-----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, BlssBNopiXYZWcd23Nq+uB167ZeYN4IAPOZMK8Sf5Ru16SWgw6Pf/eFdISNF/mon qH1UF3cfcUrvcke+ht2XVQ== 0000935799-97-000024.txt : 19971113 0000935799-97-000024.hdr.sgml : 19971113 ACCESSION NUMBER: 0000935799-97-000024 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971113 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SIMPSON INDUSTRIES INC CENTRAL INDEX KEY: 0000090588 STANDARD INDUSTRIAL CLASSIFICATION: MOTOR VEHICLE PARTS & ACCESSORIES [3714] IRS NUMBER: 381225111 STATE OF INCORPORATION: MI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-06611 FILM NUMBER: 97716717 BUSINESS ADDRESS: STREET 1: 47603 HALYARD DR CITY: PLYMOUTH STATE: MI ZIP: 48170 BUSINESS PHONE: 3132076200 MAIL ADDRESS: STREET 1: 47603 HALYARD DR CITY: PLYMOUTH STATE: MI ZIP: 48170 10-Q 1 QUARTERLY REPORT ON FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 For Quarter Ended September 30, 1997 Commission File Number 0-6611 SIMPSON INDUSTRIES, INC. (Exact name of registrant as specified in its charter) Michigan 38-1225111 (State or other jurisdiction of IRS Employer Identification No.) incorporation or organization) 47603 Halyard Drive, Plymouth, Michigan 48170-2429 (Address of principal executive offices) (Zip Code) (313)207-6200 (Registrant's telephone number, including area code) (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes X No At October 31, 1997 there were 18,131,212 outstanding shares of the registrant's common stock, $1.00 par value each. PAGE Consolidated Balance Sheets (Unaudited) (In thousands) September 30, 1997 and December 31, 1996 Sept. 30 Dec. 31 ASSETS Current Assets Cash and cash equivalents $ 2,787 $ 28,902 Accounts receivable 68,302 41,032 Inventories 19,690 14,034 Customer tooling in process 6,274 4,002 Prepaid expenses and other current assets 6,362 6,256 Total Current Assets 103,415 94,226 Property, Plant and Equipment Cost 312,786 278,229 Less Allowance 140,307 126,152 Total Property, Plant and Equipment 172,479 152,077 Unallocated Purchase Cost 38,843 - Other Assets 15,315 2,653 $330,052 $248,956 LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Notes payable $ 479 - Current installment of long-term debt 3,579 $ 3,579 Accounts payable 34,684 28,455 Compensation and amounts withheld 9,906 10,203 Taxes, other than income taxes 2,238 2,597 Other accrued expenses 12,805 4,354 Total Current Liabilities 63,691 49,188 Long-term debt, excluding current installment 121,209 58,643 Accrued Retirement Benefits 15,058 14,015 Deferred Income Taxes 13,848 11,118 Shareholders' Equity 116,246 115,992 $330,052 $248,956 PAGE Consolidated Statements of Operations (Unaudited) (Dollars in thousands, except per share amounts) Periods Ended September 30, 1997 and 1996 Nine Months Three Months 1997 1996 1997 1996 Net sales $328,475 $309,698 $112,327 $ 98,228 Costs and expenses: Cost of products sold 295,614 276,130 103,322 89,309 Administrative and selling 9,538 9,358 3,315 3,159 Provision for plant closing 8,769 - 8,769 - 313,921 285,488 115,406 92,468 Operating Earnings 14,554 24,210 (3,079) 5,760 Investment and other income, net 732 851 206 692 Interest expense (5,094) (4,045) (2,377) (1,321) Earnings Before Income Taxes 10,192 21,016 (5,250) 5,131 Income taxes 3,724 7,645 (1,913) 1,688 Net Earnings $ 6,468 $13,371 $(3,337) $ 3,443 Net Earnings Per Share $0.36 $0.74 $(0.18) $0.19 Cash dividends per share $0.30 $0.30 $0.10 $0.10 Average number of common equivalent shares 18,172,233 18,103,242 18,189,835 18,117,073 Consolidated Statements of Cash Flows (Unaudited) (In thousands) Nine Months Ended September 30, 1997 and 1996 1997 1996 OPERATING ACTIVITIES Net earnings $ 6,468 $13,371 Depreciation and amortization 17,032 15,343 Provision for deferred income taxes 2,185 689 Other 165 471 Changes in operating assets and liabilities, net of effects of acquisition of business (10,585) (376) Cash Provided By Operating Activities 15,265 29,498 INVESTING ACTIVITIES Acquisition of business, net of cash acquired (75,407) - Capital expenditures (22,373) (15,141) Proceeds from disposal of property and equipment 321 97 Cash Used In Investing Activities (97,459) (15,044) FINANCING ACTIVITIES Cash dividends paid (5,439) (5,424) Proceeds (repayments) of long-term debt, net 62,577 (1,933) Cash provided by stock transactions, net - 243 Cash Provided From (Used In) Financing Activities 57,116 (7,114) Effect of foreign currency exchange rate changes (1,037) 143 Increase (Decrease)In Cash and Cash Equivalents (26,115) 7,483 Cash and cash equivalents at beginning of period 28,902 13,490 Cash and Cash Equivalents at End of Period $ 2,787 $20,973 Supplemental Disclosures Cash paid during the year for: Interest $ 4,207 $ 4,045 Income Taxes 4,662 4,381 Note 1. Significant Accounting Principles The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial reporting. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The results of operations for the period ended September 30, 1997 are not necessarily indicative of the results to be expected for the year ending December 31, 1997. Goodwill, arising from the acquisition of the Vibration Attenuation division (see below), is amortized on a straight-line basis over 40 years. Specific intangibles are amortized on a straight-line basis over the estimated periods benefited with periods ranging from 5 to 20 years. For further information regarding the Company's accounting policies, refer to the Consolidated Financial Statements and related notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 1996. Note 2. Holset VA Acquisition On June 27, the Company through a wholly owned subsidiary purchased the Vibration Attenuation division of Holset Engineering Company Limited ("Holset VA") from Cummins Engine Company. The aggregate purchase cost for the acquisition of the Holset VA Business was $76.6 million. Funds for the Holset VA Business acquisition, net of cash received, were provided by cash and borrowings of $60 million under the Credit Agreements as described in Note 4. The Holset VA Business has operations in the United Kingdom, France, Spain, Mexico, Korea, Brazil, and the United States. The Holset VA Business is also a minority partner in a joint venture in India. Holset VA manufactures rubber and viscous dampers and supplies three main markets including heavy truck, light truck and automotive and industrial. The acquisition was accounted for as a purchase transaction. The purchase cost of $76.6 million has been allocated to assets acquired and liabilities assumed based upon their preliminary estimated fair values at the acquisition date. The excess of the purchase price over the estimated values for assets and liabilities has been reflected as unallocated purchase cost which is being amortized over 40 years. The final allocation of the purchase costs to assets and liabilities will depend on the final results of appraisals that are not yet complete. Therefore, the final allocation will probably differ from the estimated allocation, possibly by substantial amounts. The preliminary allocation at June 27, 1997 of the $76.6 million purchase cost is summarized as follows: (In thousands) Current assets $17,748 Property, plant and equipment 15,806 Unallocated purchase cost, principally goodwill 38,843 Intangible assets 12,728 Other noncurrent assets 841 Current liabilities (9,346) Total purchase cost $76,620 NOTE 3. Pro Forma Information The following pro forma unaudited financial data is presented to illustrate the estimated effects of (i) the Holset VA acquisition and (ii) the completion of the new credit agreements (Note 4) as if the transactions had occurred as of January 1 of each year presented (in thousands, except per share data). ________________________________________________________________________ Three Months Ended Nine Months Ended Sept 30 Sept 30 Sept 30 Sept 30 1997 1996 1997 1996 Net sales 125,605 111,345 377,516 358,145 Net income (4,150) (2,866) 6,078 13,531 Net income per share $(.23) $.16 $0.33 $0.75 ________________________________________________________________________ The pro forma information above does not purport to be indicative of the results that actually would have been achieved if the transactions had occurred prior to the years presented, and is not intended to be a projection of future results or trends. Note 4. Debt On August 1, 1997 the Company issued and sold $35 million of its 7.03% Senior Notes, Series A and $15 million of its 6.96% Senior Notes, Series B. Notes of both series are due August 1, 2012. The proceeds of the Notes were used to pay down and permanently reduce the 364-Day and five-year Credit Agreements discussed below. In June 1997, the Company entered into revolving credit agreements to allow for borrowings of up to $50 million under a five-year agreement and up to $50 million under a 364-day agreement. In August 1997 these agreements were permanently reduced to $25 million each. At September 30, 1997, borrowings outstanding under the 364-day agreement were $17.5 million at interest rates ranging from 6.32 % to 8.5%. There were no borrowings outstanding under the five-year agreement. The 364-day agreement is classified as long-term based on management's intent to maintain this level of borrowing for a period in excess of one year and the Company's ability to transfer the borrowings to its five-year line. Borrowings under the credit agreements bear interest, at the election of the Company, at a floating rate of interest equal to (a) the higher of ABN AMRO's prime lending rate and the federal funds rate plus .5% or (b) the Eurodollar rate plus the applicable borrowing margin. ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Net sales for the third quarter increased 14.4% or $14.1 million over 1996. Year-to-date sales increased 6.1% or $18.8 million over the prior year. The inclusion of the acquisition of the vibration attenuation business ("VA Business")of Holset Engineering Company Limited from Cummins Engine Co., Inc. contributed $13.3 million to the increase in both periods with the remainder coming from new program launches undertaken since the beginning of the year. The increased sales year-to-date reflect strong sales to diesel engine customers and a new wheel-end suspension program that went on line in late 1996 offset by the effects of a decline in auto production and strikes at two key customers. Cost of products sold as a percent of sales for the third quarter of 1997 compared to the third quarter of 1996 increased to 92.0% from 90.9%. This increase is due to higher launch costs in the third quarter of 1997, non-accruable plant closure costs (as discussed below) and the inclusion of the VA Business which reflects the impact of the traditional August shutdown in France and Spain. Cost of products sold as a percent of sales year-to-date 1997 compared to 1996 increased to 90.0% from 88.9%. In addition to the third quarter events, the year-to-date increase also reflects the recovery of some out-of-period start-up costs recorded in the second quarter of 1996. Administrative and selling costs remained at approximately 3% of sales for the nine- and three-month periods ending September, 30 1997 and 1996. Interest expense increased $1.1 million and $1.0 million for the three and nine-month periods ending September 30, 1997 respectively, over the same 1996 periods. This increase was due to the additional debt incurred to fund the Holset acquisition. In July 1997, the Company announced the closing of its Jackson, Michigan manufacturing plant. In September, 1997, the Company announced the closing of its Gladwin, Michigan manufacturing plant. Pre-tax charges of approximately $4.2 and $4.6 million for Jackson and Gladwin plants respectively, were recorded in the third quarter ending September 30, 1997. Non-accruable plant closure costs of $.6 million are included in the third quarter 1997 cost of products sold. It is anticipated that an additional $.6 million of non-accruable plant closure costs will be incurred in the fourth quarter of 1997. These closures are anticipated to provide annualized savings of approximately $5.5 million a year before taxes beginning in 1998. On August 1, 1997 the Company issued and sold $35 million of its 7.03% Senior Notes, Series A and $15 million of its 6.96% Senior Notes, Series B. Notes of both series are due August 1, 2012. The proceeds of the Notes were used to pay down and permanently reduce the 364-Day and five-year Credit Agreements discussed below. In June 1997, the Company entered into revolving credit agreements to allow for borrowings of up to $50 million under a five-year agreement and up to $50 million under a 364-day agreement. In August 1997 these agreements were permanently reduced to $25 million each. At September 30, 1997, borrowings outstanding under the 364-day agreement were $17.5 million at interest rates ranging from 6.32 % to 8.5%. There were no borrowings outstanding under the five-year agreement. The 364-day agreement is classified as long-term based on management's intent to maintain this level of borrowing for a period in excess of five years and the Company's ability to transfer the borrowings to its five-year line. Borrowings under the credit agreements bear interest, at the election of the Company, at a floating rate of interest equal to (a) the higher of ABN AMRO's prime lending rate and the federal funds rate plus .5% or (b) the Eurodollar rate plus the applicable borrowing margin. Cash flow from operations was $15.3 million for the first nine months of 1997. Net cash used in investing activities was $97.5 million and $15.0 million for the nine months ending September 30, 1997 and 1996, respectively. The primary reason for the increase in investing activities was the Holset VA acquisition which occurred in the second quarter of 1997. The Company's investment in production capacity for new automotive, light truck and diesel engine programs also increased from $15.1 million in 1996 to $22.4 million in 1997. The increase was primarily due to the new program launches occurring in 1997. Net cash used in investing activities and dividends paid during the nine months ended September 30, 1997, exceeded cash flows from operations and net proceeds from borrowings, discussed above, resulting in a reduction of $26 million in cash and cash equivalents. The Company believes that cash flows from operations and available credit facilities will be sufficient to meet its debt service requirements, projected capital expenditures and working capital requirements. Certain statements in this report may be "forward-looking statements" under the Securities Exchange Act of 1934. Statements regarding future operating performance, new programs expected to be launched and other future prospects and developments are based on current expectations and involve certain risks and uncertainties that could cause the actual results and developments to differ materially from the forward-looking statements. Potential risks and uncertainties include such factors as demand for the Company's products, pricing and other actions taken by competitors, and general economic conditions affecting the markets served by the Company. Part II. Other Information ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) The following exhibits are filed as part of this report. EXHIBIT NO. DESCRIPTION 10.26 Note Agreement, dated August 1, 1997 with Northwestern Mutual Life Insurance Company, Chubb Life Insurance Company of America, Chubb Colonial Life Insurance Company, Allstate Life Insurance Company and United of Omaha Life Insurance Company 11 Computation of Earnings Per Share 27 Financial Data Schedule (b) The following reports on Form 8-K were filed during the quarter ended September 30, 1997. (i) July 14, 1997 - Form 8-K relating to the Holset VA acquisition. (ii) August 14, 1997 - Form 8-K relating to the Holset VA acquisition (including pro forma financial statements of the business acquired). SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SIMPSON INDUSTRIES, INC. Registrant /S/ ROY E. PARROTT November 13, 1997 Roy E. Parrott President and Chief Executive Officer INDEX TO EXHIBITS EXHIBIT NO. DESCRIPTION 10.26 Note Agreement, dated August 1, 1997 with Northwestern Mutual Life Insurance Company, Chubb Life Insurance Company of America, Chubb Colonial Life Insurance Company, Allstate Life Insurance Company and United of Omaha Life Insurance Company 11 Computation of Earnings Per Share 27 Financial Data Schedule EX-10.26 2 NOTE AGREEMENT SIMPSON INDUSTRIES, INC. $35,000,000 7.03% SENIOR NOTES, SERIES A, DUE AUGUST 1,2012 AND $15,000,000 6.96% SENIOR NOTES, SERIES B, DUE AUGUST 1, 2012______________ NOTE PURCHASE AGREEMENT_____________ DATED AS OF AUGUST 1, 1997 Table of Contents (Not a part of the Agreement) Section Header Page Section 1. Authorization of Notes 1 Section 2. Sale and Purchase of Notes 1 Section 3. Closing 2 Section 4. Conditions to Closing 2 Section 4.1. Representations and Warranties 2 Section 4.2. Performance; No Default. 2 Section 4.3. Compliance Certificates 2 Section 4.4. Opinions of Counsel 3 Section 4.5. Purchase Permitted By Applicable Law, etc 3 Section 4.6. Sale of Other Notes 3 Section 4.7. Payment of Special Counsel Fees. 3 Section 4.8. Private Placement Number 3 Section 4.9. Changes in Corporate Structure 3 Section 4.10. Proceedings and Documents 4 Section 5. Representations and Warranties of the Company 4 Section 5.1. Organization; Power and Authority 4 Section 5.2. Authorization, etc 4 Section 5.3. Disclosure 4 Section 5.4. Organization and Ownership of Shares of Subsidiaries; Affiliates 5 Section 5.5. Financial Statements 5 Section 5.6. Compliance with Laws, Other Instruments, etc 6 Section 5.7. Governmental Authorizations, etc 6 Section 5.8. Litigation; Observance of Agreements, Statutes and Orders 6 Section 5.9. Taxes 6 Section 5.10. Title to Property; Leases 7 Section 5.11. Licenses, Permits, etc 7 Section 5.12. Compliance with ERISA 7 Section 5.13. Private Offering by the Company 8 Section 5.14. Use of Proceeds; Margin Regulations 8 Section 5.15. Existing Debt; Future Liens 9 Section 5.16. Foreign Assets Control Regulations, etc 9 Section 5.17. Status under Certain Statutes 9 Section 5.18. Environmental Matters 9 Section 6. Representations of the Purchaser 10 Section 6.1. Purchase for Investment 10 Section 6.2. Source of Funds 10 Section 7. Information as to Company 11 Section 7.1. Financial and Business Information 11 Section 7.2. Officer's Certificate 14 Section 7.3. Inspection 14 Section 8. Prepayment of the Notes 15 Section 8.1. Required Prepayments 15 Section 8.2. Optional Prepayments with Make-Whole Amount 15 Section 8.3. Allocation of Partial Prepayments 16 Section 8.4. Maturity; Surrender, etc 16 Section 8.5. Purchase of Notes 16 Section 8.6. Make-Whole Amount 17 Section 8.7. Prepayment upon Change in Control 18 Section 9. Affirmative Covenants 21 Section 9.1. Compliance with Law 21 Section 9.2. Insurance 21 Section 9.3. Maintenance of Properties 21 Section 9.4. Payment of Taxes and Claims 21 Section 9.5. Corporate Existence, etc 22 Section 9.6 Designation of Unrestricted Subsidiaries 22 Section 9.7. Financial Records 22 Section 10. Negative Covenants 22 Section 10.1. Consolidated Net Worth 22 Section 10.2. Limitations on Debt 23 Section 10.3. Limitations on Priority Debt 23 Section 10.4. Limitation on Liens 23 Section 10.5. Merger, Consolidation, etc 25 Section 10.6. Sales of Assets 26 Section 10.7. Long Term Lease Rentals 26 Section 10.8. Nature of Business 26 Section 10.9. Transactions with Affiliates 27 Section 11. Events of Default 27 Section 12. Remedies on Default, etc 29 Section 12.1. Acceleration 29 Section 12.2. Other Remedies 30 Section 12.3. Rescission 30 Section 12.4. No Waivers or Election of Remedies, Expenses, etc 30 Section 13. Registration; Exchange; Substitution of Notes 30 Section 13.1. Registration of Notes 30 Section 13.2. Transfer and Exchange of Notes 31 Section 13.3. Replacement of Notes 31 Section 14. Payments on Notes 32 Section 14.1. Place of Payment 32 Section 14.2. Home Office Payment 32 Section 15. Expenses, Etc. 32 Section 15.1. Transaction Expenses 32 Section 15.2. Survival 33 Section 16. Survival of Representations and Warranties; Entire Agreement 33 Section 17. Amendment and Waiver 33 Section 17.1. Requirements 33 Section 17.2. Solicitation of Holders of Notes 33 Section 17.3. Binding Effect, etc 34 Section 17.4. Notes Held by Company, etc 34 Section 18. Notices 34 Section 19. Reproduction of Documents 35 Section 20. Confidential Information 35 Section 21. Substitution of Purchaser 36 Section 22. Miscellaneous 36 Section 22.1. Successors and Assigns 36 Section 22.2. Payments Due on Non-Business Days 37 Section 22.3. Severability 37 Section 22.4. Construction 37 Section 22.5. Counterparts 37 Section 22.6. Governing Law 37 Signature 37 Schedule A Information Relating To Purchasers Schedule B Defined Terms Schedule 4.9 Changes in Corporate Structure Schedule 5.3 Disclosure Materials Schedule 5.4 Subsidiaries of the Company and Ownership of Subsidiary Stock Schedule 5.5 Financial Statements Schedule 5.8 Certain Litigation Schedule 5.11 Patents, etc. Schedule 5.14 Use of Proceeds Schedule 5.15 Existing Indebtedness; Permitted Investments Exhibit 1 Form of 7.03% Senior Note, Series A, due August 1, 2012 Exhibit 2 Form of 6.96% Senior Note, Series B, due August 1, 2012 Exhibit 4.4(a) Form of Opinion of Special Counsel for the Company Exhibit 4.4(b) Form of Opinion of Special Counsel for the Purchasers SIMPSON INDUSTRIES, INC. 47603 HALYARD DRIVE PLYMOUTH, MICHIGAN 48170-2429 7.03% SENIOR NOTES, SERIES A, DUE AUGUST 1, 2012 AND 6.96% SENIOR NOTES, SERIES B, DUE AUGUST 1, 2012 AUGUST 1, 1997 To each of the Purchasers listed in the attached Schedule A: Ladies and Gentlemen: Simpson Industries, Inc., a Michigan corporation (the "Company"), agrees with you as follows: SECTION 1. AUTHORIZATION OF NOTES. The Company will authorize the issue and sale of (i) $35,000,000 aggregate principal amount of its 7.03% Senior Notes, Series A, due August 1, 2012 (the "Series A Notes") and (ii) $15,000,000 aggregate principal amount of its 6.96% Senior Notes, Series B, due August 1, 2012 (the "Series B Notes", and together with the Series A Notes, the "Notes"). The term "Notes" shall include any such notes issued in substitution therefor pursuant to Section 13 of this Agreement or the Other Agreements (as hereinafter defined). The Series A Notes and the Series B Notes shall be substantially in the form set out in Exhibits 1 and 2, respectively with such changes therefrom, if any, as may be approved by you and the Company. Certain capitalized terms used in this Agreement are defined in Schedule B; references to a "Schedule" or an "Exhibit" are, unless otherwise specified, to a Schedule or an Exhibit attached to this Agreement. SECTION 2. SALE AND PURCHASE OF NOTES. Subject to the terms and conditions of this Agreement, the Company will issue and sell to you and you will purchase from the Company, at the Closing provided for in Section 3, the Notes in the principal amount specified opposite your name in Schedule A at the purchase price of 100% of the principal amount thereof. Contemporaneously with entering into this Agreement, the Company is entering into separate Note Purchase Agreements (the "Other Agreements") identical with this Agreement with each of the other purchasers named in Schedule A (the "Other Purchasers"), providing for the sale at such Closing to each of the Other Purchasers of the Notes in the principal amount specified opposite its name in Schedule A. Your obligation hereunder, and the obligations of the Other Purchasers under the Other Agreements, are several and not joint obligations, and you shall have no obligation under any Other Agreement and no liability to any Person for the performance or nonperformance by any Other Purchaser thereunder. SECTION 3. CLOSING. The sale and purchase of the Notes to be purchased by you and the Other Purchasers shall occur at the offices of Chapman and Cutler, 111 West Monroe Street, Chicago, Illinois 