-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BOWUIUqDMJ/gInvetR7JSuM86+G6gSx8s04bawqGihYOH+Q2IO1pxJwyRyg8+dfW nBX6zWQwWMW3QldVFDFxfg== 0000950152-02-004111.txt : 20020513 0000950152-02-004111.hdr.sgml : 20020513 ACCESSION NUMBER: 0000950152-02-004111 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20020331 FILED AS OF DATE: 20020513 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SIFCO INDUSTRIES INC CENTRAL INDEX KEY: 0000090168 STANDARD INDUSTRIAL CLASSIFICATION: AIRCRAFT ENGINES & ENGINE PARTS [3724] IRS NUMBER: 340553950 STATE OF INCORPORATION: OH FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-05978 FILM NUMBER: 02643631 BUSINESS ADDRESS: STREET 1: 970 E 64TH ST CITY: CLEVELAND STATE: OH ZIP: 44103 BUSINESS PHONE: 2168818600 MAIL ADDRESS: STREET 1: 970 EAST 64TH STREET CITY: CLEVELAND STATE: OH ZIP: 44103 FORMER COMPANY: FORMER CONFORMED NAME: STEEL IMPROVEMENT & FORGE CO DATE OF NAME CHANGE: 19690520 10-Q 1 l93943ae10-q.txt SIFCO INDUSTRIES, INC. 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: March 31, 2002 Commission File Number: 1-5978 SIFCO Industries, Inc. (Exact name of registrant as specified in its charter) Ohio 34-0553950 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 970 East 64th Street, Cleveland, Ohio 44103 (Address of principal executive offices) (Zip Code)
(216) 881-8600 (Registrant's telephone number, including area code) Indicated 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 requirement for the past 90 days. Yes X No As of April 30, 2002, the issuer had 5,207,733 shares of common stock outstanding. PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS SIFCO INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (Unaudited) (Amounts in thousands, except per share data)
Three Months Six Months Ended Ended March 31 March 31 ------------------------- ------------------------- 2002 2001 2002 2001 -------- -------- -------- -------- Net sales $ 20,747 $ 27,726 $ 41,085 $ 52,911 Operating expenses: Cost of goods sold -- products and services 18,075 22,859 36,332 43,610 Cost of goods sold -- inventory impairment charges 335 214 3,149 317 Selling, general and administrative expenses 4,074 3,394 6,992 6,349 Asset impairment charges -- -- 1,380 -- -------- -------- -------- -------- Total operating expenses 22,484 26,467 47,853 50,276 -------- -------- -------- -------- Operating income (loss) (1,737) 1,259 (6,768) 2,635 Interest income (73) (105) (165) (177) Interest expense 203 261 429 552 Foreign currency exchange loss (gain), net 47 (593) 152 2 Other income, net (37) (15) (147) (41) -------- -------- -------- -------- Income (loss) before income tax provision (1,877) 1,711 (7,037) 2,299 Income tax provision (benefit) (544) 716 (2,014) 1,002 -------- -------- -------- -------- Net income (loss) $ (1,333) $ 995 $ (5,023) $ 1,297 ======== ======== ======== ======== Net income (loss) per share (basic) $ (0.26) $ 0.19 $ (0.96) $ 0.25 Net income (loss) per share (diluted) $ (0.26) $ 0.19 $ (0.96) $ 0.25 Weighted-average number of common shares (basic) 5,214 5,135 5,221 5,135 Weighted-average number of common shares (diluted) 5,232 5,150 5,241 5,153
See accompanying notes to unaudited consolidated condensed financial statements. -2- SIFCO INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (Amounts in thousands, except per share data)
March 31 September 30 2002 2001 -------- -------- (unaudited) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 8,172 $ 13,787 Receivables, net 15,248 18,705 Inventories 14,798 18,013 Deferred income taxes 1,709 1,709 Prepaid expenses and other current assets 491 578 -------- -------- Total current assets 40,418 52,792 PROPERTY, PLANT AND EQUIPMENT, NET 29,717 29,383 OTHER ASSETS: Funds held by trustee for capital project -- 92 Goodwill and other intangible assets, net 2,670 3,558 Other assets 950 771 -------- -------- Total other assets 3,620 4,421 -------- -------- Total assets $ 73,755 $ 86,596 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Current maturities of long-term debt $ 1,430 $ 1,430 Accounts payable 5,242 6,717 Other accrued liabilities 5,296 7,702 -------- -------- Total current liabilities 11,968 15,849 LONG-TERM DEBT -- NET OF CURRENT MATURITIES 12,294 15,107 OTHER LONG-TERM LIABILITIES 5,692 6,266 SHAREHOLDERS' EQUITY: Serial preferred shares, no par value -- -- Common shares, par value $1 per share 5,308 5,308 Additional paid-in capital 6,783 6,783 Retained earnings 40,592 45,615 Accumulated other comprehensive loss (7,876) (7,423) Unearned compensation -- restricted common shares (414) (460) Common shares held in treasury at cost (592) (449) -------- -------- Total shareholders' equity 43,801 49,374 -------- -------- Total liabilities and shareholders' equity $ 73,755 $ 86,596 ======== ========
See accompanying notes to unaudited consolidated condensed financial statements. -3- SIFCO INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) (Amounts in thousands)
Six Months Ended March 31 ----------------------------- 2002 2001 -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ (5,023) $ 1,297 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,449 2,259 Loss (gain) on disposal of property and equipment (5) 32 Deferred income taxes 29 -- Inventory and asset impairment charges 4,529 317 CHANGES IN OPERATING ASSETS AND LIABILITIES: Receivables 3,457 1,050 Inventories 66 (1,533) Prepaid expenses and other current assets 87 (6) Other assets (364) (74) Accounts payable (1,474) 1,720 Accrued liabilities (2,972) 701 Other long-term liabilities (438) (336) -------- -------- Net cash provided by operating activities 341 5,427 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (3,107) (1,885) Decrease (increase) in funds held by trustee for capital project 92 (17) Proceeds from sale of property, plant and equipment 24 -- Other (55) (24) -------- -------- Net cash used for investing activities (3,046) (1,926) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from revolving credit agreement 12,770 14,532 Repayments of revolving credit agreement (14,983) (11,553) Repayments of long-term debt (600) (600) Repurchase of common shares (143) -- Issuance of common shares 46 7 -------- -------- Net cash provided by (used for) financing activities (2,910) 2,386 Increase (decrease) in cash and cash equivalents (5,615) 5,887 Cash and cash equivalents at the beginning of the period 13,787 4,687 Effect of exchange rate changes on cash and cash equivalents -- (61) -------- -------- Cash and cash equivalents at the end of the period $ 8,172 $ 10,513 ======== ======== Supplemental disclosure of cash flow information: Cash paid for interest $ (452) $ (513) Cash paid for income taxes, net (764) (373)
See accompanying notes to unaudited consolidated condensed financial statements. -4- SIFCO INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Amounts in thousands) (Unaudited) 1. BASIS OF PRESENTATION The unaudited consolidated condensed financial statements included herein include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. In the opinion of management, all adjustments, which include only normal recurring adjustments necessary for a fair presentation of the results of operations, financial position, and cash flows for the periods presented, have been included. These consolidated condensed financial statements should be read in conjunction with the consolidated financial statements and related notes included in the SIFCO Industries, Inc. ("Company") fiscal 2001 Annual Report on Form 10-K. The results of operations for any interim period are not necessarily indicative of the results to be expected for other interim periods or the full year. Certain prior period amounts have been reclassified in order to conform to current period classifications. 2. INVENTORIES Inventories consist of:
March 31 September 30 2002 2001 ------- ------- Raw materials and supplies $ 4,687 $ 5,714 Work-in-process 4,639 5,905 Finished goods 5,472 6,394 ------- ------- Total inventories $14,798 $18,013 ======= =======
If the FIFO method had been used for the entire Company, inventories would have been $2,918 and $2,884 higher than reported at March 31, 2002 and September 30, 2001, respectively. 3. LONG-TERM DEBT The maturity date of the Company's existing $10.0 million revolving credit agreement with National City Bank was extended to March 31, 2004. 4. COMPREHENSIVE INCOME (LOSS) AND ACCUMULATED OTHER COMPREHENSIVE LOSS Total comprehensive income (loss) is as follows:
Three Months Ended Six Months Ended March 31 March 31 --------------------------- --------------------------- 2002 2001 2002 2001 ------- ------- ------- ------- Net income (loss) $(1,333) $ 995 $(5,023) $ 1,297 Foreign currency translation adjustment (20) (1,529) (54) 5 Cumulative effect adjustment of interest rate swap agreement, net of tax -- -- -- 135 Interest rate swap adjustment 58 (128) 98 (280) Currency exchange contract adjustment (8) (86) (423) (86) Minimum pension liability adjustment -- -- (74) -- ------- ------- ------- ------- Total comprehensive income (loss) $(1,303) $ (748) $(5,476) $ 1,071 ======= ======= ======= =======
-5- The components of accumulated other comprehensive loss are as follows:
March 31 September 30 2002 2001 ------- ------- Foreign currency translation adjustment $(7,173) $(7,119) Interest rate swap adjustment (206) (304) Currency exchange contract adjustment (423) -- Minimum pension liability adjustment (74) -- ------- ------- Total accumulated other comprehensive loss $(7,876) $(7,423) ======= =======
5. BUSINESS SEGMENTS The Company identifies reportable segments based upon distinct products manufactured and services provided. The Turbine Component Services and Repair ("Repair") segment consists primarily of the repair and remanufacture of jet engine (aerospace) turbine components. The Repair business is also involved in the repair of industrial land-based gas turbine components and precision machining for aerospace applications. The Aerospace Component Manufacturing ("ACM") segment consists of the production, heat treatment and some machining of forgings in various alloys utilizing a variety of processes for application in the aerospace industry as well as several other industrial markets. The Metal Finishing segment is a provider of a specialized electroplating process called brush plating, which is used to apply metal coatings to a selective area of a component. The Company's reportable segments are separately managed. Segment information is as follows:
Three Months Ended Six Months Ended March 31 March 31 ------------------------- ------------------------- 2002 2001 2002 2001 -------- -------- -------- -------- Net sales: Turbine Component Services and Repair $ 9,539 $ 14,742 $ 19,151 $ 28,518 Aerospace Component Manufacturing 8,704 10,328 16,840 19,297 Metal Finishing 2,504 2,656 5,094 5,096 -------- -------- -------- -------- Consolidated net sales $ 20,747 $ 27,726 $ 41,085 $ 52,911 ======== ======== ======== ======== Operating income (loss): Turbine Component Services and Repair $ (883) $ 696 $ (6,167) $ 1,714 Aerospace Component Manufacturing (691) 592 (398) 1,050 Metal Finishing 307 485 672 783 Corporate unallocated expenses (470) (514) (875) (912) -------- -------- -------- -------- Consolidated operating income (loss) (1,737) 1,259 (6,768) 2,635 Interest expense, net 130 156 264 375 Foreign currency exchange loss , net 47 (593) 152 2 Other (income) expense, net (37) (15) (147) (41) -------- -------- -------- -------- Consolidated income (loss) before income tax provision $ (1,877) $ 1,711 $ (7,037) $ 2,299 ======== ======== ======== ========
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management's Discussion and Analysis of Financial Condition and Results of Operations may contain various forward-looking statements and includes assumptions concerning the Company's operations, future results and prospects. These forward-looking statements are based on current expectations and are subject to risk and uncertainties. In connection with the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, the Company provides this cautionary statement identifying important economic, political and technological factors, among others, the absence or effect of which could cause the actual results or events to differ materially from those set forth in or implied by the forward-looking statements and related assumptions. Such factors include the following: (1) future business environment, including capital and consumer spending; (2) competitive factors, including the ability to replace business which may be -6- lost due to increased direct involvement by the jet engine manufacturers into turbine component services and repair markets; (3) successful procurement of new repair process licenses; (4) fluctuating foreign currency (euros) exchange rates; (5) successful development and market introductions of new products, including an advanced coating technology and the continued development of land-based turbine repair processes; (6) regressive pricing pressures on the Company's products or services, with productivity improvements as the primary way to maintain margins; (7) success with the further development of strategic alliances, including joint ventures, with certain jet engine manufacturers for turbine component repair services; (8) the long-term impact on the aerospace industry of the September 11, 2001 terrorist attacks on the United States, including collection risks due to the failure of airlines/engine over-haul companies, reduced number of aircraft in service, and accelerated declining use of older model jet engines such as the JT8D; (9) successful replacement of declining demand for repair services for turboprop engine components with component repair services for small turbojet engines utilized in the regional airline market; (10) stability of government laws and regulations, including taxes; and (11) stable governments and business conditions in economies where business is conducted. SIFCO Industries, Inc. and its subsidiaries engage in the production and sale of a variety of metalworking processes, services and products produced primarily to the specific design requirements of its customers. The processes and services include forging, heat treating, coating, welding, machining and brush plating. The products include forgings, machined forged parts and other machined metal parts, remanufactured component parts for turbine engines, and brush plating solutions and equipment. A. RESULTS OF OPERATIONS SIX MONTHS ENDED MARCH 31, 2002 COMPARED WITH SIX MONTHS ENDED MARCH 31, 2001 Net sales in the first six months of fiscal 2002 decreased 22.4% to $41.1 million, compared with $52.9 million for the comparable period in fiscal 2001. Loss before income tax benefit in the first six months of fiscal 2002 was $7.0 million, compared with income before income tax provision of $2.3 million for the comparable period in fiscal 2001. For the first six months of fiscal 2002 the Company incurred a net loss of $5.0 million, or $0.96 per share (diluted), compared with net income of $1.3 million, or $0.25 per share (diluted) for the comparable period in fiscal 2001. TURBINE COMPONENT SERVICES AND REPAIR GROUP ("REPAIR GROUP") The Repair Group had net sales of $19.2 million in the first six months of fiscal 2002, down $9.3 million, or 32.8%, from $28.5 million in the comparable fiscal 2001 period. Component repair sales were down $5.0 million in the first six months of fiscal 2002 compared with the same period in 2001. Demand for component repairs for virtually all models of large jet engines, especially the older models, was down in the first six months of fiscal 2002 compared with the same period in fiscal 2001. The continued retirement and reduced utilization of older generation aircraft that negatively impacted the Repair Group in fiscal 2001 was accelerated during the first six months of fiscal 2002. This was a direct consequence of the September 11, 2001 terrorist attacks on the United States, as many airlines chose to reduce capacity by retiring many of the older aircraft in their fleets. In addition, the terrorist attacks have reduced commercial flight demand, which in turn negatively impacts the demand for repairs to newer model engines. Revenues from the sale of replacement parts that complement component repair services were down $4.3 million in the first six months of fiscal 2002 compared with the same period in 2001, due principally to lower overall component repair volumes. During the first six months of fiscal 2002, the Repair Group's selling, general and administrative expenses increased $1.2 million to $4.0 million, or 21.0% of net sales, from $2.8 million, or 9.8% of net sales, in the same period in fiscal 2001. Included in the $4.0 million of selling, general and administrative expenses for the first six months of fiscal 2002 were $1.4 million of charges related to goodwill and equipment impairment. The remaining $2.6 million of selling, general and administrative expenses for the first six months of fiscal 2002 represented 13.8 % of net sales and benefited from a $0.2 million reduction in bad debt expense when compared with the same period in 2001. Off-setting this benefit, the Repair Group incurred $0.2 million of severance charges in the first six months of fiscal 2002, associated with the reduction of the Repair Group's capacity to repair components related to older generation jet engines, principally JT8D. Operating income (loss) in the first six months of fiscal 2002 decreased $7.9 million to a $6.2 million loss from $1.7 million of income in the same period in fiscal 2001. Included in the decreased operating results for the first six months of fiscal 2002 were increased charges during the first quarter of fiscal 2002 aggregating $4.1 million related to inventory write-down ($2.7 million), the impairment of goodwill ($0.7 million) and the impairment of equipment ($0.7 million). During the -7- first quarter of fiscal 2002, the Repair Group performed an evaluation of its existing operations in light of the current and anticipated effects of the September 11, 2001 terrorist attacks on its business. The principal result of this evaluation process was the decision to optimize the Repair Group's operations by reducing certain capacity for the repairing of components related to older generation jet engines, principally the JT8D. As a result of this decision, the Repair Group recognized, during the first six months of fiscal 2002, the charges mentioned above. The remaining $3.6 million decrease in operating results during the first six months of fiscal 2002 compared to the same period in fiscal 2001 was primarily due to the overall lower net sales levels. AEROSPACE COMPONENT MANUFACTURING GROUP ("ACM GROUP") Net sales in the first six months of fiscal 2002 declined 12.7% to $16.8 million, compared with $19.3 million in the same fiscal 2001 period. Approximately $3.2 million of this decrease in net sales is attributable to a decrease in the number of AE series new generation jet engines built by Rolls-Royce for business and regional jets as a direct consequence of reduced flight schedules, cancellation of aircraft orders, workforce reductions, and declining financial performance of the airline industry in response to the September 11, 2001 terrorist attacks on the United States. As a consequence of the overall decline in the airline industry, net sales of commercial aircraft airframe components declined approximately $0.9 million in the first six months of fiscal 2002, compared with the same period in fiscal 2001. Net sales in the first six months of fiscal 2002 were also negatively impacted by a $0.4 million reduction in selling prices to the ACM Group's largest customer, Rolls-Royce Corporation, that was implemented during the first quarter of fiscal 2002. These decreases in net sales were partially offset by an approximately $1.8 million increase in shipments of military airframe components. Selling, general and administrative expenses in the first six months of fiscal 2002 were $2.0 million. The primary factor impacting the ACM Group's selling, general and administrative expenses in the first six months of fiscal 2002 is a $0.9 million charge incurred in connection with the settlement, during the second quarter of fiscal 2002, of an employment action and a related claim that the Company had filed against its insurance carrier for its failure to provide coverage. Selling, general and administrative expenses before this legal contingency accrual were $1.1 million in the first six months of both fiscal 2002 and fiscal 2001. Selling, general and administrative expenses were also negatively impacted in the first six months of fiscal 2002 by higher variable selling expense due to product mix, offset by lower travel and other discretionary expenses. The ACM Group's operating loss in the first six months of fiscal 2002 was $0.4 million. The primary factor impacting the ACM Group's operating results in the first six months of fiscal 2002 is the $0.9 million legal contingency accrual mentioned above. For the first six months of fiscal 2002 the ACM Group's operating income before legal contingency accrual was $0.5 million, or 2.7% of net sales, compared with $1.0 million, or 5.4% of net sales in the same fiscal 2001 period. The ACM Group's operating income was also negatively impacted in the first six months of fiscal 2002 by a $0.4 million reduction in selling prices to Rolls-Royce Corporation, its largest customer, that was implemented during the first quarter of fiscal 2002 and is expected to affect future periods. The Company believes that the impact of this selling price reduction may be at least partially offset in future periods by the implementation of several cost savings initiatives that the Company is pursuing. The ACM Group's operating income in the first six months of fiscal 2002 also was negatively impacted by the overall lower net sales level. Due to the overall declining financial performance of the airline industry in response to the September 11, 2001 terrorist attacks on the United States, the ACM Group's backlog as of March 31, 2002 decreased to $25.6 million, compared with $28.0 million as of September 30, 2001. Approximately $2.5 million is scheduled for delivery beyond the next twelve months. All orders are subject to modification or cancellation by the customer with limited charges. The Company believes that backlog may not necessarily be indicative of actual sales for any succeeding period. METAL FINISHING GROUP Net sales were $5.1 million in the first six months of both fiscal 2002 and 2001. In the first six months of fiscal 2002 product net sales, consisting of brush plating equipment and solutions, declined $0.4 million, or 12.2%, to $2.8 million. Product net sales continued the decline that began in the first quarter of fiscal 2002 due to the overall economic weakness in aerospace, steel, railroad and pulp and paper industries. Contract service net sales increased $0.4 million, or 20.6%, to $2.2 million in the first six months of fiscal 2002. Contract service net sales benefited from several large contracts in the first quarter of fiscal 2002. -8- The Metal Finishing Group's operating income in the first six months of fiscal 2002 was $0.7 million, or 13.2% of net sales, compared with $0.8 million, or 15.4% of net sales in the comparable period in fiscal 2001. Operating income in the first six months of fiscal 2002 was negatively impacted by a shift in the mix of contract service sales towards smaller contracts that, by their nature, tend to be less profitable. Operating income in the first six months of fiscal 2002 also was negatively impacted by additional fixed costs associated with a new facility that opened in fiscal 2002. Selling, general and administrative expenses were $1.5 million in the first six months of both fiscal 2002 and 2001. Selling, general and administrative expenses in the first six months of fiscal 2002 benefited from lower advertising and travel expenditures, offset by higher compensation and other administrative expenses. The Company does not necessarily anticipate experiencing similar levels of expenditures for advertising and travel in future periods as business activity returns to historical levels. CORPORATE UNALLOCATED EXPENSES Corporate unallocated expenses, consisting of corporate salaries and benefits, legal and professional and other corporate expenses, were $0.9 million in the first six months of both fiscal 2002 and 2001. Lower expenses related to management incentive expense and legal and professional expense favorably impacted corporate unallocated expenses. Higher compensation, benefit and consulting expenses partially offset these decreases. OTHER/GENERAL Interest income was $0.2 million in the first six months of both fiscal 2002 and 2001. Higher average cash and cash equivalent balances outstanding during the first six months of fiscal 2002 compared with the comparable period in fiscal 2001 were offset by lower interest rates during this period compared with the comparable period in fiscal 2001. Interest expense for the first six months of fiscal 2002 was $0.4 million, compared with $0.6 million in the first six months of fiscal 2001. The decrease in interest expense is attributable to overall lower borrowings under the Company's revolving credit agreement, as well as lower interest rates. Foreign currency exchange loss was $0.2 million in the first six months of fiscal 2002, compared with $0.002 million in the comparable period of fiscal 2001. Effective October 1, 2001, the Company changed the functional currency of its Irish subsidiary from the euro to the U.S. dollar. The functional currency was changed because a substantial majority of the subsidiary's transactions are now denominated in U.S. dollars. Other income increased $0.1 million due to an increase in the amount of income from Irish government agency grants that was recognized by the Company's Irish subsidiary, as well as a one-time gain from the sale of the ACM Group's interest in certain natural gas wells. The Company's consolidated income tax benefit of $2.0 million results in an effective tax benefit rate of 28.6% in the first six months of fiscal 2002. The Company did not recognize, in the first six months of fiscal 2002, a U.S. income tax benefit for losses incurred by certain of the Company's non-U.S. subsidiaries, as such losses reduce the accumulated earnings of a subsidiary, but do not currently reduce any U.S. income taxes. THREE MONTHS ENDED MARCH 31, 2002 COMPARED WITH THREE MONTHS ENDED MARCH 31, 2001 Net sales in the second quarter of fiscal 2002 decreased 25.2% to $20.7 million compared with $27.7 million for the comparable period in fiscal 2001. Loss before income tax benefit was $1.9 million in the second quarter of fiscal 2002 compared with income before income tax provision of $1.7 million for the comparable period in fiscal 2001. In the second quarter of fiscal 2002 the Company incurred a net loss of $1.3 million, or $0.26 per share (diluted), compared with net income of $1.0 million, or $0.19 per share (diluted) for the comparable period in fiscal 2001. TURBINE COMPONENT SERVICES AND REPAIR GROUP ("REPAIR GROUP") The Repair Group had net sales of $9.5 million in the second quarter of fiscal 2002, down $5.2 million, or 35.3%, from $14.7 million in the comparable fiscal 2001 period. Component repair sales were down $2.9 million in the second quarter of fiscal 2002 compared with the same period in fiscal 2001. Demand for component repairs for virtually all models of large jet engines, especially the older models, was down in the second quarter of fiscal 2002 compared with the same period in fiscal 2001. The continued retirement and reduced utilization of older generation aircraft that negatively impacted the Repair Group in fiscal 2001 was accelerated during the second quarter of fiscal 2002. This was a direct consequence of the September 11, 2001 terrorist attacks on the United States as many airlines chose to reduce capacity by retiring many of the older aircraft in their fleets. In addition, the terrorist attacks have reduced commercial flight demand, which in -9- turn negatively impacts the demand for repairs to newer model engines. Revenues from the sale of replacement parts that complement component repair services were down $2.3 million in the second quarter of fiscal 2002 compared with the same period in fiscal 2001, due principally to lower overall component repair volumes. During the second quarter of fiscal 2002, the Repair Group's selling, general and administrative expenses decreased $0.1 million to $1.4 million, or 15.0% of net sales, from $1.5 million, or 10.6% of net sales, in the same period in fiscal 2001. Selling, general and administrative expenses for the second quarter of fiscal 2002 benefited from a $0.3 million reduction in bad debt expense when compared with the same period in 2001. Partially off-setting this benefit, the Repair Group incurred $0.1 million of severance charges in the second quarter of fiscal 2002, associated with the reduction of the Repair Group's capacity to repair components related to older generation jet engines, principally JT8D. Operating income (loss) in the second quarter of fiscal 2002 decreased $1.6 million to a $0.9 million loss from $0.7 million of income in the same period in fiscal 2001. Included in the decreased operating results for the second quarter of fiscal 2002 were increased charges of $0.2 million related to inventory write-down. The remaining decrease in operating results during the second quarter of fiscal 2002 compared to the same period in fiscal 2001 was primarily due to the overall lower net sales level. AEROSPACE COMPONENT MANUFACTURING GROUP ("ACM GROUP") Net sales in the second quarter of fiscal 2002 decreased 15.7% to $8.7 million, compared with $10.3 million in the same fiscal 2001 period. The decrease in net sales is attributable to a decrease in the number of AE series new generation jet engines built by Rolls-Royce for business and regional jets as a direct consequence of the reduced flight schedules, cancellation of aircraft orders, workforce reductions, and declining financial performance of the airline industry in response to the September 11, 2001 terrorist attacks on the United States. As a consequence of the overall decline in the airline industry, net sales of commercial aircraft airframe components declined as well in the second quarter of fiscal 2002, compared with the same period in fiscal 2001. Net sales in the second quarter of fiscal 2002 were also negatively impacted by a $0.2 million reduction in selling prices to the ACM Group's largest customer, Rolls-Royce Corporation, that was implemented during the first quarter of fiscal 2002. These decreases in net sales were partially offset by an increase in shipments of military airframe components. Selling, general and administrative expenses in the second quarter of fiscal 2002 were $1.4 million. The primary factor impacting the ACM Group's selling, general and administrative expenses in the second quarter of fiscal 2002 is a $0.9 million charge incurred in connection with the settlement, during the second quarter of fiscal 2002, of an employment action and a related claim that the Company had filed against its insurance carrier for its failure to provide coverage. Selling, general and administrative expenses before this legal contingency accrual were $0.6 million in the second quarter of fiscal 2002 and fiscal 2001. Selling, general and administrative expenses were also negatively impacted in the first six months of fiscal 2002 by higher variable selling expense due to product mix, offset by lower travel and other discretionary expenses. The ACM Group's operating loss in the second quarter of fiscal 2002 was $0.7 million. The primary factor impacting the ACM Group's operating results in the second quarter of fiscal 2002 is the $0.9 million legal contingency accrual mentioned above. For the second quarter of fiscal 2002 the ACM Group's operating income before legal contingency accrual was $0.2 million, or 1.8% of net sales, compared with $0.6 million, or 5.7% of net sales in the same fiscal 2001 period. The ACM Group's operating income was also negatively impacted in the second quarter of fiscal 2002 by a $0.2 million reduction in selling prices to Rolls- Royce Corporation, its largest customer, that was implemented during the first quarter of fiscal 2002 and is expected to impact future periods. The Company believes that the impact of this selling price reduction may be at least partially offset in future periods by the implementation of several cost savings initiatives that the Company is pursuing. The ACM Group's operating income in the second quarter of fiscal 2002 also was negatively impacted by the overall lower net sales level. METAL FINISHING Net sales were $2.5 million in the second quarter of fiscal 2002, compared with $2.7 for the comparable period in fiscal 2001. In the second quarter of fiscal 2002 product net sales, consisting of brush plating equipment and solutions, declined $0.2 million, or 11.9%, to $1.4 million. Product net sales continued the decline that began in the first quarter of -10- fiscal 2002 due to the overall economic weakness in aerospace, steel, railroad and pulp and paper industries. Contract service net sales were $1.0 million in the second quarters of both fiscal 2002 and 2001. The Metal Finishing Group's operating income in the second quarter of fiscal 2002 was $0.3 million, or 12.3% of net sales, compared with $0.5 million, or 18.3% of net sales in the comparable period in fiscal 2001. Operating income in the second quarter of fiscal 2002 was negatively impacted by a shift in the mix of contract service sales towards smaller contracts that, by their nature, tend to be less profitable. Operating income in the second quarter of fiscal 2002 also was negatively impacted by additional fixed costs associated with a new facility that opened in fiscal 2002. Selling, general and administrative expenses were $0.7 million in the second quarter of fiscal 2002, compared with $0.8 million in the same period in fiscal 2001. Selling, general and administrative expenses in the second quarter of fiscal 2002 benefited from lower advertising and travel expenditures, offset by higher compensation and other administrative expenses. The Company does not necessarily anticipate experiencing similar levels of expenditures for advertising and travel in future periods as business activity returns to historical levels. CORPORATE UNALLOCATED EXPENSES Corporate unallocated expenses, consisting of corporate salaries and benefits, legal and professional and other corporate expenses, were $0.5 million in the second quarter of both fiscal 2002 and 2001. Lower expenses related to management incentive expense and legal and professional expense favorably impacted corporate unallocated expenses. Higher compensation, benefits, public company and consulting expenses partially offset these decreases. OTHER/GENERAL Interest income was $0.1 million in the second quarter of both fiscal 2002 and 2001. Higher average cash and cash equivalent balances outstanding during the second quarter of fiscal 2002 compared with the comparable period in fiscal 2001 were offset by lower interest rates during this period compared with the comparable period in fiscal 2001. Interest expense for the second quarter of fiscal 2002 was $0.2 million, compared with $0.3 million in the second quarter of fiscal 2001. The decrease in interest expense is attributable to overall lower borrowings under the Company's revolving credit agreement, as well as lower interest rates. Foreign currency exchange loss was $0.05 million in the second quarter of fiscal 2002 compared with foreign currency exchange income of $0.6 million in the second quarter of fiscal 2001. Effective October 1, 2001, the Company changed the functional currency of its Irish subsidiary from the euro to the U.S. dollar. The functional currency was changed because a substantial majority of the subsidiary's transactions are now denominated in U.S. dollars. The Company's consolidated income tax benefit of $0.5 million results in an effective tax benefit rate of 29.0% in the second quarter of fiscal 2002. The Company did not recognize, in the second quarter of fiscal 2002, a U.S. income tax benefit for losses incurred by certain of the Company's non-U.S. subsidiaries, as such losses reduce the accumulated earnings of a subsidiary, but do not currently reduce any U.S. income taxes. B. LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents decreased during the first six months of fiscal 2002 to $8.2 million from $13.8 million at September 30, 2001. At present, essentially all of the Company's cash and cash equivalents are in the possession of its non-U.S. subsidiaries and relate to undistributed earnings of these non-U.S. subsidiaries. During the first six months of fiscal 2002, the Company received a distribution of $2.5 million from one of its non-U.S. subsidiaries. This distribution was utilized to repay a portion of the outstanding balance under the Company's revolving credit agreement. Cash flow activity for the first six months of fiscal 2002 is presented in the Consolidated Condensed Statement of Cash Flows. Due to lower net sales, cash was provided by a $1.6 million decrease in the ACM Group's accounts receivable, as well as a $2.0 million decrease in the Repair Group's accounts receivable, offset by an increase in the Metal Finishing Group's accounts receivable of $0.1 million. ACM Group inventories increased $0.2 million in the first six months of fiscal 2002, offset by a $0.3 million decrease in the Repair Group's inventories. The combined $4.4 million decrease in accounts payable and accrued liabilities is due primarily to lower operating expenses and inventory purchases, the payment of fiscal 2001 incentives and lower overall purchasing activity during the first six months of fiscal 2002 due to -11- lower sales. Working capital was $28.4 million at March 31, 2002, compared with $36.9 million at September 30, 2001. The current ratio was 3.4 and 3.3 at March 31, 2002 and September 30, 2001, respectively. Capital expenditures were $3.1 million in the first six months of fiscal 2002, compared with $1.9 million in the comparable period in fiscal 2001. The Company anticipates making a total of $5.0 million of capital expenditures during fiscal 2002. These capital expenditures consist of expenditures that will expand and enhance the Repair Group's turbine repair capabilities, provide other new equipment and upgrade existing equipment. The Company's projection of capital expenditures for fiscal 2002 increased by $1.8 million from its previous projection due primarily to $1.7 million of projected expenditures that will enhance the Company's land-based turbine repair services. The Company's long-term debt as a percentage of equity at March 31, 2002 was 28.1%, compared with 30.6% at September 30, 2001. At March 31, 2002, the Company had $2.8 million outstanding against its $10.0 million revolving credit agreement. The maturity date of the Company's $10.0 million revolving credit agreement with National City Bank was extended to March 31, 2004. During the first six months of fiscal 2002, the Company repurchased 29,300 shares of its Common Shares. The total number of shares repurchased under the Company's 100,000 Common Share repurchase program, approved by the Board of Directors, is 100,000. No dividends were declared during the first six months of fiscal 2002. The Company believes that the funds available under its revolving credit facility and anticipated funds generated from its operations will be adequate to meet its liquidity requirements through the foreseeable future. C. EFFECTS OF FOREIGN CURRENCY AND INFLATION The Company operates internationally and enters into transactions denominated in non-U.S. dollar currencies. As a result, the Company is subject to the variability that arises from exchange rate movements. The impact of changes in exchange rates on the operating results of the Company was discussed previously. The Company believes that inflation has not materially affected its results of operations in the first six months of fiscal 2002 and does not expect inflation to be a significant factor for the balance of fiscal 2002. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK In the ordinary course of business, the Company is subject to foreign currency and interest rate risk. The risks primarily relate to the sale of the Company's products in transactions denominated in non-U.S. dollar currencies (primarily the euro); the payment, in local currency, of wages and other costs related to the Company's non-U.S. operations; and changes in interest rates on the Company's long-term debt obligations. The Company does not hold or issue financial instruments for trading purposes. FOREIGN CURRENCY RISK The U.S. dollar is the functional currency for all of the Company's U.S. operations. Effective October 1, 2001, the Company changed the functional currency of its Irish subsidiary from the euro to the U.S. dollar. The functional currency was changed because a substantial majority of the subsidiary's transactions are now denominated in U.S. dollars. For these operations, all gains and losses from completed currency transactions are included in income currently. For the Company's other non-U.S. subsidiaries, the functional currency is the local currency. Assets and liabilities are translated into U.S. dollars at the rates of exchange at the end of the period and revenues and expenses are translated using average rates of exchange. Foreign currency translation adjustments are reported as a component of accumulated other comprehensive income. Historically, the Company has been able to mitigate the impact of foreign currency risk by means of hedging such risk through the use of foreign currency exchange contracts. However, such risk is mitigated only for the periods for which the Company has foreign currency exchange contracts in effect, and only to the extent of the U.S. dollar amounts of such contracts. At March 31, 2002, the Company had several forward exchange contracts outstanding, for durations of up to six months, to sell U.S. dollars aggregating $8.6 million. A ten percent strengthening in the value of the U.S. dollar, -12- relative to the currencies in which the forward exchange contracts outstanding at March 31, 2002 are denominated, would result in a $0.8 million loss in value. During the third quarter of fiscal 2002, the Company entered into a number of additional foreign currency exchange contracts expiring through June 2003 to sell U.S. dollars aggregating $10.9 million. INTEREST RATE RISK The Company's primary interest rate risk exposure results from the variable interest rate mechanisms associated with the Company's long-term debt consisting of a term note payable to the Company's bank, revolving credit agreement and industrial development variable rate demand revenue bonds. This interest rate exposure is managed in part by an interest rate swap agreement to fix the interest rate on the term note payable to the Company's bank. If interest rates were to increase 100 basis points (1%) from March 31, 2002 rates, and assuming no changes in the amounts outstanding under the revolving credit agreement and industrial development variable rate demand revenue bonds, the additional annual interest expense to the Company would be approximately $0.1 million. The Company's sensitivity analyses of the effects of changes in interest rates do not consider the impact of a potential change in the level of variable rate borrowings or derivative instruments outstanding that could take place if these hypothetical conditions prevail. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS In May 1999, an employee ("Employee") filed an employment action against the Company in conjunction with an injury suffered by the employee during 1998. In March 2002, the Employee agreed to dismiss this claim in conjunction with entering into a settlement agreement between the Employee, the Company and the Company's insurance carrier. The Employee dismissed this claim in April 2002. The Company issued payment in March 2002 equal to the remaining balance of its self-insured retention, which balance was accrued in previous periods and, therefore, did not impact the results of operations during the period in which payment was made. In connection with the preceding claim, the Company filed a complaint in the Cuyahoga County Court of Common Pleas against the Company's insurance carrier on the grounds that it has refused to provide indemnity to the Company for the preceding employment action. The Company's complaint sought a declaratory judgment that the insurance carrier owes a duty to indemnify the Company with respect to the preceding action. In March 2002, the Company received a Ruling on its Motion for Summary Judgment denying the Company's complaint. Management of the Company believes that the Court's Ruling on its Motion for Summary Judgment was not consistent with existing case law and, therefore, the Company intends to appeal this decision. However, because the outcome of this appeal is uncertain and the initial Ruling was unfavorable, the Company has provided $0.9 million in its March 31, 2002 financial statements, the full amount of this contingent obligation. The Company is subject to routine litigation arising in the normal course of its business. While the outcome of these proceedings cannot be predicted with certainty, the Company does not expect these matters to have a material adverse effect on the Company's consolidated financial position or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS At the Annual Meeting of Shareholders held on January 29, 2002, there were a total of 4,865,445 shareholders voting either in person or by proxy. The shareholders: A. Approved an amendment to the Company's Code of Regulations to decrease the number of directors from not less than nine nor more than eleven to not less than six nor more than nine. There were 3,902,191 votes cast for the amendment, 51,300 votes cast against the amendment, 28,041 abstentions and 883,913 broker non-votes. -13- B. Approved an amendment to the Company's Code of Regulations to declassify the Board of Directors so that each director would stand for re-election on an annual basis. There were 3,767,130 votes cast for the amendment, 185,129 votes cast against the amendment, 29,273 abstentions and 883,913 broker non-votes. C. Elected three directors to the Company's Board of Directors, Michael S. Lipscomb, Hudson D. Smith and J. Douglas Whelan to serve on the Board of Directors until the Company's Annual Meeting in 2003. The results of the voting for directors were as follows:
