the Borrowing Base and (b) the Total Commitment Amount for the Borrower as then in effect; and provided, further, that the aggregate Letter of Credit Liabilities at any time -------- ------- outstanding for the Borrower shall not exceed $5,000,000. -36- Letters of Credit outstanding under the Existing Agreement on the Fifth Restatement Date shall automatically become Letters of Credit outstanding hereunder. SECTION 5.2 Other Provisions Relating to Letters of Credit. The ---------------------------------------------- following additional provisions shall apply to the Letters of Credit: (a) The Borrower shall give the Agent irrevocable written notice at least two Business Days in advance thereof (but subject to Section 5.2(d) -------------- hereof) when any Letter of Credit is proposed to be issued specifying the date (which shall not be later than the date five Business Days preceding the Credit Commitment Termination Date) each Letter of Credit is to be issued and the proposed beneficiary thereof. (b) Upon receipt from the beneficiary of any Letter of Credit of any demand for payment under such Letter of Credit, the Agent shall promptly notify the Borrower of the amount to be paid pursuant to such demand and the respective payment date. (c) At or prior to the time the Agent makes any payment under a Letter of Credit, the Borrower shall make a payment (each payment being herein called a "Reimbursement Obligation") to the Agent, in immediately ------------------------ available funds, in an amount equal to the amount of such payment. The Borrower's obligation to make Reimbursement Obligations under this Section ------- 5.2(c) is absolute and unconditional and shall be unaffected by any ------ circumstance whatsoever, including the existence or assertion of any claim or defense on the part of the Borrower against any Person, and such Borrower further agrees that each Reimbursement Obligation required to be made under this Section 5.2(c) shall be made without any offset, abatement, -------------- withholding or reduction whatsoever; provided that, to the extent then -------- available hereunder, the Borrower may use the proceeds of a Borrowing to meet a Reimbursement Obligation. Any amount paid by the Agent for which no Reimbursement Obligation shall have been received under this Section 5.2(d) -------------- shall be due and payable -37- by the applicable Borrower on demand and shall bear interest at the BNS Base Rate plus 2-3/4%. ---- (d) The issuance by the Agent of each Letter of Credit shall, in addition to the conditions precedent set forth in Article VI hereof, be ---------- subject to the conditions precedent that such Letter of Credit shall be in such form and contain such terms as shall be satisfactory to the Agent and (if so determined to be appropriate by the Agent) the Borrower shall have executed and delivered such other instruments and agreements relating to such Letter of Credit as the Agent may reasonably request (including, without limitation, an application therefor satisfactory in form and substance to the Agent). (e) Each Letter of Credit shall: (i) expire on or before the Business Day next preceding the day six months after the Credit Commitment Termination Date; (ii) be payable solely in Dollars; (iii) not be transferable without the consent of the Agent; and (iv) be for purposes in the ordinary course of business of the Borrower. (f) The Borrower agrees with the Agent: (i) the Agent is authorized to make payments under Letters of Credit upon the presentation of the documents provided for therein and without regard to whether the Borrower has failed to fulfill any of its obligations under any of the Loan Documents or any Event of Default or Default has occurred; (ii) the Agent shall be entitled to rely upon any certificate, notice, demand or other communication (whether by cable, facsimile, telegram, telex or otherwise), believed by it to be genuine and to have been signed or sent by the proper Person or Persons, and upon advice of legal counsel selected by the Agent (and no such reliance or failure shall place the Agent under any -38- liability to the Borrower or limit or otherwise affect the Borrower's obligations under this Agreement); (iii) any action, inaction or omission on the part of the Agent under or in connection with the Letters of Credit or the related instruments or documents, if in good faith and in conformity with such laws, regulations or customs as the Agent may reasonably deem to be applicable, shall be binding upon the Borrower (and shall not place the Agent under any liability to the Borrower or limit or otherwise affect the Borrower's obligations under this Agreement); and (iv) notwithstanding any change or modification in any Letter of Credit or any instruments or documents called for thereunder, including waiver of noncompliance of any such instruments or documents with the terms of any Letter of Credit, this Agreement shall be binding on the Borrower with regard to such Letter of Credit as so changed or modified, and to any action taken by the Agent relative thereto. (g) Without affecting any rights the Agent may have under applicable law, the Borrower agrees that neither the Agent nor any of its officers or directors shall be liable or responsible for, and the obligations of the Borrower to the Agent hereunder shall not in any manner be affected by: (x) the use which may be made of any Letter of Credit or the proceeds thereof by the beneficiary or any other Person; (y) the validity, sufficiency or genuineness of documents other than the Letter of Credit, or of any endorsement(s) thereon, even if such documents should, in fact, prove to be in any or all respects, invalid, insufficient, fraudulent or forged or any statement therein proves to be untrue or inaccurate in any respect whatsoever; or (z) any other circumstances whatsoever in making or failing to make payment under any Letter of Credit, except that the Borrower shall have a claim against the Agent, and the Agent shall be liable to the Borrower, to the extent, but only to the extent, of any direct, as opposed to consequential, damages suffered by the Borrower which the Borrower proves are caused by the Agent's willful misconduct or gross negligence in determining whether documents presented under any Letter of Credit complied with the terms of such Letter of Credit or the Agent's willful failure to pay under such Letter of Credit after the presentation to it of documents strictly complying with the terms and conditions of such Letter of Credit or the Agent's payment against a draft, demand, certificate, or other document the form of which does not substantially comply with the requirements of such Letter of Credit. (h) If the Borrower shall fail pursuant to the terms and timing provided in Section 5.2(c) to forthwith pay to -------------- -39- the Agent a Reimbursement Obligation by the close of business on the date such amounts become due, then upon demand (by telex, facsimile, telecopy or by telephone (confirmed in writing promptly thereafter)), by the Agent, made upon each Bank before 1:00 p.m. (Atlanta time) on the first Business Day following the day such amounts become due, such Bank shall on the same day make available to the Agent, at its office as designated by the Agent, immediately available funds in an amount equal to such Bank's ratable share (according to its respective Percentage) of the amount of such unpaid Reimbursement Obligation. If any such demand is made upon any Bank after 1:00 p.m. (Atlanta time), such Bank shall on the next Business Day make the requested funds available to the Agent and such shall be treated as a BNS Rate Loan. Notwithstanding anything herein or in any other Loan Document to the contrary, the funding obligations of the Agent and the Banks set forth in this Section 5.2 shall be binding regardless of whether or not the ----------- conditions precedent in Article VI are satisfied at such time unless such ---------- funding obligations are the result of the gross negligence or wilful misconduct of the Agent. If any Bank fails to effect any payment due from it hereunder to the Agent, then interest shall accrue on the obligations of such Bank to make such payment from and after the date such payment became due until such obligation is paid in full at a rate per annum equal to the Federal Funds Rate. Each Bank hereby indemnifies and holds harmless the Agent from and against any and all losses, liabilities (including liabilities for penalties), actions, suits, judgments, demands, damages, costs and expenses (including, without limitation, reasonable attorneys' fees and expenses) resulting from any failure on the part of such Bank to provide, or from any delay in providing, the Agent with such Bank's Percentage of the amount of any Reimbursement Obligation under any Letter of Credit in accordance with the provisions of this Section 5.2(h). -------------- (i) If any Letters of Credit are outstanding on the Credit Commitment Termination Date, the Borrower shall on the Credit Commitment Termination Date, pay to the Agent, immediately available funds in Dollars in an amount equal to the maximum aggregate Letter of Credit Liabilities pursuant -40- to all such Letters of Credit. Such funds (together with interest thereon) shall be held by the Agent in respect of such Letters of Credit and shall be invested by the Agent and in the Agent's name as directed by the Borrower from time to time in one or more types of Cash Equivalent Investments pending application of such funds on account of the Company's reimbursement obligations in respect of Letters of Credit or on account of other Liabilities, as the case may be. The Borrower recognizes that any losses or taxes with respect to such investments shall be borne solely by the Borrower, and the Borrower agrees to hold the Agent and the Banks harmless from any such losses or taxes. Upon the expiry of any Letter of Credit, the Agent shall apply the balance of any such funds and interest thereon held in respect of such Letter of Credit immediately in payment of amounts, if any, owed by the Borrower hereunder. In the event that the aggregate of such funds and interest thereon exceeds the aggregate Letter of Credit Liabilities of the Borrower to the Agent and the Banks in respect of such Letters of Credit and the balance of all other Indebtedness and Liabilities owing by the Borrower to the Agent and the Banks under or in respect of this Agreement, such excess shall, following satisfaction of all such Indebtedness and Liabilities, promptly be paid to the Borrower unless otherwise required by law. SECTION 5.3 Letter of Credit Liabilities Confirmation. The Borrower ----------------------------------------- hereby confirms and agrees with the Agent and the Banks that its Letter of Credit Liabilities with respect to each Letter of Credit is a Liability hereunder for all purposes of this Agreement. ARTICLE VI CONDITIONS PRECEDENT SECTION 6.1 Fifth Restatement Date. The occurrence of the Fifth ---------------------- Restatement Date shall be subject to the prior or concurrent satisfaction of each of the following conditions precedent. -41- SECTION 6.1.1 Resolutions, etc. The Agent shall have received a ---------------- certificate, dated the Fifth Restatement Date, of the Secretary or an Assistant Secretary of the Borrower as to (a) resolutions of its Board of Directors then in full force and effect authorizing the execution, delivery and performance of this Agreement and each other Loan Document to be delivered by it hereunder, and (b) the incumbency and signatures of those of its officers authorized to act with respect to this Agreement and each Loan Document executed by it, upon which certificate the Agent and the Banks may conclusively rely until each shall have received a further certificate of the Secretary or an Assistant Secretary of the Borrower cancelling or amending such prior certificate. SECTION 6.1.2 Opinion of Counsel. The Agent shall have received an ------------------ opinion, dated the Fifth Restatement Date, addressed to the Agent and the Banks from counsel to the Loan Parties in the form of Exhibit G attached hereto. --------- SECTION 6.1.3 UCC-3 Financing Statements. Within 30 days following the -------------------------- Fifth Restatement Date, for the purpose of releasing certain collateral under the Existing Agreement, the Agent shall have received and filed appropriate UCC- 3 financing statements in each location where required with respect to UCC-1 financing statements previously executed by the Borrower. SECTION 6.1.4 The Camden Guaranty. The Agent shall have received a ------------------- counterpart of the Camden Guaranty, duly executed on behalf of Camden. SECTION 6.1.5 The Varity Guaranty. The Agent shall have received a ------------------- counterpart of the Varity Guaranty, duly executed on behalf of Varity. SECTION 6.1.6 The Subordination Agreement. The Subordination Agreement --------------------------- duly executed on behalf of Varity. SECTION 6.2 All Loans and Letters of Credit. The obligation of the Banks ------------------------------- to make any Loan or of the Agent to issue any -42- Letter of Credit shall also be subject to the satisfaction of each of the conditions precedent set forth in Sections 6.2.1 through 6.2.5. -------------- ----- SECTION 6.2.1 Compliance with Warranties, non-Default, etc. The -------------------------------------------- representations and warranties set forth in Article VII shall have been true and ----------- correct as of the date initially made, and on the date (and after giving effect to the incurrence) of such Loan or Letter of Credit: (a) such representations and warranties (excluding, however, Section ------- 7.6 and the second sentence of Section 7.17) shall be true and correct with --- ------------ the same effect as if then made; and (b) no Default shall have then occurred and be continuing. SECTION 6.2.2 Absence of Litigation, etc. No litigation, arbitration or -------------------------- governmental investigation or proceeding shall be pending or, to the knowledge of the Borrower, threatened against the Borrower or any Subsidiary or shall affect the business, operations or prospects of any thereof which was not disclosed by the Borrower to the Banks pursuant to Section 7.6 (or prior to the ----------- date of the most recent extension of credit made hereunder, if any, pursuant to Section 8.1.6), and no development not so disclosed shall have occurred in any ------------- litigation, arbitration or governmental investigation or proceeding so disclosed, which, in either event, in the informed opinion of the Required Banks, could reasonably