-----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, Vks6Lw2liydkoV/g8UspYSpVw0jxr+KSnzxbmnSABYG5thyAlNT2GWiBrdTA6II5 ZFPDIY0iiwMdNFST+3PMbA== 0001047469-98-015329.txt : 19980417 0001047469-98-015329.hdr.sgml : 19980417 ACCESSION NUMBER: 0001047469-98-015329 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19980406 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19980416 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ATCHISON CASTING CORP CENTRAL INDEX KEY: 0000911115 STANDARD INDUSTRIAL CLASSIFICATION: IRON & STEEL FOUNDRIES [3320] IRS NUMBER: 431572203 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 001-12541 FILM NUMBER: 98595419 BUSINESS ADDRESS: STREET 1: 400 S 4TH ST CITY: ATCHISON STATE: KS ZIP: 66002 BUSINESS PHONE: 9133672121 MAIL ADDRESS: STREET 1: 400 SOUTH 4TH STREET CITY: ATCHISON STATE: KS ZIP: 66002 8-K 1 8-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported) April 6, 1998 Atchison Casting Corporation - ------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Kansas 1-12541 48-1156578 - ------------------------------------------------------------------------------- (State or other jurisdiction (Commission (IRS Employer of incorporation) File Number) Identification No.) 400 South Fourth Street, Atchison, Kansas 66002 - ------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (913)367-2121 NONE - ------------------------------------------------------------------------------- (Former name or former address, if changed since last report) Item 2. ACQUISITION OR DISPOSITION OF ASSETS On April 6, 1998, Atchison Casting UK Ltd ("ACUK"), a subsidiary of the registrant, acquired all of the outstanding capital stock, consisting of 76,987,733 ordinary shares of capital stock, of Sheffield Forgemasters Group Limited ("Sheffield"), incorporated in England and Wales, from the stockholders of Sheffield for approximately U.S. $54.9 million in cash and 1,040,000 ordinary shares of ACUK valued at U.S. $914,817. The 1,040,000 ordinary shares, consisting of approximately 5.0% of the outstanding stock, of ACUK were issued to Sheffield management in exchange for 1,267,477 shares of Sheffield instead of the cash consideration. The purchase price was determined pursuant to arm's length negotiations between the parties. Sheffield includes Forgemasters Steel & Engineering Limited, River Don Castings Limited, Forged Rolls (UK) Limited and British Rollmakers Limited, among other operating units. The companies' products serve a variety of markets and end users, including steel rolling mills, paper and plastic processing, oil and gas exploration and production, fossil and nuclear electricity generation and forging ingots, which the registrant intends to continue. The funds used for this acquisition were secured by bank loans extended by Harris Trust and Savings Bank, as Agent, under the Amended and Restated Credit Agreement dated April 3, 1998, among the registrant and the Banks party thereto. Item 7. FINANCIAL STATEMENTS AND EXHIBITS (a) and It is impracticable at this time to provide the financial (b) statements required by Item 7(a) and (b) of Form 8-K. The required financial statements will be filed by amendment to this Form 8-K as soon as they become available, but in no event later than 60 days after the date upon which this Form 8-K must be filed. (c) EXHIBITS (2.1) The Offer from ACUK to the stockholders of Sheffield dated April 6, 1998. (2.2) Deed of Warranty and Undertaking in respect of Sheffield and its Subsidiaries dated April 6, 1998 by and among Phillip Montague Wright, Malcom Arthur Brand and David Fletcher and ACUK. Certain schedules and exhibits to the Deed of Warranty and Undertaking have not been filed. The registrant agrees to provide the Commission supplementally with a copy of any exhibit or schedule requested by the Commission. (4.1a) The Amended and Restated Credit Agreement dated as of April 3, 1998, among the registrant, the Banks party thereto and Harris Trust and Savings Bank, as Agent. Certain schedules and exhibits to the Amended and Restated Credit Agreement have not been filed. The registrant agrees to provide the Commission supplementally with a copy of any exhibit or schedule requested by the Commission. (4.1b) Pledge and Security Agreement dated as of April 3, 1998, between the registrant and Harris Trust and Savings Bank, as Agent. Certain schedules and exhibits to the Pledge and Security Agreement have not been filed. The registrant agrees to provide the Commission supplementally with a copy of any exhibit or schedule requested by the Commission. (4.2) Third Amendment dated as of April 3, 1998 to the Note Purchase Agreement dated July 29, 1994 between the registrant and Teachers Insurance and Annuity Association of America. (10.1) The Share Exchange Agreement dated April 6, 1998 in respect of the ordinary shares of Sheffield by and among David Fletcher and others, ACUK and Atchison Casting Corporation. 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 hereunto duly authorized. Atchison Casting Corporation ---------------------------- (Registrant) /s/ Kevin T. McDermed --------------------- April 16, 1998 Kevin T. McDermed, Vice President, Chief Financial Officer, Treasurer and Secretary EXHIBIT INDEX Exhibit Exhibit Number ------ -------- 2.1 The Offer from ACUK to the stockholders of Sheffield dated April 6, 1998. 2.2 Deed of Warranty and Undertaking in respect of Sheffield and its Subsidiaries dated April 6, 1998 by and among Phillip Montague Wright, Malcom Arthur Brand and David Fletcher and ACUK. 4.1a The Amended and Restated Credit Agreement dated as of April 3, 1998, among the registrant, the Banks party thereto and Harris Trust and Savings Bank, as Agent. 4.1b Pledge and Security Agreement dated as of April 3, 1998, between the registrant and Harris Trust and Savings Bank, as Agent. 4.2 Third Amendment dated as of April 3, 1998 to the Note Purchase Agreement dated July 29, 1994 between the registrant and Teachers Insurance and Annuity Association of America. 10.1 The Share Exchange Agreement dated April 6, 1998 in respect of the ordinary shares of Sheffield by and among David Fletcher and others, ACUK and Atchison Casting Corporation. EX-2 2 OFFER AGREEMENT EXHIBIT 2.1 THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. IF YOU ARE IN ANY DOUBT ABOUT THE OFFER YOU SHOULD CONSULT A PERSON AUTHORISED UNDER THE FINANCIAL SERVICES ACT 1986 WHO SPECIALISES IN ADVISING ON THE SALE OF SHARES AND DEBENTURES. If you have sold or otherwise transferred all your ordinary shares in Sheffield Forgemasters Group Limited, please hand this document, together with the accompanying Form of Acceptance and other documents, as soon as possible to the purchaser or the transferee or to the agent through whom you made the sale or transfer, for transmission to the purchaser or transferee. Alternatively, please call Mr K R Innocent (tel: 01709 828233) and tell him who owns the shares now. - -------------------------------------------------------------------------------- RECOMMENDED OFFER by ATCHISON CASTING UK LTD for SHEFFIELD FORGEMASTERS GROUP LIMITED - -------------------------------------------------------------------------------- The terms of the Offer are recommended by all of the directors of Sheffield Forgemasters Group Limited. A letter of recommendation from the Chairman of Sheffield Forgemasters Group Limited is set out on pages 4 to 6 of this document. ACCEPTANCES SHOULD BE DESPATCHED AS SOON AS POSSIBLE, BUT IN ANY EVENT SO AS TO BE RECEIVED NOT LATER THAN 3-00 PM ON 30 APRIL 1998 (OR SUCH LATER TIME AND/OR DATE AS ATCHISON MAY DETERMINE) WHICH IS THE TIME AND DATE WHEN THE OFFER CLOSES. The procedure for acceptance is set out on page 10 of this document. This document is issued to the recipients of the Offer this 6th day of April 1998. CONTENTS
PAGE Summary of the Offer 3 Letter of recommendation from the chairman of SFG 4 Letter from Atchison 7 1 Introduction 7 2 Recommendation 7 3 Information on Atchison and Atchison 7 Casting Corporation and background to the Offer 4 The Offer 8 5 Conditions of the Offer 9 6 Procedure for acceptance 10 7 Settlement 10 8 Further information 11 Appendix I Further terms and conditions of the Offer 12 Appendix II Additional information 19 Definitions 24
-2- SUMMARY OF THE OFFER Atchison Casting UK Limited is offering to buy the issued share capital which it has not already agreed to acquire of Sheffield Forgemasters Group Limited. The Offer is, for each SFG Ordinary Share: - - an initial payment of 43.31 pence in cash; and - - a further possible payment depending on the amount of additional consideration (if any) received by the SFG Group in respect of the Aerospace Transaction. For example: A shareholder currently holding 100 SFG Ordinary Shares who accepts the Offer will receive a payment of L43.31 in cash. He may also receive a further cash payment at a later date - there are NO guarantees as to the amount or timing of this. Should you accept the Offer, your cheque in respect of the initial payment for your SFG Ordinary Shares will be posted to you within 14 days of the Offer becoming or being declared unconditional in all respects (or, if later, within 14 days of your acceptance), provided that your share certificate has been received. The board of directors of SFG is unanimously recommending acceptance of the Offer. -3- SHEFFIELD FORGEMASTERS GROUP LIMITED (REGISTERED IN ENGLAND NUMBER 3120721) REGISTERED OFFICE: THE OLD RECTORY, SCHOOL HILL, WHISTON, ROTHERHAM S60 1QR DIRECTORS: S M Wallis (chairman) M A Brand D Fletcher F Fitzgerald CBE C McCann R E Winckles 6th April 1998 TO SFG SHAREHOLDERS Dear shareholder, RECOMMENDED OFFER BY ATCHISON This document contains an offer by Atchison for the entire issued share capital of SFG (except for those shares that Atchison has already agreed to acquire). This letter sets out the background to the Offer and explains why your Board, which has been so advised by SG Hambros, considers the terms of the Offer to be fair and reasonable and is unanimously recommending acceptance of the Offer. THE OFFER The Offer by Atchison, which is subject to the terms and further conditions set out in this document, is made on the following basis: For every SFG Ordinary Share: - - an initial payment of 43.31 pence; and - - a further possible payment, depending on the level of the ultimate sale proceeds from the Aerospace Transaction. Atchison's obligation to make the further payment is secured by the Letter of Credit. Further details of the Offer (including the basis of any further payment and details of the payment arrangements) are given in the letter from Atchison as set out on pages 7 to 11 of this document. This also explains the procedure for acceptance of the Offer. BACKGROUND The SFG Group completed the Aerospace Transaction on 6 February 1998. Under the sale arrangements, the SFG Group received an initial payment of L67.5 million, L3 million of which is being held as a retention. To the extent that the aggregate net assets acquired pursuant to the -4- Aerospace Transaction are above or below L22,513,000, the price for the Aerospace Transaction increases or decreases on a pound for pound basis accordingly. The Aerospace Agreement contains detailed provisions dealing with the basis and preparation of Completion Accounts to verify such net assets. The Completion Accounts have not yet been finalised, but based on the draft accounts provided to the Board by Allegheny Teledyne Incorporated it is expected that the SFG Group will receive the full retention of L3 million plus an additional payment from Allegheny. The Offer has been structured to pass the benefit of the release of the retention and any such additional payment to SFG Shareholders. Accordingly, the Committee (comprising of three representatives of the current SFG Shareholders) will have absolute authority, inter alia, to negotiate and finalise the Completion Accounts on behalf of the SFG Group (including, where appropriate, to take legal proceedings) and agree with Atchison the amount (if any) of the additional consideration to be paid to SFG Shareholders under the Offer. MANAGEMENT AND EMPLOYEES The Atchison Board has confirmed that the existing employment rights, including pension rights, of the management and employees of the SFG Group will be fully safeguarded and it has confirmed that it is the intention of Atchison to develop the SFG Group's businesses as an important part of the Atchison Group. Once the Offer becomes or is declared unconditional in all respects I and the remaining members of the Board, save for David Fletcher, will resign. IRREVOCABLE UNDERTAKINGS The directors, certain members of our families and related interests together with other SFG Shareholders (including the NatWest Funds and the Schroder Funds) have irrevocably undertaken to accept the Offer in respect of a total of at least 58,857,680 SFG Ordinary Shares (representing approximately 77.73 per cent of the issued SFG Ordinary Share capital to which the Offer relates). THE EXCHANGE AGREEMENT AND THE DEED OF WARRANTY AND UNDERTAKING Pursuant to the Exchange Agreement, David Fletcher and certain senior managers of the SFG Group and members of their families have agreed to sell a proportion of their holdings of SFG Ordinary Shares (representing, in aggregate, 1.64 per cent of the issued share capital of SFG) in return for the issue to them of new ordinary shares in Atchison, representing, in aggregate, approximately 5 per cent of the issued share capital of Atchison following the Offer (instead of the initial payment of consideration to which they would have otherwise been entitled under the Offer) plus a cash payment equal to the additional payment per SFG Ordinary Share that is subsequently paid to SFG Shareholders under the Offer. Further details of the Exchange Agreement are contained in paragraph 4 of Appendix II of this document. Under the Deed of Warranty and Undertaking, David Fletcher, Malcolm Brand and Phillip Wright (a former director of SFG) have agreed to give certain warranties to Atchison regarding -5- the business and assets of the SFG Group and Atchison has agreed to the Committee finalising and agreeing the Completion Accounts and, where appropriate, taking legal proceedings. Further details of the Deed of Warranty and Undertaking are contained in paragraph 5 of Appendix II of this document. Save for the Exchange Agreement and Deed of Warranty and Undertaking, the directors do not have any material interest in any contract entered into by any member of the Atchison Group. ADDITIONAL INFORMATION A copy of the latest published audited accounts for SFG, being those to 31 March 1997, is enclosed. Since the date to which such accounts were prepared SFG has entered into the Aerospace Transaction, redeemed 113,385,528 preferred ordinary shares of 30 pence and repaid its term loan in the principal sum of L35 million from the Bank of Scotland. The prospects for SFG during the current financial year have been adversely affected by the strength of sterling. Save as set out above, there has been no material change in the financial position or prospects of SFG since 31 March 1997, being the date to which the last audited accounts were prepared. Details of the directors' interests (if any) in the shares of SFG and Atchison are set out in paragraph 2(i) of Appendix II of this document. Your attention is drawn to the contents of the remainder of this document. RECOMMENDATION THE DIRECTORS OF SFG, WHO HAVE BEEN SO ADVISED BY SG HAMBROS, CONSIDER THE TERMS OF THE OFFER TO BE FAIR AND REASONABLE. IN PROVIDING ADVICE TO THE DIRECTORS, SG HAMBROS HAS TAKEN ACCOUNT OF THE DIRECTORS' COMMERCIAL ASSESSMENTS. THE DIRECTORS UNANIMOUSLY RECOMMEND ALL SFG SHAREHOLDERS TO ACCEPT THE OFFER. Yours faithfully /s/ Stuart M Wallis Stuart M Wallis CHAIRMAN FOR AND ON BEHALF OF THE BOARD OF SHEFFIELD FORGEMASTERS GROUP LIMITED -6- ATCHISON CASTING UK LTD REGISTERED NUMBER: 3514183 REGISTERED OFFICE: KINGS COURT, 12 KING STREET, LEEDS LS1 2HL DIRECTORS: Hugh H Aiken Kevin T McDermed Philip S Barrett 6th April 1998 TO SFG SHAREHOLDERS Dear Sir or Madam, RECOMMENDED OFFER FOR SFG 1 INTRODUCTION Atchison has decided to make an offer for all the SFG Ordinary Shares which it has not already contracted to acquire pursuant to the Exchange Agreement. This document contains the Offer. A Form of Acceptance to be used in connection with the Offer is enclosed. 2 RECOMMENDATION Your attention is drawn to the letter from your Chairman on pages 4 to 6 of this document in which it is stated that the directors of SFG unanimously recommend SFG Shareholders to accept the Offer. 3 INFORMATION ON ATCHISON AND BACKGROUND TO THE OFFER Atchison is a newly formed company acquired by the Atchison Group for the purpose of making the Offer. It is a wholly owned subsidiary of Atchison Casting Corporation. It has not traded and has not prepared any accounts for any period. The issued share capital of Atchison is L10.45 million. Atchison Casting Corporation was formed in 1991 and is based in Atchison, Kansas, USA and is the holding company for the Atchison Group. The Atchison Group is a manufacturer of iron, steel and nonferrous castings in a wide range of sizes and alloys. The Atchison Group currently employs more than 3,000 people and serves more than 400 customers. It is estimated that annual sales for the current fiscal year will exceed $300 million. Atchison Casting Corporation's shares are traded on the New York Stock Exchange. As the foundry and casting industries consolidate, the strategy of the Atchison Group has been to buy foundries, die casters, forges and machine shops and to sponsor and -7- encourage the introduction of technology for the design and production of cast and forged components which are lighter, stronger and more efficient. To date, the Atchison Group has acquired 15 foundries and die casters, with five machine shops, in the United States and Canada. The acquisition of SFG will expand the Atchison Group's product range into forgings and ingot and into rolls for steel, aluminium, paper and plastic processing. The acquisition will also increase the range of casting size which the Atchison Group can deliver at the top end of the market. The skilled workforce and experienced technical staff in the SFG Group are a very important part of the acquisition, and will bring a wealth of knowledge to the Atchison Group which it is hoped will enhance its position within the foundry and casting industries. Atchison hopes that SFG will be a springboard into other international markets for the Atchison Group, which up to now has operated primarily in the United States and Canada. 4 THE OFFER Atchison offers to acquire, on the terms and subject to the conditions set out in this document and in the Form of Acceptance, all the SFG Ordinary Shares (other than those which it has contracted to acquire pursuant to the Exchange Agreement) on the following basis: For each SFG Ordinary Share: - an initial payment of 43.31 pence in cash; and - a further payment depending on the amount of the Aerospace Additional Payment (the "ADDITIONAL CONSIDERATION"). The aggregate initial payment due to each SFG Shareholder will be rounded down to the nearest whole penny. The Additional Consideration per SFG Ordinary Share shall be a pro rata amount (based on the number of SFG Ordinary Shares in issue as at the date of this document) of the aggregate of: - an amount equal to the Aerospace Additional Payment PLUS - an amount equal to any interest which shall have accrued on the Aerospace Additional Payment from the date of payment or discharge to the SFG Group (or as it may otherwise direct) and the date preceding the day when the Additional Consideration is paid to SFG Shareholders LESS - an amount equal to the bank charges properly and reasonably incurred by the -8- Atchison Group in connection with the issue of the Letter of Credit as agreed by the Committee in its sole discretion (such agreement not to be unreasonably withheld or delayed) LESS - an amount equal to all external costs, fees and expenses incurred by the SFG Group in relation to the Offer, the Aerospace Transaction or related matters which are agreed by the Committee in its sole discretion LESS - an amount equal to all external costs, fees and expenses incurred by SFL and/or the Committee in the agreement and determination of the Completion Accounts and recovery of the Aerospace Additional Payment and/or the Additional Consideration (including those of the Security and Payment Agent) as agreed by the Committee in its sole discretion LESS - an amount equal to the stamp duty payable by Atchison in respect of the Additional Consideration. Any Additional Consideration will be paid to the Security and Payment Agent for distribution to SFG Shareholders on or before the date which is seven days after the later of the date which is seven weeks from the date when the Offer becomes or is declared unconditional in all respects and the date upon which payment or discharge of the Aerospace Additional Payment to the SFG Group (or as it may otherwise direct) is made in accordance with the terms of the Aerospace Agreement and the CTS Agreement. Harris Trust and Savings Bank in Chicago, the United States has issued the Letter of Credit to the Security and Payment Agent for the benefit of all SFG Shareholders as at the date of this document such that in the event that Atchison does not pay the Additional Consideration and/or the cash due under the Exchange Agreement within seven days of its due date, the Bank will (subject to the terms of the Letter of Credit) make such payment to the Security and Payment Agent on behalf of the relevant SFG Shareholders, up to a maximum amount of L9,000,000 in aggregate. The Committee shall, in its sole discretion, authorise the Security and Payment Agent to draw on the Letter of Credit in the event of any such non-payment. 5 CONDITIONS OF THE OFFER The Offer is subject to valid acceptances being received on or before 3-00 pm on 30 April 1998 (or such later time(s) and date(s) as Atchison may decide) in respect of such number of SFG Ordinary Shares so that (when added to any SFG Ordinary Shares acquired or contracted to be acquired by Atchison whether before or after the date of this document -9- otherwise than pursuant to the Offer (but excluding those contracted to be acquired pursuant to the Exchange Agreement)) Atchison owns or controls not less than 90 per cent (or such lesser percentage as Atchison may decide) of the SFG Ordinary Shares to which the Offer relates, provided that this condition will not be satisfied unless Atchison shall have acquired or agreed to acquire, pursuant to the Offer or otherwise, SFG Ordinary Shares carrying more than 50 per cent of the votes exercisable in general meetings of SFG and attributable to the equity share capital of SFG. Further terms and conditions of the Offer are set out in Appendix I to this document and in the Form of Acceptance. 6 PROCEDURE FOR ACCEPTANCE To accept the Offer you must complete and sign the Form of Acceptance in accordance with the instructions contained in it. THE FORM OF ACCEPTANCE, DULY COMPLETED AND SIGNED, SHOULD BE RETURNED, TOGETHER WITH THE RELATIVE SHARE CERTIFICATE(s) AND/OR OTHER DOCUMENT(s) OF TITLE, TO MR K R INNOCENT AT SHEFFIELD FORGEMASTERS LIMITED, PO BOX 61, 6 TWELVE O'CLOCK COURT, ATTERCLIFFE ROAD, SHEFFIELD, S4 7RE SO AS TO ARRIVE AS SOON AS POSSIBLE, BUT IN ANY EVENT NOT LATER THAN 3-00 PM ON 30 APRIL 1998. A REPLY PAID ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE. Even if your share certificate(s) and/or other document(s) of title is/are not readily available or is/are lost, you should nevertheless complete, sign and return the Form of Acceptance as indicated above. The share certificate(s) and/or other document(s) of title should be forwarded as soon as possible afterwards. Although no cash payments will be made until such document(s), or a satisfactory indemnity in lieu of it/them, is/are received, Atchison reserves the right to treat acceptances of the Offer as valid, even though not complete in all respects or not accompanied by the relative share certificate(s) and/or other document(s) of title. If you are in any doubt as to how to fill in the Form of Acceptance, please telephone Mr K R Innocent on 01709 828233. 7 SETTLEMENT Subject to the Offer becoming or being declared unconditional in all respects, cheques for the initial cash consideration of 43.31 pence per SFG Ordinary Share will be despatched: (i) in the case of acceptances received, complete in all respects, by the date when the Offer becomes or is declared unconditional in all respects, within 14 days of such date; and (ii) in the case of acceptances received, complete in all respects, after such date but while the Offer remains open for acceptance, within 14 days of such receipt. -10- Any Additional Consideration will be paid to the Security and Payment Agent for distribution to SFG Shareholders within seven days of the later of: (i) the date which is seven weeks from the date when the Offer becomes or is declared unconditional in all respect; and (ii) the date of payment or discharge of the Aerospace Additional Payment to the SFG Group (or as it may otherwise direct). All documents and remittances sent by or to SFG Shareholders (whether by Atchison or the Security and Payment Agent) will be sent at SFG Shareholders' risk and no acknowledgement of receipt will be given. If the Offer does not become unconditional in all respects, the Form of Acceptance, share certificate(s) and/or other document(s) of title will be sent by post within 14 days of the Offer lapsing or being withdrawn to the address set out in the Form of Acceptance or, if none is set out, to the shareholder's registered address (or, in the case of joint holdings, the registered address for the first-named holder). 8 FURTHER INFORMATION Your attention is drawn to the following appendices which form part of this document: Appendix I Further terms and conditions of the Offer Appendix II Additional information. Copies of the following documents are also enclosed and your attention is drawn to them: (i) the audited accounts of SFG for the year ended 31 March 1997; and (ii) a letter from SG Hambros to the directors of SFG advising them that, in the view of SG Hambros, the terms of the Offer are fair and reasonable. Yours faithfully /s/ Hugh H Aiken Hugh H Aiken DIRECTOR FOR AND BEHALF OF THE BOARD OF ATCHISON CASTING UK LTD -11- APPENDIX I FURTHER TERMS AND CONDITIONS OF THE OFFER 1 The SFG Ordinary Shares will be acquired free from all liens, charges and encumbrances and together with all rights now or in the future attaching to the SFG Ordinary Shares, including the right to receive in full all dividends and other distributions (if any) declared, made or paid after the date of this document. 2 The Offer shall not be capable of becoming or being declared unconditional in all respects after 3-00 pm on 30 April 1998. 3 If the Offer becomes unconditional, it will remain open for acceptance until further notice and at least 14 days' notice will be given before it is closed. 4 Acceptances shall be irrevocable. 5 The instructions and authorities contained in this document and in the Form of Acceptance constitute part of the terms of the Offer. 6 The Offer and all acceptances of the Offer shall be governed by and construed in accordance with English law. 7 All references in this document and in the Form of Acceptance to 3-00 pm on 30 April 1998 shall (except where the context otherwise requires) be deemed, if the expiry time and date of the Offer is extended, to refer to the expiry time and date of the Offer as so extended. 8 Accidental omission to despatch this document and enclosures to, or any failure to receive it by, any person to whom the Offer is made, or should be made, shall not invalidate the Offer in any way. All communications, notices, certificates, documents of title and remittances to be delivered by or sent to or from SFG Shareholders (including those by the Security and Payment Agent) will be delivered by or sent to or from them (or their designated agents) at their risk. 9 All powers of attorney and authorities on the terms conferred by or referred to in this Appendix I or in the Form of Acceptance are given by way of security for the performance of the obligations of the SFG Shareholder concerned and are irrevocable in accordance with section 4 of the Powers of Attorney Act 1971. 10 Without prejudice to the terms of the Form of Acceptance or of the provisions of this Appendix 1, each SFG Shareholder by whom, or on whose behalf, the Form of Acceptance is executed irrevocably represents and agrees to and with Atchison (so as to bind him, his personal representatives, heirs, successors and assigns) to the following effect: (i) that the execution of the Form of Acceptance constitutes an acceptance of the Offer in respect of the number of SFG Ordinary Shares inserted or deemed to -12- be inserted in Box A of the Form of Acceptance, subject to the terms and conditions set out or referred to in this document and the Form of Acceptance; (ii) the SFG Ordinary Shares in respect of which the Offer is accepted or deemed to be accepted are sold free from all liens, charges, or encumbrances and together with all rights attaching to the SFG Ordinary Shares, including the right to receive all interest, dividends and other distributions declared, made or paid in the future; (iii) that the execution of the Form of Acceptance constitutes, subject to the Offer becoming unconditional in all respects in accordance with its terms: (a) such SFG Shareholder's irrevocable consent to, and waiver of, all and any pre-emption rights affecting the transfer of any SFG Ordinary Shares to Atchison (whether pursuant to the articles of association of SFG or otherwise) or such other person as Atchison may direct (whether pursuant to the Offer or otherwise); and (b) the irrevocable appointment of any director of Atchison as such shareholder's attorney, and an irrevocable instruction to the attorney, on behalf of such shareholder and in his name to execute and complete all or any form(s) of transfer and/or other document(s) at the attorney's discretions in relation to the SFG Ordinary Shares referred to in sub-paragraph (i) above in favour of Atchison or such other person or persons as Atchison may direct; and to deliver such form(s) of transfer and/or other document(s) at the attorney's discretion, together with the certificate(s) and/or other document(s) relating to such SFG Ordinary Shares, for registration and to do all such other acts and things as may in the opinion of such attorney be necessary or expedient for the purpose of, or in connection with, such shareholder's acceptance of the Offer and his consent and waiver in accordance with sub-paragraph (a) above and to vest in Atchison or such person as it may direct such SFG Ordinary Shares; (iv) that the execution of the Form of Acceptance constitutes, subject to the Offer becoming or being declared unconditional in all respects in accordance with its terms, an irrevocable authority and request: (a) to SFG or its agents, to procure the registration of the transfer of the SFG Ordinary Shares pursuant to the Offer and the delivery of share certificate(s) in respect of the transfer of SFG Ordinary Shares to Atchison or as it may direct; (b) to Atchison, or its agents, to procure the despatch by post of a cheque for any cash to which an accepting shareholder is entitled, at the risk of such shareholder, to the address as set out in the appropriate place on the Form of Acceptance, or, if none is set out, to the first-named holder at his registered address; -13- (v) that subject to the Offer becoming or being declared unconditional in all respects in accordance with its terms, Atchison shall be entitled, unless and until the Offer lapses, to direct the exercise of any votes attaching to any SFG Ordinary Shares in respect of which the Offer has been accepted or is deemed to have been accepted, and that the execution of the Form of Acceptance constitutes an authority to SFG from such shareholder to send any notice which may be required to be sent to him as a registered holder of SFG Ordinary Shares to Atchison at its registered office (or otherwise as it may direct), and an authority to any director of Atchison to sign any consent to short notice of a general meeting on his behalf and/or to execute a form of proxy in respect of such SFG Ordinary Shares appointing any person determined by Atchison to attend general meetings of SFG and to exercise the votes attaching to such SFG Ordinary Shares on his behalf, where relevant, such votes to be cast as Atchison may determine; (vi) that he will deliver to Mr K R Innocent at Sheffield Forgemasters Limited, PO Box 61, 6 Twelve O'Clock Court, Attercliffe Road, Sheffield, S4 7RE his share certificate(s) and/or other document(s) of title in respect of the SFG Ordinary Shares referred to in sub-paragraph (i) above, or an indemnity reasonably acceptable to Atchison in lieu of such share certificates, as soon as possible and in any event within six months of the Offer becoming or being declared unconditional in all respects; (vii) that the terms of paragraphs 10,11 and 12 of this Appendix I shall be deemed to be incorporated in and form part of the Form of Acceptance, which shall be read and construed accordingly; (viii) that he shall do all such acts and things as shall be necessary or expedient to vest in Atchison or its nominees the SFG Ordinary Shares in respect of which the Offer is accepted or deemed to be accepted; (ix) that he agrees to ratify each and every act or thing which may be done or effected by any director of Atchison and/or the Committee and/or the Security and Payment Agent in the proper and lawful exercise of any of the powers and/or authorities conferred on them by these terms and conditions; (x) that the execution of the Form of Acceptance constitutes his submission, in relation to all matters arising out of the Offer and the Form of Acceptance, to the jurisdiction of the courts of England; and (xi) that on execution the Form of Acceptance shall take effect as a deed. 11. Without prejudice to the terms of the Form of Acceptance or the other provisions of this Appendix 1, each SFG Shareholder by whom, or on whose behalf, a Form of Acceptance is executed, irrevocably warrants, represents and agrees to and with Atchison, the Committee and the Security and Payment Agent (so as to bind him, his personal representatives, heirs, successors and assigns) that the execution of the Form of Acceptance shall constitute, subject to the Offer becoming unconditional in respects: -14- (i) an irrevocable authority to the Committee to exercise and carry out all discretions, authorities, powers and duties conferred on the Committee under or pursuant to this document and/or clause A9 of the Deed of Warranty and Undertaking, together with such discretions, authorities, rights and powers as are incidental to and in connection with such discretions, authorities, powers and duties; (ii) an agreement that: (a) neither the Committee nor the Security and Payment Agent shall be obliged to take any proceedings against Atchison or any other person for the payment or recovery of any sum due under the Offer; (b) the Committee shall be entitled to rely on the advice of any professional advisers selected by it in connection with any claim or proceedings against Atchison and shall not be liable to the SFG Shareholders or any of them for any of the consequences of such reliance; (c) in performing its functions, the Committee shall act solely as the agent of (but not as trustee for) the SFG Shareholders and, in doing so, shall not assume and shall not be deemed to have assumed any obligation as trustee for or relationship of trust with or for the SFG Shareholders or any of them; (d) no member of the Committee shall be liable to the SFG Shareholders or any of them for any action taken or omitted to be taken by the Committee or in connection with this document or the provisions of clause A9 of the Deed of Warranty and Undertaking unless caused by its, his or their negligence or wilful misconduct; (e) all acts done by the Committee or by any person acting as a member of the Committee shall, notwithstanding that it is afterwards discovered that there was some defect in the appointment of any member of the Committee or person so acting or that they or any of them were disqualified or had vacated office, be as valid and effectual as if each such member or person had been properly appointed and was qualified and had continued to be a member of the Committee; (f) the Committee shall, in its sole discretion, have absolute, unconditional and irrevocable authority in relation to the appointment of and instructions to the Security and Payment Agent (including, without limitation, the right to instruct the Security and Payment Agent to make a drawing upon or to cancel the Letter of Credit). 12. Without prejudice to the terms of the Form of Acceptance or the other provisions of this Appendix 1, each SFG Shareholder by whom, or on whose behalf, a Form of Acceptance is executed, irrevocably agrees to and with Atchison, the Committee and the Security and -15- Payment Agent (so as to bind him, his personal representatives, heirs, successors and assigns) that the execution of the Form of Acceptance shall constitute, subject to the Offer becoming unconditional in all respects: (i) the appointment of the Security and Payment Agent to act as his agent with respect to the receipt and settlement of the whole or part of the consideration due under the Offer and the Letter of Credit and an irrevocable authority to the Security and Payment Agent on such SFG Shareholder's behalf to: (a) receive the consideration due under the Offer and/or the proceeds of any drawing under the Letter of Credit on behalf of such SFG Shareholder and to pay such consideration and/or proportionate share of such proceeds to such SFG Shareholder at his risk by cheque or such other form of payment as the Security and Payment Agent may, in its absolute discretion, decide; (b) act as the beneficiary of the Letter of Credit; (c) in accordance with the instructions of the Committee (upon which the Security and Payment Agent shall be entitled to rely and shall be fully protected in so doing), to draw upon or cancel the Letter of Credit and to take all such steps for such purpose as the Security and Payment Agent may, in its absolute discretion, determine, provided that the Security and Payment Agent shall not make any drawing upon the Letter of Credit to the extent that the Security and Payment Agent has actually received an unconditional and irrevocable payment of cleared funds into the client account of Dibb Lupton Alsop held at National Westminster Bank plc, Sheffield, account number 58076 in respect of the obligations of Atchison which are covered by the Letter of Credit. (For the avoidance of doubt, if any such payment so received satisfies the obligations of Atchison which are covered by the Letter of Credit in part only, the Security and Payment Agent shall be entitled to draw upon the Letter of Credit to the extent of the then unsatisfied obligations); (ii) an acknowledgement that, in the exercise of any right or power provided for in this Appendix 1, the Security and Payment Agent shall act in accordance with the instructions of the Committee (subject to the provisions of Clause 12(i)(c)) or as this Appendix 1 may require and shall be fully protected in so doing, and in the absence of any such instructions and/or relevant requirement contained in this Appendix 1, the Security and Payment Agent may act or refrain from acting with respect to such right or power as it shall see fit; (iii) an acknowledgement and agreement that the relationship between the SFG Shareholders and the Security and Payment Agent is that of principal and agent and nothing herein shall constitute the Security and Payment Agent a trustee or fiduciary for such SFG Shareholder or any other person; (iv) an agreement that the Security and Payment Agent shall not be liable to the SFG -16- Shareholders for any breach by Atchison of its obligations under the Offer or for any breach by the issuing bank of its obligations under the Letter of Credit; (v) an agreement that the Security and Payment Agent may act through its personnel and through agents selected by it with reasonable care (who shall be entitled to the same protections as those given to the Security and Payment Agent hereunder); (vi) an agreement and acknowledgement that the Security and Payment Agent shall not be required to ascertain or enquire as to the performance or observance by Atchison of the terms of the Offer and that nothing herein contained shall oblige the Security and Payment Agent to threaten, take or institute any legal action or any other proceedings on behalf of the SFG Shareholders and that, until the Security and Payment Agent shall have received instructions from the Committee to do so, it shall not be required to take any action to draw on or cancel the Letter of Credit; (vii) an agreement and acknowledgement that neither the Security and Payment Agent nor any of its officers, shareholders, employees or agents shall be liable to the SFG Shareholders for any action taken or omitted to be taken under or in connection with the Letter of Credit unless caused by its or their negligence or wilful misconduct; (viii) an agreement and acknowledgement that the Security and Payment Agent may rely on any communication or document reasonably believed by it to be genuine or correct; (ix) an agreement to indemnify the Security and Payment Agent on demand for any and all liabilities, losses, damages, penalties, actions, judgements, costs, expenses or disbursements of any kind whatsoever which may be imposed on, incurred by or asserted against the Security and Payment Agent or any of its officers, shareholders, employees or agents in any way relating to or arising out of its acting as such Security and Payment Agent or performing its duties in connection therewith or any action taken or omitted to be taken by such Security and Payment Agent thereunder including, without limitation, the normal administrative costs and expenses incidental to the performance of its agency duties hereunder (such indemnification by such SFG Shareholder shall be pro rata to his entitlement to the consideration payable under the Offer) and an authority to the Security and Payment Agent to deduct from any monies received by it on behalf of the SFG Shareholder and retain for its own benefit any and all amounts due under this paragraph or otherwise (together with any applicable value added or other tax); and (x) an agreement that the Security and Payment Agent may refrain from doing anything which would or might in its reasonable opinion: (a) be contrary to the law of any applicable jurisdiction or any applicable official directive; or -17- (b) render it liable to any person and may do anything which in its reasonable opinion (acting on legal advice) is necessary to comply with any such law or directive. Reference in this paragraph to SFG Shareholders shall include references to the person or persons executing a Form of Acceptance and, in the event of more than one person executing a Form of Acceptance, the provisions of this paragraph shall apply to them jointly and to each of them. -18- APPENDIX II ADDITIONAL INFORMATION 1 RESPONSIBILITY (i) SFG The directors of SFG are responsible for the information contained in this document in so far as it relates to themselves or SFG. To the best of the knowledge and belief of the directors of SFG (having take all reasonable care to ensure that such is the case), such information is in accordance with the facts and no material fact has been omitted. (ii) ATCHISON The directors of Atchison are responsible for the information contained in this document in so far as it relates to themselves or Atchison. To the best of the knowledge and belief of the directors of Atchison (having taken all reasonable care to ensure that such is the case), such information is in accordance with the facts and no material fact has been omitted. 2 DISCLOSURE OF INTERESTS (i) SFG (a) The interests of the directors of SFG in the shares of SFG (as shown in the register of directors' interests maintained by SFG pursuant to section 325 of the Companies Act 1985) are as follows:
DIRECTOR NO OF SFG ORDINARY SHARES IN WHICH INTERESTED S M Wallis 1,863,990 M A Brand 2,012,500 D Fletcher 2,068,045 C McCann (see below) R K Winckles (see below)
C McCann is a director of NatWest Equity Partners Limited, adviser to the NatWest Funds, and R K Winckles is a partner in Schroder Venture Advisers, adviser to the Schroder Funds in which they have respective economic interests and which own the following number of SFG Ordinary -19- Shares: Schroder Funds 27,327,818 NatWest Funds 21,853,834
Save as set out above or (in the case of David Fletcher) pursuant to the Exchange Agreement, none of the directors of SFG has any interest in any shares or debentures of SFG or Atchison, being interests which, in the case of SFG, are required to be entered in the register kept by SFG under section 325 of the Companies Act 1985 or, in the case of Atchison, would be required to be so entered if the director were a director of Atchison. (b) Save as set out in paragraphs 4, 5 and 6 below, none of the directors of SFG has any material interest in any contract entered into by Atchison or in any contract entered into by any member of the SFG Group. (c) On 6th April 1998, S M Wallis was allotted 1,863,990 SFG Ordinary Shares at par upon the exercise of an option granted pursuant to an agreement dated 1 May 1996. There have been no other dealings in the shares or debentures of SFG during the period of 12 months immediately preceding the date of the Offer by any person who was a director of SFG at any time during that period. (ii) ATCHISON (a) Save pursuant to the Exchange Agreement, no shares in the capital of SFG or any debentures of SFG or any warrants to subscribe for such shares or debentures, or any option to acquire or dispose of such shares or debentures (or an option so to do), or any certificates or other instruments which confer property rights in respect of such shares or debentures or any right to acquire, dispose of, underwrite or convert such shares or debentures or any right (other than an option) to acquire such shares or debentures otherwise than by subscription are held by or on behalf of Atchison. (b) Save for the Exchange Agreement, there exists no agreement or arrangement between Atchison or any person with whom Atchison has an agreement of the kind described in section 204 of the Companies Act 1985 and any director or shareholder of SFG or any person who has been such a director or shareholder at any time during the period of 12 months immediately preceding the date of the Offer, being an agreement or arrangement which is connected with or dependent on the Offer. (c) There is no agreement or arrangement by which any shares or debentures acquired by Atchison in pursuance of the Offer will or may be transferred to any other person. (d) There have been no dealings in the shares or debentures of Atchison -20- during the period of 12 months immediately preceding the date of the Offer by any person who was a director of Atchison at any time during that period. (e) There are no service contracts between Atchison and its directors which have or are capable of having a duration of more than one year. 3 MISCELLANEOUS (i) If it becomes entitled so to do, Atchison intends to acquire the shares of any dissenting minority of SFG Shareholders under the compulsory acquisition procedures in part XIIIA of the Companies Act 1985. (ii) Upon the Offer becoming or being declared unconditional in all respects all of the existing members of the Board of SFG, save for David Fletcher, will resign. It is estimated that the aggregate amount which will be payable in respect of severance payments to resigning members of the SFG Board will be approximately L220,000. David Fletcher is to receive a bonus of L150,000 (including employer's national insurance). (iii) Save as detailed in paragraph (ii) above it is not proposed, in connection with the Offer, that any payment or other benefit be made or given to any director or former director of SFG in connection with or as compensation or consideration for his ceasing to be a director or to hold any office held in conjunction with a directorship or, in the case of a former director, to hold any office which he held in conjunction with his former directorship and which he continued to hold after ceasing to be a director. The acquisition of the SFG Ordinary Shares to which the Offer relates is not conditional upon the SFG Shareholders approving or consenting to, any such payment or benefit being made or given. (iv) Atchison has no reason to believe that there has been any material change in the financial position or prospects of SFG since 31 March 1997 other than that referred to in the Additional Information section of the SFG Chairman's letter on page 6 of this document. 4 SUMMARY OF THE EXCHANGE AGREEMENT Under the Exchange Agreement, David Fletcher and certain senior managers of the SFG Group (the "Managers") and members of their families have agreed to sell a proportion of their holdings of SFG Ordinary Shares (representing, in aggregate, 1.64 per cent of the issued share capital of SFG) in return for, first, the issue to them of new ordinary shares in Atchison, representing, in aggregate, approximately 5 per cent of the issued share capital of Atchison following the Offer and, second, a cash payment equal to the Additional Consideration per SFG Ordinary Share which is paid to SFG Shareholders under the Offer. Upon completion of the Exchange Agreement, David Fletcher, will hold 3% of Atchison's issued share capital. -21- The Exchange Agreement contains certain warranties on the part of the Managers and their families and Atchison. The Exchange Agreement is conditional upon the Offer becoming or being declared unconditional in all respects on or before 30 April 1998 and Atchison having been registered as the holder of at least 50 per cent of the SFG Ordinary Shares. The Exchange Agreement will be completed as soon as these conditions are satisfied. If the conditions are not satisfied on or before 30 April 1998 the Exchange Agreement will cease to be of effect. Each of the Managers will be granted an option to acquire at nominal value further shares in Atchison up to the number of shares issued to them and their families in return for their SFG Ordinary Shares. The option is generally exercisable as to one fifth at the end of each of years one to five from the date of completion of the Exchange Agreement, provided that at the relevant time the relevant Manager continues to be employed by Atchison. The option is exercisable earlier upon the sale or flotation of Atchison or SFG. Between the fifth and tenth anniversary of completion of the Exchange Agreement the Managers and their families will have the option to exchange all of their Atchison shares (including those issued pursuant to the options) for shares in Atchison Casting Corporation having a net asset value (determined by reference to the most recent management accounts of Atchison Casting Corporation) equal to 85% of the net asset value of the Atchison shares exchanged. 5 SUMMARY OF THE DEED OF WARRANTY AND UNDERTAKING Under the Deed of Warranty and Undertaking David Fletcher, Malcolm Brand and Phillip Wright (the "Covenantors") have irrevocably undertaken to accept the Offer and have given certain further undertakings regarding the operation of the business of the SFG Group pending the Offer becoming or being declared unconditional in all respects. In addition, the Covenantors have agreed to give certain warranties (subject to agreed limitations on the amounts which may be claimed under those warranties and the time period in which claims may be brought) to Atchison regarding the business and assets of the SFG Group and a deed of covenant (subject to similar limitations) regarding taxation which may be payable by the SFG Group in respect of periods prior to the Offer becoming so unconditional. Malcolm Brand and Phillip Wright have also given covenants under which they agree not to be involved in any business competing with that of the SFG Group until 31 December 1998. Atchison has agreed that the Committee will have absolute authority to negotiate and finalise the Completion Accounts on behalf of the SFG Group and recover the Aerospace Additional Payment (including authority to litigate). The Deed of Warranty and Undertaking will cease to be of effect if the Offer lapses or is withdrawn. -22- 6 SUMMARY OF AEROSPACE AGREEMENT Under the Aerospace Agreement, SFL agreed to sell the entire issued share capitals of Forgemasters Inc, Jessop Saville Limited, SMP Metals Inc and Special Melted Products Limited for an initial consideration of L67.5 million plus the Aerospace Additional Payment (which includes a L3 million retention from the initial payment of L67.5 million). David Fletcher, Malcolm Brand and Phillip Wright gave certain warranties (subject to agreed limitations on the amounts which may be claimed under those warranties and the time period in which claims may be brought) to the other parties to such agreement regarding the business and assets of the companies sold and those of CTS sold under the CTS Agreement. They also gave a deed of covenant (subject to similar limitations) regarding taxation which may be payable by the companies sold in respect of the periods prior to completion of the agreement. Malcolm Brand and Phillip Wright also gave covenants under which they agreed not to be involved in any business competing with the businesses of the companies sold or the businesses of CTS until 31 December 1998. 7 DOCUMENTS AVAILABLE FOR INSPECTION Copies of the following documents may be inspected, free of charge, at the offices of Dibb Lupton Alsop, Fountain Precinct, Balm Green, Sheffield, S1 1RZ during normal office hours, for so long as the Offer remains capable of acceptance: (i) the memorandum and articles of association of SFG and of Atchison; (ii) the audited accounts of SFG in respect of the financial year ended on 31 March 1997; (iii) the existing service contracts between SFG and its directors which have or are capable of having a duration of more than one year; (iv) the letter from SG Hambros referred to on page 11 above; (v) a letter from SG Hambros consenting to the inclusion of references to it and to the advice attributed to it in this document in the form and context in which they appear; and (vi) the Aerospace Agreement, the Exchange Agreement and the Deed of Warranty and Undertaking, being all material contracts of SFG and Atchison (not in either case, being contracts which were entered into in the ordinary course of business) entered into during the last two years. -23- DEFINITIONS The following definitions apply throughout this document unless the context requires otherwise: "AEROSPACE AGREEMENT" means the agreement dated 6 February 1998 between (1) SFL, (2) P M Wright, M A Brand and D Fletcher, (3) Teledyne Holdings Limited, (4) Teledyne Industries Inc and (5) Allegheny Teledyne Incorporated for the sale and purchase of the share capitals of Forgemasters Inc, Jessop Saville Limited, SMP Metals Inc and Special Melted Products Limited; "AEROSPACE ADDITIONAL PAYMENT" means all sums due (if any) to SFL and/or CTS pursuant to clause 3 of the Aerospace Agreement and/or clause 4 of the CTS Agreement LESS all sums due (if any) from SFL and/or CTS pursuant to clause 3 of the Aerospace Agreement and/or clause 4 of the CTS Agreement; "AEROSPACE TRANSACTION" means the sale of the entire issued share capital of Special Melted Products Limited and Jessop Saville Limited to Teledyne Holdings Limited, the sale of the entire issued share capital of Forgemasters Inc. and SMP Metals Inc. to Teledyne Industries Incorporated pursuant to the Aerospace Agreement and the sale by CTS of its business and assets to Teledyne Holdings Limited pursuant to the CTS Agreement; "ATCHISON" means Atchison Casting UK Ltd, a company incorporated in England and a wholly owned subsidiary of Atchison Casting Corporation, a company governed by the laws of the state of Kansas, United States of America; "ATCHISON GROUP" means Atchison Casting Corporation and its subsidiaries, including Atchison; "COMMITTEE" means a committee comprising three representatives of the SFG Shareholders constituted by and acting in accordance with the provisions of clause A9 of the Deed of Warranty and Undertaking and the provisions of paragraph 11 of Appendix I to this document; "COMPLETION ACCOUNTS" means the accounts to be drawn up in accordance with the provisions of the Aerospace Agreement and the CTS Agreement; "CTS" means Forgemasters Realisations (1998) Limited (formerly known as Commercial Testing Services Limited), a company within the SFG Group; "CTS AGREEMENT" means the agreement dated 6 February 1998 between (1) SFL, (2) P M Wright, M A Brand and D Fletcher, (3) Teledyne Holdings Limited, (4) Teledyne Industries Inc and (5) Allegheny Teledyne Incorporated relating to the sale and purchase of the business, assets and liabilities of CTS; "DEED OF WARRANTY AND UNDERTAKING" means an agreement between P M Wright, M A Brand and D Fletcher (1) and Atchison (2) under which, inter alia, P M Wright, M A Brand and D Fletcher have agreed to give certain undertakings relating to their SFG Ordinary Shares and certain warranties relating to the business and assets of the SFG Group; "EXCHANGE AGREEMENT" means an agreement between D Fletcher and certain other senior -24- managers of the SFG Group and others holding SFG Ordinary Shares, (1) Atchison (2) and Atchison Casting Corporation (3), under which, inter alia, such SFG Ordinary Shareholders have agreed with Atchison, conditionally upon the Offer becoming or being declared unconditional in all respects, to exchange certain SFG Ordinary Shares in return for cash and the issue by Atchison to them of new ordinary shares in Atchison; "FORM OF ACCEPTANCE" means the form of acceptance and authority accompanying this document; "LETTER OF CREDIT" means the letter of credit issued by Harris Trust and Savings Bank in Chicago, the United States, to the Security and Payment Agent; "NATWEST FUNDS" means the beneficial owners of the SFG Ordinary Shares to which the legal title is held by CNW Nominees Limited and NatWest Ventures (Nominees) Limited; "OFFER" means the offer set out in this document by Atchison to acquire all the SFG Ordinary Shares (other than those which it has contracted to acquire pursuant to the Exchange Agreement); "SCHRODER FUNDS" means Schroder UK Buyout Fund I and Schroder UK Venture Fund I; "SECURITY AND PAYMENT AGENT" means DLA Nominees Limited, a company owned and controlled by Dibb Lupton Alsop, solicitors to SFG; "SFG" means Sheffield Forgemasters Group Limited; "SFG GROUP" means SFG and its subsidiaries; "SFG ORDINARY SHARES" means the ordinary shares of one pence each in the issued share capital of SFG; "SFG SHAREHOLDERS" means the holders of SFG Ordinary Shares (each an "SFG Shareholder"); "SFL" means Sheffield Forgemasters Limited, a company within the SFG Group; and "SG HAMBROS" means SG Hambros Corporate Finance Advisory, a division of Societe Generale. -25- EX-3 3 DEED OF WARRANTY EXHIBIT 2.2 DATED APRIL 6, 1998 PHILLIP MONTAGUE WRIGHT, MALCOLM ARTHUR BRAND AND DAVID FLETCHER (1) and ATCHISON CASTING UK LTD (2) _______________________________________________________________________ DEED OF WARRANTY AND UNDERTAKING in respect of SHEFFIELD FORGEMASTERS GROUP LIMITED AND ITS SUBSIDIARIES _______________________________________________________________________ WALKER MORRIS KINGS COURT 12 KING STREET LEEDS LS1 2HL REF: PDE CONTENTS PART/ PARAGRAPH HEADING PAGE PART A Principal provisions A1 Interpretation 2 A2 Consideration 10 A3 Acceptance of the Offer 10 A4 Completion 13 A5 Warranties 15 A6 Protection for the Covenantors 17 A7 Non-competition covenants 17 A8 Books and records, tax returns and computations 18 A9 Committee 19 A10 Publicity 24 A11 Costs 25 A12 Miscellaneous 25 A13 Termination 26 A14 Notices 27 A15 Choice of law 28 PART B Details of the Covenantors and the Committed Shares 29 PART C List of the Group Companies 30 PART D Property 32 PART E Warranties 35 PART F Protection for the Covenantors 75 PART G Details of the Pension Schemes 83 ANNEXURES: 1 Group Companies List 2 Shareholder List AGREED FORM DOCUMENTS: 1 Agreed Costs List 2 Certificates of Title 3 Deed of Acknowledgement 4 Deed of Covenant 5 Offer Document 6 Directors' resignation letters 7 Letter of credit THIS AGREEMENT is made on 1998 PARTIES: (1) PHILLIP MONTAGUE WRIGHT, MALCOLM ARTHUR BRAND AND DAVID FLETCHER, whose addresses are set out in part B of this agreement (the "COVENANTORS"); and (2) ATCHISON CASTING UK LTD (company number 3514183) whose registered office is at 12 King Street, Leeds, LS1 2HL ("ATCHISON"). RECITALS: (1) Atchison wishes to acquire all the Shares. (2) Atchison has entered into the Roll-Over Agreement to acquire 1,267,476 of the Shares, such Shares comprising 1.64 per cent of the Shares. (3) Atchison intends to make the Offer for the remainder of the Shares (the "REMAINING SHARES"). (4) The Covenantors hold in aggregate 4,188,898 Shares, such Shares comprising 5.53 per cent of the Remaining Shares. (5) Atchison has received irrevocable undertakings from further holders of Shares amounting in aggregate to an additional per cent of the Remaining Shares. (6) The Covenantors have agreed to undertake to accept the Offer and Atchison has agreed to make the Offer on the terms and conditions set out in this document. (7) The Offer and Offer Document have been approved by the board of directors of SFGL. OPERATIVE PROVISIONS: PART A PRINCIPAL PROVISIONS A1 INTERPRETATION A1.1 In this agreement: "ATCHISON'S SOLICITORS" means Walker Morris of Kings Court, 12 King Street, Leeds LS1 2HL; "ACCOUNTS" means the UK Accounts and the Non-UK Accounts or, as relevant, any of them; "ACCOUNTS DATE" means 31 March 1997; "THE ACT" means the Companies Act 1985; "AEROSPACE AGREEMENTS" means the agreement dated 6 February 1998 and made between Sheffield Forgemasters Limited (1), the Covenantors (2), Teledyne Holdings Limited (3), Teledyne Industries Inc (4) and Allegheny Teledyne Incorporated relating to the sale of the issued share capitals of the Aerospace Group (the "FIRST AEROSPACE AGREEMENT") and the agreement dated 6 February 1998 and made between Forgemasters Realisations (1998) Limited (then called Commercial Testing Services Limited) (1) and Teledyne Holdings Limited (2) relating to the sale of the business and assets of Forgemasters Realisations (1998) Limited; "AEROSPACE GROUP" means Jessop Saville Limited, Special Melted Products Limited, Forgemasters Inc and SMP Metals Inc; "AGREED COSTS LIST" means a list of the costs to be paid or procured to be paid by -2- Atchison in the agreed form; "BUSINESS DAY" means any day (other than Saturday or Sunday) on which clearing banks are open in the UK for a full range of banking transactions; "CERTIFICATES OF TITLE" means certificates from the Covenantors' Solicitors and Shepherd & Wedderburn in the agreed form as to the title of SFGL or another Group Company to certain of the UK Properties; "COMPETING BUSINESS" means any business engaged, interested or involved in the manufacture or supply of any of the Restricted Goods or Services where such business is carried on or conducted at or from any premises located within the Restricted