Name Votes For Votes Withheld ---- --------- -------------- Michael S. Lipscomb 4,811,395 54,050 Hudson D. Smith 4,806,705 58,740 J. Douglas Whelan 4,814,017 51,428
The remaining directors of the Company whose term in office as a director continued after the Annual Meeting were Jeffrey P. Gotschall, Richard S. Gray, Charles H. Smith, Jr., and Thomas J. Vild. Richard S. Gray, Charles H. Smith, Jr., and Thomas J. Vild retired as directors of the Company effective with the conclusion of the Annual Meeting. At a meeting of the Board of Directors subsequent to the Annual Meeting, the Board of Directors appointed P. Charles Miller and Alayne Reitman as directors to serve until the 2003 Annual Meeting. D. Approved an amendment to the Company's Articles of Incorporation to eliminate cumulative voting rights of the Company's shareholders. There were 3,439,136 votes cast for the amendment, 516,162 votes cast against the amendment, 26,234 abstentions and 883,913 broker non-votes. E. Approved the appointment of Arthur Andersen LLP as the Company's auditors for fiscal year ending September 30, 2002. There were 4,536,193 votes cast for the appointment, 285,715 votes cast against the appointment and 43,537 abstentions. Georgeson Shareholder solicited proxies on behalf of the Company as set forth in the Company's definitive proxy statement dated December 14, 2001. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits
Exhibit No. Description - ----------- ----------- (3) (a) Third Amended Articles of Incorporation of SIFCO Industries, Inc. * (b) SIFCO Industries, Inc. Amended and Restated Code of Regulations * dated January 29, 2002 (4) (a) Amended and Restated Reimbursement Agreement dated April 30, 2002 * Between SIFCO Industries, Inc. and National City Bank (b) Amended and Restated Credit Agreement Between SIFCO Industries, * Inc. and National City Bank dated April 30, 2002 (c) Promissory Note (Term Note) dated April 14, 1998 Between SIFCO * Industries, Inc. and National City Bank (d) Loan Agreement Between Hillsborough County Industrial Development * Authority and SIFCO Industries, Inc., dated as of May 1, 1998
-14- (10) (a) 1989 Key Employee Stock Option Plan, filed as Exhibit B of the Company's Form S-8 dated January 9, 1990 and incorporated herein by reference. (b) Deferred Compensation Program for Directors and Executive * Officers (as amended and restated April 26, 1984) (c) SIFCO Industries, Inc. 1998 Long-term Incentive Plan, filed as Appendix A of the Company's Schedule 14A dated December 21, 1998, and incorporated herein by reference. (d) SIFCO Industries, Inc. 1995 Stock Option Plan *
* Indicates filed with this Quarterly Report on Form 10(Q). (b) Reports on Form 8-K The Company did not file a Current Report on Form 8-K in the second quarter of fiscal 2002. 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, thereto duly authorized. SIFCO Industries, Inc. (Registrant) Date May 13, 2002 /s/ Jeffrey P. Gotschall Jeffrey P. Gotschall Chairman, President and Chief Executive Officer Date May 13, 2002 /s/ Frank A. Cappello Frank A. Cappello Vice President-Finance (Principal Financial Officer) -15- EX-3.A 3 l93943aex3-a.txt EXHIBIT 3(A) EXHIBIT 3 (a) THIRD AMENDED ARTICLES OF INCORPORATION OF SIFCO INDUSTRIES, INC. FIRST: The name of said corporation shall be SIFCO INDUSTRIES, INC. SECOND: Said corporation is to be located at Cleveland, in Cuyahoga County, Ohio. THIRD: Said corporation is formed for the purpose of carrying on a general manufacturing business within and without the State of Ohio, including the forging, casting, machining, manufacturing, selling and treating of metals and metal products, and the manufacture and sale of compounds for the treating of metals, and the manufacturing, building, forging, casting and machining various metals and metal parts, accessories, patterns, dies, tools, and all other metal products of every kind and description, and the manufacturing of all such other products as may be incidental thereto. As incidental thereto and in connection therewith, said corporation is to have and exercise all the powers now or hereafter conferred by the laws of the State of Ohio upon similar corporations, and in addition thereto and not in limitation thereof, to purchase, lease, erect or otherwise acquire, exchange, sell, let, mortgage, assign, transfer, pledge, or otherwise dispose of, own, maintain, develop and improve any and all property, real, personal or mixed, including plants, depots, factories, warehouses, stores, buildings and other structures necessary to effect the purpose for which it is created; to acquire the good will, rights and property, and to take over the whole or any part of the assets and liabilities of any person, firm, association or corporation; to purchase or otherwise acquire and hold shares of stock in other corporations, domestic or foreign; to from time to time as it may be lawful so to do, sell, lease, assign, mortgage, pledge, transfer or otherwise dispose of any or all of its property; to from time to time as it may be lawful so to do, borrow money for the purposes of the corporation and to issue, sell or pledge bonds, notes, debentures and other obligations, and to secure the same by pledge or mortgage of the whole or any part of the property or assets of the corporation, either real or personal; to apply for, obtain, register, lease, or otherwise acquire and to hold, own, use and operate, and to sell, assign and grant licenses in respect of, or otherwise dispose of and deal with and turn to account any and all inventions, improvements, formulae, processes, trademarks, trade-names, copyrights, letters patent of the United States and of any and all foreign governments and incorporeal rights of all kinds; and to do any and all such other lawful things as may be necessary, useful or desirable in the judgment of the corporation to carry out its business or to enhance the value of the corporation's property or business. FOURTH: The number of shares which the Corporation is authorized to have outstanding is 11,000,000 consisting of 1,000,000 Serial Preferred Shares without Par Value (hereinafter called "Serial Preferred Shares") and 10,000,000 Common Shares of the Par Value of $1.00 each (hereinafter called "Common Shares"). -1- Except as otherwise determined by the Board of Directors, no holder of shares in this Corporation shall be entitled as such, as a matter of right, to purchase or subscribe for any shares of the Corporation, or any obligation convertible into or exchangeable for shares of the Corporation, whether now or hereafter authorized, which the Corporation may at any time issue or sell or offer for sale. Serial Preferred Shares and Common Shares shall have the following express terms: DIVISION A EXPRESS TERMS OF THE SERIAL PREFERRED SHARES SECTION 1. The Serial Preferred Shares may be issued from time to time in one or more series. All Serial Preferred Shares shall be of equal rank and shall be identical, except in respect of the matters that may be fixed by the Board of Directors as hereinafter provided, and each share of each series shall be identical with all other shares of such series, except as to the date from which dividends are cumulative. Subject to the provisions of Sections 2 to 7, both inclusive, of this Division, which provisions shall apply to all Serial Preferred Shares, the Board of Directors hereby is authorized to cause such shares to be issued in one or more series and with respect to each such series prior to the issuance thereof to fix: (a) The designation of the series, which may be by distinguishing number, letter or title. (b) The number of shares of the series, which number the Board of Directors may (except where otherwise provided in the creation of the series) increase or decrease (but not below the number of shares thereof then outstanding). (c) The annual dividend rate of the series. (d) The dates at which dividends, if declared, shall be payable, and the dates from which dividends shall be cumulative. (e) The redemption rights and price or prices, if any, for shares of the series. (f) The terms and amount of any sinking fund provided for the purchase or redemption of shares of the series. (g) The amounts payable on shares of the series in the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation. -2- (h) Whether the shares of the series shall be convertible into Common Shares, and, if so, the conversion price or prices, any adjustments thereof, and all other terms and conditions upon which such conversion may be made. (i) Restrictions (in addition to those set forth in Sections 5(b) and 5(c) of this Division) on the issuance of shares of the same series or of any other class or series. The Board of Directors is authorized to adopt from time to time amendments to the Articles of Incorporation fixing, with respect to each series, the matters described in clauses (a) to (i), both inclusive, of this Section 1. SECTION 2. The holders of Serial Preferred Shares of each series, in preference to the holders of Common Shares and of any other class of shares ranking junior to the Serial Preferred Shares, shall be entitled to receive out of any funds legally available and when and as declared by the Board of Directors dividends in cash at the rate for such series fixed in accordance with the provisions of Section 1 of this Division and no more, payable quarterly on the dates fixed for such series. Such dividends shall be cumulative, in the case of shares of each particular series, from and after the date or dates fixed with respect to such series. No dividends may be paid upon or declared or set apart for any of the Serial Preferred Shares for any quarterly dividend period unless at the same time a like proportionate dividend for the same quarterly dividend period, ratably in proportion to the respective annual dividend rates fixed therefor, shall be paid upon or declared or set apart for all Serial Preferred Shares of all series then issued and outstanding and entitled to receive such dividend. SECTION 3. In no event so long as any Serial Preferred Shares shall be outstanding shall any dividends, except a dividend payable in Common Shares or other ranking junior to the Serial Preferred Shares, be paid or declared or any distribution be made except as aforesaid on the Common Shares or any other shares ranking junior to the Serial Preferred Shares, nor shall any Common Shares or any other shares ranking junior to the Serial Preferred Shares be purchased, retired or otherwise acquired by the Corporation (except out of the proceeds of the sale of Common Shares or other shares ranking junior to the Serial Preferred Shares received by the Corporation subsequent to January 1, 1969): (a) Unless all accrued and unpaid dividends on Serial Preferred Shares, including the full dividends for the current quarterly dividend period, shall have been declared and paid or a sum sufficient for payment thereof set apart; and (b) Unless there shall be no arrearages with respect to the redemption of Serial Preferred Shares of any series from any sinking fund provided for shares of such series in accordance with the provisions of Section 1 of this Division. -3- SECTION 4. (a) The holders of Serial Preferred Shares of any series shall, in case of voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation, be entitled to receive in full out of the assets of the Corporation, including its capital, before any amount shall be paid or distributed among the holders of the Common Shares or any other shares ranking junior to the Serial Preferred Shares, the amounts fixed with respect to the shares of such series in accordance with Section 1 of this Division; plus an amount equal to all dividends accrued and unpaid thereon to the date of payment of the amount due pursuant to such liquidation, dissolution or winding up of the affairs of the Corporation. In case the net assets of the Corporation legally available therefor are insufficient to permit the payment upon all outstanding Serial Preferred Shares of the full preferential amount to which they are respectively entitled, then such net assets shall be distributed ratably upon outstanding Serial Preferred Shares in proportion to the full preferential amount to which each such share is entitled. After payment to holders of Serial Preferred Shares of the full preferential amounts as aforesaid, holders of Serial Preferred Shares as such shall have no right or claim to any of the remaining assets of the Corporation. (b) The merger or consolidation of the Corporation into or with any other corporation or the merger of any other corporation into it, or the sale, lease or conveyance of all or substantially all the property or business of the Corporation, shall not be deemed to be a dissolution, liquidation or winding up, voluntary or involuntary, for the purposes of this Section 4. SECTION 5. (a) The holders of Serial Preferred Shares shall be entitled to one vote for each share of such stock upon all matters presented to the shareholders; and except as otherwise provided herein or required by law, the holders of Serial Preferred Shares and the holders of Common Shares shall vote together as one class on all matters. If, and so often as, the Corporation shall be in default in the payment of ten (10) full quarterly dividends (whether or not consecutive) on any series of Serial Preferred Shares at the time outstanding, whether or not earned or declared, the holders of Serial Preferred Shares of all series, voting separately as a class and in addition to all other rights to vote for Directors, shall be entitled to elect, as herein provided, two (2) members of the Board of Directors of the Corporation; provided, however, that the holders of Serial Preferred Shares shall not have or exercise such special class voting rights except at meetings of the shareholders for the election of Directors at which the holders of not less than fifty percent (50%) of the outstanding Serial Preferred Shares of all series then outstanding are present in person or by proxy; and provided further that the special class voting rights provided for herein when the same shall have become vested shall remain so vested until all accrued and unpaid dividends on the Serial Preferred Shares of all series then outstanding shall have been paid, whereupon the holders of Serial Preferred Shares shall be divested of their special class voting rights in respect of subsequent elections of Directors, subject to the revesting of such special class voting rights in the event hereinabove specified in this paragraph. -4- In the event of default entitling the holders of Serial Preferred Shares to elect two (2) Directors as above specified, a special meeting of the shareholders for the purpose of electing such Directors shall be called by the Secretary of the Corporation upon written request of, or may be called by, the holders of record of at least fifteen percent (15%) of the Serial Preferred Shares of all series at the time outstanding, and notice thereof shall be given in the same manner as that required for the annual meeting of shareholders; provided, however, that the Corporation shall not be required to call such special meeting if the annual meeting of shareholders shall be held within ninety (90) days after the date of receipt of the foregoing written request from the holders of Serial Preferred Shares. At any meeting at which the holders of Serial Preferred Shares shall be entitled to elect Directors, the holders of fifty percent (50%) of the then outstanding Serial Preferred Shares of all series, present in person or by proxy, shall be sufficient to constitute a quorum, and the vote of the holders of a majority of such shares so present at any such meeting at which there shall be such a quorum shall be sufficient to elect the members of the Board of Directors which the holders of Serial Preferred Shares are entitled to elect as hereinabove provided. (b) The affirmative vote of the holders of at least two-thirds of the Serial Preferred Shares at the time outstanding, given in person or by proxy at a meeting called for the purpose at which the holders of Serial Preferred Shares shall vote separately as a class, shall be necessary to effect any one or more of the following (but so far as the holders of Serial Preferred Shares are concerned, such action may be effected with such vote): (i) Any amendment, alteration or repeal of any of the provisions of the Articles of Incorporation or of the Regulations of the Corporation which affects adversely the voting powers, rights or preferences of the holders of Serial Preferred Shares; provided, however, that, for the purpose of this clause (i) only, neither the amendment of the Articles of Incorporation so as to authorize or create, or to increase the authorized or outstanding amount of, Serial Preferred Shares or of any shares of any class ranking on a parity with or junior to the Serial Preferred Shares, nor the amendment of the provisions of the Regulations so as to increase the number of Directors of the Corporation shall be deemed to affect adversely the voting powers, rights or preferences of the holders of Serial Preferred Shares; and provided further, that if such amendment, alteration or repeal affects adversely the rights or preferences of one or more but not all series of Serial Preferred Shares at the time outstanding, only the affirmative vote of the holders of at least two-thirds of the number of the shares at the time outstanding of the series so affected shall be required; (ii) The authorization or creation of, or the increase in the authorized amount of, any shares of any class, or any security convertible into shares of any class, ranking prior to the Serial Preferred Shares; or (iii) The purchase or redemption (for sinking fund purposes or otherwise) of less than all of the Serial Preferred Shares then outstanding except in accordance with a stock purchase offer to all holders of record of Serial Preferred Shares, -5- unless all dividends upon all Serial Preferred Shares then outstanding for all previous quarterly dividend periods shall have been declared and paid or funds therefor set apart and all accrued sinking fund obligations applicable thereto shall have been complied with. (c) The affirmative vote of the holders of at least a majority of the Serial Preferred Shares at the time outstanding, given in person or by proxy at a meeting called for the purpose at which the holders of Serial Preferred Shares shall vote separately as a class, shall be necessary to effect any one or more of the following (but so far as the holders of Serial Preferred Shares are concerned, such action may be effected with such vote): (i) The consolidation of the Corporation with or its merger into any other corporation unless the corporation resulting from such consolidation or merger will have after such consolidation or merger no class of shares either authorized or outstanding ranking prior to the Serial Preferred Shares except the same number of shares ranking prior to the Serial Preferred Shares and having the same rights and preferences as the shares of the Corporation authorized and outstanding immediately preceding such consolidation or merger, and each holder of Serial Preferred Shares immediately preceding such consolidation or merger shall receive the same number of shares, with the same rights and preferences, of the resulting corporation or the redemption price of such shares; or (ii) The authorization of any shares ranking on a parity with the Serial Preferred Shares or an increase in the authorized number of Serial Preferred Shares. SECTION 6. The holders of Serial Preferred Shares shall have no pre-emptive right to purchase or have offered to them for purchase any shares or other securities of the corporation, whether now or hereafter authorized. SECTION 7. For the purpose of this Division A: Whenever reference is made to shares "ranking prior to the Serial Preferred Shares" or "on a parity with the Serial Preferred Shares", such reference shall mean and include all shares of the Corporation in respect of which the rights of the holders thereof as to the payment of dividends or as to distributions in the event of a voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation are given preference over, or rank on an equality with (as the case may be) the rights of the holders of Serial Preferred Shares; and whenever reference is made to shares "ranking junior to the Serial Preferred Shares", such reference shall mean and include all shares of the Corporation in respect of which the rights of the holders thereof as to the payment of dividends and as to distributions in the event of a voluntary or involuntary liquidation, dissolution or, winding up of the affairs of the Corporation are junior and subordinate to the rights of the holders of Serial Preferred Shares. -6- DIVISION B EXPRESS TERMS OF THE COMMON SHARES The Common Shares shall be subject to the express terms of the Serial Preferred Shares and any series thereof. Each Common Share shall be equal to every other Common Share. The holders of Common Shares shall be entitled to one vote for each share upon all matters presented to the shareholders. FIFTH: The Corporation, by action of its Board of Directors, may purchase any issued shares of the Corporation. SIXTH: These Third Amended Articles of Incorporation supersede the heretofore existing Amended Articles of Incorporation. SEVENTH: No holder of shares of the Corporation shall be entitled to vote cumulatively in the election of the directors of the Company. -7- EX-3.B 4 l93943aex3-b.txt EXHIBIT 3(B) EXHIBIT 3(b) [LOGO: SIFCO INDUSTRIES, INC.] AMENDED AND RESTATED CODE OF REGULATIONS ---------------------------------------- (Last Amended 1/29/02) LOCATION ARTICLE I. The principal office of the Company shall be in the City of Cleveland, Cuyahoga County, Ohio. The Company may also have offices at such other places, within or without the State of Ohio, as the Board of Directors may designate. MEETING OF SHAREHOLDERS ARTICLE II. All meetings of the shareholders shall be held at the principal office of the company in the City of Cleveland, Ohio, or at such other place in Cuyahoga County, Ohio, as may be directed by the Board of Directors. ARTICLE III. The annual meeting of the shareholders for the election of directors and the consideration of the reports to be laid before such meeting shall be held on the third Friday in January, in each year, at 10:30 o'clock A.M.; provided that by action taken before the preceding December the Board of Directors may fix another time for the annual meeting in any year which shall be not earlier than the 15th of January and not later than the 31st of January. Special meetings of the shareholders may be called at any time by the Chairman of the Board of Directors or by the President or by a majority of the members of the Board of Directors, acting with or without a meeting, or by persons who hold fifty percent (50%) or more of all of the shares outstanding and entitled to vote at such shareholders' meeting. Upon request in writing delivered in person or by registered mail to the Chairman of the Board of Directors or to the Secretary by any persons entitled to call a meeting of shareholders and stating the purposes of such meeting, it shall be the duty of the officer receiving the request forthwith to cause a notice to be given, according to law and this Code of Regulations, of a meeting to be held at such time, not less than thirty (30) nor more than ninety (90) days after the receipt of such request, as such officer may fix, and if such notice shall not be given within thirty (30) days after the receipt by such officer of such request, the persons requesting such meeting may fix the time of such meeting and give notice thereof in the manner provided by law or this Code of Regulations or cause such notice to be so given by a designated representative. ARTICLE IV. A notice in writing of each annual or special meeting of the shareholders, stating the purpose or purposes of such meeting and the time when and the place where it is to be held, shall be served or mailed by the Secretary, or by any other person or persons authorized to give such notice, upon or to each shareholder entitled to vote at, or to receive notice of, such meeting not more than sixty (60) days nor less than ten (10) days prior to the date fixed for the holding of such meeting, and if mailed, such notice shall be addressed to each shareholder at his address as it appears upon the stock records of the Company. ARTICLE V. Each shareholder present in person or by proxy at any annual or special meeting of the shareholders shall be entitled to one vote for each voting share registered in his name at the close of business on the twenty-eighth (28th) day preceding the date of the meeting, unless a different record date shall be fixed by the Board of Directors as hereinafter in this Article V provided. The Board of Directors, by action taken at least thirty-five (35) days before the date fixed for any meeting of the shareholders, may fix a record date for the determination of the shareholders entitled to notice of and to vote at such meeting or any adjournment thereof, which shall not be a past date and which shall be not more than sixty (60) days nor less than twelve (12) days prior to the date fixed for such meeting, and which shall continue to be the record date for all adjournments thereof, even though such meeting is adjourned to a date more than sixty (60) days after the date of the original meeting, unless the Board of Directors shall fix another date, which shall not be a past date and which shall be a date not more than sixty (60) days nor less than twelve (12) days prior to the date of any adjourned meeting, as the record date for the determination of the shareholders entitled to notice of and to vote at such adjourned meeting and shall cause notice of such new record date and of the date of such adjourned meeting to be given, at least ten (10) days prior to the date of such adjourned meeting, to all shareholders entitled to notice in accordance with the new record date so fixed. ARTICLE VI. At any meeting of the shareholders, the holders of a majority of the shares of the Company issued and outstanding and entitled to vote thereat shall constitute a quorum for such meeting; provided, however, that no action required by law or by the Articles of Incorporation to be taken by a specified proportion of the voting power of the Company may be taken by a lesser proportion, and provided, further, that the shareholders present in person or by proxy at any meeting of the shareholders, though less than a quorum, may adjourn such meeting from time to time to reconvene at such time and at such place stated in the minutes, as shall be determined by the vote of the holders of shares, present in person or by proxy at such meeting, entitled to exercise a majority of the voting power of the shares represented at such meeting. No notice as to any such adjourned meeting need be given other than by announcement at the meeting at which such adjournment is taken. -2- ARTICLE VII The order of business of any shareholders' meeting shall be determined by the meeting. The Chairman of the Board of Directors or, in his absence, the President of the Company shall preside at all shareholders' meetings, and the Secretary, or, in the absence of the Secretary, the Assistant Secretary, of the Company shall act as Secretary of all shareholders' meetings and record all votes and proceedings taken at such meetings in books to be kept for that purpose; provided, however, that, in case of the absence or disability of the Chairman of the Board of Directors and the President, or of a vacancy in their respective offices, the shareholders present, in person or by proxy, and entitled to vote at any meeting of the shareholders, shall elect a Chairman of such meeting by the vote of the holders of a majority of the voting shares represented at such meeting, and, in case of the absence or disability of the Secretary and of the Assistant Secretary, or of a vacancy in their respective offices, the shareholders present, in person or by proxy, and entitled to vote at any meeting of the shareholders, shall elect a Secretary of such meeting by the vote of the holders of a majority of the voting shares represented at such meeting. DIRECTORS ARTICLE VIII. The Company shall have a board of directors of not less than six (6) nor more than nine (9) persons as may be determined by the affirmative vote of the holders of record of shares of the stock of the Company entitling them to exercise a majority of the voting power of the Company at an annual or special meeting called for the purpose of electing directors, and when so fixed such number shall continue to be the authorized number of directors until changed by the shareholders by a vote of the aforesaid or by the directors as hereinafter provided. In addition to the authority of the shareholders to fix or change the number of directors, the directors by majority vote of the directors in office, may change the number of directors and may fill any director's office that is created by an increase in the number of directors. In case of any vacancy in the Board of Directors, the remaining directors, though less than a majority of the whole authorized number of directors, may, by a vote of the majority of their number, fill the vacancy for the unexpired term. A director need not be a shareholder of the Company. At each annual meeting of shareholders, all directors will be elected for a one-year term. No director shall be removed without an affirmative vote of the holders of record of shares of the stock of the Company entitling them to exercise at least two-thirds of the voting power of the Company in favor of such removal. No individual director shall be removed in case the votes of a sufficient number of shares are cast against his removal which, if cumulatively voted in an election of the class of directors of which the director was a member, would be sufficient to elect at least one director. Notwithstanding any other provision of these Regulations or any provision of law which might otherwise permit a lesser vote or no vote, but in addition to any affirmative vote of the holders of any particular class or series of stock required by law or these Regulations, the -3- affirmative vote of the holders of record of shares of the stock of the Company entitling them to exercise at least two-thirds of the Company's voting power shall be required to alter, amend or repeal this Article VIII of these Regulations. POWERS AND DUTIES OF THE DIRECTORS ARTICLE IX. The Board of Directors shall have complete and absolute jurisdiction of all questions relating to the property, affairs, management and business of the Company, including the election, removal, appointment, tenure, duties and compensation of the officers of the Company. The Board of Directors, subject to repeal by the shareholders, may fix their own compensation. The Board shall meet at such times and places, within or without the State of Ohio, as they may from time to time determine, may adopt such by-laws for their government and may exercise all such powers and do all such things as may be lawfully exercised and done by the Company, subject only to its Articles, this Code of Regulations and the Constitution and Laws of the State of Ohio. The directors present at any directors' meeting, though less than a majority, may adjourn such meeting from time to time, to reconvene without further notice at such time and place stated in the minutes as shall be determined at such meeting by a majority vote of the directors there present. Without in anywise limiting the general powers by law or hereinabove conferred, and subject to the provisions of the Company's Articles, the Board of Directors shall have the following express powers: To purchase or otherwise acquire for the Company any property, rights or privileges which the Company is authorized to acquire at such prices, on such terms and conditions and for such considerations as the Board shall see fit, and, at its direction, to pay for any property, rights or privileges acquired by the Company either wholly or partly in money, stocks, debentures, securities, or other property, rights or privileges of the Company; To sell, transfer, lease, mortgage, pledge or otherwise dispose of the Company's property; to borrow money, and to issue the obligations of the Company therefore, and to secure the same by mortgage or pledge of all or any part of the property of the Company, real or personal, and to pledge or sell the same for such considerations and at such prices as the Board may deem expedient; To prescribe the terms on which stock certificates and shares may be issued, and the manner in which and conditions upon which stock certificates and shares may be transferred; To appoint and to remove or suspend any such officers, agents or employees as the Board may from time to time think proper, and to fix and determine, and from time to time, change the duties, powers, salaries and emoluments of such officers, agents or employees; -4- To determine who shall be authorized to sign on the Company's behalf bills, notes, receipts, acceptances, endorsements, checks, releases, contracts, deeds, stock certificates and other documents; To create an Executive Committee composed of members of the Board of Directors and to delegate to such Executive Committee such powers of the Board of Directors and to such extent as the Board of Directors may from time to time determine. INDEMNIFICATION ARTICLE IX-A. (a) The Company shall indemnify any director or officer or any former director or officer of the Company and any person who is serving or has served at the request of the Company as a director, officer, or trustee of another corporation, joint venture, trust or other enterprise against expenses, including attorneys' fees, judgments, fines, and amounts paid in settlement actually and reasonably incurred by him in connection with any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative or investigative, other than an action by or in the right of the Company, to which he was, is, or is threatened to be made a party by reason of the fact that he is or was such director, officer, or trustee, provided it is determined in the manner set forth in paragraph (c) of this Article that he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company and that, with respect to any criminal action or proceeding, he had no reasonable cause to believe his conduct was unlawful. (b) In the case of any threatened, pending or completed action or suit by or in the right of the Company, the Company shall indemnify each person indicated in paragraph (a) of this Section against expenses, including attorneys' fees, actually and reasonably incurred in connection with the defense or settlement thereof, provided it is determined in the manner set forth in paragraph (c) of this Article that he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company except that no indemnification shall be made in respect of any claim, issue, or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of his duty of the Company unless and only to the extent that the court of common pleas or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability, but in view of all circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses as the court of common pleas or such other court shall deem proper. -5- (c) The determinations referred to in paragraphs (a) and (b) of this Article shall be made (i) by a majority vote of a quorum consisting of directors of the Company who were not and are not parties to or threatened with any such action, suit or proceeding, or (ii) if such a quorum is not obtainable or if a majority vote of a quorum of disinterested directors so directs, in a written opinion by independent legal counsel other than an attorney, or a firm having associated with it an attorney, who has been retained by or who has performed services for the Company, or any person to be indemnified, within the past five years, or (iii) by the shareholders, or (iv) by the court of common pleas or the court in which such action, suit or proceeding was brought. (d) Expenses, including attorneys' fees, incurred in defending any action, suit, or proceeding referred to in paragraphs (a) and (b) of this Article, may be paid by the Company in advance of the final disposition of such action, suit, or proceeding as authorized by the directors in the specific case upon receipt of an undertaking by or on behalf of the director, officer, or trustee to repay such amount, unless it shall ultimately be determined that he is entitled to be indemnified by the Company as authorized in this Article. (e) The indemnification provided by this Article shall not be deemed exclusive (i) of any other rights to which those seeking indemnification may be entitled under the articles, the regulations, any agreement, any insurance purchased by the Company, vote of shareholders or disinterested directors, or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, or of (ii) the power of the Company to indemnify any person who is or was an employee or agent of the Company or of another corporation, joint venture, trust or other enterprise which he is serving or has served at the request of the Company, to the same extent and in the same situations and subject to the same determinations as are hereinabove set forth with respect to a director, officer or trustee. As used in this paragraph (e) references to the "Company" include all constituent corporations in a consolidation or merger in which the Company or a predecessor to the Company by consolidation or merger was involved. The indemnification provided by this Article shall continue as to a person who has ceased to be a director, officer, or trustee and shall inure to the benefit of the heirs, executors, and administrators of such a person. (f) The Company may purchase and maintain insurance on behalf of any person who or was a director, officer or employee or former director, officer or employee of the Company or any person who is serving or has served at the request of the Company as a director, officer or trustee of another corporation, joint venture, trust or other enterprise, insuring him against liability asserted against or incurred by him in any such capacity or arising out of his status as such whether or not the Company would have the power to indemnify him against such liability under this Article. -6- (g) The provisions of this Article shall apply to actions, suits and proceedings commenced or threatened after the adoption of this Article, whether arising from acts or omissions to act occurring before or after its adoption. AMENDMENT ARTICLE X. Except as provided in Article VIII hereof, these Regulations may be amended at any time by the affirmative vote of the holders of record of shares of the stock of the Company entitling them to exercise a majority of the voting power on such proposal or, without a meeting, by the written consent of the holders of record of shares of stock of the Company entitling them to exercise two-thirds of the voting power on such proposal. -7- EX-4.A 5 l93943aex4-a.txt EXHIBIT 4(A) Chs90353.rmb EXHIBIT 4(a) 5/07/02 AMENDED AND RESTATED REIMBURSEMENT AGREEMENT Reimbursement Agreement, dated as of April 30, 2002, is made by SIFCO INDUSTRIES, INC., an Ohio corporation (the "Company"), having its principal office in Cleveland, Ohio, in favor of NATIONAL CITY BANK, a national banking association, having its principal office at Cleveland, Ohio (the "Bank"). WHEREAS, the Company has requested the Hillsborough County Industrial Development Authority (the "Issuer") to finance, pursuant to a Loan Agreement dated as of May 1, 1998 (the "Loan Agreement") between the Issuer and the Company, the cost of equipping and expanding a manufacturing facility pursuant to the Trust Indenture dated as of May 1, 1998 (the "Indenture"), between the Issuer and National City Bank, as Trustee (the "Trustee"), by the issuance of Four Million One Hundred Thousand and No/100ths Dollars ($4,100,000.00) principal amount of Hillsborough County Industrial Development Authority Industrial Development Variable Rate Demand Revenue Bonds, Series 1998 (Sifco Industries, Inc. Project) (the "Bonds"); and WHEREAS, the Company has requested from the Issuer that upon the issuance of the Bonds, that such Bonds be immediately sold under a Bond Purchase Agreement (the "Bond Purchase Agreement") between