-----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, JF1r3MHGxTkwfh4/HJdzDc4lCtBN2gwWPMYw348R5X3trOGJS0nBMxXFHsdsAkkc 1vdXuzbiIDl0capAngxaug== 0000912057-97-008738.txt : 19970314 0000912057-97-008738.hdr.sgml : 19970314 ACCESSION NUMBER: 0000912057-97-008738 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970313 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALLIED PRODUCTS CORP /DE/ CENTRAL INDEX KEY: 0000003941 STANDARD INDUSTRIAL CLASSIFICATION: FARM MACHINERY & EQUIPMENT [3523] IRS NUMBER: 380292230 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-05530 FILM NUMBER: 97556014 BUSINESS ADDRESS: STREET 1: 10 S RIVERSIDE PLZ STREET 2: SUITE 400 CITY: CHICAGO STATE: IL ZIP: 60606 BUSINESS PHONE: 3124541020 10-K405 1 FORM 10-K - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) - ------- OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) - ------- OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER 1-5530
ALLIED PRODUCTS CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 38-0292230 --------- ----------- (State or other jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 10 SOUTH RIVERSIDE PLAZA, CHICAGO, ILLINOIS 60606 -------------------------------------------- ----- (Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (312) 454-1020 Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Name of Each Exchange on Which Registered --------------------- ------------------------------------------ COMMON STOCK--$.01 PAR VALUE NEW YORK AND PACIFIC
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. _X_ Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes _X_ No ___ As of February 28, 1997, 8,145,272 shares of common stock were outstanding, and the aggregate market value of the shares of common stock (based upon the closing price on the New York Stock Exchange) held by nonaffiliates of the Company was approximately $201,589,000. Determination of common stock ownership by affiliates was made solely for the purpose of responding to this requirement, and the Registrant is not bound by this determination for any other purpose. The Company's definitive Proxy Statement (which will be filed at a later date) for the Annual Meeting of Stockholders scheduled to be held May 28, 1997 and Annual Report to security holders for the year ended December 31, 1996 are incorporated by reference in Part III and Part IV herein. The Exhibit Index is located on page 40. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART I ITEM 1. BUSINESS Allied Products Corporation (Company) was organized under Delaware law in 1967 as the successor to a Michigan corporation which was formed in 1928. Its principal executive offices are at 10 South Riverside Plaza, Chicago, Illinois 60606 and its telephone number is (312) 454-1020. The Company's operations involve a single industry segment, the manufacturing and sale of agricultural and industrial machinery and other products. The operations of the Company were realigned into one business segment in 1993 reflecting the sale or closure of several operating divisions. This restructuring of the Company, which began in 1991, was completed in 1994 with the sale of the Cooper division. Reference is made to Note 3 of Notes to Consolidated Financial Statements for a more complete description of these closures and dispositions. Approximately 16%, 11% and 2% of the Company's net sales from continuing operations in 1996, 1995 and 1994, respectively, were exported principally to Canada and Mexico. PRODUCT LINES IMPLEMENTS AND MACHINERY PRODUCTS. The Bush Hog division offers a comprehensive line of implements and machinery used by farmers, ranchers, large estate owners, commercial turf mowing and landscape contractors, golf courses and municipalities. Implements and machinery sold by Bush Hog include rotary cutters, tractor mounted loaders, hay mowers, tillers, cultivators, back hoes, Zero Turn mowers, landscape tools, and turf and golf course mowing equipment. Bush Hog-Registered Trademark- rotary cutters are used to shred stalks after the crop has been harvested, to mow pasture, for land maintenance and for governmental right-of-way mowing. The use season for rotary cutters extends from early spring to late fall, and even longer in warmer climates. Bush Hog has a major market share (approximately 38%) of rotary cutters sold in North America. Front end loaders are used by farmers and ranchers for material handling, and cultivators are used for weed control after crops have been planted. Implements tend to have a shorter life than tractors and other self-propelled machines, and purchases of implements are less likely to be deferred in times of economic uncertainty, somewhat dampening cyclical swings in demand. Sales of replacement parts accounted for almost one sixth of Bush Hog's total revenue in 1996. In order to maintain and expand its market position, Bush Hog continually updates and improves its product offerings. This is done through a combination of internal development and external acquisition of technology. MARKETING. Bush Hog markets its products, except for commercial turf and golf course mowing equipment, through 58 commissioned manufacturer's representatives operating as independent contractors within defined territories. The manufacturer's representatives call on dealers located within their territories which have been approved to carry the Bush Hog-Registered Trademark- line. In all, there are approximately 2,650 Bush Hog-Registered Trademark- dealers. In general, the dealers are independent, local businessmen who have an established local clientele developed over the years and represent more than 35% of the total farm equipment dealerships in the United States and Canada. Bush Hog is in the process of contracting with independent distributors to market commercial turf and golf course mowing equipment within defined territories. The Bush Hog-Registered Trademark- brand name is particularly strong in the southeastern and southwestern states. To even out the seasonal variations in its production cycles, Bush Hog provides incentives for off-season purchases, including extended payment terms to dealers in the form of floor plan financing. Bush Hog retains a security interest in this floor plan equipment. Under certain state and provincial statutes, a dealer may return floor plan equipment to a manufacturer upon termination of the dealership. Bush Hog services its network of dealers through two manufacturing facilities and eight service parts distribution centers strategically located in the United States and Canada. COMPETITION. Competition for the type of equipment sold by Bush Hog includes the major line manufacturers of tractors and landscape equipment, along with several hundred companies producing one or more models of shortline farm or landscape implements and machinery. Price, quality, service and availability are all factors in brand selection. Bush Hog's objective is to be a low cost producer of high quality products. To do this it continues to modernize its facilities to improve efficiency. 2 INDUSTRY. The agricultural equipment industry in North America is a mature industry engaged in producing replacement equipment for a declining number of farmers. It is dominated by a small number of major line manufacturers, which market a full range of farm machinery, including tractors, grain combines and various implements through their own dealer organizations and account for approximately 60% of the dollar volume of industry shipments. The remaining 40% of the market is shared by approximately 700 companies that generally concentrate their production on shortline implements such as plows, harrows, cultivators, livestock equipment, grain handling equipment or hay equipment. During the 1980's, the farm economy was in decline and this led to a deterioration in farmers' financial condition. Capital expenditures by farmers reached a low in 1986. Since then, commodity exports have improved due to changes in governmental programs and foreign exchange rates. Individual farmers have reduced their debt load and are much less leveraged after several years of good earnings. Economic conditions in the U.S. farm sector improved substantially in 1996. Net farm income rose to a new record of $51.7 billion due to near record crop yields in the Midwest, stronger exports, higher commodity prices, and large "transitional" payments under the 1996 Farm Bill. While the overall farm sector situation has improved, the cattle sector has suffered. In the cattle sector, severe drought in the plains area, compounded by high cattle inventories and record feed prices have forced the cattle sector to enter a major liquidation phase, depressing prices during 1996. Feed lot operators should return to profitability in 1997 and the industry should see improving conditions for the cow/calf operator as well. The U.S. grain and commodity situation continues to be favorable with pricing levels substantially higher than in recent years. This trend is expected to continue through 2001 with normal adjustments resulting from weather and other factors. It is anticipated that corn, soybean, and wheat prices for the next five years will average significantly higher than average prices for the previous ten years. Average cotton prices in the next five years should also average above the previous ten years, although not as significantly. On balance, it appears that the long term prospects for strong economic and financial conditions in U.S. agriculture are encouraging, especially once the livestock market recovers from the current liquidation mode. Demand for certain Bush Hog-Registered Trademark- rotary cutters parallels the cyclical cattle segment of the agricultural equipment market. To offset this demand cycle, Bush Hog has in recent years sought to develop and market products for the landscape, commercial turf and golf course mowing equipment markets. Products for these markets fit especially well into the Bush Hog-Registered Trademark- line because of similarities to other Bush Hog-Registered Trademark- products. Also, certain of the new products can be sold through established Bush Hog-Registered Trademark- dealers. In 1995, Bush Hog introduced a line of Zero Turn mowers for landscape and commercial turf mowing contractors and large estate owners. The success of this effort has resulted in the development of additional products for the commercial turf, landscape and golf course mowing equipment markets. Bush Hog's newest product is a revolutionary new mulching mower designed specifically for golf course rough maintenance. Bush Hog introduced this new mower to the golf course industry at the annual Golf Course Superintendent Association Show in February 1997. Bush Hog will commerce shipment of the new mower this spring. METAL FORMING PRESSES PRODUCTS. The Verson division manufactures a broad line of both medium and large technologically advanced mechanical and hydraulic metal forming presses. These products are used in the manufacture of components for the automotive, appliance, office equipment, farm equipment, ordnance, aerospace and general metal working industries. A transfer press is a specialized mechanical press that combines a series of operations by transferring a work piece from one station to another inside of a single press. Each station in the press has a separate die that is individually adjustable. This process allows all operations, from blank to finished product, to take place in one press, resulting in increased output and reduced labor expense. Prices vary by type and size. Size categories for transfer presses range from "A" (largest) to "D" (smallest). An "A" transfer press is generally 13 to 15 feet wide, 80 to 90 feet long and stands four stories tall. By comparison, a "B" transfer press is approximately 10 feet wide, 60 feet long and four stories tall. The difference between these machines is the component part size they can stamp. An "A" transfer press may sell for in excess of $25 million. Approximately 11% of Verson's revenue is generated by customer special services. Items included in the special services area are: repair parts, complete remanufacturing capability for used presses, and contract machining and manufacturing. In addition to the 3 fabrication and machining of components, Verson provides complete tooling and engineering services necessary for turnkey systems. Verson also designs and supplies tools for metal forming, including metal stamping and cold extrusion. MARKETING. Verson's Marketing Group is headed by a Director of Marketing and Sales, with responsibility for all Verson products and services. Verson sells and promotes its products by using a direct sales force that concentrates in strategically significant markets and contract representatives which focus on lower volume potential markets. Verson's major customers are the U.S. automobile manufacturers (both U.S. and foreign owned) and first and second tier automotive parts producing companies, which, on average, account for the largest part of Verson's annual revenue. Verson's other major market served is the appliance industry and customers include all major brand names. Verson is the technology leader, having designed the world's first transfer press in 1939, the world's first electronic feed in 1981, a cross bar feed in 1992 which significantly improves production, and most recently, a Dynamic Orientation-TM- system which further improves production and saves space. COMPETITION. There are only a few companies world-wide that supply large transfer press systems similar to those provided by Verson. Verson is now the only American owned company competing in this upper end segment. Principal competition comes from German and Japanese manufacturers. Press manufacturers compete on the basis of technology, capability, reliability and price. The barriers to entry for new competitors are high due to the large capital expenditures required. INDUSTRY. Domestic automobile manufacturers are seeking to become more cost-effective by requiring quality parts, implementing Just-In-Time concepts, obtaining price reductions from suppliers, as well as redesigning cost out of automobiles, and restructuring and automating their manufacturing processes. Demand from the appliance industry remains strong as the major manufacturers seek to increase capacity, reduce costs and gear up to produce water conserving clothes washers. The Verson division is in a strong position to capitalize on major retooling and modernization programs as they come on stream. The second wave of this demand is being felt now with major suppliers to the automakers converting to new technology. In response to these market factors and an unprecedented incoming order rate in 1994, the Verson division completed a 40,000 square foot expansion of its assembly facilities in 1995. This addition has significantly expanded the division's capacity for manufacturing large transfer presses. THERMOPLASTIC RESINS PRODUCTS AND SERVICES. The Coz division provides a complete line of thermoplastic resins and related services to the plastic molding and extrusion industry. Coz offers a full line of materials supply, including specialty thermoplastic compounds and compounding services, color and additive concentrates, the reprocessing of scrap thermoplastic resins, and the brokering of prime and secondary materials. Coz purchases thermoplastic resins from major resin suppliers and compounds these resins with various additives to achieve certain desired properties such as color, heat resistance, fire retardancy, etc. Coz's brokerage operation provides its customers with prime and wide specification materials at competitive prices in large or small quantities, as required. On-site inventories facilitate short delivery cycles. As an additional service to its customers, Coz also reprocesses scrap generated in molding or extrusion activities, thereby economically turning scrap into useful materials. MARKETING. Coz's marketing group is headed by a Vice President of Marketing and Sales. This group is strongly supported by technical personnel, both in product development and in customer start-ups, applications, or training. Customer plant visits and technical conferences are commonplace. The vast majority of Coz's sales activity is in the northeastern United States. COMPETITION. Coz's competition comes from several different levels in the plastics industry, including basic resin producers, plastic distributors, brokers, concentrate suppliers and independent thermoplastic compounders. Coz differentiates itself from its competition by covering all aspects of plastics material supply, including compounding, color and additives, concentrates, toll processing customers' materials, reprocessing scrap materials, and brokering both prime and off-spec materials. Over its 36-year history, Coz has developed significant technical capabilities supported by excellent laboratory and production equipment. As a result, Coz is positioned as a high-end co-developer for special customer applications. INDUSTRY. The thermoplastic compounding industry sales approximate $5 billion and are experiencing 4 real growth at a rate of about 4 percent annually. Independent compounders such as Coz are numerous and generally focus on a relatively small geographic area. Industry consolidation is occurring as some larger companies have been attracted to the growth opportunities in thermoplastic compounding. SALES BACKLOG Sales backlog as of December 31, 1996 was $142,304,000 compared to $173,361,000 at December 31, 1995. Over 90% of the backlog orders will be filled prior to the end of 1997. EMPLOYEES Allied Products currently employs approximately 1,500 individuals. Approximately 31% of Allied Products' employees are represented by unions. RAW MATERIALS AND SOURCES OF SUPPLY The principal raw material used by the implement and metal forming press operations include steel and other metals and purchased components. The thermoplastic division uses thermoplastics resins and other chemicals. During 1996, the materials needed by Allied Products generally were available from a variety of sources in adequate quantities and at prevailing market prices. No one supplier is responsible for supplying more than 10% of the principal raw materials used by Allied Products. PATENTS, TRADEMARKS AND LICENSES Allied Products owns the federally registered trademarks "Bush Hog" used on its agricultural, landscape, and turf and golf course mowing equipment products and "Verson" on its metal forming presses, each of which it considers material to its business. While Allied Products believes that the other trademarks used by each of its operations are important, none of the patents, licenses, franchises or such other trademarks are considered material to the operation of its business. MAJOR CUSTOMERS Net sales from continuing operations to the three major U.S. automobile manufacturers accounted for approximately 39% of total consolidated sales from continuing operations in 1996. Approximately 29% and 14% of Allied Products' consolidated net sales from continuing operations in 1995 and 1994, respectively, were derived from sales to the major U.S. automobile manufacturers. With the exception of the three major automobile manufacturers, no material part of Allied Products' business is dependent upon a single customer. SEASONALITY Retail sales of and cash collected for farm equipment tend to occur during or just preceding the use seasons previously described. Sales and cash receipts for the other divisions are not affected by seasonality. ENVIRONMENTAL FACTORS Reference is made to Note 10 of Notes to Consolidated Financial Statements regarding environmental factors and matters. 5 EXECUTIVE OFFICERS OF THE COMPANY The following table sets forth the names and ages of the Company's Executive Officers, together with all positions and offices held with the Company by such officers as of February 28, 1997.
NAME POSITION WITH ALLIED PRODUCTS AGE - --------------------------------------------- ----------------------------------------------------------------- --- Richard A. Drexler........................... Chairman, President and Chief Executive Officer 49 Kenneth B. Light............................. Executive Vice President, Chief Financial and Administrative Officer 64 Martin A. German............................. Senior Vice President 60 Bobby M. Middlebrooks........................ Senior Vice President 61 David B. Corwine............................. Vice President, General Counsel and Secretary 59 Robert J. Fleck.............................. Vice President-Accounting and Chief Accounting Officer 49 Patrick J. Riley............................. Vice President and Treasurer 61
No family relationships exist among the executive officers. Each executive officer has been employed by Allied Products for over 10 years. Pursuant to Allied Products' By-laws, each officer is elected annually by the Board of Directors. Mr. Drexler, who became Chairman in 1993, has been President and a Director of Allied Products since 1982 and has been Chief Executive Officer since 1986. Mr. Drexler served as Acting Chief Financial Officer from 1991 to 1992, Chief Financial Officer from 1989 to 1990 and Chief Operating Officer from 1981 to 1986. He was also Chief Financial Officer from 1977 to 1987. Prior to becoming President, Mr. Drexler served as Executive Vice President, Senior Vice President of Administration, Vice President of Administration, Staff Vice President-Development, and Director of Planning. Mr. Light, who became Chief Financial Officer in 1995, has been Executive Vice President and Chief Administrative Officer since 1982 and has also served as Secretary from 1972 to 1995. From 1980 to 1982, he was Senior Vice President-Administration, from 1976 to 1980 he was Vice President-General Counsel and prior to that he was General Counsel and Director of the Corporate Law Department. He became a Director of Allied Products in 1993. Mr. German was elected Senior Vice President in 1991 and was Vice President from 1989 to 1991. Since joining Allied Products in 1986 through 1996, he had served as President of the Verson Allsteel Press division. Prior to joining Allied Products, he was Vice President and General Manager of the Turning Division of Warner & Swasey Company. Mr. Middlebrooks has been Senior Vice President since 1985 and was Vice President of Allied Products from 1984 to 1985 in charge of the former Agricultural Equipment Group. Prior to that, he was President-Bush Hog Implements Division. He joined Bush Hog in 1955. Mr. Corwine was elected Vice President, General Counsel and Secretary in 1995. From 1980 to 1995, he was General Counsel and Assistant Secretary, and prior to that he was Director of the Corporate Law Department and Assistant Secretary. Prior to joining Allied Products in 1979, he was General Attorney for Santa Fe Industries, Inc. Mr. Fleck has been Vice President-Accounting since 1985 and Chief Accounting Officer since 1986. From 1983 to 1985 he was Staff Vice President-Accounting and prior to that he served as Corporate Controller and in various other accounting positions for Allied Products. Prior to joining Allied Products in 1974, he was an internal auditor with Marquette Cement Company, a national cement manufacturing company. Mr. Riley has been Vice President & Treasurer since 1993. Prior to that he has been Treasurer of Allied Products since 1976. Prior to that he was Assistant Treasurer and Director of Cash Management of Allied Products since 1969. 6 ITEM 2. PROPERTIES Allied Products owns or leases four manufacturing facilities in three states for the production of its various products and maintains warehouse facilities in various locations throughout the United States and Canada. Management is of the opinion that all facilities are of sound construction, in good operating condition and are adequately equipped for carrying on the business of the Company. Operations at the Bush Hog division are conducted in Selma, Alabama in two owned facilities containing approximately 700,000 square feet in total. The division also maintains several leased facilities in various states and Canada which are used as warehouses and parts depots. Operations at the Verson division are conducted in Chicago, Illinois in an owned facility containing approximately 400,000 square feet. Operations at the Coz division are conducted in Northbridge, Massachusetts in a leased facility containing approximately 263,000 square feet. The lease expires December 31, 2000. ITEM 3. LEGAL PROCEEDINGS Reference is made to Note 10 of Notes to Consolidated Financial Statements with respect to the Company's involvement in legal proceedings as a defending party. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 7 PART II ITEM 5. MARKET PRICE OF THE COMPANY'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS The Company's common stock is listed on the New York and Pacific Stock Exchanges. The price range of the common stock on the New York Stock Exchange is as follows:
- ----------------------------------------------------------------------------------------------------- BEGINNING END OF 1996 OF YEAR YEAR 1996 QTR HIGH LOW DIVIDEND - ----------------------------------------------------------------------------------------------------- Common $24 $29 3/4 1 $24 1/4 $20 5/8 $.05 - ----------------------------------------------------------------------------------------------------- 2 31 1/8 22 3/16 .05 - ----------------------------------------------------------------------------------------------------- 3 28 3/8 24 1/4 .05 - ----------------------------------------------------------------------------------------------------- 4 30 3/8 23 3/4 .05 - ----------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------- BEGINNING END OF 1995 OF YEAR YEAR 1995 QTR HIGH LOW DIVIDEND - ----------------------------------------------------------------------------------------------------- Common $14 3/8 $24 1 $17 1/8 $13 3/8 $-- - ----------------------------------------------------------------------------------------------------- 2 19 7/8 16 3/4 .025 - ----------------------------------------------------------------------------------------------------- 3 23 1/4 18 3/4 .025 - ----------------------------------------------------------------------------------------------------- 4 24 1/8 20 1/8 .025 - -----------------------------------------------------------------------------------------------------
As of February 28, 1997, the approximate number of holders of record of the Company's common stock ($.01 par value) was 2,200. The Company paid no dividends from 1982 until 1995. Restrictions from paying dividends were removed in 1995. Subsequent to the end of 1995, the Company increased its quarterly dividend from $.025 per share to $.05 per share. ITEM 6. SELECTED FINANCIAL DATA
1996 1995 1994 1993 1992 ------------ ------------ ------------ ------------ ---------------- Net sales from continuing operations (A).......... $274,414,000 $260,861,000 $215,529,000 $217,988,000 $195,341,000 Income from continuing operations (A)............. $ 19,004,000 $ 33,989,000 $ 19,687,000 $ 5,951,000 $ 1,774,000(B) Earnings (loss) per common share from continuing operations (A).................................. $2.11 $3.48 $1.96 $.43 $(.08)(B) Total assets...................................... $171,949,000 $166,743,000 $150,555,000 $192,040,000 $284,612,000 Long-term debt (including capitalized leases and redeemable preferred stock)..................... $ 489,000 $ 315,000 $ 12,130,000 $ 23,522,000 $117,833,000 Cash dividend declared per common share........... $.20 $.075 $-- $-- $--
- ------------------------ (A) Restated prior to 1993 to reflect the effects of discontinued operations. (B) Excludes a charge of $1,739,000 ($.21 per common share) relating to the transition effect of adopting SFAS No. 106 -- Employers' Accounting for Postretirement Benefits Other Than Pensions on an immediate recognition basis. The accompanying Notes to Consolidated Financial Statements are an integral part of this summary. 8 ITEM 7. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION OPERATING RESULTS Reference is made to Note 3 of Notes to Consolidated Financial Statements regarding the sale/shutdown and restructuring of operations prior to the end of 1994. 1996 COMPARED TO 1995 Net sales in 1996 were $274,414,000 compared to net sales of $260,861,000 for 1995. Income before taxes in 1996 was $29,708,000 compared to income before taxes of $18,330,000 for the prior year. Net income in 1996 was $19,004,000 compared to net income of $33,989,000 reported in 1995. During 1995, the Company evaluated its net operating loss carryforwards and other deferred tax assets in relation to its earnings history over the prior few years and the projected future earnings over the next few years. As a result of this review, the Company recorded a deferred tax asset ($27,361,000) which represents a reversal of the valuation allowance associated with the net deferred tax asset. The credit to income taxes was reduced by $10,713,000 representing the elimination of goodwill associated with certain acquisitions which included net operating loss carryforwards. The net effect of these two items resulted in a credit to income taxes of $16,648,000 in 1995. Net sales at the Bush Hog division decreased by less than 2% in 1996 compared to 1995. On an overall basis, no single product line was responsible for any significant increase or decrease in sales comparing 1996 to 1995. Decreases were primarily related to disc mowers and loaders. These products, as well as certain models of rotary cutters, were adversely impacted by the continued effects of the widespread liquidation of cattle herds resulting in lower cattle prices. Cattle ranchers use the cutters and loaders for grazing pasture and feed lot maintenance, respectively. Peanut combine sales also decreased in 1996. Subsequent to the end of 1996, the division announced that it would no longer manufacture peanut combines. These decreases were partially offset by the effect of increased overall rotary cutter sales and the full year impact of new products introduced in the last half of 1995. New products are primarily related to the turf and landscaping market for utilization by commercial turf (sod) growers and for golf course maintenance. Gross profits and gross profit margins improved in 1996 compared to 1995. The majority of these increases were related to improved direct labor efficiencies and management of overhead costs. A program was initiated in the last half of 1995 and completed at the end of the first half of 1996 to help recognize areas and means of improvement in the manufacturing process. Management believes that further implementation of these changes should result in additional savings in the future. At the Verson division, net sales increased by over 12% in 1996 compared to the prior year. The entire increase was related to press production. Revenue and profits are recognized on a percentage of completion basis for press production at this division. During the last half of 1995, production began on an order for three "A" size transfer presses from Chrysler. During 1996, production (and shipment) was completed on two of these presses with significant production completed on the third. Shipment of the last press is expected to occur in the first half of 1997. During 1995, the press assembly area was expanded to accommodate the continuing increase in press orders and production. Product sales other than presses decreased slightly in 1996. Gross profits increased in 1996 compared to 1995. The increase was principally associated with increased sales (production) volume as noted above. Gross profit margins decreased slightly in 1996 due to the effects of increased employment levels (direct and indirect) in order to meet production and delivery schedules. Absorption of engineering costs decreased in 1996. Absorption in 1995 was related primarily to the order for the three "A" presses discussed above. Two of these presses were shipped in 1996 with the third in production. Engineering activities are expected to increase in 1997 as the division has received an order to design and build two large transfer presses for Ford. At the Coz division, net sales in 1996 decreased by 2% over net sales of the prior year. Sales by product line indicated no significant changes between the two years. Gross profits and gross profit margins decreased in 1996. The decrease reflects the effects of increased material costs which were not being passed on to customers in order to remain competitive with other manufacturers. The division has also been selling older inventory stock, which was no longer in demand, at prices that generated less than normal margins. The majority of this inventory has now been sold. Selling and administrative expenses were $33,400,000 (12.2% of net sales) in 1996 compared to $34,452,000 (13.2% of net sales) in 1995. The majority of the increase in selling expenses was associated with the Bush Hog division. Commissions (which are based on cash collections) increased in 1996 due to strong retail activity in the last quarter of the year. Additional costs were also incurred at this division related to the introduction of new products at turf and lawn shows during 9 1996. Administrative expenses decreased in 1996 compared to 1995. The majority of the decrease was associated with costs of $1,543,000 incurred in 1995 for the termination/retirement of certain individuals. The increase in interest expense ($1,557,000 in 1996 compared to $1,052,000 in 1995) was directly associated with increased average borrowing levels ($17,201,000 in 1996 compared to $7,998,000 in 1995) under credit agreements in effect. The effect of increased borrowing levels was partially offset by lower average borrowing rates in 1996 (7.16%) compared to 1995 (8.88%). The majority of the increased borrowings was associated with the Company's common stock purchase program described below. Reference is made to Note 5 of Notes to Consolidated Financial Statements for a description of borrowing arrangements in effect during 1996 and 1995. Other expense was $631,000 in 1996 compared to $7,483,000 in 1995. Reference is made to Note 12 of Notes to Consolidated Financial Statements for an analysis of other (income) expense in 1996 and 1995. Reference is made to Note 4 of Notes to Consolidated Financial Statements for an analysis and explanation of the current and deferred provision (credit) for income taxes in 1996 and 1995. 