be expected to have a Materially Adverse Effect. SECTION 6.2.3 Loan Request. The Agent shall have received a Loan Request ------------ for such Loan. SECTION 6.2.4 Satisfactory Legal Form. All documents executed or ----------------------- submitted pursuant hereto by or on behalf of the Borrower or any Subsidiary shall be reasonably satisfactory in form and substance to the Agent and its counsel; the Agent and its counsel shall have received all information, and such counterpart originals or such certified or other copies of such materials, as the Agent or its counsel may reasonably request; and all legal matters incident to the transactions contemplated -43- by this Agreement shall be reasonably satisfactory to counsel to the Agent. SECTION 6.2.5 Disclosure Schedule. The Agent shall have received a ------------------- Disclosure Schedule from the Company to be attached hereto as Exhibit F --------- containing information available as of the Fifth Restatement Date in form and substance satisfactory to the Agent. ARTICLE VIII WARRANTIES, ETC. The Borrower represents and warrants to the Banks as follows: SECTION 7.1 Organization, etc. Each of the Borrower and each Subsidiary ----------------- is a corporation validly organized and existing and in good standing under the laws of the state of its incorporation, is duly qualified to do business and in good standing as a foreign corporation in each jurisdiction where the nature of its business makes such qualification necessary and where the failure to so qualify would have a Materially Adverse Effect and has full power and authority to own and hold under lease its property and conduct its business substantially as presently conducted by it. The Borrower has full power and authority to enter into and to perform its obligations under this Agreement and each Loan Document and to obtain the Loans hereunder. SECTION 7.2 Due Authorization. The execution and delivery by the ----------------- Borrower of this Agreement and each Loan Document executed by it and the performance by the Borrower of its obligations hereunder and thereunder and the borrowings hereunder by the Borrower have been duly authorized by all necessary corporate action, do not require any Approval, do not and will not conflict with, result in any violation of, or constitute any default under, any provision of any Organic Document or Contractual Obligation of the Borrower known to it (or any other material Contractual Obligation) or any present law or governmental regulation or court decree or order applicable to it and will not result in or require the creation or imposition of any Lien in -44- any of their properties pursuant to the provisions of any Contractual Obligation. SECTION 7.3 Validity, etc. This Agreement is, and each Loan Document ------------- executed by the Borrower or any other Loan Party will on the due execution and delivery thereof be, the legal, valid and binding obligation of the Borrower or such Loan Party, as the case may be, enforceable in accordance with its terms, subject, as to enforcement, only to bankruptcy, insolvency, reorganization, moratorium or similar laws at the time in effect affecting the enforceability of the rights of creditors generally, and except as to general equitable remedies. SECTION 7.4 Financial Information. All balance sheets, the statements of --------------------- operations, of shareholders' equity and of changes in financial position and other financial information of the Borrower and Subsidiaries, including its audited financial statements, dated January 31, 1995, which have been or shall hereafter be furnished by or on behalf of the Borrower to the Bank for the purposes of or in connection with this Agreement or any transaction contemplated hereby (including the financial information referred to below) have been or will be prepared in accordance with GAAP consistently applied throughout the periods involved (except as disclosed therein) and do or will present fairly the consolidated financial condition of the corporations covered thereby as at the dates thereof and the results of their operations for the periods then ended. On the date hereof, there has been no material adverse change since January 31, 1995 in the consolidated financial condition, operations or prospects of the Borrower and its Subsidiaries, except as otherwise disclosed to the Banks prior to the date hereof. On the date of each Loan made after the date hereof, there will have been no material adverse change in the consolidated financial condition, operations or prospects of the Borrower and Subsidiaries since January 31, 1995, except as otherwise disclosed to the Banks prior to the date hereof. SECTION 7.5 Absence of Default. Neither the Borrower nor any Subsidiary ------------------ is in default: -45- (a) in the payment of (or in the performance of any obligation applicable to) any Indebtedness outstanding in a principal amount exceeding $1,000,000; or (b) under any law or governmental regulation or court decree or order which could reasonably be expected to have a Materially Adverse Effect. SECTION 7.6 Litigation, etc. Except as described in Item 2 --------------- ------ ("Litigation") of Exhibit F attached hereto, no litigation, arbitration or --------- governmental investigation or proceeding against the Borrower or any Subsidiary or to which any of the properties of any thereof is subject is pending or, to the knowledge of the Borrower, threatened which could reasonably be expected to have a Materially Adverse Effect. SECTION 7.7 Regulation U. The Borrower is not engaged principally, or as ------------ one of its important activities, in the business of extending credit for the purpose of purchasing or carrying margin stock, and less than 25% of the assets of the Borrower consists of margin stock. Terms for which meanings are provided in Regulation U of the F.R.S. Board or any regulations substituted therefor, as from time to time in effect, are used in this Section with such meanings. SECTION 7.8 Government Regulation. Neither the Borrower nor any --------------------- Subsidiary is an "investment company" within the meaning of the Investment Company Act of 1940, as amended, or a "holding company", or a "subsidiary company" of a "holding company", or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company", within the meaning of the Public Utility Holding Company Act of 1935, as amended. SECTION 7.9 Burdensome Agreements. Neither the Borrower nor any --------------------- Subsidiary is a party or subject to any Contractual Obligation or Organic Document which has a Materially Adverse Effect. SECTION 7.10 Taxes. The Borrower and all Subsidiaries have filed all tax ----- returns and reports required by law to have been filed by them and have paid all taxes and governmental charges thereby shown to be owing, except any such taxes or charges which -46- are being contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP shall have been set aside on its books. SECTION 7.11 Pension and Welfare Plans. During the twelve-consecutive- ------------------------- month period prior to the date of the execution and delivery of this Agreement and prior to the date of any Borrowing hereunder, no steps have been taken to terminate any Pension Plan which could reasonably be expected to result in liability to the Borrower in excess of $1,000,000, and no contribution failure has occurred with respect to any Pension Plan which could reasonably expect 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 reasonably be expected to result in the incurrence by the Borrower or any ERISA Affiliate of any material liability, fine or penalty. Except as disclosed in Item 3 ("Employee Benefit Plans") of Exhibit F attached hereto, the Borrower has ------ --------- no material contingent liability with respect to any post-retirement benefit under a Welfare Plan, other than liability for continuation coverage described in Part 6 of Title I of ERISA. SECTION 7.12 Labor Controversies. There are no labor controversies ------------------- pending or, to the best of the Borrower's knowledge, threatened against the Borrower or any Subsidiary, which, if adversely determined, could reasonably be expected to have a Materially Adverse Effect. SECTION 7.13 Senior Indebtedness. The principal of and interest on the ------------------- Notes constitutes "Senior Indebtedness" as that or any similar term is or may be used in any Instrument evidencing or applicable to any Subordinated Debt and the Borrower does not have any other Senior Indebtedness other than the Liabilities; the Borrower acknowledges that the Banks are entering into this Agreement and are making their respective Loans in reliance upon the subordination provisions of each such Instrument. SECTION 7.14 Subsidiaries. The Borrower has no Subsidiaries which are ------------ not identified in Item 4 ("Existing Subsidiaries") of Exhibit F attached hereto. ------ --------- -47- SECTION 7.15 Patents, Trademarks, etc. The Borrower owns and possesses -------------------------- all such patents, patent rights, trademarks, trademark rights, trade names, trade name rights, service marks, service mark rights and copyrights as the Borrower considers necessary for the conduct of the businesses of the Borrower and Subsidiaries as now conducted without any infringement upon rights of others which could reasonably be expected to have a Materially Adverse Effect, other than certain patterns, designs and molds owned by certain purchasers of the Borrower's and/or Subsidiaries' products and available to the Borrower and/or Subsidiaries for use in their businesses. There is no individual patent or patent license used by the Borrower in the conduct of its business the loss of which could reasonably be expected to have a Materially Adverse Effect. SECTION 7.16 Ownership of Properties; Liens. Each of Borrower and each ------------------------------ Subsidiary has good and marketable title to or leasehold interests in all of its material properties and assets, real and personal, of any nature whatsoever, free and clear of all Liens except as permitted pursuant to Section 8.2.3. ------------- SECTION 7.17 Accuracy of Information. All factual information heretofore ----------------------- or contemporaneously furnished by or on behalf of the Borrower to the Agent and the Banks in connection with this Agreement and the various transactions contemplated hereby, to the best of the Borrower's knowledge, has been, and all other such factual information hereafter furnished by or on behalf of the Borrower to the Agent and the Banks will be, true and accurate in every material respect on the date as of which such information is dated or certified and as of the date of execution and delivery of this Agreement by the Banks and not incomplete by omitting to state any material fact necessary to make such information not misleading. All projections and pro forma financial information contained in any materials furnished by or on behalf of the Borrower or any of its Subsidiaries to the Agent and the Banks are based on good faith estimates and assumptions by the management of the Borrower or the applicable Subsidiary, it being recognized by the Agent and the Banks, however, that projections as to future events are not to be viewed as fact and that actual results during the period or periods covered by any such projections may differ from the projected results and that the differences may be material. -48- SECTION 7.18 Environmental Warranties. Except as could not reasonably be ------------------------ expected to have a Materially Adverse Effect and except as set forth in Item 9 ------ ("Environmental Matters") of Exhibit F: --------- (a) all facilities and property (including underlying groundwater) owned or leased by the Borrower or any of its Subsidiaries have been, and continue to be, owned or leased by the Borrower and its Subsidiaries in material compliance with all Environmental Laws; (b) there have been no past, and there are no pending or, to the knowledge of the Borrower, threatened (i) written claims, complaints, notices or requests for information received by the Borrower or any of its Subsidiaries with respect to any alleged violation of any applicable Environmental Law, or (ii) written complaints, notices or inquiries to the Borrower or any of its Subsidiaries regarding potential liability under any applicable Environmental Law; (c) there have been no reportable Releases of Hazardous Materials at, on or under any property now owned or, to the knowledge of the Borrower, previously owned or leased by the Borrower or any of its Subsidiaries prior to or during the respective periods that the Borrower or any of its Subsidiaries owned or leased such property that, singly or in the aggregate, have, or could reasonably be expected to have, a Materially Adverse Effect; (d) the Borrower and its Subsidiaries have been issued and are in material compliance with all permits, certificates, approvals, licenses and other authorizations under applicable Environmental Laws and necessary for their businesses; (e) no property now or, to the knowledge of the Borrower, previously owned or leased by the Borrower or any of its Subsidiaries is listed or proposed for listing (with -49- respect to owned property only) on the National Priorities List pursuant to CERCLA, on the CERCLIS or on any similar state list of sites requiring investigation or clean-up; (f) there are no underground storage tanks, active or abandoned, including petroleum storage tanks, on or under any property now or, to the knowledge of the Borrower, previously owned or leased by the Borrower or any of its Subsidiaries that, singly or in the aggregate, have, or could reasonably be expected to have, a Materially Adverse Effect; (g) to the knowledge of the Borrower and its Subsidiaries, neither Borrower nor any of its Subsidiaries has directly transported or directly arranged for the transportation of any Hazardous Material to any location which is listed or proposed for listing on the National Priorities List pursuant to CERCLA, on the CERCLIS or on any similar state list or which is the subject of federal, state or local enforcement actions or other investigations which could reasonably be expected to lead to material claims against the Borrower or such Subsidiary thereof for any remedial work, damage to natural resources or personal injury, including claims under CERCLA; (h) to the knowledge of the Borrower, there are no polychlorinated biphenyls or friable asbestos present at any property now or previously owned or leased by the Borrower or any Subsidiary of the Borrower in such amounts or in such