the Issuer, the Company and NatCity Investments, Inc. as the Underwriter; and WHEREAS, the Company and NatCity Investments, Inc. (the "Remarketing Agent") are entering into a certain Remarketing Agreement, dated as of May 1, 1998 (the "Remarketing Agreement") pursuant to which the Remarketing Agent has agreed to act as "Remarketing Agent" in respect to the Bonds; and WHEREAS, under the Indenture, the Issuer has assigned to the Trustee certain of the Issuer's rights under the Loan Agreement together with the right to receive payments thereunder; WHEREAS, to secure its obligations to the Bank, the Company has granted, and has caused Sifco Turbine Components Services, an Ohio partnership, whose general partners are wholly owned subsidiaries of the company, to grant, a lien upon and security interest in, certain equipment owned by them pursuant to a Security Agreement dated as of May 1, 1998 (the "Security Agreement") and has caused Sifco Turbine Component Services to grant a lien on certain real property pursuant to an Open End Mortgage, Security Agreement and Assignment of Rents and Leases dated as of May 1, 1998 (the "Mortgage"); and WHEREAS, the Bank has issued an irrevocable letter of credit in favor of the Trustee, in the form of Annex 1 hereto (the "Letter of Credit") in an amount not exceeding Four Million Two Hundred Twenty Five Thousand Two Hundred Eighty and No/100ths Dollars ($4,225,280), (the "Letter of Credit Commitment"). NOW, THEREFORE, in consideration of the premises and in order to induce the Bank to issue the Letter of Credit, the Company and the Bank hereby agree as follows: SECTION 1. DEFINITIONS. In addition to the terms heretofore defined, the following terms shall have the meaning provided below. "AGREEMENT" means this Reimbursement Agreement as the same may be amended from time to time. "BANK'S INTEREST RATE" means, with respect to any unreimbursed B Drawing until the date of reimbursement, a rate of interest equal to the Bank's Prime Rate, changing when and as the Prime Rate changes, computed, in on the amount of unreimbursed B Drawings from time to time outstanding calculated on the basis of a 360-day year and on actual days elapsed; "BONDS" shall mean the Hillsborough County Industrial Development Authority Industrial Development Variable Rate Demand Revenue Bonds, Series 1998 (Sifco Industries, Inc. Project). "BOND LEGISLATION" means the resolution enacted by the Issuer authorizing the issuance of the Bonds. "BOND PLEDGE AGREEMENT" shall mean that certain agreement, dated as of May 1, 1998, between the Bank, the Company, and the Trustee, pursuant to which the Company has pledged to the Bank Drawing Bonds which the Trustee will hold for the benefit of the Bank. "BUSINESS DAY" means any day other than a Saturday or Sunday or holiday, or other day on which banks located in the city or cities in which the principal corporate trust office of the Trustee, the principal office of the Remarketing Agent or the principal office of the Letter of Credit Bank are authorized or required to close for general banking business or on which The New York Stock Exchange is closed. "COMMITMENT FEE" means the fee payable by the Company pursuant to Section 2(a) hereof. "DATE OF ISSUANCE" means the date of issuance of the Letter of Credit. "DRAWING" means any "A Drawing", "B Drawing" or "C Drawing". -2- "A DRAWING" shall mean a drawing made by sight draft accompanied by a certificate in the form of Exhibit A to Annex 1 hereto to pay the interest payments due on the Bonds. "B DRAWING" means a drawing made by a sight draft accompanied by a certificate in the form of Exhibit B to Annex 1 hereto to pay a portion of the purchase price of the Bonds corresponding to the principal amounts of the Bonds being purchased pursuant to the exercise of a "put" by a holder of the Bonds pursuant to the Indenture, provided, however, that Bonds "put" by a holder, which Bonds shall also be redeemed by the Trustee as part of any redemption, shall not be subject to a B drawing and shall not become Drawing Bonds. "C DRAWING" means a drawing made by sight draft accompanied by a certificate in the form of Exhibit C to Annex 1 hereto to pay the portion of the redemption price of Bonds corresponding to the principal amount of such Bonds redeemed by the Issuer pursuant to the Indenture and delivered to the Trustee for cancellation, or to pay the principal portion of the Bonds at their stated maturities or upon acceleration of payments due on such Bonds pursuant to the Indenture. "DRAWING BONDS" means Bonds purchased by the Company, or by the Trustee for the account of the Company, pursuant to the Bond Pledge Agreement with the proceeds of a drawing on the Letter of Credit by means of a B Drawing. "EVENT OF DEFAULT" shall mean the occurrence of any of the events specified in Section 8 hereof and the passage of any period of grace as specified by Section 8. "EXPIRATION DATE" means MAY 16, 2004 (which date is the "STATED EXPIRATION DATE"), or such other date as may be established pursuant to Section 18 hereof. "FUNDED INDEBTEDNESS" means indebtedness, in excess of $50,000, which matures or which (including each renewal or extension, if any, in whole or in part) remains unpaid more than twelve (12) months after the date originally incurred. "INDENTURE" means the Trust Indenture under which the Bonds are being issued, as the same may be duly amended or supplemented in accordance with the provisions thereof. "INTEREST PAYMENT DATE" means an Interest Payment Date for the Bonds as defined by the Indenture. "INTEREST PORTION" means the Interest Portion of the Stated Amount of the Letter of Credit as provided in Section 3(a) hereof, as it may be reduced or reinstated from time to time as provided by Section 15 hereof. -3- "LETTER OF CREDIT" means the Bank's letter of credit to be issued in the form of Annex 1 to this Agreement. "LETTER OF CREDIT COMMITMENT" means the Bank's commitment to issue the Letter of Credit in the Stated Amount. "LETTER OF CREDIT DOCUMENTS" means this Agreement, the Letter of Credit, the Mortgage, the Security Agreement, the Bond Pledge Agreement or any instrument or agreement relating to or supplementing any of the foregoing. "PERSON" means an individual, corporation, partnership, joint venture, trust or unincorporated organization, a government or any agency or political subdivision thereof and other legal entities. "POTENTIAL EVENT OF DEFAULT" shall mean an event which but for the lapse of time or the giving of notice or both would constitute an Event of Default under Section 8 hereof. "PRETAX INTEREST COVERAGE RATIO" means net income plus net interest expense plus federal, state and local taxes accrued arriving at net income DIVIDED BY net interest expense. "PRIME RATE" means that rate of interest publicly announced, from time to time, in Cleveland, Ohio, by National City Bank, as its "Prime Rate". "PRINCIPAL PORTION" means the Principal Portion of the Letter of Credit as provided by Section 3(a) hereof, which may be reduced or reinstated from time to time as provided by Section 15 hereof, or by the terms of the Letter of Credit. "REMARKETING AGENT" means the Remarketing Agent appointed in accordance with the Indenture, initially, NatCity Investments, Inc. and any successors thereto as determined or designated under or pursuant to the Indenture. "STATED AMOUNT" means the maximum aggregate Stated Amount of the Letter of Credit as provided in Section 3(a) hereof, which may be reduced from time to time as provided in Section 15 hereof, or by the terms of the Letter of Credit. "TENDER AGENT" means the Trustee. "TERMINATION DATE" means the date on which the Trustee's right to draw under the Letter of Credit terminates, determined as provided by the Letter of Credit and described as the Stated Expiration Date therein. -4- "TRANSACTION DOCUMENTS" means the Bonds, the Indenture, the Loan Agreement, the Remarketing Agreement, or any other instrument or agreement relating to or supplementing any of the foregoing. "TRUSTEE" means National City Bank, of Cleveland, Ohio, as Trustee, or any successor Trustee under the Trust Indenture. The terms "hereof", "hereby", "hereto", "hereunder" and similar terms mean this Agreement, and the term "heretofore" means before, and the term "hereafter" means after, the effective date hereof. SECTION 2. COMMITMENT FEE; AMOUNTS PAYABLE IN RESPECT OF A DRAWING; OTHER FEES. (a) The Company agrees to pay to the Bank a Commitment Fee with respect to the issuance and maintenance of the Letter of Credit from the Date of Issuance to and including the Termination Date. The Commitment Fee shall be calculated on a 360 day basis and payable as follows: (x) the Commitment Fee is payable annually in advance on each May 1st through the Termination Date; (y) the Commitment Fee shall be calculated on the Stated Amount in effect (the then maximum amount that the Trustee is capable of drawing), including any amounts which are reinstatable on such date, and taking into account any principal redemption payments on the date the Commitment Fee is payable, at the rate of one and one quarter percent (1.25%) per annum for the first year and each year thereafter in accordance with the schedule set forth below. If the Termination Date shall occur prior to the Stated Expiration Date set forth in the Letter of Credit, the Company shall have no obligation to pay a Commitment Fee after the Termination Date. The Company shall not be entitled to a rebate of any portion of the Commitment Fee paid to the Bank. PRETAX INTEREST COVERAGE ANNUAL COMMITMENT FEE >10x 1.00% >7.5x - 10x 1.25% 2.5x - 7.5x 1.50% (b) In the event of any "A Drawing" or "C Drawing" the Company shall on the date of such Drawing pay to the Bank a sum equal to the amount of such Drawing plus a draw fee in the amount of two hundred dollars ($200.00). Draw fees are payable annually in advance in the amount of Eight Hundred and no/100ths Dollars ($800). (c) In the event of any "B Drawing" under the Letter of Credit, the Company shall, on the later of (x) the date of such Drawing, or (y) on the date the Trustee delivers the proceeds of the Drawing to the Remarketing Agent, deliver, or cause to be delivered (i) to the Trustee as security for the obligation of the Company to reimburse the Bank for the amount of such B Drawing and to be held by the Trustee under the Bond Pledge Agreement, Bonds pledged to the -5- Bank, in an aggregate principal amount equal to the amount of the B Drawing or funds, if any, from a remarketing of the Bonds or any combination thereof; and (ii) to the Bank a sum equal to (x) a fee in the amount of Five Hundred Dollars ($500) for such Drawing. (d) (i) If not paid earlier, on the Termination Date, the Company shall pay to the Bank the full amount of principal and accrued interest, computed at the Bank's Interest Rate, for amounts drawn under the Letter of Credit as B Drawings for which the Bank has not been previously reimbursed. If the Termination Date occurs for reasons other than the passage of the Stated Expiration Date, all such indebtedness of the Company under this Reimbursement Agreement shall be immediately due and payable at the close of the Business Day on which the Termination Date occurs. (ii) The Company may, at any time after the Bank has honored a B Drawing and from time to time thereafter, prepay, without premium or penalty, its obligation to reimburse the Bank for the amounts of any B Drawings then outstanding, provided that (x) any such prepayment shall be accompanied by all accrued but unpaid interest to the date of prepayment on the amount being prepaid, computed at the Bank's Interest Rate, and (y) such prepayment (exclusive of interest) shall be in the amount of five thousand dollars ($5,000) or any whole multiple thereof. On the date of such prepayment, the Bank shall notify the Trustee to deliver to the Remarketing Agent, or at the Company's written direction, to the Company, Drawing Bonds in a principal amount equal to the principal amount so prepaid. Upon receipt of such prepayment, the obligation of the Company to reimburse the Bank for B Drawings under this Section 2(d) shall be appropriately reduced. (iii) Prior to the Termination Date, the Trustee may notify the Bank and the Company that Drawing Bonds pledged to the Bank have been remarketed, at par, and that it is delivering to the Bank the proceeds thereof, and upon receipt of such notice the Company shall deliver to the Bank the accrued but unpaid interest on the principal amount of the Drawing Bonds so remarketed, at the Bank Interest Rate. Upon notification that the Bonds have been remarketed and receipt by the Bank of the proceeds thereof, the Company's obligation to reimburse the Bank for such B Drawing shall be appropriately reduced. (iv) Monthly, on the first day of each month, and at the Termination Date, the Company shall pay to the Bank all accrued but unpaid interest, computed at the Bank Interest Rate, on the amounts of any B Drawings for which the Bank has not been reimbursed in full. (e) The Company hereby agrees to pay to the Bank (i) interest, payable on demand, on any and all amounts not paid by the Company when due under this Section of this Agreement from the date such amounts become due until payment in full, such interest at a fluctuating interest rate per annum (computed on the basis of a year of 360 days but calculated on the actual number of days outstanding) equal to two percent (2%) per annum in excess of the Prime Rate, changing when and as -6- said Prime Rate changes; provided, however, that this Section 2(e)(i) shall not apply to amounts due but not yet payable or amounts representing accrued interest under Section 2 (d) hereof; (ii) upon each transfer of the Letter of Credit in accordance with its terms and as a condition thereto, a fee in the amount of $1,000 plus such amount as shall be necessary to cover the costs and expenses of the Bank incurred in connection with such transfer; (iii) intentionally left blank; and (iv) on demand, any and all reasonable expenses, to the extent permitted by law, incurred by the Bank in enforcing any of its rights under this Agreement. (f) (i) If any law or regulation or any change in any law or regulation or in the interpretation thereof by any court or administrative or governmental authority charged with the administration thereof shall impose, modify or deem applicable any reserve, special deposit, risk-based capital requirement or similar requirement which would impose on the Bank any additional costs (A) generally upon the issuance or maintenance of so called "stand-by" letters of credit by the Bank, or (B) specifically in respect of this Agreement or the Letter of Credit, and the result of such imposition of additional costs upon either clause (A) or (B) above shall be to increase the cost to the Bank of issuing or maintaining the Letter of Credit (which increase in cost shall be the result of the Bank's reasonable allocation of the aggregate of such cost increases resulting from such events), then, (x) within thirty (30) days of the Bank's obtaining knowledge of such change in law, regulations or interpretation thereof, the Bank shall so notify the Company, and (y) within sixty (60) days of receipt of such notice from the Bank, accompanied by a certificate as to such increased cost, the Company shall pay, computed as of the effective date of such change or interpretation, all additional amounts which are necessary to compensate the Bank for such increased cost incurred by the Bank. The certificate of Bank as to such increased costs shall show the manner of calculation and shall be conclusive (absent manifest error) as to the amount thereof. The provisions of this Section 2(f) shall also be applicable to other banks acquiring participations in the Letter of Credit draws to the extent of the interest acquired by such banks. (ii) If any such law, regulation, or change in law, regulation or interpretation shall eliminate, modify or deem inapplicable any such reserve, risk-based capital requirement, special deposit or similar requirement, the result of which is to relieve the Bank from any costs imposed on the date of this Agreement (or hereafter imposed as to which the Bank has charged the Company additional amounts pursuant to Section 2(f) (i) above) either (A) generally upon the issuance or maintenance of so called "stand-by" letters of credit by the Bank, or (B) specifically in respect of this Agreement or the Letter of Credit, and the result of such relief of costs shall be to decrease the cost to the Bank of issuing or maintaining the Letter of Credit, then, within thirty (30) days of the Bank's obtaining knowledge of such change in law, regulations or interpretation thereof, the Bank shall so notify the Company, accompanied by a certificate as to such decreased -7- costs, and shall pay to the Company, computed as of the effective date of such change or interpretation, such amounts as have been paid by the Company since the effective date of such change as are attributable to such decrease in cost. (iii) without limiting the generality of the foregoing, if: (a) at any time any governmental authority shall require National City Corporation or Bank, whether or not the requirement has the force of law, to maintain, as support for the subject commitment, capital in a specified minimum amount that either is not required or is greater than that required at the date of this Agreement, whether the requirement is implemented pursuant to the "risk-based capital guidelines" published at 54 F.R. 4168 and 54 F.R. 4186 or otherwise, and (b) as a result thereof the rate of return on capital of National City Corporation or Bank or both (taking into account their then policies as to capital adequacy and assuming full utilization of their capital) shall be directly or indirectly reduced by reason of any new or added capital thereby allocable to the subject commitment, then and in each such case the Company shall, on Bank's demand, pay Bank as an additional fee such amounts as will in Bank's reasonable opinion reimburse National City Corporation and Bank for any such reduced rate of return. Each demand by Bank for payment pursuant to this section (f) shall be accompanied by a certificate setting forth the reason for the payment, the amount to be paid, and the computations and assumptions in determining the amount, which certificate shall be presumed to be correct in the absence of manifest error. In determining the amount of any such payment, Bank may use reasonable averaging and attribution methods. In the event of a demand pursuant to this section (f), the Company shall have the right to obtain an Alternate Letter of Credit. There shall be no charges from the Bank in connection with the obtaining of such Alternate Letter of Credit. (iv) If (A) at any time any governmental authority shall reduce any requirement in effect as of the date of this Agreement (or that may hereafter be imposed and as to which the Bank has required the Company to pay an additional fee under Section 2 (f) (iii) above) to maintain, as support for the subject commitment, capital in a specified amount, and (B) as a result thereof the rate of return on capital of National City Corporation or Bank or both (taking into account their then policies as to capital adequacy and assuming full utilization of their capital) shall be directly or indirectly increased by reason of any capital no longer allocable to the subject commitment, then and in each such case, the Bank shall reduce the Company's Commitment Fee by such amount as will maintain the rate of return to the Bank which is in effect as of the date of this Agreement, and shall reimburse the Company for any amount paid by the Company after the effective date of such governmental action, which is in excess of the amount necessary to provide the Bank with the rate of return to the Bank in effect on the date of this Agreement. -8- (g) Annually, on each May 1, the Company shall pay to the Bank a letter of credit maintenance fee equal to One Thousand Five Hundred and no/100ths Dollars ($1,500). (h) All payments by the Company to the Bank hereunder shall be made in lawful currency of the United States and in immediately available funds at the Bank's office at 23000 Millcreek Boulevard, Highland Hills, Ohio 44122. SECTION 3. LETTER OF CREDIT COMMITMENT OF BANK; CONDITIONS PRECEDENT TO THE ISSUANCE OF THE LETTER OF CREDIT. (a) AGREEMENT OF BANK. Subject to the terms and conditions of this Agreement, the Bank has issued its Letter of Credit in an aggregate amount, the "Stated Amount" which shall be Four Million Two Hundred Twenty Five Thousand Two Hundred Eighty and No/100ths Dollars ($4,225,280), of which (1) an amount not exceeding Four Million One Hundred Thousand and No/100ths Dollars ($4,100,000) (the "Principal Portion") may be drawn with respect to payment of the principal portion of the Bonds at their maturity, by acceleration or otherwise, or payment of the portion of redemption or "put" purchase price corresponding to the principal of the Bonds, and (2) an amount not exceeding One Hundred Twenty Five Thousand Two Hundred Eighty and no/100ths Dollars ($125,280) (the "Interest Portion") may be drawn upon with respect to the payment of accrued interest, or to the portion of redemption price corresponding to accrued interest on the Bonds equal to one hundred ten (110) days' interest (computed on the basis of a 360-day year) with respect to the Bonds (computed at the maximum rate of ten percent (10%) per annum) on or prior to their stated maturity date, all prior to 10:00 A.M. on the Business Day which is the Expiration Date. All payments on the Letter of Credit shall be made with the Bank's funds, and no such payments shall be made with funds furnished by the Company. (b) CONDITIONS PRECEDENT TO ISSUANCE OF LETTER OF CREDIT. It was a condition precedent to the issuance by the Bank of its Letter of Credit that (i) the Bank shall have received on or before the Date of Issuance the following, in form and substance satisfactory to Bank: (A) a copy of the Bond Legislation authorizing the execution, delivery and performance by the Issuer of the Transaction Documents to which it is or is to be a party, certified by the Director or other appropriate official of the Issuer (which certificate shall state that such Bond Legislation is in full force and effect on the Date of Issuance); (B) opinions of Squire, Sanders & Dempsey LLP, as Bond Counsel and as Company Counsel, in form and substance satisfactory to the Bank; -9- (C) executed copies of the Indenture, the Bond Pledge Agreement, the Remarketing Agreement, the Mortgage, the Security Agreement, and the Bond Purchase Agreement in form and substance satisfactory to the Bank; (D) such other documents, instruments, approvals (and, if required by Bank, certified duplicates of executed copies thereof) and opinions as the Bank may reasonably request; (E) payment in full of the annual Commitment Fee due on the Date of Issuance pursuant to Section 2(a) hereof and any issuance fee, upfront commitment fee and documentation fee due pursuant to section 2(g) hereof; (F) certified copies of the Articles of Incorporation and Code of Regulations of the Company, as amended and as in effect on the Date of Issuance; (G) a certificate of insurance in an amount satisfactory to the Bank showing Bank as loss payee covering the Company's equipment. (ii) On the Date of Issuance: (A) the Transaction Documents, the Letter of Credit Documents and the insurance coverages shall be in full force and effect; (B) all conditions precedent to the issuance of the Bonds shall have occurred; (C) the Issuer shall have duly executed, issued and delivered the Bonds to the Trustee for authentication and delivery to the purchasers thereof. (iii) The following statements shall be true and correct on the Date of Issuance and the Bank shall have received a certificate signed by a duly authorized officer of the Company, dated the Date of Issuance, stating that: (A) the representations and warranties contained in Section 5 hereof are correct in all material respects on and as of the Date of Issuance as though made on and as of such date; and (B) no Event of Default has occurred and is continuing, or would result from the issuance of the Letter of Credit or the Company's execution of this Agreement. -10- SECTION 4. OBLIGATIONS ABSOLUTE. The obligations of the Company under this Agreement shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of this Agreement and the Letter of Credit, under all circumstances whatsoever, including without limitation the following circumstances: (a) any lack of validity or enforceability of any of the Transaction Documents or the Letter of Credit Documents, or any other document; (b) any amendment or waiver of or any consent to departure from all or any of the Transaction Documents; (c) the existence of any claim, set-off, defense or other rights which the Company or any other person may have at any time against the Trustee, or any successor trustee, any beneficiary or any transferee of the Letter of Credit (or any persons or entities for whom the Trustee, any such beneficiary or any such transferee may be acting), the Bank (other than the defense of payment to the Bank in accordance with the terms of this Agreement) or any other person or entity, whether in connection with this Agreement, the Transaction or Letter of Credit Documents or any unrelated transaction; (d) any statement or representation contained in any draft or certificate presented to the Bank, in connection with the request that the Bank issue the Letter of Credit, which proves to be untrue or inaccurate in any material respect whatsoever, or; (e) payment by the Bank under the Letter of Credit against presentation of a demand, sight draft or certificate which does not comply with the terms of the Letter of Credit, provided that such payment shall not have constituted gross negligence or willful misconduct of the Bank. SECTION 5. REPRESENTATIONS AND WARRANTIES. The Company represents and warrants to the Bank as follows: (a) The Company is an Ohio corporation and is organized and existing and in good standing under the laws of the State of Ohio and is in good standing under the laws of the State of Ohio, qualified to transact business in the State of Florida and has all requisite power and authority to conduct its businesses, to own its properties and to execute and deliver, and to perform all of its obligations under this Agreement, the Letter of Credit Documents and the Transaction Documents to which it is or is to be a party. (b) The execution, delivery and performance by the Company of this Agreement, the Letter of Credit Documents and the Transaction Documents to which it is or is to be a party have been duly authorized by all necessary action and do not and will not (i) require any consent or approval of the Company which has not been obtained, (ii) to the best of the Company's knowledge, violate any provision of any law, rule, regulation, order, writ, -11- judgment, injunction, decree, determination or award presently in effect having applicability to the Company or of its Articles of Incorporation or Code of Regulations or (iii) result in a breach of or constitute a default under any indenture or loan or credit agreement or any other agreement, loan or instrument to which the Company is a party or by which it or its properties may be bound or affected and which would have a material adverse effect on the Company. The Company, to the best of its knowledge, is not in default under any such law, rule, regulation, order, writ, judgment, injunction, decree, determination or award and is not aware of any default under any such indenture, agreement, loan or instrument the effect of which default could be materially adverse to the Company or to the ability of the Company to perform its obligations hereunder. (c) To the best of the Company's knowledge, no authorization, consent, approval or license of, or filing or registration with, any court or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, or any specifically granted exemption from any of the foregoing which has not been obtained, is or will be necessary to the valid execution, delivery or performance by the Company of this Agreement or any of the Letter of Credit Documents or Transaction Documents to which it is or is to be a party, except building and accompanying permits relating to the Project not yet obtainable. (d) This Agreement, the Letter of Credit Documents and the Transaction Documents to which it is or is to be a party are legal, valid and binding obligations of the Company, enforceable against the Company and in accordance with their terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws in effect from time to time relating to or affecting the enforcement of creditors' rights and by general principles of equity and public policy. (e) Except as previously disclosed in writing to the Bank, there are no actions or proceedings pending before any court, governmental agency or arbitrator against or directly involving the Company and, to the best of the Company's knowledge, there is no threatened action or proceeding affecting the Company or any of their properties before any court, governmental agency or arbitrator which, in any case, may materially adversely affect the financial condition or operations of the Company. SECTION 6. AFFIRMATIVE COVENANTS. So long as the Termination Date has not occurred or any amount is due and owing to the Bank hereunder, the Company will, unless the Bank shall otherwise consent in writing, which consent will not be unreasonably delayed or withheld: (a) PRESERVATION OF EXISTENCE, ETC. Preserve and maintain its existence as an Ohio corporation duly qualified to transact business in the States of Ohio and Florida and its rights, franchises and privileges under the laws of the States of Ohio and Florida. -12- (b) COMPLIANCE WITH LAWS, ETC. Comply in all material respects with the requirements of all applicable laws, rules, regulations and orders of any governmental authority, non-compliance with which would materially adversely affect the ability of the Company to perform its obligations hereunder, such compliance to include, without limitation, paying before the same become delinquent all taxes, assessments and governmental charges imposed upon it or upon its property, except to the extent compliance with any of the foregoing is then being contested in good faith and any reserves required by generally accepted accounting principles are being maintained in connection therewith. (c) VISITATION RIGHTS. At any reasonable time from time to time and as may be reasonably requested, permit the Bank or any agents or representatives thereof to visit the properties of, the Company with any of their respective officers and members; PROVIDED, that, Section 17 hereof notwithstanding, the reasonable costs and expenses incurred by the Bank or its agents or representatives in connection with any such examinations, copies, abstracts, visits or discussions occurring or made prior to the occurrence of an Event of Default shall be for the account and the expense of the Bank. (d) KEEPING OF BOOKS. Keep proper books of record and account, in which full and correct entries shall be made of financial transactions and the assets and business of the Company in accordance with generally accepted accounting principles consistently applied. (e) REPORTING REQUIREMENTS. Furnish to the Corporate Banking Division, in Cleveland, Ohio, of the Bank the following: (i) as soon as possible and in any event within fifteen (15) days after the Company learns of the occurrence of each Event of Default continuing on the date of such statement, a statement of the chief financial officer or appropriate individual designated by the Company (or in his absence, a principal financial officer) of the Company setting forth details of such Event of Default and the action which the Company proposes to take with respect thereto; (ii) financial statements as follows: (A) Upon receipt by the Company but not later than ninety (90) days from the end of each fiscal year, audited financial statements of the Company for the fiscal year then ended and related statements of revenue and expenses and changes in financial position for the fiscal year then ended, all prepared in accordance with generally accepted accounting principles applied on a consistent basis with those used in the preparation of the financial -13- statements as of the prior report, all audited by independent public accountants. (B) Within forty five (45) days after the end of each fiscal quarter, internally generated financial statements of the Company, in form and substance satisfactory to the Bank, all prepared in accordance with generally accepted accounting principles, consistently applied and certified as true and correct by a principal financial officer or other appropriate officer. (C) Such other financial information as to the Company as the Bank may, from time to time, reasonably require. (f) FIXED ASSETS Maintain all fixed assets at the Project Site in good working order and condition, ordinary wear and tear excepted. (g) The Company shall cause its principal financial officer, or in his absence another individual designated by the Company, to give Bank written notice within ten (10) days after knowledge thereof whenever (i) any litigation or proceeding shall be brought against the Company before any court or administrative agency, which, if successful, might have a material adverse effect on the Company, or (ii) he or she reasonably believes that any Event of Default under this Agreement or under any Funded Indebtedness has occurred or that any representation or warranty hereunder shall for any reason have ceased in any material respect to be true and complete. SECTION 7. NEGATIVE COVENANTS. So long as the Termination Date has not occurred or any amount is due and owing to the Bank hereunder, unless the Bank shall otherwise consent in writing, which consent shall not be unreasonably withheld, the Company agrees (a) not to enter into or consent to any amendment of the Transaction Documents. (b) not to suffer or permit its PRETAX INTEREST COVERAGE RATIO to be less than 2.5 TO 1.0, as measured quarterly on a four (4) quarter rolling basis. This covenant is WAIVED by the Bank for the periods through and including DECEMBER 31, 2004. (c) not to suffer or permit the ratio of its EBITDA to its INTEREST EXPENSE* to be less than 3.0 TO 1.0, as measured quarterly on a four (4) quarter rolling basis (Asset Impairment Charge not included). -14- (d) not to suffer or permit its TANGIBLE NET WORTH to be less than the required minimum amount. The required minimum amount shall be $38,500,000, as measured by audited financial statements as of each fiscal year end, commencing with fiscal year end 2002, and increasing as of each fiscal year end thereafter by an amount equal to 50% of net income for such fiscal year (Asset Impairment Charge is included, but there shall be no adjustment for foreign currency gains/losses). (e) not to suffer or permit the ratio of its TANGIBLE NET WORTH to its TOTAL LIABILITIES to be less than 1.00 TO 1.00 at any time (Asset Impairment charge included, but there shall be no adjustment for balance sheet foreign currency translation gains/loses). (f) not to suffer or permit its CAPITAL EXPENDITURES in any fiscal year to exceed $5,000,000. (g) not to suffer or permit the payment of any dividends in any fiscal year in excesss of an amount equal to 50% of net income for that year less treasury shares purchased plus treasury shares sold. (h) not to suffer or permit the ratio of its CURRENT ASSETS to its CURRENT LIABILITIES to be less than 1.75 TO 1.00, as measured quarterly. *Whenever INTEREST EXPENSE is used herein, it shall mean NET INTEREST EXPENSE. SECTION 8. EVENTS OF DEFAULT. The occurrence of any of the following events shall be an "Event of Default" hereunder unless waived by the Bank: (a) the Company shall fail to pay when due any amount specified in paragraph (a), (b), (c) or (e) of Section 2 hereof and such amount shall remain unpaid for five (5) Business Days after receipt of written notice from Bank of such failure to pay; or (b) the Company shall fail to pay when due any amount specified in paragraphs (d) or (f) of Section 2 hereof or Sections 13 or 17 hereof, and such amount shall remain unpaid for five (5) Business days after receipt of written notice from the Bank of such failure to pay; or (c) any representation or warranty made by the Company pursuant to Section 5 hereof or in any certificate, financial or other statement furnished by the Company pursuant to this Agreement shall prove to have been incorrect in any material respect when made and would result in a material adverse change in the financial position of the Company, or the Company shall fail to perform or observe any term, covenant or agreement contained in Section 7 and such adverse change or failure to perform shall remain in effect for a period of thirty (30) days after written notice by the Bank to the Company; provided, that if the Company shall commence to remedy such failure within such 30 days and shall be -15- proceeding with due diligence to remedy such failure, such period shall be extended to such period as shall be required to complete such remedy; or (d) the Company shall fail to perform or observe any other term, covenant or agreement contained herein or in the Letter of Credit Documents and any such failure which can be remedied shall remain unremedied for 30 days after written notice thereof shall have been given to the Company by the Bank; provided, that if the Company shall commence to remedy such failure within such 30 days and shall be proceeding with due diligence to remedy such failure, such period shall be extended to such period as shall be required to complete such remedy; or (e) final uninsured judgment for the payment of money shall be rendered against the Company, in excess of fifty thousand dollars ($50,000), and such judgment shall remain unpaid or undischarged for a period of ninety (90) consecutive days during which execution shall not be effectively stayed; (f) the Company shall: (i) admit in writing its inability to pay its debts generally as they become due; (ii) have an order for relief entered in any case commenced by it under the federal bankruptcy laws, as now or hereafter in effect and such order for relief shall not have been rescinded within 90 days after being so entered; (iii) commence a proceeding under any federal or state bankruptcy, insolvency, reorganization or similar law, or have such a proceeding commenced against it and either have an order of insolvency or reorganization entered against it or have the proceeding remain undismissed and unstayed for ninety (90) days; (iv) make an assignment for the benefit of creditors; or (v) have a receiver or trustee appointed for it or for the whole or any substantial part of its property. The declaration of an Event of Default under this subsection and the exercise of remedies upon any such declaration shall be subject to any applicable limitations of federal bankruptcy law affecting or precluding such declaration or exercise during the pendency of or immediately following any bankruptcy, liquidation, or reorganization proceedings; (g) the occurrence of an "event of default" or an "Event of Default" under any of the Transaction Documents or the Letter of Credit Documents, subject to any applicable cure or grace periods contained therein; (h) the occurrence of an "event of default" by the Company under any other document or instrument for Funded Indebtedness as defined herein, in excess of $100,000 in the aggregate, which has not been cured as provided for therein. Upon the occurrence and continuation of an Event of Default hereunder, the Bank may, in its sole discretion, but shall not be obligated to (i) by notice to the Company and the Trustee, declare a default under this Agreement and direct the Trustee to accelerate payment of the Bonds -16- and (ii) pursue any other remedy permitted to the Bank under this Agreement, the Letter of Credit Documents or the Transaction Documents or otherwise. SECTION 9. AMENDMENTS, ETC. No amendment, waiver, modification or release of any provision of this Agreement nor consent to any departure by the Company therefrom shall in any event be effective, irrespective of any course of dealing with any of the parties hereto, unless the same shall be in writing and signed by the Bank, and then such amendment, waiver, modification or release shall be effective only in the specific instance and for the specific purpose for which given. SECTION 10. ADDRESSES FOR NOTICES. All notices and other communications provided for hereunder shall be in writing and, if to the Company, mailed or delivered to it registered or certified mail, return receipt requested, addressed to it at Sifco Industries, Inc.,, 970 East 64th Street, Cleveland, Ohio 44103, Attention: Vice President - Finance or if to the Bank, mailed or delivered to it, addressed to it at National City Bank, 23000 Millcreek Boulevard, Highland Hills, Ohio 44122, Attention: International Department, Letter of Credit Section, with copies simultaneously to the attention of the Corporate Banking Division at 1900 East Ninth Street, Cleveland, Ohio 44114, Attention: Terry Wolford, or such further address as shall be designated by such party in a written notice to the other party. All such notices and other communications may also be hand delivered. SECTION 11. NO WAIVER; REMEDIES. No failure on the part of the Bank or the Company 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. SECTION 12. COLLATERAL. The Company has granted to the Bank a lien on its personal property and fixtures. The Company has also caused its domestic subsidiaries, Sifco Custom Machining Company, a Minnesota corporation, and Sifco Holdings, Inc., a Delaware corporation (collectively, the "Domestic Guarantors"), to guarantee the Company's obligations to the Bank, pursuant to a Guaranty of Payment, secured by a blanket on the Accounts Receivable, Inventory, Equipment and General Intangibles of the Guarantors. The Company has also caused its foreign subsidiaries to guarantee the Company's obligations to the Bank pursuant to a Guaranty of Payment. THE COMPANY AND THE BANK FURTHER AGREE THAT AT THE TIME THAT THE COMPANY'S INTEREST COVERAGE RATIO EQUALS OR EXCEEDS 2.50 TO 1.00 ON A FOUR (4) QUARTER ROLLING BASIS, THE BANK SHALL RELEASE THE FOREGOING LIENS GRANTED TO THE BANK. SECTION 13. INDEMNIFICATION. To the extent permitted by law, the Company hereby indemnifies and holds harmless the Bank from and against any and all claims, damages, losses, liabilities, reasonable costs and expenses whatsoever (including reasonable attorney's fees) which the Bank may incur (or which may be claimed against the Bank by any person or entity whatsoever) by reason of or in connection with the execution and delivery or transfer of, or -17- payment or failure to pay under, the Letter of Credit; PROVIDED, that the Company shall not be required to indemnify the Bank, and the Bank hereby indemnifies and hold's harmless the Company, for any claims, damages, losses, liabilities, costs or expenses to the extent, but only to the extent, directly caused by (a) the willful misconduct or negligence of the Bank, (b) the Bank's providing incorrect or misleading or allegedly incorrect or misleading information to the Underwriter for inclusion in the Offering Circular or omitting to provide information necessary to make the statements contained therein by the Bank not misleading, or (c) the Bank's wrongful