-----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, F9xHzn2E/oIRqq/M+OX6r1Zg5dobFtLcixffvumMrz++BOMnxhB+gHBpiSuZVk3Q cirKowVSy23p5QUdX2gCnA== 0000912057-00-012330.txt : 20000321 0000912057-00-012330.hdr.sgml : 20000321 ACCESSION NUMBER: 0000912057-00-012330 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20000101 FILED AS OF DATE: 20000320 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HON INDUSTRIES INC CENTRAL INDEX KEY: 0000048287 STANDARD INDUSTRIAL CLASSIFICATION: OFFICE FURNITURE (NO WOOD) [2522] IRS NUMBER: 420617510 STATE OF INCORPORATION: IA FISCAL YEAR END: 0102 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-14225 FILM NUMBER: 573374 BUSINESS ADDRESS: STREET 1: 414 EAST THIRD STREET - PO BOX 1109 CITY: MUSCATINE STATE: IA ZIP: 52761-7109 BUSINESS PHONE: 3192647400 MAIL ADDRESS: STREET 1: 414 EAST THIRD STREET STREET 2: P O BOX 1109 CITY: MUSCATINE STATE: IA ZIP: 52761 FORMER COMPANY: FORMER CONFORMED NAME: HOME O NIZE CO DATE OF NAME CHANGE: 19681001 10-K 1 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-K (Mark One) X ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE - ------------- SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended January 1, 2000 OR - ------------- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 0-2648 HON INDUSTRIES INC. An Iowa Corporation IRS Employer No. 42-0617510 414 East Third Street P. O. Box 1109 Muscatine, IA 52761-0071 319/264-7400 Securities registered pursuant to Section 12(b) of the Act: None. Securities registered pursuant to Section 12(g) of the Act: Common Stock, with Par Value of $1.00 Per Share. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- ----- 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. ---- The aggregate market value of the voting stock held by nonaffiliates of the registrant, as of March 1, 2000, was: $795,627,354, assuming all 5% holders are affiliates. The number of shares outstanding of the registrant's common stock, as of March 1, 2000, was: 60,164,262. DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's Proxy Statement dated March 20, 2000, for the May 1, 2000, Annual Meeting of Shareholders are incorporated by reference into Part III. Index of Exhibits is located on Page 55. -1- ANNUAL REPORT ON FORM 10-K TABLE OF CONTENTS PART I PAGE Item 1. Business.................................................... 1 Item 2. Properties.................................................. 11 Item 3. Legal Proceedings........................................... 13 Item 4. Submission of Matters to a Vote of Security Holders......... 13 Table I - Executive Officers of the Registrant.............. 14 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters......................................... 15 Item 6. Selected Financial Data -- Eleven-Year Summary.............. 16 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations................................... 18 Item 7A. Quantitative and Qualitative Disclosures About Market Risk.. 24 Item 8. Financial Statements and Supplementary Data................. 24 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure......................... 24 PART III Item 10. Directors and Executive Officers of the Registrant.......... 25 Item 11. Executive Compensation...................................... 25 Item 12. Securities Ownership of Certain Beneficial Owners and Management....................................... 25 Item 13. Certain Relationships and Related Transactions.............. 25 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K................................................. 26 Signatures .......................................................... 28 Financial Statements.................................................. 31 Financial Statement Schedules......................................... 54 Index of Exhibits..................................................... 55 -2- ANNUAL REPORT ON FORM 10-K PART I ITEM 1. BUSINESS - ----------------- GENERAL HON INDUSTRIES Inc. ("HON" or the "Company") is an Iowa corporation incorporated in 1944. The Company is a national manufacturer and marketer of office furniture and hearth products. Approximately 84% of fiscal year 1999 net sales were in office furniture and 16% in hearth products. A broad office furniture product offering is sold through a national system of dealers, wholesalers, warehouse clubs, retail superstores, end-user customers, and to federal and state governments. Dealer, wholesaler, and retail superstores are the major channels based on sales. Hearth products include wood-, pellet-, and gas-burning factory-built fireplaces, fireplace inserts, stoves, and gas logs. These products are sold through a national system of dealers, wholesalers, and large regional contractors. In fiscal 1999, the Company had net sales of $1.8 billion, of which approximately $1.5 billion was attributable to office furniture products and $.3 billion was attributable to hearth products. Please refer to Operating Segment Information in the Notes to Consolidated Financial Statements for further information about operating segments. The Company is organized into a corporate headquarters and operating units with offices, manufacturing plants, distribution centers, and sales showrooms in the United States, Canada, and Mexico. See Item 2. Properties for additional related discussion. Five operating units, marketing under various brand names, participate in the office furniture industry. These operating units include: The HON Company, Allsteel Inc., The Gunlocke Company, Holga Inc., and BPI Inc. Each of these operating units manufactures and markets products which are sold through various channels of distribution and segments of the industry. Hearth Technologies Inc. was created in October 1996 with the acquisition of Heat-N-Glo Fireplace Products, Inc. and its subsequent integration with the Company's Heatilator operation. On February 20, 1998, the Company acquired Aladdin Steel Products, Inc., a manufacturer of wood-, pellet-, and gas-burning stoves and inserts, for a purchase price of $10.2 million. This acquisition is also being operated by Hearth Technologies Inc. HON International Inc. markets selected products manufactured by the other various HON INDUSTRIES operating units outside the United States and Canada. During 1997, the Company completed three office furniture acquisitions: Allsteel Inc. (June 17); Bevis Custom Furniture, Inc. (November 13); and Panel Concepts, Inc. (December 1) for a combined total purchase price of approximately $119.5 million. These acquisitions each added new products, product line extensions, manufacturing and distribution capacity, new customers, and a quality work force. Allsteel operates as a separate unit, Bevis operates under The HON Company, and Panel Concepts operates under BPI Inc. On February 29, 2000, the Company finalized the acquisition of two leading hearth products distributors, American Fireplace Company (AFC) and the Allied Group (Allied). AFC and Allied, with combined 1999 sales of nearly $200 million, will be joined to form Hearth Services Inc., a new subsidiary of Hearth Technologies Inc. AFC and Allied sell, install, and service a broad range of gas- and wood-burning fireplaces as well as fireplace mantels, surrounds, facings, and other accessories. Further details of the transaction will be included in the Company's SEC Quarterly Report on Form 10-Q for the first quarter ended April 1, 2000. Since its inception, the Company has been committed to improvement in manufacturing and in 1992 introduced its process improvement approach known as Rapid Continuous Improvement ("RCI") which focuses on streamlining design, manufacturing, and administrative processes. The Company's RCI program, in which most members participate, has contributed to increased productivity, lower manufacturing costs, and improved product quality and workplace safety. In addition, the Company's RCI efforts enable it to offer short average lead times, from receipt of order to shipment, for most of its products. The Company's ability to apply RCI techniques to reduce order cycle time, manufacturing costs, -3- and enhance value allows its products to be sold at prices lower than those offered for competing products. The Company distributes its products through an extensive network of independent office furniture dealers, office products dealers, wholesalers and retailers. The Company is a supplier of office furniture to each of the largest nationwide chains of office products dealers, or "mega-dealers," which are Boise Cascade Corporation; U.S. Office Products Company; Corporate Express Inc./BT; Office Depot Inc.-Business Services Division; and Staples Commercial Advantage, and to the Office Depot, Staples, and Office Max superstores. The Company offers reduced freight costs and complete order delivery, regardless of the order size or combination of products, by manufacturing at multiple locations and combining products throughout the United States. The Company's product development efforts are focused on reducing the cost to manufacture existing products, and on designing new products that provide additional features and top quality. Over 45% of the Company's 1999 net sales were from products introduced in the past three years. An important element of the Company's success has been its ability to attract, develop and retain skilled, experienced and efficient members. Each of the Company's eligible members owns stock in the Company through a number of stock-based plans, including a member stock purchase plan, an ESOP, and a profit-sharing plan. In addition, most production members are eligible for incentive bonuses. For further financial-related information with respect to acquisitions, dispositions, and Company operations in general, refer to Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, and the following captions included in the Notes to Consolidated Financial Statements, which are filed as part of this report: Nature of Operations, Business Combinations, Business Disposition, and Operating Segment Information. Statements in this report that are not strictly historical, including statements as to plans, objectives, and future financial performance, are "forward-looking" statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks, which may cause the Company's actual results in the future to differ materially from expected results. These risks include, among others, competition within the office furniture and fireplace industries; the relationship between supply and demand for value-priced office products, as well as direct vent gas- and wood-burning fireplaces; the effects of economic conditions; issues associated with the acquisition and integration of acquisitions; operating risks; the ability of the Company to realize cost savings and productivity improvements; the ability of the Company's distributors to successfully market and sell the Company's products; and the availability and cost of capital to finance planned growth; as well as the risks, uncertainties, and other factors described from time to time in the Company's filings with the Securities and Exchange Commission. INDUSTRY According to the Business and Institutional Furniture Manufacturer's Association ("BIFMA"), U.S. office furniture industry shipments are estimated to be approximately $12,240,000,000 in 1999, a decrease of 1% over 1998. The Company believes that the decrease was due to lower profits in mature industries and a shifting of corporate investment into technology, a significant part of which was to address Year 2000 concerns pertaining to computer software that uses two-digit dates. The U.S. office furniture market consists of two primary segments--the project segment and the transactional segment. The project segment has traditionally been characterized by one-time sales of large quantities of office furniture to large corporations, such as for new office facilities, relocations, or department or office redesigns, which are frequently customized to meet specific client and designer preferences. Project furniture is generally purchased through office furniture dealers who typically prepare a custom-designed office layout emphasizing image and design. The process is often lengthy and generally has several manufacturers competing for the same projects. Overhead and support associated with the sales and customization efforts in this segment are major reasons why the prices for project office furniture have traditionally been relatively high. The transactional segment of the market, in which the Company is a leader, primarily represents smaller orders of office furniture purchased by businesses and home office users on the basis of price, quality, selection and quick delivery. Office products dealers, wholesalers and retailers, such as office products superstores, are the primary distribution channels in this market segment. Office products dealers (many of whom also participate in the project segment of the market) publish periodic catalogs that display office furniture and products from various manufacturers. -4- GROWTH STRATEGY The Company's strategy is to build on its position as a leading manufacturer of value-priced office furniture and hearth products in North America. The components of this growth strategy are to introduce new value-priced products, continually improve productivity, leverage the distribution network, and pursue complementary strategic acquisitions. EMPLOYEES/MEMBERS As of January 1, 2000, the Company employed approximately 10,100 persons, 9,500 of whom were members and 600 of whom were temporary personnel. Of the approximately 10,100 persons employed by the Company, 6,100 were in the Company's manufacturing operations. The Company employed approximately 500 members who were members of unions. The Company believes that its labor relations are good. PRODUCTS OFFICE FURNITURE The Company designs, manufactures, and markets a broad range of office furniture in four basic categories: (i) filing cabinets; (ii) seating, including task chairs, executive desk chairs, and side chairs; (iii) office systems (typically modular and moveable workspaces with integrated work surfaces, space dividers, and lighting); and (iv) desks and related products, including tables, bookcases, and credenzas. The Company's products are sold through the Company's wholly owned subsidiaries - The HON Company, Allsteel Inc., The Gunlocke Company, Holga Inc., and BPI Inc. The Company's office furniture products are generally available in contemporary as well as traditional styles and are priced to sell in different channels of distribution and at different price points. The Company's products are offered in many models, sizes, designs, and finishes and are constructed from both wood and nonwood materials. The following is a description of the Company's major product categories and product lines: FILING CABINETS The Company offers a variety of filing options designed either to be integrated into and support the Company's office systems products or to function as freestanding furniture in commercial and home offices. The Company believes it is the largest manufacturer and marketer of mid-priced steel filing cabinets in the United States. The Company sells most of its freestanding files through independent office products and office furniture dealers, nationwide chains of office products dealers, wholesalers, office products superstores, warehouse clubs, and mail order distributors. Higher priced files are sold through project-oriented office furniture dealers. SEATING The Company's seating line includes task chairs designed for different kinds of office work, such as secretarial, computer, clerical, laboratory and executive, guest chairs, conference and reception room seating, and stackable chairs. The chairs are available in a variety of frame colors, a multitude of fabrics, and a wide range of price points. Key customer criteria in seating includes superior ergonomics, aesthetics, comfort and quality. Gunlocke is one of the few remaining companies that continues to make curved wood legs, arms and backs through the steambending process which produces strong and attractive seating components. -5- OFFICE SYSTEMS The Company offers a complete line of office panel systems products in order to meet the needs of a variety of organizations. Systems may be used for team worksettings, private offices and open floor plans, and are typically modular and movable workspaces composed of adjustable partitions, work surfaces, desk extensions, storage cabinets and electrical lighting systems which can be moved, reconfigured and reused within the office. Panel systems offer a cost-effective and flexible alternative to traditional drywall office construction. The Company has experienced increased demand for furniture systems able to accommodate new work arrangements such as team workspaces and workspaces shared by several employees who are frequently out of the office. A typical installation of office panels often includes associated sales of seating, casegoods, files, and accessories. The Company offers whole office solutions, movable panels, storage units, and work surfaces that can be installed easily and reconfigured to accommodate growth and change in organizations. The Company also offers consultative selling and design services for certain of its office system products. The compelling value of the Company's systems lines is that these products are styled and featured similar to those of premium-priced contract systems manufacturers but are offered at substantially lower prices. DESKS AND RELATED PRODUCTS The Company's collection of desks and related products include stand-alone steel and wood furniture items, such as desks, bookshelves and credenzas, and are available in a range of designs and price points. The Company offers these products in both contemporary and traditional styles. The Company's desks and related products are sold to a wide variety of customers from those designing large office configurations to small retail and home office purchasers. The Company offers a variety of contemporary and traditional tables designed for use in conference rooms, private offices, training areas, team worksettings and open floor plans. Tables are produced in wood veneer and laminate and are available in numerous sizes, shapes and base styles. HEARTH PRODUCTS The Company is the largest U.S. manufacturer and marketer of metal prefabricated fireplace and related products, primarily for the home, which it sells under the widely recognized Heatilator, Heat-N-Glo, Arrow-Dovre, and Aladdin brand names. Products bearing these brands are marketed by the Company's three hearth products companies, Heatilator, Heat-N-Glo, and Aladdin. Each manufactures and markets its products separately and is part of the Company's Hearth Technologies Inc. subsidiary. The Company's line of hearth products includes wood- and gas-burning fireplaces and stoves, fireplace inserts, chimney systems, and related accessories. Heatilator and Heat-N-Glo are leaders in the two largest segments of the home fireplace market: vented-gas and wood fireplaces. Heat-N-Glo is the leader in "direct vent" fireplaces, which replace the chimney-venting system used in traditional fireplaces with a less expensive clothes-dryer-type vent through an outer wall. See Business - Intellectual Property. MANUFACTURING The HON Company manufactures office furniture in Alabama, California, Georgia, Iowa, Kentucky, North Carolina, Pennsylvania, Virginia, and Monterrey, Mexico. Allsteel Inc. manufactures office furniture in Iowa, Mississippi, Pennsylvania, and Tennessee. Holga Inc. manufactures office furniture in California. The Gunlocke Company manufactures office furniture in New York. Hearth Technologies Inc. manufactures hearth products in Iowa, Minnesota, Washington, and Calgary, Canada. The Company purchases raw materials and components from a variety of vendors, and generally most items are available from multiple sources. Major raw materials and components include coil steel, bar stock, castings, lumber, veneer, particle board, fabric, paint, lacquer, hardware, rubber products, plastic products, and shipping cartons. -6- Since its inception, the Company has focused on making its manufacturing facilities and processes more flexible while at the same time reducing costs and improving product quality. In 1992, the Company adopted the principles of RCI, which focus on developing flexible and efficient design, manufacturing and administrative processes that remove excess cost. To achieve flexibility and attain efficiency goals, the Company has adopted a variety of production techniques including cell manufacturing, focused factories, just-in-time inventory management and value engineering. The application of the RCI process has increased productivity by reducing set-up and processing times, square footage, inventory levels, product costs and delivery times, while improving quality and enhancing member safety. The Company's RCI process involves production and administrative employees, management, customers and suppliers. The Company has facilitators, coaches and consultants dedicated to the RCI process and strives to involve all members in the RCI process. In addition, the Company has organized a group that designs, fabricates, tests and installs proprietary manufacturing equipment. Manufacturing also plays a key role in the Company's concurrent product development process that primarily seeks to design new products for ease of manufacturability. PRODUCT DEVELOPMENT The Company's product development efforts are primarily focused on reducing the cost to manufacture existing products and designing new products that provide additional features and quality. The Company accomplishes this through improving existing products, extending product lines, applying ergonomic research, improving manufacturing processes, applying alternative materials and providing engineering support and training to its operating units. The Company conducts its product development efforts at both the corporate and operating unit level. At the corporate level, the staff at the Company's Stanley M. Howe Technical Center, working in conjunction with operating staff, seeks breakthrough developments in product design, manufacturability and materials usage. At the operating unit level, development efforts are focused on achieving incremental improvements in product features and manufacturing processes. The Company invested approximately $17.1 million, $15.7 million and $15.4 million in product development during fiscal 1999, 1998, and 1997, respectively, and has budgeted in excess of $19 million for product development in fiscal 2000. INTELLECTUAL PROPERTY As of January 1, 2000, the Company owned 187 U.S. and 92 foreign patents and had applications pending for 23 U.S. and 68 foreign patents. In addition, the Company holds registrations for 122 U.S. and 163 foreign trademarks and has applications pending for 77 U.S. and 51 foreign trademarks. The Company's principal office furniture products do not require frequent technical changes. The majority of the Company's patents are design patents which expire at various times depending on the patent's date of issuance. The Company believes that neither any individual patent nor the Company's patents in the aggregate are material to the Company's business as a whole. When Hearth Technologies Inc. acquired Heat-N-Glo in October 1996, it also acquired its patent for the design of a zero-clearance direct vent gas fireplace (the "direct vent patent"). The direct vent design replaces the traditional top-venting chimney system by permitting the exhaust pipe to traverse a structure's exterior wall. The sealed combustion chamber of the direct vent gas fireplace increases indoor air quality by using outside rather than inside air for combustion, and the direct vent design achieves 70% heating efficiency, which means that the patented direct vent gas fireplaces are an efficient alternative heat source in individual rooms. The direct vent gas fireplaces are highly versatile for use in home design because the direct vent design eliminates the need for a traditional chimney system with top venting, thus opening up the space above the fireplace for use. The Company currently offers numerous product designs that would not be possible without the direct vent technology. Additionally, since a chimney is not employed in the direct vent design, the cost of adding a new fireplace to a home is greatly reduced. The direct vent patent has been successfully enforced against numerous infringers. Hearth Technologies Inc. presently is engaged as a plaintiff in two patent infringement cases involving this patent. Final disposition of these cases is not likely for several years. Although the Company believes that the protection afforded by the direct vent patent is not vital to sustaining Hearth Technologies' gross profit margins on its direct vent gas fireplaces due to other technological innovations that support the direct vent design, the technology that underlies the patent is a significant distinguishing feature for the Company's products. -7- The Company applies for patent protection when it believes the expense of doing so is justified, and believes that the duration of its registered patents is adequate to protect these rights. The Company also pays royalties in certain instances for the use of patents on products and processes owned by others. The Company actively protects its trademarks which it believes have significant goodwill value. SALES AND DISTRIBUTION: CUSTOMERS Over the last ten years, the office products and office furniture industries have experienced substantial consolidation as larger dealers have acquired smaller local and regional dealers. Consolidation permits large dealers to benefit from economies of scale, increased purchasing power, and the elimination of redundant management and overhead expenses. Larger dealers have also been able to take advantage of more sophisticated management techniques designed to enhance customer service, lower costs and increase operating efficiency. At the same time, office products superstores have emerged and replaced local retail office supply stores. The Company believes that these trends may continue to result in fewer, larger dealers and retailers as customers for the Company's products. In 1999, the Company's ten largest customers represented approximately 40% of its consolidated net sales. The substantial purchasing power exercised by large customers may adversely affect the prices at which the Company can successfully offer its products. As a result of this consolidation, changes in the purchase patterns or the loss of a single customer may have a greater impact on the Company's financial results than such events would have had prior to such consolidation. In addition, there can be no assurance that the Company will be able to maintain its customer relationships as consolidation of its customers occur. As a result of these trends, the Company today sells its products through five principal distribution channels. The first channel, independent, local office furniture and office products dealers, specialize in the sale of a broad range of office furniture and office furniture systems, mostly to small- and medium-sized businesses, branch offices of large corporations, and home office owners. The second distribution channel comprises nationwide chains of office products dealers, or "mega-dealers," including Boise Cascade Corporation; U.S. Office Products Company; Corporate Express Inc./BT; Office Depot Inc. - Business Services Division; and Staples Commercial Advantage. Many of the independent dealers and mega-dealer locations assist their customers with the evaluation of office space requirements, systems layout and product selection, and design and office solution services provided by professional designers. The third distribution channel, wholesalers, serve as distributors of the Company's products to independent dealers, mega-dealers and superstores. The Company sells to the nation's largest wholesalers, United Stationers and S.P. Richards, as well as to smaller regional wholesalers. Wholesalers maintain stocks of standard product lines for resale to dealers. They also special order products from the Company in customer-selected models and colors. The Company's wholesalers maintain warehouse locations throughout the United States, which enable the Company to make its products available for rapid delivery to dealers anywhere in the country. One customer, United Stationers, accounted for approximately 13%, 12%, and 12% of the Company's consolidated net sales in 1999, 1998, and 1997, respectively. The fourth distribution channel is retail stores, which include office products superstores such as Office Depot, Office Max, and Staples and warehouse clubs like Sam's Club and Costco. The fifth distribution channel consists of government-focused dealers that sell the Company's products to federal, state and local government offices in accordance with contract terms to which the Company has agreed. As of January 1, 2000, the Company's office furniture sales force consisted of 20 regional sales managers supervising 135 salespersons, plus approximately 45 firms of independent manufacturers' representatives who collectively provided national sales coverage. Sales managers and salespersons are compensated by a combination of salary and incentive bonus. Office products dealers, national wholesalers and retailers market their products through catalogs published periodically and distributed to existing and potential customers. The Company's marketing objective is to gain share in its customers' catalogs. The Company believes that the inclusion of the Company's product lines in customer catalogs offers strong potential for increased sales of the listed product items due to the exposure provided by these publications. -8- The Company also makes export sales through HON International Inc. to approximately 140 office furniture dealers and wholesale distributors serving select foreign markets. Distributors are principally located in Latin America and the Caribbean. The Company has an international field sales organization consisting of a Vice President of Sales and Marketing and four regional managers. Sales outside of the United States and Canada represented approximately 1% of net sales in fiscal 1999. Limited quantities of select finished goods inventories are maintained at the Company's principal manufacturing plants and at its various distribution centers. Hearth Technologies Inc. sells its fireplace and stove products through approximately 3,000 dealers and 510 distributors. The company has a field sales organization of 13 regional sales managers supervising 29 salespersons and 20 firms of independent manufacturers' representatives. As of January 1, 2000, the Company has an order backlog of approximately $131.2 million which will be filled in the ordinary course of business within the current fiscal year. This compares with $97.8 million as of January 2, 1999, and $106.4 million as of January 3, 1998. Backlog, in terms of percentage of net sales, was 7.3%, 5.8%, and 7.8% for fiscal years 1999, 1998, and 1997, respectively. The Company's products are manufactured and shipped within a few weeks following receipt of order. The dollar amount of the Company's order backlog is therefore not considered by management to be a leading indicator of the Company's expected sales in any particular fiscal period. For a discussion of the seasonal nature of the Company's sales, see Operating Segment Information in the Notes to Consolidated Financial Statements. COMPETITION The office furniture industry is highly competitive, with a significant number of competitors offering similar products. The Company competes by emphasizing its ability to deliver compelling value products. In executing this strategy, the Company has two significant classes of competitors. First, the Company competes with numerous small- and medium-sized office furniture manufacturers that focus on more limited product lines and/or end-user segments and include Global Furniture Inc.; Anderson-Hickey Co., Globe Business Furniture and United Chair, Inc., divisions of Haworth, Inc.; National Office Furniture, a division of Kimball Office Furniture Co.; and High Point Furniture Industries, Inc. Second, the Company competes with a small number of large office furniture manufacturers which control a substantial portion of the market share in the project-oriented office furniture market, such as Steelcase Inc.; Haworth, Inc.; Herman Miller, Inc.; and Knoll, Inc. Some of these large competitors have substantially greater assets, resources and capabilities in the traditional project market than the Company. Products and brands offered by these project-oriented office furniture market participants have strong acceptance in the market place and have developed, and may continue to develop, value-priced product designs to compete with the Company. The Company also faces significant price competition from its competitors and may encounter competition from new market entrants. There can be no assurance that the Company will be able to compete successfully in its markets in the future. Hearth products, consisting of prefabricated metal fireplaces and related products, are manufactured by a number of national and regional competitors. A limited number of manufacturers, however, are predominant in this relatively small industry. The Company competes primarily against the larger manufacturers which include CFM/Majestic Inc. (a Canadian company), Lennox Industries Inc. (Superior and Marco brands), Martin Industries Inc., and Fireplace Manufacturers Inc. (FMI). Both office furniture and hearth products compete on the basis of price, product performance, product quality, complete and on-time delivery to the customer, and customer service and support. The Company believes that it competes principally by providing compelling value products designed to be among the best in their price range for product quality and performance, superior customer service, and short lead-times. This is made possible, in part, by the Company's significant on-going investment in product development, highly efficient and low cost manufacturing operations, and an extensive distribution network. -9- The Company is one of the largest office furniture manufacturers in the United States, and believes that it is the largest manufacturer of value-priced furniture. The Company is also the largest manufacturer and marketer of fireplaces in the United States. For further discussion of the Company's competitive situation, refer to Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. EFFECTS OF INFLATION Certain business costs may, from time to time, increase at a rate exceeding the general rate of inflation. The Company's objective is to offset the effect of inflation on its costs primarily through productivity increases in combination with certain adjustments to the selling price of its products as competitive market and general economic conditions permit. Investments are routinely made in modern plants, equipment, support systems, and for Rapid Continuous Improvement programs. These investments collectively focus on increasing productivity which helps to offset the effect of rising material and labor costs. Ongoing cost control disciplines are also routinely employed. In addition, the last-in, first-out (LIFO) valuation method is used for most of the Company's inventories, which ensures the changing material and labor costs are recognized in reported income; and more importantly, these costs are recognized in pricing decisions. ENVIRONMENTAL The Company is subject to a variety of environmental laws and regulations governing discharges of air and water; the handling, storage, and disposal of hazardous or solid waste materials; and the remediation of contamination associated with releases of hazardous substances. Although the Company believes it is in material compliance with all of the various regulations applicable to its business, there can be no assurance that requirements will not change in the future or that the Company will not incur material costs to comply with such regulations. The Company has trained staff responsible for monitoring compliance with environmental, health, and safety requirements. The Company's environmental professionals work with responsible personnel at each manufacturing facility, the Company's environmental legal counsel, and consultants on the management of environmental, health and safety issues. The Company's ultimate goal is to reduce and, when practical, eliminate the creation of hazardous waste in its manufacturing processes. Compliance with federal, state, and local environmental regulations has not had a material effect on the capital expenditures, earnings, or competitive position of the Company to date. The Company does not anticipate that financially material capital expenditures will be required during fiscal year 2000 for environmental control facilities. It is management's judgment that compliance with current regulations should not have a material effect on the Company's financial condition or results of operations. However, the uncertainty of new environmental legislation and technology in this area makes it impossible to know with confidence. For additional information about the Company's environmental matters, refer to Item 3. Legal Proceedings and the Contingencies note in the Notes to Consolidated Financial Statements. BUSINESS DEVELOPMENT The development of the Company's business during the fiscal years ended January 1, 2000, January 2, 1999, and January 3, 1998, is discussed in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. -10- ITEM 2. PROPERTIES - ------------------- The Company maintains its corporate headquarters in Muscatine, Iowa, and conducts its operations at locations throughout the United States, Canada, and Mexico which house manufacturing and distribution operations and offices totaling an aggregate of approximately 8.7 million square feet. Of this total, approximately 1.8 million square feet are leased, including approximately 0.3 million square feet under a capital lease. Although the plants are of varying ages, the Company believes they are well maintained, are equipped with modern and efficient equipment, and are in good operating condition and suitable for the purposes for which they are being used. The Company has sufficient capacity to increase output at most locations by increasing the use of overtime and/or number of production shifts employed. The Company's principal manufacturing and distribution facilities (100,000 square feet in size or larger) are as follows:
APPROXIMATE OWNED OR DESCRIPTION LOCATION SQUARE FEET LEASED OF USE -------- ----------- -------- ----------- Cedartown, Georgia 547,014 Owned Manufacturing wood/nonwood casegoods office furniture (1) Chester, Virginia 382,082 Owned/ Manufacturing nonwood casegoods Leased(2) office furniture (1) Florence, Alabama 308,763 Owned Manufacturing wood casegoods office furniture Jackson, Tennessee 301,000 Leased Manufacturing parts for office furniture (1) Jackson, Tennessee 155,000 Leased Manufacturing nonwood office seating Kent, Washington 189,062 Leased Manufacturing systems office furniture Lake City, Minnesota 235,000 Leased Manufacturing metal prefabricated fireplaces (1) Louisburg, North Carolina 176,354 Owned Manufacturing wood casegoods office furniture Milan, Tennessee 358,000 Leased Manufacturing systems office furniture Monterrey, Mexico 105,000 Owned Manufacturing nonwood office seating Mt. Pleasant, Iowa 288,006 Owned Manufacturing metal prefabricated fireplaces (1) Muscatine, Iowa 286,000 Owned Manufacturing nonwood casegoods office furniture (1) Muscatine, Iowa 578,284 Owned Warehousing office furniture (1) Muscatine, Iowa 236,100 Owned Manufacturing wood casegoods office furniture -11- Muscatine, Iowa 142,850 Owned Manufacturing systems office furniture Muscatine, Iowa 342,850 Owned Manufacturing systems office furniture Muscatine, Iowa 237,800 Owned Manufacturing nonwood office seating Muscatine, Iowa 210,000 Owned Warehousing office furniture Muscatine, Iowa 127,400 Owned Manufacturing wood casegoods office furniture Owensboro, Kentucky 311,575 Owned Manufacturing wood office seating Salisbury, North Carolina 129,000 Owned Manufacturing systems office furniture South Gate, California 520,270 Owned Manufacturing nonwood casegoods and seating office furniture (1) Wayland, New York 692,226 Owned Manufacturing wood casegoods and seating office furniture (1) West Hazleton, Pennsylvania 268,800 Owned Manufacturing nonwood casegoods office furniture Williamsport, Pennsylvania 147,265 Owned Manufacturing wood office seating and casegoods Verona, Mississippi 257,000 Owned Manufacturing systems office furniture
- ---------------- (1) Also includes a regional warehouse/distribution center (2) A capital lease Other Company facilities, under 100,000 square feet in size, are located in Muscatine and Mt. Pleasant, Iowa; Van Nuys and Santa Ana, California; Sulphur Springs, Texas; Winnsboro, South Carolina; Richmond, Virginia; Colville, Washington; and Calgary, Alberta, Canada. These facilities total approximately 1,098,000 square feet with approximately 909,000 square feet used for the manufacture and distribution of office furniture and approximately 189,000 square feet for hearth products. Of this total, approximately 245,000 square feet are leased. Two of these facilities have been vacated and are in the process of being marketed for sale. The Company also leases sales showroom space in office furniture market centers in several major metropolitan areas. The Company has a 40,000 square foot leased plant in Savage, Minnesota, which is subleased. There are no major encumbrances on Company-owned properties other than outstanding mortgages on certain properties, the amount of which is disclosed in the Long-Term Debt note in the Notes to Consolidated Financial Statements, filed as a part of this report. Refer to the Property, Plant, and Equipment note in the Notes to Consolidated Financial Statements for related cost, accumulated depreciation, and net book value data. As of January 1, 2000, the Company has approximately 122,000 additional square feet of office, production and warehousing space at one plant site which is scheduled for completion during 2000. -12- ITEM 3. LEGAL PROCEEDINGS - -------------------------- The Company is involved in certain continuing activities in Pennsylvania to clean-up environmental contamination at one site formerly owned by a subsidiary of the Company. The Pennsylvania environmental authorities are supervising this activity. The costs associated with this site are primarily related to the operation of a groundwater remediation system. These costs have not had a material effect on the financial condition or results of operations of the Company. The Company was a party, along with three other potentially responsible parties, to an Imminent or Substantial Endangerment Order and Remedial Action Order dated April 29, 1994, (the "Order") by the California Department of Toxic Substances Control ("DTSC") in connection with the former Firestone Tire & Rubber Company facility in South Gate, California (the "Firestone Site"). The Company has denied liability, asserting that any contamination on the property relates to operations conducted by others before the Company purchased the property. In June 1999, the Company entered into an agreement with Bridgestone/Firestone, Inc. ("BFS"), the former owner of the Firestone Site. In that agreement, BFS agrees to continue the investigation and clean-up work required by DTSC at its sole expense. It also agrees to hold the Company harmless from any costs related to environmental investigation and remediation required by the Order and from claims by any regulatory agency that the hazardous substances which are the subject of the Order are the source of any off-site ground-water contamination. Investigation and clean-up work at the Firestone Site is being conducted by BFS pursuant to a work plan approved by DTSC, and the Company believes they will continue to do so at their own expense. In September 1999, the DTSC issued an amendment to the Order removing the Company from the Order. Due to such factors as the wide discretion of regulatory authorities regarding clean-up levels and uncertain allocation of liability at multiple party sites, estimates made prior to the approval of a formal plan of action represent management's best judgment as to estimates of reasonably foreseeable expenses based upon average remediation costs at comparable sites. The Company, therefore, has accrued liabilities reflecting management's current, best estimate of the eventual future cost of the Company's anticipated share of remediation costs. That estimate is based upon estimated ranges of remediation costs, the existence of other potentially responsible parties to share in such costs who are financially viable, the Company's experience to date in relation to the determination of its allocable share, the knowledge of the Company that it did not contribute contamination to the sites, and the anticipated periods of time over which such costs may be paid. Recovery of these costs from insurance is not expected. Management believes that the ultimate outcome of these matters will not have a material effect on the Company's financial position or results of operations. For additional information on legal proceedings involving the Company, refer to the Contingencies note included in the Notes to Consolidated Financial Statements. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ------------------------------------------------------------ None. -13-
PART I, TABLE I EXECUTIVE OFFICERS OF THE REGISTRANT JANUARY 1, 2000 Family Name Age Relationship Position ---- --- ------------ -------- Jack D. Michaels 62 None Chairman of the Board President Chief Executive Officer Director Jeffrey D. Fick 38 None Vice President, Member and Community Relations James I. Johnson 51 None Vice President, General Counsel an Secretary Melvin L. McMains 58 None Vice President and Controller Thomas K. Miller 61 None Vice President, Marketing and International President, HON International Inc. David W. Strohl 56 None Vice President, Technical Development David C. Stuebe 59 None Vice President and Chief Financial Officer
PART I, TABLE I EXECUTIVE OFFICERS OF THE REGISTRANT JANUARY 1, 2000 Position Other Business Experience Held Since During Past Five Years ---------- ---------------------- 1996 Chairman, President and Chief Executive 1990 Officer 1991 1990 1997 Secretary and Acting General Counsel (1997); Senior Counsel (1994-97) 1997 General Counsel and Secretary, Norand Corporation, a portable data computing company (1990-97) 1998 Controller (1980-present), 1980 1996 Vice President, Marketing and Distribution (1996); Vice President, Strategic 1996 Development-Office Depot (1995-96), HON INDUSTRIES Inc.; President, Ring King Visibles, Inc. (1991-96) 1993 Vice President, Technical Development 1994 Vice President and Chief Financial Officer Officer
-14- PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS - ------------------------------------------------------------------------------ The Company's common stock is listed for trading on the New York Stock Exchange (NYSE), trading symbol HNI. The Company moved to the NYSE, effective July 2, 1998, from the Nasdaq National Market System where the stock had traded under the symbol HONI. As of year-end 1999, the Company had 6,737 stockholders of record. Harris Trust and Savings Bank, Chicago, Illinois, serves as the Company's transfer agent and registrar of its common stock. Shareholders may report a change of address or make inquiries by writing or calling: Harris Trust and Savings Bank, P.O. Box A3504, Chicago, IL 60690-3504 or telephone 312/360-5346. Common Stock Market Prices and Dividends (Unaudited) and Common Stock Market Price and Price/Earnings Ratio (Unaudited) are presented in the Investor Information section which follows the Notes to Consolidated Financial Statements filed as part of this report. The Company expects to continue its policy of paying regular cash dividends on the first business day of March, June, September, and December. Dividends have been paid each quarter since the Company paid its first dividend in 1955. The average dividend payout percentage for the most recent three-year period has been 23% of prior year earnings. Future dividends are dependent on future earnings, capital requirements, and the Company's financial condition. -15- HON INDUSTRIES INC. AND SUBSIDIARIES ITEM 6. SELECTED FINANCIAL DATA -- ELEVEN-YEAR SUMMARY - -------------------------------------------------------
1999 1998 1997 - --------------------------------------------------------------------------------------------------------------- PER COMMON SHARE DATA Income before Cumulative Effect of Accounting Changes $ 1.44 $ 1.72 $ 1.45 Cumulative Effect of Accounting Changes - - - Net Income 1.44 1.72 1.45 Cash Dividends .38 .32 .28 Book Value 8.33 7.54 6.19 Net Working Capital 1.52 1.19 1.53 - --------------------------------------------------------------------------------------------------------------- OPERATING RESULTS (THOUSANDS OF DOLLARS) Net Sales $ 1,789,281 $ 1,696,433 $ 1,362,713 Cost of Products Sold 1,236,612 1,172,997 933,157 Gross Profit 552,669 523,436 429,556 Interest Expense 9,712 10,658 8,179 Income before Income Taxes 137,575 170,109 139,128 Income before Income Taxes as a % of Net Sales 7.69% 10.03% 10.21% Federal and State Income Taxes $ 50,215 $ 63,796 $ 52,173 Effective Tax Rate 36.5% 37.50% 37.50% Income before Cumulative Effect of Accounting Changes $ 87,360 $ 106,313 $ 86,955 Net Income 87,360 106,313 86,955 Net Income as a % of Net Sales 4.88% 6.27% 6.38% Cash Dividends and Share Purchase Rights Redeemed $ 23,112 $ 19,730 $ 16,736 Addition to (Reduction of) Retained Earnings 64,248 86,583 37,838 Net Income Applicable to Common Stock 87,360 106,313 86,955 % Return on Average Shareholders' Equity 18.14% 25.20% 27.43% Depreciation and Amortization $ 65,453 $ 52,999 $ 35,610 - --------------------------------------------------------------------------------------------------------------- DISTRIBUTION OF NET INCOME % Paid to Shareholders 26.46% 18.56% 19.25% % Reinvested in Business 73.54% 81.44% 80.75% - --------------------------------------------------------------------------------------------------------------- FINANCIAL POSITION (THOUSANDS OF DOLLARS) Current Assets $ 316,556 $ 290,329 $ 295,150 Current Liabilities 225,123 217,438 200,759 Working Capital 91,433 72,891 94,391 Net Property, Plant, and Equipment 455,591 444,177 341,030 Total Assets 906,723 864,469 754,673 % Return on Beginning Assets Employed 16.94% 23.74% 28.27% Long-Term Debt and Capital Lease Obligations $ 124,173 $ 135,563 $ 134,511 Shareholders' Equity 501,271 462,022 381,662 Retained Earnings 416,034 351,786 265,203 Current Ratio 1.41 1.34 1.47 - --------------------------------------------------------------------------------------------------------------- CURRENT SHARE DATA Number of Shares Outstanding at Year-End 60,171,753 61,289,618 61,659,316 Weighted-Average Shares Outstanding During Year 60,854,579 61,649,531 59,779,508 Number of Shareholders of Record at Year-End 6,737 5,877 5,399 - --------------------------------------------------------------------------------------------------------------- OTHER OPERATIONAL DATA Capital Expenditures-- Net (Thousands of Dollars) $ 71,474 $ 149,717 $ 85,491 Members (Employees) at Year-End 10,095 9,824* 9,390* - ---------------------------------------------------------------------------------------------------------------
*Includes acquisitions completed during year -16-
1996 1995 1994 1993 1992 1991 1990 1989 - ------------------------------------------------------------------------------------------------------------------- $ 1.13 $ .67 $ .87 $ .69 $ .59 $ .51 $ .65 $ .39 - - - .01 - - - - 1.13 .67 .87 .70 .59 .51 .65 .39 .25 .24 .22 .20 .19 .18 .15 .12 4.25 3.56 3.17 2.83 2.52 2.32 2.03 1.88 .89 1.07 1.27 1.23 1.23 1.07 .82 .83 - ------------------------------------------------------------------------------------------------------------------- $ 998,135 $ 893,119 $ 845,998 $ 780,326 $ 706,550 $ 607,710 $ 663,896 $ 602,009 679,496 624,700 573,392 537,828 479,179 411,168 458,522 409,942 318,639 268,419 272,606 242,498 227,371 196,542 205,374 192,067 4,173 3,569 3,248 3,120 3,441 3,533 3,611 3,944 105,267 65,517 86,338 70,854 61,893 52,653 69,085 44,656 10.55% 7.34% 10.21% 9.08% 8.76% 8.66% 10.41% 7.42% $ 37,173 $ 24,419 $ 31,945 $ 26,216 $ 23,210 $ 19,745 $ 25,907 $ 17,193 35.31% 37.27% 37.00% 37.00% 37.50% 37.50% 37.50% 38.50% $ 68,094 $ 41,098 $ 54,393 $ 44,638 $ 38,683 $ 32,908 $ 43,178 $ 27,463 68,094 41,098 54,156 45,127 38,683 32,908 43,178 27,463 6.82% 4.60% 6.43% 5.78% 5.47% 5.42% 6.50% 4.56% $ 14,970 $ 14,536 $ 13,601 $ 12,587 $ 12,114 $ 11,656 $ 9,931 $ 8,298 33,860 18,863 13,563 17,338 26,569 18,182 (11,952) (17,444) 68,094 41,098 54,156 45,127 38,683 32,908 43,178 27,463 29.06% 20.00% 28.95% 26.35% 24.75% 23.41% 33.24% 19.92% $ 25,252 $ 21,416 $ 19,042 $ 16,631 $ 15,478 $ 14,084 $ 13,973 $12,866 - ------------------------------------------------------------------------------------------------------------------- 21.98% 35.37% 25.11% 27.89% 31.32% 35.42% 23.00% 30.22% 78.02% 64.63% 74.89% 72.11% 68.68% 64.58% 77.00% 69.78% - ------------------------------------------------------------------------------------------------------------------- $ 205,527 $ 194,183 $ 188,810 $ 188,419 $ 171,309 $ 150,901 $ 146,591 $ 162,576 152,553 128,915 111,093 110,759 91,780 82,275 93,465 106,104 52,974 65,268 77,717 77,660 79,529 68,626 53,126 56,472 234,616 210,033 177,844 157,770 145,849 125,465 124,603 114,116 513,514 409,518 372,568 352,405 322,746 280,893 276,984 284,322 25.93% 17.91% 24.72% 22.14% 22.18% 19.66% 24.00% 16.32% $ 77,605 $ 42,581 $ 45,877 $ 45,916 $ 50,961 $ 32,734 $ 37,250 $ 36,996 252,397 216,235 194,640 179,553 163,009 149,575 131,612 128,203 227,365 193,505 174,642 161,079 143,741 117,172 98,990 110,942 1.35 1.51 1.70 1.70 1.87 1.83 1.57 1.53 - ------------------------------------------------------------------------------------------------------------------- 59,426,530 60,788,674 61,349,206 63,351,692 64,737,912 64,417,370 $64,769,794 68,194,176 60,228,590 60,991,284 62,435,450 64,181,088 65,517,990 64,742,976 66,220,810 69,632,100 5,319 5,479 5,556 4,653 4,534 4,466 4,331 4,124 - ------------------------------------------------------------------------------------------------------------------- $ 44,684 $ 53,879 $ 35,005 $ 27,541 $ 26,626 $ 13,907 $ 20,709 $ 12,807 6,502* 5,933 6,131 6,257 5,926 5,599 6,073 6,385 - -------------------------------------------------------------------------------------------------------------------
-17- ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS - ------------------------------------------------------------------------------- OF OPERATIONS - ------------- The following discussion of the company's historical results of operations and of its liquidity and capital resources should be read in conjunction with the consolidated financial statements of the company and related notes. RESULTS OF OPERATIONS The following table sets forth the percentage of consolidated net sales represented by certain items reflected in the Company's statements of income for the periods indicated.