60603, at 10:00 a.m. Chicago time, at a closing (the "Closing") on August 28, 1997 or on such other Business Day thereafter on or prior to August 31, 1997 as may be agreed upon by the Company and you and the Other Purchasers. At the Closing the Company will deliver to you the Notes to be purchased by you in the form of a single Note (or such greater number of Notes in denominations of at least $500,000 as you may request) dated the date of the Closing and registered in your name (or in the name of your nominee), against delivery by you to the Company or its order of immediately available funds in the amount of the purchase price therefor by wire transfer of immediately available funds for the account of the Company to account number 1000-097616 at Comerica Bank, 500 Woodward Avenue, Detroit, Michigan, ABA# 072-000096. If at the Closing the Company shall fail to tender such Notes to you as provided above in this Section 3, or any of the conditions specified in Section 4 shall not have been fulfilled to your reasonable satisfaction, you shall, at your election, be relieved of all further obligations under this Agreement, without thereby waiving any rights you may have by reason of such failure or such nonfulfillment. SECTION 4. CONDITIONS TO CLOSING. Your obligation to purchase and pay for the Notes to be sold to you at the Closing is subject to the fulfillment to your reasonable satisfaction, prior to or at the Closing, of the following conditions: Section 4.1. Representations and Warranties;. The representations and warranties of the Company in this Agreement shall be correct when made and at the time of the Closing. Section 4.2. Performance; No Default. The Company shall have performed and complied with all agreements and conditions contained in this Agreement required to be performed or complied with by it prior to or at the Closing, and after giving effect to the issue and sale of the Notes (and the application of the proceeds thereof as contemplated by Schedule 5.14), no Default or Event of Default shall have occurred and be continuing. Neither the Company nor any Subsidiary shall have entered into any transaction since the date of the Memorandum that would have been prohibited by the covenants contained in Section 10 hereof had such covenants applied since such date. Section 4.3. Compliance Certificates. (a) Officer's Certificate. The Company shall have delivered to you an Officer's Certificate, dated the date of the Closing, certifying that the conditions specified in Sections 4.1, 4.2 and 4.9 have been fulfilled. (b) Secretary's Certificate. The Company shall have delivered to you a certificate certifying as to the resolutions attached thereto and other corporate proceedings relating to the authorization, execution and delivery of the Notes and the Agreements. Section 4.4. Opinions of Counsel. You shall have received opinions in form and substance satisfactory to you, dated the date of the Closing (a) from Dykema Gossett, counsel for the Company, covering the matters set forth in Exhibit 4.4(a) and covering such other matters incident to the transactions contemplated hereby as you or your counsel may reasonably request (and the Company hereby instructs its counsel to deliver such opinion to you) and (b) from Chapman and Cutler, your special counsel in connection with such transactions, substantially in the form set forth in Exhibit 4.4(b) and covering such other matters incident to such transactions as you may reasonably request. Section 4.5. Purchase Permitted By Applicable Law, etc. On the date of the Closing your purchase of Notes shall (i) be permitted by the laws and regulations of each jurisdiction to which you are subject, without recourse to provisions (such as Section 1405(a)(8) of the New York Insurance Law) permitting limited investments by insurance companies without restriction as to the character of the particular investment, (ii) not violate any applicable law or regulation (including, without limitation, Regulation G, T or X of the Board of Governors of the Federal Reserve System) and (iii) not subject you to any tax, penalty or liability under or pursuant to any applicable law or regulation, which law or regulation was not in effect on the date hereof. If requested by you, you shall have received an Officer's Certificate certifying as to such matters of fact as you may reasonably specify to enable you to determine whether such purchase is so permitted. Section 4.6. Sale of Other Notes. Contemporaneously with the Closing, the Company shall sell to the Other Purchasers, and the Other Purchasers shall purchase, the Notes to be purchased by them at the Closing as specified in Schedule A. Section 4.7. Payment of Special Counsel Fees. Without limiting the provisions of Section 15.1, the Company shall have paid on or before the Closing the fees, charges and disbursements of your special counsel referred to in Section 4.4 to the extent reflected in a statement of such counsel rendered to the Company at least one Business Day prior to the Closing. Section 4.8. Private Placement Number. A Private Placement number issued by Standard & Poor's CUSIP Service Bureau (in cooperation with the Securities Valuation Office of the National Association of Insurance Commissioners) shall have been obtained for the Notes. Section 4.9. Changes in Corporate Structure. Except as specified in Schedule 4.9, the Company shall not have changed its jurisdiction of incorporation or been a party to any merger or consolidation and shall not have succeeded to all or any substantial part of the liabilities of any other entity, at any time following the date of the most recent financial statements referred to in Schedule 5.5. Section 4.10. Proceedings and Documents. All corporate and other proceedings in connection with the transactions contemplated by this Agreement and all documents and instruments incident to such transactions shall be satisfactory to you and your special counsel, and you and your special counsel shall have received all such counterpart originals or certified or other copies of such documents as you or they may reasonably request. SECTION 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and warrants to you that: Section 5.1. Organization; Power and Authority. The Company is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation, and is duly qualified as a foreign corporation and is in good standing in each jurisdiction in which such qualification is required by law, other than those jurisdictions as to which the failure to be so qualified or in good standing could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. The Company has the corporate power and authority to own or hold under lease the properties it purports to own or hold under lease, to transact the business it transacts and proposes to transact, to execute and deliver this Agreement and the Other Agreements and the Notes and to perform the provisions hereof and thereof. Section 5.2. Authorization, etc. This Agreement, the Other Agreements and the Notes have been duly authorized by all necessary corporate action on the part of the Company, and this Agreement constitutes, and upon execution and delivery thereof each Note will constitute, a legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except as such enforceability may be limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights generally and (ii) general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). Section 5.3. Disclosure. The Company, through its agent, ABN AMRO Chicago Corporation, has delivered to you and each Other Purchaser a copy of a Private Placement Memorandum, dated July 9, 1997 (the "Memorandum"), relating to the transactions contemplated hereby. The Memorandum fairly describes, in all material respects, the general nature of the business and principal properties of the Company and its Subsidiaries. Except as disclosed in Schedule 5.3, this Agreement, the description of the general nature of the business and principal properties of the Company set forth in the Memorandum, the documents, certificates or other writings delivered to you by or on behalf of the Company in connection with the transactions contemplated hereby and the financial statements listed in Schedule 5.5, taken as a whole, do not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein not misleading in light of the circumstances under which they were made. Except as disclosed in the Memorandum or as expressly described in Schedule 5.3, or in one of the documents, certificates or other writings identified therein, or in the financial statements listed in Schedule 5.5, since December 31, 1996, there has been no change in the financial condition, operations, business, properties or prospects of the Company or any Subsidiary except changes that individually or in the aggregate could not reasonably be expected to have a Material Adverse Effect. There is no fact known to the Company that could reasonably be expected to have a Material Adverse Effect that has not been set forth herein or in the Memorandum or in the other documents, certificates and other writings delivered to you by or on behalf of the Company specifically for use in connection with the transactions contemplated hereby. Section 5.4. Organization and Ownership of Shares of Subsidiaries; Affiliates. (a) Schedule 5.4 contains (except as noted therein) complete and correct lists (i) of the Company's Subsidiaries, showing, as to each Subsidiary, the correct name thereof, the jurisdiction of its organization, and the percentage of shares of each class of its capital stock or similar equity interests outstanding owned by the Company and each other Subsidiary, (ii) of the Company's Affiliates, other than Subsidiaries, and (iii) of the Company's directors and senior officers. (b) All of the outstanding shares of capital stock or similar equity interests of each Subsidiary shown in Schedule 5.4 as being owned by the Company and its Subsidiaries have been validly issued, are fully paid and nonassessable and are owned by the Company or another Subsidiary free and clear of any Lien (except as otherwise disclosed in Schedule 5.4). (c) Each Subsidiary identified in Schedule 5.4 is a corporation or other legal entity duly organized, validly existing and in good standing under the laws of its jurisdiction of organization, and is duly qualified as a foreign corporation or other legal entity and is in good standing in each jurisdiction in which such qualification is required by law, other than those jurisdictions as to which the failure to be so qualified or in good standing could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. Each such Subsidiary has the corporate or other power and authority to own or hold under lease the properties it purports to own or hold under lease and to transact the business it transacts and proposes to transact. (d) No Subsidiary is a party to, or otherwise subject to any legal restriction or any agreement (other than this Agreement, the agreements listed on Schedule 5.4 and customary limitations imposed by corporate law statutes) restricting the ability of such Subsidiary to pay dividends out of profits or make any other similar distributions of profits to the Company or any of its Subsidiaries that owns outstanding shares of capital stock or similar equity interests of such Subsidiary. Section 5.5. Financial Statements. The Company has delivered to each Purchaser copies of the financial statements of the Company and its Subsidiaries listed on Schedule 5.5. All of said financial statements (including in each case the related schedules and notes) fairly present in all material respects the consolidated financial position of the Company and its Subsidiaries as of the respective dates specified in such Schedule and the consolidated results of their operations and cash flows for the respective periods so specified and have been prepared in accordance with GAAP consistently applied throughout the periods involved except as set forth in the notes thereto (subject, in the case of any interim financial statements, to normal year-end adjustments). Section 5.6. Compliance with Laws, Other Instruments, etc. The execution, delivery and performance by the Company of this Agreement and the Notes will not (i) contravene, result in any breach of, or constitute a default under, or result in the creation of any Lien in respect of any property of the Company or any Subsidiary under, any indenture, mortgage, deed of trust, loan, purchase or credit agreement, lease, corporate charter or by-laws, or any other agreement or instrument to which the Company or any Subsidiary is bound or by which the Company or any Subsidiary or any of their respective properties may be bound or affected, (ii) conflict with or result in a breach of any of the terms, conditions or provisions of any order, judgment, decree, or ruling of any court, arbitrator or Governmental Authority applicable to the Company or any Subsidiary or (iii) violate any provision of any statute or other rule or regulation of any Governmental Authority applicable to the Company or any Subsidiary. Section 5.7. Governmental Authorizations, etc. No consent, approval or authorization of, or registration, filing or declaration with, any Governmental Authority is required in connection with the execution, delivery or performance by the Company of this Agreement or the Notes. Section 5.8. Litigation; Observance of Agreements, Statutes and Orders. (a) Except as disclosed in Schedule 5.8, there are no actions, suits or proceedings pending or, to the knowledge of the Company, threatened against or affecting the Company or any Subsidiary or any property of the Company or any Subsidiary in any court or before any arbitrator of any kind or before or by any Governmental Authority that, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. (b) Neither the Company nor any Subsidiary is in default under any term of any agreement or instrument to which it is a party or by which it is bound, or any order, judgment, decree or ruling of any court, arbitrator or Governmental Authority or is in violation of any applicable law, ordinance, rule or regulation (including without limitation Environmental Laws) of any Governmental Authority, which default or violation, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. Section 5.9. Taxes. The Company and its Subsidiaries have filed all tax returns that are required to have been filed in any jurisdiction, and have paid all taxes shown to be due and payable on such returns and all other taxes and assessments levied upon them or their properties, assets, income or franchises, to the extent such taxes and assessments have become due and payable and before they have become delinquent, except for any taxes and assessments (i) the amount of which is not individually or in the aggregate Material or (ii) the amount, applicability or validity of which is currently being contested in good faith by appropriate proceedings and with respect to which the Company or a Subsidiary, as the case may be, has established adequate reserves in accordance with GAAP. The Company knows of no basis for any other tax or assessment that could reasonably be expected to have a Material Adverse Effect. The charges, accruals and reserves on the books of the Company and its Subsidiaries in respect of Federal, state or other taxes for all fiscal periods are adequate. The Federal income tax liabilities of the Company and its Subsidiaries have been finally determined except for (i) fiscal years 1993 through 1996, the only years not closed by completion of an audit or expiration of the statute of limitations, and (ii) in the case of fiscal year 1985 and each subsequent year, items disclosed in the amended Federal income tax returns filed by the Company relating to a claim by the Company for a research and experimentation credit for such years. Section 5.10. Title to Property; Leases. The Company and its Subsidiaries have good and sufficient title to their respective properties that individually or in the aggregate are Material, including all such properties reflected in the most recent audited balance sheet referred to in Section 5.5 or purported to have been acquired by the Company or any Subsidiary after said date (except as sold or otherwise disposed of in the ordinary course of business), in each case free and clear of Liens prohibited by this Agreement. All leases that individually or in the aggregate are Material are valid and subsisting and are in full force and effect in all material respects. Section 5.11. Licenses, Permits, etc. Except as disclosed in Schedule 5.11, (a) the Company and its Subsidiaries own or possess all licenses, permits, franchises, authorizations, patents, copyrights, service marks, trademarks and trade names, or rights thereto, that individually or in the aggregate are Material, without known conflict with the rights of others; (b) to the best knowledge of the Company, no product of the Company infringes in any Material respect any license, permit, franchise, authorization, patent, copyright, service mark, trademark, trade name or other right owned by any other Person; and (c) to the best knowledge of the Company, there is no Material violation by any Person of any right of the Company or any of its Subsidiaries with respect to any patent, copyright, service mark, trademark, trade name or other right owned or used by the Company or any of its Subsidiaries. Section 5.12. Compliance with ERISA. (a) The Company and each ERISA Affiliate have operated and administered each Plan in compliance with all applicable laws except for such instances of noncompliance as have not resulted in and could not reasonably be expected to result in a Material Adverse Effect. Neither the Company nor any ERISA Affiliate has incurred any liability pursuant to Title I or IV of ERISA or the penalty or excise tax provisions of the Code relating to employee benefit plans (as defined in Section 3 of ERISA), and no event, transaction or condition has occurred or exists that could reasonably be expected to result in the incurrence of any such liability by the Company or any ERISA Affiliate, or in the imposition of any Lien on any of the rights, properties or assets of the Company or any ERISA Affiliate, in either case pursuant to Title I or IV of ERISA or to such penalty or excise tax provisions or to Section 401(a)(29) or 412 of the Code, other than such liabilities or Liens as would not be individually or in the aggregate Material. (b) The present value of the aggregate benefit liabilities under each of the Plans (other than Multiemployer Plans), determined as of the end of such Plan's most recently ended plan year on the basis of the actuarial assumptions specified for funding purposes in such Plan's most recent actuarial valuation report, did not exceed the aggregate current value of the assets of such Plan allocable to such benefit liabilities by more than $219,897 in the case of any single Plan and by more than $351,103 in the aggregate for all Plans. The term "benefit liabilities" has the meaning specified in section 4001 of ERISA and the terms "current value" and "present value" have the meanings specified in section 3 of ERISA. (c) The Company and its ERISA Affiliates have not incurred withdrawal liabilities (and are not subject to contingent withdrawal liabilities) under section 4201 or 4204 of ERISA in respect of Multiemployer Plans that individually or in the aggregate are Material. (d) The expected post-retirement benefit obligation (determined as of the last day of the Company's most recently ended fiscal year in accordance with Financial Accounting Standards Board Statement No. 106, without regard to liabilities attributable to continuation coverage mandated by section 4980B of the Code) of the Company and its Subsidiaries is not Material. (e) The execution and delivery of this Agreement and the issuance and sale of the Notes hereunder will not involve any transaction that is subject to the prohibitions of section 406 of ERISA or in connection with which a tax could be imposed pursuant to section 4975(c)(1)(A)-(D) of the Code. The representation by the Company in the first sentence of this Section 5.12(e) is made in reliance upon and subject to the accuracy of your representation in Section 6.2 as to the sources of the funds used to pay the purchase price of the Notes to be purchased by you. Section 5.13. Private Offering by the Company. Neither the Company nor anyone acting on its behalf has offered the Notes or any similar securities for sale to, or solicited any offer to buy any of the same from, or otherwise approached or negotiated in respect thereof with, any person other than you, the Other Purchasers and not more than 26 other Institutional Investors, each of which has been offered the Notes at a private sale for investment. Neither the Company nor anyone acting on its behalf has taken, or will take, any action that would subject the issuance or sale of the Notes to the registration requirements of Section 5 of the Securities Act. Section 5.14. Use of Proceeds; Margin Regulations. The Company will apply the proceeds of the sale of the Notes as set forth in Schedule 5.14. No part of the proceeds from the sale of the Notes hereunder will be used, directly or indirectly, for the purpose of buying or carrying any margin stock within the meaning of Regulation G of the Board of Governors of the Federal Reserve System (12 CFR 207), or for the purpose of buying or carrying or trading in any securities under such circumstances as to involve the Company in a violation of Regulation X of said Board (12 CFR 224) or to involve any broker or dealer in a violation of Regulation T of said Board (12 CFR 220). Margin stock does not constitute more than 1% of the value of the consolidated assets of the Company and its Subsidiaries and the Company does not have any present intention that margin stock will constitute more than 1% of the value of such assets. As used in this Section, the terms "margin stock" and "purpose of buying or carrying" shall have the meanings assigned to them in said Regulation G. Section 5.15. Existing Debt; Future Liens. (a) Except as described therein, Schedule 5.15 sets forth a complete and correct list of all outstanding Debt of the Company and its Subsidiaries as of August 1, 1997, since which date there has been no Material change in the amounts, interest rates, sinking funds, installment payments or maturities of the Debt of the Company or its Subsidiaries. Neither the Company nor any Subsidiary is in default and no waiver of default is currently in effect, in the payment of any principal or interest on any Debt of the Company or such Subsidiary and no event or condition exists with respect to any Debt of the Company or any Subsidiary that would permit (or that with notice or the lapse of time, or both, would permit) one or more Persons to cause such Debt to become due and payable before its stated maturity or before its regularly scheduled dates of payment. (b) Except as disclosed in Schedule 5.15, neither the Company nor any Subsidiary has agreed or consented to cause or permit in the future (upon the happening of a contingency or otherwise) any of its property, whether now owned or hereafter acquired, to be subject to a Lien not permitted by Section 10.4. Section 5.16. Foreign Assets Control Regulations, etc. Neither the sale of the Notes by the Company hereunder nor its use of the proceeds thereof will violate the Trading with the Enemy Act, as amended, or any of the foreign assets control regulations of the United States Treasury Department (31 CFR, Subtitle B, Chapter V, as amended) or any enabling legislation or executive order relating thereto. Section 5.17. Status under Certain Statutes. Neither the Company nor any Subsidiary is subject to regulation under the Investment Company Act of 1940, as amended, the Public Utility Holding Company Act of 1935, as amended, the ICC Termination Act of 1995, as amended, or the Federal Power Act, as amended. Section 5.18. Environmental Matters. Neither