failure to pay under the Letter of Credit after the actual physical presentation to it at the Letter of Credit Section of the International Division by the Trustee (or a successor trustee under the Indenture to whom the Letter of Credit has been transferred in accordance with its terms) of a draft and certificate strictly complying with the terms and conditions of the Letter of Credit. Nothing in this Section 13 shall limit the Company's reimbursement obligation contained in paragraphs (b) and (d) of Section 2 hereof. SECTION 14. CONTINUING OBLIGATION. This Agreement is a continuing obligation and shall (a) be binding upon the Bank and the Company, their successors and assigns, and (b) inure to the benefit of and be enforceable by the Bank and the Company and its successors and, to the extent not limited herein, their assigns; PROVIDED, however, that the Company may not assign all or any part of this Agreement without the prior written consent of the Bank, which consent shall not be unreasonably withheld or unreasonably delayed. The Bank reserves the right to sell participations in the rights under this Agreement. SECTION 15. TRANSFER OF LETTER OF CREDIT; REDUCTION OR TERMINATION OF LETTER OF CREDIT COMMITMENT; REINSTATEMENT OF LETTER OF CREDIT AND RELATED MATTERS. (a) The Letter of Credit may be transferred in accordance with the provisions set forth therein. (b) If the aggregate principal amount of Bonds outstanding under the Indenture shall be reduced by reason of redemption and cancellation of the Bonds, the Bank shall reduce IN WHOLE OR IN PART, without penalty or premium, the Stated Amount of the Letter of Credit by an amount equal to the sum of the principal amount of Bonds redeemed and cancelled plus with respect to the Interest Portion an amount equivalent to one hundred ten (110) days' interest (computed on the basis of a 360 day year) on the corresponding principal amount of Bonds redeemed and cancelled (at an assumed maximum rate of ten percent (10%) per annum) upon receipt of the written certificate of the Trustee confirming the principal amount of the redeemed and cancelled Bonds. Except as provided in Section 15(c), such partial reduction of the Stated Amount of the Letter of Credit shall be effective on the date specified in such notice and shall be in a minimum amount of five thousand dollars ($5,000) with respect to the unpaid principal amount of the Bonds plus interest. (c) It shall be a condition to any irrevocable partial reduction of the Stated Amount of the Letter of Credit pursuant to Section 15(b) hereof, that the Trustee either (i) surrender the out- -18- standing Letter of Credit to the Bank with such written certificate referred to in said Section 15(b), and accept from the Bank a substitute irrevocable letter of credit in the form of Annex 1 hereto, dated such date, for a Stated Amount equal to the sum of the Principal Portion as reduced plus (x) an amount of Interest Portion equal to one hundred ten (110) days' interest (computed on the basis of a 360 day year) on such Principal Portion, computed at the assumed maximum rate of ten percent (10%) per annum (also less the amount of any drawing under the Letter of Credit which has not been reinstated under Section 15(d) hereof) but otherwise having terms identical to the then outstanding Letter of Credit or (ii) accept an amendment reflecting such reduction. (d) (i) Upon any B Drawing, the obligation of the Bank to honor demands for payment under the Letter of Credit will be reinstated to the amount available to be drawn immediately before such Drawing, (i) upon receipt of a written Certificate for a B Drawing, appropriately completed by the Trustee along with any funds, if any, held by the Trustee and (ii) upon remarketing of the Bonds by the Remarketing Agent. (ii) On the fifth day following the honoring of any A Drawing, the obligation of the Bank to honor demands for payment under the Letter of Credit for interest due on the outstanding Notes will be automatically reinstated to the full amount of the Interest Portion; provided that the Interest Portion of the Stated Amount of the Letter of Credit shall not be so reinstated if (A)(1) the Bank has not been reimbursed in full for such drawing or in full for a previous or subsequent drawing under the Letter of Credit (other than a B Drawing) or (2) an Event of Default hereunder shall have occurred and then be continuing and (B) the Bank shall have notified the Trustee in writing on or prior to the fifth day following the day on which such drawing was honored; such notice stating that the Interest Portion of the Stated Amount of the Letter of Credit shall not be reinstated. Failure of the Bank to deliver, within the time stated, notice by telephone and confirmed in writing that the amount has not been reinstated, shall be deemed to mean the amount drawn has been reinstated in full. Notwithstanding the Bank's delivery of a certificate providing that the reinstatement has not occurred, the Bank may thereafter present a new certificate reinstating the amount of such drawing as a part of the available Stated Amount. SECTION 16. LIABILITY OF THE BANK. The Company assumes all risks of the acts or omissions of the Trustee and any transferee of the Letter of Credit with respect to its use of the Letter of Credit or proceeds of any draw thereunder. Neither the Bank nor any of its officers or directors shall be liable or responsible for: (a) the use which may be made of the Letter of Credit or its proceeds or for any acts or omissions of the Trustee and any transferee in connection therewith; (b) the validity, sufficiency or genuineness of documents, inaccuracy of any of the statements or representations contained in drafts or certificates relating to such Letter of Credit or of any indorsement(s) thereon, even if such documents should in fact prove to be in any or all respects invalid, insufficient, fraudulent or forged; (c) intentionally left blank; or (d) any other circumstances whatsoever in making or failing to make payment under the Letter of Credit, except the Company shall have a claim against the Bank, and the Bank shall be liable to the Company, to the extent, but only to the extent, of any direct, as opposed to consequential, -19- damages suffered by the Company which were caused by (i) the Bank's willful misconduct or negligence in honoring a draft under the Letter of Credit, or (ii) the Bank's failure to pay under the Letter of Credit after the presentation to it by the Trustee (or a successor trustee under the Indenture to whom the Letter of Credit has been transferred in accordance with its terms) of a sight draft and certificate strictly complying with the terms and conditions of the Letter of Credit. In furtherance and not in limitation of the foregoing, the Bank may accept documents that appear on their face to be in order, and may assume the genuineness and rightfulness of any signature thereon, without responsibility for further investigation, regardless of any notice or information to the contrary; PROVIDED, that if the International Division, Letter of Credit Section of the Bank shall receive written notification from the Trustee and the Company that documents conforming to the terms of the Letter of Credit to be presented to the Bank are not to be honored, the Bank agrees that it will not honor such documents and the Company shall hold the Bank harmless from such failure to honor. SECTION 17. COSTS, EXPENSES AND TAXES. The Company shall pay any and all taxes and fees payable or determined to be payable, to governmental third parties in connection with the execution, delivery, filing and recording of this Agreement and such other documents which may be delivered in connection with this Agreement, and the issuance and sale of the Bonds and agrees to save the Bank harmless from and against any and all liabilities with respect to or resulting from any delay in paying or omission to pay such taxes and fees, PROVIDED, that the Bank agrees promptly to notify the Company of any such taxes and fees. SECTION 18. LETTER OF CREDIT EXTENSION. The Letter of Credit will expire on the earlier of (I) MAY 16, 2004, which is the Stated Expiration Date, or (ii) the Termination Date, determined as provided by the Letter of Credit. Upon the written request of the Company, which request shall be made on or about May 15th of a year, commencing May 15, 2002, to extend the Stated Expiration Date, the Bank may decide, in its sole discretion to extend the Stated Expiration Date for one year from the Stated Expiration Date then in effect; PROVIDED, HOWEVER, the Stated Expiration Date shall not be extended beyond May 16, 2013. The Bank shall notify the Company of its decision of whether the Stated Expiration Date shall be extended no later than July 15th of such year, provided that the failure of the Bank to deliver such notice, or to deliver any notice, shall mean the Bank has elected NOT to extend the Stated Expiration Date. If the Stated Expiration Date is extended, the terms and conditions hereof, unless the Bank and the Company otherwise agree in writing, and the terms and conditions of the Letter of Credit, unless the Bank, the Company and the Trustee may otherwise agree in writing, shall remain in full force and effect as if the extended Stated Expiration Date was the original Stated Expiration Date. If the Bank extends the Stated Expiration Date, it shall promptly notify the Trustee, and if the Trustee so requests, deliver to the Trustee, against simultaneous delivery by the Trustee to the Bank of the original Letter of Credit, a replacement Letter of Credit similar in all respects except the extended Stated Expiration Date, to the original Letter of Credit. -20- SECTION 19. OBLIGATIONS OF BANK. The obligations of the Bank under the Letter of Credit shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of the Letter of Credit and this Agreement. The Company acknowledges that the interest rate to be paid on the Bonds is in part dependent upon the credit standing and rating of the Bank and National City Corporation. The Company further acknowledges that neither the Bank nor National City Corporation shall have any responsibility or liability to the Company for any action, failure to act, or any other reason whatsoever, which causes the interest on the Bonds to be paid at an increased rate or otherwise affects the marketability of the Bonds or the credit standing of the Company. SECTION 20. GOVERNING LAW. This Agreement shall be governed by, and construed and interpreted in accordance with, the laws of the State of Ohio. SECTION 21. HEADINGS. Section headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose. SECTION 22. ANTI-TYING CERTIFICATION. The extension of credit provided for herein is neither conditioned upon nor has the commitment fees or other fees been based upon the Company's agreement to purchase other products or services from Bank. Further, Bank has not offered such extension of credit or reduction of fees. SECTION 23. CONTROL. The Bank does not control, either directly or indirectly through one or more intermediaries, the Company. Likewise, the Company does not control, either directly or indirectly through one or more intermediaries, the Bank. "Control" for this purpose has the meaning given to such term in section 2(a)(9) of the Investment Company Act of 1940. The Bank and the Company have both covenanted in this Reimbursement Agreement to provide written notice to the Trustee, the Remarketing Agent and the Bondholders thirty (30) days prior to the consummation of any transaction that would result in the Company controlling or being controlled by the Bank or any provider of a Substitute or Alternate Facility. SECTION 24. AMORTIZATION. Unless waived by the Bank in writing, the Company shall optionally redeem Bonds in accordance with the schedule set forth on Annex 2 to this Agreement, as such Annex 2 may be amended, modified or supplemented from time to time. -21- IN WITNESS WHEREOF, THE PARTIES HERETO HAVE SIGNED THIS REIMBURSEMENT AGREEMENT AS OF THE DATE FIRST ABOVE WRITTEN. NATIONAL CITY BANK SIFCO INDUSTRIES, INC. By /s/ Terry Wolford By /s/ Frank A. Cappello ----------------------- ----------------------------- Terry Wolford Frank A. Cappello Vice President Vice President-Finance & CFO -22- EX-4.B 6 l93943aex4-b.txt EXHIBIT 4(B) Chs90835.REV EXHIBIT 4(b) 4/26/02 AMENDED AND RESTATED C R E D I T A G R E E M E N T between SIFCO INDUSTRIES, INC. and NATIONAL CITY BANK April 30, 2002 $10,000,000 of Revolving Credits Table of Contents 1A. CROSS-REFERENCE.................................................................................1 1B. SUMMARY.........................................................................................1 2A. SUBJECT COMMITMENT..............................................................................1 2A.01 AMOUNT...............................................................................1 2A.02 TERM.................................................................................1 2A.03 OPTIONAL REDUCTIONS..................................................................1 2A.04 COMMITMENT FEE.......................................................................1 2A.05 EXTENSION OF SUBJECT COMMITMENT......................................................2 2B. SUBJECT LOANS...................................................................................2 2B.01 SUBJECT NOTE.........................................................................2 2B.02 CREDIT REQUESTS......................................................................2 2B.03 CONDITION: NO DEFAULT...............................................................3 2B.04 CONDITION: PURPOSE..................................................................3 2B.05 LOAN MIX.............................................................................3 2B.06 AMOUNT...............................................................................4 2B.07 CONTRACT PERIODS.....................................................................4 2B.08 MATURITIES...........................................................................4 2B.09 ROLLOVER.............................................................................4 2B.10 INTEREST: PRIME RATE LOANS..........................................................5 2B.11 INTEREST: FIXED-RATE LOANS...........................................................5 2B.12 DISBURSEMENT.........................................................................6 2B.13 PREPAYMENTS..........................................................................6 2B.14 FIXED-RATE LOANS: UNAVAILABILITY.....................................................6 2B.15 FIXED-RATE LOANS: ILLEGALITY.........................................................7 3A. INFORMATION.....................................................................................7 3A.01 FINANCIAL STATEMENTS.................................................................7 3A.02 NOTICE...............................................................................8 3B. GENERAL FINANCIAL STANDARDS.....................................................................9 3B.01 REIMBURSEMENT AGREEMENT..............................................................9 3C. AFFIRMATIVE COVENANTS..................................................................9 3C.01 TAXES................................................................................9 3C.02 FINANCIAL RECORDS....................................................................10 3C.03 VISITATION...........................................................................10 3C.04 INSURANCE............................................................................10 3C.05 CORPORATE EXISTENCE..................................................................10 3C.06 COMPLIANCE WITH LAW..................................................................10 3C.07 PROPERTIES...........................................................................11 3D. NEGATIVE COVENANTS..............................................................................11 3D.01 EQUITY TRANSACTIONS..................................................................11 3D.02 BORROWINGS...........................................................................12 3D.03 LIENS, LEASES........................................................................12 3D.04 NEGATIVE PLEDGE......................................................................14
-i- Table of Contents 4A. CLOSING.........................................................................................14 4A.01 SUBJECT NOTE.........................................................................14 4A.02 RESOLUTIONS/INCUMBENCY...............................................................14 4A.03 LEGAL OPINION........................................................................14 4B. WARRANTIES......................................................................................14 4B.01 EXISTENCE............................................................................14 4B.02 GOVERNMENTAL RESTRICTIONS............................................................14 4B.03 CORPORATE AUTHORITY..................................................................15 4B.04 LITIGATION...........................................................................15 4B.05 TAXES................................................................................15 4B.06 TITLE................................................................................15 4B.07 LAWFUL OPERATIONS....................................................................15 4B.08 INSURANCE............................................................................16 4B.09 FINANCIAL STATEMENTS.................................................................16 4B.10 DEFAULTS.............................................................................16 5A. EVENTS OF DEFAULT...............................................................................16 5A.0l PAYMENTS.............................................................................16 5A.02 WARRANTIES...........................................................................16 5A.03 COVENANTS WITHOUT GRACE..............................................................16 5A.04 COVENANTS WITH GRACE.................................................................16 5A.05 CROSS-DEFAULT........................................................................17 5A.06 BORROWER'S SOLVENCY..................................................................17 5B. EFFECTS OF DEFAULT..............................................................................17 5B.01 OPTIONAL DEFAULTS....................................................................17 5B.02 AUTOMATIC DEFAULTS...................................................................18 5B.03 OFFSETS..............................................................................18 6A. INDEMNITY: STAMP TAXES..........................................................................18 6B. INDEMNITY: GOVERNMENTAL COSTS/FIXED-RATE LOANS..................................................18 6C. INDEMNITY: FUNDING COSTS........................................................................19 6D. CREDIT REQUESTS.................................................................................19 6E. INDEMNITY: UNFRIENDLY TAKEOVERS.................................................................19 6F. INDEMNITY: CAPITAL REQUIREMENTS.................................................................19 6G. INDEMNITY: COLLECTION COSTS.....................................................................20 6H. CERTIFICATE FOR INDEMNIFICATION.................................................................20 7. BANK'S PURPOSE...................................................................................20 8. INTERPRETATION...................................................................................20 8.01 WAIVERS...............................................................................20 8.02 CUMULATIVE PROVISIONS.................................................................20 8.03 BINDING EFFECT........................................................................21 8.04 SURVIVAL OF PROVISIONS................................................................21 8.05 IMMEDIATE U.S. FUNDS..................................................................21
-ii- Table of Contents 8.06 CAPTIONS..............................................................................21 8.07 SUBSECTIONS...........................................................................21 8.08 ILLEGALITY............................................................................21 8.09 OHIO LAW..............................................................................21 8.10 INTEREST/FEE COMPUTATIONS.............................................................21 8.11 NOTICE................................................................................21 8.12 ACCOUNTING TERMS......................................................................22 8.13 ENTIRE AGREEMENT......................................................................22 8.14 SHARING OF INFORMATION................................................................22 9. DEFINITIONS......................................................................................22 ACCOUNT OFFICER.............................................................................22 ACCUMULATED FUNDING DEFICIENCY..............................................................22 AGREEMENT...................................................................................23 BANK........................................................................................23 BANKING DAY.................................................................................23 BORROWER....................................................................................23 COMPANY.....................................................................................23 COMPENSATION................................................................................23 CONTRACT PERIOD.............................................................................23 CREDIT REQUEST..............................................................................23 CURRENT ASSETS..............................................................................23 CURRENT LIABILITIES.........................................................................23 DEBT........................................................................................23 DEFAULT UNDER ERISA.........................................................................23 DEFAULT UNDER THIS AGREEMENT................................................................24 ENVIRONMENTAL LAW...........................................................................24 ERISA.......................................................................................24 ERISA REGULATOR.............................................................................24 EVENT OF DEFAULT............................................................................24 EXPIRATION DATE.............................................................................24 FEDERAL FUNDS RATE..........................................................................24 FIXED-RATE LOAN.............................................................................25 FUNDED INDEBTEDNESS.........................................................................25 GAAP........................................................................................25 INSOLVENCY ACTION...........................................................................25 LIBO PRE-MARGIN RATE........................................................................25 LIBOR LOAN..................................................................................26 MATERIAL....................................................................................26 MOST RECENT FINANCIAL STATEMENTS............................................................26 NET INCOME..................................................................................26 NET WORTH...................................................................................26
-iii- Table of Contents PENSION PLAN................................................................................26 PRIME RATE..................................................................................26 RECEIVABLE..................................................................................26 RELATED WRITING.............................................................................26 REPORTABLE EVENT............................................................................27 PRIME RATE LOAN.............................................................................27 SUBJECT COMMITMENT..........................................................................27 SUBJECT INDEBTEDNESS........................................................................27 SUBJECT LOAN................................................................................27 SUBJECT NOTE................................................................................27 SUBORDINATED................................................................................27 SUBSIDIARY..................................................................................27 SUPPLEMENTAL SCHEDULE.......................................................................27 TOTAL LIABILITIES...........................................................................27 WHOLLY-OWNED................................................................................28 plurals.....................................................................................28 Signatures and Address...............................................................................28
EXHIBIT A: Supplemental Schedule (4B) EXHIBIT B: Subject Note (2B.01; 4A.01) EXHIBIT C: Extension Agreement (2A.05) -iv- AMENDED AND RESTATED CREDIT AGREEMENT Agreement made as of April 30, 2002 by and between SIFCO INDUSTRIES, INC. (BORROWER) and NATIONAL CITY BANK (Bank): 1A. CROSS-REFERENCE -- Certain terms are defined in section 9. 1B. SUMMARY -- This Agreement sets forth the terms and conditions upon which the Borrower may obtain Subject Loans on a revolving basis until the Expiration Date. This Agreement also sets forth covenants and warranties made by the parties to induce each other to enter into this Agreement and contains other Material provisions. 2A. SUBJECT COMMITMENT -- The basic terms of the Subject Commitment and the compensation therefor are as follows: 2A.01 AMOUNT -- The amount of the Subject Commitment is ten million dollars ($10,000,000), but that amount may be reduced from time to time pursuant to subsection 2A.03 and the Subject Commitment may be terminated pursuant to section 5B. 2A.02 TERM -- The Subject Commitment shall commence as of the date of this Agreement and shall remain in effect on a revolving basis until MARCH 31, 2004 (the EXPIRATION DATE) EXCEPT that a later Expiration Date may be established from time to time pursuant to subsection 2A.05 and EXCEPT that the Subject Commitment shall end in any event upon any earlier reduction thereof to zero pursuant to subsection 2A.03 or any earlier termination pursuant to section 5B. 2A.03 OPTIONAL REDUCTIONS -- Borrower shall have the right, at all times and without the payment of any premium, to permanently reduce the amount of the Subject Commitment by giving Bank one Banking Day's prior written notice of the amount of each such reduction and the effective date thereof subject, however, to the following: (a) No such reduction shall reduce the Subject Commitment to a lesser aggregate amount than the sum of the aggregate unpaid principal balance of the Fixed-Rate Loans then outstanding plus the aggregate unpaid principal balance of any Fixed-Rate Loans to be obtained pursuant to any unfulfilled Credit Request under subsection 2B.02 plus the aggregate unpaid principal balance of the prior loans, if any, then outstanding. (b) Concurrently with each reduction Borrower shall prepay such part, if any, of the principal of the Subject Loans then outstanding as may be in excess of the amount of the Subject Commitment as so reduced. Subsection 2B.13 and section 6C shall apply to each such prepayment. 2A.04 COMMITMENT FEE -- Borrower agrees to pay Bank a commitment fee -1- (a) based on the average daily difference between the amount of the Subject Commitment from time to time in effect and the aggregate unpaid principal balance of the Subject Loans then outstanding, (b) computed at the rate of one-quarter of one percent (1/4%) per annum so long as the Subject Commitment remains in effect and (c) payable in arrears on MAY 1, 2002 and quarter-annually thereafter and at the end of the Subject Commitment. 2A.05 EXTENSION OF SUBJECT COMMITMENT -- Whenever Borrower furnishes its audited financial statements to Bank pursuant to clause (b) of subsection 3A.01, commencing with the year ending September 30, 2002, Borrower may request that the Subject Commitment be extended one year to the May 1 next following the Expiration Date then in effect. Bank agrees to give consideration to each such request; but in no event shall Bank be committed to extend the Subject Commitment, nor shall the Subject Commitment be so extended, unless and until both Borrower and Bank shall have executed and delivered an extension agreement substantially in the form of Exhibit C with the blanks appropriately filled. 2B. SUBJECT LOANS -- Bank agrees that so long as the Subject Commitment remains in effect Bank will, subject to the conditions of this Agreement, grant Borrower such Subject Loans as Borrower may from time to time request. 2B.01 SUBJECT NOTE -- The Subject Loans shall be evidenced at all times by a Subject Note executed and delivered by Borrower, payable to the order of Bank in a principal amount equal to the dollar amount of the Subject Commitment as in effect at the execution and delivery of the Subject Note and being in the form and substance of Exhibit B with the blanks appropriately filled. (a) Whenever Borrower shall obtain a Subject Loan, Bank shall endorse an appropriate entry on the Subject Note or make an appropriate entry in a loan account in Bank's books and records, or both. Each entry shall be prima facie evidence of the data entered; but such entries shall not be a condition to Borrower's obligation to pay. (b) No holder of any Subject Note shall transfer a Subject Note, or seek a judgment or file a proof of claim based on a Subject Note, without in each case first endorsing the Subject Note to reflect the true amount owing thereon. 2B.02 CREDIT REQUESTS -- Whenever Borrower desires to borrow pursuant to this Agreement, Borrower shall give Bank an appropriate notice (a CREDIT REQUEST) with such -2- information as Bank may reasonably request. The Credit Request shall be irrevocable and shall (EXCEPT in the case of any obtained at the execution and delivery of this Agreement) be given to Bank not later than 12:00 noon Cleveland time (a) on the Banking Day the proceeds of any requested PRIME RATE LOAN is to be disbursed to Borrower and (b) on the third (3d) Banking Day prior to the Banking Day on which the proceeds of any requested LIBOR Loan are to be disbursed to Borrower. Each Credit Request shall be made either in writing or by telephone, PROVIDED that any telephone request shall be promptly confirmed in writing and Borrower shall assume the risk of misunderstanding. 2B.03 CONDITION: NO DEFAULT -- Borrower shall not be entitled to obtain any Subject Loan if (a) any Default Under This Agreement shall then exist or would thereupon begin to exist or (b) any representation or warranty made in subsections 4B.01 through 4B.08 (both inclusive) shall have ceased to be true and complete in any Material respect or (c) there shall have occurred any Material adverse change in Borrower's financial condition, properties or business since the date of Borrower's Most Recent Financial Statements or in its then most recent financial statements, if any, furnished to Bank pursuant to subsection 3A.01. Each Credit Request, both when made and when honored, shall of itself constitute a continuing representation and warranty by Borrower that Borrower is entitled to obtain, and Bank is obligated to make, the requested Subject Loan. 2B.04 CONDITION: PURPOSE -- Borrower shall not use the proceeds of any Subject Loan in any manner that would violate or be inconsistent with Regulation U or X of the Board of Governors of the Federal Reserve System; nor will it use any such proceeds for the purpose of financing the acquisition of any corporation or other business entity if the acquisition is publicly opposed by the latter's management and if Bank deems that its participation in the financing would involve it in a conflict of interest. 2B.05 LOAN MIX -- The Subject Loans at any one time outstanding may consist of PRIME RATE LOANs or LIBOR Loans or any combination thereof as Borrower may from time to time duly elect. -3- 2B.06 AMOUNT -- No Subject Loan shall be made if, after giving effect thereto, the aggregate unpaid principal balance of the Subject Loans would exceed the amount of the Subject Commitment then in effect. Each Fixed-Rate Loan shall be in the principal sum of one million dollars ($1,000,000) or any greater amount (subject to the aforesaid limitations) that is a multiple of one hundred thousand dollars ($100,000). 2B.07 CONTRACT PERIODS -- Each Fixed-Rate Loan shall have applicable thereto a Contract Period to be duly elected by Borrower in the Credit Request therefor. Each Contract Period shall begin on the date the loan proceeds are to be disbursed and shall end on such date, not later than the Expiration Date, as Borrower may select subject, however, to the following: (a) The Contract Period for each LIBOR Loan shall end one month or two or three or six months after the date of borrowing; PROVIDED, that (1) if any such Contract Period otherwise would end on a day that is not a Banking Day, it shall end instead on the next following Banking Day unless that day falls in another calendar month, in which latter case the Contract Period shall end instead on the last Banking Day of the next preceding calendar month, and (2) if the Contract Period commences on a day for which there is no numerical equivalent in the calendar month in which the Contract Period is to end, it shall end on the last Banking Day of that calendar month. 2B.08 MATURITIES -- The stated maturity of each PRIME RATE LOAN shall be the Expiration Date. The stated maturity of each Fixed-Rate Loan shall be the last day of the Contract Period applicable thereto. In no event, however, shall the stated maturity of any Subject Loan be later than the Expiration Date. 2B.09 ROLLOVER -- If (a) prior to the Expiration Date any Fixed-Rate Loan shall not be paid in full at the stated maturity thereof and (b) Borrower shall have failed to duly give Bank a timely Credit Request in respect thereof, Borrower shall be deemed to have duly given Bank a timely Credit Request to obtain (and Bank shall accordingly make) a PRIME RATE LOAN in a principal amount equal to the unpaid principal of the Fixed-Rate Loan then due, the proceeds of which PRIME RATE LOAN shall be applied to the payment in full of the Fixed-Rate Loan then due; -4- PROVIDED that no such PRIME RATE LOAN shall of itself constitute a waiver of any then-existing Default Under This Agreement. 2B.10 INTEREST: Prime Rate LOANS -- The principal of and overdue interest on any Prime Rate Loans shall bear interest payable in arrears on the first day of each February, May, August and November and at maturity and computed (in accordance with subsection 8.10) (a) prior to maturity, at a fluctuating rate equal to the Prime Rate from time to time in effect and (b) after maturity (whether occurring by lapse of time or by acceleration), at a fluctuating rate equal to the Prime Rate from time to time in effect plus two percent (2%) per annum, with each change in the Prime Rate automatically and immediately changing the rate thereafter applicable to the Prime Rate Loans; PROVIDED, that in no event shall the rate applicable to the Prime Rate Loans after the maturity thereof be less than the rate applicable thereto immediately before maturity. 2B.11 INTEREST: FIXED-RATE LOANS -- The principal of and overdue interest on each Fixed-Rate Loan shall bear interest computed (in accordance with subsection 8.10) and payable as follows: (a) Prior to maturity each LIBOR Loan shall bear interest at a rate equal to the LIBOR pre-margin rate in effect at the start of the applicable Contract Period plus the applicable LIBOR MARGIN, namely, one and one half percent (1.50%) per annum; provided, however, the LIBOR margin shall be adjusted ANNUALLY upon receipt and based upon the Borrower's year end financial statements as follows: PRETAX INTEREST COVERAGE LIBOR MARGIN 10x> 1.25% 7.5x - 10x 1.50% 5x - 7.5x 1.75% 2.5x - 5x 2.00% (b) After maturity (whether occurring by lapse of time or by acceleration), each Fixed-Rate Loan shall bear interest computed and payable in the same manner as -5- in the case of Prime Rate Loans EXCEPT that in no event shall any Fixed-Rate Loan bear interest after maturity at a lesser rate than that applicable thereto immediately after maturity. (c) Interest on each Fixed-Rate Loan shall be payable in arrears on the last day of the Contract Period applicable thereto and at maturity and, in the case of any Contract Period having a longer term than ninety (90) days, shall also be payable every ninety (90) days or every three (3) months (in the case of LIBOR Loans) after the first day of the Contract Period. 2B.12 DISBURSEMENT -- Bank shall disburse the proceeds of each Subject Loan to Borrower's general checking account with Bank in the absence of written instructions from Borrower to the contrary. 2B.13 PREPAYMENTS -- Borrower may from time to time prepay the principal of the Prime Rate Loans in whole or in part and may from time to time prepay the principal of any given series of Fixed-Rate Loans in whole or in part, subject to the following: (a) Each prepayment of Fixed-Rate Loans shall be applied solely to a single Fixed-Rate Loan, shall aggregate one million dollars ($1,000,000) or any multiple thereof or an amount equal to the then aggregate unpaid principal balance thereof. (b) Each prepayment of the Prime Rate Loans may be made without penalty or premium. Any prepayment of any Fixed-Rate Loans (regardless of the reason for the prepayment) shall be subject to the payment of any indemnity required by section 6C. (c) No prepayment shall of itself reduce the Subject Commitment. (d) Concurrently with each prepayment, Borrower shall prepay the interest accrued on the prepaid principal. 2B.14 FIXED-RATE LOANS: UNAVAILABILITY -- If at any time (a) Bank shall determine that dollar deposits of the relevant amount for the relevant Contract Period are not available in the London interbank eurodollar market (in the case of a LIBOR Loan) for the purpose of funding the Fixed-Rate Loan in question, or (b) Bank shall determine that circumstances affecting that market make it impracticable for Bank to ascertain the rate or rates applicable to such Fixed-Rate Loans, -6- then and in each such case Bank shall, by written notice to Borrower, suspend Borrower's right thereafter to obtain Fixed-Rate Loans of the kind in question, which suspension shall remain in effect until such time, if any, as Bank may give written notice to Borrower that the condition giving rise to the suspension no longer prevails. 2B.15 FIXED-RATE LOANS: ILLEGALITY -- If any governmental authority shall assert that it is unlawful for Bank to fund, make or maintain any Fixed-Rate Loans, (a) Bank shall give Borrower prompt written notice thereof and (b) Borrower shall promptly pay in full the principal of and interest on the Fixed-Rate Loan in question and make the reimbursement, if any, required by section 6C. 3A. INFORMATION -- Borrower agrees that so long as the Subject Commitment remains in effect and thereafter until the Subject Indebtedness shall have been paid in full, Borrower will perform and observe each of the following: 3A.01 FINANCIAL STATEMENTS -- Borrower will furnish to Bank (a) within forty-five (45) days after the end of each of the first three quarter-annual periods of each of Borrower's fiscal years, Borrower's balance sheet as at the end of the period and its statements of cash flow, income and surplus reconciliation for Borrower's current fiscal year to date, all prepared (but unaudited) on a comparative basis with the prior year, in accordance with GAAP (EXCEPT as disclosed therein) and in form and detail satisfactory to Bank, (b) as soon as available (and in any event within ninety (90) days after the end of each of Borrower's fiscal years), a complete copy of an annual audit report (including, without limitation, all financial statements therein and notes thereto) of Borrower for that year which shall be (1) prepared on a comparative basis with the prior year, in accordance with GAAP (EXCEPT as disclosed therein) and in form and detail satisfactory to Bank, and (2) certified (without qualification as to GAAP) by independent public accountants selected by Borrower and satisfactory to Bank. (c) concurrently with the delivery of any financial statement to Bank pursuant to clause (a) or (b), a certificate by Borrower's chief financial officer -7- (1) certifying that to the best of the officer's knowledge and belief, (A) those financial statements fairly present in all Material respects Borrower's financial condition and the results of its operations in accordance with GAAP subject, in the case of interim financial statements, to routine year-end audit adjustments and (B) no Default Under This Agreement then exists or if any does, a brief description of the default and Borrower's intentions in respect thereof, and (2) setting forth calculations indicating whether or not Borrower is in compliance with the general financial standards of section 3B, (d) promptly when filed (in final form) or sent, a copy of (1) each registration statement, Form 10-K annual report, Form 10-Q quarterly report, Form 8-K current report or similar document filed by Borrower with the Securities and Exchange Commission (or any similar federal agency having regulatory jurisdiction over Borrower's securities) and (2) each proxy statement, annual report, certificate, notice or other document sent by Borrower to the holders of any of its securities (or any trustee under any indenture which secures any of its securities or pursuant to which such securities are issued) and (e) forthwith upon Bank's written request, such other information in writing about Borrower's financial condition, properties and operations and about Borrower's employee benefit plans, if any, as Bank may from time to time reasonably request. 