condition that, singly or in the aggregate, have, or could reasonably be expected to have, a Materially Adverse Effect; and (i) to the knowledge of the Borrower as of the Fifth Restatement Date, no conditions exist at, on or under any property now or previously owned or leased by the Borrower which, with the passage of time, or the giving of notice or both, would give rise to any material liability under any Environmental Law. -50- ARTICLE VIII COVENANTS SECTION 8.1 Certain Affirmative Covenants. The Borrower agrees with the ----------------------------- Agent and the Banks that, until the Credit Commitments shall have terminated and all of the Liabilities have been paid and performed in full: SECTION 8.1.1 Financial Information, etc. The Borrower will furnish, or -------------------------- will cause to be furnished, to the Agent and the Banks copies of the following financial statements, reports and information: (a) as soon as available and in any event within 45 days after the end of each of the first three quarterly fiscal periods of each Fiscal Year of the Borrower, consolidated and consolidating statements of operations, changes in stockholder's equity and cash flows of the Borrower and its Subsidiaries for such period and for the period from the beginning of the respective Fiscal Year to the end of such period, and the related consolidated and consolidating balance sheets of the Borrower and its Subsidiaries as at the end of such period, setting forth in each case in comparative form the corresponding consolidated and consolidating figures for the corresponding period in the preceding Fiscal Year (it being understood that the balance sheets may be compared with the figures for the end of the preceding year), accompanied by a certificate of a chief accounting or financial Authorized Officer, which certificate shall state that said consolidated financial statements present fairly, in all material respects, the consolidated financial position and results of operations of the Borrower and its Subsidiaries, and said consolidating financial statements present fairly, in all material respects, the respective individual unconsolidated financial position and results of operations of the Borrower and of each of its Subsidiaries, in each case in accordance with generally accepted accounting principles, consistently applied, as at the end of, and for, such period (subject to normal year-end audit adjustment); -51- (b) as soon as available and in any event within 90 days after the end of each Fiscal Year of the Borrower, consolidated and consolidating statements of operations, changes in stockholder's equity and cash flows of the Borrower and its Subsidiaries for such Fiscal Year and the related consolidated and consolidating balance sheets of the Borrower and its Subsidiaries as at the end of such Fiscal Year, setting forth in each case in comparative form the corresponding consolidated and consolidating figures for the preceding Fiscal Year, and accompanied (i) in the case of said consolidated statements and balance sheet of the Borrower, by an opinion thereon of independent certified public accountants of recognized national standing, which opinion shall state that said consolidated financial statements present fairly, in all material respects, the consolidated financial condition and results of operations of the Borrower and its Subsidiaries as at the end of, and for, such Fiscal Year in accordance with generally accepted accounting principles, and a certificate of such accountants stating that, in making the examination necessary for their opinion, they obtained no knowledge, except as specifically stated, of any Default insofar as it may relate to accounting matters, and (ii) in the case of said consolidating statements and balance sheets, by a certificate of a chief accounting or financial Authorized Officer, which certificate shall state that said consolidating financial statements present fairly, in all material respects, the respective individual unconsolidated financial condition and results of operations of the Borrower and of each of its Subsidiaries, in each case in accordance with generally accepted accounting principles, consistently applied, as at the end of, and for, such Fiscal Year; (c) as soon as available and in any event within 45 days after the end of each of the first three quarterly fiscal periods of each Fiscal Year of Varity, consolidated statements of operations, changes in stockholder's equity and cash flows of Varity and its Subsidiaries for such period and for the period from the beginning of the respective Fiscal Year to the end of such period, and the related consolidated balance sheet of Varity and its Subsidiaries as at the end of such period, setting forth in -52- each case in comparative form the corresponding figures for the corresponding period in the preceding Fiscal Year (or, if Varity shall then be subject to the reporting requirements of Section 13 of the Securities Exchange Act of 1934, as amended, a copy of the report of Varity required to be filed on Form 10-Q with respect to such quarterly fiscal period), accompanied by a certificate of a senior financial officer of Varity, which certificate shall state that said financial statements (or the financial statements included in such Form 10-Q) present fairly the consolidated financial condition and results of operations of Varity and its Subsidiaries in accordance with generally accepted accounting principles, consistently applied, as at the end of, and for, such period (subject to normal year-end audit adjustments); (d) as soon as available and in any event within 90 days after the end of each Fiscal Year of Varity, consolidated statements of operations, changes in stockholder's equity and cash flows of Varity and its Subsidiaries for such Fiscal Year and the related consolidated balance sheet of Varity and its Subsidiaries as at the end of such Fiscal Year, setting forth in each case in comparative form the corresponding figures for the preceding Fiscal Year (or, if Varity shall then be subject to the reporting requirements of Section 13 of the Securities Exchange Act of 1934, as amended, a copy of the report of Varity required to be filed on Form 10-K with respect to such Fiscal Year), accompanied by a certificate of a senior financial officer of Varity, which certificate shall state that said financial statements (or the financial statements included in such Form 10-K) present fairly the consolidated financial condition and results of operations of Varity and its Subsidiaries in accordance with generally accepted accounting principles, consistently applied, as at the end of, and for, such Fiscal Year; (e) promptly upon their becoming available, copies of all registration statements and regular periodic reports, if any, which either the Borrower or Varity shall have filed with the SEC or any national securities exchange; -53- (f) promptly upon the mailing thereof to the shareholders of Varity generally, copies of all financial statements, reports and proxy statements so mailed; (g) as soon as possible, and in any event within 30 days after the Borrower knows or has reason to believe that any of the events or conditions specified below with respect to any Plan or Multiemployer Plan has occurred or exists, a statement signed by a chief accounting or financial Authorized Officer setting forth details respecting such event or condition and the action, if any, that the Borrower or its ERISA Affiliate proposes to take with respect thereto (and a copy of any report or notice required to be filed with or given to PBGC by the Borrower or an ERISA Affiliate with respect to such event or condition): (i) any reportable event, as defined in Section 4043(b) of ERISA and the regulations issued thereunder, with respect to a Plan, as to which PBGC has not by regulation or administrative pronouncement waived the requirements of Section 4043(a) of ERISA that it be notified within 30 days of the occurrence of such event (providing --------- that a failure to meet the minimum funding standard of Section 412 of the Code or Section 302 of ERISA, including, without limitation, the failure to make on or before its due date a required installment under Section 412(m) of the Code or Section 302(e) of ERISA, shall be a reportable event regardless of the issuance of any waivers in accordance with Section 412(d) of the Code for any Plan and Borrower shall give notice of any such failure that would give rise to a lien at least 10 days before the due date for such contribution; (ii) the distribution under Section 4041 of ERISA of a notice of intent to terminate any Plan or any action taken by the Borrower or an ERISA Affiliate to terminate any Plan; (iii) the institution by PBGC of proceedings under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan, or -54- the receipt by the Borrower or any ERISA Affiliate of a notice from a Multiemployer Plan that such action has been taken by PBGC with respect to such Multiemployer Plan; (iv) the complete or partial withdrawal from a Multiemployer Plan by the Borrower or any ERISA Affiliate that results in a material liability under Section 4201 or 4204 of ERISA (including the obligation to satisfy secondary liability as a result of a purchaser default) or the receipt by the Borrower or any ERISA Affiliate of notice from a Multiemployer Plan that it is in reorganization or insolvency pursuant to Section 4241 or 4245 of ERISA or that it intends to terminate or has terminated under Section 4041A of ERISA; (v) the institution of a proceeding by a fiduciary of any Multiemployer Plan against the Borrower or any ERISA Affiliate to enforce Section 515 of ERISA, which proceeding (x) is not dismissed within 30 days and (y) if against an ERISA Affiliate, represents a claim against such ERISA Affiliate for a minimum of $10,000,000; and (vi) the adoption of an amendment to any Plan that, pursuant to Section 401(a)(29) of the Code or Section 307 of ERISA, would result in the loss of tax-exempt status of the trust of which such Plan is a part if the Borrower or an ERISA Affiliate fails to timely provide security to the Plan in accordance with the provisions of said Sections; (h) as soon as available and in any event within 20 days after the end of each calendar month (or, if the end of such calendar month is the last day of the Fiscal Year of the Borrower, within 30 days after the end of such calendar month), a Borrowing Base Certificate as at the last day of such calendar month; (i) periodically at the request of the Agent or the Required Banks (but, unless an Event of Default shall have -55- occurred and be continuing, no more frequently than once during any fiscal quarter of the Borrower), a report of an independent auditor satisfactory to the Required Banks (which may be, or be affiliated with, one of the Banks) with respect to the Account Receivables and Inventory components included in the Borrowing Base as at the end of any monthly accounting period which report shall indicate that, based upon a review by such auditors of the Accounts Receivables (including, without limitation, verification with respect to the amount, aging, identity and credit of the respective account debtors and the billing practices of the Borrower and its Subsidiaries) and Inventory (including, without limitation, verification as to the value, location and respective types), the information set forth in the Borrowing Base Certificate delivered by the Borrower as at the end of such accounting period is accurate and complete in all material respects; (j) promptly after the Borrower knows or has reason to believe that any Default has occurred, a notice of such Default specifying that such notice is a "Notice of Default" and describing the same in reasonable detail and, together with such notice or as soon thereafter as possible, a description of the action that the Borrower has taken or proposes to take with respect thereto; and (k) from time to time such other information regarding the financial condition, operations, business or prospects of the Borrower or any of its Subsidiaries as any Bank or the Agent may reasonably request. The Borrower will furnish to each Bank, at the time it furnishes each set of financial statements pursuant to paragraph (a) or (b) above, a certificate of a chief accounting or financial Authorized Officer (i) to the effect that no Default has occurred and is continuing (or, if any Default has occurred and is continuing, describing the same in reasonable detail and describing the action that the Borrower has taken or proposes to take with respect thereto) and (ii) setting forth in reasonable detail the computations necessary to determine whether the Borrower is in compliance with Section 8.2.4 hereof as of the end of ------------- the respective quarterly fiscal period or Fiscal Year. -56- SECTION 8.1.2 Maintenance of Corporate Existences, etc. Except as ---------------------------------------- permitted by Section 8.2.10, the Borrower will cause to be done at all times all -------------- things necessary to maintain and preserve the corporate existences of the Borrower and each Subsidiary, and to comply in all material respects with all applicable laws, rules, regulations and orders. The Borrower will continue to own and hold directly, free and clear of all Liens (except as permitted by Section 8.2.3), all of the outstanding shares of capital stock of each ------------- Subsidiary. SECTION 8.1.3 Foreign Qualification. The Borrower will, and will cause --------------------- each Subsidiary to, cause to be done at all times all things necessary to be duly qualified to do business and in good standing as a foreign corporation in each jurisdiction where the nature of its business makes such qualification necessary and where the failure to so qualify would have a Materially Adverse Effect, and to comply in all material respects with all applicable laws, rules, regulations and orders. SECTION 8.1.4 Payment of Taxes, etc. The Borrower will, and will cause --------------------- each Subsidiary to, pay and discharge, as the same may become due and payable, all federal, state and local taxes, assessments and other governmental charges or levies against or on any of its property, as well as claims of any kind which, if unpaid, might become a material lien upon any one of its properties; provided, however, that the foregoing shall not require the Borrower or any Subsidiary to pay or discharge any such tax, assessment, charge, levy or lien so long as it shall contest the validity thereof in good faith by appropriate proceedings and shall set aside on its books adequate reserves in accordance with GAAP