the Company nor any Subsidiary has knowledge of any claim or has received any notice of any claim, and no proceeding has been instituted raising any claim against the Company or any of its Subsidiaries or any of their respective real properties now or formerly owned, leased or operated by any of them or other assets, alleging any damage to the environment or violation of any Environmental Laws, except, in each case, such as could not reasonably be expected to result in a Material Adverse Effect. Except as otherwise disclosed to you in writing: (a) neither the Company nor any Subsidiary has knowledge of any facts which would give rise to any claim, public or private, of violation of Environmental Laws or damage to the environment emanating from, occurring on or in any way related to real properties now or formerly owned, leased or operated by any of them or to other assets or their use, except, in each case, such as could not reasonably be expected to result in a Material Adverse Effect; (b) neither the Company nor any of its Subsidiaries has stored any Hazardous Materials on real properties now or formerly owned, leased or operated by any of them or has disposed of any Hazardous Materials in a manner contrary to any Environmental Laws in each case in any manner that could reasonably be expected to result in a Material Adverse Effect; and (c) all buildings on all real properties now owned, leased or operated by the Company or any of its Subsidiaries are in compliance with applicable Environmental Laws, except where failure to comply could not reasonably be expected to result in a Material Adverse Effect. SECTION 6. REPRESENTATIONS OF THE PURCHASER. Section 6.1. Purchase for Investment. You represent that you are purchasing the Notes for your own account or for one or more separate accounts maintained by you or for the account of one or more pension or trust funds and not with a view to the distribution thereof, provided that the disposition of your or their property shall at all times be within your or their control. You understand that the Notes have not been registered under the Securities Act and may be resold only if registered pursuant to the provisions of the Securities Act or if an exemption from registration is available, except under circumstances where neither such registration nor such an exemption is required by law, and that the Company is not required to register the Notes. Section 6.2. Source of Funds. You represent that at least one of the following statements is an accurate representation as to each source of funds (a "Source") to be used by you to pay the purchase price of the Notes to be purchased by you hereunder: (a) the Source is an "insurance company general account" within the meaning of Department of Labor Prohibited Transaction Exemption ("PTE") 95-60 (issued July 12, 1995) and there is no employee benefit plan, treating as a single plan, all plans maintained by the same employer or employee organization, with respect to which the amount of the general account reserves and liabilities for all contracts held by or on behalf of such plan, exceeds ten percent (10%) of the total reserves and liabilities of such general account (exclusive of separate account liabilities) plus surplus, as set forth in the NAIC Annual Statement filed with your state of domicile; or (b) the Source is either (i) an insurance company pooled separate account, within the meaning of PTE 90-1 (issued January 29, 1990), or (ii) a bank collective investment fund, within the meaning of the PTE 91-38 (issued July 12, 1991) and, except as you have disclosed to the Company in writing pursuant to this paragraph (b), no employee benefit plan or group of plans maintained by the same employer or employee organization beneficially owns more than 10% of all assets allocated to such pooled separate account or collective investment fund; or (c) the Source constitutes assets of an "investment fund" (within the meaning of Part V of the QPAM Exemption) managed by a "qualified professional asset manager" or "QPAM" (within the meaning of Part V of the QPAM Exemption), no employee benefit plan's assets that are included in such investment fund, when combined with the assets of all other employee benefit plans established or maintained by the same employer or by an affiliate (within the meaning of Section V(c)(1) of the QPAM Exemption) of such employer or by the same employee organization and managed by such QPAM, exceed 20% of the total client assets managed by such QPAM, the conditions of Part l(c) and (g) of the QPAM Exemption are satisfied, neither the QPAM nor a person controlling or controlled by the QPAM (applying the definition of "control" in Section V(e) of the QPAM Exemption) owns a 5% or more interest in the Company and (i) the identity of such QPAM and (ii) the names of all employee benefit plans whose assets are included in such investment fund have been disclosed to the Company in writing pursuant to this paragraph (c); or (d) the Source is a governmental plan; or (e) the Source is one or more employee benefit plans, or a separate account or trust fund comprised of one or more employee benefit plans, each of which has been identified to the Company in writing pursuant to this paragraph (e); or (f) the Source does not include assets of any employee benefit plan, other than a plan exempt from the coverage of ERISA. As used in this Section 6.2, the terms "employee benefit plan", "governmental plan", "party in interest" and "separate account" shall have the respective meanings assigned to such terms in Section 3 of ERISA. SECTION 7. INFORMATION AS TO COMPANY. Section 7.1. Financial and Business Information The Company shall deliver to each holder of Notes that is an Institutional Investor: (a) Quarterly Statements within 60 days after the end of each quarterly fiscal period in each fiscal year of the Company (other than the last quarterly fiscal period of each such fiscal year), duplicate copies of: (i) an unaudited consolidated balance sheet of the Company and its Subsidiaries as at the end of such quarter, and (ii) unaudited consolidated statements of income, changes in shareholders' equity and cash flows of the Company and its Subsidiaries for such quarter and (in the case of the second and third quarters) for the portion of the fiscal year ending with such quarter, setting forth in each case in comparative form the figures for the corresponding periods in the previous fiscal year, all in reasonable detail, prepared in accordance with GAAP applicable to quarterly financial statements generally, and certified by a Senior Financial Officer as fairly presenting, in all material respects, the financial position of the companies being reported on and their results of operations and cash flows, subject to changes resulting from year-end adjustments, provided that delivery within the time period specified above of copies of the Company's Quarterly Report on Form 10-Q prepared in compliance with the requirements therefor and filed with the Securities and Exchange Commission shall be deemed to satisfy the requirements of this Section 7.1(a); (b) Annual Statements within 90 days after the end of each fiscal year of the Company, duplicate copies of, (i) a consolidated balance sheet of the Company and its Subsidiaries, as at the end of such year, and (ii) consolidated statements of income, changes in shareholders' equity and cash flows of the Company and its Subsidiaries, for such year, setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail, prepared in accordance with GAAP, and accompanied (A) by an opinion thereon of independent certified public accountants of recognized national standing, which opinion shall state that such financial statements present fairly, in all material respects, the financial position of the companies being reported upon and their results of operations and cash flows and have been prepared in conformity with GAAP, and that the examination of such accountants in connection with such financial statements has been made in accordance with generally accepted auditing standards, and that such audit provides a reasonable basis for such opinion in the circumstances, and (B) a certificate of such accountants stating that they have reviewed this Agreement and stating further whether, in making their audit, they have become aware of any condition or event that then constitutes a Default or an Event of Default, and, if they are aware that any such condition or event then exists, specifying the nature and period of the existence thereof (it being understood that such accountants shall not be liable, directly or indirectly, for any failure to obtain knowledge of any Default or Event of Default unless such accountants should have obtained knowledge thereof in making an audit in accordance with generally accepted auditing standards or did not make such an audit), provided that the delivery within the time period specified above of the Company's Annual Report on Form 10-K for such fiscal year (together with the Company's annual report to shareholders, if any, prepared pursuant to Rule 14a-3 under the Exchange Act) prepared in accordance with the requirements therefor and filed with the Securities and Exchange Commission, together with the accountant's certificate described in clause (B) above, shall be deemed to satisfy the requirements of this Section 7.1(b); (c) SEC and Other Reports promptly upon their becoming available, one copy of (i) each financial statement, report, notice or proxy statement sent by the Company or any Subsidiary to public securities holders generally, and (ii) each regular or periodic report, each registration statement (without exhibits except as expressly requested by such holder), and each prospectus and all amendments thereto filed by the Company or any Subsidiary with the Securities and Exchange Commission and of all press releases and other statements made available generally by the Company or any Subsidiary to the public concerning developments that are Material; (d) Notice of Default or Event of Default promptly, and in any event within five days after a Responsible Officer becoming aware of the existence of any Default or Event of Default or that any Person has given any notice or taken any action with respect to a claimed default hereunder or that any Person has given any notice or taken any action with respect to a claimed default of the type referred to in Section 11(f), a written notice specifying the nature and period of existence thereof and what action the Company is taking or proposes to take with respect thereto; (e) ERISA Matters promptly, and in any event within five days after a Responsible Officer becoming aware of any of the following, a written notice setting forth the nature thereof and the action, if any, that the Company or an ERISA Affiliate proposes to take with respect thereto: (i) with respect to any Plan, any Reportable Event for which notice thereof has not been waived pursuant to such regulations as in effect on the date hereof; or (ii) the taking by the PBGC of steps to institute, or the threatening by the PBGC of the institution of, proceedings under section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan, or the receipt by the Company or any ERISA Affiliate of a notice from a Multiemployer Plan that such action has been taken by the PBGC with respect to such Multiemployer Plan; or (iii) any event, transaction or condition that could result in the incurrence of any liability by the Company or any ERISA Affiliate pursuant to Title I or IV of ERISA or the penalty or excise tax provisions of the Code relating to employee benefit plans, or in the imposition of any Lien on any of the rights, properties or assets of the Company or any ERISA Affiliate pursuant to Title I or IV of ERISA or such penalty or excise tax provisions, if such liability or Lien, taken together with any other such liabilities or Liens then existing, could reasonably be expected to have a Material Adverse Effect; (f) Notices from Governmental Authority promptly, and in any event within 30 days of receipt thereof, copies of any notice to the Company or any Subsidiary from any Federal or state Governmental Authority relating to any order, ruling, statute or other law or regulation that could reasonably be expected to have a Material Adverse Effect; and (g) Requested Information with reasonable promptness, such other data and information relating to the business, operations, affairs, financial condition, assets or properties of the Company or any of its Subsidiaries or relating to the ability of the Company to perform its obligations hereunder and under the Notes as from time to time may be reasonably requested by any such holder of Notes. Section 7.2. Officer's Certificate. Each set of financial statements delivered to a holder of Notes pursuant to Section 7.1(a) or Section 7.1(b) hereof shall be accompanied by a certificate of a Senior Financial Officer setting forth: (a) Covenant Compliance the information (including detailed calculations) required in order to establish whether the Company was in compliance with the requirements of Section 10.1 through Section 10.7 hereof, inclusive, during the quarterly or annual period covered by the statements then being furnished (including with respect to each such Section, where applicable, the calculations of the maximum or minimum amount, ratio or percentage, as the case may be, permissible under the terms of such Sections, and the calculation of the amount, ratio or percentage then in existence); and (b) Event of Default a statement that such officer has reviewed the relevant terms hereof and has made, or caused to be made, under his or her supervision, a review of the transactions and conditions of the Company and its Subsidiaries from the beginning of the quarterly or annual period covered by the statements then being furnished to the date of the certificate and that such review shall not have disclosed the existence during such period of any condition or event that constitutes a Default or an Event of Default or, if any such condition or event existed or exists (including, without limitation, any such event or condition resulting from the failure of the Company or any Subsidiary to comply with any Environmental Law), specifying the nature and period of existence thereof and what action the Company shall have taken or proposes to take with respect thereto. Section 7.3. Inspection. The Company shall permit the representatives of each holder of Notes that is an Institutional Investor: (a) No Default if no Default or Event of Default then exists, at the expense of such holder and upon reasonable prior notice to the Company, to visit the principal executive office of the Company, to discuss the affairs, finances and accounts of the Company and its Subsidiaries with the Company's officers, and (with the consent of the Company, which consent will not be unreasonably withheld) its independent public accountants, and (with the consent of the Company, which consent will not be unreasonably withheld) to visit the other offices and properties of the Company and each Subsidiary, all at such reasonable times and as often as may be reasonably requested in writing; and (b) Default if a Default or Event of Default then exists, at the expense of the Company to visit and inspect any of the offices or properties of the Company or any Subsidiary, to examine all their respective books of account, records, reports and other papers, to make copies and extracts therefrom, and to discuss their respective affairs, finances and accounts with their respective officers and independent public accountants (and by this provision the Company authorizes said accountants to discuss the affairs, finances and accounts of the Company and its Subsidiaries), all at such times and as often as may be requested. SECTION 8. PREPAYMENT OF THE NOTES. Section 8.1. Required Prepayments. (a) Series A Notes. On August 1, 2006 and on each August 1 thereafter to and including August 1, 2011 the Company will prepay $5,000,000 principal amount (or such lesser principal amount as shall then be outstanding) of the Series A Notes at par and without payment of the Make-Whole Amount or any premium. The entire remaining principal amount of the Series A Notes shall become due and payable on August 1, 2012. For the purposes of this Section 8.1(a), upon any partial prepayment of the Notes pursuant to Section 8.2 or Section 8.7 or purchase of the Series A Notes permitted by Section 8.5, the principal amount of each required prepayment of the Series A Notes becoming due under this Section 8.1 on and after the date of such prepayment or purchase shall be reduced in the same proportion as the aggregate unpaid principal amount of the Series A Notes is reduced as a result of such prepayment or purchase. (b) Series B Notes. On August 1, 2002 and on each August 1 thereafter to and including August 1, 2011 the Company will prepay $1,363,636 principal amount (or such lesser principal amount as shall then be outstanding) of the Series B Notes at par and without payment of the Make-Whole Amount or any premium. The entire remaining principal amount of the Series B Notes shall become due and payable on August 1, 2012. For purposes of this Section 8.1(b), upon any partial prepayment of the Notes pursuant to Section 8.2 or Section 8.7 or purchase of the Series B Notes permitted by Section 8.5, the principal amount of each required prepayment of the Series B Notes becoming due under this Section 8.1 on and after the date of such prepayment or purchase shall be reduced in the same proportion as the aggregate unpaid principal amount of the Series B Notes is reduced as a result of such prepayment or purchase. Section 8.2. Optional Prepayments with Make-Whole Amount. (a) The Company may, at its option, upon notice as provided below, prepay at any time all, or from time to time any part of, the Notes, in an amount not less than 5% of the aggregate principal amount of the Notes then outstanding in the case of a partial prepayment, at 100% of the principal amount so prepaid, plus the Make-Whole Amount determined for the prepayment date with respect to such principal amount. In the case of any partial prepayment pursuant to this Section 8.2(a) the Company shall be required to prepay the Notes of each series at the time outstanding in proportion, as nearly as practicable, to the proportion that the aggregate unpaid principal amount of the Notes of the applicable series bears to the aggregate principal amount of the Notes then outstanding. (b) In addition to the right of the Company to prepay the Notes pursuant to Section 8.2(a), the Company shall offer to prepay the Notes in connection with a Debt Prepayment Application at 100% of the principal amount to be prepaid, plus the Make-Whole Amount determined for the prepayment date with respect to the principal amount to be prepaid. If any holder of a Note does not reject such offer of prepayment in writing delivered to the Company not less than 10 days prior to the date fixed for prepayment, then such offer of prepayment shall be deemed to have been accepted by such holder and the Ratable Portion of such holders Notes shall be prepaid in accordance with Section 8.2(c). (c) The Company will give each holder of Notes written notice of each optional prepayment under this Section 8.2 not less than 30 days and not more than 60 days prior to the date fixed for such prepayment. Each such notice shall specify such date, the aggregate principal amount of the Notes to be prepaid on such date, the principal amount of each Note held by such holder to be prepaid (determined in accordance with Section 8.3), and the interest to be paid on the prepayment date with respect to such principal amount being prepaid, and shall be accompanied by a certificate of a Senior Financial Officer as to the estimated Make-Whole Amount due in connection with such prepayment (calculated as if the date of such notice were the date of the prepayment), setting forth the details of such computation. Two Business Days prior to such prepayment, the Company shall deliver to each holder of Notes a certificate of a Senior Financial Officer specifying the calculation of such Make-Whole Amount as of the specified prepayment date. Section 8.3. Allocation of Partial Prepayments. In the case of each partial prepayment of the Notes, the principal amount of the Notes to be prepaid (or offered to be prepaid in the case of a Debt Prepayment Application) shall be allocated among all of the Notes of the applicable Series at the time outstanding in proportion, as nearly as practicable, to the respective unpaid principal amounts thereof not theretofore called for prepayment. Section 8.4. Maturity; Surrender, etc. In the case of each prepayment of Notes pursuant to this Section 8, the principal amount of each Note to be prepaid shall mature and become due and payable on the date fixed for such prepayment, together with interest on such principal amount accrued to such date and the applicable Make-Whole Amount, if any. From and after such date, unless the Company shall fail to pay such principal amount when so due and payable, together with the interest and Make-Whole Amount, if any, as aforesaid, interest on such principal amount shall cease to accrue. Any Note paid or prepaid in full shall be canceled and shall not be reissued, and no Note shall be issued in lieu of any prepaid principal amount of any Note. Section 8.5. Purchase of Notes. The Company will not and will not permit any Affiliate to purchase, redeem, prepay or otherwise acquire, directly or indirectly, any of the outstanding Notes except upon the payment or prepayment of the Notes in accordance with the terms of this Agreement and the Notes. The Company will promptly cancel all Notes acquired by it or any Affiliate pursuant to any payment, prepayment or purchase of Notes pursuant to any provision of this Agreement and no Notes may be issued in substitution or exchange for any such Notes. Section 8.6. Make-Whole Amount. The term "Make-Whole Amount" means, with respect to any Note of any Series, an amount equal to the excess, if any, of the Discounted Value of the Remaining Scheduled Payments with respect to the Called Principal of such Note of such Series over the amount of such Called Principal, provided that the Make-Whole Amount may in no event be less than zero. For the purposes of determining the Make-Whole Amount, the following terms have the following meanings: "Called Principal" means, with respect to any Note of any Series, the principal of such Note of such Series that is to be prepaid pursuant to Sections 8.2 or 8.7 or has become or is declared to be immediately due and payable pursuant to Section 12.1, as the context requires. "Discounted Value" means, with respect to the Called Principal of any Note of any Series, the amount obtained by discounting all Remaining Scheduled Payments with respect to such Called Principal from their respective scheduled due dates to the Settlement Date with respect to such Called Principal, in accordance with accepted financial practice and at a discount factor (applied on the same periodic basis as that on which interest on the Notes of such Series is payable) equal to the Reinvestment Yield with respect to such Called Principal. "Reinvestment Yield" means, with respect to the Called Principal of any Note of any Series, 0.50% over the yield to maturity implied by (i) the yields reported, as of 10:00 A.M. (New York City time) on the second Business Day preceding the Settlement Date with respect to such Called Principal, on the display designated as "Page PX1" on the Bloomberg Financial Markets Services Screen (or such other display as may replace Page PX1 on the Bloomberg Financial Markets Services Screen) for actively traded U.S. Treasury securities having a maturity equal to the Remaining Average Life of such Called Principal as of such Settlement Date, or (ii) if such yields are not reported as of such time or the yields reported as of such time are