Area; "COMPLETION" means the carrying out of the matters described in paragraph A4; "COMPUTER KNOW-HOW" means all information (including that comprised in or derived from data, discs, tapes, manuals, source codes, flow charts and specifications) relating to the use or programming of any computer and any computer software in whatever form held; "COVENANTORS' SOLICITORS" means Dibb Lupton Alsop of Fountain Precinct, Balm Green, Sheffield, S1 1RZ; "CUSTOMER" means any person who was, at any time during the period of 12 months before Completion, a customer of any Group Company or a person with whom, at any time during that period, any Group Company had dealings with a view to obtaining business; "DATA ROOM INDEX" means the version of the index of documents and information relating to the Group headed "Data Room Information" in the form annexed to the Disclosure Letter; -3- "DEED OF ACKNOWLEDGEMENT" means a deed in the agreed form signed by each of the Covenantors in respect of claims which he may have against SFGL or any other Group Company; "DEED OF COVENANT" means a deed of covenant in respect of taxation between the Covenantors and Atchison in the agreed form; "DISCLOSURE LETTER" means the letter of disclosure of today's date written by the Covenantors to Atchison, the information annexed to it and the documents set out in any indexes attached to it; "ENCUMBRANCE" means any mortgage, charge, pledge, lien, assignment or other security, interest or any equity of any person (including, without limitation, any right to acquire, option or right of pre-emption); "EUROPEAN COMMISSION" means the Commission of the European Community or the relevant Directorate of it; "EUROPEAN UNION" means the European Community and the European Coal and Steel Community established under the Treaty of Rome 1957, the Treaty of Paris 1951 and the Treaty of Maastricht; "EXEMPTION ORDER" means the Financial Services Act 1986 (Investment Advertisements) (Exemptions) (No 2) Order 1995 (1995/1536); "GROUP" means SFGL and each other company (or other body corporate), details of which are set out in part C of this agreement and the Group Companies List; "GROUP COMPANY" means a company (or other body corporate) within the Group; -4- "GROUP COMPANIES LIST" means the list containing details of SFGL and the other Group Companies as at the date of, and in the form annexed to, this agreement; "INFORMATION MEMORANDUM" means the information memorandum dated 12 September 1997 which was issued in relation to the proposed sale of the entire issued share capitals of certain Group Companies, a copy of which is attached to the Disclosure Letter; "INTELLECTUAL PROPERTY" means all patents, trade marks, service marks, registered designs or any applications for any of the foregoing, copyright, design right, topographical rights, unregistered trade marks or other intellectual or industrial property rights, and all know how whether subsisting in the United Kingdom or anywhere else in the world; "IN THE AGREED FORM" means in the form of a draft agreed between the parties on or prior to today's date and initialled by or on behalf of them for the purposes of identification; "MANAGEMENT ACCOUNTS" means the unaudited consolidated balance sheet of the SFG Group as at 31 January 1998 in the form attached to the Disclosure Letter; "MARKETING INFORMATION" means all information relating to the marketing of any products or services (including customer names and lists, sales targets, sales statistics, market share statistics, marketing surveys and reports, marketing research and any advertising or other promotional materials); "NON-UK ACCOUNTS" means the audited financial statements of each Group Company which is a Non-UK Company for the financial year ended on the Accounts Date; the term "RELEVANT NON-UK ACCOUNTS" shall be construed accordingly; "NON-UK COMPANIES" means those Group Companies whose names are listed in -5- paragraph 2 of part C of this agreement; "NON-UK PROPERTIES" means the properties short particulars of which are set out in paragraph 2 of part D of this agreement and includes any part or parts of them; "OFFER" means the offer by Atchison for the Shares (other than the Roll-Over Shares), as described in the Offer Document; "OFFER DOCUMENT" means the document in the agreed form containing the Offer; "PENSION SCHEMES"means the pension schemes of the Group, details of which are set out in part G of this agreement; "PROPERTIES" means the UK Properties and the Non-UK Properties or, as relevant, any of them; "RESTRICTED AREA" means the United Kingdom of Great Britain and Northern Ireland the United States of America, China, Taiwan, Italy, Canada and the Federal Republic of Germany and any other countries in which the Group achieved sales of L1,000,000 or more in one or more of the three calendar years prior to the date of this agreement; "RESTRICTED EMPLOYEE" means any person who is at Completion, or was at any time during the period of six months before Completion, a director of any Group Company or employed by any Group Company in a senior management, sales, research or development function; "RESTRICTED GOODS OR SERVICES" means any goods or services the same as or competitive with any of those manufactured or supplied by any Group Company at any time during the period of 12 months before Completion; "RESTRICTED PERIOD" means the period from Completion to 31 December 1998; -6- "ROLL-OVER AGREEMENT" means an agreement of today's date between Atchison and certain holders of Shares relating to the acquisition of the Roll-Over Shares by Atchison from such holders; "ROLL-OVER SHARES" means the 1,267,476 Shares agreed to be acquired by Atchison pursuant to and on the terms of the Roll-Over Agreement; "SFGL" means Sheffield Forgemasters Group Limited, further information in relation to which is set out in the Group Companies List; "SFL" means Sheffield Forgemasters Limited, further information in relation to which is set out in the Group Companies List; "SHAREHOLDER LIST" means the list of shareholders of SFGL as at the date of, and in the form annexed to, this agreement; "SHARES" means the whole of the allotted equity share capital of SFGL details of which are contained in the Group Companies List and the Shareholder List or, as the context may require, any of the shares comprised in that share capital; "SUPPLIER" means any person who, to the knowledge of the Covenantors, was at any time during the period of 12 months before Completion, a supplier to any Group Company; "TAX" means (a) within the United Kingdom: corporation tax, advance corporation tax, income tax (including income tax required to be deducted or withheld from or accounted for in respect of any payment), capital gains tax, development land tax, capital transfer tax, inheritance tax, VAT, PAYE, national insurance contributions, capital duty, stamp duty, stamp duty reserve tax, duties of customs and excise, any amount recoverable under section 601 of the Taxes Act and any other taxes, levies, -7- duties, charges, imposts or withholdings corresponding to, similar to, replaced by or replacing any of them, together with all penalties, charges and interest relating to any of them; and (b) outside the United Kingdom: all taxes, levies, duties, imposts, charges and withholdings of any nature whatever, including (without limitation) taxes on gross or net income, profits or gains and taxes on receipts, sales, use, occupation, franchise, value added, and personal property, together with all penalties, charges and interest relating to any of them, regardless (in either case) of whether any such taxes, levies, duties, imposts, charges, withholdings, penalties, and interest are chargeable directly or primarily against or attributable directly or primarily to any Group Company, or any other person and of whether any amount in respect of any of them is recoverable from any other person; "TAX AUTHORITY" means any taxing or other authority (whether within or outside the United Kingdom) competent to impose any liability to Tax; "TAXES ACT" means the Income and Corporation Taxes Act 1988; "TCGA" means the Taxation of Chargeable Gains Act 1992; "UK" means the United Kingdom; "UK ACCOUNTS" means the audited financial statements of SFGL and each other Group Company which is a UK Company for the financial year ended on the Accounts Date, comprising in each case a balance sheet, profit and loss account, notes, auditors' and directors' reports the term "RELEVANT UK ACCOUNTS" shall be construed accordingly; "UK COMPANIES" means those Group Companies whose names are listed in paragraph 1 of part C of this agreement; "UK PROPERTIES" means the properties short particulars of which are set out in -8- paragraph 1 of part D of this agreement and includes any part or parts of them; "VAT" means value added tax; "VATA" means the Value Added Tax Act 1994; "WARRANTIES" means those warranties on the part of the Covenantors contained or referred to in paragraph A5 and part E of this agreement and "WARRANTY" shall be construed accordingly. A1.2 References to the Covenantors and Atchison shall include their respective personal representatives and successors. A1.3 Reference to any statutory provision shall be deemed to include reference to all relevant statutory modifications, re-enactments and extensions and any orders, instruments, rules or regulations or other subordinate legislation made under such provision or in relation to such provision now in force and (so far as liability may exist or can arise) shall include also any past statutory provisions (as from time to time modified, extended or re-enacted prior to the date of this agreement) which such provision has directly or indirectly replaced, amended, consolidated or extended and any definitions contained in any statutory provisions shall be used in construing any part of this agreement which refers to such or any other relevant statutory provision. A1.4 Unless the context otherwise requires words importing the singular only shall include the plural and vice versa. A1.5 Words importing the masculine gender only shall include the feminine gender and words importing natural persons shall also include corporations, unincorporated persons and partnerships. A1.6 Unless otherwise stated, references to paragraphs and parts are references to paragraphs -9- of and parts of this agreement. Any headings or sub-headings are inserted for convenience only and shall not affect the construction of this agreement or any part of it. A1.7 Any question as to whether a person is connected with another shall be determined in accordance with section 839 of the Taxes Act which shall apply in relation to this agreement as it applies in relation to that Act. A2 CONSIDERATION A2.1 In consideration of the covenants on Atchison's part contained in paragraph A2.2, the Covenantors agree and undertake with and to Atchison in the terms of the remainder of this agreement. A2.2 Atchison agrees and undertakes with each of the Covenantors as follows: A2.2.1 to make the Offer and issue the Offer Document to all holders of Shares (as detailed on the Shareholder List) in respect of all of the Shares (other than the Roll-Over Shares) within one Business Day of exchange of this agreement; A2.2.2 not to withdraw the Offer prior to 30 April 1998; A2.2.3 not to vary the Offer or waive any condition of the Offer; A2.2.4 not extend the time for acceptance of the Offer at any time prior to the date on which the Offer is declared or becomes unconditional in all respects. A3 ACCEPTANCE OF THE OFFER A3.1 Each of the Covenantors severally and irrevocably undertakes and warrants that: -10- A3.1.1 except pursuant to the Offer and/or the Roll-Over Agreement, he will not, prior to the Offer becoming or being declared unconditional in all respects, sell, transfer, encumber, grant any option over or otherwise dispose of all or any of the Shares registered in his name (as set against his name in part B of this agreement) and/or any other shares in SFGL which are otherwise acquired by him subsequent to the date of this undertaking (collectively and severally in respect of each Covenantor, his "COMMITTED SHARES"), otherwise than to Atchison, or enter into any agreement or arrangement which could result in their sale or other disposal (except under the Offer and/or the Roll-Over Agreement) or which would or might restrict their disposal; A3.1.2 he will on the same day as the Offer Document is despatched accept or procure the acceptance of the Offer in respect of all of the Committed Shares and will (if not already delivered to Atchison) at the same time forward or procure the forwarding of the relevant share certificate(s) or other documents of title and all other relevant documents in accordance with the terms of the Offer Document; A3.1.3 he will supply or procure the supply of all information relating to him or SFGL required for the purposes of the Exemption Order to be included in the Offer Document and immediately notify Atchison in writing of any material change in the accuracy or import of any information previously supplied by him and (if and so long as such Covenantor is a director of SFGL and subject to his duties as a director) otherwise provide or procure the provision of such information and do or procure to be done (in each case so far as he is able by the exercise of the votes attaching to his Committed Shares but not otherwise) such acts as may be reasonably necessary to expedite the preparation and despatch of the Offer Document; A3.1.4 he will not directly or indirectly initiate any approach to any party with a view to soliciting any offer for any or all of the Shares from any third party. -11- A3.2 Each of the Covenantors severally and irrevocably undertakes and warrants that by the exercise of the votes attaching to his Committed Shares and (if and for so long as such Covenantor is a director and subject to his duties as a director) the exercise of his votes at any meeting of the board of directors of any Group Company, he will (in so far as he is able by such exercise (but not further or otherwise)) unless and until the Offer becomes or is declared unconditional in all respects: A3.2.1 procure that there are convened such meetings of directors or members of SFGL (if so requested by Atchison) as may be necessary to pass such resolutions as may be required to enable the Offer to be implemented; A3.2.2 procure that all transfers of shares made pursuant to or in connection with the Offer (subject to the transfers being duly stamped) are registered in the register of members of SFGL; A3.2.3 procure that SFGL does not allot, or grant options over, any shares in the capital of SFGL nor issue any debt or other securities convertible into shares in the capital of SFGL nor agree to do any such thing; A3.2.4 procure that no dividend is declared by SFGL; A3.2.5 procure that no Group Company disposes of any material assets or assumes or incurs any material liabilities (including contingent liabilities) other than in the ordinary course of business; A3.2.6 procure that no Group Company undertakes any material commitments or enters into any material contract or agrees to the amendment of any existing material contract (including any service contract) otherwise than in the ordinary course of business; and -12- A3.2.7 procure that each Group Company will carry on business in the ordinary and normal course. A3.3 Each Covenantor warrants and undertakes that the number of Shares set against his name in part B of this agreement are both legally and beneficially owned by him and neither the whole nor any part of his interest in those Shares is subject to any Encumbrance and, upon the Offer being made, he will be able and entitled to accept or procure acceptance of the Offer in respect of those Shares and to transfer those Shares with full title guarantee and free from all Encumbrances and together with all rights attaching to those Shares, including the right to all dividends and other distributions (if any) declared, made or paid after the date on which the Offer becomes or is declared unconditional in all respects and otherwise perform his obligations under this paragraph A3. A3.4 In order to secure the performance of this undertaking, each of the Covenantors irrevocably appoints Hugh Aiken or, in his absence, any other director for the time being of Atchison, to be his attorney in his name and on his behalf to execute a form or forms of acceptance and such other documents and to do such other acts and things as may be necessary to accept the Offer in respect of the Committed Shares, provided however that such appointment shall not take effect until the expiry of two Business Days from the date of despatch of the Offer Document and only then if he shall have failed to comply with his obligations in paragraph A3.1.2. Such appointment shall be irrevocable in accordance with section 4 of the Powers of Attorney Act 1971 until the earlier of the date on which the Offer lapses and the date on which the Shares are registered in the name of Atchison or its nominees following the Offer having become or been declared unconditional in all respects. A3.5 Each of the Covenantors recognises and acknowledges that if he should fail to accept or procure the acceptance of the Offer in accordance with his obligations under paragraph A3.1.2 damages in the form of a liquidated sum would not be an adequate remedy and that an order for specific performance would be the only adequate remedy for such -12- failure or breach. A4 COMPLETION A4.1 Completion shall take place at the offices of the Covenantors' Solicitors on the Business Days following the Offer having become or been declared unconditional in all respects. A4.2 The Covenantors undertake to procure that on Completion the following shall be delivered or caused to be delivered to Atchison at the offices of the Covenantors' Solicitors (or as Atchison may direct): A4.2.1 duly executed transfers of any shares in any Group Company not held in the name of SFGL or another Group Company duly executed in favour of Atchison (or as it shall direct) together with the relative share certificates or other documents of title (or in the case of any lost certificate an indemnity satisfactory to Atchison in relation to it); A4.2.2 written resignations in the agreed form from Mr S M Wallis, Mr M A Brand and Dr F Fitzgerald as directors of SFGL and each other Group Company of which any of such persons is a director, each of whom shall resign from his respective office(s) with immediate effect after the appointment of Atchison's nominees as provided in paragraph A4.4.2; A4.2.3 a release duly executed by the Bank of Scotland of any charges, guarantees or other security in its favour given by or subsisting over any of the assets of the Group Companies; A4.2.4 the Certificates of Title and all documents of title to the UK Properties; A4.2.5 the statutory books, share certificate books, common seals, certificate of incorporation, any certificate(s) of incorporation on change of name and a -14- copy of the memorandum and articles of association of SFGL and each other Group Company (other than the Non-UK Companies) all, where appropriate, duly written up to date; A4.2.6 all credit cards, keys and other property of each Group Company which are in the possession or under the control of any Covenantor in his capacity as a director who resigns as an officer of SFGL and each other Group Company in accordance with this paragraph. A4.3 Each of the Covenantors undertakes that on Completion he shall deliver or cause to be delivered to Atchison at the offices of the Covenantors' Solicitors: A4.3.1 the Deed of Covenant duly executed by him; A4.3.2 a Deed of Acknowledgement signed by him; A4.3.3 in the case of Mr M A Brand his written resignation in the agreed form from his office as a director of any Group Company. A4.4 The Covenantors shall procure the passing of resolutions of the directors of each Group Company to: A4.4.1 register Atchison or its nominee(s) as the holders of the Shares which by Completion have been the subject of valid acceptances of the Offer and any other shares in each Group Company referred to in paragraph A4.2.1 above, subject only to the proper stamping of the transfers; A4.4.2 appoint such persons as Atchison shall nominate as directors of each Group Company and accept the resignations of those directors and secretaries who are resigning; and -15- A4.4.3 revoke of all existing authorities to the bankers of and each Group Company in respect of the operation of each Group Member's bank accounts giving authority in favour of such persons as Atchison may nominate to operate those accounts. A5 WARRANTIES A5.1 The Covenantors severally (but not jointly) warrant to Atchison in the terms set out in part E of this agreement, subject to all matters fairly disclosed in the Disclosure Letter (with sufficient detail to enable a purchaser with reasonable knowledge of the sectors in which the Group operates to assess the nature and import of each matter disclosed) and each of the Covenantors agrees and acknowledges that Atchison has agreed to make the Offer in reliance on the Warranties. A5.2 The Warranties and Atchison's rights in respect of the Warranties shall not in any respect be extinguished or affected by Completion. A5.3 Unless expressly stated in this agreement, no information (other than that fairly disclosed in the Disclosure Letter (with sufficient detail to enable a purchaser with reasonable knowledge of the sectors in which the Group operates to assess the nature and import of each matter disclosed)) relating to SFGL or any other Group Company of which Atchison has knowledge (whether actual or constructive) shall prejudice any claim made by Atchison under the Warranties or operate to reduce any amount recoverable in respect of any breach of any of the Warranties. A5.4 Each of the Covenantors undertakes that, in the event of any claim being made against that Covenantor in connection with this agreement, he will not make any claim against any Group Company or any director or employee of any Group Company on which or on whom he may have relied before agreeing to any of the Warranties or the Deed of Covenant or authorising any statement in the Disclosure Letter. -16- A5.5 The Covenantors agree and acknowledge that each of the Warranties shall be construed as a separate and independent warranty and shall not be limited or restricted by reference to, or inference from, the terms of any other Warranty or (other than as set out in this paragraph A5 or part F of this agreement) any other term of this agreement. A5.6 Where any of the Warranties is qualified by an expression such as "so far as the Covenantors are aware" or "to the best of the knowledge, information and belief of the Covenantors" or any similar expression, it shall be deemed to include an additional statement that it has been made after reasonable enquiry by the Covenantors of each of the directors of each of the Group Companies and after having made inspection of all relevant documentation under the ownership or control of the Group or to which any Group Company may have access. A6 PROTECTION FOR THE COVENANTORS The provisions of part F of this agreement shall have effect. A7 NON-COMPETITION COVENANTS A7.1 Each of the Covenantors undertakes to Atchison that he or it will not (except as required by law or any regulatory authority) divulge or communicate to any person (other than to any officer or employee of any Group Company who needs that knowledge in the discharge of his duties) any confidential information concerning the business, customers, accounts, financial or contractual arrangements, transactions or affairs of the Group which may be within or come to his or its knowledge to the extent and so long as that information is confidential and not in the public domain. A7.2 Each of the Covenantors (other than Mr David Fletcher) severally covenants with Atchison that he will not during the Restricted Period directly or indirectly, and either solely or jointly on behalf of himself or any other person: -17- A7.2.1 for the purposes of a Competing Business, solicit or canvas or endeavour to solicit or canvas the custom of any Customer in respect of the supply of any of the Restricted Goods or Services; A7.2.2 for the purposes of a Competing Business, entice away or endeavour to entice away from any of the Group Companies any Supplier in respect of the supply or provision of any of the Restricted Goods or Services or any component part of any of them; A7.2.3 employ, solicit or entice away or endeavour to employ, solicit or entice away any Restricted Employee (whether or not any such person would, as a result, commit a breach of his terms of employment or his contract). A7.3 The parties consider that the restrictions in paragraphs A7.1 and A7.2 taken separately and together, are not more onerous or extensive than is reasonable and necessary for the protection of the legitimate business interests of Atchison. If any restriction is held to be void or otherwise unenforceable but would be valid and enforceable if some part of that restriction were deleted, such restriction shall apply with such deletions as are necessary to make it valid and enforceable. A8 BOOKS AND RECORDS, TAX RETURNS AND COMPUTATIONS A8.1 Atchison shall procure that each Group Company: A8.1.1 shall preserve all of its books and records existing at Completion for a period of not less than three years from Completion or, in the case of books and records relating to Tax, seven years from Completion; and A8.1.2 shall at any reasonable time or times and upon reasonable notice allow the Covenantors (or their duly authorised representatives) access to and the right -18- to take copies of such books and records. A8.2 Atchison (on behalf of the Group Companies) or its duly authorised agents shall prepare the computations and returns relating to corporation tax in respect of all accounting periods beginning before Completion to the extent not prepared before Completion and shall submit such computations to the Covenantors or their duly authorised agents for comment. Atchison shall be obliged to take account of the Covenantors' reasonable comments in relation to any such return, save to the extent that to do so would materially increase the liability to Tax of any of the Group Companies in respect of any accounting period beginning after Completion. A8.3 Atchison shall procure that the returns of SFL deal with the capital losses of SFL on the basis and in the form requested by the Covenantors (or their agents) and shall provide copies of all correspondence with the Inland Revenue relating to such losses to the Covenantors (or their agents) and shall not agree any matter relating to the amount or manner of set-off of such capital losses with the Inland Revenue save in accordance with the instructions of the Covenantors (or their agents). A8.4 Atchison shall procure that the relevant UK Companies make (to the extent legally possible) the claims for the surrender by them for no consideration of advance corporation taxes (pursuant to section 240 Taxes Act) and/or group relief (pursuant to section 402 Taxes Act) in respect of the accounting periods commencing 1 April 1995, 1 April 1996 and 1 April 1997 as provided in clause 14.4 of the First Aerospace Agreement. A8.5 Atchison agrees to procure the making (to the extent legally possible) by Teledyne Holdings Limited of a joint election with Special Melted Products Limited ("SMP") pursuant to section 158 of the Capital Allowances Act 1990 in respect of the disposal to SFL by SMP of the land and buildings at Staybrite works in occupation by SMP. A8.6 Atchison agrees to procure compliance of each of the Group Companies of its -19- obligations pursuant to clauses 14.1 and 14.2 of the First Aerospace Agreement. A9 COMMITTEE A9.1 Atchison undertakes and covenants to procure that forthwith upon the Offer being made each of SFL and Forgemasters Realisations (1998) Limited and (in the case of clause A9.1.3 only) relevant Group Companies irrevocably and unconditionally appoints the Committee as its agent: A9.1.1 to exercise all and any rights, powers, privileges and discretions vested in or conferred upon SFL and/or Forgemasters Realisations (1998) Limited in relation to the preparation, review agreement and/or determination of the Completion Accounts (as defined in the First Aerospace Agreement) for the purposes of the Aerospace Agreements; A9.1.2 to take, after the date of the Offer, all and any steps as the Committee thinks fit (in its absolute discretion) to seek payment and enforce recovery of all or any of the Aerospace Additional Payment (as defined in the Offer Document) including, without limitation, the commencement of legal proceedings (in the name of SFL and/or Forgemasters Realisations (1998) Limited) against Teledyne Holdings Limited and/or Teledyne Industries Inc and/or Allegheny Teledyne Incorporated (as guarantor under each of the Aerospace Agreements) or any other person; and A9.1.3 to surrender, after Completion, to any UK company within the Aerospace Group up to L3,000,000 of tax losses available for group relief (pursuant to section 402 Taxes Act) on such terms as the Committee may, in its absolute discretion, determine; and Atchison acknowledges and agrees that the Committee shall have full power and -20- authority to exercise all the rights and authorities set out in or given or delegated to it pursuant to the Offer Document. A9.2 Atchison undertakes and covenants to procure that each of SFL and Forgemasters Realisations (1998) Limited: A9.2.1 confirms to the Committee in writing, upon the Offer being made, its appointment on the terms of this clause A9 in the agreed terms; A9.2.2 will not after the date of the Offer undertake any of the matters detailed in clause 9.1 nor waive, release or suspend or agree to waive, release or suspend any rights under or pursuant to, or vary, or agree to vary any Aerospace Agreement or direct that payment or discharge of the Aerospace Additional Payment be made other than to the Vendor's Solicitors under the terms of the relevant Aerospace Agreement; A9.2.3 issues a letter in the agreed terms upon the Offer being made to the other parties to the Aerospace Agreements (informing them, inter alia, of the irrevocable authorities and delegation contained in this clause A9); and A9.2.4 allows unrestricted access to all documentation in its possession or under its control relating to or affecting the Completion Accounts and procure that its relevant personnel and, so far as it is lawfully able to do so, Coopers & Lybrand provide such assistance in relation to the Completion Accounts and the exercise of rights under this clause A9 as the Committee reasonably requests from time to time. A9.3 Atchison undertakes to procure that the Committee is provided upon demand with all information necessary to enable it to calculate the Additional Consideration (as defined in the Offer Document) and to notify the Committee immediately upon receipt by -21- SFGL, SFL or any other third parties on their behalf of any monies in respect of (or upon any discharge of all or any of) the Aerospace Additional Payment or any relevant documents (providing copies thereof). A9.4 Atchison agrees (on behalf of itself and SFL and Forgemasters Realisations (1998) Limited) that the Committee shall: A9.4.1 not be obliged to take any action or proceedings on behalf of SFL and/or Forgemasters Realisations (1998) Limited pursuant to the Aerospace Agreements (whether for payment or recovery of the Aerospace Additional Payment (as defined in the Offer Document) or otherwise); and A9.4.2 be entitled to rely on the advice of any professional advisers selected by it and shall not be liable to SFL or Forgemasters Realisations (1998) Limited for any of the consequences of such reliance. A9.5 Atchison agrees (on behalf of itself and SFL and Forgemasters Realisations (1998) Limited) that no member of the Committee shall be liable to Atchison and/or SFL and/or Forgemasters Realisations (1998) Limited for any action taken or omitted to be taken by the Committee under the terms of or in connection with this clause and Atchison shall indemnify each member of the Committee on demand for any and all liabilities, losses, damages, penalties, actions, judgements, costs, expenses or disbursements of any kind whatsoever which may be imposed on, incurred by or asserted against him or it by Atchison, SFL and/or Forgemasters Realisations (1998) Limited in any way relating to or arising out of him or it acting as a member of the Committee or performing his/its duties in connection therewith or any action taken or omitted by such member thereunder. A9.6 The Committee shall consist of not more than three persons, two being appointed by the Covenantors (the first such appointees being M A Brand and D Fletcher) and one being appointed by NatWest Ventures (Nominees) Limited. The relevant appointor(s) may -22- remove their appointee to the Committee and appoint another in his/her place by giving written notice to Atchison and (in the case of removal) to the person being removed. For the purposes of clause A9.5, "MEMBER OF THE COMMITTEE" includes all members from time to time together with NatWest Ventures (Nominees) Limited. A9.7 A vacancy in the members of the Committee need not be filled if the relevant appointor(s) so agree, provided that the total number of members does not fall below two. A9.8 The Committee shall act unanimously but shall otherwise transact its business in such manner as it thinks fit. A9.9 Notwithstanding clause A9.8, all acts done by the Committee or by any person acting as a member of the Committee shall (notwithstanding that it is afterwards discovered that there was some defect in the appointment of any member of the Committee or person so acting or his authority to act or that they or any of them had vacated office) be as valid and effectual as if each such member or person had been properly appointed, had appropriate authority and had continued to be a member of the Committee. A9.10 SFL shall be responsible for all costs, charges and expenses incurred (including, without limitation, professional advice and the costs of any Independent Accountants appointed pursuant to the First Aerospace Agreement) by or on behalf of the Committee in carrying out its functions under this clause A9. Atchison undertakes to procure that SFL promptly discharges all such costs, charges and expenses when due and payable. A9.11 Atchison undertakes to the Covenantors to: A9.11.1 procure the issue to DLA Nominees Limited of a letter of credit from Harris Trust and Savings Bank in the agreed form upon exchange of this agreement; A9.11.2 procure that upon receipt by or on behalf of the SFG Group of all or any part -23- of the Aerospace Additional Payment, such sums will be promptly placed on deposit with the Bank of Scotland accompanied by a direction that they be held on terms that will result in it earning the best rate of interest then available from Bank of Scotland for such sums for a minimum deposit period of six weeks or, if earlier, to the date that is seven days prior to the due date for payment of the Additional Consideration (as defined in the Offer Document) and that the authority of the Committee shall be required to withdraw the money from that account within such minimum deposit period; A9.11.3 consult the Committee prior to implementation of any such deposit arrangements; and A9.11.4 procure that Bank of Scotland is authorised to provide full details of all and any interest accrued on sums deposited with them pursuant to clause A9.11 (such authorisation to be provided upon the date of such deposit). A9.12 Any notice to be given to the Committee shall be given to all Committee members in accordance with clause A14, save that the addresses and fax numbers for service shall (unless and until otherwise notified by the relevant appointors) be: M A Brand (as per clause A14.4) D Fletcher (as per clause A14.4) NatWest Ventures (Nominees) Limited For the attention of Michael Davy Fenchurch Exchange London EC3M 4TE -24- Fax No: 0171 374 3580 A10 PUBLICITY No announcement or disclosure in respect of the making or terms of this agreement or the Offer shall be made or disclosed by a party to this agreement without the prior written consent of the others (which consent may be given by any of the Covenantors on behalf of all of them) except to the extent disclosure is required by law or the rules of a recognised investment exchange (as defined by the Financial Services Act 1986 and including the New York Stock Exchange), or the rules of the Securities and Exchange Commission which disclosure shall then only be made: A10.1 after prior consultation between the parties to this agreement as to its terms (which consultation may be held with any of the Covenantors on behalf of all of them); A10.2 strictly in accordance with any agreement as to the terms of disclosure; and A10.3 only to the persons and in the manner required by law or the rules of the relevant recognised investment exchange or the Securities and Exchange Commission or as otherwise agreed. A11 COSTS Atchison shall pay its own costs of and incidental to the negotiation and preparation of this agreement, the preparation of the Offer Document and the making of the Offer and shall pay or procure the payment of the costs of the Covenantors if and to the extent that such costs are listed in the Agreed Costs List. Subject to clause A9, all other costs of the Covenantors will be borne by the Covenantors. -25- A12 MISCELLANEOUS A12.1 Save in the case of any fraudulent misrepresentation, Atchison agrees that it will have no remedy against the Covenantors, and the Covenantors shall not have any liability of whatever nature to Atchison, in respect of any statement of fact or opinion whatsoever, including any untrue or misleading statement, warranty or representation, express or implied, made to Atchison or its agents, officers or employees upon which Atchison relied or may have relied in entering into this agreement (unless repeated in this agreement) and that Atchison's sole remedy (save in the case of any fraudulent misrepresentation) is for breach of contract in respect of the warranties, undertakings, covenants or indemnities expressly set out in this agreement and the Deed of Covenant, subject to the limitations contained in this agreement and the Deed of Covenant. A12.2 No variation of this agreement shall be effective unless made in writing and signed by or on behalf of the parties to this agreement and no waiver of any term, provision or condition of this agreement shall be effective except to the extent made in writing and signed by the waiving party. A12.3 Atchison may freely assign the benefit of this agreement and/or the Deed of Covenant to any company within the Atchison Group (as defined in the Offer Document) provided that the Covenantors' liability under this agreement and Deed of Covenant shall be no greater following any such assignment than it would have been had such assignment not taken place. Save as set out above, this agreement and the Deed of Covenant shall not be assignable. A12.4 The invalidity, illegality or unenforceability of any provision of this agreement shall not affect the other provisions of this agreement. A12.5 The provisions of this agreement shall continue in full force and effect notwithstanding Completion. -26- A12.6 This agreement may be executed in any number of counterparts by the different parties or separate counterparts, each of which when executed and delivered shall constitute an original but all of which shall together constitute one and the same instrument. A12.7 No failure or delay in exercising or enforcing any right or remedy under this agreement shall constitute a waiver of such right or remedy and no single or partial exercise or enforcement of any right or remedy under this agreement shall preclude or restrict the further exercise or enforcement of any such right or remedy. The rights and remedies provided in this agreement are cumulative and not exclusive of any rights and remedies provided by law. A13 TERMINATION The obligations of the Covenantors under this agreement shall cease and determine on the withdrawal or lapsing of the Offer without liability on the part of any of the Covenantors save for the liability of any Covenantor for his prior breaches of paragraph A3.3. A14 NOTICES A14.1 Any notice or document to be served under this agreement shall (if sent to Atchison) be sent by: A14.1.1 facsimile transmission; followed by A14.1.2 courier and, if sent to the Covenantors, be sent by first class recorded delivery post in each case at its or their address specified in paragraph A14.4 or at any other address which the -27- party to be served may have notified to the other parties in accordance with this paragraph. A14.2 Any such notice or document shall be deemed to have been served one hour after the time of despatch by facsimile transmission in accordance with paragraph A14.1, provided that it is despatched before 4:00p.m. on any Business Day and, in any other case, at 10:00a.m. on the Business Day following the date of such despatch (and for this purpose, such times shall be construed as United Kingdom time in respect of documents served on a Covenantor and central United States time in respect of documents served on Atchison). A14.3 In proving service it shall be enough to prove that delivery was made, that the envelope containing the notice or document was properly addressed and posted as a prepaid first class recorded delivery letter or that the facsimile transmission was properly addressed and despatched (as appropriate). A14.4 The following are the addresses of the Covenantors and the address and fax number of Atchison for the purposes of paragraph A14.1: THE COVENANTORS Mr P M Wright Address as stated in part B of this agreement Mr M A Brand Address as stated in part B of this agreement Mr D Fletcher Address as stated in part B of this agreement -28- ATCHISON c/o Atchison Casting Corporation 400 South Fourth Street Atchison Kansas 66002-0188 United Stated of America Fax number: 001 913 367 2155 Marked for the attention of the Chief Executive Officer A15 CHOICE OF LAW This agreement shall be governed by and construed in accordance with English Law and the parties irrevocably agree that the English courts shall have exclusive jurisdiction to settle any dispute which may arise out of or in connection with this agreement and that, accordingly, any proceedings, suit or action arising out of this agreement shall be brought in such courts. IN WITNESS of which the parties have executed this agreement as a deed and delivered it on the day and year first above written. -29- PART B DETAILS OF THE COVENANTORS AND THE COMMITTED SHARES
(1) (2) (3) (4) NAME AND ADDRESS NUMBER RELEVANT PERCENTAGE OF CASH LIMITATION OF COMMITTED ANY CLAIM UNDER THE ON LIABILITY (L) SHARES WARRANTIES AND DEED OF COVENANT Phillip Montague Wright 2,040,353 67.39 235,865 Fern House 11 Tivydale Cawthorne Nr Barnsley South Yorkshire S75 4EJ Malcolm Arthur Brand 1,207,500 16.08 56,280 1A Lindrick Road Woodsetts Worksop Nottinghamshire S81 8RD David Fletcher 941,045 16.53 57,855 Dearne Mill House 19A Cuckstool Road Denby Dale Huddersfield HD8 8RF
-30- PART C LIST OF THE GROUP COMPANIES C1 THE UK COMPANIES Sheffield Forgemasters Group Limited British Rollmakers Corporation Limited C Akrill Limited Engineering Technologies Group Limited Firth Vickers Special Steels Limited Forgealert Limited Forgemasters Realisations (1998) Limited Forged Rolls (UK) Limited Forgemasters Engineering Limited Forgemasters Steel and Engineering Limited Gibson Engineering Company Limited Hadura Products Limited Johnson's Rolls Limited Midland Rollmakers Limited Miller and Company Limited Offshore Castings Limited River Don Castings Limited Sheffield Forgemasters Holdings Limited Sheffield Forgemasters Limited Sheffield Forgemasters Share Trustees Limited Sheffield Forgemasters Trustees Limited R B Tennent Limited Talos Group Limited Thomas Perry Limited -31- PART C LIST OF THE GROUP COMPANIES (CON) C2 THE NON-UK COMPANIES Sheffield Forgemasters (Canada) Limited Euro SFM Edelstahl GmbH -32- PART D PROPERTY D1 THE UK PROPERTY D1.1 All that land and buildings at Brightside Lane, Carbrook Street, Hawke Street and Upwell Street, Sheffield, South Yorkshire collectively known as River Don Works, part of which is registered with Freehold Title Absolute under title numbers SYK356783, SYK389861 and SYK381599 and the remaining part is leasehold being demised by a lease dated 22 January 1993 and is registered at H M Land Registry under title number SYK328360. D1.2 All that freehold land lying to the north west of Sandstone Road, Sheffield, South Yorkshire registered at H M Land Registry with Freehold Title Absolute under title numbers SYK204372 and SYK377124. D1.3 All that land and buildings known as the Old Rectory, School Hill, Whiston, Rotherham, South Yorkshire as is registered at H M Land Registry with Freehold Title Absolute under title number SYK247462. D1.4 All that land and buildings at Shirecliffe Road, Sheffield as is registered at H M Land Registry with Freehold Title Absolute under title number SYK168119. D1.5 All that land known as Aston Ponds, Aston cum Aughton, Rotherham as is registered at H M Land Registry with Freehold Title Absolute under title numbers SYK204378 and SYK354602. D1.6 All that land and buildings at Weston Road, Crewe comprising the remainder of the land in a conveyance dated 8 June 1948 made between the Mayor, Alderman and Burgesses of the Borough of Crewe (1) and Midland Rollmakers Limited (2) and as the same is shown for identification purposes only edged in -33- red on the plan annexed to the relevant Certificate of Title. D1.7 A former boiler house situate at Princess Street, Sheffield being part of the land registered at H M Land Registry with Freehold Title Absolute under title number SYK169835 and presently occupied by Graham Crossland by virtue of a lease dated 6 December 1996 between (1) Sheffield Forgemasters Limited and (2) Graham Crossland. D1.8 All that leasehold land situate at No 6, 12 O' Clock Court, Attercliffe Road, Sheffield all more fully described in a lease dated 21 November 1997 between (1) Osborne Assets Limited and (2) Sheffield Forgemasters Limited. D1.9 All and whole the subjects known as Whifflet Foundry, Whifflet Street, Coatbridge registered in the Land Register of Scotland under title number LAN 101911. D1.10 All and whole the subjects known as Meadow Foundry, Calder Street, Coatbridge comprising those several plots or areas of ground lying in the County of Lanark more particularly described in and disponed by and shown delineated and partly hatched in red on the plan annexed to the relevant Certificate of Title and subscribed as relative to the Disposition by R.B. Tennent Limited in favour of Sheffield Forgemasters Limited dated 16 December 1982 and recorded in the Division of the General Register of Sasines for the County of Lanark on 22 December 1983 (Book 7371, Folio 65); but excepting therefrom all and whole those subjects registered in the Land Register of Scotland under title number LAN 21451; which said subjects under the aforesaid exception are presently under application for registration in the Land Register of Scotland under title number LAN 101910. -34- D2 THE NON-UK PROPERTY D2.1 Leasehold property at Suite 525, 155 James Street, South Hamilton, Ontario, Canada occupied by Sheffield Forgemasters (Canada) Limited. D2.2 Leasehold property at Schumanstrasse 55, 40237 Dusseldorf, Germany occupied by Euro SFM Edelstahl GmbH -35- PART E WARRANTIES E1 BOOKS AND RECORDS Each of the Group Companies have kept all accounts, books, ledgers, financial, statutory and other records required by law to be kept by them and these: E1.1 have been accurately maintained in all material respects and are up to date; E1.2 are in the possession or under the control of the relevant Group Company; and no notice or allegation that any of them is incorrect or should be rectified has been received by the relevant Group Company. E2 ACCOUNTS E2.1 THE UK ACCOUNTS: E2.1.1 have been prepared in accordance with the requirements of all relevant statutes and generally accepted accounting principles; E2.1.2 comply with all applicable accounting standards; E2.1.3 show a true and fair view of the financial position of the relevant UK Company at the Accounts Date and of the profits and losses of the relevant UK Company for the financial period ended on the Accounts Date; and E2.1.4 adopt bases and apply accounting policies which have been adopted or applied in the UK Companies audited accounts for the two financial years before the Accounts Date. -36- E2.2 THE NON-UK ACCOUNTS: The Non-UK Accounts fairly present the financial condition and the results of operations, changes in stockholder's equity and cashflows of the Non-UK Companies as at the respective dates of, and for the periods referred to in the Non-UK Accounts. E2.3 THE MANAGEMENT ACCOUNTS The Management Accounts have been prepared in good faith and in accordance with the accounting policies adopted in the preparation of the UK Accounts (or, as appropriate, the Non-UK Accounts) and on bases and principles consistent with those used in the preparation of the management accounts of the Group for the financial year which ended on the Accounts Date. E3 THE GROUP COMPANIES' ASSETS E3.1 ASSETS AND CHARGES E3.1.1 Each of the Group Companies owns all assets included in its relevant Accounts and all assets which have been acquired by it since the Accounts Date (except for assets disposed of by it in the ordinary course of its business). E3.1.2 Save for liens and suppliers' retentions of title no assets of any of the Group Companies, nor any of their undertakings, goodwill or uncalled capitals are subject to any Encumbrance or any agreement or commitment to give or create any Encumbrance. E3.1.3 Since the Accounts Date each of the Group Companies has been in possession or control of all its assets (except those disposed of in the ordinary course of -37- business for an amount less than L25,000). E3.1.4 No asset is shared by any of the Group Companies with any other person (other than other Group Companies) and none of the Group Companies depend for their respective businesses upon, or use, any assets, facilities or services owned or supplied by the Aerospace Group. E3.2 DEBTS DUE TO THE GROUP COMPANIES E3.2.1 So far as the Covenantors are aware the debts owed to each of the Group Companies have or will realise the value at which they are shown in the relevant Accounts for that company (net of the provisions made in the Accounts). E3.2.2 None of the Group Companies have factored or discounted any of their debts or agreed to do so or waived any right of set off against a third party. E3.3 TITLE RETENTION None of the Group Companies have acquired or agreed to acquire any asset on terms that property in them does not pass until full payment is made. E3.4 STOCK So far as the Covenantors are aware each of the Group Companies' stock in trade was valued for the purposes of its relevant Accounts at the lower of cost and net realisable value and such valuation was made in accordance with the relevant company's normal method for valuing stock. E3.5 PLANT -38- So far as the Covenantors are aware each major item of machinery and plant necessary to carry on the business of each of the Group Companies: E3.5.1 is (having regard to its age and current use) in satisfactory working order; and E3.5.2 complies in all material respects with all material legal requirements relating to it and its use. E4 THE GROUP COMPANIES' BUSINESS SINCE THE ACCOUNTS DATE E4.1 Since the Accounts Date, each of the Group Companies has carried on business: E4.1.1 in the ordinary and usual course; E4.1.2 without entering into any transaction, assuming any liability or making any payment (not provided for in the relevant Accounts) which is not in the ordinary course of its business; E4.1.3 without any material interruption or material alteration in the nature, scope or manner of its business. E4.2 Since the Accounts Date: E4.2.1 none of the Group Companies has made or paid, nor is now proposing to make or pay, any dividend or distribution; E4.2.2 no resolution of the shareholders of any of the Group Companies has been passed other than resolutions relating to the routine business of annual general meetings; E4.2.3 no change in the accounting reference period of any member of the Group has -39- been made and no change has been made in the accounting policies or accounting methods adopted by any member of the Group; and E4.2.4 no Group Company has waived repayment, in whole or in part, of any indebtedness owing to it or agreed to the discharge of any charge or other security in its favour. E5 TAX WARRANTIES E5.1 THE UK COMPANIES E5.1.1 ADMINISTRATION AND RETURNS E5.1.1.1 So far as the Covenantors are aware each of the UK Companies has, within the requisite time limits specified by statute, made all returns, given all notices, made all applications and supplied all other information required by law to be supplied to the Inland Revenue or other Tax Authorities, all such information, applications, returns and notices were and remain, so far as the Covenantors are aware, complete, true and accurate in all material respects and so far as the Covenantors are aware are not the subject of any dispute with the relevant authorities. E5.1.1.2 The Disclosure Letter contains details, so far as they affect the UK Companies, of all concessions, arrangements and agreements (whether formal or informal) negotiated with any Tax Authority. E5.1.2 PAYMENT OF TAX E5.1.2.1 Each of the UK Companies has paid all Tax which it has become -40- liable to pay and so far as the Covenantors are aware are under no liability to pay nor are there any circumstances by virtue of which any of the UK Companies is likely to become liable to pay, any fine, penalty, surcharge or interest in connection with any claim for Tax. E5.1.2.2 Each of the UK Companies have properly deducted Tax as required by law from all payments made and have accounted to the appropriate Tax Authority for all Tax so deducted. E5.1.3 PAYE AND NATIONAL INSURANCE E5.1.3.1 So far as the Covenantors are aware each of the UK Companies have properly operated the Pay As You Earn and National Insurance system deducting Tax as required by law from all payments made, or treated as made to, employees and ex-employees of the UK Companies and have accounted to the Inland Revenue, DSS or Contributions Agency (as the case may be) for all Tax so deducted and all Tax chargeable on benefits provided for employees of the UK Companies. E5.1.3.2 So far as the Covenantors are aware, each of the UK Companies have complied in all material respects with all reporting requirements and has kept books and records relating to all payments and benefits made or provided, or treated as made or provided to its directors, employees or officers or former directors, employees or officers. E5.1.3.3 None of the UK Companies participate in a scheme registered under chapter III of part V of the Taxes Act and no application for registration of such a scheme has been made by any of the UK Companies. -41- E5.1.4 CAPITAL GAINS None of the UK Companies have made a claim under section 23, sections 152 to 156 (inclusive), section 158, section 162 or section 247 of the TCGA and no such claim has been made by any other company which affects or could affect the amount or value of the consideration for the acquisition of any asset by any of the UK Companies taken into account in calculating liability to corporation tax on chargeable gains on a subsequent disposal. E5.1.5 STAMP DUTY AND STAMP DUTY RESERVE TAX All documents necessary to establish title of each of the UK Companies to their respective assets held at Completion and which attract stamp duty have been duly stamped. E5.1.6 DISTRIBUTIONS AND PAYMENTS E5.1.6.1 Since the Accounts Date no dividend or other distribution within the meaning of part VI chapter II of the Taxes Act has been made by any of the UK Companies nor are any of the UK Companies bound to make any such distribution. E5.1.6.2 No rents, interest, annual payments or other sums of an income nature which any of the UK Companies is under an existing obligation to pay in the future, are wholly or partially disallowable as deductions or charges in computing profits for the purposes of corporation tax. E5.1.6.3 None of the UK Companies have made or received any distribution which is, or is treated as, an exempt distribution within sections 213 -42- to 218 (inclusive) of the Taxes Act. E5.1.7 VAT E5.1.7.1 Each of the UK Companies is a registered and taxable person for the purposes of VAT and no such registration is subject to any condition imposed by or agreed with HM Customs and Excise. E5.1.7.2 So far as the Covenantors are aware each of the UK Companies have complied in all material respects with all statutory provisions and regulations and made all necessary returns required by law in relation to VAT and, within the prescribed time limits, has provided all necessary information and documents required by law to be provided to H M Customs and Excise, or other appropriate Tax Authorities and paid all amounts due by law to the proper person. E5.1.7.3 So far as the Covenantors are aware, each of the UK Companies have at all times kept materially complete, correct and up-to-date records, invoices and other documents required by law to be kept for the purposes of the VATA. E5.1.7.4 None of the UK Companies have been required by H M Customs and Excise to give security under paragraph 4 of schedule 11 to the VATA. E5.1.7.5 So far as the Covenantors are aware, all VAT payable upon the importation of goods and all duties of customs and excise payable in respect of any assets (including trading stock) imported or owned by each of the UK Companies has been paid in full. E5.1.7.6 None of the UK Companies are liable and will not (in respect of -43- anything done before Completion) be liable to any interest, penalty or surcharge in respect of VAT. E5.1.8 VAT ON PROPERTY E5.1.8.1 None of the UK Companies owns the fee simple in any building or civil engineering work which is uncompleted or which was completed (within the meaning of note (2) to group 1 of schedule 9 to the VATA) less than three years before the date of this agreement or was completed before 1 April 1989 but (in the case of a building) was not fully occupied or (in the case of a civil engineering work) not fully used before 1 April 1989. E5.1.8.2 None of the UK Companies have made any election under paragraph 2 of schedule 10 to the VATA to waive exemption from VAT in relation to any land or building and no such election has been made in relation to any land or building by any member or former member of any group of companies of which the UK Companies is or was a member for VAT purposes. E5.1.9 CUSTOMS DUTIES E5.1.9.1 Each of the UK Companies has complied in all material respects with all statutory provisions and regulations and made all necessary returns in relation to the collection and payment of customs duties, excise duties and other charges having an equivalent effect; and the UK Companies have provided all necessary information and documents and paid all amounts due to HM Customs and Excise, or other appropriate Tax Authority in relation to such charges within the prescribed time limits. -44- E5.1.9.2 Details of all bonds, recognisance and guarantees given to HM Customs and Excise, or other appropriate Tax Authority by or in relation to the UK Companies are set out in the Disclosure Letter. E5.1.10 CLOSE COMPANY E5.1.10.1 None of the UK Companies is a close company within the meaning of section 414 of the Taxes Act. E5.1.10.2 No distribution within section 418 of the Taxes Act has been made by any of the UK Companies and no such distribution will be made before Completion. E5.1.10.3 None of the UK Companies have made (and will not be deemed to have made) any loan or advance to a participator or an associate of a participator so as to become liable to make any payment under section 419 of the Taxes Act. E5.1.11 RESIDENCE Each of the UK Companies are and always have been resident in the United Kingdom for the purposes of any Tax and are not a dual resident company for Tax purposes. E5.1.12 GROUPS E5.1.12.1 All assets currently owned by each of the UK Companies in respect of which a charge may arise on any of the UK Companies ceasing to be a member of the same group of companies as any other company in the six years following Completion under section 179 TCGA -45- (company ceasing to be a member of the group) are listed in the Disclosure Letter. E5.1.12.2 Details of all claims for group relief and all claims for or agreements relating to the surrender of surplus advance corporation tax or repayments of Taxation to which any of the UK Companies is or was a party before Completion where such claim has not been finally accepted by the Inland Revenue are contained in the Disclosure Letter. E5.1.13 INHERITANCE TAX E5.1.13.1 There is no unsatisfied liability to capital transfer tax or inheritance tax attached or attributable to the assets or shares of the UK Companies and neither the assets nor the shares are subject to any Inland Revenue charge as mentioned in section 237 of the Inheritance Tax Act 1984 ("ITA"). E5.1.13.2 No person has the power under section 212 of the ITA to raise any capital transfer tax or inheritance tax by the sale or mortgage of or by a terminable charge on any of the UK Companies' assets. E5.2 THE NON-UK COMPANIES E5.2.1 ADMINISTRATION AND RETURNS E5.2.1.1 So far as the Covenantors are aware each of the Non-UK Companies has, within the requisite time limits specified by statute, made all returns, given all notices, made all applications and supplied all other information required by law to be supplied to the appropriate -46- Tax Authorities, all such information, applications, returns and notices were and remain, so far as the Covenantors are aware, complete, true and accurate in all material respects and so far as the Covenantors are aware are not the subject of any dispute with the relevant authorities. E5.2.1.2 The Disclosure Letter contains details, so far as they affect the Non-UK Companies, of all concessions, arrangements and agreements (whether formal or informal) negotiated with any Tax Authority. E5.2.2 PAYMENT OF TAX E5.2.2.1 Each of the Non-UK Companies has paid all Tax which it has become liable to pay and so far as the Covenantors are aware are under no liability to pay nor are there any circumstances by virtue of which any of the Non-UK Companies is likely to become liable to pay, any fine, penalty, surcharge or interest in connection with any claim for Tax. E5.2.2.2 Each of the Non-UK Companies have properly deducted Tax as required by law from all payments made and have accounted to the appropriate Tax Authority for all Tax so deducted. E6 PROPERTY AND ENVIRONMENTAL WARRANTIES E6.1 WARRANTIES RELATING TO ALL OF THE PROPERTIES E6.1.1 The particulars of the Properties shown in part D are true and correct. E6.1.2 The Properties comprise all the land and premises of any tenure owned, used or -47- occupied by the Group Companies. E6.1.3 The Certificates of Title are true, complete and accurate in all material respects. E6.2 WARRANTIES RELATING TO THE NON-CERTIFICATED PROPERTIES The following warranties apply to the properties listed in part D which are not covered by the Certificates of Title, namely those properties whose details are contained in paragraphs D1.4, D1.5, D1.7 and D1.8 (the "Non-Certificated Properties"): E6.2.1 TITLE (i) The information contained in part D as to the tenure of