with respect thereto. SECTION 8.1.5 Insurance. The Borrower will, and will cause each --------- Subsidiary to, maintain or cause to be maintained with responsible insurance companies insurance with respect to its properties and business against such casualties and contingencies and of such types and in such amounts as is customary in the case of similar businesses and will, upon request of Agent, furnish to the Agent at reasonable intervals a certificate of an Authorized Officer setting forth the nature and extent of all insurance -57- maintained by the Borrower and Subsidiaries in accordance with this Section. SECTION 8.1.6 Notice of Default, Litigation, etc. The Borrower will give ---------------------------------- notice immediately to the Agent and the Banks of: (a) the occurrence of any Default; (b) the occurrence of any litigation, arbitration or governmental investigation or proceeding previously not disclosed by the Borrower to the Agent and the Banks which has been instituted or, to the knowledge of the Borrower, is threatened against the Borrower or any Subsidiary or to which any of its properties is subject which could reasonably be expected to have a Materially Adverse Effect; (c) any material development which shall occur in any litigation, arbitration or governmental investigation or proceeding previously disclosed by the Borrower to the Agent and the Banks; and (d) the occurrence of any event which could reasonably be expected to have a Materially Adverse Effect. SECTION 8.1.7 Performance of Loan Documents. The Borrower will, and will ----------------------------- cause each Loan Party to, perform promptly and faithfully all of its obligations under each Loan Document executed by it. SECTION 8.1.8 Books and Records. The Borrower will, and will cause each ----------------- Subsidiary to, keep books and records reflecting all of its business affairs and transactions in accordance with GAAP and permit the Agent or any Bank or any of their respective representatives, at reasonable times and intervals, to visit all of its offices, discuss its financial matters with its officers and independent accountants (and hereby authorizes such independent accountants to discuss its financial matters with the Agent or any Bank or their respective representatives whether or not any representative of the Borrower is present), examine (and, at the expense of the Borrower, photocopy extracts from) any of its books or other corporate records. The Borrower shall pay any -58- fees of such accountants incurred in connection with such Person's exercise of its rights pursuant to this Section. SECTION 8.1.9 Environmental Covenant. The Borrower will, and will cause ---------------------- each of its Subsidiaries to: (a) use and operate all of its facilities and properties in material compliance with all Environmental Laws, keep all necessary permits, approvals, certificates, licenses and other authorizations under applicable Environmental Laws in effect and remain in material compliance therewith, and handle all Hazardous Materials in material compliance with all applicable Environmental Laws; (b) immediately notify the Agent and provide copies upon receipt of all written claims, complaints, notices or inquiries relating to the condition of its facilities and properties or compliance with Environmental Laws, and shall promptly cure and have dismissed with prejudice to the satisfaction of the Agent any actions and proceedings relating to compliance with Environmental Laws; and (c) provide such information and certifications which the Agent may reasonably request from time to time to evidence compliance with this Section 8.1.9. ------------- SECTION 8.2 Certain Negative Covenants. The Borrower agrees with the -------------------------- Agent and the Banks that, until the Credit Commitments shall have terminated and all of the Liabilities have been paid and performed in full: SECTION 8.2.1 Business Activities. The Borrower will not, and will not ------------------- permit any Subsidiary to: (a) operate its business other than in the ordinary and usual course; and (b) engage in any type of business except the businesses currently conducted and activities substantially related thereto. -59- SECTION 8.2.2 Indebtedness. The Borrower will not, and will not permit ------------ any Subsidiary to, create, incur, assume or suffer to exist or otherwise become or be liable in respect of any Indebtedness other than: (a) Indebtedness in respect of the Notes and other Liabilities; (b) all existing Indebtedness identified in Item 5 ("Ongoing ------ Indebtedness") of Exhibit F attached hereto; --------- (c) principal of, interest and premium on and other monetary obligations incurred by the Borrower under the terms of any Instrument evidencing or applicable to Subordinated Debt; and Indebtedness subordinated to the Liabilities on terms satisfactory to the Bank in respect of accruals owing to Varity or any Affiliate or Subsidiary of Varity by the Borrower or any Subsidiary in respect of services provided by Varity or any Affiliate or Subsidiary of Varity to the Borrower or any Subsidiary or obligations of the Borrower or any Subsidiary paid or provided for by Varity or any Affiliate or Subsidiary of Varity; (d) Indebtedness of the Borrower and Subsidiaries incurred to finance, or assumed by the Borrower in connection with, any acquisition of fixed or capital assets permitted by Section 8.2.8; provided, however, that ------------- the aggregate principal amount of such Indebtedness (i) incurred during any Fiscal Year shall not exceed $500,000, plus the amount, if any, by which $500,000 exceeds the aggregate of such Indebtedness incurred during the previous Fiscal Year, and (ii) at any one time outstanding shall not exceed $3,000,000; (e) Letters of Credit; (f) Indebtedness of the Borrower and Subsidiaries incurred in the ordinary course of business or in respect of expenses incurred in refinancing Indebtedness permitted by -60- this Section 8.2.2 (including open accounts extended for periods not in ------------- excess of 90 days in connection with purchases of goods and services, but excluding Indebtedness incurred through the borrowing of money or Guarantees); (g) Indebtedness in respect of taxes, assessments or governmental charges, and Indebtedness in respect of claims for labor, materials or supplies to the extent that payment thereof shall not at the time be required to be made in accordance with the provisions of Section 8.1.4; ------------- (h) Indebtedness to the extent not covered by insurance in respect of judgments or awards which have been in force for less than the applicable appeal period so long as execution is not levied thereunder (or in respect of which the Borrower shall at the time in good faith be prosecuting an appeal or proceedings for review and in respect of which a stay of execution shall have been obtained pending such appeal or review) and which does not at any time, in the aggregate, exceed $2,000,000; (i) Indebtedness (i) owing by any Subsidiary to the Borrower or any other Subsidiary in respect of trade payables incurred in the ordinary course of business arising out of the provision of goods and services, (ii) owing by the Borrower to any Subsidiary and, provided that no Event of Default shall have occurred and be continuing and the Agent shall not have given notice to the Borrower for purposes of this clause (i)(ii), owing by any Subsidiary to the Borrower in respect of -------------- cash management occurring in the ordinary course of business, and (iii) owing by any Subsidiary to any other Subsidiary in a maximum aggregate principal amount at any time outstanding not in excess of $500,000 for such Subsidiary; and -61- (j) other Indebtedness of the Borrower or any Subsidiary at any time outstanding in an aggregate principal amount not in excess of $500,000; provided, however, that no Indebtedness otherwise permitted by clause (d) shall -------- ------- ---------- be incurred if, after giving effect to the incurrence thereof, any Default shall have occurred and be continuing. SECTION 8.2.3 Liens . The Borrower will not, and will not permit any ------ Subsidiary to, create, incur, assume or suffer to exist any Lien upon any of its property or assets, whether now owned or hereafter acquired, except: (a) Liens which were granted prior to the date hereof in (and only in) assets identified in Item 5 ("Ongoing Indebtedness") and Item 6 ------ ------ ("Liens") of Exhibit F attached hereto to secure any Indebtedness permitted --------- by clause (b) of Section 8.2.2; ---------- ------------- (b) Liens in (and only in) fixed assets permitted to be acquired by Section 8.2.8 granted to secure Indebtedness permitted by clause (d) of ------------- ---------- Section 8.2.2 to have been incurred to finance the acquisition of such ------------- assets; (c) statutory and common law banker's Liens on bank deposits; (d) funds with respect to which the Borrower or any Subsidiary has become a trustee pursuant to Section 4113.15(c) of the Ohio Revised Code (or any successor provision); (e) Liens for taxes, assessments or other governmental charges or levies not at the time delinquent or thereafter payable without penalty or being contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP shall have been set aside on its books; (f) Liens of carriers, warehousemen, mechanics, materialmen and landlords incurred in the ordinary course of business for sums not overdue or being contested in good -62- faith by appropriate proceedings and for which adequate reserves shall have been set aside on its books; (g) Liens incurred in the ordinary course of business in connection with workmen's compensation, unemployment insurance or other forms of governmental insurance or benefits, or to secure performance of tenders, statutory obligations, leases and contracts (other than for borrowed money) entered into in the ordinary course of business or to secure obligations on surety or appeal bonds; (h) judgment Liens in existence less than 30 days after the entry thereof or with respect to which execution has been stayed or the payment of which is covered in full (subject to a customary deductible) by insurance; and (i) other Liens securing Indebtedness in an aggregate principal amount not in excess of $200,000. SECTION 8.2.4 Financial Condition. The Borrower will not permit: ------------------- (a) the Interest Coverage Ratio to be less than 2.00 to 1.00; (b) Consolidated Net Worth to be less than $30,000,000; and (c) the Debt-Equity Ratio to be greater than 2.00 to 1.00. SECTION 8.2.5 Investments. The Borrower will not, and will not permit ----------- any Subsidiary to, make, incur, assume or suffer to exist any Investment in any other Person, except: (a) Cash Equivalent Investments; provided, however, that any Investment which when made complies with the requirements of the definition of the term "Cash Equivalent Investment" may continue to be held notwithstanding that such Investment if made thereafter would not comply with such requirements; -63- (b) Investments existing the date hereof and identified in Item 7 ------ ("Ongoing Investments") of Exhibit F attached hereto; --------- (c) equity Investments existing at the date hereof of the Borrower in its direct Subsidiaries identified in Item 4 ("Existing Subsidiaries") of ------ Exhibit F attached hereto; --------- (d) Investments permitted as Indebtedness pursuant to Section 8.2.2; ------------- and (e) Investments made and existing in connection with any disposition permitted by clause (c) of Section 8.2.10. ---------- -------------- SECTION 8.2.6 Restricted Payments, etc. On or after the date of this ------------------------ Agreement: (a) the Borrower will not at any time after the date of this Agreement apply, or permit any Subsidiary to apply, any of its funds, property or assets to the purchase, redemption or other retirement of any shares of capital stock of the Borrower; (b) the Borrower will not, and will not permit any Subsidiary to, pay or repay any principal of, or make any payment of interest on, redeem, or defease, and neither the Borrower nor any Subsidiary will purchase or otherwise acquire any interest in any Subordinated Debt; provided, however, -------- ------- that the Borrower may, subject to the subordination provisions applicable to any Subordinated Debt of the Borrower and the terms of the Subordination Agreement, make payments of interest accrued thereon when due; and (c) the Borrower will not, and will not permit any Subsidiary to, make any deposit for any of the foregoing purposes; (d) the Borrower will not, and will not permit any Subsidiary to, make any payments to Varity, provided that for so long as no Default shall have ------------- occurred and be continuing: -64- (i) the Borrower may make payments to Varity or its affiliates for management fees; (ii) the Borrower may make payments on dividends or other distributions on its capital stock; and (iii) subject to the consent of the Required Banks (which consent shall not be unreasonably withheld), the Borrower may transfer any of its Properties to Varity or any of Varity's Subsidiaries (other than the Borrower and the Borrower's Subsidiaries); (e) nothing in this Section shall be construed to restrict any payment to an Affiliate expressly permitted to be made by, or expressly excluded from the restrictions of, Section 8.2.12. -------------- SECTION 8.2.7 Rental Obligations. The Borrower will not, and will not ------------------ permit any Subsidiary to, enter into at any time any arrangement which does not constitute Indebtedness and which involves the leasing by the Borrower or any Subsidiary from any lessor of any real or personal property (or any interest therein), unless such arrangement is entered into by the Borrower or any Subsidiary and, together with all other such arrangements which shall then be in effect, will not require the payment of an aggregate amount of rentals by the Borrower or any Subsidiary in excess of (excluding escalations resulting from a rise in the consumer price or similar index) $2,000,000 for any Fiscal Year; provided, however, that any calculation made for purposes of this Section shall -------- ------- exclude any amounts required to be expended for maintenance and repairs, insurance, taxes, assessments and other similar charges. SECTION 8.2.8 Fixed or Capital Assets. The Borrower will not, and will ----------------------- not permit any Subsidiary to, make any expenditures for fixed or capital assets, unless such expenditure is made by the Borrower or a Subsidiary and, together with all other such expenditures made by the Borrower and all Subsidiaries