Fiscal 1999 1998 1997 - ------------------------------------------------------------------------------------------ Net sales 100.0% 100.0% 100.0% Cost of products sold 69.1 69.1 68.5 ----------------------------------------- Gross profit 30.9 30.9 31.5 Selling and administrative expenses 21.6 20.3 20.9 Provision for closing facilities and reorganization expense 1.1 - - ---------------------------------------- Operating income 8.2 10.6 10.6 Interest expense - net .5 .5 .4 Income before income taxes 7.7 10.1 10.2 Income taxes 2.8 3.8 3.8 ---------------------------------------- Net income 4.9% 6.3% 6.4% - ------------------------------------------------------------------------------------------
The Company has two reportable core operating segments: office furniture and hearth products. The Operating Segment Information note included in the Notes to Consolidated Financial Statements provides more detailed financial data with respect to these two segments. FISCAL YEAR ENDED JANUARY 1, 2000, COMPARED TO FISCAL YEAR ENDED JANUARY 2, 1999 NET SALES Net sales, on a consolidated basis, increased by 5% to $1.8 billion in 1999 from $1.7 billion in 1998. The Company increased sales in both core operating segments due to the continued focus on superior customer service and rapid introduction of new innovative products. Office furniture net sales increased 4% in 1999 to $1.50 billion from $1.45 billion in 1998. Net sales of hearth products increased 16% to $284.9 million in 1999 from $245.1 million in 1998. The Business and Institutional Furniture Manufacturer's Association reported a decline in office furniture shipments of 1% in 1999 compared to 1998. The hearth products industry's 1999 annual growth rate is estimated at 6% to 7%. The Company's most recent five-year compounded annual growth rate in net sales is 16%. GROSS PROFIT Gross profit dollars increased 6% to $552.7 million in 1999 from $523.4 million in the prior year. Gross margin held steady at 30.9% for 1999 and 1998. The Company is continuing to focus on improving gross margins. A tight labor market made it more difficult than anticipated to staff facilities causing an increase in backlog and additional overtime, increased training, and expenses associated with moving production to alternate plant locations. The Company was able to fill positions in the fourth quarter and implemented plans to ensure workers are in place to meet order demands. Gross profit also included start-up costs associated with the Monterrey, Mexico, production facility. -18- SELLING AND ADMINISTRATIVE EXPENSES Selling and administrative expenses increased by 12% to $386.5 million in 1999 from $344.3 million in the prior year. Selling and administrative expenses, as a percentage of net sales, increased to 21.6% in 1999 from 20.3% in 1998. The Company has implemented a number of internal initiatives to serve customers better by providing complete, on-time, and undamaged orders quickly. These initiatives have resulted in increased freight costs. The Company has contracted with distribution experts and is currently implementing a new logistical management system to lower freight costs while still providing excellent service to customers. The Company also launched a strategic initiative during the fourth quarter to strengthen its office furniture market focus. Allsteel Inc., which was purchased in 1997, and The HON Company had been operating as one business unit. During the fourth quarter, the two operations were split into two separate business units. The HON Company serves the open-line, middle-market segment, and Allsteel Inc. serves the project-oriented contract market. The Company incurred additional costs related to this initiative in the near-term, but these investments will be leveraged as the companies increase sales and grow their market shares. Both business units continue to be reported under the Company's office furniture segment reported in the Operating Segment Information note included in the Notes to Consolidated Financial Statements. Selling and administrative expenses for 1999 were significantly influenced by increased freight expense to the customer, product development costs, and amortization expenses of intangible assets. The Selling and Administrative Expenses note included in the Notes to Consolidated Financial Statements provides further information regarding the comparative expense levels for these major expense items. OPERATING INCOME Operating income decreased by 7.3% to $166.1 million (excluding a one-time, pre-tax charge for closing facilities and reorganization expense of $19.7 million) in 1999 from $179.2 million in 1998. The decrease is due principally to increased selling and administrative expenses. NET INCOME Net income, excluding the $12.5 million nonrecurring, after-tax charge for the closing of facilities and reorganization expenses, decreased by 6.1% to $99.9 million in 1999 from $106.3 million in the prior year. This decrease is primarily attributable to increased selling and administrative expenses. A favorable impact on net income was caused by a decrease in the Company's effective tax rate from 37.5% in 1998 to 36.5% in 1999 resulting from favorable state income tax initiatives. Net income per common share decreased by 4.7% to $1.64 (excluding a nonrecurring, after-tax charge of $0.20 per share) in 1999 from $1.72 for 1998. The Company's net income per share for 1999 benefited from the Company's common stock repurchase program. Weighted-average shares outstanding was reduced from 61.6 million shares for 1998 to 60.9 million shares for 1999 as a result of the repurchase program. FISCAL YEAR ENDED JANUARY 2, 1999, COMPARED TO FISCAL YEAR ENDED JANUARY 3, 1998 NET SALES Net sales, on a consolidated basis, increased by 24% to $1.7 billion in 1998 from $1.36 billion in the prior year even though fiscal year 1998 was a normal 52-week year compared to 1997 being a 53-week year. The Company increased sales in both core operating segments due to the continued focus on superior customer service, rapid introduction of new innovative and compelling value products, and acquisitions. Office furniture net sales increased 25% in 1998 to $1.5 billion from $1.16 billion in 1997. Net sales of hearth products increased 20% to $245.1 million in 1998 from $204.5 million in 1997. Both core operating segments experienced another year of strong growth during 1998. The office products industry reported an annual growth rate of 7.8% and hearth products an estimated 10%. The Company's five-year compounded annual growth rate was 17% in net sales as of the end of fiscal year 1998. -19- GROSS PROFIT Gross profit increased 22% to $523.4 million in 1998 from $429.6 million in the prior year. Gross margin decreased to 30.9% for 1998 compared to 31.5% for 1997. This decrease was due to selling price reductions on select products to increase sales volume, which were only partially offset by productivity gains, and the adverse impact of the Allsteel acquisition not achieving the Company's margin standards as rapidly as projected. SELLING AND ADMINISTRATIVE EXPENSES Selling and administrative expenses increased by 21% to $344.3 million from $284.4 million in the prior year. Selling and administrative expenses, as a percentage of net sales, decreased to 20.3% in 1998 from 20.9% in 1997. Management places major emphasis on controlling and reducing selling and administrative expenses. Selling and administrative expenses include freight expense to the customer, product development costs and amortization expenses of intangible assets. The Selling and Administrative Expenses note included in the Notes to Consolidated Financial Statements provides further information regarding the comparative expense levels for these major expense items. OPERATING INCOME Operating income increased by 23% to $179.2 million in 1998 from $145.2 million in 1997. The increase was due to increased sales and lower selling and administrative expenses as a percent of sales. NET INCOME Net income increased by 22% to $106.3 million in 1998 from $87.0 million in 1997. This increase was a result of the higher operating income being partially offset by an increase in interest expense associated with acquisition and capital expenditures. Net income per common share increased by 19% to $1.72 in 1998 from $1.45 in 1997. Average shares outstanding increased to 61.6 million in 1998 from 59.8 million in 1997 as a result of the weighting of the October 1997 primary stock offering. FISCAL YEAR ENDED JANUARY 3, 1998, COMPARED TO FISCAL YEAR ENDED DECEMBER 28, 1996 NET SALES Net sales, on a consolidated basis, increased by 37% to $1.36 billion in 1997 from $998.1 million in the prior year. The Company increased net sales in both core segments by offering compelling value products through a combination of broad selection, features, quality, price, and service. Office furniture products net sales increased 31% in 1997 to $1.16 billion from $887.3 million in 1996 due in part to the Company's acquisitions of Allsteel Inc., Bevis Custom Furniture, Inc., and Panel Concepts, Inc. Hearth products net sales increased 84% in 1997 to $204.5 million from $110.8 million in 1996 due in part to the Company's October 1996 acquisition of Heat-N-Glo Fireplace Products, Inc. Both core industry segments experienced strong growth during 1997. The office products industry reported an annual growth rate of 15% and hearth products an estimated 10%. The Company's compounded annual growth rate for the five-year period of 1993 to 1997 was 14% in net sales while the overall office furniture industry's sales growth rate was 8%. No comparable industry growth data is available for the hearth products industry. -20- GROSS PROFIT Gross profit increased by 35% to $429.6 million in 1997 from $318.6 million in the prior year. Gross margin decreased to 31.5% for 1997 compared to 31.9% for 1996. This lower margin was due to the combination of productivity gains and cost control initiatives being more than offset by strategic selling price reductions on select products to increase market share and the impact of lower operating margins for certain 1997 acquisitions. SELLING AND ADMINISTRATIVE EXPENSES Selling and administrative expenses increased by 32% to $284.4 million from $215.6 million in the prior year. Selling and administrative expenses, as a percentage of net sales, decreased to 20.9% in 1997 from 21.6% in 1996. This decrease was a result of continued commitment to develop more efficient business processes which have improved member productivity, stringent control of expenses, and increased efficiencies associated with higher net sales. However, these results were partially offset by increased freight costs due to growth of unit volume, increased distribution costs for new warehouse capacity and product handling technologies that facilitate providing a higher level of service to customers, and the ongoing commitment to developing and marketing new products. This expense category, in addition to freight expense to the customer, also includes major costs related to product development and amortization expense of intangible assets. The Selling and Administrative Expenses note included in the Notes to Consolidated Financial Statements provides further information regarding the comparative expense levels for these major expense items. OPERATING INCOME Operating income increased by 41% to $145.2 million in 1997 from $103.0 million, excluding a nonrecurring, pre-tax gain on the sale of a subsidiary of $3.2 million in 1996. The increase is due to controlling operating costs and leveraging incremental sales. NET INCOME Net income increased by 32% to $87.0 million in 1997 from $66.1 million in 1996, excluding the $2.0 million nonrecurring, after-tax gain on the sale of a subsidiary. This increase was a result of the higher operating income being partially offset by an increase in interest expense associated with acquisitions and the resumption of a more normal effective income tax rate. The effective tax rate was 37.5% for 1997 compared to 35.3% for 1996. The rate for 1996 was favorably impacted by nonrecurring income tax credits of $2.1 million, or $0.04 per share, recorded in the third quarter of 1996. Net income per common share increased by 32% to $1.45 in 1997 from $1.10, excluding a nonrecurring, after-tax gain of $0.03 per share in 1996. Average common shares outstanding decreased to 59.8 million in 1997 from 60.2 million in 1996. LIQUIDITY AND CAPITAL RESOURCES During 1999, cash from operations was $156.2 million, which provided the funds necessary to meet working capital needs, invest in capital improvements, repay long-term debt, repurchase common stock, and pay increased dividends. CASH MANAGEMENT Cash, cash equivalents, and short-term investments totaled $22.2 million compared to $17.7 million at the end of 1998 and $46.3 million at the end of 1997. These funds, coupled with cash from future operations and additional long-term debt, if needed, are expected to be adequate to finance operations, planned improvement, and internal growth. -21- The Company places special emphasis on the management and reduction of its working capital with a particular focus on trade receivables and inventory levels. The success achieved in managing receivables is in large part a result of doing business with quality customers and maintaining close communications with them. Trade receivable days outstanding have averaged about 37 days over the past three years. Inventory levels and turns continue to improve as a function of reducing production cycle times. Inventory turns have been in the 17 to 18 range over the past three years. The Company had a cash infusion during the fourth quarter of 1997 from its primary offering of 2,300,000 shares of common stock at an offering price of $26 per share. This transaction netted the Company approximately $56.8 million which was used to finance acquisitions and repay a portion of debt associated with acquisitions. CAPITAL EXPENDITURE INVESTMENTS Capital expenditures, net of disposals, were $71.5 million in 1999, $149.7 million in 1998, and $85.5 million in 1997. Expenditures during 1999, 1998, and 1997 have been consistently focused on machinery and equipment and facility expansion needed to support new products, process improvements, cost-savings initiatives, and creating additional production and warehousing capacity. ACQUISITIONS In February 1998, the Company completed the acquisition of Aladdin Steel Products, Inc., a manufacturer of decorative gas- and wood-burning stoves, for a purchase price of approximately $10.2 million. This acquisition allowed the Company to strengthen its position in the hearth products market. During 1997, the Company completed three office furniture acquisitions: Allsteel Inc. in June; Bevis Custom Furniture, Inc. in November; and Panel Concepts, Inc. in December for a combined purchase price of approximately $119.5 million. All of the acquisitions were accounted for under the purchase method of accounting and financed by a combination of cash and long-term debt. LONG-TERM DEBT Long-term debt, including capital lease obligations, was 20% of total capitalization at January 1, 2000, 23% at January 2, 1999, and 26% at January 3, 1998. The Company does not expect future capital resources to be a constraint on planned growth. Significant additional borrowing capacity is available through a revolving bank credit agreement in the event cash generated from operations should be inadequate to meet future needs. CASH DIVIDENDS Cash dividends were $0.38 per common share for 1999, $0.32 for 1998, and $0.28 for 1997. Further, the Board of Directors announced a 15.8% increase in the quarterly dividend from $0.095 to $0.11 per common share effective with the March 1, 2000, dividend payment. The previous quarterly dividend increase was from $0.08 to $0.095, effective with the March 1, 1999, dividend payment. A cash dividend has been paid every quarter since April 15, 1955, and quarterly dividends are expected to continue. The average dividend payout percentage for the most recent three-year period has been 23% of prior year earnings. STOCK SPLIT On February 11, 1998, the Board of Directors announced a two-for-one stock split in the form of a 100 percent stock dividend that was paid on March 27, 1998, to shareholders of record on March 6, 1998. Shareholders received one share of common stock for each share held on record date. -22- COMMON SHARE REPURCHASES During 1999, the Company repurchased 1,408,624 shares of its common stock at a cost of approximately $30.9 million, or an average price of $21.91. As of January 1, 2000, approximately $31.6 million of the $70.0 million authorized by the Board of Directors for repurchases remained unspent. During 1998, the Company repurchased 529,284 shares at a cost of approximately $12.2 million, or an average price of $23.04. During 1997, the Company repurchased 183,154 shares at a cost of approximately $4.1 million, or an average price of $22.30. LITIGATION AND UNCERTAINTIES The Company is involved in various legal actions arising in the course of business. These uncertainties are referenced in the Contingencies note included in the Notes to Consolidated Financial Statements. YEAR 2000 ISSUE The Company did not experience any significant business continuity issue in its operations or business systems during the crucial year-end 1999 rollover to January 1, 2000. Based on operations since January 1, 2000, the Company does not expect any significant impact to its on-going business as a result of the "Year 2000" issue. However, it is possible that the full impact of the date change has not been fully recognized. For example, it is possible that Year 2000 or similar issues, such as problems resulting from infrequent quarter-end or year-end processes, may still occur, although the Company believes that any such problems are likely to be minor and correctable. In addition, the Company could be negatively impacted if its customers or suppliers are adversely affected by the Year 2000 or similar issues. The Company currently is not aware of any such problems that have arisen for its customers or suppliers. The Company expended approximately $961,000 on Year 2000 readiness efforts with the bulk of it being spent during fiscal year 1999. The expenditures include approximately $159,000 in costs, which were capitalized for replacing outdated, noncompliant hardware and software. The balance of the costs was recorded as period expenses for testing, identifying, and remediating Year 2000 problems. -23- ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK - -------------------------------------------------------------------- The Company has no material financial exposure to the various financial instrument market risks covered under this rule. Currently, the Company has no derivative financial instruments or off-balance sheet financing arrangements. For information related to the Company's long-term debt, refer to the Long-Term Debt disclosure in the Notes to Consolidated Financial Statements filed as part of this report. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - ---------------------------------------------------- The financial statements listed under Item 14 (a)(1) and (2) are filed as part of this report. The Summary of Unaudited Quarterly Results of Operations follows the Notes to Consolidated Financial Statements filed as part of this report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND - ------------------------------------------------------------------------ FINANCIAL DISCLOSURE - -------------------- None. -24- PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - ------------------------------------------------------------ The information under the caption "Election of Directors" of the Company's Proxy Statement for the Annual Meeting of Shareholders to be held on May 1, 2000, is incorporated herein by reference. For information with respect to executive officers of the Company, see Part I, Table I "Executive Officers of the Registrant." The information under the caption "Section 16(a) Beneficial Ownership Reporting Compliance" of the Company's Proxy Statement for the Annual Meeting of Shareholders to be held on May 1, 2000, is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION - -------------------------------- The information under the captions "Election of Directors" and "Executive Compensation" of the Company's Proxy Statement for the Annual Meeting of Shareholders to be held on May 1, 2000, is incorporated herein by reference. ITEM 12. SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT - -------------------------------------------------------------------------- The information under the captions "Election of Directors" and "Beneficial Owners of Common Stock" of the Company's Proxy Statement for the Annual Meeting of Shareholders to be held on May 1, 2000, is incorporated herein by reference. The information under the caption "Section 16(a) Beneficial Ownership Reporting Compliance" of the Company's Proxy Statement for the Annual Meeting of Shareholders to be held on May 1, 2000, is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - -------------------------------------------------------- The information under the caption "Certain Relationships and Related Transactions" of the Company's Proxy Statement for the Annual Meeting of Shareholders to be held on May 1, 2000, is incorporated herein by reference. -25- PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K - --------------------------------------------------------------------------- (a) (1) FINANCIAL STATEMENTS The following consolidated financial statements of HON INDUSTRIES Inc. and Subsidiaries included in the Company's 1999 Annual Report to Shareholders are filed as a part of this report pursuant to Item 8: Report of Independent Public Accountants Consolidated Statements of Income for the Years Ended January 1, 2000; January 2, 1999; and January 3, 1998 Consolidated Balance Sheets -- January 1, 2000; January 2, 1999; and January 3, 1998 Consolidated Statements of Shareholders' Equity for the Years Ended January 1, 2000; January 2, 1999; and January 3, 1998 Consolidated Statements of Cash Flows for the Years Ended January 1, 2000; January 2, 1999; and January 3, 1998 Notes to Consolidated Financial Statements Investor Information (2) FINANCIAL STATEMENT SCHEDULES The following consolidated financial statement schedule of the Company and subsidiaries is attached pursuant to Item 14(d): Schedule II Valuation and Qualifying Accounts for the Years Ended January 1, 2000; January 2, 1999; and January 3, 1998 All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and, therefore, have been omitted. (b) REPORTS ON FORM 8-K There are no reports on Form 8-K filed during the last quarter of the period covered by this report. -26- (c) EXHIBITS An exhibit index of all exhibits incorporated by reference into, or filed with, this Form 10-K appears on Page 55. The following exhibits are filed herewith: EXHIBIT (10xiii) Credit Agreement (21) Subsidiaries of the Registrant (23) Consent of Independent Public Accountants (27) Financial Data Schedule (d) Financial Statement Schedules See Item 14(a)(2). -27- SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized. HON INDUSTRIES Inc. Date: March 17, 2000 By: /s/ Jack D. Michaels ----------------------------- Jack D. Michaels Chairman, President and CEO Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Each Director whose signature appears below authorizes and appoints Jack D. Michaels as his or her attorney-in-fact to sign and file on his or her behalf any and all amendments and post-effective amendments to this report.
Signature Title Date --------- ----- ----- Chairman, President and CEO, /s/ Jack D. Michaels Principal Executive Officer, 3/17/00 - ------------------------------------------------------ and Director Jack D. Michaels /s/ Melvin L. McMains Vice President and Controller and 3/17/00 - ------------------------------------------------------ Principal Accounting Officer Melvin L. McMains /s/ David C. Stuebe Vice President and 3/17/00 - ------------------------------------------------------ Chief Financial Officer David C. Stuebe /s/ Robert W. Cox Director 3/17/00 - ------------------------------------------------------ Robert W. Cox /s/ Cheryl A. Francis Director 3/17/00 - ------------------------------------------------------ Cheryl A. Francis /s/ W August Hillenbrand Director 3/17/00 - ------------------------------------------------------ W August Hillenbrand /s/ Stanley M. Howe Director 3/17/00 - ------------------------------------------------------ Stanley M. Howe /s/ Robert L. Katz Director 3/17/00 - ------------------------------------------------------ Robert L. Katz /s/ Moe S. Nozari Director 3/17/00 - ------------------------------------------------------ Moe S. Nozari -28- /s/ Richard H. Stanley Director 3/17/00 - ------------------------------------------------------ Richard H. Stanley /s/ Brian E. Stern Director 3/17/00 - ------------------------------------------------------ Brian E. Stern /s/ Lorne R. Waxlax Director 3/17/00 - ------------------------------------------------------ Lorne R. Waxlax
-29- (THIS PAGE INTENTIONALLY LEFT BLANK) -30- REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS Board of Directors and Shareholders HON INDUSTRIES Inc. We have audited the accompanying consolidated balance sheets of HON INDUSTRIES Inc. and subsidiaries as of January 1, 2000, January 2, 1999, and January 3, 1998, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three fiscal years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements 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 consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of HON Industries Inc. and subsidiaries as of January 1, 2000, January 2, 1999, and January 3, 1998, and its results of its operations and its cash flows for each of the three fiscal years then ended, in conformity with generally accepted accounting principles. Arthur Andersen LLP Chicago, Illinois February 3, 2000 -31- HON INDUSTRIES INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except for per share data) FOR THE YEARS 1999 1998 1997 - -------------------------------------------------------------------------------------------------------------- Net sales $1,789,281 $1,696,433 $1,362,713 Cost of products sold 1,236,612 1,172,997 933,157 - -------------------------------------------------------------------------------------------------------------- GROSS PROFIT 552,669 523,436 429,556 Selling and administrative expenses 386,547 344,259 284,397 Provision for closing facilities and reorganization expenses 19,679 -- -- - -------------------------------------------------------------------------------------------------------------- OPERATING INCOME 146,443 179,177 145,159 - -------------------------------------------------------------------------------------------------------------- Interest income 844 1,590 2,148 Interest expense 9,712 10,658 8,179 - -------------------------------------------------------------------------------------------------------------- INCOME BEFORE INCOME TAXES 137,575 170,109 139,128 Income taxes 50,215 63,796 52,173 - -------------------------------------------------------------------------------------------------------------- NET INCOME $ 87,360 $ 106,313 $ 86,955 - -------------------------------------------------------------------------------------------------------------- NET INCOME PER COMMON SHARE $ 1.44 $ 1.72 $ 1.45 - --------------------------------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS. -32- HON INDUSTRIES INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
(Amounts in thousands) AS OF YEAR-END 1999 1998 1997 - -------------------------------------------------------------------------------------------------------- ASSETS - -------------------------------------------------------------------------------------------------------- CURRENT ASSETS Cash and cash equivalents $ 22,168 $ 17,500 $ 46,080 Short-term investments - 169 260 Receivables 196,730 183,576 158,408 Inventories 74,937 67,225 60,182 Deferred income taxes 13,471 12,477 14,391 Prepaid expenses and other current assets 9,250 9,382 15,829 - -------------------------------------------------------------------------------------------------------- TOTAL CURRENT ASSETS 316,556 290,329 295,150 Property, Plant, and Equipment 455,591 444,177 341,030 Goodwill 113,116 108,586 98,720 Other Assets 21,460 21,377 19,773 - -------------------------------------------------------------------------------------------------------- TOTAL ASSETS $906,723 $864,469 $754,673 - -------------------------------------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY - -------------------------------------------------------------------------------------------------------- CURRENT LIABILITIES Accounts payable and accrued expenses $209,194 $193,663 $183,606 Accrued facilities closing and reorganization expenses 3,878 196 132 Income taxes - 1,921 8,133 Note payable and current maturities of long-term debt 6,106 15,769 2,545 Current maturities of other long-term obligations 5,945 5,889 6,343 - -------------------------------------------------------------------------------------------------------- TOTAL CURRENT LIABILITIES $225,123 $217,438 $200,759 LONG-TERM DEBT 119,860 128,069 123,487 CAPITAL LEASE OBLIGATIONS 4,313 7,494 11,024 OTHER LONG-TERM LIABILITIES 18,015 18,067 18,601 DEFERRED INCOME TAXES 38,141 31,379 19,140 COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY Common stock 60,172 61,290 61,659 Paid-in capital 24,981 48,348 55,906 Retained earnings 416,034 351,786 265,203 Receivable from HON Members Company Ownership Plan - - (1,099) Accumulated other comprehensive income 84 598 (7) - -------------------------------------------------------------------------------------------------------- TOTAL SHAREHOLDERS' EQUITY 501,271 462,022 381,662 - -------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $906,723 $864,469 $754,673 - --------------------------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS. -33- HON INDUSTRIES INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Amounts in thousands) ACCUMULATED ADDITIONAL RECEIVABLE OTHER TOTAL COMMON PAID-IN FROM CO. RETAINED COMPREHENSIVE SHAREHOLDERS' STOCK CAPITAL ESOP EARNINGS INCOME EQUITY - ------------------------------------------------------------------------------------------------------------------------------ Balance, December 28, 1996 $29,713 $ 360 $(5,041) $227,365 $ - $252,397 Comprehensive income: Net income 86,955 86,955 Other comprehensive income (7) (7) Comprehensive income 86,948 Cash dividends (16,736) (16,736) Stock split effected in the form of a 100% stock dividend 30,830 (30,830) - Common shares -- treasury: Shares purchased (92) (2,441) (1,551) (4,084) Shares issued through public stock offering 1,150 55,616 56,766 Shares issued under Members Stock Purchase Plan and stock awards 58 2,371 2,429 Principal repaid by HON Members Company Ownership Plan 3,942 3,942 - ------------------------------------------------------------------------------------------------------------------------------ Balance, January 3, 1998 61,659 55,906 (1,099) 265,203 (7) 381,662 Comprehensive Income: Net income 106,313 106,313 Other comprehensive income 605 605 Comprehensive income 106,918 Cash dividends (19,730) (19,730) Common shares -- treasury: Shares purchased (529) (11,672) (12,201) Shares issued under Members Stock Purchase Plan and stock awards 160 4,114 4,274 Principal repaid by HON Members Company Ownership 1,099 1,099 - ------------------------------------------------------------------------------------------------------------------------------ Balance, January 2, 1999 61,290 48,348 - 351,786 598 462,022 Comprehensive income: Net income 87,360 87,360 Other comprehensive income (514) (514) Comprehensive income Cash dividends (23,112) (23,112) Common shares -- treasury: Shares purchased (1,409) (29,457) (30,866) Shares issued under Members Stock Purchase Plan and stock awards 291 6,090 6,381 Principal repaid by HON Members Company Ownership Plan - - - ------------------------------------------------------------------------------------------------------------------------------ Balance, January 1, 2000 $60,172 $ 24,981 $ - $416,034 $ 84 $501,271
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS. -34- HON INDUSTRIES INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands) FOR THE YEARS 1999 1998 1997 - --------------------------------------------------------------------------------------------------------------------------- NET CASH FLOWS FROM (TO) OPERATING ACTIVITIES: Net income $ 87,360 $106,313 $ 86,955 Noncash items included in net income: Depreciation and amortization 65,453 52,999 35,610 Other postretirement and postemployment benefits 2,329 1,529 1,397 Deferred income taxes 6,033 13,816 7,128 Other -- net (121) 8 (35) Changes in working capital, excluding acquisition and disposition: Receivables (13,154) (24,238) (15,169) Inventories (7,712) (4,286) 3,134 Prepaid expenses and other current assets 391 6,517 (1,574) Accounts payable and accrued expenses 15,960 3,895 16,789 Accrued facilities closing and reorganization expenses 3,878 64 (256) Income taxes (2,178) (7,419) 6,881 Increase in other liabilities (2,054) (2,406) 525 - --------------------------------------------------------------------------------------------------------------------------- Net cash flows from (to) operating activities 156,185 146,792 141,385 - --------------------------------------------------------------------------------------------------------------------------- NET CASH FLOWS FROM (TO) INVESTING ACTIVITIES: Capital expenditures -- net (71,474) (149,717) (85,491) Capitalized software (3,530) - - Acquisition spending, net of cash acquired (8,932) (11,470) (121,424) Principal repaid by HON Members Company Ownership Plan - 1,099 3,942 Short-term investments-- net 169 91 442 Other -- net (290) 80 1,792 - --------------------------------------------------------------------------------------------------------------------------- Net cash flows from (to) investing activities (84,057) (159,917) (200,739) - --------------------------------------------------------------------------------------------------------------------------- NET CASH FLOWS FROM (TO) FINANCING ACTIVITIES: Purchase of HON INDUSTRIES common stock (30,866) (12,206) (4,085) Proceeds from public offering of HON INDUSTRIES common stock - - 56,766 Proceeds from long-term debt 147,055 73,237 100,238 Payments of note and long-term debt (167,052) (60,079) (64,374) Proceeds from sale of HON INDUSTRIES common stock to members 6,515 3,323 2,429 Dividends paid (23,112) (19,730) (16,736) - --------------------------------------------------------------------------------------------------------------------------- Net cash flows from (to) financing activities (67,460) (15,455) 74,238 - --------------------------------------------------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 4,668 (28,580) 14,884 - --------------------------------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 17,500 46,080 31,196 - --------------------------------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 22,168 $ 17,500 $ 46,080 - --------------------------------------------------------------------------------------------------------------------------- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the year for: Interest $ 9,803 $ 10,867 $ 8,404 Income taxes $ 46,822 $ 56,787 $ 38,246 - ---------------------------------------------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS. -35- HON INDUSTRIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NATURE OF OPERATIONS HON INDUSTRIES Inc., with its subsidiaries (the Company), is a national manufacturer and marketer of office furniture and hearth products. Both industries are reportable segments; however, the Company's office furniture business is its principal line of business. Refer to the Operating Segment Information note for further information. Office furniture products are sold through a national system of dealers, wholesalers, mass merchandisers, warehouse clubs, retail superstores, end-user customers, and to federal and state governments. Dealer, wholesaler, and retail superstores are the major channels based on sales. Hearth products include wood-, pellet-, and gas-burning factory-built fireplaces, fireplace inserts, stoves, and gas logs. These products are sold through a national system of dealers, wholesalers, and large regional contractors. The Company's products are marketed predominantly in the United States and Canada. The Company exports select products to a limited number of markets outside North America, principally Latin America and the Caribbean, through its export subsidiary; however, based on sales, it is not significant. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION AND FISCAL YEAR-END The consolidated financial statements include the accounts and transactions of the Company and its subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation. The Company follows a 52/53-week fiscal year which ends on the Saturday nearest December 31. Fiscal year 1999 ended on January 1, 2000; 1998 ended on January 2, 1999; and 1997 ended on January 3, 1998. The financial statements for fiscal year 1997 are based on a 53-week period; fiscal years 1999 and 1998 are on a 52-week basis. CASH AND CASH EQUIVALENTS Cash and cash equivalents generally consist of cash and commercial paper. These securities have original maturity dates not exceeding three months from date of purchase. SHORT-TERM INVESTMENTS Short-term investments are classified as available-for-sale and are highly liquid debt and equity securities. RECEIVABLES Accounts receivables are presented net of an allowance for doubtful accounts of $3,568,000, $2,816,000, and $3,277,000 for 1999, 1998, and 1997, respectively. INVENTORIES Inventories are valued at the lower of cost or market, determined principally by the last-in, first-out (LIFO) method. PROPERTY, PLANT, AND EQUIPMENT Property, plant, and equipment are carried at cost. Depreciation has been computed by the straight-line method over estimated useful lives: land improvements, 10 - 20 years; buildings, 10 - 40 years; and machinery and equipment, 3 - 12 years. -36- GOODWILL AND PATENTS Goodwill represents the excess of cost over the fair value of net identifiable assets of acquired companies. Goodwill is being amortized on a straight-line basis predominantly over 30 years. Patents are being amortized on a straight-line basis over their estimated useful lives, which range from 7 to 16 years. Patents are reported by the Company as "Other Assets." The carrying value of goodwill and patents is reviewed by the Company whenever significant events or changes occur which might impair recovery of recorded costs. Based on its most recent analysis, the Company believes no material impairment of these intangible assets exists at January 1, 2000.