3A.02 NOTICE -- Borrower will cause its chief financial officer, or in his absence another officer designated by Borrower, to give Bank prompt written notice whenever any officer of Borrower (a) reasonably believes (or receives notice from any governmental agency alleging) that any Reportable Event has occurred in respect of any Pension Plan or that Borrower has become in Material non-compliance with any law or governmental order referred to in subsection 3C.06 if non-compliance therewith would materially and adversely affect Borrower's financial condition or its properties, (b) receives from the Internal Revenue Service or any other federal, state or local taxing authority any allegation of any default by Borrower in the payment of any tax that is Material in amount or notice of any assessment in respect thereof, -8- (c) learns there has been brought against Borrower before any court, administrative agency or arbitrator any litigation or proceeding which, if successful, might have a Material, adverse effect on Borrower, (d) reasonably believes that any representation or warranty made in subsections 4B.01 through 4B.08 (both inclusive) shall have ceased in any Material respect to be true and complete or that any Default Under This Agreement shall have occurred or (e) reasonably believes that there has occurred or begun to exist any other event, condition or thing that likely may have a Material, adverse effect on Borrower's financial condition, operations or properties. 3B. GENERAL FINANCIAL STANDARDS -- Borrower agrees that so long as the Subject Commitment remains in effect and thereafter until the Subject Indebtedness shall have been paid in full, Borrower will observe each of the following: 3B.01 REIMBURSEMENT AGREEMENT - Borrower and Bank have entered into or will enter into an Amended and Restated Reimbursement Agreement dated as of April 30, 2002 (the "Reimbursement Agreement"), which Reimbursement Agreement contains certain financial covenants to be complied with by the Borrower. The Borrower shall comply with the financial covenants set forth in Section 7 of the Reimbursement Agreement, as such Reimbursement Agreement may be amended and/or supplemented from time to time, as though such covenants were set forth herein. If the Reimbursement Agreement shall expire or terminate for any reason and this Agreement shall remain outstanding, the Borrower shall contunue to comply wich such financial covenants until such time as covenants may be negotiated and inserted into this Agreement. 3C. AFFIRMATIVE COVENANTS-- Borrower agrees that so long as the Subject Commitment remains in effect and thereafter until the Subject Indebtedness shall have been paid in full, Borrower will perform and observe each of the following: 3C.01 TAXES -- Borrower will pay in full (a) prior in each case to the date when penalties for the nonpayment thereof would attach, all taxes, assessments and governmental charges and levies for which it may be or become subject and (b) prior in each case to the date the claim would become delinquent for non-payment, all other lawful claims (whatever their kind or nature) which, if unpaid, might become a lien or charge upon its property; -9- PROVIDED, that no item need be paid so long as and to the extent that it is contested in good faith and by timely and appropriate proceedings which are effective to stay enforcement thereof. 3C.02 FINANCIAL RECORDS -- Borrower will at all times keep true and complete financial records in accordance with GAAP and, without limiting the generality of the foregoing, make appropriate accruals to reserves for estimated and contingent losses and liabilities. 3C.03 VISITATION -- Borrower will, to the extent not prohibited by law or government regulation or contract, permit Bank or Bank's agent(s) at all reasonable times and upon seven (7) days prior notice: (a) to visit and inspect Borrower's properties and examine its records at Bank's expense and to make copies of and extracts from such records and (b) to consult with Borrower's directors, officers, employees, accountants, actuaries, trustees and plan administrators in respect of its financial condition, properties and operations and the financial condition of its employee benefit plans, each of which parties is hereby authorized to make such information available to Bank to the same extent that it would be to Borrower. 3C.04 INSURANCE -- Borrower will (a) keep itself and all of its insurable properties insured at all times to such extent, with such deductibles, by such insurers and against such hazards and liabilities as is generally and prudently done by like businesses, EXCEPT that if a more specific standard is provided in any Related Writing, the more specific standard shall prevail and (b) forthwith upon Bank's written request, furnish to Bank such information about Borrower's insurance as Bank may from time to time reasonably request, which information shall be prepared in form and detail reasonably satisfactory to Bank and certified by an officer of Borrower. 3C.05 CORPORATE EXISTENCE -- Borrower will at all times maintain its corporate existence, rights and franchises. 3C.06 COMPLIANCE WITH LAW -- Borrower will comply with all laws (whether federal, state or local and whether statutory, administrative or judicial or other) and with every lawful governmental order (whether administrative or judicial) and will, without limiting the generality of the foregoing, -10- (a) use and operate all of its facilities and properties in Material compliance with all Environmental Laws and handle all hazardous materials in Material compliance therewith; keep in full effect each permit, approval, certification, license or other authorization required by any enviromnmental law for the conduct of any Material portion of its business; and comply in all other Material respects with all Environmental Laws; (b) make a full and timely payment of premiums required by ERISA and perform and observe all such further and other requirements of ERISA such that no Default under ERISA shall occur or begin to exist and (c) comply with all Material requirements of all occupational health and safety laws; PROVIDED, that this subsection shall not apply to any of the foregoing (i) if and to the extent that the same shall be contested in good faith by timely and appropriate proceedings which are effective to stay enforcement thereof and against which appropriate reserves shall have been established or (ii) in any other case so long as no Default Under This Agreement would occur or begin to exist if the maximum liability of all such items (including, without limitation, those referred to in clause (i)) were reflected in Borrower's balance sheet as a current liability. 3C.07 PROPERTIES -- Borrower will maintain all fixed assets necessary to its continuing operations in good working order and condition, ordinary wear and tear excepted. 3D. NEGATIVE COVENANTS -- Borrower agrees that so long as the Subject Commitments remain in effect and thereafter until the Subject Indebtedness shall have been paid in full, Borrower will observe, and will cause each Subsidiary to observe, such of the following provisions as are on their respective parts to be complied with, namely: 3D.01 EQUITY TRANSACTIONS -- Borrower will not, witout the prior written consent of the Bank: (a) be a party to any merger or consolidation, (b) acquire all or substantially all of the assets and business of another corporation or other business enterprise, whether by purchase or otherwise, -11- (c) lease as lessor, sell, sell-leaseback or otherwise transfer (whether in one transaction or a series of transactions) all or any substantial part of its fixed assets EXCEPT chattels that shall have become obsolete or no longer useful in its present business; PROVIDED, that if no Default Under This Agreement shall then exist and if none would thereupon begin to exist, this subsection shall not apply to any transaction referred to in clause (a) or (b) if (1) after giving effect thereto, the nature of Borrower's business shall not be materially different from that at the date of this Agreement and (2) there shall have been executed and delivered to Bank an assumption agreement (to be in form and substance satisfactory to Bank) by the surviving corporation (if not Borrower) in the case of any merger, by the resulting corporation in the case of any consolidation and by the transferee (if not Borrower) in any transfer of any kind of assets. 3D.02 BORROWINGS -- Borrower will not create, assume or have outstanding at any time any indebtedness for borrowed money or any Funded Indebtedness of any kind; PROVIDED, that this subsection shall not apply to (i) the Subject Indebtedness or any other Debt owing to Bank, (ii) any Subordinated indebtedness, (iii) any existing or future indebtedness secured by a purchase money security interest permitted by subsection 3D.04 or incurred under a lease permitted by subsection 3D.04 or (iv) any existing indebtedness fully disclosed in Borrower's Most Recent 4A.04 Financial Statements or in the Supplemental Schedule or any renewal or extension thereof in whole or in part. 3D.03 LIENS, LEASES -- Borrower will not (a) lease any property as lessee or acquire or hold any property subject to any land contract, inventory consignment or other title retention contract, (b) sell or otherwise transfer any Receivables, whether with or without recourse or (c) suffer or permit any property now owned or hereafter acquired by it to be or become encumbered by any mortgage, security interest, lien or financing statement; PROVIDED, that this subsection shall not apply to -12- (i) any tax lien, or any lien securing workers' compensation or unemployment insurance obligations, or any mechanic's, carrier's or landlord's lien, or any lien arising under ERISA, or any security interest arising under article four (bank deposits and collections) or five (letters of credit) of the Uniform Commercial Code, or any similar security interest or other lien, EXCEPT that this clause (i) shall apply only to security interests and other liens arising by operation of law (whether statutory or common law) and in the ordinary course of business and shall not apply to any security interest or other lien that secures any indebtedness for borrowed money or any Guaranty thereof or any obligation that is in Material default in any manner (other than any default contested in good faith by timely and appropriate proceedings effective to stay enforcement of the security interest or other lien in question), (ii) zoning or deed restrictions, public utility easements, minor title irregularities and similar matters having no adverse effect as a practical matter on the ownership or use of any of the property in question, (iii) any lien securing or given in lieu of surety, stay, appeal or performance bonds, or securing performance of contracts or bids (other than contracts for the payment of money borrowed), or deposits required by law or governmental regulations or by any court order, decree, judgment or rule or as a condition to the transaction of business or the exercise of any right, privilege or license, EXCEPT that this clause (iii) shall not apply to any lien or deposit securing an obligation that is in Material default in any manner (other than any default contested in good faith by timely and appropriate proceedings effective to stay enforcement of the security interest or other lien in question), (iv) any mortgage, security interest or other lien securing only Borrower's Debt to Bank, (v) any mortgage, security interest or other lien (each, a "purchase money security interest") which is created or assumed in purchasing, constructing or improving any real property or equipment or to which any such property is subject when purchased, PROVIDED, that (A) the purchase money security interest shall be confined to the aforesaid property, (B) the indebtedness secured thereby does not exceed the total cost of the purchase, construction or improvement and (C) any such indebtedness, if repaid in whole or in part, cannot be reborrowed, (vi) any lease other than any capitalized lease (it being agreed that a capitalized lease is a lien rather than a lease for the purposes of this Agreement) so long as the aggregate annual rentals of all such leases do not exceed six hundred thousand dollars ($600,000), -13- (vii) any mortgage, security interest or other lien which (together with the indebtedness secured thereby) is fully disclosed in Borrower's Most Recent 4A.04 Financial Statements or in the Supplemental Schedule or (viii) any financing statement perfecting a security interest that would be permissible under this subsection. 3D.04 NEGATIVE PLEDGE - Borrower agrees not to pledge, sell, encumber, transfer or otherwise dispose of any assets owned by it other than in the ordinary course of business without the prior written consent of the Bank. 4A. CLOSING -- Borrower has complied with each of the following: 4A.01 SUBJECT NOTE -- Borrower shall have executed and delivered a Subject Note to Bank in accordance with subsection 2B.01. 4A.02 RESOLUTIONS/INCUMBENCY -- Borrower's secretary or assistant secretary shall have certified to Bank (a) a copy of resolutions duly adopted by Borrower's board of directors in respect of this Agreement and (b) the names and true signatures of officers authorized to execute and deliver this Agreement and Related Writings on behalf of Borrower. 4A.03 LEGAL OPINION -- Borrower's counsel shall have rendered to Bank their written opinion in respect of the matters referred to in subsections 4B.01, 4B.02, 4B.03 and 4B.04 and in respect of the perfection of each mortgage, security interest or other lien referred to in this section 4A, which opinion shall be in such form and substance (and may be subject only to such qualifications and exceptions, if any) as shall be satisfactory to Bank. 4B. WARRANTIES -- Subject only to such additions and exceptions, if any, as may be set forth in the Supplemental Schedule or in Borrower's Most Recent Financial Statements, Borrower represents and warrants as follows: 4B.01 EXISTENCE -- Borrower is a duly organized and validly existing Ohio corporation in good standing. Borrower is duly qualified to transact business in each state or other jurisdiction in which it owns or leases any real property or in which the nature of the business conducted makes such qualification necessary or, if not so qualified, such failure to qualify will have no Material adverse effect upon Borrower's financial condition and its ability to transact business. Borrower has no Subsidiaries. 4B.02 GOVERNMENTAL RESTRICTIONS -- No registration with or approval of any governmental agency of any kind is required on the part of Borrower for the due -14- execution and delivery or for the enforceability of this Agreement or any Related Writing other than the filing or recording of documents with public officials, the noting of title certificates and similar acts and things related to the perfection of the mortgages, security interests and other liens referred to in section 4A. 4B.03 CORPORATE AUTHORITY -- Borrower has requisite corporate power and authority to enter into this Agreement and to obtain and secure the Subject Loan in accordance with this Agreement. The officer executing and delivering this Agreement on behalf of Borrower has been duly authorized to do so and to execute and deliver a Subject Note and other Related Writings in accordance with section 4A. Neither the execution and delivery of this Agreement or any Related Writing by Borrower nor its performance and observance of the respective provisions thereof will violate any existing provision in its articles of incorporation, regulations or by-laws or any applicable law or violate or otherwise constitute a default under any contract or other obligation now existing and binding upon it. Upon the execution and delivery thereof, this Agreement and the aforesaid Related Writings will each become a valid and binding obligation enforceable against Borrower according to their respective tenors subject, however, to any applicable insolvency or bankruptcy law of general applicability and general principles of equity. 4B.04 LITIGATION -- No litigation or proceeding is pending against Borrower before any court, administrative agency or arbitrator which might, if successful, have a Material adverse effect on Borrower. 4B.05 TAXES -- Borrower has filed all federal, state and local tax returns which are required to be filed by it and paid all taxes due as shown thereon (EXCEPT to the extent, if any, permitted by subsection 3C.01). The Internal Revenue Service has not alleged any Material default by Borrower in the payment of any tax Material in amount or threatened to make any assessment in respect thereof which has not been reflected in Borrower's Most Recent 4A.04 Financial Statements. 4B.06 TITLE -- Borrower has good and marketable title to all assets reflected in its Most Recent 4A.04 Financial Statements EXCEPT for changes resulting from transactions in the ordinary course of business. All such assets are clear of any mortgage, security interest or other lien of any kind other than any permitted by subsection 3D.04. 4B.07 LAWFUL OPERATIONS -- Borrower's operations have at all relevant times been and continue to be in Material compliance with all requirements imposed by law, whether federal, state or local, whether statutory, regulatory or other, including (without limitation) ERISA, all Environmental Laws, and occupational safety and health laws and all zoning ordinances. Borrower has received no notice from any governmental agency, court or authority that it is a potentially responsible party for the clean-up of any environmental waste site, is in violation of any environmental permit or law or has been placed on any registry of solid or hazardous waste disposal site. -15- 4B.08 INSURANCE -- Borrower's insurance coverage complies with the standards set forth in subsection 3C.04 and those set forth in the Related Writings referred to in subsections 4A.05 and 4A.06. 4B.09 FINANCIAL STATEMENTS -- Each of the financial statements referred to in subsection 4A.04 has been prepared in accordance with generally accepted accounting principles applied on a basis consistent with those used by Borrower during its then next preceding full fiscal year EXCEPT to the extent, if any, specifically noted therein and fairly presents in all Material respects (subject to routine year-end audit adjustments in the case of the unaudited financial statements) it's financial condition as of the date thereof (including a full disclosure of Material contingent liabilities, if any) and the results of its operations, if any, for the fiscal period then ending. There has been no Material adverse change in Borrower's financial condition, properties or business since the date of Borrower's Most Recent 4A.04 Financial Statements nor any change in its accounting procedures since the end of Borrower's latest full fiscal year covered by those statements. 4B.10 DEFAULTS -- No Default Under This Agreement exists, nor will any exist immediately after the execution and delivery of this Agreement. 5A. EVENTS OF DEFAULT -- Each of the following shall constitute an Event of Default hereunder: 5A.01 PAYMENTS -- If any principal included in the Subject Indebtedness shall not be paid in full promptly when the same becomes payable; or if any Subject Indebtedness (EXCEPT principal) or any of Borrower's other Debt to Bank (EXCEPT any payable on demand) shall not be paid in full promptly when the same becomes payable and shall remain unpaid for ten (10) consecutive days thereafter; or if such of Borrower's Debt, if any, to Bank, as may be payable on demand shall not be paid in full within ten (10) days after any actual demand for payment. 5A.02 WARRANTIES -- If any representation, warranty or statement made in this Agreement or in any Related Writing referred to in section 4A shall be false or erroneous in any respect; or if any representation, warranty or statement hereafter made by or on behalf of Borrower in any Related Writing not referred to in section 4A shall be false or erroneous in any Material respect. 5A.03 COVENANTS WITHOUT GRACE -- If Borrower shall fail or omit to perform or observe any provisions in subsections 3A.02. 5A.04 COVENANTS WITH GRACE -- If anyone (other than Bank and its agents) shall fail or omit to perform and observe any agreement (other than those referred to in -16- subsections 5A.01 or 5A.03) contained in this Agreement or any Related Writing that is on its part to be complied with, and that failure or omission shall not have been fully corrected within thirty (30) days after the giving of written notice to Borrower by Bank that it is to be remedied. 5A.05 CROSS-DEFAULT -- If any of Borrower's indebtedness for borrowed money (regardless of maturity) or any of its Funded Indebtedness shall be or become "in default" (as defined below). In this subsection, IN DEFAULT means that (a) there shall have occurred (or shall exist) in respect of the indebtedness in question (either as in effect at the date of this Agreement or as in effect at the time in question) any event, condition or other thing which constitutes, or which with the giving of notice or the lapse of any applicable grace period or both would constitute, a default which accelerates (or permits any creditor or creditors or representative or creditors to accelerate) the maturity of any such indebtedness; or (b) any such indebtedness (other than any payable on demand) shall not have been paid in full at its stated maturity; or (c) any such indebtedness payable on demand shall not have been paid in full within ten (10) Banking Days after any actual demand for payment. 5A.06 BORROWER'S SOLVENCY -- If (a) Borrower shall discontinue operations, or (b) Borrower shall commence any Insolvency Action of any kind or admit (by answer, default or otherwise) the Material allegations of, or consent to any relief requested in, any Insolvency Action of any kind commenced against Borrower by its creditors or any thereof, or (c) any creditor or creditors shall commence against Borrower any Insolvency Action of any kind which shall remain in effect (neither dismissed nor stayed) for thirty (30) consecutive days. 5B. EFFECTS OF DEFAULT -- Notwithstanding any contrary provision or inference in this Agreement or in any Related Writing: 5B.01 OPTIONAL DEFAULTS -- If any Event of Default referred to in subsection 5A.01 through 5A.05, both inclusive, shall occur and be continuing, Bank shall have the right in its discretion, by giving written notice to Borrower, (a) to terminate the Subject Commitment (if not already expired or reduced to zero pursuant to section 2A or terminated pursuant to this section) and Bank shall have no obligation thereafter to grant any Subject Loan to Borrower, and (b) to accelerate the maturity of all of Borrower's Debt to Bank (other than Debt, if any, already due and payable), and all such Debt shall thereupon become and thereafter be immediately due and payable in full without any presentment or demand and without any further or other notice of any kind, all of which are hereby waived by Borrower. -17- 5B.02 AUTOMATIC DEFAULTS -- If any Event of Default referred to in subsection 5A.06 shall occur, (a) the Subject Commitment shall automatically and immediately terminate (if not already expired or reduced to zero pursuant to section 2A or terminated pursuant to this section) and Bank shall have no obligation thereafter to grant any Subject Loan to Borrower, and (b) all of Borrower's Debt to Bank (other than Debt, if any, already due and payable) shall thereupon become and thereafter be immediately due and payable in full, all without any presentment, demand or notice of any kind, which are hereby waived by Borrower. 5B.03 OFFSETS -- If there shall occur or exist any Default Under This Agreement referred to in subsection 5A.07, then, so long as that Default Under This Agreement exists, Bank shall have the right at any time to set off against and to appropriate and apply toward the payment of the Subject Indebtedness then owing to it, whether or not the same shall then have matured, any and all deposit balances then owing by Bank to or for the credit or account of Borrower, all without notice to or demand upon Borrower, all such notices and demands being hereby expressly waived. 6A. INDEMNITY: STAMP TAXES -- Borrower will pay all stamp taxes and similar taxes, if any, including interest and penalties, if any, payable in respect of the issuance of the Subject Indebtedness. 6B. INDEMNITY: GOVERNMENTAL COSTS/FIXED-RATE LOANS -- If (a) there shall be introduced or changed any treaty, statute, regulation or other law, or there shall be made any change in the interpretation or administration thereof, or there shall be made any request from any central bank or other lawful governmental authority, the effect of any of which events shall be to (1) impose, modify or deem applicable any reserve or special deposit requirements against assets held by or deposits in or loans by any national banking association (whether or not applicable to Bank) or by Bank or (2) subject Bank to any tax, duty, fee, deduction or withholding or (3) change the basis of taxation of payments due to Bank from Borrower (otherwise than by a change in taxation of Bank's overall net income) or (4) impose on Bank any penalty in respect of any Fixed-Rate Loans and (b) in Bank's sole opinion any such event (1) increases (or, if the event were applicable to Bank, would increase) the cost of making, funding or maintaining any Fixed-Rate Loan or (2) reduces the amount of any payment to be made to Bank in respect of the principal or interest on any Fixed-Rate Loan or other payment under this Agreement, -18- then, upon Bank's demand, Borrower shall from time to time pay Bank an amount equal to each such cost increase or reduced payment, as the case may be. 6C. INDEMNITY: FUNDING COSTS -- Borrower agrees to indemnify Bank against any loss relating in any way to its funding of any Fixed-Rate Loan paid before its stated maturity (whether a prepayment or a payment following any acceleration of maturity) and to pay Bank, as liquidated damages for any such loss, an amount (discounted to the present value in accordance with standard financial practice at a rate equal to the treasury yield) equal to interest computed on the principal payment from the payment date to the respective stated maturities thereof at a rate equal to the difference of the contract rate less the treasury yield, all as determined by Bank in its reasonable discretion. TREASURY YIELD means the annual yield on direct obligations of the United States having a principal amount and maturity similar to that of the principal being paid. 6D. CREDIT REQUESTS -- Whenever Borrower shall revoke any Credit Request for a Fixed-Rate Loan, or shall for any other reason fail to borrow pursuant thereto or otherwise comply therewith, or shall fail to honor any prepayment notice, then, in each case on any bank's demand, Borrower shall pay each bank such amount as will compensate it for any loss, cost or expense incurred by it by reason of its liquidation or reemployment of deposits or other funds. 6E. INDEMNITY: UNFRIENDLY TAKEOVERS -- Borrower agrees to indemnify Bank and hold Bank harmless from and against any and all liabilities, losses, damages, costs and expenses of any kind (including, without limitation, the reasonable fees and disbursements of counsel in connection with any investigative, administrative or judicial proceeding, whether or not Bank shall be designated a party thereto) which may be incurred by Bank relating to or arising out of any actual or proposed use of proceeds of the Subject Loans in connection with the financing of an acquisition of any corporation or other business entity, PROVIDED that Bank shall have no right to be indemnified hereunder for its own gross negligence or willful misconduct as determined by a court of competent jurisdiction. 6F. INDEMNITY: CAPITAL REQUIREMENTS -- If (a) at any time any governmental authority shall require National City Corporation or Bank, whether or not the requirement has the force of law, to maintain, as support for the Subject Commitment, capital in a specified minimum amount that either is not required or is greater than that required at the date of this Agreement, whether the requirement is implemented pursuant to the "risk-based capital guidelines" (published at 12 CFR 3 in respect of "national banking associations", 12 CFR 208 in respect of "state member banks" and 12 CFR 225 in respect of "bank holding companies") or otherwise, and (b) as a result thereof the rate of return on capital of National City Corporation or Bank or both (taking into account their then policies as to capital adequacy and assuming full utilization of their capital) shall be directly or indirectly reduced by reason of any new or added capital thereby allocable to the Subject Commitment, -19- then and in each such case Borrower shall, on Bank's demand, pay Bank as an additional fee such amounts as will in Bank's reasonable opinion reimburse National City Corporation and Bank for any such reduced rate of return. 6G. INDEMNITY: COLLECTION COSTS -- If any Event of Default shall occur and shall be continuing, Borrower will pay Bank such further amounts, to the extent permitted by law, as shall cover Bank's costs and expenses (including, without limitation, the reasonable fees, interdepartmental charges and disbursements of its counsel) incurred in collecting the Subject Indebtedness or in otherwise enforcing its rights and remedies in respect thereof. 6H. CERTIFICATE FOR INDEMNIFICATION -- Each demand by Bank for payment pursuant to section 6A, 6B, 6C, 6D, 6E, 6F or 6G shall be accompanied by a certificate setting forth the reason for the payment, the amount to be paid, and the computations and assumptions in determining the amount, which certificate shall be presumed to be correct in the absence of manifest error. In determining the amount of any such payment, Bank may use reasonable averaging and attribution methods. 7. BANK'S PURPOSE -- Bank represents and warrants to Borrower that Bank is familiar with the Securities Act of 1933 as amended and the rules and regulations thereunder and is not entering into this Agreement with any intention of violating that Act or any rule or regulation thereunder, it being understood, however, that Bank shall at all times retain full control of the disposition of its assets. 8. INTERPRETATION -- This Agreement and the Related Writings shall be governed by the following provisions: 8.01 WAIVERS -- Bank may from time to time in its discretion grant Borrower waivers and consents in respect of this Agreement or any Related Writing or assent to amendments thereof, but no such waiver or consent shall be binding upon Bank unless specifically granted by Bank in writing, which writing shall be strictly construed. Without limiting the generality of the foregoing, Borrower agrees that no course of dealing in respect of, nor any omission or delay in the exercise of, any right, power or privilege by Bank shall operate as a waiver thereof, nor shall any single or partial exercise thereof preclude any further or other exercise thereof or of any other, as each such right, power or privilege may be exercised either independently or concurrently with others and as often and in such order as Bank may deem expedient. 8.02 CUMULATIVE PROVISIONS -- Each right, power or privilege specified or referred to in this Agreement or any Related Writing is in addition to and not in limitation of any other rights, powers and privileges that Bank may otherwise have or acquire by operation of law, by other contract or otherwise. -20- 8.03 BINDING EFFECT -- The provisions of this Agreement and the Related Writings shall bind and benefit Borrower and Bank and their respective successors and assigns, including each subsequent holder, if any, of the Subject Notes or any thereof; PROVIDED, that no person or entity other than Borrower may obtain Subject Loans; and PROVIDED, further, that neither any holder of any Subject Note or assignee of any Subject Loan, whether in whole or in part, shall thereby become obligated thereafter to grant Borrower any Subject Loan. 8.04 SURVIVAL OF PROVISIONS -- All representations and warranties made in or pursuant to this Agreement or any Related Writing shall survive the execution and delivery of this Agreement and the Subject Notes. The provisions of sections 6A, 6B, 6C and 6D shall survive the payment of the Subject Indebtedness. 8.05 IMMEDIATE U.S. FUNDS -- Any reference to money is a reference to lawful money of the United States of America which, if in the form of credits, shall be in immediately available funds. 8.06 CAPTIONS -- The several captions to different sections and subsections of this Agreement are inserted for convenience only and shall be ignored in interpreting the provisions thereof. 8.07 SUBSECTIONS -- Each reference to a section includes a reference to all subsections thereof (i.e., those having the same character or characters to the left of the decimal point) EXCEPT where the context clearly does not so permit. 8.08 ILLEGALITY -- If any provision in this Agreement or any Related Writing shall for any reason be or become illegal, void or unenforceable, that illegality, voidness or unenforceability shall not affect any other provision. 8.09 OHIO LAW -- This Agreement and the Related Writings and the respective rights and obligations of the parties hereto shall be construed in accordance with and governed by internal Ohio law. 8.10 INTEREST/FEE COMPUTATIONS -- All interest and all fees for any given period shall accrue on the first day thereof but not on the last day thereof and in each case shall be computed on the basis of a 360-day year and the actual number of days elapsed. In no event shall interest accrue at a higher rate than the maximum rate, if any, permitted by law. 8.11 NOTICE -- A notice to or request of Borrower shall be deemed to have been given or made under this Agreement or any Related Writing either upon the delivery of a writing to that effect (either in person or by transmission of a telecopy) to an officer of Borrower or five (5) days after a writing to that effect shall have been deposited in the -21- United States mail and sent, with postage prepaid, by registered or certified mail, properly addressed to Borrower (Attention: chief financial officer). No other method of actually giving actual notice to or making a request of Borrower is hereby precluded. Every notice required to be given to Bank pursuant to this Agreement or any Related Writing shall be delivered (either in person or by transmission of a telecopy) to an Account Officer of Bank. A notice or request by mail is properly addressed to a party when addressed to it at the address set forth opposite its signature below or at such other address as that party may furnish to each of the others in writing for that purpose. A telecopy is transmitted to a party when transmitted to the telecopy number set forth opposite that party's signature below (or at such other telecopy number as that party may furnish to the other in writing for that purpose). 8.12 ACCOUNTING TERMS -- Any accounting term used in this Agreement shall have the meaning ascribed thereto by GAAP subject, however, to such modification, if any, as may be provided by section 9 or elsewhere in this Agreement. 8.13 ENTIRE AGREEMENT -- This Agreement and the Related Writings referred to in or otherwise contemplated by this Agreement set forth the entire agreement of the parties as to the transactions contemplated by this Agreement. 8.14 SHARING OF INFORMATION -- Bank shall have the right to furnish to its Affiliates, and to such other persons or entities as Bank shall deem advisable for the conduct of its business, information concerning the business, financial condition, and property of Borrower, the amount of the Debt of Borrower, and the terms, conditions, and other provisions applicable to the respective parts thereof. 9. DEFINITIONS -- As used in this Agreement and in the Related Writings, EXCEPT where the context clearly requires otherwise, ACCOUNT OFFICER means that officer who at the time in question is designated by Bank as the officer having primary responsibility for giving consideration to Borrower's requests for credit or, in that officer's absence, that officer's immediate superior or any other officer who reports directly to that superior officer; ACCUMULATED FUNDING DEFICIENCY shall have the meaning ascribed thereto in section 302(a)(2) of ERISA; AFFILIATE means, when used with reference to any person or entity (the SUBJECT), a person or entity that is in control of, under the control of, or under common control with, the subject, the term CONTROL meaning the possession, directly or indirectly, of the power to direct the management or policies of a person or entity, whether through the ownership of voting securities, by contract, or otherwise; -22- AGREEMENT means this Agreement and includes each amendment, if any, to this Agreement; BANK means National City Bank, a national banking association headquartered in Cleveland, Ohio; BANKING DAY means (a) in the case of a LIBOR Loan, a day on which banks in the London Interbank Market deal in United States dollar deposits and on which banking institutions are generally open for domestic and international business in Cleveland, Ohio and in New York City and (b) in any other case, any day other than a Saturday or a Sunday or a public holiday or other day on which banking institutions in Cleveland, Ohio, are generally closed and do not conduct a general banking business; BORROWER means Sifco Industries, Inc., an Ohio corporation; COMPANY refers to Borrower or to a Subsidiary of Borrower, as the case may be; COMPENSATION includes all considerations (including without limitation, deferred compensation and disbursements to trusts), whatever the form or kind, for services rendered; CONTRACT PERIOD is defined in subsection 2B.07; CREDIT REQUEST means a request made pursuant to subsection 2B.02; CURRENT ASSETS means the net book value of all such assets (after deducting applicable reserves, if any, and without consideration to any reappraisal or write-up of assets) as determined in accordance with GAAP; CURRENT LIABILITIES means all such liabilities as determined in accordance with GAAP and includes (without limitation) all accrued taxes and all principal of any Funded Indebtedness maturing within twelve months of the date of determination; DEBT means, collectively, all liabilities of the party or parties in question to Bank, whether owing by one such party alone or with one or more others in a joint, several, or joint and several capacity, whether now owing or hereafter arising, whether owing absolutely or contingently, whether created by loan, overdraft, Guaranty of payment or other contract or by quasi-contract or tort, statute or other operation of law or other, and whether participated to or from Bank in whole or in part; and in the case of Borrower includes, without limitation, the Subject Indebtedness; DEFAULT UNDER ERISA means (a) the occurrence or existence of a Material Accumulated Funding Deficiency in respect of any of the Companies' respective Pension Plans, (b) -23- any failure by the Companies to make a full and timely payment of premiums required by ERISA for insurance against any employer's liability in respect of any such plan, (c) any Material breach of a fiduciary duty by any Company or trustee in respect of any such plan or (d) the existence of any action for the forceable termination of any such plan; DEFAULT UNDER THIS AGREEMENT means an event, condition or thing which constitutes (or which with the lapse of any applicable grace period or the giving of notice or both would constitute) an Event of Default referred to in section 5A and which has not been appropriately waived in writing in accordance with this Agreement or corrected to Bank's full satisfaction; ENVIRONMENTAL LAW means the Comprehensive Environmental Response, Compensation, and Liability Act (42 USC 9601 et seq.), the Hazardous Material Transportation Act (49 USC 1801 et seq.), the Resource Conservation and Recovery Act (42 USC 6901 et seq.), the Federal Water Pollution Control Act (33 USC 1251 et seq.), the Toxic Substances Control Act (15 USC 2601 et seq.) and the Occupational Safety and Health Act (29 USC 651 et seq.), as such laws have been or hereafter may be amended, and any and all analogous future federal, or present or future state or local, statutes and the regulations promulgated pursuant thereto; ERISA means the Employee Retirement Income Security Act of 1974 (P.L. 93-406) as amended from time to time and in the event of any amendment affecting any section thereof referred to in this Agreement, that reference shall be a reference to that section as amended, supplemented, replaced or otherwise modified; ERISA REGULATOR means any governmental agency (such as the Department of Labor, the Internal Revenue Service and the Pension Benefit Guaranty Corporation) having any regulatory authority over any of the Companies' Pension Plans; EVENT OF DEFAULT is defined in section 5A; EXPIRATION DATE means the date referred to as such in subsection 2A.02, EXCEPT that in the event of any extension pursuant to subsection 2A.05, EXPIRATION DATE shall mean the latest date to which the Subject Commitment shall have been so extended; FDIC ASSESSMENT RATE means the gross annual assessment rate (rounded upwards, if necessary, to the next higher 1/16 of 1%) actually incurred to the Federal Deposit Insurance Corporation (or any successor) by Bank for insurance on deposits in United States dollars at Bank's main office; FEDERAL FUNDS RATE means a fluctuating interest rate per annum, as in effect at the time in question, that is the rate determined by NCB to be the opening Federal Funds Rate per -24- annum paid or payable by it on the day in question in its regional federal funds market for overnight borrowings from other banking institutions; FIXED-RATE LOAN means a Subject Loan that is not a Prime Rate Loan; FUNDED INDEBTEDNESS means indebtedness of the person or entity in question which matures or which (including each renewal or extension, if any, in whole or in part) remains unpaid for more than twelve months after the date originally incurred and includes, without limitation (a) any indebtedness (regardless of its maturity) if it is renewable or refundable in whole or in part solely at the option of that person or entity (in the absence of default) to a date more than one year after the date of determination, (b) any capitalized lease, (c) any Guaranty of Funded Indebtedness owing by another person or entity and (d) any Funded Indebtedness secured by a security interest, mortgage or other lien encumbering any property owned or being acquired by the person or entity in question even if the full faith and credit of that person or entity is not pledged to the payment thereof; PROVIDED, that in the case of any indebtedness payable in installments or evidenced by serial notes or calling for sinking fund payments, those payments maturing within twelve months after the date of determination shall be considered current indebtedness rather than Funded Indebtedness for the purposes of section 3B but shall be considered Funded Indebtedness for all other purposes; GAAP means generally accepted accounting principles applied in a manner consistent with those used in Borrower's latest fiscal year-end financial statements referred to in subsection 4A.04; INSOLVENCY ACTION means either (a) a pleading of any kind filed by the person, corporation or entity (an "insolvent") in question to seek relief from the insolvent's creditors, or filed by the insolvent's creditors or any thereof to seek relief of any kind against that insolvent, in any court or other tribunal pursuant to any law (whether federal, state or other) relating generally to the rights of creditors or the relief of debtors or both, or (b) any other action of any kind commenced by an insolvent or the insolvent's creditors or any thereof for the purpose of marshalling the insolvent's assets and liabilities for the