in any Fiscal Year, does not aggregate in excess of $20,000,000 for the Fiscal Year ending January 31, 1995 and $20,000,000 for the Fiscal Year ending January 31, 1996. -65- SECTION 8.2.9 Take or Pay Contracts. The Borrower will not, and will not --------------------- permit any Subsidiary to, enter into or be a party to any arrangement for the purchase of materials, supplies, other property or services if such arrangement by its express terms requires that payment be made by the Borrower or such Subsidiary regardless of whether or not such materials, supplies, other property or services are delivered or furnished to it. SECTION 8.2.10 Consolidation, Merger, etc. The Borrower will not, and -------------------------- will not permit any Subsidiary to, consolidate with or merge into or with any other corporation, or purchase or otherwise acquire all or substantially all of the assets of any Person (or of any division thereof) or sell, transfer, lease or otherwise dispose of any part of its assets to any Person, except: (a) dispositions of inventory, and dispositions and acquisitions of non-material amounts of other assets, all in the ordinary course of business; (b) dispositions of assets in an aggregate amount for all dispositions by the Borrower and Subsidiaries in any Fiscal Year not in excess of $500,000; and (c) the merger of any Subsidiary into the Borrower provided that the Borrower is the surviving corporation. SECTION 8.2.11 Modification, etc. of Subordinated Debt. The Borrower will --------------------------------------- not amend any term or provision, including any subordination provision, covenant, event of default or right of acceleration or any sinking fund provision or term of required repayment or redemption (except any amendment which extends the date or reduces the amount of any required repayment or redemption), or any term with respect to payment of interest contained in or applicable to any Instrument evidencing or applicable to any Subordinated Debt of the Borrower. SECTION 8.2.12 Transactions with Affiliates. Except as expressly ---------------------------- permitted by this Agreement, the Borrower will not, and will not permit any of its Subsidiaries to, directly or indirectly: -66- (a) make any Investment in an Affiliate of the Borrower; (b) transfer, sell, lease, assign or otherwise dispose of any Properties to any such Affiliate; (c) merge into or consolidate with or purchase or acquire Properties from any such Affiliate; or (d) enter into any other transaction directly or indirectly with or for the benefit of any such Affiliate (including, without limitation, Guarantees and assumptions of obligations of any such Affiliate); provided that: -------- (i) any Affiliate of the Borrower who is an individual may serve as a director, officer or employee of the Borrower or any of its Subsidiaries and receive reasonable compensation for his or her services in such capacity; (ii) the Borrower and its Subsidiaries may enter into transactions (other than Investments by the Borrower or any of its Subsidiaries in any Affiliate of the Borrower) providing for the leasing of Properties, the rendering or receipt of services or the purchase or sale of inventory and other Properties in the ordinary course of business if the monetary or business consideration arising therefrom would be substantially as advantageous to the Borrower and its Subsidiaries as the monetary or business consideration which would obtain in a comparable transaction with a Person not an Affiliate of the Borrower; (iii) the Borrower may make Investments to the extent permitted by Section 8.2.10; and -------------- (iv) the Borrower may pay Management Fees. SECTION 8.2.13 Sale or Discount of Receivables. Except in connection ------------------------------- with the disposition of accounts receivable permitted by clause (d) of Section ---------- ------- 8.2.10, the Borrower will not, and will not permit any Subsidiary to, directly ------ or indirectly, sell with -67- recourse, or discount or otherwise sell for less than the face value thereof, any of its notes or Account Receivables. SECTION 8.2.14 Negative Pledges. The Borrower will not, and will not ---------------- permit any Subsidiary to, enter into any agreement (excepting this Agreement and any Loan Document) prohibiting the creation or assumption of any Lien upon its properties or assets, whether now owned or hereafter acquired. SECTION 8.2.15 Inconsistent Agreements. The Borrower will not, and will ----------------------- not permit any Subsidiary to, enter into any agreement containing any provision which would be violated or breached by any borrowing by the Borrower made hereunder or by the performance by the Borrower or any Subsidiary of their respective obligations hereunder or under any Loan Document. ARTICLE IX EVENTS OF DEFAULT SECTION 9.1 Events of Default. The term "Event of Default" shall mean ----------------- ---------------- each of the following events: SECTION 9.1.1 Non Payment of Liabilities. The Borrower shall default in -------------------------- the payment or prepayment when due of any principal of any Note, or the Borrower shall default (and such default shall continue unremedied for a period of three days) in the payment when due of interest on any Note, of any commitment fee or of any other Liability. SECTION 9.1.2 Non-Performance of Certain Covenants. The Borrower shall ------------------------------------ default in the due performance and observance of any of its obligations under: (a) Section 8.1.2 or 8.2 (other than 8.2.4), and such default shall ------------- --- ----- continue unremedied after notice thereof shall have been given to the Borrower by the Agent or the holder of a Note; or (b) Section 8.2.4 and such default shall continue unremedied for ------------- thirty Business Days after notice thereof -68- shall have been given to the Borrower by the Agent or the holder of a Note. SECTION 9.1.3 Default on Other Indebtedness. Any default shall occur ----------------------------- under the terms applicable to any Indebtedness outstanding in a principal amount exceeding $1,000,000 of the Borrower or any Subsidiary representing any borrowing or financing or arising under any other material agreement, and such default shall: (a) consist of the failure to pay such Indebtedness at the maturity thereof; or (b) continue unremedied for a period of time sufficient to permit acceleration of such Indebtedness; or (c) continue unremedied (and not have been waived by the holder of such Indebtedness) for more than 30 days after notice thereof shall have been given to the Borrower by the Agent or the holder of any Note. SECTION 9.1.4 Bankruptcy, Insolvency, etc. The Borrower, any Subsidiary --------------------------- or Varity shall become insolvent or generally fail to pay, or admit in writing its inability to pay, debts as they become due; or the Borrower, any Subsidiary or Varity shall apply for, consent to, or acquiesce in, the appointment of a trustee, receiver, sequestrator or other custodian for the Borrower, such Subsidiary or Varity or any property of any thereof, or make a general assignment for the benefit of creditors; or, in the absence of such application, consent or acquiescence, a trustee, receiver, sequestrator or other custodian shall be appointed for the Borrower, any Subsidiary or Varity or for a substantial part of the property of any thereof and not be discharged within 60 days; or any bankruptcy, reorganization, debt arrangement, or other case or proceeding under any bankruptcy or insolvency law, or any dissolution, winding up or liquidation proceeding, shall be commenced in respect of the Borrower, any Subsidiary or Varity, and, if such case or proceeding is not commenced by the Borrower, such Subsidiary or Varity, such case or proceeding shall be consented to or acquiesced in by the Borrower, such Subsidiary or Varity or shall result in the entry of an order for relief or shall remain for 60 days undismissed; or the Borrower, -69- any Subsidiary or Varity shall take any corporate action to authorize, or in furtherance of, any of the foregoing. SECTION 9.1.5 Impairment, etc. of Security. Either the Camden Guaranty ---------------------------- or the Varity Guaranty shall terminate or cease to be the legally valid, binding and enforceable obligation of the obligor thereunder; the Borrower, any Subsidiary or Varity or any party by, through or on behalf of any of them shall contest in any manner such validity, binding nature or enforceability (and, if any such contest shall have been made in conjunction with any proceeding of the nature described in Section 9.1.4, such contest shall continue for a period of ------------- sixty days after the initiation thereof). SECTION 9.1.6 Ownership of the Borrower. Varity shall cease to own, ------------------------- directly or indirectly and free and clear of all Liens, all of the issued and outstanding shares of capital stock of the Borrower. SECTION 9.1.7 Non-Performance of Other Obligations. The Borrower or any ------------------------------------ other Loan Party shall default in the due performance and observance of any other agreement contained herein or in any Loan Document, and such default shall continue unremedied for a period of 30 days after notice thereof shall have been given to the Borrower or such Loan Party, as the case may be, by the Agent or the holder of a Note, except as provided herein. SECTION 9.1.8 Breach of Warranty. Any warranty of the Borrower hereunder ------------------ or any Loan Party in any other Loan Document is or shall be incorrect when made, and the Borrower or such Loan Party, as the case may be, shall not have taken corrective measures with respect thereto satisfactory to the Required Banks within 30 days after notice thereof to the Borrower or such Loan Party, as the case may be, by the Agent or the holder of a Note. SECTION 9.1.9 Pension Plans. Any of the following events shall occur ------------- with respect to any Pension Plan (a) the institution of any steps by the Borrower, any ERISA Affiliate or any other Person to terminate a Pension Plan if, as a result of such termination, the Borrower could -70- reasonably be expected to be required to make a contribution to such Pension Plan, or could reasonably expect to incur a liability or obligation to such Pension Plan, in excess of $1,000,000; 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 9.1.10 Judgments. A final judgment to the extent not covered by --------- insurance which, with other such outstanding final judgments against the Borrower and Subsidiaries, exceeds an aggregate of $1,000,000 shall be rendered against the Borrower or any Subsidiary and if, within 60 days after entry thereof, such judgment shall not have been discharged or otherwise satisfied or execution thereof stayed pending appeal, or if, within 60 days after the expiration of any such stay, such judgment shall not have been discharged or otherwise satisfied. SECTION 9.1.11 Varity Indebtedness. Varity shall fail to make any ------------------- principal payment or payments in an amount in excess of $10,000,000 -- ------ individually, or $20,000,000 in the aggregate (or, in each case, the equivalent dollar amount in any other currency), in respect of Indebtedness of Varity when the same becomes due and payable (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise) and such failure shall continue after the applicable grace period, if any, specified in any Instrument relating to any such Indebtedness; or any other event shall occur or condition shall exist, and shall continue after the applicable grace period, if any, specified in any Instrument relating to any such Indebtedness, if the effect of such event or condition is to accelerate any such Indebtedness which is outstanding in an aggregate principal amount in excess of $10,000,000 individually, or $20,000,000 in the aggregate (or, in each case, the equivalent dollar amount in any other currency). SECTION 9.1.12 Judgment against Varity. A final judgment to the extent ----------------------- not covered by insurance which, with other such outstanding final judgments against Varity, exceeds an aggregate of $25,000,000 shall be rendered against Varity and if, within 60 days after entry thereof, such judgment shall not have been discharged or otherwise satisfied or execution thereof stayed -71- pending appeal, or if, within 60 days after the expiration of any such stay, such judgment shall not have been discharged or otherwise satisfied. SECTION 9.2 Action if Bankruptcy. If any Event of Default described in -------------------- Section 9.1.4 shall occur, the outstanding principal amount of all outstanding ------------- Notes and all other Liabilities shall be and become immediately due and payable, without notice or demand. SECTION 9.3 Action if Other Event of Default. If any Event of Default -------------------------------- (other than an Event of Default described in Section 9.1.4) shall occur for any ------------- reason, whether voluntary or involuntary, and be continuing, the Agent shall upon request by the Required Banks, without notice or demand, declare all or any portion of the outstanding principal amount of the Notes to be due and payable and any or all other Liabilities to be due and payable, whereupon the full unpaid amount of such Notes and any and all other Liabilities which shall be so declared due and payable shall be and become immediately due and payable. The Agent shall promptly advise the Borrower and the Banks of any such declaration, but failure to do so shall not impair the effect of such declaration. SECTION 9.4 Collateral Account. The Borrower hereby agrees, in addition ------------------ to the provisions of Section 9.2 and Section 9.3, that upon the occurrence and ----------- ----------- during the continuance of any Event of Default, it shall, if requested by the Required Banks, pay (and, in the case of any Event of Default referred to in Section 9.1.4, forthwith, without any demand or the taking of any other action ------------- by the Agent or the Banks, pay) to the Agent an amount in immediately available funds equal to the then aggregate amount of all Letter of Credit Liabilities, which funds shall be held by the Agent in a cash collateral account at the Agent and shall be subject to withdrawal only when and if such Event of Default shall cease to exist or all Liabilities are thereafter paid in full. ARTICLE X THE AGENT -72- SECTION 10.1 Actions. Each Bank and the holder of each Note authorizes ------- the Agent to act on behalf of such Bank or holder under this Agreement and any other Loan Document and, in the