(In thousands) 1999 1998 1997 - ------------------------------------------------------------------------------ Goodwill $121,846 $113,812 $100,667 Patents 16,450 16,450 16,450 Less accumulated amortization 13,585 8,570 3,781 ---------------------------------------- $124,711 $121,692 $113,336 - ------------------------------------------------------------------------------
REVENUE RECOGNITION Revenue is recognized upon shipment of goods to customers. PRODUCT DEVELOPMENT COSTS Product development costs relating to the development of new products and processes, including significant improvements and refinements to existing products, are expensed as incurred. The amounts charged against income were $17,117,000 in 1999, $15,707,000 in 1998, and $15,371,000 in 1997. STOCK-BASED COMPENSATION The Company accounts for its stock option plan using Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," which results in no charge to earnings when options are issued at fair market value. The Company has adopted the disclosure requirements of Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation." 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 amounts reported in the financial statements and accompanying notes. The more significant areas requiring the use of management estimates relate to allowance for receivables, accruals for self-insured medical, workers compensation, and general liability insurance, and useful lives for depreciation and amortization. Actual results could differ from those estimates. NEW ACCOUNTING STANDARDS The Company adopted Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use," as of January 3, 1999, the beginning of its 1999 fiscal year. In 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities." The Company intends to adopt this Statement in January 2001 as required by the Statement. Adoption of this Statement is not expected to have a material impact on the Company's financial statements. -37- COMPUTER SOFTWARE SOP 98-1 requires the capitalization of certain costs incurred in connection with developing or obtaining internal use software. Prior to the adoption of SOP 98-1, the Company expensed all internal use software related costs as incurred. The Company capitalized approximately $3.5 million of computer software during 1999. EARNINGS PER SHARE In accordance with Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share," net income per common share is based on the weighted-average number of shares of common stock outstanding during each year including allocated and unallocated ESOP shares. COMPREHENSIVE INCOME The Company adopted Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income," as of January 4, 1998, the beginning of its 1998 fiscal year. SFAS No. 130 establishes new rules for the reporting and display of comprehensive income and its components; however, the adoption of this Statement had no impact on the Company's net income or shareholders' equity. The Company's comprehensive income consists of an unrealized holding gain on equity securities available-for-sale under SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities," and nominal foreign currency adjustments. Prior years' financial statements have been reclassified to conform to these requirements. RECLASSIFICATIONS Certain prior year information has been reclassified to conform to the current year presentation. PROVISION FOR FACILITIES CLOSING AND REORGANIZATION EXPENSES On February 11, 1999, the Company adopted a plan to close three of its office furniture facilities located in Winnsboro, South Carolina; Sulphur Springs, Texas; and Mt. Pleasant, Iowa. A pre-tax charge of $19.7 million or $0.20 per diluted share was recorded during the first quarter of 1999. The charge includes $12.5 million for write-offs of plant and equipment, $2.6 million for severance arising from the elimination of approximately 360 positions, $2.1 million for other employee-related costs, and $2.4 million for certain other expenses associated with the closing of the facilities. During 1999, $15.8 million of pre-tax exit costs were paid and charged against the liability. It included $11.6 million for write-off of plant and equipment, $1.9 million for severance for 326 positions, $0.7 million for other employee-related expenses, and $1.6 million for certain other expenses associated with the closing of the facilities. The primary costs not yet incurred relate to costs associated with the closed buildings and workers' compensation claims. Management believes the remaining reserve for facilities closing and reorganization expenses to be adequate to cover these obligations. BUSINESS COMBINATIONS The Company acquired Aladdin Steel Products, Inc. on February 20, 1998, for approximately $10.2 million. Aladdin is a manufacturer of wood-, pellet-, and gas-burning stoves and inserts. Aladdin is being operated by Hearth Technologies Inc., the Company's hearth products subsidiary. The transaction was accounted for under the purchase method. -38- The Company completed three office furniture business acquisitions during fiscal year 1997. Allsteel Inc. was a stock purchase acquired on June 17, 1997, from ACI America Holdings Inc., a subsidiary of BTR plc, for approximately $66 million. It manufactures and markets a line of quality, mid-priced office furniture with manufacturing and distribution facilities in Jackson and Milan, Tennessee; Verona, Mississippi; and West Hazleton, Pennsylvania. Bevis Custom Furniture, Inc. was an asset purchase acquired on November 13, 1997, from Hunt Manufacturing Co. for approximately $45.1 million. It manufactures and markets a line of affordably priced office furniture with a manufacturing operation located in Florence, Alabama. Allsteel and Bevis have operated as part of the Company's division, The HON Company, until January 2, 2000, when Allsteel was organized as a separate business unit. Panel Concepts, Inc. was a stock purchase acquired December 1, 1997, from Standard Pacific Corp. for approximately $8.4 million. It manufactures and markets innovative panel-based office systems with a manufacturing plant located in Santa Ana, California. Panel Concepts operates as part of the Company's subsidiary, BPI Inc. Each of the transactions was accounted for under the purchase method of accounting and all were financed by a combination of cash and long-term debt. Assuming the acquisition of Allsteel Inc., Bevis Custom Furniture, Inc., Panel Concepts, Inc., and Aladdin Steel Products, Inc. had occurred on December 29, 1996, the beginning of the Company's 1997 fiscal year, instead of the actual dates reported above, the Company's pro forma consolidated net sales would have been approximately $1.7 billion and $1.5 billion for 1998 and 1997, respectively. Pro forma consolidated net income and net income per share for 1998 and 1997 would not have been materially different than the reported amounts. INVENTORIES
(In thousands) 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------- Finished products $ 29,663 $ 24,955 $ 26,352 Materials and work in process 55,737 53,320 48,186 LIFO allowance (10,463) (11,050) (14,356) ----------------------------------- $ 74,937 $ 67,225 $ 60,182 - ------------------------------------------------------------------------------------------------------------------- PROPERTY, PLANT, AND EQUIPMENT (In thousands) 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------- Land and land improvements $ 17,114 $ 12,156 $ 10,059 Buildings 181,080 144,559 111,387 Machinery and equipment 469,268 411,238 333,216 Construction and equipment installation in progress 37,819 85,782 60,832 ----------------------------------- 705,281 653,735 515,494 Less allowances for depreciation 249,690 209,558 174,464 ---------------------------------- $455,591 $444,177 $341,030 - ------------------------------------------------------------------------------------------------------------------- ACCOUNTS PAYABLE AND ACCRUED EXPENSES (In thousands) 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------- Trade accounts payable $ 77,907 $ 75,895 $ 76,623 Compensation 6,782 6,789 6,339 Profit sharing and retirement expense 22,705 20,355 15,013 Vacation pay 12,093 11,751 10,879 Marketing expenses 58,832 45,833 38,096 Casualty self-insurance expense 7,428 6,271 5,201 Other accrued expenses 23,447 26,769 31,455 ------------------------------------ $209,194 $193,663 $183,606 - -------------------------------------------------------------------------------------------------------------------
-39-
LONG-TERM DEBT (In thousands) 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------- Industrial development revenue bonds, various issues, payable through 2018 with interest at 4.07-8.50% per annum 24,608 $25,293 $23,549 Note payable to bank, revolving credit agreement with interest at a variable rate (6.0625-6.5625% at year-end 1999)* 85,000 95,000 80,000 Convertible debenture payable to individuals, due in 1999 with interest at 5.5% per annum 5,074 -- 12,000 Other notes and amounts 5,178 7,776 7,938 ------------------------------------ $119,860 $128,069 $123,487 - -------------------------------------------------------------------------------------------------------------------
* THE REVOLVING BANK CREDIT AGREEMENT IS PAYABLE IN THE YEAR 2002 WITH A MAXIMUM BORROWING LIMIT OF $200,000,000. Aggregate maturities of long-term debt are as follows (in thousands): - ------------------------------------------------------------------------------------------------------------------- 2000 $ 808 2001 8,281 2002 85,710 2003 833 2004 517 Thereafter 24,519
The convertible debenture payable to individuals was renegotiated in 1999 and extended for an additional two years. This payable involves a former owner of a business acquired by the Company in 1996, and this individual continues as an officer of a subsidiary of the Company. The convertible debenture is convertible into shares of common stock of Hearth Technologies Inc., a subsidiary of the Company. Certain of the above borrowing arrangements include covenants which limit the assumption of additional debt and lease obligations. The Company has been and currently is in compliance with the covenants related to these debt agreements. The fair value of the Company's outstanding long-term debt obligations at year-end 1999 approximates the recorded aggregate amount. Property, plant, and equipment, with net carrying values of approximately $58,458,000 at the end of 1999, are mortgaged. SELLING AND ADMINISTRATIVE EXPENSES
(In thousands) 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------- Freight expense to customer $119,435 $96,258 $73,261 Amortization of intangible assets 5,362 4,789 2,943 Product development costs 17,117 15,707 15,371 General selling and administrative expense 244,633 227,505 192,822 ------------------------------------ $386,547 $344,259 $284,397 - -------------------------------------------------------------------------------------------------------------------
-40- INCOME TAXES Significant components of the provision for income taxes are as follows:
(In thousands) 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------- Current: Federal $40,744 $44,525 $38,989 State 3,046 5,363 4,695 ----------------------------------- 43,790 49,888 43,684 Deferred 6,425 13,908 8,489 ----------------------------------- $50,215 $63,796 $52,173 - -------------------------------------------------------------------------------------------------------------------
A reconciliation of the statutory federal income tax rate to the Company's effective income tax rate is as follows:
1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------- Federal statutory tax rate 35.0% 35.0% 35.0% State taxes, net of federal tax effect 1.7 2.6 2.6 Federal and state tax credits -- (.1) (.2) Other -- net (.2) -- .1 ------------------------------- Effective tax rate 36.5% 37.5% 37.5% - -------------------------------------------------------------------------------------------------------------------
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax liabilities and assets are as follows:
(In thousands) 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------- Net long-term deferred tax liabilities: Tax over book depreciation $(38,133) $(33,118) $(25,743) OPEB obligations 3,430 3,305 3,920 Goodwill (2,959) (1,805) 8 Other -- net (479) (239) 2,675 ---------------------------------------------- Total net long-term deferred tax liabilities $(38,141) $(31,379) $(19,140) - ------------------------------------------------------------------------------------------------------------------- Net current deferred tax assets: Workers' compensation, general, and product liability accruals 2,984 2,315 2,054 Vacation accrual 3,492 2,531 892 Inventory obsolescence reserve 1,287 1,026 2,631 Other -- net 5,708 6,605 8,814 -------------------------------------------- Total net current deferred tax assets 13,471 12,477 14,391 -------------------------------------------- Net deferred tax (liabilities) assets $(24,670) $(18,902) $(4,749) - -------------------------------------------------------------------------------------------------------------------
-41- SHAREHOLDERS' EQUITY AND EARNINGS PER SHARE
1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------- Common Stock, $1 Par Value Authorized 200,000,000 200,000,000 100,000,000 Issued and outstanding 60,171,753 61,289,618 61,659,316 Preferred Stock, $1 Par Value Authorized 1,000,000 1,000,000 1,000,000 Issued and outstanding - - - - -------------------------------------------------------------------------------------------------------------------
On February 11, 1998, the Company's Board of Directors declared a two-for-one stock split in the form of a 100% stock dividend paid on March 27, 1998, to shareholders of record on the close of business on March 6, 1998. In May 1998, shareholders authorized an increase of capital stock of the Company from 101,000,000 shares to 201,000,000 shares, consisting of 200,000,000 shares of common stock, $1.00 par value, and 1,000,000 shares of preferred stock, $1.00 par value. The Company purchased 1,408,624; 529,284; and 183,154 shares of its common stock during 1999, 1998, and 1997, respectively. The par value method of accounting is used for common stock repurchases. The excess of the cost of shares acquired over their par value is allocated to Paid-In Capital with the excess charged to Retained Earnings. The Company adopted Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income," as of January 4, 1998, the beginning of its 1998 fiscal year. The Company has changed the format of its consolidated statements of shareholders' equity to present comprehensive income. Components of other comprehensive income (loss) consist of the following:
(In thousands) 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------- Foreign currency translation adjustments -- net of tax $(43) $42 $(7) Change in unrealized gains on marketable securities -- net of tax 127 563 - Other comprehensive income (loss) $84 $605 $(7) - -------------------------------------------------------------------------------------------------------------------
The Company filed a Registration Statement with the Securities and Exchange Commission in September 1997 for a primary offering of 2,000,000 shares of its common stock which was combined with a secondary offering of 4,790,000 shares of Company stock by Bandag, Incorporated, a major shareholder. The combined public offering was priced at $26.00 per share on October 23, 1997, and closed on October 29, 1997. The Company granted the underwriters an option to purchase 1,018,500 additional shares at the same price to cover over-allotments, if any, of which 300,000 shares were subsequently purchased. The Company's net proceeds from the sale of its 2,300,000 shares were used to finance acquisitions and to repay debt associated with acquisitions. In May 1997, the Company registered 400,000 shares of its common stock under its 1997 Equity Plan for Non-Employee Directors which was approved by shareholders at the May 1997 annual shareholders' meeting. This plan permits the Company to issue to its non-employee directors options to purchase shares of Company common stock, restricted stock of the Company, and awards of Company stock. The plan also permits non-employee directors to elect to receive all or a portion of their annual retainers and other compensation in the form of shares of Company common stock. During 1999, 1998 and 1997, 6,000; 4,250; and 5,400 shares of Company common stock were issued under the plan, respectively. -42- Cash dividends declared and paid per share for each year are:
(In Dollars) 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------- Common shares $.38 $.32 $.28 - -------------------------------------------------------------------------------------------------------------------
Pursuant to the 1994 Members Stock Purchase Plan, 1,000,000 shares of the Company's common stock were registered for issuance to participating members. Members who have one year of employment eligibility and work a minimum of 20 hours per week have rights to purchase stock on a quarterly basis. The price of the stock purchased under the plan is 85% of the closing price on the applicable purchase date. No member may purchase stock under the plan in an amount which exceeds the lesser of 20% of his or her gross earnings or 4,000 shares, with a maximum fair market value of $25,000 in any calendar year. An additional 304,106 shares were available for issuance under the plan at January 1, 2000. The effect of the application of adopting Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation," was not material to the Company. Shares of common stock were issued in 1999, 1998, and 1997 pursuant to a members stock purchase plan as follows:
1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------- Shares issued 115,354 101,108 84,552 Average price per share $19.16 $23.58 $20.77 - -------------------------------------------------------------------------------------------------------------------
The Company has a shareholders rights plan which will expire August 20, 2008. The plan becomes operative if certain events occur involving the acquisition of 20% or more of the Company's common stock by any person or group in a transaction not approved by the Company's Board of Directors. Upon the occurrence of such an event, each right entitles its holder to purchase an amount of common stock of the Company with a market value of $400 for $200, unless the Board authorizes the rights be redeemed. The rights may be redeemed for $0.01 per right at any time before the rights become exercisable. In certain instances, the right to purchase applies to the capital stock of the acquirer instead of the common stock of the Company. The Company has reserved preferred shares necessary for issuance should the rights be exercised. The Company has entered into change in control employment agreements with corporate officers and certain other key employees. According to the agreements, a change in control occurs when a third person or entity becomes the beneficial owner of 20% or more of the Company's common stock or when more than one-third of the Company's Board of Directors is composed of persons not recommended by at least three-fourths of the incumbent Board of Directors. Upon a change in control, a key employee is deemed to have a two-year employment with the Company, and all his or her benefits are vested under Company plans. If, at any time within two years of the change in control, his or her position, salary, bonus, place of work, or Company-provided benefits are modified, or employment is terminated by the Company for any reason other than cause or by the key employee for good reason, as such terms are defined in the agreement, then the key employee is entitled to receive a severance payment equal to two times annual salary and the average of the prior two years' bonuses. STOCK OPTIONS Under the Company's 1995 Stock-Based Compensation Plan, as amended and restated effective February 10, 1999, the Company may award options to purchase shares of the Company's common stock and grant other stock awards to executives, managers, and key personnel. The Plan is administered by the Human Resources and Compensation Committee of the Board of Directors. Stock options awarded under the Plan must be at exercise prices equal to or exceeding the fair market value of the Company's common stock on the date of grant. Stock options are generally subject to four-year cliff vesting and must be exercised within ten years from the date of grant. The Company accounts for executive stock options issued under this Plan using Accounting Principles Board Opinion No. 25, which results in no charge to earnings when options are issued at fair market value. The Company has elected the disclosure requirements of Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation." -43- If compensation costs had been determined based on the fair value at the grant dates for awards under this Plan, consistent with SFAS No.123, the impact on net earnings and earnings per share would be less than one-cent per share. The weighted-average fair value of options granted during 1999, 1998, and 1997 estimated on the date of grant using the Black-Scholes option-pricing model was $10.01, $15.51, and $11.85, respectively. The fair value of 1999, 1998, and 1997 options granted is estimated on the date of grant using the following assumptions: dividend yield of 0.90% to 1.70%, expected volatility of 30.90% to 34.16%, risk-free interest rate of 4.90% to 6.71%, and an expected life of 10 years depending on grant date. The status of the Company's stock option plans is summarized below:
Number of Weighted-Average Shares Exercise Price - ------------------------------------------------------------------------------------------------------------------- Outstanding at December 28, 1996 - - Granted 156,000 $24.74 Exercised - - Forfeited - - - ------------------------------------------------------------------------------------------------------------------- Outstanding at January 3, 1998 156,000 24.74 Granted 20,000 32.50 Exercised - - Forfeited - - - ------------------------------------------------------------------------------------------------------------------- Outstanding at January 2, 1999 176,000 25.62 Granted 328,750 23.47 Exercised - - Forfeited (97,000) 23.86 - ------------------------------------------------------------------------------------------------------------------- Outstanding at January 1, 2000 407,750 24.30 Options exercisable at: January 2, 1999 - - January 3, 1998 - - - -------------------------------------------------------------------------------------------------------------------
The following table summarizes information about fixed stock options outstanding at January 1, 2000:
Options Options Outstanding Exercisable ------------------- ----------- Weighted- Number Average Weighted- Exercisable Range of Number Remaining Average at January 1, Exercise Prices Outstanding Contractual Life Exercise Price 2000 - ------------------------------------------------------------------------------------------------------------------- $24.50-$28.25 119,000 7.5 years $24.82 0 $32.50 20,000 8.1 years $32.50 0 $23.31-$23.47 268,750 9.1 years $23.47 0 - -------------------------------------------------------------------------------------------------------------------
RETIREMENT BENEFITS The Company has defined contribution profit-sharing plans covering substantially all employees who are not participants in certain defined benefit plans. The Company's annual contribution to the defined contribution plans is based on employee eligible earnings and results of operations and amounted to $21,297,000, $20,101,000, and $14,558,000 in 1999, 1998, and 1997, respectively. -44- The Company sponsors defined benefit plans which include a limited number of salaried and hourly employees at certain subsidiaries. The Company's funding policy is generally to contribute annually the minimum actuarially computed amount. The Company adopted Statement of Financial Accounting Standards (SFAS) No. 132, "Employer's Disclosures about Pensions and Other Postretirement Benefits," as of January 4, 1998, the beginning of its 1998 fiscal year. Net pension costs relating to these plans were $-0-, $-0-, and $93,000 for 1999, 1998, and 1997, respectively. The actuarial present value of obligations, less related plan assets at fair value, is not significant. The Company also participates in a multiemployer plan, which provides defined benefits to certain of the Company's union employees. Pension expense for this plan amounted to $329,000, $306,000, and $327,000 in 1999, 1998, and 1997, respectively. In 1992, the Company established a trust to administer a leveraged employee stock ownership plan (ESOP), the HON Members Company Ownership Plan. Company contributions based on employee eligible earnings and dividends on the shares are used to make loan interest and principal payments. As the loan is repaid, shares are distributed to the ESOP trust for allocation to participants. During 1998, the final shares in the Plan were allocated to participants, and the Plan was subsequently merged into the Company's defined contribution profit-sharing plan. Selected financial data pertaining to the ESOP is as follows:
(In thousands, except share data) 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------- Company contribution to ESOP - $656 $3,735 Dividend income of ESOP - 533 487 Company interest expense on ESOP loan - - - Shares of common stock allocated to ESOP participant accounts - 96,304 351,574 Shares held in suspense (unallocated) by ESOP as of year-end - - 96,304 Fair value of shares held in suspense by ESOP as of year-end - - $2,757 Closing market price of common stock as of year-end - $23.94 $28.63 - -------------------------------------------------------------------------------------------------------------------
POSTRETIREMENT HEALTH CARE The Company adopted Statement of Financial Accounting Standards (SFAS) No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits," as of January 4, 1998. The Company adopted SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," as of January 3, 1993, and recorded the cumulative effect of the accounting change on the deferred recognition basis. The following table sets forth the funded status of the plan, reconciled to the accrued postretirement benefits cost recognized in the Company's balance sheet at:
(In thousands) 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------- Reconciliation of benefit obligation: Obligation at beginning of year $17,341 $15,409 $15,259 Service cost 529 419 480 Interest cost 1,137 1,045 1,115 Benefit payments (1,013) (974) (796) Actuarial (gains) losses 2,243 1,442 (649) Obligation at end of year $20,237 $17,341 $15,409 - -------------------------------------------------------------------------------------------------------------------
-45-
Funded status: Funded status at end of year $20,237 $17,341 $15,409 Unrecognized transition obligation (9,362) (10,075) (10,788) Unrecognized prior-service cost (2,338) (2,484) (2,630) Unrecognized gain (loss) 862 4,031 6,586 Net amount recognized $9,399 $8,813 $8,577 - -------------------------------------------------------------------------------------------------------- Net periodic postretirement benefit cost includes: Service cost $529 $419 $480 Interest cost 1,137 1,045 1,115 Amortization of transition obligation over 20 years 713 713 713 Amortization of prior service cost 146 146 146 Amortization of (gains) and losses (629) (767) (922) Net periodic postretirement benefit cost $1,896 $1,556 $1,532 - --------------------------------------------------------------------------------------------------------
The discount rates at fiscal year-end 1999, 1998, and 1997 were 7.5%, 6.75%, and 7.0%, respectively. The pre-65 2000 gross trend rates begin at 9% for the medical and prescription drug coverages and grade down to 5% in seven years and remain at this level for all future years. The post-64 gross trend rates begin at 7.5% for the medical coverage and decrease until the maximum Company subsidy (cap) is reached in 2002. For the prescription drug coverage, the 2000 gross trend rates begin at 9% and decrease until the cap is reached in 2002. Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A 1% change in assumed health care cost trend rates would have the following effects:
(In thousands) 1% Increase 1% Decrease - ------------------------------------------------------------------------------------------------------------------- Effect on total of service and interest cost components of net periodic postretirement health care benefit cost 185 $(149) Effect on the health care component of the accumulated postretirement benefit obligation $1,620 $(1,345) - -------------------------------------------------------------------------------------------------------------------
LEASES The Company leases certain warehouse and plant facilities and equipment. Commitments for minimum rentals under noncancelable leases at the end of 1999 are as follows:
Capitalized Operating (In thousands) Leases Leases - ----------------------------------------------------------------------------------------------------------------------------- 2000 $3,757 $ 9,149 2001 2,398 7,659 2002 1,078 6,458 2003 211 5,277 2004 211 3,627 Thereafter 1,435 2,326 ------------------------ Total minimum lease payments 9,090 $34,496 ======= Less amount representing interest 1,596 ------ Present value of net minimum lease payments, including current maturities of $3,181,000 $7,494 - -------------------------------------------------------------------------------------------------------------------
-46- Property, plant, and equipment at year-end include the following amounts for capitalized leases:
(In thousands) 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------- Buildings $ 3,299 $ 3,299 $ 3,299 Machinery and equipment 15,805 15,805 15,805 ----------------------------------------- 19,104 19,104 19,104 Less allowances for depreciation 11,816 8,978 6,139 ----------------------------------------- $ 7,288 $10,126 $12,965 - -------------------------------------------------------------------------------------------------------------------
Rent expense for the years 1999, 1998, and 1997 amounted to approximately $10,403,000, $10,150,000, and $7,555,000, respectively. The Company has operating leases for office and production facilities with annual rentals totaling $450,000 with the former owners of a business acquired in 1996. These individuals continue as officers of a subsidiary of the Company following the merger. Contingent rent expense under both capitalized and operating leases (generally based on mileage of transportation equipment) amounted to $755,000, $596,000, and $581,000 for the years 1999, 1998, and 1997, respectively. CONTINGENCIES The Company is involved in various legal actions which have arisen in the course of business. Management believes the outcome of these matters will not have a material effect on the financial condition or results of operations of the Company. OPERATING SEGMENT INFORMATION The Company adopted Statement of Financial Accounting Standards (SFAS) No. 131, "Disclosures about Segments of an Enterprise and Related Information," effective with its 1998 fiscal year beginning January 4, 1998. This segment disclosure is essentially unchanged from the format used by the Company historically in complying with SFAS No. 14, "Financial Reporting for Segments of a Business Enterprise," and SFAS No. 30, "Disclosures of Information about Major Customers." That is, management views the Company as being in two operating segments: office furniture and hearth products, with the former being the principal segment. The office furniture segment manufactures and markets a broad line of metal and wood commercial and home office furniture which includes file cabinets, desks, credenzas, chairs, storage cabinets, tables, bookcases, freestanding office partitions and panel systems, and other related products. The hearth products segment manufactures and markets a broad line of manufactured gas-, pellet-, and wood-burning fireplaces and stoves, fireplace inserts, gas logs, and chimney systems principally for the home. The Company's two operating segments are somewhat seasonal with the third (July-September) and fourth (October-December) fiscal quarters historically having higher sales than the prior quarters. In fiscal 1999, 53% of the Company's consolidated net sales of office furniture were generated in the third and fourth quarters and 53% of consolidated net sales of hearth products were generated in the third and fourth quarters. For purposes of segment reporting, intercompany sales transfers between segments are not material, and operating profit is income before income taxes exclusive of certain unallocated corporate expenses. These unallocated corporate expenses include the net costs of the Company's corporate operations, interest income, and interest expense. Management views interest income and expense as corporate financing costs and not as an operating segment cost. In addition, management applies an effective income tax rate to its consolidated income before income taxes so income taxes are not reported or viewed internally on a segment basis. Identifiable assets by segment are those assets applicable to the respective industry segments. Corporate assets consist principally of cash and cash equivalents, short-term investments, and corporate office real estate and related equipment. -47- No geographic information for revenues from external customers or for long-lived assets is disclosed inasmuch as the Company's primary market and capital investments are concentrated in the United States. Reportable segment data reconciled to the consolidated financial statements for the years ended 1999, 1998, and 1997 is as follows:
(In thousands) 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------- Net sales: Office furniture $1,504,422 $1,451,328 $1,158,228 Hearth products 284,859 245,105 204,485 --------------------------------------------- $1,789,281 $1,696,433 $1,362,713 - ------------------------------------------------------------------------------------------------------------------- Operating profit: Office furniture* $131,607 $165,314 $139,710 Hearth products 34,588 31,478 24,817 -------------------------------------------- Total operating profit 166,195 196,792 164,527 Unallocated corporate expenses (28,620) (26,683) (25,399) -------------------------------------------- Income before income taxes $137,575 $170,109 $139,128 - ------------------------------------------------------------------------------------------------------------------- Identifiable assets: Office furniture $678,503 $660,626 $551,120 Hearth products 174,386 154,817 128,361 General corporate 53,834 49,026 75,192 -------------------------------------------- $906,723 $864,469 $754,673 - ------------------------------------------------------------------------------------------------------------------- Depreciation and amortization expense: Office furniture $52,483 $42,562 $27,633 Hearth products 11,065 9,120 6,590 General corporate 1,905 1,317 1,387 ------------------------------------------- $65,453 $52,999 $35,610 - ------------------------------------------------------------------------------------------------------------------- Capital expenditures -- net: Office furniture $48,565 $128,482 $73,659 Hearth products 16,489 18,162 13,055 General corporate 6,420 3,073 (1,223) ----------------------------------------- $71,474 $149,717 $85,491 - -------------------------------------------------------------------------------------------------------------------
*1999 INCLUDES A NONRECURRING PRE-TAX CHARGE OF $19.7 MILLION FOR THE CLOSING OF FACILITIES AND REORGANIZATION EXPENSES. One office furniture customer accounted for approximately 13%, 12%, and 12% of consolidated net sales in 1999, 1998, and 1997, respectively. -48- (THIS PAGE INTENTIONALLY LEFT BLANK) -49- SUMMARY OF UNAUDITED QUARTERLY RESULTS OF OPERATIONS The following table presents certain unaudited quarterly financial information for each of the past twelve quarters. In the opinion of the Company's management, this information has been prepared on the same basis as the consolidated financial statements appearing elsewhere in this report and includes all adjustments (consisting only of normal recurring accruals) necessary to present fairly the financial results set forth herein. Results of operations for any previous quarter are not necessarily indicative of results for any future period.