not ascertainable, the Treasury Constant Maturity Series Yields reported, for the latest day for which such yields have been so reported as of the second Business Day preceding the Settlement Date with respect to such Called Principal, in Federal Reserve Statistical Release H.15 (519) (or any comparable successor publication) for actively traded U.S. Treasury securities having a constant maturity equal to the Remaining Average Life of such Called Principal as of such Settlement Date. Such implied yield will be determined, if necessary, by (a) converting U.S. Treasury bill quotations to bond-equivalent yields in accordance with accepted financial practice and (b) interpolating linearly between (1) the actively traded U.S. Treasury security with the maturity closest to and greater than the Remaining Average Life and (2) the actively traded U.S. Treasury security with the maturity closest to and less than the Remaining Average Life. "Remaining Average Life" means, with respect to any Called Principal, the number of years (calculated to the nearest one-twelfth year) obtained by dividing (i) such Called Principal into (ii) the sum of the products obtained by multiplying (a) the principal component of each Remaining Scheduled Payment with respect to such Called Principal by (b) the number of years (calculated to the nearest one-twelfth year) that will elapse between the Settlement Date with respect to such Called Principal and the scheduled due date of such Remaining Scheduled Payment. "Remaining Scheduled Payments" means, with respect to the Called Principal of any Note of any Series, all payments of such Called Principal and interest thereon that would be due after the Settlement Date with respect to such Called Principal if no payment of such Called Principal were made prior to its scheduled due date, provided that if such Settlement Date is not a date on which interest payments are due to be made under the terms of the Notes of such Series, then the amount of the next succeeding scheduled interest payment will be reduced by the amount of interest accrued to such Settlement Date and required to be paid on such Settlement Date pursuant to Sections 8.2, 8.7 or 12.1. "Settlement Date" means, with respect to the Called Principal of any Note of any Series, the date on which such Called Principal is to be prepaid pursuant to Sections 8.2 or 8.7 or has become or is declared to be immediately due and payable pursuant to Section 12.1, as the context requires. Section 8.7. Prepayment upon Change in Control. (a) Notice of Change in Control or Control Event. The Company will, within two Business Days after any Responsible Officer has knowledge of the occurrence of any Change in Control or Control Event, give written notice of such Change in Control or Control Event to each holder of Notes unless notice in respect of such Change in Control (or the Change in Control contemplated by such Control Event) shall have been given pursuant to subparagraph (b) of this Section 8.7. If a Change in Control has occurred, such notice shall contain and constitute an offer to prepay the Notes as described in subparagraph (c) of this Section 8.7 and shall be accompanied by the certificate described in subparagraph (g) of this Section 8.7. (b) Condition to Company Action. The Company will not take any action that consummates or finalizes a Change in Control unless (i) at least 15 days prior to such action the Company shall have given to each holder of Notes written notice containing and constituting an offer to prepay the Notes as described in subparagraph (c) of this Section 8.7, accompanied by the certificate described in subparagraph (g) of this Section 8.7, and (ii) contemporaneously with such action, the Company prepays all Notes required to be prepaid in accordance with this Section 8.7. (c) Offer to Prepay Notes. The offer to prepay the Notes contemplated by subparagraphs (a) and (b) of this Section 8.7 shall be an offer to prepay, in accordance with and subject to this Section 8.7, all, but not less than all, of the Notes held by each holder on a date specified in such offer (the "Proposed Prepayment Date"). If such Proposed Prepayment Date is in connection with an offer contemplated by subparagraph (a) of this Section 8.7, such date shall be not less than 20 days and not more than 30 days after the date of such offer. (d) Acceptance; Rejection. A holder of Notes may accept or reject the offer to prepay made pursuant to this Section 8.7 by causing a notice of such acceptance or rejection to be delivered to the Company at least five days prior to the Proposed Prepayment Date. A failure by a holder of Notes to respond to an offer to prepay made pursuant to this Section 8.7 shall be deemed to constitute acceptance of such offer by such holder. (e) Prepayment. Prepayment of the Notes pursuant to this Section 8.7 shall be at 100% of the principal amount of all Notes held by the holder or holders accepting the Company' offer to prepay such Notes, plus a premium equal to the Make-Whole Amount which would have been payable if the Notes had been prepaid in accordance with Section 8.2, determined for such prepayment date with respect to such principal amount, together with interest on such Notes accrued to the date of prepayment. Two Business Days preceding the date of prepayment, the Company shall deliver to each holder of Notes being prepaid a statement showing the Make-Whole Amount due in connection with such prepayment and setting forth the details of the computation of such amount. The prepayment shall be made on the Proposed Prepayment Date except as provided in subparagraph (f) of this Section 8.7. (f) Deferral Pending Change in Control. The obligation of the Company to prepay the Notes pursuant to the offers required by subparagraph (b) and accepted in accordance with subparagraph (d) of this Section 8.7 is subject to the occurrence of the Change in Control in respect of which such offers and acceptances shall have been made. In the event that such Change in Control does not occur on the Proposed Prepayment Date in respect thereof, the prepayment shall be deferred until and shall be made on the date on which such Change in Control occurs. The Company shall keep each holder of Notes reasonably and timely informed of (i) any such deferral of the date of prepayment, (ii) the date on which such Change in Control and the prepayment are expected to occur, and (iii) any determination by the Company that efforts to effect such Change in Control have ceased or been abandoned (in which case the offers and acceptances made pursuant to this Section 8.7 in respect of such Change in Control shall be deemed rescinded). (g) Officer's Certificate. Each offer to prepay the Notes pursuant to this Section 8.7 shall be accompanied by a certificate, executed by a Senior Financial Officer of the Company and dated the date of such offer, specifying: (i) the Proposed Prepayment Date; (ii) that such offer is made pursuant to this Section 8.7; (iii) the principal amount of each Note offered to be prepaid; (iv) the estimated Make-Whole Amount, if any, due in connection with such prepayment (calculated as if the date of such Proposed Prepayment Date were the date of the prepayment) setting forth the details of such computation; (v) the interest that would be due on each Note offered to be prepaid, accrued to the Proposed Prepayment Date; (vi) that the conditions of this Section 8.7 have been fulfilled; and (vii) in reasonable detail, the nature and date or proposed date of the Change in Control. (h) Effect on Required Payments. The amount of each payment of the principal of the Notes made pursuant to this Section 8.7 shall be applied against and reduce each of the then remaining principal payments due in respect of the Notes of the applicable series pursuant to Section 2.1 by a percentage equal to the aggregate principal amount of the Notes of such series so paid divided by the aggregate principal amount of the Notes of such series outstanding immediately prior to such payment. (i) Terms Defined. The terms set forth below shall have the respective meanings assigned thereto: The term "Change in Control" means each and every issue, sale or other disposition of shares of stock of the Company which results in any Person or group of Persons acting in concert, other than any Designated Shareholders, beneficially owning or controlling, directly or indirectly, more than 50% (by number of votes) of the Voting Stock of the Company. The term "control" means the possession of power to direct or cause the direction of management and policies of such entity, whether through the ownership of an equity interest, by contract or otherwise. The term "Control Event" means: (i)the execution by the Company or any of its Restricted Subsidiaries or Affiliates of any agreement or letter of intent with respect to any proposed transaction or event or series of transactions or events which, individually or in the aggregate, may reasonably be expected to result in a Change in Control, (ii)the execution of any written agreement which, when fully performed by the parties thereto, would result in a Change in Control, or (iii)the making of any written offer by any person (as such term is used in section 13(d) and section 14(d)(2) of the Exchange Act), or related persons constituting a group (as such term is used in Rule 13d-5 under the Exchange Act) to the holders of the Voting Stock of the Company, which offer, if accepted by the requisite number of holders, would result in a Change in Control. The term "Current Management Team" shall mean Roy E. Parrott, Jeoffrey A. Burris, Vinod Khilnani, Kathryn L. Williams, James A. Hug, James B. Painter and James E. Garpow. The term "Designated Shareholders" shall mean (i) the members of the Current Management Team; (ii) the Principal Shareholders; (iii) the spouses, lineal descendants and spouses of the lineal descendants of the Persons named in clause (i); (iv) the estates or legal representatives of the Persons named in clause (i); and (v) any trust, custodianship or other fiduciary arrangement in respect of which one or more of the Persons described in clauses (i) and (iii) are the principal beneficiaries and such Person or Persons shall have control of such trust, custodianship or other fiduciary arrangement. The term "Principal Shareholders" shall mean Pioneering Management Group, J.P. Morgan & Co., Incorporated and Farmers Group Inc. SECTION 9. AFFIRMATIVE COVENANTS. The Company covenants that so long as any of the Notes are outstanding: Section 9.1. Compliance with Law. The Company will and will cause each of its Restricted Subsidiaries to comply with all laws, ordinances or governmental rules or regulations to which each of them is subject, including, without limitation, Environmental Laws, and will obtain and maintain in effect all licenses, certificates, permits, franchises and other governmental authorizations necessary to the ownership of their respective properties or to the conduct of their respective businesses, in each case to the extent necessary to ensure that non-compliance with such laws, ordinances or governmental rules or regulations or failures to obtain or maintain in effect such licenses, certificates, permits, franchises and other governmental authorizations could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. Section 9.2. Insurance. The Company will and will cause each of its Restricted Subsidiaries to maintain, with financially sound and reputable insurers, insurance with respect to their respective properties and businesses against such casualties and contingencies, of such types, on such terms and in such amounts (including deductibles, co-insurance and self-insurance, if adequate reserves are maintained with respect thereto) as is customary in the case of entities of established reputations engaged in the same or a similar business and similarly situated. Section 9.3. Maintenance of Properties. The Company will and will cause each of its Restricted Subsidiaries to maintain and keep, or cause to be maintained and kept, their respective properties in good repair, working order and condition (other than ordinary wear and tear), so that the business carried on in connection therewith may be properly conducted at all times, provided that this Section shall not prevent the Company or any Restricted Subsidiary from discontinuing the operation and the maintenance of any of its properties if such discontinuance is desirable in the conduct of its business and the Company has concluded that such discontinuance could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. Section 9.4. Payment of Taxes and Claims. The Company will and will cause each of its Subsidiaries to file all tax returns required to be filed in any jurisdiction and to pay and discharge all taxes shown to be due and payable on such returns and all other taxes, assessments, governmental charges, or levies imposed on them or any of their properties, assets, income or franchises, to the extent such taxes and assessments have become due and payable and before they have become delinquent and all claims for which sums have become due and payable that have or might become a Lien on properties or assets of the Company or any Subsidiary, provided that neither the Company nor any Subsidiary need pay any such tax or assessment or claims if (i) the amount, applicability or validity thereof is contested by the Company or such Subsidiary on a timely basis in good faith and in appropriate proceedings, and the Company or a Subsidiary has established adequate reserves therefor in accordance with GAAP on the books of the Company or such Subsidiary or (ii) the nonpayment of all such taxes and assessments in the aggregate could not reasonably be expected to have a Material Adverse Effect. Section 9.5. Corporate Existence, etc. The Company will at all times preserve and keep in full force and effect its corporate existence. Subject to Sections 10.5 and 10.6, the Company will at all times preserve and keep in full force and effect the corporate existence of each of its Restricted Subsidiaries (unless merged into the Company or a Restricted Subsidiary) and all rights and franchises of the Company and its Restricted Subsidiaries unless, in the good faith judgment of the Company, the termination of or failure to preserve and keep in full force and effect such corporate existence, right or franchise could not, individually or in the aggregate, have a Material Adverse Effect. Section 9.6. Designation of Unrestricted Subsidiaries. The Company will at all times cause (i) the consolidated assets of the Company and its Restricted Subsidiaries to constitute not less than 90% of the consolidated assets of the Company and its Subsidiaries, and (ii) the Consolidated Net Income of the Company and its Restricted Subsidiaries to constitute not less than 90% of the consolidated net income of the Company and its Subsidiaries. Subject to the limitations set forth in the immediately preceding sentence, the Company may from time to time cause any Subsidiary to be designated as an Unrestricted Subsidiary or any Unrestricted Subsidiary to be designated a Restricted Subsidiary, provided, however, that at the time of such designation and immediately thereafter and after giving effect thereto, (a) no Default or Event of Default would exist under the terms of this Agreement, and (b) the Company and its Restricted Subsidiaries would be in compliance with all of the covenants set forth in this Section 9 and Section 10 if tested on the date of such action and provided, further, that once a Restricted Subsidiary has been designated an Unrestricted Subsidiary, it shall not thereafter be redesignated as a Restricted Subsidiary without the approval (which will not be unreasonably withheld) of the holders of 51% in aggregate principal amount of the Notes then outstanding. Within ten (10) days following any designation described above, the Company will deliver to you a notice of such designation accompanied by a certificate signed by a Senior Financial Officer of the Company certifying compliance with all requirements of this Section 9.6 and setting forth all information required in order to establish such compliance. Section 9.7. Financial Records. The Company will, and will cause its Subsidiaries to, keep true and correct books of records and accounts in which full and correct entries will be made of all of its business transactions, and will reflect in its financial statements adequate accruals and appropriations to reserves, all in accordance with GAAP. SECTION 10. NEGATIVE COVENANTS. The Company covenants that so long as any of the Notes are outstanding: Section 10.1. Consolidated Net Worth. The Company will not, at any time, permit Consolidated Net Worth to be less than the sum of (a) $95,000,000, plus (b) 25% of its aggregate Consolidated Net Income (but only if a positive number) for the period beginning on July 1, 1997 and ending at the end of the then most recently completed fiscal year of the Company (or if such date of determination is the last day of any fiscal year, then ending on such date), computed on a cumulative basis for such entire period. Section 10.2. Limitations on Debt. The Company will not, and will not permit any Restricted Subsidiary to, create, assume or incur or in any manner be or become liable in respect of any Consolidated Debt, except: (a) Debt evidenced by the Notes; (b) Consolidated Debt of the Company and its Restricted Subsidiaries outstanding on the Closing Date and reflected on Schedule 5.15 hereto; (c) additional Consolidated Debt of the Company and its Restricted Subsidiaries, provided that at the time of issuance thereof and after giving effect thereto and to the application of the proceeds thereof: (i) no Default or Event of Default exists; (ii) Consolidated Debt does not exceed 3.5 times EBITDA for the then most recently ended period of four consecutive fiscal quarters of the Company; and (iii) in the case any such Debt is Priority Debt, such Debt is permitted by Section 10.3. Any corporation which becomes a Restricted Subsidiary after the date of this Agreement shall, for all purposes of this Section 10.2, be deemed to have created, assumed or incurred, at the time it becomes a Restricted Subsidiary, all Debt of such corporation existing immediately after it becomes a Restricted Subsidiary. Section 10.3. Limitations on Priority Debt. The Company will not at any time permit the aggregate principal amount of Priority Debt to exceed 15% of Total Capitalization as of the last day of the then most recently ended fiscal quarter of the Company. Section 10.4. Limitation on Liens. The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly create, incur, assume or permit to exist (upon the happening of a contingency or otherwise) any Lien on or with respect to any Property or asset (including, without limitation, any document or instrument in respect of goods or accounts receivable) of the Company or any such Restricted Subsidiary, whether now owned or held or hereafter acquired, or any income or profits therefrom, or assign or otherwise convey any right to receive income or profits, except: (a) Liens for taxes, assessments or other governmental charges which are not yet due and payable or the payment of which is not at the time required by Section 9.4; (b) any attachment or judgment Lien, unless the judgment it secures shall not, within 30 days after the entry thereof, have been discharged or execution thereof stayed pending appeal, or shall not have been discharged within 30 days after the expiration of any such stay (or such lesser period of time as applicable law allows a judgment creditor to levy on such judgment); (c) statutory Liens of landlords and Liens of carriers, warehousemen, mechanics, materialmen and other similar Liens, in each case, incurred in the ordinary course of business for sums not yet due and payable or the payment of which is not at the time required by Section 9.4; (d) Liens (other than any Lien imposed by ERISA) incurred or deposits made in the ordinary course of business (i) in connection with workers' compensation, unemployment insurance and other types of social security or retirement benefits, or (ii) to secure (or to obtain letters of credit that secure) the performance of tenders, statutory obligations, surety bonds, appeal bonds, bids, leases (other than Capitalized Leases), performance bonds, purchase, construction or sales contracts and other similar obligations, in each case not incurred or made in connection with the borrowing of money, the obtaining of advances or credit or the payment of the deferred purchase price of Property; (e) Liens existing on the date of this Agreement and securing the Debt of the Company and its Restricted Subsidiaries referred to in Schedule 5.15 hereto; (f) any Lien created to secure all or any part of the purchase price, or to secure Debt incurred or assumed to pay all or any part of the purchase price or cost of construction, of Property (other than accounts receivable or inventory), or any improvement thereon, acquired or constructed by the Company or a Restricted Subsidiary after the date of this Agreement, provided that (i) any such Lien shall extend solely to the item or items of such Property (or improvement thereon) so acquired or constructed and, if required by the terms of the instrument originally creating such Lien, other Property (or improvement thereon) which is an improvement to or is acquired for specific use in connection with such acquired or constructed Property (or improvement thereon) or which is real Property being improved by such acquired or constructed Property (or improvement thereon), (ii)the principal amount of the Debt secured by any such Lien shall at no time exceed an amount equal to the lesser of (A) the cost to the Company or such Restricted Subsidiary of the Property (or improvement thereon) so acquired or constructed and (B) the Fair Market Value (as determined in good faith by the board of directors of the Company) of such Property (or improvement thereon) at the time of such acquisition or construction, and (iii) any such Lien shall be created contemporaneously with the acquisition or construction of such Property; and (g) in addition to the Liens permitted by the preceding clauses (a) through (f), inclusive, of this Section 10.4, Liens on Property (other than accounts receivable or inventory of any Company) securing Priority Debt of the Company or any Restricted Subsidiary, provided that such Priority Debt shall be permitted by the applicable limitations set forth in Section 10.2 and 10.3. Section 10.5. Merger, Consolidation, etc. The Company will not, and will not permit any of its Restricted Subsidiaries to, consolidate with or merge with any other Person or convey, transfer or lease substantially all of its assets in a single transaction or series of transactions to any Person (except that a Restricted Subsidiary of the Company may (x) consolidate with or merge with, or convey, transfer or lease substantially all of its assets in a single transaction or series of transactions to, the Company or a Wholly-Owned Restricted Subsidiary of the Company or (y) convey, transfer or lease all of its assets in compliance with the provisions of Section 10.6), provided that the foregoing restriction does not apply to the consolidation or merger of the Company with, or the conveyance, transfer or lease of substantially all of the assets of the Company in a single transaction or series of transactions to, any Person so long as: (a) the successor formed by such consolidation or the survivor of such merger or the Person that acquires by conveyance, transfer or lease substantially all of the assets of the Company as an entirety, as the case may be (the "Successor Corporation"), shall be a solvent corporation organized and existing under the laws of the United States of America, any State thereof or the District of Columbia; (b) if the Company is not the Successor Corporation, such corporation shall have executed and delivered