the Non-Certificated Properties, is true and accurate in all respects. (ii) Where the title to any of the Non-Certificated Properties is registered, a member of the Group is shown on the register thereof at HM Land Registry as the Proprietor and the Land or Charge Certificate in respect of each of such Non-Certificated Properties is in the possession or under the control of the Group. (iii) The title to each of the freehold Non-Certificated Properties is good and, so far as the Covenantors are aware, the Non-Certificated Properties have the benefit of easements and rights to allow the activities and use presently carried on. E6.2.2 ENCUMBRANCES (i) So far as the Covenantors are aware, the Non-Certificated Properties are free from any mortgage, debenture or other financial charge -48- (whether specific or floating, legal or equitable) or rent charge securing the repayment of monies or other obligation or liability whether of the Group or any other party. (ii) So far as the Covenantors are aware, no formal notices have been received that the Non-Certificated Properties are subject to any covenants, restrictions, stipulations, easements, rights of way or wayleaves materially affecting their present use. (iii) Save as disclosed in the Disclosure Letter, the Group has vacant possession of each of the Non-Certificated Properties so far as the Covenantors are aware. (iv) So far as the Covenantors are aware, no compulsory purchase notices have been received affecting the Non-Certificated Properties. E6.2.3 PLANNING MATTERS (i) For the purposes of this paragraph 6.2.3 "THE PLANNING ACTS" means: (a) The Town and Country Planning Act 1990; (b) The Planning (Listed Buildings and Conservation Areas) Act 1990; (c) The Planning (Hazardous Substances) Act 1990; (d) The Planning (Consequential Provisions) Act 1990; and (e) The Planning and Compensation Act 1991; -49- as the same are from time to time varied or amended and any other statute or subordinate legislation relating to planning matters. (ii) So far as the Covenantors are aware, no formal notices have been received that the use of each of the Non-Certificated Properties is not the permitted or lawful use for the purposes of the Planning Acts. E6.3 ENVIRONMENTAL E6.3.1 So far as the Covenantors are aware each of the Group Companies holds (in its name) all authorisations, permissions, consents, licences and agreements necessary to enable it to carry on its business lawfully and effectively in the places and in the manner in which that business is now carried on and in particular (but without limitation): to make all relevant abstractions of water; to keep, store or hold all relevant substances whether as raw materials, products or wastes; to carry on all relevant processes; and to hold, treat, manage, consign and dispose of all waste materials, substances, gases and effluents in the relevant manner. E6.3.2 So far as the Covenantors are aware all such authorisations, permissions, consents, licences and agreements have been lawfully obtained and are in full force and effect. E6.3.3 So far as the Covenantors are aware no further authorisations, permissions, consents, licences and agreements are necessary to enable any of the Group Companies to carry on its business as now conducted or as conducted in the period covered by the Accounts. E6.3.4 Without prejudice to paragraphs E6.3.1, E6.3.2 and E6.3.3, details of authorisations, permissions, consents, licences and agreements of the types referred to in paragraph E6.3.1 are set out in the Disclosure Letter. -50- E6.3.5 So far as the Covenantors are aware each of the Group Companies has complied in all material respects with all conditions attaching to the authorisations, permissions, consents, licences and agreements referred to in paragraph E6.3.1 and held by it (whether such conditions are imposed expressly or are implied by law) and, so far as the Covenantors are aware, there are no circumstances which would render it impracticable for the relevant Company to comply with those conditions in the future. E6.3.6 So far as the Covenantors are aware none of the Group Companies have received any notice, correspondence or communication in any other form in respect of any of the authorisations, permissions, consents, licences or agreements referred to above revoking, suspending, modifying or varying any of them and there are no circumstances which might give rise to such notice being received or of any intention on the part of any relevant authority to give any such notice. E6.3.7 So far as the Covenantors are aware none of the Group Companies have received any notice, order or other communication from any relevant environmental authority in respect of their respective businesses, failure to comply with which would constitute breach of any legal requirements for the protection of the environment or of human health or amenity (or compliance with which could be secured by further proceedings). E6.3.8 The Warranties set out in paragraphs E6.3.1 to E6.3.7 above (inclusive) are the only Warranties given in respect of the environment and each of the other Warranties shall be deemed not to be given in relation to the environment. E7 SALE OF SHARES -51- E7.1 COMMISSION No one is entitled to receive from any of the Group Companies any finder's fee, brokerage, or other commission in connection with the sale or purchase of the Shares and any commission payable by the Covenantors (or any of them) in connection with the sale or purchase of the Shares will be paid by the relevant Covenantors prior to Completion. E7.2 CONSEQUENCE OF SHARE ACQUISITION BY ATCHISON So far as the Covenantors are aware, neither the acquisition of the Shares by Atchison nor compliance with the terms of this agreement: E7.2.1 will cause any of the Group Companies to lose the benefit of any material right it presently enjoys; E7.2.2 will relieve any person of any contractual obligation to the Group Companies or enable any person to determine any obligation by or to any of the Group Companies or any right or benefit enjoyed by the UK Companies or to exercise any right under any agreement with or otherwise in respect of the Group Companies in any such case which would have a material adverse effect on the financial position of any of the Group Companies; E7.2.3 will result in any present or future indebtedness of any of the Group Companies becoming due or capable of being declared due and payable earlier than otherwise; E7.2.4 will give rise to or render exercisable any right of pre-emption or termination; or -52- E7.2.5 will conflict with or result in the breach of or a default under or give rise to any obligation of any of the Group Companies (whether under its articles of association or equivalent constitution documents, or under any deed agreement, trust, charter, decree, lease, mortgage, indenture or other instrument or the judgment, award or order of any authority) or give rise to any increased liability of any of the Group Companies under any such obligation in any such case which would have a material adverse effect on the financial position of any of the Group Companies. E7.3 OPTIONS ETC No person has the right (whether exercisable now or in the future and whether contingent or not) to call for the allotment, issue, sale or transfer of any share or loan capital of the Group Companies under any option or other agreement (including conversion rights and rights of pre-emption). E7.4 THIRD PARTY CONSENT No consent or permission of any third party is required in connection with the sale of the Shares by any of the Covenantors. E8 TRANSACTIONS AT AN UNDERVALUE None of the Shares have ever been the subject of a transaction at an undervalue. E9 THE GROUP COMPANIES' CONSTITUTIONS -53- E9.1 DUE INCORPORATION Each UK Company is a company duly incorporated and validly existing under English law. Each Non-UK Company is a company duly incorporated and validly existing under the laws of the jurisdiction specified in respect of that Company in the Group Companies List. E9.2 REGISTERED AND OTHER PARTICULARS The particulars of the Group Companies in the Group Companies List are accurate. E9.3 SHARE CAPITAL E9.3.1 All the issued shares in the Company are fully paid and are beneficially owned and registered in the names of the persons listed as shareholders of the Company in the Shareholder List. E9.3.2 The Shares represent the entire issued share capital of the Company and there are no options or other agreements (conditional or unconditional) outstanding which call for the issue of or accord to any person the right to call for the issue of any shares in the capital of any of the Group Companies (other than SFGL). E9.3.3 None of the Group Companies have: E9.3.3.1 repaid or redeemed any shares of any class of its share capital or otherwise reduced its issued share capital or any class of it or purchased any of its own shares or carried out any transaction having the effect of a reduction of capital; E9.3.3.2 made or resolved to make any issue of shares or other securities by -54- way of capitalisation of profits or reserves; E9.3.3.3 (in the case of the UK Companies) given any financial assistance as defined in section 152 of the Act; E9.3.3.4 offered any shares or securities to the public except in accordance with the provisions as to authority and pre-emption contained in the Act; or E9.3.3.5 agreed to do any such thing specified in this paragraph E9. E9.4 MEMORANDUM AND ARTICLES OF ASSOCIATION E9.4.1 THE UK COMPANIES The copy of the memorandum and articles of association of each of the UK Companies attached to the Disclosure Letter is true and complete and includes or has attached to it a copy of every such resolution or agreement as is referred to in section 380 of the Act. E9.4.2 THE NON-UK COMPANIES The copy of the articles of incorporation and the bylaws of each of the Companies attached to the Disclosure Letter is true and complete. E9.5 COMPANY AUTHORITY E9.5.1 Each of the Group Companies have at all times carried on their respective business and affairs in accordance with their respective memorandum and -55- articles of association or equivalent documents. E9.5.2 None of the UK Companies have given any power of attorney or any other authority (express, implied or ostensible) to any person to enter into any contract or commitment or do anything on its behalf which is still outstanding or effective (other than any authority of directors or employees to enter into routine trading contracts in the normal course of their duties). E10 LICENCES AND LITIGATION E10.1 COMPLIANCE WITH LAWS E10.1.1 THE UK COMPANIES So far as the Covenantors are aware each of the UK Companies has conducted its business in all material respects in accordance with all laws, statutes and regulations and all regulations and directives of the European Union applicable in the United Kingdom (including those made or issued pursuant to the Treaties of Rome, Paris and Maastricht) and any relevant foreign country (excluding laws, statutes and regulations for the protection of the environment or of human health or amenity), and there is no order or judgment of any court or any governmental agency of the United Kingdom, the European Union or any foreign country outstanding against any of the UK Companies (or any of its officers or employees in their capacities as such) which may have an adverse and material effect upon the assets or businesses of any of the UK Companies. E10.1.2 THE NON-UK COMPANIES So far as the Covenantors are aware, each of the Non-UK Companies has conducted its business in all material respects in accordance with all applicable -56- Legal Requirements and neither of the Non-UK Companies nor any of its officers, agents or employees (during the course of their duties in relation to the Non-UK Companies) have committed, or omitted to do, any act or thing the commission or omission of which is, or could be, a breach or contravention of any of the applicable Legal Requirements. For the purposes of this paragraph, "LEGAL REQUIREMENTS" means federal, state, local, municipal, foreign, international, multinational or other administrative order, constitution, law, ordinance, principle of common law, regulation, statute or treaty. E10.2 LICENCES ETC So far as the Covenantors are aware all necessary licences, consents, permits, and authorities (public and private) (excluding any required under any laws for the protection of the environment or of human health or amenity) have been obtained by each of the Group Companies to enable them to carry on their respective business effectively in the places and in the manner in which that business is now carried on and so far as the Covenantors are aware they are all valid and subsisting and, so far as the Covenantors are aware, there is no reason why any of them should be suspended, cancelled or revoked. E10.3 LITIGATION AND CONTRACTUAL PERFORMANCE E10.3.1 Neither any of the Group Companies nor so far as the Covenantors are aware any of their officers or employees (in relation to their duties with the Group Companies or for which they may be vicariously liable) are engaged in any criminal prosecution or civil litigation or arbitration proceedings or dispute resolution procedures in which the amount claimed in any case exceeds L20,000 (or its equivalent in any relevant foreign currency as at today's date). E10.3.2 So far as the Covenantors are aware no criminal prosecution or civil litigation or arbitration proceedings or dispute resolution procedures are pending or -57- threatened by or, so far as the Covenantors are aware, against any of the Group Companies (or any of their officers or employees in relation to their duties with the Group Companies or for which they may be vicariously liable) which could involve the imposition of penalties, fines or liabilities on any of the Group Companies in any case exceeding L20,000 (or its equivalent in any relevant foreign currency as at today's date) and, so far as the Covenantors are aware, there are no facts likely to give rise to any litigation, arbitration or dispute. E10.3.3 None of the Group Companies are or have been a party to any undertaking or assurance (which is still in force) given to any court or governmental agency or other regulatory body. E10.3.4 So far as the Covenantors are aware, no governmental or official investigation or inquiry concerning any of the Group Companies is in progress or pending and so far as the Covenantors are aware, there are no facts or circumstances likely to give rise to any such investigation or inquiry. E10.4 RETURNS All returns, particulars, resolutions and other documents required under applicable legislation affecting companies to be delivered by or on behalf or in respect of any of the Group Companies or sent to the Registrar of Companies (or its equivalent in any foreign jurisdiction) have been made and delivered. E11 FINANCE E11.1 FINANCE OBLIGATIONS None of the Group Companies have outstanding: -58- E11.1.1 any loan, loan capital or other liability (actual or contingent) in the nature of borrowings (including but not limited to acceptance credits, unmatured bills or other commercial paper) or any long term or interest bearing obligation which will or may result in any of the Group Companies being liable to make any payment or incur any other liability; E11.1.2 any guarantee, indemnity, suretyship or other arrangement under which any of the Group Companies is or may become liable for any obligation of any other person; E11.1.3 any obligations under any factoring or similar agreement; E11.1.4 any indebtedness except trade creditors in the ordinary course of business; E11.1.5 any bond or other interest bearing indebtedness; or E11.1.6 any liabilities under contracts for hire or rent or hire purchase or purchase by way of credit or instalment payment, in respect of which the annual amounts payable by any Group Company exceeds L20,000 (or its equivalent in a relevant foreign currency as at today's date), other than contracts in respect of motor vehicles used in the ordinary course of business. E11.2 REPAYMENT REQUIREMENTS None of the Group Companies have received any notice to repay any monies or liabilities which are repayable on demand and no default or event has occurred entitling any person (with or without giving any formal notice and whether immediately or after expiry of any notice) to demand or accelerate repayment, appoint a receiver or take other action to protect security granted to it by any of the Group Companies. -59- E11.3 GRANTS E11.3.1 None of the Group Companies have applied for or received any financial assistance from any supra-national, national or local authority or governmental agency within the last five years or any financial assistance which is or may be or become repayable (whether in whole or in part) as a result of any act or omission of any of the Group Companies, the transfer of the Shares pursuant to the Offer or for any other reason. E11.3.2 Where any Group Company has received financial assistance and a notification to or the consent, permission or waiver of any supra-national, national or local authority or governmental agency is required to the transfer of the Shares in order that such financial assistance is not, or may not be, required to be repaid in whole or in part, such notification, consent, permission or waiver has been made or obtained and a copy of it is attached to the Disclosure Letter. E11.4 INSOLVENCY E11.4.1 THE UK COMPANIES E11.4.1.1 No receiver or administrative receiver has been appointed in respect of any of the UK Companies or any of the assets or undertaking of any of the UK Companies. E11.4.1.2 No administration order has been made and no petition has been presented for such an order in respect of any of the UK -60- Companies. E11.4.1.3 No meeting has been convened at which a resolution will be proposed, no resolution has been passed, no petition has been presented and no order has been made for the winding-up of any of the UK Companies. E11.4.1.4 None of the UK Companies have stopped or suspended payment of its debts, become unable to pay its debts (within the meaning of section 123 of the Insolvency Act 1986) or otherwise become insolvent. E11.4.1.5 No unsatisfied judgment, order or award is outstanding against any of the UK Companies. E11.4.1.6 No written demand under section 123(1)(a) of the Insolvency Act 1986 has been made against any of the UK Companies. E11.4.1.7 No distress or execution has been levied on, or other process commenced against, any asset of any of the UK Companies. E11.4.1.8 No voluntary arrangement has been proposed under section 1 of the Insolvency Act 1986 in respect of any of the UK Companies. E11.4.1.9 So far as the Covenantors are aware, no circumstances have arisen which entitle any person to take any action, appoint any person, commence proceedings or obtain any order of the type mentioned in any part of this paragraph E11. E11.4.2 THE NON-UK COMPANIES -61- No meeting has been convened at which a resolution will be proposed, no resolution has been passed, no petition has been presented and no order has been made for the winding-up of any of the Non-UK Companies. E12 INSURANCE E12.1 Particulars of all the insurance policies maintained by each of the Group Companies at the date of this agreement are disclosed in the Disclosure Letter. E12.2 All premiums due in respect of those insurance policies have been fully paid; and the next renewal date for each of such insurances is as specified in the Disclosure Letter; E12.3 No claim is outstanding under any of the insurances and, so far as the Covenantors are aware, no circumstances exist which are likely to give rise to any such claim. E12.4 There are no outstanding claims against any of the Group Companies, by any employee or other person, in respect of any accident, injury or damage, which are not fully covered by insurance. E12.5 There have been no material claims against insurers by any of the Group Companies in the twelve months ending on the date of this agreement. E13 CONTRACTS E13.1 None of the Group Companies are party to any material agreement: E13.1.1 entered into otherwise than by way of bargain at arms length in the ordinary and proper course of its business; E13.1.2 which so far as the Covenantors are aware: -62- E13.1.3 cannot be fulfilled by the relevant Company without undue or unusual expenditure of money using only fixed assets presently owned by it and current assets of the types presently held by it and in quantities requiring a level of purchase of current assets not materially greater than during the period covered by the relevant Accounts and finance within the existing facilities of the relevant Company. E13.1.4 is for the supply to or by the relevant Company of goods or services which may last longer then twelve months; E13.1.5 is for the supply of goods or services by the relevant Company of a type not manufactured or supplied by it in the period covered by the relevant Accounts. E13.2 So far as the Covenantors are aware, none of the Group Companies is in breach of any contract to which it is a party, and no other party to any such contract is in breach of it. So far as the Covenantors are aware, all agreements, rights, commitments, obligations, arrangements and understandings to which each Group Company is a party are valid and enforceable. The Covenantors are not aware of any grounds for the termination, rescission, avoidance or repudiation of any contract by any Group Company or another party to such contract. E13.3 The Covenantors are not aware of any fact, matter or circumstance which is reasonably likely to result in any claim being made under or pursuant to any guarantee, warranty or penalty provision in any contract entered into by any of the UK Companies. E14 COMPETITION E14.1 RESTRICTIVE AGREEMENTS -63- There are no agreements: E14.1.1 which have or will have the effect of restricting the freedom of any of the Group Companies to provide or take goods or services or to otherwise conduct its trade or business by such means and from or to such persons at such prices (and otherwise in such manner) as the Group Companies may from time to time think fit; E14.1.2 which will or may restrict the use or disclosure of information by any of the Group Companies or oblige them to disclose information; E14.1.3 limiting or excluding any of the Group Companies' right to do business and/or compete in any area or field with any other person; E14.1.4 to which any of the UK Companies are party which contravene any of the provisions of the Treaty of Rome 1957 or the Treaty of Paris 1951 or the Treaty of Maastricht. E14.2 CONSUMER, TRADE, ANTI-COMPETITIVE AND OTHER RESTRICTIVE PRACTICES E14.2.1 None of the practices or arrangements of any of the UK Companies is or has been or, so far as the Covenantors are aware, is likely to be the subject of any investigation, reference, report or order made under the Fair Trading Act 1973, the Competition Act 1980, and no undertaking has been given by any of the UK Companies pursuant to any action taken under any of those Acts. E14.2.2 None of the Group Companies have received any process, notice or communication (formal or informal) by or on behalf of, in the case of the UK Companies, the Office of Fair Trading, the Monopolies and Mergers Commission, the Secretary of State for Trade and Industry, the European Commission or, in the case of all Group Companies, any other authority of any -64- country or supra-national organisation having jurisdiction in competition or anti-trust matters, in relation to any aspect of the business of any of the Group Companies or any agreement or arrangement to which any of the Group Companies are or were a party and (so far as the Covenantors are aware) none of the Group Companies is likely to receive any such process, notice or communication. E14.3 RELATIONSHIPS WITH THIRD PARTIES E14.3.1 Neither more than 10 per cent of the aggregate amount of all the purchases nor more than 10 per cent of the aggregate amount of all the sales of the Group Companies during the period covered by the Accounts were obtained from or made to the same supplier or customer (or connected suppliers or customers). E14.3.2 There is no embargo or trade boycott on the business of any of the Group Companies or any of their products or suppliers nor so far as the Covenantors are aware is it likely that any material source of supply to any of the Group Companies or any material outlet for the sales of any of the Group Companies will be put in jeopardy by an embargo or trade boycott (whether as a result of political action or trade dispute or otherwise). E14.3.3 The Disclosure Letter contains details of any industry, trade or professional organisation, regulatory body or quality control organisation of which any of the Group Companies is a member, to which it is affiliated, to whose regulation it is subject or in respect of which it has any continuing liability (including details of any shares held, fees payable and rules governing membership). E14.3.4 Each of the Group Companies has complied in all material respects with the rules (whether or not legally binding) of any organisation or body of the types specified in paragraph E14.3.3 of which it is a member or to which it is -65- subject. E14.3.5 So far as the Covenantors are aware, none of the Group Companies are subject to or threatened with any disciplinary action or penalty by any such organisation or body as is specified in paragraph E14.3.3. E15 DEFECTIVE PRODUCTS So far as the Covenantors are aware none of the Group Companies have received notice alleging that any goods manufactured, sold or supplied by them are or were, in any material respect, faulty or defective that remains unsettled. E16 INFORMATION E16.1 SECRET OR CONFIDENTIAL INFORMATION So far as the Covenantors are aware, none of the Group Companies have at any time (except in the ordinary course of business or to persons under duties to it to maintain confidentiality or to its professional advisers) disclosed to any person other than Atchison: E16.1.1 any information relating to any of its confidential information; E16.1.2 any other information relating to its business or affairs the disclosure of which might or could cause loss or damage to or adversely affect the relevant Company; nor E16.1.3 any secret or confidential information relating to its manufacturers, suppliers, customers, clients and agents or to any other person who has or has had any dealings with it. -66- E16.2 COMPUTER KNOW-HOW AND MARKETING INFORMATION E16.2.1 All Computer Know-how and Marketing Information used by each of the Group Companies is owned by it or is the subject of a valid grant of rights to the relevant Company (as the case may be) and is not subject to any restriction which materially and adversely affects the relevant Company's ability to use it for the purpose of its business. E16.2.2 So far as the Covenantors are aware, none of the Group Companies have disclosed (other than to its own employees under obligations of confidence to it), nor is it obliged to disclose, any Computer Know-how or Marketing Information of a confidential nature to any person. E16.2.3 So far as the Covenantors are aware, none of the Group Companies are in breach to an extent which is material of any agreement under which any Computer Know-how or Marketing Information was or is to be made available to it. E16.3 DATA AND RECORDS E16.3.1 All the records and systems (including but not limited to computer systems), data and information of the Group Companies are recorded, stored, maintained or operated or otherwise held by the Group Companies and are not wholly or partly dependent on any facilities or means (including any electronic, mechanical or photographic process, computerised or otherwise) which are not under the exclusive ownership and control of the relevant Company. E16.3.2 None of the Group Companies have disclosed to any third party any such records, control and other systems, data and information as is referred to in paragraph E16.3.1. -67- E16.3.3 The UK Companies have complied with all relevant requirements of the Data Protection Act 1984, including: E16.3.3.1 the data protection principles established in that Act; E16.3.3.2 requests from data subjects for access to data held by it; and E16.3.3.3 the requirements relating to the registration of data users. E16.3.4 None of the UK Companies have received any notice or allegation from either the Data Protection Registrar or a data subject alleging non-compliance with the data protection principles or prohibiting the transfer of data to a place outside the United Kingdom. E16.3.5 No individual has claimed compensation from any of the UK Companies under that Act for loss or unauthorised disclosure of data. E16.5 INFORMATION SUPPLIED TO ATCHISON All information contained or referred to in the Information Memorandum was when given and remains and will at Completion be, true and accurate in all respects and is not misleading because of any omission or ambiguity or for any other reason. E17 INTELLECTUAL PROPERTY RIGHTS E17.1 INTELLECTUAL PROPERTY RIGHTS E17.1.1 The Disclosure Letter sets out details of all: E17.1.1.1 registered Intellectual Property owned or used by the Group -68- Companies in their business; E17.1.1.2 unregistered trademarks, service marks and design rights owned by them or used by the Group Companies in their business; E17.1.1.3 Intellectual Property licensed to the Group Companies by others; and E17.1.1.4 Intellectual Property the Group Companies have licensed to others. E17.1.2 The Group Companies are the sole beneficial owners of the Intellectual Property used by them in their business and (where such property is capable of registration) its registered proprietor. E17.1.3 Except for copyrights, the Group Companies own no Intellectual Property other than that detailed in the Disclosure Letter. E17.1.4 Except as specified in the agreements disclosed in the Disclosure Letter: E17.1.4.1 no person has been authorised to make any use whatever of any Intellectual Property owned by the Group Companies; E17.1.4.2 the Group Companies have not been authorised to make any use of any Intellectual Property owned by any other person. E17.1.5 So far as the Covenantors are aware, none of the processes or products of any of the Group Companies infringe any right of any other person relating to Intellectual Property or involve the unlicensed use of confidential information disclosed in circumstances which might give rise to a claim against any of the Group Companies, and none of the Intellectual Property owned or used by -69- the Group Companies is being used, claimed, opposed or challenged by any person. E18 THE UK COMPANIES AND THEIR EMPLOYEES E18.1 EMPLOYMENT TERMS E18.1.1 None of the Group Companies have any contract of employment with any employee (including any director) of the relevant Company which cannot be terminated at any time by giving three months' notice without giving rise to any claim for damages or compensation (other than a statutory redundancy payment or statutory compensation for unfair dismissal). E18.1.2 No director or senior employee of any of the Group Companies has given notice terminating his contract of employment or is under notice of dismissal. E18.1.3 There are no arrears of remuneration due to any director or employee of any of the Group Companies. E18.1.4 There is no agreement or understanding (contractual or otherwise) between any of the Group Companies and any employee or ex-employee with respect to his employment, his ceasing to be employed or his retirement which is not included in the written terms of his employment or previous employment (as the case may be). E18.2 COMPLIANCE WITH LEGISLATION ETC. E18.2.1 So far as the Covenantors are aware, each of the Group Companies has, in relation to each of its employees (and so far as relevant to each of its former -70- employees): E18.2.1.1 complied in all material respects with all obligations imposed on it by all statutes and regulations relating to employment; E18.2.1.2 maintained adequate records regarding its employees; E18.2.1.3 complied in all material respects with all collective agreements for the time being having effect as regards relations with or the conditions of service of its employees or the trade unions representing them; and E18.2.1.4 (in the case of the UK Companies) complied with its obligations with respect to statutory sick pay as defined in the Social Security Contributions and Benefit Act 1992. E18.2.2 None of the Group Companies have in existence, or have undertaken to introduce: E18.2.2.1 any share incentive scheme, share option scheme or profit sharing scheme, corporate personal equity plan, profit-related pay scheme or similar scheme for any of its directors, officers or employees; or -71- E18.2.2.2 any scheme under which any director, officer or employee of any of the UK Companies is entitled to a commission or remuneration of any other sort calculated by reference to the whole or part of the turnover, profits or sales of the relevant Company. E18.3 PAYMENTS ON TERMINATION Except to the extent (if any) to which provision or allowance has been made in the relevant Accounts: E18.3.1 no liability has been incurred by any of the UK Companies as a result of the decision in the case of R V SECRETARY OF STATE FOR EMPLOYMENT EX PARTE EQUAL OPPORTUNITIES COMMISSION AND ANOTHER, or for breach of any contract of service or for services, for redundancy payments, protective awards or for compensation for wrongful dismissal or unfair dismissal or for failure to comply with any order for the reinstatement or re-engagement of any employee or for any other liability accruing from the termination of any contract of employment or for services; E18.3.2 no gratuitous payment has, during the twelve months ending on the date of this agreement been made or promised by any of the UK Companies (whether or not pursuant to any legally binding obligation) in connection with the actual or proposed termination or suspension of employment or variation of any contract of employment of any present or former director or employee of any of the Group Companies; E18.3.3 none of the Group Companies have made or agreed to make any payment to or provided or agree to provide any benefit for any present or former director or former employee or any dependant of any such director, former director or former employee. -72- E18.4 REDUNDANCIES AND TRANSFER OF BUSINESS None of the UK Companies have within the period of twelve months preceding the date of this agreement: E18.4.1 given notice of any redundancies to the relevant Secretary of State or started consultations with any trade union under sections 188 to 198 (inclusive) of the Trade Union and Labour Relations (Consolidations) Act 1992 nor failed to comply with any such obligations under those sections of that Act; and E18.4.2 been a party to any relevant transfer (as defined in the Transfer of Undertakings (Protection of Employment) Regulations 1981) nor failed to comply with any duty to inform and consult any independent trade union under those regulations. E18.5 TRADE UNIONS AND DISPUTES E18.5.1 Save as set out in the Disclosure Letter, none of the Group Companies have any material agreement or other arrangement (binding or otherwise) with any trade union or other body representing its employees or any of them. E18.5.2 None of the Group Companies are involved in any industrial or trade disputes or any dispute or negotiation regarding a claim with any trade union or association of trade unions or organisation or body of employees and has not been involved in any such dispute within the last twelve months. -73- E18.6 VARIATION OF TERMS None of the Group Companies have entered into, agreed to or undertaken any obligation (whether or not legally binding) to take effect at any time on or after the Accounts Date to alter the rates of remuneration of or to make any bonus or incentive payments or provide any benefits in kind or any payments under a profit sharing scheme to or on behalf of any of their directors or employees at any future date. E18.7 OUTSTANDING CLAIMS There is no outstanding claim which has been notified to any of the Group Companies for breach of any contract of service or for services or for compensation for unfair or wrongful dismissal or redundancy or for failure to comply with any order for the re-engagement or reinstatement of any former employee or for any other liability accruing from the termination of any contract of employment or for services by any former employee and (so far as the Covenantors are aware) no such claim could now be made by any former employee of any of the Group Companies. E19 THE GROUP COMPANIES E19.1 SUBSIDIARIES AND SUBSIDIARY UNDERTAKINGS None of the Group Companies has any subsidiary company or subsidiary undertaking. E19.2 INVESTMENTS, ASSOCIATIONS AND BRANCHES None of the Group Companies: -74- E19.2.1 is the holder or beneficial owner of, or has agreed to acquire, any share or other capital of any company or corporation (whether incorporated in the United Kingdom or elsewhere); E19.2.2 is or has agreed to become a member of any partnership, joint venture, consortium or other unincorporated association; E19.2.3 has any branch, agency or place of business outside the United Kingdom or any permanent establishment (as that expression is defined in the respective Double Taxation Relief Orders current at the date of this agreement) outside the United Kingdom; and E19.2.4 has outstanding or potential liability in respect of any of the matters specified in this paragraph E19.2. E19.3 AUTHORITIES TO ALLOT SHARES There are no valid authorities granted to the directors of any of the UK Companies under section 80 of the Act nor have the provisions of section 89(1) of the Act been disapplied in respect of any UK Company. E19.4 BUSINESS NAME E19.4.1 None of the Group Companies carry on business under any name other than its own corporate name. E19.4.2 No third party has been permitted to use the name "Sheffield Forgemasters" by any Group Company or any other name under which any Group Company carries on business. -75- E20 PENSIONS E20.1 True and accurate copies of the Trust Deeds, Rules and Memoranda governing the Pension Schemes, the booklet and any other announcements (detailing matters not incorporated in the booklet or formal governing documents of the Pension Schemes) issued to employees and officers of the UK Companies who are members of it have been delivered to Atchison. E20.2 The Pension Schemes are exempt approved schemes (within the meaning of chapter I of part XIV of the Taxes Act) and, so far as the Covenantors are aware, there are no circumstances which will result in the withdrawal of the Schemes' exempt approved status. E20.3 A current contracting-out certificate under part III of the Pension Schemes Act 1993 is in force in respect of the employments of the employees and officers of the UK Companies whose employments are intended to be contracted-out and employments by reference to the Pension Schemes and so far as the Covenantors are aware there are no circumstances which will result in the withdrawal or revocation of that certificate. E20.4 Since the date of the last actuarial valuation of the Pension Schemes, contributions have been paid at the rate (or rates) recommended in that valuation. E20.5 All contributions due to the Pension Schemes have been promptly paid and each of the UK Companies has duly accounted for any deductions made by it in respect of the contributions payable by or in respect of the members of the Pension Schemes. E20.6 No claim (other than routine claims for benefits) has been made against any of the UK Companies or the trustees or administrators of the Pension Schemes in relation to the Pension Schemes and the Covenantors are not aware of any circumstances which may result in any such claim. -76- E20.7 Other than the Pension Schemes and the national insurance scheme there is no legally binding arrangement under which any of the UK Companies is, or will become, under an obligation to provide or contribute towards the provision of, relevant benefits (within the meaning of the Taxes Act) for or in respect of the employees or officers or former employees or officers of any of the UK Companies. -77- PART F PROTECTION FOR THE COVENANTORS F1 The provisions of this part F are in addition to and without prejudice to Atchison's general legal obligation to mitigate any loss or damage it may suffer. In this part F, unless specifically otherwise stated, "Claim" shall mean a claim under the Warranties. F2 Atchison: F2.1 confirms that, in entering into this agreement, it relies on no warranties, representations, covenants, undertakings or indemnities except the Warranties, the Deed of Covenant and as otherwise set out in this agreement; F2.2 agrees that no information, advice or assurances it or anyone on its behalf may have received from the Covenantors, the Covenantors' advisors or anyone else on the Covenantors' behalf in relation to the Group or otherwise in relation to the Offer or this agreement or its negotiation may be legally relied upon in any manner, save in each case for any information, advice or assurances which are expressly set out or referred to in the Warranties, the Deed of Covenant and this agreement; F2.3 waives any rights it may have in respect of any such information, advice or assurance it may have received other than that expressly set out or referred to in the Warranties, the Deed of Covenant and this agreement; F2.4 agrees that rescission shall not be available as a remedy for any breach of this agreement (including for any breach of Warranty) or the Deed of Covenant and agrees not to claim that remedy. F3 Atchison shall not be entitled to make a Claim if and to the extent that the facts or information upon which it is based are fairly disclosed (with sufficient detail to enable a -78- purchaser with a reasonable knowledge of the sectors in which the Group operates to assess the nature and import of each matter disclosed): F3.1 in the Disclosure Letter; or F3.2 in the Information Memorandum; or F3.3 in any document or information listed in the Data Room Index, provided that a disclosure that there exists an agreement under which representations, warranties, covenants, undertakings or indemnities have been given by any Group Company is not by itself a disclosure that a claim has been or is likely to be made against that Group Company (or any other Group Company) in respect of any such representations, warranties, covenants, undertakings or indemnities. F4 Atchison shall not be entitled to make a Claim to the extent that: F4.1 specific provision or reserve in respect of the matter to which the Claim relates has been made in the Accounts; F4.2 it relates to Tax and it arises or is increased (or any specific provision or reserve for Tax made in the Accounts is insufficient) by reason only of any increase in rates of Tax or change in the law or in published practice of any Tax Authority occurring after the date of those accounts having retrospective effect; F4.3 it would not have arisen but for either the failure or omission by any Group Company to make any claim, election, surrender or disclaimer, give any notice or consent or do any other thing in relation to Tax, the making, giving or doing of which was assumed in computing the Tax liabilities of any Group Company for the purposes of the Accounts and details of which are given in writing to -79- the Purchaser within a reasonable time so as to enable the Purchaser to make such claim, election, surrender or disclaimer, give such notice or consent or do such thing prior to the expiry of any applicable time limit; F4.4 it would not have arisen but for the voluntary making of any claim, election, surrender or disclaimer or voluntary giving of any notice or consent by Atchison or any Group Company after Completion, the giving, making or doing of which was not assumed in computing the Tax liabilities of any Group Company for the purposes of the Accounts and which the Purchaser knew or ought reasonably to have known would give rise to such Tax liabilities; F4.5 it is due to any change after Completion in the accounting principles adopted by any Group Company from those used in the preparation of the Accounts unless such change is necessary to comply with generally accepted accounting principles subsisting at Completion; and F4.6 the matter to which it relates arises as a result of the passing or amendment of any legislation (including any subsidiary legislation) after Completion with retrospective effect. F5 Atchison shall have no right to recover in respect of any Claim under the Warranties and the Deed of Covenant unless and until the aggregate liability of the Covenantors (but for this paragraph) in respect of all such Claims would exceed L25,000, but, if such aggregate liability should exceed that sum, the Covenantors shall be liable for the full aggregate amount of such Claims and not only for the amount by which the amount of such Claims exceeds that sum. Atchison shall have no right to recover in respect of any individual Claim under the Warranties or the Deed of Covenant in respect of which liability of the Covenantors (but for this paragraph) would not exceed L1,000 and any such Claim should be discounted in calculating the aggregate liability of the Covenantors for the L25,000 limit in this paragraph F5. -80- F6 Subject to paragraph F9, the maximum liability of each Covenantor in respect of all Claims shall not exceed the figure set against his name in column (4) of part B (including interest and costs) and the liability of the Covenantors in respect of each Claim shall be several and in relation to any and each Claim capable of being made against the Covenantors the individual liabilities of each of the Covenantors in respect of that Claim shall not exceed that proportion of the total liability of all the Covenantors under such Claim as is set opposite his name in column (3) of part B. In this paragraph, "Claim" shall mean any claim under the Warranties or the Deed of Covenant. F7 Subject to paragraph F9, Atchison shall not be entitled to make any Claim: F7.1 unless and until Completion has occurred; and F7.2 subject to paragraph F9, unless particulars of that Claim (with sufficient detail to enable the Covenantors to identify the basis of the Claim and Atchison's best estimate of the quantum of the Claim and how this has been quantified) are given in writing to the Covenantors in respect of any Claim not later than 30 September 1999. In this paragraph, "Claim" shall mean any claim under the Warranties or the Deed of Covenant. F8 Any Claim shall be unenforceable and be deemed waived unless proceedings in respect of it are issued and served within 12 months of the date of service of notice of that Claim under paragraph F7, unless the Covenantors otherwise agree. F9 In the event of fraud on the part of a Covenantor, the provisions of paragraph F6 and F7.2 shall not apply in relation to such fraudulent Covenantor in relation to the Claim arising as a result of his fraud. For the avoidance of doubt, any fraud on the part of one Covenantor shall not affect the application of paragraphs F6 and F7.2 in relation to the -81- other non-fraudulent Covenantors. F10 The Covenantors shall not be liable to make any payment in respect of any Claim based upon a contingent liability of any of the Group Companies (without prejudice to Atchison's right to establish the Covenantors' liability in respect of that Claim pursuant to paragraph F7.2 above) until the liability becomes an actual liability provided that if the Claim relating to such a contingent liability is notified to the Covenantors prior to the expiry of the period referred to in paragraph F7.2 above, Atchison shall not be prevented from pursuing a Claim in respect of that liability by reason of anything contained in that paragraph. F11 If any of the Group Companies or Atchison is or becomes entitled to recover any sum from any person in respect of the subject matter of any Claim under the Warranties or the Deed of Covenant in respect of which the Covenantors make or have made any payment to Atchison, Atchison shall: F11.1 procure that the Covenantors are notified as soon as practicable after Atchison becomes aware of the possible entitlement; F11.2 (unless to do so would, in the reasonable opinion of Atchison, cause material damage or material further damage to the business or goodwill of any Group Company) procure that all steps are taken which the Covenantors request to enforce the indemnity or right of recovery or (but only if the Covenantors so choose) the Covenantors are permitted to enforce the indemnity or right of recovery (in the name of the relevant Group Company or other person entitled to do so) and are given all authorities and assistance as they may request to enable them to do so and Atchison shall pay to the Covenantors immediately upon receipt by Atchison of the amount recovered (or permit the Covenantors to retain) a sum equal to the lesser of: F11.2.1 any amount any of the Group Companies or Atchison recovers -82- (less all costs and expenses reasonably and properly incurred by Atchison or any of the Group Companies in pursuing the claim against the other person which are not reimbursed by such other person and less any Taxation suffered by Atchison or any of the Group Companies in respect of such recovered amount); and F11.2.2 the amount paid by the Covenantors in respect of the Claim, less any part of that amount which represents interest for late payment. F12 In so far as the payments made by the Covenantors to Atchison in respect of Claims under the Warranties or the Deed of Covenant are less than the consideration paid to them under the Offer they shall constitute a repayment of and a reduction in such consideration. F13 If any matter or circumstance which may give rise to a Claim comes to the attention of any of the Group Companies or Atchison, Atchison shall (without prejudice to paragraph F10): F13.1 (unless to do so would, in the reasonable opinion of Atchison, cause material damage or material further damage to the business or goodwill of any Group Company) ensure that no admission of liability or agreement or compromise in relation to the matter or circumstance is made without the written consent of the Covenantors (not to be unreasonably withheld or delayed); F13.2 notify the Covenantors of such matter or circumstance as soon as practicable after it comes to the attention of any of the Group Companies or Atchison and such notification (with sufficient detail to enable the Covenantors to identify the basis of the potential Claim which may result from such matter or circumstance and including a statement that such notification constitutes a Claim for the purposes of paragraphs F7.2 and F10 giving rise to a contingent liability) shall constitute notification of any Claim which does arise in -83- connection with such matter or circumstance; F13.3 give the professional advisers of the Covenantors such access to the premises and personnel of each of the Group Companies as they may request, and afford them any opportunity they request to examine any accounts, documents, records and other things in the possession or control of any of the Group Companies which are relevant to the Claim; F13.4 subject to the Covenantors indemnifying Atchison to its reasonable satisfaction against the costs incurred, and unless to do so would, in the reasonable opinion of Atchison, cause material damage or material further damage to the business or goodwill of any Group Company, take all steps which the Covenantors request to avoid, dispute, resist, appeal, compromise or defend any matter which may otherwise result in a Claim and give the Covenantors all authorities and assistance as may be requested by the Covenantors to enable them to do so. For the purposes of this paragraph F13, a matter or circumstance shall not be treated as having come to the attention of any of the Group Companies or Atchison unless it has come to the attention of a director of the relevant company. F14 The provisions of clauses 3.1.6, 3.1.7, 3.1.8 and 3.1.10 and clause 4 of the Deed of Covenant shall apply mutatis mutandis in respect of Claims relating to Tax. F15 Atchison shall not be at liberty to bring more than one Claim in respect of the same facts or subject matter. Any liability of the Covenantors in respect of a Claim shall be in satisfaction of its liability under any claim under the Deed of Covenant in respect of the same facts or circumstances and vice versa. F16 Atchison shall procure that the Group Companies shall observe and perform the -84- provisions of this part F. F17 Atchison represents to the Covenantors that it is not aware at the date of this agreement of any facts, information or circumstances which it is aware constitutes the basis for any claim under the Warranties or the Deed of Covenant. For the purposes of this paragraph F17, "awareness" of Atchison shall be construed as the actual knowledge of Mr Hugh Aiken. -85- PART G DETAILS OF THE PENSION SCHEMES The Sheffield Forgemasters Pension Scheme established by an interim trust deed dated 30 December 1993 and the Sheffield Forgemasters Senior Executive Pension Scheme established by an interim trust deed dated 30 March 1986. -86- EXECUTED AS A DEED by ) PHILLIP MONTAGUE WRIGHT ) /s/ P M Wright in the presence of: ) Witness signature: /s/ J. Wood Witness address: Dibb Lupton Alsop Witness occupation: Solicitor EXECUTED AS A DEED by ) MALCOLM ARTHUR BRAND ) /s/ M A Brand in the presence of: ) Witness signature: /s/ J. Wood Witness address: Dibb Lupton Alsop Witness occupation: Solicitor EXECUTED AS A DEED by ) DAVID FLETCHER ) /s/ M A Brand in the presence of: ) Witness signature: /s/ J. Wood Witness address: Dibb Lupton Alsop Witness occupation: Solicitor -87- EXECUTED AS A DEED ) by ATCHISON CASTING ) UK LTD acting by: ) Director /s/ Hugh H Aiken Director/Secretary /s/ P J Barrett -88- EX-4 4 AMENDMENT & RESTATED CREDIT AGREEMENT EXHIBIT 4.1a - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ $110,000,000 AMENDED AND RESTATED CREDIT AGREEMENT DATED AS OF APRIL 3, 1998 AMONG ATCHISON CASTING CORPORATION, THE BANKS PARTY HERETO, AND HARRIS TRUST AND SAVINGS BANK as Agent - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ TABLE OF CONTENTS (This Table of Contents is not part of the Agreement)
Page SECTION 1. THE CREDIT FACILITIES.........................1 Section 1.1. The Facilities................................1 Section 1.2. Letters of Credit.............................4 Section 1.3. Applicable Interest Rates.....................7 Section 1.4. Minimum Borrowing Amounts.....................9 Section 1.5. Manner of Borrowing...........................9 Section 1.6. Interest Periods.............................11 Section 1.7. Maturity of Loans............................12 Section 1.8. Optional Prepayments.........................12 Section 1.9. Default Rate.................................12 Section 1.10. The Notes....................................13 Section 1.11. Funding Indemnity............................13 Section 1.12. Commitment Terminations......................14 Section 1.13. Mandatory Prepayments........................14 SECTION 2. FEES AND EXTENSIONS..........................15 Section 2.1. Fees.........................................15 Section 2.2. Agent Fees; Fee Calculations.................15 SECTION 3. PLACE AND APPLICATION OF PAYMENTS............16 Section 3.1. Place and Application of Payments............16 SECTION 4. DEFINITIONS; INTERPRETATION..................16 Section 4.1. Definitions..................................16 Section 4.2. Interpretation...............................32 SECTION 5. REPRESENTATIONS AND WARRANTIES...............32 Section 5.1. Corporate Organization and Authority.........32 Section 5.2. Subsidiaries.................................33 Section 5.3. Corporate Authority and Validity of Obligations................................33
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Page Section 5.4. Financial Statements.........................33 Section 5.5. No Material Adverse Change...................34 Section 5.6. No Litigation; No Labor Controversies........34 Section 5.7. Taxes........................................34 Section 5.8. Approvals....................................34 Section 5.9. ERISA........................................35 Section 5.10. Government Regulation........................35 Section 5.11. Margin Stock.................................35 Section 5.12. Licenses and Authorizations; Compliance with Laws..................................35 Section 5.13. Ownership of Property; Liens.................36 Section 5.14. No Burdensome Restrictions; Compliance with Agreements............................36 Section 5.15. Full Disclosure..............................36 Section 5.16. Year 2000 Compliance.........................36 SECTION 6. CONDITIONS PRECEDENT.........................37 Section 6.1. Initial Credit Event.........................37 Section 6.2. All Credit Events............................38 SECTION 7. COVENANTS....................................39 Section 7.1. Corporate Existence; Subsidiaries............39 Section 7.2. Maintenance..................................39 Section 7.3. Taxes........................................40 Section 7.4. ERISA........................................40 Section 7.5. Insurance....................................40 Section 7.6. Financial Reports and Other Information......40 Section 7.7. Bank Inspection Rights.......................44 Section 7.8. Conduct of Business..........................44 Section 7.9. Liens........................................44 Section 7.10. Use of Proceeds; Regulation U................46 Section 7.11. Sales and Leasebacks.........................46 Section 7.12. Consolidation, Merger, Sale of Assets, etc...47 Section 7.13. Subsidiary Stock and Debt....................48 Section 7.14. Use of Property and Facilities; Environmental, Health and Safety Laws......48 Section 7.15. Maintenance of Certain Financial Conditions..48 Section 7.16. Indebtedness.................................49 Section 7.17. Subsidiary Debt..............................50 Section 7.18. Investments, etc.............................51 Section 7.19. Restricted Payments; Restricted Investments..52
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Page Section 7.20. Transactions with Affiliates; Remuneration...53 Section 7.21. Compliance with Laws.........................54 Section 7.22. Fiscal Year..................................54 Section 7.23. Intercreditor Agreement......................54 SECTION 8. EVENTS OF DEFAULT AND REMEDIES...............54 Section 8.1. Events of Default............................54 Section 8.2. Non-Bankruptcy Defaults......................56 Section 8.3. Bankruptcy Defaults..........................56 Section 8.4. Collateral for Undrawn Letters of Credit.....57 Section 8.5. Notice of Default............................58 Section 8.6. Expenses.....................................58 SECTION 9. CHANGE IN CIRCUMSTANCES......................58 Section 9.1. Change of Law................................58 Section 9.2. Unavailability of Deposits or Inability to Ascertain, or Inadequacy of, LIBOR......58 Section 9.3. Increased Cost and Reduced Return............59 Section 9.4. Lending Offices..............................60 Section 9.5. Discretion of Bank as to Manner of Funding...60 SECTION 10. THE AGENT....................................61 Section 10.1. Appointment and Authorization of Agent.......61 Section 10.2. Agent and its Affiliates.....................61 Section 10.3. Action by Agent..............................61 Section 10.4. Consultation with Experts....................62 Section 10.5. Liability of Agent; Credit Decision..........62 Section 10.6. Costs and Expenses...........................62 Section 10.7. Indemnity....................................63 Section 10.8. Resignation of Agent and Successor Agent.....63 SECTION 11. MISCELLANEOUS................................63 Section 11.1. Withholding Taxes............................63 Section 11.2. No Waiver of Rights..........................65 Section 11.3. Non-Business Day.............................65 Section 11.4. Documentary Taxes............................65 Section 11.5. Survival of Representations..................65 Section 11.6. Survival of Indemnities......................65
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Page Section 11.7. Sharing of Set-Off...........................65 Section 11.8. Notices......................................66 Section 11.9. Counterparts.................................66 Section 11.10. Successors and Assigns.......................67 Section 11.11. Participants and Note Assignees..............67 Section 11.12. Assignment of Commitments by Banks...........67 Section 11.13. Amendments...................................68 Section 11.14. Headings.....................................68 Section 11.15. Legal Fees, Other Costs and Indemnification..68 Section 11.16. Set Off......................................69 Section 11.17. Entire Agreement.............................69 Section 11.18. Governing Law................................69 Section 11.19. Submission to Jurisdiction; Waiver of Jury Trial.................................69 Section 11.20. Intercreditor Agreement......................70 Section 11.21. Currency.....................................70 Signature......................................................70