1995 COMPARED TO 1994 Net sales from continuing operations in 1995 increased 21% to $260,861,000 compared to net sales from continuing operations of $215,529,000 in 1994. Income before taxes from continuing operations was $18,330,000 in 1995 compared to $20,564,000 in 1994. Excluding the effects of a $7,699,000 reserve for a long- term receivable in 1995 (see Note 10 of Notes to Consolidated Financial Statements), income before taxes from continuing operations would have been $26,029,000, an increase of over 26% from the prior year. Net income in 1995 was $33,989,000 compared to net income of $14,333,000 reported in 1994. Net sales at the Bush Hog division decreased by approximately 2% in 1995 compared to 1994. The majority of the decrease was associated with the disc mower and peanut combine product lines. During 1995, portions of the Midwest were affected by spring floods, resulting in lower crop plantings. In the southern portion of the country, extreme drought and insect infestation affected the cotton, corn and peanut crops. Cattle prices dropped during 1995 affecting the sales of larger cutters at the Bush Hog division. Cattle ranchers use these large cutters for grazing pasture maintenance. Decreases in sales noted above were partially offset by the effects of new products introduced in the current year. Gross profits and gross profit margins decreased in 1995 compared to 1994. The decreases were primarily related to the effects of decreased labor efficiencies and the mix of products sold. New product sales in the current year were generally not manufactured by the Bush Hog division but were purchased from outside sources under OEM (original equipment manufacturing) agreements, resulting in lower gross profit margins. Lower sales volume noted above also resulted in lower gross profits. At the Verson division, net sales increased by almost 60% in 1995 compared to the net sales level of 1994. During 1995, production began on an order for three "A" size transfer presses. The total value of the order was in excess of $85,000,000. Production and shipment of these presses will be completed in 1997. Revenues and profits are recognized on a percentage of completion basis for press production at the Verson division. Production on other press orders as well as parts sales also increased in 1995. Although profit margins decreased in 1995, gross profits increased, principally the result of increased production (sales) volume noted above. Gross profit margins decreased slightly in relation to press sales due to a mix of presses manufactured in 1995 compared to 1994. Margins on parts sales also decreased in 1995. Some parts business was subcontracted out in 1995 due to manufacturing requirements associated with the "A" presses. Warranty provisions increased in 1995 due to the increase in sales volume. Provisions for warranty in 1994 included the reversal of excess provisions in the prior year. Net sales at the Coz division increased 11% in 1995 compared to net sales of the prior year. The majority of the increase was associated with increased sale prices in the current year. During 1994 and the first half of 1995, the price of basic raw materials increased significantly. Sales prices were adjusted to partially offset the effect of these cost increases. In the last half of 1995, raw material prices decreased. Gross profits increased slightly in 1995 compared to 1994, principally from the effects of increased sales as noted above. Gross profit margins decreased slightly in the current year due to the mix of products sold and the difficulty in passing on material cost increases to customers. Manufacturing costs increased in 1995 due to a slight increase in employment levels and normal cost increases in labor, rent and supplies. Selling and administrative expenses were $34,452,000 (13.2% of net sales from continuing operations) in 1995 compared to $31,072,000 (14.4% of net sales from continuing operations) in 1994. In terms of actual dollars, selling expenses increased slightly in 1995. Increased costs at the Verson division associated with increased sales efforts were partially offset by decreased costs at the Bush Hog division related to 10 changes within the commission structure at this operation. The increases in administrative expenses relate primarily to provisions ($932,000) for the new Target Benefit pension plan (effective January 1, 1995) and expenses totaling approximately $1,500,000 related to the termination/retirement of certain individuals. Normal cost increases (salaries, rent, utilities, insurance, etc.) also impacted both selling and administrative costs in 1995. The decrease in interest expense ($1,052,000 in 1995 compared to $1,859,000 in 1994) was directly related to reduced borrowing levels in the current year. In March 1994, the Company terminated certain financing arrangements and replaced them with a Revolving Credit Agreement. This agreement was amended in the first quarter of 1995 providing for reduced interest rates. Borrowing levels have been reduced due to the improved internal cash flow of the Company from its continuing operations. Other expense was $7,483,000 in 1995 compared to other expense of $1,198,000 in 1994. Reference is made to Note 12 of Notes to Consolidated Financial Statements for an analysis of other (income) expense in 1995 and 1994. Reference is made to Note 4 of Notes to Consolidated Financial Statements for an explanation of the current and deferred provision (credit) for income taxes in 1995 and 1994. FINANCIAL CONDITION 1996 Working capital at December 31, 1996 was $50,800,000 and the current ratio was 1.68 to 1.0. Net accounts receivables increased by $8,621,000 in 1996. The entire increase was associated with the Verson division, of which $6,000,000 was in transit at the end of 1996. The remaining portion of the increase was related to two "A" presses which were shipped to Chrysler facilities for installation. Under the terms of the agreement with Chrysler, a portion of the amounts due are held back until installation and die tryout of each press is complete. Receivables at the Bush Hog division decreased in 1996. Strong retail activity and cash collections occurred in the last quarter of 1996 resulting in this decrease in receivables. Additional decreases were associated with the collection of amounts due on the sale of an idle facility at the end of 1995. Inventory levels increased by $4,384,000 at the end of 1996 compared to the end of the prior year. This increase was also related to the Verson division. While the level of accumulated costs of presses in process has decreased at the end of 1996 (primarily due to the shipment of two "A" presses noted above), the level of customer deposits and progress payments has decreased by a greater amount at the end of 1996, resulting in a net increase in the work in process inventory level. Inventory levels at the Bush Hog division decreased due primarily to improved inventory management in 1996. Coz division inventory levels also decreased in 1996. The division successfully increased its efforts to eliminate excess raw material levels and better manage production quantities. Fixed asset additions were primarily associated with equipment necessary to improve productivity and quality at all manufacturing divisions. Funds to finance these additions include current operating cash flow and borrowings under loan agreements in effect. There were no major fixed asset dispositions in 1996. The changes in the deferred tax assets (classified as both current and other assets) were associated with changes in timing differences between book and tax income and the utilization of net operating loss carryforwards recognized in 1995. The continued earnings history of the Company and prospects for future earnings makes it more likely than not that the Company will utilize the benefits arising from the deferred tax assets noted above. See Note 4 of Notes to Consolidated Financial Statements. During the first quarter of 1996, the Company increased the quarterly dividend from $.025 per share to $.05 per share effective with the first quarter dividend of 1996 paid at the end of that quarter. Quarterly dividend rates have remained at this level for the remainder of 1996. During 1996, the Company issued 211,500 new common shares to certain officers of the Company upon exercise of stock options. The Company repurchased these shares from the officers for treasury stock purposes. The Company's Board of Directors authorized the purchase of up to 1,500,000 shares of the Company's common stock from time to time on the open market, subject to prevailing market conditions. Of this amount, approximately 800,000 shares have been purchased through the end of 1996. Funds to finance these treasury share purchases include current operating cash flow and borrowings under loan agreements in effect. Some treasury shares purchased have been reissued upon the exercise of stock options. 1995 Working capital at December 31, 1995 was $54,947,000 and the current ratio was 1.84 to 1.0. Net accounts receivable decreased by approximately $2,000,000 in 1995. The majority of the decrease was related to the Verson division. Receivables at this division are a function of shipments (revenues recognized 11 on a percentage of completion basis are accumulated in inventory). Press shipments in the last few months of 1995 decreased compared to the end of the prior year. This decrease was partially offset by the effects of increased receivables at the Bush Hog division. The increase reflects decreased retail sales of large cutters and peanut combines due to market conditions described earlier. On a consolidated basis, inventory levels increased by approximately $4,000,000 in 1995. The entire increase was related to the Verson division where production continues on an order for three "A" size transfer presses discussed earlier. A portion of the increase in accumulated costs of presses in progress has been offset by increased customer deposits and progress payments related to the contracts in process. Inventories at the Bush Hog and Coz divisions decreased in 1995. Major fixed asset additions in 1995 include building additions at the Verson division (primarily to expand the press assembly area) and a new paint system at the Bush Hog division. Other fixed asset additions at all divisions were for equipment to improve productivity and quality in the products manufactured. Funds to finance these additions include current operating cash flow and borrowings (subsequently repaid) under the Revolving Credit Agreement. During 1995, the Company sold for cash certain idle facilities and other operating and nonoperating assets which resulted in gains of approximately $2,000,000. The decrease in notes receivable due after one year was related to a reserve of $7,699,000 established in 1995 for the remaining unreserved amount due the Company from the sale of an operation in 1991. See Note 10 of Notes to Consolidated Financial Statements. The deferred tax asset results from the reversal of the valuation allowance associated with certain net operating loss carryforwards, tax credits and timing differences in 1995. The recent earnings history of the Company and prospects for the future makes it more likely than not that the Company will utilize the benefits arising from the items noted above. See Note 4 of Notes to Consolidated Financial Statements. Borrowings under the Revolving Credit Agreement at the end of 1995 were primarily related to the "A" size transfer presses in production at the Verson division and the normal seasonal needs at the Bush Hog division associated with inventory build schedules prior to the spring selling season. During 1995, the Company retired all outstanding Series B and C preferred shares through the use of internally generated funds. LIQUIDITY AND CAPITAL RESOURCES At the end of 1996, the Company's sales backlog was in excess of $142,000,000. The majority of this amount is related to the Verson division and is represented by orders for new presses. Accumulated production costs are not invoiced until shipment of the related press. In order to fund the cost of production, the Verson division receives deposits from customers at the time the press order is accepted and also frequently requires periodic progress payments from the customer during the production process, which minimizes the Company's cash requirements during the manufacturing cycle. At the Bush Hog division, cash collections associated with machine sales generally are dependent upon the retail sale of the product by the dealer. Extended payment terms are offered in the form of floor plan financing which is customary within the agricultural equipment industry. Net farm cash income increased significantly in 1996 due primarily to increased crop prices. It is projected that farm income will decrease slightly in 1997 as crop prices are expected to decrease. Weak cattle prices continued in 1996 resulting in widespread liquidation of cattle herds. It is anticipated that this condition will ease in 1997. During 1995, the Company reversed its previous valuation allowance associated with certain net operating loss carryforwards, tax credits and timing differences. In 1996 and future years, the Company has and will be recording a tax provision based principally upon the Federal statutory rate in effect and anticipates no reductions in future tax provisions from additional tax credits at this time. However, the Company projects that future Federal income tax payments will be based upon the Alternative Minimum Tax rate as the Company continues to utilize its substantial tax loss carryforwards for tax reporting purposes. Reference is made to Note 10 of Notes to Consolidated Financial Statements for a current discussion on outstanding environmental and legal issues and other contingent liabilities. During the last half of 1996, the Company entered into an Amended and Restated Credit Agreement with the same lenders as under the Revolving Credit Agreement. Reference is made to Note 5 of Notes to Consolidated Financial Statements for a description of the major terms of this new agreement which replaces the Revolving Credit Agreement. As of December 31, 1996, the Company had cash and cash equivalents of $833,000 and additional funds of $67,056,000 available under its Amended and Restated Credit agreement of which $42,056,000 is available for general corporate and operating purposes (including 12 costs incurred by the Verson division in connection with new press orders from the major U. S. automotive manufacturers) and an additional $25,000,000 which is available for new Verson business as noted above. The Company believes that its expected operating cash flow and funds available under the Amended and Restated Credit Agreement are adequate to finance its operations and capital expenditures in the near future. During 1996, the Company has been in compliance with all provisions of loan agreements in effect. Subsequent to the end of 1996, the Company purchased 417,601 additional shares of its common stock for treasury purposes. IMPACT FROM NOT YET EFFECTIVE RULES In October 1996, the American Institute of Certified Public Accountants issued Statement of Position (SOP) 96-1--Environmental Remediation Liabilities. This SOP provides that liabilities for environmental remediation should be accrued when the criteria for the recognition of liabilities are met under generally accepted accounting principles and provides guidance to aid in the determination of when environmental remediation liabilities should be recognized. The SOP also includes guidance as to costs that should be included in the accrual, basis for measurement of these costs, and display and disclosure of environmental remediation liabilities. Adoption of this SOP is required for fiscal years beginning after December 15, 1996. The Company anticipates that any adjustment from the application of this SOP in 1997 will not have a material effect on its financial position or results of operations. 13 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholders and Board of Directors of Allied Products Corporation We have audited the consolidated balance sheets of Allied Products Corporation and consolidated subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of income, shareholders' investment and cash flows for each of the three years in the period ended December 31, 1996. We have also audited the financial statement schedule listed in Part IV of Form 10-K, Item 14(a)2 for each of the three years in the period ended December 31, 1996. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Allied Products Corporation and consolidated subsidiaries as of December 31, 1996 and 1995, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1996 in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedule referred to above, when considered in relation to the financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. COOPERS & LYBRAND L. L. P. Chicago, Illinois February 6, 1997 14 ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, ---------------------------------------------------- 1996 1995 1994 ---------------- ---------------- ---------------- Net sales from continuing operations........................ $ 274,414,000 $ 260,861,000 $ 215,529,000 Cost of products sold....................................... 209,118,000 199,544,000 160,836,000 ---------------- ---------------- ---------------- Gross profit.............................................. $ 65,296,000 $ 61,317,000 $ 54,693,000 ---------------- ---------------- ---------------- Other costs and expenses: Selling and administrative expenses....................... $ 33,400,000 $ 34,452,000 $ 31,072,000 Interest expense.......................................... 1,557,000 1,052,000 1,859,000 Other (income) expense, net............................... 631,000 7,483,000 1,198,000 ---------------- ---------------- ---------------- $ 35,588,000 $ 42,987,000 $ 34,129,000 ---------------- ---------------- ---------------- Income before taxes from continuing operations.............. $ 29,708,000 $ 18,330,000 $ 20,564,000 Provision (credit) for income taxes: Current................................................... 921,000 989,000 877,000 Deferred.................................................. 9,783,000 (16,648,000) -- ---------------- ---------------- ---------------- Income from continuing operations........................... $ 19,004,000 $ 33,989,000 $ 19,687,000 Discontinued operations--loss on disposition of discontinued operations and other costs, net of tax..................... -- -- (5,354,000) ---------------- ---------------- ---------------- Net income.................................................. $ 19,004,000 $ 33,989,000 $ 14,333,000 ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- Net income applicable to common stock....................... $ 19,004,000 $ 32,789,000 $ 12,440,000 ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- Earnings (loss) per common share: Primary-- Continuing operations..................................... $2.11 $3.48 $1.96 Discontinued operations................................... -- -- (0.59) ----- ----- ----- Income per common share................................... $2.11 $3.48 $1.37 ----- ----- ----- ----- ----- ----- Fully diluted-- Continuing operations..................................... $2.11 $3.45 $1.96 Discontinued operations................................... -- -- (0.59) ----- ----- ----- Income per common share................................... $2.11 $3.45 $1.37 ----- ----- ----- ----- ----- ----- Weighted average shares outstanding: Primary................................................... 9,014,000 9,414,000 9,102,000 --------- --------- --------- --------- --------- --------- Full diluted.............................................. 9,014,000 9,494,000 9,102,000 --------- --------- --------- --------- --------- ---------
The accompanying notes to consolidated financial statements are an integral part of these statements. 15 ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS
DECEMBER 31, ---------------------------------- 1996 1995 ---------------- ---------------- Current Assets: Cash and cash equivalents................................................ $ 833,000 $ 744,000 ---------------- ---------------- Notes and accounts receivable, less allowances of $629,000 and $948,000, respectively............................................................ $ 52,914,000 $ 44,293,000 ---------------- ---------------- Inventories: Raw materials.......................................................... $ 9,524,000 $ 12,037,000 Work in process........................................................ 28,269,000 20,438,000 Finished goods......................................................... 18,997,000 19,931,000 ---------------- ---------------- $ 56,790,000 $ 52,406,000 ---------------- ---------------- Deferred tax asset....................................................... $ 14,532,000 $ 22,538,000 ---------------- ---------------- Prepaid expenses......................................................... $ 191,000 $ 323,000 ---------------- ---------------- Total current assets................................................. $ 125,260,000 $ 120,304,000 ---------------- ---------------- Plant and Equipment, at cost: Land..................................................................... $ 2,155,000 $ 2,172,000 Buildings and improvements............................................... 37,196,000 36,269,000 Machinery and equipment.................................................. 50,083,000 47,078,000 ---------------- ---------------- $ 89,434,000 $ 85,519,000 Less--Accumulated depreciation and amortization.......................... 51,048,000 47,083,000 ---------------- ---------------- $ 38,386,000 $ 38,436,000 ---------------- ---------------- Other Assets: Notes receivable, due after one year, less allowances of $7,165,000 and $7,699,000, respectively................................................ $ -- $ 40,000 Deferred tax asset....................................................... 5,282,000 4,823,000 Deferred charges (goodwill), net of amortization......................... 1,668,000 1,845,000 Other.................................................................... 1,353,000 1,295,000 ---------------- ---------------- $ 8,303,000 $ 8,003,000 ---------------- ---------------- $ 171,949,000 $ 166,743,000 ---------------- ---------------- ---------------- ----------------
The accompanying notes to consolidated financial statements are an integral part of these statements. 16 ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED BALANCE SHEETS LIABILITIES AND SHAREHOLDERS' INVESTMENT
DECEMBER 31, ---------------------------------- 1996 1995 ---------------- ---------------- Current Liabilities: Revolving credit agreement............................................... $ 27,000,000 $ 11,200,000 Current portion of long-term debt........................................ 193,000 621,000 Accounts payable......................................................... 16,692,000 21,152,000 Accrued expenses......................................................... 30,575,000 32,384,000 ---------------- ---------------- Total current liabilities............................................ $ 74,460,000 $ 65,357,000 ---------------- ---------------- Long-term debt, less current portion shown above........................... $ 489,000 $ 315,000 ---------------- ---------------- Other long-term liabilities................................................ $ 3,547,000 $ 2,806,000 ---------------- ---------------- Commitments and Contingencies Shareholders' Investment: Preferred stock: Undesignated--authorized 1,500,000 shares at December 31, 1996 and 1995; none issued..................................................... $ -- $ -- Common stock, par value $.01 per share; authorized 25,000,000 shares; issued 9,364,844 and 9,138,344 shares at December 31, 1996 and 1995, respectively............................................................ 94,000 91,000 Additional paid-in capital............................................... 94,671,000 93,143,000 Retained earnings........................................................ 22,227,000 5,031,000 ---------------- ---------------- $ 116,992,000 $ 98,265,000 Less: Treasury stock, at cost: 905,071 shares at December 31, 1996....................................................... (23,539,000) -- ---------------- ---------------- Total shareholder's equity........................................... $ 93,453,000 $ 98,265,000 ---------------- ---------------- $ 171,949,000 $ 166,743,000 ---------------- ---------------- ---------------- ----------------
The accompanying notes to consolidated financial statements are an integral part of these statements. 17 ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, ---------------------------------------------------- 1996 1995 1994 ---------------- ---------------- ---------------- Cash Flows from Operating Activities: Net income............................................................ $ 19,004,000 $ 33,989,000 $ 14,333,000 Adjustments to reconcile net income to net cash provided from operating activities: Depreciation and amortization....................................... 5,075,000 5,033,000 5,159,000 Amortization of deferred charges.................................... 177,000 2,068,000 2,067,000 Deferred income tax provision (benefit)............................. 9,534,000 (16,648,000) -- Provision for collectability of long-term receivable................ -- 7,699,000 -- Changes in noncash assets and liabilities, net of effects of assets/businesses sold and noncash transactions: (Increase) decrease in accounts receivable........................ (8,835,000) 99,000 (100,000) (Increase) in inventories......................................... (4,384,000) (3,951,000) (5,596,000) Decrease in prepaid expenses...................................... 132,000 133,000 1,459,000 Decrease in notes receivable, due after one year.................. 40,000 423,000 807,000 Increase (decrease) in accounts payable and accrued expenses...... (6,621,000) 1,349,000 (8,490,000) Other, net.......................................................... 332,000 (1,198,000) (695,000) ---------------- ---------------- ---------------- Net cash provided from operating activities........................... $ 14,454,000 $ 28,996,000 $ 8,944,000 ---------------- ---------------- ---------------- Cash Flows from Investing Activities: Additions to plant and equipment...................................... $ (4,684,000) $ (14,378,000) $ (6,957,000) Proceeds from sales of plant and equipment............................ 207,000 3,611,000 2,452,000 Proceeds from sales of assets/businesses.............................. -- -- 343,000 ---------------- ---------------- ---------------- Net cash used for investing activities................................ $ (4,477,000) $ (10,767,000) $ (4,162,000) ---------------- ---------------- ---------------- Cash Flows from Financing Activities: Borrowings under revolving loan and credit agreements................. $ 119,650,000 $ 110,300,000 $ 81,346,000 Payments under revolving loan and credit agreements................... (103,850,000) (109,400,000) (90,308,000) Payments of short and long-term debt.................................. (696,000) (827,000) (33,881,000) Redemptions of preferred stock........................................ -- (17,997,000) (3,100,000) Common stock issued................................................... 1,501,000 -- -- Purchases of treasury stock........................................... (25,993,000) -- -- Dividends paid........................................................ (1,808,000) (1,883,000) (1,893,000) Stock option transactions............................................. 1,308,000 668,000 292,000 ---------------- ---------------- ---------------- Net cash used for financing activities................................ $ (9,888,000) $ (19,139,000) $ (47,544,000) ---------------- ---------------- ---------------- Net increase (decrease) in cash and cash equivalents.................... $ 89,000 $ (910,000) $ (42,762,000) Cash and cash equivalents at beginning of year.......................... 744,000 1,654,000 44,416,000 ---------------- ---------------- ---------------- Cash and cash equivalents at end of year................................ $ 833,000 $ 744,000 $ 1,654,000 ---------------- ---------------- ---------------- ---------------- ---------------- ----------------
The accompanying notes to consolidated financial statements are an integral part of these statements. 18 ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, ----------------------------------------- 1996 1995 1994 ------------- ----------- ------------- Supplemental Information: (A) Noncash investing and financing activities: 1. Assets acquired through the assumption of debt................ $ 442,000 $ 444,000 $ 115,000 ------------- ----------- ------------- ------------- ----------- ------------- 2. Treasury shares received in lieu of cash for stock option exercise.................................................... $ 86,000 $ -- $ -- ------------- ----------- ------------- ------------- ----------- ------------- 3. Treasury shares issued for non cash exercise of stock options..................................................... $ 773,000 $ -- $ -- ------------- ----------- ------------- ------------- ----------- ------------- 4. Proceeds (primarily notes receivable) received from the sales of discontinued operations.................................. $ -- $ -- $ 2,011,000 ------------- ----------- ------------- ------------- ----------- ------------- (B) Interest paid during year..................................... $ 1,636,000 $ 939,000 $ 2,657,000 ------------- ----------- ------------- ------------- ----------- ------------- (C) Income/franchise taxes paid during year, net of refunds....... $ 1,291,000 $ 471,000 $ 522,000 ------------- ----------- ------------- ------------- ----------- -------------
The accompanying notes to consolidated financial statements are an integral part of these statements. 19 ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT PREFERRED, COMMON AND TREASURY STOCK
SERIES B PREFERRED ($50 COMMON ($.01 STATED VALUE PAR VALUE TREASURY STOCK, PER SHARE) PER SHARE) AT COST --------------- --------------- --------------- Balance at December 31, 1993............................... $ 9,040,000 $ 91,000 $ -- Redemption of 34,000 Series B preferred shares........... (1,700,000) -- -- Issuance of 14,734 common shares in connection with the exercises of stock options.............................. -- -- -- --------------- --------------- --------------- Balance at December 31, 1994............................... $ 7,340,000 $ 91,000 $ -- Redemption of 146,800 Series B preferred shares.......... (7,340,000) -- -- Issuance of 35,000 common shares in connection with the exercises of stock options.............................. -- -- -- --------------- --------------- --------------- Balance at December 31, 1995............................... $ -- $ 91,000 $ -- Issuance of 226,500 common shares in connection with the exercises of stock options.............................. -- 3,000 -- Purchase of 1,016,309 common shares for treasury purposes................................................ -- -- (26,079,000) Treasury shares issued (111,238) in connection with the exercises of stock options.............................. -- -- 2,540,000 --------------- --------------- --------------- Balance at December 31, 1996............................... $ -- $ 94,000 $ (23,539,000) --------------- --------------- --------------- --------------- --------------- ---------------
The accompanying notes to consolidated financial statements are an integral part of these statements. 20 ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT ADDITIONAL PAID-IN CAPITAL AND RETAINED EARNINGS (DEFICIT)
ADDITIONAL RETAINED PAID-IN EARNINGS CAPITAL (DEFICIT) -------------- --------------- Balance at December 31, 1993...................................................... $ 92,395,000 $ (39,515,000) Net income for the year......................................................... -- 14,333,000 Preferred dividends declared and paid: Series B (variable based on prime rate--$3.375 per share)..................... -- (574,000) Series C--$10.81 per share.................................................... -- (1,319,000) Excess of cost ($843,000) over fair market value of 59,979 common shares purchased and reissued in connection with the Company's incentive stock plan... (375,000) -- Issuance of 14,734 common shares in connection with the exercises of stock options........................................................................ 126,000 -- -------------- --------------- Balance at December 31, 1994...................................................... $ 92,146,000 $ (27,075,000) Net income for the year......................................................... -- 33,989,000 Preferred dividends declared and paid: Series B (variable based on prime rate--$1.825 per share)..................... -- (268,000) Series C--$8.1075 per share................................................... -- (932,000) Common dividends declared and paid--$.075 per share............................. -- (683,000) Issuance of 35,000 common shares in connection with the exercises of stock options........................................................................ 205,000 -- Excess of cost ($589,000) over fair market value of 41,961 common shares purchased and reissued in connection with the Company's contribution to the Employee Stock Plan............................................................ (30,000) -- Excess of cost ($614,000) over fair market value of 42,500 common shares purchased and reissued in connection with the Company's incentive stock plan... (151,000) -- Excess of stated value over cost ($5,516,000) in connection with the early retirement of the Series B preferred stock..................................... 973,000 -- -------------- --------------- Balance at December 31, 1995...................................................... $ 93,143,000 $ 5,031,000 Net income for the year......................................................... -- 19,004,000 Common dividends declared and paid--$.20 per share.............................. -- (1,808,000) Issuance of 226,500 common shares in connection with the exercises of stock options........................................................................ 1,584,000 -- Excess of cost of treasury shares issued over exercise price in connection with the exercises of stock options................................................. (1,754,000) -- Tax benefit associated with stock option exercises.............................. 1,698,000 -- -------------- --------------- Balance at December 31, 1996...................................................... $ 94,671,000 $ 22,227,000 -------------- --------------- -------------- ---------------