benefit of the insolvent's creditors; and INSOLVENCY ACTION includes (without limitation) a petition commencing a case pursuant to any chapter of the federal bankruptcy code, any application for the appointment of a receiver, trustee, liquidator or custodian for the insolvent or any substantial part of the insolvent's assets, and any assignment by an insolvent for the general benefit of the insolvent's creditors; LIBO PRE-MARGIN RATE means the rate per annum (rounded upwards, if necessary, to the next higher 1/16 of 1%), as determined by Bank which equals the average rate per annum at which deposits in United States dollars are offered for deposits of the maturity and amount in question, at 11:00 A.M. London time (or as soon thereafter as practicable) two -25- Banking Days prior to the first day of the Contract Period in question, to Bank by prime banking institutions in any Eurodollar market reasonably selected by Bank; LIBOR LOAN means a Subject Loan having a Contract Period described in clause (b) of subsection 2B.07 and bearing interest in accordance with clause (b) of subsection 2B.11; MATERIAL means Material as determined by Bank in the reasonable exercise of its discretion; MOST RECENT 4A.04 FINANCIAL STATEMENTS means Borrower's most recent financial statements that are referred to in subsection 4A.04; NET INCOME means Net Income as determined in accordance with GAAP, after taxes and after extraordinary items, but without giving effect to any gain resulting from any reappraisal or write-up of any asset; NET WORTH means the excess (as determined on a consolidated basis and in accordance with GAAP) of the net book value (after deducting all applicable valuation reserves and without consideration to any reappraisal or write-up of assets) of the tangible assets (i.e., all assets other than intangibles such as patents, costs of businesses over net assets acquired, good will and treasury stock) of the corporation or corporations in question over their Total Liabilities; PENSION PLAN means a defined benefit plan (as defined in section 3(35) of ERISA) of the Companies or any thereof and includes, without limitation, any such plan that is a multi-employer plan (as defined in section 3(37) of ERISA) applicable to any of the Companies' employees; PRIME RATE means the fluctuating rate of interest which is publicly announced from time to time by Bank at its principal place of business as being its "prime rate" or "base rate" thereafter in effect, with each change in the Prime Rate automatically, immediately and without notice changing the fluctuating interest rate thereafter applicable hereunder, it being agreed that the Prime Rate is not necessarily the lowest rate of interest then available from Bank on fluctuating rate loans; RECEIVABLE means a claim for money due or to become due, whether classified as an account, instrument, chattel paper, general intangible, incorporeal hereditament or otherwise, and any proceeds of the foregoing; RELATED WRITING means any note, mortgage, security agreement, other lien instrument, financial statement, audit report, notice, legal opinion, Credit Request, officer's certificate or other writing of any kind which is delivered to the Bank and which is relevant in any -26- manner to this Agreement or any Related Writing and includes, without limitation, the Subject Notes and the other writings referred to in sections 3A and 4A; REPORTABLE EVENT has the meaning ascribed thereto by ERISA; PRIME RATE LOAN means a Subject Loan maturing in the manner described in the first sentence of subsection 2B.08 and bearing interest in accordance with subsection 2B.11; SUBJECT COMMITMENT means Bank's commitment to extend credit to Borrower pursuant to sections 2A and 2B of this Agreement and upon the terms, subject to the conditions of this Agreement and in accordance with the other provisions of this Agreement; SUBJECT INDEBTEDNESS means, collectively, the principal of and interest on the Subject Loans and all fees and other liabilities, if any, incurred by Borrower to Bank pursuant to this Agreement or any Related Writing; SUBJECT LOAN means a loan obtained by Borrower pursuant to this Agreement; SUBJECT NOTE means a note executed and delivered by Borrower and being in the form and substance of Exhibit B with the blanks appropriately filled; SUBORDINATED, as applied to any liability of Borrower, means a liability which at the time in question is subordinated (by written instrument in form and substance satisfactory to Bank) in favor of the prior payment in full of Borrower's Debt to Bank; SUBSIDIARY means a corporation or other business entity if shares constituting a majority of its outstanding capital stock (or other form of ownership) or constituting a majority of the voting power in any election of directors (or shares constituting both majorities) are (or upon the exercise of any outstanding warrants, options or other rights would be) owned directly or indirectly at the time in question by the corporation in question or another SUBSIDIARY of that corporation or any combination of the foregoing; SUPPLEMENTAL SCHEDULE means the schedule incorporated into this Agreement as Exhibit A; TOTAL LIABILITIES means the aggregate (without duplication) of all liabilities of the corporation or corporations in question and includes, without limitation, (a) any indebtedness which is secured by any mortgage, security interest or other lien on any of their property even if the full faith and credit of none of them is pledged to the payment thereof, (b) any indebtedness for borrowed money or Funded Indebtedness of any kind if any such corporation or corporations is a Guarantor thereof and (c) any Subordinated indebtedness; PROVIDED, that there shall be excluded any liability under a -27- reimbursement agreement relating to a letter of credit issued to finance the importation or exportation of goods; WHOLLY-OWNED, as applied to a Subsidiary, means that all of the outstanding shares of stock and all of the outstanding warrants, options and other rights to purchase stock, other than directors' qualifying shares, are held of record and beneficially owned by Borrower; the foregoing definitions shall be applicable to the respective plurals of the foregoing defined terms. Address: SIFCO INDUSTRIES, INC. 970 East 64th Street Cleveland, Ohio 44103 Telecopy: By: /s/ Frank A. Cappello ------------------------------------ Name: Frank A. Cappello Title: Vice President-Finance & CFO Address: NATIONAL CITY BANK 1900 East Ninth Street Attn: Corporate Banking Division Cleveland, Ohio 44114-3484 By: /s/ Terry Wolford Telecopy: 216/222-9396 ------------------------------------ Name: Terry Wolford Title: Vice President -28- SUPPLEMENTAL SCHEDULE There is no item which Borrower must disclose in this Supplemental Schedule in order to be in full compliance with subsections 3D.01, 3D.02, 3D.03 and 3D.04, nor is there any addition or exception to the representations and warranties in section 4B. EXHIBIT A -29- NOTE $10,000,000 Cleveland, Ohio, April 30, 2002 FOR VALUE RECEIVED, the undersigned, SIFCO INDUSTRIES, INC. (BORROWER), an Ohio corporation, promises to pay to the order of NATIONAL CITY BANK, at the payee's main office in Cleveland, Ohio, the principal sum of TEN MILLION DOLLARS (or, if less, the aggregate unpaid principal balance from time to time shown on the reverse side), together with interest computed thereon in accordance with the Credit Agreement referred to below, which principal and interest is payable in accordance with the provisions in the Credit Agreement. This note is issued pursuant to a certain Amended and Restated Credit Agreement (the "Credit Agreement") made as of April 30, 2002 by and between the payee and Borrower. The Credit Agreement contains definitions applicable to this note, provisions governing the making of loans, the acceleration of the maturity thereof, rights of prepayment and other provisions applicable to this note. Each endorsement, if any, on the reverse side of this note (or any allonge thereto) shall be prima facie evidence of the data so endorsed. Borrower hereby authorizes any attorney at law at any time or times to appear in any state or federal court of record in the United States of America after the indebtedness represented by this note shall have become due, whether by lapse of time or by acceleration of maturity, to waive the issuance and service of process, to present this note (together with any endorsement or endorsements thereon) to the court, to admit the maturity thereof and the nonpayment thereof when due, to confess judgment against Borrower in favor of the holder of this note for the full amount then appearing due, together with interest and costs of suit, and thereupon to release all errors and waive all rights of appeal and stay of execution. The foregoing warrant of attorney shall survive any judgment, it being understood that should any judgment against Borrower be vacated for any reason, the holder of this note may nevertheless utilize the foregoing warrant of attorney in thereafter obtaining additional judgment or judgments against Borrower. Address: SIFCO INDUSTRIES, INC. 970 East 64th Street Cleveland, Ohio 44103 By: ------------------------------------- Name: Title: WARNING BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT TRIAL. IF YOU DO NOT PAY ON TIME A COURT JUDGMENT MAY BE TAKEN AGAINST YOU WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECTFROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT, OR ANY OTHER CAUSE. EXHIBIT B -30- EXTENSION AGREEMENT This extension agreement made as of ___________________, 20___ by and between Sifco Industries, Inc. (BORROWER) and National City Bank (BANK): The parties have executed and delivered a certain amended and restated credit agreement dated April 30, 2002 which provides for, among other things, a Subject Commitment aggregating $10,000,000 and available to Borrower, upon certain terms and conditions until March 31, 2004 (the EXPIRATION DATE now in effect) subject to any earlier reduction or termination pursuant to the credit agreement. In consideration of our mutual agreements and for other valuable considerations, the parties agree that subsection 2A.02 of the credit agreement (captioned "TERM") is hereby amended by deleting the date ______________, 20____ and by substituting therefor the date "______________, 20____", which latter date shall be the EXPIRATION DATE hereafter in effect. In all other respects the credit agreement shall remain in full effect. SIFCO INDUSTRIES, INC. By -------------------------------------- NATIONAL CITY BANK By -------------------------------------- EXHIBIT C -31- EX-4.C 7 l93943aex4-c.txt EXHIBIT 4(C) EXHIBIT 4(c) PROMISSORY NOTE (TERM LOAN) $12,000,000 CLEVELAND, OHIO APRIL 14, 1998 For value received, the undersigned, SIFCO INDUSTRIES, INC. ("Borrower), an Ohio corporation, hereby promises to pay to the order of NATIONAL CITY BANK ("Bank"), at its office in Cleveland, Ohio, the principal sum of TWELVE MILLION DOLLARS payable as follows, together with interest as provided below. (a) Borrower shall pay Bank twenty eight (28) consecutive quarter-annual instalments of principal, commencing on AUGUST 1, 1998 and continuing on the first day of each quarter thereafter, the first twenty seven (27) instalments shall be in the principal amount of three hundred thousand and no/100ths dollars ($300,000) plus interest as set forth below, with the final instalment to be in an amount equal to all unpaid principal, together with interest thereon. Borrower may elect to have interest calculated as either a Prime Rate Loan or a LIBOR Loan or an Other Rate Loan, each as provided below. (b) Each Prime-Rate Loan shall bear interest payable quarterly and at maturity and computed at a fluctuating rate per annum equal to the Bank's Prime Rate from time to time in effect, except that if any Event of Default shall occur and remain in effect (unless waived in writing by Bank or fully corrected to Bank's satisfaction) the principal of and interest then accrued on the Prime Rate Loans shall thereafter bear interest at the rate of three percent (3%) per annum plus the Prime Rate from time to time in effect. Each change in the Prime Rate shall automatically and immediately change the rate thereafter applicable to the Prime Rate Loans. (c) Each Fixed-Rate Loan shall bear interest payable at the end of the Fixed-Rate Interest Period, provided that if a Fixed-Rate Interest Period shall be longer than three (3) months, Borrower shall pay interest after each three (3) month period and in any event on the last day of each Fixed-Rate Interest Period, and computed at a LIBOR Rate as set forth in the schedule below; except that after maturity the principal of and interest then accrued on each Fixed-Rate Loan shall bear interest at a rate equal to three percent (3%) per annum plus the Prime Rate from time to time in effect. PRE TAX INTEREST COVERAGE LIBOR RATE ------------------------- ---------- greater than 10X LIBOR + 125bp 7.5X - 10X LIBOR + 150bp 5.0X - 7.5X LIBOR + 175bp 2.5X - 5X LIBOR + 200bp The initial rate on this Note shall be LIBOR PLUS 125bp. (e) All interest shall be computed on the basis of a 360-day year and the actual number of days elapsed. 1. Certain terms used in this Note are defined in section 12. 2. Each request for a LIBOR Loan shall be made by Borrower not later than 12:00 noon on the third Banking Day prior to the date the funds are to be disbursed to Borrower. Each request for a Prime-Rate Loan shall be made by Borrower not later than 12:00 noon on the Banking Day next preceding the date the funds are to be disbursed to Borrower. 3. Bank shall be entitled to rely on any telephone or other oral request by Borrower, from an authorized officer as set forth in corporate resolutions passed from time to time, for a Loan. Each such telephone or oral request shall be promptly confirmed in writing. 4. Each Prime Rate Loan may be in any principal amount. Each LIBOR Loan shall be in the minimum principal amount of one million dollars ($1,000,000) or any greater amount in excess thereof. 5. No principal of any Fixed-Rate Loan may be paid prior to the stated maturity thereof unless Bank shall have given its prior written consent thereto and Borrower has agreed to pay a premium or penalty if required by the Bank. 6. Without prejudice to any other provision of this Note, Borrower agrees that if any principal of any Fixed-Rate Loan is paid prior to its stated maturity (whether following any acceleration of maturity pursuant to section 11 or pursuant to any notice given pursuant to section 9 or otherwise), or if Borrower shall fail to pay any such principal when due, or if Borrower shall fail to borrow or otherwise comply with its request, then and in each such case Borrower will indemnify Bank against any documented loss or expense which Bank may sustain or incur as a consequence thereof including (but not limited to) any loss of profit, premium or penalty (as determined by Bank in the exercise of its sole but reasonable discretion) incurred by Bank in respect of funds borrowed by it for the purpose of making or maintaining the Fixed-Rate Loan. Bank's certificate as to any such loss or expense shall be conclusive absent manifest error. Prime Rate Loans may be prepaid in whole or in part at any time without premium or penalty. 7. If there shall be introduced or changed any treaty, statute, regulation or other law, or there shall be any change in the interpretation or administration thereof, or there shall be made any request from any central bank or other lawful governmental authority, which introduction, change or compliance with shall (1) impose, modify or deem applicable any reserve or special deposit requirements against assets held by or deposits in or loans by the Bank, or (2) subject Bank to any tax, fee, deduction or withholding, or (3) change the basis of taxation of payments due from Borrower (otherwise than by a change in taxation of Bank's overall net income), or (4) impose on Bank any penalty in respect of Fixed-Rate Loans and any such event increases Bank's cost of making, funding or maintaining any Fixed-Rate Loans or reduce the amount of principal or interest received by Bank in respect of the Fixed-Rate Loan, then, within thirty (30) days of Bank's written request, Borrower shall pay Bank from time to time such additional amounts as will compensate Bank for and indemnify it against such increased costs or reduced amount. If such law or regulation shall reduce Bank's cost or expense, Borrower shall receive the benefit of such reduced cost or expense. 8. In the event any Regulatory Change shall make it unlawful for Bank to make or maintain Fixed Rate Loans, Bank shall promptly give Borrower written notice and explanation thereof. On the effective date of such Regulatory Change, the Fixed Rate Loan shall be converted to a Prime Rate Loan. -2- 9. Borrower shall comply with the financial and/or negative covenants contained in the Reimbursement Agreement dated as of May 1, 1992 between Borrower and Bank (the "1992 Reimbursement Agreement") as such Reimbursement Agreement may have been modified or amended from time to time and as such Reimbursement Agreement may be modified or amended from time to time in the future until such time as the 1998 Reimbursement Agreement between Borrower and Bank (the 1998 Reimbursement Agreement") shall have been executed and delivered and thereafter the financial and/or negative covenants contained in the 1998 Reimbursement Agreement shall govern. If no Reimbursement Agreement shall be effective, Borrower shall continue to comply with the covenants contained in the 1992 Reimbursement Agreement, as amended, until such time as new covenants may be agreed upon for this Note. 10. Upon the occurrence and continuation of any Event of Default, the principal of and accrued interest on all loans shall (if not already due) become immediately due and payable without notice and without presentment or demand of any kind. An Event of Default shall occur (a) if any principal or interest of any loan shall not be paid in full promptly when the same becomes due and payable and shall remain unpaid for ten (10) consecutive business days after written notice of non-payment thereof, or (b) if Borrower shall fail to perform and observe any agreement made by Borrower in this Note, other than that referred to in clause (a) of this section, and that failure (unless waived in writing by Bank or fully corrected to Bank's satisfaction) shall continue for thirty 30) consecutive days after written notice calling Borrower's attention thereto, or (c) if Borrower shall discontinue operations or commence any insolvency action of any kind, or admit (by answer, default or otherwise) the material allegations of, or consent to any relief requested in, any insolvency action of any kind commenced against Borrower by its creditors or any thereof, or if Borrowers creditors or any thereof shall commence against Borrower any insolvency action of any kind which shall remain in effect (neither dismissed nor stayed) for ninety-one (91) consecutive days. (d) if an Event of Default shall occur and be continuing under any other instrument or document providing a credit facility to Borrower. (e) Borrower shall fail to cause the following financial information to be forwarded to the Bank and such failure shall continue for a period of thirty (30) days after notice thereof from Bank: (i) Financial Statements of the Borrower within ninety (90) days after the end of each fiscal year, which financial statements have been audited by independent public accountants selected by Borrower and acceptable to Bank. 11. This Promissory Note is secured by Borrower's existing collateral agreements with the Bank. -3- 12. In this Note, "BANKING DAY" means (a) in the case of a LIBOR Loan, a day on which banks in the London Interbank Market dealing in United States dollar deposits and on which banking institutions are generally open for domestic and international business in Cleveland, Ohio and in New York City and (b) in any other case, any day other than a Saturday or a Sunday or a public holiday or other day on which banking institutions in Cleveland, Ohio, are generally closed and do not conduct a banking business; "PRIME RATE LOAN" means a loan obtained by Borrower that bears interest prior to the occurrence of any Event of Default at a fluctuating rate per annum equal to Bank's Prime Rate from time to time in effect, with each change in the Prime Rate automatically and immediately changing the aforesaid fluctuating rate; "EUROCURRENCY LIABILITIES" has the meaning assigned to that term by Regulation D of the Board of Governors of the Federal Reserve System, as in effect from time to time; "EVENT OF DEFAULT" is defined in section 10. "FIXED-RATE INTEREST PERIOD" means a LIBOR Interest Period. "FIXED-RATE LOAN" means any LIBOR Loan. "LIBOR" means the average (rounded upward to the nearest 1/16th of 1%) of the per annum rates at which deposits in immediately available funds in U.S. dollars for the relevant period during which a given LIBOR Loan will remain outstanding and in the amount of the LIBOR Loan are offered to National City Bank, Cleveland, Ohio ("NCB") by prime banks in any Eurodollar market reasonably selected by NCB, determined as of 11:00 a.m. London time (or as soon thereafter as practicable), two (2) Banking Days prior to the date of the LIBOR Loan, plus the LIBOR Reserve Percentage from time to time in effect; "LIBOR INTEREST PERIOD" means a period ending one (1), two (2), three (3) or six (6) months after the date of borrowing, provided, that if any LIBOR Interest Period would otherwise end on a day that is not a Banking Day, it shall end on the next following Banking Day if such Banking Day is in the same calendar month or, if such Banking Day falls in the next succeeding calendar month, it shall end on the Banking Day next preceding the date in question. "LIBOR LOAN" means a loan obtained by Borrower that is payable on a date certain (not more than 6 months after the date of borrowing) and bears interest prior to maturity at a fixed rate equal to the applicable LIBOR plus the applicable premium in accordance with the aforementioned schedule; "LIBOR RESERVE PERCENTAGE" shall mean for any given day that percentage (expressed as a decimal) which is in effect on that day, as prescribed by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement (including, without limitation, all basic, supplemental, marginal and other reserves and taking into account any transitional adjustments or other scheduled changes in reserve requirements) for a member bank of the Federal Reserve System in Cleveland, Ohio, in respect of Eurocurrency Liabilities; -4- "REGULATORY CHANGE" means, as to Bank, any change in law (whether domestic or foreign, federal, state of local, statutory, administrative, judicial or other), however characterized, or the adoption or making of any interpretation, directive or request (whether or not having the force of law) by any court or governmental agency or authority of any kind charged with the interpretation, directive or request (whether or not having the force of law), excluding, however, any such change which results in an adjustment of the Reserve Percentage and the effect of which is reflected in a change in the interest rates(s) of the LIBOR Loans(s) in question; "SUBJECT LOAN" means a LIBOR Loan or a Prime Rate Loan. the foregoing definitions shall be applicable to the respective plurals of the terms defined above. 13. No waiver, consent or other agreement shall be deemed to have been made by Bank or be binding upon Bank unless specifically granted in writing, which writing shall be strictly construed. Any notice to or demand upon Borrower shall be sufficiently made or given for all purposes when sent by registered or certified mail to the address hereinafter set forth but no other method of giving notice or making demand is hereby precluded. This Note shall be construed in accordance with Ohio law. The undersigned hereby authorizes any attorney-at-law to appear in any Court of Record in the State of Ohio or any other State or Territory of the United States after this note becomes due by acceleration or otherwise, and waive the issuing and service of process and confess judgment against the undersigned in favor of the Bank or other holder of this note for the amount then appearing due and the cost of suit, and thereupon to release all errors and waive all rights of appeal and stay of execution. - ------------------------------------------------------------------------------- "WARNING -- BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT TRIAL. IF YOU DO NOT PAY ON TIME A COURT JUDGMENT MAY BE TAKEN AGAINST YOU WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT, OR ANY OTHER CAUSE". - ------------------------------------------------------------------------------- Address: 970 East 64th Street SIFCO INDUSTRIES, INC. Cleveland, Ohio 44103 By: /s/ Richard Demetter ------------------------------------ Vice President & Chief Financial Officer -5- EX-4.D 8 l93943aex4-d.txt EXHIBIT 4(D) EXHIBIT 4(d) - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- LOAN AGREEMENT between HILLSBOROUGH COUNTY INDUSTRIAL DEVELOPMENT AUTHORITY and SIFCO INDUSTRIES, INC. - ------------------------------------------------------------------------------- $4,100,000 Hillsborough County Industrial Development Authority Industrial Development Variable Rate Demand Revenue Bonds, Series 1998 (SIFCO Industries, Inc., Project) - ------------------------------------------------------------------------------- Dated as of May 1, 1998 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Squire, Sanders & Dempsey L.L.P. Bond Counsel -1- TABLE OF CONTENTS ----------------- (THIS TABLE OF CONTENTS IS NOT A PART OF THE AGREEMENT BUT RATHER IS FOR CONVENIENCE OF REFERENCE ONLY)
PAGE ARTICLE I DEFINITIONS Section 1.1. USE OF DEFINED TERMS................................................................................. 2 Section 1.2. DEFINITIONS.......................................................................................... 2 Section 1.3. INTERPRETATION....................................................................................... 5 Section 1.4. CAPTIONS AND HEADINGS................................................................................ 5 ARTICLE II REPRESENTATIONS, WARRANTIES AND COVENANTS Section 2.1. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE ISSUER.............................................. 6 Section 2.2. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BORROWER............................................ 6 ARTICLE III COMPLETION OF THE 1998 PROJECT; ISSUANCE OF THE PROJECT BONDS Section 3.1. CONSTRUCTION, ACQUISITION AND INSTALLATION OF THE 1998 PROJECT....................................... 8 Section 3.2. PLANS AND SPECIFICATIONS............................................................................. 8 Section 3.3. ISSUANCE OF THE BONDS, APPLICATION OF PROCEEDS....................................................... 8 Section 3.4. DISBURSEMENTS FROM THE PROJECT FUND.................................................................. 8 Section 3.5. BORROWER REQUIRED TO PAY COSTS IN EVENT PROJECT FUND INSUFFICIENT.................................... 10 Section 3.6. COMPLETION DATE...................................................................................... 10 Section 3.7. INVESTMENT OF FUND MONEYS............................................................................ 11 Section 3.8. REBATE FUND.......................................................................................... 11 ARTICLE IV LOAN BY ISSUER; REPAYMENT OF THE LOAN; LOAN PAYMENTS AND ADDITIONAL PAYMENTS Section 4.1. LOAN REPAYMENT; DELIVERY OF NOTES AND LETTER OF CREDIT............................................... 12 Section 4.2. ADDITIONAL PAYMENTS.................................................................................. 13 Section 4.3. PLACE OF PAYMENTS.................................................................................... 13 Section 4.4. OBLIGATIONS UNCONDITIONAL............................................................................ 13 Section 4.5. ASSIGNMENT OF AGREEMENT AND REVENUES................................................................. 13 Section 4.6. LETTER OF CREDIT..................................................................................... 13
-i- TABLE OF CONTENTS ----------------- (Continued)
PAGE ARTICLE V ADDITIONAL AGREEMENTS AND COVENANTS Section 5.1 RIGHT OF INSPECTION.................................................................................. 14 Section 5.2. SALE, LEASE OR GRANT OF USE BY BORROWER.............................................................. 14 Section 5.3. INDEMNIFICATION...................................................................................... 14 Section 5.4. BORROWER NOT TO ADVERSELY AFFECT EXCLUSION FROM GROSS INCOME OF INTEREST ON PROJECT BONDS......................................................................... 15 Section 5.5. ASSIGNMENT BY ISSUER................................................................................. 15 Section 5.6. BORROWER'S PERFORMANCE UNDER INDENTURE............................................................... 15 Section 5.7. COMPLIANCE WITH LAWS................................................................................. 16 Section 5.8. TAXES, PERMITS, UTILITY AND OTHER CHARGES............................................................ 16 Section 5.9. CONTINUED EXISTENCE.................................................................................. 16 Section 5.10. REMOVAL OF PORTIONS OF THE PROJECT................................................................... 16 Section 5.11. NON-CONTROLLED PERSON COVENANT....................................................................... 16 ARTICLE VI REDEMPTION OF PROJECT BONDS Section 6.1. OPTIONAL REDEMPTION.................................................................................. 17 Section 6.2. EXTRAORDINARY OPTIONAL REDEMPTION.................................................................... 17 Section 6.3. MANDATORY REDEMPTION OF PROJECT BONDS................................................................ 18 Section 6.4. ACTIONS BY ISSUER.................................................................................... 18 Section 6.5. REQUIRED DEPOSITS FOR OPTIONAL REDEMPTION............................................................ 18 ARTICLE VII EVENTS OF DEFAULT AND REMEDIES Section 7.1. EVENTS OF DEFAULT.................................................................................... 19 Section 7.2. REMEDIES ON DEFAULT.................................................................................. 20 Section 7.3. NO REMEDY EXCLUSIVE.................................................................................. 20 Section 7.4. AGREEMENT TO PAY ATTORNEYS' FEES AND EXPENSES........................................................ 21 Section 7.5. NO WAIVER............................................................................................ 21
- ii - TABLE OF CONTENTS (Continued)
PAGE ARTICLE VIII MISCELLANEOUS Section 8.1. TERM OF AGREEMENT.................................................................................... 22 Section 8.2. NOTICES.............................................................................................. 22 Section 8.3. EXTENT OF COVENANTS OF THE ISSUER; NO PERSONAL LIABILITY............................................. 22 Section 8.4. BINDING EFFECT....................................................................................... 22 Section 8.5. AMENDMENTS AND SUPPLEMENTS........................................................................... 22 Section 8.6. EXECUTION COUNTERPARTS............................................................................... 22 Section 8.7. SEVERABILILY......................................................................................... 22 Section 8.8. GOVERNING LAW........................................................................................ 23 EXHIBIT A - PROJECT FACILITIES A-1 EXHIBIT B - PROJECT SITE B-1 EXHIBIT C - PROJECT NOTE C-1 EXHIBIT D - FORM OF DISBURSEMENT REQUEST D-1
-iii- LOAN AGREEMENT THIS LOAN AGREEMENT is made and entered into as of May 1, 1998 between the HILLSBOROUGH COUNTY INDUSTRIAL DEVELOPMENT AUTHORITY, a public body corporate and politic and a public instrumentality of the State of Florida (the "Issuer"), and SIFCO INDUSTRIES, INC., a corporation duly organized and existing under the laws of the State of Ohio and authorized to do business in the State (the "Borrower"), under the circumstances summarized in the following recitals (the capitalized terms not defined above or in the recitals being used therein as defined in or pursuant to Article I hereof): A. Pursuant to the Act, the Issuer has determined to issue and sell the Project Bonds and to loan the proceeds derived from the sale thereof to the Borrower to be used to assist in the (i) financing of a project (the "Project") involving the construction of an addition to an industrial facility and the acquisition of machinery and equipment to be used in the repairing, overhauling and otherwise servicing jet aircraft turbine engines including turbine blades and other components, located within the boundaries of the County and (ii) the refunding of a portion of bonds previously issued by the Issuer to finance an earlier project. The Issuer and the Borrower intend that the Project Bonds will constitute an exempt small issue for the purposes of Section 144(a)(4)(A) of the Internal Revenue Code of 1986 (including any amendments and successor provisions thereto and the rules and regulations thereunder, the "Code") so that interest on such bonds will not be included in the gross income of the recipients thereof for federal income tax purposes. B. The Borrower and the Issuer each have full right and lawful authority to enter into this Agreement and to perform and observe the provisions hereof on their respective parts to be performed and observed. C. The Issuer hereby determines that the Project will foster economic development, improve the living conditions and otherwise contribute to the welfare of the State and its people and is permitted by and will accomplish the purposes of the Act. D. The Project Site is owned and the Project will be owned and operated by SIFCO Turbine Component Services ("STCS"), an Ohio partnership whose general partners are wholly owned subsidiaries of the Borrower. NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the parties hereto covenant, agree and bind themselves as follows (provided that any obligation of the Issuer created by or arising out of this Agreement shall not be a general debt on its part nor give rise to any pecuniary liability of the Issuer but shall be payable solely out of the Revenues): -1- ARTICLE I DEFINITIONS Section 1.1. USE OF DEFINED TERMS. Words and terms defined in the Indenture shall have the same meanings when used herein, unless the context or use clearly indicates another meaning or intent. In addition, the words and terms set forth in Section 1.2 hereof shall have the meanings set forth therein unless the context or use clearly indicates another meaning or intent. Section 1.2. DEFINITIONS. As used herein: "Additional Payments" means the amounts required to be paid by the Borrower pursuant to the provisions of Section 4.2 hereof. "Agreement" means this Loan Agreement, as amended or supplemented from time to time. "Borrower" means SIFCO Industries, Inc., and, as to representations, warranties and covenants relating to the Project, STCS. "Borrower Documents" means this Agreement, the Project Note, the Bond Purchase Agreement, the Security Agreement, the Remarketing Agreement, the Reimbursement Agreement and the Bond Pledge Agreement, each as amended or supplemented from time to time. "Completion Date" means the date of the substantial completion of the construction, acquisition and installation of the 1998 Project evidenced in accordance with the requirements of Section 3.6 hereof. "Construction Period" means the period between the beginning of the construction, acquisition and installation of the 1998 Project or the date on which the Bonds are initially issued, whichever is earlier, and the Completion Date. "County" means Hillsborough County, Florida. "Engineer" means an individual or firm acceptable to the Trustee and qualified to practice the profession of engineering or architecture under the laws of the State. "Event of Default" means any of the events described as an Event of Default in Section 7.1 hereof. "Force Majeure" means any of the causes, circumstances or events described as constituting Force Majeure in Section 7.1 hereof. "Indenture" means the Trust Indenture, dated as of even date herewith, between the Issuer and the Trustee, as amended or supplemented from time to time. "Issuer Documents" means this Agreement, the Indenture and the Bond Purchase Agreement, each as amended or supplemented from time to time. "Loan" means the loan by the Issuer to the Borrower of the proceeds received from the sale of the Bonds. -2- "Loan Payment Date" means any date on which any of the Loan Payments are due and payable, whether at maturity, upon acceleration, call for redemption or prepayment, or otherwise. "Loan Payments" means the amounts required to be paid by the Borrower in repayment of the Loan pursuant to the provisions of the Notes and of Section 4.1 hereof. "1992 Bonds" means the Issuer's Industrial Development Revenue Refunding and Improvement Bonds (SIFCO Turbine Components Services Project), Series 1992, dated as of May 1, 1992. "1992 Project" means the real and personal property described as such in EXHIBIT A hereto. "1998 Project" means the real and personal property described as such in EXHIBIT A hereto (and more particularly described in the Plans and Specifications), together with any additions, modifications and substitutions thereto permitted by the terms of this Agreement. "Notes" means the Project Note and any Additional Notes. "Notice Address" means: ----------- -------------------------------------- ---------------------------------------------------------------------- (a) As to the Issuer: Hillsborough County Industrial Development Authority c/o Thomas K. Morrison, Esq. Morrison, Morrison & Mills, P.A. 600 North Florida Avenue Suite 1700 Tampa, Florida 33602 (813) 224-0739 (813) 223-4199 (Fax) ----------- -------------------------------------- ---------------------------------------------------------------------- (b) As to the Borrower: SIFCO Industries, Inc. 970 East 64th Street Cleveland, Ohio 44103 Attention: Vice President - Finance (216) 432-6278 (216) 432-6281 (Fax) ----------- -------------------------------------- ---------------------------------------------------------------------- (c) As to the Trustee: National City Bank 629 Euclid Avenue Suite 635 Cleveland, OH 44114-3484 Attention: Corporate Trust Department, Locator 01-3116 (216) 575-2552 (216) 575-9326 (Fax) ----------- -------------------------------------- -----------------------------------------------------------------------
-3- ----------- -------------------------------------- ----------------------------------------------------------------------- (d) As to the Letter of Credit Bank: National City Bank 1900 East Ninth Street, 10th Floor Cleveland, Ohio 44114 Attention: Multinational Division, Letter of Credit Section with a copy sent simultaneously to Attention: Metro/Ohio Division (216) 575-3279 (216) 575-9396 (Fax) ----------- -------------------------------------- ----------------------------------------------------------------------- (e) As to the Remarketing Agent: NatCity Investments, Inc. 1965 East Sixth Street Eighth Floor Cleveland, Ohio 44114 Attention: Dwight A. Clark, Senior Vice President ----------- -------------------------------------- -----------------------------------------------------------------------