First Second Third Fourth (In thousands, except per share data) Quarter Quarter Quarter Quarter - ------------------------------------------------------------------------------------------------------------------- YEAR-END 1999: Net sales $424,459 $419,708 $475,738 $469,376 Cost of products sold 295,222 292,077 327,243 322,070 ----------------------------------------------------- Gross profit 129,237 127,631 148,495 147,306 Selling and administrative expenses 89,264 89,785 101,234 106,264 Provision for closing facilities and reorganization expenses 19,679 - - - ------------------------------------------------------ Operating income 20,294 37,846 47,261 41,042 Interest income (expense) -- net (2,045) (2,399) (2,160) (2,264) ------------------------------------------------------ Income before income taxes 18,249 35,447 45,101 38,778 Income taxes 6,661 12,938 16,462 14,154 ------------------------------------------------------ Net income $ 11,588 $ 22,509 $ 28,639 $ 24,624 ====================================================== Net income per common share $.19 $.37 $.47 $.41 Weighted-average common shares outstanding 61,154 61,169 60,921 60,159 AS A PERCENTAGE OF NET SALES ---------------------------- Net sales 100.0% 100.0% 100.0% 100.0% Gross profit 30.4 30.4 31.2 31.4 Selling and administrative expenses 21.0 21.4 21.3 22.7 Provision for closing facilities and reorganization expenses 4.6 - - - Operating income 4.8 9.0 9.9 8.7 Income taxes 1.6 3.1 3.5 3.0 Net income 2.7 5.4 6.0 5.2 YEAR-END 1998: (a) Net sales $418,263 $401,417 $448,679 $428,074 Cost of products sold 291,571 278,107 309,080 294,239 ----------------------------------------------------- Gross profit 126,692 123,310 139,599 133,835 Selling and administrative expenses 88,563 83,213 88,162 84,321 ------------------------------------------------------ Operating income 38,129 40,097 51,437 49,514 Interest income (expense) -- net (2,172) (2,691) (2,025) (2,180) ------------------------------------------------------ Income before income taxes 35,957 37,406 49,412 47,334 Income taxes 13,484 14,027 18,530 17,755 ------------------------------------------------------ Net income $ 22,473 $ 23,379 $ 30,882 $ 29,579 ====================================================== Net income per common share $.36 $.38 $.50 $.48 Weighted-average common shares outstanding 61,648 61,663 61,691 61,596 AS A PERCENTAGE OF NET SALES ---------------------------- Net sales 100.0% 100.0% 100.0% 100.0% Gross profit 30.3 30.7 31.1 31.3 Selling and administrative expenses 21.2 20.7 19.6 19.7 Operating income 9.1 10.0 11.5 11.6 Income taxes 3.2 3.5 4.1 4.1 Net income 5.4 5.8 6.9 6.9 -50- YEAR-END 1997: (b) Net sales $282,859 $296,567 $391,348 $391,939 Cost of products sold 194,194 200,969 268,147 269,847 ------------------------------------------------------ Gross profit 88,665 95,598 123,201 122,092 Selling and administrative expenses 60,453 64,303 80,641 79,000 ------------------------------------------------------ Operating income 28,212 31,295 42,560 43,092 Interest income (expense) -- net (1,142) (1,141) (2,209) (1,539) ------------------------------------------------------ Income before income taxes 27,070 30,154 40,351 41,553 Income taxes 10,152 11,307 15,132 15,582 ------------------------------------------------------ Net income $ 16,918 $ 18,847 $ 25,219 $ 25,971 ====================================================== Net income per common share $.28 $.32 $.43 $.42 Weighted-average common shares outstanding 59,400 59,384 59,356 61,011 AS A PERCENTAGE OF NET SALES ---------------------------- Net sales 100.0% 100.0% 100.0% 100.0% Gross profit 31.3 32.2 31.5 31.2 Selling and administrative expenses 21.4 21.7 20.6 20.2 Operating income 10.0 10.6 10.9 11.0 Income taxes 3.6 3.8 3.9 4.0 Net income 6.0 6.4 6.4 6.6
(a) FIRST QUARTER 1998 INCLUDES PARTIAL QUARTERLY RESULTS OF OPERATION OF ALADDIN STEEL PRODUCTS, INC. ACQUISITION ACQUIRED FEBRUARY 20, 1998. (b) THIRD QUARTER 1997 REPRESENTS 14 WEEKS OF BUSINESS ACTIVITY COMPARED TO 13 WEEKS FOR THE SAME QUARTER IN 1996 AND 1995. IN ADDITION, THE QUARTER INCLUDES THE FIRST QUARTERLY RESULTS OF THE ALLSTEEL INC. ACQUISITION ACQUIRED JUNE 17, 1997. FISCAL YEAR 1997 SIMILARLY REPRESENTS 53 WEEKS COMPARED TO 52 WEEKS IN 1998 AND 1996. FOURTH QUARTER INCLUDES PARTIAL QUARTERLY RESULTS OF OPERATION OF TWO ACQUISITIONS: BEVIS CUSTOM FURNITURE, INC., ACQUIRED NOVEMBER 13, 1997, AND PANEL CONCEPTS, INC., ACQUIRED DECEMBER 1, 1997. SUBSEQUENT ACQUISITION (UNAUDITED) On February 29, 2000, the Company finalized the acquisition of two leading hearth products distributors, American Fireplace Company (AFC) and the Allied Group (Allied). AFC and Allied, with combined 1999 sales of nearly $200 million, will be joined to form Hearth Services Inc., a new subsidiary of Hearth Technologies Inc. AFC and Allied sell, install and service a broad range of gas- and wood-burning fireplaces as well as fireplace mantels, surrounds, facings and other accessories. Further details of the transaction will be included in the Company's SEC Quarterly Report on Form 10-Q for the first quarter ended April 1, 2000. -51- INVESTOR INFORMATION COMMON STOCK MARKET PRICES AND DIVIDENDS (UNAUDITED) QUARTERLY 1999 - 1998
1999 by Dividends Quarter High Low per Share - ------------------------------------------------------------------------------------------------------------------- 1st $24 1/2 $19 3/4 $.095 2nd 29 7/8 21 5/8 .095 3rd 28 1/8 19 1/16 .095 4th 23 3/4 18 3/4 .095 ---- Total Dividends Paid $ .38 =====
1998 by Dividends Quarter High Low per Share - ------------------------------------------------------------------------------------------------------------------- 1st $37 3/16 $27 3/4 $.08 2nd 36 1/2 26 1/4 .08 3rd 32 7/8 21 1/2 .08 4th 28 1/4 20 .08 --- Total Dividends Paid $.32 ====
COMMON STOCK MARKET PRICE AND PRICE/EARNINGS RATIO (UNAUDITED) FISCAL YEARS 1999 - 1989
Market Price/Earnings Price* Earnings Ratio ------------------------ per --------------------- Year High Low Share* High Low - ------------------------------------------------------------------------------------------------------------------- 1999 29 7/8 18 3/4 1.44 21 13 1998 37 3/16 20 1.72 22 12 1997 32 1/8 15 7/8 1.45 22 11 1996 21 3/8 9 1/4 1.13 19 8 1995 15 5/8 11 1/2 .67 23 17 1994 17 12 .87 20 14 1993 14 5/8 10 3/4 .70 21 15 1992 11 3/4 8 1/4 .59 20 14 1991 10 1/4 6 5/8 .51 20 13 1990 11 1/2 6 3/4 .65 18 10 1989 9 5/16 4 3/8 .39 25 11 -- -- Eleven-Year Average 21 13 - -------------------------------------------------------------------------------------------------------------------
*ADJUSTED FOR THE EFFECT OF STOCK SPLITS -52- REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS Board of Directors and Shareholders HON INDUSTRIES Inc. Our audit was conducted for the purpose of forming an opinion on the consolidated financial statements taken as a whole. The valuation and qualifying accounts as of and for the three fiscal years ended January 1, 2000; January 2, 1999; and January 3, 1998, are presented for the purpose of additional analysis and are not a required part of the consolidated financial statements of HON INDUSTRIES Inc. Such information has been subjected to the auditing procedures applied in our audits of the consolidated financial statements and, in our opinion, is fairly stated in all material respects in relation to the consolidated financial statements taken as a whole. Arthur Andersen LLP Chicago, Illinois February 3, 2000 -53- SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS HON INDUSTRIES INC. AND SUBSIDIARIES JANUARY 1, 2000
- ----------------------------------------------- --------------- -------------------------------- --------------- --------------- COL. A COL. B COL. C COL. D COL. E - ----------------------------------------------- --------------- -------------------------------- --------------- --------------- ADDITIONS - ----------------------------------------------- --------------- --------------- ---------------- --------------- --------------- DESCRIPTION BALANCE AT (1) (2) DEDUCTIONS BALANCE AT BEGINNING OF CHARGED TO CHARGED TO (DESCRIBE) END OF PERIOD PERIOD COSTS AND OTHER EXPENSES ACCOUNTS (DESCRIBE) - ----------------------------------------------- --------------- --------------- ---------------- --------------- --------------- (In thousands) Reserves deducted in the consolidated balance sheet from the assets to which they apply: Year ended January 1, 2000: Allowance for doubtful accounts $2,816 $2,114 $1,362 (A) $3,568 ====== ====== ====== ====== Year ended January 2, 1999: Allowance for doubtful accounts $3,277 $1,288 $1,749 (A) $2,816 ====== ====== ====== ====== Year ended January 3, 1998: Allowance for doubtful accounts $1,830 $2,162 $ 715 (A) $3,277 ====== ====== ===== ======
Note A: Excess of accounts written off over recoveries ITEM 14(a)(3) - INDEX OF EXHIBITS
Exhibit Number Description of Document -------------- ----------------------- (3i) Articles of Incorporation of the Registrant, incorporated by reference to Exhibit 3(i) to the Registrant's Quarterly Report on Form 10-Q for the quarter ended April 3, 1999 (3ii) By-Laws of the Registrant, incorporated by reference to Exhibit 3(ii) to the Registrant's Quarterly Report on Form 10-Q for the quarter ended October 3, 1998 (4i) Rights Agreement dated as of August 13, 1998, by and between the Registrant and Harris Trust and Savings Bank, as Rights Agent, incorporated by reference to Exhibit 4.1 to Registration Statement on Form 8-A filed August 14, 1998, as amended by Form 8-A/A filed September 14, 1998, incorporated by reference to Exhibit 4.1 on Form 8-K filed August 10, 1998 (10i) 1995 Stock-Based Compensation Plan, as amended and restated effective February 10, 1999, incorporated by reference to Exhibit 10(i) to the Registrant's Quarterly Report on Form 10-Q for the quarter ended April 3, 1999 (10ii) 1997 Equity Plan for Non-Employee Directors, incorporated by reference to Exhibit B to the Registrant's proxy statement dated March 28, 1997, related to the Registrant's Annual Meeting of Shareholders held on May 13, 1997 (10iii) Form of Registrant's Change in Control Agreement, incorporated by reference to Exhibit 10 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994 (10iv) Executive Long-Term Incentive Compensation Plan of the Registrant, incorporated by reference to Exhibit 99B to the Registrant's Annual Report on Form 10-K for the year ended December 30, 1995 (10v) ERISA Supplemental Retirement Plan of the Registrant, incorporated by reference to Exhibit 99C to the Registrant's Annual Report on Form 10-K for the year ended December 30, 1995 (10vi) 1994 Members Stock Purchase Plan of the Registrant, incorporated by reference to Exhibit 4.3 to the Registrant's Registration Statement No. 33-54163 on Form S-8 filed June 16, 1994 (10vii) Agreement as Consultant and Director, dated November 15, 1995, between the Registrant and Robert L. Katz, incorporated by reference to the same numbered exhibit filed with the Registrant's Annual Report on Form 10-K/A for the fiscal year ended December 28, 1996 (10viii) Form of Director and Officer Indemnification Agreement of the Registrant, incorporated by reference to the same numbered exhibit filed with the Registrant's Annual Report on Form 10-K/A for the fiscal year ended December 28, 1996
(10ix) Form of Common Stock Grant Agreement of the Registrant, incorporated by reference to the same numbered exhibit filed with the Registrant's Annual Report on Form 10-K/A for the fiscal year ended December 28, 1996 (10x) Form of HON INDUSTRIES Inc. Stock-Based Compensation Plan Stock Option Award Agreement of the Registrant, incorporated by reference to the same numbered exhibit filed with the Registrant's Annual Report on Form 10-K/A for the fiscal year ended December 28, 1996 (10xi) Stock Purchase Agreement of the Registrant, dated September 18, 1985, as amended by amendment dated February 11, 1991, between the Registrant and Stanley M. Howe, incorporated by reference to Exhibit 10(xi) to the Registrant's Annual Report on Form 10-K for the year ended January 3, 1998 (10xii) Real Estate Contract of the Registrant, dated November 15, 1997, between the Registrant and Terrence L. and Loretta B. Mealy, incorporated by reference to Exhibit 10(xii) to the Registrant's Annual Report on Form 10-K for the year ended January 3, 1998 (10xiii) $200,000,000 Credit Agreement, dated June 11, 1997; First Amendment to Credit Agreement and Waiver, dated October 20, 1997; and Second Amendment to Credit Agreement, dated January 18, 2000, by and between the Registrant and Bankers Trust Company, as Syndication Agent and Administrative Agent, and various lending institutions, incorporated by reference to Exhibit 10(xiii) to the Registrant's Annual Report on Form 10-K for the year ended January 1, 2000 (10xiv) HON INDUSTRIES Inc. Profit-Sharing Retirement Plan of the Registrant incorporated by reference to Exhibit 4.4 to the Registrant's Registration Statement No. 333-31366 on Form S-8 filed February 29, 2000 (16) Letter of Former Accountant, incorporated by reference to the Registrant's Report on Form 8-K dated May 14, 1996 (21) Subsidiaries of the Registrant (23) Consent of Independent Public Accountants (27) Financial Data Schedule (99A) Executive Bonus Plan of the Registrant, incorporated by reference to the same numbered exhibit filed with the Registrant's Annual Report on Form 10-K for the fiscal year ended December 28, 1996 (99B) Executive Deferred Compensation Plan of the Registrant, incorporated by reference to the same numbered exhibit filed with the Registrant's Annual Report on Form 10-K for the fiscal year ended December 28, 1996
EX-10.13 2 EXHIBIT 10.13 Exhibit 10.xiii HON INDUSTRIES INC. ------------------------------ $200,000,000 CREDIT AGREEMENT dated as of June 11, 1997 ------------------------------ BANKERS TRUST COMPANY, as Syndication Agent and Administrative Agent and VARIOUS LENDING INSTITUTIONS TABLE OF CONTENTS
Page TABLE OF CONTENTS.................................................................................................2 CREDIT AGREEMENT..................................................................................................3 DEFINITIONS.......................................................................................................4 AMOUNT AND TERMS OF CREDIT.......................................................................................27 2.1 REVOLVING CREDIT BORROWINGS............................................................................27 2.2 SWING LINE BORROWINGS..................................................................................28 2.3 COMPETITIVE BORROWINGS.................................................................................30 (d) SUBMISSION AND CONTENTS OF COMPETITIVE BIDS.........................................................32 2.4 INTENTIONALLY OMITTED..................................................................................34 2.7 OPTIONAL PREPAYMENTS...................................................................................36 2.8 REPAYMENT OF LOANS; MANDATORY PREPAYMENTS; EVIDENCE OF DEBT............................................36 2.9 INTEREST RATES AND PAYMENT DATES.......................................................................37 2.12 CONVERSION AND CONTINUATION OPTIONS....................................................................39 2.15 PRO RATA TREATMENT AND PAYMENTS........................................................................40 2.17 INCREASED COSTS........................................................................................41 2.18 TAXES..................................................................................................42 2.20 NOTICE OF AMOUNTS PAYABLE; RELOCATION OF LENDING OFFICE................................................45 REPRESENTATIONS AND WARRANTIES...................................................................................46 3.7 FINANCIAL STATEMENTS; FINANCIAL CONDITION; UNDISCLOSED LIABILITIES;....................................47 4.1 CONDITIONS PRECEDENT TO EFFECTIVENESS. This Agreement shall become effective upon the satisfaction of each of the following conditions:.............................................................................51 (a) LOAN DOCUMENTS. Administrative Agent shall have received each of:..................................51 AFFIRMATIVE COVENANTS............................................................................................54 5.1 FINANCIAL STATEMENTS. Furnish to each Lender:.........................................................54 5.9 ENVIRONMENTAL LAWS.....................................................................................59 NEGATIVE COVENANTS...............................................................................................59 6.1 FINANCIAL CONDITION COVENANTS..........................................................................60 6.9 INVESTMENTS. Make any Investments except for Permitted Investments....................................63 6.12 FISCAL YEAR. Change the fiscal year of Borrower.......................................................64 EVENTS OF DEFAULT................................................................................................64 (k) CHANGE OF CONTROL. A Change of Control shall occur; or.............................................66 ADMINISTRATIVE AGENT.............................................................................................68 8.4 RELIANCE BY ADMINISTRATIVE AGENT.......................................................................69 8.9 RESIGNATION BY ADMINISTRATIVE AGENT....................................................................71 MISCELLANEOUS....................................................................................................72 9.4 COSTS, EXPENSES AND TAXES; INDEMNITY...................................................................74 9.7 ADJUSTMENTS; SET-OFF...................................................................................77 9.9 BINDING EFFECT; ASSIGNMENT; ENTIRE AGREEMENT...........................................................78 9.10 CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL..........................................................81
Schedules Schedule 1.1 -- Revolving Commitments Schedule 3.5 -- Subsidiaries Schedule 3.6 -- Indebtedness Schedule 3.7(a) -- Pro Forma Balance Sheet Schedule 3.7(d) -- Projections Schedule 6.2(c) -- Outstanding Subsidiary Indebtedness Schedule 6.3(e) -- Guarantee Obligations Schedule 6.4 -- Permitted Liens Schedule 6.7(a) -- Certain Restrictions Schedule 9.3 -- Addresses for Notice; Payment and Lending Offices Exhibits Exhibit 1.1 -- Form of Subsidiary Guarantee Agreement Exhibit 2.1(c) -- Form of Revolving Note Exhibit 2.2(b) -- Form of Swing Line Note Exhibit 2.2(e) -- Form of Swing Line Loan Participation Certificate Exhibit 2.3(a) -- Form of Competitive Bid Note Exhibit 2.3(b) -- Form of Competitive Bid Request Exhibit 2.3(c) -- Form of Invitation for Competitive Bids Exhibit 2.3(d) -- Form of Competitive Bid Exhibit 2.3(f) -- Form of Competitive Bid Accept/Reject Letter Exhibit 2.18(c) -- Form of Section 2.18(c)(ii) Certificate Exhibit 4.1(f) -- Form of Opinions of Jones, Day, Reavis & Pogue and Borrower's in-house counsel Exhibit 4.1(j) -- Form of CT Letter Exhibit 4.1(m) -- Form of Officer's Certificate Exhibit 5.2(b) -- Form of Certificate of Financial Officer Exhibit 9.9 -- Form of Assignment and Assumption Agreement CREDIT AGREEMENT THIS CREDIT AGREEMENT, dated as of June 11, 1997, among HON INDUSTRIES INC., an Iowa corporation ("BORROWER"), the several banks and other financial institutions from time to time parties to this Agreement (the "LENDERS"), and BANKERS TRUST COMPANY, a New York banking corporation, as syndication agent and as administrative agent for the Lenders hereunder (in such capacity, the "ADMINISTRATIVE AGENT"). The parties hereto hereby agree as follows: ARTICLE I DEFINITIONS 1.1 DEFINED TERMS. As used in this Agreement, the following terms shall have the following meanings, such meanings to be equally applicable to both the singular and plural forms of the terms defined: "ACQUISITION": the acquisition by Borrower of the stock of Allsteel Inc., an Illinois corporation, pursuant to the Acquisition Documents. "ACQUISITION AGREEMENT": the Stock Purchase Agreement dated as of May 12, 1997 between ACI American Holdings, Inc., a Delaware corporation and Borrower. "ACQUISITION DOCUMENTS": the Acquisition Agreement and all other agreements and documents relating to the Acquisition. "ADMINISTRATIVE AGENT": as defined in the preamble. "AFFILIATE": with respect to any Person, any Person or group acting in concert in respect of the Person in question that, directly or indirectly, controls or is controlled by or is under common control with such Person. For the purposes of this definition, "control" (including, with correlative meanings, the terms "controlled by" and "under common control with") shall mean the possession, directly or indirectly, of the power to direct or cause the direction of management and policies of a Person, whether through the ownership of voting securities or by contract or otherwise. "AGENT-RELATED PERSONS": as defined in subsection 8.3. "AGREEMENT": this Agreement, as amended, supplemented or otherwise modified from time to time. "APPLICABLE FACILITY FEE": at any date, the applicable percentage amount of the aggregate Revolving Commitments of the Lenders as such percentage amount is set forth in the table below based upon the Status on such date: STATUS FACILITY FEE --------------------------- ---------------------------- Level I .125% --------------------------- ---------------------------- Level II .150% --------------------------- ---------------------------- Level III .175% --------------------------- ---------------------------- Level IV .200% --------------------------- ---------------------------- "APPLICABLE MARGIN": as defined in subsection 2.9(e). "ASSET DISPOSITION": any sale, lease, transfer or other disposition (or series of related sales, leases, transfers or dispositions) of shares of Capital Stock of a Subsidiary of Borrower (other than directors' qualifying shares), property or other assets (each referred to for the purposes of this definition as a "disposition") by Borrower or any of its Subsidiaries the fair market value of which, as determined in good faith by the board of directors of Borrower or such Subsidiary, as the case may be, exceeds $3,000,000 (other than (i) a disposition by a Subsidiary to Borrower or by Borrower or a Subsidiary to a Wholly-Owned Subsidiary, (ii) a disposition of property or other assets at fair market value in the ordinary course of business, including non-exclusive licenses to use trademarks, trade names or other similar property of Borrower or its Subsidiaries, (iii) a disposition of obsolete property or other assets in the ordinary course of business. "ASSIGNEE": an Eligible Assignee which is an "Assignee" party to an Assignment and Assumption Agreement pursuant to subsection 9.9. "ASSIGNMENT AND ASSUMPTION AGREEMENT": an Assignment and Assumption Agreement substantially in the form of EXHIBIT 9.9 annexed hereto and made a part hereof made by any applicable Lender, as assignor and such Lender's assignee in accordance with subsection 9.9, with such modifications (including, without limitation, additional representations, warranties and covenants) as such assignor Lender and assignee Lender may agree to from time to time which solely affect the relative rights and/or obligations of the assignor Lender and assignee Lender as between themselves. "ATTORNEY COSTS": all reasonable fees and disbursements of any law firm or other external counsel and the reasonable allocated cost of internal legal services, including all reasonable disbursements of internal counsel. "ATTRIBUTABLE DEBT": as of the date of determination thereof in connection with a Sale and Leaseback Transaction occurring after the Closing Date, the greater of (1) the fair value of the assets subject to such transaction (as determined in good faith by the applicable lessee) and (2) the present value (discounted according to GAAP at the cost of debt implied in the lease) of the obligations of the lessee for rental payments during the term of any applicable lease. "AVAILABLE REVOLVING COMMITMENT": as to any Lender at any time, an amount in Dollars equal to the excess, if any, of (a) such Lender's Revolving Commitment over (b) the sum of (i) the aggregate principal amount then outstanding of Revolving Loans made by such Lender, (ii) such Lender's Commitment Percentage of the Swing Line Loans then outstanding and (iii) such Lender's Commitment Percentage of the Competitive Loans then outstanding pursuant to subsection 2.3 (regardless, in the case of clauses (ii) or (iii) only, of whether such Indebtedness is owing to such Lender). "BANKRUPTCY CODE": Title 11 of the United States Code entitled Bankruptcy as now or hereafter in effect or any successor thereto. "BASE RATE": the higher of (i) the Prime Lending Rate and (ii) the Federal Funds Effective Rate plus one-half of one percent (1/2%). "BASE RATE LOANS": Revolving Loans bearing interest at a rate determined by reference to the Base Rate or Swing Line Loans, as the context shall require. "BOARD": the Board of Governors of the Federal Reserve System (or any successor thereto). "BORROWER": as defined in the preamble. "BORROWING": a group of Loans of a single Type made by the Lenders or the Swing Line Lender, as appropriate (or, in the case of a Competitive Borrowing, by the Lender or Lenders whose Competitive Bids have been accepted pursuant to subsection 2.3), on a single date and as to which a single Interest Period is in effect. "BT": Bankers Trust Company, a New York banking corporation. "BUSINESS DAY": a day other than a Saturday, Sunday or other day on which commercial banks in New York City are authorized or required by law to close; PROVIDED, HOWEVER, that when used in connection with a Eurodollar Loan, the term "Business Day" shall also exclude any day on which banks are not open for dealings in dollar deposits in the London interbank market. "CAPITAL LEASE": as applied to any Person, any lease of any property (whether real, personal or mixed) by that Person as lessee which would, in conformity with GAAP, be required to be accounted for as a capital lease on the balance sheet of that Person. "CAPITAL STOCK": with respect to any Person, any and all shares, interests, participations, rights in or other equivalents (however designated) of such Person's capital stock partnership interests, membership interests or other equivalent interests and any rights (other than debt securities convertible into or exchangeable for capital stock or such interests), warrants or options exchangeable for or convertible into such capital stock or other interests. "CHANGE OF CONTROL": (i) the sale, lease or transfer of all or substantially all of Borrower's assets to any Person or group (as such term is used in Section 13(d)(3) of the Exchange Act), (ii) the liquidation or dissolution of Borrower, (iii) any person or group of persons (within the meaning of the Exchange Act) acquiring beneficial ownership (within the meaning of Rule 13d-3 promulgated by the SEC under the Exchange Act) of 20% or more of the issued and outstanding shares of Borrower's Voting Securities; or (iv) during any period of twelve consecutive calendar months, individuals who at the beginning of such period constituted Borrower's board of directors (together with any new directors whose election by Borrower's board of directors or whose nomination for election by Borrower's stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason other than death or disability to constitute a majority of the directors then in office. "CLOSING DATE": June 11, 1997. "CODE": the Internal Revenue Code of 1986, as amended from time to time. "COMMITTED LOAN": any Revolving Loan or Swing Line Loan. "COMMITMENT": as to any Lender at any time, the aggregate of such Lender's outstanding Revolving Commitment and its Swing Line Commitment. "COMMITMENT PERCENTAGE": as to any Lender at any time, the percentage which such Lender's Revolving Commitment then constitutes of the aggregate Revolving Commitments (or, at any time after the Revolving Commitments shall have expired or terminated, the percentage which the aggregate principal amount of such Lender's Loans then outstanding constitutes of the aggregate principal amount of the Loans then outstanding; PROVIDED, HOWEVER, that for purposes of determining the amount of a Lender's Loans, Swing Line Loans shall be deemed to be held not by the Swing Line Lender, but rather each Lender shall be deemed to hold the amount of Swing Line Loans equal to its Commitment Percentage of the Swing Line Loans then outstanding). "COMMITMENT PERIOD": the period from and including the date hereof to but not including the Termination Date. "COMMODITY PRICE PROTECTION AGREEMENT" any Contractual Obligation or other arrangement designed to protect Borrower or any of its Subsidiaries from fluctuations in the price of commodities. "COMPETITIVE BID": an offer by a Lender to make a Competitive Loan pursuant to subsection 2.3 in the form of EXHIBIT 2.3(d). "COMPETITIVE BID ACCEPT/REJECT LETTER": a notification made by Borrower pursuant to subsection 2.3(f) in the form of EXHIBIT 2.3(f). "COMPETITIVE BID LENDERS": those Lenders listed on SCHEDULE 1.1 hereto as a Competitive Bid Lender, and such other Lenders which become Competitive Bid Lenders by notice to the Administrative Agent and the Borrower. "COMPETITIVE BID NOTE": as defined in subsection 2.3(a). "COMPETITIVE BID RATE": as to any Competitive Bid made by a Lender pursuant to subsection 2.3, (i) in the case of a Eurodollar Competitive Loan, the Eurodollar Rate plus (or minus) the Margin, and (ii) in the case of a Fixed Rate Competitive Loan, the fixed rate of interest offered by the Lender making such Competitive Bid. "COMPETITIVE BID REQUEST": a request made pursuant to subsection 2.3(b) in the form of EXHIBIT 2.3(b). "COMPETITIVE BORROWING": a Borrowing consisting of a Competitive Loan or concurrent Competitive Loans from the Lender or Lenders whose Competitive Bids for such Borrowing have been accepted by Borrower under the bidding procedure described in subsection 2.3. "COMPETITIVE LOAN": a Loan (which shall be a Eurodollar Competitive Loan or a Fixed Rate Competitive Loan) made by a Lender pursuant to the bidding procedure described in subsection 2.3. "CONSOLIDATED CAPITAL EXPENDITURES": for any period, the aggregate of all expenditures (whether paid in cash or accrued as a liability and including that portion of Capital Leases which is capitalized on the consolidated balance sheet of Borrower and its Subsidiaries for the applicable period) by Borrower and its Subsidiaries during that period that, in conformity with GAAP, are included in "additions to property, plant or equipment" or comparable items reflected in the consolidated statement of cash flows of Borrower and its Subsidiaries. "CONSOLIDATED DEBT": indebtedness for money borrowed of Borrower and its Subsidiaries that should be shown on the liability side of a consolidated balance sheet of Borrower and its Subsidiaries prepared in accordance with GAAP PLUS, (without duplication) the amount of Indebtedness of the type described in clause (iii) of the definition thereof PLUS, (without duplication) Attributable Debt). "CONSOLIDATED EBITDA": without duplication for any Person for any period for which such amount is being determined, Consolidated Net Income or Consolidated Net Loss for such period plus the sum of the amounts for such period of (i) Consolidated Interest Expense, (ii) provision for taxes based on income, (iii) depreciation expense, and (iv) amortization expense, minus any non-cash non-operating income for such period to the extent included in Consolidated Net Income or Consolidated Net Loss and excluding any gain or loss recognized in respect of post-retirement benefits as a result of the application of FASB 106 and any foreign currency translation adjustments as a result of the application of FASB 52, all as determined on a consolidated basis for such Person and its consolidated Subsidiaries in accordance with GAAP. For purpose of this definition, "Consolidated EBITDA" shall be calculated after giving effect on a PRO FORMA basis to any Purchase (including the Permitted Acquisition) as if such Purchase occurred on the first day of the applicable period on the same basis as is required in clauses (A) through (C) for the PRO FORMA test under clause (vi) of the definition of Permitted Investments. "CONSOLIDATED INTEREST EXPENSE": with respect to any Person, for any period for which such amount is being determined, total interest expense of such Person and its Subsidiaries on a consolidated basis in accordance with GAAP for such period. "CONSOLIDATED NET INCOME" and "CONSOLIDATED NET LOSS": for any Person for any period for which such amount is being determined, the net income (loss) of such Person and its consolidated Subsidiaries during such period determined on a consolidated basis for such period taken as a single accounting period in accordance with GAAP, provided that there shall be excluded (i) income (or loss) of any Person (other than a consolidated Subsidiary of such Person) in which any other Person (other than such Person or any of its consolidated Subsidiaries) has a joint interest, except to the extent of the amount of dividends or other distributions actually paid to such Person or any of its consolidated Subsidiaries by such other Person during such period, (ii) the income (or loss) of any Person accrued prior to the date it becomes a consolidated Subsidiary of such Person or is merged into or consolidated with such Person or any of its consolidated Subsidiaries or the Person's assets are acquired by such Person or any of its consolidated Subsidiaries and (iii) the income of any consolidated Subsidiary of such Person to the extent that the declaration or payment of dividends or similar distributions by that consolidated Subsidiary of the income is not at the time permitted by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that consolidated Subsidiary. "CONSOLIDATED NET TANGIBLE ASSETS": the total assets shown on the balance sheet of Borrower and its consolidated Subsidiaries, determined on a consolidated basis in accordance with GAAP as of the end of the most recent fiscal quarter of Borrower ending at least 45 days prior to the taking of any action for the purpose of which the determination is being made, less (i) all current liabilities and minority interests and (ii) goodwill and other intangibles. "CONSOLIDATED NET WORTH": the total amount shown on the balance sheet of Borrower and its consolidated Subsidiaries, determined on a consolidated basis in accordance with GAAP, as of the end of the most recent fiscal quarter of Borrower ending at least 45 days prior to the taking of any action for the purpose of which the determination is being made, as (i) the par or stated value of all outstanding Capital Stock of such Person PLUS (ii) paid-in capital or capital surplus relating to such Capital Stock PLUS (iii) any retained earnings or earned surplus LESS (A) any accumulated deficit, (B) any amounts attributable to Redeemable Stock and (C) any amounts attributable to Exchangeable Stock, excluding, where applicable, any adjustments in respect of foreign currency translation. "CONTAMINANT": any material with respect to which any Environmental Law imposes a duty, obligation or standard of conduct, including without limitation any pollutant, contaminant (as those terms are defined in 42 U.S.C. Section 9601(33)), toxic pollutant (as that term is defined in 33 U.S.C. Section 1362(13)), hazardous substance (as that term is defined in 42 U.S.C. Section 9601(14)), hazardous chemical (as that term is defined by 29 CFR Section 1910.1200(c)), hazardous waste (as that term is defined in 42 U.S.C. Section 6903(5)), or any state or local equivalent of such laws and regulations, including, without limitation, radioactive material, special waste, polychlorinated biphenyls, asbestos, petroleum, including crude oil or any petroleum-derived substance, (or any fraction thereof), waste, or breakdown or decomposition product thereof, or any constituent of any such substance or waste, including but not limited to polychlorinated biphenyls and asbestos. "CONTRACTUAL OBLIGATION": as to any Person, any provision of any security issued by such Person or of any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its property is bound or to which it may be subject. "CURRENCY PROTECTION AGREEMENT": any foreign exchange contract, currency swap agreement, or other financial agreement or arrangement designed to protect Borrower or any of its Subsidiaries against fluctuations in currency values. "DEBTS": all liabilities, whether matured or unmatured, liquidated or unliquidated, absolute, fixed or contingent. "DEFAULT RATE": a variable rate per annum which shall be two percent (2%) per annum PLUS either (i) the then applicable interest rate hereunder in respect of the amount on which the Default Rate is being assessed, or (ii) if there is no such applicable interest rate, the Base Rate plus the Applicable Margin, but in no event in excess of that permitted by applicable law. "DOLLARS" and "$": dollars in lawful currency of the U.S. "DOMESTIC SUBSIDIARY": any Subsidiary of Borrower that is incorporated under the laws of any State of the U.S., the District of Columbia or any territory or possession of the U.S. "EFFECTIVE DATE": the effective date of the applicable Assignment and Assumption Agreement, as defined therein. "ELIGIBLE ASSIGNEE": (i) a commercial bank organized under the laws of the U.S., or any State thereof, (ii) a commercial bank organized under the laws of any other country which is a member of OECD, or a political subdivision of any such country; PROVIDED, HOWEVER, that such bank is acting through a branch or agency located in the country in which it is organized or another country which is also a member of the OECD or the Cayman Islands, (iii) the central bank of any country which is a member of the OECD, (iv) a finance company or other financial institution or fund (whether a corporation, partnership, trust or other entity) that is engaged in making, purchasing or otherwise investing in commercial loans in the ordinary course of its business, (v) an insurance company organized under the laws of the U.S. (or any State thereof), (vi) a savings bank or savings and loan association organized under the laws of the U.S., or any State thereof, (vii) any Lender party to this Agreement, (viii) any Affiliate of any Lender party to this Agreement, and (ix) any other Person approved by Administrative Agent and Borrower, such approval not to be unreasonably withheld; PROVIDED, HOWEVER, that an affiliate of Borrower shall not qualify as an Eligible Assignee. "ENVIRONMENTAL LAWS": any and all foreign, Federal, state, local or municipal laws, rules, orders, regulations, statutes, ordinances, codes, decrees, requirements of any Governmental Authority or other Requirements of Law regulating, relating to or imposing liability or standards of conduct concerning protection of human health or the environment, as now or may at any time hereafter be in effect that are applicable to the Borrower or its Subsidiaries. "ERISA": the Employee Retirement Income Security Act of 1974, as amended from time to time. "ERISA AFFILIATE": each trade or business (whether or not incorporated) which together with Borrower or a Subsidiary of Borrower would be deemed to be a "single employer" within the meaning of Section 4001(b)(1) of ERISA or would be included in a "controlled group of corporations," a group of "trades or businesses under common control" or an "affiliated service group" within the meaning of Section 414(b), (c), (m) or (o) of the Code. Unless otherwise qualified, all references to an "ERISA Affiliate" in this Agreement shall refer to an ERISA Affiliate of Borrower or any Subsidiary. "EUROCURRENCY RESERVE REQUIREMENTS": for any day as applied to a Eurodollar Loan, the aggregate (without duplication) of the maximum rates (expressed as a decimal fraction) of reserve requirements in effect on such day (including, without limitation, basic, supplemental, marginal and emergency reserves under any regulations of the Board or other Governmental Authority having jurisdiction with respect thereto) dealing with reserve requirements prescribed for Eurocurrency funding (currently referred to as "Eurocurrency liabilities" in Regulation D of such Board) maintained by a member bank of the Federal Reserve System. "EURODOLLAR BORROWING": a Borrowing comprised of Eurodollar Loans. "EURODOLLAR COMPETITIVE LOAN": any Competitive Loan bearing interest at a rate determined by reference to the Eurodollar Rate. "EURODOLLAR LOAN": any Eurodollar Competitive Loan or Eurodollar Revolving Loan. "EURODOLLAR RATE": the arithmetic average (rounded upwards to the nearest 1/16 of 1%) of the offered quotation, if any, to first class banks in the Eurodollar market by BT for Dollar deposits of amounts in immediately available funds comparable to the principal amount of the applicable Eurodollar Loan for which the Eurodollar Rate is being determined with maturities comparable to the Interest Period for which such Eurodollar Rate will apply, as of approximately 10:00 A.M. (New York City time) on the applicable Interest Rate Determination Date. The determination of the Eurodollar Rate by Administrative Agent shall be conclusive and binding on Borrower absent manifest error. "EURODOLLAR RESERVE RATE": with respect to each day during each Interest Period pertaining to a Eurodollar Loan, a rate per annum determined for such day in accordance with the following formula (rounded upward to the nearest 1/100th of 1%): EURODOLLAR RATE ---------------------------------------- 1.00 - Eurocurrency Reserve Requirements "EURODOLLAR REVOLVING LOAN": any Revolving Loan bearing