The accompanying notes to consolidated financial statements are an integral part of these statements 21 ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: PRINCIPLES OF CONSOLIDATION-- The consolidated financial statements include the accounts of the Company and its majority owned subsidiaries. All significant intercompany items and transactions have been eliminated. NATURE OF OPERATIONS-- Allied Products Corporation manufactures large metal stamping presses and implements and machinery used in agriculture, landscaping and ground maintenance businesses, and supplies thermoplastic compounds and additives. All manufacturing operations are within the United States. Implements and machinery manufactured by the Bush Hog division are primarily sold through dealerships in the United States with some limited export sales to Canada. Metal stamping presses produced by the Verson division are sold directly to the end users which include automobile manufacturers, first and second tier automotive parts producing companies and the appliance industry. Automobile manufacturers and automotive parts producing companies account for approximately 80% of the Verson division's revenues. Press sales generally are concentrated in the United States and Mexico. The Coz division provides a complete line of thermoplastic resins and related services to the plastic molding and extrusion industry. Sales are concentrated in the northeastern portion of the United States. USE OF ESTIMATES-- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. REVENUE RECOGNITION-- Sales by the Bush Hog division are recorded when products are shipped to independent dealers in accordance with industry practices. Provisions for sales incentives and other sales related expenses are made at the time of the sale. Revenues and profits are recognized on a percentage of completion basis for major contracts at the Verson division. Changes in the Verson divison's estimated sales, costs and profits are recognized in the period in which they are determinable. Additionally, any anticipated losses on contracts are charged to operations as soon as they are determinable. Other products are recorded as sales when shipped. ACCOUNTS RECEIVABLE-- Current accounts receivables for the Bush Hog division are net of provisions for sales incentive programs and returns and allowances. Extended payment terms (up to one year) are offered to dealers in the form of floor plan financing which is customary within the industry. Such receivables (with the exception of receivables associated with service parts) are generally not collected until the dealer sells the related piece of equipment to a retail customer. The Company maintains a security interest in the equipment related to such receivables to minimize the risk of loss. INVENTORIES-- The basis of all of the Company's inventories is determined by using the lower of FIFO cost or market method. Included in work in process inventory are accumulated costs ($23,674,000 at December 31, 1996 and $15,983,000 at December 31, 1995) associated with contracts under which the Company recognizes revenue on a percentage of completion basis. These balances include unbilled actual production costs incurred plus a measure of profit recognized in relation to the sales recorded, less customer 22 ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) payments ($43,579,000 at December 31, 1996 and $55,381,000 at December 31, 1995) associated with the work in process inventory. A significant portion of the work in process inventory will be completed, shipped and invoiced prior to the end of the following year. PLANT AND EQUIPMENT-- Expenditures for the maintenance and repair of plant and equipment are charged to expense as incurred. Expenditures for major replacement or betterment are capitalized. The cost and related accumulated depreciation of plant and equipment replaced, retired or otherwise disposed of is removed from the accounts and any gain or loss is reflected in earnings. DEPRECIATION-- Depreciation of the original cost of plant and equipment is charged to expense over the estimated useful lives of such assets calculated under the straight-line method. Estimated useful lives are 20 to 40 years for buildings and improvements and 3 to 12 years for machinery and equipment. DEFERRED CHARGES (GOODWILL)-- Deferred charges (goodwill) associated with the 1986 acquisition of Verson (approximately $13,113,000) are being amortized on a straight line basis over a period of 20 years. The Company assesses at each balance sheet date whether there has been a permanent impairment in the value of goodwill. Such assessment includes obsolescence, demand, new technology, competition and other pertinent economic factors and trends that may have an impact on the value of remaining useful life of goodwill. EARNINGS (LOSS) PER COMMON SHARE-- Earnings (loss) per common share is based on the average number of common shares outstanding (9,014,000, 9,126,000 and 9,102,000 for the years ended December 31, 1996, 1995 and 1994, respectively) after decreasing net income for preferred dividend requirements ($1,200,000 and $1,893,000 for the years ended December 31, 1995 and 1994, respectively). For 1995, the average number of common shares outstanding was increased by the dilutive effect of outstanding stock options (288,000 shares as it relates to weighted average shares outstanding--primary and 368,000 shares as it relates to weighted average shares outstanding--fully diluted). The assumed exercise of stock options would not result in a material dilution for the years ended December 31, 1996 and 1994. INCOME TAXES-- Income taxes are accounted for under the asset and liability method in accordance with Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards No. 109 (SFAS 109)--Accounting for Income Taxes. See Note 4. STATEMENT OF CASH FLOWS-- For purposes of the Consolidated Statements of Cash Flows, the Company considers investments with original maturities of three months or less to be cash equivalents. FINANCIAL INSTRUMENTS-- The fair value of cash and cash equivalents approximates the carrying value of these assets due to the short maturity of these instruments. The fair value of the Company's debt, current and long-term, is estimated to approximate the carrying value of these liabilities based upon borrowing rates currently available to the Company for borrowings with similar terms. RECENTLY ISSUED ACCOUNTING STANDARD-- In October 1996, the American Institute of Certified Public Accountants issued Statement of Position (SOP) 96-1 -- Environmental Remediation Liabilities. This SOP provides that liabilities for environmental remediation should be accrued when the criteria for the recognition of liabilities are met under generally accepted accounting principles and provides guidance to aid in the determination 23 ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) of when environmental remediation liabilities should be recognized. The SOP also includes guidance as to costs that should be included in the accrual, basis for measurement of these costs, and display and disclosure of environmental remediation liabilities. Adoption of this SOP is required for fiscal years beginning after December 15, 1996. The Company anticipates that any adjustment from the application of this SOP in 1997 will not have a material effect on its financial position or results of operations. 2. ACCRUED EXPENSES: The Company's accrued expenses consist of the following:
DECEMBER 31, ------------------------------ 1996 1995 -------------- -------------- Salaries and wages.......................................................... $ 6,026,000 $ 5,542,000 Warranty.................................................................... 9,559,000 9,077,000 Self insurance accruals..................................................... 4,046,000 4,411,000 Restructuring and other costs, primarily related to discontinued operations................................................................. -- 1,494,000 Pensions, including retirees' health........................................ 6,417,000 5,901,000 Taxes, other than income taxes.............................................. 811,000 738,000 Environmental matters....................................................... 2,020,000 3,019,000 Other....................................................................... 1,696,000 2,202,000 -------------- -------------- $ 30,575,000 $ 32,384,000 -------------- -------------- -------------- --------------
3. DISCONTINUED OPERATIONS: Prior to 1994, the Company closed the manufacturing operations of the Kewanee Farm Equipment division, the Charles City machining and foundry division and the R/B Die and Prototype division. Machinery and equipment associated with these divisions were sold. The Company also sold the majority of the assets of the Smith Energy Services division and closed the International Agro division prior to 1994. At the end of 1993, the Company sold for cash substantially all of the assets and liabilities of the White-New Idea Farm Equipment division. In connection with this sale, the purchaser is required to purchase the real estate located in Coldwater, Ohio pending a favorable review of environmental matters. The Company is in the process of completing an evaluation of the status of environmental conditions at this location--see Note 10. During 1995, the Company and the purchaser of the White-New Idea division agreed to a five-year lease of the Coldwater, Ohio facility while the Company completes the evaluation. Sale of the facility to the purchaser of the White-New Idea division will occur after completion of the evaluation and after resolution of any issues raised by the evaluation. During 1995 and 1994, the Company provided additional amounts (based upon an independent review) for the environmental clean up of this facility. The Company also sold in 1994 the business and certain assets of the Cooper division for cash and a collateralized short-term note. In 1994, discontinued operations include operating losses at the Cooper division related to the delayed sale of this business and additional provisions primarily related to environmental issues and a dispute resolution on a business sold in 1993, net of an income tax benefit allocation of $211,000. RESTRUCTURING COSTS-- Prior to 1994, the Company provided $14,700,000 for the impact of an operational restructuring plan designed to reduce operating losses by closing, consolidating or scaling back certain operations. The restructuring of the Company was substantially completed during 1996 with the remaining reserve being allocated to accruals associated with certain noncontinuing businesses. Net charges to the restructuring reserve in 1996, 1995 and 1994 were $748,000, $1,879,000 and $3,931,000, respectively. Additional charges were made to the restructuring reserve prior to 1994. 24 ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) As of December 31, 1996, the accompanying consolidated balance sheet includes real estate with a net book value of $2,257,000, which is held for sale, including $1,601,000 related to real estate under lease to the purchaser of the White-New Idea division as discussed above. 4. INCOME TAXES: Provision (credit) for income taxes in 1996, 1995 and 1994 consists of the following:
YEAR ENDED DECEMBER 31, ----------------------------------------------- 1996 1995 1994 -------------- --------------- -------------- Federal--current.......................................... $ 688,000 $ 756,000 $ 422,000 Federal--deferred......................................... 9,783,000 (16,648,000) -- State--current............................................ 233,000 233,000 244,000 -------------- --------------- -------------- Total provision (credit) $ 10,704,000 $ (15,659,000) $ 666,000 -------------- --------------- -------------- -------------- --------------- --------------
Allocation of the provision (credit) for income taxes in the 1996, 1995 and 1994 Consolidated Statements of Income include the following:
YEAR ENDED DECEMBER 31, ----------------------------------------------- 1996 1995 1994 -------------- --------------- -------------- Continuing operations..................................... $ 10,704,000 $ (15,659,000) $ 877,000 Discontinued operations--loss on disposition of discontinued operations and other costs.................. -- -- (211,000) -------------- --------------- -------------- Total provision (credit).................................. $ 10,704,000 $ (15,659,000) $ 666,000 -------------- --------------- -------------- -------------- --------------- --------------
The provision (credit) for income taxes in 1996, 1995 and 1994 differs from amounts computed by applying the statutory rate to pretax income as follows:
YEAR ENDED DECEMBER 31, ----------------------------------------------- 1996 1995 1994 -------------- --------------- -------------- Income tax at statutory rate.............................. $ 10,398,000 $ 6,416,000 $ 5,250,000 Utilization of net operating loss carryforward............ -- (5,997,000) (5,547,000) State income tax, net of federal tax benefit.............. 151,000 151,000 159,000 Permanent book over tax differences on acquired assets.... 104,000 910,000 910,000 Stock option transactions................................. -- (296,000) (137,000) Adjustment to deferred tax asset valuation allowance...... -- (16,648,000) -- Other, net................................................ 51,000 (195,000) 31,000 -------------- --------------- -------------- Total provision (credit).................................. $ 10,704,000 $ (15,659,000) $ 666,000 -------------- --------------- -------------- -------------- --------------- --------------
25 ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The significant components of deferred tax assets and liabilities were as follows:
DECEMBER 31, ------------------------------ 1996 1995 -------------- -------------- Deferred tax assets: Net operating loss and tax credits carryforwards.......................... $ -- $ 6,887,000 Self-insurance accruals................................................... 1,934,000 1,894,000 Inventories............................................................... 1,999,000 1,899,000 Receivables............................................................... 2,845,000 3,026,000 Sale/leaseback transaction................................................ 1,557,000 1,493,000 Restructuring reserve..................................................... -- 523,000 Employee benefits, including pensions..................................... 4,696,000 4,239,000 Warranty.................................................................. 3,489,000 3,177,000 Sales allowances.......................................................... 2,200,000 2,079,000 Environmental matters..................................................... 737,000 1,056,000 Other..................................................................... 357,000 1,456,000 -------------- -------------- Total deferred tax asset................................................ $ 19,814,000 $ 27,729,000 -------------- -------------- Deferred tax liabilities: Depreciation.............................................................. $ -- $ 327,000 Other..................................................................... -- 41,000 -------------- -------------- Total deferred tax liabilities.......................................... $ -- $ 368,000 -------------- -------------- Net deferred tax asset.................................................. $ 19,814,000 $ 27,361,000 -------------- -------------- -------------- --------------
During 1995, the Company evaluated its net operating loss carryforwards and other deferred tax assets in relation to its earnings history over the past few years and the estimated projected future earnings over the next few years. As a result of this review, the Company recorded a deferred tax asset ($27,361,000) which represented a reversal of a valuation allowance recorded prior to 1995. The related credit to income taxes was reduced by $10,713,000 representing the elimination of goodwill associated with certain acquisitions which included net operating loss carryforwards. In addition to the above noted tax asset, the Company has available net operating loss carryforwards of up to $166,893,000 (of which $86,177,000 results from various acquisitions) which expire between 1997 and 2008, and investment tax credit carryforwards of $1,797,000 (which expire between 1997 and 2004) including up to $99,000 resulting from acquisitions. In years subsequent to 1996, the Company will be recording a tax provision based upon the Federal statutory rate in effect and anticipates no reductions in future tax provisions from additional tax credits at this time. However, the Company projects that future Federal income tax payments will be based upon the Alternative Minimum Tax rate as substantial tax loss carryforwards still exist for tax reporting purposes. Tax returns for the years subsequent to 1992 are potentially subject to audit by the Internal Revenue Service. 26 ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 5. FINANCIAL ARRANGEMENTS: The Company's debt consists of the following:
DECEMBER 31, ------------------------ 1996 1995 ----------- ----------- Capitalized lease obligations, at interest rates from 7.5% to 12% (weighted average of 10.3% and 10.1% at December 31, 1996 and 1995, respectively), due in varying amounts through 2002 (Note 6).................................................................. $ 682,000 $ 882,000 Notes/mortgages payable................................................................. -- 54,000 ----------- ----------- $ 682,000 $ 936,000 Less current portion.................................................................... 193,000 621,000 ----------- ----------- $ 489,000 $ 315,000 ----------- ----------- ----------- -----------
Scheduled maturities of the noncurrent portion of long-term debt at December 31, 1996 are due as follows: 1998............................................................. $ 162,000 1999............................................................. 148,000 2000............................................................. 121,000 2001............................................................. 53,000 2002............................................................. 5,000 --------- $ 489,000 --------- ---------
During 1994, the Company entered into a Revolving Credit Agreement (which was subsequently amended in 1995) with two banks providing for up to $35,000,000 in working capital related loans (of which $11,200,000 was borrowed at December 31, 1995) and up to $15,000,000 in standby letters of credit required for the Company's self-insurance program and for other commercial purposes, of which approximately $13,000,000 was outstanding at December 31, 1995. Interest was at prime rate or at other alternate variable rates as provided within the agreement. During the last half of 1996, the Company entered into an Amended and Restated Credit Agreement (which replaced the Revolving Credit Agreement) with the same two banks. The new agreement provides for up to $100,000,000 of borrowings and/or letters of credit at either a floating prime or fixed LIBOR (with the rate dependent on the ratio of Funded Debt to Operating Cash Flow) rate. Under the Amended and Restated Credit Agreement, the Company must meet certain periodic financial tests, including minimum net worth, debt coverage and fixed charge coverage ratio and maximum funded debt/operating cash flow ratio. The agreement expires on September 30, 1999. The weighted average interest rate on borrowings outstanding at December 31, 1996 and 1995 was 7.4% and 7.8%, respectively. 6. LEASES: CAPITAL LEASES-- The Company conducts a portion of its business in leased facilities. Purchase options for such facilities were exercised during 1996. The Company also leases various types of manufacturing, office and transportation equipment. 27 ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Capital leases included in Plant and Equipment in the accompanying balance sheets are as follows:
DECEMBER 31, ---------------------------- 1996 1995 ------------- ------------- Land............................................................ $ -- $ 396,000 Buildings and improvements...................................... -- 1,111,000 Machinery and equipment......................................... 2,558,000 4,233,000 ------------- ------------- $ 2,558,000 $ 5,740,000 Less--Accumulated amortization.................................. 1,764,000 3,378,000 ------------- ------------- $ 794,000 $ 2,362,000 ------------- ------------- ------------- -------------
See Note 5 for information as to future debt payments relating to the above leases. OPERATING LEASES-- Rent expense for operating leases, which is charged against income, was as follows:
YEAR ENDED DECEMBER 31, ------------------------------------------- 1996 1995 1994 ------------- ------------- ------------- Minimum rentals.................................. $ 1,943,000 $ 1,922,000 $ 2,165,000 Contingent rentals............................... 79,000 89,000 657,000 ------------- ------------- ------------- $ 2,022,000 $ 2,011,000 $ 2,822,000 ------------- ------------- ------------- ------------- ------------- -------------
Contingent rentals are composed primarily of truck fleet unit charges for actual usage. Some leases contain renewal and purchase options. The leases generally provide that the Company pay taxes, maintenance, insurance and certain other operating expenses. At December 31, 1996, future minimum rental payment commitments under operating leases that have initial or remaining noncancelable lease terms in excess of one year are as follows:
MINIMUM SUBLEASE NET MINIMUM ANNUAL RENTAL RENTAL ANNUAL RENTAL PAYMENTS INCOME PAYMENTS ------------- ------------ ------------- Year ending December 31, 1997............................................ $ 2,343,000 $ (147,000) $ 2,196,000 1998............................................ 1,938,000 (122,000) 1,816,000 1999............................................ 1,439,000 -- 1,439,000 2000............................................ 1,176,000 -- 1,176,000 2001............................................ 381,000 -- 381,000 Later........................................... 857,000 -- 857,000 ------------- ------------ ------------- $ 8,134,000 $ (269,000) $ 7,865,000 ------------- ------------ ------------- ------------- ------------ -------------
7. PREFERRED STOCK: The Company has 2,000,000 shares of authorized preferred stock of which 350,000 shares are designated as Series B Variable Rate Cumulative Preferred Stock and 150,000 shares are designated as Series C Cumulative Preferred Stock. The remaining 1,500,000 shares of authorized preferred stock are undesignated and unissued at December 31, 1996. SERIES B-- The holder of the Series B Preferred Stock was entitled to receive cumulative quarterly dividends at variable rates, computed by multiplying $50 times 1/4 of the prime rate in effect on the first day of the 28 ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) quarter preceding the dividend date. At December 31, 1994, there were 146,800 shares of the Series B Preferred Stock outstanding. In addition to the scheduled redemption of 17,000 shares, the Company redeemed the remaining 129,800 shares at a discount of $973,000 during 1995. The discount was credited to Additional Paid-in Capital. SERIES C-- Holders of the Series C Cumulative Preferred Stock were entitled to receive cumulative quarterly dividends at the annual rate of $10.81 per share. At December 31, 1994, there were 115,000 shares of the Series C Cumulative Preferred Stock outstanding. In addition to the permitted redemption of 50,000 shares, the Company redeemed the remaining 65,000 shares at a premium of $130,000 during 1995. 8. COMMON STOCK AND OPTIONS: The Company has an incentive stock plan (the 1977 plan) which authorizes stock incentives for key employees in the form of stock awards, stock appreciation rights and stock options. Options under the 1977 plan, which are granted at fair market value at date of grant, are non-qualified options (not "incentive stock options" as defined by the Internal Revenue Code). Options currently outstanding under the 1977 plan become exercisable to the extent of 25% one year from date of grant and 25% in each of the next three years, and expire 10 years from the date of grant. There were no stock awards issued under this plan in 1996, 1995 or 1994. No stock appreciation rights have been granted to date under this plan. There are 61,905 options outstanding under this plan at December 31, 1996 and are included in the table below. Additional stock incentives will not be issued under this plan. In 1990, the Company's Board of Directors approved a new incentive stock plan, the 1990 Long Term Incentive Stock Plan (the 1990 plan) which authorizes stock incentives for key employees in the form of stock awards and stock options. The 1990 plan, as amended, authorizes the issuance of up to 1,000,000 shares of the Company's Common Stock. Options under the 1990 plan, which are granted at fair market value at date of grant, may be granted as either incentive stock options or non-statutory stock options. Options granted become exercisable to the extent of 50% one year from date of grant and the remaining 50% two years from date of grant. Since the inception of the 1990 plan, the Company has issued options to purchase 986,251 shares (net of forfeitures) of the Company's Common Stock at prices between $1.50 and $28.50 per share. There are 412,767 options outstanding under this plan at December 31, 1996 and are included in the table below. At December 31, 1996, the Company has the capacity to issue an additional 13,749 stock incentives under the 1990 plan. In 1994, shareholders approved a new incentive plan, the 1993 Directors Incentive Plan (the 1993 plan) which authorizes the issuance of stock options to members of the Board of Directors who are not employees of the Company. Options under the 1993 plan, which are granted at fair market value at date of grant, are granted as non-statutory stock options. Options granted become exercisable to the extent of 50% one year from date of grant and the remaining 50% two years from date of grant. Since the inception of the 1993 plan, the Company has issued options to purchase 146,500 shares of the Company's Common Stock at prices between $12.50 and $28.50 per share. During 1996, options to purchase 70,000 shares of the Company's Common Stock were issued subject to shareholder approval. All options issued are outstanding under this plan at December 31, 1996 and are included in the table below. 29 ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Stock option transactions in 1996, 1995 and 1994 were as follows:
1996 1995 1994 ----------------------- ----------------------- ----------------------- WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE EXERCISE EXERCISE EXERCISE SHARES PRICE SHARES PRICE SHARES PRICE ---------- ----------- ---------- ----------- ---------- ----------- Outstanding at beginning of year........ 765,350 $ 11.56 744,349 $ 10.85 519,637 $ 9.45 Granted............................... 275,500 24.27 127,001 14.48 318,500 12.50 Exercised............................. (418,012) 10.04 (77,500) 8.62 (74,713) 7.96 Expired............................... -- -- -- -- (375) 12.25 Forfeited............................. (1,666) 14.25 (28,500) 13.84 (18,700) 11.81 ---------- ---------- ---------- Outstanding at end of year.............. 621,172 $ 18.22 765,350 $ 11.56 744,349 $ 10.85 ---------- ---------- ---------- ---------- ---------- ---------- Options exercisable at end of year...... 316,339 $ 14.40 504,599 $ 10.63 383,349 $ 10.16 Weighted average fair value of options granted during the year................ $5.71 $5.77 $6.18
The fair value of each option grant was estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions:
YEAR ENDED DECEMBER 31, ------------------------------- 1996 1995 1994 --------- --------- --------- Risk free interest rate............................. 5.80% 7.70% 5.15% Dividend yield...................................... 0.80% 0.40% -- Expected lives...................................... 4 years 4 years 4 years Volatility.......................................... 22.00% 39.00% 58.00%
The following table summarizes information about stock options outstanding at December 31, 1996:
OPTIONS OUTSTANDING ------------------------------------ OPTIONS EXERCISABLE WEIGHTED ---------------------- AVERAGE WEIGHTED WEIGHTED REMAINING AVERAGE AVERAGE CONTRACTUAL EXERCISE EXERCISE RANGES OF EXERCISE PRICES SHARES LIFE PRICE SHARES PRICE - ------------------------------------- --------- ------------ ----------- --------- ----------- $2.625-5.75 41,850 4.4 years $ 4.21 41,850 $ 4.21 12.50-18.125 271,112 6.6 years 13.60 218,279 13.41 19.375-28.50 308,210 8.2 years 24.18 56,210 25.81 --------- --------- $2.625-28.50 621,172 7.2 years $ 18.22 316,339 $ 14.40 --------- --------- --------- ---------
30 ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) At December 31, 1996, the Company has three stock options plans, which are described above. The Company applied Accounting Principles Board (APB) Opinion 25 and related interpretations in accounting for these plans. Accordingly, no compensation costs have been recognized for these plans. Had compensation costs for the Company's stock option plans been determined based on the fair value at the grant date for options granted under these plans consistent with the method of SFAS 123-- Accounting for Stock-Based Compensation, the Company's net income and earnings per share would have been reduced to the pro forma amounts indicated below:
YEAR ENDED DECEMBER 31, ------------------------------ 1996 1995 -------------- -------------- Net Income As reported $ 19,004,000 $ 33,989,000 Pro forma 18,581,000 33,651,000 Primary earnings per share As reported $ 2.11 $ 3.48 Pro forma 2.06 3.45 Fully diluted earnings per share As reported $ 2.11 $ 3.45 Pro forma 2.06 3.42
Under provisions of SFAS 123, the above pro forma disclosures are not representative of the effects on reported net income of options issued during the financial reporting phase in period as options vest over a two year period from date of issuance and have, in some instances, been issued on several occasions during each year. On February 15, 1991, the Company declared a dividend distribution of one right ("Right") to purchase an additional share of the Company's Common Stock for $50 on each share of Common Stock outstanding. The Rights become exercisable 10 days after a person or group acquires, or tenders for, 20% or more of the Company's Common Stock. The Company is entitled to redeem the Rights at $.01 per Right at any time until 10 days after any person or group has acquired 20% of the Common Shares. If a person or group acquires 20% or more of the Company's Common Stock (other than pursuant to an acquisition from the Company or pursuant to a tender offer deemed fair by the Board of Directors), then each Right, other than Rights held by the acquiring person or group, entitles the holder to purchase for $50 that number of shares of the Company's Common Stock having a current market value of $100. If a person or group acquires 20% or more of the Company's Common Stock and prior to the person or group acquiring 50% of such outstanding stock, the Company may convert each outstanding Right, other than the Rights held by the acquiring person or group, into one new share of the Company's Common Stock. If a person or group acquiring more than 20% of the Company's Common Stock merges with the Company or engages in certain other transactions with the Company, each Right, other than Rights held by the acquiring person or group, entitles the holder to purchase shares of common stock of the acquiring person or group having a current market value of $100 for $50. The Rights attach to all of the Company's Common Stock outstanding as of February 15, 1991, or subsequently issued, and have a term of 10 years. The Rights also expire upon a merger or acquisition of the Company undertaken with the consent of the Company's Board of Directors. 9. RETIREMENT, PENSION AND POSTRETIREMENT HEALTH PLANS: The Company sponsors several defined benefit pension plans which cover certain union and office employees. Benefits under these plans generally are based on the employee's years of service and compensation during the years immediately preceding retirement. The Company's general funding policy is to contribute amounts deductible for Federal income tax purposes. Effective January 1, 1994, the Company instituted an unfunded deferred compensation defined benefit pension plan called the Executive Retirement Plan. The noncontributory plan is designed to 31 ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) provide supplemental retirement benefits to certain executive officers of the Company as determined by the Board of Directors. Retirement benefits will be reduced by benefits received under the Target Benefit Plan described below. Net periodic pension costs as they relate to defined benefit plans for continuing operations were as follows:
YEAR ENDED DECEMBER 31, ---------------------------------------------- 1996 1995 1994 -------------- -------------- -------------- Service cost.................................. $ 658,000 $ 673,000 $ 652,000 Interest cost................................. 2,438,000 2,284,000 2,260,000 Actual loss (gain) on plan assets............. (2,787,000) (7,989,000) 327,000 Net amortization and deferral................. 316,000 6,038,000 (2,422,000) Curtailment (income).......................... -- (64,000) -- -------------- -------------- -------------- Net periodic pension cost..................... $ 625,000 $ 942,000 $ 817,000 -------------- -------------- -------------- -------------- -------------- --------------
Although the actual return on plan assets is shown, the expected long-term rate of return used in determining the net periodic pension cost in all years was 7.5%. The difference between the actual return and the expected return is included in the "Net amortization and deferral" in the above table. The actuarial present value of benefits was determined using a discount rate of 7.75% in 1996, 7% in 1995 and 7.25% in 1994. The rate of compensation increase used to measure the projected benefit obligation in two plans was 5%. All other plans are based on current compensation levels. The following table sets forth the funded status of the Company's defined benefit pension plans:
DECEMBER 31, -------------------------------------------------------------------- 1996 1995 --------------------------------- --------------------------------- ASSETS EXCEED ACCUMULATED ASSETS EXCEED ACCUMULATED ACCUMULATED BENEFITS EXCEED ACCUMULATED BENEFITS EXCEED BENEFITS ASSETS BENEFITS ASSETS --------------- ---------------- --------------- ---------------- Plan assets at fair value................. $ 41,270,000 $ -- $ 36,455,000 $ -- --------------- ---------------- --------------- ---------------- Actuarial present value of benefit obligations: Vested benefits......................... $ 28,981,000 $ 843,000 $ 28,970,000 $ 604,000 Nonvested benefits...................... 1,456,000 -- 1,555,000 51,000 --------------- ---------------- --------------- ---------------- Accumulated benefit obligation............ $ 30,437,000 $ 843,000 $ 30,525,000 $ 655,000 Effect of projected future compensation increases................................ 1,750,000 382,000 2,326,000 481,000 --------------- ---------------- --------------- ---------------- Projected benefit obligation.............. $ 32,187,000 $ 1,225,000 $ 32,851,000 $ 1,136,000 --------------- ---------------- --------------- ---------------- Plan assets in excess of (less than) projected benefit obligation............. $ 9,083,000 $ (1,225,000) $ 3,604,000 $ (1,136,000) Unrecorded net (gain) loss from past experience different from that assumed and effect of changes in assumptions..... (10,913,000) (115,000) (4,651,000) (52,000) Unrecorded prior service cost............. 226,000 407,000 249,000 538,000 Unrecognized net (asset) at date of initial application...................... (1,427,000) -- (1,900,000) -- --------------- ---------------- --------------- ---------------- (Accrued) pension costs................... $ (3,031,000) $ (933,000) $ (2,698,000) $ (650,000) --------------- ---------------- --------------- ---------------- --------------- ---------------- --------------- ----------------
32 ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The plans' assets include common stocks, fixed income securities, short-term investments and cash. Common stock investments include approximately 164,000 and 314,000 shares of the Company's Common Stock at December 31, 1996 and 1995, respectively. The Company also has a defined contribution retirement plan which covers certain employees. There are no prior service costs associated with this plan. The Company follows the policy of funding retirement contributions under this plan as accrued. Contributions to this plan for continuing operations were $217,000 in 1996, $206,000 in 1995 and $255,000 in 1994. The Company employees are also eligible to become participants in the Save Money and Reduce Taxes (SMART) plan. Under terms of the plan, the trustee is directed by each employee on how to invest the employee's deposit. Investment alternatives include a money market fund, four mutual funds and a fixed income fund. As of December 31, 1996 and 1995, assets of the SMART plan include approximately 483,000 and 524,000 shares, respectively, of the Company's Common Stock. The Company has a noncontributory defined contribution plan (the Employee Stock Plan). All non-union employees not covered by pension plans are covered under the Employee Stock Plan. Company contributions were $450,000 in 1994. No contribution was made in 1996 and 1995. Effective January 1, 1995, the Company instituted a noncontributory defined contribution retirement plan called the Target Benefit Plan. All employees covered by the Employee Stock Plan are covered under the Target Benefit Plan. Under the terms of the Target Benefit Plan, the Company will make an actuarially determined annual contribution based upon each eligible employee's years of service and earnings as defined. Employee investment alternatives include a money market fund, four mutual funds and a fixed income fund. Employees become vested in the Company contribution after five years of service. Provisions for the contribution to this plan in 1996 and 1995 were $773,000 and $932,000, respectively. The Company provides medical benefits for retirees and their spouses at one operating division and certain other individuals related to several discontinued operations. Accruals for such costs are recognized in the financial statements over the service lives of these employees. Contributions are required of most retirees for medical coverage. The current obligation was determined by application of the terms of the related medical plans, including the effects of established maximums on covered costs, together with relevant actuarial assumptions and health-care cost trend rates projected at annual rates ranging ratably from 8.2% for retirees under age 65 (7.4% for retirees age 65 and older) in 1997 to 5.5% over 25 years. The effect of a 1% annual increase in these assumed cost trend rates would increase the accumulated postretirement benefit obligation by approximately $65,000. The annual service costs would not be materially affected. The following table provides information on the status of these plans:
DECEMBER 31, ---------------------------- 1996 1995 -------------- ------------ Accumulated postretirement benefit obligation: Retirees and their dependents..................................................... $ (265,000) $ (287,000) Fully eligible active plan participants........................................... (55,000) (43,000) Active employees not fully eligible............................................... (447,000) (464,000) -------------- ------------ Accumulated postretirement benefit obligation....................................... $ (767,000) $ (794,000) Plan assets......................................................................... -- -- Unrecognized prior service costs.................................................... 12,000 13,000 Unamortized net (gain) loss......................................................... (274,000) (139,000) -------------- ------------ (Accrued) postretirement benefit costs.............................................. $ (1,029,000) $ (920,000) -------------- ------------ -------------- ------------
33 ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Net periodic postretirement benefit costs include the following:
YEAR ENDED DECEMBER 31, ------------------------------- 1996 1995 1994 --------- --------- --------- Service cost.................................................... $ 37,000 $ 33,000 $ 31,000 Interest cost................................................... 40,000 56,000 53,000 Amortization of unrecognized net (gain) loss.................... (3,000) (18,000) (3,000) Amortization of prior plan amendment............................ 1,000 1,000 1,000 --------- --------- --------- Net periodic postretirement benefit cost........................ $ 75,000 $ 72,000 $ 82,000 --------- --------- --------- --------- --------- ---------
Measurement of the accumulated postretirement benefit obligation was based on a discount rate of 7.75% in 1996, 7.0% in 1995 and 8.0% in 1994. During 1995, the Company made provisions totaling $1,543,000 for the termination/retirement of certain individuals. 10. ENVIRONMENTAL, LEGAL AND CONTINGENT LIABILITIES: ENVIRONMENTAL MATTERS-- The Company's manufacturing plants generate both hazardous and nonhazardous wastes, the treatment, storage, transportation and disposal of which are subject to federal, state and local laws and regulations. The Company believes that its manufacturing plants are in substantial compliance with the various federal, state and local laws and regulations, and does not anticipate any material expenditures to remain in compliance. Under the Comprehensive Environmental Response Compensation and Liability Act of 1980, as amended (CERCLA), and other statutes, the United States Environmental Protection Agency (EPA) and the states have the authority to impose liability on waste generators, site owners and operators, and others regardless of fault or the legality of the original disposal activity. Accordingly, the Company has been named as a potentially responsible party (PRP), or may otherwise face potential liability for environmental remediation or cleanup, in connection with the sites described below that are in various stages of investigation or remediation. At one site, the Company is one of seven PRP's because of its apparent absentee ownership of four parcels of land from 1967 to 1969 which may have held part or all of one or more settling ponds operated by a tenant business. The Company has already paid $85,000 as its share of a settlement of an EPA demand for $415,000 in past response costs, and the EPA has sought payment from the PRP's of an additional $572,000 in response costs. The EPA has ordered the Company and one other PRP to undertake the design and construction of the remediation project. All PRP's have agreed to undertake the design and construction of the remediation project pursuant to a financial participation agreement. The EPA estimates the present value of the cost to implement its selected cleanup method to be approximately $1,869,000. The Company has accrued its estimated share of the remaining cleanup cost which is not considered significant. The Company has also filed a claim against its insurers. Pursuant to a consent decree entered into in November 1991 with the U.S. Department of Justice, the Company has agreed to close and remediate a landfill leased by the Company and formerly used for the disposal of spent foundry sands. The Company provided for remediation costs associated with this landfill. During 1995, remedial action required by the consent decree was completed, and the EPA approved the Remedial Action Report submitted by the Company. The Company's remaining obligations under the consent decree include periodic inspections, monitoring and maintenance as needed. The Company has also been named as a PRP, along with numerous parties, at various hazardous waste sites undergoing cleanup or investigation for cleanup. The Company believes that at each of these sites, it has been improperly named or will be considered to be a "de minimis" party. 34 ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The Company is a defendant in an action where a private party seeks recovery of costs associated with an environmental cleanup at a site formerly owned by the Company. At this site, which the Company or one of its subsidiaries owned from 1968 until 1976, the plaintiff and current owner seeks to recover in excess of $1,500,000 from the Company and other defendants. The estimated present value of a remediation plan proposed by the state environmental agency is approximately $1,900,000. The Company has denied liability and asserted a counter-claim against plaintiff and cross-claims against the co-defendants. The Company is in the process of investigating or has determined the need to perform environmental remediation or clean up at certain manufacturing sites formerly operated and still owned by the Company. At the sites where the Company has determined that some remediation or cleanup is required, the Company has provided for the estimated cost for such remediation or cleanup. One site, located in Coldwater, Ohio, is under contract to be sold to the purchaser of the White-New Idea business. That sale is contingent on completion of an environmental study (now in progress), remediation, if any, determined by the Company's independent consultant to be necessary, and the issuance of a covenant not to sue and related no further action letters by the State of Ohio under the Ohio Voluntary Action Program. Following the completion of the sale of the White-New Idea business in 1993, an independent consultant retained by the Company indicated cleanup costs at the site could range from $500,000 to $5,300,000. The Company provided in 1994 and 1993 for amounts equal to the lower value of this range. The Company is discussing financial contribution with the prior owner of the facility for any cleanup costs as a significant portion of the environmental conditions under review existed prior to the Company's ownership of the facility. During 1996, 1995 and 1994, the Company recorded provisions (credits) of approximately $(418,000), $921,000 and $1,383,000, respectively, toward various environmental matters discussed above. At December 31, 1996, the Company has accruals, including those discussed above, of $2,020,000 for the estimated cost to resolve its potential liability with the above and other, less significant, matters. Additional liabilities are possible and the ultimate outcome of these matters may have an effect on the financial position or results of operations in a future period. However, the Company believes that the above accruals are adequate for the resolution of known environmental matters and the outcome of these matters is not expected to have a material adverse effect on the Company's financial position or its ongoing results of operations. OTHER-- In connection with the sale of the business and assets of the Littell division in 1991, the Company entered into a "License Agreement" pursuant to which the Company licensed certain technology to the purchaser for which the purchaser agreed to pay royalties totaling $8,063,000 plus interest, in minimum quarterly installments of $312,500 commencing in November 1992, with a final lump sum payment ($7,342,000) due May 22, 1996. The purchaser's payment obligation is secured by the technology license and is guaranteed by the purchaser's parent. The Company initially recorded this agreement as a long-term note receivable. In 1995, however, the Company established a reserve of $7,699,000 (reduced to $7,165,000 at December 31, 1996) against the receivable, due to published adverse financial information about the purchaser and its parent which raised serious concerns about the collectability of the receivable. Through the end of the third quarter of 1994, the Company received the required minimum quarterly payments, usually 30 days after the due date. During the fourth quarter of 1994, the purchaser withheld payment of the minimum quarterly payment beyond 30 days and asserted that the Company had violated certain non-compete and non-referral covenants contained in the license agreement. On March 10, 1995, the purchaser filed an action in the Circuit Court of Cook County, Illinois, seeking a reduction in royalties of approximately $8,000,000 and unspecified damages for 35 ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) alleged breach of contract. At December 31, 1996, the amounts due the Company under this agreement is approximately $8,415,000, plus interest accruing from May 22, 1996 at the contract rate of 10%. During 1995, as noted above, the Company made provisions against the collectability of this receivable. After taking into consideration counsel's evaluation of the above facts, the Company is of the opinion that the outcome of this action would not have a significant adverse effect on the Company's consolidated financial statements. The Company is involved in a number of other legal proceedings as a defending party, including product liability claims for which additional liability is reasonably possible. It is the Company's policy to reserve on a non-discounted basis for all known product liability claims, with necessary reserves ($3,168,000 and $2,342,000 at December 31, 1996 and 1995, respectively) determined in consultation with independent insurance companies and legal counsel. Payment of these claims may take place over the next several years. Additional liabilities are possible and the ultimate outcome of these matters may have an effect on the financial position or results of operations in a future period. However, after consideration of relevant data, including insurance coverage and accruals, management believes that the eventual outcome of these matters will not have a material adverse effect on the Company's financial position or its ongoing results of operations. At December 31, 1996, the Company was contingently liable for approximately $2,300,000 primarily relating to outstanding letters of credit. The Company has entered into agreements with certain executive officers of the Company which provide that, if within one year following a defined change in ownership or control of the Company there shall be an involuntary termination of such executive's employment, or if there shall be defined patterns of activity during such period by the Company causing such executive to resign, then, subject to prevailing tax laws and regulations, the executive shall be entitled to payments equal to approximately three years' compensation. 11. OPERATIONS BY INDUSTRY SEGMENT: The Company's operations involve a single industry segment as described in Note 1. Approximately 16%, 11% and 2% of the Company's net sales from continuing operations in 1996, 1995 and 1994, respectively, were exported principally to Canada and Mexico. Approximately 39%, 29% and 14% of the Company's net sales from continuing operations in 1996, 1995 and 1994, respectively, were derived from sales to the three major U.S. automobile manufacturers. 36 ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 12. SUMMARY OF OTHER (INCOME) EXPENSE: Other (income) expense consists of the following:
YEAR ENDED DECEMBER 31, ---------------------------------------------- 1996 1995 1994 -------------- -------------- -------------- Interest income................................................... $ (112,000) $ (437,000) $ (1,293,000) Goodwill amortization............................................. 177,000 2,068,000 2,067,000 Loan cost expenses/amortization................................... 333,000 440,000 563,000 Environmental related expenses (credits).......................... (418,000) 1,110,000 410,000 Net gain on sales of operating and non-operating assets........... (106,000) (2,000,000) (222,000) Provision (credit) for collectability (recovery) of long-term note receivable (Note 10)............................................. (534,000) 7,699,000 -- Idle facility income.............................................. (147,000) (30,000) (361,000) Litigation settlements/insurance provisions....................... 1,512,000 (1,125,000) -- Other miscellaneous............................................... (74,000) (242,000) 34,000 -------------- -------------- -------------- $ 631,000 $ 7,483,000 $ 1,198,000 -------------- -------------- -------------- -------------- -------------- --------------
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 37 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY See the Company's Proxy Statement incorporated by reference as part of this Part III, under the caption "Proposal 1: Election of Directors" for information with respect to the directors. In addition, see the information under the caption "Executive Officers of the Company" as part of Part I, Item 1 of this Report which is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION See the Company's Proxy Statement incorporated by reference as part of Part III, Item 10 of this report, under the captions "Management Compensation" for information with respect to executive compensation. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (a) Security Ownership of Certain Beneficial Owners. See the Company's Proxy Statement incorporated by reference as part of Part III, Item 10 of this report, under the captions "Outstanding Stock and Voting Rights", "Beneficial Owners" and "Principal Stockholders and Management Ownership" for information with respect to the ownership of certain beneficial owners of Common Stock of the Company. (b) Security Ownership of Management. See the Company's Proxy Statement incorporated by reference as part of Part III, Item 10 of this report, under the caption "Principal Stockholders and Management Ownership" for information with respect to the beneficial ownership by management of capital stock of the Company. (c) Changes in Control. There is no arrangement known to the Company, the operation of which may at a subsequent date result in a change in control of the Company. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS See the Company's Proxy Statement incorporated by reference as part of Part III, Item 10 of this report, under the captions "Proposal 1: Election of Directors" and "Management Compensation" for information with respect to certain relationships and related transactions with management. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. FINANCIAL STATEMENTS Included in Part II of this report: Report of Independent Accountants Consolidated statements of income for the years ended December 31, 1996, 1995 and 1994 Consolidated balance sheets as of December 31, 1996 and 1995 Consolidated statements of cash flows for the years ended December 31, 1996, 1995 and 1994 Consolidated statements of shareholders' investment for the years ended December 31, 1996, 1995 and 1994 Notes to consolidated financial statements (a) 2. FINANCIAL STATEMENT SCHEDULES Included in Part IV of this report: Schedule II--Valuation and qualifying accounts for the years ended December 31, 1996, 1995 and 1994 38 (a) 3. EXHIBITS The following exhibits are incorporated by reference as noted below: 3(a) The Registrant's Restated Certificate of Incorporation, as amended, is incorporated by reference to Exhibit 3 of the Company's 1988 Annual Report on Form 10-K (File No. 1-5530). 3(b) The Registrant's Amendments to Restated Certificate of Incorporation is incorporated by reference to Exhibit 3 of the Company's 1990 Annual Report on Form 10-K (File No. 1-5530). 3(c) The Registrant's By-Laws of the Company, as amended, are incorporated by reference to Exhibit 3 of the Company's 1989 Annual Report on Form 10-K (File No. 1-5530). 10(a) The Registrant's 1977 Incentive Stock Plan is incorporated by reference to Exhibit 10(a) of the Company's 1980 Annual Report on Form 10-K (File No. 1-5530). 10(b) The Registrant's SMART Plan is incorporated by reference to Exhibit 10(d) of the Company's 1984 Annual Report on Form 10-K (File No. 1-5530). 10(c) The Registrant's 1990 Long-Term Incentive Stock Plan is incorporated by reference to Exhibit 10 of the Company's 1991 Annual Report on Form 10-K (File No. 1-5530). 10(d) The Registrant's Agreement for the sale of the assets of the White-New Idea Farm Equipment Division of Allied Products Corporation is incorporated by reference to Exhibit(c)(2)(a)(i) of the Company's report on Form 8-K dated January 14, 1994 (File No. 1-5530). 10(e) The Registrant's Credit Agreement dated as of March 17, 1994 among Allied Products Corporation, the Banks Named Herein and Continental Bank N.A., individually and as agent is incorporated by reference to Exhibit 10(I) of the Company's report on Form 8-K dated April 8, 1994 (File No. 1-5530). 10(f) The Registrant's Allied Products Corporation Executive Retirement Plan dated April 4, 1994 is incorporated by reference to Exhibit 10(a) of the Company's 1994 Annual Report on Form 10-K (File No. 1-5530). 10(g) The Registrant's Executive Officer's Agreement in Event of Change in Control or Ownership of Allied Products Corporation dated April 1, 1994 is incorporated by reference to Exhibit 10(b) of the Company's 1994 Annual Report on Form 10-K (File No. 1-5530). 10(h) The Registrant's Second Amendment to Credit Agreement dated February 15, 1995 is incorporated by reference to Exhibit 10(c) of the Company's 1994 Annual Report on Form 10-K (File No. 1-5530). 10(i) The Registrant's Allied Products Corporation Retirement Plan dated as of December 31, 1993 is incorporated by reference to Exhibit 10(d) of the Company's 1994 Annual Report on Form 10-K (File No. 1-5530). 10(j) The Registrant's Bush Hog Segment of the Allied Products Corporation Combined Retirement Plan effective December 31, 1993 is incorporated by reference to Exhibit 10(e) of the Company's 1994 Annual Report on Form 10-K (File No. 1-5530). 10(k) The Registrant's Verson Segment of the Allied Products Corporation Combined Retirement Plan effective December 31, 1993 is incorporated by reference to Exhibit 10(f) of the Company's 1994 Annual Report on Form 10-K (File No. 1-5530). 10(l) The Registrant's Littell Segment of the Allied Products Corporation Combined Retirement Plan effective December 31, 1993 is incorporated by reference to Exhibit 10(g) of the Company's 1994 Annual Report on Form 10-K (File No. 1-5530).
39 The following exhibits are attached only to the copies of this report filed with the Securities and Exchange Commission:
EXHIBIT NO. NAME OF EXHIBIT - --------------- -------------------------------------------------------------------------------------- 10A Material Contract--Amended and Restated Credit Agreement. 10B Material Contract--Consent to Stock Repurchases. 11 Computation of Earnings per Share. 21 Subsidiaries of the Registrant. 23 Consent of Independent Accountants. 24 Power of Attorney. 27 Financial Data Schedule.
Other financial statements, schedules and exhibits not included above have been omitted as inapplicable or because the required information is included in the consolidated financial statements or notes thereto. (b) REPORTS ON FORM 8-K No reports on Form 8-K were filed by the Company during the fourth quarter of the year ended December 31, 1996. ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
YEAR ENDED DECEMBER 31, --------------------------------------------- 1996 1995 1994 - ----------------------------------------------------------------------------------------- Allowance for doubtful accounts-- Current receivables: Balance at beginning of year.......... $ 948,000 $ 1,521,000 $ 1,996,000 Add (deduct)-- Provision charged to income......... 214,000 451,000 256,000 Receivables charged off as bad debts, net of recoveries........... (533,000) (1,024,000) (731,000) -------------- ------------- -------------- Balance at end of year................ $ 629,000 $ 948,000 $ 1,521,000 -------------- ------------- -------------- -------------- ------------- -------------- Long-term receivables: Balance at beginning of year.......... $ 7,699,000 $ -- $ -- Add (deduct)-- Provision charged to income......... -- 7,699,000 -- Receivable recoveries............... (534,000) -- -- -------------- ------------- -------------- Balance at end of year................ $ 7,165,000 $ 7,699,000 $ -- -------------- ------------- -------------- -------------- ------------- --------------
40 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ALLIED PRODUCTS CORPORATION (Registrant) By: /s/ RICHARD A. DREXLER --------------------------------------- Richard A. Drexler, CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER March 12, 1997 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. * /s/ [RICHARD A. DREXLER] ---------------------------------------------- Richard A. Drexler, CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER; DIRECTOR * /s/ [KENNETH B. LIGHT] ---------------------------------------------- Kenneth B. Light, EXECUTIVE VICE PRESIDENT, CHIEF FINANCIAL AND ADMINISTRATIVE OFFICER; DIRECTOR * /s/ [ROBERT J. FLECK] ---------------------------------------------- Robert J. Fleck, VICE PRESIDENT--ACCOUNTING AND CHIEF ACCOUNTING OFFICER March 12, 1997 * /s/ [LLOYD DREXLER] ---------------------------------------------- Lloyd Drexler, DIRECTOR * /s/ [WILLIAM D. FISCHER] ---------------------------------------------- William D. Fischer, DIRECTOR * /s/ [STANLEY J. GOLDRING] ---------------------------------------------- Stanley J. Goldring, DIRECTOR * /s/ [JOHN E. JONES] ---------------------------------------------- John E. Jones, DIRECTOR * /s/ [JOHN W. PUTH] ---------------------------------------------- John W. Puth, DIRECTOR * /s/ [MITCHELL I. QUAIN] ---------------------------------------------- Mitchell I. Quain, DIRECTOR
41 * /s/ [S. S. SHERMAN] ---------------------------------------------- S. S. Sherman, DIRECTOR * By: /s/ [DAVID B. CORWINE] ------------------------------------------- David B. Corwine, ATTORNEY-IN-FACT
42 EX-10.A 2 AMENDED & REINSTATED CREDIT AGREEMENT EXHIBIT 10A - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- AMENDED AND RESTATED CREDIT AGREEMENT dated as of August 23, 1996 among ALLIED PRODUCTS CORPORATION, THE BANKS NAMED HEREIN and BANK OF AMERICA ILLINOIS, individually and as Agent - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- TABLE OF CONTENTS
Page No. -------- SECTION 1 COMMITMENTS OF THE BANKS; TYPES OF LOANS; LETTER OF CREDIT, BORROWING AND CONVERSION PROCEDURES. . . . . . . . . . . . 1 1.1 Commitments. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.1.1 Revolving Loan Commitment . . . . . . . . . . . . . . . . . 1 1.1.2 Letter of Credit Commitments. . . . . . . . . . . . . . . . 2 1.1.3 Commitment Limits . . . . . . . . . . . . . . . . . . . . . 2 1.2 Various Types of Loans . . . . . . . . . . . . . . . . . . . . . . 2 1.3 Borrowing Procedures . . . . . . . . . . . . . . . . . . . . . . . 2 1.4 Conversion Procedures . . . . . . . . . . . . . . . . . . . . . . 3 1.5 Pro Rata Treatment . . . . . . . . . . . . . . . . . . . . . . . . 4 1.6 Letter of Credit Procedures . . . . . . . . . . . . . . . . . . . 4 1.7 Participation in Letters of Credit . . . . . . . . . . . . . . . . 4 1.8 Reimbursement Obligations . . . . . . . . . . . . . . . . . . . . 5 1.9 Limitation on BAI's Obligations . . . . . . . . . . . . . . . . . 5 1.10 Funding by Banks to BAI . . . . . . . . . . . . . . . . . . . . . 5 1.11 Cash Collateral . . . . . . . . . . . . . . . . . . . . . . . . . 6 1.12 Warranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 1.13 Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 SECTION 2 NOTES EVIDENCING LOANS . . . . . . . . . . . . . . . . . . . . . . 7 2.1 Revolving Notes . . . . . . . . . . . . . . . . . . . . . . . . . 7 2.2 Recordation of Loans . . . . . . . . . . . . . . . . . . . . . . . 7 2.3 Replacement Notes . . . . . . . . . . . . . . . . . . . . . . . . 7 SECTION 3 INTEREST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 3.1 Interest Rates . . . . . . . . . . . . . . . . . . . . . . . . . . 7 3.2 Interest Payment Dates . . . . . . . . . . . . . . . . . . . . . . 8 3.3 Interest Periods . . . . . . . . . . . . . . . . . . . . . . . . . 8 3.4 Setting and Notice of Eurodollar Rates . . . . . . . . . . . . . . 9 3.5 Computation of Interest . . . . . . . . . . . . . . . . . . . . . 9 SECTION 4 RESERVED . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 SECTION 5 FEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 5.1 Letter of Credit Fees . . . . . . . . . . . . . . . . . . . . . . 9 5.2 Facility Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 5.3 Upper Usage Fee . . . . . . . . . . . . . . . . . . . . . . . . . 11 5.4 Agent's Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 SECTION 6 REDUCTION OR TERMINATION OF THE COMMITMENTS; VOLUNTARY PREPAYMENTS. . . . . . . . . . . . . . . . . . . . . . . 11 6.1 Reduction or Termination of the Commitments . . . . . . . . . . . 11 6.2 Voluntary Prepayments . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 7 MAKING AND PRORATION OF PAYMENTS; SETOFF . . . . . . . . . . . . . 12 7.1 Making of Payments. . . . . . . . . . . . . . . . . . . . . . . . . 12 7.2 Application of Certain Payments . . . . . . . . . . . . . . . . . . 12 7.3 Due Date Extension. . . . . . . . . . . . . . . . . . . . . . . . . 12 7.4 Setoff. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 7.5 Proration of Payments . . . . . . . . . . . . . . . . . . . . . . . 13 8.1 Increased Costs . . . . . . . . . . . . . . . . . . . . . . . . . . 14 8.2 Basis for Determining Interest Rate Inadequate or Unfair . . . . . . 15 8.3 Changes in Law Rendering Certain Loans Unlawful . . . . . . . . . . 16 8.4 Funding Losses. . . . . . . . . . . . . . . . . . . . . . . . . . . 16 8.5 Right of Banks to Fund through Other Offices. . . . . . . . . . . . 17 8.6 Discretion of Banks as to Manner of Funding . . . . . . . . . . . . 17 8.7 Conclusiveness of Statements; Survival of Provisions. . . . . . . . 17 SECTION 9 WARRANTIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 9.1 Organization and Qualification . . . . . . . . . . . . . . . . . . 17 9.2 Authorization: No Conflict and Validity of Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 9.3 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 9.4 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . 18 9.5 No Material Adverse Change . . . . . . . . . . . . . . . . . . . . 18 9.6 Litigation and Contingent Liabilities. . . . . . . . . . . . . . . 18 9.7 Liens. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 9.8 Pension and Welfare Plans. . . . . . . . . . . . . . . . . . . . . 19 9.9 Investment Company Act . . . . . . . . . . . . . . . . . . . . . . 19 9.10 Regulation U . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 9.11 Approvals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 9.12 Company's Material Agreements. . . . . . . . . . . . . . . . . . . 20 9.13 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 9.14 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 9.15 Business Locations . . . . . . . . . . . . . . . . . . . . . . . . 20 9.16 Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . 20 9.17 Environmental Matters. . . . . . . . . . . . . . . . . . . . . . . 20 9.18 Treatment and Storage. . . . . . . . . . . . . . . . . . . . . . . 21 9.19 Compliance With Laws . . . . . . . . . . . . . . . . . . . . . . . 21 9.20 Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 SECTION 10 COVENANTS.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 10.1 Reports, Certificates and Other Information. . . . . . . . . . . . 21 10.1.1 Audit Report . . . . . . . . . . . . . . . . . . . . . . . . 21 10.1.2 Quarterly Reports . . . . . . . . . . . . . . . . . . . . . 22 10.1.3 Monthly Reports . . . . . . . . . . . . . . . . . . . . . . 22 10.1.4 Compliance Certificates . . . . . . . . . . . . . . . . . . 22 10.1.5 Reports to SEC and to Shareholders. . . . . . . . . . . . . 22 10.1.6 Notice of Default, Litigation and ERISA Matters . . . . . . . . . . . . . . . . . . . . . . . . . . 22
-ii- 10.1.7 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . 23 10.1.8 Projections . . . . . . . . . . . . . . . . . . . . . . . . 23 10.1.9 Other Information . . . . . . . . . . . . . . . . . . . . . 23 10.2 Books, Records and Inspections . . . . . . . . . . . . . . . . . . 23 10.3 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 10.4 Taxes and Liabilities. . . . . . . . . . . . . . . . . . . . . . . 23 10.5 Net Worth. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 10.6 Funded Debt/Operating Cash Flow Ratio. . . . . . . . . . . . . . . 24 10.7 Fixed Charge Coverage. . . . . . . . . . . . . . . . . . . . . . . 24 10.8 Minimum Debt Coverage. . . . . . . . . . . . . . . . . . . . . . . 24 10.9 Purchase or Redemption of Company's Securities; Divided Restrictions . . . . . . . . . . . . . . . . . . . . . . . 24 10.10 Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 10.11 Liens. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 10.12 Guaranties, Loans or Advances. . . . . . . . . . . . . . . . . . . 25 10.13 Mergers, Consolidations, Sales . . . . . . . . . . . . . . . . . . 26 10.14 Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 10.15 Environmental Covenants.. . . . . . . . . . . . . . . . . . . . . 28 10.15.1 Environmental Response Obligation. . . . . . . . . . . . . 28 10.15.2 Environmental Liabilities. . . . . . . . . . . . . . . . . 28 10.16 Unconditional Purchase Obligations. . . . . . . . . . . . . . . . 29 10.17 Employee Benefit Plans. . . . . . . . . . . . . . . . . . . . . . 29 10.18 Regulation U. . . . . . . . . . . . . . . . . . . . . . . . . . . 29 10.19 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . 29 10.20 Significant Subsidiary. . . . . . . . . . . . . . . . . . . . . . 29 10.21 Other Agreements. . . . . . . . . . . . . . . . . . . . . . . . . 29 10.22 Compliance With Laws. . . . . . . . . . . . . . . . . . . . . . . 30 SECTION 11 EFFECTIVENESS; CONDITIONS OF LENDING. . . . . . . . . . . . . . . 30 11.1 Effectiveness. . . . . . . . . . . . . . . . . . . . . . . . . . . 30 11.1.1 Revolving Notes . . . . . . . . . . . . . . . . . . . . . . 30 11.1.2 [Reserved]. . . . . . . . . . . . . . . . . . . . . . . . . 30 11.1.3 Resolutions . . . . . . . . . . . . . . . . . . . . . . . . 30 11.1.4 Consents and Approvals. . . . . . . . . . . . . . . . . . . 30 11.1.5 Incumbency and Signatures . . . . . . . . . . . . . . . . . 30 11.1.6 Opinions of Counsel for the Company . . . . . . . . . . . . 31 11.1.7 Other Documents . . . . . . . . . . . . . . . . . . . . . . 31 11.2 All Loans and Letters of Credit. . . . . . . . . . . . . . . . . . 31 11.2.1 No Default. . . . . . . . . . . . . . . . . . . . . . . . . 31 11.2.2 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . 31 SECTION 12 EVENTS OF DEFAULT AND THEIR EFFECT. . . . . . . . . . . . . . . . 32 12.1 Events of Default. . . . . . . . . . . . . . . . . . . . . . . . . 32 12.1.1 Non-Payment of Notes, etc . . . . . . . . . . . . . . . . . 32 12.1.2 Non-Payment of Other Indebtedness for Borrowed Money. . . . 32 12.1.3 Other Material Obligations. . . . . . . . . . . . . . . . . 32 12.1.4 Bankruptcy, Insolvency. . . . . . . . . . . . . . . . . . . 32 12.1.5 Non-Compliance with This Agreement. . . . . . . . . . . . . 33 12.1.6 Warranties. . . . . . . . . . . . . . . . . . . . . . . . . 33
-iii- 12.1.7 Pension Plans . . . . . . . . . . . . . . . . . . . . . . . 33 12.1.8 Material Adverse Change . . . . . . . . . . . . . . . . . . 33 12.1.9 Change of Control . . . . . . . . . . . . . . . . . . . . . 33 12.2 Effect of Event of Default . . . . . . . . . . . . . . . . . . . . 33 SECTION 13 CERTAIN DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . 34 SECTION 14 THE AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 14.1 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . . 45 14.2 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . 45 14.3 Exculpation. . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 14.4 Credit Investigation . . . . . . . . . . . . . . . . . . . . . . . 46 14.5 Agent and Affiliates . . . . . . . . . . . . . . . . . . . . . . . 46 14.6 Resignation. . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 SECTION 15 GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 15.1 Waiver; Amendments . . . . . . . . . . . . . . . . . . . . . . . . 47 15.2 Confirmations. . . . . . . . . . . . . . . . . . . . . . . . . . . 48 15.3 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 15.4 Computations . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 15.5 Regulation U . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 15.6 Costs, Expenses and Taxes. . . . . . . . . . . . . . . . . . . . . 48 15.7 Subsidiary References. . . . . . . . . . . . . . . . . . . . . . . 49 15.8 Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 15.9 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . 49 15.10 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . 50 15.11 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . 50 15.12 Successors and Assigns. . . . . . . . . . . . . . . . . . . . . . 50 15.13 Waiver of Jury Trial. . . . . . . . . . . . . . . . . . . . . . . 50 15.14 Securities Laws . . . . . . . . . . . . . . . . . . . . . . . . . 50