to each holder of Notes its assumption of the due and punctual performance and observance of each covenant and condition of this Agreement and the Notes (pursuant to such agreements and instruments as shall be reasonably satisfactory to the Required Holders), and the Company shall have caused to be delivered to each holder of Notes an opinion of nationally recognized independent counsel, to the effect that all agreements or instruments effecting such assumption are enforceable in accordance with their terms and comply with the terms hereof; and (c) immediately after giving effect to such transaction: (i) no Default or Event of Default would exist, and (ii) the Successor Corporation would be permitted by the provisions of Section 10.2 hereof to incur at least $1.00 of additional Debt owing to a Person other than a Restricted Subsidiary of the Successor Corporation. No such conveyance, transfer or lease of substantially all of the assets of the Company shall have the effect of releasing the Company or any Successor Corporation from its liability under this Agreement or the Notes. Section 10.6. Sales of Assets. Except as permitted under Section 10.5, the Company will not, and will not permit any of its Restricted Subsidiaries to, make any Asset Disposition unless: (a) in the good faith opinion of the Company, the Asset Disposition is in exchange for consideration having a Fair Market Value at least equal to that of the Property exchanged and is in the best interest of the Company or such Restricted Subsidiary; and (b) immediately after giving effect to the Asset Disposition, (i) the Company could incur $1 of additional Consolidated Debt pursuant to Section 10.2(c), and (ii) no Default or Event of Default would exist; and (c) immediately after giving effect to the Asset Disposition: (i) the Disposition Value of all Property that was the subject of any Asset Disposition occurring in any period of four consecutive fiscal quarters of the Company then next ending would not exceed 10% of Consolidated Total Assets as of the last day of the then most recently ended fiscal quarter of the Company, and (ii) the Disposition Value of all Property that was the subject of any Asset Disposition occurring on or after the date of this Agreement would not exceed 25% of Consolidated Total Assets as of the last day of the then most recently ended fiscal quarter of the Company. If the Net Proceeds Amount for any Transfer is applied to a Debt Prepayment Application contemporaneously with such Transfer or a Property Reinvestment Application within one year of such Transfer, then such Transfer, only for the purpose of determining compliance with subsection (c) of this Section 10.6 as of any date on or after the Net Proceeds Amount is so applied, shall be deemed not to be an Asset Disposition. Section 10.7. Long Term Lease Rentals. The Company will not, at any time, permit Long Term Lease Rentals for any current or future period of 12 consecutive calendar months to exceed 10% of Total Capitalization as of the last day of the then most recently ended fiscal quarter of the Company. Section 10.8. Nature of Business. Neither the Company nor any Restricted Subsidiary will engage in any business if, as a result, the general nature of the business, taken on a consolidated basis, which would then be engaged in by the Company and its Restricted Subsidiaries would be substantially changed from the general nature of the business engaged in by the Company and its Restricted Subsidiaries on the date of this Agreement. Section 10.9. Transactions with Affiliates. The Company will not and will not permit any Restricted Subsidiary to enter into directly or indirectly any transaction or Material group of related transactions (including without limitation the purchase, lease, sale or exchange of properties of any kind or the rendering of any service) with any Affiliate (other than the Company or another Restricted Subsidiary), except in the ordinary course and pursuant to the reasonable requirements of the Company's or such Restricted Subsidiary's business and upon fair and reasonable terms no less favorable to the Company or such Restricted Subsidiary than would be obtainable in a comparable arm's-length transaction with a Person not an Affiliate. SECTION 11. EVENTS OF DEFAULT. An "Event of Default" shall exist if any of the following conditions or events shall occur and be continuing: (a) the Company defaults in the payment of any principal or Make-Whole Amount, if any, on any Note when the same becomes due and payable, whether at maturity or at a date fixed for prepayment or by declaration or otherwise; or (b) the Company defaults in the payment of any interest on any Note for more than five Business Days after the same becomes due and payable; or (c) the Company defaults in the performance of or compliance with any covenant contained in Sections 10.1 through 10.7, inclusive; or (d) the Company defaults in the performance of or compliance with any covenant contained herein (other than those referred to in paragraphs (a), (b) and (c) of this Section 11) and such default is not remedied within 30 days after the earlier of (i) a Responsible Officer obtaining actual knowledge of such default and (ii) the Company receiving written notice of such default from any holder of a Note (any such written notice to be identified as a "notice of default" and to refer specifically to this paragraph (d) of Section 11); or (e) any representation or warranty made in writing by or on behalf of the Company or a Restricted Subsidiary or by any officer of the Company or a Restricted Subsidiary in this Agreement or in any writing furnished in connection with the transactions contemplated hereby proves to have been false or incorrect in any Material respect on the date as of which made; or (f)(i) the Company or any Restricted Subsidiary is in default (as principal or as guarantor or other surety) in the payment of any principal of or premium or make-whole amount or interest on any Debt that is outstanding in an aggregate principal amount of at least $5,000,000 beyond any period of grace provided with respect thereto, or (ii) the Company or any Restricted Subsidiary is in default in the performance of or compliance with any term of any evidence of any Debt in an aggregate outstanding principal amount of at least $5,000,000 or of any mortgage, indenture or other agreement relating thereto or any other condition exists, and as a consequence of such default or condition such Debt has become, or has been declared, due and payable before its stated maturity or before its regularly scheduled dates of payment, or (iii) as a consequence of the occurrence or continuation of any event or condition (other than the passage of time or the right of the holder of Debt to convert such Debt into equity interests), the Company or any Restricted Subsidiary has become obligated to purchase or repay Debt before its regular maturity or before its regularly scheduled dates of payment in an aggregate outstanding principal amount of at least $5,000,000; or (g) the Company or any Material Restricted Subsidiary (i) is generally not paying, or admits in writing its inability to pay, its debts as they become due, (ii) files, or consents by answer or otherwise to the filing against it of, a petition for relief or reorganization or arrangement or any other petition in bankruptcy, for liquidation or to take advantage of any bankruptcy, insolvency, reorganization, moratorium or other similar law of any jurisdiction, (iii) makes an assignment for the benefit of its creditors, (iv) consents to the appointment of a custodian, receiver, trustee or other officer with similar powers with respect to it or with respect to any substantial part of its property, (v) is adjudicated as insolvent or to be liquidated, or (vi) takes corporate action for the purpose of any of the foregoing; or (h) a court or governmental authority of competent jurisdiction enters an order appointing, without consent by the Company or any of its Restricted Subsidiaries, a custodian, receiver, trustee or other officer with similar powers with respect to it or with respect to any substantial part of its property, or constituting an order for relief or approving a petition for relief or reorganization or any other petition in bankruptcy or for liquidation or to take advantage of any bankruptcy or insolvency law of any jurisdiction, or ordering the dissolution, winding-up or liquidation of the Company or any of its Material Restricted Subsidiaries, or any such petition shall be filed against the Company or any of its Material Restricted Subsidiaries and such petition shall not be dismissed within 60 days; or (i) a final judgment or judgments for the payment of money aggregating in excess of $5,000,000 are rendered against one or more of the Company and its Restricted Subsidiaries and which judgments are not, within 60 days after entry thereof, bonded, discharged or stayed pending appeal (or such lesser period of time as applicable law or rules of court allow a judgment creditor to levy on such judgments), or are not discharged within 60 days after the expiration of such stay (or such lesser period of time as applicable law or rules of court allow a judgment creditor to levy on such judgments); or (j) if (i) any Plan shall fail to satisfy the minimum funding standards of ERISA or the Code for any plan year or part thereof or a waiver of such standards or extension of any amortization period is sought or granted under section 412 of the Code, (ii) a notice of intent to terminate any Plan shall have been or is reasonably expected to be filed with the PBGC or the PBGC shall have instituted proceedings under ERISA section 4042 to terminate or appoint a trustee to administer any Plan or the PBGC shall have notified the Company or any ERISA Affiliate that a Plan may become a subject of any such proceedings, (iii) the aggregate "amount of unfunded benefit liabilities" (within the meaning of section 4001(a)(18) of ERISA) under all Plans, determined in accordance with Title IV of ERISA, shall exceed $1,000,000, (iv) the Company or any ERISA Affiliate shall have incurred or is reasonably expected to incur any liability pursuant to Title I or IV of ERISA or the penalty or excise tax provisions of the Code relating to employee benefit plans, (v) the Company or any ERISA Affiliate withdraws from any Multiemployer Plan, or (vi) the Company or any Subsidiary establishes or amends any employee welfare benefit plan that provides post-employment welfare benefits in a manner that would increase the liability of the Company or any Subsidiary thereunder; and any such event or events described in clauses (i) through (vi) above, either individually or together with any other such event or events, could reasonably be expected to have a Material Adverse Effect. As used in Section 11(j), the terms "employee benefit plan" and "employee welfare benefit plan" shall have the respective meanings assigned to such terms in Section 3 of ERISA. SECTION 12. REMEDIES ON DEFAULT, ETC. Section 12.1. Acceleration. (a) If an Event of Default with respect to the Company described in paragraph (g) or (h) of Section 11 (other than an Event of Default described in clause (i) of paragraph (g) or described in clause (vi) of paragraph (g) by virtue of the fact that such clause encompasses clause (i) of paragraph (g)) has occurred, all the Notes then outstanding shall automatically become immediately due and payable. (b) If any other Event of Default has occurred and is continuing, any holder or holders of more than 51% in principal amount of the Notes at the time outstanding may at any time at its or their option, by notice or notices to the Company, declare all the Notes then outstanding to be immediately due and payable. (c) If any Event of Default described in paragraph (a) or (b) of Section 11 has occurred and is continuing, any holder or holders of Notes at the time outstanding affected by such Event of Default may at any time, at its or their option, by notice or notices to the Company, declare all the Notes held by it or them to be immediately due and payable. Upon any Note becoming due and payable under this Section 12.1, whether automatically or by declaration, such Note will forthwith mature and the entire unpaid principal amount of such Note, plus (x) all accrued and unpaid interest thereon and (y) the Make-Whole Amount determined in respect of such principal amount (to the full extent permitted by applicable law), shall all be immediately due and payable, in each and every case without presentment, demand, protest or further notice, all of which are hereby waived. The Company acknowledges, and the parties hereto agree, that each holder of a Note has the right to maintain its investment in the Notes free from repayment by the Company (except as herein specifically provided for), and that the provision for payment of a Make-Whole Amount by the Company in the event that the Notes are prepaid or are accelerated as a result of an Event of Default, is intended to provide compensation for the deprivation of such right under such circumstances. Section 12.2. Other Remedies. If any Default or Event of Default has occurred and is continuing, and irrespective of whether any Notes have become or have been declared immediately due and payable under Section 12.1, the holder of any Note at the time outstanding may proceed to protect and enforce the rights of such holder by an action at law, suit in equity or other appropriate proceeding, whether for the specific performance of any agreement contained herein or in any Note, or for an injunction against a violation of any of the terms hereof or thereof, or in aid of the exercise of any power granted hereby or thereby or by law or otherwise. Section 12.3. Rescission. At any time after any Notes have been declared due and payable pursuant to clause (b) or (c) of Section 12.1, the holders of not less than 51% in principal amount of the Notes then outstanding, by written notice to the Company, may rescind and annul any such declaration and its consequences if (a) the Company has paid all overdue interest on the Notes, all principal of and Make-Whole Amount, if any, on any Notes that are due and payable and are unpaid other than by reason of such declaration, and all interest on such overdue principal and Make-Whole Amount, if any, and (to the extent permitted by applicable law) any overdue interest in respect of the Notes, at the Default Rate, (b) all Events of Default and Defaults, other than non-payment of amounts that have become due solely by reason of such declaration, have been cured or have been waived pursuant to Section 17, and (c) no judgment or decree has been entered for the payment of any monies due pursuant hereto or to the Notes. No rescission and annulment under this Section 12.3 will extend to or affect any subsequent Event of Default or Default or impair any right consequent thereon. Section 12.4. No Waivers or Election of Remedies, Expenses, etc. No course of dealing and no delay on the part of any holder of any Note in exercising any right, power or remedy shall operate as a waiver thereof or otherwise prejudice such holder's rights, powers or remedies. No right, power or remedy conferred by this Agreement or by any Note upon any holder thereof shall be exclusive of any other right, power or remedy referred to herein or therein or now or hereafter available at law, in equity, by statute or otherwise. Without limiting the obligations of the Company under Section 15, the Company will pay to the holder of each Note on demand such further amount as shall be sufficient to cover all costs and expenses of such holder incurred in any enforcement or collection under this Section 12, including, without limitation, reasonable attorneys' fees, expenses and disbursements. SECTION 13. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES. Section 13.1. Registration of Notes. The Company shall keep at its principal executive office a register for the registration and registration of transfers of Notes. The name and address of each holder of one or more Notes, each transfer thereof and the name and address of each transferee of one or more Notes shall be registered in such register. Prior to due presentment for registration of transfer, the Person in whose name any Note shall be registered shall be deemed and treated as the owner and holder thereof for all purposes hereof, and the Company shall not be affected by any notice or knowledge to the contrary. The Company shall give to any holder of a Note that is an Institutional Investor promptly upon request therefor, a complete and correct copy of the names and addresses of all registered holders of Notes. Section 13.2. Transfer and Exchange of Notes. Upon surrender of any Note at the principal executive office of the Company for registration of transfer or exchange (and in the case of a surrender for registration of transfer, duly endorsed or accompanied by a written instrument of transfer duly executed by the registered holder of such Note or its attorney duly authorized in writing and accompanied by the address for notices of each transferee of such Note or part thereof), the Company shall execute and deliver, at the Company's expense (except as provided below), one or more new Notes (as requested by the holder thereof) in exchange therefor, in an aggregate principal amount equal to the unpaid principal amount of the surrendered Note. Each such new Note shall be payable to such Person as such holder may request and shall be substantially in the form of Exhibit 1. Each such new Note shall be dated and bear interest from the date to which interest shall have been paid on the surrendered Note or dated the date of the surrendered Note if no interest shall have been paid thereon. The Company may require payment of a sum sufficient to cover any stamp tax or governmental charge imposed in respect of any such transfer of Notes. Notes shall not be transferred in denominations of less than $500,000, provided that if necessary to enable the registration of transfer by a holder of its entire holding of Notes, one Note may be in a denomination of less than $500,000. Any transferee, by its acceptance of a Note registered in its name (or the name of its nominee), shall be deemed to have made the representation set forth in Section 6.2. Section 13.3. Replacement of Notes. Upon receipt by the Company of evidence reasonably satisfactory to it of the ownership of and the loss, theft, destruction or mutilation of any Note (which evidence shall be, in the case of an Institutional Investor, notice from such Institutional Investor of such ownership and such loss, theft, destruction or mutilation), and (a) in the case of loss, theft or destruction, of indemnity reasonably satisfactory to it (provided that if the holder of such Note is, or is a nominee for, an original Purchaser or another holder of a Note with a minimum net worth of at least $10,000,000, such Person's own unsecured agreement of indemnity shall be deemed to be satisfactory), or (b) in the case of mutilation, upon surrender and cancellation thereof, the Company at its own expense shall execute and deliver, in lieu thereof, a new Note, dated and bearing interest from the date to which interest shall have been paid on such lost, stolen, destroyed or mutilated Note or dated the date of such lost, stolen, destroyed or mutilated Note if no interest shall have been paid thereon. SECTION 14. PAYMENTS ON NOTES. Section 14.1. Place of Payment. Subject to Section 14.2, payments of principal, Make-Whole Amount, if any, and interest becoming due and payable on the Notes shall be made in Chicago, Illinois at the principal office of ABN AMRO Bank N.V. in such jurisdiction. The Company may at any time, by notice to each holder of a Note, change the place of payment of the Notes so long as such place of payment shall be either the principal office of the Company in such jurisdiction or the principal office of a bank or trust company in such jurisdiction. Section 14.2. Home Office Payment. So long as you or your nominee shall be the holder of any Note, and notwithstanding anything contained in Section 14.1 or in such Note to the contrary, the Company will pay all sums becoming due on such Note for principal, Make-Whole Amount, if any, and interest by the method and at the address specified for such purpose below your name in Schedule A, or by such other method or at such other address as you shall have from time to time specified to the Company in writing for such purpose, without the presentation or surrender of such Note or the making of any notation thereon, except that upon written request of the Company made concurrently with or reasonably promptly after payment or prepayment in full of any Note, you shall surrender such Note for cancellation, reasonably promptly after any such request, to the Company at its principal executive office or at the place of payment most recently designated by the Company pursuant to Section 14.1. Prior to any sale or other disposition of any Note held by you or your nominee you will, at your election, either endorse thereon the amount of principal paid thereon and the last date to which interest has been paid thereon or surrender such Note to the Company in exchange for a new Note or Notes pursuant to Section 13.2. The Company will afford the benefits of this Section 14.2 to any Institutional Investor that is the direct or indirect transferee of any Note purchased by you under this Agreement and that has made the same agreement relating to such Note as you have made in this Section 14.2. SECTION 15. EXPENSES, ETC. Section 15.1. Transaction Expenses. Whether or not the transactions contemplated hereby are consummated, the Company will pay all costs and expenses (including reasonable attorneys' fees of a special counsel and, if reasonably required, local or other counsel) incurred by you and each Other Purchaser or holder of a Note in connection with such transactions and in connection with any amendments, waivers or consents under or in respect of this Agreement or the Notes (whether or not such amendment, waiver or consent becomes effective), including, without limitation: (a) the costs and expenses incurred in enforcing or defending (or determining whether or how to enforce or defend) any rights under this Agreement or the Notes or in responding to any subpoena or other legal process or informal investigative demand issued in connection with this Agreement or the Notes, or by reason of being a holder of any Note, and (b) the costs and expenses, including financial advisors' fees, incurred in connection with the insolvency or bankruptcy of the Company or any Subsidiary or in connection with any work-out or restructuring of the transactions contemplated hereby and by the Notes. The Company will pay, and will save you and each other holder of a Note harmless from, all claims in respect of any fees, costs or expenses, if any, of brokers and finders (other than those retained by you). Section 15.2. Survival. The obligations of the Company under this Section 15 will survive the payment or transfer of any Note, the enforcement, amendment or waiver of any provision of this Agreement or the Notes, and the termination of this Agreement. SECTION 16. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT. All representations and warranties contained herein shall survive the execution and delivery of this Agreement and the Notes, the purchase or transfer by you of any Note or portion thereof or interest therein and the payment of any Note, and may be relied upon by any subsequent holder of a Note, regardless of any investigation made at any time by or on behalf of you or any other holder of a Note. All statements contained in any certificate or other instrument delivered by or on behalf of the Company pursuant to this Agreement shall be deemed representations and warranties of the Company under this Agreement. Subject to the preceding sentence, this Agreement and the Notes embody the entire agreement and understanding between you and the Company and supersede all prior agreements and understandings relating to the subject matter hereof. SECTION 17. AMENDMENT AND WAIVER. Section 17.1. Requirements. This Agreement and the Notes may be amended, and the observance of any term hereof or of the Notes may be waived (either retroactively or prospectively), with (and only with) the written consent of the Company and the Required Holders, except that (a) no amendment or waiver of any of the provisions of Section 1, 2, 3, 4, 5, 6 or 21 hereof, or any defined term (as it is used therein), will be effective as to you unless consented to by you in writing, and (b) no such amendment or waiver may, without the written consent of the holder of each Note at the time outstanding affected thereby, (i) subject to the provisions of Section 12 relating to acceleration or rescission, change the amount or time of any prepayment or payment of principal of, or change the rate or change the time of payment or method of computation of interest or of the Make-Whole Amount on, the Notes, (ii) change the percentage of the principal amount of the Notes the holders of which are required to consent to any such amendment or waiver, or (iii) amend any of Sections 8, 11(a), 11(b), 12, 17 or 20. Section 17.2. Solicitation of Holders of Notes. (a) Solicitation. The Company will provide each holder of the Notes (irrespective of the amount of Notes then owned by it) with sufficient information, sufficiently far in advance of the date a decision is required, to enable such holder to make an informed and considered decision with respect to any proposed amendment, waiver or consent in respect of any of the provisions hereof or of the Notes. The Company will deliver executed or true and correct copies of each amendment, waiver or consent effected pursuant to the provisions of this Section 17 to each holder of outstanding Notes promptly following the date on which it is executed and delivered by, or receives the consent or approval of, the requisite holders of Notes. (b) Payment. The Company will not directly or indirectly pay or cause to be paid any remuneration, whether by way of supplemental or additional interest, fee or otherwise, or grant any security, to any holder of Notes as consideration for or as an inducement to the entering into by any holder of Notes or any waiver or amendment of any of the terms and provisions hereof unless such remuneration is concurrently paid, or security is concurrently granted, on the same terms, ratably to each holder of Notes then outstanding even if such holder did not consent to such waiver or amendment. Section 17.3. Binding Effect, etc. Any amendment or waiver consented to as provided in this Section 17 applies equally to all holders of Notes and is binding upon them and upon each future holder of any Note and upon the Company without regard to whether such Note has been marked to indicate such amendment or waiver. No such amendment or waiver will extend to or affect any obligation, covenant, agreement, Default or Event of Default not expressly amended or waived or impair any right consequent thereon. No course of dealing between the Company and the holder of any Note nor any delay in exercising any rights hereunder or under any Note shall operate as a waiver of any rights of any holder of such Note. As used herein, the term "this Agreement" and references thereto shall mean this Agreement as it may from time to time be amended or supplemented. Section 17.4. Notes Held by Company, etc. Solely for the purpose of determining whether the holders of the requisite percentage of the aggregate principal amount of Notes then outstanding approved or consented to any amendment, waiver or consent to be given under this Agreement or the Notes, or have directed the taking of any action provided herein or in the Notes to be taken upon the direction of the holders of a specified percentage of the aggregate principal amount of Notes then outstanding, Notes directly or indirectly owned by the Company or any of its Affiliates shall be deemed not to be outstanding. SECTION 18. NOTICES. All notices and communications provided for hereunder shall be in writing and sent (a) by telefacsimile if the sender on the same day sends a confirming copy of such notice by a recognized overnight delivery service (charges prepaid), or (b) by registered or certified mail with return receipt requested (postage prepaid), or (c) by a recognized overnight delivery service (with charges prepaid). Any such notice must be sent: (i) if to you or your nominee, to you or it at the address specified for such communications in Schedule A, or at such other address as you or it shall have specified to the Company in writing, (ii) if to any other holder of any Note, to such holder at such address as such other holder shall have specified to the Company in writing, or (iii) if to the Company, to the Company at its address set forth at the beginning hereof to the attention of the President, or at such other address as the Company shall have specified to the holder of each Note in writing. Notices under this Section 18 will be deemed given only when actually received. SECTION 19. REPRODUCTION OF DOCUMENTS. This Agreement and all documents relating thereto, including, without limitation, (a) consents, waivers and modifications that may hereafter be executed, (b) documents received by you at the Closing (except the Notes themselves), and (c) financial statements, certificates and other information previously or hereafter furnished to you, may be reproduced by you by any photographic, photostatic, microfilm, microcard, miniature photographic or other similar process and you may destroy any original document so reproduced. The Company agrees and stipulates that, to the extent permitted by applicable law, any such reproduction shall be admissible in evidence as the original itself in any judicial or administrative proceeding (whether or not the original is in existence and whether or not such reproduction was made by you in the regular course of business) and any enlargement, facsimile or further reproduction of such reproduction shall likewise be admissible in evidence. This Section 19 shall not prohibit the Company or any other holder of Notes from contesting any such reproduction to the same extent that it could contest the original, or from introducing evidence to demonstrate the inaccuracy of any such reproduction. SECTION 20. CONFIDENTIAL INFORMATION. For the purposes of this Section 20, "Confidential Information" means information delivered to you by or on behalf of the Company or any Subsidiary in connection with the transactions contemplated by or otherwise pursuant to this Agreement that is proprietary in nature and that was clearly marked or labeled or otherwise adequately identified when received by you as being confidential information of the Company or such Subsidiary, provided that such term does not include information that (a) was publicly known or otherwise known to you prior to the time of such disclosure, (b) subsequently becomes publicly known through no act or omission by you or any person acting on your behalf, (c) otherwise becomes known to you other than through disclosure by the Company or any Subsidiary or (d) constitutes financial statements delivered to you under Section 7.1 that are otherwise publicly available. You will maintain the confidentiality of such Confidential Information in accordance with procedures adopted by you in good faith to protect confidential information of third parties delivered to you, provided that you may deliver or disclose Confidential Information to (i) your directors, trustees, officers, employees, agents, attorneys and affiliates (to the extent such disclosure reasonably relates to the administration of the investment represented by your Notes), (ii) your financial advisors and other professional advisors who agree to hold confidential the Confidential Information substantially in accordance with the terms of this Section 20, (iii) any other holder of any Note, (iv) any Institutional Investor to which you sell or offer to sell such Note or any part thereof or any participation therein (if such Person has agreed in writing prior to its receipt of such Confidential Information to be bound by the provisions of this Section 20), (v) any Person from which you offer to purchase any security of the Company (if such Person has agreed in writing prior to its receipt of such Confidential Information to be bound by the provisions of this Section 20), (vi) any federal or state regulatory authority having jurisdiction over you, (vii) the National Association of Insurance Commissioners or any similar organization, or any nationally recognized rating agency that requires access to information about your investment portfolio or (viii) any other Person to which such delivery or disclosure may be necessary or appropriate (w) to effect compliance with any law, rule, regulation or order applicable to you, (x) in response to any subpoena or other legal process, (y) in connection with any litigation to which you are a party or (z) if an Event of Default has occurred and is continuing, to the extent you may reasonably determine such delivery and disclosure to be necessary or appropriate in the enforcement or for the protection of the rights and remedies under your Notes and this Agreement. Each holder of a Note, by its acceptance of a Note, will be deemed to have agreed to be bound by and to be entitled to the benefits of this Section 20 as though it were a party to this Agreement. On reasonable request by the Company in connection with the delivery to any holder of a Note of information required to be delivered to such holder under this Agreement or requested by such holder (other than a holder that is a party to this Agreement or its nominee), such holder will enter into an agreement with the Company embodying the provisions of this Section 20. SECTION 21. SUBSTITUTION OF PURCHASER. You shall have the right to substitute any one of your Affiliates as the purchaser of the Notes that you have agreed to purchase hereunder, by written notice to the Company, which notice shall be signed by both you and such Affiliate, shall contain such Affiliate's agreement to be bound by this Agreement and shall contain a confirmation by such Affiliate of the accuracy with respect to it of the representations set forth in Section 6. Upon receipt of such notice, wherever the word "you" is used in this Agreement (other than in this Section 21), such word shall be deemed to refer to such Affiliate in lieu of you. In the event that such Affiliate is so substituted as a purchaser hereunder and such Affiliate thereafter transfers to you all of the Notes then held by such Affiliate, upon receipt by the Company of notice of such transfer, wherever the word "you" is used in this Agreement (other than in this Section 21), such word shall no longer be deemed to refer to such Affiliate, but shall refer to you, and you shall have all the rights of an original holder of the Notes under this Agreement. SECTION 22. MISCELLANEOUS. Section 22.1. Successors and Assigns. All covenants and other agreements contained in this Agreement by or on behalf of any of the parties hereto bind and inure to the benefit of their respective successors and assigns (including, without limitation, any subsequent holder of a Note) whether so expressed or not. Section 22.2. Payments Due on Non-Business Days. Anything in this Agreement or the Notes to the contrary notwithstanding, any payment of principal of or Make-Whole Amount or interest on any Note that is due on a date other than a Business Day shall be made on the next succeeding Business Day without including the additional days elapsed in the computation of the interest payable on such next succeeding Business Day. Section 22.3. Severability. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall (to the full extent permitted by law) not invalidate or render unenforceable such provision in any other jurisdiction. Section 22.4. Construction. Each covenant contained herein shall be construed (absent express provision to the contrary) as being independent of each other covenant contained herein, so that compliance with any one covenant shall not (absent such an express contrary provision) be deemed to excuse compliance with any other covenant. Where any provision herein refers to action to be taken by any Person, or which such Person is prohibited from taking, such provision shall be applicable whether such action is taken directly or indirectly by such Person. Section 22.5. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original but all of which together shall constitute one instrument. Each counterpart may consist of a number of copies hereof, each signed by less than all, but together signed by all, of the parties hereto. Section 22.6. Governing Law. This Agreement shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the law of the State of Illinois excluding choice-of-law principles of the law of such State that would require the application of the laws of a jurisdiction other than such State. * * * * * If you are in agreement with the foregoing, please sign the form of agreement on the accompanying counterpart of this Agreement and return it to the Company, whereupon the foregoing shall become a binding agreement between you and the Company. Very truly yours, SIMPSON INDUSTRIES, INC. By Its President The foregoing is hereby agreed to as of the date thereof. By Its PRINCIPAL AMOUNT OF NAME AND ADDRESS SERIES A NOTES OF PURCHASER TO BE PURCHASED The Northwestern Mutual $20,000,000 Life Insurance Company 720 East Wisconsin Avenue Milwaukee, Wisconsin 53202 Attention: Securities Department Telecopier Number: (414) 299-7124 PAYMENTS All payments on or in respect of the Notes to be by bank wire transfer of Federal or other immediately available funds (identifying each payment as "Simpson Industries, Inc., 7.03% Senior Notes, Series A, Due August 1, 2012, PPN 829060 A@1, principal, premium or interest") to: Bankers Trust Company (ABA #0210-01033) 16 Wall Street Insurance Unit, 4th Floor New York, New York 10005 for credit to: The Northwestern Mutual Life Insurance Company Account Number 00-000-027 NOTICES All notices and communications to be addressed as first provided above, except notices with respect to payments and written confirmation of each such payment to be addressed, Attention: Investment Operations. NAME OF NOMINEE IN WHICH NOTES ARE TO BE ISSUED: None TAXPAYER I.D. NUMBER: 39-0509570 PRINCIPAL AMOUNT OF NAME AND ADDRESS SERIES A NOTES OF PURCHASER TO BE PURCHASED United of Omaha Life Insurance Company $5,000,000 Mutual of Omaha Plaza Omaha, Nebraska 68175 Attention: Investment Division Telefacsimile: (402) 978-2913 Confirmation: (402) 978-2583 PAYMENTS All payments on or in respect of the Notes to be by bank wire transfer of Federal or other immediately available funds (identifying each payment as Simpson Industries, Inc., 7.03% Senior Notes, Series A, due August 1, 2012, PPN 829060 A@1, principal, premium or interest") to: First Bank, N.A. ABA #1040-0002-9 17th & Farnam Streets Omaha, Nebraska 68102 for credit to United of Omaha Life Insurance Company Account No. 1-4871447-0769 NOTICES All notices and communications, to be addressed as first provided above, except notices with respect to payment, and written confirmation of each such payment, to be addressed: Attention: Investments/ Securities Accounting. NAME OF NOMINEE IN WHICH NOTES ARE TO BE ISSUED: None TAXPAYER I.D. #47-0322111. PRINCIPAL AMOUNT OF NAME AND ADDRESS SERIES A NOTES OF PURCHASER TO BE PURCHASED (Two Notes) Allstate Life Insurance Company $8,000,000 3075 Sanders Road, STE G3A $7,000,000 Northbrook, Illinois 60062-7127 Attention: Private Placements Department Telephone Number: (847) 402-4394 Telecopier Number: (847) 402-3092 PAYMENTS All payments on or in respect of the Notes to be made by Fedwire transfer of immediately available funds (identifying each payment as Simpson Industries, Inc., DPP 829060 A#9, and the payment as principal, interest or premium) in the exact format as follows: BBK =Harris Trust and Savings Bank ABA #071000288 BNF =Allstate Life Insurance Company Collection Account #168-117-0 ORG =Simpson Industries, Inc. OBI =DPP - 829060 A#9 Payment Due Date (for example, 08/01/12) P ______ (enter "P" and the amount of principal being remitted, for example, P5000000.00) I ______ (enter "I" and the amount of interest being remitted, for example, I225000.00) NOTICES All notices of scheduled payments and written confirmation of each such payment, to be addressed: Allstate Life Insurance Company Investment Operations Private Placements 3075 Sanders Road, STE G4A Northbrook, Illinois 60062-7127 Telephone: (847) 402-2769 Telecopy: (847) 326-5040 All financial reports, compliance certificates and all other written communications, including notice of prepayments to be addressed as first provided above. NAME OF NOMINEE IN WHICH NOTES ARE TO BE ISSUED: None TAXPAYER I.D. NUMBER: 36-2554642 PRINCIPAL AMOUNT OF NAME AND ADDRESS SERIES A NOTES OF PURCHASER TO BE PURCHASED Chubb Colonial Life Insurance Company $5,000,000 P. O. Box 21008 Greensboro, North Carolina 27420 Attention: Securities Administration - 3630 Telefacsimile: (910) 691-3025 PAYMENTS All payments on or in respect of the Notes to be by bank wire transfer of Federal or other immediately available funds (identifying each payment as Simpson Industries, Inc., 7.03% Senior Notes, Series A, due August 1, 2012, PPN 829060 A@1, principal, premium or interest") to: Chubb Colonial Life Insurance Company c/o The Bank of New York ABA #021 000 018 BNF: IOC566 Attention: P&I Department NOTICES All notices of payment on or in respect of the Notes and written confirmation of each such payment, to be addressed to: Chubb Colonial Life Insurance Company c/o The Bank of New York P. O. Box 19266 Newark, NJ 07195 with duplicate notice to Chubb Colonial Life Insurance Company at the address first provided above. All notices and communications other than those in respect to payments to be addressed as first provided above. NAME OF NOMINEE IN WHICH NOTES ARE TO BE ISSUED: None TAXPAYER I.D. NUMBER: 22-0832760 PRINCIPAL AMOUNT OF NAME AND ADDRESS SERIES A NOTES OF PURCHASER TO BE PURCHASED Chubb Life Insurance Company of America $5,000,000 P. O. Box 21008 Greensboro, North Carolina 27420 Attention: Securities Administration - 3630 Telefacsimile: (910) 691-3025 PAYMENTS All payments on or in respect of the Notes to be by bank wire transfer of Federal or other immediately available funds (identifying each payment as Simpson Industries, Inc., 7.03% Senior Notes, Series A, due August 1, 2012, PPN 829060 A@1, principal, premium or interest") to: Chubb Life Insurance Company of America c/o The Bank of New York ABA #021 000 018 BNF: IOC566 Attention: P&I Department NOTICES All notices of payment on or in respect of the Notes and written confirmation of each such payment, to be addressed to: Chubb Life Insurance Company of America c/o The Bank of New York P. O. Box 19266 Newark, NJ 07195 with duplicate notice to Chubb Life Insurance Company of America at the address first provided above. All notices and communications other than those in respect to payments to be addressed as first provided above. NAME OF NOMINEE IN WHICH NOTES ARE TO BE ISSUED: None TAXPAYER I.D. NUMBER: 62-0395665 DEFINED TERMS As used herein, the following terms have the respective meanings set forth below or set forth in the Section hereof following such term: Acceptable Bank" means any bank or trust company (i) which is organized under the laws of the United States of America or any State thereof or a jurisdiction of any nation whose government is an Acceptable Foreign Government (or any jurisdiction therein), (ii) which has capital, surplus and undivided profits aggregating at least $250,000,000, and (iii) whose long-term unsecured debt obligations (or the long-term unsecured debt obligations of the bank holding company owning all of the capital stock of such bank or trust company) shall have been given a rating of "A-" or better by Standard & Poor's Rating Group, a division of The McGraw-Hill Companies, Inc., or "A3" or better by Moody's Investors Service, Inc. "Acceptable Broker-Dealer" means any Person other than a natural person (i) which is registered as a broker or dealer pursuant to the Exchange Act, and (ii) whose long-term unsecured debt obligations shall have been given a rating of "A" or better by Standard & Poor's Rating Group, a division of The McGraw-Hill Companies, Inc., "A2" or better by Moody's Investors Service, Inc. "Acceptable Foreign Government" means the government of any foreign nation whose debt obligations are rated at least "A-" by Standard & Poor's Rating Group, a division of The McGraw-Hill Companies, Inc., or at least "A3" by Moody's Investors Service, Inc. "Acquired Business Entity" means for any period of determination hereunder (i) any business entity the assets and related liabilities of which have been acquired substantially as an entirety by the Company or any Restricted Subsidiary by purchase, merger or consolidation, and (ii) any other assets which were operated as an identifiable business unit, i.e. a branch or division of a business entity and which have been acquired substantially as an entirety by the Company or any Restricted Subsidiary. "Affiliate" means, at any time, and with respect to any Person, (a) any other Person that at such time directly or indirectly through one or more intermediaries Controls, or is Controlled by, or is under common Control with, such first Person, and (b) any Person beneficially owning or holding, directly or indirectly, 10% or more of any class of voting or equity interests of the Company or any Subsidiary or any corporation of which the Company and its Subsidiaries beneficially own or hold, in the aggregate, directly or indirectly, 10% or more of any class of voting or equity interests. As used in this definition, "Control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise. Unless the context otherwise clearly requires, any reference to an "Affiliate" is a reference to an Affiliate of the Company. "Asset Disposition" means any Transfer except: (a) any (i) Transfer from a Restricted Subsidiary to the Company or a Wholly-Owned Restricted Subsidiary; (ii) Transfer from the Company to a Wholly-Owned Restricted Subsidiary; and (iii) Transfer from the Company to a Restricted Subsidiary (other than a Wholly-Owned Restricted Subsidiary) or from a Restricted Subsidiary to another Restricted Subsidiary (other than a Wholly-Owned Restricted Subsidiary), which in either case is for Fair Market Value, so long as immediately before and immediately after the consummation of any such Transfer and after giving effect thereto, no Default or Event of Default exists; and (b) any Transfer made in the ordinary course of business and involving only Property that is either (i) inventory held for sale or (ii) equipment, fixtures, supplies or materials no longer required in the operation of the business of the Company or any of its Restricted Subsidiaries or that is obsolete. "Business Day" means (a) for the purposes of Section 8.6 only, any day other than a Saturday, a Sunday or a day on which commercial banks in New York City are required or authorized to be closed, and (b) for the purposes of any other provision of this Agreement, any day other than a Saturday, a Sunday or a day on which commercial banks in Detroit, Michigan, or New York City are required or authorized to be closed. "Capitalized Lease" shall mean any lease the obligation for Rentals with respect to which is required to be capitalized on a consolidated balance sheet of the lessee and its subsidiaries in accordance with GAAP. "Change of Control" is defined in Section 8.7(i). "Closing" is defined in Section 3. "Code" means the Internal Revenue Code of 1986, as amended from time to time, and the rules and regulations promulgated