absence of other written instructions from the Required Banks received from time to time by the Agent (with respect to which the Agent agrees that it will, subject to the last two sentences of this Section, comply in good faith except as otherwise advised by counsel), to exercise such powers hereunder and thereunder as are specifically delegated to or required of the Agent by the terms hereof and thereof, together with such powers as may be reasonably incidental thereto. Each Bank agrees (which agreement shall survive any termination of this Agreement) to indemnify the Agent, pro rata according to such Bank's Percentage, from and against any and --- ---- all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses, or disbursements of any kind or nature whatsoever which may at any time be imposed on, incurred by, or asserted against the Agent in any way relating to or arising out of this Agreement, the Notes, and any other Loan Document, including without limitation the reimbursement of the Agent for all reasonable out-of-pocket expenses (including reasonable attorneys' fees) and the reasonably allocated costs of in house counsel and legal staff incurred by the Agent hereunder or in connection herewith or in enforcing the Liabilities of the Borrower under this Agreement or any other Loan Document, in all cases as to which the Agent is not reimbursed by the Borrower; provided that no Bank shall -------- be liable for the payment of any portion of such Liabilities, losses, damages, penalties, actions, judgments, suits, costs, expenses, or disbursements determined by a court of competent jurisdiction in a final proceeding to have resulted solely from the Agent's gross negligence or wilful misconduct. The Agent shall not be required to take any action hereunder or under any other Loan Document, or to prosecute or defend any suit in respect of this Agreement or any other Loan Document, unless it is indemnified to its satisfaction by the Banks against loss, costs, liability, and expense. If any indemnity in favor of the Agent shall become impaired, it may call for additional indemnity and cease to do the acts indemnified against until such additional indemnity is given. SECTION 10.2 Funding Reliance, etc. Unless the Agent shall have been ----------------------- notified by telephone, confirmed in writing, by -73- any Bank by 5:00 p.m., Atlanta time, on the day prior to a Borrowing that such Bank will not make available the amount which would constitute its Percentage of such Borrowing on the date specified therefor, the Agent may assume that such Bank has made such amount available to the Agent and, in reliance upon such assumption, make available to the Borrower a corresponding amount. If such amount is made available by such Bank to the Agent on a date after the date of such Borrowing, such Bank shall pay to the Agent on demand interest on such amount at the daily average Federal funds rate quoted by the Agent for the number of days from and including the date of such Borrowing to the date on which such amount becomes immediately available to the Agent, together with such other compensatory amounts as may be required to be paid by such Bank to the Agent pursuant to the Rules for Interbank Compensation of the Council on International Banking or the Clearinghouse Compensation Committee, as the case may be, as in effect from time to time. A statement of the Agent submitted to any Bank with respect to any amounts owing under this paragraph shall be conclusive, in the absence of demonstrable error. If such amount is not in fact made available to the Agent by such Bank within three Business Days after the date of such Borrowing, the Agent shall be entitled to recover such amount, with interest thereon at the rate per annum then applicable to the Loans comprising such Borrowing, within five Business Days after demand, from the Borrower. SECTION 10.3 Exculpation. Neither the Agent nor any of its directors, ----------- officers, employees, or agents shall be liable to any Bank for any action taken or omitted to be taken by it under this Agreement or any other Loan Document, or in connection herewith or therewith, except for its own willful misconduct or gross negligence, nor responsible for any recitals or warranties herein or therein, nor for the effectiveness, enforceability, validity, or due execution of this Agreement or any other Loan Document, nor to make any inquiry respecting the performance by the Borrower of its obligations hereunder or thereunder. Each Agent shall be entitled to rely upon advice of counsel concerning legal matters and upon any notice, consent, certificate, statement, or writing which they believe to be genuine and to have been presented by a proper Person. -74- SECTION 10.4 Successor. The Agent may resign as such at any time upon at --------- least 30 days' prior notice to the Borrower and all Banks. If the Agent at any time shall resign, the Required Banks may appoint another Bank as a successor Agent which shall thereupon become the Agent hereunder. If no successor Agent shall have been so appointed by the Required Banks, and shall have accepted such appointment, within 30 days after the retiring Agent's giving notice of resignation, then the retiring Agent may, on behalf of the Banks, appoint a successor Agent, which shall be one of the Banks or a commercial banking institution organized under the laws of the United States and having a combined capital and surplus of at least $500,000,000. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall be entitled to receive from the retiring Agent such documents of transfer and assignment as such successor Agent may reasonably request, and 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 its duties and obligations under this Agreement. SECTION 10.5 Loans by the Agent. The Agent shall have the same rights ------------------ and powers with respect to (i) the Loans made by it or any of its Affiliates, and (ii) the Notes held by it or any of its Affiliates as any Bank and may exercise the same as if it were not the Agent. SECTION 10.6 Credit Decisions. Each Bank acknowledges that it has, ---------------- independently of the Agent and each other Bank, and based on the financial information referred to in Section 7.4 and such other documents, information, ----------- and investigations as it has deemed appropriate, made its own credit decision to extend its Credit Commitment. Each Bank also acknowledges that it will, independently of the Agent and each other Bank, and based on such other documents, information, and investigations as it shall deem appropriate at any time, continue to make its own credit decisions as to exercising or not exercising from time to time any rights and privileges available to it under this Agreement or any other Loan Document. -75- SECTION 10.7 Copies, etc. The Agent shall give prompt notice to each ----------- Bank of each notice or request required or permitted to be given to the Agent by the Borrower pursuant to the terms of this Agreement. The Agent will distribute to each Bank each Instrument received for its account and copies of all other communications received by the Agent from the Borrower for distribution to the Banks by the Agent in accordance with the terms of this Agreement. ARTICLE XI MISCELLANEOUS SECTION 11.1 Waivers, Amendments, etc. The provisions of this Agreement ------------------------ and of each 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 Borrower and the Required Banks; provided, however, that no such amendment, -------- ------- modification or waiver which would extend the due date for, or reduce the amount of, any payment or prepayment of principal of or interest on any Note (or reduce the principal amount of or rate of interest on any Note) shall be made without the consent of the holder of such Note; and provided, further, that no such -------- ------- amendment, modification or waiver which would increase the Credit Commitment of any Bank shall be made without the consent of all of the Banks. No failure or delay on the part of the Agent or any Bank or the holder of any Note in exercising any power or right under this Agreement or any 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 Borrower in any case shall entitle it to any notice or demand in similar or other circumstances. No waiver or approval by the Agent or any Bank or the holder of any Note under this Agreement or any Loan Document shall, except as may be otherwise stated in such waiver or approval, be applicable to subsequent transactions. No waiver or approval -76- hereunder shall require any similar or dissimilar waiver or approval thereafter to be granted hereunder. SECTION 11.2 Notices. All notices and other communications provided to ------- any party hereto under this Agreement or any Loan Document shall be in writing or by telex and addressed or delivered to it at its address set forth below its signature hereto or at such other address as may be designated by such party in a notice to the other parties. Any notice, if mailed properly addressed postage prepaid, shall be deemed given when received; any notice, if transmitted by telecopy, shall be deemed given when transmitted. SECTION 11.3 Costs and Expenses and Capital Adequacy. The Borrower --------------------------------------- agrees to pay all expenses for the preparation of this Agreement, including exhibits, and any amendments to this Agreement as may from time to time hereafter be required and the reasonable fees and expenses of counsel for the Agent from time to time incurred in connection with the preparation and execution of this Agreement and all amendments from time to time made hereto, the preparation and review of the form of any Instrument relevant to this Agreement and the consideration of legal questions relevant hereto and thereto. The Borrower also agrees to reimburse the Agent and the Banks upon demand for all reasonable out-of-pocket expenses (including attorneys' fees and legal expenses) incurred by the Agent and the Banks in enforcing the obligations of the Borrower hereunder or under the Notes or any other Loan Document. The obligations of the Borrower under this Section shall survive any termination of this Agreement. If any Bank determines at any time that any applicable law or governmental rule, regulation, order or request (whether or not having the force of law) concerning capital adequacy, or any change in interpretation or administration thereof by any governmental authority, central bank or comparable agency, will have the effect of increasing the amount of capital required to be maintained by such Bank based on the existence of the Bank's Credit Commitment hereunder or its obligations hereunder, then the Borrower shall pay to such Bank, upon its written demand therefor, such additional amounts as shall be required to compensate such Bank for the increased cost or reduced rate of return to such Bank as a result of such increase of capital. In determining such additional amounts, each Bank will act reason- -77- ably and in good faith and will use averaging and attribution methods which are reasonable, provided that each Bank's determination of compensation owing under this Section 11.3 shall, absent manifest error, be final and conclusive and ------------ binding on the Borrower. Any Bank, upon determining that any additional amounts will be payable pursuant to this Section 11.3, will give prompt written notice ------------ thereof to the Borrower and the Agent within one year of the incurrence of such costs, and shall as promptly as possible after the giving of such notice notify the Borrower and the Agent of such additional amounts due hereunder, which notice shall show the basis for calculation of such additional amounts, although the failure to give any such notice shall not release or diminish any of the Borrower's obligations to pay additional amounts pursuant to this Section 11.3. ------------ SECTION 11.4 Indemnification. In consideration of the execution and --------------- delivery of this Agreement by each Bank and the extension of the Credit Commitments, the Borrower hereby indemnifies, exonerates and holds the Agent and each Bank and each of its officers, directors, employees, and agents (the "Bank ---- Parties") free and harmless from and against any and all actions, causes of ------- action, suits, losses, costs, liabilities and damages, and expenses actually incurred in connection therewith (irrespective of whether such Bank Party is a party to the action for which indemnification hereunder is sought), including reasonable attorneys' fees and disbursements (the "Indemnified Liabilities"), ----------------------- incurred by the Bank Parties or any of them as a result of, or arising out of, or relating to (i) any transaction financed or to be financed in whole or in part, directly or indirectly, with the proceeds of any Loan; (ii) the entering into and performance of this Agreement and any other Loan Document by any of the Bank Parties; or (iii) any investigation, litigation, or proceeding related to any acquisition or proposed acquisition by the Borrower or any Subsidiary or other Loan Party of all or any portion of the stock or all or substantially all the assets -78- of any Person, whether or not the Agent or such Bank is party thereto, except for any such Indemnified Liabilities arising for the account of a particular Bank Party by reason of the relevant Bank Party's gross negligence or wilful misconduct, and if and to the extent that the foregoing undertaking may be unenforceable for any reason, the Borrower hereby agrees to make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities which is permissible under applicable law. SECTION 11.5 Severability. Any provision of this Agreement or any Loan ------------ Document which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Agreement or such Loan Document or affecting the validity or enforceability of such provision in any other jurisdiction. SECTION 11.6 Cross-References. References in this Agreement and in each ---------------- Loan Document to any Section or Article are, unless otherwise specified, to such Section or Article of this Agreement or such Loan Document, as the case may be, and references in any Section, Article or definition to any clause are, unless otherwise specified, to such clause of such Section, Article or definition. SECTION 11.7 Headings. The various headings of this Agreement and of -------- each Loan Document are inserted for convenience only and shall not affect the meaning or interpretation of this Agreement or such Instrument or any provisions hereof or thereof. SECTION 11.8 