Exhibits - -------- Exhibit A Commitment Limits and Percentages Exhibit B Revolving Note Exhibit C Opinion of Counsel (1) (1) Not filed as part of Exhibit 10A. -iv- Schedules - --------- 9.1 Foreign Jurisdictions (1) 9.3 Subsidiaries (1) 9.4 Financial Statements (1) 9.5 Adverse Change (1) 9.6 Litigation (1) 9.8 Pension and Welfare (1) 9.14 Insurance (1) 9.15 Business Locations (1) 9.17 Environmental Matters (1) 9.18 Treatment and Storage (1) 10.1.3 Monthly Reports (1) 10.10 Indebtedness (1) 10.11 Liens (1) 10.14 Investments (1) (1) Not filed as part of Exhibit 10A. -v- AMENDED AND RESTATED CREDIT AGREEMENT Dated as of August 23, 1996 THIS AMENDED AND RESTATED CREDIT AGREEMENT, dated as of August 23, 1996 (herein, as amended or otherwise modified from time to time, called this "Agreement"), is entered into among ALLIED PRODUCTS CORPORATION, a Delaware corporation (herein called the "Company"), the undersigned banks (together with BAI herein collectively called the "Banks" and individually each called a "Bank"), and BANK OF AMERICA ILLINOIS, an Illinois banking corporation (herein, in its individual capacity, called "BAI") and as agent for the Banks (herein, in such capacity, called the "Agent"). Certain terms are used in this Agreement as hereinafter defined. W I T N E S S E T H: WHEREAS, the Company and the Banks are party to a Credit Agreement, dated as of March 17, 1994 (as amended to date, the "Existing Credit Agreement"), whereby the Banks have agreed to make loans and certain other financial accommodations to the Company; and WHEREAS, the Company and the Banks desire to amend and restate the Existing Credit Agreement in its entirety, subject to the terms and conditions of this Agreement as hereinafter set forth. NOW, THEREFORE, in consideration of the premises and the mutual agreements herein contained, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree that as of the Effective Date the Existing Credit Agreement is amended and restated in its entirety, as follows: SECTION 1 COMMITMENTS OF THE BANKS; TYPES OF LOANS; LETTER OF CREDIT, BORROWING AND CONVERSION PROCEDURES. SECTION 1.1 COMMITMENTS. On and subject to the terms and conditions of this Agreement, each of the Banks, severally and for itself alone, agrees to make loans to the Company as follows: SECTION 1.1.1 REVOLVING LOAN COMMITMENT. Loans on a revolving basis (herein collectively called the "Revolving Loans" and each individually called a "Revolving Loan") from time to time before the Revolving Termination Date in such Bank's Percentage of such aggregate amounts as the Company may from time to time request from all Banks, subject to the terms and conditions of this Agreement. SECTION 1.1.2 LETTER OF CREDIT COMMITMENTS. (a) BAI and the Banks agree that BAI will issue documentary and standby letters of credit containing such terms and conditions as shall be permitted pursuant to this Agreement and reasonably satisfactory to BAI (herein collectively called the "Letters of Credit" and each individually called a "Letter of Credit") at the request of and for the account of the Company from time to time before the Revolving Termination Date and (b) as more fully set forth in SECTION 1.7, each Bank agrees to purchase a participation in all such Letters of Credit. SECTION 1.1.3 COMMITMENT LIMITS. Notwithstanding any other provision of this Agreement (a) the aggregate principal amount of the Revolving Loans which all Banks are committed to lend to the Company is $100,000,000 LESS the aggregate Stated Amount of all Letters of Credit; (b) the aggregate Stated Amount of all Letters of Credit shall not at any time, exceed $20,000,000; PROVIDED, HOWEVER that the aggregate principal amount of all outstanding Revolving Loans PLUS the aggregate Stated Amount of all Letters of Credit shall not at any time exceed $100,000,000 (less any reductions made pursuant to SECTION 6.1), and (c) the aggregate principal amount of each Bank's participation in the Revolving Loans shall not exceed the amounts set forth opposite such Bank's name in Column I of EXHIBIT A and the aggregate principal amount of each Bank's participation in all Letters of Credit shall not exceed the amounts set forth opposite such Bank's name in Column II of EXHIBIT A (less any reductions made pursuant to SECTION 6.1). SECTION 1.2 VARIOUS TYPES OF LOANS. Each Revolving Loan shall be either a Floating Rate Loan or a Eurodollar Loan as the Company shall specify in the related notice of borrowing or Conversion pursuant to SECTION 1.3 or 1.4. Eurodollar Loans having the same Interest Period are sometimes called a "Group" or collectively "Groups". Floating Rate Loans and Eurodollar Loans may be outstanding at the same time, it being understood, however, that (i) there shall not at any time be more than three Groups of Eurodollar Loans and (ii) the aggregate principal amount of each Group of Eurodollar Loans shall be at least $500,000 and in an integral multiple of $100,000. SECTION 1.3 BORROWING PROCEDURES. (a) Provided that the conditions in SECTION 11 are satisfied, the Company shall give notice to the Agent of each proposed borrowing by 11:00 A.M., Chicago time, on the proposed date of such borrowing, in the case of a Floating Rate borrowing, and on a Business Day at least two Business Days prior to the proposed date of such borrowing, in the case of a Eurodollar borrowing. Each such notice shall be effective upon receipt by the Agent, shall be in writing (or by telephone to be promptly confirmed in writing by -2- the Company), and shall specify the date, amount and type of borrowing and, in the case of a Eurodollar borrowing, the initial Interest Period for such borrowing. Promptly upon receipt of such notice, but in any event by 12:30 P.M., the Agent shall advise each Bank thereof. Not later than 2:00 P.M. Chicago time, on the date of the proposed borrowing, each Bank shall provide the Agent at the principal office of the Agent in Chicago with immediately available funds covering such Bank's Percentage of the borrowing, and, subject to the satisfaction of the conditions precedent set forth in SECTION 11 with respect to such borrowing, the Agent shall pay over the requested amount to the Company on the requested borrowing date. Each borrowing shall be on a Business Day and shall be in an aggregate amount of at least $500,000 and an integral multiple of $100,000. (b) Unless the Agent shall have received notice from a Bank prior to the proposed date of any borrowing in the case of a Eurodollar borrowing, or prior to 12:30 P.M., Chicago time, on the proposed date of any Floating Rate borrowing, that such Bank will not make available to the Agent such Bank's ratable portion of such borrowing, the Agent may assume that such Bank has made such portion available to the Agent on the date of such borrowing in accordance with SUBSECTION (a) above and the Agent may, in reliance upon such assumption, make available to the Company on such date a corresponding amount. If and to the extent such Bank shall not have so made such ratable portion available to the Agent, such Bank and the Company severally agree to repay to the Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to the Company until the date such amount is repaid to the Agent, (i) in the case of the Company, at the interest rate applicable at the time to the Revolving Loans comprising such borrowing and (ii) in the case of such Bank, at the Federal Funds Rate. If such Bank shall repay to the Agent such corresponding amount, such amount so repaid shall constitute such Bank's Revolving Loan as part of such borrowing for purposes of this Agreement. Nothing in this SUBSECTION (b) shall be deemed to diminish the Commitments of any Bank. (c) The failure of any Bank to make the Revolving Loan to be made by it as part of any borrowing shall not relieve any other Bank of its obligation hereunder to make its Revolving Loan on the date of such borrowing, but no Bank shall be responsible for the failure of any other Bank to make the Revolving Loan to be made by such other Bank on the date of any borrowing. SECTION 1.4 CONVERSION PROCEDURES. Subject to the provisions of SECTION 1.2, the Company may Convert all or any part of any outstanding Revolving Loan into a Revolving Loan of a different type by giving notice to the Agent of such Conversion by 11:00 -3- A.M., Chicago time, on the proposed date of such Conversion, in the case of Conversion into a Floating Rate Loan, and at least two Business Days prior to the proposed date of such Conversion, in the case of Conversion into a Eurodollar Loan. Each such notice shall be effective upon receipt by the Agent, shall be in writing (or by telephone to be promptly confirmed in writing by the Company), shall specify the date and amount of such Conversion, the Revolving Loan or portion thereof to be so Converted, the type of Revolving Loan such Revolving Loan shall be Converted into and, in the case of a Conversion into a Eurodollar Loan, the initial Interest Period. Promptly upon receipt of such notice the Agent shall advise each Bank thereof. Subject to SECTIONS 1.12 and 1.13, such Revolving Loan shall be so Converted on the requested date of Conversion. Each Conversion shall be on a Business Day and shall be in an aggregate principal amount of at least $500,000 and an integral multiple of $100,000. SECTION 1.5 PRO RATA TREATMENT. All borrowings, Conversions and repayments shall be effected so that after giving effect thereto all types and Groups of Revolving Loans shall be pro rata among the Banks according to their respective Percentages. SECTION 1.6 LETTER OF CREDIT PROCEDURES. Provided that the conditions in SECTION 11.2 are satisfied, the Company shall give notice to BAI of the proposed issuance of each Letter of Credit on a Business Day which is at least two (2) Business Days prior to the proposed date of issuance of such Letter of Credit. Each such notice shall be accompanied by a Letter of Credit Application, duly executed by the Company and in all respects satisfactory to BAI, together with such other documentation as BAI may request in support thereof, it being understood that each Letter of Credit Application shall specify, among other things, the date on which the proposed Letter of Credit is to be issued, the expiration date of such Letter of Credit (which shall not extend beyond the earlier of (a) one year from the date of issuance of the Letter of Credit or (b) the Revolving Termination Date) and whether such Letter of Credit is to be transferable in whole or in part. Subject to the satisfaction of the conditions precedent set forth in SECTION 11 with respect to the issuance of such Letter of Credit, BAI shall issue such Letter of Credit on the requested issuance date. SECTION 1.7 PARTICIPATION IN LETTERS OF CREDIT. Concurrently with the issuance of each Letter of Credit, (it being expressly understood that all letter of credit obligations of the Company and Subsidiaries existing before the Effective Date shall be deemed issued as of the Effective Date solely for purposes of this SECTION 1.7) BAI shall notify each Bank of such issuance and shall be deemed to have sold and transferred to each other Bank, and each other Bank shall be deemed irrevocably and unconditionally to have purchased and received from BAI, without recourse or warranty, an -4- undivided interest and participation, to the extent of such other Bank's Percentage, in such Letter of Credit and the Company's reimbursement obligations with respect thereto. For the purpose of this Agreement, the unparticipated portion of each Letter of Credit shall be deemed to be BAI's "participation" therein. BAI hereby agrees to deliver to such Bank a list of outstanding Letters of Credit, copies of such Letters of Credit, Letter of Credit Applications and related documentation as such other Bank may from time to time reasonably request. SECTION 1.8 REIMBURSEMENT OBLIGATIONS. The Company hereby unconditionally and irrevocably agrees to reimburse BAI for each payment or disbursement made by BAI under any Letter of Credit honoring any demand for payment made by the beneficiary thereunder, on the date that such payment or disbursement is made. Any amount not reimbursed on the date of such payment or distribution shall bear interest from and including the date of such payment or disbursement to but not including the date that BAI is reimbursed by the Company therefor, payable monthly in arrears, at a rate per annum equal to the Alternate Reference Rate from time to time in effect (but not less than the Alternate Reference Rate in effect at the date of such payment or disbursement by BAI) PLUS 2% per annum. BAI shall notify the Company whenever any demand for payment is made under any Letter of Credit by the beneficiary thereunder; PROVIDED, however, that the failure of BAI to so notify the Company shall not affect the rights of BAI or the Banks in any manner whatsoever. SECTION 1.9 LIMITATION ON BAI'S OBLIGATIONS. In determining whether to pay under any Letter of Credit, BAI shall have no obligation to the Company or any Bank other than to confirm that any documents required to be delivered under such Letter of Credit appear to have been delivered and that they appear to comply on their face with the requirements of such Letter of Credit. Any action taken or omitted to be taken by BAI under or in connection with any Letter of Credit, if taken or omitted in the absence of gross negligence or willful misconduct, shall not impose upon BAI any liability to the Company or any Bank and shall not reduce or impair the Company's reimbursement obligations set forth in SECTION 1.8 or the funding obligations of the Banks pursuant to SECTION 1.10. SECTION 1.10 FUNDING BY BANKS TO BAI. In the event that BAI makes any payment or disbursement under any Letter of Credit and the Company shall not have reimbursed BAI in full for such payment or disbursement by 10:00 A.M., Chicago time, on the date of such payment or disbursement, or in the event that any reimbursement received by BAI from the Company is or must be returned or rescinded upon or during any bankruptcy or reorganization or otherwise, each Bank shall be obligated to pay to BAI, in full or -5- partial payment of the purchase price of its participation in such Letter of Credit, its pro rata share, according to its Percentage, of such payment or disbursement (but such obligation of the Banks shall not diminish the obligation of the Company under SECTION 1.8), and the Agent shall promptly notify each other Bank thereof. Each other Bank irrevocably and unconditionally agrees to so pay to the Agent in immediately available funds for BAI's account the amount of such other Bank's Percentage of such payment or disbursement. If and to the extent any Bank shall not have made such amount available to the Agent by 2:00 P.M., Chicago time, on the Business Day on which such Bank receives notice from the Agent of such payment or disbursement (it being understood that any such notice received after noon, Chicago time, on any Business Day shall be deemed to have been received on the next following Business Day), such Bank agrees to pay interest on such amount to the Agent for BAI's account forthwith on demand for each day from and including the date such amount was to have been delivered to the Agent to but not including the date such amount is paid, at a rate per annum equal to the Federal Funds Rate. Any Bank's failure to make available to the Agent its Percentage of any such payment or disbursement shall not relieve any other Bank of its obligation hereunder to make available to the Agent such other Bank's Percentage of such payment, but no Bank shall be responsible for the failure of any other Bank to make available to the Agent such other Bank's Percentage of any such payment or disbursement. SECTION 1.11 CASH COLLATERAL. If any Letter of Credit remains outstanding on the Revolving Termination Date, the Company shall deposit with the Agent, as security for all outstanding Letters of Credit and pursuant to documentation in form and substance satisfactory to the Banks, cash collateral in an amount equal to the Stated Amount of all outstanding Letters of Credit, which cash collateral may be placed in an interest bearing account acceptable to the Banks and the Company. SECTION 1.12 WARRANTY. Each notice of borrowing and/or of Conversion pursuant to SECTION 1.3 or 1.4, and the delivery of each Letter of Credit Application pursuant to SECTION 1.6 shall automatically constitute a warranty by the Company to the Agent and each Bank to the effect that on the date of such requested borrowing or Conversion (other than any Conversion from a Eurodollar Loan to a Floating Rate Loan required by SECTION 1.13 or 8.3) or the issuance of the requested Letter of Credit, as the case may be, (a) the warranties of the Company contained in SECTION 9 of this Agreement shall be true and correct as of such requested date as though made on the date thereof and (b) no Event of Default or Unmatured Event of Default shall have then occurred and be continuing or will result therefrom. -6- SECTION 1.13 CONDITIONS. Notwithstanding any other provision of this Agreement, no Bank shall be obligated to make any Revolving Loan or to Convert into or permit the continuation at the end of the applicable Interest Period of any Eurodollar Loan, and BAI shall not be obligated to issue any Letter of Credit, if an Event of Default or Unmatured Event of Default exists or would result therefrom. SECTION 2 NOTES EVIDENCING LOANS. SECTION 2.1 REVOLVING NOTES. The Revolving Loans of each Bank shall be evidenced by a promissory note (herein individually called a "Revolving Note, and collectively for all Banks called the "Revolving Notes"), substantially in the form set forth in EXHIBIT B, with appropriate insertions, dated the Effective Date payable to the order of such Bank in the principal amount of the Revolving Loan Commitment of such Bank (or, if less, in the aggregate unpaid principal amount of such Bank's Revolving Loans). SECTION 2.2 RECORDATION OF LOANS. Each Bank shall record in its records, or at its option on the schedule attached to its Revolving Note, the date and amount of each Revolving Loan made by such Bank, each repayment or Conversion thereof and, in the case of each Eurodollar Loan the dates on which each Interest Period for such Revolving Loan shall begin and end and, in the event that any Bank assigns or transfers its Revolving Note, such Bank shall record on the schedule attached to its Revolving Note, the aggregate unpaid principal amount of Revolving Loans of such Bank on the date of such assignment or transfer. The aggregate unpaid principal amount so recorded shall be rebuttable presumptive evidence of the principal amount owing and unpaid on such Revolving Note. The failure to so record any such amount or any error in so recording any such amount shall not, however, limit or otherwise affect the obligations of the Company hereunder or under any Revolving Note to repay the principal amount of the Revolving Loans evidenced by such Revolving Note together with all interest accruing thereon. SECTION 2.3 REPLACEMENT NOTES. The Revolving Note to each Bank is issued in replacement of the Note ("Existing Note") issued to such Bank under the Existing Credit Agreement. Each Bank is authorized to add to the schedule attached to its Revolving Note the information contained on the schedule attached to its Existing Note. SECTION 3 INTEREST. SECTION 3.1 INTEREST RATES. The Company hereby promises to pay interest on the unpaid principal amount of each Revolving Loan -7- for the period commencing on the date of such Revolving Loan until such Revolving Loan is paid in full, as follows: (a) At all times while such Revolving Loan is a Floating Rate Loan, at a rate per annum equal to the Alternate Reference Rate from time to time in effect; (b) At all times while such Revolving Loan is a Eurodollar Loan, at a rate per annum equal to the Eurodollar Rate (Reserve Adjusted) applicable to each Interest Period for such loan plus the Margin; and (c) Notwithstanding the provisions of the preceding CLAUSES (a) and (b), in the event that any principal of any Revolving Loan is not paid when due (whether by acceleration or otherwise), interest shall accrue after the due date of such principal until such principal is paid, at a rate per annum equal to the applicable interest rate from time to time in effect (but not less than the applicable interest rate in effect for such Revolving Loan as at such due date), plus 2% per annum. SECTION 3.2 INTEREST PAYMENT DATES. Accrued interest on each Floating Rate Loan shall be payable on the last day of each calendar quarter and at maturity, commencing with the first of such dates to occur after the date hereof. Subject to SECTION 3.3 below, accrued interest on each Eurodollar Loan shall be payable on the last day of each Interest Period relating to such Loan and at maturity; provided that accrued interest on any Eurodollar Loan with an Interest Period in excess of 3 months shall also be payable at the end of each three month period of such Interest Period. After maturity, accrued interest on all Revolving Loans shall be payable on demand. SECTION 3.3 INTEREST PERIODS. Each Interest Period for a Eurodollar Loan shall commence on the date such Eurodollar Loan is made or Converted from a Floating Rate Loan, or on the expiration of the immediately preceding Interest Period for such Eurodollar Loan, and shall end on the date which is 1, 2, 3 or 6 months thereafter, as the Company may specify: (a) in the case of an Interest Period which commences on the date a Eurodollar Loan is made or Converted from a Floating Rate Loan, in the related notice of borrowing or Conversion pursuant to SECTION 1.3 or 1.4, or (b) in the case of a succeeding Interest Period with respect to any Eurodollar Loan, by notice to the Agent by 11:00 A.M., Chicago time, at least two Business Days prior to the first day of such succeeding Interest Period, being understood that (i) each such notice shall be effective upon receipt by the Agent and -8- shall be in writing (or by telephone to be promptly confirmed in writing) and (ii) if the Company fails to give such notice, such Eurodollar Loan shall automatically become a Floating Rate Loan at the end of its then-current Interest Period. Each Interest Period for a Eurodollar Loan which would otherwise end on a day which is not a Business Day shall end on the next succeeding Business Day (unless such next succeeding Business Day is the first Business Day of a calendar month, in which case such Interest Period shall end on the next preceding Business Day). Notwithstanding any other provision of this Agreement, the Company may not select any Interest Period that extends beyond the Revolving Termination Date. SECTION 3.4 SETTING AND NOTICE OF EURODOLLAR RATES. The applicable Eurodollar Rate for each Interest Period shall be determined by the Agent, and notice thereof shall be given by the Agent promptly to the Company and each Bank. Each determination of the applicable Eurodollar Rate by the Agent shall be conclusive and binding upon the parties hereto, in the absence of demonstrable error. The Agent shall, upon written request of the Company or any Bank, deliver to the Company or such Bank a statement showing the computations used by the Agent in determining any applicable Eurodollar Rate hereunder. SECTION 3.5 COMPUTATION OF INTEREST. Interest shall be computed for the actual number of days elapsed on the basis of a year of 360 days. The applicable interest rate under CLAUSES (a) and (c) of SECTION 3.1 shall (to the extent applicable in the case of CLAUSE (c)) change simultaneously with each change in the Alternate Reference Rate. SECTION 4 RESERVED. [Reserved] SECTION 5 FEES. SECTION 5.1 LETTER OF CREDIT FEES. (a) The Company agrees to pay to the Agent for the account of the Banks pro rata according to their respective Percentages a letter of credit fee for each Letter of Credit in an amount equal to the applicable Margin at the time of issuance of such Letter of Credit (computed for the actual number of days elapsed on the basis of a year of 360 days) of the face amount of such Letter of Credit, such fee to be payable in arrears on the last day of each calendar quarter and on the Revolving Termination Date for the period from and including the date of the issuance of such Letter of Credit to -9- and including such payment date or the date upon which such Letter of Credit expired or was terminated. (b) In addition, with respect to each Letter of Credit, the Company agrees to pay to BAI such fees and expenses as BAI shall customarily require in connection with the issuance, negotiation, processing and/or administration of letters of credit in similar situations, including, but not limited to, an agency administration fee for each Letter of Credit in an amount equal to 1/4% per annum (computed for the actual number of days elapsed on the basis of a 360 day year) of the face amount of such Letter of Credit, payable in arrears on the last day of each calendar quarter and on the Revolving Termination Date for the period from and including the date of the issuance of such Letter of Credit to and including such date or the date upon which such Letter of Credit expired or was terminated. SECTION 5.2 FACILITY FEE. The Company agrees to pay each Bank a facility fee, for the period from and including the Effective Date to and including the Revolving Termination Date, on the total Commitment (whether used or unused) (as may be reduced by Section 6.1). Such facility fee shall be payable in arrears on the last day of each Fiscal Quarter and on the Revolving Termination Date for any period then ending for which such facility fee shall not have been theretofore paid. The facility fee shall be computed for any period at the applicable facility fee rate set forth below for the actual number of days elapsed on the basis of a year of 360 days. Funded Debt/Operating Cash Flow Ratio Facility Fee Rate --------------------- ----------------- =< 1.0 0.225 % > 1.0 but =< 1.5 0.250 % > 1.5 but =< 2.0 0.300 % > 2.0 but =< 2.5 0.325 % > 2.5 but =< 3.0 0.350 % The applicable facility fee rate shall be adjusted, to the extent applicable, 45 days (or in the case of the last Fiscal Quarter of any Fiscal Year, 90 days) after the end of each Fiscal Quarter beginning on the 45th day after the first Fiscal Quarter ending after the Effective Date, based on the Funded Debt/Operating Cash Flow Ratio as of the last day of such Fiscal Quarter; IT BEING UNDERSTOOD that if the Company fails to deliver the certificate required by SECTION 10.1.4 by the 45th day (or, if applicable, the 90th day) after any Fiscal Quarter, the applicable facility fee rate shall be 0.350% per annum until such certificate is delivered. The initial facility fee rate shall be 0.225% per annum. -10- SECTION 5.3 UPPER USAGE FEE. The Company agrees to pay an upper usage fee of 1/8 of 1% per annum on the amount by which the average daily used amount of the total Commitment exceeds $50,000,000. Such upper usage fee shall be payable in arrears on the last day of each Fiscal Quarter and on the Revolving Termination Date for any period then ending for which such upper usage fee shall not have been theretofore paid. The upper usage fee shall be computed for the actual number of days elapsed on the basis of a year of 360 days. SECTION 5.4 AGENT'S FEE. The Company agrees to pay to the Agent for its own account an annual agent's fee pursuant to the terms of a letter agreement between the Company and the Agent. SECTION 6 REDUCTION OR TERMINATION OF THE COMMITMENTS; VOLUNTARY PREPAYMENTS. SECTION 6.1 REDUCTION OR TERMINATION OF THE COMMITMENTS. The Company may from time to time prior to the Revolving Termination Date on at least five Business Days, prior written notice received by the Agent (which shall promptly advise each Bank thereof) permanently reduce the amount of the Revolving Loan Commitments and/or the Letter of Credit Commitments (such reduction to be pro rata among the Banks according to their respective Percentages) to an amount not less than (i) the sum of the aggregate unpaid principal amount of the Revolving Loans then outstanding in the case of a reduction in the Revolving Loan Commitments, or (ii) the aggregate Stated Amount of all Letters of Credit then outstanding, in the case of a reduction in the Letter of Credit Commitments. Any such reduction shall be in an aggregate amount of at least $500,000 and an integral multiple of $500,000. The Company may at any time on like notice terminate the Revolving Loan Commitments and/or the Letter of Credit Commitments upon payment in full of the Revolving Notes and all other obligations of the Company hereunder in respect of the Revolving Loans or, in the case of obligations arising with respect to the Letters of Credit, upon cash collateralization thereof in full pursuant to documentation in form and substance satisfactory to the Banks. SECTION 6.2 VOLUNTARY PREPAYMENTS. The Company may from time to time prepay the Revolving Loans in whole or in part, provided that (a) the Company shall give the Agent (which shall promptly advise each Bank) notice thereof no later than (i) 11:00 A.M., Chicago time, on the proposed date of prepayment with respect to Floating Rate Loans and (ii) three Business Days' prior to the proposed date of prepayment with respect to Eurodollar Loans, specifying the Revolving Loans to be prepaid and the date and amount of prepayment, (b) any prepayment of a Eurodollar Loan prior to the end of the Interest Period relating thereto shall be subject to SECTION 8.4, (c) each partial prepayment shall be in a principal -11- amount of at least $250,000 and an integral multiple of $250,000, and (d) any prepayment of any Eurodollar Loan or of the entire principal amount of all Floating Rate Loans shall include accrued interest to the date of prepayment. SECTION 7 MAKING AND PRORATION OF PAYMENTS; SETOFF. SECTION 7.1 MAKING OF PAYMENTS. All payments (including those made pursuant to SECTION 6.2) of principal of, or interest on, the Revolving Loans shall be made by the Company to the Agent in immediately available funds for the account of the holders of the Revolving Notes pro rata according to their respective Percentage of the unpaid principal amount of the Revolving Loans. All payments of Letter of Credit fees pursuant to SECTIONS 5.1(a) AND 5.2 shall be made by the Company to the Agent for the account of the Banks. All payments of Letter of Credit fees and expenses pursuant to SECTION 5.1(b) shall be made to the Agent for the account of BAI. All such payments shall be made to the Agent at its office in Chicago not later than noon, Chicago time, on the date due; and funds received after that time shall be deemed to have been received by the Agent on the next following Business Day. The Company hereby authorizes the Agent to charge any demand deposit account maintained by the Company with BAI for the amount of any such payment on the due date therefor, but the Agent's failure to so charge such account shall in no way affect the obligation of the Company to make any such payment. The Agent shall notify the Company after any charge is so made by the Agent against any demand deposit account maintained by the Company with BAI; PROVIDED that the failure of the Agent to so notify the Company shall not affect the rights of the Agent or the Banks in any manner whatsoever. The Agent shall promptly remit to each Bank or other holder of a Revolving Note its share of all such payments received in collected funds by the Agent for the account of such Bank or holder. All payments under SECTIONS 8.1 and 8.4 shall be made by the Company directly to the Bank or Banks entitled thereto. SECTION 7.2 APPLICATION OF CERTAIN PAYMENTS. Each payment of principal shall be applied to such Revolving Loans as the Company shall direct by notice to be received by the Agent on or before the date of such payment, or in the absence of such notice, as the Agent shall determine in its discretion. Concurrently with each remittance to any Bank of its share of any such payment the Agent shall advise such Bank as to the application of such payment. SECTION 7.3 DUE DATE EXTENSION. If any payment of principal or interest with respect to any of the Revolving Loans or the Notes falls due on a Saturday, Sunday or other day which is not a Business Day, then such due date shall be extended to the next -12- following Business Day, and additional interest shall accrue and be payable for the period of such extension. SECTION 7.4 SETOFF. The Company agrees that BAI and LaSalle, and each remaining Bank and each remaining holder of a Revolving Note provided it obtains the prior consent of the Agent (it being understood that BAI and LaSalle may exercise the rights provided in this Section 7.4 without obtaining the prior consent of the Agent), have all rights of setoff and bankers, lien provided by applicable law, and in addition thereto, the Company agrees that at any time (i) any payment or other amount owing by the Company under this Agreement is then due to BAI, LaSalle or any Bank or (ii) any Event of Default or Event of Default described in SECTION 12.1.4 exists, the Agent, BAI, LaSalle, and each remaining Bank and each remaining holder of a Revolving Note provided it obtains the prior consent of the Agent, may apply to the payment of such payment or other amount (or, in the case of CLAUSE (ii) above, any obligation of the Company hereunder, whether or not then due) any and all balances, credits, deposits, accounts or moneys of the Company then or thereafter with the Agent, BAI, LaSalle or any such Bank. The Agent, BAI, LaSalle and each remaining Bank shall undertake to notify the Company following the exercise by the Agent, BAI, LaSalle and each such Bank of any of the rights described in this SECTION 7.4; provided that the failure by the Agent, BAI, LaSalle, or any other Bank to so notify the Company shall not affect the rights of the Agent, BAI, LaSalle, the other Banks, or the holder of any Revolving Note in any manner whatsoever. SECTION 7.5 PRORATION OF PAYMENTS. If any Bank or other holder of a Revolving Note shall obtain any payment or other recovery (whether voluntary, involuntary, by application of offset or otherwise) on account of principal of or interest on any Revolving Loan or Revolving Note (or on account of its participation in any Letter of Credit) in excess of its pro rata share of payments and other recoveries obtained by all Banks or other holders of on account of principal of and interest on the Revolving Loan or Revolving Notes (or such participation) then held by them, such Bank or other holder shall purchase from the other Banks or holders such participation in the Notes held by them (or sub-participation in such Letter of Credit) as shall be necessary to cause such purchasing Bank or other holder to share the excess payment or other recovery ratably with each of them; PROVIDED, HOWEVER, that if all or any portion of the excess payment or other recovery is thereafter recovered from such purchasing Bank or holder, the purchase shall be rescinded and the purchase price restored to the extent of such recovery. SECTION 8 INCREASED COSTS; SPECIAL PROVISIONS FOR EURODOLLAR LOANS. -13- SECTION 8.1 INCREASED COSTS. (a) If (i) Regulation D of the Board of Governors of the Federal Reserve System, or (ii) 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 any Eurodollar Office of such Bank) with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency (A) shall subject any Bank (or any Eurodollar Office of such Bank) to any tax, duty or other charge with respect to its Eurodollar Loans, any of its Revolving Notes or its obligation to make Eurodollar Loans, or shall change the basis of taxation of payments to any Bank of the principal of or interest on its Eurodollar Loans or any other amounts due under this Agreement in respect of its Eurodollar Loans or its obligation to make Eurodollar Loans (except for changes in the rate of tax on the overall net income of such Bank or its Eurodollar Office imposed by the jurisdiction in which such Banks principal executive office or Eurodollar Office is located); or (B) shall impose, modify or deem applicable any reserve (including, without limitation, any reserve imposed by the Board of Governors of the Federal Reserve System, but excluding any reserve included in the determination of interest rates pursuant to SECTION 3), special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Bank (or any Eurodollar Office of such Bank); or (C) shall impose on any Bank (or its Eurodollar Office) any other condition affecting its Eurodollar Loans, any of its Revolving Notes or its obligation to make Eurodollar Loans; and the result of any of the foregoing is to increase the cost to (or in the case of Regulation D referred to above, to impose a cost on) such Bank (or any Eurodollar Office of such Bank) of making or maintaining any Eurodollar Loan, or to reduce the amount of any sum received or receivable by such Bank (or its Eurodollar Office) under this Agreement or under any of its Revolving Notes with respect thereto, then within 10 days after demand by such Bank (which demand shall be accompanied by a statement setting forth the basis of such demand), the Company shall pay directly to such Bank such additional amount or amounts as will compensate