thereunder from time to time. "Company" means Simpson Industries, Inc., a Michigan corporation. "Confidential Information" is defined in Section 20. "Consolidated Debt" means the total amount of all Debt of the Company and its Restricted Subsidiaries determined on a consolidated basis in accordance with GAAP. "Consolidated Net Income" means for any period the net income of the Company and its Restricted Subsidiaries, determined in accordance with GAAP on a consolidated basis. "Consolidated Net Worth" means, as of the date of any determination thereof, (a) the total amount of Shareholders' Equity, minus (b) all Restricted Investments. "Consolidated Total Assets" means, as of the date of any determination thereof, the total amount of assets of the Company and its Restricted Subsidiaries, determined on a consolidated basis in accordance with GAAP. "Debt" means, with respect to any Person, without duplication, (a) its liabilities for borrowed money; (b) its liabilities for the deferred purchase price of Property acquired by such Person (excluding accounts payable arising in the ordinary course of business but including, without limitation, all liabilities created or arising under any conditional sale or other title retention agreement with respect to any such Property); (c) all liabilities appearing on its balance sheet in accordance with GAAP in respect of Capitalized Leases; (d) all liabilities for borrowed money secured by any Lien with respect to any Property owned by such Person (whether or not it has assumed or otherwise become liable for such liabilities); (e) all of its liabilities in respect of letters of credit or instruments serving a similar function issued or accepted for its account by banks and other financial institutions (whether or not representing obligations for borrowed money); (f) Swaps of such Person; and (g) any Guaranty of such Person with respect to liabilities of a type described in any of clauses (a) through (f) hereof. Debt of any Person shall include all obligations of such Person of the character described in clauses (a) through (g) to the extent such Person remains legally liable in respect thereof notwithstanding that any such obligation is deemed to be extinguished under GAAP. "Debt Prepayment Application" means, with respect to any Transfer of Property, the application by the Company or its Restricted Subsidiaries of cash in an amount equal to the Net Proceeds Amount with respect to such Transfer to pay Senior Debt of the Company, provided that in the course of making such application the Company shall offer to prepay each outstanding Note in accordance with Section 8.2(b) in a principal amount which equals the Ratable Portion for such Note. If any holder of a Note rejects such offer of prepayment, then, for purposes of the preceding sentence only, the Company nevertheless will be deemed to have paid Senior Debt in an amount equal to the Ratable Portion for such Note. "Ratable Portion" for any Note means an amount equal to the product of (x) the Net Proceeds Amount being so applied to the payment of Senior Debt multiplied by (y) a fraction the numerator of which is the outstanding principal amount of such Note and the denominator of which is the aggregate principal amount of all Senior Debt of the Company. "Default" means an event or condition the occurrence or existence of which would, with the lapse of time or the giving of notice or both, become an Event of Default. "Default Rate" means that rate of interest that is the greater of (i) 2% per annum above the rate of interest stated in clause (a) of the first paragraph of the Notes of the applicable series or (ii) 2% over the rate of interest publicly announced by ABN AMRO Bank N.V. in Chicago, Illinois as its "base" or "prime" rate. "Disposition Value" means, at any time, with respect to any Property (a) in the case of Property that does not constitute Subsidiary Stock, the book value thereof, valued at the time of such disposition in good faith by the Company, and (b) in the case of Property that constitutes Subsidiary Stock, an amount equal to that percentage of book value of the assets of the Subsidiary that issued such stock as is equal to the percentage that the book value of such Subsidiary Stock represents of the book value of all of the outstanding capital stock of such Subsidiary (assuming, in making such calculations, that all Securities convertible into such capital stock are so converted and giving full effect to all transactions that would occur or be required in connection with such conversion) determined at the time of the disposition thereof, in good faith by the Company. "Divested Business Entity" means for any period of determination hereunder (i) any business entity the assets and related liabilities of which have been sold, disposed of or otherwise divested substantially as an entirety by the Company or any Restricted Subsidiary, and (ii) any other assets which were operated as an identifiable business unit, i.e. a branch or division of a business entity and which have been sold, disposed of or otherwise divested substantially as an entirety by the Company or any Restricted Subsidiary. "EBITDA" means for any period the difference between (a) sum of (i) Consolidated Net Income during such period plus (to the extent deducted in determining Consolidated Net Income), (ii) all provisions for any Federal, state or other income taxes made by the Company and its Restricted Subsidiaries during such period, (iii) all Interest Charges on Consolidated Debt (including the interest component on Rentals on Capital Leases), (iv) all depreciation and amortization expense and all other non-cash charges or expenses of the Company and its Restricted Subsidiaries during such period, and (v) charge-offs or reductions in Consolidated Net Income (whether cash or non cash in nature) resulting from the two plant closings described on page six of the Memorandum in an aggregate amount of up to $10,000,000 during the third quarter of 1997, and (b) the sum of (to the extent included in determining Consolidated Net Income) (i) all interest income, and (ii) all non-cash credits or income of the Company and its Restricted Subsidiaries during such period. For purposes of determining EBITDA in connection with the incurrence of any Debt in which the proceeds shall be used to fund the acquisition of any Acquired Business Entity, EBITDA shall be computed on a pro forma basis for such Acquired Business Entity during such period, provided that such pro forma calculation shall be derived from audited financial statements of the Acquired Business Entity (to the extent available) for such period and other financial information reflecting the actual results of operations for the Acquired Business Entity which shall be reasonably satisfactory to the Required Holders. EBITDA shall exclude all amounts attributable to any Divested Business Entity which has been divested by the Company or any Restricted Subsidiary during such period. "Environmental Laws" means any and all Federal, state, local, and foreign statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants, franchises, licenses, agreements or governmental restrictions relating to pollution and the protection of the environment or the release of any materials into the environment, including but not limited to those related to hazardous substances or wastes, air emissions and discharges to waste or public systems. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the rules and regulations promulgated thereunder from time to time in effect. "ERISA Affiliate" shall mean any corporation, trade or business that is, along with the Company, a member of a controlled group of corporations or a controlled group of trades or businesses, as described in Sections 414(b) and 414(c), respectively, of the Code or Section 4001 of ERISA. "Event of Default" is defined in Section 11. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Fair Market Value" means, at any time and with respect to any Property, the sale value of such Property that would be realized in an arm's-length sale at such time between an informed and willing buyer and an informed and willing seller (neither being under a compulsion to buy or sell). "GAAP" means generally accepted accounting principles as in effect from time to time in the United States of America. "Governmental Authority" means (a) the government of (i) the United States of America or any State or other political subdivision thereof, or (ii) any jurisdiction in which the Company or any Subsidiary conducts all or any part of its business, or which asserts jurisdiction over any properties of the Company or any Subsidiary, or (b) any entity exercising executive, legislative, judicial, regulatory or administrative functions of, or pertaining to, any such government. "Governmental Security" means any direct obligations of, or obligation guaranteed by, the United States of America or any Acceptable Foreign Government or any agency or instrumentality thereof, so long as such obligation or guarantee shall have the benefit of the full faith and credit of the United States of America or such Acceptable Foreign Government, as the case may be. "Guaranty" means, with respect to any Person, any obligation (except the endorsement in the ordinary course of business of negotiable instruments for deposit or collection) of such Person guaranteeing or in effect guaranteeing any indebtedness, dividend or other obligation of any other Person in any manner, whether directly or indirectly, including (without limitation) obligations incurred through an agreement, contingent or otherwise, by such Person: (a) to purchase such indebtedness or obligation or any property constituting security therefor; (b) to advance or supply funds (i) for the purchase or payment of such indebtedness or obligation, or (ii) to maintain any working capital or other balance sheet condition or any income statement condition of any other Person or otherwise to advance or make available funds for the purchase or payment of such indebtedness or obligation; (c) to lease properties or to purchase properties or services primarily for the purpose of assuring the owner of such indebtedness or obligation of the ability of any other Person to make payment of the indebtedness or obligation; or (d) otherwise to assure the owner of such indebtedness or obligation against loss in respect thereof. In any computation of the indebtedness or other liabilities of the obligor under any Guaranty, the indebtedness or other obligations that are the subject of such Guaranty shall be assumed to be direct obligations of such obligor. "Hazardous Material" means any and all pollutants, toxic or hazardous wastes or any other substances that might pose a hazard to health or safety, the removal of which may be required or the generation, manufacture, refining, production, processing, treatment, storage, handling, transportation, transfer, use, disposal, release, discharge, spillage, seepage, or filtration of which is or shall be restricted, prohibited or penalized by any applicable law (including, without limitation, asbestos, urea formaldehyde foam insulation and polychlorinated biphenyls). "Holder" means, with respect to any Note, the Person in whose name such Note is registered in the register maintained by the Company pursuant to Section 13.1. "Institutional Investor" means (a) any original purchaser of a Note, (b) any holder of a Note holding more than 5% of the aggregate principal amount of the Notes then outstanding, and (c) any bank, trust company, savings and loan association or other financial institution, any pension plan, any investment company, any insurance company, any broker or dealer, or any other similar financial institution or entity, regardless of legal form. "Interest Charges" for any period means all interest and all amortization of debt discount and expense on any particular Debt for which such calculations are being made, including, without limitation, all commissions, fees and other charges owed with respect to letters of credit and bankers' acceptances. "Investment" means any investment, made in cash or by delivery of property, by the Company or any of its Subsidiaries (i) in any Person, whether by acquisition of stock, indebtedness or other obligation or Security, or by loan, Guaranty, advance, capital contribution or otherwise, or (ii) in any property. "Lien" means any interest in Property securing an obligation owed to, or a claim by, a Person other than the owner of the Property, whether the interest is based on common law, statute or contract (including the security interest lien arising from a mortgage, encumbrance, pledge, conditional sale or trust receipt or a lease, consignment or bailment for security purposes). The term "Lien" shall not include minor reservations, exceptions, encroachments, easements, rights-of-way, covenants, conditions, restrictions and other minor title exceptions affecting Property, provided that they do not constitute security for a monetary obligation. For the purposes of this Agreement, the Company or a Restricted Subsidiary shall be deemed to be the owner of any Property which it has acquired or holds subject to a conditional sale agreement, financing lease or other arrangement pursuant to which title to the Property has been retained by or vested in some other Person for security purposes, and such retention or vesting shall be deemed to be a Lien. "Long Term Lease Rentals" means, with respect to any period, the sum of the rental and other obligations required to be paid during such period by the Company or any Restricted Subsidiary as lessee under all leases of real or personal Property (other than Capitalized Leases) having a term (including terms of renewal or extension at the option of the lessor or the lessee, whether or not such option has been exercised) expiring more than one year after the commencement of the initial term, excluding any amount required to be paid by the lessee (whether or not therein designated as rental or additional rental) on account of maintenance and repairs, insurance, taxes, assessments, water rates and similar charges, provided that, if at the date of determination, any such rental or other obligations are contingent or not otherwise definitely determinable by the terms of the related lease, the amount of such obligations (i) shall be assumed to be equal to the amount of such obligations for the period of 12 consecutive calendar months immediately preceding the date of determination or (ii) if the related lease was not in effect during such preceding 12-month period, shall be the amount estimated by a Senior Financial Officer of the Company on a reasonable basis and in good faith. "Make-Whole Amount" is defined in Section 8.6. "Material" means material in relation to the business, operations, affairs, financial condition, assets, properties, or prospects of the Company and its Subsidiaries taken as a whole. "Material Adverse Effect" means a material adverse effect on (a) the business, operations, affairs, financial condition, assets or properties of the Company and its Restricted Subsidiaries taken as a whole, or (b) the ability of the Company to perform its obligations under this Agreement and the Notes, or (c) the validity or enforceability of this Agreement or the Notes. "Material Restricted Subsidiary" means any Restricted Subsidiary accounting for (i) at least 5% of the Company's Consolidated Net Income during one of the two immediately preceding fiscal years or (ii) at least 5% of the Company's Consolidated Total Assets as of the end of either of the two immediately preceding fiscal years. "Memorandum" is defined in Section 5.3. "Multiemployer Plan" means any Plan that is a "multiemployer plan" (as such term is defined in section 4001(a)(3) of ERISA). "Net Proceeds Amount" means, with respect to any Transfer of any Property by any Person, an amount equal to the difference of (a) the aggregate amount of the consideration (valued at the Fair Market Value of such consideration at the time of the consummation of such Transfer) received by such Person in respect of such Transfer, minus (b) all ordinary and reasonable out-of-pocket costs and expenses actually incurred by such Person in connection with such Transfer. "Notes" is defined in Section 1. "Officer's Certificate" means a certificate of a Senior Financial Officer or of any other officer of the Company whose responsibilities extend to the subject matter of such certificate. "Other Agreements" is defined in Section 2. "Other Purchasers" is defined in Section 2. "PBGC" means the Pension Benefit Guaranty Corporation referred to and defined in ERISA or any successor thereto. "Person" means an individual, partnership, corporation, limited liability company, association, trust, unincorporated organization, or a government or agency or political subdivision thereof. "Plan" means an "employee benefit plan" (as defined in section 3(3) of ERISA) that is or, within the preceding five years, has been established or maintained, or to which contributions are or, within the preceding five years, have been made or required to be made, by the Company or any ERISA Affiliate or with respect to which the Company or any ERISA Affiliate may have any liability. "Preferred Stock" means any class of capital stock of a corporation that is preferred over any other class of capital stock of such corporation as to the payment of dividends or the payment of any amount upon liquidation or dissolution of such corporation. "Priority Debt" means the sum of (a) all Debt of the Company secured by Liens permitted by Section 10.4(g), and (b) all Debt of Restricted Subsidiaries (excluding Debt owing to the Company or another Restricted Subsidiary. "Property" means, unless otherwise specifically limited, real or personal property of any kind, tangible or intangible, choate or inchoate. "Property Reinvestment Application" means, with respect to any Transfer of Property, the application of an amount equal to the Net Proceeds Amount with respect to such Transfer to the acquisition by the Company of Property of a similar nature and having a value at least equal to the value of such Property subject to such Transfer. "QPAM Exemption" means Prohibited Transaction Class Exemption 84-14 issued by the United States Department of Labor. "Rentals" means, and includes as of the date of any determination thereof, all fixed payments (including as such all payments which the lessee is obligated to make to the lessor on termination of the lease or surrender of the property) payable by the Company or a Restricted Subsidiary, as lessee or sublessee under a lease of real or personal property, but shall be exclusive of any amounts required to be paid by the Company or a Restricted Subsidiary (whether or not designated as rents or additional rents) on account of maintenance, repairs, insurance, taxes and similar charges. Fixed rents under any "percentage leases" shall be computed solely on the basis of the minimum rents, if any, required to be paid by the lessee regardless of sales volumes or gross revenues. "Reportable Event" shall have the same meaning as in ERISA. "Repurchase Agreement" means any written agreement (a) that provides for (i) the transfer of one or more Governmental Securities in an aggregate principal amount at least equal to the amount of the Transfer Price (defined below) to the Company or any of its Restricted Subsidiaries from an Acceptable Bank or an Acceptable Broker-Dealer against a transfer of funds (the "Transfer Price") by the Company or such Restricted Subsidiary to such Acceptable Bank or Acceptable Broker-Dealer, and (ii) a simultaneous agreement by the Company or such Restricted Subsidiary, in connection with such transfer of funds, to transfer to such Acceptable Bank or Acceptable Broker-Dealer the same or substantially similar Governmental Securities for a price not less than the Transfer Price plus a reasonable return thereon at a date certain not later than 365 days after such transfer of funds, (b) in respect of which the Company or such Restricted Subsidiary shall have the right, whether by contract or pursuant to applicable law, to liquidate such agreement upon the occurrence of any default thereunder, and (c) in connection with which the Company or such Restricted Subsidiary, or an agent thereof, shall have taken all action required by applicable law or regulations to perfect a Lien in such Governmental Securities. "Required Holders" means, at any time, the holders of at least 51% in principal amount of the Notes at the time outstanding (exclusive of Notes then owned by the Company or any of its Affiliates). "Responsible Officer" means any Senior Financial Officer and any other officer of the Company with responsibility for the administration of the relevant portion of this agreement. "Restricted Investments" means all Investments except the following: (a) Property to be used in the ordinary course of business of the Company and its Restricted Subsidiaries; (b) Investments in one or more Restricted Subsidiaries or any Person that concurrently with such Investment becomes a Restricted Subsidiary; (c) Investments existing as of the date of this Agreement and disclosed in Schedule 5.15; (d) Investments in direct obligations of the United States of America or any Acceptable Foreign Government or any agency or instrumentality thereof, the payment or guarantee of which constitutes a full faith and credit obligation of the United States of America or such Acceptable Foreign Government, in either case, maturing within three years for the date of acquisition thereof; (e) Investments in certificates of deposit or time deposits issued by an Acceptable Bank, provided that such obligations mature within 365 days from the date of acquisition thereof; (f) Investments in commercial paper maturing in 270 days or less from the date of issuance which, at the time of acquisition by the Company or any Restricted Subsidiary, are rated at least "A-1" by Standard & Poor's Rating Group, a division of McGraw-Hill, Inc., or at least "P-2" by Moody's Investors Service, Inc.; (g) Investments in Repurchase Agreements; and (h) Investments other than described in the foregoing clauses (a) through (g), above, provided that such Investments do not exceed 5% of Consolidated Net Worth. For purposes of this Agreement, any Investment which involves an Acceptable Bank which is organized under the laws of a jurisdiction of a nation whose government is an Acceptable Foreign Government, shall become a Restricted Investment at such time as the debt obligations of such government are not rated at least "A-" by Standard & Poor's Rating Group, a division of The McGraw-Hill Companies, Inc., or at least "A3" by Moody's Investors Service, Inc. As of any date of determination, each Restricted Investment shall be valued at the greater of: (x) the amount at which such Restricted Investment is shown on the books of the Company or any of its Restricted Subsidiaries (or zero if such Restricted Investment is not shown on any such books); and (y) either (i) in the case of any Guaranty of the obligation of any Person, the amount which the Company or any of its Restricted Subsidiaries has paid on account of such obligation less any recoupment by the Company or such Subsidiary of any such payments, or (ii) in the case of any other Restricted Investment, the excess of (x) the greater of (A) the amount originally entered on the books of the Company or any of its Restricted Subsidiaries with respect thereto and (B) the cost thereof to the Company or its Restricted Subsidiary over (y) any return of capital (after income taxes applicable thereto) upon such Restricted Investment through the sale or other liquidation thereof or part thereof or otherwise. "Restricted Subsidiary" shall mean any Subsidiary listed as a Restricted Subsidiary on Schedule 5.4 to this Agreement and any other Subsidiary, (1) organized under the laws of the United States or a jurisdiction of any nation whose government is an Acceptable Foreign