EXHIBITS A - Form of Revolving Note B - Form of Notice of Payment Request C - Form of Compliance Certificate D - Form of Legal Opinion of Counsel to the Borrower E - Form of Guaranty Agreement F - Form of Term Note G - Form of Swing Loan Note SCHEDULE 1.2(a) Existing Letters of Credit SCHEDULE 5.2 Existing Subsidiaries SCHEDULE 5.6(a) Litigation SCHEDULE 5.13 Real Property SCHEDULE 7.18(c) Existing Investments -iv- AMENDED AND RESTATED CREDIT AGREEMENT To each of the Banks signatory hereto Ladies and Gentlemen: The undersigned, Atchison Casting Corporation, a Kansas corporation (the "BORROWER"), refers to that certain Credit Agreement dated as of May 24, 1996, as amended by the First Amendment thereto dated May 12, 1997, currently in effect among the Borrower, Harris Trust and Savings Bank, as agent, and the lenders party thereto (the "ORIGINAL CREDIT AGREEMENT"). The Borrower hereby requests that the aggregate commitments available under the Original Credit Agreement be increased, that certain additional amendments be made to the Original Credit Agreement and, for the sake of clarity and convenience, that the Original Credit Agreement be restated in its entirety as so amended. This Amended and Restated Credit Agreement amends and replaces in its entirety the Original Credit Agreement, and from the Effective Date all references made to the Original Credit Agreement in any Credit Document or in any other instrument or document shall, without more, be deemed to refer to this Amended and Restated Credit Agreement. This Amended and Restated Credit Agreement shall become effective as of April 3, 1998 (the "EFFECTIVE DATE"), and supersedes all provisions of the Original Credit Agreement as of such date, upon the execution of this Amended and Restated Credit Agreement by each of the parties hereto and the fulfillment of the conditions precedent contained in Section 6.1 hereof. Harris Trust and Savings Bank in its capacity as agent for the Banks hereunder is hereinafter referred to as the "AGENT." SECTION 1. THE CREDIT FACILITIES. SECTION 1.1. THE FACILITIES. (a) THE REVOLVING LOANS. Subject to the terms and conditions hereof, each Bank, by its acceptance hereof, severally agrees to make a loan or loans (individually a "REVOLVING LOAN" and collectively "REVOLVING LOANS") to the Borrower from time to time on a revolving basis in U.S. Dollars and Alternative Currencies in an aggregate outstanding Original Dollar Amount up to the amount of its commitment to make Revolving Loans set forth on the applicable signature page hereof or pursuant to Section 11.12 hereof (its "COMMITMENT" and, cumulatively for all the Banks, the "COMMITMENTS"), subject to any reductions thereof pursuant to the terms hereof, before the Termination Date. The sum of the Original Dollar Amount of Revolving Loans, the aggregate undrawn face amount of Letters of Credit (which, in the case of Letters of Credit payable in an Alternative Currency, means the U.S. Dollar Equivalent thereof as determined pursuant to Section 1.2(f) hereof) and the aggregate unpaid Reimbursement Obligations at any time outstanding shall not exceed the Commitments in effect at such time. Each Borrowing of Revolving Loans shall be made ratably from the Banks in proportion to their respective Percentages. As provided in Section 1.5(a) hereof, the Borrower may elect that each Borrowing of Revolving Loans denominated in U.S. Dollars be made available by means of either Domestic Rate Loans or Eurocurrency Loans. All Loans denominated in an Alternative Currency shall be Eurocurrency Loans. Revolving Loans may be repaid and the principal amount thereof reborrowed before the Termination Date, subject to all the terms and conditions hereof. (b) SWING LOANS. (i) GENERALLY. Subject to all of the terms and conditions hereof, Harris Trust and Savings Bank ("HARRIS BANK") agrees to make loans ("SWING LOANS") in U.S. Dollars to the Borrower under a swing line of credit from time to time before the Termination Date in an aggregate amount at any one time outstanding not to exceed the lesser of (i) the Swing Line Commitment then in effect and (ii) the difference between the Commitments in effect at such time and the sum of the aggregate Original Dollar Amount of all Revolving Loans and Swing Loans, the aggregate undrawn face amount of Letters of Credit (which, in the case of Letters of Credit payable in an Alternative Currency, means the U.S. Dollar Equivalent thereof as determined pursuant to Section 1.2(f) hereof) and the aggregate unpaid U.S. Dollar Equivalent of the Reimbursement Obligations at any time then outstanding; PROVIDED, HOWEVER, that the aggregate Original Dollar Amount of the Revolving Loans and Swing Loans outstanding at any one time and owing to Harris Bank plus Harris Bank's Percentage of the aggregate undrawn face amount of Letters of Credit (which, in the case of Letters of Credit payable in an Alternative Currency, means the U.S. Dollar Equivalent thereof as determined pursuant to Section 1.2(f) hereof) and the aggregate unpaid U.S. Dollar Equivalent of the Reimbursement Obligations at any time outstanding shall not at any time exceed Harris Bank's Commitment then in effect. The Swing Line Commitment shall be available to the Borrower and may be availed of by the Borrower from time to time and borrowings thereunder may be repaid and used again during the period ending on the Termination Date. (ii) INTEREST ON SWING LOANS. Each Swing Loan shall bear interest (computed on the basis of a year of 360 days and actual days elapsed) at a rate per annum equal to the sum of the Domestic Rate and the Domestic Rate Margin, PROVIDED that if any Swing Loan is not paid when due (whether by lapse of time, acceleration or otherwise) such Swing Loan shall bear interest, whether before or after judgment, until payment in full thereof through the end of the Interest Period then applicable thereto at the rate per annum determined by adding 2% to the Domestic Rate. Interest on each Swing Loan shall be due and payable on its maturity date, and interest after maturity (whether by lapse of time, acceleration or otherwise) shall be due and payable upon demand. Harris Bank's determination of the interest rate applicable to the Swing Loans shall be conclusive and binding except in the case of manifest error or willful misconduct. -2- (iii) REQUESTS FOR SWING LOANS. The Borrower shall give Harris Bank prior notice (which may be written or oral) no later than 10:00 a.m. (Chicago time) on the date any Swing Loan is to be made, specifying in each case the amount and date of such Swing Loan. Subject to all of the terms and conditions hereof, the proceeds of such Swing Loan shall be made available to the Borrower on the date so requested at the offices of the Agent in Chicago, Illinois. Anything contained in the foregoing to the contrary notwithstanding, (i) the obligation of Harris Bank to make Swing Loans shall be subject to all of the terms and conditions of this Agreement and (ii) Harris Bank shall not be obligated to make more than one Swing Loan during any one day. (iv) REFUNDING LOANS. In its sole and absolute discretion, Harris Bank may at any time, on behalf of the Borrower (which hereby irrevocably authorizes Harris Bank to act on its behalf for such purpose), request each Bank to make a Revolving Loan in an amount equal to such Bank's Percentage of the amount of the Swing Loans outstanding on the date such notice is given. Borrowings of Revolving Loans under this Section 1.1(b)(iv) shall initially be Domestic Rate Loans unless timely notice is given pursuant to Section 1.5 hereof. Unless the conditions of Section 6 are not fulfilled on such date, each Bank shall make its requested Revolving Loan available to Harris Bank, in immediately available funds, at the principal office of Harris Bank in Chicago, Illinois, before 11:00 a.m. (Chicago time) on the Business Day following the day such notice is given. The proceeds of such Revolving Loans shall be immediately applied to repay the outstanding Swing Loans. (v) PARTICIPATIONS. If any Bank refuses or otherwise fails or is unable to make a Revolving Loan when requested by Harris Bank pursuant to Section 1.1b(iv) above (because the conditions in Section 6 are not satisfied or otherwise), such Bank shall, by the time and in the manner such Revolving Loan was to have been funded to Harris Bank, purchase from Harris Bank an undivided participating interest in the outstanding Swing Loans in an amount equal to its Percentage of the aggregate principal amount of Swing Loans that were to have been repaid with such Revolving Loans. Each Bank that so purchases a participation in a Swing Loan shall thereafter be entitled to receive its Percentage of each payment of principal received on the Swing Loan and of interest received thereon accruing from the date such Bank funded to Harris Bank its participation in such Revolving Loan. The obligation of the Banks to Harris Bank shall be absolute and unconditional and shall not be affected or impaired by any Default or Event of Default which may then be continuing hereunder. (vi) VOLUNTARY PREPAYMENT OF SWING LOANS. The Borrower may voluntarily prepay any Swing Loan before its maturity at any time upon notice to the Agent prior to 10:00 a.m. (Chicago time) on the date fixed for prepayment, each such prepayment to be made by the payment of the principal amount to be prepaid and accrued interest thereon to the date of prepayment. -3- (c) TERM LOANS. Subject to and upon the terms and conditions herein set forth, each Bank severally agrees to make a loan to the Borrower in U.S. Dollars (each a "TERM LOAN" and collectively, the "TERM LOANS") on the date hereof in the amount set forth on the applicable signature page hereof opposite its name under the heading "TERM LOAN AMOUNT." Each Term Loan shall mature as to principal in consecutive quarterly installments equal (except for the final installment) to one twenty-eighth (1/28th) of the original principal amount of such Term Loan, commencing on March 31, 1999 and continuing on the last Business Day of each and every calendar quarter thereafter up to and including December 31, 2002, with the final installment to be in the amount of all principal not sooner paid and due on April 6, 2003. No amount repaid or prepaid on any Term Loan may be borrowed again. As provided in Section 1.5(a) hereof, the Borrower may elect that each Borrowing of Term Loans be made available by means of either Domestic Rate Loans or Eurocurrency Loans. SECTION 1.2. LETTERS OF CREDIT. (a) GENERAL TERMS. Subject to all of the terms and conditions hereof, the Agent shall issue standby letters of credit (each a "LETTER OF CREDIT") for the Borrower's account in an aggregate undrawn face amount up to the Commitments as in effect from time to time (the "L/C COMMITMENT"), provided that the aggregate undrawn face amount of Letters of Credit and the aggregate Reimbursement Obligations at any time outstanding shall not exceed the difference between the Commitments in effect at such time and the aggregate principal amount of Loans then outstanding. Notwithstanding anything herein to the contrary, each of those certain letters of credit issued by Harris Trust and Savings Bank for the account of the Borrower listed on Schedule 1.2(a) hereto shall each constitute a "LETTER OF CREDIT" herein for all purposes of this Agreement to the same extent, and with the same force and effect as if each such letter of credit had been issued at the request of the Borrower hereunder. Each Letter of Credit shall be issued by the Agent, but each Bank shall be obligated to reimburse the Agent for its Percentage of the amount of each drawing thereunder and, accordingly, the face amount of each Letter of Credit shall constitute usage of the Commitment of each Bank PRO RATA in accordance with each Bank's Percentage. (b) APPLICATIONS. At any time before the Termination Date, the Agent shall, at the request of the Borrower, issue one or more Letters of Credit, in a form satisfactory to the Agent, with expiration dates no later than the Termination Date, in an aggregate face amount as set forth above, upon the receipt of a duly executed application for the relevant Letter of Credit in the form customarily prescribed by the Agent for a special purpose, or "standby", letter of credit or a commercial letter of credit (each an "APPLICATION"). Notwithstanding anything contained in any Application to the contrary (i) the Borrower shall pay fees in connection with each Letter of Credit as set forth in Sections 2.1(b) hereof, (ii) before the occurrence of an Event of Default, the Agent will not call for (A) the funding by the Borrower of any amount under a Letter of Credit before being presented with a drawing thereunder or (B) any collateral security for any obligations of the Borrower under an Application, and (iii) in the event the Agent is not timely -4- reimbursed for the amount of any drawing under a Letter of Credit on the date such drawing is paid, the Borrower's obligation to reimburse the Agent for the amount of such drawing shall bear interest (which the Borrower hereby promises to pay) from and after the date such drawing is paid at a rate per annum equal to the sum of 2% plus the Domestic Rate from time to time in effect. In the event the Agent issues any Letters of Credit with expiration dates that are automatically extended unless the Agent gives notice that the expiration date will not so extend beyond its then scheduled expiration date, the Agent will give such notice of non-renewal before the time necessary to prevent such automatic extension if before such required notice date (i) the expiration date of such Letter of Credit if so extended would be after the Termination Date, (ii) the Commitments have terminated or (iii) an Event of Default exists and the Required Banks have given the Agent instructions not to so permit the extension of the expiration date of such Letter of Credit. The Agent agrees to issue amendments to the Letter(s) of Credit increasing the amount, or extending the expiration date, thereof at the request of the Borrower subject to the conditions of Section 6.2 and the other terms of this Section 1.2. (c) THE REIMBURSEMENT OBLIGATIONS. Subject to Section 1.2(b) hereof, the obligation of the Borrower to reimburse the Agent for all drawings under a Letter of Credit (a "REIMBURSEMENT OBLIGATION") shall be governed by the Application related to such Letter of Credit, except that (i) reimbursement shall be made by no later than 12:00 Noon (Chicago time) on the date when each drawing is paid in immediately available funds at the Agent's principal office in Chicago, Illinois and (ii) any payments by the Agent of drawings under any Letter of Credit payable in an Alternative Currency shall be reimbursed by the Borrower in U.S. Dollars at the rate of exchange for cable transfers in effect on the date of payment by the Agent to the place of payment in the currency in which such drawing was made. If the Borrower does not make any such reimbursement payment on the date due and the Participating Banks fund their participations therein in the manner set forth in Section 1.2(d) below, then all payments thereafter received by the Agent in discharge of any of the relevant Reimbursement Obligations shall be distributed ratably to the Banks in accordance with their respective Percentages. (d) THE PARTICIPATING INTERESTS. Each Bank (other than the Bank then acting as Agent in issuing Letters of Credit), by its acceptance hereof, severally agrees to purchase from the Agent, and the Agent hereby agrees to sell to each such Bank (a "PARTICIPATING BANK"), an undivided percentage participating interest (a "PARTICIPATING INTEREST"), to the extent of its Percentage, in each Letter of Credit issued by, and each Reimbursement Obligation owed to, the Agent. Each Participating Bank acknowledges that, because certain Letters of Credit issued to support tax exempt municipal bonds may be reinstated by an amount equal to drawings thereunder (the proceeds of which are used to pay up to 58 days of accrued interest on such bonds) at a time when the Borrower has not reimbursed the Agent in full for a drawing thereunder, the L/C Obligations may exceed the L/C Commitment from time to time and each Participating Bank agrees to pay the Agent its Percentage of each drawing under each Letter of -5- Credit notwithstanding that any such payment may result in the aggregate Loans and Reimbursement Obligations owing such Participating Bank exceeding such Participating Bank's Commitment. Upon any failure by the Borrower to pay any Reimbursement Obligation at the time required on the date the related drawing is paid, as set forth in Section 1.2(c) above, or in the event the Agent is required at any time to return to the Borrower or to a trustee, receiver, liquidator, custodian or other Person any portion of any payment of any Reimbursement Obligation, each Participating Bank shall, not later than the Business Day it receives a certificate in the form of Exhibit B hereto from the Agent to such effect, if such certificate is received before 1:00 p.m. (Chicago time), or not later than the following Business Day, if such certificate is received after such time, pay to the Agent an amount equal to its Percentage of such unpaid or recaptured Reimbursement Obligation together with interest on such amount accrued from the date the related payment was made by the Agent to the date of such payment by such Participating Bank at a rate per annum equal to (i) from the date the related payment was made by the Agent to the date two (2) Business Days after payment by such Participating Bank is due hereunder, the Federal Funds Rate for each such day and (ii) from the date two (2) Business Days after the date such payment is due from such Participating Bank to the date such payment is made by such Participating Bank, the Domestic Rate in effect for each such day. Each such Participating Bank shall thereafter be entitled to receive its Percentage of each payment received in respect of the relevant Reimbursement Obligation and of interest paid thereon, with the Agent retaining its Percentage as a Bank hereunder. The several obligations of the Participating Banks to the Agent under this Section 1.2 shall be absolute, irrevocable and unconditional under any and all circumstances whatsoever and shall not be subject to any set-off, counterclaim or defense to payment which any Participating Bank may have or have had against the Borrower, the Agent, any other Bank or any other Person whatsoever. Without limiting the generality of the foregoing, such obligations shall not be affected by any Default or Event of Default or by any reduction or termination of any Commitment of any Bank, and each payment by a Participating Bank under this Section 1.2 shall be made without any offset, abatement, withholding or reduction whatsoever. The Agent shall be entitled to offset amounts received for the account of a Bank under this Agreement against unpaid amounts due from such Bank to the Agent hereunder (whether as fundings of participations, indemnities or otherwise), but shall not be entitled to offset against amounts owed to the Agent by any Bank arising outside this Agreement. (e) INDEMNIFICATION. The Participating Banks shall, to the extent of their respective Percentages, indemnify the Agent (to the extent not reimbursed by the Borrower) against any cost, expense (including reasonable counsel fees and disbursements), claim, demand, action, loss or liability (except such as result from the Agent's gross negligence or willful misconduct) that the Agent may suffer or incur in connection with any Letter of Credit. The obligations of the -6- Participating Banks under this Section 1.2(e) and all other parts of this Section 1.2 shall survive termination of this Agreement and of all other L/C Documents. (f) FOREIGN CURRENCY EQUIVALENCY. For all purposes of determining the outstanding amount of Letters of Credit hereunder, Letters of Credit payable in an Alternative Currency shall be converted by the Agent into their U.S. Dollar Equivalent as of the time issued and shall be reconverted into their U.S. Dollar Equivalent as of the first day of each month (and as of any other time any Bank deems appropriate), with each such determination by the Agent to apply until the next redetermination. SECTION 1.3. APPLICABLE INTEREST RATES. (a) DOMESTIC RATE LOANS. Each Domestic Rate Loan made by a Bank shall bear interest (computed on the basis of a year of 360 days and actual days elapsed) on the unpaid principal amount thereof from the date such Loan is made until maturity (whether by acceleration or otherwise) at a rate per annum equal to the sum of the applicable Domestic Rate Margin plus the Domestic Rate from time to time in effect, payable on the last day of its Interest Period and at maturity (whether by acceleration or otherwise). "DOMESTIC RATE" means for any day the greater of: (i) the rate of interest announced by the Agent from time to time as its prime commercial rate, or equivalent, as in effect on such day, with any change in the Domestic Rate resulting from a change in said prime commercial rate to be effective as of the date of the relevant change in said prime commercial rate; and (ii) the sum of (x) the rate determined by the Agent to be the prevailing rate per annum (rounded upwards, if necessary, to the next higher 1/100 of 1%) at approximately 10:00 a.m. (Chicago time) (or as soon thereafter as is practicable) on such day (or, if such day is not a Business Day, on the immediately preceding Business Day) for the purchase at face value of overnight Federal funds in an amount comparable to the principal amount owed to the Agent for which such rate is being determined, plus (y) 1/2 of 1% (0.50%). "DOMESTIC RATE MARGIN" means (A) minus 0.25% per annum for any Pricing Period for which Level I Status exists and (B) 0% per annum for any Pricing Period for which either Level II Status or Level III Status exists. (b) EUROCURRENCY LOANS. Each Eurocurrency Loan made by a Bank shall bear interest (computed on the basis of a year of 360 days and actual days elapsed) on the unpaid principal amount thereof from the date such Loan is made until maturity (whether by acceleration or otherwise) at a rate per annum equal to the sum of the applicable Eurocurrency Margin plus the -7- Adjusted LIBOR applicable to such Loan, payable on the last day of its Interest Period and at maturity (whether by acceleration or otherwise), and, if the applicable Interest Period is longer than three months, on each day occurring every three months after the date such Loan is made. "ADJUSTED LIBOR" means, for any Borrowing of Eurocurrency Loans, a rate per annum determined in accordance with the following formula: Adjusted LIBOR = LIBOR -------------------------------------- 100% - Eurocurrency Reserve Percentage "LIBOR" means, for an Interest Period for a Borrowing of Eurocurrency Loans, (a) the LIBOR Index Rate for such Interest Period, if such rate is available, and (b) if the LIBOR Index Rate cannot be determined, the average rate of interest per annum (rounded upwards, if necessary, to nearest 1/100 of 1%) at which deposits in U.S. Dollars or the relevant Alternative Currency, as appropriate, in immediately available funds are offered to the Agent at 11:00 a.m. (London, England time) two (2) Business Days before the beginning of such Interest Period by major banks in the interbank eurocurrency market for delivery on the first day of and for a period equal to such Interest Period in an amount equal or comparable to the principal amount of the Eurocurrency Loan scheduled to be made by the Agent as part of such Borrowing. "LIBOR INDEX RATE" means, for any Interest Period, the rate per annum (rounded upwards, if necessary, to the next higher one hundred-thousandth of a percentage point) for deposits in U.S. Dollars or the relevant Alternative Currency, as appropriate, for a period equal to such Interest Period, which appears on the Telerate Page 3750 as of 11:00 a.m. (London, England time) on the day two (2) Business Days before the commencement of such Interest Period. "TELERATE PAGE 3750" means the display designated as "PAGE 3750" on the Telerate Service (or such other page as may replace Page 3750 on that service or such other service as may be nominated by the British Bankers' Association as the information vendor for the purpose of displaying British Bankers' Association Interest Settlement Rates). "EUROCURRENCY RESERVE PERCENTAGE" means, for any Borrowing of Eurocurrency Loans, the daily average for the applicable Interest Period of the maximum rate at which reserves (including, without limitation, any supplemental, marginal and emergency reserves) are imposed during such Interest Period by the Board of Governors of the Federal Reserve System (or any successor) on "EUROCURRENCY LIABILITIES", as defined in such Board's Regulation D (or in respect of any other category of liabilities that includes deposits by reference to which the interest rate on Eurocurrency Loans is determined or any category of extensions of credit or other assets that include loans by non-United States offices of any Bank to United States residents), subject to any -8- amendments of such reserve requirement by such Board or its successor, taking into account any transitional adjustments thereto. For purposes of this definition, the Eurocurrency Loans shall be deemed to be "EUROCURRENCY LIABILITIES" as defined in Regulation D without benefit or credit for any prorations, exemptions or offsets under Regulation D. "EUROCURRENCY MARGIN" means (A) 1.00% per annum for any Pricing Period for which Level I Status exists, (B) 1.25% per annum for any Pricing Period for which Level II Status exists, and (C) 1.50% per annum for any Pricing Period for which Level III Status exists. (c) RATE DETERMINATIONS. The Agent shall determine each interest rate applicable to the Loans and Reimbursement Obligations hereunder and the Original Dollar Amount of Loans denominated in Alternative Currencies, and its determination thereof shall be conclusive and binding except in the case of manifest error or willful misconduct. The Original Dollar Amount of each Eurocurrency Loan denominated in an Alternative Currency shall be determined effective as of the first day of the Interest Period applicable to such Loan. SECTION 1.4. MINIMUM BORROWING AMOUNTS. Each Borrowing of Eurocurrency Loans shall be in an amount not less than an Original Dollar Amount of $2,000,000 and in integral multiples of $500,000, and each Borrowing of Domestic Rate Loans (other than Swing Loans) shall be in an amount not less than $1,000,000 and in integral multiples of $100,000. Each Swing Loan shall be in an amount not less than $50,000. SECTION 1.5. MANNER OF BORROWING. (a) NOTICE TO THE AGENT. The Borrower shall give telephonic, telex or telecopy notice to the Agent (which notice shall be irrevocable once given and, if by telephone, shall be promptly confirmed in writing) (i) by no later than 10:30 A.M. (Chicago time) on the date at least four (4) Business Days before the date of each requested Borrowing of Eurocurrency Loans denominated in an Alternative Currency, (ii) by no later than 10:30 A.M. (Chicago time) on the date at least three (3) Business Days before the date of each requested Borrowing of Eurocurrency Loans denominated in U.S. Dollars, and (iii) by no later than 10:00 A.M. (Chicago time) on the date of each requested Borrowing of Domestic Rate Loans. Each such notice from the Borrower shall specify (A) the date of the requested Borrowing (which shall be a Business Day), (B) the amount of the requested Borrowing, (C) the type of Loans to comprise such Borrowing, and (D) if such Borrowing is to be comprised of Eurocurrency Loans, the Interest Period and currency selected by the Borrower to be applicable thereto. The Borrower agrees that the Agent may rely on any such telephonic, telex or telecopy notice given by any person it in good faith believes is an Authorized Representative of the Borrower without the necessity of independent investigation and in the event any notice by telephone conflicts with its written confirmation, such telephone notice shall govern if the Agent has acted in reliance thereon. -9- (b) NOTICE TO THE BANKS. The Agent shall give prompt telephonic, telex or telecopy notice to each Bank of any borrowing request received pursuant to Section 1.5(a) above and, if such notice requests the Banks to make Eurocurrency Loans, the Agent shall give notice to the Borrower and each Bank by any such means of the interest rate applicable thereto (but, if such notice is given by telephone, the Agent shall confirm such rate in writing) promptly after the Agent has made such determination. (c) BORROWER'S FAILURE TO NOTIFY. If the Borrower fails to give notice pursuant to Section 1.5(a) above of the reborrowing of the principal amount of any maturing Borrowing of Loans denominated in U.S. Dollars or of a Borrowing of Loans equal to the amount of a Reimbursement Obligation and has not notified the Agent by 10:30 A.M. (Chicago time) on the day such Borrowing matures or such Reimbursement Obligation becomes due that it intends to repay such Borrowing or such Reimbursement Obligation with funds not borrowed hereunder, the Borrower shall be deemed to have requested a Borrowing of Domestic Rate Loans on such day in the amount of the maturing Borrowing of Loans or of the Reimbursement Obligation then due, subject to Section 6.2 hereof, which Borrowing shall be applied to pay the maturing Borrowing of Loans or Reimbursement Obligation then due. If the Borrower fails to give notice pursuant to Section 1.5(a) above of the reborrowing of the outstanding principal amount of a Borrowing of Eurocurrency Loans denominated in an Alternative Currency before the last day of its Interest Period within the period required by Section 1.5(a) and has not notified the Agent within the period required by Section 1.8(a) that it intends to repay such Borrowing through funds not borrowed hereunder, such Borrowing shall automatically be repaid through a Borrowing of Eurocurrency Loans in the same Alternative Currency with an Interest Period of one month, subject to Section 6 hereof and of the restrictions contained in the definition of Interest Period. (d) DISBURSEMENT OF LOANS. Not later than 1:00 p.m. (Chicago time) on the date of any Borrowing of Loans (other than a Refunding Borrowing) denominated in U.S. Dollars, each Bank, subject to Section 6 hereof and all other provisions hereof, shall make available its Loan comprising its Percentage of such Borrowing in funds immediately available in Chicago, Illinois at the principal office of the Agent, or, if such Borrowing is denominated in an Alternative Currency, each Bank shall, subject to Section 6 hereof, make available its Loan comprising part of such Borrowing at such office as the Agent has previously specified in a notice to each Bank, in such funds as are then customary for the settlement of international transactions in such currency and no later than such local time as is necessary for such funds to be received and transferred to the Borrower for same day value on the date of the Borrowing. To the extent such Borrowing is a reborrowing, in whole or in part, of the principal amount of a maturing Borrowing of Loans (a "REFUNDING BORROWING"), in which case each Bank shall record the Loan made by it as a part of such Refunding Borrowing on its books and records or on a schedule to its appropriate Note, as provided in Section 1.10(b) hereof, and shall effect the repayment, in whole -10- or in part, as appropriate, of its maturing Loan through the proceeds of such new Loan. The Agent shall make the proceeds of each non-Refunding Borrowing denominated in U.S. Dollars available to the Borrower at the Agent's principal office in Chicago, Illinois and Borrowings denominated in Alternative Currencies at such office as the Agent has previously agreed to with the Borrower, in each case in the type of funds received by the Agent from the Banks. (e) AGENT RELIANCE ON BANK FUNDING. Unless the Agent shall have been notified by a Bank prior to (or, in the case of a Borrowing of Domestic Rate Loans, by 11:00 a.m. (Chicago time) on) the date on which such Bank is scheduled to make payment to the Agent of the proceeds of a Loan (which notice shall be effective upon receipt) that such Bank does not intend to make such payment, the Agent may assume that such Bank has made such payment when due and the Agent may in reliance upon such assumption (but shall not be required to) make available to the Borrower the proceeds of the Loan to be made by such Bank and, if any Bank has not in fact made such payment to the Agent, such Bank shall, on demand, pay to the Agent the amount made available to the Borrower attributable to such Bank together with interest thereon in respect of each day during the period commencing on the date such amount was made available to the Borrower and ending on (but excluding) the date such Bank pays such amount to the Agent at a rate per annum equal to the Federal Funds Rate. If such amount is not received from such Bank by the Agent immediately upon demand, the Borrower will, on demand, repay to the Agent the proceeds of the Loan attributable to such Bank with interest thereon at a rate per annum equal to the interest rate applicable to the relevant Loan, but without such payment being considered a payment or prepayment of a Loan under Section 1.11 hereof, so that the Borrower will have no liability under such Section with respect to such payment. SECTION 1.6. INTEREST PERIODS. As provided in Sections 1.5(a) hereof, at the time of each request for the Borrowing of Eurocurrency Loans hereunder, the Borrower shall select an Interest Period applicable to such Loans from among the available options. The term "INTEREST PERIOD" means the period commencing on the date a Borrowing of Loans is made and ending on the date: (a) in the case of Domestic Rate Loans (other than Swing Loans), that is the last day of the calendar month in which such Borrowing is made, and (b) in the case of Eurocurrency Loans, 1, 2, 3, or 6 months thereafter; PROVIDED, HOWEVER, that: (a) for any Borrowing of Eurocurrency Loans, the Borrower may not select an Interest Period that extends beyond the Termination Date; (b) whenever the last day of any Interest Period would otherwise be a day that is not a Business Day, the last day of such Interest Period shall be extended to the next succeeding Business Day, PROVIDED THAT, in the case of an Interest Period for a Borrowing of Eurocurrency Loans, if such extension would cause the last day of such Interest Period -11- to occur in the following calendar month, the last day of such Interest Period shall be the immediately preceding Business Day; and (c) for purposes of determining the Interest Period for a Borrowing of Eurocurrency Loans, a month means a period starting on one day in a calendar month and ending on the numerically corresponding day in the next calendar month; PROVIDED, HOWEVER, that if there is no numerically corresponding day in the month in which such an Interest Period is to end or if such an Interest Period begins on the last Business Day of a calendar month, then such Interest Period shall end on the last Business Day of the calendar month in which such Interest Period is to end. SECTION 1.7. MATURITY OF LOANS. Each Revolving Loan (other than Swing Loans) shall mature and become due and payable by the Borrower on the last day of the Interest Period applicable thereto or, if earlier, on the Termination Date. Each Swing Loan shall mature and become due and payable by the Borrower on the date selected by the Borrower but in no event later than the earlier of the Termination Date and the date occurring 10 days after such Swing Loan was advanced. Each Term Loan shall mature and become due and payable by the Borrower on the dates specified in Section 1.1(c) hereof. SECTION 1.8. OPTIONAL PREPAYMENTS. The Borrower shall have the privilege of prepaying Domestic Rate Loans at any time without premium or penalty and in whole or in part (but, if in part, then in an amount (i) which is an integral multiple of $100,000, and (ii) such that the minimum amount required pursuant to Section 1.4 hereof remains outstanding); PROVIDED, HOWEVER, that the Borrower shall have given prior notice of such prepayment to the Agent by no later than 10:30 A.M. on the date of such prepayment. Subject to Section 1.11 hereof, any Borrowing of Eurocurrency Loans may be prepaid in full, but not in part, upon three (3) Business Days' notice to the Agent. SECTION 1.9. DEFAULT RATE. If any payment of principal on any Loan is not made when due (whether by acceleration or otherwise), such Loan shall bear interest (computed on the basis of a year of 360 days and actual days elapsed) from the date such payment was due until paid in full, payable on demand, at a rate per annum equal to: (a) for any Domestic Rate Loan, the sum of one percent (1%) per annum PLUS the Domestic Rate from time to time in effect; and (b) for any Eurocurrency Loan, the sum of one percent (1%) per annum PLUS the rate of interest in effect thereon at the time of such default until the end of the Interest Period applicable thereto and, thereafter, if such Loan is denominated in U.S. Dollars, at a rate per annum equal to the sum of one percent (1%) per annum PLUS the Domestic Rate -12- from time to time in effect or, if such Loan is denominated in an Alternative Currency, at a rate per annum equal to the sum of the Eurocurrency Margin, plus one percent (1%) plus the rate of interest per annum as determined by the Agent (rounded upwards, if necessary, to the nearest 1/100 of 1%) at which overnight or weekend deposits of the appropriate currency (or, if such amount due remains unpaid more than three Business Days, then for such other period of time not longer than six months as the Agent may elect in its absolute discretion) for delivery in immediately available and freely transferable funds would be offered by the Agent to major banks in the interbank market upon request of such major banks for the applicable period as determined above and in an amount comparable to the unpaid principal balance of any such Eurocurrency Loan (or, if the Agent is not placing deposits in such currency in the interbank market, then the Agent's cost of funds in such currency for such period). SECTION 1.10. THE NOTES. (a) All Revolving Loans made to the Borrower by a Bank shall be evidenced by a single promissory note of the Borrower payable to the order of such Bank in the form of Exhibit A hereto (each a "REVOLVING NOTE" and collectively the "REVOLVING NOTES"). All Term Loans made to the Borrower by a Bank shall be evidenced by a single promissory note of the Borrower payable to the order of such Bank in the form of Exhibit F hereto (each a "TERM NOTE" and collectively the "TERM NOTES"). All Swing Loans made to the Borrower by Harris Bank shall be evidenced by a single promissory note of the Borrower payable to the order of Harris Bank in the form of Exhibit G hereto (the "SWING LOAN NOTE"). (b) Each Bank shall record on its books and records or on a schedule to its Note the amount of each Loan made by it to the Borrower, the Interest Period thereof, all payments of principal and interest and the principal balance from time to time outstanding thereon, the type of such Loan and, if a Eurocurrency Loan, the interest rate applicable thereto and the currency in which such Loan was denominated; PROVIDED THAT prior to the transfer of any Note such matters for each then outstanding Loan evidenced by such Note shall be recorded on a schedule to the Note. The record thereof, whether shown on such books and records of a Bank or on a schedule to any Note, shall be PRIMA FACIE evidence as to all such matters; PROVIDED, HOWEVER, that the failure of any Bank to record any of the foregoing or any error in any such record shall not limit or otherwise affect the obligation of the Borrower to repay all Loans made to it hereunder together with accrued interest thereon. At the request of any Bank and upon such Bank tendering to the Borrower the Note to be replaced, the Borrower shall furnish a new Note to such Bank to replace any outstanding Note and at such time the first notation appearing on the schedule on the reverse side of, or attached to, such Note shall set forth the aggregate unpaid principal amount of all Loans, if any, then outstanding thereon. SECTION 1.11. FUNDING INDEMNITY. If any Bank incurs any loss, cost or expense (including, without limitation, any loss of profit and any loss, cost, expense or premium incurred -13- by reason of the liquidation or re-employment of deposits or other funds acquired by such Bank to fund or maintain any Eurocurrency Loan or the relending or reinvesting of such deposits or amounts paid or prepaid to such Bank) as a result of: (a) any payment or prepayment of a Eurocurrency Loan on a date other than the last day of its Interest Period (whether as a result of acceleration, mandatory prepayment or otherwise), (b) any failure (because of a failure to meet the conditions of Section 6 or otherwise) by the Borrower to borrow a Eurocurrency Loan on the date specified in a notice given pursuant to Section 1.5(a) hereof, or (c) the occurrence of any Event of Default hereunder, then, upon the demand of such Bank, the Borrower shall pay to such Bank such amount as will reimburse such Bank for such loss, cost or expense. If any Bank makes such a claim for compensation, it shall provide to the Borrower a certificate executed by an officer of such Bank setting forth the amount of such loss, cost or expense in reasonable detail (including an explanation of the basis for and the computation of such loss, cost or expense), and the amounts shown on such certificate shall be conclusive and binding absent manifest error. SECTION 1.12. COMMITMENT TERMINATIONS. The Borrower shall have the right at any time and from time to time, upon five (5) Business Days' prior written notice to the Agent, to terminate the Commitments without premium or penalty, in whole or in part, any partial termination to be (i) in an amount not less than $1,000,000, and in integral multiples of $1,000,000, and (ii) allocated ratably among the Banks in proportion to their respective Percentages, PROVIDED that the Commitments may not be reduced to an amount less than the sum of the aggregate principal amount of Loans, the aggregate undrawn face amount of Letters of Credit and the aggregate Reimbursement Obligations then outstanding. The Agent shall give prompt notice to each Bank of any such termination of Commitments. Any termination of Commitments pursuant to this Section 1.12 may not be reinstated. All reductions of Commitments under any provision of this Agreement shall reduce ratably the Commitment of each Bank in accordance with its Percentage. SECTION 1.13. MANDATORY PREPAYMENTS. (a) On the Business Day of the receipt thereof by the Borrower and/or any of its Subsidiaries, an amount equal to 100% of the proceeds (net of reasonable costs associated therewith) of the incurrence of indebtedness for borrowed money shall be applied as a mandatory repayment of principal of the Term Loans to be applied in the inverse order of maturity. -14- (b) Within three (3) Business Days of the receipt thereof by the Borrower and/or any of its Subsidiaries of Net Cash Proceeds from any Asset Sale after the date hereof, an amount equal to 100% of the Net Cash Proceeds shall be applied as a mandatory repayment of principal of the Term Loans to be applied in the inverse order of maturity; PROVIDED THAT with respect to no more than $500,000 in the aggregate of such Net Cash Proceeds in any fiscal year of the Borrower, such Net Cash Proceeds shall not be required to be so applied. SECTION 2. FEES AND EXTENSIONS. SECTION 2.1. FEES. (a) COMMITMENT FEE. For the period from the date hereof to and including the Termination Date, the Borrower shall pay to the Agent for the ratable account of the Banks in accordance with their Percentages a commitment fee accruing on the average daily unused amount of the Commitments, at a rate of (i) 0.250% per annum for each day Level I Status exists and (ii) 0.375% per annum for each day Level II Status or Level III Status exists, such fees being payable in arrears on June 30, 1998, on the last day of each calendar quarter thereafter and on the Termination Date, unless the Commitments are terminated in whole on an earlier date, in which event the fee for the period to but not including the date of such termination shall be paid in whole on the date of such termination. (b) LETTER OF CREDIT FEES. On the date of issuance or extension of any Letter of Credit, the Borrower shall pay to the Agent for the ratable account of the Banks in accordance with their Percentages a fee equal to the then applicable Eurocurrency Margin minus 1/4 of 1% per annum on the face amount of such Letter of Credit, calculated based on the scheduled expiration date of the Letter of Credit. Such letter of credit fees shall be non-refundable in the event of an early termination or cancellation of a Letter of Credit and in all other circumstances. (c) FRONTING FEE. The Borrower agrees to pay to the Agent, for its own account, a fronting fee in respect of each Letter of Credit issued by the Agent, for the period from and including the date of issuance of such Letter of Credit to and including the termination of such Letter of Credit, computed at a rate per annum equal to 1/10 of 1% per annum on the daily stated amount of such Letter of Credit payable on the date such Letter of Credit is issued. SECTION 2.2. AGENT FEES; FEE CALCULATIONS. (a) AGENT FEES. The Borrower shall pay to the Agent the fees agreed to between the Agent and the Borrower in a letter dated January 28, 1998, or as otherwise agreed between them, at any time the Agent is not the only Bank hereunder. (b) FEE CALCULATIONS. All fees payable under Section 2.1(a), (b) and (c) and Section 2.2(a) shall be computed on the basis of a year of 360 days for the actual number of days elapsed. -15- SECTION 3. PLACE AND APPLICATION OF PAYMENTS. SECTION 3.1. PLACE AND APPLICATION OF PAYMENTS. All payments of principal of and interest on the Loans denominated in U.S. Dollars and the Reimbursement Obligations, and of all other amounts payable in U.S. Dollars by the Borrower under this Agreement, shall be made by the Borrower to the Agent by no later than 12:00 Noon (Chicago time) on the due date thereof at the principal office of the Agent in Chicago, Illinois (or such other location in the State of Illinois as the Agent may designate to the Borrower) or, if such payment is to be made in an Alternative Currency, no later than 12:00 Noon local time (or such earlier time as the Agent may notify to the Borrower as necessary for such funds to be received for same day value on the date of such payment) at the place of payment to such office as the Agent has previously specified in a notice to the Borrower, in each case for the benefit of the Bank or Banks entitled to such payments. Any payments received by the Agent from the Borrower after 12:00 Noon (Chicago time) shall be deemed to have been received on the next Business Day. Such payments shall be made (i) if in U.S. Dollars, in lawful money of the United States of America, in immediately available funds or (ii) if in an Alternative Currency, in such currency in funds then customary for the settlement of international transactions in such currency, in each case at the place of payment without setoff or counterclaim. The Agent will, on the same day such payments are received or deemed to have been received in accordance with this Section 3.1, cause to be distributed like funds relating to the payment of fees and of principal or interest on Loans and on Reimbursement Obligations in which the Banks have purchased participating interests ratably to the Banks and like funds relating to the payment of any other amount payable to any Bank to such Bank, in each case to be applied in accordance with the terms of this Agreement. SECTION 4. DEFINITIONS; INTERPRETATION. SECTION 4.1. DEFINITIONS. The following terms when used herein have the following meanings: "ACCOUNT" is defined in Section 8.4(b) hereof. "ADJUSTED LIBOR" is defined in Section 1.3(b) hereof. "AFFILIATE" means, as to any Person, any other Person which directly or indirectly controls, or is under common control with, or is controlled by, such Person. As used in this definition, "CONTROL" (including, with their correlative meanings, "CONTROLLED BY" and "UNDER COMMON CONTROL WITH") shall mean possession, directly or indirectly, of power to direct or cause the direction of management or policies of a Person (whether through ownership of securities or partnership or other ownership interests, by contract or otherwise), PROVIDED that, in any event for purposes of this definition: (i) any Person which owns directly or indirectly 5% or more of the -16- securities having ordinary voting power for the election of directors or other governing body of a corporation or 5% or more of the partnership or other ownership interests of any other Person (other than as a limited partner of such other Person) will be deemed to control such corporation or other Person; and (ii) each director and officer of the Borrower or any Subsidiary shall be deemed to be an Affiliate of the Borrower and each Subsidiary. "AGENT" means Harris Trust and Savings Bank and any successor pursuant to Section 10.8 hereof. "APPLICATION" is defined in Section 1.2(b) hereof. "ALTERNATIVE CURRENCY" means any currency, other than U.S. Dollars, requested by the Borrower and available to all the Banks, for so long as such currency is freely transferable and convertible to U.S. Dollars. "ASSET SALE" means any sale, transfer or other disposition by the Borrower or any of its Subsidiaries to any Person other than the Borrower or any Wholly Owned Subsidiary of the Borrower of any asset of the Borrower or any such Subsidiary other than sales, transfers or other dispositions made in the ordinary course of business. "AUTHORIZED REPRESENTATIVE" means those persons shown on the list of officers provided by the Borrower pursuant to Section 6.1(g) hereof, or on any updated such list provided by the Borrower to the Agent, or any further or different officer of the Borrower so named by any Authorized Representative of the Borrower in a written notice to the Agent. "BANK" means each financial institution executing this Agreement and any replacement or additional Bank pursuant to Section 11.12 hereof. "BOARD OF DIRECTORS" means the Board of Directors of the Borrower or a duly authorized committee of directors lawfully exercising the relevant powers of such Board of Directors. "BORROWER" means Atchison Casting Corporation, a Kansas corporation. "BORROWER GROUP MEMBER" means the Borrower, each Subsidiary, and each of their respective predecessors and (a) each corporation that is or was at any time a member of the same controlled group of corporations (within the meaning of Section 414(b) of the Code) as the Borrower or any Subsidiary, or any of their respective predecessors, (b) each trade or business, whether or not incorporated, that is or was at any time under common control (within the meaning of Section 414(c) of the Code) with the Borrower or any Subsidiary, or any of their respective predecessors, and (c) each trade or business, whether or not incorporated, that is or -17- was at any time a member of the same affiliated service group (within the meaning of Section 414(m) and (o) of the Code) as the Borrower or any Subsidiary, or any of their respective predecessors. "BORROWER PREMISES" means real property in which the Borrower, any Subsidiary, or any Person which has been a Subsidiary at any time has or ever had any direct or indirect interest, including, without limitation, ownership thereof, or any arrangement for the lease, rental or other use thereof, or the retention or claim of any mortgage or security interest therein or thereon. "BORROWING" means the total of Loans of a single type made by the Banks to the Borrower on a single date and for a single Interest Period. Borrowings are made ratably from each of the Banks according to their Percentages. "BUSINESS OR CONDITION" means for any Person, the business, operations, assets, properties, earnings, condition (financial or other) or reasonably foreseeable prospects of such Person, PROVIDED that such term, when used without reference to any particular Person, shall mean the Business or Condition of the Borrower and of the Borrower and its Subsidiaries taken as a whole. "BUSINESS DAY" means any day other than a Saturday or Sunday on which banks are not authorized or required to close in Chicago, Illinois and, if the applicable Business Day relates to the borrowing or payment of a Eurocurrency Loan, on which banks are dealing in U.S. Dollar deposits or the relevant Alternative Currency in the interbank market in London, England and Nassau, Bahamas and, if the applicable Business Day relates to the borrowing or payment of a Eurocurrency Loan denominated in an Alternative Currency, on which banks and foreign exchange markets are open for business in the city where disbursements of or payments on such Loan are to be made. "CAPITAL LEASE" means at any date any lease of Property which in accordance with GAAP would be required to be capitalized on the balance sheet (including the notes thereto) of the lessee, other than (in the case of the Borrower or any of its Subsidiaries) any such lease under which the Borrower or a Wholly Owned Subsidiary is the lessor. "CAPITAL LEASE OBLIGATIONS" means for any Person the amount of the liability required to be shown on the balance sheet (including the notes thereto) of such Person in respect of Capital Leases as determined at any date in accordance with GAAP. "CODE" means the Internal Revenue Code of 1986, as amended. "COMMITMENT" is defined in Section 1.1 hereof. -18- "COMPENSATION PAYMENTS" is defined in Section 7.20(b). "COMPLIANCE CERTIFICATE" means a certificate in the form of Exhibit C hereto. "COMPUTATION PERIOD" is defined in Section 7.19. "CONSOLIDATED CURRENT ASSETS", "CONSOLIDATED CURRENT DEBT", "CONSOLIDATED CURRENT LIABILITIES", "CONSOLIDATED FIXED CHARGES", "CONSOLIDATED FUNDED DEBT", "CONSOLIDATED INTEREST EXPENSE", "CONSOLIDATED NET INCOME", "CONSOLIDATED NET INCOME AVAILABLE FOR FIXED CHARGES", "CONSOLIDATED TOTAL ASSETS" and "CONSOLIDATED TOTAL DEBT" mean Current Assets, Current Debt, Current Liabilities, Fixed Charges, Funded Debt, Interest Expense, Net Income, Net Income Available for Fixed Charges, Total Assets and Total Debt, as the case may be, of the Borrower and its Subsidiaries, all consolidated in accordance with GAAP, after eliminating all intercompany items and, in determining Consolidated Net Income, after deducting portions of income properly attributable to outside minority interests, if any, in the stock and surplus of any Subsidiary; PROVIDED, HOWEVER, that in determining Consolidated Net Income, the income (or deficit) of any Person accrued prior to the date it is acquired in any manner (whether by consolidation, merger, purchase of assets, purchase of stock or otherwise) to the extent not subsequently sold or otherwise disposed of during such period for the portion of such period prior to such acquisition shall be included; PROVIDED, FURTHER HOWEVER, that in determining Consolidated Net Income, portions of income properly attributable to outside minority interests, if any, in the stock and surplus of any Subsidiary shall be deducted, and there shall be excluded any portion of the Net Income of a Subsidiary which for any reason is unavailable for payment of dividends or distributions to the Borrower. "CONSOLIDATED EBITA" means, as applied to any Person for any period, Consolidated Net Income of such Person, plus all amounts deducted in arriving at such Consolidated Net Income in respect of (a) provisions for taxes imposed on or measured by income or excess profit, (b) Consolidated Interest Expense, and (c) amortization of intangibles, all consolidated in accordance with GAAP, after eliminating any intercompany items. "CONSOLIDATED TOTAL LIABILITIES" means, at any time the same is to be determined, the aggregate of all indebtedness, obligations, liabilities, reserves and any other items which would be listed as a liability on a balance sheet of the Borrower and its Subsidiaries determined on a consolidated basis in accordance with GAAP but excluding reserves for deferred income taxes. "CONSOLIDATED TOTAL SENIOR DEBT" means, as applied to the Borrower for any date of determination, the sum of the Debt of the Borrower and its Subsidiaries as at such date minus the Subordinated Debt of the Borrower as at such date. -19- "CONTRACTUAL OBLIGATIONS" means, as to any Person, any provision of any security issued by such Person or of any agreement, instrument or undertaking to which such Person is a party or by which it or any of its property is bound. "CREDIT DOCUMENTS" means this Agreement, the Notes, each Guaranty Agreement, the Applications, the Pledge Agreement and the Letters of Credit. "CREDIT EVENT" means the making of any Loan or the issuance of, or extension of the expiration date (including any automatic extension by failure to give notice of non-renewal) or increase in the amount of, any Letter of Credit. "CURRENT ASSETS" means, as applied to any Person as of any date of determination, the total assets of such Person which would be properly classified as current assets on a balance sheet of such Person prepared in accordance with GAAP as of such date. "CURRENT DEBT" means, as applied to any Person as of any date of determination, all Debt of such Person for borrowed money other than any such Debt which constitutes Funded Debt as of such date. "CURRENT LIABILITIES" means, as applied to any Person as of any date of determination, the total liabilities of such Person which would be properly classified as current liabilities on a balance sheet of such Person prepared in accordance with GAAP as of such date, including in any event (but without duplication) all Debt of such Person payable on demand or having a final maturity of not more than one year after such date, and all fixed or contingent payments maturing or required to be made by such Person not more than one year after such date in respect of the principal or premium (if any) of any Debt. "CURRENT MATURITIES" means, as applied to any Person as of any date of determination, all payments in respect of Funded Debt of such Person and any other debt for borrowed money of such Person which, as of its date of issuance, was Funded Debt, that are required to be made within one year. "CURRENT RATIO" means, as of any date, the number obtained by dividing (a) Consolidated Current Assets as of such date by (b) Consolidated Current Liabilities as of such date. "DEBT" means, as applied to any Person as of any date of determination, all obligations of such Person (other than capital, surplus, reserves for deferred income taxes and, to the extent not constituting obligations, other deferred credits and reserves) which would be classified on a balance sheet of such Person prepared in accordance with GAAP as of such date as indebtedness, including in any event (without duplication): -20- (a) all obligations of such Person for borrowed money or evidenced by bonds, debentures, notes, drafts or similar instruments; (b) all obligations of such Person for all or any part of the deferred purchase price of property or services or for the cost of property constructed or of improvements; (c) all obligations secured by any Lien on or payable out of the proceeds of production from property owned or held by such Person even though such Person has not assumed or become liable for the payment of such obligations; (d) all Capital Lease Obligations of such Person; (e) all obligations of such Person, contingent or otherwise, in respect of any letter of credit facilities, bankers' acceptance facilities or other similar credit facilities (but only to the extent, in the case of any of the foregoing obligations referred to in this clause, the same does not support another obligation of such Person which either is otherwise included in Debt or consists of current accounts payable incurred in the ordinary course of business); and (f) all Guaranties by such Person of or with respect to obligations of the character referred to in the foregoing clauses (a) through (e) of another Person; PROVIDED, HOWEVER, that in determining the Debt of any Person, (i) all liabilities for which such Person is jointly and severally liable with one or more other Persons (including, without limitation, all liabilities of any partnership or joint venture of which such Person is a general partner or co-venturer) shall be included at the full amount thereof without regard to any right such Person may have against any such other Persons for contribution or indemnity, and (ii) no effect shall be given to deposits, trust arrangements or similar arrangements which, in accordance with GAAP, extinguish Debt for which such Person remains legally liable. "DEFAULT" means any event or condition the occurrence of which would, with the passage of time or the giving of notice, or both, constitute an Event of Default. "DOMESTIC RATE" is defined in Section 1.3(a) hereof. "DOMESTIC RATE LOAN" means a Loan bearing interest prior to maturity at a rate specified in Section 1.3(a) hereof. "DOMESTIC RATE MARGIN" is defined in Section 1.3 hereof. -21- "EBITDA" means, with reference to any period, Consolidated Net Income for such period PLUS all amounts deducted in arriving at such Consolidated Net Income amount in respect of (i) Consolidated Interest Expense for such period, PLUS (ii) federal, state and local income taxes for such period, PLUS (iii) all amounts properly charged for depreciation of fixed assets and amortization of intangible assets during such period on the books of the Borrower and its Subsidiaries. "ENVIRONMENTAL CLAIMS" is defined in Section 5.12(c). "ENVIRONMENTAL LAW" means any past, present or future Federal, state, local or foreign statutory or common law, or any regulation, ordinance, code, plan, Order, permit, grant, franchise, concession, restriction or agreement issued, entered, promulgated or approved thereunder, relating to (a) the environment, human health or safety, including, without limitation, emissions, discharges, release or threatened releases of Hazardous Substances into the environment, or (b) the manufacture, generation, refining, processing, distribution, use, sale, treatment, receipt, storage, disposal, transport, arranging for transport, or handling of Hazardous Substances. "ENVIRONMENTAL PERMITS" means, collectively, any and all permits, consents, licenses, approvals and registrations of any nature at any time required pursuant to or in order to comply with any Environmental Law. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, and any successor statute thereto, as interpreted by the rules and regulations thereunder, all as the same may be in effect from time to time. References to sections of ERISA shall be construed also to refer to any successor sections. "EXCHANGE ACT" means the Securities Exchange Act of 1934, or any similar Federal statute, and the rules and regulations of the SEC thereunder, all as the same may be in effect from time to time. "EUROCURRENCY LOAN" means a Loan bearing interest prior to maturity at the rate specified in Section 1.3(b) hereof. "EUROCURRENCY MARGIN" is defined in Section 1.3(b) hereof. "EUROCURRENCY RESERVE PERCENTAGE" is defined in Section 1.3(b) hereof. "EVENT OF DEFAULT" means any of the events or circumstances specified in Section 8.1 hereof. -22- "FEDERAL FUNDS RATE" means the fluctuating interest rate per annum described in part (x) of clause (ii) of the definition of Domestic Rate in Section 1.3(a) hereof. "FIXED CHARGE COVERAGE RATIO" means, as of any date, the number obtained by dividing (a) Consolidated EBITA for the period of four consecutive fiscal quarters of the Borrower ended on or most recently prior to such date by (b) Consolidated Fixed Charges for such period of four consecutive fiscal quarters. "FIXED CHARGES" means, as applied to any Person for any period, the sum of (a) Interest Expense of such Person for such period, PLUS (b) the aggregate amount of Current Maturities required to be made by the Borrower and its Subsidiaries PLUS (c) 15% of the aggregate principal amount of Revolving Loans outstanding on the last day of such period. "FUNDED DEBT" means, as applied to any Person as of any date of determination thereof, all Debt of such Person which would be classified upon a balance sheet of such Person prepared as of such date in accordance with GAAP as long term or funded debt, including in any event (without duplication) all Debt of such Person, whether secured or unsecured, having a final maturity (or which, pursuant to the terms of a revolving credit agreement or otherwise, is renewable or extendable at the option of such Person for a period ending) more than one year after the date as of which Funded Debt is being determined; PROVIDED, HOWEVER, that in no event shall the term Funded Debt include with respect to any Person any fixed or contingent payments maturing or required to be made by such Person not more than one year after such date of determination in respect of the principal or premium (if any) of any Debt. "GAAP" means generally accepted accounting principles as in effect from time to time, applied by the Borrower and its Subsidiaries on a basis consistent with the preparation of the Borrower's financial statements furnished to the Banks pursuant to Section 5.4 hereof. "GOVERNMENTAL BODY" means any Federal, state, municipal, local or other governmental department, commission, board, bureau, agency, instrumentality, political subdivision or taxing authority, of any country. "GUARANTY" means as applied to any Person, any direct or indirect liability, contingent or otherwise, of such Person with respect to any indebtedness, lease, dividend or other obligation of another, including, without limitation, any such obligation directly or indirectly guaranteed, endorsed (otherwise than for collection or deposit in the ordinary course of business) or discounted or sold with recourse by such Person, or in respect of which such Person is otherwise in any manner directly or indirectly liable, including, without limitation, any such obligation in effect guaranteed by such Person through any agreement (contingent or otherwise) to (a) purchase, repurchase or otherwise acquire such obligation or any security therefor, or to -23- provide funds for the payment or discharge of such obligation (whether in the form of loans, advances, stock purchases, capital contributions or otherwise), or (b) maintain the solvency or any balance sheet or other financial condition of the obligor of such obligation, or (c) make payment for any products, materials or supplies or for any transportation or services regardless of the non-delivery or non-furnishing thereof, in any such case if the purpose or intent of such agreement is to provide assurance that such obligation will be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders of such obligation will be protected against loss in respect thereof. For purposes of all computations made under this Agreement the amount of any Guaranty shall be equal to the amount of the obligation guaranteed or, if not stated or determined, the maximum reasonably anticipated liability in respect thereof (assuming such Person is required to perform thereunder) as determined by such Person in good faith. "GUARANTY AGREEMENT" means the Guaranty Agreement in the form of Exhibit E hereto. "HARRIS BANK" is defined in Section 1.1(b) hereof. "HAZARDOUS SUBSTANCES" means and includes those substances included within the definitions of "HAZARDOUS SUBSTANCES," "HAZARDOUS MATERIALS," "TOXIC SUBSTANCES" or "SOLID WASTE" in the Comprehensive Environmental Response Compensation and Liability Act of 1980 (42 U.S.C. Section9601 ET SEQ.), as amended by Superfund Amendments and Reauthorization Act of 1986 (Pub. L. 99-499 100 Stat. 1613), the Resource Conservation and Recovery Act of 1976 (42 U.S.C. Section6901 ET SEQ.) and the Hazardous Materials Transportation Act, (49 U.S.C. Section1801 ET SEQ.), and in the regulations promulgated pursuant to said laws, all as amended; and in any event shall include medical wastes, infectious wastes, asbestos, paint containing lead, and urea formaldehyde. "INTERCREDITOR AGREEMENT" means the Intercreditor Agreement dated as of May 24, 1996 by and among the Agent, the Banks and Teachers Insurance and Annuity Association of America. "INTEREST EXPENSE" means, as applied to any Person for any period, the sum of (a) the aggregate amount of all interest accrued (whether or not actually paid and whether deducted or capitalized) during such period on Debt of such Person (including, without limitation, imputed interest on Capital Lease Obligations), plus, (b) amortization by such Person of debt discount and expense during such period, plus (c) all fees or commission payable by such Person in connection with any letters of credit during such period. "INTEREST PERIOD" is defined in Section 1.6 hereof. -24- "INVESTMENT" means, as applied to any designated Person, any direct or indirect purchase or other acquisition by such designated Person for cash or other property of stock, debt or other securities of any other Person, or any direct or indirect loan, advance, extension of credit or capital contribution by such designated Person to any other Person or any Guaranty by such designated Person with respect to the Debt of such other Person, including all Debt of and accounts receivable from any such other Person which are not current assets or did not arise from sales to such other Person in the ordinary course of business. In computing the amount involved in any Investment, (i) undistributed earnings of, and interest accrued in respect of Debt owing by, any such other Person accrued after the date of such Investment shall be included, (ii) there shall not be deducted from the amounts invested in any such other Person any amounts received as earnings (in the form of dividends, interest or otherwise) on such Investment or as loans or advances from such other Person, and (iii) unrealized increases or decreases in value, or write-ups, write-downs or write-offs, of Investments in any such other Person shall be disregarded. "L/C DOCUMENTS" means the Letters of Credit, any draft or other document presented in connection with a drawing thereunder, the Applications and this Agreement. "LENDING OFFICE" is defined in Section 9.4 hereof. "LETTER OF CREDIT" is defined in Section 1.2(a) hereof. "LEVEL I STATUS" means, for any Pricing Period, the Compliance Certificate delivered by the Borrower for the most recently completed fiscal quarter shows a ratio of Total Senior Debt of the Borrower on a consolidated basis to Total Capitalization of not more than 25%. "LEVEL II STATUS" means, for any Pricing Period, Level I Status does not exist, but the Compliance Certificate delivered by the Borrower for the most recently completed fiscal quarter shows a ratio of Total Senior Debt of the Borrower on a consolidated basis to Total Capitalization of not more than 35%. "LEVEL III STATUS" means, for any Pricing Period, neither Level I Status nor Level II Status exists either because the Compliance Certificate for a quarter has not been delivered by the Borrower within 45 days of the end of such quarter or because such Compliance Certificate does not show compliance with the requirements of either Level I Status or Level II Status "LIBOR" is defined in Section 1.3(b) hereof. "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 such interest is based on the common law, -25- statute or contract, including, but not limited to, the security interest lien arising from a mortgage, encumbrance, pledge, conditional sale, security agreement or trust receipt, or a lease, consignment or bailment for security purposes. The term "LIEN" shall also include reservations, exceptions, encroachments, easements, rights of way, covenants, conditions, restrictions, leases and other title exceptions and encumbrances affecting Property. For the purposes of this definition, a Person shall be deemed to be the owner of any Property which it has acquired or holds subject to a conditional sale agreement, Capital 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 of title shall constitute a "LIEN." "LOANS" means and includes the Revolving Loans, Swing Loans and the Term Loans, as the context may require, and includes all Domestic Rate Loans or Eurocurrency Loans, each of which is a "type" of Loan hereunder. "MATERIAL ADVERSE CHANGE; MATERIAL ADVERSE EFFECT; MATERIALLY ADVERSE" means in, on or to, as appropriate, any Person, a material adverse change in such Person's Business or Condition, a material adverse effect on such Person's Business or Condition or an event which is materially adverse to such Person's Business or Condition; PROVIDED that (a) any such term, when used without reference to any particular Person, shall mean such change in or effect on or event adverse to, as the case may be, the Borrower or the Borrower and its Subsidiaries taken as a whole, and (b) any impairment in a material respect of the ability of the Borrower (i) to pay the principal of and interest on the Notes in accordance with the terms thereof and hereof or (ii) to perform its other obligations under the Notes or this Agreement, shall in any case be deemed to have resulted in a material adverse change in, to have a material adverse effect on, and to be materially adverse to, the Borrower's Business or Condition. "MULTIEMPLOYER PLAN" means a plan defined as such in Section 3 (37) of ERISA to which any Borrower Group Member is making or incurring an obligation to make, or has made or incurred an obligation to make, contributions. "MULTIPLE EMPLOYER PLAN" means a Plan subject to Title IV of ERISA to which any Borrower Group Member, and at least one employer other than a Borrower Group Member, is making or incurring an obligation to make contributions or has made or incurred an obligation to make contributions. "NET CASH PROCEEDS" means, with respect to any Asset Sale, the cash proceeds resulting therefrom net of (a) cash expenses of sale (including brokerage fees, if any, and transfer taxes) and (b) incremental income taxes paid or payable as a result thereof. -26- "NET INCOME" means, as applied to any Person for any period, the net income (or deficit) of such Person for such period (taken as a cumulative whole) after deducting without duplication, operating expenses, provisions for all taxes and reserves (including reserves for deferred income taxes) and all other proper deductions, all determined in accordance with GAAP; PROVIDED HOWEVER, that there shall in any event be excluded from Net Income (without duplication): (a) any amount representing the interest of such Person in the earnings of any other Person, except to the extent that any such earnings have been actually received by such Person in the form of cash dividends or similar distributions; (b) any deferred credit or amortization thereof from the acquisition of any properties or assets of any Person; (c) any gain or loss exceeding $50,000 in the aggregate during such period arising from (i) the sale, exchange or other disposition of capital assets (such term to include all fixed assets, whether tangible or intangible, and all securities), (ii) any reappraisal, revaluation or write-up of assets after the date of the most recent audited financial statements referred to in Section 5.4, (iii) the acquisition of any securities of such Person or (iv) the termination of the Plan; (d) the proceeds of any life insurance policy; and (e) any item properly classified as extraordinary in accordance with GAAP. "NOTES" means and includes the Revolving Notes, Swing Note and the Term Notes, as the context may require. "OFFICER'S CERTIFICATE" means a certificate executed on behalf of the Borrower by its Chairman of the Board of Directors (if an officer), Chief Executive Officer, Chief Operating Officer, President, Chief Financial Officer or Treasurer. "OPERATING LEASE" means any lease or property (real, personal or mixed) other than (a) a Capital Lease and (b) in the case of any Subsidiary, any such lease under which the Borrower or a Wholly Owned Subsidiary is the lessor. "ORDER" means any order, writ, injunction, decree, judgment, award, determination, direction or demand. -27- "OBLIGATIONS" means all fees payable hereunder, all obligations of the Borrower to pay principal or interest on Loans and Reimbursement Obligations, and all other payment obligations of the Borrower arising under or in relation to any Credit Document. "ORIGINAL DOLLAR AMOUNT" means the amount of any Obligation denominated in U.S. Dollars and, in relation to any Loan denominated in an Alternative Currency, the U.S. Dollar Equivalent of such Loan on the first day of its Interest Period. "PARTICIPATING BANK" is defined in Section 1.2(d) hereof. "PBGC" is defined in Section 5.9 hereof. "PERCENTAGE" means, for each Bank, the percentage of the Revolving Commitments represented by such Bank's Revolving Commitment or, if the Revolving Commitments have been terminated, the percentage of the outstanding principal amount of Obligations held by such Bank. "PERSON" means an individual, partnership, corporation, association, trust, unincorporated organization or any other entity or organization, including a government or any agency or political subdivision thereof. "PLAN" means any employee pension benefit plan (as defined in Section 3(2) of ERISA) maintained or contributed to at any time by any Borrower Group Member. "PLEDGE AGREEMENT" means the Pledge and Security Agreement dated as of April 3, 1998 executed by the Borrower in favor of the Agent as Collateral Agent. "PRICING PERIOD" means, for purposes of determining Level I Status, Level II Status, and Level III Status, each period commencing on the date 50 days after the end of a fiscal quarter of the Borrower, beginning with the fiscal quarter ending on June 30, 1996, and terminating on, but not including, the day occurring 50 days after the end of the following fiscal quarter of the Borrower. "PROPERTY" means any interest in any kind of property or asset, whether real, personal or mixed, or tangible or intangible, whether now owned or hereafter acquired. "RATING AGENCIES" is defined in Section 7.18(a). -28- "REFUNDING BORROWING" means any Borrowing of Loans that refunds in whole or in part outstanding Loans at their maturity and does not increase the aggregate outstanding amount of Loans, as further defined in Section 1.5(d) hereof. "REIMBURSEMENT OBLIGATION" is defined in Section 1.2(c) hereof. "RENTALS" means, as applied to any Person for any period, the total amount (whether designated as rentals or additional or supplemental rentals or otherwise) payable by such Person as lessee under all Operating Leases during such period, including amounts so payable during such periods by reason of a lease termination or a surrender of property but excluding amounts so payable on account of maintenance, ordinary repairs, insurance taxes, assessment and other similar charges. "REPORTABLE EVENT" means any of the events set forth in Section 4043(c) of ERISA or the regulations thereunder, other than those events (a) as to which the thirty-day notice requirements of such section or such regulations is waived under subsection .13, .14, .15, .18, .19 or .20 of PBGC Reg. Section 2615 or (b) as to which the penalty for failing to satisfy the notice requirements of such section or regulations is waived under PBGC Technical Update 95-1. "REQUIRED BANKS" means, as of the date of determination thereof: (i) at any time there are fewer than three Banks party to this Agreement, all the Banks and (ii) at all other times, Banks the sum of whose outstanding Term Loans and Commitments (or, if the Commitments have terminated, outstanding Revolving Loans, Swing Loans and Reimbursement Obligations) constitute at least 66-2/3% of the sum of the outstanding Term Loans and Commitments (or, if the Commitments have terminated, outstanding Revolving Loans, Swing Loans and Reimbursement Obligations). "RESPONSIBLE OFFICER" means any officer of the Borrower who shall be permitted to sign an Officer's Certificate (as provided in the definition of that term set forth in this Section) and any other officer of the Borrower, regardless of title, who shall either (a) at any time hereafter perform substantially the same duties as are performed on the date hereof by any such officer permitted to sign an Officer's Certificate or (b) be charged with responsibility for monitoring or administering the Borrower's compliance with any of the provisions of this Agreement. "RESTRICTED INVESTMENT" means any Investment other than an Investment permitted by clause (a), (b), (c) or (d) of Section 7.18. "RESTRICTED PAYMENT" means any payment or distribution or the incurrence of any liability to make any payment or distribution, in cash, property or other assets (other than shares of common stock of the Borrower) upon or in respect of any share of any class of capital stock of -29- the Borrower or any warrants, rights or options evidencing a right to purchase or acquire any securities of the Borrower, including, without limiting the generality of the foregoing, payments or distributions as dividends and payments or distributions for the purpose of purchasing, acquiring, retiring or redeeming any such shares of stock (or any warrants, rights or options to purchase or acquire any such securities) or the making of any other distribution in respect of any such shares of stock (or any warrants, rights or options evidencing a right to purchase or acquire any such securities). "REVOLVING LOAN" is defined in Section 1.1(a) hereof. "SEC" means the Securities and Exchange Commission and any successor. "SECURITY" has the same meaning as in Section 2(l) of the Securities Act of 1933, as amended. "SECURITIES ACT" means the Securities Act of 1933, or any similar Federal statute, and the rules and regulations of the SEC thereunder, all as the same shall be in effect from time to time. "SET-OFF" is defined in Section 11.7 hereof as any of the same may be amended, supplemented or otherwise modified from time to time. "STOCKHOLDERS' EQUITY" means, as at any date of determination, the sum of the capital stock(but excluding redeemable preferred stock, treasury stock and capital stock subscribed but unissued), additional paid-in capital, and retained earnings accounts of the Borrower and its Subsidiaries which would appear on a consolidated balance sheet of the Borrower and its Subsidiaries prepared in accordance with GAAP as of such date, after eliminating all amounts properly attributable to outside minority interests, if any, in the stock and surplus of Subsidiaries. "SUBORDINATED DEBT" means the obligations of the Borrower which are subordinated in right of payment to the prior payment of the Loans and the other Obligations pursuant to documentation, containing interest rates, payment terms, maturities, amortization schedules, covenants, defaults, remedies and other material terms in form and substance reasonably satisfactory to the Required Banks. "SUBSIDIARY" means, with respect to any Person, any corporation more than 50% (or, for purposes of Section 7.18 only, 60%) of the Voting Stock of which is at the time owned by, and the managerial and operational control of which is maintained by, such Person and/or one or more of its other Subsidiaries. Unless otherwise specified, any reference to a Subsidiary is intended as a reference to a Subsidiary of the Borrower. -30- "SWING LINE COMMITMENT" means the commitment of Harris Bank to make Swing Loans in the aggregate amount of $5,000,000 at any one time outstanding. "TANGIBLE STOCKHOLDERS' EQUITY" means Stockholders' Equity minus the aggregate book value of all assets which would be classified as intangible assets under GAAP. "TERMINATION DATE" means April 3, 2003. "TERMINATION EVENT" means (a) with respect to any Plan, the occurrence of a Reportable Event or an event described in Section 4062(e) of ERISA, or (b) the withdrawal of any Borrower Group Member from a Multiple Employer Plan during a plan year in which it was a substantial employer (as such term is defined in Section 4001(a)(2) of ERISA), or the termination of a Multiple Employer Plan, or (c) the distribution of a notice of intent to terminate a Plan or Multiemployer Plan pursuant to Section 4041(a)(2) or 4041A of ERISA, or (d) the institution of proceedings to terminate a Plan or Multiemployer Plan by the PBGC under Section 4042 of ERISA, or (e) any other event or condition which could reasonably be expected to constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan or Multiemployer Plan of (f) the complete or partial withdrawal of any Borrower Group Member from a Multiemployer Plan. "TOTAL ASSETS" means, as of any date for any Person, the net book value of the assets of such Person (exclusive of assets deemed intangible in accordance with GAAP) as of the end of the fiscal quarter ended on such date or (if such date is not the last day of a fiscal quarter), as of the end of the fiscal quarter ended most recently prior to such date. "TOTAL CAPITALIZATION" means, for any date of determination, the sum as of such date of (a) Consolidated Total Debt PLUS (b) Stockholders' Equity. "TOTAL DEBT" means, as applied to any Person of any date of determination, the sum of (i) Current Debt of such Person at such date, (ii) Funded Debt of such Person at such date, (iii) Capital Lease Obligations of such Person at such date, (iv) all obligations of such Person contingent or otherwise, in respect of letters of credit (but only to the extent the same does not support another obligation of such Person which either is included in Total Debt or consists of current accounts payable incurred in the ordinary course of business) and (v) all Guaranties by such Person of or with respect to obligations of the character referred to in the definition of Debt. "UNFUNDED CURRENT LIABILITY" of any Plan means the amount, if any, by which the present value of the accrued benefits under such Plan (based on those assumptions used to fund such Plan) as of the close of its most recent plan year exceeds the then current value of the assets of such plan allocable to such benefits. -31- "U.S. DOLLARS" and "$" each means the lawful currency of the United States of America. "U.S. DOLLAR EQUIVALENT" means the amount of U.S. Dollars which would be realized by converting an Alternative Currency into U.S. Dollars in the spot market at the exchange rate quoted by the Agent, at approximately 11:00 a.m. (London time) two Business Days prior to the date on which a computation thereof is required to be made, to major banks in the interbank foreign exchange market for the purchase of U.S. Dollars for such Alternative Currency. "VOTING STOCK" means capital stock of a corporation the holders of which are ordinarily, in the absence of contingencies, entitled to elect a majority of the corporate directions (or persons performing similar functions) of such corporation. "WELFARE PLAN" means a "WELFARE PLAN", as defined in Section 3(1) of ERISA. "WHOLLY OWNED SUBSIDIARY" means any Subsidiary of the Borrower all of the outstanding shares of capital stock and other equity securities of any class or classes of which, other than directors' qualifying shares, shall at the time be owned by the Borrower either directly or through one or more Wholly Owned Subsidiaries. SECTION 4.2. INTERPRETATION. The foregoing definitions shall be equally applicable to both the singular and plural forms of the terms defined. All references to times of day in this Agreement shall be references to Chicago, Illinois time unless otherwise specifically provided. Where the character or amount of any asset or liability or item of income or expense is required to be determined or any consolidation or other accounting computation is required to be made for the purposes of this Agreement, the same shall be done in accordance with GAAP, to the extent applicable, except where such principles are inconsistent with the specific provisions of this Agreement. SECTION 5. REPRESENTATIONS AND WARRANTIES. The Borrower hereby represents and warrants to each Bank as to itself and, where the following representations and warranties apply to Subsidiaries, as to each of its Subsidiaries, as follows: SECTION 5.1. CORPORATE ORGANIZATION AND AUTHORITY. The Borrower is duly organized and existing in good standing under the laws of the State of Kansas; has all necessary corporate power to carry on its present business; and is duly licensed or qualified and in good standing in each jurisdiction in which the nature of the business transacted by it or the nature of the Property owned or leased by it makes such licensing or qualification necessary and in which the failure to be so licensed or qualified would have a Material Adverse Effect. -32- SECTION 5.2. SUBSIDIARIES. Schedule 5.2 hereto (as updated from time to time) identifies each Subsidiary, the jurisdiction of its incorporation or organization, as the case may be, the percentage of issued and outstanding shares of each class of its capital stock or other equity interest owned by the Borrower and the Subsidiaries and, if such percentage is not 100% (excluding directors' qualifying shares as required by law and small amounts of shares owned by management), a description of each class of its authorized capital stock and other equity interests and the number of shares of each class issued and outstanding. From the date any Subsidiary exists, each Subsidiary is duly incorporated and existing in good standing as a corporation under the laws of the jurisdiction of its incorporation, has all necessary corporate power to carry on its present business, and is duly licensed or qualified and in good standing in each jurisdiction in which the nature of the business transacted by it or the nature of the Property owned or leased by it makes such licensing or qualification necessary and in which the failure to be so licensed or qualified would have a Material Adverse Effect. All of the issued and outstanding shares of capital stock of each Subsidiary are validly issued and outstanding and fully paid and nonassessable (except with respect to common stock of Kramer International, Inc. for certain statutory liabilities which may be imposed by Section 180.0622(2)(b) of the Wisconsin Business Corporation Law for unpaid employee wages) and all such shares owned by the Borrower are owned beneficially and of record, free of any Lien. SECTION 5.3. CORPORATE AUTHORITY AND VALIDITY OF OBLIGATIONS. The Borrower and each Subsidiary has full right and authority to enter into this Agreement and the other Credit Documents to which it is a party, to make the borrowings herein provided for, to issue its Notes in evidence thereof, to apply for the issuance of the Letters of Credit and to perform all of its obligations in connection therewith and to perform all of its obligations under the Credit Documents to which it is a party; each Credit Document to which it is a party has been duly authorized, executed and delivered by the Borrower or Subsidiary, as applicable, and constitutes valid and binding obligations of the Borrower or Subsidiary, as applicable, enforceable in accordance with its terms; and no Credit Document, nor the performance or observance by the Borrower or any Subsidiary of any of the matters or things therein provided for, contravenes any provision of law or any charter or by-law provision of the Borrower or (individually or in the aggregate) any material covenant, indenture or agreement of or affecting the Borrower or any of its Properties or results in or, except under the Pledge Agreement, requires the creation or imposition of any Lien on any of the Properties or revenues of the Borrower. SECTION 5.4. FINANCIAL STATEMENTS. All financial statements heretofore delivered to the Banks and showing historical performance of the Borrower (i) for each of the Borrower's fiscal years ending on or before June 30, 1997, have been prepared in accordance with generally accepted accounting principles applied on a basis consistent, except as otherwise noted therein, with that of the previous fiscal year, and (ii) for periods ending on or after June 30, 1997, have been prepared in accordance with generally accepted accounting principles, except as otherwise -33- noted therein and except for year-end audit adjustments, applied on a basis consistent with the Borrower's financial statements for their fiscal year ending June 30, 1997 as heretofore delivered to the Banks. Each of such annual and other financial statements fairly presents on a consolidated basis the financial position of the Borrower and its Consolidated Subsidiaries, as of the dates thereof, and the results of operations for the periods covered thereby. The Borrower and its Consolidated Subsidiaries have no material contingent liabilities other than those disclosed in such financial statements referred to in this Section 5.4 or in comments or footnotes thereto or in any supplemental report thereto heretofore furnished to the Banks. SECTION 5.5. NO MATERIAL ADVERSE CHANGE. There has been no Material Adverse Change since June 30, 1997. SECTION 5.6. NO LITIGATION; NO LABOR CONTROVERSIES. (a) Except as disclosed on Schedule 5.6(a), there is no litigation or governmental proceeding pending, or to the knowledge of the Borrower or any Subsidiary threatened, against the Borrower or any Subsidiary which, if adversely determined, would (individually or in the aggregate) have a Material Adverse Effect, and it is the Borrower's good faith judgment that the litigation disclosed on Schedule 5.6(a) is not expected to have a Material Adverse Effect. (b) There are no labor controversies pending or, to the best knowledge of the Borrower or any Subsidiary, threatened against the Borrower or any Subsidiary which could (insofar as the Borrower may reasonably foresee) have a Material Adverse Effect. SECTION 5.7. TAXES. The Borrower and Subsidiaries have filed all United States federal tax returns and all other tax returns which are required to be filed and have paid all taxes due pursuant to said returns or pursuant to any assessment received by the Borrower or any Subsidiary, except such taxes, if any, as are being contested in good faith and as to which adequate reserves have been provided. No tax liens have been filed and no claims are being asserted with respect to any such taxes, which liens or claims are material to the financial condition of the Borrower and its Subsidiaries on a consolidated basis taken as a whole. The charges, accruals and reserves on the books of the Borrower and the Subsidiaries in respect of any taxes or other governmental charges are adequate. SECTION 5.8. APPROVALS. No authorization, consent, license, exemption or filing or registration with any court or governmental department, agency or instrumentality, nor any approval or consent of the stockholders of the Borrower or any Subsidiary or from any other Person, is necessary to the valid execution, delivery or performance by the Borrower of any Credit Document to which it is a party. -34- SECTION 5.9. ERISA. Each Borrower Group Member has fulfilled its obligations under the minimum funding standards of and is in compliance in all material respects with ERISA, and with the Code to the extent applicable to it and has not incurred any liability to the Pension Benefit Guaranty Corporation ("PBGC") or a Plan under Title IV of ERISA other than a liability to the PBGC for premiums under Section 4007 of ERISA. Neither the Borrower nor any Subsidiary has any contingent liabilities with respect to any post-retirement benefits under a Welfare Plan, other than liability for continuation coverage described in article 6 of Title I of ERISA. SECTION 5.10. GOVERNMENT REGULATION. Neither the Borrower nor any Subsidiary is an "INVESTMENT COMPANY" within the meaning of the Investment Company Act of 1940, as amended, or a "HOLDING COMPANY", or a "SUBSIDIARY COMPANY" of a "HOLDING COMPANY", or an "AFFILIATE" of a "HOLDING COMPANY" or of a "SUBSIDIARY COMPANY" of a "HOLDING COMPANY", within the meaning of the Public Utility Holding Company Act of 1935, as amended. SECTION 5.11. MARGIN STOCK. Neither the Borrower nor any Subsidiary is engaged principally, or as one of its primary activities, in the business of extending credit for the purpose of purchasing or carrying margin stock ("MARGIN STOCK" to have the same meaning herein as in Regulation U of the Board of Governors of the Federal Reserve System). The Borrower will not use the proceeds of any Loan or Letter of Credit in a manner that violates any provision of Regulation G, U or X of the Board of Governors of the Federal Reserve System. SECTION 5.12. LICENSES AND AUTHORIZATIONS; COMPLIANCE WITH LAWS. (a) The Borrower and each Subsidiary has all necessary licenses, permits and governmental authorizations (including, without limitation, all Environmental Permits) to own and operate its Properties and to carry on its business as currently conducted and contemplated. (b) To the best of the Borrower's knowledge, the business and operations of the Borrower and each Subsidiary comply in all respects with all Environmental Laws and Environmental Permits received thereunder, except where the failure to so comply would not (individually or in the aggregate) have a Material Adverse Effect. (c) Neither the Borrower nor any Subsidiary has given, nor is it required to give, nor has it received, any notice, letter, citation, order, warning, complaint, inquiry, claim or demand to or from any governmental entity or in connection with any court proceeding that: (i) the Borrower or any Subsidiary has violated, or is about to violate, any Environmental Law or Environmental Permit; (ii) there has been a release, or there is a threat of release, of Hazardous Substances from the Borrower's or any Subsidiary's Property, facilities, equipment or vehicles; (iii) the Borrower or any Subsidiary may be or is liable, in whole or in part, for the costs of cleaning up, remediating or responding to a release of Hazardous Substances; or (iv) any of the -35- Borrower's or any Subsidiary's property or assets are subject to a Lien in favor of any governmental entity for any liability, costs or damages, under any Environmental Law arising from, or costs incurred by such governmental entity in response to, a release of a Hazardous Substance (all such matters described in clauses (i)-(iv) above being collectively "ENVIRONMENTAL CLAIMS"), to the extent any of the foregoing could have a Material Adverse Effect. SECTION 5.13. OWNERSHIP OF PROPERTY; LIENS. The attached Schedule 5.13 lists all principal real property locations used by the Borrower or any Subsidiary in the conduct of their respective businesses. The Borrower and each Subsidiary has good record and marketable title in fee simple to, or valid leasehold interests in, all such real property, as specified in Schedule 5.13, and good title to or valid leasehold interests in all its other Property. None of the real property listed on Schedule 5.13 is subject to any Lien or Capitalized Lease Obligation except as set forth therein, and none of the Borrower's or any Subsidiary's other Property is subject to any Lien, except as permitted in Section 7.9. SECTION 5.14. NO BURDENSOME RESTRICTIONS; COMPLIANCE WITH AGREEMENTS. Neither the Borrower nor any Subsidiary is (a) party or subject to any law, regulation, rule or order, or any Contractual Obligation that (individually or in the aggregate) Materially Adversely affects, or (insofar as the Borrower or any Subsidiary may reasonably foresee) may so affect, the Borrower and its Subsidiaries taken as a whole or (b) in default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any agreement to which it is a party, which default Materially Adversely affects, or (insofar as the Borrower or any Subsidiary may reasonably foresee) may so affect, the Borrower and its Subsidiaries taken as a whole. SECTION 5.15. FULL DISCLOSURE. All information heretofore furnished by the Borrower or any Subsidiary to the Agent or any Bank for purposes of or in connection with the Credit Documents or any transaction contemplated thereby is, and all such information hereafter furnished by the Borrower or any Subsidiary to the Agent or any Bank will be, true and accurate in all material respects and not misleading on the date as of which such information is stated or certified. The Borrower has disclosed to the Banks in writing any and all facts which materially and adversely affect the business, operations or financial condition of the Borrower and its Consolidated Subsidiaries taken as a whole, or the ability of the Borrower to perform its obligations under the Credit Documents. SECTION 5.16. YEAR 2000 COMPLIANCE. The Borrower and its Consolidated Subsidiaries have conducted a comprehensive review and assessment of their computer applications, and have made inquiry of their material suppliers, vendors and customers, with respect to any defect in computer software, data bases, hardware, controls and peripherals related to the occurrence of the year 2000 or the use of any date after December 31, 1999 in connection therewith. Based on the -36- foregoing review, assessment and inquiry, the Borrower believes that no such defect could reasonably be expected to have a Material Adverse Effect. SECTION 6. CONDITIONS PRECEDENT. The obligation of each Bank to make any Loan hereunder, or of the Agent to issue, extend the expiration date of or increase the amount of any Letter of Credit, shall be subject to the following conditions precedent unless waived by the Banks: SECTION 6.1. INITIAL CREDIT EVENT. Before or concurrently with the initial Credit Event: (a) The Agent shall have received for each Bank the favorable written opinion of Blackwell, Sanders, Matheny, Weary & Lombardi, legal counsel to the Borrower, in the form attached hereto as Exhibit D; (b) The Agent shall have received for each Bank copies (executed or certified as may be appropriate) of all legal documents or proceedings taken by the Borrower in connection with the execution and delivery of this Agreement and the Notes to the extent the Agent or the Required Banks may reasonably request; (c) The Agent shall have received for each Bank copies of the Borrower's Articles of Incorporation and bylaws and any amendments thereto, certified in each instance by its Secretary or Assistant Secretary; (d) The Agent shall have received for each Bank copies of resolutions of the Borrower's Board of Directors authorizing the execution and delivery of the Credit Documents to which it is a party and the consummation of the transactions contemplated thereby together with specimen signatures of the persons authorized to execute such documents on the Borrower's behalf, as applicable, all certified by its Secretary or Assistant Secretary; (e) The Agent shall have received for each Bank such Bank's duly executed Notes of the Borrower dated the date hereof and otherwise in compliance with the provisions of Section 1.10(a) hereof; (f) Each Subsidiary which has executed the Guaranty Agreement shall have consented to the terms of this Agreement and confirmed the enforceability of its obligations under the Guaranty Agreement. -37- (g) The Agent shall have received for each Bank a list of the Borrower's Authorized Representatives; (h) The Agent shall have received for each Bank the closing fees as agreed to by the Agent and the Borrower; (i) The Borrower shall have consummated its acquisition of the engineering division of Sheffield Forgemasters Group plc for a total consideration not to exceed 45,000,000 Pound Sterling; (j) The Agent shall have received from the Borrower a list of all outstanding Indebtedness of the Borrower and is Subsidiaries; and (k) All legal matters incident to the execution and delivery of the Credit Documents shall be satisfactory to the Banks. SECTION 6.2. ALL CREDIT EVENTS. As of the time of each Credit Event hereunder: (a) In the case of a Borrowing, the Agent shall have received the notice required by Section 1.5 hereof, and in the case of the issuance of any Letter of Credit the Agent shall have received a duly completed Application for a Letter of Credit and, in the case of an extension or increase in the amount of a Letter of Credit, a written request therefor, in a form acceptable to the Agent; (b) Each of the representations and warranties of the Borrower set forth in Section 5 hereof shall be and remain true and correct in all material respects as of said time, except to the extent that any such representation or warranty relates solely to an earlier date; (c) The Borrower shall be in full compliance with all of the terms and conditions hereof, and no Default or Event of Default shall have occurred and be continuing or would occur as a result of such Credit Event; (d) In the case of the making of a Revolving Loan, the sum of the aggregate outstanding principal amount of Revolving Loans denominated in U.S. Dollars, the U.S. Dollar Equivalent of all Revolving Loans denominated in an Alternative Currency, the aggregate undrawn face amount of Letters of Credit, and the unpaid Reimbursement Obligations outstanding after giving effect to such Credit Event shall not exceed the Commitments then in effect; -38- (e) In the case of the issuance of, or the increase in the amount of, or the extension of the expiration date of, a Letter of Credit the restrictions set forth in Section 1.2(a) shall be met; and (f) Such Credit Event shall not violate any order, judgment or decree of any court or other authority or any provision of law or regulation applicable to any Bank (including, without limitation, Regulation U of the Board of Governors of the Federal Reserve System) as then in effect. Each request for a Borrowing hereunder and each request for the issuance of, increase in the amount of, or extension of the expiration date of, a Letter of Credit shall be deemed to be a representation and warranty by the Borrower on the date of such Borrowing, issuance of, increase in the amount of, or extension of the expiration date of, such Letter of Credit as to the facts specified in paragraphs (b) through (g) of this Section 6.2. SECTION 7. COVENANTS. The Borrower covenants and agrees that, so long as any Note, any Letter of Credit or any Reimbursement Obligation is outstanding hereunder or any Commitment is available to or in use by the Borrower hereunder, except to the extent compliance in any case is waived in writing by the Required Banks: SECTION 7.1. CORPORATE EXISTENCE; SUBSIDIARIES. The Borrower shall, and shall cause each of its Subsidiaries to, preserve and maintain its corporate existence, subject to the provisions of Section 7.12 hereof. As a condition to establishing or acquiring any Subsidiary, the Borrower shall (i) cause such Subsidiary to execute and deliver to the Agent a Guaranty Agreement, (ii) deliver documentation similar to that described in Section 6.1(c) and (d) relating to the authorization for, execution and delivery of, and validity of such Subsidiary's obligations under the Guaranty Agreement, in form and substance satisfactory to the Required Banks and (iv) deliver an updated Schedule 5.2 to reflect the new Subsidiary; provided that Sheffield Forgemasters Group, plc need not execute a Guaranty Agreement. SECTION 7.2. MAINTENANCE. The Borrower will maintain, preserve and keep its plants, properties and equipment deemed by it necessary to the proper conduct of its business in reasonably good repair, working order and condition and will from time to time make all reasonably necessary repairs, renewals, replacements, additions and betterments thereto so that at all times such plants, properties and equipment shall be reasonably preserved and maintained, and the Borrower will cause each of its Subsidiaries to do so in respect of Property owned or used by it; PROVIDED, HOWEVER, that nothing in this Section 7.2 shall prevent the Borrower or a -39- Subsidiary from discontinuing the operation or maintenance of any such properties if such discontinuance is, in the judgment of the Borrower, desirable in the conduct of its business or the business of its Subsidiary and not disadvantageous to the Banks or the holders of the Notes. SECTION 7.3. TAXES. The Borrower will duly pay and discharge, and will cause each of its Subsidiaries to pay and discharge, all taxes, rates, assessments, fees and governmental charges upon or against it or against its Properties, in each case before the same becomes delinquent and before penalties accrue thereon, unless and to the extent that the same is being contested in good faith and by appropriate proceedings and reserves in conformity with GAAP have been provided therefor on the books of the Borrower. SECTION 7.4. ERISA. The Borrower will, and will cause each of its Subsidiaries to, promptly pay and discharge all obligations and liabilities arising under ERISA of a character which if unpaid or unperformed might result in the imposition of a Lien against any of its properties or assets and will promptly notify each Bank of (i) the occurrence of any Reportable Event with respect to a Plan, (ii) receipt of any notice from PBGC of its intention to seek termination of any Plan or appointment of a trustee therefor, (iii) its or any of its Subsidiaries' intention to terminate or withdraw from any Plan, and (iv) the occurrence of any event with respect to any Plan which could result in the incurrence by the Borrower or any of its Subsidiaries of any material liability, fine or penalty, or any material increase in the contingent liability of the Borrower, or any of its Subsidiaries with respect to any post-retirement Welfare Plan benefit. SECTION 7.5. INSURANCE. The Borrower will insure, and keep insured, and will cause each of its Subsidiaries to insure, and keep insured, with good and responsible insurance companies, all insurable Property owned by it which is of a character usually insured by companies similarly situated and operating like Property; and to the extent usually insured (subject to self-insured retentions) by companies similarly situated and conducting similar businesses, the Borrower will also insure, and cause each of its Subsidiaries to insure, employers' and public and product liability risks with good and responsible insurance companies. The Borrower will upon request of any Bank furnish to such Bank a summary setting forth the nature and extent of the insurance maintained pursuant to this Section 7.5. SECTION 7.6. FINANCIAL REPORTS AND OTHER INFORMATION. The Borrower will maintain a system of accounting in accordance with GAAP and will furnish to the Banks and to their respective duly authorized representatives such information respecting the business and financial condition of the Borrower and its Subsidiaries as any Bank may reasonably request; and without any request will furnish each of the following to each Bank: -40- (a) QUARTERLY STATEMENTS. As soon as available and in any event within 45 days after the end of each quarterly fiscal period in each fiscal year of the Borrower, a consolidated and consolidating balance sheet of the Borrower and its Subsidiaries as of the end of such quarterly fiscal period and the related consolidated and consolidating statements of income and cash flows of the Borrower and its Subsidiaries for such quarterly fiscal period and (except in the case of the first such quarterly fiscal period in each fiscal year) for the portion of the fiscal year ended with the last day of such quarterly fiscal period, setting forth in comparative form the respective figures for the corresponding period of the previous fiscal year together with fiscal year to date comparisons to the Borrower's current operating budget, all in reasonable detail and certified by the principal financial officer of the Borrower as complete and correct in all material respects, subject to changes resulting from normal year-end audit adjustments; (b) ANNUAL STATEMENTS. As soon as available and in any event within 90 days after the end of each fiscal year of the Borrower, a consolidated and consolidating balance sheet of the Borrower and its Subsidiaries as of the end of such fiscal year and the related consolidated and consolidating statements of income, stockholders' equity and cash flows of the Borrower and its Subsidiaries for such fiscal year, setting forth in each case in comparative form the respective figures as of the end of and for the previous fiscal year, all in reasonable detail and (i) in the case of the consolidated financial statements, accompanied by an opinion thereon of Deloitte & Touche or other independent certified public accountants of recognized national standing selected by the Borrower and reasonably satisfactory to the Required Banks, which opinion shall not be made in reliance upon the opinion of any other accountant, shall be made without qualification or modification, shall comply with generally accepted auditing standards at the time in effect and shall state that such consolidated financial statements present fairly, in all material respects, the financial position of the Borrower and its Subsidiaries as at the dates indicated and the results of their operations and their cash flows for the periods indicated in conformity with GAAP, that the audits of such accountants were conducted in accordance with generally accepted auditing standards and that such accountants believe such audits provide a reasonable basis for their opinion, and (ii) in the case of such consolidating financial statements, certified by the principal financial officer of the Borrower as complete and correct in all material respects; (c) ANNUAL BUDGET. As soon as available, and in any event within thirty (30) days prior to the end of each fiscal year, a copy of the Borrower's consolidated and consolidating operating budget for the following fiscal year, such budget to show the Borrower's projected consolidated and consolidating revenues, expenses, and balance sheet on a month-by-month basis, such budget to be in reasonable detail prepared by the Borrower and in form reasonably satisfactory to the Required Banks; -41- (d) COMPLIANCE CERTIFICATES. Concurrently with each delivery of financial statements pursuant to clause (a) or (b) of this Section 7.6, a Compliance Certificate in the form of Exhibit C hereto signed by the Borrower's Chief Financial Officer, Controller or Treasurer. (e) ACCOUNTANT'S CERTIFICATES. Together with each delivery of annual consolidated financial statements pursuant to clause (b) of this Section 7.6, a written statement addressed to the Banks from the independent certified public accountants referred to in said clause (b) who have reported on such financial statements: (i) stating whether, in the course of their audit examination, anything has come to their attention concerning the existence during the fiscal year covered by such financial statements (and whether they have knowledge of the existence as of the date of such written statement) of any condition or event which constitutes a Default or an Event of Default and, if so, specifying the nature and period of existence thereof; and (ii) stating that they have examined the Compliance Certificate delivered in connection with such annual financial statements pursuant to clause (d) of this Section 7.6 for such fiscal year and, based upon their annual audit examination, nothing has come to their attention which causes them to believe that the information contained in such Compliance Certificate is not correct or that the matters set forth in such Compliance Certificate have not been properly stated in accordance with the terms of this Agreement; (f) SEC AND OTHER REPORTS. Promptly upon their becoming available (and in any event within ten Business Days thereafter), copies of (i) all financial statements, reports, notices, proxy statements and other information sent or made available generally by the Borrower to any class of its security holders or by any Subsidiary to any class of its security holders other than the Borrower or another Subsidiary, (ii) all regular and periodic reports (including reports on Form 8-K) and all registration statements (other than those on Form S-8 or a successor form relating to the registration of securities pursuant to an employee benefit plan) and prospectuses filed by the Borrower or any of its Subsidiaries with any securities exchange or with the SEC, and (iii) all press releases and other statements made available generally by the Borrower or any of its Subsidiaries to the public concerning material developments in the business of the Borrower or any of its Subsidiaries; (g) AUDIT REPORTS. Promptly upon receipt thereof (and in any event within ten Business Days thereafter), copies of reports submitted to the Borrower or any of its -42- Subsidiaries by independent certified public accountants in connection with any annual, interim or special audit of the Borrower or any Subsidiary made by such accountants; (h) DEFAULTS, ETC. Promptly (and in any event within five Business Days) after any Responsible Officer of the Borrower obtains knowledge of any condition or event which constitutes a Default or an Event of Default or becomes aware that any Person has given any notice to the Borrower or any of its Subsidiaries or taken any other action with respect to a claimed default under or in respect of any Debt referred to in Section 8.1(d) or with respect to the occurrence or existence of any event or condition of the type referred to in Section 8.1(f) or 8.1(g), an Officer's Certificate specifying in reasonable detail the nature and period of existence thereof and what action the Borrower has taken or its taking or proposes to take with respect thereto; (i) ERISA. Promptly (and in any event within ten Business Days) after any Borrower Group Member or any plan administrator of any Plan (i) knows of the occurrence of any Termination Event, (ii) receives with respect to any Multiemployer Plan notice as prescribed in ERISA of any withdrawal liability assessed against any Borrower Group Member or of a determination that any Multiemployer Plan is in reorganization or insolvent (both within the meaning of Title IV of ERISA), (iii) knows that a prohibited transaction (as defined in Section 406 of ERISA or Section 4975 of the Code) for which a statutory or administrative exemption is not available or a breach of fiduciary responsibility has occurred in connection with which any Borrower Group Member could reasonably be subject to any material liability under Section 406, 409, 502(i) or 502(l) of ERISA or Section 4975 of the Code, or under any agreement or other instrument pursuant to which such Borrower Group Member has agreed or is required to indemnify any Person against any such liability or (iv) knows that there has been a material adverse change in the funding status of any Plan, a description of such event or a copy of such notice and a statement by the principal financial officer of the Borrower of the action which has been or is being taken or is proposed to be taken by the Borrower with respect thereto; (j) LITIGATION, ETC. Promptly (and in any event within ten Business Days) after any Responsible Officer of the Borrower obtains knowledge of any litigation, administrative proceeding or judgment (i) relating to the Borrower or any of its Subsidiaries (whether or not considered by the Borrower to be covered by insurance) and which could, if adversely determined, reasonably be expected to have a Material Adverse Effect, or (ii) relating in any way to this Agreement, an Officer's Certificate specifying in each case in reasonable detail the facts and circumstances surrounding such litigation, proceeding or judgment; and -43- (k) ENVIRONMENTAL NOTICES. Promptly (and in any event within five Business Days) after any Responsible Officer obtains knowledge that (i) the Borrower or any of its Subsidiaries is not in compliance in any material respect with any Environmental Law or (ii) that any Environmental Claim has been made against the Borrower or any Subsidiary and such non- compliance or Environmental Claim could reasonably be expected to have a Material Adverse Effect on the Borrower, an Officer's Certificate specifying the nature and period of existence of such non-compliance or the substance of such Environmental Claim and, in either case, what action the Borrower has taken or is taking or proposes to take with respect thereto. SECTION 7.7. BANK INSPECTION RIGHTS. Upon reasonable notice from any Bank, the Borrower will permit such Bank (and such Persons as any Bank may designate) during normal business hours at the Borrower's expense (excluding, however, salary and other overhead expenses of such Bank and the travel, lodging and related expenses of such Banks representative, all of which shall, except as hereinafter provided, be borne by such Banks) to visit and inspect, under the Borrower's guidance, any of the properties of the Borrower or any of its Subsidiaries, to examine all of their 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, employees and independent public accountants (and by this provision the Borrower authorizes such accountants to discuss with the Banks (and such Persons as any Bank may designate) the finances and affairs of the Borrower and its Subsidiaries) all at such reasonable times and as often as may be reasonably requested; PROVIDED that, during the continuance of any Default or Event of Default, all reasonable travel, lodging costs and related expenses relating to any such visit or inspection which would otherwise be required by the foregoing provisions of this Section 7.7 to be borne by a Bank shall be borne by the Borrower. SECTION 7.8. CONDUCT OF BUSINESS. The Borrower and each Subsidiary will not abandon or engage in any line of business if, as a result, the general nature of its business would be substantially changed from the general nature of the business engaged in thereby on the date of this Agreement. SECTION 7.9. LIENS. The Borrower will not, and will not permit any of its Subsidiaries to, create, incur, or permit to exist or to be incurred any Lien of any kind on any Property owned by the Borrower or any Subsidiary; PROVIDED, HOWEVER, that this Section 7.9 shall not apply to nor operate to prevent: (a) Liens arising by operation of law in connection with worker's compensation, unemployment insurance, old age benefits, social security obligations, taxes, assessments, statutory obligations or other similar charges, good faith deposits, pledges or Liens in connection with bids, tenders, contracts or leases to which the -44- Borrower or any Subsidiary of the Borrower is a party (other than contracts for borrowed money), or other deposits required to be made in the ordinary course of business; PROVIDED that in each case the obligation secured is not overdue or, if overdue, is being contested in good faith by appropriate proceedings and for which reserves in conformity with GAAP have been provided on the books of the Borrower or such Subsidiary, as the case may be; (b) mechanics', workmen's, materialmen's, landlords', carriers' or other similar Liens arising in the ordinary course of business (or deposits to obtain the release of such Liens) with respect to obligations which are not due or, if due, are being contested in good faith by appropriate proceedings and for which reserves in conformity with GAAP have been provided on the books of the Borrower or such Subsidiary, as the case may be; (c) Liens for taxes or assessments or other government charges or levies on the Borrower or any Subsidiary of the Borrower or their respective Properties, not yet due or delinquent, or which can thereafter be paid without penalty, or which are being contested in good faith by appropriate proceedings and for which reserves in conformity with GAAP have been provided on the books of the Borrower or such Subsidiary, as the case may be; (d) Liens arising out of judgments or awards against the Borrower or any Subsidiary of the Borrower, or in connection with surety or appeal bonds in connection with bonding such judgments or awards, the time for appeal from which or petition for rehearing of which shall not have expired or with respect to which the Borrower or such Subsidiary shall be prosecuting an appeal or proceeding for review, and with respect to which it shall have obtained a stay of execution pending such appeal or proceeding for review; PROVIDED that the aggregate amount of liabilities (including interest and penalties, if any) of the Borrower and the Subsidiaries secured by such Liens shall not exceed $2,500,000 at any one time outstanding; (e) Liens upon any Property acquired by the Borrower or any Subsidiary of the Borrower (A) to secure the payment of up to 90% of the purchase price of such Property upon the acquisition thereof by the Borrower or such Subsidiary, (B) to secure any Debt issued, assumed or guaranteed by the Borrower or any Subsidiary of the Borrower prior to, at the time of, or within 90 days after the acquisition of such Property, which Debt is issued, assumed or guaranteed for the purpose of financing up to 90% of the purchase price of such Property, or (C) existing on Property of a Subsidiary at the time such Person becomes a Subsidiary and not created in contemplation of such acquisition; PROVIDED that any such Lien under clause (A), (B) or (C) above shall apply -45- only to the Property that was so acquired or purchased, and the aggregate amount of Debt secured by all such Liens, does not exceed $8,000,000; (f) Minor survey exceptions or minor encumbrances, easements or reservations, or rights of others for rights-of-way, utilities and other similar purposes, or zoning or other restrictions as to the use of real properties which are necessary for the conduct of the activities of the Borrower and any Subsidiary of the Borrower or which customarily exist on properties of corporations engaged in similar activities and similarly situated and which do not in any event materially impair their use in the operation of the business of the Borrower or any Subsidiary of the Borrower; and (g) Any extension, renewal or replacement (or successive extensions, renewals or replacements) in whole or in part of any Lien referred to in the foregoing paragraphs (a) through (f), inclusive, PROVIDED, HOWEVER, that the principal amount of Debt secured thereby shall not exceed the principal amount of Debt so secured at the time of such extension, renewal or replacement, and that such extension, renewal or replacement shall be limited to the Property which was subject to the Lien so extended, renewed or replaced. SECTION 7.10. USE OF PROCEEDS; REGULATION U. The proceeds of each Borrowing shall be used by the Borrower for working capital and other general corporate purposes including acquisitions of businesses substantially in the same line of business as the Borrower; PROVIDED, THAT immediately prior to any acquisition (regardless whether or not funded in whole or in part by Borrowings hereunder), the Borrower shall have provided the Banks with such information as may be reasonably requested by the Banks concerning the terms of such transaction (including sources and uses of funds therefor) and the entity or business being acquired, as well as historic and PRO FORMA financial information and compliance calculations reasonably satisfactory to the Banks demonstrating that no Default or Event of Default exists or would occur after giving effect to such transaction. The Letters of Credit will be used to secure the Borrower's or any Subsidiaries' obligations in connection with the Borrower's or such Subsidiaries' self-insured portion of workman's compensation and property & casualty insurance claims. The Borrower shall not use any part of the proceeds of any of the Borrowings or of the Letters of Credit directly or indirectly to purchase or carry any margin stock (as defined in Section 5.11 hereof) or to extend credit to others for the purpose of purchasing or carrying any such margin stock. SECTION 7.11. SALES AND LEASEBACKS. The Borrower will not, nor will it permit any Subsidiary to, enter into any arrangement with any bank, insurance company or any other lender or investor providing for the leasing by the Borrower or any Subsidiary of any Property theretofore owned by it and which has been or is to be sold or transferred by such owner to such lender or investor; PROVIDED THAT the foregoing shall not prevent the Borrower or any Subsidiary -46- from entering into a sale and leaseback transaction for any real property of the Borrower or such Subsidiary in connection with the issuance of industrial revenue bonds the proceeds of which will be used to finance the acquisition of or improvements to such property so long as (a) the sale of such real property is at the time permitted pursuant to Section 7.12 hereof and (b) at the time of and after giving effect to such transaction, no Default or Event of Default shall have occurred and be continuing. SECTION 7.12. CONSOLIDATION, MERGER, SALE OF ASSETS, ETC. The Borrower will not, and will not permit any of its Subsidiaries to, voluntarily liquidate or dissolve, or consolidate or merge with or into any other Person, or permit any other Person to consolidate with or merge with or into it, or participate in a share exchange with or sell, lease, transfer, contribute or otherwise dispose of any of its assets to any other Person (other than sales of inventory and worn out and obsolete assets in the ordinary course of business as such business is conducted in compliance with Section 7.8), except that, subject in any event to compliance with the last paragraph of this Section 7.12: (a) any Subsidiary may (i) consolidate with or merge into the Borrower or any Wholly Owned Subsidiary if the Borrower or a Wholly Owned Subsidiary shall be the continuing or surviving corporation or (ii) consolidate or merge with any other corporation if such Subsidiary shall be the continuing or surviving corporation; (b) any Subsidiary may sell, lease, transfer, contribute or otherwise dispose of its assets in whole or in part to the Borrower or any Wholly Owned Subsidiary, and may, following any such disposition in whole, liquidate and dissolve; (c) the Borrower may consolidate or merge with any other corporation if the Borrower shall be the continuing or surviving corporation; and (d) the Borrower or any Subsidiary, in addition to making any sale, lease, transfer or other disposition permitted by the foregoing provisions of this Section 7.12, may sell any of its assets for a consideration at least equal to the fair market value thereof (as determined in good faith by the Board of Directors) at the time of such sale but only if, immediately after giving effect to such sale, the aggregate net book value of all assets sold as permitted by this clause (d) (including all deemed dispositions pursuant to Section 7.13) during the period of twelve consecutive months ending on (and including) the date of such proposed sale shall not exceed 10% of Consolidated Total Assets determined as of such date. No consolidation, merger, sale, lease, transfer, contribution or other disposition referred to in clauses (a) through (d) of this Section 7.12 shall be permitted unless at the time of and -47- immediately after giving effect to any such transaction, no Default or Event of Default shall have occurred and be continuing. Nothing contained in this Section 7.12 shall permit the disposition of assets consisting of Debt, stock or similar interests or other securities (or warrants, rights or options to acquire stock or other securities) of any Subsidiary unless such disposition is also made in compliance with Section 7.13. SECTION 7.13. SUBSIDIARY STOCK AND DEBT. The Borrower will not, and will not permit any Subsidiary to, issue, sell or otherwise dispose or part with control of any shares of stock or any other securities (or warrants, rights or options to acquire stock or other securities) of any Subsidiary, except to the Borrower, another Wholly Owned Subsidiary or employees of any Subsidiary (PROVIDED that employee ownership of the shares of stock of any given Subsidiary does not in any event exceed 19% of the outstanding stock of such Subsidiary), and except that all shares of stock and all Debt and other securities of any Subsidiary at the time owned by or owed to the Borrower and all Subsidiaries may be sold as an entirety for a consideration which represents the fair value (as determined in good faith by the Board of Directors) at the time of sale of the shares of stock and Debt and other securities so sold, PROVIDED that, (i) such Subsidiary being sold does not at that time own, directly or indirectly, any Debt or stock or other security of any other Subsidiary which is not also being simultaneously sold as an entirety as permitted by this proviso or any Debt of the Borrower, (ii) the assets of such Subsidiary represented by the equity interest to be so transferred are such that the sale of such assets would then be permitted by Section 7.12 (in which case such transaction shall be considered and deemed a disposition of assets for the purposes of Section 7.12), and (iii) at the time of the consummation of such transaction and after giving effect thereto, no Default or Event of Default shall have occurred and be continuing; provided further that this Section 7.13 shall not prevent a Subsidiary from incurring or maintaining outstanding Debt to a Person other than the Borrower or a Subsidiary to the extent permitted by Section 7.17. SECTION 7.14. USE OF PROPERTY AND FACILITIES; ENVIRONMENTAL, HEALTH AND SAFETY LAWS. The Borrower will, and will cause each of its Subsidiaries to, comply in all material respects with the requirements of all Environmental Laws, Environmental Permits and federal, state and local health and safety laws, rules, regulations and orders applicable to or pertaining to the Properties or business operations of the Borrower or any Subsidiary of the Borrower. Without limiting the foregoing, the Borrower will not, and will not permit any Person to, except in accordance with applicable law, dispose of any Hazardous Substance into, onto or from any real property owned or operated by the Borrower or any of its Subsidiaries. SECTION 7.15. MAINTENANCE OF CERTAIN FINANCIAL CONDITIONS. (a) CURRENT RATIO. The Borrower will not on any date permit the Current Ratio to be less than 1.50. -48- (b) STOCKHOLDERS' EQUITY. The Borrower will not on any date permit Stockholders' Equity to be less than the sum of $107,000,000 PLUS 50% (or 0% in the case of a deficit) of Consolidated Net Income for each fiscal year ending after June 30, 1997 PLUS 85% of the proceeds (net of underwriting discounts and commissions and other reasonable costs associated therewith) from any sale after June 30, 1997 of equity by the Borrower or any of its Subsidiaries (other than sales of equity by any Subsidiary to the Borrower or to a Wholly Owned Subsidiary. (c) RATIO OF CONSOLIDATED TOTAL SENIOR DEBT TO TOTAL CAPITALIZATION. The Borrower will not on any date permit Consolidated Total Senior Debt to exceed 50% of Total Capitalization. (d) RATIO OF CONSOLIDATED TOTAL LIABILITIES TO TANGIBLE STOCKHOLDERS' EQUITY. The Borrower will not on any date permit Consolidated Total Liabilities to exceed 280% of Tangible Stockholders' Equity. (e) FIXED CHARGE COVERAGE RATIO. The Borrower will not, as of the last day of each fiscal quarter of the Borrower ending during each of the periods specified below permit the Fixed Charge Coverage Ratio to be less than:
FROM AND INCLUDING TO AND INCLUDING FIXED CHARGE COVERAGE RATIO SHALL NOT BE LESS THAN: April 3, 1998 March 30, 1999 1.25 March 31, 1999 March 30, 2000 1.50 March 31, 2000 Thereafter 1.75
(f) CASH FLOW LEVERAGE RATIO. The Borrower will not on any date permit (i) the ratio of Consolidated Total Senior Debt to EBITDA for the four fiscal quarters of the Borrower then ended to be greater than 3.0 to 1.0, or (ii) the ratio of Consolidated Total Debt to EBITDA for the four fiscal quarters of the Borrower then ended to be greater than 3.5 to 1.0 SECTION 7.16. INDEBTEDNESS. The Borrower shall not issue, incur, assume, create or have outstanding any indebtedness for borrowed money; PROVIDED, HOWEVER, that the forgoing shall not restrict nor operate to prevent: (a) the obligations of the Borrower owing to the Banks hereunder; (b) the obligations of the Borrower under the Note Agreement dated as of July 29, 1994 between the Borrower and the purchasers identified therein in an aggregate principal amount not to exceed $20,000,000; and -49- (c) the obligations of the Borrower in respect of Subordinated Debt. SECTION 7.17. SUBSIDIARY DEBT. The Borrower will not permit any Subsidiary to directly or indirectly create, assume, incur or otherwise become or remain liable with respect to, by way of Guaranty or otherwise, any Debt, except that: (a) any Subsidiary may become and remain liable with respect to Debt of such Subsidiary owing to the Borrower or any Wholly Owned Subsidiary; (b) subject to compliance with clauses (c), (d), and (f) of Section 7.15, any Subsidiary may become and remain liable in respect of Debt secured by Liens permitted under Section 7.9; (c) The G&C Foundry Company may pay change of control benefits pursuant to the certain Employment Agreements with four of its employees and a Change of Control Agreement with one of its employees not to exceed $2,000,000 in the aggregate for all such employees to be paid over a 3 year period commencing 90 days after the acquisition of the issued and outstanding common stock of The G&C Foundry Company by the Borrower; (d) La Grange Foundry Inc. may become and remain liable on up to $5,100,000 of Debt to the Missouri Development Finance Board in connection with the issuance by the Missouri Development Finance Board of its $5,100,000 Industrial Development Revenue Bonds Series 1996 (La Grange Foundry Inc. Project); (e) each Subsidiary may become and remain liable in respect of the Obligations hereunder pursuant to separate Guaranty Agreements; (f) each Subsidiary may become and remain liable in respect of the Borrower's obligations under the Note Agreement dated as of July 29, 1994 between the Borrower and the purchasers identified therein pursuant to a Guaranty substantially in the form of the Guaranty Agreement; and (g) Sheffield Forgemasters Group Limited may become and remain liable in respect of letters of credit issued for its account PROVIDED that the sum of the aggregate face amount of all such letters of credit plus the reimbursement obligations owing with respect thereto do not at any time outstanding exceed a U.S. Dollar Equivalent of $3,000,000. -50- SECTION 7.18. INVESTMENTS, ETC. The Borrower will not, and will not permit any of its Subsidiaries to, directly or indirectly (through a Subsidiary or otherwise), make or own any Investments except: (a) the Borrower and its Subsidiaries may make and own Investments in (i) readily marketable direct obligations of the United States of America or of any agency or instrumentality thereof the obligations of which are backed by the full faith and credit of the United States of America or readily marketable obligations unconditionally guaranteed by the United States of America or by any such agency or instrumentality, in each case maturing within one year from the date of acquisition thereof; (ii) certificates of deposit, time deposits or bankers' acceptances maturing within one year from the date of acquisition thereof issued by, or demand deposit accounts maintained with, any commercial bank or trust company organized under the laws of the United States of America or any state thereof or the District of Columbia, each having combined capital and surplus of at least $250,000,000 and having a rating of A or better from at least one of Standard and Poor's Ratings Group, a division of The McGraw-Hill Companies, Inc. or Moody's Investors Service, Inc. (collectively, the "RATING AGENCIES") or, if both Rating Agencies have issued ratings with respect to such commercial bank or trust company, from both of the Rating Agencies; and (iii) open market commercial paper of United States corporations maturing not later than 270 days after the issuance thereof and currently having the highest rating obtainable from at least one of or, if both Rating Agencies have issued ratings with respect to such commercial paper, both of the Rating Agencies; (b) the Borrower and its Subsidiaries may make and own Investments in any money market mutual fund registered under the Investment Company Act of 1940, as amended, having assets in excess of $2,500,000,000; (c) the Borrower and its Subsidiaries may continue to own the Investments described in Schedule 7.18(c); (d) the Borrower and its Subsidiaries may make and own Investments in any Subsidiary of the Borrower or in any Person which simultaneously therewith becomes a Subsidiary provided that such Person is engaged primarily in the foundry business or in businesses reasonably related thereto and either (i) at the time of such acquisition and after giving effect thereto the Borrower's ratio of Consolidated Total Debt to Total Capitalization does not exceed 40% (the "40% THRESHOLD") or (ii) once the 40% Threshold has been exceeded in that fiscal year, the total aggregate principal amount expended for all acquisitions thereafter in such fiscal year does not exceed 25% of the Stockholder's Equity of the Borrower as of the last day of the immediately preceding -51- fiscal year of the Borrower PLUS 25% of the net proceeds (net proceeds for such purposes to mean gross proceeds less reasonable underwriting discounts and commissions and other reasonable costs directly incurred and payable as a result thereof) received by the Borrower from the issuance of additional equity or Subordinated Debt during the fiscal year of the proposed acquisition; and (e) in addition to the Investments permitted by the foregoing subdivisions (a) through (d) of this Section, the Borrower may make and own Restricted Investments to the extent permitted by Section 7.19. For purposes of this Section 7.18, Investments owned by any Person or for which it is obligated at the time it becomes a Subsidiary shall be deemed to be made at the time such Person becomes such a Subsidiary. SECTION 7.19. RESTRICTED PAYMENTS; RESTRICTED INVESTMENTS. The Borrower will not, directly or indirectly (through a Subsidiary or otherwise), declare, order, pay, distribute, make, or set apart any sum or property for any Restricted Payment, and the Borrower will not and will not permit any of its Subsidiaries to make or become obligated to make any Restricted Investment unless, both at the time of and immediately after effect has been given to such proposed action: (a) no Default or Event of Default shall have occurred and be continuing; and (b) the aggregate amount of (i) all sums and property included in all Restricted Payments directly or indirectly declared, ordered, paid, made or set apart by the Borrower or any Subsidiary during the period from and including March 31, 1994 to and including the date of such proposed action (the "COMPUTATION PERIOD"), plus (ii) the aggregate amount of all Restricted Investments (at original cost) made during the Computation Period (less any net return of capital through sale or other liquidation thereof or other return of capital thereon) and all commitments for Restricted Investments made by the Borrower or any of its Subsidiaries outstanding on such date shall not exceed the sum of (x) $8,000,000, PLUS (y) 50% of Consolidated Net Income for the Computation Period (or minus 100% of Consolidated Net Income in the case of a deficit) PLUS (z) the net cash proceeds received by the Borrower from the issuance or sale during the Computation Period of shares of its capital stock (other than any mandatorily redeemable preferred stock); and, in any event, the aggregate amount of Restricted -52- Payments made during any fiscal year shall not exceed 25% of Consolidated Net Income for the immediately preceding fiscal year. For all purposes of this Section 7.19, the amount involved in any Restricted Payment directly or indirectly declared, ordered, paid, distributed, made or set apart in property, and the amount of any Restricted Investment made through the transfer of property, shall be deemed to be the greater of (1) the fair value of such property (as determined in good faith by the Board of Directors) and (2) the net book value thereof on the books of the Borrower or any of its Subsidiaries (as determined in accordance with GAAP), in each case as determined on the date such Restricted Payment is declared, ordered, paid, distributed, made or set apart or the date such Restricted Investment is made or committed to be made, as the case may be. The Borrower will not pay any dividend which it has not declared nor will it declare any dividend (other than dividends payable solely in shares of its common stock) on any shares of any class of its capital stock which is payable more than 60 days after the date of declaration thereof. SECTION 7.20. TRANSACTIONS WITH AFFILIATES; REMUNERATION. (a) The Borrower will not, and will not permit any of its Subsidiaries to, directly or indirectly, enter into or be a party to any transaction or arrangement (including, without limitation, the contribution, transfer, purchase, sale or exchange of property, or the rendering of any service, or the payment of management or other service fees) with any Affiliate unless such transaction or arrangement is otherwise permitted under this Agreement and is entered into pursuant to the reasonable requirements and in the ordinary course of the Borrower's or such Subsidiary's business and upon terms that are fair and reasonable and no less favorable to the Borrower or such Subsidiary, as the case may be, than those which might be obtained at the time on an arm's-length basis from any Person which is not such an Affiliate, PROVIDED that nothing in this Section 7.20(a) shall prevent the Borrower or any of its Subsidiaries from making Compensation Payments as and to the extent permitted by Section 7.20(b). (b) The Borrower will not, and will not permit any of its Subsidiaries to, make payments, directly or indirectly, of any form of compensation or remuneration to any of its officers, directors, employees or stockholders, whether by way of salaries, bonuses, participations in pension or profit sharing plans, fees under management contracts or for professional services, grants of stock options, or otherwise, and whether in cash or other property (any of the foregoing, "COMPENSATION PAYMENTS"), except for Compensation Payments in amounts which represent, in the Borrower's reasonable business judgment, no more than reasonable compensation for services actually performed for the benefit of the Borrower or one of its Subsidiaries. -53- SECTION 7.21. COMPLIANCE WITH LAWS. Without limiting any of the other covenants of the Borrower in this Section 7, the Borrower will, and will cause each of its Subsidiaries to, conduct its business, and otherwise be, in compliance with all applicable laws, regulations, ordinances and orders of any governmental or judicial authorities; PROVIDED, HOWEVER, that the Borrower or any Subsidiary of the Borrower shall not be required to comply with any such law, regulation, ordinance or order if (x) it shall be contesting such law, regulation, ordinance or order in good faith by appropriate proceedings and reserves in conformity with GAAP have been provided therefor on the books of the Borrower or such Subsidiary, as the case may be, or (y) the failure to comply therewith could not, in the aggregate, have a Material Adverse Effect. SECTION 7.22. FISCAL YEAR. The Borrower shall not have a fiscal year end on any day other than June 30 without the prior written consent of the Required Banks. SECTION 7.23. INTERCREDITOR AGREEMENT. If the Intercreditor Agreement is terminated as provided therein and the Borrower has incurred any indebtedness in favor of any bank, financial institution or institutional investor ("NEW CREDITOR") in connection with the refinancing of any indebtedness subject to the Intercreditor Agreement, the Borrower will, at its expense, upon the request of any Bank, cause the New Creditor to enter into a new Intercreditor Agreement, substantially in the form of the Intercreditor Agreement and otherwise in all respects reasonably satisfactory in form and substance to the Bank's. SECTION 8. EVENTS OF DEFAULT AND REMEDIES. SECTION 8.1. EVENTS OF DEFAULT. Any one or more of the following shall constitute an Event of Default: (a) default (x) in the payment when due of the principal amount of any Loan or of any Reimbursement Obligation or (y) for a period of three (3) days in the payment when due of interest or of any other Obligation; (b) default by the Borrower in the observance or performance of any covenant set forth in Section 7.1, 7.6(h), 7.9 through 7.20 or 7.22 hereof; (c) default by the Borrower or any Subsidiary in the observance or performance of any provision hereof or of any other Credit Document not mentioned in (a) or (b) above, which is not remedied within thirty (30) days after notice thereof to the Borrower or relevant Subsidiary by the Agent; (d) (i) failure to pay when due any amount payable under Debt in an aggregate principal amount of $500,000 or more of the Borrower or any Subsidiary and such default -54- shall continue beyond any grace period applicable thereto, or (ii) default shall occur under any indenture, agreement or other instrument under which any amount payable under Debt in an aggregate principal amount of $500,000 or more may be issued or created and such default shall continue for a period of time sufficient to permit the holder or beneficiary of such amount payable under Debt or a trustee therefor to cause the acceleration of the maturity of any such amount payable under Debt or any mandatory unscheduled prepayment, purchase or funding thereof; (e) any representation or warranty made herein or in any other Credit Document by the Borrower or any Subsidiary, or in any statement or certificate furnished pursuant hereto or pursuant to any other Credit Document by the Borrower or any Subsidiary, or in connection with any Credit Document, proves untrue in any material respect as of the date of the issuance or making, or deemed making or issuance, thereof; (f) the Borrower or any Subsidiary shall (i) have entered involuntarily against it an order for relief under the United States Bankruptcy Code, as amended, (ii) not pay, or admit in writing its inability to pay, its debts generally as they become due, (iii) make an assignment for the benefit of creditors, (iv) apply for, seek, consent to, or acquiesce in, the appointment of a receiver, custodian, trustee, examiner, liquidator or similar official for it or any substantial part of its property, (v) institute any proceeding seeking to have entered against it an order for relief under the United States Bankruptcy Code, as amended, to adjudicate it insolvent, or seeking dissolution, winding up, liquidation, reorganization, arrangement, adjustment or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors or fail to file an answer or other pleading denying the material allegations of any such proceeding filed against it, (vi) take any corporate action in furtherance of any matter described in parts (i)-(v) above, or (vii) fail to contest in good faith any appointment or proceeding described in Section 8.1(g) hereof; (g) a custodian, receiver, trustee, examiner, liquidator or similar official shall be appointed for the Borrower or any Subsidiary or any substantial part of any of their Property, or a proceeding described in Section 8.1(f)(v) shall be instituted against the Borrower or any Subsidiary, and such appointment continues undischarged or such proceeding continues undismissed or unstayed for a period of sixty (60) days; (h) the Borrower or any Subsidiary shall fail within thirty (30) days to pay, bond or otherwise discharge any judgment or order for the payment of money in excess of $500,000, which is not stayed on appeal or otherwise being appropriately contested in good faith in a manner that stays execution thereon; or -55- (i) any Borrower Group Member shall fail to pay when due an amount or amounts aggregating in excess of $400,000 which it shall have become liable to pay to the PBGC or to a Plan under Title IV of ERISA; or notice of intent to terminate a Plan or Plans having aggregate Unfunded Vested Liabilities in excess of $400,000 (collectively, a "MATERIAL PLAN") shall be filed under Title IV of ERISA by any Borrower Group Member, any plan administrator or any combination of the foregoing; or the PBGC shall institute proceedings under Title IV of ERISA to terminate or to cause a trustee to be appointed to administer any Material Plan or a proceeding shall be instituted by a fiduciary of any Material Plan against any Borrower Group Member to enforce Section 515 or 4219(c)(5) of ERISA and such proceeding shall not have been dismissed within thirty (30) days thereafter; or a condition shall exist by reason of which the PBGC would be entitled to obtain a decree adjudicating that any Material Plan must be terminated. SECTION 8.2. NON-BANKRUPTCY DEFAULTS. When any Event of Default other than those described in subsections (f) or (g) of Section 8.1 hereof has occurred and is continuing, the Agent shall, by notice to the Borrower: (a) if so directed by the Required Banks, terminate the remaining Revolving Commitments and all other obligations of the Banks hereunder on the date stated in such notice (which may be the date thereof); (b) if so directed by the Required Banks, declare the principal of and the accrued interest on all outstanding Notes to be forthwith due and payable and thereupon all outstanding Notes, including both principal and interest thereon, shall be and become immediately due and payable together with all other amounts payable under the Credit Documents without further demand, presentment, protest or notice of any kind ; (c) if so directed by the Required Banks and if permitted by the terms of a Letter of Credit, give notice of the occurrence of an Event of Default hereunder to the beneficiary of such Letter of Credit directing such beneficiary to take such action as may be permitted in order to draw up to the amount available to be drawn under such Letter of Credit and terminate such Letter of Credit; and (d) if so directed by the Required Banks, demand that the Borrower immediately pay to the Agent the full amount then available for drawing under each or any Letter of Credit, and the Borrower agrees to immediately make such payment and acknowledges and agrees that the Banks would not have an adequate remedy at law for failure by the Borrower to honor any such demand and that the Agent, for the benefit of the Banks, shall have the right to require the Borrower to specifically perform such undertaking whether or not any drawings or other demands for payment have been made under any Letter of Credit. The Agent, after giving notice to the Borrower pursuant to Section 8.1(c) or this Section 8.2, shall also promptly send a copy of such notice to the other Banks, but the failure to do so shall not impair or annul the effect of such notice. SECTION 8.3. BANKRUPTCY DEFAULTS. When any Event of Default described in subsections (f) or (g) of Section 8.1 hereof has occurred and is continuing, (a) then all -56- outstanding Notes shall immediately become due and payable together with all other amounts payable under the Credit Documents without presentment, demand, protest or notice of any kind, and the obligation of the Banks to extend further credit pursuant to any of the terms hereof shall immediately terminate; (b) the Borrower shall immediately pay to the Agent the full amount then available for drawing under all outstanding Letters of Credit, the Borrower acknowledging that the Banks would not have an adequate remedy at law for failure by the Borrower to honor any such demand and that the Banks, and the Agent on their behalf, shall have the right to require the Borrower to specifically perform such undertaking whether or not any draws have been made under any of the Letters of Credit; and (c) if so directed by the Required Banks and if permitted by the terms of a Letter of Credit, the Agent shall give notice of the occurrence of an Event of Default hereunder to the beneficiary of such Letter of Credit directing such beneficiary to take such action as may be permitted in order to draw up to the amount available to be drawn under such Letter of Credit and terminate such Letter of Credit. SECTION 8.4. COLLATERAL FOR UNDRAWN LETTERS OF CREDIT. (a) If the prepayment of the amount available for drawing under any or all outstanding Letters of Credit is required under Section 8.2 or 8.3 above, the Borrower shall forthwith pay the amount required to be so prepaid, to be held by the Agent as provided in subsection (b) below. (b) All amounts prepaid pursuant to subsection (a) above shall be held by the Agent in a separate collateral account (such account, and the credit balances, properties and any investments from time to time held therein, and any substitutions for such account, any certificate of deposit or other instrument evidencing any of the foregoing and all proceeds of and earnings on any of the foregoing being collectively called the "ACCOUNT") as security for, and for application by the Agent (to the extent available) to, the reimbursement of any payment under any Letter of Credit then or thereafter made by the Agent, and to the payment of the unpaid balance of any Loans and all other Obligations. The Account shall be held in the name of and subject to the exclusive dominion and control of the Agent for the benefit of the Agent and the Banks. If and when requested by the Borrower, the Agent shall invest funds held in the Account from time to time in direct obligations of, or obligations the principal of and interest on which are unconditionally guaranteed by, the United States of America with a remaining maturity of one year or less, PROVIDED that the Agent is irrevocably authorized to sell investments held in the Account when and as required to make payments out of the Account for application to amounts due and owing from the Borrower to the Agent or Banks; PROVIDED, HOWEVER, that if (i) the Borrower shall have made payment of all such obligations referred to in subsection (a) above, (ii) all relevant preference or other disgorgement periods relating to the receipt of such payments have passed, and (iii) no Letters of Credit, Commitments, Loans or other obligations remain outstanding hereunder, then the Agent shall repay to the Borrower any remaining amounts held in the Account. -57- SECTION 8.5. NOTICE OF DEFAULT. The Agent shall give notice to the Borrower under Section 8.1(c) hereof promptly upon being requested to do so by any Bank and shall thereupon notify all the Banks thereof. SECTION 8.6. EXPENSES. The Borrower agrees to pay to the Agent and each Bank, and any other holder of any Note outstanding hereunder, all expenses incurred or paid by the Agent and such Bank or any such holder, including reasonable attorneys' fees and court costs, in connection with any Default or Event of Default by the Borrower hereunder or in connection with the enforcement of any of the Credit Documents. SECTION 9. CHANGE IN CIRCUMSTANCES. SECTION 9.1. CHANGE OF LAW. Notwithstanding any other provisions of this Agreement or any Note, if at any time any change in applicable law or regulation or in the interpretation thereof makes it unlawful for any Bank to make or continue to maintain Eurocurrency Loans or to give effect to its obligations as contemplated hereby, such Bank shall promptly give notice thereof to the Borrower and such Bank's obligations to make or maintain Eurocurrency Loans under this Agreement shall terminate until it is no longer unlawful for such Bank to make or maintain Eurocurrency Loans. The Borrower shall prepay on demand the outstanding principal amount of any such affected Eurocurrency Loans, together with all interest accrued thereon and all other amounts then due and payable to such Bank under this Agreement; PROVIDED, HOWEVER, subject to all of the terms and conditions of this Agreement, the Borrower may then elect to borrow the principal amount of the affected Eurocurrency Loans from such Bank by means of Domestic Rate Loans from such Bank that shall not be made ratably by the Banks but only from such affected Bank. SECTION 9.2. UNAVAILABILITY OF DEPOSITS OR INABILITY TO ASCERTAIN, OR INADEQUACY OF, LIBOR. If on or prior to the first day of any Interest Period for any Borrowing of Eurocurrency Loans: (a) the Agent determines that deposits in U.S. Dollars (in the applicable amounts) are not being offered to it in the eurodollar interbank market for such Interest Period, or (b) Banks having 50% or more of the aggregate amount of the Commitments advise the Agent that LIBOR as determined by the Agent will not adequately and fairly reflect the cost to such Banks of funding their Eurocurrency Loans for such Interest Period, -58- then the Agent shall forthwith give notice thereof to the Borrower and the Banks, whereupon until the Agent notifies the Borrower that the circumstances giving rise to such suspension no longer exist, the obligations of the Banks to make Eurocurrency Loans shall be suspended. SECTION 9.3. INCREASED COST AND REDUCED RETURN. (a) If, on or after the date hereof, the adoption of any applicable law, rule or regulation, or any change therein, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Bank (or its Lending Office) with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency: (i) shall subject any Bank (or its Lending Office) to any tax, duty or other charge with respect to its Eurocurrency Loans, its Note, its Letter(s) of Credit, or its participation in any thereof, any Reimbursement Obligations owed to it or its obligation to make Eurocurrency Loans, issue a Letter of Credit, or to participate therein, or shall change the basis of taxation of payments to any Bank (or its Lending Office) of the principal of or interest on its Eurocurrency Loans, Letter(s) of Credit, or participations therein or any other amounts due under this Agreement in respect of its Eurocurrency Loans, Letter(s) of Credit, or participations therein, any Reimbursement Obligations owed to it, or its obligation to make Eurocurrency Loans, issue a Letter of Credit, or acquire participations therein (except for changes in the rate of tax on the overall net income of such Bank or its Lending Office imposed by the jurisdiction in which such Bank's principal executive office or Lending Office is located); or (ii) shall impose, modify or deem applicable any reserve, special deposit or similar requirement (including, without limitation, any such requirement imposed by the Board of Governors of the Federal Reserve System, but excluding with respect to any Eurocurrency Loans any such requirement included in an applicable Eurodollar Reserve Percentage) against assets of, deposits with or for the account of, or credit extended by, any Bank (or its Lending Office) or shall impose on any Bank (or its Lending Office) or on the interbank market any other condition affecting its Eurocurrency Loans, its Note, its Letter(s) of Credit, or its participation in any thereof, any Reimbursement Obligation owed to it, or its obligation to make Eurocurrency Loans, to issue a Letter of Credit, or to participate therein; and the result of any of the foregoing is to increase the cost to such Bank (or its Lending Office) of making or maintaining any Eurocurrency Loan, issuing or maintaining a Letter of Credit, or participating therein, or to reduce the amount of any sum received or receivable by such Bank (or its Lending Office) under this Agreement or under its Note with respect thereto, by an amount deemed by such Bank to be material, then, within fifteen (15) days after demand by such Bank -59- (with a copy to the Agent), the Borrower shall be obligated to pay to such Bank such additional amount or amounts as will compensate such Bank for such increased cost or reduction. (b) If, after the date hereof, any Bank or the Agent shall have determined that the adoption of any applicable law, rule or regulation regarding capital adequacy, or any change therein (including, without limitation, any revision in the Final Risk-Based Capital Guidelines of the Board of Governors of the Federal Reserve System (12 CFR Part 208, Appendix A; 12 CFR Part 225, Appendix A) or of the Office of the Comptroller of the Currency (12 CFR Part 3, Appendix A), or in any other applicable capital rules heretofore adopted and issued by any governmental authority), or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Bank (or its Lending Office) with any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on such Bank's capital, or on the capital of any corporation controlling such Bank, as a consequence of its obligations hereunder to a level below that which such Bank could have achieved but for such adoption, change or compliance (taking into consideration such Bank's policies with respect to capital adequacy) by an amount deemed by such Bank to be material, then from time to time, within fifteen (15) days after demand by such Bank (with a copy to the Agent), the Borrower shall pay to such Bank such additional amount or amounts as will compensate such Bank for such reduction. (c) Each Bank that determines to seek compensation under this Section 9.3 shall notify the Borrower and the Agent of the circumstances that entitle the Bank to such compensation pursuant to this Section 9.3 and will designate a different Lending Office if such designation will avoid the need for, or reduce the amount of, such compensation and will not, in the judgment of such Bank, be otherwise disadvantageous to such Bank. A certificate of any Bank claiming compensation under this Section 9.3 and setting forth the additional amount or amounts to be paid to it hereunder shall be conclusive in the absence of manifest error. In determining such amount, such Bank may use any reasonable averaging and attribution methods. SECTION 9.4. LENDING OFFICES. Each Bank may, at its option, elect to make its Loans hereunder at the branch, office or affiliate specified on the appropriate signature page hereof (each a "LENDING OFFICE") for each type of Loan available hereunder or at such other of its branches, offices or affiliates as it may from time to time elect and designate in a written notice to the Borrower and the Agent. SECTION 9.5. DISCRETION OF BANK AS TO MANNER OF FUNDING. Notwithstanding any other provision of this Agreement, each Bank shall be entitled to fund and maintain its funding of all or any part of its Loans in any manner it sees fit, it being understood, however, that for the -60- purposes of this Agreement all determinations hereunder shall be made as if each Bank had actually funded and maintained each Eurocurrency Loan through the purchase of deposits in the eurodollar interbank market having a maturity corresponding to such Loan's Interest Period and bearing an interest rate equal to LIBOR for such Interest Period. SECTION 10. THE AGENT. SECTION 10.1. APPOINTMENT AND AUTHORIZATION OF AGENT. Each Bank hereby appoints Harris Trust and Savings Bank as the Agent under the Credit Documents and hereby authorizes the Agent to take such action as Agent on its behalf and to exercise such powers under the Credit Documents as are delegated to the Agent by the terms thereof, together with such powers as are reasonably incidental thereto. Without limiting the generality of the foregoing, Harris Trust and Savings Bank in its capacity as Collateral Agent under the Pledge Agreement shall be entitled to all the rights, privileges, authority and immunities provided the Agent under this Section 10 to the same extent and with the same force and effect as if the Collateral Agent were the Agent hereunder. SECTION 10.2. AGENT AND ITS AFFILIATES. The Agent shall have the same rights and powers under this Agreement and the other Credit Documents as any other Bank and may exercise or refrain from exercising the same as though it were not the Agent, and the Agent and its affiliates may accept deposits from, lend money to, and generally engage in any kind of business with the Borrower or any Affiliate of the Borrower as if it were not the Agent under the Credit Documents. The term Bank as used herein and in all other Credit Documents, unless the context otherwise clearly requires, includes the Agent in its individual capacity as a Bank. References in Section 1 hereof to the Agent's Loans, or to the amount owing to the Agent for which an interest rate is being determined, refer to the Agent in its individual capacity as a Bank. SECTION 10.3. ACTION BY AGENT. In the event that the Agent receives from the Borrower a written notice of an Event of Default pursuant to Section 7.6(h) hereof, the Agent shall promptly give each of the Banks written notice thereof. The obligations of the Agent under the Credit Documents are only those expressly set forth therein. Without limiting the generality of the foregoing, the Agent shall not be required to take any action hereunder with respect to any Default or Event of Default, except as expressly provided in Sections 8.2 and 8.5. In no event, however, shall the Agent be required to take any action in violation of applicable law or of any provision of any Credit Document, and the Agent shall in all cases be fully justified in failing or refusing to act hereunder or under any other Credit Document unless it shall be first indemnified to its reasonable satisfaction by the Banks against any and all costs, expense, and liability which may be incurred by it by reason of taking or continuing to take any such action. The Agent shall be entitled to assume that no Default or Event of Default exists unless notified to the contrary by a Bank or the Borrower. In all cases in which this Agreement and the other Credit Documents do -61- not require the Agent to take certain actions, the Agent shall be fully justified in using its discretion in failing to take or in taking any action hereunder and thereunder. SECTION 10.4. CONSULTATION WITH EXPERTS. The Agent may consult with legal counsel, independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken by it in good faith in accordance with the advice of such counsel, accountants or experts. SECTION 10.5. LIABILITY OF AGENT; CREDIT DECISION. Neither the Agent nor any of its directors, officers, agents, or employees shall be liable for any action taken or not taken by it in connection with the Credit Documents (i) with the consent or at the request of the Required Banks or (ii) in the absence of its own gross negligence or willful misconduct. Neither the Agent nor any of its directors, officers, agents or employees shall be responsible for or have any duty to ascertain, inquire into or verify (i) any statement, warranty or representation made in connection with this Agreement, any other Credit Document or any Credit Event; (ii) the performance or observance of any of the covenants or agreements of the Borrower contained herein or in any other Credit Document; (iii) the satisfaction of any condition specified in Section 6 hereof, except receipt of items required to be delivered to the Agent; or (iv) the validity, effectiveness, genuineness, enforceability, perfection, value, worth or collectibility hereof or of any other Credit Document or of any other documents or writing furnished in connection with any Credit Document; and the Agent makes no representation of any kind or character with respect to any such matter mentioned in this sentence. The Agent may execute any of its duties under any of the Credit Documents by or through employees, agents, and attorneys-in-fact and shall not be answerable to the Banks, the Borrower or any other Person for the default or misconduct of any such agents or attorneys-in-fact selected with reasonable care. The Agent shall not incur any liability by acting in reliance upon any notice, consent, certificate, other document or statement (whether written or oral) believed by it to be genuine or to be sent by the proper party or parties. In particular and without limiting any of the foregoing, the Agent shall have no responsibility for confirming the accuracy of any Compliance Certificate or other document or instrument received by it under the Credit Documents. The Agent may treat the owner of any Note as the holder thereof until written notice of transfer shall have been filed with the Agent signed by such owner in form satisfactory to the Agent. Each Bank acknowledges that it has independently and without reliance on the Agent or any other Bank, and based upon such information, investigations and inquiries as it deems appropriate, made its own credit analysis and decision to extend credit to the Borrower in the manner set forth in the Credit Documents. It shall be the responsibility of each Bank to keep itself informed as to the creditworthiness of the Borrower, and the Agent shall have no liability to any Bank with respect thereto. SECTION 10.6. COSTS AND EXPENSES. Each Bank agrees to reimburse the Agent for all out-of-pocket costs and expenses suffered or incurred by the Agent or any security trustee in -62- performing its duties hereunder and under the other Credit Documents or in the exercise of any right or power imposed or conferred upon the Agent hereby or thereby (except to the extent that such costs and expenses arise out of the Agent's or such security trustee's gross negligence or willful misconduct), to the extent that the Agent is not promptly reimbursed for the same by the Borrower all such costs and expenses to be borne by the Banks ratably in accordance with their respective Percentages. SECTION 10.7. INDEMNITY. The Banks shall ratably, in accordance with their respective Percentages, indemnify and hold the Agent, and its directors, officers, employees, agents and representatives harmless from and against any liabilities, losses, costs or expenses suffered or incurred by it or by any security trustee under any Credit Document or in connection with the transactions contemplated thereby, regardless of when asserted or arising, except to the extent they are promptly reimbursed for the same by the Borrower and except to the extent that any event giving rise to a claim was caused by the gross negligence or willful misconduct of the party seeking to be indemnified. The obligations of the Banks under this Section 10.7 and under Section 10.6 above shall survive termination of this Agreement. SECTION 10.8. RESIGNATION OF AGENT AND SUCCESSOR AGENT. The Agent may resign at any time by giving written notice thereof to the Banks and the Borrower. Upon any such resignation of the Agent, the Required Banks shall have the right to appoint a successor Agent. If no successor Agent shall have been so appointed by the Required Banks, and shall have accepted such appointment, within thirty (30) days after the retiring Agent's giving of notice of resignation, then the retiring Agent may, on behalf of the Banks, appoint a successor Agent, which shall be any Bank hereunder or any commercial bank organized under the laws of the United States of America or of any State thereof and having a combined capital and surplus of at least $200,000,000. Upon the acceptance of its appointment as the Agent hereunder, such successor Agent shall thereupon succeed to and become vested with all the rights and duties of the retiring Agent under the Credit Documents, and the retiring Agent shall be discharged from its duties and obligations thereunder. After any retiring Agent's resignation hereunder as Agent, the provisions of this Section 10 and all protective provisions of the other Credit Documents shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent. SECTION 11. MISCELLANEOUS. SECTION 11.1. WITHHOLDING TAXES. (a) PAYMENTS FREE OF WITHHOLDING. Except as otherwise required by law and subject to Section 11.1(b) hereof, each payment by the Borrower under this Agreement or the other Credit Documents shall be made without withholding for or on account of any present or future taxes (other than overall net income taxes on the recipient) imposed by or within the jurisdiction in which the Borrower is domiciled, any jurisdiction from which the Borrower makes any payment, or (in each case) any political subdivision or taxing -63- authority thereof or therein. If any such withholding is so required, the Borrower shall make the withholding, pay the amount withheld to the appropriate governmental authority before penalties attach thereto or interest accrues thereon and forthwith pay such additional amount as may be necessary to ensure that the net amount actually received by each Bank and the Agent free and clear of such taxes (including such taxes on such additional amount) is equal to the amount which that Bank or the Agent (as the case may be) would have received had such withholding not been made. If the Agent or any Bank pays any amount in respect of any such taxes, penalties or interest the Borrower shall reimburse the Agent or that Bank for that payment on demand in the currency in which such payment was made. If the Borrower pays any such taxes, penalties or interest, it shall deliver official tax receipts evidencing that payment or certified copies thereof to the Bank or Agent on whose account such withholding was made (with a copy to the Agent if not the recipient of the original) on or before the thirtieth day after payment. (b) U.S. WITHHOLDING TAX EXEMPTIONS. Each Bank that is not a United States person (as such term is defined in Section 7701(a)(30) of the Code) shall submit to the Borrower and the Agent on or before the earlier of the date the initial Borrowing is made hereunder and thirty (30) days after the date hereof, two duly completed and signed copies of either Form 1001 (relating to such Bank and entitling it to a complete exemption from withholding under the Code on all amounts to be received by such Bank, including fees, pursuant to the Credit Documents and the Loans) or Form 4224 (relating to all amounts to be received by such Bank, including fees, pursuant to the Credit Documents and the Loans) of the United States Internal Revenue Service. Thereafter and from time to time, each Bank shall submit to the Borrower and the Agent such additional duly completed and signed copies of one or the other of such Forms (or such successor forms as shall be adopted from time to time by the relevant United States taxing authorities) as may be (i) notified by the Borrower, directly or through the Agent, to such Bank and (ii) required under then-current United States law or regulations to avoid or reduce United States withholding taxes on payments in respect of all amounts to be received by such Bank, including fees, pursuant to the Credit Documents or the Loans. (c) INABILITY OF BANK TO SUBMIT FORMS. If any Bank determines, as a result of any change in applicable law, regulation or treaty, or in any official application or interpretation thereof, that it is unable to submit to the Borrower or Agent any form or certificate that such Bank is obligated to submit pursuant to subsection (b) of this Section 11.1. or that such Bank is required to withdraw or cancel any such form or certificate previously submitted or any such form or certificate otherwise becomes ineffective or inaccurate, such Bank shall promptly notify the Borrower and Agent of such fact and the Bank shall to that extent not be obligated to provide any such form or certificate and will be entitled to withdraw or cancel any affected form or certificate, as applicable. -64- SECTION 11.2. NO WAIVER OF RIGHTS. No delay or failure on the part of the Agent or any Bank or on the part of the holder or holders of any Note in the exercise of any power or right under any Credit Document shall operate as a waiver thereof, nor as an acquiescence in any default, nor shall any single or partial exercise thereof preclude any other or further exercise of any other power or right, and the rights and remedies hereunder of the Agent, the Banks and the holder or holders of any Notes are cumulative to, and not exclusive of, any rights or remedies which any of them would otherwise have. SECTION 11.3. NON-BUSINESS DAY. If any payment of principal or interest on any Loan or of any other Obligation shall fall due on a day which is not a Business Day, interest or fees (as applicable) at the rate, if any, such Loan or other Obligation bears for the period prior to maturity shall continue to accrue on such Obligation from the stated due date thereof to and including the next succeeding Business Day, on which the same shall be payable. SECTION 11.4. DOCUMENTARY TAXES. The Borrower agrees that it will pay any documentary, stamp or similar taxes payable in respect to any Credit Document, including interest and penalties, in the event any such taxes are assessed irrespective of when such assessment is made and whether or not any credit is then in use or available hereunder. SECTION 11.5. SURVIVAL OF REPRESENTATIONS. All representations and warranties made herein or in certificates given pursuant hereto shall survive the execution and delivery of this Agreement and the other Credit Documents, and shall continue in full force and effect with respect to the date as of which they were made as long as any credit is in use or available hereunder. SECTION 11.6. SURVIVAL OF INDEMNITIES. All indemnities and all other provisions relative to reimbursement to the Banks of amounts sufficient to protect the yield of the Banks with respect to the Loans, including, but not limited to, Section 1.11, Section 9.3 and Section 11.15 hereof, shall survive the termination of this Agreement and the other Credit Documents and the payment of the Loans and all other Obligations. SECTION 11.7. SHARING OF SET-OFF. Each Bank agrees with each other Bank a party hereto that if such Bank shall receive and retain any payment, whether by set-off or application of deposit balances or otherwise ("SET-OFF"), on any of the Loans or Reimbursement Obligations in excess of its ratable share of payments on all such obligations then outstanding to the Banks, then such Bank shall purchase for cash at face value, but without recourse, ratably from each of the other Banks such amount of the Loans or Reimbursement Obligations, or participations therein, held by each such other Banks (or interest therein) as shall be necessary to cause such Bank to share such excess payment ratably with all the other Banks; PROVIDED, HOWEVER, that if any such purchase is made by any Bank, and if such excess payment or part thereof is thereafter -65- recovered from such purchasing Bank, the related purchases from the other Banks shall be rescinded ratably and the purchase price restored as to the portion of such excess payment so recovered, but without interest. For purposes of this Section 11.7, amounts owed to or recovered by, the Agent in connection with Reimbursement Obligations in which Banks have been required to fund their participation shall be treated as amounts owed to or recovered by the Agent as a Bank hereunder. SECTION 11.8. NOTICES. Except as otherwise specified herein, all notices under the Credit Documents shall be in writing (including cable, telecopy or telex) and shall be given to a party hereunder at its address, telecopier number or telex numbers set forth below or such other address, telecopier number or telex as such party may hereafter specify by notice to the Agent and the Borrower, given by courier, by United States certified or registered mail, or by other telecommunication device capable of creating a written record of such notice and its receipt. Notices under the Credit Documents to the Banks and the Agent shall be addressed to their respective addresses, telecopier, telex, or telephone numbers set forth on the signature pages hereof, and to the Borrower to: Atchison Casting Corporation 400 South 4th Street Atchison, Kansas 66002-0188 Telecopier: (913) 367-2155 Attention: Chief Financial Officer Each such notice, request or other communication shall be effective (i) if given by telecopier, when such telecopy is transmitted to the telecopier number specified in this Section 11.8 or on the signature pages hereof and a confirmation of receipt of such telecopy has been received by the sender, (ii) if given by telex, when such telex is transmitted to the telex number specified in this Section 11.8 or on the signature pages hereof and the answerback is received by sender, (iii) if given by courier, when delivered, (iv) if given by mail, five (5) days after such communication is deposited in the mail, registered with return receipt requested, addressed as aforesaid or (v) if given by any other means, when delivered at the addresses specified in this Section 11.8 or on the signature pages hereof; PROVIDED THAT any notice given pursuant to Section 1 hereof shall be effective only upon receipt. SECTION 11.9. COUNTERPARTS. This Agreement may be executed in any number of counterparts, and by the different parties on different counterparts, each of which when executed shall be deemed an original but all such counterparts taken together shall constitute one and the same instrument. -66- SECTION 11.10. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the Borrower and its successors and assigns, and shall inure to the benefit of each of the Banks and the benefit of their respective successors and assigns, including any subsequent holder of any Note. The Borrower may not assign any of its rights or obligations under any Credit Document without the written consent of all of the Banks. SECTION 11.11. PARTICIPANTS AND NOTE ASSIGNEES. Each Bank shall have the right at its own cost to grant participations (to be evidenced by one or more agreements or certificates of participation) in the Loans made and Reimbursement Obligations and/or Commitment held by such Bank at any time and from time to time, and to assign its rights under such Loans and Reimbursement Obligations, or the Note evidencing such Loans, and under the other Credit Documents, to one or more other Persons with the prior written consent of the Borrower, which consent will not be unreasonably withheld; PROVIDED THAT no such participation or assignment shall relieve any Bank of any of its obligations under this Agreement, and, PROVIDED, FURTHER that no such assignee or participant shall have any rights under this Agreement except as provided in this Section 11.11, and the Agent shall have no obligation or responsibility to such participant or assignee, except that nothing herein provided is intended to affect the rights of an assignee of a Note to enforce the Note assigned, and, PROVIDED, FURTHER, that no such consent of the Borrower shall be required if such transfer is made to an Affiliate of such Bank. Any agreement pursuant to which such participation or assignment of Obligations or a Note or the rights thereunder is granted shall provide that the granting Bank shall retain the sole right and responsibility to enforce the obligations of the Borrower under this Agreement and the other Credit Documents including, without limitation, the right to approve any amendment, modification or waiver of any provision of the Credit Documents, except that such agreement may provide that such Bank will not agree to any modification, amendment or waiver of the Credit Documents described in clause (i) of Section 11.13 hereof without the consent of such participant or assignee. Any party to which such a participation or assignment has been granted shall have the benefits of Section 1.11 and Section 9.3 hereof. Any Bank assigning any Note hereunder shall give prompt notice thereof to the Borrower and the Agent, who shall in each case only be required to treat such assignee of a Note as the holder thereof after receipt of such notice. The Borrower authorizes each Bank to disclose to any purchaser or prospective purchaser of an interest in its Loans, Reimbursement Obligations owed to it or its Commitment under this Section 11.11 any financial or other information pertaining to the Borrower. SECTION 11.12. ASSIGNMENT OF COMMITMENTS BY BANKS. Each Bank shall have the right at any time, with the prior consent of the Borrower and Agent, which shall not be unreasonably withheld, to sell, assign, transfer or negotiate all or any part of its Commitment (including the same percentage of its Note, outstanding Loans and Reimbursement Obligations owed to it) to one or more Persons, provided that such assignment shall be of a fixed percentage (and not by its terms a varying percentage) of the assigning Bank's Commitment, provided further that each -67- assignment shall be for an amount of at least $5,000,000; PROVIDED FURTHER that the Agent shall have received at the time of each such assignment the payment of a non-refundable assignment fee of $3,500. Any such assignee shall become a Bank for all purposes hereunder to the extent of the Commitment it assumes and agrees to be bound by the terms of this Agreement and the Intercreditor Agreement and the assigning Bank shall be released from its obligations, and will have released its rights, under the Credit Documents to the extent of such assignment. The Borrower and each Guarantor authorizes each Bank to disclose to any purchaser or prospective purchaser of an interest in its Loans, Reimbursement Obligations owed to it or its Commitment under this Section 11.12 any financial or other information pertaining to the Borrower and each Subsidiary. SECTION 11.13. AMENDMENTS. Any provision of the Credit Documents may be amended or waived if, but only if, such amendment or waiver is in writing and is signed by (a) the Borrower, (b) the Required Banks, and (c) if the rights or duties of the Agent are affected thereby, the Agent; provided that: (i) no amendment or waiver pursuant to this Section shall (A) increase the Commitment of any Bank without the consent of such Bank, or (B) reduce the amount of or postpone any fixed date for payment of any principal of or interest on any Loan or Reimbursement Obligation or of any fee payable hereunder without the consent of each Bank; and (ii) no amendment or waiver pursuant to this Section shall, unless signed by each Bank, change the provisions of this Section, the definition of Required Banks, or any condition precedent set forth in Section 6 hereof or the provisions of Sections 8.1(f), 8.1(g) or 8.3, or 9, or release any Subsidiary from its obligations under a Guaranty Agreement, or release any of the collateral subject to the terms of the Pledge Agreement, or affect the number of Banks required to take any action hereunder. SECTION 11.14. HEADINGS. Section headings used in this Agreement are for reference only and shall not affect the construction of this Agreement. SECTION 11.15. LEGAL FEES, OTHER COSTS AND INDEMNIFICATION. The Borrower agrees to pay the reasonable fees and disbursements of Messrs. Chapman and Cutler, counsel to the Agent, in connection with the preparation and execution of the Credit Documents, and any amendment, waiver or consent related hereto, whether or not the transactions contemplated herein are consummated. The Borrower further agrees to indemnify each Bank, the Agent, and any security trustee and their respective directors, officers and employees, against all losses, claims, damages, penalties, judgments, liabilities and expenses (including, without limitation, all expenses of litigation or preparation therefor, whether or not the indemnified Person is a party thereto) which -68- any of them may pay or incur arising out of or relating to any Credit Document or any of the transactions contemplated thereby or the direct or indirect application or proposed application of the proceeds of any Loan, other than those which arise from the gross negligence or willful misconduct of the party claiming indemnification. The Borrower, upon demand by the Agent or a Bank at any time, shall reimburse the Agent or Bank for any legal or other expenses incurred in connection with investigating or defending against any of the foregoing except if the same is directly due to the gross negligence or willful misconduct of the party to be indemnified. SECTION 11.16. SET OFF. In addition to any rights now or hereafter granted under applicable law and not by way of limitation of any such rights, upon the occurrence of any Event of Default, each Bank and each subsequent holder of any Note is hereby authorized by the Borrower at any time or from time to time, without notice to the Borrower or to any other Person, any such notice being hereby expressly waived, to set off and to appropriate and to apply any and all deposits (general or special, including, but not limited to, Indebtedness evidenced by certificates of deposit, whether matured or unmatured, but not including trust accounts, and in whatever currency denominated) and any other Indebtedness at any time held or owing by that Bank or that subsequent holder to or for the credit or the account of the Borrower, whether or not matured, against and on account of the obligations and liabilities of the Borrower to that Bank or that subsequent holder under the Credit Documents, including, but not limited to, all claims of any nature or description arising out of or connected with the Credit Documents, irrespective of whether or not (a) that Bank or that subsequent holder shall have made any demand hereunder or (b) the principal of or the interest on the Loans or Notes and other amounts due hereunder shall have become due and payable pursuant to Section 8 and although said obligations and liabilities, or any of them, may be contingent or unmatured. SECTION 11.17. ENTIRE AGREEMENT. The Credit Documents constitute the entire understanding of the parties thereto with respect to the subject matter thereof and any prior or contemporaneous agreements, whether written or oral, with respect thereto are superseded hereby. SECTION 11.18. GOVERNING LAW. This Agreement and the other Credit Documents, and the rights and duties of the parties hereto, shall be construed and determined in accordance with the internal laws of the State of Illinois. SECTION 11.19. SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL. THE BORROWER HEREBY SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS AND OF ANY ILLINOIS STATE COURT SITTING IN THE CITY OF CHICAGO FOR PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE OTHER CREDIT DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. THE BORROWER IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW -69- OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. THE BORROWER, THE AGENT, AND EACH BANK HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO ANY CREDIT DOCUMENT OR THE TRANSACTIONS CONTEMPLATED THEREBY. SECTION 11.20. INTERCREDITOR AGREEMENT. Each of the Banks that has not heretofore executed the Intercreditor Agreement hereby acknowledges that it assumes and agrees to be bound by the terms of the Intercreditor Agreement as if it were an original signatory thereto. SECTION 11.21. CURRENCY. Each reference in this Agreement to U.S. Dollars or to an Alternative Currency (the "RELEVANT CURRENCY") is of the essence. To the fullest extent permitted by law, the obligations of the Borrower and each Guarantor in respect of any amount due in the relevant currency under this Agreement shall, notwithstanding any payment in any other currency (whether pursuant to a judgment or otherwise), be discharged only to the extent of the amount in the relevant currency that the Person entitled to receive such payment may, in accordance with normal banking procedures, purchase with the sum paid in such other currency (after any premium and costs of exchange) on the Business Day immediately following the day on which such Person receives such payment. If the amount of the relevant currency so purchased is less than the sum originally due to such Person in the relevant currency, the Borrower or relevant Guarantor agrees, as a separate obligation and notwithstanding any such judgment, to indemnify such Person against such loss, and if the amount of the specified currency so purchased exceeds the sum of (a) the amount originally due to the relevant Person in the specified currency plus (b) any amounts shared with other Banks as a result of allocations of such excess as a disproportionate payment to such Person under Section 11.7 hereof, such Person agrees to remit such excess to the Borrower. Upon your acceptance hereof in the manner hereinafter set forth, this Agreement shall be a contract between us for the purposes hereinabove set forth. Dated as of April 3, 1998 Atchison Casting Corporation By /s/ Kevin T. McDermed Name Kevin T. McDermed Title V.P. & Treasurer -70- Accepted and Agreed to as of the day and year last above written. Address and Amount of Commitments: Address: HARRIS TRUST AND SAVINGS BANK, in its individual capacity as a Bank and as Agent 111 West Monroe Street Chicago, Illinois 60690 Attn: Mr. Len Meyer Telecopy: (312) 293-5041 By /s/ Len E. Myer Telephone: (312) 461-7611 Name Len E. Myer Title Vice President Commitment: $17,500,000 Term Loan Amount: $10,000,000 Lending Offices: Domestic Rate Loans: 111 West Monroe Street Chicago, Illinois 60690 Attn: Mr. Len Meyer Eurocurrency Loans: 111 West Monroe Street Chicago, Illinois 60690 Attn: Mr. Len Meyer -71- Address: COMMERCE BANK, N.A. 1000 Walnut Street Kansas City, Missouri 64141 Mail Stop BB 17-1 Attn: Jeff R. Gray By /s/ Jeffrey R. Gray Telecopy: (816) 234-7290 Name Jeffrey R. Gray Telephone: (816) 234-2950 Title Vice President Commitment: $9,545,450 Term Loan Amount: $5,454,545 Lending Offices: Domestic Rate Loans: 1000 Walnut Kansas City, Missouri 64141 Eurocurrency Loans: 1000 Walnut Kansas City, Missouri 64141 -72- Address: MERCANTILE BANK 1101 Walnut Street Kansas City, Missouri 64106 Attn: Brian Hoban By /s/ Brain Hoban Telecopy: (816) 871-2226 Name Brain Hoban Telephone: (816) 871-2434 Title Corporate Banking Officer Commitment: $9,545,455 Term Loan Amount: $5,454,545 Lending Offices: Domestic Rate Loans: 1101 Walnut Street Kansas City, Missouri 64106 Eurocurrency Loans: 1101 Walnut Street Kansas City, Missouri 64106 -73- Address: KEYBANK NATIONAL ASSOCIATION Mailcode: OH-01-27-0606 127 Public Square Cleveland, OH 44114-1306 Attn: Sharon Weinstein By /s/ Sharon E. Weinstein Telecopy: (216) 689-4981 Name Sharon Weinstein Telephone: (216) 689-3443 Title Vice President Commitment: $9,545,455 Term Loan Amount: $5,454,545 Lending Offices: Domestic Rate Loans: 127 Public Square Cleveland, OH 44114-1306 Eurocurrency Loans: 127 Public Square Cleveland, OH 44114-1306 -74- Address: COMERICA BANK Comerica Tower at Detroit Center 500 Woodward Avenue Mail Code 3269 Detroit, MI 48226-3269 Attn: Burt Shurly By /s/ Burt R. Shurly III Telecopy: (313) 222-9516 Name Burt R. Shurly III Telephone: (313) 222-3070 Title Vice President Commitment: $6,363,636 Term Loan Amount: $3,636,364 Lending Offices: Domestic Rate Loans: 500 Woodward Avenue Detroit, MI 48226-3269 Eurocurrency Loans: 500 Woodward Avenue Detroit, MI 48226-3269 -75- Address: HIBERNIA NATIONAL BANK 313 Carondelet, 12th Floor New Orleans, LA 70130 Attn: Troy Villafarra By /s/ Troy J. Villafarra Telecopy: (504) 533-5344 Name Troy J. Villafarra Telephone: (504) 533-2738 Title Vice President Commitment: $6,363,636 Term Loan Amount: $3,636,364 Lending Offices: Domestic Rate Loans: 313 Carondelet, 12th Floor New Orleans, LA 70130 Eurocurrency Loans: 313 Carondelet, 12th Floor New Orleans, LA 70130 -76- Address: NATIONAL WESTMINSTER BANK PLC 1 Princes Street London, EC2R8PB Attn: Lindsay Bridgman By /s/ J Brett Telecopy: 011 44 171 390 1768 Name John Brett Telephone: 011 44 171 390 1231 Title Corporate Manager Commitment: $6,363,636 Term Loan Amount: $3,636,364 Lending Offices: Domestic Rate Loans: 175 Water Street New York, New York 10038 Eurocurrency Loans: Commercial Loans NatWest Global Financial Markets Kings Cross House 200 Pentonville Road London, England N1 9HL -77- Address: NORWEST BANK MINNESOTA, N.A. Norwest Center Sixth and Marquette Minneapolis, MN 55479-0075 Attn: R. Duncan Sinclair By /s/ R. Duncan Sinclair Telecopy: (612) 667-6932 Name R. Duncan Sinclair Telephone: (612) 667-0650 Title Vice President Commitment: $4,772,727 Term Loan Amount: $2,727,273 Lending Offices: Domestic Rate Loans: Sixth and Marquette Minneapolis, MN 55479-0075 Eurocurrency Loans: Sixth and Marquette Minneapolis, MN 55479-0075 -78- EX-5 5 PLEDGE & SECURITY AGREEMENT EXHIBIT 4.1b PLEDGE AND SECURITY AGREEMENT This Pledge and Security Agreement (the "AGREEMENT") is dated as of April 3, 1998, made by Atchison Casting Corporation (the "GRANTOR") in favor of Harris Trust and Savings Bank ("HARRIS") with its mailing address 111 West Monroe Street, acting as agent hereunder for the Banks and Noteholders hereinafter defined (Harris acting as such agent and any successor or successors to Harris acting in such capacity being hereinafter referred to as the "COLLATERAL AGENT"); WITNESSETH THAT: WHEREAS, the Grantor, Harris, individually and as agent, and the banks from time to time party thereto, have entered into an Amended and Restated Credit Agreement dated as of April 3, 1998 (such Credit Agreement as the same may be amended, modified or restated from time to time being hereinafter referred to as the "CREDIT AGREEMENT"), pursuant to which such lenders (Harris and the other lenders which are now or which from time to time hereafter become party to the Credit Agreement being hereinafter referred to collectively as the "BANKS" and individually as a "BANK") have agreed, subject to certain terms and conditions, to extend credit and make certain other financial accommodations available to the Grantor; WHEREAS, the Grantor has entered into that certain Note Agreement dated as of July 29, 1994 (such Note Agreement as the same has been and may be amended, modified or restated from time to time being hereinafter referred to as the "NOTE AGREEMENT") with the purchasers identified therein (each a "NOTEHOLDER" and collectively the "NOTEHOLDERS") under which the Grantor has issued $20,000,000 in aggregate principal amount of its Notes (the "SENIOR NOTES"); WHEREAS, as a condition precedent to extending the credit facilities to the Grantor under the Credit Agreement and for the Noteholders to consent to certain amendments to the Note Agreement, the Banks and Noteholders have required, among other things, that the Grantor grant to the Collateral Agent a lien on and security interest in certain personal properties of the Grantor as collateral security for such credit facilities and related obligations pursuant to this Agreement; NOW, THEREFORE, for and in consideration of the execution and delivery by the Banks of the Credit Agreement, and other good and valuable consideration, receipt whereof is hereby acknowledged, the parties hereto hereby agree as follows: 1. GRANT OF SECURITY INTEREST. The Grantor hereby grants to the Collateral Agent a lien on and security interest in, and acknowledges and agrees that the Collateral Agent has and shall continue to have a continuing lien on and security interest in, any and all right, title and interest of the Grantor, whether now owned or existing or hereafter created, acquired or arising, in and to the following: (a) all promissory notes and other instruments payable to or otherwise acquired by the Grantor and any and all rights in and to any and all agreements and collateral securing or relating thereto and the shares of the capital stock of the issuers, each as listed and described on Schedule A attached hereto and made a part hereof as such Schedule may from time to time be amended as hereinafter set forth, and all substitutions and additions to such shares, notes or instruments (herein, the "PLEDGED SECURITIES"), (b) all dividends, distributions and sums distributable or payable from, upon or in respect of the Pledged Securities, (c) all other rights and privileges incident to the Pledged Securities, and (d) all proceeds and products of the foregoing (all of the foregoing being hereinafter referred to collectively as the "COLLATERAL"). This pledge and assignment constitutes an assignment of the rights of the Grantor with respect to the Collateral only and not an assignment of any duties or obligations the Grantor may have with regard to the management of, or the giving of advice to, the issuers of the Pledged Securities. 2. OBLIGATIONS HEREBY SECURED. The lien and security interest granted and provided for herein is made and given to secure, and shall secure, the payment and performance of (a) the Obligations (as defined in the Credit Agreement), (b) the obligations of the Grantor under the Note Agreement, and (c) any and all reasonable expenses and charges, legal or otherwise, suffered or incurred by the Collateral Agent, any Noteholder or any Bank in collecting or enforcing any of such indebtedness, obligations and liabilities or in realizing on or protecting or preserving any security therefor, including, without limitation, the lien and security interest granted hereby other than any of the foregoing that result from the gross negligence or willful misconduct of the Collateral Agent, any Noteholder or such Bank (all of the foregoing being hereinafter referred to as the "OBLIGATIONS"). 3. COVENANTS, AGREEMENTS, REPRESENTATIONS AND WARRANTIES. The Grantor hereby covenants and agrees with, and represents and warrants to, the Collateral Agent, the Banks and the Noteholders that: (a) The Grantor is a corporation duly organized and validly existing in good standing under the laws of the State of Kansas, is the sole and lawful legal, record and beneficial owner of the Collateral, and has full right, power and authority to enter into this Agreement and to perform each and all of the matters and things herein provided for. The execution and delivery of this Agreement, and the observance and performance of the matters and things herein set forth, will not (i) contravene or constitute a default under any provision of law, or any judgment, injunction, order or decree binding upon the Grantor, or any provision of the Grantor's articles of incorporation, by-laws, or any material covenant, indenture or agreement of or affecting the Grantor or any of its property, or (ii) result in the creation or imposition of any lien or encumbrance on any property of the Grantor except for the lien and security interest in the Collateral granted pursuant to this Agreement. The Grantor's chief executive office is located at 400 South 4th Street, Atchison, Kansas 66002, and the Grantor shall not move its chief executive office without first providing the Collateral Agent 30 days prior written notice of the Grantor's -2- intent to do so, provided that the Grantor shall at all times maintain its chief executive office in the United States of America and, with respect to any such new location, the Grantor shall have taken all action requested by the Collateral Agent to maintain the lien and security interest of the Collateral Agent in the Collateral at all times fully perfected and in full force and effect. (b) The certificates, if any, for all shares of the Pledged Securities shall be delivered by the Grantor to the Collateral Agent duly endorsed in blank for transfer or accompanied by an appropriate assignment or assignments or an appropriate undated stock power or powers, in every case sufficient to transfer title thereto. The Collateral Agent may at any time after the occurrence and during the continuance of a Default cause to be transferred into its name or into the name of its nominee or nominees any and all of the shares of the Pledged Securities. The Collateral Agent shall at all times have the right to exchange the certificates representing the Pledged Securities for certificates of smaller or larger denominations. The Grantor has delivered the only executed original of the Pledged Securities to the Collateral Agent, the same has not been amended or modified in any respect, the unpaid principal balance of each Pledged Security that constitutes a note or instrument as of the date hereof is as set forth on Schedule A hereto; and there is not any defense, set-off or counterclaim to the obligation of the obligor thereon to pay the principal of and interest on each Pledged Security that constitutes a note or instrument as and when the same becomes due and payable. The Grantor has delivered to the Collateral Agent true and correct copies of all instruments and documents securing the Pledged Securities or setting forth terms and conditions applicable thereto (collectively the "LOAN DOCUMENTS") and the same have not been amended or modified in any respect (except for amendments and modifications reflected in written instruments, copies of which have heretofore been delivered to the Collateral Agent). Each obligor under a Pledged Security that constitutes a note or instrument is in compliance in all material respects with their respective obligations thereunder and the applicable Loan Documents, and no default has occurred and is continuing thereunder. (c) The Pledged Securities have been validly issued and are fully paid and non-assessable. There are no outstanding commitments or other obligations of the issuer of any of the Pledged Securities to issue, and no options, warrants or other rights of any person or entity to acquire, any share of any class or series of capital stock of such issuer. (d) The Collateral and every part thereof is and will be free and clear of all security interests, liens (including, without limitation, mechanics', laborers' and statutory liens), attachments, levies and encumbrances of every kind, nature and description and whether voluntary or involuntary, except for the security interest of the Collateral Agent therein. The Grantor shall warrant and defend the Collateral against any claims and demands of all persons or entities at any time claiming the same or any interest in the Collateral adverse to the Collateral Agent. The Grantor has the right to vote the Collateral and there are no restrictions upon the voting rights associated with, or the transfer of, any of the Collateral, except as provided by -3- federal and state laws applicable to the sale of securities generally or as otherwise disclosed to the Collateral Agent in writing. (e) None of the Collateral constitutes margin stock (within the meaning of Regulation U of the Board of Governors of the Federal Reserve System). (f) The Grantor shall not, without the Collateral Agent's prior written consent, sell, assign, pledge, encumber, or otherwise dispose of the Collateral or any interest therein. (g) The Grantor shall promptly pay when due all taxes, assessments and governmental charges and levies upon or against the Grantor or the Collateral, in each case before the same become delinquent and before penalties accrue thereon, unless and to the extent that the same are being contested in good faith by appropriate proceedings which prevent foreclosure on or other realization upon any of the Collateral and the Grantor shall have established adequate reserves therefor. (h) The Grantor agrees to execute and deliver to the Collateral Agent such further agreements, assignments, instruments and documents and to do all such other things as the Collateral Agent, any Bank or any Noteholder may deem necessary or appropriate to assure the Collateral Agent its lien and security interest hereunder, including such assignments, stock powers, financing statements, instruments and documents as the Collateral Agent, any Bank, or any Noteholder may from time to time reasonably require in order to comply with the Uniform Commercial Code as enacted in the State of Illinois and any successor statute(s) thereto (the "CODE"). The Grantor hereby agrees that a carbon, photographic or other reproduction of this Agreement or any such financing statement is sufficient for filing as a financing statement by the Collateral Agent without notice thereof to the Grantor wherever the Collateral Agent in its sole discretion desires to file the same. In the event for any reason the law of any jurisdiction other than Illinois becomes or is applicable to the Collateral or any part thereof, or to any of the Obligations, the Grantor agrees to execute and deliver all such agreements, assignments, instruments and documents and to do all such other things as the Collateral Agent, any Bank or any Noteholder in their reasonable discretion deems necessary or appropriate to preserve, protect and enforce the lien and security interest of the Collateral Agent under the law of such other jurisdiction. The Grantor agrees to mark its books and records to reflect the lien and security interest of the Collateral Agent in the Collateral. (i) If, as and when the Grantor delivers any securities, notes or instruments for pledge hereunder in addition to those listed on Schedule A hereto, the Grantor shall furnish to the Collateral Agent a duly completed and executed amendment to such Schedule in substantially the form (with appropriate insertions) of Schedule B hereto reflecting the securities pledged hereunder after giving effect to such addition. -4- (j) After the occurrence and during the continuance of a Default or failure of the Grantor to perform any of the covenants and agreements herein contained, the Collateral Agent may, at its option, perform the same and in so doing may expend such sums as the Collateral Agent may reasonably deem advisable in the performance thereof, including, without limitation, the payment of any taxes, liens and encumbrances, expenditures made in defending against any adverse claims, and all other expenditures which the Collateral Agent may be compelled to make by operation of law or which the Collateral Agent may make by agreement or otherwise for the protection of the security hereof. All such sums and amounts so expended shall be repayable by the Grantor immediately without notice or demand, shall constitute additional Obligations secured hereunder and shall bear interest from the date said amounts are expended at the rate per annum applicable to past due Domestic Rate Loans (as defined in the Credit Agreement). No such performance of any covenant or agreement by the Collateral Agent on behalf of the Grantor, and no such advancement or expenditure therefor, shall relieve the Grantor of any default under the terms of this Agreement or in any way obligate the Collateral Agent, any Bank or any Noteholder to take any further or future action with respect thereto. The Collateral Agent, in making any payment hereby authorized, may do so according to any bill, statement or estimate procured from the appropriate public office or holder of the claim to be discharged without inquiry into the accuracy of such bill, statement or estimate or into the validity of any tax assessment, sale, forfeiture, tax lien or title or claim. The Collateral Agent, in performing any act hereunder, shall be the sole judge of whether the Grantor is required to perform same under the terms of this Agreement. The Collateral Agent is hereby authorized to charge any depository or other account of the Grantor maintained with the Collateral Agent but excluding all accounts of the Grantor in a fiduciary capacity for the amount of such sums and amounts so expended. (k) The Grantor will cause each obligor of a Pledged Security to fully and completely observe and perform all of its covenants and agreements under the Pledged Security and Loan Documents and will not amend, modify or waive any of same in any manner which materially adversely affects the Pledged Securities or the Collateral Agent's interest therein. The Grantor agrees that it will not release any collateral or guarantors for any Pledged Security or otherwise take any action which would impair the value or collectability of the Collateral or any part thereof. The Grantor further agrees to promptly deliver to the Collateral Agent notice of any default under any Pledged Security. 4. SPECIAL PROVISIONS RE: VOTING RIGHTS, DIVIDENDS AND PRINCIPAL PAYMENTS. Unless and until a Default has occurred and thereafter until notified by the Collateral Agent pursuant to Section 6(b) hereof: (a) The Grantor shall be entitled to exercise all voting and/or consensual powers pertaining to the Collateral or any part thereof for all purposes not inconsistent -5- with the terms of this Agreement or any other document evidencing or otherwise relating to any of the Obligations. (b) The Grantor shall be entitled to receive and retain all dividends which are paid in cash out of earned surplus of the issuer of the relevant Pledged Securities. (c) All sums due and to become due on the Pledged Securities that constitute notes or instruments shall be remitted directly to the Collateral Agent for application in reduction of the indebtedness hereby secured in such order and manner and at such times as provided herein; PROVIDED, HOWEVER, that the Banks and Noteholders agree that unless and until a Default occurs hereunder the Grantor may collect and receive and retain for its own use regularly scheduled installment payments of principal and of interest on the Pledged Securities that constitute notes or instruments. (d) In order to permit the Grantor to exercise such voting and/or consensual powers which it is entitled to exercise under subsection (a) above and to receive such distributions which the Grantor is entitled to receive and retain under subsection (b) above, the Collateral Agent will, if necessary, upon the written request of the Grantor, from time to time execute and deliver to the Grantor appropriate proxies and dividend orders. (e) In order to permit the Collateral Agent to receive all cash and other property to which it may be entitled under subsection (b) or (c) above, the Grantor shall, if necessary, upon the written request of the Collateral Agent, from time to time execute and deliver to the Collateral Agent appropriate dividend orders. 5. POWER OF ATTORNEY. The Grantor hereby appoints the Collateral Agent, and each of its nominees, officers, agents, attorneys, and any other person whom the Collateral Agent may designate, as the Grantor's attorney-in-fact, with full power and authority upon the occurrence and during the continuation of a Default to ask, demand, collect, receive, receipt for, sue for, compound and give acquittance for any and all sums or properties which may be or become due, payable or distributable in respect of the Collateral or any part thereof, with full power to settle, adjust or compromise any claim thereunder or therefor as fully as the Grantor could itself do, to endorse the Grantor's name on any assignments, stock powers, or other instruments of transfer and on any checks, notes, acceptances, money orders, drafts and any other forms of payment or security that may come into the Collateral Agent's possession and on all documents of satisfaction, discharge or receipt required or requested in connection therewith, and, in its discretion, to file any claim or take any other action or proceeding, either in its own name or in the name of the Grantor, or otherwise, which the Collateral Agent, any Bank or any Noteholder may reasonably deem necessary or appropriate to collect or otherwise realize upon all or any part -6- of the Collateral, or effect a transfer thereof, or which may be necessary or appropriate to protect and preserve the right, title and interest of the Collateral Agent in and to such Collateral and the security intended to be afforded hereby. Except as set forth in this sentence, the Grantor hereby ratifies and approves all acts of any such attorney and agrees that neither the Collateral Agent nor any such attorney will be liable for any acts or omissions nor for any error of judgment or mistake of fact or law other than their gross negligence or willful misconduct. The Collateral Agent may file one or more financing statements disclosing its security interest in all or any part of the Collateral without the Grantor's signature appearing thereon, and the Grantor also hereby grants the Collateral Agent a power of attorney to execute any such financing statements, and any amendments or supplements thereto, on behalf of the Grantor without notice thereof to the Grantor. The foregoing powers of attorney, being coupled with an interest, are irrevocable until the Obligations have been fully paid and satisfied and all agreements of the Collateral Agent or any Bank to extend credit to or for the account of the Grantor under the Credit Agreement have expired or otherwise have been terminated. 6. DEFAULTS AND REMEDIES. (a) The occurrence of any one or more of the following shall constitute a "DEFAULT" hereunder: (i) the occurrence of any event or the existence of any condition which is specified as an "EVENT OF DEFAULT" under the Credit Agreement and (ii) the occurrence of any event or the existence of any condition which is specified as an "EVENT OF DEFAULT" under the Note Agreement. Upon the occurrence of any Default the Collateral Agent may, and shall, upon written request of the holder or holders of at least 66 2/3% in principal amount of the Obligations, in addition to such other remedies as may be available to it under available law, exercise any or all of the remedies as set forth in this Section 6. (b) If a Default shall have occurred and be continuing, all rights of the Grantor to receive and retain the distributions which it is entitled to receive and retain pursuant to Section 4(b) hereof shall, at the option of the Collateral Agent, cease and thereupon become vested in the Collateral Agent which, in addition to all other rights provided herein or by law, shall then be entitled solely and exclusively to receive and retain the distributions which the Grantor would otherwise have been authorized to retain pursuant to Section 4(b) hereof and all rights of the Grantor to exercise the voting and/or consensual powers which it is entitled to exercise pursuant to Section 4(a) hereof shall, at the option of the Collateral Agent, cease and thereupon become vested in the Collateral Agent which, in addition to all other rights provided herein or by law, shall then be entitled solely and exclusively to exercise all voting and other consensual powers pertaining to the Collateral and to exercise any and all rights of conversion, exchange or subscription and any other rights, privileges or options pertaining thereto as if the Collateral Agent were the absolute owner thereof including, without limitation, the right to exchange, at its discretion, the Collateral or any part thereof upon the merger, consolidation, -7- reorganization, recapitalization or other readjustment of the respective issuer thereof or upon the exercise by or on behalf of any such issuer or the Collateral Agent of any right, privilege or option pertaining to the Collateral or any part thereof and, in connection therewith, to deposit and deliver the Collateral or any part thereof with any committee, depositary, transfer agent, registrar or other designated agency upon such terms and conditions as the Collateral Agent may determine. (c) Upon the occurrence and during the continuation of any Default, the Collateral Agent shall have, in addition to all other rights provided herein or by law, the rights and remedies of a secured party under the Code (regardless of whether the Code is the law of the jurisdiction where the rights or remedies are asserted and regardless of whether the Code applies to the affected Collateral), and further the Collateral Agent may in accordance with the requirements of applicable law, sell and deliver any or all Collateral held by or for it at public or private sale, for cash, upon credit or otherwise, at such prices and upon such terms as the Collateral Agent deems advisable. In the exercise of any such remedies, the Collateral Agent may sell all the Collateral as a unit even though the sales price thereof may be in excess of the amount remaining unpaid on the Obligations. The Collateral Agent is authorized at any sale or other disposition of the Collateral, if it deems it advisable so to do, to restrict the prospective bidders or purchasers to persons who will represent and agree that they are purchasing for their own account for investment, and not with a view to the distribution or resale of any of the Collateral. In addition to all other sums due the Collateral Agent, Banks or Noteholders hereunder, the Grantor shall pay the Collateral Agent all reasonable costs and expenses incurred by the Collateral Agent, including reasonable attorneys' fees and court costs, in obtaining, liquidating or enforcing payment of Collateral or the Obligations or in the prosecution or defense of any action or proceeding by or against the Collateral Agent or the Grantor concerning any matter arising out of or connected with this Agreement or the Collateral or the Obligations, including, without limitation, any of the foregoing arising in, arising under or related to a case under the United States Bankruptcy Code (or any successor statute). Any requirement of reasonable notice shall be met if such notice is personally served on or mailed, postage prepaid, to the Grantor in accordance with Section 11(b) hereof at least 10 days before the time of sale or other event giving rise to the requirement of such notice; PROVIDED HOWEVER, no notification need be given to the Grantor if the Grantor has signed, after a Default has occurred, a statement renouncing any right to notification of sale or other intended disposition. The Collateral Agent shall not be obligated to make any sale or other disposition of the Collateral regardless of notice having been given. The Collateral Agent may be the purchaser at any such sale or other disposition of the Collateral or any part thereof. The Grantor hereby waives all of its rights of redemption from any sale or other disposition of the Collateral or any part thereof. Subject to the provisions of applicable law, the Collateral Agent may postpone or cause the postponement of the sale of all or any portion of the Collateral by announcement at the time and place of such sale, and such sale -8- may, without further notice, be made at the time and place to which the sale was postponed or the Collateral Agent may further postpone such sale by announcement made at such time and place. (d) The powers conferred upon the Collateral Agent hereunder are solely to protect its interest in the Collateral and shall not impose on it any duty to exercise such powers. The Collateral Agent shall be deemed to have exercised reasonable care in the custody and preservation of the Collateral in its possession if the Collateral is accorded treatment substantially equivalent to that which the Collateral Agent accords its own property, consisting of similar type securities. This Agreement constitutes an assignment of rights only and not an assignment of any duties or obligations of Grantor in any way related to the Collateral, and the Collateral Agent shall have no duty or obligation to discharge any such duty or obligation. (e) Failure by the Collateral Agent to exercise any right, remedy or option under this Agreement or any other agreement between the Grantor and the Collateral Agent or provided by law, or delay by the Collateral Agent in exercising the same, shall not operate as a waiver; and no waiver by the Grantor, the Collateral Agent, any Bank or any Noteholder shall be effective unless it is in writing and then only to the extent specifically stated. Neither the Collateral Agent nor any party acting as attorney for the Collateral Agent shall be liable for any acts or omissions or for any error of judgment or mistake of fact or law other than their gross negligence or willful misconduct. The rights and remedies of the Collateral Agent under this Agreement shall be cumulative and not exclusive of any other right or remedy which the Collateral Agent may have. 7. APPLICATION OF PROCEEDS. (a) The proceeds of any foreclosure or other realization on the Collateral or of any other enforcement of this Agreement shall be paid and applied as follows: (i) First, to the payment of reasonable costs and expenses of such foreclosure, realization or other enforcement and of all necessary or proper expenses, liabilities and advances incurred or made hereunder by the Collateral Agent, and to the payment of all taxes, assessments, governmental charges or liens superior to the lien of these presents, except any taxes, assessments, governmental charges or other superior lien subject to which said sale may have been made; (ii) Next, to the Banks and Noteholders in the amount of any unpaid accrued interest on the Obligations, and any unpaid accrued letter of credit fees payable by the Grantor under the Credit Agreement, PRO RATA in proportion to the respective amounts thereof owed to each Bank and Noteholder; -9- (iii) Next, to the extent proceeds remain, to the Banks and Noteholders in the amount of any outstanding principal amount of the Notes, the undrawn face amount of the outstanding Letters of Credit, and the amount of any outstanding principal amount of the Senior Notes, PRO RATA in proportion to the respective amounts thereof owed to each Bank and each Noteholder, subject in the case of the outstanding Letters of Credit, to the provisions of Section 7(b) hereof; (iv) Next, to the extent proceeds remain, to the Banks and Noteholders in the amount of any Makewhole Amounts due with respect to the Senior Notes and any amounts due for breakage or similar amounts as provided in Section 1.11 of the Credit Agreement and any unpaid accrued commitment fees, PRO RATA in proportion to the respective amounts thereof owed to each Bank and Noteholder; and (v) Finally, to the extent proceeds remain, to the Banks and Noteholders in the amount of any other unpaid Obligations, PRO RATA in proportion to the respective amounts thereof owed to each Bank and Noteholder. (b) SPECIAL PROVISIONS REGARDING LETTERS OF CREDIT. If at any time any Bank is entitled pursuant to clause (iii) of Section 7(a) hereof to have any amount (a "DISTRIBUTABLE AMOUNT") distributed to it as a consequence of the inclusion in outstanding Letters of Credit of the aggregate amount available for drawing under any Letter of Credit issued by or participated in by such Bank, such Distributable Amount shall not be so distributed to such Bank but shall instead be distributed to the Collateral Agent and deposited by the Collateral Agent in a special interest bearing account (the "LETTER OF CREDIT RESERVE ACCOUNT") under the sole dominion and control of the Collateral Agent, and shall be applied and distributed to such Bank if and to the extent that such Letter of Credit is honored. If such Letter of Credit is not honored (or is not honored in the full amount thereof) the balance of the funds in the Letter of Credit Reserve Account in respect of such Letter of Credit and not distributed pursuant to the immediately preceding sentence shall be distributed to the Banks and Noteholders pursuant to clause (iii) of Section 7(a) hereof, or to whomsoever shall be lawfully entitled thereto. (c) APPLICATION OF PAYMENTS TO BE SHARED BY BANKS AND NOTEHOLDERS. The distribution provisions of this Section 7 are for the purpose of determining the relative amounts of proceeds or other payments to be distributed to the Banks and Noteholders in respect of the Collateral and not for the purpose of creating an agreement among the parties as to the manner in which any proceeds or other payments distributed to them are actually to be applied to pay the Obligations. Each Bank and Noteholder shall be free, each in its own discretion, to apply any payment distributed to it hereunder to the Obligations held by it in such order as it may determine in accordance with applicable law and the terms of the Credit Agreement and Note Agreement. The Grantor agrees that in the event any payment is made with respect to any -10- Obligations, as between the Grantor and each Bank and each Noteholder the Obligations discharged by such payment shall be the amount or amounts of the Obligations to which such Bank and Noteholder applies the portion of such payment distributed to it under this Section 7 as provided in the preceding sentence. Notwithstanding the foregoing, for all purposes of this Agreement the Obligations shall be deemed paid to the same extent that payments distributed with respect to it pursuant to Section 7(a) notwithstanding the actual application thereof. (d) PAYMENTS AND PROCEEDS FROM GRANTOR NOT TO BE SHARED. No Bank and no Noteholder shall by virtue of this Agreement be required to share with any other Bank and Noteholder any payments or prepayments received from the Grantor in respect of the Obligations owed to such Bank and Noteholder by the Grantor, including without limitation any amounts or other property or securities collected by or distributed to or otherwise received by such Bank and Noteholder from or in respect of the Grantor as a result of any enforcement or the exercise of any remedy or counterclaim or otherwise, including without limitation, any such amounts received pursuant to the exercise of any right of offset or bankers' lien, or as a result of the pendency of any case involving the Grantor under the Bankruptcy Code of 1978, as amended, or any successor law or under any other bankruptcy, reorganization, arrangement, insolvency, readjustment of debt, dissolution, liquidation or similar law of any jurisdiction. (e) PAYMENTS AND PROCEEDS FROM GRANTOR UNRELATED TO THIS AGREEMENT NOT TO BE SHARED. Except as hereinabove provided in this Section 7 with respect to payments, collections and distributions in respect of obligations hereunder, no Bank nor any Noteholder shall by virtue of this Agreement be required to share with any other Bank and Noteholder any payments or prepayments received from the Grantor in respect of any other indebtedness, liability or obligation of the Grantor owed to such Bank and Noteholder. 8. CONTINUING AGREEMENT. This Agreement shall be a continuing agreement in every respect and shall remain in full force and effect until all of the Obligations, both for principal and interest, have been fully paid and satisfied and all agreements of the Banks to extend credit to or for the account of the Grantor under the Credit Agreement have expired or otherwise have been terminated. Upon such termination of this Agreement, the Collateral Agent shall, upon the request and at the expense of the Grantor, forthwith release its security interest hereunder. 9. CONCERNING THE COLLATERAL AGENT. (A) TERMS AND CONDITIONS OF AGENCY. The Collateral Agent shall act hereunder as the agent for the Banks and the Noteholders. The Collateral Agent hereby accepts such agency and the powers and duties imposed upon it by this Agreement in connection therewith and agrees to execute such agency and perform such powers and duties upon and subject to the following expressed terms and conditions: -11- (i) The Collateral Agent shall not be bound to ascertain or inquire as to the performance or observance of any covenant, condition or agreement on the part of the Grantor contained herein; but the Collateral Agent may require of the Grantor full information and advice as to the performance of the covenants, conditions and agreements aforesaid and of the Grantor as to the condition of the Collateral. (ii) The Collateral Agent shall not be responsible for any recital herein, or in the Credit Agreement, the Note Agreement or any instrument related thereto, or for the validity, enforceability, genuineness, perfection or worth of this Agreement or any instrument related hereto, or for the sufficiency of the security for or the collectibility of the indebtedness hereby secured, or for the value or title of any of the Collateral, or for the recording, filing or refiling of any financing statement perfecting the lien of this Agreement, or for the payment of taxes, charges, assessments or liens upon the Collateral or otherwise as to the maintenance of the security hereof. The recitals and statements contained in this Agreement hereto shall be taken as statements by the Grantor and shall not be considered as made by or as imposing any obligation or liability upon the Collateral Agent. (iii) The Collateral Agent shall be protected in acting upon any notice, request, consent, certificate, order, affidavit, letter, telegram or other paper or document believed by it to be genuine and correct and to have been signed or sent by the proper person or persons. Any action taken by the Collateral Agent pursuant to this Agreement upon the request or authority or consent of any person who at any time of making such request or giving such authority or consent is an owner of a Note, or Senior Note, shall be conclusive and binding upon all future owners of the Notes, or Senior Notes. (iv) As to the existence or nonexistence of any fact or as to the sufficiency or validity of any instrument, paper or proceeding, the Collateral Agent shall be entitled to rely upon a certificate of the Grantor signed by any officer thereof the Collateral Agent deems appropriate for such purpose as sufficient evidence of the facts therein contained. (v) The Collateral Agent shall not be accountable for the use of Notes or the Senior Notes or of any of the proceeds of any such Note or Senior Note. Any money received by the Collateral Agent under any provision of this Agreement shall, until used or applied as herein provided, be held in trust for the purposes for which they were paid, but need not be segregated from other funds except to the extent required by law and may be so held without any liability for interest except for such as the Collateral Agent shall agree to pay thereon during that time. If any Obligations are payable, either as to principal or interest, or both, at any office other than the office of the Collateral Agent, the Collateral Agent shall be permitted to remit funds to such place of payment, and shall -12- not be responsible for the loss or misapplication thereof, and also, if the Collateral Agent shall by any provisions hereof be required or permitted to remit funds to others, it shall not be responsible for the loss or misapplication thereof. (vi) The Collateral Agent shall have such powers as are delegated to it by this Agreement, together with such powers as are reasonably incidental thereto. The permissive right of the Collateral Agent to do things enumerated in this Agreement shall not be construed as a duty of the Collateral Agent. The Collateral Agent shall not be liable for any action taken or omitted to be taken by it in good faith which is (i) reasonably believed by it to be within the discretion or power conferred upon it by this Agreement, (ii) in accordance with the direction of (a) the Bank or Banks holding an interest in two-thirds of the principal amount of the Notes or (b) the holder or holders of a majority in principal amount of Senior Notes, unless the Collateral Agent receives what it in good faith believes to be conflicting directions for such purpose or (iii) in accordance with the direction of the holder or holders of a majority in principal amount of the Obligations if the Collateral Agent receives what it in good faith believes to be conflicting directions for such purpose; and the Collateral Agent shall not be responsible for any clerical error, oversight, inadvertence or error of judgment, or for any action taken or omitted to be taken by the Collateral Agent hereunder or in connection herewith, unless due to its own gross negligence or for a willful default. (vii) The Collateral Agent shall not be required to take notice or be deemed to have notice of any Default hereunder, unless the Collateral Agent shall be specifically notified in writing of such Default by (i) the Required Banks or (ii) the holders of at least fifty percent in principal amount of the Senior Notes. (viii) The Collateral Agent shall not be required to give any bond or surety in respect of the execution of the said agencies and powers or otherwise in respect of the premises. (ix) The Collateral Agent shall not be under any obligation to exercise any of the agencies or powers hereof at the request, order or direction of any of the holders of the Notes or the Senior Notes pursuant to the provisions of this Agreement unless such holders shall have indemnified the Collateral Agent to its complete satisfaction against the costs, expenses and liabilities which may be incurred therein or thereby and provided security for such indemnity which is satisfactory to it. Without in any way limiting the foregoing, none of the provisions contained in this Agreement shall require the Collateral Agent to expend or risk its own funds or otherwise incur personal financial liability in the performance of any of its duties or in the exercise of any of its rights or powers, if there is reasonable ground for believing that the repayment of such funds or liability is not -13- reasonably assured to it. Any sum advanced for reasonable expenses by any such holder or holders or on their behalf or by the Collateral Agent in case they should make any such advancement to the extent said sum is expended shall constitute additional Obligations and shall have priority over the payment of the Notes and the Senior Notes. (x) The Collateral Agent may execute any of the agencies or powers hereof and perform any duties required of it by or through attorneys, agents or employees, and shall be entitled to advice of counsel concerning all matters of the agencies hereof and its duties hereunder, and may in all cases pay such reasonable compensation as it shall deem proper to all such attorneys, agents and employees as may reasonably be employed in connection with the agencies hereof, and the Grantor covenants and agrees to repay upon demand all such outlays and expenditures so incurred and all other proper charges and expenses of the Collateral Agent incurred in carrying out the agencies created hereby. The Collateral Agent shall not be answerable for the default or misconduct of any attorney, agent or employee appointed in pursuance hereof if such attorney, agent or employee shall have been selected with reasonable care. The Collateral Agent may in relation to this Agreement act upon the opinion or advice of any attorney, surveyor, engineer or accountant, who, prior to the occurrence to the knowledge of the Collateral Agent of any Default hereunder, may be retained or selected by the Grantor, if approved by the Collateral Agent, and shall not be responsible for any loss resulting from any action or non- action in accordance with any such opinion or advice. (b) COSTS AND EXPENSES OF COLLATERAL AGENT. The Grantor covenants and agrees to reimburse the Collateral Agent for all advances made, and pay the Collateral Agent for all reasonable costs and expenses (including reasonable counsel fees and court costs) incurred by the Collateral Agent, in the execution of the agencies hereby created and the exercise and performance of the powers and duties of the Collateral Agent hereunder and in any action or proceeding affecting the Collateral or the title thereto or the interest of the Collateral Agent therein or otherwise having a bearing on the interests of the holders of the Obligations. The Grantor further agrees to indemnify the Collateral Agent against any and all liabilities, losses, reasonable costs, reasonable expenses, damages, actions, claims, judgments, charges and reasonable attorney's fees incurred or sustained by the Collateral Agent under this Agreement, except such therefor as are directly caused by the Collateral Agent's gross negligence or willful misconduct. (c) RESIGNATION OF COLLATERAL AGENT. The Collateral Agent and any successor or successors hereafter appointed may at any time resign and be discharged from the agency hereby created by giving sixty days' written notice to the Grantor and the holders of the Notes and the Senior Notes, and such resignation shall take effect at the end of such sixty days, or, if later, upon -14- the appointment of a successor agent in the manner provided in 9(d) hereof. Such notice may be served personally or sent by registered mail. (d) APPOINTMENT OF SUCCESSOR AGENT. In case at any time the Collateral Agent hereunder shall resign from such capacity, a successor may be appointed by the holders of a majority in principal amount of the Obligations by an instrument or concurrent instruments in writing signed by such holders. If no appointment of a successor agent shall be made pursuant to the foregoing provisions of this Section within sixty days after the Collateral Agent resigns, the resigning Collateral Agent shall then appoint a commercial bank or trust company who shall then serve as Collateral Agent hereunder. (e) VESTING OF SUCCESSOR AGENT. Every successor agent appointed hereunder shall execute, acknowledge and deliver to its predecessor and also to the Grantor an instrument in writing accepting such appointment hereunder, and thereupon such successor agent, without any further act, deed or conveyance, shall become fully vested with all the estates, properties, rights, powers, agencies, duties and obligations of the Collateral Agent ceasing to act hereunder, with like effect as if originally named as Collateral Agent herein; but the Collateral Agent ceasing to act shall, nevertheless, on the written request of the Grantor, or of such successor agent, or of the holder or holders of a majority in principal amount of the indebtedness hereby secured, execute, acknowledge and deliver such instruments of conveyance and further assurance and do such other things as may reasonably be required for more fully and certainly vesting and confirming in such successor agent all the right, title and interest of the Collateral Agent ceasing to act, in and to the Collateral and such rights, powers, agencies, duties and obligations, and the Collateral Agent ceasing to act shall also, upon like request, pay over, assign and deliver to the successor agent any money or other property subject to the lien of this Agreement. Should any deed, conveyance or instrument in writing from the Grantor be required by any successor agent for more fully and certainly vesting in and confirming to such successor the estates, properties, rights, powers, agencies and duties hereby vested or intended to be vested in the Collateral Agent ceasing to act, any and all such deeds, conveyances and instruments in writing shall on request be executed, acknowledged and delivered by the Grantor. The resignation of any Collateral Agent, and the instrument or instruments removing any Collateral Agent and appointing a successor hereunder, together with all deeds, conveyances and other instruments provided for in this Section shall, at the expense of the Grantor, be forthwith duly acknowledged and filed for recording by the successor agent in each county where this Agreement shall have been recorded. (f) ADDITIONAL AGENT. If at any time or times for the purpose of conforming to any legal requirements, restrictions or conditions in any state or jurisdiction in which any of the Collateral may be located, or if at any time or times the Collateral Agent or the holder or holders of a majority in principal amount of the Obligations shall deem it necessary or prudent so to do, the Collateral Agent or such holders shall have the power, by an instrument executed by the -15- Collateral Agent or by such holders, to appoint one or more persons approved by the Collateral Agent or such holders, either to act as separate agent or agents or co-agent or co-agents jointly with the Collateral Agent, of all or any specified part of the Collateral; and the person or persons so appointed shall be such separate agent or agents or co-agent or co-agents with such rights and remedies as shall be specified in such instrument to be executed as aforesaid, to the extent not prohibited by law. Any such separate agent or co-agent may resign in the same manner as can the Collateral Agent. The Collateral Agent and any separate agent or co-agent shall have no responsibility for the acts and omissions of each other. (g) EVIDENCE GENERALLY. The Collateral Agent may in its discretion require such proof as it deems necessary to establish the ownership of the Notes and the Senior Notes or any interests therein. The Collateral Agent shall not be bound to recognize any party as a holder of a Note or Senior Note or any interest therein unless and until such party's title to the same is proved in the manner satisfactory to the Collateral Agent. (h) ASCERTAINMENT OF OUTSTANDING INDEBTEDNESS. Any determination of whether the holders of a required percentage of the principal amount of the Obligations have concurred or participated in any direction, request or consent shall be made on the basis of the principal amount outstanding on such Obligations as of the time of such determination. 10. PRIMARY SECURITY; OBLIGATIONS ABSOLUTE. The lien and security herein created and provided for stand as direct and primary security for the Obligations. The Grantor acknowledges and agrees that the lien and security hereby created and provided for are absolute and unconditional and shall not in any manner be affected or impaired by any acts or omissions whatsoever of the Collateral Agent, any Bank, any Noteholder or any other holder of any of the Obligations, and without limiting the generality of the foregoing, the lien and security hereof shall not be impaired by any acceptance by the Collateral Agent, any Bank, any Noteholder or any holder of any of the Obligations of any other security for or guarantors upon any of the Obligations or by any failure, neglect or omission on the part of the Collateral Agent, any Bank, or any Noteholder or any other holder of any of the Obligations to realize upon or protect any of the Obligations or any collateral security therefor. The lien and security hereof shall not in any manner be impaired or affected by (and the Collateral Agent, the Bank and the Noteholder, without notice to anyone to the extent allowed by applicable law, are hereby authorized to make from time to time) any sale, pledge, surrender, compromise, settlement, release, renewal, extension, indulgence, alteration, substitution, exchange, change in, modification or disposition of any of the Obligations, or of any collateral security therefor, or of any guaranty thereof or of any obligor thereon. In order to foreclose or otherwise realize hereon and to exercise the rights granted the Collateral Agent hereunder and under applicable law, there shall be no obligation on the part of the Collateral Agent, any Bank, any Noteholder or any other holder of any of the Obligations at any time to first resort for payment to the Grantor or any other obligor on any of -16- the Obligations or to any guaranty of the Obligations or any portion thereof or to resort to any other collateral security, property, liens or any other rights or remedies whatsoever, and the Collateral Agent shall have the right to enforce this instrument irrespective of whether or not other proceedings or steps are pending seeking resort to or realization upon or from any of the foregoing. 11. MISCELLANEOUS. (a) This Agreement cannot be changed or terminated orally. All of the rights, privileges, remedies and options given to the Collateral Agent hereunder shall inure to the benefit of its successors and assigns, and all the terms, conditions, covenants, agreements, representations and warranties of and in this Agreement shall bind the Grantor and its legal representatives, successors and assigns, provided that the Grantor may not assign its rights or delegate its duties hereunder without the Collateral Agent, Banks' and Noteholders' prior written consent. The Grantor hereby releases the Collateral Agent from any liability for any act or omission relating to the Collateral or this Agreement, except for the Collateral Agent's gross negligence or willful misconduct. (b) Except as otherwise specified herein, all notices hereunder shall be in writing (including, without limitation, notice by telecopy) and shall be given to the relevant party at its address or telecopier number set forth below, or such other address or telecopier number as such party may hereafter specify by notice to the other given by United States certified or registered mail, by telecopy or by other telecommunication device capable of creating a written record of such notice and its receipt. Notices hereunder shall be addressed: to the Grantor at: to the Collateral Agent at: Atchison Casting Corporation Harris Trust and Savings Bank 400 South 4th Street 111 West Monroe Street Atchison, Kansas 66002 Chicago, Illinois 60690 Attention: Chief Financial Officer Attention: Len Meyer Telecopy: (913) 367-2155 Telecopy: 312-293-5041 Each such notice, request or other communication shall be effective (i) if given by telecopier, when such telecopy is transmitted to the telecopier number specified in this Section and a confirmation of such telecopy has been received by the sender, (ii) if given by mail, five (5) days after such communication is deposited in the mail, certified or registered with return receipt requested, addressed as aforesaid, or (iii) if given by any other means, when delivered at the addresses specified in this Section. -17- (c) No Bank or Noteholder shall have the right to institute any suit, action or proceeding in equity or at law for the enforcement of any remedy under or upon this Agreement; it being understood and intended that no one or more of the Banks or Noteholders shall have any right in any manner whatsoever to affect, disturb or prejudice the lien of this Agreement by its or their action or to enforce any right hereunder, and that all proceedings at law or in equity shall be instituted, had and maintained by the Collateral Agent in the manner herein provided and for the benefit of the Banks and Noteholders. (d) All capitalized terms used herein without definition shall have the same meanings herein as such terms have in the Credit Agreement. (e) In the event that any provision hereof shall be deemed to be invalid or unenforceable by reason of the operation of any law or by reason of the interpretation placed thereon by any court, this Agreement shall be construed as not containing such provision, but only as to such locations where such law or interpretation is operative, and the invalidity or unenforceability of such provision shall not affect the validity of any remaining provisions hereof, and any and all other provisions hereof which are otherwise lawful and valid shall remain in full force and effect. (f) This Agreement shall be deemed to have been made in the State of Illinois and shall be governed by, and construed in accordance with, the laws of the State of Illinois. All terms which are used in this Agreement which are defined in the Code shall have the same meanings herein as said terms do in the Code unless this Agreement shall otherwise specifically provide. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning of any provision hereof. (g) This Agreement may be executed in any number of counterparts and by different parties hereto on separate counterpart signature pages, each constituting an original, but all together one and the same instrument. The Grantor acknowledges that this Agreement is and shall be effective upon its execution and delivery by the Grantor to the Collateral Agent, and it shall not be necessary for the Collateral Agent to execute this Agreement or any other acceptance hereof or otherwise to signify or express its acceptance hereof. (h) The Grantor hereby submits to the non-exclusive jurisdiction of the United States District Court for the Northern District of Illinois and of any Illinois state court sitting in the City of Chicago for purposes of all legal proceedings arising out of or relating to this Agreement or the transactions contemplated hereby. The Grantor irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient form. THE GRANTOR, THE COLLATERAL AGENT, THE -18- BANKS AND THE NOTEHOLDERS EACH HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. -19- In Witness Whereof, the Grantor has caused this Agreement to be duly executed and delivered the day and year first above written. ATCHISON CASTING CORPORATION By /s/ Kevin T. McDermed Its V.P. & Treasurer Acknowledged and Agreed to as of the date first written above. HARRIS TRUST AND SAVINGS BANK, as Collateral Agent By /s/ Len E. Myer Its Vice President -20- SCHEDULE A PLEDGED SECURITIES STOCK
ISSUER JURISDICTION OF NO. OF CERTIFICATE PERCENT OF NAME ORGANIZATION SHARES NO(S). OWNERSHIP Atchison Casting U.K. 12,870,000* 1 100%** UK Ltd.