such Bank for such increased cost or such reduction. -14- (b) If any Bank shall reasonably determine that the adoption or phase-in of any applicable law, rule or regulation regarding capital adequacy, or any change therein, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Bank (or its Eurodollar Office) or any Person controlling such Bank with any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on such Bank's or such controlling Person's capital as a consequence of such Bank's obligations hereunder (including, without limitation, such Bank's Revolving Loan Commitment or Letter of Credit Commitment) to a level below that which such Bank or such controlling Person could have achieved but for such adoption, change or compliance (taking into consideration such Bank's or such controlling Person's policies with respect to capital adequacy) by an amount deemed by such Bank or such controlling Person to be material, then from time to time, within 10 days after demand by such Bank (which demand shall be accompanied by a statement setting forth the basis of such demand), the Company shall pay to such Bank such additional amount or amounts as will compensate such Bank or such controlling Person for such reduction. (c) Each Bank will promptly notify the Company and the Agent of any event of which it has knowledge which will entitle such Bank to compensation pursuant to this SECTION 8.1. SECTION 8.2 BASIS FOR DETERMINING INTEREST RATE INADEQUATE OR UNFAIR. If with respect to any Interest Period: (a) deposits in Dollars (in the applicable amounts) are not being offered to one or more Banks in the relevant market for such Interest Period, or the Agent otherwise determines (which determination shall be binding and conclusive on all parties) that by reason of circumstances affecting the interbank eurodollar market adequate and reasonable means do not exist for ascertaining the applicable Eurodollar Rate; or (b) Banks having an aggregate Percentage of 20% or more advise the Agent that the Eurodollar Rate (Reserve Adjusted) as determined by the Agent will not adequately and fairly reflect the cost to such Banks of maintaining or funding Eurodollar Loans for such Interest Period, or that the making or funding of Eurodollar Loans has become impracticable as a result of an event occurring after the date of this Agreement which in the opinion of such Banks materially affects such Loans, then the Agent shall promptly notify the other parties thereof and, so long as such circumstances shall continue, (i) no Bank shall be under any obligation to make or Convert into Eurodollar Loans and (ii) on the last day of the -15- current Interest Period for each Eurodollar Loan, such Loan shall, unless then repaid in full, automatically Convert to a Floating Rate Loan. SECTION 8.3 CHANGES IN LAW RENDERING CERTAIN LOANS UNLAWFUL. In the event that any change in (including the adoption of any new) applicable laws or regulations, or any change in the interpretation of applicable laws or regulations by any governmental or other regulatory body charged with the administration thereof, should make it (or in the good faith judgment of any Bank raise a substantial question as to whether it is) unlawful for any Bank (an "Affected Bank") to make, maintain or fund Eurodollar Loans, then the Affected Bank shall promptly notify each of the other parties hereto and, so long as such circumstances shall continue, (a) the Affected Bank shall have no obligation to make or Convert into Eurodollar Loans (but shall make Floating Rate Loans concurrently with the making of or Conversion into Eurodollar Loans by the Banks which are not Affected Banks, in each case in an amount equal to the Affected Banks Percentage of all Eurodollar Loans which would be made or Converted into at such time in the absence of such circumstances) and (b) on the last day of the current Interest Period for each Eurodollar Loan (or, in any event, if the Affected Bank so requests, on such earlier date as may be required by the relevant law, regulation or interpretation), such Eurodollar Loan shall, unless then repaid in full, automatically Convert to a Floating Rate Loan. Each Floating Rate Loan made by an Affected Bank which, but for the circumstances described in the foregoing sentence, would be a Eurodollar Loan (an "Affected Loan") shall, notwithstanding any other provision of this Agreement, remain outstanding for the same period as the Group of Eurodollar Loans of which such Affected Loan would be a part absent such circumstances. SECTION 8.4 FUNDING LOSSES. The Company hereby agrees that upon demand by any Bank (which demand shall be accompanied by a statement setting forth the basis for the calculations of the amount being claimed) the Company will indemnify such Bank against any net loss or expense which such Bank may sustain or incur (including, without limitation, any net loss or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Bank to fund or maintain Eurodollar Loans), as reasonably determined by such Bank, as a result of (a) any payment or prepayment or Conversion of any Eurodollar Loan of such Bank on a date other than the last day of an Interest Period for such Loan (including, without limitation, any Conversion pursuant to SECTION 8.3) or (b) any failure of the Company to borrow or Convert any Revolving Loans on a date specified therefor in a notice of borrowing or Conversion pursuant to this Agreement. For this purpose, all notices to the Agent pursuant to this Agreement shall be deemed to be irrevocable. -16- SECTION 8.5 RIGHT OF BANKS TO FUND THROUGH OTHER OFFICES. Each Bank may, if it so elects, fulfill its commitment as to any Eurodollar Loan by causing a foreign branch or Affiliate of such Bank to make such Eurodollar Loan, PROVIDED that in such event for the purposes of this Agreement such Eurodollar Loan shall be deemed to have been made by such Bank and the obligation of the Company to repay such Eurodollar Loan shall nevertheless be to such Bank and shall be deemed held by it, to the extent of such Eurodollar Loan, for the account of such branch or Affiliate. SECTION 8.6 DISCRETION OF BANKS AS TO MANNER OF FUNDING. Notwithstanding any provision of this Agreement to the contrary, each Bank shall be entitled to fund and maintain its funding of all or any part of its Revolving Loans in any manner it sees fit, it being understood, however, that for the purposes of this Agreement all determinations hereunder shall be made as if such Bank had actually funded and maintained each Eurodollar Loan during each Interest Period for such Loan through the purchase of deposits having a maturity corresponding to such Interest Period and bearing an interest rate equal to the Eurodollar Rate for such Interest Period. SECTION 8.7 Conclusiveness of Statements; Survival of Provisions. Determinations and statements of any Bank pursuant to SECTION 8.1, 8.2, 8.3 or 8.4 shall be conclusive absent demonstrable error. Banks may use reasonable averaging and attribution methods in determining compensation under SECTIONS 8.1 and 8.4, and the provisions of such Sections shall survive termination of this Agreement. SECTION 9 WARRANTIES. To induce the Agent and the Banks to enter into this Agreement and to make Revolving Loans and issue or purchase participation in Letters of Credit hereunder, the Company warrants to the Agent and the Banks that: SECTION 9.1 ORGANIZATION AND QUALIFICATION. The Company is a corporation duly existing and in good standing under the laws of the State of Delaware; each Subsidiary is a corporation duly existing and in good standing under laws of the state of its incorporation; and the Company and each Subsidiary is duly qualified and in good standing as a foreign corporation authorized to do business in each jurisdiction where, because of the nature of its activities or properties, such qualification is required and the failure to so qualify would materially and adversely affect the Company's financial condition, operations, or business prospects. SCHEDULE 9.1 lists the foreign jurisdictions of the Company. -17- SECTION 9.2 AUTHORIZATION: NO CONFLICT AND VALIDITY OF OBLIGATIONS. The Company has full right and authority to enter into this Agreement, to make the borrowings herein provided for, to request that Letters of Credit be issued hereunder, to issue its Revolving Notes and to perform all of its obligations under the Loan Documents; each Loan Document delivered by the Company has been duly authorized, executed and delivered by the Company and constitutes the valid and binding obligations of the Company, enforceable in accordance with their terms; and the Loan Documents do not, nor does the performance or observance by the Company of any of the matters or things therein provided for, contravene any provision of law or the certificate of incorporation or bylaws of the Company or any material covenant, indenture or agreement of or affecting the Company. SECTION 9.3 SUBSIDIARIES. The Subsidiaries of the Company and their respective states of incorporation and foreign jurisdictions are designated on SCHEDULE 9.3. SECTION 9.4 FINANCIAL STATEMENTS The Company's audited consolidated financial statement as at December 31, 1995 and, except as disclosed on SCHEDULE 9.4, its unaudited consolidated financial statements as at March 31, 1996 and June 30, 1996, copies of which have been furnished to the Banks, have been prepared in conformity with GAAP applied on a basis consistent with that of the preceding fiscal year, and accurately present the financial condition of the Company and the Subsidiaries as at such dates and the results of their operations for the periods then ended, and since such dates there has been no material adverse change in their financial condition or operations or business prospects. SECTION 9.5 NO MATERIAL ADVERSE CHANGE. Except as disclosed on SCHEDULE 9.5, since December 31, 1995, there has been no material change in the management of the Company and there has been no material adverse change in the condition, financial or otherwise, operations or business prospects of the Company or the Subsidiaries. SECTION 9.6 LITIGATION AND CONTINGENT LIABILITIES. Except as disclosed in SCHEDULE 9.6, there is no litigation (including, without limitation, derivative actions), arbitration proceedings or governmental proceedings pending or, to the best of the Company's knowledge, threatened against the Company or any Subsidiary which if adversely determined would (i) result in any material adverse change in the financial condition, business prospects or continued operations of the Company or the Subsidiaries or (ii) impair the validity or enforceability of, or materially impair the ability of the Company to perform its obligations hereunder or under any of the Loan Documents. Other than any liability incident to such litigation or proceedings, -18- neither the Company nor any Subsidiary has any contingent liabilities singly or in the aggregate in excess of $500,000 not provided for or disclosed in the financial statements referred to in SECTION 9.4. SECTION 9.7 LIENS. None of the assets of the Company or any Subsidiary is subject to any mortgage, pledge, title retention lien, or other lien, encumbrance or security interest, EXCEPT liens permitted by SECTION 10.11. SECTION 9.8 PENSION AND WELFARE PLANS. Each of the Company and Subsidiaries is in compliance in all material respects with ERISA with respect to all employee benefit plans maintained by the Company or such Subsidiaries and has received no notice to the contrary from the PBGC or any other governmental entity or agency. During the twelve consecutive month period prior to the date of the execution and delivery of this Agreement, no steps have been taken to terminate any Pension Plan, and no contribution failure has occurred with respect to any Pension Plan sufficient to give rise to a lien under Section 302(f) of ERISA. No condition exists or event or transaction has occurred with respect to any Pension Plan which could result in the incurrence by the Company of any material liability, fine or penalty. Except as described in SCHEDULE 9.8, the Company has no contingent liability with respect to any post-retirement benefits under a Welfare Plan, other than liability for continuation coverage described in Part 6 of title I to ERISA and described in applicable state continuation coverage laws. SECTION 9.9 INVESTMENT COMPANY ACT. The Company is not an "investment company" or a company "controlled" by an "investment company" with the meaning of the Investment Company Act of 1940, as amended. SECTION 9.10 REGULATION U. The Company is not engaged principally, or as one of its important activities, in the business of extending credit, and will not use the proceeds of any of the Revolving Loans, for the purpose of purchasing or carrying Margin Stock and the Company will not use the proceeds of the Revolving Loans or the Letters of Credit in a manner that violates any provision of Regulations U, G or X of the Board of Governors of the Federal Reserve System. SECTION 9.11 APPROVALS. No authorization, consent, license, exemption or filing or registration with any court or governmental department, agency or instrumentality, or any approval or consent from any other Person is necessary in connection with the valid execution, delivery or performance by the Company of the Loan Documents. -19- SECTION 9.12 COMPANY'S MATERIAL AGREEMENTS. The Company is not in default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in (i) any agreement to which it is a party, which default might have a material adverse affect on the business, properties or assets, operations or condition (financial or otherwise) of the Company or (ii) any agreement or instrument evidencing or governing indebtedness. SECTION 9.13 TAXES. Each of the Company and the Subsidiaries has filed all tax returns which are required to have been filed and has paid, or made adequate provision for the payment of all of its taxes which are due and payable, except such taxes, if any, as are being contested in good faith and by appropriate proceedings and as to which such reserves or other appropriate provisions as may be required by GAAP have been maintained. The Company is not aware of any proposed assessment against the Company or any Subsidiaries for additional taxes (or any basis for any such assessment) which might be material to the Company. SECTION 9.14 INSURANCE. SCHEDULE 9.14 completely and accurately summarizes the property and casualty insurance program carried by the Company and the Subsidiaries and includes any self insurance program that is in effect. SECTION 9.15 BUSINESS LOCATIONS. The office where the Company keeps its books and records and the principal place of business of the Company is set forth on the signature pages of this Agreement. SCHEDULE 9.15 lists the address of any other place of business of the Company and the Subsidiaries. SECTION 9.16 USE OF PROCEEDS. The proceeds of the Revolving Loans and the Letters of Credit shall be used for working capital and general corporate purposes, including but not limited to, acquisitions under Section 10.13(b) and the uses referred to in SECTION 10.19. SECTION 9.17 ENVIRONMENTAL MATTERS. Except as set forth on SCHEDULE 9.17, to the best of the Company's knowledge, (a) the Company and its Subsidiaries comply in all material respects with all applicable Environmental Laws, (b) the Company and its Subsidiaries have obtained all Governmental Approvals required for its operations, and its use and/or occupancy of any real property by any applicable Environmental Law, (c) there are no pending or threatened claims, notices, investigations or litigation involving the Company or any of its Subsidiaries relating to any Release, threatened Release or disposal of any Hazardous Material, and (d) the Company and its Subsidiaries have no pending material liability for response or corrective action, natural resource damage, or other harm pursuant to CERCLA, RCRA, or any comparable state law. -20- SECTION 9.18 TREATMENT AND STORAGE. Except in compliance with applicable law in all material respects, or as otherwise described on SCHEDULE 9.18, any real property currently owned by or leased to the Company and any of its Subsidiaries does not contain any of the following: (a) underground storage tanks, (b) any landfills or dumps, or (c) hazardous waste management facilities as defined pursuant to RCRA or comparable state law. SECTION 9.19 COMPLIANCE WITH LAWS. To the best of the Company's knowledge, the Company and its Subsidiaries are in compliance in all material respects with all applicable statutes, laws, rules and regulations. SECTION 9.20 INFORMATION. All information heretofore or contemporaneously herewith furnished by the Company to any Bank for purposes of or in connection with this Agreement and the transactions contemplated hereby is, and all information hereafter furnished by or on behalf of the Company to any Bank will be, true and accurate in every material respect on the date as of which such information is dated or certified, and none of such information is or will be incomplete by omitting to state any material fact necessary to make such information not misleading. SECTION 10 COVENANTS. Until the expiration or termination of the Commitments and thereafter until all obligations of the Company hereunder and under the Revolving Notes are paid in full and all Letters of Credit have been terminated, the Company agrees that, unless at any time the Banks shall otherwise expressly consent in writing, it will: SECTION 10.1 REPORTS, CERTIFICATES AND OTHER INFORMATION. Furnish to each Bank: SECTION 10.1.1 AUDIT REPORT. Within 90 days after each fiscal year of the Company, a copy of an annual audit report of the Company and the Subsidiaries for such fiscal year then ended prepared on a consolidating and consolidated basis and in conformity with GAAP (except for such consolidating statements) applied on a basis consistent with the audited consolidated financial statement of the Company and the Subsidiaries as at December 31, 1995, duly certified (except for such consolidating statements) by Coopers & Lybrand, or other independent certified public accountants of recognized standing selected by the Company and reasonably acceptable to the Banks, certified without qualification by such independent certified public accountants together with a certificate to the effect that, in making the examination necessary for the signing of such annual audit report by such independent certified public accountants, they have not become aware of any Event of Default or Unmatured Event of Default -21- that has occurred and is continuing, or if they have become aware of any such event, stating the nature and status thereof. SECTION 10.1.2 QUARTERLY REPORTS. Within 45 days after the end of each Fiscal Quarter (except the fourth Fiscal Quarter), a copy of (a) the unaudited consolidated and consolidating balance sheets of the Company and the Subsidiaries as of the close of such Fiscal Quarter and the related consolidated changes in financial position for that portion of the fiscal year and (b) the unaudited consolidated and consolidating statements of income of the Company and the Subsidiaries, in each case prepared in substantially the same manner as the audit report referred to in SECTION 10.1.1 and signed by the Chief Financial Officer of the Company. SECTION 10.1.3 MONTHLY REPORTS. Within 30 days after the end of each calendar month, a Directors' Statement which at a minimum provides the unaudited financial statements of the Company and its Subsidiaries prepared in substantially the same manner as Schedule 10.1.3, and is signed by the Chief Financial Officer of the Company. Notwithstanding the foregoing, the Directors' Statement for the last month of the Company's fiscal year shall be due within sixty (60) days after the end of that month. SECTION 10.1.4 COMPLIANCE CERTIFICATES. Within 45 days after the end of each Fiscal Quarter, a certificate signed by the President or the Chief Financial Officer of the Company to the effect that no Event of Default or Unmatured Event of Default has occurred and is continuing, or, if there is any, such event, describing it and the steps, if any, being taken, to cure it, and containing a computation of, and showing compliance with, each of the financial ratios, including the Funded Debt/Operating Cash Flow Ratio, and the restrictions contained in this SECTION 10. SECTION 10.1.5 REPORTS TO SEC AND TO SHAREHOLDERS. Copies of each filing and report made by the Company or any Subsidiary with or to any securities exchange or the Securities and Exchange Commission, and of each communication from the Company or any Subsidiary to shareholders of the Company generally, promptly upon the filing or making thereof. SECTION 10.1.6 NOTICE OF DEFAULT, LITIGATION AND ERISA MATTERS. As soon as possible, but in no event later than [30] days, after the Company learns of the occurrence of any of the following, written notice thereof, describing the same and the steps being taken by the Company or the Subsidiary affected with respect thereto: (i) the occurrence of an Event of Default or an Unmatured Event of Default, or (ii) the institution of, or any adverse determination in, any litigation, arbitration proceeding or governmental proceeding which is materially adverse to the Company and its Subsidiaries on a consolidated basis, or (iii) the -22- institution of any steps by the Company or any other Person to terminate any Pension Plan, or the failure to make a required contribution to any Pension Plan if such failure is sufficient to give rise to a lien under Section 302(f) of ERISA, or the taking of any action with respect to a Pension Plan which could result in the requirement that the Company furnish a bond or other security to the PBGC or such Pension Plan, or the occurrence of any event with respect to any Pension Plan which could result in the incurrence by the Company of any material liability, fine or penalty, or any material increase in the contingent liability of the Company with respect to any post-retirement Welfare Plan benefit. SECTION 10.1.7 SUBSIDIARIES. A written report of any changes in the list of its Subsidiaries within thirty (30) days of such change. SECTION 10.1.8 PROJECTIONS. Within 60 days after the end of each fiscal year of the Company, a copy of the one-year projections (quarter by quarter) of the Company and its Subsidiaries, including balance sheets and statements of earnings and cash flow prepared on a consolidated and on a divisional basis. SECTION 10.1.9 OTHER INFORMATION. From time to time such other information concerning the Company and its Subsidiaries as the Agent or any Bank may reasonably request. SECTION 10.2 BOOKS, RECORDS AND INSPECTIONS. Maintain, and cause each Subsidiary to maintain, complete and accurate books and records; permit, and cause each Subsidiary to permit, access by the Agent and each Bank to the books and records of the Company and of any Subsidiary; permit, and cause each Subsidiary to permit, the Agent and each Bank to inspect the properties and operations of the Company and of any Subsidiary; and, if the Agent and each Bank are unable to conduct such review, permit, and cause each Subsidiary to permit, any accounting firm selected by the Agent which is reasonably satisfactory to the Company, on a semi-annual basis, to conduct, at the Company's expense, such reviews of the books and records of the Company and of any Subsidiary as the Agent shall reasonably request. SECTION 10.3 INSURANCE. Maintain, and cause each Subsidiary to maintain, such insurance as may be required by law and such other insurance, to such extent and against such hazards and liabilities, as is customarily maintained by companies similarly situated. SECTION 10.4 TAXES AND LIABILITIES. Pay, and cause each Subsidiary to pay, when due all taxes, assessments and other liabilities except as contested in good faith and by appropriate proceedings. -23- SECTION 10.5 NET WORTH. Not permit the Company's Consolidated Net Worth at any time to be less than (a) $103,436,000 PLUS (b) fifty percent (50%) of the Company's positive consolidated net income for each Fiscal Quarter ended after June 30, 1996, LESS (c) repurchases by the Company of its capital stock to the extent such repurchases do not exceed $10,000,000 in the aggregate. SECTION 10.6 FUNDED DEBT/OPERATING CASH FLOW RATIO. Not permit the ratio ("Funded Debt/Operating Cash Flow Ratio") of (x) Consolidated Total Funded Debt to (y) Consolidated Operating Cash Flow during any period of four consecutive Fiscal Quarters to exceed the ratio of 3.00:1. SECTION 10.7 FIXED CHARGE COVERAGE. Not permit the ratio of (a) Consolidated Adjusted Operating Cash Flow for any period of four consecutive Fiscal Quarters to (b) interest expense (before any deferral and capitalization of such interest, but including attributable interest from Capitalized Lease Obligations) plus rental expense of the Company and its Subsidiaries on a consolidated basis during such period, to be less than 2.50:1. SECTION 10.8 MINIMUM DEBT COVERAGE. Not permit the ratio of (a) the sum of (i) the accounts receivable of the Company and its Subsidiaries, plus (ii) the book value of inventory of the Company and its Subsidiaries (provided that the value of such inventory shall not exceed 150% of the net amount of accounts receivable under clause (i) above), plus (iii) cash and cash equivalents (determined according to GAAP) of the Company and its Subsidiaries to (b) the aggregate principal amount of all Indebtedness of the Company and its Subsidiaries, to be less than 1.50:1. SECTION 10.9 PURCHASE OR REDEMPTION OF COMPANY'S SECURITIES; DIVIDED RESTRICTIONS. Not purchase or redeem any shares of the capital stock of the Company, declare or pay any dividends thereon (other than stock dividends), make any distribution to stockholders or set aside any funds for any such purpose, and not prepay, purchase or redeem, and not permit any Subsidiary to purchase, any subordinated indebtedness of the Company; PROVIDED HOWEVER, that so long as no Event of Default or Unmatured Event of Default exists or would result therefrom, the Company may, in its sole discretion (i) pay or declare cash dividends to the holders of common stock of the Company; and (ii) purchase the common stock of the Company to be held by the Company as treasury shares for its own account or otherwise considered treasury shares, or cancel the common stock of the Company. SECTION 10.10 INDEBTEDNESS. Not, and not permit any Subsidiary to, incur or permit to exist any indebtedness or liability on account of deposits or advances or for borrowed money or for the deferred purchase price of any property or services, -24- except (i) the obligations arising under the Commitments, (ii) obligations under any Capital Lease, (iii) indebtedness of any Subsidiary to the Company or any other Subsidiary, (iv) indebtedness of the Company relating to any hedging agreements entered into by the Company with respect to interest rate exposure resulting from its obligations under this Agreement, (v) current liabilities of the Company arising in the ordinary course of business, (vi) the obligations of the Company in connection with the Letter of Credit Applications or the Letters of Credit, (vii) debt in respect of taxes, assessments or governmental charges to the extent that payment thereof shall not at the time be required to be made, (viii) indebtedness subordinated to the obligations of this Agreement, with terms and conditions acceptable to Agent, (ix) indebtedness assumed by the Company in connection with acquisitions permitted by SECTION 10.13, (x) indebtedness described in SCHEDULE 10.10, and (xi) other indebtedness of the Company not to exceed $10,000,000 in the aggregate. Schedule 10.10 specifically describes the indebtedness of the Company and Subsidiaries which will remain after the Effective Date. SECTION 10.11 LIENS. Not, and not permit any Subsidiary to, create or permit to exist, any mortgage, pledge, title retention lien, or other lien, encumbrance or security interest with respect to any assets now owned or hereafter acquired, EXCEPT (i) for current taxes not delinquent or for taxes being contested in good faith and by appropriate proceedings, (ii) liens arising in the ordinary course of business for sums not due or sums being contested in good faith and by appropriate proceedings and not involving any deposits or advances or borrowed money or the deferred purchase price of property or services (iii) those granted by any Subsidiary to secure indebtedness of such Subsidiary to the Company or any Subsidiary, (iv) liens in favor of the Agent and the Banks in connection herewith, (v) preexisting liens on or security interests affecting assets acquired pursuant to SECTION 10.13(d), (vi) liens arising in the ordinary course of business and consistent with past practices not to exceed $1,000,000 in the aggregate, or (vii) liens listed in SCHEDULE 10.11. SECTION 10.12 GUARANTIES, LOANS OR ADVANCES. Not, and not permit any Subsidiary to, become or be a guarantor or surety of, or otherwise become or be responsible in any manner (whether by agreement to purchase any obligations, stock, assets, goods or services, or to supply or advance any funds, assets, goods or services, or otherwise) with respect to, any undertaking of any advances to any other person or entity, EXCEPT for (i) the endorsement, in the ordinary course of collection, of instruments payable to it or to its order, (ii) loans or advances by the Company to any Subsidiary, (iii) advances not to exceed, in the aggregate for the Company and all Subsidiaries at any one time outstanding, $150,000 to officers and employees and $100,000 to -25- subcontractors or suppliers other than Subsidiaries, (iv) customary and usual indemnities given in connection with any Permitted Dispositions, (v) indemnities of the Bush Hog and Verson Divisions given to certain of their customers and dealers in the ordinary course of business and consistent with past practices, (vi) customary and usual indemnities given by the Company in connection with past divestitures, (vii) deposits not to exceed, in the aggregate for the Company and all Subsidiaries at any one time outstanding, $1,000,000 to the sellers of fixed assets in connection with the purchase by the Company of such fixed assets. SECTION 10.13 MERGERS, CONSOLIDATIONS, SALES. Not, and not permit any Subsidiary to, be a party to any merger or consolidation, or purchase or otherwise acquire all or substantially all of the assets, or any stock of any class of, or any partnership or joint venture interest in, any other Person, or, except in the ordinary course of its business, sell, transfer, convey or lease all or any substantial part of its assets or sell or assign with or without recourse any receivables, EXCEPT for: (a) any such merger or consolidation, sale, transfer, conveyance, lease or assignment of or by any wholly-owned Subsidiary into the Company or into, with or to any other wholly owned Subsidiary; (b) negotiated friendly acquisitions of any Person which is in a line of business substantially similar to the business of the Company and its Subsidiaries, provided that (i) the total consideration paid or given for all such acquisitions during any consecutive eighteen month period shall not exceed $25,000,000 (exclusive of the value of common stock of the Company used as consideration in connection with any such acquisition); (ii) the proforma combined Funded Debt/Operating Cash Flow Ratio as of the effective date of any such acquisition of the Company and the acquired Person, for the four Fiscal Quarters most recently ended at the time of such effective date does not exceed 2.75:1; (iii) no Event of Default or Unmatured Event of Default shall exist before or after giving effect to such acquisition; (iv) the Agent shall have received a certificate from the Company satisfactory to the Agent as to compliance by the Company with preceding clauses (i) through (iii); and (v) any acquisition of stock of a Person shall not be less than 80% of the issued and outstanding capital stock of such Person. (c) the Sale and Leaseback of property comprising assets employed by the Company's Coz division, provided the aggregate amount of all such Sale and Leasebacks shall not exceed $15,000,000; and -26- (d) the sale, transfer or disposition of any fixed asset(s), as long as either: (i) during any fiscal year, the aggregate consideration paid or given to the Company or any Subsidiary is less than 5% of the Company's consolidated assets as reflected on the Company's then most recent audited financial statements, or (ii) the Company uses the proceeds of such transaction to finance the purchase of replacement fixed asset(s), delivers to the Agent written evidence of the use of the proceeds, and such replacement fixed asset(s) is free and clear of all liens; PROVIDED, HOWEVER, that as to all mergers, consolidations, acquisitions, sales and transfers no Event of Default or Unmatured Event of Default shall have occurred and be continuing or will result therefrom. For purposes of this SECTION 10.13, for all such transactions, the term "consideration" shall include the amount of any indebtedness for borrowed money assumed by the Company PLUS the amount, if any, by which the difference of (a) the amount of the liabilities of the acquired Person assumed by the Company LESS (b) the amount of the indebtedness for borrowed money assumed by the Company exceeds the value of the Tangible Assets of such acquired Person. SECTION 10.14 INVESTMENTS. Not, and not permit any Subsidiary to, make or permit any Investment in any Person, except for: (a) Extensions of credit in the nature of accounts receivable or notes receivable arising from the sale of goods and services in the ordinary course of business consistent with past practices; (b) Investments and securities with maturities of one year or less from the date of acquisition issued or fully guaranteed or insured by the United States of America or any agency thereof; (c) Investments and commercial paper maturing within 270 days or less from the date of issuance rated in the highest grade by a nationally recognized credit agency; (d) Investments and certificates of deposit maturing within one year from the date of acquisition issued by a bank or trust company organized under the laws of the United States or any State thereof having capital, surplus and undivided profits aggregating at least $100,000,000; (e) Investments of the Company outstanding on the date hereof to the extent disclosed in the financial statements referred to in SECTION 9.4 or disclosed on Schedule 10.14; -27- (f) Investments in overnight repurchase or reverse repurchase transactions involving marketable direct obligations issued or unconditionally guaranteed by the United States of America or any agency thereof and backed by the full faith and credit of the United States, in each case maturing within one year from the date of acquisition thereof, entered into with a counter party with a net worth in excess of $100,000,000; (g) Investments of the Company evidenced by promissory or demand notes issued by purchasers of assets of the Company permitted by the terms of this Agreement; and (h) Investments permitted under Sections 10.9.1, 10.9.2, 10.9.3, 10.9.4, 10.10, 10.12 and 10.13. (i) Investments in shares of a money market fund which (1) is a registered investment company under the Investment Company Act of 1940 (the "Act"); (2) complies with Rule 270.2(a)-7 of the Act (the "Rule"); and (3) is either (a) rated in one of the two highest rating categories by Standard and Poors or Moody's, or (b)(i) has assets of at least $200,000,000 at all times upon and after the purchase of shares by the Company, and (ii) will limit its portfolio investments to instruments that are, at the time of acquisition "First Tier Securities" or "Government Securities" as such terms are defined in this Rule. SECTION 10.15 ENVIRONMENTAL COVENANTS. SECTION 10.15.1 ENVIRONMENTAL RESPONSE OBLIGATION. (a) Comply, and cause each Subsidiary to comply, in all material respects with all applicable Environmental Laws, or judicial or administrative