interest at a rate determined by reference to the Eurodollar Rate. "EVENT OF DEFAULT": any of the events specified in subsection 7.1; PROVIDED, HOWEVER, that any requirement for the giving of notice, the lapse of time, or both, or any other condition, has been satisfied. "EXCHANGE ACT": the Securities Exchange Act of 1934, as amended and codified in U.S.C. 78a ET SEQ. and as hereafter amended from time to time. "EXCHANGEABLE STOCK": any Capital Stock which is exchangeable or convertible into another security (other than Capital Stock of Borrower which is neither Exchangeable Stock nor Redeemable Stock). "EXISTING CREDIT FACILITY AGREEMENT": that certain Credit Agreement dated as of September 30, 1996 between the Borrower and LaSalle National Bank. "EXISTING CREDIT FACILITY REFINANCING": means the termination of the Existing Credit Facility Agreement. "EXISTING CREDIT FACILITY TERMINATION DOCUMENTS": shall mean the documents entered into with respect to the termination of the commitments, and the reimbursement obligations with respect to any letters of credit issued, under the Existing Credit Facility Agreement, the repayment of the loans thereunder, the release of any guaranties and security with respect thereto and any consents required in connection therewith. "FEDERAL FUNDS EFFECTIVE RATE": for any period, a fluctuating interest rate per annum equal for each day during such period to 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, 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 BT, as Administrative Agent, from three Federal funds brokers of recognized standing selected by it. "FINANCIAL OFFICER": with respect to any Person, the chief financial officer, principal accounting officer, a financial vice president, treasurer or assistant treasurer of such Person. "FIXED RATE COMPETITIVE LOAN": any Competitive Loan bearing interest at a fixed percentage rate per annum specified by the Lender making such Loan in its Competitive Bid. "GAAP": generally accepted accounting principles in the U.S. as in effect from time to time. If any changes in GAAP or the application thereof from that used in the preparation of the financial statements referred to in subsection 5.1(a) hereof occur after the Closing Date and such changes result in, in the judgment of Administrative Agent, a material change in the calculation of any financial covenants or restrictions set forth in this Agreement, then the parties hereto agree to enter into and diligently pursue negotiations in order to amend such financial covenants and restrictions so as to equitably reflect such changes, with the desired result that the criteria for evaluating the financial condition and results of operations of Borrower and its Subsidiaries shall be the same after such changes as if such changes had not been made. "GOVERNMENT ACTS": as defined in subsection 2.4(i). "GOVERNMENTAL AUTHORITY": any nation or government, any state or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of government. "GUARANTEE OBLIGATIONS": as to any Person, without duplication, any direct or indirect obligation of such Person guaranteeing or intended to guarantee any Indebtedness, Capital Lease or operating lease, dividend or other obligation ("primary obligations") of any other Person (the "primary obligor") in any manner, whether directly or indirectly, including, without limitation, any obligation of such Person, whether or not contingent: (i) to purchase any such primary obligation or any property constituting direct or indirect security therefor; (ii) to advance or supply funds: (a) for the purchase or payment of any such primary obligation, or (b) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, (iii) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation; or (iv) otherwise to assure or hold harmless the owne of such primary obligation against loss in respect thereof. Guarantee Obligations shall include, without limitation and without duplication: (i) any direct or indirect liability, contingent or otherwise of that Person: (a) with respect to any indebtedness, lease dividend, letter of credit or other obligation of such primary obligor if the primary purpose or intent thereof by the Person incurring the Guarantee Obligation is to provide assurance to the obligee of such obligation of another that such obligation of another will be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders of such obligation will be protected (in whole or in part) against loss in respect thereof, (b) under any letter of credit, performance bonds, surety bonds or similar obligations issued for the account of that Person or for which that Person is otherwise liable for reimbursement thereof, or (c) under Currency Protection Agreements or Interest Rate Protection Agreements or Commodity Price Protection Agreements, (ii) the direct or indirect guarantee, endorsement (otherwise than for collection or deposit in the ordinary course of business), co-making, discounting with recourse or sale with recourse by such Person of the obligation of such primary obligor; and (iii) any liability of such Person for the obligations of such primary obligor through any agreement (contingent or otherwise): (a) to purchase, repurchase or otherwise acquire such obligation or any security therefor, or to provide funds for the payment or discharge of such obligation (whether in the form of loans, advances, stock purchases, capital contributions or otherwise), (b) to maintain the solvency or any balance sheet item, level of income or financial condition of such primary obligor, or (c) to make take-or-pay or similar payments if required regardless of non-performance by any other party or parties to an agreement, if in the case of any agreement described under clauses (a) or (b) of this sentence the primary purpose or intent thereof is as described in the preceding sentence. Notwithstanding the foregoing, as to Borrower or any of its Subsidiaries, Guarantee Obligations of Borrower shall not include any direct or indirect obligation of Borrower with respect to any obligation of any Subsidiary of Borrower and Guarantee Obligations of any Subsidiary of Borrower shall not include any direct or indirect obligation of such Subsidiary with respect to any obligation of any other Subsidiary of Borrower. The amount of any Guarantee Obligation at any time shall be deemed to be an amount equal to the lesser at such time of (y) the stated or determinable amount of the primary obligation in respect of which such Guarantee Obligation is made or (z) the maximum amount for which such Person may be liable pursuant to the terms of the instrument embodying such Guarantee Obligation; or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof. "INDEBTEDNESS": as applied to any Person (without duplication): (i) all indebtedness of such Person for borrowed money; (ii) the deferred and unpaid balance of the purchase price of assets or services (other than trade payables and other accrued liabilities incurred in the ordinary course of business that are not overdue by more than 90 days unless being contested in good faith) which purchase price is (y) due more than six months from the date of incurrence of the obligation in respect thereof or (z) evidenced by a note or a similar written instrument; (iii) that portion of obligations of such Person with respect to Capital Leases which is or should be classified as a liability on a balance sheet in accordance with GAAP; (iv) all indebtedness secured by any Lien on any property owned by such Person, whether or not such indebtedness has been assumed by such Person or is nonrecourse to such Person; (v) notes payable and drafts accepted representing extensions of credit whether or not representing obligations for borrowed money (other than such notes or drafts for the deferred purchase price of assets or services which does not constitute Indebtedness pursuant to clause (ii) above); (vi) indebtedness or obligations of such Person, in each case, evidenced by bonds, notes or similar written instrument; (vii) Guarantee Obligations of such Person as an account party in respect of letters of credit and bankers' acceptances and all Guarantee Obligations of such Person with respect to obligations of the type referred to in clauses (i) through (vi) of other Persons other than, in each case, commercial or standby letters of credit or the functional equivalent thereof issued in connection with performance, bid or advance payment obligations incurred in the ordinary course of business, including, without limitation, performance requirements under workers compensation or similar laws; and (viii) Guarantee Obligations of such Person not paid when due or no longer contingent. "INSOLVENT": with respect to any Person, that the present fair saleable value of the assets of such Person is less than the amount that will be required to pay the probable liability on existing Debts of such Person or such Person is unable to pay its Debts, as such Debts become absolute and matured. "INTELLECTUAL PROPERTY": as defined in subsection 3.13. "INTERCOMPANY INDEBTEDNESS": Indebtedness of Borrower or any of its Subsidiaries which, in the case of Borrower, is owing to any such Subsidiary and which, in the case of any Subsidiary of Borrower, is owing to Borrower or any of its other Subsidiaries. "INTEREST PAYMENT DATE": (a) as to any Base Rate Loan, the last Business Day of each March, June, September and December to occur while such Loan is outstanding and on the date all of the Loans hereunder are paid in full, (b) as to any Eurodollar Loan or Fixed Rate Competitive Loan, the last day of the Interest Period applicable thereto and (c) as to any Eurodollar Loan or Fixed Rate Loan having an Interest Period longer than three months or 90 days, as the case may be, each day which is three months or 90 days, as the case may be, after the first day of the Interest Period applicable thereto; PROVIDED, HOWEVER, that, in addition to the foregoing, each of (x) the date upon which both the Revolving Commitments have been terminated and the Loans have been paid in full and (y) the Termination Date shall be deemed to be an "Interest Payment Date" with respect to any interest which is then accrued hereunder. "INTEREST PERIOD": (a) with respect to any Eurodollar Loan: (i) initially, the period commencing on the borrowing or conversion date, as the case may be, with respect to such Eurodollar Loan and ending, in the case of any Eurodollar Loan, one, two, three or six months thereafter, as selected by Borrower in its notice of borrowing, notice of conversion or Competitive Bid Request, as the case may be, given with respect thereto; and (ii) thereafter, with respect to Eurodollar Revolving Loans, each period commencing on the last day of the next preceding Interest Period applicable to such Eurodollar Revolving Loan and ending one, two, three or six months thereafter, as selected by Borrower by irrevocable notice to Administrative Agent not less than three Business Days prior to the last day of the then current Interest Period with respect thereto; and (b) with respect to any Fixed Rate Competitive Loan, the period commencing on the borrowing date with respect to such Fixed Rate Competitive Loan and ending such number of days thereafter (which shall be not less than fifteen days or more than 180 days after the date of such borrowing) as shall be selected by Borrower in its Competitive Bid Request given with respect thereto; PROVIDED, HOWEVER, that all of the foregoing provisions relating to Interest Periods are subject to the following: (1) if any Interest Period would otherwise end on a day that is not a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless, in the case of an Interest Period pertaining to a Eurodollar Loan, the result of such extension would be to carry such Interest Period into another calendar month in which event such Interest Period shall end on the immediately preceding Business Day; and (2) any Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of a calendar month. Notwithstanding anything to the contrary contained in this Agreement, no Interest Period shall be selected by Borrower which ends on a date after the Termination Date. "INTEREST RATE DETERMINATION DATE": the date for calculating the Eurodollar Rate for an Interest Period, which date shall be the second Business Day prior to the first day of the related Interest Period for such Eurodollar Loan. "INTEREST RATE PROTECTION AGREEMENT": any interest rate swap agreement, interest rate cap agreement or other financial agreement or arrangement designed to protect Borrower or any of its Subsidiaries against fluctuations in interest rates. "INVESTMENT": as applied to any Person, any direct or indirect purchase or other acquisition by that Person of, or a beneficial interest in, stock or other securities of any other Person, or a capital contribution by that Person to any other Person or any direct or indirect loan or advance to any other Person or any purchase by that Person of all or a significant part of the assets of a business conducted by another Person or any purchase by that Person of a futures contract or such person otherwise becoming liable for the purchase or sale of currency or other commodity at a future date in the nature of a futures contract. The amount of any Investment by any Person shall be the original Investment (including the amount of any liability assumed to the extent that such liability would be reflected on a balance sheet prepared in accordance with GAAP) plus the cost of all additions, thereto, without any adjustments for increases or decreases in value, or write-ups, write-downs or write-offs with respect to such Investment. "INVITATION FOR COMPETITIVE BIDS": an invitation made by Borrower pursuant to subsection 2.3(c) in the form of EXHIBIT 2.3(c). "IRS": the United States Internal Revenue Service, or any successor or analogous organization. "LENDERS": as defined in the preamble. "LENDING OFFICE": with respect to each Lender, the office specified opposite such Lender's name on SCHEDULE 9.3 annexed to and made a part of this Agreement with respect to each type of Loan, or such other office as such Lender may designate in writing from time to time to Borrower and Administrative Agent with respect thereto. "LEVEL I STATUS": exists at any date if the Borrower's Most Recent Ratio of Consolidated Debt to Consolidated EBITDA was less than 1.0 to 1.0. "LEVEL II STATUS": exists at any date if the Borrower's Most Recent Ratio of Consolidated Debt to Consolidated EBITDA was less than 1.5 to 1.0 but greater than or equal to 1.0 to 1.0. "LEVEL III STATUS": exists at any date if the Borrower's Most Recent Ratio of Consolidated Debt to Consolidated EBITDA was less than 2.0 to 1.0 but greater than or equal to 1.5 to 1.0. "LEVEL IV STATUS": exists at any date if the Borrower's Most Recent Ratio of Consolidated Debt to Consolidated EBITDA was greater than or equal to 2.0 to 1.0. "LIEN": any judgment lien or execution, attachment, levy, distraint or similar legal process and any mortgage, pledge, security interest, encumbrance, lien, option, charge or deposit arrangement (other than a deposit in the ordinary course of business and not intended as security) of any kind (including, without limitation, any conditional sale or other title retention agreement or lease in the nature thereof, any sale of receivables with recourse (in whole or in part) against the seller or any other Person except the account debtors, any filing or agreement to file a financing statement as debtor under the UCC or any similar statute other than to reflect ownership by a third party of property leased to Borrower or any of its Subsidiaries under a lease which is not in the nature of a conditional sale or title retention agreement, or any subordination arrangement in favor of another Person). "LOAN": a Competitive Loan, a Revolving Loan or a Swing Line Loan, as the context shall require; collectively, the "Loans." "LOAN DOCUMENTS": this Agreement, the Notes, the Subsidiary Guarantee Agreement and any other instruments, documents and agreements referred to herein or therein or related hereto or thereto. "LOAN PARTY": Borrower or any Subsidiary or Affiliate thereof which is a party to any Loan Document. "MAJORITY LENDERS": at any time, Lenders whose Commitment Percentages represent at least 51%. "MARGIN": as to any Eurodollar Competitive Loan, the margin to be added to or subtracted from the Eurodollar Rate in order to determine the interest rate applicable to such Loan, as specified in the Competitive Bid relating to such Loan. "MATERIAL ADVERSE EFFECT": a material adverse effect on (a) the business, condition (financial or otherwise), assets, liabilities, property or operations of Borrower and its Subsidiaries taken as a whole, (b) the ability of Borrower or any Subsidiary to perform its obligations under any Loan Document to which it is a party, or (c) the validity or enforceability of this Agreement, any Note, or the Subsidiary Guarantee Agreement or the rights or remedies of Administrative Agent and the Lenders hereunder or thereunder. "MATERIAL ASSET DISPOSITION": any Asset Disposition of all or any substantial part of the assets of Borrower and its Subsidiaries, taken as a whole, to any Person (other than Borrower or any of its Subsidiaries). For purposes of this definition, any subsidiary or the assets of a business operation which, in each case, if separately counted would constitute a "significant subsidiary" within the meaning of Rule 1-02 of Regulation S-X promulgated by the United States Securities and Exchange Commission shall be deemed to constitute a "substantial part of the assets" of such Borrower and its Subsidiaries, taken as a whole. "MATERIAL SUBSIDIARY": a Subsidiary, including its subsidiaries, which meets any of the following conditions: (i) the Borrower's and its Subsidiaries' other investments in and advances to the Subsidiary exceed 15 percent of the total assets of the Borrower and its Subsidiaries as of the end of the most recently completed fiscal year (for a proposed business combination to be accounted for as a pooling of interests, this condition is also met when the number of common shares exchanged or to be exchanged by the Borrower exceeds 15 percent of its total common shares outstanding at the date the combination is initiated); or (ii) the Borrower's and its other Subsidiaries' proportionate share of the total assets (after intercompany eliminations) of the subsidiary exceeds 15 percent of the total assets of the Borrower and its Subsidiaries consolidated as of the end of the most recently completed fiscal year; or (iii) the Borrower's and its other Subsidiaries' equity in the income from continuing operations before income taxes, extraordinary items and cumulative effect of a change in accounting principle of the Subsidiary exceeds 15 percent of such income of the Borrower and its Subsidiaries consolidated for the most recently completed fiscal year. "MODIFICATION": as defined in subsection 9.1. "MOODY'S": Moody's Investors Service, Inc. or any successor to the rating agency business thereof. "MOST RECENT RATIO OF CONSOLIDATED DEBT TO CONSOLIDATED EBITDA": at any date, the ratio of Consolidated Debt as of the end of the most recently ended fiscal quarter of Borrower for which financial statements have been delivered pursuant to subsection 5.1 (after giving effect to all payments made on such date) to Consolidated EBITDA for the period of four consecutive fiscal quarters ending on the last day of the most recently ended fiscal quarter of Borrower for which financial statements have been delivered pursuant to subsection 5.1; PROVIDED, HOWEVER, that on the date of any Purchase (including the Permitted Acquisition), the "Most Recent Ratio of Consolidated Debt to Consolidated EBITDA" shall be recalculated effective until the date of delivery of the next quarterly financial statements as the ratio of Consolidated Debt as of the date of any such Purchase (and after giving effect to any Indebtedness incurred or assumed in connection therewith) to Consolidated EBITDA for the four fiscal quarter period ending as of the most recently ended fiscal quarter for which financial statements have been delivered pursuant to subsection 5.1 (calculated on a PRO FORMA basis as set forth in the definition of Consolidated EBITDA after giving effect to the Purchase); PROVIDED, FURTHER, HOWEVER, that if Borrower fails to deliver such financial statements as required by Article V and further fails to remedy such default within five days of notice thereof from Administrative Agent, then, without prejudice to any other rights of any Lender hereunder, the Most Recent Ratio of Consolidated Debt to Consolidated EBITDA" shall be deemed to be greater than 2.0 to 1.0 as of the date such financial statements were required to be delivered under subsection 5.1. "MULTIEMPLOYER PLAN": any plan described in Section 4001(a)(3) of ERISA to which contributions are or, within the immediately preceding six years, have been made or required by Borrower or any of its Subsidiaries or ERISA Affiliates. "NET PROCEEDS": means the aggregate cash proceeds received from any Asset Disposition or issuance of Capital Stock or debt securities (including, without limitation, cash received by way of deferred payment pursuant to a note receivable, conversion of non-cash consideration, cash payments in respect of purchase price adjustments or otherwise, but only as and when such cash is received) by Borrower or any Subsidiary minus the reasonable costs and expenses incurred in connection therewith and any provision for taxes in respect thereof made in accordance with GAAP. "NON-CONVERTIBLE CAPITAL STOCK": with respect to any corporation, any non-convertible Capital Stock of such corporation and any Capital Stock of such corporation convertible solely into non-convertible common stock of such corporation; PROVIDED, HOWEVER, that Non-Convertible Capital Stock shall not include any Redeemable Stock or Exchangeable Stock. "NOTES": means, respectively (i) individually, each Revolving Note, Swing Line Note or Competitive Bid Note and (ii) collectively, all such promissory notes. "OBLIGATIONS": all Loans and other Indebtedness, advances, debts, liabilities, obligations, covenants and duties owing by any Loan Party to any Lender, any Agent or any other Person required to be indemnified under any Loan Document, of any kind or nature, present or future, whether or not evidenced by any note, guaranty or other instrument, arising under this Agreement or under any other Loan Document, whether or not for the payment of money, whether arising by reason of an extension of credit, loan, guaranty, indemnification or in any other manner, whether direct or indirect (including those acquired by assignment), absolute or contingent, due or to become due, now existing or hereafter arising and however acquired. "OECD": the Organization for Economic Cooperation and Development. "PAYMENT OFFICE": the address for such payments for such Loans set forth on SCHEDULE 9.3 hereto in relation to Administrative Agent, or such other address as Administrative Agent may from time to time specify in accordance with subsection 9.3. "PBGC": the Pension Benefit Guaranty Corporation created by Section 4002(a) of ERISA or any successor thereto. "PERMITTED ACQUISITION": the Acquisition, provided that the Acquisition Documents shall be in form and substance reasonably satisfactory to Administrative Agent, as evidenced by its written approval thereof. "PERMITTED ENVIRONMENTAL GUARANTEE OBLIGATIONS": obligations of Borrower with respect to letters of credit or other similar instruments issued in support of liabilities under Environmental Laws up to an aggregate face amount at any one time outstanding of $10,000,000. "PERMITTED INVESTMENTS": (i) any evidence of Indebtedness, maturing not more than two (2) years after the date of acquisition thereof, issued by the U.S., or an instrumentality or agency thereof and guaranteed fully as to principal, interest and premium, if any, by the U.S.; (ii) any certificate of deposit that is denominated in Dollars, maturing not more than six (6) months after the date of purchase, issued by a Lender or a commercial banking institution which is a member of the Federal Reserve System and which has a combined capital and surplus and undivided profits of not less than $200,000,000; (iii) commercial paper, maturing not more than ninety (90) days after the date of acquisition, issued by a corporation organized and existing under the laws of any State of the U.S. or the District of Columbia or Canada, which is denominated in Dollars, with a rating, at any date of determination, of "Prime-2" (or better) according to Moody's, or "A-2" (or better) according to S & P; (iv) Intercompany Indebtedness to the extent permitted by subsection 6.2(a); (v) Investments made solely as a result of mergers, acquisitions or consolidations permitted under subsection 6.5; (vi) any purchase of all or a significant part of the assets of a business conducted by another Person which as a result of such Investment becomes a Domestic Wholly-Owned Subsidiary of Borrower or, except as permitted under subsection 6.5, or any merger, consolidation or amalgamation with any other Person (any such purchase, Investment or merger a "Purchase"); PROVIDED, HOWEVER, that such a Purchase shall not be permitted unless, (i) after giving effect thereto on a PRO FORMA basis for the period (the "Pro Forma Period") of four fiscal quarters ending with the fiscal quarter for which financial statements have most recently been delivered (or were required to be delivered) under subsection 5.1 (on the basis that (A) Indebtedness incurred or assumed in connection with such Purchase was incurred or assumed at the beginning of the Pro Forma Period, (B) if such Indebtedness bears interest at a floating rate, interest expense for the Pro Forma Period shall be calculated at the rate in effect on the date of such Purchase, and (C) all income and expenses associated with the assets or entity acquired in connection with such Purchase for the most recently ended four fiscal quarter period for which such income and expense amounts are available (with good faith estimates thereof being permitted if financial statements indicating such amounts are not available) shall be treated as being earned or incurred by Borrower over the Pro Forma Period on a PRO FORMA basis), no Event of Default or Unmatured Event of Default would exist hereunder; (ii) Borrower and its Subsidiaries have complied with the requirement of subsection 5.1 hereof with respect to any required execution of the Subsidiary Guarantee Agreement; and (iii) such Purchase has been approved by the board of directors of the Person to be acquired; (vii) loans or advances to employees made in the ordinary course of business; (viii) Investments in overnight Nassau time deposits and Eurodollar deposits in branches or offices of banking institutions described in clause (ii) of this definition of the term "Permitted Investments"; (ix) Investments in Subsidiaries; (x) Investments in an aggregate amount at any time not to exceed $15,000,000 in any evidence of Indebtedness the interest on which is exempt from federal income taxation under the Code, of issuers with long-term debt ratings, at any date of determination, of "A2" (or better) according to Moody's or "A" (or better) according to S&P and/or auction rate preferred stock issued by a corporation or association organized and existing under the laws of any State of the U.S. or the District of Columbia, with a long-term debt rating, at any date of determination, of "A2" (or better) according to Moody's or "A" (or better) according to S&P; (xi) the Permitted Acquisition; and (xii) Investments not otherwise permitted hereunder not to exceed $20,000,000 in the aggregate outstanding at any time. "PERMITTED LIENS": The following Liens: (i) Liens for property taxes and assessments or governmental charges or levies and Liens securing claims or demands of mechanics and materialmen; PROVIDED, HOWEVER, payment thereof is not later than the time required by subsection 5.5; (ii) Liens in an aggregate amount not to exceed $35,000,000 at any time of or resulting from any judgment or award, the time for the appeal or petition for rehearing of which shall not have expired, or in respect of which Borrower or a Subsidiary of Borrower shall at any time in good faith be prosecuting an appeal or proceeding for a review and in respect of which a stay of execution pending such appeal or proceeding for review shall have been secured; (iii) Liens incidental to the conduct of business or the ownership of properties and assets (including Liens in connection with worker's compensation, unemployment insurance and other like laws, warehousemen's and attorneys' liens and statutory landlords' liens) and Liens to secure the performance of bids, tenders or trade contracts, or to secure statutory obligations, surety or appeal bonds or other Liens of like general nature incurred in the ordinary course of business and not in connection with the borrowing of money; PROVIDED, HOWEVER, in each case, the obligation secured is not overdue or, if overdue, is being contested in good faith by appropriate actions or proceedings; (iv) minor survey exceptions or minor encumbrances, easements or reservations, or rights of others for rights-of-way, utilities and other similar purposes, or zoning or other restrictions as to the use of real properties, which customarily exist on properties of corporations engaged in similar activities and similarly situated and which do not in any event materially impair their use in the operation of the business of Borrower and its Subsidiaries; (v) Liens securing Indebtedness of a Subsidiary of Borrower to Borrower or to another Subsidiary of Borrower; (vi) Liens existing as of the Closing Date and reflected on SCHEDULE 6.4 hereto and Liens incurred in connection with the refinancing of Indebtedness secured thereby so long as no such Lien extends to any property not subject thereto as of the Closing Date (other than improvements thereto or, if required by the terms of the document or instrument creating or governing such Lien as in effect on the Closing Date, additions thereto and replacements and substitutions therefor); (vii) customary rights of setoff, revocation, refund or chargeback under deposit agreements or under the UCC of banks or other financial institutions where Borrower or its Subsidiaries maintain deposits in the ordinary course of business; and (viii) Liens not described in clauses (i) through (vii); PROVIDED, HOWEVER, that the aggregate amount of Indebtedness secured by Liens permitted under this clause (viii), when added (without duplication) to (A) the aggregate amount of Indebtedness then outstanding and permitted under subsection 6.2(d), (B) the amount of Guarantee Obligations outstanding and permitted under subsection 6.3(g), and (C) the aggregate amount of all Attributable Debt of Borrower and its Subsidiaries then outstanding, shall not exceed 15% of Consolidated Net Tangible Assets. "PERSON": an individual or a corporation, limited liability company, partnership, trust, incorporated or unincorporated association, joint venture, joint stock company, government (or an agency or political subdivision thereof) or other entity of any kind provided; references to Persons include their respective permitted successors and assigns or, in the case of governmental Persons, Persons succeeding to the relevant functions of such persons; and all references to statutes and related regulations shall include any amendments of same and any successor statutes and regulations. "PLAN": any plan described in Section 4021(a) of ERISA and not excluded pursuant to Section 4021(b) thereof, which may hereafter be or has been established or maintained, within the immediately preceding six years, or to which contributions are or, within the immediately preceding six years, have been made, by Borrower or any of its Subsidiaries or ERISA Affiliates, but not including any Multiemployer Plan. "PLAN ADMINISTRATOR": has the meaning assigned to the term "administrator" in Section 3(16)(A) of ERISA. "PLAN SPONSOR": has the meaning assigned to the term "plan sponsor" in Section 3(16)(B) of ERISA. "PRIME LENDING RATE": the rate which BT announces from time to time as its prime lending rate, base rate or equivalent, as in effect from time to time. The Prime Lending Rate is a reference rate and does not necessarily represent the lowest or best rate actually charged to any customer. Any Lender may make commercial loans or other loans at rates of interest at, above or below the Prime Lending Rate. The Prime Lending Rate shall change automatically and without notice from time to time as and when BT changes its prime lending rates, base rates or equivalent. "PURCHASE": as defined in clause (vi) of the definition of Permitted Investments. "REDEEMABLE STOCK": any Capital Stock that by its terms or otherwise is required to be redeemed on or prior to the first anniversary of the Termination Date (as the same may be extended pursuant to the terms hereof) or is redeemable at the option of the holder thereof at any time on or prior to the first anniversary of such Termination Date. "REFUNDED SWING LINE LOANS": as defined in subsection 2.2(d). "REGISTER": as defined in subsection 9.9(c). "REGULATION D", "REGULATION G", "REGULATION T", "REGULATION U" and "REGULATION X": respectively, Regulation D, G, T, U and X of the Board as from time to time in effect and any successor to all or a portion of any thereof. "RELEASE": any release, spill, emission, leaking, pumping, pouring, emptying, dumping, injection, deposit, disposal, discharge, dispersal, escape, leaching or migration in violation of any Environmental Law into the indoor or outdoor environment or into or out of any property of Borrower or its Subsidiaries, or at any other location, including any location to which Borrower or any Subsidiary has transported or arranged for the transportation of any Contaminant, including the movement of Contaminants through or in the air, soil, surface water, groundwater or property of Borrower or its Subsidiaries or at any other location, including any location to which Borrower or any Subsidiary has transported or arranged for the transportation of any Contaminant. "REMEDIAL ACTION": actions required to (i) clean up, remove, treat or in any other way address Contaminants in the indoor or outdoor environment, (ii) prevent or minimize the Release or threat of Release of Contaminants so they do not migrate or endanger or threaten to endanger public health or welfare or the indoor or outdoor environment; or (iii) perform pre-remedial or post-remedial studies and investigations and post-remedial monitoring and care or any other studies, reports or investigations relating to Contaminants. "REPORTABLE EVENT": a "reportable event" described in Section 4043(b) of ERISA or in the regulations thereunder or receipt of a notice of withdrawal liability with respect to a Multiemployer Plan pursuant to Section 4202 of ERISA. "REQUIREMENT OF LAW": as to any Person, any law (including common law), treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, including without limitation, any Environmental Law, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject. "REVOLVING COMMITMENT": as to any Lender, the obligation of such Lender to (a) make Revolving Loans to Borrower, and (b) participate in Swing Line Loans made to Borrower, in an aggregate principal and/or Stated Amount at any one time outstanding not to exceed the amount set forth opposite such Lender's name on SCHEDULE 1.1 under the heading "Revolving Commitment", as such amount may be reduced from time to time in accordance with the terms hereof; collectively, as to all Lenders, the "REVOLVING COMMITMENTS". "REVOLVING LOANS": as defined in subsection 2.1(a). "REVOLVING NOTE": as defined in subsection 2.1(c). "SALE AND LEASEBACK TRANSACTION": any arrangement, directly or indirectly, with any Person whereby a seller or transferor shall sell or otherwise transfer any real or personal property and then or thereafter lease, or repurchase under an extended purchase contract, conditional sales or other title retention agreement, the same or similar property. "S&P": Standard & Poor's Ratings Services, a division of the McGraw Hill Companies, Inc. or any successor to the rating agency business thereof. "STATUS": as to Borrower, the existence of Level I Status, Level II Status, Level III Status or Level IV Status, as the case may be. "SUBSIDIARY": as to any Person, any corporation of which at least a majority of the outstanding stock having by the terms thereof ordinary voting power to elect a majority of the board of directors of such corporation (irrespective of whether or not at the time stock of any other class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time owned by such Person, or by one or more Subsidiaries, or by such Person and one or more Subsidiaries. Unless otherwise qualified, all references to a "Subsidiary" or to "Subsidiaries" in this Agreement shall refer to a Subsidiary or Subsidiaries of Borrower. "SUBSIDIARY GUARANTEE AGREEMENT": the Subsidiary Guarantee Agreement in substantially the form of EXHIBIT 1.1 hereto, dated as of the date hereof, made by the Subsidiary Guarantors in favor of the beneficiaries named therein, as the same may be amended, supplemented or otherwise modified from time to time in accordance with its terms and the terms hereof. "SUBSIDIARY GUARANTOR": individually, each of the Subsidiaries of Borrower identified on SCHEDULE 3.5 as a Material Subsidiary signatory to the Subsidiary Guarantee Agreement and such other Material Subsidiaries from time to time party to such Agreement and collectively, all of such Material Subsidiaries. "SWING LINE COMMITMENT": of the Swing Line Lender at any date, the obligation of the Swing Line Lender to make Swing Line Loans pursuant to subsection 2.2 in the amount referred to therein. "SWING LINE LENDER": BT. "SWING LINE LOANS": as defined in subsection 2.2(a). "SWING LINE LOAN PARTICIPATION CERTIFICATE": a certificate, substantially in the form of EXHIBIT 2.2(e). "SWING LINE NOTE": as defined in subsection 2.2(b). "TAXES": any present or future taxes, levies, imposts, duties or other charges of whatever nature imposed by any government or any political subdivision or taxing authority thereof, other than any tax on, or measured by, the net income of any applicable Lender pursuant to the income tax laws of the U.S. or the jurisdictions where such Lender's principal or Lending Offices are located. "TERMINATION DATE": the earlier to occur of (a) June 11, 2002, subject to any extension pursuant to subsection 2.5 hereof; and (b) the date on which the Revolving Commitments shall otherwise terminate in accordance with the provisions of this Agreement. "TERMINATION EVENT" means (i) a Reportable Event (other than a Reportable Event not subject to the provisions for 30-day notice to the PBGC under such regulations), or (ii) the withdrawal of Borrower or any of its ERISA Affiliates from a Plan during a plan year in which it was a "substantial employer" as defined in Section 4001(a)(2) of ERISA, or (iii) the filing of a notice of intent to terminate a Plan in a distress termination under Section 4041 of ERISA, or (iv) the institution of proceedings to terminate a Plan by the PBGC, or (v) any other event or condition which might constitute grounds under Section 4042 of ERISA for the involuntary termination of, or the appointment of a trustee to administer, any Plan, or (vi) the imposition of liability of Borrower or any of its ERISA Affiliates pursuant to Sections 4064 or 4069 of ERISA, which, in the case of any event described in clauses (i) through (vi) above, would cause the sum of Borrower's and its ERISA Affiliates' liabilities (after giving effect to the tax consequences thereof) resulting from or otherwise associated with such event to exceed $10,000,000. "TRANSACTION": shall mean and include each of the Borrowings occurring on the Closing Date, the Existing Credit Facility Refinancing, and the payment of fees and expenses in connection with the foregoing. "TYPE": as to any Loan, its nature as a Base Rate Loan or a Eurodollar Loan, and as to any Competitive Loan, its nature as a Eurodollar Competitive Loan or a Fixed Rate Competitive Loan. "UNMATURED EVENT OF DEFAULT": an event, act, condition or occurrence which with the giving of notice or the lapse of time (or both) would become an Event of Default. "U.S.": the United States of America, its territories, its possessions and all other areas subject to its jurisdiction. "VOTING SECURITIES": any class of Capital Stock of a Person pursuant to which the holders thereof have, at the time of determination, the general voting power under ordinary circumstances to vote for the election of directors, managers, trustees or general partners of such Person (irrespective of whether or not at the time any other class or classes will have or might have voting power by reason of the happening of any contingency). "WHOLLY-OWNED SUBSIDIARY": with respect to any Person, any Subsidiary of such Person, all of the outstanding shares of capital stock of which (other than qualifying shares required to be owned by directors) are at the time owned directly or indirectly by such Person and/or one or more Wholly-Owned Subsidiaries of such Person. "WITHDRAWAL LIABILITY": liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA. "WRITTEN" or "IN WRITING": any form of written communication or a communication by means of a telecopier device or authenticated telex, telegraph or cable. 1.2 ACCOUNTING TERMS, FINANCIAL STATEMENTS. All accounting terms used herein shall have the respective meanings given to them in accordance with GAAP, unless otherwise provided herein. All computations and determinations for purposes of determining compliance with the financial requirements of this Agreement shall be made in accordance with GAAP, unless otherwise provided herein. 