Government (or any jurisdiction thereof); (2) which conducts substantially all of its business and has substantially all of its Property within the United States or the jurisdiction of any national whose government is an Acceptable Foreign Government; (3) a majority of each class of common stock of which is legally and beneficially owned by the Company and its Restricted Subsidiaries; and (4) which is not an Unrestricted Subsidiary. For purposes of this Agreement, any Restricted Subsidiary which is organized under, and conducts substantially all of its business and has substantially all of its Property within, the jurisdiction of any nation whose government is an Acceptable Foreign Government, shall be designated as an Unrestricted Subsidiary at such time as the debt obligations of such government are not rated at least "A-" by Standard & Poor's Rating Group, a division of The McGraw-Hill Companies, Inc., or at least "A3" by Moody's Investors Service, Inc. "Security" shall have the same meaning as in Section 2(1) of the Securities Act of 1933, as amended. "Senior Debt" means all Consolidated Debt of the Company other than (i) Subordinated Debt, (ii) Senior Debt owing to the Company, any of its Subsidiaries or any Affiliate, and (iii) Senior Debt in respect of any revolving credit or similar credit facility providing the Company or any of its Subsidiaries with the right to obtain loans or other extensions of credit from time to time, except to the extent that in connection with a Debt Prepayment Application the availability of credit under such credit facility is permanently reduced by an amount not less than the Net Proceeds Amount applied to the payment of such Senior Debt. "Securities Act" means the Securities Act of 1933, as amended from time to time. "Senior Financial Officer" means the chief financial officer, principal accounting officer, treasurer, assistant treasurer, or comptroller of the Company. "Series A Notes" is defined in Section 1. "Series B Notes" is defined in Section 1 "Shareholders' Equity" means the total amount of shareholders' equity of the Company and its Restricted Subsidiaries, determined on a consolidated basis in accordance with GAAP. "Subordinated Debt" means all unsecured Debt of the Company which shall contain or have applicable thereto subordination provisions providing for the subordination thereof to other Debt of the Company (including, without limitation, the Notes). "Subsidiary" means, as to any Person, any corporation, association or other business entity in which such Person or one or more of its Subsidiaries or such Person and one or more of its Subsidiaries owns sufficient equity or voting interests to enable it or them (as a group) ordinarily, in the absence of contingencies, to elect a majority of the directors (or Persons performing similar functions) of such entity, and any partnership or joint venture if more than a 50% interest in the profits or capital thereof is owned by such Person or one or more of its Subsidiaries or such Person and one or more of its Subsidiaries (unless such partnership can and does ordinarily take major business actions without the prior approval of such Person or one or more of its Subsidiaries). Unless the context otherwise clearly requires, any reference to a "Subsidiary" is a reference to a Subsidiary of the Company. "Subsidiary Stock" means, with respect to any Person, the stock (or any options or warrants to purchase stock or other Securities exchangeable for or convertible into stock) of any Subsidiary of such Person. "Successor Corporation" is defined in Section 10.5. "Swaps" means, with respect to any Person, payment obligations with respect to interest rate swaps, currency swaps and similar obligations obligating such Person to make payments, whether periodically or upon the happening of a contingency. For the purposes of this Agreement, the amount of the obligation under any Swap shall be the amount determined in respect thereof as of the end of the then most recently ended fiscal quarter of such Person, based on the assumption that such Swap had terminated at the end of such fiscal quarter, and in making such determination, if any agreement relating to such Swap provides for the netting of amounts payable by and to such Person thereunder or if any such agreement provides for the simultaneous payment of amounts by and to such Person, then in each such case, the amount of such obligation shall be the net amount so determined. "Total Capitalization" shall mean the sum of Consolidated Net Worth and Consolidated Debt. "Transfer" means, with respect to any Person, any transaction in which such Person sells, conveys, transfers or leases (as lessor) any of its Property, including, without limitation, Subsidiary Stock. For purposes of determining the application of the Net Proceeds Amount in respect of any Transfer, the Company may designate any Transfer as one or more separate Transfers each yielding a separate Net Proceeds Amount. In any such case, (a) the Disposition Value of any Property subject to each such separate Transfer and (b) the amount of Consolidated Total Assets attributable to any Property subject to each such separate Transfer shall be determined by ratably allocating the aggregate Disposition Value of, and the aggregate Consolidated Total Assets attributable to, all Property subject to all such separate Transfers to each such separate Transfer on a proportionate basis. "Unrestricted Subsidiary" shall mean any Subsidiary other than a Restricted Subsidiary. "Voting Stock" shall mean Securities of any class or classes, the holders of which are ordinarily, in the absence of contingencies, entitled to elect a majority of the corporate directors (or Persons performing similar functions). "Wholly-Owned Restricted Subsidiary" means, at any time, any Restricted Subsidiary one hundred percent (100%) of all of the equity interests (except directors' qualifying shares) and voting interests of which are owned by any one or more of the Company and the Company's other Wholly-Owned Restricted Subsidiaries at such time. FORM OF SERIES A NOTE SIMPSON INDUSTRIES, INC. 7.03% SENIOR NOTE, SERIES A DUE AUGUST 1, 2012 No. [_________] [Date]$[____________] PN 829060 A@1 For Value Received, the undersigned, Simpson Industries, Inc. (herein called the "Company"), a corporation organized and existing under the laws of the State of Michigan, hereby promises to pay to [________________], or registered assigns, the principal sum of [________________] Dollars on August 1, 2012, with interest (computed on the basis of a 360-day year of twelve 30-day months) (a) on the unpaid balance thereof at the rate of 7.03% per annum from the date hereof, payable semiannually, on the first day of February and August in each year, commencing on the first of such dates after the date hereof, until the principal hereof shall have become due and payable, and (b) to the extent permitted by law on any overdue payment (including any overdue prepayment) of principal, any overdue payment of interest and any overdue payment of any Make-Whole Amount (as defined in the Note Purchase Agreements referred to below), payable semiannually as aforesaid (or, at the option of the registered holder hereof, on demand), at a rate per annum from time to time equal to the greater of (i) 9.03% or (ii) 2% over the rate of interest publicly announced by ABN AMRO Bank N.V. from time to time in Chicago, Illinois as its "base" or "prime" rate. Payments of principal of, interest on and any Make-Whole Amount with respect to this Note are to be made in lawful money of the United States of America at the principal office of ABN AMRO Bank N.V. in Chicago, Illinois or at such other place as the Company shall have designated by written notice to the holder of this Note as provided in the Note Purchase Agreements referred to below. This Note is one of a series of 7.03% Senior Notes, Series A (the "Series A Notes") issued together with the 6.96% Senior Notes, Series B (the "Series B Notes" and together with the Series A Notes, the "Notes") pursuant to separate Note Purchase Agreements, dated as of August 1, 1997 (as from time to time amended, the "Note Purchase Agreements"), between the Company and the respective Purchasers named therein and is entitled to the benefits thereof. Each holder of this Note will be deemed, by its acceptance hereof, (i) to have agreed to the confidentiality provisions set forth in Section 20 of the Note Purchase Agreements and (ii) to have made the representation set forth in Section 6.2 of the Note Purchase Agreements. This Note is a registered Note and, as provided in the Note Purchase Agreements, upon surrender of this Note for registration of transfer, duly endorsed, or accompanied by a written instrument of transfer duly executed, by the registered holder hereof or such holder's attorney duly authorized in writing, a new Note for a like principal amount will be issued to, and registered in the name of, the transferee. Prior to due presentment for registration of transfer, the Company may treat the person in whose name this Note is registered as the owner hereof for the purpose of receiving payment and for all other purposes, and the Company will not be affected by any notice to the contrary. The Company will make required prepayments of principal on the dates and in the amounts specified in the Note Purchase Agreements. This Note is also subject to optional prepayment, in whole or from time to time in part, at the times and on the terms specified in the Note Purchase Agreements, but not otherwise. If an Event of Default, as defined in the Note Purchase Agreements, occurs and is continuing, the principal of this Note may be declared or otherwise become due and payable in the manner, at the price (including any applicable Make-Whole Amount) and with the effect provided in the Note Purchase Agreements. This Note shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the law of the State of Illinois excluding choice-of-law principles of the law of such State that would require the application of the laws of a jurisdiction other than such State. SIMPSON INDUSTRIES, INC. By Its President Form of Series B Note Simpson Industries, Inc. 6.96% Senior Note, Series B, due August 1, 2012 No. [_________] [Date]$[____________] PPN 829060 A#9 For Value Received the undersigned, Simpson Industries, Inc. (herein called the "Company"), a corporation organized and existing under the laws of the State of Michigan, hereby promises to pay to [________________], or registered assigns, the principal sum of [________________] Dollars on August 1, 2012, with interest (computed on the basis of a 360-day year of twelve 30-day months) (a) on the unpaid balance thereof at the rate of 6.96% per annum from the date hereof, payable semiannually, on the first day of February and August in each year, commencing on the first of such dates after the date hereof, until the principal hereof shall have become due and payable, and (b) to the extent permitted by law on any overdue payment (including any overdue prepayment) of principal, any overdue payment of interest and any overdue payment of any Make-Whole Amount (as defined in the Note Purchase Agreements referred to below), payable semiannually as aforesaid (or, at the option of the registered holder hereof, on demand), at a rate per annum from time to time equal to the greater of (i) 8.96% or (ii) 2% over the rate of interest publicly announced by ABN AMRO Bank N.V. from time to time in Chicago, Illinois as its "base" or "prime" rate. Payments of principal of, interest on and any Make-Whole Amount with respect to this Note are to be made in lawful money of the United States of America at the principal office of ABN AMRO Bank N.V. in Chicago, Illinois or at such other place as the Company shall have designated by written notice to the holder of this Note as provided in the Note Purchase Agreements referred to below. This Note is one of a series of 6.96% Senior Notes, Series B (the "Series B Notes") issued together with the 7.03% Senior Notes, Series A (the "Series A Notes" and together with the Series B Notes, the "Notes") pursuant to separate Note Purchase Agreements, dated as of August 1, 1997 (as from time to time amended, the "Note Purchase Agreements"), between the Company and the respective Purchasers named therein and is entitled to the benefits thereof. Each holder of this Note will be deemed, by its acceptance hereof, (i) to have agreed to the confidentiality provisions set forth in Section 20 of the Note Purchase Agreements and (ii) to have made the representation set forth in Section 6.2 of the Note Purchase Agreements. This Note is a registered Note and, as provided in the Note Purchase Agreements, upon surrender of this Note for registration of transfer, duly endorsed, or accompanied by a written instrument of transfer duly executed, by the registered holder hereof or such holder's attorney duly authorized in writing, a new Note for a like principal amount will be issued to, and registered in the name of, the transferee. Prior to due presentment for registration of transfer, the Company may treat the person in whose name this Note is registered as the owner hereof for the purpose of receiving payment and for all other purposes, and the Company will not be affected by any notice to the contrary. The Company will make required prepayments of principal on the dates and in the amounts specified in the Note Purchase Agreements. This Note is also subject to optional prepayment, in whole or from time to time in part, at the times and on the terms specified in the Note Purchase Agreements, but not otherwise. If an Event of Default, as defined in the Note Purchase Agreements, occurs and is continuing, the principal of this Note may be declared or otherwise become due and payable in the manner, at the price (including any applicable Make-Whole Amount) and with the effect provided in the Note Purchase Agreements. This Note shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the law of the State of Illinois excluding choice-of-law principles of the law of such State that would require the application of the laws of a jurisdiction other than such State. SIMPSON INDUSTRIES, INC. By Its President FORM OF OPINION OF SPECIAL COUNSEL TO THE COMPANY The closing opinion of Dykema Gossett, counsel to the Company, which is called for by Section 4.4 of the Note Purchase Agreements, shall be dated the date of Closing and addressed to the Purchasers, shall be satisfactory in scope and form to each Purchaser and shall be to the effect that: 1. The Company is a corporation, duly incorporated, validly existing and in good standing under the laws of the State of Michigan, has the corporate power and the corporate authority to execute and perform the Note Purchase Agreements and to issue the Notes and has the full corporate power and the corporate authority to conduct the activities in which it is now engaged and is duly licensed or qualified and is in good standing as a foreign corporation in each jurisdiction in which the character of the properties owned or leased by it or the nature of the business transacted by it makes such licensing or qualification necessary except in jurisdictions where the failure to be so qualified or licensed would not have a material adverse affect on the business of the Company. 2. Each Subsidiary is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation and is duly licensed or qualified and is in good standing in each jurisdiction in which the character of the properties owned or leased by it or the nature of the business transacted by it makes such licensing or qualification necessary except in jurisdictions where the failure to be so qualified or licensed would not have a material adverse affect on the business of such Subsidiary, and all of the issued and outstanding shares of capital stock of each such Subsidiary have been duly issued, are fully paid and non-assessable and are owned by the Company, by one or more Subsidiaries, or by the Company and one or more Subsidiaries. 3. Each Note Purchase Agreement has been duly authorized by all necessary corporate action on the part of the Company, has been duly executed and delivered by the Company and constitutes the legal, valid and binding contract of the Company enforceable in accordance with its terms, subject to bankruptcy, insolvency, fraudulent conveyance and similar laws affecting creditors' rights generally, and general principles of equity (regardless of whether the application of such principles is considered in a proceeding in equity or at law). 4. The Notes have been duly authorized by all necessary corporate action on the part of the Company, have been duly executed and delivered by the Company and constitute the legal, valid and binding obligations of the Company enforceable in accordance with their terms, subject to bankruptcy, insolvency, fraudulent conveyance and similar laws affecting creditors' rights generally, and general principles of equity (regardless of whether the application of such principles is considered in a proceeding in equity or at law). 5. No approval, consent or withholding of objection on the part of, or filing, registration or qualification with, any governmental body, Federal or state, is necessary in connection with the execution and delivery of the Note Purchase Agreements or the Notes. 6. The execution, delivery and performance by the Company of the Note Purchase Agreements and issuance and sale of the Notes thereunder do not conflict with or result in any breach of any of the provisions of or constitute a default under or result in the creation or imposition of any Lien upon any of the property of the Company pursuant to the provisions of the Articles of Incorporation or By-laws of the Company or any agreement or other instrument known to such counsel to which the Company is a party or by which the Company may be bound. 7. The issuance, sale and delivery of the Notes under the circumstances contemplated by the Note Purchase Agreements do not, under existing law, require the registration of the Notes under the Securities Act of 1933, as amended, or the qualification of an indenture under the Trust Indenture Act of 1939, as amended. 8. Neither the issuance of the Notes nor the application of the proceeds of the sale of the Notes will violate or result in a violation of Section 7 of the Securities Exchange Act of 1934, as amended, or any regulation issued pursuant thereto, including, without limitation, Regulation G, T or X of the Board of Governors of the Federal Reserve System. 9. To the knowledge of such counsel after due inquiry, there are no actions, suits or proceedings pending or, to the knowledge of such counsel after due inquiry, threatened against or affecting the Company or any Subsidiary in any court or before any governmental authority or arbitration board or tribunal which, if adversely determined, would have a materially adverse effect on the properties, business, or condition, (financial or otherwise) of the Company and its Restricted Subsidiaries or the ability of the Company to perform its obligations under the Note Purchase Agreements and the Notes or on the legality, validity or enforceability of the Company's obligations under the Note Purchase Agreements or the Notes. To the knowledge of such counsel, neither the Company nor any Subsidiary is in default with respect to any court or governmental authority, or arbitration board or tribunal. 10. The Company is not an "investment company" or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended. The opinion of Dykema Gossett shall cover such other matters relating to the sale of the Notes as each Purchaser may reasonably request. With respect to matters of fact on which such opinion is based, such counsel shall be entitled to rely on appropriate certificates of public officials and other officers of the Company. FORM OF OPINION OF SPECIAL COUNSEL TO THE PURCHASERS The closing opinion of Chapman and Cutler, special counsel to the Purchasers, called for by Section 4.4 of the Note Purchase Agreements, shall be dated the date of Closing and addressed to each Purchaser, shall be satisfactory in form and substance to each Purchaser and shall be to the effect that: 1. The Company is a corporation, validly existing and in good standing under the laws of the State of Michigan and has the corporate power and the corporate authority to execute and deliver the Note Purchase Agreements and to issue the Notes. 2. Each Note Purchase Agreement has been duly authorized by all necessary corporate action on the part of the Company, has been duly executed and delivered by the Company and constitutes the legal, valid and binding contract of the Company enforceable in accordance with its terms, subject to bankruptcy, insolvency, fraudulent conveyance and similar laws affecting creditors' rights generally, and general principles of equity (regardless of whether the application of such principles is considered in a proceeding in equity or at law). 3. The Notes have been duly authorized by all necessary corporate action on the part of the Company, and the Notes being delivered on the date hereof have been duly executed and delivered by the Company and constitute the legal, valid and binding obligations of the Company enforceable in accordance with their terms, subject to bankruptcy, insolvency, fraudulent conveyance and similar laws affecting creditors' rights generally, and general principles of equity (regardless of whether the application of such principles is considered in a proceeding in equity or at law). 4. The issuance, sale and delivery of the Notes under the circumstances contemplated by the Note Purchase Agreements do not, under existing law, require the registration of the Notes under the Securities Act of 1933, as amended, or the qualification of an indenture under the Trust Indenture Act of 1939, as amended. The opinion of Chapman and Cutler shall also state that the opinion of Dykema Gossett, counsel to the Company, is satisfactory in scope and form to Chapman and Cutler and that, in their opinion, the Purchasers are justified in relying thereon. With respect to matters of fact upon which such opinion is based, Chapman and Cutler may rely on appropriate certificates of public officials and officers of the Company and upon representations of the Company and the Purchasers delivered in connection with the issuance and sale of the Notes. In rendering the opinion set forth in paragraph 1 above, Chapman and Cutler may rely, as to matters referred to in paragraph 1, solely upon an examination of the Articles of Incorporation certified by, and a certificate of good standing of the Company from, the Secretary of State of the State of Michigan, the By-laws of the Company and the general business corporation law of the State of Michigan. The opinion of Chapman and Cutler is limited to the laws of the State of Illinois, the general business corporation law of the State of Michigan and the Federal laws of the United States. EX-11 3 COMPUTATION OF EARNINGS PER SHARE Nine Months Ended Three Months Ended September 30 September 30 1997 1996 1997 1996 Primary Average number of common shares outstanding 18,121,209 18,063,133 18,129,647 18,075,159 Dilutive stock options outstanding 51,024 40,108 60,188 41,914 Average number of common and common equivalent shares 18,172,233 18,103,242 18,189,835 18,117,073 Net earnings appli- cable to common stock and common stock equivalents $6,468,000 $13,371,000 $(3,337,000) $3,443,000 Primary earnings per share $0.36 $0.74 $(0.18) $0.19 EX-27 4 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S UNAUDITED FINANCIAL STATEMENTS AS OF AND FOR THE PERIOD ENDING SEPTEMBER 30, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS 1,000 DEC-31-1997 SEP-30-1997 9-MOS 2,787 0 68,302 0 19,690 103,415 312,786 140,307 330,052 63,691 121,209 18,131 0 0 98,115 330,052 328,475 328,475 295,614 295,614 0 0 5,094 10,192 3,724 6,468 0 0 0 6,468 0.36 0.36
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