orders requiring the performance at any real property owned, operated, or leased by the Company or any subsidiary of activities in response to the release or threatened release of a Hazardous Material except for the period of time that the Company or such Subsidiary is diligently in good faith contesting such order; (b) notify the Bank within 30 days of the receipt of any written claim, demand, proceeding, action, or notice of liability by any Person arising out of or relating to the release or threatened release of a Hazardous Material; and (c) notify the Bank promptly, but in no event later than thirty (30) days, after the occurrence of any release, threat of release, or disposal of Hazardous Material reported to any governmental regulatory authority at any real property owned, operated, or leased by the Company or any Subsidiary. SECTION 10.15.2 ENVIRONMENTAL LIABILITIES. Not violate in any material respect any applicable Environmental Law and, without limiting the foregoing, not commence disposal of any Hazardous Material into or onto any real property owned, operated, or leased -28- by the Company or any Subsidiary nor allow any lien imposed pursuant to any law, regulation or order relating to Hazardous Materials or the disposal thereof to remain on such real property. SECTION 10.16 UNCONDITIONAL PURCHASE OBLIGATIONS. Not, and not permit any Subsidiary to, enter into or be a party to any contract for the purchase of materials, supplies or other property or services, if such contract requires that payment be made by it regardless of whether or not delivery is ever made of such materials, supplies or other property or services. SECTION 10.17 EMPLOYEE BENEFIT PLANS. Maintain, and cause each Subsidiary to maintain, each Pension Plan in compliance in all material respects with all applicable requirements of the law and regulations. SECTION 10.18 REGULATION U. Not use or permit any proceeds of the Revolving Loans or the Letters of Credit to be used, either directly or indirectly, for the purpose, whether immediate, incidental or ultimate, of "purchasing or carrying" any Margin Stock. SECTION 10.19 USE OF PROCEEDS. To the extent the principal amount of Revolving Loans plus the Stated Amount of Letters of Credit exceeds $75,000,000, cause the proceeds representing such excess to be used by the Company's Verson Division ("Verson") for the purpose of funding working capital with respect to active and outstanding binding purchase contracts (of at least corresponding size in the aggregate) between Verson and Ford Motor Company, Chrysler Corporation and General Motors, in each case for the purchase of new steel presses, it being understood that (i) in the case of contracts with Chrysler Corporation, such contracts shall be in excess of $10,000,000 and shall not provide for progress payments, and (ii) prior to the use of such proceeds, the Company shall furnish to each Bank summaries of such contracts together with payment schedules and such other information as either Bank may request in connection therewith. SECTION 10.20 SIGNIFICANT SUBSIDIARY. Cause each present or future Significant Subsidiary to forthwith execute and deliver to the Agent a guaranty of the Company's obligations under this Agreement, such guaranty to be in form and substance satisfactory to the Agent and to be supported by such supporting documents as the Agent shall require. SECTION 10.21 OTHER AGREEMENTS. Not, and not permit any of its Subsidiaries to, enter into any agreement containing any provision which (a) would be violated or breached by the performance of its obligations hereunder or under any instrument or document delivered or to be delivered by it hereunder or in -29- connection herewith, (b) prohibits or restricts the creation or assumption of any Lien upon its properties, revenues or assets, whether now owned or hereafter acquired, (c) prohibits or restricts the ability of any Subsidiary to make dividends or advances to the Borrower, or (d) prohibits or restricts the ability of the Borrower or any Subsidiary to amend or otherwise modify this Agreement or any other document executed in connection herewith. SECTION 10.22 COMPLIANCE WITH LAWS. Comply, and cause each Subsidiary to comply in all material respects with all applicable statutes, laws, rules and regulations. SECTION 11 EFFECTIVENESS; CONDITIONS OF LENDING Section 11.1 EFFECTIVENESS. This Agreement shall become effective on such date (herein called the "Effective Date") that (i) the conditions specified in SECTION 11.2 have been satisfied, (ii) the Agent shall have received the fees described in SECTIONS 5.1, 5.2 AND 5.3 (to the extent then due), and (iii) the Agent shall have received all the following, each duly executed and dated the Effective Date (or such earlier date as shall be satisfactory to the Agent), in form and substance satisfactory to the Agent, and each (except for the Notes, of which only the originals shall be signed) in sufficient number of signed counterparts to provide one for each Bank: SECTION 11.1.1 REVOLVING NOTES. The Revolving Notes of the Company payable to the order of each Bank. SECTION 11.1.2 [Reserved]. SECTION 11.1.3 RESOLUTIONS. Certified copies of resolutions of the Board of Directors of the Company authorizing the execution, delivery and performance of this Agreement, the Notes, the Letter of Credit Applications, and the other documents to be executed by the Company pursuant to this Agreement. SECTION 11.1.4 CONSENTS AND APPROVALS. The required consents and governmental approvals (if any) with respect to this Agreement, the Revolving Notes, the Letter of Credit Applications, and the other documents to be executed by the Company pursuant to this Agreement. SECTION 11.1.5 INCUMBENCY AND SIGNATURES. A certificate of the Secretary or an Assistant Secretary of the Company certifying the names of the officer or officers of the Company authorized to sign this Agreement, the Notes, the Letter of Credit Applications, and the other documents provided for in this Agreement, together with a sample of the true signature of each such officer (it being understood that the Agent and the Banks may conclusively rely on -30- such certificate until formally advised by a like certificate of any changes therein). SECTION 11.1.6 OPINIONS OF COUNSEL FOR THE COMPANY. The opinions of Gardner, Carton & Douglas, and David B. Corwine, Esq. as counsels for the Company, substantially in the forms set forth in EXHIBIT C. SECTION 11.1.7 OTHER DOCUMENTS. Such other documents as the Agent or any Bank may reasonably request. SECTION 11.2 ALL LOANS AND LETTERS OF CREDIT. The occurrence of the Effective Date and the obligation of each Bank to make any Revolving Loan and to issue any Letter of Credit is subject to the conditions precedent that: SECTION 11.2.1 NO DEFAULT. (a) No Event of Default, or Unmatured Event of Default, has occurred and is continuing or will result from the making of such Revolving Loan or the issuance of such Letter of Credit and (b) the warranties of the Company contained in Section 9 are true and correct as of the date of such requested Revolving Loan or the issuance of such Letter of Credit, with the same effect as though made on such date. SECTION 11.2.2 LITIGATION. No litigation (including, without limitation, derivative actions), arbitration proceedings or governmental proceedings not disclosed in writing by the Company to the Banks prior to the date of the last previous Revolving Loan hereunder (or, in the case of the initial Revolving Loan prior to the date of execution and delivery of this Agreement) are pending or known to be threatened against the Company or any Subsidiary which if adversely determined could reasonably be expected to (i) result in any material adverse change in the financial condition, business propects or continued operations of the Company or any Subsidiary or (ii) impair the validity or enforceability of, or materially impair the ability of the Company to perform its obligations hereunder or under any of the other Loan Documents, and no material development not so disclosed has occurred in any such litigation (including, without limitation, derivative actions), arbitration proceedings or governmental proceedings so disclosed, which could reasonably be expected to cause such a material adverse change. Each request by the Company for a Loan or a Letter of credit shall automatically constitute a representation and warranty of the Company to the effect that all conditions to the making of such Loan or issuance of such Letter of Credit will be satisfied as of the date of the making of such Loan or issuance of such Letter of Credit will be satisfied as of the date of the making of such Loan or issuance of such Letter of Credit. -31- SECTION 12 EVENTS OF DEFAULT AND THEIR EFFECT. SECTION 12.1 EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default under this Agreement: SECTION 12.1.1 NON-PAYMENT OF NOTES, ETC. Default in the payment when due of (a) any principal of, or interest on, any Revolving Note or (b) any reimbursement obligation with respect to any Letter of Credit or any fees payable by the Company hereunder. SECTION 12.1.2 NON-PAYMENT OF OTHER INDEBTEDNESS FOR BORROWED MONEY. Default in the payment when due (subject to and applicable grace period), whether by acceleration-or otherwise, of any other indebtedness for borrowed money of, or guaranteed by, the Company or any Subsidiary in excess of $250,000 in the aggregate or default in the performance or observance of any obligation or condition with respect to any such other indebtedness if the effect of such default is to accelerate the maturity of any such indebtedness or to permit the holder or holders thereof, or any trustee or agent for such holders, to cause such indebtedness to become due and payable prior to its expressed maturity. SECTION 12.1.3 OTHER MATERIAL OBLIGATIONS. Default in the payment when due, or in the performance or observance of, any material obligation of, or condition agreed to by the Company or any Subsidiary with respect to any material purchase or lease of goods or services reasonably valued in excess of $750,000 in the aggregate (and not constituting an Event of Default under any of the other provisions of this SECTION 12) and except only to the extent that the existence of any such default is being contested by the Company or such Subsidiary in good faith and by appropriate proceedings. SECTION 12.1.4 BANKRUPTCY, INSOLVENCY. The Company or any Subsidiary becomes insolvent or generally fails to pay, or admits in writing its inability or refusal to pay, debts as they become due; or the Company or any Subsidiary applies for, consents to, or acquiesces in the appointment of a trustee, receiver or other custodian for the Company or such Subsidiary or any property thereof, or makes a general assignment for the benefit of creditors; or in the absence of such application, consent or acquiescence, a trustee, receiver or other custodian is appointed for the Company or any Subsidiary or for a substantial part of the property of any thereof and is not discharged within 30 days; or any bankruptcy, reorganization, debt arrangement, or other case or proceeding under any bankruptcy or insolvency law, or any dissolution or liquidation proceeding (except the voluntary dissolution, not under any bankruptcy or insolvency law, of a Subsidiary), is commenced in respect of the Company or any Subsidiary, and if such case or proceeding is not commenced by the -32- Company or such Subsidiary, it is consented to or acquiesced in by the Company or such Subsidiary or remains for 30 days undismissed; or the Company or any Subsidiary takes any corporate action to authorize, or in furtherance of, any of the foregoing. SECTION 12.1.5 NON-COMPLIANCE WITH THIS AGREEMENT. Failure by the Company to comply with or to perform any provision of this Agreement (and not constituting an Event of Default under any other provision of this SECTION 12) and continuance of such failure for 15 days after notice thereof to the Company from the Agent, any Bank, or the holder of any Revolving Note. SECTION 12.1.6 WARRANTIES. Any warranty made by the Company herein or in any Instrument is breached or is false or misleading in any material respect, or any schedule, certificate, financial statement, report, notice, or other writing furnished by the Company to the Agent or any Bank is false or misleading in any material respect on the date as of which the facts therein set forth are stated or certified. SECTION 12.1.7 PENSION PLANS. (a) Institution of any steps by the Company or any other Person to terminate a Pension Plan if as a result of such termination the Company could be required to make a contribution to such Pension Plan, or could incur a liability or obligation to such Pension Plan, in excess of $100,000, or (b) a contribution failure occurs with respect to any Pension Plan sufficient to give rise to a lien under section 302(f) of ERISA. SECTION 12.1.8 MATERIAL ADVERSE CHANGE. There is a material adverse change in the financial or business conditions or prospects of the Company or any of the Subsidiaries. SECTION 12.1.9 CHANGE OF CONTROL. The acquisition, through purchase or otherwise (including the agreement to act in concert without more), by any Person or group of Persons acting in concert directly or indirectly, in one or more transactions, of beneficial ownership or control of securities representing more than fifty percent (50%) of the combined voting power of the Company's voting stock. For purposes of this definition, "beneficial ownership" shall have the meaning set forth in Rule 13d-3 under the Securities and Exchange Act of 1934. A merger or consolidation pursuant to Section 10.13 with respect to which the voting stock of the surviving corporation is not more than fifty percent (50%) owned by the Company shall constitute a "Change of Control." SECTION 12.2 EFFECT OF EVENT OF DEFAULT. If any Event of Default described in SECTION 12.1.4 shall occur, the Commitments (if they have not theretofore terminated) shall immediately terminate and the Revolving Notes and all other obligations hereunder shall become immediately due and payable and the Company -33- shall become immediately obligated to deliver to the Agent cash collateral in an amount equal to the outstanding face amount of all Letters of Credit, all without presentment, demand, protest or notice of any kind; and, in the case of any other Event of Default, the Agent may (and upon written request of the Banks shall) declare the Commitments (if they have not theretofore terminated) to be terminated and/or declare all Revolving Notes and all other obligations hereunder to be due and payable and/or demand that the Company immediately deliver to the Agent cash collateral in an amount equal to the outstanding face amount of all Letters of Credit, whereupon the Commitments (if they have not theretofore terminated) shall immediately terminate and/or all Revolving Notes and all other obligations hereunder shall become immediately due and payable and/or the Company shall immediately become obligated to deliver to the Agent cash collateral in an amount equal to the face amount of all Letters of Credit, all without presentment, demand, protest or notice of any kind. The Agent shall promptly advise the Company of any such declaration, but failure to do so shall not impair the effect of such declaration. Any collateral delivered by the Company to the Agent shall be held by the Agent (without liability for interest thereon) and applied to obligations arising in connection with any drawing under a Letter of Credit. After the expiration or termination of all Letters of Credit, such cash collateral shall be applied by the Agent to any remaining obligations hereunder and any excess shall be delivered to the Company or as a court of competent jurisdiction may elect. SECTION 13 CERTAIN DEFINITIONS. When used herein the following terms shall have the following meaning (such definitions to be applicable to both the singular and plural forms of such terms): AFFILIATE shall mean, with respect to any Person, a Person: (a) which directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, such Person; (b) which beneficially owns or holds, directly or indirectly, five percent (5%) or more of any class of the Voting Stock (or, in the case of a Person which is not a corporation, five percent (5%) or more of the equity interested such Person; or (c) five percent (5%) or more of the Voting Stock (or, in the case of a Person which is not a corporation, five percent (5%) or more of the equity interest) of which is beneficially owned or held, directly or indirectly, by such Person; PROVIDED, HOWEVER, that no Bank shall in any event be deemed to be an Affiliate of the Company or any Subsidiary. The term "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting Stock or an equity interest, by contract, or otherwise. -34- AGENT - see PREAMBLE. AGREEMENT - see PREAMBLE. ALTERNATE REFERENCE RATE shall mean, on any date and with respect to all Floating Rate Loans, a fluctuating rate of interest per annum (rounded upward to the next highest one-eighth (1/8) of one percent (1%) if not already an integral multiple of one-eighth (1/8) of one percent (1%)) equal to the higher of (a) the rate of interest most recently announced by the Agent at its Chicago office as its Reference Rate; or (b) the Market Federal Funds Rate most recently determined by the Agent plus one-half percent (.50%). The Alternate Reference Rate is not necessarily intended to be the lowest rate of interest determined by the Agent in connection with extensions of credit. For purposes of this Agreement (i) any change in the Alternate Reference Rate due to a change in the Reference Rate shall be effective,on the date such change in the Reference Rate is announced and (ii) any change in the Alternate Reference Rate due to a change in the Market Federal Funds Rate shall be effective on the effective date of such change in the Market Federal Funds Rate. If for any reason the Agent shall have determined (which determination shall be conclusive in the absence of manifest error) that it is unable to ascertain the Market Federal Funds Rate for any reason, including, without limitation, the inability or failure of the Agent to obtain sufficient bids or publications in accordance with the terms hereof, the Alternate Reference Rate shall be the Reference Rate until the circumstances giving rise to such inability no longer exist. The Agent will give notice promptly to the Company and the Banks of changes in the Alternate Reference Rate. BAI - see PREAMBLE. BANK - see PREAMBLE. BUSINESS DAY shall mean any day on which banks are open for commercial banking business in Chicago, Illinois and, in the case of a Business Day which relates to a Eurodollar Loan, on which dealings are carried on in the interbank eurodollar market. CAPITAL EXPENDITURES shall mean all payments for any fixed assets or improvements or for replacements, substitutions or additions thereto, that have a useful life of more than one year and which are required to be capitalized under GAAP. CAPITAL LEASE shall mean, with respect to any Person, any lease of any property (whether real, personal or mixed) by such Person as lessee that, in accordance with GAAP, either would be required to be classified and accounted for as a capital lease on -35- a balance sheet of such Person or otherwise be disclosed as such in a note to such balance sheet, CAPITAL LEASE OBLIGATION shall mean, with respect to any Capital Lease, the amount of the obligation of the lessee thereunder that, in accordance with GAAP, would appear on a balance sheet of such lessee in respect of such Capital Lease or otherwise be disclosed in a note to such balance sheet. CERCLA shall mean the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986, 42 USC 9601 ET SEQ., and any future amendments. COMMITMENTS shall mean the Revolving Loan Commitments and the Letter of Credit Commitments. COMPANY - see PREAMBLE. CONSOLIDATED ADJUSTED OPERATING CASH FLOW shall mean (a) the sum of (i) consolidated net income for such period, plus (ii) consolidated interest expense for such period, plus (iii) the aggregate amount which was deducted by the Company in respect of Federal, state and local income taxes by the Company and its Subsidiaries in determining the Company's consolidated net income for such period, plus depreciation and amortization for such period, plus all rental expense (including attributable interest from Capitalized Lease Obligations) less (b) the sum of (i) interest income for the period, plus (ii) extraordinary gains for the period, all as determined for the Company and its Subsidiaries on a consolidated basis. CONSOLIDATED OPERATING CASH FLOW shall mean (a) the sum of (i) consolidated net income for such period, plus (ii) consolidated interest expense for such period, plus (iii) the aggregate amount which was deducted by the Company in respect of Federal, state and local income taxes by the Company and its Subsidiaries in determining the Company's consolidated net income for such period, plus depreciation and amortization for such period less (b) the sum of (i) interest income for the period, plus (ii) extraordinary gains for the period, all as determined for the Company and its Subsidiaries on a consolidated basis. CONSOLIDATED NET WORTH shall mean, as of the date of any determination thereof, the assets minus the sum of the liabilities of the Company and Subsidiaries on a consolidated basis. Assets and liabilities of the Company and Subsidiaries shall have the meanings usually given to such terms in accordance with GAAP. -36- CONSOLIDATED TOTAL FUNDED DEBT shall mean the total of all Funded Debt of the Company and such Subsidiaries outstanding on such date determined in accordance with GAAP applied on a consistent basis. CONVERT, CONVERSION AND CONVERTED shall refer to a conversion of Loans pursuant to SECTION 1.4, 3.3, 8.2 or 8.3. DIRECTORS STATEMENT shall mean the report prepared by the Company in the form of SCHEDULE 10.1.3. DOLLAR and the sign "$" shall mean lawful money of the United States of America. EFFECTIVE DATE - see SECTION 11.1. ERISA shall mean the Employee Retirement Income Security Act of 1974, as amended, and any successor statute of similar import, together with the regulations thereunder, in each case as in effect from time to time. References to sections of ERISA also refer to any successor sections. EUROCURRENCY RESERVE PERCENTAGE shall mean, with respect to each Interest Period, a percentage (expressed as a decimal) equal to the daily average during such Interest Period of the percentage in effect on each day of such Interest Period, as prescribed by the Board of Governors of the Federal Reserve System (or any successor), for determining the aggregate maximum reserve requirements applicable to "Eurocurrency Liabilities" pursuant to Regulation D or any other then applicable regulation of the Board of Governors which prescribes reserve requirements applicable to "Eurocurrency Liabilities" as presently defined in Regulation D. EURODOLLAR LOAN or Eurodollar borrowing shall mean any Revolving Loan which bears interest at a rate determined by reference to the Eurodollar Rate (Reserve Adjusted). EURODOLLAR OFFICE shall mean with respect to any Bank the office or offices of such Bank which shall be making or maintaining the Eurodollar Loans of such Bank hereunder or such other office or offices through which such Bank determines its Eurodollar Rate. A Eurodollar Office of any Bank may be, at the option of such Bank, either a domestic or foreign office. EURODOLLAR RATE shall mean, with respect to any Eurodollar Loan for any Interest Period, the rate per annum equal to the rate at which Dollar deposits in immediately available funds are offered to the Eurodollar Office of BAI two Business Days prior to the beginning of such Interest Period by major banks in the interbank -37- eurodollar market as at or about the relevant local time of such Eurodollar Office, for delivery on the first day of such Interest Period, for the number of days comprised therein and in an amount equal or comparable to the amount of the Eurodollar Loan of BAI for such Interest Period. As used herein, "relevant local time" as to any Eurodollar Office shall mean 11:00 A.M., London time, when such Eurodollar Office is located in Europe or the Middle East, or 11:00 A.M., Chicago time, when such Eurodollar office is located in North America or the Caribbean. EURODOLLAR RATE (RESERVE ADJUSTED) shall mean, with respect to any Eurodollar Loan for any Interest Period, a rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 10%) determined pursuant to the following formula: Eurodollar Rate = Eurodollar Rate -------------- (Reserve Adjusted) 1-Eurocurrency Reserve Exchange EVENT OF DEFAULT shall mean any of the events described in SECTION 12.1. ENVIRONMENTAL LAW shall mean any current or future legal requirement pertaining to (a) the protection of health, safety, and the indoor or outdoor environment, (b) the conservation, management, or use of natural resources and wildlife, (c) the protection or use of surface water and groundwater, (d) the management, manufacture, possession, presence, use, generation, transportation, treatment, storage, disposal, Release, threatened Release, abatement, removal, remediation or handling of, or exposure to, any Hazardous Material or (e) pollution (including any Release to air, land, surface water and groundwater), and includes, without limitation, the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986, 42 USC 906 ET SEQ.; Solid Waste Disposal Act, as amended by the Resource Conservation and Recovery Act of 1976 and Hazardous and Solid Waste Amendments of 1984, 42 USC 6901 ET SEQ.; Federal Water Pollution Control Act, as amended by the Clean Water Act of 1977, 33 USC 1251 ET SEQ.; Clean Air Act of 1966, as amended, 42 USC 7401 ET SEQ.; Toxic Substances Control Act of 1976, 15 USC 2601 ET SEQ.; Hazardous Materials Transportation Act, 49 USC App. 1801 ET seq.; Occupational Safety and Health Act of 1970, as amended, 29 USC 651 ET SEQ.; Oil Pollution Act of 1990, 33 USC 2701 ET SEQ.; Emergency Planning and Community Right-to-Know Act of 1986, 42 USC 11001 ET SEQ.; National Environmental Policy Act of 1969, 42 USC 4321 ET SEQ.; Safe Drinking Water Act of 1974, as amended, 42 USC 300(f) ET SEQ.; and any similar, implementing or successor law, and any amendment, rule, regulation, order, or directive issued thereunder. -38- FEDERAL FUNDS RATE shall mean, for any day, the rate set forth in the weekly statistical release designated as H.15(519), or any successor publication, published by the Board of Governors of the Federal Reserve System (including any such successor publication, "H.15(519)") for such day opposite the caption "Federal Funds (Effective)". If on any relevant day such rate is not yet published in H.15(519), the rate for such day will be the rate set forth in the daily statistical release designated as the Composite 3:30 p.m. Quotations for U.S. Government Securities, or any successor publication, published by the Federal Reserve Bank of New York (including any such successor publication, the "Composite 3:30 p.m. Quotations") for such day under the caption "Federal Funds Effective Rate". If on any relevant day the appropriate rate for such day is not yet published in either H.15(519) or the Composite 3:30 p.m. Quotations, that rate for such day will be the arithmetic mean of the rates for the last transaction in overnight Federal funds arranged prior to 9:00 a.m., New York City time, on such day by each of three leading brokers of Federal funds transactions in New York City, selected by the Agent. The rate for any day which is not a Business Day shall be the rate for the immediately preceding Business Day. FISCAL QUARTER shall mean the period ending on either March 31, June 30, September 30 or December 31 of each year. FLOATING RATE LOAN or Floating Rate borrowing shall mean any Revolving Loan which bears interest at or by reference to the Alternate Reference Rate. FUNDED DEBT shall mean all indebtedness of the Company and its Subsidiaries which by the terms of the agreement governing or instrument evidencing such indebtedness matures more than one year from, or is directly or indirectly renewable or extendable at the option of the debtor under a revolving credit or similar agreement obligating the lender or lenders to extend credit over a period of more than one year from the creation thereof, including current maturities of long-term debt, revolving credit, short-term debt extendable beyond one-year at the option of the debtor, the present value of all Capital Lease Obligations and the Commitments. FUNDED DEBT/OPERATING CASH FLOW RATIO - see SECTION 10.7. GAAP shall mean generally accepted accounting principles in the United States of America as in effect from time to time. GOVERNMENTAL APPROVAL shall mean any permit, license, variance, certificate, consent, letter, clearance, closure, exemption, decision or action or approval of a governmental authority. -39- GROUP - see SECTION 1.2. HAZARDOUS MATERIAL shall mean: (a) any "hazardous substance" as now defined pursuant to the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. Section 9601(14) as amended by the Superfund Amendments and Reauthorization Act, and including the judicial interpretation thereof; (b) any "pollutant or contaminant" as defined in 42 U.S.C.A. Section 9601(33); (c) any material now defined as "hazardous waste" pursuant to 40 C.F.R. Part 261; (d) any petroleum, including crude oil and any fraction thereof; (e) natural gas, natural gas liquids, liquefied natural gas, or synthetic gas usable for fuel; (f) any "hazardous chemical, as defined pursuant to 29 C.F.R. Part 1910; (g) any asbestos, polychlorinated biphenyl (PCB), or isomer or dioxin, and (h) any other substance, regardless of physical form, that is regulated under any environmentally related federal, state or local government statute, rule or regulation. INDEBTEDNESS shall mean, with respect to any Person at any date, without duplication: (i) all obligations of such Person with respect to borrowed money, (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments including, without limitation, all obligations comprising subordinated indebtedness of such Person; (iii) all reimbursement obligations in respect of letters of credit, issued for the account of such Person, following any draw under such letters of credit, if not paid when due; (iv) all obligations in respect of bankers' acceptances issued for the account of such person after designation of, and delivery to, a payee; (v) all Capitalized Lease Obligations of such Person; and (vi) whether or not included as liabilities in accordance with GAAP, obligations secured by a Lien on property owned or being purchased by such Person (including obligations arising under conditional sales or other title retention agreements) whether or not such obligations shall have been assumed by such Person or are limited in recourse. INSOLVENCY EVENT shall mean, with respect to any Person, (il the application for, consent to, or acquiescence in, the appointment of a receiver, trustee, custodian or liquidator of or for it or its business or of or for all or a substantial part of its assets; (ii) the filing of a voluntary petition or answer seeking reorganization or an arrangement with creditors or seeking to take advantage, as a debtor, of any other law (whether federal, state or foreign) relating to relief of debtors, or the admission (by answer, by default or otherwise) of the material allegations of a petition filed against it in any bankruptcy, reorganization, arrangement, insolvency or other proceeding whether federal, state or foreign) relating to relief of debtors, or the admission in writing of its inability to pay its debts generally as they become due; (iii) the permitting to continue unstayed for ten (10) days -40- any judgment, decree or order which adjudges it a bankrupt or insolvent or approves as properly filed petition seeking its reorganization or arrangement or appoints receiver, trustee, custodian or liquidator of or for it or its business or of or for all or a substantial part of its assets or decrees the winding up or liquidation of its affairs; (iv) the filing against it, by Persons other than Banks prior to the occurrence of a Default, of any bankruptcy, reorganization, arrangement, insolvency or other proceeding (whether federal, state or foreign) relating to the relief of debtors, which proceeding shall not be dismissed within thirty (30) days after the commencement thereof; (v) the commencement by or against it of a proceeding seeking its dissolution, liquidation or winding up, and, in the case of a proceeding commenced against it, the consent to such proceeding by it or its failure to cause such proceeding to be dismissed within thirty (30) days after the commencement thereof; or (vi) the taking of any corporate action in furtherance of any of the foregoing. INTEREST PERIOD - see SECTION 3.3. INVESTMENT shall mean any investment, made in cash or by delivery of any kind of property or asset, in any Person, whether by acquisitions of stock or similar interest, or any other obligation or security, or by loan, advance or capital contribution, or otherwise. LASALLE shall mean LaSalle National Bank, a national banking association. LETTER OF CREDIT - see SECTION 1.1.3. LETTER OF CREDIT APPLICATION shall mean a letter of credit application in the form then used by BAI for the type of letter of credit requested (with appropriate adjustments to indicate that any letter of credit issued thereunder is to be issued pursuant to, and subject to the terms and conditions of, this Agreement). LETTER OF CREDIT COMMITMENTS shall mean the commitment of BAI to issue, and of each Bank to participate in, the Letters of Credit pursuant to SECTION 1.1.3. LOAN DOCUMENTS shall mean this Agreement, the Revolving Notes, the Letter of Credit Applications and all schedules, certificates, exhibits and notices delivered pursuant to any of the foregoing. LONG TERM LEASE shall mean any lease of any property (whether real, personal or mixed) whose term (including renewals and extensions) is greater than one (1) year. -41- MARGIN shall mean, subject to the next sentence, the following rate based on the Funded Debt/Operating Cash Flow Ratio as of the end of the Fiscal Quarter most recently ended, as follows: Funded Debt/Operating Cash Flow Ratio Rate Per Annum --------------------- -------------- = < 1.0 0.625% > 1.0 but = < 1.5 0.750% > 1.5 but = < 2.0 1.000% > 2.0 but = < 2.5 1.250% > 2.5 but = < 3.0 1.500% The applicable Margin shall be adjusted, to the extent applicable, 45 days (or in the case of the last Fiscal Quarter of any Fiscal Year, 90 days) after the end of each Fiscal Quarter beginning on the 45th day after the first Fiscal Quarter ending after the Effective Date, based on the Funded Debt/Operating Cash Flow Ratio as of the last day of such Fiscal Quarter; IT BEING UNDERSTOOD that if the Company fails to deliver the certificate required by SECTION 10.1.4 by the 45th day (or, if applicable, the 90th day) after any Fiscal Quarter, the applicable margin shall be 1.5% per annum until such certificate is delivered. As of the Effective Date, the initial Margin is 0.625% per annum. MARGIN STOCK shall mean any "margin stock" as defined in Regulation U of the Board of Governors of the Federal Reserve System. MARKET FEDERAL FUNDS Rate means, for any period, a fluctuating interest rate per annum equal for each day during such period to (a) the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York; or (b) if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by the Agent from three federal funds brokers of recognized standing selected by it. OBLIGOR shall mean any Person obligated in respect of any Receivable, and "RELATED OBLIGOR", when used with reference to any Receivable, shall mean any Obligor in respect thereof. PBGC shall mean the Pension Benefit Guaranty Corporation and any entity succeeding to any or all of its functions under ERISA. -42- PENSION PLAN shall mean a "pension plan", as such term is defined in section 3(2) of