1.3 OTHER DEFINITIONAL TERMS. The words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and Article, Section, Recital, Schedule, Exhibit and like references are to this Agreement unless otherwise specified. ARTICLE II AMOUNT AND TERMS OF CREDIT 2.1 REVOLVING CREDIT BORROWINGS. (a) REVOLVING COMMITMENTS. Subject to the terms and conditions hereof, each Lender having a Revolving Commitment hereunder severally agrees to make revolving loans in Dollars ("Revolving Loans") to Borrower from time to time during the Commitment Period in an aggregate principal amount at any one time outstanding which, when added to such Lender's Commitment Percentage of the Swing Line Loans to be outstanding immediately after giving effect to the use of proceeds of such Revolving Loans, does not exceed the amount of such Lender's Revolving Commitment. During the Commitment Period, Borrower may use the Revolving Commitments by borrowing, repaying and, to the extent permitted, prepaying the Revolving Loans in whole or in part, and reborrowing, all in accordance with the terms and conditions hereof. Notwithstanding anything to the contrary contained in this Agreement, in no event (after giving effect to the use of proceeds of any Borrowing) shall (i) any Lender's Commitment Percentage of a Borrowing of Revolving Loans exceed such Lender's Available Revolving Commitment at the time of such Borrowing or (ii) the aggregate amount of Revolving Loans, Competitive Loans and Swing Line Loans at any one time outstanding exceed the aggregate Revolving Commitments of all Lenders then in effect. (b) REVOLVING LOANS. The Revolving Loans may from time to time be (i) Eurodollar Revolving Loans, (ii) Base Rate Loans, or (iii) a combination thereof, as determined by Borrower and notified to Administrative Agent in accordance with subsections 2.1(c) and 2.12; PROVIDED, HOWEVER, that no Revolving Loan shall be made as a Eurodollar Revolving Loan after the day that is one month prior to the Termination Date and that no Revolving Loan maintained as a Eurodollar Revolving Loan may be incurred prior to the earlier of (1) the 30th day after the Closing Date or (2) that date upon which the Syndication Agent determines in its sole discretion (and notifies Borrower) that the primary syndication has been completed, (the "SYNDICATION DATE"). (c) REVOLVING NOTES. The Revolving Loans made by each Lender shall be evidenced by a promissory note of Borrower, substantially in the form of EXHIBIT 2.1(c), with appropriate insertions as to payee, date and principal amount (a "Revolving Note"), payable to the order of such Lender and in a principal amount equal to the lesser of (i) the amount of the initial Revolving Commitment of such Lender and (ii) the aggregate unpaid principal amount of all Revolving Loans made by such Lender. Each Lender is hereby authorized to record the date, Type and amount of each Revolving Loan made by such Lender, each continuation thereof, each conversion of all or a portion thereof to another Type, the date and amount of each payment or prepayment of principal thereof and, in the case of Eurodollar Revolving Loans, the length of each Interest Period with respect thereto, on the schedule annexed to and constituting a part of its Revolving Note (or otherwise on the records of such Lender), and any such recordation shall (in the absence of manifest error) constitute prima facie evidence of the accuracy of the information so recorded; PROVIDED, HOWEVER, that the failure of a Lender to make any such recordation on its Revolving Note shall not affect the obligations of Borrower thereunder or under this Agreement. Each Revolving Note shall (x) be dated the date hereof, (y) be stated to mature on the Termination Date and (z) provide for the payment of interest in accordance with subsection 2.9. (d) PROCEDURE FOR REVOLVING CREDIT BORROWING. Borrower may borrow Revolving Loans under the Revolving Commitments during the Commitment Period on any Business Day; PROVIDED, HOWEVER, that Borrower shall give Administrative Agent irrevocable notice (which notice must be received by Administrative Agent (a) prior to 12:00 Noon, New York City time, three Business Days prior to the requested borrowing date, if all or any part of the requested Revolving Loans are to be Eurodollar Revolving Loans, or (b) prior to 10:00 A.M., New York City time, on the requested borrowing date with respect to Base Rate Borrowings), specifying (i) the amount to be borrowed, (ii) the requested borrowing date, (iii) whether the Borrowing is to be of Eurodollar Revolving Loans, Base Rate Loans, or a combination thereof and (iv) if the Borrowing is to be entirely or partly of Eurodollar Loans, the respective amounts of each such Type of Loan and the respective lengths of the initial Interest Periods therefor (such notice to be promptly confirmed in writing if given telephonically). Each Borrowing under the Revolving Commitments shall be in an amount equal to (x) in the case of Base Rate Loans, $5,000,000 or a whole multiple of $1,000,000 in excess thereof (or, if the then aggregate Available Revolving Commitments are less than $5,000,000, such lesser amount) and (y) in the case of Eurodollar Revolving Loans, $5,000,000 or a whole multiple of $1,000,000 in excess thereof; PROVIDED, HOWEVER, that any Borrowing of Revolving Loans to be used solely to pay the aggregate amount of Swing Line Loans then outstanding may be in the aggregate principal amount of such Swing Line Loans. Upon receipt of any such notice from Borrower, Administrative Agent shall promptly notify each Lender thereof. More than one Borrowing may be incurred on any date. At no time shall there be outstanding more than five (5) Borrowings of Eurodollar Revolving Loans. Each Lender will make the amount of its Commitment Percentage of each Borrowing available to Administrative Agent for the account of Borrower at the office of Administrative Agent specified in SCHEDULE 9.3 prior to 12:00 Noon, New York City time, on the borrowing date requested in accordance with the provisions of this subsection 2.1(d) by Borrower in funds immediately available to Administrative Agent. Such Borrowing will then be made available to Borrower by Administrative Agent's crediting the account of Borrower on the books of such office with the aggregate of the amounts made available to Administrative Agent by the Lenders and in like funds as received by Administrative Agent. 2.2 SWING LINE BORROWINGS. (a) SWING LINE COMMITMENT. Subject to the terms and conditions hereof, the Swing Line Lender in its individual capacity agrees to make swing line loans in Dollars ("SWING LINE LOANS") to Borrower on any Business Day from time to time during the Commitment Period in an aggregate principal amount at any one time outstanding not to exceed $10,000,000; PROVIDED, HOWEVER, that in no event may the amount of any Borrowing of Swing Line Loans (i) exceed the aggregate Available Revolving Commitments of all Lenders immediately prior to such Borrowing (after giving effect to the use of proceeds thereof) or (ii) cause the outstanding Revolving Loans of any Lender, when added to such Lender's Commitment Percentage of the then outstanding Swing Line Loans (after giving effect to the use of proceeds of such Swing Line Loans) to exceed such Lender's Revolving Commitment. Amounts borrowed by Borrower under this subsection 2.2 may be repaid and, to but excluding the Termination Date, reborrowed. (b) SWING LINE NOTE. The Swing Line Loans shall be evidenced by a promissory note of Borrower substantially in the form of EXHIBIT 2.2(b), with appropriate insertions (the "SWING LINE NOTE"), payable to the order of the Swing Line Lender and representing the obligation of Borrower to pay the aggregate unpaid principal amount of the Swing Line Loans, with interest thereon as prescribed in subsection 2.9(a). The Swing Line Lender is hereby authorized to record the borrowing date, the amount of each Swing Line Loan and the date and amount of each payment or prepayment of principal thereof, on the schedule annexed to and constituting a part of the Swing Line Note (or otherwise on the records of the Swing Line Lender) and, in the absence of manifest error, any such recordation shall constitute PRIMA FACIE evidence of the accuracy of the information so recorded; PROVIDED, HOWEVER, that the failure of the Swing Line Lender to make such recordation (or any error in such recordation) shall not affect the obligations of Borrower hereunder or under the Swing Line Note. The Swing Line Note shall (a) be dated the date hereof, (b) be stated to mature on the Termination Date and (c) bear interest for the period from the Closing Date on the unpaid principal amount thereof from time to time outstanding at the applicable interest rate per annum determined as provided in, and payable as specified in, subsection 2.9(a). (c) PROCEDURE FOR SWING LINE BORROWING. The Swing Line Loans shall be made and maintained as Base Rate Loans and, notwithstanding subsection 2.12, shall not be entitled to be converted into any other Type of Loan. Borrower shall give the Swing Line Lender irrevocable notice (which notice must be received by the Swing Line Lender prior to 12:00 Noon, New York City time), on the requested borrowing date (which shall be a Business Day) specifying the amount of each requested Swing Line Loan, which shall be in a minimum amount of $1,000,000 or a multiple thereof. Upon receipt of any such notice from Borrower, Administrative Agent shall promptly notify the Swing Line Lender thereof (such notice to be promptly confirmed in writing if given telephonically). The proceeds of each Swing Line Loan will then be made available to Borrower by the Swing Line Lender by crediting the account of Borrower on the books of the office of the Swing Line Lender specified in SCHEDULE 9.3 with such proceeds. (d) REFUNDING OF SWING LINE LOANS. The Swing Line Lender, at any time in its sole and absolute discretion, may on behalf of Borrower (which hereby irrevocably directs the Swing Line Lender to so act on its behalf) request each Lender (including the Swing Line Lender) to make a Revolving Loan in an amount equal to such Lender's Commitment Percentage of the principal amount of the Swing Line Loans (the "REFUNDED SWING LINE LOANS") outstanding on the date such notice is given; PROVIDED, HOWEVER, that such notice shall be deemed to have automatically been given upon the occurrence of an Event of Default under subsection 7.1(g) or 7.1(h). Unless an Event of Default under subsections 7.1(g) or 7.1(h) shall have occurred (in which event the procedures of paragraph (e) of this subsection 2.2 shall apply) and regardless of whether the conditions precedent set forth in this Agreement to the making of a Revolving Loan are then satisfied, each Lender shall make the proceeds of its Revolving Loan available to the Swing Line Lender at its office specified in SCHEDULE 9.3 prior to 11:00 A.M., New York City time, in funds immediately available on the Business Day next succeeding the date such notice is given. The proceeds of such Revolving Loans shall be immediately applied to repay the Refunded Swing Line Loans. (e) PARTICIPATION IN SWING LINE LOANS. If, prior to the making of a Revolving Loan pursuant to paragraph (d) of this subsection 2.2, an Event of Default under subsections 7.1(g) or 7.1(h) shall have occurred or if for any other reason a Revolving Loan cannot be made pursuant to subsection 2.2(d), then, subject to the provisions of subparagraph 2.2(f) below, each Lender will, on the date such Revolving Loan was to have been made, purchase (without recourse or warranty) from the Swing Line Lender an undivided participating interest in the Refunded Swing Line Loan in an amount equal to its Commitment Percentage of such Refunded Swing Line Loan. Upon request, each Lender will immediately transfer to the Swing Line Lender, in immediately available funds, the amount of its participation and upon receipt thereof the Swing Line Lender will deliver to such Lender a Swing Line Loan Participation Certificate dated the date of receipt of such funds and in such amount. (f) LENDERS' OBLIGATIONS UNCONDITIONAL. Each Lender's obligation to make Revolving Loans in accordance with clause (d) and to purchase participating interests in accordance with clause (e) above shall be absolute and unconditional and shall not be affected by any circumstance, including, without limitation, (i) any set-off, counterclaim, recoupment, defense or other right which such Lender may have against the Swing Line Lender, Borrower or any other Person for any reason whatsoever; (ii) the occurrence or continuance of any Event of Default or Unmatured Event of Default; (iii) any adverse change in the condition (financial or otherwise) of Borrower or any other Person; (iv) any breach of this Agreement by Borrower or any other Person; (v) any inability of Borrower to satisfy the conditions precedent to borrowing set forth in this Agreement on the date upon which such participating interest is to be purchased or (vi) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing. If any Lender does not make available to the Swing Line Lender the amount required pursuant to clause (d) or (e) above, as the case may be, the Swing Line Lender shall be entitled to recover such amount on demand from such Lender, together with interest thereon for each day from the date of non-payment until such amount is paid in full at the Federal Funds Effective Rate for the first two Business Days and at the Base Rate thereafter. Notwithstanding the foregoing provisions of this subsection 2.2(f), no Lender shall be required to make a Revolving Loan to Borrower for the purpose of refunding a Swing Line Loan pursuant to clause (d) above or to purchase a participating interest in a Swing Line Loan pursuant to clause (e) above if an Event of Default or Unmatured Event of Default has occurred and is continuing and, prior to the making by the Swing Line Lender of such Swing Line Loan, the Swing Line Lender has received written notice from such Lender specifying that such Event of Default or Unmatured Event of Default has occurred and is continuing, describing the nature thereof and stating that, as a result thereof, such Lender shall cease to make such Refunded Swing Line Loans and purchase such participating interests, as the case may be; PROVIDED, HOWEVER, that the obligation of such Lender to make such Refunded Swing Line Loans and to purchase such participating interests shall be reinstated upon the earlier to occur of (i) the date upon which such Lender notifies the Swing Line Lender that its prior notice has been withdrawn and (ii) the date upon which the Event of Default or Unmatured Event of Default specified in such notice no longer is continuing in accordance with the terms hereof. 2.3 COMPETITIVE BORROWINGS. (a) THE COMPETITIVE BID OPTION. In addition to the Revolving Loans which may be made available pursuant to subsection 2.1, Borrower may, as set forth in this subsection 2.3, request the Competitive Bid Lenders to make offers to make Competitive Loans in Dollars to Borrower during the Commitment Period; PROVIDED, HOWEVER, that at no time shall the aggregate amount of Competitive Loans exceed $100,000,000; PROVIDED, FURTHER, that at no time shall the aggregate amount of Revolving Loans, Swing Line Loans and Competitive Loans exceed the aggregate Revolving Commitments then in effect of all the Lenders. The Lenders may, but shall have no obligation to, make such offers, and Borrower may, but shall have no obligation to, accept any such offers in the manner set forth in this subsection 2.3. Upon the request of any Competitive Bid Lender, Borrower shall execute and deliver a promissory note with respect to Competitive Bid Loans to be made by such Lender, substantially in the form of EXHIBIT 2.3(a) with appropriate insertions as to payee and date (a "Competitive Bid Note") payable to the order of such Lender and in a principal amount equal to the aggregate unpaid principal amount of all Competitive Loans, if any, made by such Lender. (b) COMPETITIVE BID REQUEST. When Borrower wishes to request offers to make Competitive Loans under this subsection 2.3, it shall transmit to Administrative Agent a Competitive Bid Request to be received no later than 12:00 Noon (New York City time) on (x) the fourth Business Day prior to the requested date of borrowing in the case of a Borrowing of Eurodollar Competitive Loans or (y) the second Business Day prior to the requested date of borrowing in the case of a Borrowing of Fixed Rate Competitive Loans, specifying: (i) the proposed date of Borrowing, which shall be a Business Day, (ii) the aggregate principal amount of such Borrowing, which shall be $20,000,000 or a multiple of $5,000,000 in excess thereof, (iii) whether the Borrowing then being requested is to be of Eurodollar Competitive Loans or Fixed Rate Competitive Loans or some combination thereof, and (iv) the duration of the Interest Period applicable thereto, subject to the provisions of the definition of Interest Period contained in subsection 1.1. A Competitive Bid Request that does not conform substantially to the format of EXHIBIT 2.3(b) may be rejected by Administrative Agent in its sole discretion, and Administrative Agent shall promptly notify Borrower of such rejection. Borrower may request offers to make Competitive Loans for more than one Interest Period in a single Competitive Bid Request. No Competitive Bid Request shall be given within three Business Days of any other Competitive Bid Request. (c) INVITATION FOR COMPETITIVE BIDS. Promptly after its receipt of a Competitive Bid Request (but, in any event, no later than 3:00 P.M. (New York City time), on the date of Administrative Agent's receipt of such Competitive Bid Request, conforming to the requirements of paragraph (b) above, Administrative Agent shall send to each of the Competitive Bid Lenders an Invitation for Competitive Bids which shall constitute an invitation by Borrower to each such Lender to bid, on the terms and conditions of this Agreement to make Competitive Loans pursuant to the Competitive Bid Request; PROVIDED, HOWEVER, that unless such Competitive Bid Lender or any Affiliate of such Lender has Revolving Loans or a Revolving Commitment hereunder, such Competitive Bid Lender shall not be eligible to participate in competitive bidding hereunder. (d) SUBMISSION AND CONTENTS OF COMPETITIVE BIDS. (i) Each Lender to which an Invitation for Competitive Bids is sent may submit a Competitive Bid containing an offer or offers to make Competitive Loans in response to such Invitation for Competitive Bids. Each Competitive Bid must comply with the requirements of this paragraph (d) and must be submitted to Administrative Agent at its offices specified in SCHEDULE 9.3 not later than 11:00 A.M. (New York City time) on (x) the third Business Day prior to the requested date of borrowing in the case of a Borrowing of Eurodollar Competitive Loans, or (y) one Business Day prior to the requested date of borrowing in the case of a Borrowing of Fixed Rate Competitive Loans; PROVIDED, HOWEVER, that any Competitive Bids submitted by Administrative Agent in the capacity of a Lender may only be submitted if Administrative Agent notifies Borrower of the terms of the offer or offers contained therein not later than fifteen minutes prior to the deadline for the other Lenders. A Competitive Bid submitted by a Lender pursuant to this paragraph (d) shall be irrevocable. (ii) Each Competitive Bid shall be in substantially the form of EXHIBIT 2.3(d) and shall specify: (A) the date of the proposed Borrowing, (B) the principal amount of the Competitive Loan for which each such offer is being made, which principal amount (w) may be greater than, equal to or less than, the Revolving Commitment of the quoting Lender, (x) must be in a minimum principal amount of $1,000,000 or a multiple of $1,000,000 in excess thereof, (y) may not exceed the principal amount of Competitive Loans for which offers were requested and (z) if more than one offer is quoted by such Lender, may be subject to a limitation as to the maximum aggregate principal amount of Competitive Loans for which offers being made by such quoting Lender may be accepted, (C) in the case of a Borrowing of Eurodollar Competitive Loans, the Margin offered for each such Competitive Loan, expressed as a percentage (specified in increments of 1/1,000th of 1%) to be added to or subtracted from such base rate, which margin shall include the incremental rate, if any, necessary to compensate such Lender for any then applicable reserve or other similar requirements, (D) in the case of a Borrowing of Fixed Rate Competitive Loans, the rate of interest per annum (specified in increments of 1/1,000th of 1%) offered for each such Competitive Loan, and (E) the identity of the quoting Lender. A Competitive Bid may set forth up to five separate offers by the quoting Lender with respect to each Interest Period specified in the related Invitation for Competitive Bids. Any Competitive Bid shall be disregarded by Administrative Agent if Administrative Agent determines that it: (A) is not substantially in the form of EXHIBIT 2.3(d) or does not specify all of the information required by subsection 2.3(d)(ii); (B) contains qualifying, conditional or similar language (except for a limitation on the maximum principal amount which may be accepted); (C) proposes terms other than or in addition to those set forth in the applicable Invitation for Competitive Bids or (D) arrives after the time set forth in subsection 2.3(d)(i). (e) NOTICE TO BORROWER. Administrative Agent shall promptly (and, in any event, by 11:30 A.M. (New York City time) on the date of receipt of Competitive Bids notify Borrower, by telecopy, of all the Competitive Bids made, the Competitive Bid Rate and the principal amount of each Competitive Loan in respect of which a Competitive Bid was made and the identity of the Lender that made each bid. Administrative Agent shall send a copy of all Competitive Bids to Borrower for its records as soon as practicable after completion of the bidding process set forth in this subsection 2.3. (f) ACCEPTANCE AND NOTICE BY BORROWER. Borrower may in its sole discretion, subject only to the provisions of this paragraph (f), accept or reject any Competitive Bid referred to in paragraph (e) above. Borrower shall notify Administrative Agent by telephone, confirmed immediately thereafter by telecopy in the form of a Competitive Bid Accept/Reject Letter, whether and to what extent it wishes to accept any or all of the bids referred to in paragraph (e) above not later than (x) 1:00 P.M. (New York City time), on (x) the third Business Day prior to the requested date of borrowing in the case of a Borrowing of Eurodollar Competitive Loans, or (y) one Business Day prior to the requested date of borrowing in the case of a Borrowing of Fixed Rate Competitive Loans; PROVIDED, HOWEVER, that: (i) the failure by Borrower to give such notice shal be deemed to be a rejection of all the bids referred to in paragraph (e) above; (ii) the aggregate principal amount of the Competitive Bids accepted by Borrower may not exceed the lesser of (A) the principal amount set forth in the related Competitive Bid Request and (B) the excess, if any, of the aggregate Revolving Commitments of all Lenders then in effect over the aggregate principal amount of all Loans outstanding immediately prior to the making of such Competitive Loans (after giving effect to the use of proceeds thereof), (iii) the principal amount of each Competitive Borrowing must be $20,000,000 or a whole multiple of $5,000,000 in excess thereof, (iv) unless there are any limitations contained in a quoting Lender's Competitive Bid, Borrower may not accept a Competitive Bid made at a particular Competitive Bid Rate if it has decided to reject any portion of a bid made at a lower Competitive Bid Rate for the same Interest Period, and (v) Borrower may not accept any Competitive Bid that is disregarded by Administrative Agent pursuant to subsection 2.3(d)(ii) or that otherwise fails to comply with the requirements of this Agreement. A notice given by Borrower pursuant to this paragraph (f) shall be irrevocable. (g) ALLOCATION BY ADMINISTRATIVE AGENT. If offers are made by two or more Lenders with the same Competitive Bid Rates for a greater aggregate principal amount than the amount in respect of which such offers are accepted for the related Interest Period, the principal amount of Competitive Loans in respect of which such offers are accepted shall be allocated by Administrative Agent among such Lenders as nearly as possible (in integral multiples of $1,000,000), as Administrative Agent may deem appropriate) in proportion to the aggregate principal amounts of such offers. (h) NOTIFICATION OF ACCEPTANCE. Administrative Agent shall promptly (and, in any event, by 2:00 P.M. (New York City time) on the date of receipt of the Competitive Bid Accept/Reject Letter notify each bidding Lender whether or not its Competitive Bid has been accepted (and if so, in what amount and at what Competitive Bid Rate), and each successful bidder will thereupon become bound, subject to the other applicable conditions hereof, to make the Competitive Loan in respect of which its bid has been accepted. (i) FUNDING OF THE COMPETITIVE LOANS. Each Lender that has received notice pursuant to subsection 2.3(h) that its Competitive Bid has been accepted shall make the amounts of such Loans available to Administrative Agent for the account of Borrower at Administrative Agent's Payment Office by 12:00 NOON (New York City time) on such date of Borrowing, by payment in funds immediately available to and freely transferable to Administrative Agent. Unless any applicable condition specified in Article IV has not been satisfied, the proceeds of all such Loans will then be made available to Borrower by Administrative Agent at such office by crediting the account of Borrower with the aggregate of the amounts made available to Administrative Agent by the Lenders and in like funds as received by Administrative Agent. (j) NO ADDITIONAL RIGHTS. Nothing in this subsection 2.3 shall be construed as a right of first offer in favor of the Lenders or otherwise to limit the ability of Borrower to request and accept any other credit facilities from any Person (including any of the Lenders); PROVIDED, HOWEVER, that no Event of Default or Unmatured Event of Default would otherwise arise or exist as a result of Borrower executing, delivering or performing under such other credit facilities. (k) REDUCTION OF AVAILABLE REVOLVING COMMITMENTS. Each outstanding Competitive Loan shall reduce PRO TANTO the aggregate Available Revolving Commitment of all the Lenders, but shall not otherwise reduce or affect the Available Revolving Commitment or Commitment Percentage of any Lender which makes a Competitive Loan. 2.4 INTENTIONALLY OMITTED. 2.5 EXTENSION OF REVOLVING COMMITMENTS. Upon the written request of Borrower, received by Administrative Agent not less than sixty days prior to the then current Termination Date and subject to the consent of each Lender willing to grant such request, the Termination Date shall be extended to the date which is three years from the date which is thirty days from the date of such request. Administrative Agent shall transmit such request to each Lender within one Business Day. The Lenders shall respond through Administrative Agent to any such request of Borrower within thirty days of Borrower's request. Any Lender not responding within thirty days shall be deemed to have declined the request. At the option of Borrower, any declining Lender's Revolving Commitment may be assumed, in whole or in part, by one or more existing Lenders or other lenders acceptable to Borrower and Administrative Agent, upon compliance with subsection 9.6; PROVIDED, HOWEVER, Assignee shall pay the $3,500 processing fee required by subsection 9.1(b). If any such Revolving Commitment is not so replaced within thirty (30) days of the Lender's response, then, at Borrower's option, either (i) Borrower shall give prompt written notice to each Lender of its decision to withdraw such request and the aggregate Revolving Commitments of all the Lenders shall terminate on the then current Termination Date or (ii) Borrower shall give prompt notice of termination of the Revolving Commitment to each and every Lender that has not consented to the extension (to the extent it has not been assumed), with a copy to Administrative Agent, and shall prepay the Loans of such Lenders on three Business Days' prior notice to such Lenders and Administrative Agent, which shall reduce the aggregate Revolving Commitments of all the Lenders accordingly (to the extent not assumed), and the Termination Date shall be extended in accordance with this subsection 2.5 for the remaining aggregate Revolving Commitments and SCHEDULE 1.1 shall be amended accordingly; PROVIDED, HOWEVER, that notwithstanding anything in this subsection to the contrary, in the event that less than the Majority Lenders consent to any extension hereunder, Borrower shall be deemed to have withdrawn its request and the aggregate Revolving Commitments of all the Lenders shall terminate on the then current Termination Date. 2.6 TERMINATION OR REDUCTION OF COMMITMENTS. (a) Borrower shall have the right, upon not less than one Business Day's notice to Administrative Agent, to terminate the Revolving Commitments or from time to time to proportionately and permanently reduce the unutilized portion of the Revolving Commitments; PROVIDED, HOWEVER, that no such reductions or termination of the Revolving Commitments shall be permitted if, after giving effect thereto and to any prepayment or payment of the Loans made on the effective date thereof, the then outstanding aggregate principal amount of Revolving Loans, Swing Line Loans and Competitive Loans would exceed the aggregate Revolving Commitments of all of the Lenders then in effect. Any such reduction shall be in a minimum amount equal to $10,000,000 and in increments of $5,000,000 in excess thereof and shall reduce permanently the Revolving Commitments then in effect. (b) In the event of certain refusals by a Lender to consent to certain proposed changes, waivers, discharges or terminations with respect to this Agreement which have been approved by the Majority Lenders as provided in subsection 9.1(b), Borrower shall have the right, upon five (5) Business Days' prior written notice to Administrative Agent (which notice Administrative Agent shall promptly transmit to each of the Lenders), to terminate the entire Revolving Commitment of such Lender, so long as all Loans, together with accrued and unpaid interest, fees and all other amounts, due and owing to such Lender are repaid concurrently with the effectiveness of such termination at which time Schedule 1.1 shall be deemed modified to reflect such changed amounts pursuant to subsection 2.7(d). At such time, such Lender shall no longer constitute a "Lender" for purposes of this Agreement, except with respect to indemnifications under this Agreement which shall survive as to such repaid Lender. 2.7 OPTIONAL PREPAYMENTS. (a) REVOLVING LOANS. Borrower may, at any time and from time to time, prepay the Revolving Loans, in whole or in part, without premium or penalty (but subject to the provisions of subsection 2.19), with respect to Eurodollar Loans, upon irrevocable notice to Administrative Agent no later than 11:00 A.M. (New York time) at least three Business Days' prior to such prepayment specifying the date and amount of such prepayment, and with respect to Base Rate Loans, upon irrevocable notice to Administrative Agent no later than 11:00 A.M. (New York time) on the date of such prepayment, specifying the date and amount of such prepayment for such Loans (such notice to be promptly confirmed in writing if given telephonically). Upon receipt of any such notice, Administrative Agent shall promptly notify each Lender thereof. If any such notice is given, the amount specified in such notice shall be due and payable on the date specified therein, together with any amounts payable pursuant to subsection 2.19. Partial prepayments of Revolving Loans shall be in an aggregate principal amount of $5,000,000 and in increments of $1,000,000 in excess thereof. (b) COMPETITIVE LOANS. Notwithstanding anything to the contrary contained herein, Borrower shall not prepay the Competitive Loans except pursuant to Article VII. (c) SWING LINE LOANS. Upon notice (such notice to be promptly confirmed in writing if given telephonically) to Administrative Agent, Borrower may prepay (without premium or penalty) any Swing Line Loans on any Business Day not later than 11:00 A.M. (New York time). Partial prepayments of Swing Line Loans shall be in an aggregate principal amount of $1,000,000 or a whole multiple thereof. (d) In the event of certain refusals by a Lender to consent to certain proposed changes, waivers, discharges or terminations with respect to this Agreement which have been approved by the Majority Lenders as provided in subsection 9.1(b), Borrower shall have the right, upon five (5) Business Days' prior written notice to Administrative Agent (which notice Administrative Agent shall promptly transmit to each of the Lenders), to repay all Loans, together with accrued and unpaid interest, fees and all other amounts due and owing to such Lender in accordance with said subsection 9.1(b), so long as (A) in the case of the repayment of Revolving Loans of any Revolving Lender pursuant to this clause (b), the Revolving Commitment of such Revolving Lender is terminated concurrently with such repayment pursuant to subsection 2.6(b) and (B) in the case of the repayment of Loans of any Lender, the consents required by subsection 2.6(b) in connection with the repayment pursuant to this clause (b) shall have been obtained. 2.8 REPAYMENT OF LOANS; MANDATORY PREPAYMENTS; EVIDENCE OF DEBT. (a) Borrower hereby unconditionally promises to pay to each Lender (i) on the Termination Date, the unpaid principal amount of each Loan (including, without limitation, each Swing Line Loan) made by such Lender and (ii) on the last day of the applicable Interest Period, the unpaid principal amount of each Competitive Loan made by such Lender. Borrower hereby further agrees to pay interest in immediately available funds at the office of Administrative Agent on the unpaid principal amount of such Loans from time to time from the date hereof until payment in full thereof at the rates per annum, and on the dates, set forth in subsection 2.9. (b) Borrower shall repay the Revolving Loans and permanently reduce the aggregate outstanding Revolving Commitments by the amount equal to the Net Proceeds received by Borrower and its Subsidiaries from any Material Asset Disposition within one Business Day following receipt thereof by Borrower or any of its Subsidiaries. (c) At any time that the aggregate principal amount of all Loans outstanding exceeds the aggregate Revolving Commitments of all Lenders then in effect, Borrower shall, within one Business Day of the earlier of Borrower's learning thereof or of the request of Administrative Agent, immediately prepay the Loans to the extent necessary to reduce the aggregate principal amount of all Loans outstanding to an amount that is no more than the aggregate Revolving Commitments of all the Lenders then in effect. (d) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of Borrower to the appropriate Lending Office of such Lender resulting from each Loan made by such Lending Office of such Lender from time to time, including the amounts of principal and interest payable and paid to such Lending Office of such Lender from time to time under this Agreement. (e) Administrative Agent shall maintain the Register pursuant to subsection 9.9(c), and a subaccount for each Lender, in which Register and subaccounts (taken together) shall be recorded (i) the amount of each Loan made hereunder, the Type of each Loan made and the Interest Period applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from Borrower to each Lender hereunder and (iii) the amount of any sum received by Administrative Agent hereunder from Borrower and each Lender's share thereof. (f) The entries made in the Register and accounts maintained pursuant to paragraphs (d) and (e) of this subsection 2.8 shall, to the extent permitted by applicable law, be prima facie evidence of the existence and amounts of the obligations of Borrower therein recorded; PROVIDED, HOWEVER, that the failure of any Lender or Administrative Agent to maintain such account, such Register or such subaccount, as applicable, or any error therein, shall not in any manner affect the obligation of Borrower to repay (with applicable interest) the Loans made to Borrower by such Lender in accordance with the terms of this Agreement. 2.9 INTEREST RATES AND PAYMENT DATES. (a) BASE RATE LOANS. Each Base Rate Loan (including, without limitation, each Swing Line Loan) shall bear interest at a rate per annum equal to the Base Rate plus the Applicable Margin. (b) EURODOLLAR LOANS. The Loans comprising each Eurodollar Borrowing shall bear interest at a rate per annum equal to (i) in the case of each Eurodollar Revolving Loan, the Eurodollar Rate for the Interest Period in effect for such Borrowing plus the Applicable Margin and (ii) in the case of each Eurodollar Competitive Loan, the Eurodollar Rate for the Interest Period in effect for such Borrowing plus (or minus, as the case may be) the Margin offered by the Lender making such Loan and accepted by Borrower pursuant to subsection 2.3. (c) FIXED RATE COMPETITIVE LOANS. Each Fixed Rate Competitive Loan shall bear interest at a rate per annum equal to the fixed rate of interest offered by the Lender making such Loan and accepted by Borrower pursuant to subsection 2.3. (d) PAYMENT OF INTEREST. Interest on each Loan shall be payable in arrears on each Interest Payment Date; PROVIDED, HOWEVER, that interest accruing pursuant to paragraph (f) of this subsection 2.9 shall be payable from time to time on demand. Interest shall also be payable on the date of any prepayment of Loans for the portion of the Loans so prepaid and upon payment (including prepayment) in full thereof and, during the existence of any Event of Default, interest on any Loan shall be payable on demand. (e) APPLICABLE MARGIN. The "Applicable Margin" with respect to each Committed Loan at any date shall be the applicable percentage amount set forth in the table below based upon the Type of such Loan and the Status on such date:
APPLICABLE MARGIN ------------------------------------------------------------------------------ EURODOLLAR BASE RATE STATUS LOANS LOANS ------------------------------------------------------------------------------ Level I .125% 0% ------------------------------------------------------------------------------ Level II .150% 0% ------------------------------------------------------------------------------ Level III .200% 0% ------------------------------------------------------------------------------ Level IV .300% 0% ------------------------------------------------------------------------------