NOTES
OUTSTANDING MATURITY OBLIGOR PRINCIPAL AMOUNT DATE DATE Atchison Casting *** April 3, 1998 April 3, 2003 UK Ltd.
- ------------------------------- * 12,870,000 "A" shares pledged of 19,800,000 total "A" shares ** Grantor will own 100% of pledged shares, but approximately 95% of total shares, after including "B" shares (owned by management) and "C" shares (reserved for granted option). - ------------------------------------------------------------------------------- *** The aggregate unpaid principal amount of all loans, advance and other Indebtedness owing at the time of demand from Atchison Casting UK Ltd. to the Grantor, together with interest thereon. -2- EX-6 6 3RD AMENDMENT TO NOTE PURCHASE AGREEMENT EXHIBIT 4.2 THIRD AMENDMENT TO THE NOTE PURCHASE AGREEMENT This Third Amendment to the Note Purchase Agreement (this "Third Amendment") dated as of April 3, 1998 between ATCHISON CASTING CORPORATION (the "Company") and TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA (the "Holder"); W I T N E S S E T H: WHEREAS, the Company and the Holder have heretofore executed and delivered a Note Purchase Agreement dated as of July 29, 1994 (as amended by the First Amendment and the Second Amendment described below, the "Note Purchase Agreement") pursuant to which the Holder purchased $20,000,000 in aggregate principal amount of the Company's 8.44% Senior Notes due July 29, 2004 (the "Notes"); and WHEREAS, the Company and the Holder have heretofore executed and delivered a First Amendment to the Note Purchase Agreement dated as of March 8, 1996 (the "First Amendment"); and WHEREAS, the Company and the Holder have heretofore executed and delivered a Second Amendment to the Note Purchase Agreement dated as of May 24, 1996 (the "Second Amendment"); and WHEREAS, concurrently herewith the Company or a Subsidiary thereof shall acquire substantially all of the voting stock of Sheffield Forgemasters Group Limited, a U.K. company ("Sheffield"); and WHEREAS, concurrently herewith in connection with the acquisition of Sheffield, the Company shall enter into a Pledge and Security Agreement with Harris Trust and Savings Bank, acting as agent for the Holder and the banks which are now or hereafter a party to the Amended and Restated Credit Agreement dated as of April 3, 1998 between such banks and the Company; and WHEREAS, the parties hereto desire to further amend the Note Purchase Agreement to enable the Company to complete the acquisition of Sheffield and to make certain other amendments to the Note Purchase Agreement as provided therein; NOW, THEREFORE, for good and valuable consideration the receipt of which is hereby acknowledged, the parties hereto agree that the Note Purchase Agreement shall be and hereby is amended as follows: A. 1. The provisions of SECTION 1.7 and SECTION 6.13 of the Note Purchase Agreement which require a subsidiary guaranty of the Notes shall not apply with respect to Sheffield, any of its subsidiaries or any U.K. Subsidiary that the Company has formed to acquire the voting stock of Sheffield. 2. SECTION 6.3 of the Note Purchase Agreement is hereby amended by (i) deleting the " and" at the end of subsection (f) thereof, (ii) deleting the "." at the end of subsection (g) thereof and inserting in its place "; and" and (iii) inserting after subsection (g) the following subsection (h): "(h) Sheffield may become and remain liable in respect of letters of credit issued for its account PROVIDED that the aggregate face amount of all such letters of credit shall not exceed the US$ equivalent of $3,000,000 at any one time outstanding." 3. SECTION 6.4 of the Note Purchase Agreement is hereby amended by deleting the amount "$3,500,000" in the last line of subsection (h) thereof and inserting in its place the amount "$8,000,000". 4. SECTION 9.1 of the Note Purchase Agreement is hereby amended by (i) inserting the following definition in the appropriate alphabetical order: "'SHEFFIELD': Sheffield Forgemasters Group Limited, a U.K. company. and (ii) by amending and restating in its entirety the definition of "Restricted Investment" to read as follows: "'RESTRICTED INVESTMENT': any Investment other than an Investment permitted by clause (a), (b), (c) or (d) of Section 6.5." B. The Company hereby represents and warrants to the Holder that the representations and warranties with respect to the Company contained in the Note Purchase Agreement are true and correct in all material respects and the Holder shall be entitled to rely on such representations and warranties as if they were made to the Holder in this Amendment as of the date hereof. C. This Third Amendment shall become effective upon execution and delivery of this Third Amendment. This Third Amendment may be executed in any number of counterparts and by each party hereto on separate counterpart signature pages, each of which when so executed shall be an original but all of which shall constitute one and the same instrument. Except as specifically amended and modified hereby, all of the terms and conditions of the Note Purchase Agreement shall remain unchanged and in full force and effect. All references to the Note Purchase Agreement in any document shall be deemed to be references to the Note Purchase Agreement as amended hereby. All capitalized terms used herein without definition shall have the same meaning herein as they have in the Note Purchase Agreement. This Third Amendment shall be construed and governed by and in accordance with the laws of the State of New York. Dated as of the date first above written. ATCHISON CASTING CORPORATION By /s/ Kevin T. McDermed ------------------------------- Name: Kevin T. McDermed Title: V.P. & Treasurer TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA By /s/ Estelle Simsolo -------------------------------- Name: Estelle Simsolo Title: Director-Private Placements EX-7 7 SHARE EXCHANGE AGREE. EXHIBIT 10.1 DATE APRIL 6, 1998 (1) DAVID FLETCHER AND OTHERS - and - (2) ATCHISON CASTING UK LTD - and - (3) ATCHISON CASTING CORPORATION ________________________________________ SHARE EXCHANGE AGREEMENT in respect of ordinary shares of 1p each in Sheffield Forgemasters Group Limited AND SHAREHOLDERS AGREEMENT RE ATCHISON CASTING UK LTD ________________________________________ CONTENTS 1. INTERPRETATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2. CONDITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 3. SALE OF THE SALE SHARES AND INTERIM PERIOD. . . . . . . . . . . . . . . . . 2 4. CONSIDERATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 5. COMPLETION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 6. WARRANTIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 7. OPTION ARRANGEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 8. OBLIGATION ARRANGEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . 5 9. LETTER OF CREDIT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 10. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 11. CHOICE OF LAW. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 SCHEDULE 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 SCHEDULE 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 SCHEDULE 3. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15 THIS AGREEMENT is made on April 6, 1998 BETWEEN: (1) THOSE PERSONS whose names are set out in Schedule 1 (the "Sellers"); (2) ATCHISON CASTING UK LTD (company number 3514183) whose registered office is at Kings Court, 12 King Street, Leeds LS1 2HL (ACUK); and (3) ATCHISON CASTING CORPORATION whose registered office is at 400 South Fourth Street, PO Box 188, Atchison, Kansas, 66002-0188 ("ACC"). IT IS AGREED as follows: 1. INTERPRETATION 1.1. In this agreement and the schedules: "COMPLETION" means completion of the sale and purchase of the Sale Shares in accordance with clause 5 of this agreement; "'B' ORDINARY SHARES" means 1,040,000 new "B" ordinary shares of 25 pence each in the capital of ACUK credited as fully paid up and issued at a premium of 27.78311 pence per share ranking pari passu in all respects with the existing issued "A" ordinary shares of 25 pence each in the capital of ACUK (save as provided in the New Articles); "DEED OF WARRANTY AND UNDERTAKING" means the deed of warranty and undertaking to be entered into later today in the form annexed between (1) Phillip Montague Wright and others and (2) the Purchaser; "INITIAL CONSIDERATION" means the allotment and issue by ACUK to the Sellers of the 'B' Ordinary Shares pursuant to Clause 4.1.1; "NEW ARTICLES" means the new articles of association in the form annexed and, for the purpose of identification, initialled by or on behalf of the parties hereto; "SALE SHARES" means 1,267,477 ordinary shares of 1p each fully paid in the capital of SFGL. 1 1.2. Words and expressions defined in the Deed of Warranty and Undertaking shall have the same meanings when used in this agreement. 1.3. Any headings are inserted for convenience only and shall not affect the construction of this agreement. 1.4. The Schedules form part of this agreement. 2. CONDITIONS 2.1. Completion of this agreement is conditional upon the Offer becoming or being declared unconditional in all respects on or before April 30 1998 and ACUK having been registered as the holder of at least 50% of all the issued shares of SFGL. 2.2. If the conditions set out in clause 2.1 are not satisfied on or before April 30 1998 this agreement shall cease to be of effect and the obligations of the parties to it shall cease and determine without liability on any party (save for any antecedent breach by a party of its obligations). 2.3. ACUK shall use its reasonable endeavours to satisfy the conditions set out in clause 2.1 on or before April 30, 1998 and without limitation, shall seek to procure the stamping and the registration of any shares assented to the Offer promptly upon the Offer becoming or being declared unconditional in all respects. 3. SALE OF THE SALE SHARES AND INTERIM PERIOD 3.1. Each of the Sellers with full title guarantee shall sell that number of Sale Shares set against his or her name in Schedule 1 to ACUK free from all liens, charges and encumbrances and with all rights now attached thereto and ACUK shall roll over the Sale Shares upon the terms of this agreement. 3.2. Until the earlier of the sale of the Sale Shares pursuant to this agreement and cessation of this agreement pursuant to clause 2.2, each of the Sellers agrees with ACUK that he or she will not without the prior written consent of ACUK: 3.2.1. dispose of any interest in such Sale Shares or any rights attaching to them or agree to do any of these things; 3.2.2. exercise any voting or other rights attached to such Sale Shares. 2 3.3. Until the earlier of the allotment of the 'B' Ordinary Shares pursuant to this agreement and cessation of this agreement pursuant to clause 2.2, ACUK agrees with each of the Sellers that it will not: 3.3.1. amend its articles of association; 3.3.2. issue any shares or loan capital convertible into shares or agree to do so or grant any option to subscribe for such shares or loan capital; 3.3.3. enter into any transactions other than those which are reasonably required to make or implement the Offer. 4. CONSIDERATION 4.1. The consideration for the sale of the Sale Shares shall be: 4.1.1. the allotment and issue by ACUK to the Sellers of the 'B' Ordinary Shares in the numbers set out in Schedule 1, and 4.1.2. for each Sale Share the payment by way of additional consideration of the same amount per Sale Share as will be paid to each of the SFG Shareholders in accordance with the provisions of the Offer Document. 4.2. The consideration referred to in clause 4.1 shall be satisfied and paid as follows: 4.2.1. as to the Initial Consideration, on Completion; 4.2.2. as to the additional consideration referred to in clause 4.1.2, no later than the last date on which the Additional Consideration (as defined in the Offer Document) is payable pursuant to the provisions of the Offer Document. 5. COMPLETION Completion of the sale and purchase of the Sale Shares shall take place immediately following satisfaction of the conditions contained in clause 2.1 when: 5.1. each Seller shall deliver or procure to be delivered to ACUK a transfer in respect of his or her Sale Shares duly completed in favour of ACUK (or as it may direct) together with his or her share certificate(s); 5.2. ACUK shall adopt the New Articles; 3 5.3. thereupon ACUK shall satisfy the Initial Consideration by the allotment of the 'B' Ordinary Shares to the Sellers in the numbers set out in Schedule 1, enter their names on the register of members in respect of such 'B' Ordinary Shares, and deliver to the Sellers share certificates for such shares in their respective names. 6. WARRANTIES 6.1. Each Seller warrants and undertakes that the number of Sale Shares set against his or her name in Schedule 1 are both legally and beneficially owned by him or her and neither the whole nor any part of his or her interest in those Sale Shares is subject to any Encumbrance and that he or she is able and entitled to agree to sell and to sell those Sale Shares pursuant to this agreement and to transfer those Sale Shares with full title guarantee free from all Encumbrances and together with all rights attaching to those Sale Shares, including the right to all dividends and other distributions (if any) declared, made or paid after the date on which the Offer becomes or is declared unconditional in all respects and otherwise perform his or her obligations under this agreement. 6.2. ACUK warrants, represents and covenants to each of the Sellers that: 6.2.1. immediately following the allotment of the 'B' Ordinary Shares the authorised and issued share capital of ACUK will be as set out in Appendix 'A'; 6.2.2. the rights attaching to the 'B' Ordinary Shares are as set out in the New Articles; 6.2.3. save for this agreement no agreements or arrangements are in place which accord to any third party the right to call for the issue or allotment of any shares in ACUK or any loan capital convertible into shares of ACUK. 7. OPTION ARRANGEMENTS 7.1. In this clause 7, words and expressions shall, save where the context otherwise requires, have the meanings given to them in Schedule 2. 7.2. ACUK shall, upon the Date of Grant, grant an option ("the Option") to each of the Sellers over such number of 'C' Ordinary Shares as is set opposite such Seller's name in Schedule 1 upon and subject to the terms set out in Schedule 2. For the avoidance of doubt, if the conditions set out in clause 2.1 of this agreement are not satisfied on 4 or before April 30, 1998 then ACUK shall be released from any obligation to grant any Option hereunder. 8. OBLIGATION ARRANGEMENTS With effect from Completion the provisions of Schedule 3 shall apply to impose certain obligations upon ACC and ACUK. 9. LETTER OF CREDIT The Sellers hereby direct ACC to make payment of any additional consideration due to them in accordance with clause 4.1.2 hereof to DLA Nominees Limited on their behalf. 10. MISCELLANEOUS 10.1. No variation of this agreement shall be effective unless made in writing and signed by or on behalf of the parties in this agreement and no waiver of any term, provision or condition of this agreement shall be effective except to the extent made in writing and signed by the waiving party. 10.2. The provisions of this agreement shall continue in full force and effect notwithstanding Completion. 10.3. This agreement may be executed in any number of counterparts by the different parties or separate counterparts, each of which when executed and delivered shall constitute an original but all of which shall together constitute one and the same instrument. 10.4. No failure or delay in exercising or enforcing any right or remedy under this agreement shall constitute a waiver of such right or remedy and no single or partial exercise or enforcement of any right or remedy under this agreement shall preclude or restrict the further exercise or enforcement of any such right or remedy. The rights and remedies provided in this agreement are cumulative and not exclusive of any rights and remedies provided by law. 5 11. CHOICE OF LAW This agreement shall be governed by and construed in accordance with English Law and the parties irrevocably agree that the English Courts shall have exclusive jurisdiction to settle any dispute which may arise out of or in connection with this agreement and that accordingly any proceedings, suit or action arising out of this agreement shall be brought in such courts. IN WITNESS of which this agreement has been entered into the day and year first above written. 6 SCHEDULE 1
NAME OF SELLER NUMBER OF NUMBER OF 'B' NUMBER OF "C" ORDINARY SHARES OF SALE SHARES TO ORDINARY SHARES 1 PENCE EACH OVER WHICH OPTIONS BE SOLD TO BE RECEIVED ARE GRANTED David Fletcher 804,360 660,000 660,000 Kenneth Ronald Innocent 20,863 17,119 17,119 Rebecca Jane Innocent 6,434 5,278 5,278 Teresa Jane Innocent 42,900 35,201 35,201 Timothy Kenneth Innocent 19,185 15,742 15,742 Graham Honeyman 21,735 17,835 17,835 Angela Honeyman 21,735 17,834 17,834 Peter Birtles 38,062 31,231 31,231 Linda Birtles 51,320 42,109 42,109 Keith Barrie Lomax 17,710 14,532 14,532 Ann Lomax 18,515 15,192 15,192 Hannah Lomax 18,515 15,192 15,192 Richard Adam Lomax 18,515 15,192 15,192 Peter Carless 3,455 2,837 2,837 David Martin Carless 28,020 22,990 22,990 Joanna Louise Carless 28,020 22,990 22,990 Shelagh Margaret Carless 29,887 24,523 24,523 Philip Sidney Barrett 39,123 32,101 32,101 Ann Susan Barrett 39,123 32,102 32,102 --------- --------- --------- TOTALS 1,267,477 1,040,000 1,040,000
7 SCHEDULE 2 Terms Applicable to Options 1. INTERPRETATION 1.1 In this Schedule (unless the context otherwise requires): THE "AUDITORS"means the auditors for the time being of ACUK (acting as experts and not as arbitrators); THE "BOARD" means the board of directors for the time being of ACUK; "CONTROL" has the meaning given to it by Section 840 ICTA and "CONTROLLED" shall have a similar meaning; "DATE OF GRANT" means the date on which an Option is to be granted being the date upon which the conditions specified in clause 2.1 of this agreement are satisfied; "FLOTATION" means the admission of the shares of ACUK or of the ordinary shares of SFGL to the Daily Official List of the London Stock Exchange or the granting of permission for the Shares or the ordinary shares of Sheffield Forgemasters Group Limited to be dealt in on the Alternative Investment Market or any other recognised investment exchange (as defined in Section 207 Financial Services Act 1986); THE "GROUP" means ACUK and any other company which is for the time being Controlled directly or indirectly by ACUK or which directly or indirectly Controls ACUK; "ICTA" means The Income and Corporation Taxes Act 1988; "MEMBER OF THE GROUP" means ACUK or any such other company as mentioned in the definition of "Group"; "OPTION" means a right to acquire 'C' Ordinary Shares granted pursuant to Clause 7 of this share exchange agreement "OPTION EXERCISE PERIOD" means the period commencing on the Date of Grant of the Option and ending on the date which is one day before the tenth anniversary of the Date of Grant; 8 "OPTION HOLDER" means a Seller who holds an Option or (where the context admits) his personal representatives; "QUALIFYING EMPLOYEE" means a director or employee of a Member or Members of the Group who has not given notice or received notice of termination of his employment and is a party to this agreement; "SALE" means the occurrence of any of the circumstances set out in paragraphs 5.3.1, 5.3.2 and 5.3.3; "SCHEDULE 9" means Schedule 9 to ICTA; "SHARE" means a fully paid "C" Ordinary share of 1 pence of ACUK; 1.2 References in this Schedule to paragraphs are to paragraphs of this Schedule. 2. GRANT OF OPTIONS 2.1 There shall be no monetary consideration for the grant of any Option and accordingly all Options shall be granted by way of deed in the form of the Option Certificate attached as appendix 1 to this agreement. 2.2 Except as may be agreed by ACUK each Option shall be exercisable only by the Qualifying Employee to whom it is granted and may not be transferred, assigned or charged. 3. EXERCISE OF OPTIONS 3.1 Subject to paragraphs 3.2, 4 and 5 each Option shall be exercisable as to one fifth of the Shares in respect of which it is granted (rounded to the nearest whole number) on or after each of the first, second, third, fourth or fifth anniversary of Completion provided the Seller to whom such option was granted is or was a Qualifying Employee on such anniversary. 3.2 Notwithstanding anything else in this Agreement no Option may be exercised after the expiry of the Option Exercise Period. 3.3 The price payable by way of the option exercise price shall be 1 pence per share or as amended by an increase in the share capital pursuant to paragraph 6 of this Schedule. 9 3.4 Options shall be exercised by lodging with the Company Secretary of ACUK, or such other person as ACUK may specify, the relevant Option Certificate and a duly completed notice of exercise in such form as ACUK may from time to time prescribe in respect of such number of Shares as the Option Holder shall specify on the notice of exercise and accompanied by payment for the acquisition of the Shares. 3.5 An Option or part thereof which shall not have been exercised by the expiration of the Option Exercise Period shall automatically lapse. 3.6 Result of Exercise of Options 3.6.1 Subject to receipt by ACUK of the appropriate payment by way of subscription in full in cleared funds, within 30 days of receipt by ACUK of the notice of exercise the Board on behalf of ACUK shall allot or procure the transfer to the Option Holder of the number of Shares in respect of which the Option has been exercised. 3.6.2 All Shares allotted on exercise of Options shall rank for any dividends or other distributions the record date for which falls after the date on which the Option was exercised. 3.6.3 ACUK shall at all times keep available sufficient unissued Shares or shall procure that sufficient Shares are available to satisfy the exercise of all Options taking account of any other obligations of ACUK to issue unissued Shares. 4. CESSATION OF EMPLOYMENT 4.1 Subject to paragraph 3.2, if an Option Holder ceases to be a Qualifying Employee for any reason or gives notice or is given notice of termination of his employment before the fifth anniversary of Completion any Option which is already exercisable pursuant to paragraph 3.1 may be exercised within six weeks of such event and thereafter shall lapse. Any Option which is not already exercisable and which does not become exercisable as aforesaid shall automatically lapse on cessation of employment or on the giving or receiving of notice of termination of employment. 4.2 An Option Holder shall not be treated for the purposes of this Schedule as ceasing to be a Qualifying Employee until such time as (i) he is no longer a director or 10 employee of any Member of the Group or (ii) he gives notice or receives notice of termination of his employment. 5. FLOTATION OR SALE OF COMPANY 5.1 Subject to paragraph 3.2 but notwithstanding paragraph 3.1 an Option which has not lapsed may be exercised on a Flotation in accordance with Paragraph 5.2. Any Option not so exercised shall remain exercisable following Flotation subject always to Paragraph 3.2. 5.2 5.2.1 As soon as ACUK has become aware that firm negotiations have been entered into or firm proposals have been made for the Flotation of ACUK or Sheffield Forgemasters Group Limited, ACUK the Company shall notify the Option Holders in writing that such negotiations or proposals have been entered into or made; 5.2.2 Within one week of the notification by ACUK to the Option Holders as set out in Paragraph 5.2.1 an Option Holder may exercise an Option; 5.2.3 The exercise of any Option under Paragraph 5.2.2 shall be conditional upon Completion of the Flotation (and for the purposes of this Paragraph 7 "completion" or "completed" in relation to Flotation shall be the admission or granting of permission referred to in the definition of "Flotation" in Paragraph 1) ("the Date of Flotation"). In the event that the Flotation does not proceed the notice of exercise shall be deemed never to have been served; 5.2.4 The number of Shares to be issued pursuant to the exercise of Options shall be issued forthwith on the Date of Flotation and shall form part of the issued equity share capital of ACUK immediately prior to the Date of Flotation. 5.3 If: 5.3.1 any person or group of persons acting in concert obtains Control of ACUK pursuant to an offer to acquire the whole of the issued share capital of ACUK then the Board shall serve notice upon each Option Holder (or his personal representatives) notifying him of such fact and an Option Holder (or his personal representatives) may at any time within the Appropriate Period 11 defined in Paragraph 5.4 below subject always to Paragraph 3.2 exercise any Option or part thereof which has not lapsed. Any Option which is not so exercised shall lapse at the expiry of the Appropriate Period defined in Paragraph 5.4 below. In the case of an Option exercised by virtue of Paragraph 5.3.1, the exercise shall be conditional upon completion of the sale of the shares of the relevant company to the person or group of persons making the offer (such that the person or group of persons obtain control of such company) and if such completion does not occur 5.3.1.1 any notice of exercise of any Option served in accordance with this Paragraph 5.3 shall be deemed never to have been served; and 5.3.1.2 any other Option which would have lapsed under this Paragraph 5.3 by reason of the failure of the Option Holder to exercise the Option within the Appropriate Period as defined in Paragraph 5.4 below shall not lapse but shall remain exercisable in accordance with the Rules of the Scheme. 5.4 In this Paragraph 5 the "Appropriate Period" means: 5.4.1 in a case falling within Paragraph 5.3.1 and where Paragraph 5.3.2 does not apply, the period beginning with the time when the Board has given notice to the Option Holder of the offer and ending on the expiry of 14 days of receiving such notice or (if earlier) immediately prior to completion of the sale of the shares in question; 5.5 If a company (in this Paragraph called the "Acquiring Company") has acquired Control of ACUK as result of any of the events described in Paragraphs 5.3.1 or 5.3.3, or become entitled or bound as mentioned in Paragraph 5.3.2, the Option Holder may by agreement with the Acquiring Company at any time within the Appropriate Period release his rights under the Scheme in consideration of the grant to him of rights which relate to shares in the Acquiring Company (or some other company which in relation to the Acquiring Company falls within paragraph (b) or paragraph (c) of paragraph 10 of Schedule 9). 12 5.6 In the event of a change of Control of Sheffield Forgemasters Group Limited the Board, may in its discretion permit the exercise of any Option which is not already exercisable in accordance with clause 3.1. 6. VARIATION OF SHARE CAPITAL 6.1 Subject to Paragraph 6.3 and 6.4 below, in the event of any increase or variation of the share capital of ACUK (whenever effected) by way of capitalisation or rights issue, or sub-division, consolidation or reduction, the Board shall make such adjustments as are fair and reasonable under Paragraph 6.2 6.2 An adjustment made under this Paragraph shall be to one or more of the following: 6.2.1 the number of Shares in respect of which any Option may be exercised and the date(s) upon which such Option may be exercised; 6.2.2 the price at which shares may be acquired by the exercise of any such Option; 6.2.3 where any such Option has been exercised but no Shares have been allotted or transferred pursuant to such exercise, the number of shares which may be so allotted or transferred and the price at which they may be acquired. 6.3 Except in the case of a capitalisation issue, no adjustment under Paragraph 6.2 above shall be made without the prior confirmation in writing by the Auditors to the directors that it is in their opinion fair and reasonable. 6.4 No adjustment under Paragraph 6.2 above shall be made as a result of which the aggregate amount payable on the exercise of an Option in full would be increased. 6.5 As soon as reasonably practicable after making any adjustment under Paragraph 5.2 above, the Board shall give notice in writing thereof to each Option Holder. 7. FURTHER OPTION 7.1 In the event that an offer to subscribe for new shares in ACUK is made to the holders of 'B' Ordinary Shares of 25 pence each or 'C' Ordinary Shares of 1 pence each, in accordance with Article 6 of the New Articles ACUK shall grant to each Qualifying Employee who or whose Privileged Relations or Family Trust subscribe for such new 13 shares an Option to acquire such number of 'C' Ordinary Shares of 1 pence each as is equal to the number of new shares for which such Qualifying Employee (or his Privileged Relations or Family Trust) have subscribed pursuant to Article 6 of the New Articles. The exercise price of such Option shall be such price as is determined by the Board to be a fair price to avoid an unfair dilution of the value of the Options which are substituting at that time. 7.2 In the event that an offer to subscribe for new shares is made as detailed in clause 7.1 above, then the price payable by way of the option exercise price in relation to the Options not then exercised shall be amended (if necessary) by the Board to reflect the new share capital of ACUK. 14 SCHEDULE 3 OBLIGATION PROVISIONS 1. INTERPRETATION 1.1 In this Schedule 3 (unless the context otherwise requires): "ARTICLES" means the articles of association of the Company in force at the date hereof; "NET ASSET VALUE" means: 1.1.1 in relation to the ACC Shares the net asset value of each ACC Share determined by dividing the amount for net asset value of ACC shown in the management accounts of ACC for the month ended immediately prior to the date of the service of the notice under clause 2.1 of this Schedule 3, (which management accounts have been approved by the board of directors of ACC) by the number of ACC Shares in issue; and 1.1.2 in relation to the 'B' Ordinary Shares of 25 pence each or the 'C' Ordinary Shares of 1 pence each (in each case in ACUK) the net asset value of each 'B' Ordinary Share of 25 pence each of 'C' Ordinary Share of 1 pence each (in each case in ACUK) determined by dividing the amount for net asset value of ACUK shown in the management accounts of ACUK for the month ended immediately prior to the date of service of the notice under clause 3.1 of this Schedule 3, (which management accounts have been approved by the board of directors of ACUK) by the number of issued shares (of whatever class) of ACUK; "ACC SHARES" means common stock of ACC; "AUDITORS" means the auditors of the Company from time to time; "COMPLETION" means the performance by the relevant Seller and ACC and ACUK (as the case may be) of the obligations assumed by them respectively under clause 4 of this Schedule 3; "FAMILY MEMBER" means (1) if the Seller is Keith Innocent, each of Rebecca Jane Innocent, Teresa Jane 15 Innocent and Timothy Kenneth Innocent; (2) if the Seller is Graham Honeyman, Angela Honeyman; (3) if the Seller is Peter Birtles, Linda Birtles; (4) if the Seller is Keith Lomax, each of Ann Lomax, Hannah Lomax and Richard Adam Lomax; (5) if the Seller is Peter Carless, each of David Martin Carless, Joanna Louise Carless and Shelagh Margaret Carless, and (6) if the Seller is Phillip Barrett, Ann Susan Barrett; "OBLIGATION SHARES" means the shares which ACC or ACUK (as the case may be) are obliged to acquire in accordance with clauses 2.1 and/or 3.1 of this Schedule 3 (as the case may be); "OPTIONS" shall have the same meaning herein as in Schedule 2; "PERMITTED TRANSFEREE" means a transferee permitted pursuant to the provisions of Article 9 of the Articles; 1.2 References in the schedule are to paragraphs of this schedule. 2. FIRST OBLIGATION 2.1 In consideration of the payment by the Sellers to ACC of the aggregate sum of L1 (receipt of which is hereby acknowledged), ACC hereby grants to each of the Sellers the right, exercisable at any time during the period commencing on the date which is 5 years from the date hereof and expiring on the date which is 10 years from the date hereof, by service of a written notice, to require ACC to exchange all of the 'B' Ordinary Shares of 25 pence each and the 'C' Ordinary Shares of 1. pence each (in each case in the capital of ACUK), which shares are, on such date, registered in the name of the 16 relevant Seller and/or a Family Member and/or a Permitted Transferee of such Seller and for such number of ACC Shares as in aggregate have a Net Asset Value equal to 85 per cent of the Net Asset Value of the aggregate of the 'B' Ordinary Shares of 25 pence each and 'C' Ordinary Shares of 1 pence each the subject of the notice hereunder. On the exercise of such right the Seller who has served such notice will become bound to tender and ACC will become bound to exchange the shares the subject of the notice. The shares tendered and received shall be unencumbered. 2.2 If a Seller serves notice in accordance with clause 2.1 above, the provisions of clause 4 will apply. 3. SECOND OBLIGATION 3.1 In consideration of the payment by the Sellers to ACC of the aggregate sum of L1 (receipt of which is hereby acknowledged) each of ACC and ACUK grants to each of the Sellers the right, (which each of the Sellers hereby undertakes to exercise in accordance with this clause) exercisable at any time during the period of 6 weeks following the date on which the relevant Seller's employment with ACUK or ACC or any subsidiary of either of them is terminated (for whatever reason including death or disability) by service of a written notice, to require ACUK or (if ACUK is for any reason unable to do so) ACC, to purchase all of the 'B' Ordinary shares of 25 pence each and 'C' ordinary Shares of 1 pence each (in each case in the capital of ACUK) which shares are on such date registered in the name of the relevant Seller and/or a Family Member and/or a Permitted Transferee of the relevant Seller. The consideration for such shares shall be an amount equal to the Net Asset Value of each of such shares. 3.2 If a Seller serves notice in accordance with clause 3.1 the provisions of clause 4 will apply. 3.3 If ACC or ACUK acquires "B" Ordinary Shares of 25 pence each or "C" Ordinary Shares of 1 pence each in accordance with the obligations contained in this clause 3, then it will from time to time make such shares available to current and prospective employees of ACUK as recommended by the board of directors of ACUK and approved by ACC. 4. COMPLETION 17 4.1 Completion of the obligations contained in clauses 2.1 and/or 3.1 shall take place at the registered office of ACUK (or at such other place as may be agreed) as soon as reasonably practicable, and in any event in the case of the obligation contained in clause 2.1, within 7 days of the day on which the number of ACC Shares is agreed or (as the case may be), determined or, in the case of the obligation contained in clause 3.1, within 7 days of the day on which the Net Asset Value is agreed or determined Provided That in each case, if such day is not a business day, then such completion shall take place at 12 noon on the first business day after that. 4.2 On Completion, the relevant Seller shall: 4.2.1 transfer or procure the transfer of the Obligation Shares to ACUK or ACC (as the case may be); 4.2.2 deliver all relevant share certificates and other documents of title in respect of the Obligation Shares to ACUK or ACC (as the case may be); 4.2.3 deliver to ACUK or ACC (as the case may be) any form of consent or waiver required from the relevant Seller or (as the case may be) any other member of ACUK, to enable the transfer of his Obligation Shares to be registered; 4.2.4 do such things and execute such documents as shall be reasonably necessary or as ACUK or ACC may reasonably request to give effect to the sale of the shares in accordance with the provisions of this Schedule. 4.3 Subject to the relevant Seller complying with its obligations under clause 4.2, ACC shall, on Completion in the case of the obligation contained in clause 2.1, allot the ACC Shares in accordance with such clause to the relevant Seller and deliver to the relevant Seller share certificates therefor in their respective names or, in the case of the obligation contained in clause 3.1, pay or (in the case of a purchase by ACUK) procure the payment by ACUK of an amount due in accordance with the provisions of such clause to the relevant Seller by banker's draft. 4.4 Any ACC Shares allotted pursuant to the provisions of clause 4.3, will be unregistered and subject to Rule 144 of the Securities and Exchange Commission of the United States of America. ACC hereby undertakes to acquire up to 50 per cent of any ACC Shares acquired by a Seller hereunder if so requested prior to such Shares 18 becoming registered and only if necessary to enable such Seller to pay tax in relation to such shares. 4.5 If any of the provisions of clauses 4.2 or 4.3 are not complied with on the date fixed for Completion, the party not in default may (without prejudice to his other rights and remedies): 4.5.1 defer Completion to a date not more than 28 days after such date (and so that the provisions of this clause 4.4 shall apply to Completion as so deferred); 4.5.2 proceed to Completion so far as practicable (without prejudice to his rights under this agreement); or 4.5.3 rescind the contract of sale arising by virtue of the exercise of the relevant obligation hereunder. 5. VARIATION OF SHARE CAPITAL 5.1 In the event of any increase or variation of the share capital of ACUK (whenever effected) by way of capitalisation or rights issue, or sub-division, consolidation or reduction the board of directors of ACUK shall make such adjustments as are fair and reasonable. 5.2 Except in the case of a capitalisation issue, no adjustment under clause 5.1 shall be made without the prior confirmation in writing by the Auditors to the directors that it is in their opinion fair and reasonable. 19 6. SALE OF ACC 6.1 In the event of an offer being received for the entire issued share capital of ACC, then in relation to any Options which have at the time of sale of ACC become exercisable, and in relation to the 'B' Ordinary Shares of 25 pence in the capital of ACUK; 6.1.1 if the offer is made by a person ("the Purchaser") whose shares or stock is listed on any stock exchange or investment exchange, ACC shall procure that such Purchaser offers to exchange all 'C' Ordinary Shares of 1 pence each issued pursuant to the exercise of such Options and the 'B' Ordinary Shares of 25 pence each for shares in such Purchaser such exchange to be effected for the number of shares in the Purchaser determined pursuant to clause 2.1 of this Schedule 3 save that references thereon to ACC Shares shall be deemed to be references to shares in the Purchaser (such exchange to be conditional upon but prior to completion of the sale of ACC); 6.1.2 in any case ACC shall offer to purchase all 'C' Ordinary Shares of 1 pence each issued pursuant to the exercise of such Options and all 'B' Ordinary Shares of 25 pence each at the Net Asset Value of each such shares (such purchase to be conditional upon but immediately prior to completion of the sale of ACC) 6. DURATION OF OBLIGATIONS A Seller shall not cease to be a party to this agreement until he ceases to own any Obligation Shares and unless, (if he has purported to exercise the options contained in either or both of clauses 2.1 or 3.1), he has transferred such shares with good title. 7. ARTICLES In the event of any conflict between the terms of this agreement and the Articles, the terms of this agreement shall prevail. 8. NOTICES Any notice required or permitted to be given under this agreement shall be in writing and shall, in the case of a recipient being a company, be sent to its registered office from time to time, and, in the case of a recipient being an individual, be sent to his address set out in this agreement or to such other address in England as he may designate by notice to the other parties and to the 20 Auditors in accordance with this clause. Any such notice shall be delivered personally or sent in a pre-paid letter by the recorded delivery service and shall be deemed to have been served if by personal delivery, when delivered (if delivered before 5.00pm on Monday to Friday (bank holidays excepted), failing which it shall be deemed to be served at 9.00am on the next business day) and if by recorded delivery, 48 hours after posting. SIGNED by in the presence of: ) SIGNED by DAVID FLETCHER in the presence of: ) /s/ David Fletcher /s/ W A Harrison ) W A Harrison ) Dibb Lupton Alsop ) SIGNED by KENNETH RONALD INNOCENT in the presence of:) /s/ K R Innocent /s/ C Soothill ) C Soothill ) Walker Morris ) SIGNED by REBECCA JANE INNOCENT in the presence of: ) /s/ K R Innocent /s/ C Soothill ) As Attorney C Soothill ) Walker Morris ) SIGNED by TERESA JANE INNOCENT in the presence of: ) /s/ K R Innocent /s/ C Soothill ) As Attorney C Soothill ) Walker Morris ) SIGNED by TIMOTHY KENNETH INNOCENT in the presence ) /s/ K R Innocent of: ) As Attorney /s/ C Soothill ) C Soothill ) Walker Morris 21 SIGNED by GRAHAM HONEYMAN in the presence ) /s/ P J Barrett of: ) As Attorney /s/ C Soothill ) C Soothill ) Walker Morris SIGNED by ANGELA HONEYMAN in the presence ) /s/ K R Innocent of: ) As Attorney /s/ C Soothill ) C Soothill ) Walker Morris SIGNED by PETER BIRTLES in the presence ) /s/ P J Barrett of: ) As Attorney /s/ C Soothill ) C Soothill ) Walker Morris SIGNED by LINDA BIRTLES in the presence ) /s/ P J Barrett of: ) As Attorney /s/ C Soothill ) C Soothill ) Walker Morris SIGNED by KENNETH BARRIE LOMAX in the presence ) /s/ P J Barrett of: ) As Attorney /s/ C Soothill ) C Soothill ) Walker Morris SIGNED by ANN LOMAX in the presence ) /s/ P J Barrett of: ) As Attorney /s/ C Soothill ) C Soothill ) Walker Morris SIGNED by HANNAH LOMAX in the presence ) /s/ P J Barrett of: ) As Attorney /s/ C Soothill ) 22 C Soothill ) Walker Morris ) SIGNED by RICHARD ADAM LOMAX in the presence ) /s/ P J Barrett of: ) As Attorney /s/ C Soothill ) C Soothill ) Walker Morris SIGNED by PETER CARLESS in the presence ) /s/ P J Barrett of: ) As Attorney /s/ C Soothill ) C Soothill ) Walker Morris SIGNED by DAVID MARTIN CARLESS in the presence ) /s/ P J Barrett of: ) As Attorney /s/ C Soothill ) C Soothill ) Walker Morris SIGNED by JOANNA LOUISE CARLESS in the presence ) /s/ P J Barrett of: ) As Attorney /s/ C Soothill ) C Soothill ) Walker Morris SIGNED by SHELAGH MARGARET in the presence ) /s/ P J Barrett of: ) As Attorney /s/ C Soothill ) C Soothill ) Walker Morris SIGNED by PHILIP SIDNEY BARRETT in the presence ) /s/ P J Barrett of: ) As Attorney /s/ C Soothill ) C Soothill ) Walker Morris 23 SIGNED by ANN SUSAN BARRETT in the presence ) /s/ P J Barrett of: ) As Attorney /s/ C Soothill ) C Soothill ) Walker Morris SIGNED by HUGH AIKEN for and on behalf ) /s/ Hugh H Aiken of ATCHISON CASTING UK LTD in the ) presence of: ) /s/ C Soothill ) C Soothill ) Walker Morris SIGNED by HUGH AIKEN for and on behalf ) /s/ Hugh H Aiken of ATCHISON CASTING CORPORATION in the ) presence of: ) /s/ C Soothill ) C Soothill ) Walker Morris 24 -----END PRIVACY-ENHANCED MESSAGE-----