ERISA, which is subject to title IV of ERISA (other than a multiemployer plan as defined in section 4001(a)(3) of ERISA), and to which the Company or any corporation, trade or business that is, along with the Company, a member of a controlled group of corporations or a controlled group of trades or businesses, as described in sections 414(b) and 414(c), respectively, of the Internal Revenue Code of 1986, as amended or section 4001 of ERISA may have any liability, including any liability by reason of having been a substantial employer within the meaning of section 4063 of ERISA at any time during the preceding five years, or by reason of being deemed to be a contributing sponsor under section 4069 of ERISA. PERCENTAGE shall mean as to any Bank the percentage set forth opposite such Banks name under COLUMN IV of EXHIBIT A. PERSON shall mean any natural person, corporation, partnership, trust, association, governmental authority or unit, or any other entity, whether acting in an individual, fiduciary or other capacity. PERMITTED DISPOSITIONS shall mean the dispositions of the assets of the Company set forth on Schedule 10.13. RCRA shall mean the Solid Waste Disposal Act, as amended by the Resource Conservation and Recovery Act of 1976 and Hazardous and Solid Waste Amendments of 1984, 42 USC 6901 ET SEQ., and any future amendments. REFERENCE RATE shall mean at any time the rate of interest then most recently announced by BAI at Chicago, Illinois as its reference rate. RELEASE shall mean any spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping, or disposing into the indoor or outdoor environment, including, without limitation, the abandonment or discarding of barrels, drums, containers, tanks, and other receptacles containing or previously containing any Hazardous Material. REQUIRED BANKS shall mean (i) if BAI and LaSalle are the only Banks, then both of the Banks, and (ii) if there are more than two (2) Banks, then Banks holding at least 51% of the then aggregate outstanding principal amount of the Revolving Loans then held by the Banks, or, if no such principal amount is then outstanding, Banks having at least 51% of the Commitments. REVOLVING LOAN - see SECTION 1.1.1. -43- REVOLVING LOAN COMMITMENT shall mean the commitment of each Bank to make Revolving Loans pursuant to SECTION 1.1.1. REVOLVING NOTE - see SECTION 2.1. REVOLVING TERMINATION DATE shall mean September 30, 1999. SALE AND LEASEBACK shall mean any transaction or series of related transactions in which the Company or any Subsidiary becomes or remains liable as lessee or as guarantor or other surety with respect to any lease, whether an operating lease or a Capital Lease, of any property (whether real or personal or mixed), whether now owned or hereafter acquired, (i) which the Company or any Subsidiary has sold or transferred or is to sell or transfer to any other Person, or (ii) which the Company or any Subsidiary intends to use for substantially the same purpose as any other property which has been or is to be sold or transferred by the Company or any Subsidiary to any other Person in connection with such lease. SIGNIFICANT SUBSIDIARY shall mean any Subsidiary as to which the assets or operating income exceeds 10% of the assets or operating income of the Company and its Subsidiaries on a consolidated basis. STATED AMOUNT shall mean with respect to any Letter of Credit at any date of determination thereof, the maximum aggregate amount available thereunder at any time during the then ensuing term of such Letter of Credit under any and all circumstances, plus the aggregate amount of all unreimbursed payments and disbursements under such Letter of Credit. SUBSIDIARY shall mean, with respect to any Person, a corporation of which such Person and/or its other Subsidiaries own, directly or indirectly, such number of outstanding shares as have more than 50% of the ordinary voting power for the election of directors. Unless the context otherwise requires, each reference to Subsidiaries herein shall be a reference to Subsidiaries of the Company. TANGIBLE ASSETS shall mean with respect to any Person, the book value of all of the assets of such Person less the book value of any intangible assets, including without limitation, goodwill, franchises, licenses, patents, trademarks, trade names, service marks and brand names. TYPE OF LOAN OR BORROWING means either Floating Rate Loans or borrowings or Eurodollar Loans or borrowings. -44- UNMATURED EVENT OF DEFAULT shall mean any event which if it continues uncured will, with lapse of time or notice or lapse of time and notice, constitute an Event of Default. VOTING STOCK shall mean securities of any class or classes of a corporation, the holders of which are ordinarily, in the absence of contingencies, or which are in fact, entitled to elect a majority of the corporate directors (or Persons performing similar functions) of such corporation. WELFARE PLAN shall mean a "welfare plan", as such term is defined in section 3(l) of ERISA. SECTION 14 THE AGENT. SECTION 14.1 AUTHORIZATION. Each Bank and the holder of each Note authorizes the Agent to take such actions on behalf of such Bank or holder and to exercise such powers hereunder, any Letter of Credit Application or any other document or instrument delivered hereunder or in connection herewith as are granted to the Agent and/or the Banks pursuant to such documents and are specifically delegated to the Agent herein and therein in connection with the administration of and the enforcement of any rights or remedies with respect to this Agreement, the Revolving Notes, the Letter of Credit Applications or any other document or instrument delivered hereunder or in connection herewith. The general administration of the Revolving Loans shall be with the Agent, subject to control by the Banks. SECTION 14.2 INDEMNIFICATION. Each Bank and the holder of each Revolving Note agrees to reimburse and indemnify the Agent for, and hold the Agent harmless against, a share (determined in accordance with the percentage which (x) the sum of (A) the participation in all outstanding Letters of Credit of such Bank plus (E) the principal amount of the Revolving Loans of such Bank or holder is of (y) the sum of (A) all outstanding Letters of Credit plus (B) the aggregate principal amount of all Revolving Loans) of any loss, damages, penalty, action, judgment, obligation, cost, disbursement, liability or expense (including attorneys, fees) incurred without gross negligence or willful misconduct on the part of the Agent arising out of or in connection with the performance of its obligations or the exercise of its powers hereunder or under any document or instrument delivered hereunder or in connection herewith, as well as the costs and expenses of defending against any claim against the Agent arising hereunder or thereunder. SECTION 14.3 EXCULPATION. The Agent shall be entitled to rely upon advice of counsel concerning legal matters, and upon this Agreement and any Revolving Note, Letter of Credit Application, -45- schedule, certificate, statement, report, notice or other writing which it believes to be genuine or to have been presented by a proper person. Neither the Agent nor any of its directors, officers, employees or agents shall (a) be responsible for any recitals, representations or warranties contained in, or for the execution, validity, genuineness, effectiveness or enforceability of, this Agreement, any Revolving Note, any Letter of Credit Application or any other instrument or document delivered hereunder or in connection herewith, (b) be responsible for the validity, genuineness, perfection, effectiveness, enforceability, existence, value or enforcement of any collateral security, (c) be under any duty to inquire into or pass upon any of the foregoing matters, or to make any inquiry concerning the performance by the Company or any other Obligor of its obligations, or (d) in any event, be liable as such for any action taken or omitted by it or them, except for its or their own gross negligence or willful misconduct. The agency hereby created shall in no way impair or affect any of the rights and powers of, or impose any duties or obligations upon BAI in its individual capacity. SECTION 14.4 CREDIT INVESTIGATION. Each Bank acknowledges that it has made such inquiries and taken such care on its own behalf as would have been the case had such Bank's Commitment been granted, the Letters of Credit issued and such Bank's Revolving Loans been made directly by such Bank to the Company without the intervention of the Agent or any other Bank. Each Bank agrees and acknowledges that the Agent makes no representations or warranties about the credit worthiness of the Company or any other party to this Agreement or with respect to the legality, validity, sufficiency or enforceability of this Agreement, any Revolving Note or any Letter of Credit Application. SECTION 14.5 AGENT AND AFFILIATES. The Agent shall have the same rights and powers hereunder as any other Bank and may exercise or refrain from exercising the same as though it were not the Agent, and the Agent and its Affiliates may accept deposits from and generally engage in any kind of business with the Company or any Subsidiary as if the Agent were not the Agent hereunder. SECTION 14.6 RESIGNATION. The Agent may resign as such at any time upon at least 30 days prior notice to the Company and the Banks. In the event of any such resignation, the Banks shall as promptly as practicable appoint a successor Agent. If no successor shall have been so appointed, and shall have accepted such appointment, within 30 days after the giving of notice of such resignation, then the retiring Agent may, on behalf of the Banks, appoint a successor Agent, which shall be a commercial bank organized under the laws of the United States of America having a combined capital, surplus and undivided profits of at least -46- $400,000,000. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from all further duties and obligations under this Agreement. After any resignation pursuant to this SECTION 14.6, the provisions of this SECTION 14 shall inure to the benefit of the retiring Agent as to any actions taken or omitted to be taken by it while it was Agent hereunder. SECTION 15 GENERAL. SECTION 15.1 WAIVER; AMENDMENTS. The provisions of this Agreement and of each other Loan Document may from time to time be amended, modified or waived, if such amendment, modification or waiver is in writing and consented to by the Company and the Required Banks; PROVIDED, however, that no such amendment, modification or waiver which would: (a) modify any requirement hereunder that any particular action be taken by all the Banks or by the Required Banks shall be effective unless consented to by each Bank; (b) modify this SECTION 15.1, change the definition of "Required Banks", increase the Commitments or the Percentage of any Bank, reduce any fees described in Section 5, or extend the Revolving Termination Date shall be made without the consent of each Bank and each holder of a Revolving Note; (c) extend the due date for, or reduce the amount of, any scheduled repayment or prepayment of principal or of interest on any Revolving Loan (or reduce the principal amount of or rate of interest on any Revolving Loan) shall be made without the consent of each Bank and the holder of the Revolving Note evidencing such Revolving Loan; or (d) affect adversely the interests, rights or obligations of the Agent QUA the Agent shall be made without consent of the Agent. No failure or delay on the part of the Agent, any Bank or the, holder of any Revolving Note in exercising any power or right under this Agreement or any other Loan Document shall operate as a waiver thereof, nor shall any single or partial exercise of any such power or right preclude any other or further exercise thereof or the exercise of any other power or right. No notice to or demand on the Company in any case shall entitle it to any notice or demand in similar or other circumstances. No waiver or approval by the Agent, any Bank or the holder of any Revolving Note under this Agreement or any other Loan Document shall, except as may be otherwise stated in such waiver or approval, be applicable to -47- subsequent transactions. No waiver or approval hereunder shall require any similar or dissimilar waiver or approval thereafter to be granted hereunder. SECTION 15.2 CONFIRMATIONS. The Company and each holder of a Revolving Note agree from time to time, upon written request received by it from the other, to confirm to the other in writing (with a copy of each such confirmation to the Agent) the aggregate unpaid principal amount of the Revolving Loans then outstanding under the applicable Revolving Note. SECTION 15.3 NOTICES. Except as otherwise provided in SECTIONS 1.3, 1.4 and 3.3, all notices hereunder shall be in writing (including, without limitation, telex or facsimile transmission) and shall be sent to the applicable party at its address shown below its signature hereto or at such other address as such party may, by written notice received by the other parties hereto, have designated as its address for such purpose. Notices sent by telex or facsimile transmission shall be deemed to have been given when sent; notices sent by mail shall be deemed to have been given three Business Days after the date when sent by registered or certified mail, postage prepaid; and notices sent by hand delivery shall be deemed to have been given when received. SECTION 15.4 COMPUTATIONS. Where the character or amount of any asset or liability or item of income or expense is required to be determined, or any consolidation or other accounting computation is required to be made, for the purpose of this Agreement, such determination or calculation shall, to the extent applicable and except as otherwise specified in this Agreement, be made in accordance with GAAP applied on a basis consistent with those in effect as at the date of the Company's most recent financial statements referred to in SECTION 10.1.1. If there should be any material change in GAAP after the date hereof which materially affects the financial covenants in this Agreement, the parties hereto agree to negotiate in good faith appropriate revisions of such covenants. SECTION 15.5 REGULATION U. Each Bank represents that it in good faith is not relying, either directly or indirectly, upon any Margin Stock as collateral security for the extension or maintenance by it of any credit provided for in this Agreement. SECTION 15.6 COSTS, EXPENSES AND TAXES. The Company agrees to pay on demand (a) all reasonable out-of-pocket costs and expenses of the Agent (including the reasonable fees and out-of-pocket expenses of counsel for the Agent) and (b) all reasonable out-of-pocket costs and expenses (including reasonable attorneys fees and legal expenses and allocated costs of staff counsel) incurred by the Agent and each Bank in connection with the -48- enforcement of this Agreement, the Instruments or any such other documents. Each Bank agrees to reimburse the Agent for such Banks pro rata share (based on its respective Percentage) of any such costs and expenses not paid by the Company. In addition, the Company agrees to pay, and to save the Agent and the Banks harmless from all liability for, any stamp or other taxes which may be payable in connection with the execution and delivery of this Agreement, the borrowings hereunder, the issuance of the Revolving Notes or the execution and delivery of any other documents provided for herein or delivered or to be delivered hereunder or in connection herewith. All obligations provided for in this SECTION 15.6 shall survive repayment of the Revolving Loans, cancellation of the Revolving Notes or any termination of the Commitments or this Agreement. SECTION 15.7 SUBSIDIARY REFERENCES. The provisions of this Agreement relating to Subsidiaries shall apply only during such times as the Company has one or more Subsidiaries. SECTION 15.8 CAPTIONS. Section captions used in this Agreement are for convenience only and shall not affect the construction of this Agreement. SECTION 15.9 INDEMNIFICATION. (a) The Company hereby agrees to indemnify, exonerate and hold each of the Agent and each Bank and each of the officers, directors, employees and agents of each of the Agent and each Bank (collectively herein called the "Bank Parties" and individually each called a "Bank Party") free and harmless from and against any and all actions, causes of action, suits, losses, liabilities, damages and expenses, including, without limitation, reasonable attorneys, fees and disbursements (collectively herein called the "Indemnified Liabilities"), incurred by the Banks or any of them as a result of, or arising out of, or relating to this Agreement, the Revolving Notes, the Letter of Credit Applications, or any other agreements executed and delivered in connection therewith, except for any such Indemnified Liabilities arising on account of any such Bank's gross negligence or willful misconduct. If and to the extent that the foregoing undertaking may be unenforceable for any reason, the Company hereby agrees to make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities which is permissible under applicable law. (b) The Company agrees to reimburse the Agent and each Bank and each of their respective directors, officers, employees and agents (each an "Indemnified Party") against any and all losses, claims, damages, penalties, judgments, liabilities and expenses (including all reasonable attorneys and consultants fees) which any Indemnified Party may pay, incur or become subject to arising out -49- of or relating to the use, handling, emission, discharge, transportation, storage, treatment or disposal of any Hazardous Material at any real property owned, operated or leased by the Company, except to the extent caused by the acts or omissions of any Indemnified Party. All obligations provided for in this SECTION 15.9 shall survive any termination of this Agreement. SECTION 15.10 GOVERNING LAW. This Agreement and each Revolving Note shall be a contract made under and governed by the internal laws of the State of Illinois. Whenever possible each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. All obligations of the Company and rights of the Agent, the Banks and any other holder of a Revolving Note expressed herein or in any Revolving Note shall be in addition to and not in limitation of those provided by applicable law. SECTION 15.11 COUNTERPARTS. This Agreement may be executed in any number of counterparts and by the different parties hereto on separate counterparts and each such counterpart shall be deemed to be an original, but all such counterparts shall together constitute but one and the same Agreement. SECTION 15.12 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the Company, the Banks and the Agent and their respective successors and assigns, and shall inure to the benefit of the Company, the Banks and the Agent and the successors and assigns of the Banks and the Agent. SECTION 15.13 WAIVER OF JURY TRIAL. EACH OF THE COMPANY, THE AGENT AND EACH BANK HEREBY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS AGREEMENT, ANY REVOLVING NOTE, ANY LETTER OF CREDIT APPLICATION, AND ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR ARISING FROM ANY BANKING RELATIONSHIP EXISTING IN WITH THIS AGREEMENT, AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY. SECTION 15.14 SECURITIES LAWS. Each Bank represents that it is the present intention of such Bank to acquire each Revolving Note drawn to its order for its own account and not with a view to the distribution or sale thereof, subject, nevertheless, to the necessity that such Bank remain in control at all times of the disposition of property held by it for its own account; it being understood that the foregoing representation shall not affect the -50- character of the Revolving Loans as commercial lending transactions. [SIGNATURE PAGES FOLLOW] -51- Delivered to Chicago, Illinois, as of the day and year first above written. ALLIED PRODUCTS CORPORATION By: /s/ Kenneth B. Light ----------------------------------- Kenneth B. Light Title: Executive Vice President and Chief Financial Officer By: /s/ Patrick J. Riley ------------------------------------ Patrick J. Riley Title: Vice President and Treasurer 10 South Riverside Plaza Chicago, Illinois 60606 Facsimile No.: (312) 454-9608 Number for confirmation of facsimiles: ( ) ----- ------ ------ Attention: ------------------------ BANK OF AMERICA ILLINOIS, as Agent By: /s/ David A. Johanson -------------------------------- David A. Johanson Title: Vice President Address: 231 South LaSalle Street Chicago, Illinois 60697 Facsimile No.: (312) 765-2193 Number for confirmation of facsimiles: (312) 828-1926 Attention: ------------------------- BANK OF AMERICA ILLINOIS, as a Bank By: /s/ Barbara Hamel ------------------------------ Barbara Hamel Title: Senior Vice President Address: 231 South LaSalle Street Chicago, Illinois 60697 Facsimile No.: (312) 765-2193 Number for confirmation of facsimiles: (312) 828-1926 Attention: ------------------------- LASALLE NATIONAL BANK By: /s/ David Knapp --------------------------------- David Knapp Vice President Address: 120 South LaSalle Street Chicago, Illinois 60603 Facsimile No.: (312) 781-8544 Number for confirmation of facsimiles: (312) 781-8517 Attention: David Knapp EXHIBIT A COMMITMENT LIMITS AND PERCENTAGES
Column I: Column II: Column III: Column IV: Amount of Amount of Letter Total Amount of Revolving Loan of Credit Commitments Percentage Name of Bank Commitment Commitment > BANK OF AMERICA $ 70,000,000 $14,000,000 $70,000,000 70% ILLINOIS LASALLE NATIONAL BANK $ 30,000,000 $ 6,000,000 $30,000,000 30% ---------- ---------- ---------- -- TOTALS $100,000,000 $20,000,000 $100,000,000 100%
EXHIBIT B FORM OF REVOLVING NOTE $ __________________ August __, 1996 Chicago, Illinois On or before the Revolving Termination Date (as defined in the Credit Agreement referred to below), the undersigned, for value received, promises to pay to the order of __________________ at the principal office of BANK OF AMERICA ILLINOIS (the "Agent"), in Chicago, Illinois _______________ Dollars ($_______) or, if less, the aggregate unpaid amount of all Revolving Loans made by the payee to the undersigned pursuant to the Credit Agreement (as shown in the records of the payee or, at the payee's option, on the schedule attached hereto and any continuation thereof). The undersigned further promises to pay interest on the unpaid principal amount of each Revolving Loan evidenced hereby from the date of such Revolving Loan until such Revolving Loan is paid in full, payable at the rate(s) and at the time(s) set forth in the Credit Agreement. Payments of both principal and interest are to be made in lawful money of the United States of America. This Revolving Note evidence indebtedness incurred under, and is subject to the terms and provisions of, the Amended and Restated Credit Agreement, dated as of August 16, 1996 (herein, as further amended or otherwise modified from time to time, called the "Credit Agreement"), between the undersigned, various banks (including the payee) and the Agent, to which Credit Agreement reference is hereby made for a statement of the terms and provisions under which this Revolving Note may or must be paid prior to its due date or may have its due date accelerated. Terms used but not otherwise defined herein are used herein as defined in the Credit Agreement. In addition to and not in limitation of the foregoing and the provisions of the Credit Agreement, the undersigned further agrees, subject only to any limitation imposed by applicable law, to pay all reasonable expenses, including reasonable attorneys' fees and legal expenses, incurred by the holder of this Revolving Note in endeavoring to collect any amounts payable hereunder which are not paid when due, whether by acceleration or otherwise. This Revolving Note is made under and governed by the internal laws of the State of Illinois. This Note is issued in replacement of a Note issued pursuant to a Credit Agreement dated as of March 17, 1994, as amended. The indebtedness evidenced by this Note represents an extension and renewal of indebtedness owing to the payee. ALLIED PRODUCTS CORPORATION By: --------------------------- Title: ------------------------ Schedule Attached to Revolving Note dated August 16, 1996 of THE COMPANY payable to the order of - -------------------------------------------------------------------------------- Date and Amount Date and Amount of Revolving of Repayment or Loan or of of Conversion Conversion from into another Unpaid Notation Made another type of type of Interest Principal by Revolving Loan Revolving Loan Period Balance 1. FLOATING RATE LOANS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2. EURODOLLAR LOANS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- EX-10.B 3 CONSENT TO STOCK REPURCHASES EXHIBIT 10B November 27, 1996 Allied Products Corporation 10 South Riverside Plaza Chicago, Illinois 60606 Re: CONSENT TO STOCK REPURCHASES Ladies and Gentlemen: We make reference to that certain Amended and Restated Credit Agreement, dated as of August 23, 1996 (as or amended or modified from time to time, the "Credit Agreement"), among Allied Products Corporation (the "Borrower"), the banks named therein (the "Banks") and Bank of America Illinois, as agent for the Banks (the "Administrative Agent"). Capitalized terms used herein and not otherwise defined shall have the respective meanings provided in the Credit Agreement. We understand that the Borrower contemplates repurchasing shares of its capital stock in an amount not to exceed $35,000,000. As a result, the Borrower has requested that the undersigned consent to such repurchases of capital stock. Each of the undersigned hereby agrees and consents that Section 10.5 of the Credit Agreement shall be deleted in its entirety and replaced with the following: "SECTION 10.5 NET WORTH. Not permit the Company's Consolidated Net Worth at any time to be less than (a) $103,436,000 PLUS (b) fifty percent (50%) of the Company's positive consolidated net income for each Fiscal Quarter ended after June 30, 1996, LESS (c) repurchases by the Company of its capital stock to the extent such repurchases do not exceed $35,000,000 in the aggregate." Notwithstanding anything contained in the foregoing to the contrary, the consent granted hereunder will not in any way operate as an amendment or modification of the Credit Agreement or any other Loan Document or a consent or waiver with respect to any existing or future Default not specifically enumerated above. If the foregoing is in accordance with your understanding and is acceptable to you, please so indicate by executing this letter in the space provided below and returning it to the Administrative Agent for the benefit of the Banks. Very truly yours, BANK OF AMERICA ILLINOIS, as Agent By: /s/ David A. Johanson ----------------------------- Name: David A. Johanson ----------------------------- Title: Vice President ----------------------------- BANK OF AMERICA ILLINOIS, as a Bank By: /s/ Barbara Hamel --------------------------- Name: Barbara Hamel ----------------------------- Title: Sr. Vice President ----------------------------- LASALLE NATIONAL BANK By: /s/ David Knapp ----------------------------- Name: David Knapp ----------------------------- Title: Vice President ----------------------------- Agreed and Accepted this 27th day November, 1996: ALLIED PRODUCTS CORPORATION By: /s/ Patrick J. Riley --------------------------------- Name: Patrick J. Riley --------------------------------- Title: Vice President - Treasurer --------------------------------- By: /s/ David B. Corwine ------------------------------ Name: David B. Corwine --------------------------------- Title: Vice President & Secretary --------------------------------- -2- EX-11 4 COMPUTATION OF EARNINGS PER SHARE EXHIBIT 11 PAGE 1 ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES COMPUTATION OF PRIMARY EARNINGS PER SHARE (ALL DOLLARS ROUNDED TO THE NEAREST $1,000, EXCEPT PER SHARES AMOUNTS)
INCOME FROM LOSS ON CONTINUING DISCONTINUED NET SHARES OPERATIONS OPERATIONS INCOME ------- ----------- ------------- ---------- FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1996 Income $19,004,000 $ - $19,004,000 Weighted average of outstanding shares of common stock 9,014,000 - - - ------------ ----------- ------------ ----------- 9,014,000 $19,004,000 $ - $19,004,000 ------------ ----------- ------------ ----------- ------------ ----------- ------------ ----------- Earnings per common share $ 2.11 $ - $ 2.11 ----------- ------------ ----------- ----------- ------------ ----------- FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1995 Income $33,989,000 $ - $33,989,000 Dividend requirements on Series B preferred stock (268,000) - (268,000) Dividend requirements on Series C preferred stock (932,000) - (932,000) Weighted average of outstanding shares of common stock 9,126,000 - - - Effect of assumed exercise of outstanding stock options 288,000 - - - ------------ ----------- ------------ ----------- 9,414,000 $32,789,000 $ - $32,789,000 ------------ ----------- ------------ ----------- ------------ ----------- ------------ ----------- Earnings per common share $3.48 $ - $ 3.48 ----------- ------------ ----------- ----------- ------------ -----------
EXHIBIT 11 PAGE 2 ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES COMPUTATION OF PRIMARY EARNINGS PER SHARE (ALL DOLLARS ROUNDED TO THE NEAREST $1,000, EXCEPT PER SHARES AMOUNTS)
INCOME FROM LOSS ON CONTINUING DISCONTINUED NET SHARES OPERATIONS OPERATIONS INCOME ------- ----------- ------------- ---------- FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1994 Income (loss) $19,687,000 $(5,354,000) $14,333,000 Dividend requirements on Series B preferred stock (574,000) - (574,000) Dividend requirements on Series C preferred stock (1,319,000) - (1,319,000) Weighted average of outstanding shares of common stock 9,102,000 - - - ---------- ----------- ------------ ----------- 9,102,000 $17,794,000 $ (5,354,000) $12,440,000 ---------- ----------- ------------ ----------- ---------- ----------- ------------ ----------- Earnings (loss) per common share $ 1.96 $ (.59) $ 1.37 ----------- ------------ ----------- ----------- ------------ -----------
EXHIBIT 11 PAGE 3 ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES COMPUTATION OF FULLY DILUTED EARNINGS PER SHARE (ALL DOLLARS ROUNDED TO THE NEAREST $1,000, EXCEPT PER SHARES AMOUNTS)
INCOME FROM LOSS ON CONTINUING DISCONTINUED NET SHARES OPERATIONS OPERATIONS INCOME ------- ----------- ------------- ---------- FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1996 Income $ 19,004,000 $ - $ 19,004,000 Weighted average of outstanding shares of common stock 9,014,000 - - - ----------- ------------ ------------ ------------ 9,014,000 $ 19,004,000 $ - $ 19,004,000 ----------- ------------ ------------ ------------ ----------- ------------ ------------ ------------ Earnings per common share $ 2.11 $ - $ 2.11 ------------ ------------ ------------ ------------ ------------ ------------ FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1995 Income $ 33,989,000 $ - $33,989,000 Dividend requirements on Series B preferred stock (268,000) - (268,000) Dividend requirements on Series C preferred stock (932,000) - (932,000) Weighted average of outstanding shares of common stock 9,126,000 - - - Effect of assumed exercise of outstanding stock options 368,000 - - - ----------- ------------ ------------ ------------ 9,494,000 $ 32,789,000 $ - $ 32,789,000 ----------- ------------ ------------ ------------ ----------- ------------ ------------ ------------ Earnings per common share $ 3.45 $ - $ 3.45 ------------ ------------ ------------ ------------ ------------ ------------
EXHIBIT 11 PAGE 4 ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES COMPUTATION OF FULLY DILUTED EARNINGS PER SHARE (ALL DOLLARS ROUNDED TO THE NEAREST $1,000, EXCEPT PER SHARES AMOUNTS)
INCOME FROM LOSS ON CONTINUING DISCONTINUED NET SHARES OPERATIONS OPERATIONS INCOME ------- ----------- ------------- ---------- FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1994 Income (loss) $19,687,000 $ (5,354,000) $14,333,000 Dividend requirements on Series B preferred stock (574,000) - (574,000) Dividend requirements on Series C preferred stock (1,319,000) - (1,319,000) Weighted average of outstanding shares of common stock 9,102,000 - - - ---------- ----------- ------------ ----------- 9,102,000 $17,794,000 $ (5,354,000) $12,440,000 ---------- ----------- ------------ ----------- ---------- ----------- ------------ ----------- Earnings (loss) per common share $ 1.96 $ (.59) $ 1.37 ----------- ------------ ----------- ----------- ------------ -----------
EX-21 5 SUBSIDIARIES OF THE REGISTRANT EXHIBIT 21
State or Other % Of Jurisdiction Securities In Which Owned by Subsidiaries of Registrant (1) Incorporated Registrant - ------------------------------------------------------------------------------------ Allied Products Finance Corporation Delaware 100% (2) Aurora Corporation of Illinois . . . . . . . . . Illinois 100% (2)
(1) Unnamed subsidiaries considered in the aggregate do not constitute a significant subsidiary. (2) Subsidiary included in consolidated financial statements. 02/27/97 EX-23 6 CONSENT OF INDEPENDENT ACCOUNTS EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in this Allied Products Corporation registration statement on Form S-8 of our report, dated February 6 1997, on our audits of the consolidated financial statements and financial statement schedule of Allied Products Corporation and consolidated subsidiaries as of December 31, 1996 and 1995 and for the three years in the period ended December 31, 1996, which report is included in the 1996 Annual Report of Form 10-K. COOPERS & LYBRAND L.L.P. Chicago, Illinois March 6, 1997 EX-24 7 POWER OF ATTORNEY EXHIBIT 24 POWER OF ATTORNEY WHEREAS, ALLIED PRODUCTS CORPORATION, a Delaware corporation (herein referred to as the "Company"), is about to file with the Securities and Exchange Commission, under the provisions of the Securities Exchange Act of 1934, as amended, its annual report on Form 10-K for the year ended December 31, 1996 and WHEREAS, each of the undersigned holds the office or offices in the Company hereinbelow set opposite his name, respectively; NOW THEREFORE, each of the undersigned hereby constitutes and appoints KENNETH B. LIGHT and DAVID B. CORWINE, and each of them individually, his attorney, with full power to act for him and in his name, place and stead, to sign his name in the capacity or capacities set forth below to said Form 10-K and to any and all amendments thereto, and hereby ratifies and confirms all said attorney may or shall lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned have hereunto set their hands this 12th day of March, 1997. Richard A. Drexler, Chairman of the Board, President and Chief /s/Richard A. Drexler Executive Officer; Director --------------------------- Kenneth B. Light, Executive Vice President and Chief Financial /s/Kenneth B. Light Officer, Chief Administrative --------------------------- Officer, Director Robert J. Fleck, Vice President - Accounting and Chief Accounting /s/Robert J. Fleck Officer --------------------------- Lloyd A. Drexler, Director /s/Lloyd A. Drexler --------------------------- William D. Fischer, Director /s/William D. Fischer --------------------------- Stanley J. Goldring, Director /s/Stanley J. Goldring --------------------------- John E. Jones, Director /s/John E. Jones --------------------------- John W. Puth, Director /s/John W. Puth --------------------------- Mitchell I. Quain, Director /s/Mitchell I. Quain --------------------------- S. S. Sherman, Director /s/S. S. Sherman --------------------------- EX-27 8 FINANCIAL DATA SCHEDULE
5 1,000 12-MOS DEC-31-1996 JAN-01-1996 DEC-31-1996 833 0 53,543 629 56,790 125,260 89,434 51,048 171,949 74,460 489 0 0 94 93,359 171,949 274,414 274,414 209,118 209,118 35,588 214 1,557 29,708 10,704 19,004 0 0 0 19,004 2.11 2.11
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