(f) POST-MATURITY INTEREST. If all or a portion of (i) the principal amount of any Loan, (ii) any interest payable thereon or (iii) any facility fee or other amount payable hereunder shall not be paid when due (whether at the stated maturity, by acceleration or otherwise), such overdue amount shall bear interest at the Default Rate from the date of such non-payment until such amount is paid in full (after as well as before judgment). For purposes of this Agreement, principal shall be "overdue" only if not paid in accordance with the provisions of subsection 2.8. 2.10 FACILITY FEE. Borrower shall pay to Administrative Agent for the ratable account of the Lenders, a facility fee equal to the Applicable Facility Fee. On the last Business Day of each March, June, September and December and on the Termination Date (or, if earlier, on the date upon which the Revolving Commitments are terminated and the Loans are paid in full), Borrower shall pay to Administrative Agent, for the ratable benefit of the Lenders, the portion of such facility fee which accrued during the quarterly period most recently ended (or, in the case of the payment due on the Termination Date, the portion thereof ending on such date). Such facility fee shall be based upon the aggregate Revolving Commitments of the Lenders from time to time, regardless of the utilization from time to time thereunder. 2.11 COMPUTATION OF INTEREST AND FEES. Interest on all Loans shall be computed on the basis of the actual number of days elapsed over a year of 360 days or, on any date when the Base Rate is determined by reference to the Prime Lending Rate a year of 365 or 366 days as appropriate (in each case including the first day but excluding the last day). Each determination of an interest rate by Administrative Agent pursuant to any provision of this Agreement shall be conclusive and binding on Borrower and the Lenders in the absence of manifest error. All fees shall be computed on the basis of a year composed of twelve 30-day months. Administrative Agent shall, at any time and from time to time upon request of Borrower, deliver to Borrower a statement showing the quotations used by Administrative Agent in determining any interest rate applicable to Revolving Loans pursuant to this Agreement. Each change in the Applicable Margin applicable to Loans or the Applicable Facility Fee as a result of a change in Borrower's Status shall become effective on the date upon which such change in Status occurs. 2.12 CONVERSION AND CONTINUATION OPTIONS. (a) Borrower may elect on any Business Day occurring on or after the earlier of (i) the 30th day after the Closing Date and (ii) the Syndication Date to convert Revolving Loans of one Type to Revolving Loans of another Type by giving Administrative Agent at least three Business Days' prior irrevocable notice of such election in the case of any conversion to a Eurodollar Revolving Loan, and prior irrevocable notice not later than 11:00 A.M. (New York City time) on the date of conversion in the case of any conversion to Base Rate Loans; PROVIDED, HOWEVER, that any such conversion of Eurodollar Revolving Loans may, subject to the third succeeding sentence, only be made on the last day of an Interest Period with respect thereto. Any such notice of conversion to Eurodollar Revolving Loans shall specify the length of the initial Interest Period or Interest Periods therefor. Upon receipt of any such notice Administrative Agent shall promptly notify each Lender thereof. All or any part of outstanding Eurodollar Revolving Loans and Base Rate Loans may be converted as provided herein; PROVIDED, HOWEVER, that (i) no Loan may be converted into a Eurodollar Revolving Loan when any Event of Default has occurred and is continuing, (ii) any such conversion may only be made if, after giving effect thereto, subsection 2.13 shall not have been contravened, (iii) any such conversion may only be made if, after giving effect thereto, no more than five (5) Borrowings of Eurodollar Revolving Loans would be outstanding and (iv) no Loan may be converted into a Eurodollar Revolving Loan after the date that is one month or 30 days, as the case may be, prior to the scheduled Termination Date. (b) Any Eurodollar Revolving Loans may be continued as such upon the expiration of the then current Interest Period with respect thereto by Borrower giving notice to Administrative Agent, in accordance with the applicable provisions of the term "Interest Period" set forth in subsection 1.1, of the length of the next Interest Period to be applicable to such Loans; PROVIDED, HOWEVER, that no Eurodollar Revolving Loan may be continued as such (i) when any Event of Default has occurred and is continuing or (ii) after the date that is one month or 30 days, respectively, prior to the Termination Date and; PROVIDED, FURTHER, that if Borrower shall fail to give any required notice as described above in this paragraph or if such continuation is not permitted pursuant to the preceding proviso such Eurodollar Revolving Loans shall be automatically converted to Base Rate Loans on the last day of such then expiring Interest Period. 2.13 MINIMUM AMOUNTS OF EURODOLLAR BORROWINGS. All borrowings, conversions and continuations of Revolving Loans hereunder and all selections of Interest Periods hereunder shall be in such amounts and be made pursuant to such elections so that, after giving effect thereto, the aggregate principal amount of the Revolving Loans comprising each Eurodollar Borrowing shall be equal to $5,000,000 or a multiple of $1,000,000 in excess thereof. 2.14 INABILITY TO DETERMINE INTEREST RATE. If the Eurodollar Rate cannot be determined by Administrative Agent in the manner specified in the definition of the term "Eurodollar Rate" contained in subsection 1.1 of this Agreement, Administrative Agent shall give telecopy or telephonic notice thereof to Borrower and the Lenders as soon as practicable thereafter. Until such time as the Eurodollar Rate can be determined by Administrative Agent in the manner specified in the definition of such term contained in said subsection 1.1, no further Eurodollar Loans shall be continued as such at the end of the then current Interest Period or (other than any Eurodollar Loans previously requested and with respect to which the Eurodollar Rate previously was determined) shall be made, nor shall Borrower have the right to convert Base Rate Loans to Eurodollar Loans. 2.15 PRO RATA TREATMENT AND PAYMENTS. (a) PRO RATA PAYMENTS. Each borrowing of Revolving Loans from the Lenders hereunder (including any conversion or continuation of a Revolving Loan), each payment by Borrower on account of any facility fee hereunder and (except as provided in subsection 2.20(c)) any reduction of the Revolving Commitments of the Lenders shall be made pro rata according to the respective Commitment Percentages of the Lenders. Each payment (including each prepayment) by Borrower on account of principal of and interest on the Revolving Loans shall be made pro rata according to the respective outstanding principal amounts of the Revolving Loans then held by the Lenders. Each payment by Borrower on account of principal of and interest on any Borrowing of Competitive Loans shall be made pro rata among the Lenders participating in such Borrowing according to the respective principal amounts of their outstanding Competitive Loans comprising such Borrowing. Each payment by Borrower on account of principal of or interest on the Swing Line Loans shall be made to the Swing Line Lender. (b) TIME AND PLACE OF PAYMENTS. All payments (including prepayments) to be made by Borrower hereunder, whether on account of principal, interest, fees or otherwise, shall be made without set-off or counterclaim and shall be made prior to 12:00 Noon, New York City time, on the due date thereof to Administrative Agent, for the account of the relevant Lenders, at Administrative Agent's office specified in subsection 9.3, and in immediately available funds. Administrative Agent shall distribute such payments to the relevant Lenders promptly upon receipt. If any payment hereunder (other than payments on the Eurodollar Loans) becomes due and payable on a day other than a Business Day, such payment shall be extended to the next succeeding Business Day, and, with respect to payments of principal, interest thereon shall be payable at the then applicable rate during such extension. If any payment on a Eurodollar Loan becomes due and payable on a day other than a Business Day, the maturity thereof shall be extended to the next succeeding Business Day unless the result of such extension would be to extend such payment into another calendar month, in which event such payment shall be made on the immediately preceding Business Day. (c) FUNDING ASSUMPTIONS. Unless Administrative Agent shall have been notified in writing by any Lender prior to the deadline for funding a Borrowing that such Lender will not make the amount that would constitute its Commitment Percentage of such Borrowing available to Administrative Agent, Administrative Agent may assume that such Lender is making such amount available to Administrative Agent, and Administrative Agent may, in reliance upon such assumption, make available to Borrower a corresponding amount. If such amount is not made available to Administrative Agent by the required time on the borrowing date therefor, such Lender shall pay to Administrative Agent, on demand, such amount with interest thereon at a rate equal to the daily average Federal Funds Effective Rate for the period until such Lender makes such amount immediately available to Administrative Agent. A certificate of Administrative Agent submitted to any Lender with respect to any amounts owing under this subsection 2.15 shall be conclusive in the absence of manifest error. If such Lender's Commitment Percentage of such Borrowing is not made available to Administrative Agent by such Lender within three Business Days of such borrowing date, Administrative Agent shall be entitled to recover such amount with interest thereon as set forth above, on demand, from Borrower. 2.16 ILLEGALITY. Notwithstanding any other provision herein, if the adoption of or any change in any Requirement of Law or in the interpretation or application thereof shall make it unlawful for any Lender to make or maintain Eurodollar Loans as contemplated by this Agreement, such Lender shall give notice thereof to Administrative Agent and Borrower describing the relevant provisions of such Requirement of Law, following which (a) the commitment of such Lender hereunder to make Eurodollar Loans, continue Eurodollar Loans as such and convert Base Rate Loans to Eurodollar Loans shall forthwith be canceled and (b) such Lender's Loans then outstanding as Eurodollar Loans (including, without limitation, such Lender's Eurodollar Competitive Loans in the case of clause (ii) below), if any, shall be converted automatically to Base Rate Loans (i) on the respective last days of the then current Interest Periods with respect to such Loans or (ii) within such earlier period as required by law. If any such conversion of a Eurodollar Loan occurs on a day which is not the last day of the then current Interest Period with respect thereto, Borrower shall pay to such Lender such amounts, if any, as may be required pursuant to subsection 2.19. 2.17 INCREASED COSTS. (a) CHANGE IN LAW. If (i) there shall be any increase in the cost to any Lender of agreeing to make or making, funding or maintaining any Loans, or purchasing or maintaining any participation therein, or (ii) any reduction in any amount receivable in respect thereof, and such increased cost or reduced amount receivable is due to either: (x) the introduction of or any change in, or in the interpretation of, any law or regulation after the date hereof; or (y) the compliance with any guideline or request made after the date hereof from any central bank or other Governmental Authority (whether or not having the force of law); then (subject to the provisions of subsection 2.20) Borrower shall from time to time, upon demand by such Lender pay such Lender additional amounts sufficient to compensate such Lender for such increased cost or reduced amount receivable. (b) CAPITAL REQUIREMENTS. If any Lender shall have reasonably determined that (i) the applicability of any law, rule, regulation or guideline adopted after the date hereof pursuant to or arising out of the July 1988 paper of the Basle Committee on Banking Regulations and Supervisory Practices entitled "International Convergence of Capital Measurement and Capital Standards," or (ii) the adoption after the date hereof of any other law, rule, regulation or guideline regarding capital adequacy affecting such Lender, or (iii) any change arising after the date hereof in any such law, rule, regulation or guideline or in the interpretation or administration of any of the foregoing by any Governmental Authority, central bank or comparable agency charged with the interpretation or administration thereof, or (iv) compliance by such Lender (or any lending office of such Lender), or any holding company for such Lender which is subject to any of the capital requirements described above, with any request or directive of general application issued after the date hereof 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 Lender's capital or on the capital of any such holding company as a direct consequence of such Lender's obligations hereunder to a level below that which such Lender or any such holding company could have achieved but for such adoption, change or compliance (taking into consideration such Lender's policies and the policies of such holding company with respect to capital adequacy) by an amount deemed by such Lender to be material, then (subject to the provisions of subsection 2.20) from time to time such Lender may request Borrower to pay to such Lender such additional amounts as will compensate such Lender or any such holding company for any such reduction suffered. (c) RESERVE REQUIREMENTS. In the event that any Governmental Authority shall impose any Eurocurrency Reserve Requirements which increase the cost to any Lender of making or maintaining Eurodollar Loans, then (subject to the provisions of subsection 2.20) Borrower shall thereafter pay in respect of the Eurodollar Loans of such Lender a rate of interest based upon the Eurodollar Reserve Rate (rather than upon the Eurodollar Rate). From and after the delivery to Borrower of the certificate required by subsection 2.20(a), all references contained in this Agreement to the Eurodollar Rate shall be deemed to be references to the Eurodollar Reserve Rate with respect to each such affected Lender. 2.18 TAXES. (a) NET PAYMENTS. Except as provided in subsection 2.18(c), any payments made by Borrower under this Agreement (including, without limitation, payments on account of principal and interest and fees) shall be made free and clear of, and without deduction or withholding for or on account of, any present or future income, stamp or other taxes, levies, imposts, duties, charges, fees, deductions or withholdings, now or hereafter imposed, levied, collected, withheld or assessed by any Governmental Authority, excluding net income taxes and franchise taxes or any other tax based upon net income imposed on any Agent or any Lender as a result of a present or former connection between such Agent or such Lender and the jurisdiction of the Governmental Authority imposing such tax or any political subdivision or taxing authority thereof or therein (other than any such connection arising from such Agent or such Lender having executed, delivered or performed its obligations or received a payment under, or enforced, this Agreement). If any such non-excluded taxes, levies, imposts, duties, charges, fees deductions or withholdings ("NON-EXCLUDED TAXES") are required to be withheld from any amounts payable to any Agent or any Lender hereunder, the amounts so payable to such Agent or such Lender shall be increased to the extent necessary to yield to such Agent or such Lender (after payment of all Non-Excluded Taxes) interest or any such other amounts payable hereunder at the rates or in the amounts specified in or pursuant to this Agreement. Whenever any Non-Excluded Taxes are payable by Borrower, as promptly as practicable thereafter Borrower shall send to such Agent for its own account or for the account of such Lender, as the case may be, a certified copy of an original official receipt received by Borrower showing payment thereof. If Borrower fails to pay any Non-Excluded Taxes when due to the appropriate taxing authority or fails to remit to Administrative Agent the required receipts or other required documentary evidence, Borrower shall indemnify Administrative Agent and the Lenders for any incremental taxes, interest or penalties that may become payable by any Agent or any Lender as a result of any such failure. The agreements in this subsection 2.18 shall survive the termination of this Agreement and the payment of all other amounts payable hereunder. (b) Without prejudice to the provisions of subsection 2.18(a), if any Lender, or any Agent on its behalf, is required by law to make any payment on account of Taxes on or in relation to any such received or receivable tax hereunder or under any of the Loan Documents by such Lender, or any Agent on its behalf, or any liability for Tax in respect to any such payment is imposed, levied or assessed against any Lender or any Agent on its behalf, Borrower will promptly indemnify such person against such Tax payment or liability, together with any interest, penalties and expenses (including counsel fees and expenses) payable or incurred in connection therewith, including any tax of any Lender arising by virtue of payments under this subsection 2.18(b), computed in a manner consistent with subsection 2.18(b). A certificate as to the amount of such payment by such Lender, or such Agent on its behalf, absent manifest error, shall be final, conclusive and binding upon all parties hereto for all purposes. (c) Each Lender that is not a United States person (as such term is defined in Section 7701(a)(30) of the Code) agrees to deliver to Borrower and Administrative Agent on or prior to the Closing Date, or in the case of a Lender that is an Assignee of an interest under this Agreement pursuant to subsection 2.21 or 9.9 (unless the respective Lender was already a Lender hereunder immediately prior to such assignment), on the date of such assignment to such Lender, (i) two accurate and complete original signed copies of IRS Form 4224 or 1001 (or successor forms) certifying to such Lender's entitlement to a complete exemption from United States withholding Tax with respect to payments to be made under this Agreement and under any Note, or (ii) if the Lender is not a "bank" within the meaning of Section 881(c)(3)(A) of the Code and cannot deliver either IRS Form 1001 or 4224 pursuant to clause (i) above, (x) a certificate substantially in the form of EXHIBIT 2.18(c) (any such certificate, a "SUBSECTION 2.18(c)(ii) CERTIFICATE") and (y) two accurate and complete original signed copies of IRS Form W-8 (or successor form) certifying to such Lender's entitlement to a complete exemption from United States withholding Tax with respect to payments of interest to be made under this Agreement and under any Note. In addition, each Lender agrees that from time to time after the Closing Date, when a lapse in time or change in circumstances renders the previous certification obsolete or inaccurate in any material respect, it will deliver to Borrower and Administrative Agent two new accurate and complete original signed copies of IRS Form 4224 or 1001, or Form W-8 and a Subsection 2.18(c)(ii) Certificate, as the case may be, and such other forms as may be required in order to confirm or establish the entitlement of such Lender to a continued exemption from or reduction in United States withholding Tax with respect to payments under this Agreement and any Note, or it shall immediately notify Borrower and Administrative Agent of its inability to deliver any such form or certificate. Notwithstanding anything to the contrary contained in subsection 2.18(a), but subject to subsection 9.9 and the immediately succeeding sentence, (x) Borrower shall be entitled, to the extent it is required to do so by law, to deduct or withhold income or similar Taxes imposed by the United States (or any political subdivision or taxing authority thereof or therein) from interest, fees or other amounts payable hereunder for the account of any Lender which is not a United States person (as such term is defined in Section 7701(a)(30) of the Code) for United States Federal income Tax purposes to the extent that such Lender has not provided to Borrower IRS Forms that establish a complete exemption from such deduction or withholding and (y) Borrower shall be obligated pursuant to subsection 2.18(a) hereof to gross-up payments to be made to a Lender in respect of income or similar Taxes imposed by the United States unless (I) upon timely notice from the Borrower, such Lender has not provided to Borrower the IRS Forms required to be provided to Borrower pursuant to this subsection 2.18(c), or (II) in the case of a payment, other than interest, to a Lender described in clause (ii) above, to the extent that such IRS Forms do not establish a complete exemption from withholding of such Taxes. Notwithstanding anything to the contrary contained in the preceding sentence or elsewhere in this subsection 2.18 and except as set forth in subsection 9.9, Borrower agrees to pay additional amounts and to indemnify each Lender in the manner set forth in subsection 2.18(a) (without regard to the identity of the jurisdiction requiring the deduction or withholding) in respect of any amounts deducted or withheld by it as described in the immediately preceding sentence as a result of any changes after the Closing Date in any applicable law, treaty, governmental rule, regulation, guideline or order, or in the interpretation thereof, relating to the deducting or withholding of income or similar Taxes. (d) Each Lender agrees that, as promptly as practicable after it becomes aware of the occurrence of any event or the existence of any condition that would cause Borrower to make a payment in respect of any Taxes to such Lender pursuant to subsection 2.18(a) or a payment in indemnification for any Taxes pursuant to subsection 2.18(b), it will use reasonable efforts to make, fund or maintain the Loan (or portion thereof) of such Lender with respect to which the aforementioned payment is or would be made through another lending office of such Lender if as a result thereof the additional amounts which would otherwise be required to be paid by such Borrower in respect of such Loans (or portions thereof) pursuant to subsection 2.18(a) or subsection 2.18(b), as determined by such Lender, in its sole discretion, the making, funding or maintaining of such Loans (or portions thereof) through such other lending office would not otherwise materially adversely affect such Loans or such Lender. Borrower agrees to pay all reasonable expenses incurred by any Lender in utilizing another lending office of such Lender pursuant to this subsection 2.18(d). 2.19 FUNDING INDEMNITY. Subject to the provisions of subsection 2.20(a), Borrower agrees to indemnify each Lender and to hold each Lender harmless from any loss or reasonable expense which such Lender may sustain or incur as a consequence of (a) default by Borrower in making a borrowing of, conversion into or continuation of any Loan hereunder after Borrower has given a notice requesting the same in accordance with the provisions of this Agreement, (b) default by Borrower in making any prepayment after Borrower has given a notice thereof in accordance with the provisions of this Agreement or (c) the making of a voluntary or involuntary prepayment of Eurodollar Loans or Fixed Rate Loans on a day which is not the last day of an Interest Period with respect thereto. Such indemnification shall be in an amount equal to the excess, if any, of (i) the amount of interest which would have accrued on the amount so prepaid, or not so borrowed, converted or continued, for the period from the date of such prepayment or of such failure to borrow, convert or continue to the last day of such Interest Period (or, in the case of a failure to borrow, convert or continue, the Interest Period that would have commenced on the date of such failure) in each case at the applicable rate of interest for such Loans provided for herein (excluding the Applicable Margin included therein) over (ii) the amount of interest (as determined by such Lender) which would have accrued to such Lender on such amount by placing such amount on deposit for a comparable period with leading banks in the relevant interest rate market. This covenant shall survive the termination of this Agreement and the payment of all other amounts payable hereunder. 2.20 NOTICE OF AMOUNTS PAYABLE; RELOCATION OF LENDING OFFICE. (a) NOTICE. In the event that any Lender becomes aware that any amounts are or will be owed to it pursuant to subsection 2.16, 2.17, 2.18(a) or 2.19 or that it is unable to make Eurodollar Revolving Loans, then it shall promptly notify Borrower thereof and, as soon as possible thereafter, such Lender shall submit to Borrower a certificate indicating the amount owing to it and the calculation thereof. The amounts set forth in such certificate shall be prima facie evidence of the obligations of Borrower hereunder. (b) RELOCATION. If a Lender claims any additional amounts payable pursuant to subsection 2.16, 2.17 or 2.18(a) or that it is unable to make Eurodollar Revolving Loans, it shall use its reasonable efforts (consistent with legal and regulatory restrictions) to avoid the need for paying such additional amounts or such inability, including changing the jurisdiction of its applicable lending office; PROVIDED, HOWEVER, that the taking of any such action would not, in the sole judgment of the Lender, be disadvantageous to such Lender. 2.21 REPLACEMENT OF AFFECTED LENDERS. (x) if any Lender is owed increased costs under SUBSECTION 2.16 or 2.17, or Borrower is required to make any payments under SUBSECTION 2.18 to any Lender materially in excess of those to the other Lenders or such Lender is required to make Loans as Base Rate Loans or (y) as provided in SECTION 12.1(b) in the case of certain refusals by a Lender to consent to certain proposed amendment, changes, supplements, waivers, discharges or terminations with respect to this Agreement which have been approved by the Required Lenders, Borrower shall have the right, if no Event of Default or Unmatured Event of Default then exists, to replace such Lender (the "REPLACED LENDER") with one or more other Eligible Assignee or Eligible Assignees (collectively, the "REPLACEMENT LENDER") acceptable to Administrative Agent, PROVIDED that (i) at the time of any replacement pursuant to this SUBSECTION 2.21, the Replacement Lender shall enter into one or more assignment agreements, in form and substance satisfactory to Administrative Agent, pursuant to which the Replacement Lender shall acquire all of the Commitment and outstanding Loans of the Replaced Lender and (ii) all obligations of Borrower owing to the Replaced Lender (including, without limitation, such increased costs and excluding those specifically described in clause (i) above in respect of which the assignment purchase price has been, or is concurrently being paid) shall be paid in full to such Replaced Lender concurrently with such replacement. Upon the execution of the respective assignment documentation, the payment of amounts referred to in clauses (i) and (ii) above and, if so requested by the Replacement Lender, delivery to the Replacement Lender of the appropriate Note or Notes executed by Borrower, the Replacement Lender shall become a Lender hereunder and, the Replaced Lender shall cease to constitute a Lender hereunder, except with respect to indemnification provisions under this Agreement, which shall survive as to such Replaced Lender. ARTICLE III REPRESENTATIONS AND WARRANTIES To induce Administrative Agent and each Lender to enter into this Agreement and to make the Loans, Borrower hereby represents and warrants to Administrative Agent and each Lender, and hereby agrees, as follows: 3.1 CORPORATE EXISTENCE; COMPLIANCE WITH LAW. Each of Borrower and its Subsidiaries (a) is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, (b) has the corporate power and authority, and the legal right, to own and operate its property, to lease the property it operates as lessee and to conduct the business in which it is currently engaged, (c) is duly qualified and in good standing as a foreign corporation, and is duly authorized to do business, in each jurisdiction where the ownership or leasing of property or the character of its operations makes such qualification necessary, except where the failure to so qualify would not reasonably be expected to have a Material Adverse Effect and (d) is in compliance with all Requirements of Law except to the extent that all failures to comply therewith would not reasonably be expected to have a Material Adverse Effect. 3.2 CORPORATE POWER; AUTHORIZATION; NO VIOLATION. The execution, delivery and performance by each Loan Party of this Agreement and the other Loan Documents to which it is a party (i) are within such Loan Party's corporate power, (ii) have been duly authorized by all necessary corporate, shareholder and other action on the part of each Person whose authorization is required, (iii) do not violate any Requirement of Law or any material Contractual Obligation applicable to such Loan Party, (iv) will not result in or require the creation or imposition of any Lien of any nature upon or with respect to any of the properties now owned or hereafter acquired by such Person and (v) will not require any authorization or approval or other action by, or notice to or filing or registration with, any Governmental Authority (other than those which have been obtained and are in force and effect). 3.3 BINDING EFFECT. This Agreement has been, and the other Loan Documents to which any Loan Party is a party will be when executed and delivered, duly executed and delivered on behalf of Borrower and the other Loan Parties thereto. This Agreement constitutes, and the other Loan Documents to which any Loan Party is a party when executed and delivered will constitute, a legal, valid and binding obligation of Borrower and the other Loan Parties party thereto, enforceable against Borrower and such other Loan Parties in accordance with their respective terms, except as enforcement thereof may be subject to (i) the effect of any applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' rights generally and (ii) general principles of equity (regardless of whether such enforcement is sought in a proceeding in equity or at law). 3.4 PURPOSE OF LOANS. The proceeds of the Loans shall be used by Borrower to (i) repay existing indebtedness, (ii) to acquire certain of the assets of Allsteel, Inc., and (iii) for general corporate and working capital purposes. No proceeds of any of the Loans will be used for "buying," "purchasing," or "carrying," any "margin stock" within the respective meanings of each of the quoted terms under Regulation U or G of the Board as now and from time to time hereafter in effect or for any purpose which might cause any of the loans or extensions of credit under this Agreement to be considered a "purpose credit" within the meaning of Regulation G, T, U or X of the Board. 3.5 SUBSIDIARIES. SCHEDULE 3.5 annexed hereto and made a part hereof is a complete and correct list of all Subsidiaries of Borrower as of the Closing Date and separately identifies all Material Subsidiaries of Borrower as of the Closing Date. All of such Subsidiaries are Wholly-Owned Subsidiaries of Borrower and Domestic Subsidiaries of Borrower except as otherwise indicated on such SCHEDULE 3.5. There does not exist any encumbrance or restriction on the ability of (i) any Subsidiary of Borrower to pay dividends or make any other distributions on its capital stock or any other interest or participation in its profits owned by Borrower or any Subsidiary of Borrower, or to pay any Indebtedness owed to Borrower or a Subsidiary of Borrower, (ii) any Subsidiary of Borrower to make loans or advances to Borrower or any of Borrower's Subsidiaries or (iii) Borrower or any of its Subsidiaries to transfer any of its properties or assets to Borrower or any of its Subsidiaries, except for such encumbrances or restrictions existing under or by reason of (x) applicable law, (y) this Agreement or the other Loan Documents or (z) customary provisions restricting subletting or assignment of any lease governing a leasehold interest of Borrower or a Subsidiary of Borrower. 3.6 INDEBTEDNESS. SCHEDULE 3.6 annexed hereto and made a part hereof is a complete and correct list of all Indebtedness of Borrower and its Subsidiaries which, in any individual instance exceeds $1,000,000 in principal amount and which is outstanding as of the Closing Date (other than Indebtedness which shall be prepaid with the proceeds of Revolving Loans made on the Closing Date). 3.7 FINANCIAL STATEMENTS; FINANCIAL CONDITION; UNDISCLOSED LIABILITIES; PROJECTIONS, ETC. (a) FINANCIAL STATEMENTS. The balance sheet of Borrower at December 31, 1994, December 30, 1995 and December 28, 1996 and March 29, 1997 and the related statements of operations, cash flows and shareholders' equity of Borrower for the Fiscal Year or other period ended on such dates, as the case may be, copies of which have been furnished to the Lenders prior to the date hereof which, in the case of the December 31, 1994 and 1995 statements, have been examined by Ernst & Young LLP, independent certified public accountants, and in the case of the December 31, 1996 statements, have been examined by Arthur Andersen LLP, independent certified public accountants, each of whom delivered an unqualified opinion in respect thereto, were prepared in accordance with GAAP in effect on the date such statements were prepared and fairly present the consolidated financial condition and results of operations of the Borrower and its Subsidaries at such dates and for the periods then ended, and (ii) the PRO FORMA (after giving effect to the Transaction, the related financing thereof and the other transactions contemplated hereby and thereby) balance sheet of Borrower attached hereto as SCHEDULE 3.7(a) (the "PRO FORMA BALANCE SHEET") presents fairly the financial condition of Borrower at the date of such balance sheet and presents a good faith estimate of the PRO FORMA financial condition of Borrower (after giving effect to the Transaction), the related financing thereof and the other transactions contemplated hereby and thereby) at the date thereof). The Pro Forma Balance Sheet has been prepared in accordance with GAAP consistently applied (except as may be indicated in the notes thereto) subject to normal year-end adjustments. Since December 28, 1996, there has been no Material Adverse Effect. (b) SOLVENCY. On and as of the Closing Date, after giving effect to the Transaction and to all Indebtedness (including the Loans) being incurred, and to be incurred (and the use or proceeds thereof), and Liens created, and to be created, by Borrower in connection with the transactions contemplated hereby, (i) the sum of the assets, at a fair valuation, of Borrower will exceed its debts; (ii) Borrower has not incurred nor intends to, nor believes that it will, incur debts beyond its ability to pay such debts as such debts mature; and (iii) Borrower will have sufficient capital with which to conduct its business. For purposes of this SECTION 3.7(b) "debt" means any liability on a claim, and "claim" means (y) right to payment, whether or not such a right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured (including all obligations, if any, under any Plan or the equivalent for unfunded past serviced liability, and any other unfunded medical and death benefits) or (z) right to an equitable remedy for breach of performance if such breach gives rise to a payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured or unsecured. (c) NO UNDISCLOSED LIABILITIES. Except as fully reflected in the financial statements and the notes related thereto delivered pursuant to SECTION 3.7(a) and on SCHEDULE 3.7(d) there were as of the Closing Date (and after giving effect to the Transaction and the other transactions contemplated hereby) no liabilities or obligations with respect to Borrower of any nature whatsoever (whether absolute, accrued, contingent or otherwise and whether or not due) which, either individually or in aggregate, would be material to Borrower. As of the Closing Date (and after giving effect to the Transaction and the other transaction contemplated hereby), Borrower does not know of any basis for the assertion against Borrower of any liability or obligation of any nature whatsoever that is not fully reflected in the financial statements or the notes related thereto delivered pursuant to SECTION 3.7(a) and on SCHEDULE 3.6 which, either individually or in the aggregate, could be material to Borrower. (d) PROJECTIONS. On and as of the Closing Date, the financial projections, attached hereto as EXHIBIT 3.7(d) and previously delivered to Administrative Agent and the Lenders (the "PROJECTIONS") have been prepared on a basis consistent with the financial statements referred to in SECTION 3.7(a) and are based on good faith estimates and assumptions made by the management of Borrower, and there are no statements or conclusions in any of the Projections which are based upon or include information known to Borrower to be misleading or which fail to take into account material information regarding the matters reported therein. On the Closing Date, Borrower believed that the Projections were reasonable and attainable, it being understood that uncertainty is inherent in any forecasts or projections and that no assurance can be given that the results set forth in the Projections will actually be obtained. 3.8 NO MATERIAL LITIGATION. There are no actions, suits, proceedings or investigations pending or, to the knowledge of Borrower, threatened against or affecting Borrower or any of its Subsidiaries or any of its or their respective properties or assets before any arbitrator or Governmental Authority or against any of its or their respective properties or revenues (a) with respect to this Agreement or any other Loan Document or any of the actions contemplated hereby or thereby, or (b) which would reasonably be expected to have a Material Adverse Effect. 3.9 PERFORMANCE OF AGREEMENTS. Neither Borrower nor any of its Subsidiaries is in default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any Contractual Obligation of Borrower or any of its Subsidiaries and no event or condition has occurred or become known or exists which with notice or the lapse of time or both would constitute such a default except where such default or defaults, if any, would not reasonably be expected to have a Material Adverse Effect. 3.10 TAXES. Borrower and each of its Subsidiaries has filed or caused to be filed all material tax returns and reports which are required to be filed, and has paid all taxes shown to be due and payable on said returns or on any assessments made against it or any of its properties or assets and all other taxes, fees and other charges imposed on its or any of their respective properties by any Governmental Authority other than those the amount or validity of which are currently being contested in good faith by appropriate proceedings diligently pursued and with respect to which reserves in conformity with GAAP have been provided on the books of Borrower and/or its Subsidiaries, as applicable) and no tax Lien has been filed or received. There is no proposed tax assessment against Borrower or any of its Subsidiaries which would reasonably be expected to have a Material Adverse Effect. 3.11 GOVERNMENTAL REGULATION. (i) Neither Borrower nor any of its Subsidiaries is an "investment company" or a company "controlled" by a company required to be registered as an "investment company" within the meaning of the Investment Company Act of 1940, as amended, and (ii) neither Borrower nor any of its Subsidiaries is engaged directly or indirectly, principally, or as one of its important activities, in the business of extending, or arranging for the extension of, credit for the purposes of purchasing or carrying any margin stock, within the meaning of Regulation G, T, U or X of the Board. 3.12 OWNERSHIP OF PROPERTY; LIENS. Each of Borrower and its Subsidiaries has good and marketable title in fee simple to, or a valid leasehold interest in, all its material real property, and good title to, or a valid leasehold interest in, all its other material property, and none of such property is subject to any Lien except for Permitted Liens. 3.13 INTELLECTUAL PROPERTY. Borrower and each of its Subsidiaries owns, or is licensed to use, all trademarks, tradenames, copyrights, technology, know-how, patents and processes necessary for the conduct of its business as currently conducted, except for those the failure to own or be licensed to use, which would not reasonably be expected to have a Material Adverse Effect (the "INTELLECTUAL PROPERTY"). No claim has been asserted and is pending by any Person challenging or questioning the use of any such Intellectual Property or the validity or effectiveness of any such Intellectual Property, nor does Borrower know of any valid basis for any such claim. To Borrower's or any of its Subsidiaries' knowledge, the use of such Intellectual Property by Borrower and its Subsidiaries does not infringe on the rights of any Person, except for such claims and infringements that, in the aggregate, would not reasonably be expected to have a Material Adverse Effect. 3.14 EXISTING CREDIT FACILITY REFINANCING. At the time of consummation thereof, the Existing Credit Facility Refinancing shall have been consummated in accordance with the terms of the respective documents and all applicable laws. At the time of consummation thereof, all consents and approvals of, and filings and registrations with, and all other actions in respect of, all governmental agencies, authorities or instrumentalities and third parties required in order to make or consummate each Existing Credit Facility Refinancing shall have been obtained, given, filed or taken and are or will be in full force and effect (or effective judicial relief with respect thereto has been obtained). All applicable waiting periods with respect thereto have or, prior to the time when required, will have, expired without, in all such cases, any action being taken by any competent authority which restrains, prevents, or imposes material adverse conditions upon the consummation of any Existing Credit Facility Refinancing. Additionally, at the time of consummation thereof, there does not exist any judgment, order or injunction prohibiting or imposing material adverse conditions upon the consummation of any Existing Credit Facility Refinancing, and there does not exist any judgment, order or injunction prohibiting or imposing material adverse conditions upon the occurrence of any Borrowing or the performance by Borrower and its Subsidiaries of its obligations under the Loan Documents and the Existing Credit Facility Termination Documents. All actions taken by Borrower and its Subsidiaries pursuant to or in furtherance of each Existing Credit Facility Refinancing have been taken in compliance with the respective Loan Documents and Existing Credit Facility Termination Documents and all applicable laws. 3.15 DISCLOSURE. This Agreement and any other document, certificate or statement furnished to Administrative Agent or any Lender by or on behalf of Borrower or any of its Subsidiaries, taken as a whole, do not contain any untrue statement of a material fact and do not omit to state a material fact necessary in order to make the statements contained herein and therein not misleading when made. There is no fact known to Borrower or any of its Subsidiaries which now has or in the future would reasonably be expected to have (so far as Borrower or any of its Subsidiaries can now reasonably foresee) a Material Adverse Effect which has not been set forth in this Agreement, in the other documents and certificates furnished to Administrative Agent and each Lender specifically for use in connection with the transactions contemplated hereby. 