Counterparts, Effectiveness, etc. This Agreement may be -------------------------------- executed by the parties hereto in several counterparts, each of which shall be deemed to be an original and all of which shall constitute together but one and the same agreement. SECTION 11.9 Governing Law. This Agreement, the Notes and each other ------------- Loan Document shall each be deemed to be a contract made under and governed by the internal laws of the State of New -79- York. For purposes of any action or proceeding involving this Agreement, the Borrower hereby expressly submits to the jurisdiction of all Federal and state courts located in the State of New York and consents that it may be served with any process or paper by registered mail or by personal service within or without the State of New York, provided a reasonable time for appearance is allowed. SECTION 11.10 Confidentiality. The Agent and the Banks shall hold all --------------- non-public information obtained pursuant to the requirements of this Agreement which has been identified as such by the Borrower in accordance with their customary procedures for handling confidential information of this nature and in accordance with safe and sound banking practices and in any event may make disclosure to its examiners, affiliates, outside auditors, counsel and other professional advisors in connection with this Agreement or as reasonably required by any bona fide transferee or participant in connection with the contemplated transfer of any Note or participation therein or as required or requested by any governmental agency or representative thereof or pursuant to legal process; provided that, unless specifically prohibited by applicable law or court order, the Agent and each Bank shall notify the Borrower of any request by any governmental agency or representative thereof (other than any such request in connection with an examination of the financial condition of such Person by such governmental agency) for disclosure of any such non-public information prior to disclosure of such information; and further provided that in no event shall the Agent and the Banks be obligated or required to return any materials furnished by the Borrower. SECTION 11.11 Successors and Assigns. This Agreement shall be binding ---------------------- upon and shall inure to the benefit of the parties hereto and their respective successors and assigns, except that the Borrower may not assign or transfer its rights hereunder without the prior written consent of the Agent and the Banks. SECTION 11.12 Waiver of Jury Trial. THE AGENT, THE BANKS AND THE -------------------- BORROWER (EACH ON BEHALF OF ITSELF AND EACH LOAN PARTY) HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT EACH MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS -80- AGREEMENT OR ANY LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF THE AGENT, THE BANKS, THE BORROWER, OR ANY OTHER LOAN PARTY. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE AGENT AND THE BANKS TO ENTER INTO THIS AGREEMENT. SECTION 11.13 Not a Novation. This Agreement shall not constitute a -------------- novation and the execution by the Borrower of this Agreement shall not be considered payment of the Borrower's obligations and liabilities incurred under or evidenced by the Existing Agreement and the Notes dated June 9, 1993 issued to BNS and NBD, respectively, thereunder. The "Loans" outstanding on the Fifth Restatement Date under the Existing Agreement shall remain unpaid and outstanding under this Agreement and shall be allocated among the Banks according to their respective Percentages. Such Loans are evidenced by the Notes dated June 9, 1993 and shall remain in existence thereunder. -81- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized as of the day and year above written on which this Agreement is being amended and restated. DAYTON WALTHER CORPORATION By:/s/Glenn Dong Title: Assistant Treasurer By:________________________________ Title: Assistant Treasurer Address: 2800 East River Road Dayton, Ohio 45439 Attention: Henry T. Pollock Telecopy No.: (513) 296-3138 (CORPORATE SEAL) ATTEST: /s/Kenneth L. Walker Title: Secretary Credit Commitment Percentage THE BANK OF NOVA SCOTIA ---------- ---------- $10,000,000 50% By:/s/A.S. Norsworthy Title: Assistant Agent Domestic Office Address: 600 Peachtree Street N.E. Suite 2700 Atlanta, Georgia 30308 -82- Attention: F.C.H. Ashby Telecopy No.: (404) 888-8998 LIBOR Office: 600 Peachtree Street N.E. Suite 2700 Atlanta, Georgia 30308 -83- $10,000,000 50% NBD BANK, a Michigan banking corporation By:/s/Edward C. Hathaway Title: Vice President Domestic Office Address: 611 Woodward Avenue Detroit, Michigan 48226 Attention: Victoria Decker Telecopy No.: (313) 225-1671 LIBOR Office: 611 Woodward Avenue Detroit, Michigan 48226 =========== === $20,000,000 100% Total Commitment Amount -84- EX-10.1(K)(I) 4 GUARANTY DATED 7/14/95 EXHIBIT 10.1(k)(i) EXHIBIT I GUARANTY THIS GUARANTY (this "Guaranty"), dated as of July 14, 1995, made by VARITY -------- CORPORATION, a Delaware corporation (the "Guarantor"), in favor of each of the --------- Lender Parties (as defined below); W I T N E S S E T H: - - - - - - - - - - WHEREAS, Dayton Walther Corporation, an Ohio corporation (the "Borrower"), -------- and The Bank of Nova Scotia, a Canadian chartered bank acting through its Atlanta Agency ("BNS"), and NBD Bank, a national banking association ("NBD") --- --- (BNS and NBD each individually a "Lender" and collectively the "Lenders"), and BNS, as agent (together with any successor thereto in such capacity, the "Agent") for the Lenders, have entered into that certain Loan Agreement, dated as of December 30, 1986 and amended as of December 31, 1986 and March 31, 1987 and amended and restated as of December 1, 1987 and amended and restated as of April 26, 1988 and April 29, 1988 and as further amended as of May 31, 1989, March 6, 1990, October 30, 1990, January 31, 1991, July 31, 1991 and January 31, 1992, and as amended and restated as of June 9, 1993 and June 8, 1994, and as further amended and restated as of July 14, 1995 (as so amended, the "Loan ---- Agreement"); --------- WHEREAS, as a condition precedent to the occurrence of the Fifth Restatement Date under the Loan Agreement, the Guarantor is required to execute and deliver this Guaranty; WHEREAS, the Guarantor has duly authorized the execution, delivery and performance of this Guaranty; and WHEREAS, it is in the best interests of the Guarantor to execute this Guaranty inasmuch as the Guarantor will derive substantial direct and indirect benefits from the Loans made from time to time to the Borrower by the Lenders pursuant to the Loan Agreement; NOW THEREFORE, for good and valuable consideration the receipt of which is hereby acknowledged, and in order to induce the Lenders to make Loans to the Borrower pursuant to the Loan Agreement, the Guarantor agrees, for the benefit of each Lender Party, as follows: 1. Definitions. ----------- 1.1. Certain Terms. The following terms (whether or not underscored) ------------- when used in this Guaranty, including its preamble and recitals, shall have the following meanings (such definitions to be equally applicable to the singular and plural forms thereof): "Agent" is defined in the third recital. ----- ------------- "BNS" is defined in the first recital. --- ------------- "Borrower" is defined in the first recital. -------- ------------- "Guarantor" is defined in the preamble. --------- -------- "Guaranty" is defined in the preamble. -------- -------- "Lender" is defined in the third recital. ------ ------------- "Lender Party" means, as the context may require, any Lender or the Agent ------------ and each of its respective successors, transferees and assigns. "Lenders" is defined in the third recital. ------- ------------- "Loan Agreement" is defined in the third recital. -------------- ------------- "NBD" is defined in the second recital. --- -------------- 1.2. Loan Agreement Definitions. Unless otherwise defined herein or the -------------------------- context otherwise requires, terms used in this Guaranty, including its preamble and recitals, have the meanings provided in the Loan Agreement. I-2 2. Guaranty Provisions. ------------------- 2.1. Guaranty. The Guarantor hereby absolutely, unconditionally and -------- irrevocably (a) guarantees the full and punctual payment when due, whether at stated maturity, by required prepayment, declaration, acceleration, demand or otherwise, of all Liabilities of the Borrower now or hereafter existing under the Loan Agreement, the Notes and each other Loan Document to which the Borrower is or may become a party, whether for principal, interest, fees, expenses or otherwise (including all such amounts which would become due but for the operation of the automatic stay under Section 362(a) of the United States Bankruptcy Code, 11 U.S.C. (S)362(a), and the operation of Sections 502(b) and 506(b) of the United States Bankruptcy Code, 11 U.S.C. (S)502(b) and (S)506(b)), and (b) indemnifies and holds harmless each Lender Party and each holder of a Note for any and all costs and expenses (including reasonable attorney's fees and expenses) incurred by such Lender Party or such holder, as the case may be, in enforcing any rights under this Guaranty; provided, however, that the Guarantor shall be liable under this Guaranty for -------- ------- the maximum amount of such liability that can be hereby incurred without rendering this Guaranty, as it relates to the Guarantor, voidable under applicable law relating to fraudulent conveyance or fraudulent transfer, and not for any greater amount. This Guaranty constitutes a guaranty of payment when due and not of collection, and the Guarantor specifically agrees that it shall not be necessary or required that any Lender Party or any holder of any Note exercise any right, assert any claim or demand or enforce any remedy whatsoever against the Borrower (or any other Person) before or as a condition to the obligations of the Guarantor hereunder. 2.2. Acceleration of Guaranty. The Guarantor agrees that, in the event ------------------------ of the dissolution or insolvency of the Borrower or the Guarantor, or the inability or failure of the Borrower or the Guarantor to pay debts as they become due, or an assignment by the Borrower or the Guarantor for the benefit of creditors, or I-3 the commencement of any case or proceeding in respect of the Borrower or the Guarantor under any bankruptcy, insolvency or similar laws, and if such event shall occur at a time when any of the Liabilities of the Borrower may not then be due and payable, the Guarantor will pay to the Lenders forthwith the full amount which would be payable hereunder by the Guarantor if all such Liabilities were then due and payable. 2.3. Guaranty Absolute, etc. This Guaranty shall in all respects be a ---------------------- continuing, absolute, unconditional and irrevocable guaranty of payment, and shall remain in full force and effect until all Liabilities of the Borrower have been paid in full, all obligations of the Guarantor hereunder shall have been paid in full and all Credit Commitments shall have terminated. The Guarantor guarantees that the Liabilities of the Borrower will be paid strictly in accordance with the terms of the Loan Agreement and each other Loan Document under which they arise, regardless of any law, regulation or order now or hereafter in effect in any jurisdiction affecting any of such terms or the rights of any Lender Party or any holder of any Note with respect thereto. The liability of the Guarantor under this Guaranty shall be absolute, unconditional and irrevocable irrespective of: (a) any lack of validity, legality or enforceability of the Loan Agreement, any Note or any other Loan Document; (b) the failure of any Lender Party or any holder of any Note (i) to assert any claim or demand or to enforce any right or remedy against the Borrower or any other Person (including any other guarantor) under the provisions of the Loan Agreement, any Note, any other Loan Document or otherwise, o r (ii) to exercise any right or remedy against any other guarantor of, or collateral securing, any Liabilities of the Borrower; (c) any change in the time, manner or place of payment of, or in any other term of, all or any of the Liabilities I-4 of the Borrower, or any other extension, compromise or renewal of any Liability of the Borrower; (d) any reduction, limitation, impairment or termination of any Liabilities of the Borrower for any reason, including any claim of waiver, release, surrender, alteration or compromise, and shall not be subject to (and the Guarantor hereby waives any right to or claim of) any defense or setoff, counterclaim, recoupment or termination whatsoever by reason of the invalidity, illegality, nongenuineness, irregularity, compromise, unenforceability of, or any other event or occurrence affecting, any Liabilities of the Borrower or otherwise; (e) any amendment to, rescission, waiver, or other modification of, or any consent to departure from, any of the terms of the Loan Agreement, any Note or any other Loan Document; (f) any addition, exchange, release, surrender or non-perfection of any collateral, or any amendment to or waiver or release or addition of, or consent to departure from, any other guaranty, held by any Lender Party or any holder of any Note securing any of the Liabilities of the Borrower; or (g) any other circumstance which might otherwise constitute a defense available to, or a legal or equitable discharge of, the Borrower, any surety or any guarantor. 2.4. Reinstatement, etc. The Guarantor agrees that this Guaranty shall ------------------ continue to be effective or be reinstated, as the case may be, if at any time any payment (in whole or in part) of any of the Liabilities is rescinded or must otherwise be restored by any Lender Party or any holder of any Note, upon the insol vency, bankruptcy or reorganization of the Borrower or otherwise, all as though such payment had not been made. 2.5. Waiver, etc. The Guarantor hereby waives promptness, diligence, ----------- notice of acceptance and any other notice with respect to any of the Liabilities of the Borrower and this Guaranty and any requirement that the Agent, any other Lender Party or any holder of any Note protect, secure, perfect or insure any I-5 security interest or Lien, or any property subject thereto, or exhaust any right or take any action against the Borrower or any other Person (including any other guarantor) or entity or any collateral securing the Liabilities of the Borrower. 