or such additional or different address, notice of which is given under Section 8.2 hereof. "Plans and Specifications" means the Borrower's plans and specifications for the construction, acquisition and installation of the 1998 Project, as on file with the Bank as amended from time to time. "Project" means collectively the 1992 Project and the 1998 Project at the Project Site, individually and collectively constituting a "project", as defined in the Act. "Project Bonds" means the $4,100,000 Hillsborough County Industrial Development Authority Industrial Development Variable Rate Demand Revenue Bonds (SIFCO Industries, Inc. Project) Series 1998, dated as of the date of their initial delivery. "Project Note" means the promissory note of the Borrower, dated as of even date with the Project Bonds, in the form attached hereto as EXHIBIT C and in the principal amount of $4,100,000 evidencing the obligation of the Borrower to make Loan Payments. "Project Site" means the real estate and interests in real estate constituting the site of the Project, as described in EXHIBIT B attached hereto as a part hereof. "Security Agreement" means the Security Agreement dated as of even date herewith from the Borrower and STCS to the Bank, as amended or supplemented from time to time. "STCS" means SIFCO Turbine Component Services, an Ohio general partnership. "Tax Certificate" means the Tax Compliance Certificate of the Borrower delivered in connection with the initial issuance and delivery of the Project Bonds. -4- "Trustee" means the Trustee at the time acting as such under the Indenture, originally National City Bank, Cleveland, Ohio, as Trustee, and any successor Trustee as determined or designated under or pursuant to the Indenture. "Unassigned Issuer's Rights" means all of the rights of the Issuer to receive Additional Payments under Section 4.2 hereof, to be held harmless and indemnified under Section 5.3 hereof, to be reimbursed for attorney's fees and expenses under Section 7.4 hereof, and to give or withhold consent to amendments, changes, modifications, alterations and termination of this Agreement under Section 8.5 hereof. "Underwriter" means NatCity Investments, Inc., Cleveland, Ohio. Section 1.3. INTERPRETATION. Any reference herein to the Issuer, to the Issuing Authority or to any member or officer of either includes entities or officials succeeding to their respective functions, duties or responsibilities pursuant to or by operation of law or lawfully performing their respective functions. Any reference to a section or provision of the Constitution of the State or the Act, or to a section, provision or chapter of the Florida Statutes or to any statute of the United States of America, includes that section, provision, chapter or statute as amended, modified, revised, supplemented or superseded from time to time; provided, that no amendment, modification, revision, supplement or superseding section, provision, chapter or statute shall be applicable solely by reason of this provision if it constitutes in any way an impairment of the rights or obligations of the Issuer, the Holders, the Trustee, the Bank or the Borrower under this Agreement. Unless the context indicates otherwise, words importing the singular number include the plural number, and vice versa; the terms "hereof", "hereby", "herein", "hereto", "hereunder" and similar terms refer to this Agreement; and the term "hereafter" means after, and the term "heretofore" means before, the date of delivery of the Project Bonds. Words of any gender include the correlative words of the other genders, unless the sense indicates otherwise. Section 1.4. CAPTIONS AND HEADINGS. The captions and headings in this Agreement are solely for convenience of reference and in no way define, limit or describe the scope or intent of any Articles, Sections, subsections, paragraphs, subparagraphs or clauses hereof. (End of Article I) -5- ARTICLE II REPRESENTATIONS, WARRANTIES AND COVENANTS Section 2.1. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE ISSUER. The Issuer represents and warrants that: (a) It is duly organized and validly existing under the laws of the State. (b) It has full legal right, power and authority pursuant to the Act to refund the 1992 Bonds and to finance the 1998 Project through the issuance of the Project Bonds; has made the necessary findings that the issuance of the Project Bonds will preserve jobs and employment opportunities and assist in the development of industrial activities to the benefit of the people of the County, has given any necessary notices and has taken all other steps and followed all procedures required by the Constitution and laws of the State (including the Act) in connection therewith; and has full legal right, power and authority to (i) enter into the Issuer Documents, (ii) issue, sell and deliver the Project Bonds and (iii) carry out and consummate all other transactions contemplated by the Issuer Documents. (c) It has duly authorized (i) the execution, delivery and performance of the Project Bonds and the Issuer Documents and (ii) the taking of any and all such actions as may be required on the part of the Issuer to carry out, give effect to and consummate the transactions contemplated by such instruments. (d) The Issuer Documents constitute legal, valid and binding special obligations of the Issuer, enforceable in accordance with their respective terms and, when authenticated by the Trustee in accordance with the provisions of the Indenture, the Project Bonds will constitute legal, valid and binding special obligations of the Issuer in conformity with the provisions of the Act and the Constitution of the State. (e) To the knowledge of the Issuer there is no action, suit, proceeding, inquiry, or investigation at law or in equity or before or by any court, public board or body, pending or threatened against the Issuer which in any manner questions the validity of the Act, the powers of the Issuer referred to in paragraph (b) above or the validity of any proceedings taken by the Issuer in connection with the issuance of the Project Bonds or wherein any unfavorable decision, ruling or finding could materially adversely affect the transactions contemplated by this Agreement or which, in any way, would adversely affect the validity or enforceability of the Project Bonds or the Issuer Documents, (or of any other instrument required or contemplated for use in consummating the transactions contemplated thereby and hereby). (f) The execution and delivery by the Issuer of the Project Bonds and the Issuer Documents, in compliance with the provisions of each of such instruments will not conflict with or constitute a breach of, or default under, any material commitment, agreement or other instrument to which the Issuer is a party or by which it is bound, or under any provision of the Act, the Constitution of the State or any existing law, rule, regulation, ordinance, judgment, order or decree to which the Issuer is subject. (g) The Issuer will do or cause to be done all things necessary, so far as lawful, to preserve and keep in full force and effect its existence or to assure the assumption of its obligations under the Issuer Documents and the Bonds by any successor public body. Section 2.2. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BORROWER. Borrower represents, warrants and covenants that: -6- (a) The Borrower is a corporation duly organized and validly existing under the laws of the State of Ohio and authorized to do business in the State. The Borrower has full power and authority to execute, deliver and perform the Borrower Documents and to enter into and carry out the transactions contemplated by those documents. That execution, delivery and performance do not, and will not, violate any provision of law applicable to the Borrower or its articles of incorporation or code of regulations and do not, and will not, conflict with or result in a default under any agreement or instrument to which the Borrower is a party or by which the Borrower is bound. (b) Borrower Documents, by proper corporate action, have been duly authorized, executed and delivered by the Borrower and are valid and binding obligations of the Borrower. (c) The Project at all times will be located entirely within the boundaries of the County and will create and preserve jobs and employment opportunities within the boundaries of the State and the County. If all or substantially all of the Project equipment is ever voluntarily removed from within the boundaries of the County, the Borrower will promptly prepay the Loan and cause the Project Bonds to be redeemed. (d) The construction, acquisition and installation of the property comprising the 1998 Project by the Borrower will comply in all material respects with all applicable zoning, planning, building, environmental and other regulations of the governmental authorities having jurisdiction over the 1998 Project, and all necessary permits, licenses, consents and permissions necessary for the 1998 Project have been or will be obtained. (e) The undertaking of the refunding of the 1992 Bonds and the financing of costs of the 1998 Project by the Issuer and the loan of the proceeds of the Project Bonds has constituted an inducement to the Borrower to construct, acquire and install the 1998 Project in the County. (f) The Borrower is not in default in the payment of principal of, or interest on, any of the Borrower's indebtedness for borrowed money, or in default under any instrument under which, or subject to which, any indebtedness has been incurred, and no event has occurred and is continuing under the provisions of any material agreement involving the Borrower that, with the lapse of time or the giving of notice, or both, would constitute an event of default thereunder. (g) No litigation at law or in equity nor any proceeding before any governmental agency or other tribunal involving the Borrower is pending or, to the knowledge of the Borrower, threatened, in which any liability of the Borrower is not adequately covered by insurance and in which any judgment or order would have a material and adverse effect upon the business or assets of the Borrower or would materially and adversely affect the Project, the validity of the Borrower Documents or the performance of the Borrower's obligations thereunder or the transactions contemplated hereby. (h) The Borrower shall not use or operate the Project in any way which would affect the qualification of the Project under the Act or impair the exclusion from gross income for federal income tax purposes of the interest on the Project Bonds. (i) The representations contained in the Tax Certificate (which is incorporated herein by this reference thereto) are true and correct and the Borrower will observe the covenants contained therein as fully as if set forth herein. (End of Article II) -7- ARTICLE III COMPLETION OF THE 1998 PROJECT; ISSUANCE OF THE PROJECT BONDS Section 3.1. CONSTRUCTION, ACQUISITION AND INSTALLATION OF THE 1998 PROJECT. The Borrower shall construct, acquire and install the 1998 Project with all reasonable dispatch, all on the Project Site and substantially in accordance with the Plans and Specifications. The Borrower shall (a) pay when due all fees, costs and expenses incurred in connection with the foregoing from funds made available therefor in accordance with this Agreement or otherwise, unless any such fees, costs or expenses are being contested by the Borrower in good faith and by appropriate proceedings, (b) ask, demand, sue for, levy, recover and receive all those sums of money, debts and other demands whatsoever which may be due, owing and payable under the terms of any contract, order, receipt, writing and instruction in connection with the acquisition and installation of the 1998 Project, and (c) enforce the provisions of any contract, agreement, obligation, bond or other performance security with respect thereto. Section 3.2. PLANS AND SPECIFICATIONS. The Borrower, with the prior written consent of the Bank, may revise the Plans and Specifications from time to time, provided that no revision shall be made which would change the purposes of the 1998 Project to other than purposes permitted by the Act. The Borrower shall promptly deliver to the Bank a copy of the final Plans and Specifications upon their completion. Section 3.3. ISSUANCE OF THE BONDS; APPLICATION OF PROCEEDS. To provide funds to make the Loan for purposes of refunding the 1992 Bonds and assisting the Borrower in the financing of the 1998 Project, the Issuer will issue, sell and deliver the Project Bonds upon the order of the Underwriter as provided in the Bond Purchase Agreement. The Project Bonds will be issued pursuant to the Indenture in the aggregate principal amount, will bear interest, will mature and will be subject to redemption as set forth therein. The Borrower hereby approves the terms and conditions of the Indenture and the Project Bonds, and the terms and conditions under which the Project Bonds will be issued, sold and delivered. The proceeds from the sale of the Project Bonds shall be loaned to the Borrower and paid over to the Trustee for the benefit of the Borrower and the Holders of the 1992 Bonds and the Bonds and deposited as provided in Sections 5.01 of the Indenture. Pending disbursement pursuant to Section 3.4 hereof, the proceeds deposited in the Project Fund, together with any investment earnings thereon, shall constitute a part of the Revenues assigned by the Issuer to the payment of Bond Service Charges as provided in the Indenture. At the request of the Borrower, and for the purposes and upon fulfillment of the conditions specified in the Indenture, the Issuer may provide for the issuance, sale and delivery of Additional Bonds and loan the proceeds from the sale thereof to the Borrower. Section 3.4. DISBURSEMENTS FROM THE PROJECT FUND. Subject to the provisions below, disbursements from the Project Fund shall be made only to pay (or to reimburse the Borrower for payment of) the following 1998 Project costs: (a) Costs incurred directly or indirectly for or in connection with the construction, acquisition or installation of the 1998 Project, including costs incurred with respect to the 1998 Project for preliminary planning and studies; architectural, legal, engineering, accounting, consulting, supervisory and other services; labor, services and materials; and recording of documents and title work; -8- (b) Costs incurred directly or indirectly in seeking to enforce any remedy against any contractor or subcontractor in respect of any actual or claimed default under any contract relating to the 1998 Project; (c) Financial, legal, accounting, printing and engraving fees, charges and expenses, and all other fees, charges and expenses incurred in connection with the authorization, sale, issuance and delivery of the Project Bonds, including, without limitation, the fees and expenses of the Issuer, Bond Counsel, the fees and expenses of the Trustee and the fees and expenses of the Underwriter; provided, however, any fees and expenses incurred in connection with the issuance of the Project Bonds and paid with Project Bond proceeds shall not exceed 2 % of the proceeds of the Project Bonds within the meaning of Section 147(g) of the Code; (d) Any other costs, expenses, fees and charges properly chargeable to the cost of the construction, acquisition or installation of the 1998 Project; (e) Interest on the Project Bonds during the Construction Period to be paid into the Bond Fund; and (f) The fees and expenses of the Bank under the Reimbursement Agreement applicable to the Construction Period. Any disbursements from the Project Fund described above shall be made by the Trustee only upon the written order of the Authorized Borrower Representative. Each such written order shall be in substantially the form of the disbursement request attached hereto as Exhibit D and shall be consecutively numbered and accompanied by invoices or other appropriate documentation supporting the payments or reimbursements requested. Any disbursement for any item not described in, or the cost for which item is other than as described in, the IRS Form 8038 information statement filed by the Issuer in connection with the issuance of the Project Bonds, shall be accompanied by evidence satisfactory to the Trustee that the average reasonably expected economic life of the facilities being financed by the Project Bonds is not less than 5/6ths of the average maturity of the Project Bonds or, if such evidence is not presented with the disbursement or at the request of the Trustee or the Bank, by an opinion of Bond Counsel to the effect that such disbursement will not result in the interest on the Project Bonds becoming subject to federal income taxation. In case any contract provides for the retention by the Borrower of a portion of the contract price, there shall be paid from the Project Fund only the net amount remaining after deduction of any such portion and, only when that retained amount is due and payable, may it be paid from the Project Fund. Any moneys in the Project Fund remaining after the Completion Date and payment, or provision for payment, of the costs of financing the 1998 Project described above, at the direction of the Authorized Borrower Representative with prior written consent of the Bank, promptly shall be: (i) used to acquire, construct, equip and install such additional real or personal property in connection with the Project as is designated by the Authorized Borrower Representative and approved by the Bank, and the acquisition, construction, equipping and installation of which will be permitted under the Act, provided that any such use shall be accompanied by evidence satisfactory to the Trustee that the average reasonably expected economic life of such additional property, together with the other property theretofore acquired with the proceeds of the Project Bonds, will not be less than 5/6ths of the average maturity of the Project Bonds; -9- (ii) used to reimburse the Bank for draws on the Letter of Credit to redeem Project Bonds in accordance with the terms of the Indenture; (iii) used for the purchase of Project Bonds in the open market for the purpose of cancellation; or (iv) used to accomplish a combination of the foregoing as is provided in that direction; provided that in all such cases, such use will not in the opinion of Bond Counsel or under ruling of the Internal Revenue Service result in the interest on the Project Bonds becoming includable in gross income for federal income tax purposes; In the event that all of the Bonds are either redeemed or accelerated pursuant to the terms of the Indenture, any remaining funds in the Project Fund shall be transferred to the Bond Fund. Section 3.5. BORROWER REQUIRED TO PAY COSTS IN EVENT PROJECT FUND INSUFFICIENT. If moneys in the Project Fund are not sufficient to pay all costs of the 1998 Project, the Borrower, nonetheless, will complete the 1998 Project in accordance with the Plans and Specifications, unless the Bank consents otherwise, and, unless Additional Bonds shall have been issued for that purpose, shall pay all such additional costs of the 1998 Project from the Borrower's own funds. The Borrower shall not be entitled to any reimbursement for any such additional costs of the 1998 Project from the Issuer, the Trustee or any Holder; nor shall it be entitled to any abatement, diminution or postponement of its obligation to make the Loan Payments, Section 3.6. COMPLETION DATE. The Borrower shall notify the Issuer, the Bank and the Trustee of the Completion Date by a certificate signed by the Authorized Borrower Representative stating: (a) the date on which the 1998 Project was substantially completed, which date shall be not later than three years after initial delivery of the Project Bonds or such later date as has been approved in writing by the Bank and as will not, in the opinion of Bond Counsel, cause interest on the Project Bonds to become includable in gross income for federal income tax purposes; (b) that the acquisition and installation of the property comprising the 1998 Project has been accomplished in such a manner as to conform with all applicable planning, building, environmental and other similar governmental regulations; (c) that except as provided in subsection (d) of this Section, all costs of that acquisition and installation then or theretofore due and payable have been paid; and (d) the amounts which the Trustee shall retain in the Project Fund for the payment of costs of the 1998 Project not yet due or for liabilities which the Borrower is contesting or which otherwise should be retained and the reasons such amounts should be retained. That certificate shall state that it is given without prejudice to any rights against third parties which then exist or subsequently may come into being. The Authorized Borrower Representative shall include with that certificate a statement specifically describing all items of personal property comprising a part of the 1998 Project. The certificate shall be delivered as promptly as practicable after the occurrence of the events and conditions referred to in subsections (a) through (c) of this Section. -10- Section 3.7. INVESTMENT OF FUND MONEYS. At the written or oral request (promptly confirmed in writing) of the Authorized Borrower Representative, any moneys held as part of the Bond Fund (except moneys held in the Defeasance Account, Letter of Credit Account or Redemption Premium Account,) the Project Fund or the Rebate Fund shall be invested or reinvested by the Trustee in Eligible Investments. The Issuer and the Borrower each hereby covenants that it will restrict that investment and reinvestment and the use of the proceeds of the Project Bonds in such manner and to such extent, if any, as may be necessary, after taking into account reasonable expectations at the time of delivery of and payment for the Project Bonds, so that the Project Bonds will not constitute arbitrage bonds under Section 148 of the Code. The Borrower shall provide the Issuer with, and the Issuer may base its certifications as authorized by the Bond Legislation on, the Tax Certificate of the Borrower for inclusion in the transcript of proceedings for the Project Bonds, setting forth the reasonable expectations of the Borrower on the date of delivery of and payment for the Project Bonds regarding the amount and use of the proceeds of the Project Bonds and the facts, estimates and circumstances on which those expectations are based. Section 3.8. REBATE FUND. The Borrower agrees to make such payments to the Trustee as are required of it under Section 5. 11 of the Indenture. The obligation of the Borrower to make such payments shall remain in effect and be binding upon the Borrower notwithstanding the release and discharge of the Indenture. The Borrower and the Issuer each covenants to the owners of the Project Bonds that, notwithstanding any other provision of this Agreement or any other instrument, it shall take no action, nor shall the Borrower direct the Trustee to take or approve the Trustee's taking any action or direct the Trustee to make or approve the Trustee's making any investment or use of proceeds of the Project Bonds or any other moneys which may arise out of or in connection with this Agreement, the Indenture or the Project, which would cause the Project Bonds to be treated as "arbitrage bonds" within the meaning of Section 148 of the Code. In addition, the Borrower covenants and agrees to comply with the requirements of Section 148(f) of the Code as it may be applicable to the Project Bonds or the proceeds derived from the sale of the Project Bonds or any other moneys which may arise out of, or in connection with, this Agreement, the Indenture or the Project throughout the term of the Project Bonds. No provision of this Agreement shall be construed to impose upon the Trustee any obligation or responsibility for compliance with arbitrage regulations, except as provided in the Indenture. (End of Article III) -11- ARTICLE IV LOAN BY ISSUER; REPAYMENT OF THE LOAN; LOAN PAYMENTS AND ADDITIONAL PAYMENTS Section 4.1. LOAN REPAYMENT, DELIVERY OF NOTES AND LETTER OF CREDIT. Upon the terms and conditions of this Agreement, the Issuer will make the Loan to the Borrower. In consideration of and in repayment of the Loan, the Borrower shall make, as Loan Payments, payments sufficient in time and amount to pay when due all Bond Service Charges, all as more particularly provided in the Project Note and any Additional Note. The Project Note shall be executed and delivered by the Borrower concurrently with the execution and delivery of this Agreement. All Loan Payments shall be paid to the Trustee in accordance with the terms of the Notes for the account of the Issuer and shall be held and applied in accordance with the provisions of the Indenture and this Agreement. In connection with the issuance of any series of Additional Bonds, the Borrower shall execute and deliver to the Trustee an Additional Note in a form substantially similar to the form of the Project Note. All such Additional Notes shall: (a) provide for payments of interest equal to the payments of interest on the corresponding Additional Bonds; (b) require payments of principal and prepayments and any premium equal to the payments of principal, redemption payments and sinking fund payments and any premium on the corresponding Additional Bonds; (c) require all payments on any such Additional Notes to be made no later than the due dates for the corresponding payments to be made on the corresponding Additional Bonds; and (d) contain by reference or otherwise optional and mandatory prepayment provisions and provisions in respect of the optional and mandatory acceleration or prepayment of principal and any premium corresponding with the redemption and acceleration provisions of the corresponding Additional Bonds. All Notes shall secure equally and ratably all outstanding Bonds, except that, so long as no Event of Default described in paragraph (a), (b), (e), (g) or (h) of Section 7.01 of the Indenture has occurred and is continuing, payments by the Borrower on the Project Note shall be used by the Trustee to reimburse the Bank for drawings on the Letter of Credit used to pay Bond Service Charges on the Project Bonds. Upon payment in full, in accordance with the Indenture, of the Bond Service Charges on any series of Bonds, whether at maturity or by redemption or otherwise, or upon provision for the payment thereof having been made in accordance with the provisions of the Indenture, the Note issued concurrently with those corresponding Bonds shall be deemed fully paid, the obligations of the Borrower thereunder shall be terminated, and any such Note shall be surrendered by the Trustee to the Borrower, and shall be canceled by the Borrower. Except for such interest of the Borrower and the Bank as may hereafter arise pursuant to Section 5.07 or 5.08 of the Indenture, the Borrower and the Issuer each acknowledge that neither the Borrower nor the Issuer has any interest in the Bond Fund and any moneys deposited therein shall be in the custody of and held by the Trustee in trust for the benefit of the Holders and, to the extent of amounts due under the Reimbursement Agreement, the Bank. -12- Section 4.2. ADDITIONAL PAYMENTS. The Borrower shall pay to the Issuer, as Additional Payments hereunder, within five (5) days after request therefore made in writing and specifying such costs and expenses with reasonable particularity any and all costs and expenses actually incurred or to be paid by the Issuer in connection with the issuance and delivery of the Project Bonds and Additional Bonds or otherwise related to actions taken by the Issuer under this Agreement or the Indenture. The Borrower shall pay to the Trustee, the Registrar and any Paying Agent or Authenticating Agent, their reasonable fees, charges and expenses for acting as such under the Indenture. Any payments under this Section not paid when due shall bear interest at the Interest Rate for Advances. Section 4.3. PLACE OF PAYMENTS. The Borrower shall make all Loan Payments directly to the Trustee at its principal corporate trust office. Additional Payments shall be made directly to the person or entity to whom or to which they are due. Section 4.4. OBLIGATIONS UNCONDITIONAL. The obligations of the Borrower to make Loan Payments, Additional Payments and any payments required of the Borrower under Section 4.3 hereof shall be absolute and unconditional, and the Borrower shall make such payments without abatement, diminution or deduction regardless of any cause or circumstances whatsoever including, without limitation, any defense, set-off, recoupment or counterclaim which the Borrower may have or assert against the Issuer, the Trustee, any Paying Agent or Authenticating Agent, the Bank or any other Person; provided that the Borrower may contest or dispute the amount of any such obligation (other than Loan Payments) so long as such contest or dispute does not result in an Event of Default under the Indenture. Section 4.5. ASSIGNMENT OF AGREEMENT AND REVENUES. To secure the payment of Bond Service Charges, the Issuer shall assign to the Trustee, by the Indenture, all its right, title and interest in and to the Revenues, the Agreement (except for Unassigned Issuer's Rights) and the Project Note. The Borrower hereby agrees and consents to that assignment. Section 4.6. LETTER OF CREDIT. Simultaneously with the initial delivery of the Project Bonds pursuant to the Indenture and the Bond Purchase Agreement, the Borrower shall cause the Bank to issue and deliver to the Trustee the Letter of Credit. The Letter of Credit may be replaced by an Alternate Letter of Credit complying with the provisions of Section 5.09 of the Indenture. (End of Article IV) -13- ARTICLE V ADDITIONAL AGREEMENTS AND COVENANTS Section 5.1. RIGHT OF INSPECTION. Subject to reasonable security and safety regulations and upon reasonable notice, the Issuer, the Bank and the Trustee, and their respective agents, shall have the right during normal business hours to inspect the Project. Section 5.2. SALE, LEASE OR GRANT OF USE BY BORROWER. Subject to the provisions of the Reimbursement Agreement and any other agreement to which the Borrower is a party or by which it is bound, the Borrower may sell, lease or grant the right to occupy and use the Project, in whole or in part, to others, provided that: (a) No such sale, lease or grant shall relieve the Borrower from the Borrower's obligations under this Agreement or the Notes; (b) In connection with any such sale, lease or grant the Borrower shall retain such rights and interests as will permit the Borrower to comply with the Borrower's obligations under this Agreement and the Notes; (c) No such sale, lease or grant shall impair materially the purposes of the Act to be accomplished by operation of the Project as herein provided or adversely affect the exclusion from gross income for federal income tax purposes of the interest on the Bonds. Section 5.3. INDEMNIFICATION. The Borrower releases the Issuer from, agrees that the Issuer shall not be liable for, and shall indemnify the Issuer against, all liabilities, claims, costs and expenses, including attorneys fees and expenses, imposed upon, incurred or asserted against the Issuer on account of: (a) any loss or damage to property or injury to or death of or loss by any person that may be occasioned by any cause whatsoever pertaining to the acquisition, construction, installation, equipping, maintenance, operation or use of the Project; (b) any breach or default on the part of the Borrower in the performance of any covenant or agreement of the Borrower under the Borrower Documents or any related document, or arising from any act or failure to act by the Borrower, or any of the Borrower's agents, contractors, servants, employees or licensees; (c) the authorization, issuance, sale, trading, redemption or servicing of the Project Bonds, and the provision of any information or certification furnished in connection therewith concerning the Project Bonds, the Project, or the Borrower, including, without limitation, the Preliminary Official Statement and the Official Statement (each as defined in the Bond Purchase Agreement), any information furnished by the Borrower for, and included in, or used as a basis for preparation of, any certifications, information statements or reports furnished by the Issuer, and any other information or certification obtained from the Borrower to assure the exclusion of the interest on the Project Bonds from gross income of the Holders thereof for federal income tax purposes; (d) the Borrower's failure to comply with any requirement of this Agreement or the Code pertaining to such exclusion of that interest, including the covenants in Section 5.4 hereof; and (e) any claim, action or proceeding brought with respect to the matters set forth in (a), (b), (c), or (d) above. The Borrower agrees to indemnify the Trustee and the Tender Agent for, and to hold them harmless against, all liabilities, claims, costs and expenses (including reasonable attorneys' fees and expenses) incurred without negligence or willful misconduct on the part of the Trustee and the Tender Agent on account of any action taken or omitted to be taken by the Trustee and the Tender Agent in accordance with the terms of this Agreement, the Bonds, the Reimbursement Agreement, the Letter of Credit, the Notes or the Indenture, or any action taken at the request of or with the consent of the Borrower, including the costs and expenses of the -14- Trustee and the Tender Agent in defending themselves against any such claim, action or proceeding brought in connection with the exercise or performance of any of their powers or duties under this Agreement, the Bonds, the Indenture, the Reimbursement Agreement, the Letter of Credit or the Notes. In case any action or proceeding is brought against the Issuer or the Trustee or Tender Agent in respect of which indemnity may be sought hereunder, the party seeking indemnity promptly shall give notice of that action of proceeding to the Borrower, and the Borrower upon receipt of that notice shall have the obligation and the right to assume the defense of the action or proceeding; provided, that failure of a party to give that notice shall not relieve the Borrower from any of the Borrower's obligations under this Section unless that failure materially prejudices the defense of the action or proceeding by the Borrower. An indemnified party at its own expense may employ separate counsel and participate in the defense. The Borrower shall not be liable for any settlement made without the Borrower's consent. The indemnification set forth above is intended to and shall include the indemnification of all affected officials, directors, officers and employees of the Issuer, the Trustee and the Tender Agent, respectively. That indemnification is intended to and shall be enforceable by the Issuer, the Trustee and the Tender Agent, respectively, to the full extent permitted by law. Section 5.4. BORROWER NOT TO ADVERSELY AFFECT EXCLUSION FROM GROSS INCOME OF INTEREST ON PROJECT BONDS. The Borrower hereby represents that the Borrower has taken and caused to be taken, and covenants that the Borrower will take and cause to be taken, all actions that may be required of the Borrower, alone or in conjunction with the Issuer, for the interest on the Project Bonds to be and remain excluded from gross income for federal income tax purposes, and represents that the Borrower has not taken or permitted to be taken on the Borrower's behalf, and covenants that the Borrower will not take or permit to be taken on the Borrower's behalf, any actions that would adversely affect such exclusion under the provisions of the Code. If the Borrower becomes aware of any actions or facts which have caused or will cause the interest on the Project Bonds to be includable in gross income for federal income tax purposes, the Borrower promptly shall (a) notify the Trustee and the Remarketing Agent of such actions or facts and (b) take such steps as are necessary to cause redemption of the Project Bonds in whole at the earliest practicable date. Without limiting the generality of the foregoing, the Borrower shall monitor the capital expenditures incurred by it and by any other "principal user" of the Project, with respect to the Project or elsewhere within the county or municipal corporation in which the Project is located. Within 30 days after each of the first, second and third anniversary dates of the issuance of the Project Bonds, the Borrower shall file with the Trustee and the Remarketing Agent a report showing cumulative capital expenditures which must be counted for purposes of the $10 million capital expenditure limitation contained in Section 144(a) of the Code. Such report shall be certified as true and accurate by the Authorized Borrower Representative. Section 5.5. ASSIGNMENT BY ISSUER. Except for the assignment of this Agreement to the Trustee, the Issuer shall not attempt to further assign, transfer or convey its interest in the Revenues or this Agreement or create any pledge or lien of any form or nature with respect to the Revenues or the payments hereunder. Section 5.6. BORROWER'S PERFORMANCE UNDER INDENTURE. The Borrower has examined the Indenture and approves the form and substance of, and agrees to be bound by, its terms. The Borrower, for the benefit of the Issuer and each Bondholder, shall do and perform all acts and things required or contemplated in the Indenture -15- to be done or performed by the Borrower. The Borrower is a third party beneficiary of certain provisions of the Indenture, and Section 8.05 of the Indenture is hereby incorporated herein by reference. Section 5.7. COMPLIANCE WITH LAWS. The Borrower shall, throughout the term of this Agreement, promptly comply or cause compliance in all material respects with all laws, ordinances, orders, rules, regulations and requirements of duly constituted public authorities which may be applicable to the Project or to the repair and alteration thereof, or to the use or manner of use of the Project or to the Borrower's and any lessee's operations on the Project Site. Notwithstanding the foregoing, the Borrower shall have the right to contest or cause to be contested the legality or the applicability of any such law, ordinance, order, rule, regulation or requirement so long as, in the opinion of counsel satisfactory to the Trustee and the Bank, such contest shall not in any way materially adversely affect or impair the obligations of the Borrower hereunder or any right or interest of the Trustee or the Bank in, to and under the Indenture or this Agreement. Section 5.8. TAXES, PERMITS, UTILITY AND OTHER CHARGES. The Borrower shall pay and discharge or cause to be paid and discharged, promptly as and when the same shall become due and payable, all taxes and governmental charges of any kind whatsoever that may be lawfully assessed against the Issuer, the Trustee, the Bank or the Borrower with respect to the Project or any portion thereof. The Borrower may in good faith contest or cause to be contested any such tax or governmental charge, and in such event may permit such tax or governmental charge to remain unsatisfied during the period of such contest and may appeal therefrom unless in the opinion of counsel satisfactory to the Trustee and the Bank by such action any right or interest of the Trustee or the Bank in, to and under the Indenture or this Agreement shall be materially endangered or the Project or any part thereof shall become subject to imminent loss or forfeiture, in which event such tax or governmental charge shall be paid prior to any such loss or forfeiture. The Borrower shall procure or cause to be procured any and all necessary building permits, other permits, licenses and other authorizations required for the lawful and proper acquisition and installation of the property comprising the Project and for the lawful and proper use and operation of the Project. Section 5.9. CONTINUED EXISTENCE. Except as otherwise provided in or permitted pursuant to the Reimbursement Agreement, or unless otherwise provided by law, the Borrower shall maintain its existence and continue to be a duly formed and validly existing corporation under the laws of the State of Ohio. Section 5.10 REMOVAL OF PORTIONS OF THE PROJECT. The Borrower shall have the right, from time to time, subject to the terms of the Reimbursement Agreement, to remove, substitute or modify any portion of the Project, provided that such removal, substitution or modification shall not impair the character of the Project as a "project" within the meaning of the Act. Any such substituted or modified property shall be included under the terms of this Agreement as part of the Project. Section 5. 11. NON-CONTROLLED PERSON COVENANT. The Borrower does not control the Bank and the Bank does not control the Borrower either directly or indirectly through one or more intermediaries. As used in this Section, "control" has the meaning given to that term in Section 2(a)(9) of the Investment Company Act of 1940. The Borrower shall give written notice to the Trustee, the Remarketing Agent and all Bondholders 30 days prior to the consummation of any transaction that would result in the Borrower controlling or being controlled by the Bank. This notification covenant supersedes any exemptions from the continuous disclosure requirement pursuant to Rule 15c2-12(b)(5) of the Securities and Exchange Act of 1934. (End of Article V) -16- ARTICLE VI REDEMPTION OF PROJECT BONDS Section 6.1. OPTIONAL REDEMPTION. Provided no Event of Default shall have occurred and be continuing at any time and from time to time, the Borrower may deliver moneys to the Trustee in addition to Loan Payments or Additional Payments required to be made and direct the Trustee to use the moneys so delivered for the purpose of purchasing Project Bonds or of reimbursing the Bank for drawings on the Letter of Credit used to redeem Project Bonds called for optional redemption in accordance with the applicable provisions of the Indenture. Section 6.2. EXTRAORDINARY OPTIONAL REDEMPTION. The Borrower shall have, subject to the conditions hereinafter imposed, the option to direct the redemption, at a redemption price of 100% of principal amount and accrued interest, of the entire unpaid principal balance of the Project Bonds in accordance with the applicable provisions of the Indenture upon the occurrence of any of the following events: (a) The Project or Project Site shall have been damaged or destroyed to such an extent that (1) the Project or Project Site cannot reasonably be expected to be restored, within a period of six months, to the condition thereof immediately preceding such damage or destruction or (2) normal use and operation of the Project or the Project Site is reasonably expected to be prevented for a period of six consecutive months; (b) Title to, or the temporary use of, all or a significant part of the Project or Project Site shall have been taken under the exercise of the power of eminent domain (1) to such extent that the Project or Project Site cannot reasonably be expected to be restored within a period of six months to a condition of usefulness comparable to that existing prior to the taking or (2) as a result of the taking, normal use and operation of the Project or Project Site is reasonably expected to be prevented for a period of six consecutive months; (c) As a result of any changes in the Constitution of the State, the constitution of the United States of America, or state or federal laws, or as a result of legislative or administrative action (whether state or federal) or by final decree, judgment or order of any court or administrative body (whether state or federal) entered after the contest thereof by the Issuer, the Trustee or the Borrower in good faith, this Agreement shall have become void or unenforceable or impossible of performance in accordance with the intent and purpose of the parties as expressed in this Agreement, or if unreasonable burdens or excessive liabilities shall have been imposed with respect to the Project or Project Site or the operation thereof, including, without limitation, federal, state or other ad valorem, property, income or other taxes not being imposed on the date of this Agreement other than ad valorem taxes presently levied upon privately owned property used for the same general purpose as the Project or the Project Site; or (d) Changes in the economic availability of raw materials, operating supplies, energy sources or supplies, or facilities (including, but not limited to, facilities in connection with the disposal of industrial wastes) necessary for the operation of the Project or the Project Site shall have occurred or technological or other changes shall have occurred which the Borrower cannot reasonably overcome or control and which in the Borrower's reasonable judgment render the operation of the Project or the Project Site uneconomic. The Borrower also shall have the option, in the event that title to or the temporary use of a portion of the Project or the Project Site shall be taken under the exercise of the power of eminent domain, even if the taking is not of such nature as to permit the exercise of the redemption option upon an event specified in clause (b) -17- above, to direct the redemption, at a redemption price of 100% of the principal amount thereof prepaid, plus accrued interest to the redemption date, of that part of the outstanding principal balance of the Project Bonds as may be payable from the proceeds received by the Borrower (after the payment of costs and expenses incurred in the collection thereof) in the eminent domain proceeding, provided that the Borrower shall furnish to the Issuer and the Trustee a certificate of an Engineer stating that (1) the property comprising the part of the Project or the Project Site taken is not essential to continued operations of the Project in the manner existing prior to that taking, (2) the Project has been restored to a condition substantially equivalent to that existing prior to the taking, or (3) other improvements have been acquired or made which are suitable for the continued operation of the Project. To exercise any option under this Section, the Borrower within 90 days following the event authorizing the exercise of that option, or at any time during the continuation of the condition referred to in clause (d) of the first paragraph of this Section, shall give notice to the Issuer and to the Trustee specifying the date of redemption, which date shall be not more than ninety days from the date that notice is mailed, and shall make arrangements satisfactory to the Trustee for the giving of the required notice of redemption. The rights and options granted to the Borrower in this Section may be exercised whether or not the Borrower is in default hereunder; provided, that such default will not relieve the Borrower from performing those actions which are necessary to exercise any such right or option granted hereunder. Section 6.3. MANDATORY REDEMPTION OF PROJECT BONDS. If, as provided in the Project Bonds and the Indenture, the Project Bonds become subject to mandatory redemption, upon the date requested by the Trustee, the Borrower shall pay to the Trustee moneys sufficient to pay in full the Project Bonds in accordance with the mandatory redemption provisions relating thereto set forth in the Indenture. Section 6.4. ACTIONS BY ISSUER. At the request of the Borrower or the Trustee, the Issuer shall take all steps required of it under the applicable provisions of the Indenture or the Bonds to effect the redemption of all or a portion of the Bonds pursuant to this Article VI. Section 6.5. REQUIRED DEPOSITS FOR OPTIONAL REDEMPTION. Except with the prior written consent of the Bank, the Trustee shall not give notice of call to the Holders pursuant to the optional redemption provisions of Section 4.01 of the Indenture and Sections 6.1 and 6.2 hereof unless, prior to the date by which the call notice is to be given, there shall be on deposit with the Trustee Eligible Funds sufficient to redeem at the redemption price thereof, including premium (if any) and interest accrued to the redemption date, all Project Bonds for which notice of redemption is to be given. All amounts paid by the Borrower pursuant to this Article which are used to pay principal of, premium, if any, or interest on the Bonds, or to reimburse the Bank for moneys drawn under the Letter of Credit and used for such purposes, shall constitute prepaid Loan Payments. (End of Article VI) -18- ARTICLE VII EVENTS OF DEFAULT AND REMEDIES Section 7. 