2.6. Waiver of Subrogation. The Guarantor hereby irrevocably waives any --------------------- claim or other rights which it may now or hereafter acquire against the Borrower that arise from the existence, payment, performance or enforcement of the Guarantor's obligations under this Guaranty or any other Loan Document, including any right of subrogation, reimbursement, exoneration, or indemnification, any right to participate in any claim or remedy of the Lender Parties against the Borrower or any collateral which the Agent now has or hereafter acquires, whether or not such claim, remedy or right arises in equity, or under contract, statute or common law, including the right to take or receive from the Borrower, directly or indirectly, in cash or other property or by set- off or in any manner, payment or security on account of such claim or other rights. If any amount shall be paid to the Guarantor in violation of the preceding sentence and the Liabilities shall not have been paid in cash in full and the Credit Commitments have not been terminated, such amount shall be deemed to have been paid to the Guarantor for the benefit of, and held in trust for, the Lender Parties and each holder of a Note, and shall immediately be paid to the Lender Parties to be credited and applied against the Liabilities, whether matured or unmatured in accordance with the terms of the Loan Agreement. The Guarantor acknowledges that it will receive direct and indirect benefits from the financing arrangements contemplated by the Loan Agreement and that the waiver set forth in this Section 2.6 is knowingly made in contemplation of such ----------- benefits. 2.7. Successors, Transferees and Assigns; Transfers of Notes, etc. This ------------------------------------------------------------ Guaranty shall: (a) be binding upon the Guarantor, and its successors, transferees and assigns; and (b) inure to the benefit of and be enforceable by the Agent and each other Lender Party. I-6 Without limiting the generality of the foregoing clause (b), any Lender may ---------- assign or otherwise transfer (in whole or in part) any Note or Loan held by it to any other Person or entity, and such other Person or entity shall thereupon become vested with all rights and benefits in respect thereof granted to such Lender under any Loan Document (including this Guaranty) or otherwise, subject, however, to any contrary provisions in such assignment or transfer, and to the provisions of Section 11.11 and Article XI of the Loan Agreement. 3. Representations and Warranties. The Guarantor hereby represents and ------------------------------ warrants unto each Lender Party as set forth in this Section 3: --------- 3.1. Organization, etc. The Guarantor is a corporation validly organized ----------------- and existing and in good standing under the laws of the state of its incorporation, is duly qualified to do business and in good standing as a foreign corporation in each jurisdiction where the nature of its business makes such quali fication necessary and where the failure to so qualify would have a Materially Adverse Effect and has full power and authority to own and hold under lease its property and conduct its business substantially as presently conducted by it. The Guarantor has full power and authority to enter into and to perform its obligations under this Guaranty and each Loan Document. 3.2. Due Authorization. The execution and delivery by the Guarantor of ----------------- this Guaranty and each Loan Document executed by it and the performance by the Guarantor of its obligations hereunder and thereunder have been duly authorized by all necessary corporate action, do not require any Approval, do not and will not conflict with, result in any violation of, or constitute any default under, any provision of any Organic Document or Contractual Obligation of the Guarantor known to it (or any other material Contractual Obligation) or any present law or govern mental regulation or court decree or order applicable to it and will not result in or require the creation or imposition of any Lien in any of its properties pursuant to the provisions of any Contractual Obligation. 3.3. Validity, etc. This Agreement is, and each Loan Document executed by ------------- the Guarantor will on the due execution and I-7 delivery thereof be, the legal, valid and binding obligation of the Guarantor enforceable in accordance with its terms, subject, as to enforcement, only to bankruptcy, insolvency, reorganiza tion, moratorium or similar laws at the time in effect affecting the enforceability of the rights of creditors generally, and except as to general equitable remedies. 4. Covenants. The Guarantor covenants and agrees that, so long as any --------- portion of the Liabilities shall remain unpaid or any Lender shall have any outstanding Credit Commitment, the Guarantor will, unless the Required Banks shall otherwise consent in writing, perform the obligations set forth in this Section 4. --------- 4.1. Maintenance of Corporate Existences, etc. The Guarantor will cause ---------------------------------------- to be done at all times all things necessary to maintain and preserve its corporate existence and to comply in all material respects with all applicable laws, rules, regula tions and orders where the failure to so comply would have a Materially Adverse Effect. 4.2. Foreign Qualification. The Guarantor will cause to be done at all --------------------- times all things necessary to be duly qualified to do business and in good standing as a foreign corporation in each jurisdiction where the nature of its business makes such qualification necessary and where the failure to so qualify would have a Materially Adverse Effect, and to comply in all material respects with all applicable laws, rules, regulations and orders where the failure to so comply would have a Materially Adverse Effect. 5. Miscellaneous Provisions. ------------------------ 5.1. Loan Document. This Guaranty is a Loan Document executed pursuant ------------- to the Loan Agreement and shall (unless otherwise expressly indicated herein) be construed, administered and applied in accordance with the terms and provisions thereof. 5.2. Binding on Successors, Transferees and Assigns; Assignment. In ---------------------------------------------------------- addition to, and not in limitation of, Section 2.7, this Guaranty shall be ----------- binding upon the Guarantor and its successors, transferees and assigns and shall inure to the benefit of and be enforceable by each Lender Party and each I-8 holder of a Note and their respective successors, transferees and assigns (to the full extent provided pursuant to Section 2.7); provided, however, that the ----------- -------- ------- Guarantor may not assign any of its obligations hereunder without the prior written consent of all Lenders. 5.3. Amendments, etc. No amendment to or waiver of any provision of this --------------- Guaranty, nor consent to any departure by the Guarantor herefrom, shall in any event be effective unless the same shall be in writing and signed by the Agent, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. 5.4. Addresses for Notices to the Guarantor. All notices and other -------------------------------------- communications hereunder to the Guarantor shall be in writing (including telegraphic communication) and mailed or telegraphed or delivered to it, addressed to it at the address set forth below its signature hereto or at such other address as shall be designated by the Guarantor in a written notice to the Agent at the address specified in the Loan Agreement complying as to delivery with the terms of this Section 5.4. All such notices and other communications ----------- shall, when mailed or telegraphed, respectively, be effective when deposited in the mails or delivered to the telegraph company, respectively, addressed as aforesaid. 5.5. No Waiver; Remedies. In addition to, and not in limitation of, ------------------- Sections 2.3 and 2.5, no failure on the part of any Lender Party or any holder ------------ --- of a Note to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. 5.6. Section Captions. Section captions used in this Guaranty are for ---------------- convenience of reference only, and shall not affect the construction of this Guaranty. 5.7. Setoff. In addition to, and not in limitation of, any rights of any ------ Lender Party or any holder of a Note under applicable law, each Lender Party and each such holder shall, I-9 upon the occurrence of any Default described in Section 9.1.4 of the Loan Agreement or any Event of Default, have the right to appropriate and apply to the payment of the obligations of the Guarantor owing to it hereunder, whether or not then due, and the Guarantor hereby grants to each Lender Party and each such holder a continuing security interest in, any and all balances, credits, deposits, accounts or moneys of the Guarantor then or thereafter maintained with such Lender Party or such holder and any and all property of every kind or description of or in the name of the Guarantor now or hereafter, for any reason or purpose whatsoever, in the possession or control of, or in transit to, such Lender Party, such holder or any agent or bailee for such Lender Party or such holder; provided, however, that any such appropriation and application shall be -------- ------- subject to the provisions of Section 3.8 of the Loan Agreement. 5.8. Severability. Wherever possible each provision of this Guaranty ------------ shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Guaranty shall be prohibited by or invalid under such 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 Guaranty. 5.9. Governing Law, Entire Agreement, etc. THIS GUARANTY SHALL BE ------------------------------------ GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK. THIS GUARANTY AND THE OTHER LOAN DOCUMENTS CONSTITUTE THE ENTIRE UNDERSTANDING AMONG THE PARTIES HERETO WITH RESPECT TO THE SUBJECT MATTER HEREOF AND SUPERSEDE ANY PRIOR AGREEMENTS, WRITTEN OR ORAL, WITH RESPECT THERETO. 5.10. Forum Selection and Consent to Jurisdiction. FOR PURPOSES OF ANY ------------------------------------------- ACTION OR PROCEEDING INVOLVING THIS GUARANTY, THE GUARANTOR HEREBY EXPRESSLY SUBMITS TO THE JURISDICTION OF ALL FEDERAL AND STATE COURTS LOCATED IN THE STATE OF NEW YORK AND CONSENTS THAT IT MAY BE SERVED WITH ANY PROCESS OR PAPER BY REGISTERED MAIL OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF NEW YORK, PROVIDED A REASONABLE TIME FOR APPEARANCE IS ALLOWED. I-10 5.11. Waiver of Jury Trial. THE GUARANTOR HEREBY KNOWINGLY, VOLUNTARILY -------------------- AND INTENTIONALLY WAIVES ANY RIGHTS IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH, THIS GUARANTY OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF THE LENDER PARTIES OR THE GUARANTOR. THE GUARANTOR ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE AGENT AND THE LENDERS ENTERING INTO THE LOAN AGREEMENT. I-11 IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be duly executed and delivered by its officer thereunto duly authorized as of the date first above written. VARITY CORPORATION By:/s/F.J. Chapman Name: F.J. Chapman Title: Vice President & Treasurer By:/s/H.T. Pollock Name: H.T. Pollock Title: Assistant Treasurer Address: World Headquarters 672 Delaware Avenue Buffalo, New York 14209 Attention: H. T. Pollock Facsimile: (716) 888-8010 I-12 EX-11.1 5 PRIMARY EARNINGS PER SHARE COMPUTATIONS EXHIBIT 11.1 VARITY CORPORATION PRIMARY EARNINGS PER SHARE COMPUTATIONS (Dollars in millions except per share amounts)
Three months ended July 31, ----------------------------- 1995 1994 -------------- ------------- Income before discontinued operations................ $ 32.7 $ 22.7 Preferred stock dividend entitlements................ (.6) (.6) ------- ------- Income attributable to common stockholders before discontinued operations (A)........................ 32.1 22.1 Earnings from discontinued operations (B)............ - 23.3 ------- ------- Net income attributable to common stockholders (C)... $ 32.1 $ 45.4 ======= ======= Weighted average shares of common stock outstanding during the period (in thousands)................... 40,913 43,971 Common stock equivalents: Common stock options............................... 479 407 Long-term incentive plans.......................... - 7 ------- ------- Primary weighted average shares of common stock outstanding during the period (D).................. 41,392 44,385 ======= ======= Primary income per share of common stock: Before discontinued operations (A/D)............... $ .78 $ .50 Discontinued operations (B/D)...................... - .52 ------- ------- Net income (C/D)................................... $ .78 $ 1.02 ======= =======
Note: Fully diluted earnings per share computations are not presented as no significant dilution exists. EX-11.2 6 PRIMARY EARNINGS PER SHARE COMPUTATIONS EXHIBIT 11.2 VARITY CORPORATION PRIMARY EARNINGS PER SHARE COMPUTATIONS (Dollars in millions except per share amounts)
Six months ended July 31, --------------------------- 1995 1994 ------------- ------------ Income before discontinued operations................ $ 66.4 $ 48.2 Preferred stock dividend entitlements................ (1.2) (1.2) ------- ------- Income attributable to common stockholders before discontinued operations (A)........................ 65.2 47.0 Earnings from discontinued operations (B)............ .5 27.2 ------- ------- Net income attributable to common stockholders (C)... $ 65.7 $ 74.2 ======= ======= Weighted average shares of common stock outstanding during the period (in thousands)................... 40,945 43,967 Common stock equivalents: Common stock options............................... 442 471 Long-term incentive plans.......................... - 9 ------- ------- Primary weighted average shares of common stock outstanding during the period (D).................. 41,387 44,447 ======= ======= Primary income per share of common stock: Before discontinued operations (A/D)............... $ 1.58 $ 1.06 Discontinued operations (B/D)...................... .01 .61 ------- ------- Net income (C/D)................................... $ 1.59 $ 1.67 ======= =======
Note: Fully diluted earnings per share computations are not presented as no significant dilution exists. EX-27.1 7 FDS PERIOD ENDED 7/31/95
5 1,000,000 6-MOS JAN-31-1996 FEB-01-1995 JUL-31-1995 108 43 347 0 158 698 644 0 1814 498 164 642 0 7 181 1814 1168 1168 949 949 132 0 10 77 18 66 1 0 0 67 1.59 0
EX-27.2 8 FDS PERIOD ENDED 7/31/94
5 1,000,000 6-MOS JAN-31-1995 FEB-01-1994 JUL-31-1994 155 78 377 0 160 805 893 303 1857 557 163 638 0 7 141 1857 998 998 822 822 114 0 12 50 8 48 27 0 0 75 1.67 0.00