1. EVENTS OF DEFAULT. Each of the following shall be an Event of Default: (a) The Borrower shall fail to pay when due any Loan Payment. (b) The Borrower shall fail to observe and perform any agreement, term or condition contained in this Agreement, and the continuation of such failure for a period of 30 days after notice thereof shall have been given to the Borrower by the Issuer or the Trustee, or for such longer period as the Issuer and the Trustee may agree to in writing; provided, that if the failure is other than the payment of money and is of such nature that it can be corrected but not, within the applicable period, that failure shall not constitute an Event of Default so long as the Borrower institutes curative action within the applicable period and diligently pursues that action to completion; and provided further that no such failure shall constitute an Event of Default solely because it results in a Determination of Taxability; (c) The Borrower shall: (i) admit in writing its inability to pay its debts generally as they become due; (ii) have an order for relief entered in any case commenced by or against it under the federal bankruptcy laws, as now or hereafter in effect; (iii) commence a proceeding under any other federal or state bankruptcy, insolvency, reorganization or similar law, or have such a proceeding commenced against it and either have an order of insolvency or reorganization entered against it or have the proceeding remain undismissed and unstayed for 90 days; (iv) make an assignment for the benefit of creditors; or (v) have a receiver or trustee appointed for it or for the whole or any substantial part of its property; or (d) There shall occur an "Event of Default" as defined in Section 7.01 of the Indenture. Notwithstanding the foregoing, if, by reason of Force Majeure, the Borrower is unable to perform or observe any agreement, term or condition hereof which would give rise to an Event of Default under subsection (b) hereof (provided that such failure is other than the payment of money), the Borrower shall not be deemed in default during the continuance of such inability. However, the Borrower shall promptly give notice to the Trustee and the Issuer of the existence of an event of Force Majeure and shall use its best efforts to remove the effects thereof; provided that the settlement of strikes or other industrial disturbances shall be entirely within the Borrower's discretion. The term Force Majeure shall mean, without limitation, the following: (i) acts of God; strikes; lockouts or other industrial disturbances; acts of public enemies; orders or restraints of any kind of the government of the United States of America or of the State or any of their departments, agencies, political subdivisions or officials, or any civil or military authority; insurrections; civil disturbances; riots; epidemics; landslides; lightning; earthquakes; fires; hurricanes; tornados; storms; droughts; floods; arrests; restraint of government and people; explosions; breakage, malfunction or accident to facilities, machinery, transmission pipes or canals; partial or entire failure of utilities; shortages of labor, materials, supplies or transportation; or (ii) any cause, circumstance or event not reasonably within the control of the Borrower. -19- The declaration of an Event of Default under subsection (c) above, and the exercise of remedies upon any such declaration, shall be subject to any applicable limitations of federal bankruptcy law affecting or precluding that declaration or exercise during the pendency of or immediately following any bankruptcy, liquidation or reorganization proceedings. Section 7.2. REMEDIES ON DEFAULT. Whenever an Event of Default shall have happened and be continuing, any one or more of the following remedial steps may be taken: (a) If and only if acceleration of the principal amount of the Bonds has been declared pursuant to Section 7.03 of the Indenture, the Trustee shall declare all Loan Payments and Notes to be immediately due and payable, whereupon the same shall become immediately due and payable; (b) The Bank or the Trustee may have access to, inspect, examine and make copies of the books, records, accounts and financial data of the Borrower pertaining to the Project; and (c) The Issuer or the Trustee may pursue all remedies now or hereafter existing at law or in equity to collect all amounts then due and thereafter to become due under this Agreement, the Letter of Credit or the Notes or to enforce the performance and observance of any other obligation or agreement of the Borrower under those instruments. Notwithstanding the foregoing, the Issuer shall not be obligated to take any step which in its opinion will or might cause it to expend time or money or otherwise incur liability unless and until a satisfactory indemnity bond has been furnished to the Issuer at no cost or expense to the Issuer. Any amounts collected as Loan Payments or applicable to Loan Payments and any other amounts which would be applicable to payment of Bond Service Charges collected pursuant to action taken under this Section shall be paid into the Bond Fund and applied in accordance with the provisions of the Indenture or, if the outstanding Bonds have been paid and discharged in accordance with the provisions of the Indenture, shall be paid as provided in Section 5.08 of the Indenture for transfers of remaining amounts in the Bond Fund. The provisions of this section are subject to the further limitation that the rescission by the Trustee of its declaration that all of the Bonds are immediately due and payable also shall constitute an annulment of any corresponding declaration made pursuant to paragraph (a) of this Section and a waiver and rescission of the consequences of that declaration and of the Event of Default with respect to which that declaration has been made, provided that no such waiver or rescission shall extend to or affect any subsequent or other default or impair any right consequent thereon. Section 7.3. NO REMEDY EXCLUSIVE. No remedy conferred upon or reserved to the Issuer or the Trustee by this Agreement is intended to be exclusive of any other available remedy or remedies, but each and every such remedy shall be cumulative and shall be in addition to every other remedy given under this Agreement, the Letter of Credit or any Note, or now or hereafter existing at law, in equity or by statute. No delay or omission to exercise any right or power accruing upon any default shall impair that right or power or shall be construed to be a waiver thereof, but any such right and power may be exercised from time to time and as often as may be deemed expedient. In order to entitle the Issuer or the Trustee to exercise any remedy reserved to it in this Article, it shall not be necessary to give any notice, other than any notice required by law or for which express provision is made herein. -20- Section 7.4. AGREEMENT TO PAY ATTORNEYS' FEES AND EXPENSES. If an Event of Default should occur and the Issuer or the Trustee should incur expenses, including attorneys' fees and expenses, in connection with the enforcement of this Agreement, the Trust Indenture, the Letter of Credit or any Note or the collection of sums due thereunder, the Borrower shall reimburse the Issuer and the Trustee, as applicable, for the reasonable expenses so incurred upon demand. Section 7.5. NO WAIVER. No failure by the Issuer or the Trustee to insist upon the strict performance by the Borrower of any provision hereof shall constitute a waiver of their right to strict performance and no express waiver shall be deemed to apply to any other existing or subsequent right to remedy the failure by the Borrower to observe or comply with any provision hereof. (End of Article VII) -21- ARTICLE VIII MISCELLANEOUS Section 8.1. TERM OF AGREEMENT. This Agreement shall be and remain in full force and effect from the date of initial delivery of the Project Bonds until such time as all of the Bonds shall have been fully paid (or provision made for such payment) pursuant to the Indenture and all other sums payable by the Borrower under this Agreement and the Notes shall have been paid, except for obligations of the Borrower under Sections 3.8, 4.2, 5.3 and 7.4 hereof, which shall survive any termination of this Agreement, Section 8.2. NOTICES. All notices, certificates, requests or other communications hereunder shall be in writing and shall be deemed to be sufficiently given when mailed by registered or certified mail, postage prepaid, and addressed to the appropriate Notice Address. A duplicate copy of each notice, certificate, request or other communication given hereunder to the Issuer, the Borrower, the Bank or the Trustee shall also be given to the others. The Borrower, the Issuer, the Bank and the Trustee, by notice given hereunder, may designate any further or different addresses to which subsequent notices, certificates, requests or other communications shall be sent. Section 8.3. EXTENT OF COVENANTS OF THE ISSUER; NO PERSONAL LIABILITY. All covenants, obligations and agreements of the Issuer contained in this Agreement or the Indenture shall be effective to the extent authorized and permitted by applicable law. No such covenant, obligation or agreement shall be deemed to be a covenant, obligation or agreement of any present or future member, officer, agent or employee of the Issuer or the Issuing Authority in other than his official capacity, and neither the members of the Issuing Authority nor any official executing the Bonds shall be liable personally on the Bonds or be subject to any personal liability or accountability by reason of the issuance thereof or by reason of the covenants, obligations or agreements of the Issuer contained in this Agreement or in the Indenture. Section 8.4. BINDING EFFECT. This Agreement shall inure to the benefit of and shall be binding in accordance with its terms upon the Issuer, the Borrower and their respective successors and assigns; provided that this Agreement may not be assigned by the Borrower (except in connection with a sale, lease or grant of use pursuant to Section 5.2 hereof) and may not be assigned by the Issuer except to the Trustee pursuant to the Indenture or as otherwise may be necessary to enforce or secure payment of Bond Service Charges. This Agreement may be enforced only by the parties, their assignees and others who may, by law, stand in their respective places. Section 8.5. AMENDMENTS AND SUPPLEMENTS. Except as otherwise expressly provided in this Agreement, any Note or the Indenture, subsequent to the issuance of the Project Bonds and prior to all conditions provided for in the Indenture for release of the Indenture having been met, this Agreement or any Note may not be effectively amended, changed, modified, altered or terminated except in accordance with the applicable provisions of Article XI of the Indenture. Section 8.6. EXECUTION COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be regarded as an original and all of which shall constitute but one and the same instrument. Section 8.7. SEVERABILITY. If any provision of this Agreement, or any covenant, obligation or agreement contained herein, is determined by a court of competent jurisdiction to be invalid or unenforceable, that determination shall not affect any other provision, covenant, obligation or agreement, each of which shall be construed and enforced as if the invalid or unenforceable portion were not contained herein. That invalidity -22- or unenforceability shall not affect any valid and enforceable application thereof, and each such provision, covenant, obligation or agreement shall be deemed to be effective, operative, made, entered into or taken in the manner and to the full extent permitted by law. Section 8.8. GOVERNING LAW. This Agreement shall be deemed to be a contract made under the laws of the State and for all purposes shall be governed by and construed in accordance with the laws of the State. (End of Article VIII) -23- IN WITNESS WHEREOF, the Issuer and the Borrower have caused this Agreement to be duly executed in their respective names, all as of the date first above written. HILLSBOROUGH COUNTY INDUSTRIAL DEVELOPMENT AUTHORITY By: ----------------------------------- Chairman And By: ------------------------------- Secretary SIFCO INDUSTRIES, INC. By: /s/ Richard Demetter --------------------------------- Vice President-Finance -24- EXHIBIT A PROJECT FACILITIES The Project consists of the acquisition, construction, installation and equipping of a manufacturing facility to be used in the repair, overhaul and otherwise servicing jet aircraft turbine engines including turbine blades and other components. The proceeds of the Project Bonds are expected to be expended as set forth below: I. Construction of an addition to an existing building $ 1,000,000 II. Acquisition of Equipment 1,450,000 III. Issuance Costs 50,000 IV. Retirement of 1992 bond issue 1,600,000 ---------------- TOTAL: $ 4,100,000
A-1 -25- EXHIBIT B PROJECT SITE The north six acres of Tract 7 of the Tampa West Industrial Park, Phase I, the plat of which is recorded in Plat Book 46, Page 29 of the public records of Hillsborough County, Florida, and known as 4910 Savarese Circle in the City of Tampa, Florida. B-1 -26- EXHIBIT C PROJECT NOTE $4,100,000 _________________________, 1998 SIFCO Industries, Inc., an Ohio corporation (the "Borrower"), for value received, promises to pay to National City Bank, Cleveland, Ohio, as trustee (the "Trustee") under the Indenture hereinafter referred to the principal sum of FOUR MILLION ONE HUNDRED THOUSAND DOLLARS ($4,100,000) on May 1, 2013, and to pay (i) interest on the unpaid balance of such principal sum from and after the date of this Note at the interest rate or interest rates borne by the Project Bonds and (ii) interest on overdue principal and to the extent permitted by law, on overdue interest, at the interest rate provided under the terms of the Project Bonds. This Note has been executed and delivered by the Borrower pursuant to a certain Loan Agreement (the "Agreement"), dated as of May 1, 1998, between the Hillsborough County Industrial Development Authority (the "Issuer") and the Borrower. Terms used but not defined herein shall have the meanings ascribed to such terms in the Agreement and the Indenture, as defined below. Under the Agreement, the Issuer has loaned the Borrower the proceeds received from the sale of $4,100,000 aggregate principal amount of Hillsborough County Industrial Development Authority Industrial Development Variable Rate Demand Revenue Bonds, Series 1998 (SIFCO Industries, Inc. Project), dated as of the date of their issuance (the "Project Bonds"), to be applied to assist in the financing of the Project. The Borrower has agreed to repay such loan by making Loan Payments at the times and in the amounts set forth in this Note. The Project Bonds have been issued, concurrently with the execution and delivery of this Note, pursuant to, and are secured by, the Trust Indenture (the "Indenture"), dated as of May 1, 1998, between the Issuer and the Trustee. To provide funds to pay the Bond Service Charges on the Project Bonds as and when due, or to reimburse the Bank for draws under the Letter of Credit to make such payments, the Borrower hereby agrees to and shall make Loan Payments as follows: On (A) each Interest Payment Date, the amount equal to the interest due on the Project Bonds on such Interest Payment Date and (B) on May 1, 1999 and on each May 1 thereafter, the principal amount of the Project Bonds to be redeemed on the next redemption date (or that date if such payment is made on a redemption date) pursuant to Section 22 of the Reimbursement Agreement or mandatory sinking fund redemption or upon maturity of the Project Bonds (each such day being a "Loan Payment Date"). In addition, to provide funds to pay the Bond Service Charges on the Project Bonds as and when due at any other time, the Borrower hereby agrees to and shall make Loan Payments on any other date on which any Bond Service Charges on the Project Bonds shall be due and payable, whether at maturity, upon acceleration, call for redemption or otherwise in an amount equal to those Bond Service Charges. C-1 -27- If payment or provision for payment in accordance with the Indenture is made in respect of the Bond Service Charges on the Project Bonds from moneys other than Loan Payments, this Note shall be deemed paid to the extent such payments or provision for payment of Bond Service Charges has been made. The Borrower shall receive a credit against its obligation to make Loan Payments hereunder to the extent of any other amounts on deposit in the Bond Fund and available to pay Bond Service Charges on the Project Bonds pursuant to the Indenture except for moneys made available to the Trustee under and pursuant to the Letter of Credit for the payment of Bond Service Charges. Subject to the foregoing, all Loan Payments shall be in the full amount required hereunder. All Loan Payments shall be payable in lawful money of the United States of America in immediately available funds and shall be made to the Trustee at its corporate trust office for the account of the Issuer, deposited in the Bond Fund and used as provided in the Indenture. The obligation of the Borrower to make the payments required hereunder shall be absolute and unconditional and the Borrower shall make such payments without abatement, diminution or deduction regardless of any cause or circumstances whatsoever including, without limitation, any defense, set-off, recoupment or counterclaim which the Borrower may have or assert against the Issuer, the Trustee, the Bank or any other person. This Note is subject to optional, extraordinary optional and mandatory prepayment, in whole or in part, upon the terms and conditions set forth in Article VI of the Agreement. Any optional or extraordinary optional prepayment is also subject to satisfaction of any applicable notice, deposit or other requirements set forth in the Agreement or the Indenture. Whenever an Event of Default under Section 7.1 of the Agreement shall have occurred, the unpaid principal amount of and any premium and accrued interest on this Note may be declared or may become due and payable as provided in Section 7.2 of the Agreement; provided that any annulment of a declaration of acceleration with respect to the Bonds under the Indenture shall also constitute an annulment of any corresponding declaration with respect to this Note. IN WITNESS WHEREOF, the Borrower has signed this Note as of the date first above written. SIFCO INDUSTRIES, INC. By:________________________________ C-2 -28- EXHIBIT D STATEMENT NO. ____ REQUESTING DISBURSEMENT OF FUNDS FROM THE PROJECT FUND PURSUANT TO SECTION 3.4 OF THE LOAN AGREEMENT BETWEEN THE HILLSBOROUGH COUNTY INDUSTRIAL DEVELOPMENT AUTHORITY AND SIFCO INDUSTRIES, INC. Pursuant to Section 3.4 of the Loan Agreement (the "Agreement") between the Hillsborough County Industrial Development Authority (the "Issuer") and SIFCO Industries, Inc. (the "Borrower"), dated as of May 1, 1998, the undersigned Authorized Borrower Representative hereby requests and authorizes National City Bank, Cleveland, Ohio, as trustee (the "Trustee"), as depository of the Project Fund created by the Indenture, as defined in the Agreement, to pay to the Borrower or to the person(s) listed on the Disbursement Schedule attached hereto out of the moneys on deposit in the Project Fund the aggregate sum of $ _______________, to pay such person(s) or to reimburse the Borrower in full, as indicated in the Disbursement Schedule, for advances, payments and expenditures made by it in connection with the items listed in the Disbursement Schedule. In connection with the foregoing request and authorization, the undersigned hereby certifies that: (a) Each item for which disbursement is requested hereunder is properly payable out of the Project Fund in accordance with the terms and conditions of the Agreement, is consistent with the IRS Form 8038 information statement filed by the Issuer in connection with the Bonds, and none of those items has formed the basis for any disbursement heretofore made from the Project Fund; (b) Each such item is or was necessary in connection with the acquisition or installation of the property comprising the Project, as defined in the Agreement; (c) This statement and all exhibits hereto, including the Disbursement Schedule, shall be conclusive evidence of the facts and statements set forth herein and shall constitute full warrant, protection and authority to the Trustee for its actions taken pursuant hereto; and (d) This statement constitutes the approval of the Borrower of each disbursement hereby requested and authorized. IN WITNESS WHEREOF, the Authorized Borrower Representative has set his hand as of the _____ day of __________, 19 _____. ----------------------------------- Authorized Borrower Representative D-1 -29- EX-10.B 9 l93943aex10-b.txt EXHIBIT 10(B) EXHIBIT 10(b) SIFCO INDUSTRIES, INC. Deferred Compensation Program for Directors and Executive Officers ------------------------------------------------------------------ (as amended and restated April 26, 1984) I. PURPOSE The purpose of this Program is to permit any member of the Board of Directors (the "Board") of SIFCO Industries, Inc. (the "Corporation") to defer all or any portion of his compensation as a director, and any Executive Officer to defer all or any portion of his incentive compensation until such time as he elects as provided for herein. II. DEFINITIONS When used in this instrument, the following words and phrases have the indicated meanings: (A) "FISCAL YEAR" means the twelve month period commencing on October 1 and concluding on September 30. (B) "EXECUTIVE OFFICERS" means those officers of the Corporation and its subsidiaries whose incentive compensation is specifically approved by the Board or the Compensation Committee of the Board (the "Committee"). (C) "INCENTIVE COMPENSATION" means contingent compensation which the Board or Committee specifically approved as an incentive for executive performance. (D) "DIRECTOR'S FEES" means all compensation payable to a director for services as a director, including fees for attending meetings of the Board and of its committees and annual retainer fees. (E) "DEFERRED COMPENSATION ACCOUNT OR ACCOUNTS" means, in the case of a Director, the Cash Account and the Stock Account and in the case of an Executive Officer, the Cash Account maintained for such individual by the Corporation. III. ADMINISTRATION This program shall be administered by the Committee. The Committee's interpretation and construction of the provisions of the Program shall be conclusive. Matters relating to a participant who is a member of the Committee shall be resolved by the Board and such participant shall not participate in the Board's decision. IV. RIGHT TO DEFER COMPENSATION (A) Any director of the Corporation may, at any time on or prior to September 30 of any year, elect to defer under this Program receipt of all, or such portion as he may designate, of his Director's Fees for the Fiscal Year beginning after the election and for subsequent Fiscal Years. Notwithstanding the preceding sentence, any person elected to the Board who was not a director on the preceding September 30 may, before his term begins, elect to defer receipt of all, or such portion as he may designate, of his Director's Fees for the remainder of the Fiscal Year following his election as a director and for subsequent Fiscal Years. (B) Any Executive Officer may, at any time on or prior to September 30 of any year, elect to defer under this Program receipt of all, or such portion as he may designate, of his Incentive Compensation for the Fiscal Year beginning after the election and for subsequent Fiscal Years. V. ELECTION Any election under paragraph IV of this Program shall be made by written notice delivered to the Vice President-Finance of the Corporation specifying (i) the Fiscal Year or Years with respect to which the election should apply, (ii) the amount of compensation, or the method of determining the compensation, to be deferred for such Fiscal Year or Years and (iii) the time and manner of payment of the deferred amount as provided in paragraph X below. Any election made by a director on or after April 26, 1984 shall also specify an allocation of deferred Directors Fees between the Deferred Compensation Accounts hereinafter described. A director incumbent on April 26, 1984 may within 30 days of such date file an election with the Vice President-Finance to allocate the amounts credited to his Deferred Compensation Account between the accounts hereinafter described. Except as provided in the immediately preceding sentence, an election under this Program with respect to any Fiscal Year shall be irrevocable after the commencement of such Fiscal Year; provided, however, that any election to defer compensation under this Program may be revoked, and an allocation between Deferred Compensation Accounts may be modified, as to a future Fiscal Year or Years by written notice delivered to the Vice President-Finance of the Corporation prior to the commencement of the Fiscal Year or Years with respect to which such revocation or reallocation is intended to apply. VI. DEFERRED COMPENSATION ACCOUNTS (A) On the last day of each month in which compensation deferred under this Program would have become payable to the participant in the absence of an election to defer payment thereof, the amount of such compensation shall be credited to or among the accounts which shall be established and maintained for such participant as separate accounts on the Corporation's books. A "Cash Account" and a "Stock Account" shall be maintained for each director; only a Cash Account shall be maintained for each Executive Officer. (B) Amounts to be credited to the Stock Account shall first be converted into stock units. The number of stock units shall be determined by dividing the applicable amount of deferred Directors Fees by the average of the high and low price per share of the Corporation's common stock on the principal stock exchange on which the Corporation's shares were traded on such date. Fractional units shall be credited as such. -2- VII. INTEREST ON CASH ACCOUNT Interest shall be credited to each Cash Account, based upon the average daily balance in the account during each calendar quarter, at a rate equal to the rate in effect on the first day of the applicable quarter for ninety day treasury notes. Interest accrued for each quarter of the Fiscal Year with respect to a Cash Account shall be credited to that Cash Account as of the first business day of the next succeeding calendar quarter. VIII. DIVIDEND CREDITS There shall be credited to each Stock Account additional stock units to reflect the distribution of dividends on the Corporation's common stock. On the payment date of any dividend paid other than in the common stock of the Corporation, there shall be determined the amount of cash, or the fair market value of property, which would have been paid to a participant had he been, on the applicable record date, the owner of a number of shares of the Corporation's common stock equal to the number of stock units in his Stock Account. That amount shall be converted into stock units in the manner specified in paragraph VI(B) above and credited to the participant's Stock Account. On the payment date of any stock dividend, there shall be credited to each participant's Stock Account a number of stock units equal to the number of shares of the Corporation's common stock that the participant would have received had he been, on the applicable record date, the owner of a number of shares of the Corporation's common stock equal to the number of units in his Stock Account. Fractional units shall be credited as such. IX. RECAPITALIZATION If a recapitalization of the Corporation occurs and the number of the Corporation's outstanding shares of common stock is reduced or increased, the number of stock units in each Stock Account shall be adjusted accordingly. X. PAYMENT OF DEFERRED COMPENSATION Amounts credited to a participant's Deferred Compensation Accounts shall be distributed to him at such time and in such manner as the participant chooses at the time of making the election referred to in paragraph IV above. Specifically, the participant may elect to have the deferred amounts paid (a) either after the participant ceases to be a director or Executive Officer of the Corporation or at such future time as the participant may select, and (b) either in a lump sum or in annual installments over a period not to exceed ten calendar years. In the event a participant ceases to be a director or Executive Officer of the Corporation and becomes a proprietor, officer, partner, employee or otherwise becomes affiliated with any business that is in competition with the Corporation, the entire balance in his Deferred Compensation Accounts may, if directed by the Committee, in its sole discretion, be paid immediately to him in a lump sum. Amounts credited to a Cash Account shall be distributed in cash. Units credited to the Stock Account shall customarily be distributed in an equal number of shares of common stock of the Corporation. A fractional unit shall be rounded to the next full unit prior to distribution. The amount of any annual installment payable to a participant from the Cash Account shall be determined by dividing the unpaid balance of the participant's Cash Account by the number of installments (including the current installment) remaining to be paid. Until a Cash Account has been completely distributed, the unpaid balance thereof shall bear interest as provided in paragraph VII above. The amount of any annual installment payable to a participant from the Stock Account shall be determined by dividing the number of undistributed stock units in the participant's Stock Account by the number of -3- installments (including the current installment) remaining to be paid. Until a Stock Account has been completely distributed, dividends shall be credited to it as provided in paragraph VIII above and the provisions of paragraph IX shall continue to apply. Notwithstanding the foregoing, the Committee, in its sole discretion may determine to distribute, in lieu of shares of stock, the cash value of stock units credited to a Stock Account. The cash value of each such unit shall be equal to the average of the high and low price per share of the Corporation's common stock on the principal stock exchange on which such shares are traded on the last business day preceding the date of distribution. In the event a participant dies prior to receiving payment of the entire amount of his Deferred Compensation Accounts, the unpaid balance shall be paid to such beneficiary or beneficiaries as the participant may have designated in writing to the Vice President-Finance of the Corporation as the beneficiary or beneficiaries to receive any post-death distribution under this Program or, in the absence of a written designation, to his legal representative or beneficiary or beneficiaries designated in his last will to receive such distributions. Distributions subsequent to the death of a participant may be made either in a lump sum or in installments in such amounts and over such period, not exceeding ten years from the date of death, as the Committee may direct. XI. FINANCIAL EMERGENCIES At any time before payment in full of his Deferred Compensation Accounts a participant may submit a written request to the Committee that any part or all of his Deferred Compensation Accounts be paid to him because of a financial emergency. The request shall describe the nature of such emergency and the amount required therefor. The Committee in its sole discretion shall determine whether and in what manner payment of the amount requested shall be made. XII. INTEREST OF PARTICIPANT AND BENEFICIARY The obligation of the Corporation under the Program to make payments of amounts reflected in Deferred Compensation Accounts merely constitutes the unsecured promise of the Corporation to make payments from its general assets or authorized but unissued Capital Stock as provided herein, and no participant or beneficiary shall have any interest in, or a lien or prior claim upon, any property of the Corporation or any subsidiary of the Corporation. Deferred Compensation Accounts maintained for purposes of this Program shall merely constitute bookkeeping records of the Corporation and shall not constitute any allocation whatsoever of any assets of the Corporation or be deemed to create any trust or special deposit with respect to any of the Corporation's assets. -4- XIII. AMENDMENT The Board may from time to time amend or terminate the Program, provided that no amendment or termination of the Program shall adversely affect the Deferred Compensation Accounts of any participant as they existed immediately before such amendment or termination or the manner of distribution thereof, unless such participant shall have consented thereto in writing. XIV. EFFECTIVE DATE This Program, as amended and restated, shall become effective on April 26, 1984. -5- EX-10.D 10 l93943aex10-d.txt EXHIBIT 10(D) EXHIBIT 10(d) SIFCO INDUSTRIES, INC. 1995 STOCK OPTION PLAN 1. PURPOSE OF PLAN. The Purpose of this Plan is to advance the interest of SIFCO Industries, Inc. (hereinafter called the "Company") and its shareholders by providing a means whereby employees of the Company may be granted (i) options to purchase shares of the common stock, $1.00 par value (hereinafter called "shares") of the Company and (ii) stock appreciation rights under the Plan, to the end that the Company may retain present personnel upon whose judgment, initiative and efforts the successful conduct of the business of the Company largely depends, and may attract new personnel. Some of the options granted under the Plan shall be options which are intended to qualify as "incentive stock options" under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), or any successor provision, and are hereinafter sometimes called "incentive stock options". 2. SHARES SUBJECT TO THE PLAN. The aggregate number of shares of the Company for which options may be granted under this Plan shall be 200,000; provided, however, that whatever number of shares shall remain reserved for issuance pursuant to the Plan at the time of any stock split, stock dividend or other change in the Company's capitalization shall be appropriately and proportionately adjusted to reflect such stock dividend, stock split or other change in capitalization. Such shares shall be made available from authorized but unissued or reacquired shares of the Company. Any shares for which an option is granted hereunder that are released from such option for any reason other than the exercise of stock appreciation rights granted hereunder shall become available for other options to be granted under this Plan. 3. ADMINISTRATION OF THE PLAN. This Plan shall be administered under the supervision of the Compensation, Pension and Stock Option Committee (the "Committee") composed of not less than three directors of the Company appointed by the Board of Directors. Subject to the express provisions of this Plan, the Committee shall have conclusive authority to construe and interpret the Plan, any stock option agreement entered into thereunder, and any stock appreciation right granted thereunder and to establish, amend, and rescind rules and regulations for its administration, and shall have such additional authority as the Board of Directors may from time to time determine to be necessary or desirable. 4. GRANTING OF OPTIONS. The Committee from time to time shall designate from among the full-time key employees of the Company, its subsidiaries, any corporation at least 20% of the voting securities of which is owned by the Company or a subsidiary of the Company, and any other business entity in which the Company or a subsidiary of the Company has at least a 50% interest, those employees to whom stock options to purchase shares shall be granted under this Plan, the number of shares which shall be subject to each option so granted, and the type of option granted. The Committee shall direct an appropriate officer of the Corporation to execute and deliver option agreements to employees reflecting the grant of options. All actions of the Committee under this Section shall be conclusive; provided, however, the aggregate fair market value (determined at the time the option is granted) of the stock with respect to which incentive stock options are exercisable for the first time by any individual during any calendar year (under this Plan or any other plan of the Company and subsidiary corporations that provides for the granting of incentive stock options) shall not exceed $100,000. Any incentive stock option that is granted to any employee who is, at the time the option is granted, deemed for purposes of Section 422 of the Code, or any successor provision, to own shares of the Company possessing more than ten percent (10%) of the total combined voting power of all classes of shares of the Company or of a parent or subsidiary of the Company, shall have an option price that is at least 110 percent of the fair market value of the stock and shall not be exercisable after the expiration of 5 years from the date it is granted. 5. GRANTING OF STOCK APPRECIATION RIGHTS. The Committee shall have the discretion to grant to optionees, concurrently with the grant of an option, or with respect to outstanding options that are not incentive stock options, stock appreciation rights in connection with stock options on such terms and conditions as it deems appropriate. The Committee shall direct an appropriate officer of the Company to execute and deliver stock appreciation right grants to optionees reflecting the grant of stock appreciation rights. A stock appreciation right will allow an optionee to surrender an option or portion thereof and to receive payment from the Company in an amount equal to the excess of the aggregate fair market value of the optioned shares that are surrendered over the aggregate option price of such shares. Payment may be made in shares, cash or a combination of shares and cash, as provided in the grant. Shares as to which any option is so surrendered shall not be available for future options. The Committee may select employees to whom stock appreciation rights will be granted and determine the number of stock appreciation rights to be granted to each such employee. 6. OPTION PERIOD. No incentive stock option granted under this Plan may be exercised later than ten years from the date of grant. 7. OPTION PRICE. The option price shall be fixed by the Committee and set forth in the Option Agreement, which price shall not be less than the per share fair market value of the outstanding shares of the Company on the date that the option is granted, as determined by the Committee. The Committee may fix such option price and authorize one or more officers of the Company to compute the price. The option price may be payable in cash, Company stock, or a combination thereof. The date on which the Committee approves the granting of an option shall be deemed the date on which the option is granted. -2- 8. OPTION AGREEMENT. The Option Agreement in which option rights are granted to an employee shall be in the applicable form (consistent with this Plan) from time to time approved by the Committee and shall be signed on behalf of the Company by the Chairman of the Board, the President or any Vice President of the Company other than the employee who is a party thereto, and shall be dated as of the date of the granting of the option, as determined in Section 7 hereof. 9. EXERCISE OF STOCK APPRECIATION RIGHTS. A stock appreciation right shall be exercisable at any time prior to its stated expiration date; but only to the extent the related stock option right may be exercised. No option or stock appreciation right shall be transferable by the optionee except by will or the laws of descent and distribution, and the options and stock appreciation rights may be exercised during the employee's lifetime only by him or his guardian or legal representative. 10. AMENDMENT AND TERMINATION OF THE PLAN. The Company, by action of its Board of Directors, reserves the right to amend, modify or terminate at any time this Plan, or, by action of the Board with the consent of the optionee, to amend, modify or terminate any outstanding option agreement or grant of stock appreciation rights, except that the Company may not, without further shareholder approval, (i) increase the total number of shares as to which options may be granted under the Plan (except increases attributable to the adjustments authorized in Section 2 hereof), (ii) change the employees or class of employees eligible to receive options, (iii) reduce the price at which options may be granted, (iv) extend the expiration date of the Plan, or (v) materially increase the benefits accruing to participants under the Plan. Moreover, no action may be taken by the Company (without the consent of the optionee) which will impair the validity of any option or stock appreciation right then outstanding or which will prevent the incentive stock options issued or to be issued under this Plan from being "incentive stock options" under Section 422 of the Code, or any successor provision. 11. EFFECTIVE DATE OF PLAN. The Plan shall be effective upon adoption of the Plan by the Board of Directors of the Company. The Plan shall be submitted to the shareholders of the Company for approval within one year after its adoption by the Board of Directors and, if the Plan shall not be approved by the shareholders within said period, the Plan shall be void and of no effect. Any options granted under the Plan prior to the date of approval by the shareholders shall be void if such shareholders' approval is not obtained. 12. EXPIRATION OF PLAN. Options may be granted under this Plan at any time prior to October 31, 2005, on which date the Plan shall expire but without affecting any options then outstanding. -3- -----END PRIVACY-ENHANCED MESSAGE-----