3.16 ERISA. Borrower and each of its ERISA Affiliates are in compliance in all material respects with applicable provisions of ERISA and the Code and the regulations and published interpretations thereunder with respect to all Plans and, to the best of Borrower's knowledge, all Multiemployer Plans, except where noncompliance would not reasonably be expected to have a Material Adverse Effect. No Termination Event has occurred or is reasonably expected to occur with respect to any Plan. The sum of the "amounts of unfunded benefit commitments" (as defined in Section 4001(a)(18) of ERISA) under all Plans (excluding each Plan with an amount of unfunded benefit commitments of zero or less) is not more than $10,000,000. The aggregate Withdrawal Liability under all Multiemployer Plans is not more than $10,000,000. 3.17 LABOR RELATIONS. Except to the extent that such practices, circumstances, events or questions would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect, (a) neither Borrower nor any of its Subsidiaries is engaged in any unfair labor practice and (b) no significant strike, labor dispute, slowdown or stoppage is pending against Borrower or any of its Subsidiaries or, to the best knowledge of Borrower, threatened against Borrower or any of its Subsidiaries. 3.18 INSURANCE. Except as otherwise permitted by subsection 5.8, the properties of Borrower and its Subsidiaries are insured with financially sound and reputable insurance companies, in such amounts, with such deductibles and covering such risks as are customarily carried by Persons engaged in the same or similar businesses. 3.19 PUBLIC UTILITY HOLDING COMPANY ACT. Neither Borrower nor any of its Subsidiaries is a "holding company," or a "subsidiary company" of a "holding company," or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company," within the meaning of the Public Utility Holding Company Act of 1935, as amended. ARTICLE IV CONDITIONS OF CREDIT 4.1 CONDITIONS PRECEDENT TO EFFECTIVENESS. This Agreement shall become effective upon the satisfaction of each of the following conditions: (a) LOAN DOCUMENTS. Administrative Agent shall have received each of: (i) this Agreement, executed and delivered by a duly authorized officer of Borrower and each Lender; (ii) for the account of each Lender, a Revolving Note conforming to the requirements hereof and executed by a duly authorized officer of Borrower; (iii) for the account of BT, a Swing Line Note conforming to the requirements hereof and executed by a duly authorized officer of Borrower; (iv) the Subsidiary Guarantee Agreement, executed and delivered by a duly authorized officer of each Subsidiary Guarantor party thereto; and (v) all other Loan Documents. (b) CORPORATE PROCEEDINGS. Administrative Agent shall have received (i) a copy of the resolutions, in form and substance satisfactory to Administrative Agent, of the board of directors of Borrower and each Subsidiary Guarantor authorizing (x) the execution, delivery and performance of this Agreement, the Notes and the other Loan Documents to which it is a party and (y) the borrowings and other extensions of credit contemplated hereunder, certified by the Secretary or an Assistant Secretary of Borrower as of the Closing Date, which certificate shall state that the resolutions thereby certified have not been amended, revoked, or rescinded and shall be in form and substance satisfactory to Administrative Agent and (ii) copies of all documents and papers, including records of corporate proceedings, governmental approvals, good standing certificates, and bring down telegrams, if any, which Administrative Agent reasonably may have requested in connection therewith, such documents and papers where appropriate to be certified by proper corporate or governmental authorities. (c) CORPORATE DOCUMENTS. Administrative Agent shall have received, with a counterpart for each Lender, true and complete copies of the certificate of incorporation and by-laws of Borrower and each Subsidiary Guarantor, certified as of the Closing Date as complete and correct copies thereof by the Secretary or an Assistant Secretary of such Person. (d) INCUMBENCY CERTIFICATE. Administrative Agent shall have received a certificate of the Secretary or an Assistant Secretary of each Loan Party, dated the Closing Date, as to the incumbency and signature of the officers of such Person executing the Loan Documents to which it is a party and any certificate or other documents to be delivered by it pursuant thereto. (e) FEES. Administrative Agent shall have received, for the accounts of Lenders and Administrative Agent, all accrued fees and expenses due and owing hereunder or in connection herewith to Lenders and Administrative Agent. (f) LEGAL OPINIONS. Administrative Agent shall have received, with a counterpart for each Lender, the executed legal opinions of Jones, Day, Reavis & Pogue, special counsel to Borrower, and in-house counsel to Borrower substantially in the form of EXHIBIT 4.1(f). Such legal opinions shall cover such other matters incident to the transactions contemplated by this Agreement as Administrative Agent may reasonably require and such counsel delivering the foregoing legal opinion is expressly instructed to deliver its opinion for the benefit of each of Administrative Agent and the Lenders. (g) TERMINATION OF EXISTING CREDIT FACILITY. Administrative Agent shall have received evidence satisfactory to it that Borrower and its Subsidiaries will terminate or will otherwise be released from its obligations under the Existing Credit Facility Agreement, and that all agreements made by Borrower and its Subsidiaries in connection with the provision of credit support and collateral security with respect thereto will be released and terminated. (h) APPROVALS. All necessary governmental (domestic and foreign) and third party approvals in connection with the Agreement and the transactions contemplated by the Loan Documents and the Existing Credit Facility Termination Documents and otherwise referred to herein or therein shall have been obtained and remain in effect, and all applicable waiting periods shall have expired without any action being taken by any competent authority which restrains, prevents or imposes materially adverse conditions upon the consummation of all or any part of the Transaction or the other transactions contemplated by the Loan Documents and the Existing Credit Facility Termination Documents and otherwise referred to herein or therein. Additionally, there shall not exist any judgment, order, injunction or other restraint issued or filed or a hearing seeking injunctive relief or other restraint pending or notified prohibiting or imposing materially adverse conditions upon all or any part of the Transaction, the transactions contemplated by the Loan Documents and the Existing Credit Facility Termination Documents or the making of the Loans. (i) LITIGATION. No litigation by any entity (private or governmental) shall be pending or, to the best knowledge of Borrower, threatened with respect to this Agreement, any of the Loan Documents or any of the Existing Credit Facility Documents or any documentation executed in connection herewith or the transactions contemplated hereby (including, without limitation, the Transaction), or with respect to any of the Existing Credit Facility Agreement or the obligations being refinanced in connection with the consummation of the Transaction or which Administrative Agent or the Majority Lenders shall determine could reasonably be expected to have a Material Adverse Effect. (j) APPOINTMENT OF AGENT. Administrative Agent shall have received a letter from CT Corporation System, presently located at 1633 Broadway, New York, New York 10019, substantially in the form of EXHIBIT 4.1(j) hereto, indicating its consent to its appointment by Borrower as its agent to receive service of process as specified in SECTION 12.9 of this Agreement. (k) PRO FORMA BALANCE SHEET. The Lenders shall have received the Pro Forma Balance Sheet. (l) TAX AND ACCOUNTING ASPECTS OF TRANSACTIONS. Administrative Agent and the Majority Lenders shall be satisfied with all tax and accounting matters relating to the Transactions. (m) OFFICER'S CERTIFICATE. Administrative Agent shall have received a certificate executed by a responsible officer on behalf of Borrower, dated the date of this Agreement and in the form of EXHIBIT 4.1(m) hereto, stating that the representations and warranties set forth in ARTICLE III hereof are true and correct as of the date of the certificate, that no Event of Default or Unmatured Event of Default has occurred and is continuing and that the conditions of SECTION 4.1 hereof have been fully satisfied (except that no opinion need be expressed as to the Administrative Agent's or Majority Lenders' satisfaction with any document, instrument or other matter). (n) ADVERSE CHANGE. On or prior to the Closing Date, nothing shall have occurred (and no Agent nor any Lender shall have become aware of any facts or conditions not previously known) which Administrative Agent or the Majority Lenders shall determine has or reasonably could be expected to have, or could have a Material Adverse Effect. (o) ADDITIONAL MATTERS. All corporate and other proceedings, and all documents, instruments and other legal matters in connection with the transactions contemplated by this Agreement, and the other Loan Documents shall be satisfactory in form and substance to Administrative Agent, and Administrative Agent shall have received such other documents and legal opinions in respect of any aspect or consequence of the transactions contemplated hereby or thereby as any Agent or any Lender (acting through Administrative Agent) shall reasonably request. 4.2 CERTAIN CONDITIONS PRECEDENT TO EACH LOAN. The agreement of each Lender to make a Loan (including, without limitation, its initial Loans hereunder, but other than any Revolving Loan the proceeds of which are to be used exclusively to repay Refunded Swing Line Loans) is subject to the satisfaction of the following conditions precedent: (a) REPRESENTATIONS AND WARRANTIES. All representations and warranties of Borrower and each Loan Party contained herein and in the other Loan Documents shall be true and correct in all material respects with the same effect as though such representations and warranties had been made on and as of the date of the making of such Loan; (b) NO EVENTS OF DEFAULT. There shall exist no Event of Default or Unmatured Event of Default; (c) AVAILABLE REVOLVING COMMITMENT. After giving effect to the Loans requested to be made, no Lender will have an Available Revolving Commitment which is less than zero; and (d) OTHER MATTERS. Administrative Agent shall have received such other documents or legal opinions as Administrative Agent may reasonably request, all in form and substance reasonably satisfactory to Administrative Agent and its counsel including, with respect to Revolving Loans, a request for a Borrowing in accordance with the provisions of subsection 2.1(d) hereof. Each request for a Borrowing or Competitive Bid Request and the acceptance by Borrower of the proceeds thereof shall constitute a representation and warranty by Borrower, as of the date of the Loans comprising such Borrowing that the conditions specified in subsection 4.2(a), (b) and (c) have been satisfied. ARTICLE V AFFIRMATIVE COVENANTS Borrower hereby agrees that, so long as the Revolving Commitments remain in effect, or any Loan remains outstanding and unpaid or any other amount is owing to any Lender or any Agent hereunder, Borrower shall: 5.1 FINANCIAL STATEMENTS. Furnish to each Lender: (a) as soon as available, but in any event within 120 days after the end of each fiscal year of Borrower, a copy of the consolidated balance sheet of Borrower and its consolidated Subsidiaries as at the end of such year and the related consolidated statements of income, retained earnings and of cash flows for such year, setting forth in each case in comparative form the figures for the previous year; and (b) as soon as available, but in any event not later than 60 days after the end of each of the first three quarterly periods of each fiscal year of Borrower, the unaudited consolidated balance sheet of Borrower and its consolidated Subsidiaries as at the end of such quarter and the related unaudited consolidated statements of income, retained earnings and of cash flows of Borrower and its consolidated Subsidiaries for such quarter and the portion of the fiscal year through the end of such quarter, setting forth in each case in comparative form the figures for the previous year (except with respect to balance sheet figures which shall be in comparative form for the previous audited period only); all such financial statements shall be complete and correct in all material respects and shall be prepared in accordance with GAAP applied consistently throughout the periods reflected therein and with prior periods (except as approved by the accountants preparing such statements or Financial Officer, as the case may be, and disclosed therein) and, in the case of the consolidated financial statements referred to in subsection 5.1(a), accompanied by a report thereon of independent certified public accountants of recognized national standing, which report shall contain no qualifications with respect to the continuance of Borrower and its Subsidiaries as going concerns and shall state that such financial statements present fairly the financial position of Borrower and its Subsidiaries as at the dates indicated and the results of their operations and cash flow for the periods indicated in conformity with GAAP and that the examination by such accountants in connection with such financial statements has been made in accordance with generally accepted auditing standards. 5.2 CERTIFICATES; OTHER INFORMATION. Furnish to each Lender (or, if specified below, to Administrative Agent): (a) ACCOUNTANT'S CERTIFICATES. Concurrently with the delivery of the financial statements referred to in subsection 5.1(a), (i) to the extent not contrary to the then current recommendations of the American Institute of Certified Public Accountants, a certificate from Arthur Andersen & Co. or other independent certified public accountants of nationally recognized standing, stating that, in the course of their annual audit of the books and records of Borrower, no Event of Default or Unmatured Event of Default has come to their attention which was continuing at the end of such fiscal year or on the date of their certificate, or if such an Event of Default or Unmatured Event of Default has come to their attention, the certificate shall indicate the nature of such Event of Default or Unmatured Event of Default and the action which Borrower proposes to take with respect thereto, and (ii) a letter, in form satisfactory to Administrative Agent from such accountants with respect to reliance on such accountant's certificate and report on the annual consolidated financial statements referred to in this subsection; (b) OFFICER'S CERTIFICATE. Concurrently with the delivery of the financial statements referred to in subsections 5.1(a) and 5.1(b), a certificate of a Financial Officer substantially in the form of EXHIBIT 5.2(b) stating that, to the best of such Financial Officer's knowledge, (i) such financial statements present fairly, in accordance with GAAP, the financial condition and results of operations of Borrower and its Subsidiaries for the period referred to therein (subject, in the case of interim statements, to normal recurring adjustments) and (ii) that no Event of Default or Unmatured Event of Default has occurred, except as specified in such certificates, which shall set forth detailed computations to the extent necessary to establish Borrower's compliance with the covenants set forth in subsection 6.1 of this Agreement; (c) AUDIT REPORTS AND STATEMENTS. Promptly following Borrower's receipt thereof, copies of all consolidated financial or other consolidated reports or statements, if any, submitted to Borrower or any of its Subsidiaries by independent public accountants relating to any annual or interim audit of the books of Borrower or any of its Subsidiaries; (d) PUBLIC FILINGS. Within 20 days after the same become public, copies of all financial statements, filings, registrations and reports which Borrower may make to, or file with, the United States Securities and Exchange Commission or any successor or analogous Governmental Authority; (e) STATUS. Within five Business Days after the occurrence thereof, written notice to Administrative Agent of any change in Status; PROVIDED, HOWEVER, that the failure to provide such notice shall not delay or otherwise affect any change in the Applicable Margin or other amount payable hereunder which is to occur upon a change in Status pursuant to the terms of this Agreement; and (f) OTHER REQUESTED INFORMATION. Such other information respecting the respective properties, business affairs, financial condition and/or operations of Borrower or any of its Subsidiaries as Administrative Agent or any Lender may from time to time reasonably request. 5.3 NOTICES. Promptly upon obtaining knowledge thereof, give notice to Administrative Agent (which shall promptly provide a copy of such notice to each Lender) of: (a) EVENT OF DEFAULT OR UNMATURED EVENT OF DEFAULT. The occurrence of any Event of Default or Unmatured Event of Default, accompanied by a statement of a Financial Officer setting forth details of the occurrence referred to therein and stating what action Borrower proposes to take with respect thereto. (b) LITIGATION AND RELATED MATTERS. The commencement of, or any material development in any action, suit, proceeding or investigation pending or threatened against or affecting Borrower or any of its Subsidiaries or any of their respective properties before any arbitrator or Governmental Authority, in which the amount involved that Borrower reasonably determines is not covered by insurance is $10,000,000 or more, or which, if determined adversely to Borrower or any of its Subsidiaries, would reasonably be expected to have a Material Adverse Effect. (c) NOTICE OF CHANGE OF CONTROL. Each occasion that there shall occur a Change of Control, and such notice shall set forth in reasonable detail the particulars of each such occasion. (d) NOTICES UNDER ACQUISITION DOCUMENTS. Promptly following the receipt or delivery thereof, copies of any material demands, notices or documents received or delivered by Borrower or any Subsidiary of Borrower under or pursuant to any Acquisition Document. 5.4 CONDUCT OF BUSINESS AND MAINTENANCE OF EXISTENCE. Continue to engage in business of the same general type as now conducted by it and preserve, renew and keep in full force and effect its and each Subsidiary's corporate existence and take all reasonable action to maintain all rights, privileges and franchises material to its and those of each of its Subsidiaries' businesses except as otherwise permitted pursuant to subsections 6.5 and 6.8 and comply and cause each of its Subsidiaries to comply with all Contractual Obligations and Requirements of Law except to the extent that failure to comply therewith would not in the aggregate reasonably be expected to have a Material Adverse Effect. 5.5 PAYMENT OF OBLIGATIONS. Pay or discharge or otherwise satisfy at maturity or, to the extent permitted hereby, prior to maturity or before they become delinquent, as the case may be, and cause each of its Subsidiaries to pay or discharge or otherwise satisfy at or before maturity or before they become delinquent, as the case may be: (i) all its and their respective Indebtedness; (ii) all taxes, assessments and governmental charges or levies imposed upon any of them or upon any of their income or profits or any of their respective properties or assets prior to the date on which penalties attach thereto; and (iii) all lawful claims prior to the time they become a Lien (other than Permitted Liens) upon any of their respective properties or assets; PROVIDED, HOWEVER, that neither Borrower nor any of its Subsidiaries shall be required to pay or discharge any such Indebtedness, tax, assessment, charge, levy or claim while the same is being contested by it in good faith and by appropriate proceedings diligently pursued so long as Borrower or such Subsidiary, as the case may be, shall have set aside on its books adequate reserves in accordance with GAAP (segregated to the extent required by GAAP) with respect thereto and title to any material properties or assets is not jeopardized in any material respect. 5.6 INSPECTION OF PROPERTY, BOOKS AND RECORDS. Keep, or cause to be kept, and cause each of its Subsidiaries to keep or cause to be kept, adequate records and books of account, in which complete entries are to be made reflecting its and their business and financial transactions, such entries to be made in accordance with sound accounting principles consistently applied and will permit, and cause each of its Subsidiaries to permit, any Lender or its respective representatives, at any reasonable time, and from time to time at the reasonable request of such Lender made to Borrower and upon reasonable notice, to visit and inspect its and their respective properties, to examine and make copies of and take abstracts from its and their records and books of account, and to discuss its and their respective affairs, finances and accounts with its and their principal officers, directors and independent public accountants (and by this provision Borrower authorizes such accountants to discuss with the Lenders and such representatives the affairs, finances and accounts of Borrower and its Subsidiaries; PROVIDED, HOWEVER, that prior to the occurrence and continuance of an Event of Default, all such discussions shall take place in the presence of a Financial Officer of Borrower). 5.7 ERISA. (i) As soon as practicable and in any event within thirty days after Borrower or any of its Subsidiaries or ERISA Affiliates knows or has reason to know that a Reportable Event has occurred with respect to any Plan, deliver, or cause such Subsidiary or ERISA Affiliate to deliver, to Administrative Agent a certificate of a responsible officer of Borrower or such Subsidiary or ERISA Affiliate, as the case may be, setting forth the details of such Reportable Event and the action, if any, which Borrower or such Subsidiary or ERISA Affiliate is required or proposes to take, together with any notices required or proposed to be given; (ii) upon the request of any Lender made from time to time, deliver, or cause each Subsidiary or ERISA Affiliate to deliver, to each Lender a copy of the most recent actuarial report completed and annual report filed with respect to any Plan; (iii) as soon as possible and in any event within ten (10) days after Borrower or any of its Subsidiaries or ERISA Affiliates knows or has reason to know that any of the following have occurred or is reasonably likely to occur with respect to any Plan: (A) the Plan Sponsor intends to terminate such Plan, (B) the PBGC has instituted or will institute proceedings under Section 4042 of ERISA to terminate such Plan, (C) that an accumulated funding deficiency (as defined in Section 3.02(a) of ERISA and Section 412(a) of the Code) has been incurred or that on application may be or has been made to the Secretary of the Treasury for a waiver or modification of the minimum funding standard (including any required installment payments) or on extension of any amortization period under Section 412 of the Code, or (D) that Borrower, or any Subsidiary of Borrower or any ERISA Affiliate will or may incur any liability (including, but not limited to, contingent or secondary liability) to or on account of the termination of or withdrawal from a Plan under Section 401(a)(29), 4971, 4975 or 4980 of the Code or Section 409 or 502(1) of ERISA, deliver, or cause such Subsidiary or ERISA Affiliate to deliver, to Administrative Agent a written notice thereof; and (iv) as soon as possible and in any event within thirty days after Borrower or any of its Subsidiaries or ERISA Affiliates knows or has reason to know that any of them has caused a complete withdrawal or partial withdrawal (within the meaning of Sections 4203 and 4205, respectively, of ERISA) from any Multiemployer Plan, deliver, or cause such Subsidiary or ERISA Affiliate to deliver, to Administrative Agent a written notice thereof. For purposes of this subsection 5.7, Borrower shall be deemed to have knowledge of all facts known by the Plan Administrator of any Plan of which Borrower is the Plan Sponsor, and each Subsidiary and ERISA Affiliate of Borrower shall be deemed to have knowledge of all facts known by the Plan Administrator of any Plan of which such Subsidiary or ERISA Affiliate, respectively, is a Plan Sponsor. In addition to its other obligations set forth in this subsection 5.7, Borrower shall, and shall cause each of its Subsidiaries and ERISA Affiliates to, (A) furnish to Administrative Agent, promptly after delivery of the same to the PBGC, a copy of any delinquency notice pursuant to Section 412(n) (4) of the Code, (B) correct any such failure to satisfy funding requirements or delinquency referred to in the foregoing clauses (iii)(C) of the first sentence of this subsection 5.7 and clause (A) above within ninety (90) days after the occurrence thereof, except where the failure to so satisfy would not reasonably be expected to have a Material Adverse Effect, and (C) comply in good faith with the requirements set forth in Section 4980B of the Code and with Sections 601(a) and 606 of ERISA, except where the failure to so comply could not reasonably be expected to have a Material Adverse Effect. 5.8 INSURANCE. Borrower shall maintain, and shall cause each of its Subsidiaries to maintain, with financially sound and reputable insurers, insurance with respect to its properties and business against loss or damage of the kinds customarily insured against by Persons engaged in the same or similar business, or such types and in such amounts as are customarily carried under similar circumstances by such other Persons. Such insurance shall be maintained with financially sound and reputable insurers, except that a portion of such insurance program (not to exceed that which is customary in the case of companies engaged in the same or similar business or having similar properties similarly situated) may be effected through self-insurance, provided adequate reserves therefor, in accordance with GAAP, are maintained. 5.9 ENVIRONMENTAL LAWS. (a) Comply with in all material respects, and cause its Subsidiaries to comply with in all material respects, and, in each case take reasonable steps to ensure compliance in all material respects by all tenants and subtenants, if any, with, all applicable Environmental Laws and obtain and comply in all material respects with and maintain, and take reasonable steps to ensure that all tenants and subtenants obtain and comply in all material respects with and maintain, any and all licenses, approvals, notifications, registrations or permits required by applicable Environmental Laws except to the extent that failure to do so would not reasonably be expected to have a Material Adverse Effect; (b) Conduct and complete all investigations, studies, sampling and testing, and all remedial, removal and other actions required under Environmental Laws and promptly comply in all material respects with all lawful orders, directives and information requests of all Governmental Authorities regarding Environmental Laws except to the extent that the same are being contested in good faith by appropriate proceedings and the pendency of such proceedings would not reasonably be expected to have a Material Adverse Effect; and (c) Defend, indemnify and hold harmless Administrative Agent and the Lenders, and their respective employees, agents, officers and directors, from and against any and all claims, demands, penalties, fines, liabilities, settlements, damages, costs and expenses of whatever kind or nature known or unknown, contingent or otherwise, arising out of, or in any way relating to the violation of, noncompliance with or liability under, any Environmental Law applicable to the operations of Borrower, any of its Subsidiaries or their respective properties, or any orders, requirements or demands of Governmental Authorities related thereto, including, without limitation, reasonable attorneys' and consultants' fees, investigation and laboratory fees, costs arising from any Remedial Actions, court costs and litigation expenses, except to the extent that any of the foregoing arise out of the gross negligence or willful misconduct of the party seeking indemnification therefor. The agreements in this clause (c) shall survive repayment of the Notes and all other Obligations. 5.10 ADDITIONAL SUBSIDIARY GUARANTORS. In the event any Person shall hereafter become a Material Subsidiary, Borrower shall, within 30 days, cause such Material Subsidiary to become a party to the Subsidiary Guarantee Agreement and deliver such other corporate authorization documents as Administrative Agent may reasonably request. ARTICLE VI NEGATIVE COVENANTS Borrower hereby agrees that, so long as the Revolving Commitments remain in effect or any Obligation is owing to any Lender or any Agent hereunder, Borrower shall not, nor shall it permit any of its Subsidiaries to, directly or indirectly: 6.1 FINANCIAL CONDITION COVENANTS. (a) MAINTENANCE OF CONSOLIDATED NET WORTH. Permit Consolidated Net Worth on the last day of any fiscal quarter to be less than the sum of (i) $200,000,000 PLUS (ii) the amount equal to 33% of the aggregate Consolidated Net Income of Borrower and its consolidated Subsidiaries since June 30, 1997; PROVIDED, HOWEVER, that in the event that Borrower and its consolidated Subsidiaries have a consolidated net loss for any fiscal quarter, Consolidated Net Income for purposes only of clause (ii) of this subsection 6.1(a) shall be deemed to be zero for such fiscal quarter. (b) LEVERAGE RATIO. Permit the ratio of (a) Consolidated Debt on the last day of any fiscal quarter of Borrower (after giving effect to all payments and prepayments made on such date) to (b) Consolidated EBITDA for the period of four consecutive fiscal quarters ending on the last day of any fiscal quarter of Borrower to exceed 2.50 to 1.0. (c) INTEREST COVERAGE RATIO. Permit the ratio of (i) Consolidated EBITDA for the period of four consecutive fiscal quarters ending on the last day of any fiscal quarter of Borrower to (ii) Consolidated Interest Expense for such period to be less than 5.00 to 1.0. 6.2 INDEBTEDNESS OF SUBSIDIARIES. Permit any Subsidiary of Borrower to incur, directly or indirectly, or suffer to exist any Indebtedness except: (a) Intercompany Indebtedness; PROVIDED, HOWEVER, that in the event of any subsequent issuance or transfer of any Capital Stock which results in the holder of such Indebtedness ceasing to be a Subsidiary of Borrower or any subsequent transfer of such Indebtedness (other than to Borrower or any of its Subsidiaries) such Indebtedness shall be required to be permitted under another clause of this subsection 6.2; PROVIDED, FURTHER, HOWEVER, that in the case of Intercompany Indebtedness consisting of a loan or advance to Borrower, each such loan or advance shall be subordinated to the indefeasible payment in full of all of Borrower's obligations pursuant to this Agreement and the other Loan Documents, and each such loan or advance shall be on open account and shall not be evidenced by a promissory note or other instrument; (b) Indebtedness constituting Guarantee Obligations permitted under subsection 6.3(b) and subsection 6.3(e); (c) Indebtedness outstanding on the date hereof and listed on SCHEDULE 6.2(c) hereto and any Indebtedness resulting from the refinancing of any such Indebtedness; PROVIDED, HOWEVER, that (i) the principal amount of any such refinancing Indebtedness (as determined as of the date of the incurrence of such refinancing Indebtedness in accordance with GAAP) does not exceed the principal amount of the Indebtedness refinanced thereby on such date and (ii) in the case of any such refinancing Indebtedness which is in excess of $10,000,000, either (A) the covenants, defaults and similar provisions applicable to such refinancing Indebtedness or obligations are no more restrictive in any material respect taken as a whole than the provisions contained in this Agreement and do not conflict in any material respect with the provisions of this Agreement or (B) such refinancing Indebtedness is otherwise upon terms and subject to definitive documentation which is in form and substance reasonably satisfactory to Administrative Agent; and (d) Indebtedness of Subsidiaries in addition to that described in clauses (a) through (c) of this subsection 6.2; PROVIDED, HOWEVER, that the aggregate principal amount of the Indebtedness permitted under this subsection 6.2(d), when added (without duplication) to (i) all Indebtedness outstanding secured by Liens and permitted under clause (vii) of the definition of Permitted Liens, (ii) the amount of Guarantee Obligations outstanding and permitted under subsection 6.3(i) and (iii) the aggregate amount of all Attributable Debt of Borrower and its Subsidiaries then outstanding, does not exceed 15% of Consolidated Net Tangible Assets. 6.3 GUARANTEE OBLIGATIONS. Permit any Subsidiary of Borrower to create or become or be liable with respect to any Guarantee Obligation except: (a) Guarantee Obligations resulting from endorsement of negotiable instruments for collection in the ordinary course of business; (b) Guarantee Obligations to or for the benefit of Administrative Agent and the Lenders hereunder or under the other Loan Documents; (c) Guarantee Obligations arising under customary indemnification provisions (express or implied) in respect of Contractual Obligations governing transactions otherwise required or not prohibited by the terms of this Agreement and customary indemnities in connection with underwritings or similar transactions; (d) Guarantee Obligations arising in the ordinary course of its business and consistent with past practices (regardless of the theory of liability) from the manufacture, sale, handling, distribution or use of any product manufactured, sold or otherwise dealt with, or any service provided, by such Subsidiary; (e) Guarantee Obligations in existence on the date hereof and identified on SCHEDULE 6.3(e) hereto and any renewal or replacement of such Guarantee Obligations to the extent that the amount of any such Guarantee Obligations so extended or renewed is not increased thereby; (f) Guarantee Obligations with respect to commercial or standby letters of credit or functionally equivalent obligations, in each case, issued in connection with performance, bid or advance payment obligations incurred in the ordinary course of business including, without limitation, performance requirements under workers compensation or similar laws; and (g) In addition to the Guarantee Obligations permitted by clauses (a) through (f), other Guarantee Obligations; provided that the aggregate liability of all Subsidiaries of Borrower in respect of the Guarantee Obligations permitted by this subsection 6.3(i), when added (without duplication) to (i) all Indebtedness outstanding secured by Liens and permitted under clause (viii) of the definition of Permitted Liens, (ii) the aggregate amount of Indebtedness then outstanding and permitted under subsection 6.2(d), and (iii) the aggregate amount of Attributable Debt of Borrower and its Subsidiaries then outstanding, shall not exceed 15% of Consolidated Net Tangible Assets. 6.4 LIENS. Except for Permitted Liens, create, incur, assume or suffer to exist or agree to create, incur or assume any Lien in, upon or with respect to any of its properties or assets (including, without limitation, any securities or debt instruments of any of its Subsidiaries), whether now owned or hereafter acquired, or assign or otherwise convey any right to receive income to secure any obligation. 6.5 FUNDAMENTAL CHANGES. Enter into any merger, consolidation or amalgamation, or liquidate, wind-up or dissolve itself (or suffer any liquidation or dissolution); convey, sell, assign, transfer or otherwise dispose of all or substantially all of the property, business or assets of Borrower and its Subsidiaries; or make any material change in its present method of conducting business; PROVIDED, HOWEVER, that as long as immediately after giving effect to such transaction, the resulting, surviving or transferee Person shall have Consolidated Net Worth in an amount which is not less than the Consolidated Net Worth of such Person prior to such transaction: (a) any Subsidiary of Borrower may be merged or consolidated with or into Borrower (PROVIDED, HOWEVER, that Borrower shall be the continuing or surviving corporation) or with or into any one or more Wholly-Owned Subsidiaries of Borrower (PROVIDED, HOWEVER, that the (i) Wholly-Owned Subsidiary or Subsidiaries shall be the continuing or surviving corporation and (ii) in the case of any merger or consolidation between Subsidiaries at least one of that is a Subsidiary Guarantor, a Subsidiary Guarantor shall be the surviving Person); and (b) any Wholly-Owned Subsidiary may sell, lease, transfer or otherwise dispose of any or all of its assets (upon voluntary liquidation or otherwise) to Borrower or any other Wholly-Owned Subsidiary of Borrower. 6.6 RESTRICTED PAYMENTS. Either: (i) declare or pay any dividend or make any distribution on or in respect of its Capital Stock or to the direct or indirect holders of its Capital Stock (except dividends or distributions payable solely in its Non-Convertible Capital Stock or in options, warrants or other rights to purchase its Non-Convertible Capital Stock and except dividends or distributions payable to Borrower or a Subsidiary of Borrower) or (ii) purchase, redeem or otherwise acquire or retire for value any Capital Stock of Borrower (any such dividend, distribution, purchase, redemption, repurchase, defeasance, other acquisition, retirement or Investment being hereinafter referred to as a "Restricted Payment"); PROVIDED, HOWEVER, that, Borrower may make Restricted Payments during such time as no Event of Default or Unmatured Event of Default has occurred and is continuing or would result therefrom. 6.7 DISTRIBUTIONS FROM SUBSIDIARIES. Create or otherwise cause or permit to exist or become effective any consensual encumbrance or restriction on the ability of any Subsidiary of Borrower to (i) pay dividends or make any other distributions on its Capital Stock or pay any Indebtedness or other obligation owed to Borrower or any of its other Subsidiaries, (ii) make any loans or advances to Borrower or any of its other Subsidiaries, or (iii) transfer any of its property or assets to Borrower or any of its other Subsidiaries, except: (a) any encumbrance or restriction pursuant to an agreement in effect at or entered into on the Closing Date and reflected on SCHEDULE 6.7(a) hereto; (b) any encumbrance or restriction with respect to a Subsidiary of Borrower pursuant to an agreement relating to any Indebtedness issued by such Subsidiary on or prior to the date on which such Subsidiary became a Subsidiary of Borrower or was acquired by Borrower (other than Indebtedness issued as consideration in, or to provide all or any portion of the funds utilized to consummate, the transaction or series of related transactions in contemplation of or pursuant to which such Subsidiary became a Subsidiary or was acquired by Borrower) and outstanding on such date; (c) any such encumbrance or restriction consisting of customary non-assignment provisions in leases governing leasehold interests to the extent such provisions restrict the transfer of the lease; and (d) in the case of clause (iii) above, restrictions contained in security agreements securing Indebtedness of a Subsidiary of Borrower to the extent such restrictions restrict the transfer of the property subject to such security agreements. 6.8 SALES OF ASSETS AND SUBSIDIARY STOCK. Make any Asset Disposition unless Borrower or such Subsidiary receives consideration at the time of such Asset Disposition at least equal to the fair market value, as determined in good faith by the board of directors of such Person (including a determination as to the value of all noncash consideration), of the shares and assets subject to such Asset Disposition. The Net Proceeds of any Material Asset Disposition shall be applied in the manner set forth in subsection 2.8. 6.9 INVESTMENTS. Make any Investments except for Permitted Investments. 6.10 TRANSACTIONS WITH AFFILIATES. Conduct any business or enter into any transaction or series of similar transactions (including the purchase, sale, lease or exchange of any property or the rendering of any service) with any Affiliate of Borrower or any legal or beneficial owner of 5% or more of any class of Capital Stock of Borrower or with any Affiliate of such owner (other than a Wholly-Owned Subsidiary of Borrower or an employee stock ownership plan for the benefit of Borrower's or any of its Subsidiaries' employees) unless the terms of such business, transaction or series of transactions are (i) as favorable to Borrower or such Subsidiary as terms that would be obtainable at the time for a comparable transaction or series of similar transactions in arm's-length dealings with an unrelated third person or, if such transaction is not one which by its nature could be obtained from such person, is on fair and reasonable terms and (ii) are in the ordinary course of business or, if not in the ordinary course of business, are set forth in writing and the board of directors of Borrower or such Subsidiary, as the case may be, has determined in good faith that such business or transaction or series of transactions meets the applicable criteria set forth in clause (i) above. 6.11 SALE-LEASEBACKS. Lease any property as lessee in connection with a Sale and Leaseback Transaction entered into after the Closing Date if, at the time of such entering into and after giving effect thereto, Attributable Debt for such Sale and Leaseback Transaction and for all Sale and Leaseback Transactions so entered into by Borrower and its Subsidiaries during the immediately preceding 365 day period, when added (without duplication) to (i) all Indebtedness outstanding secured by Liens and permitted under clause (viii) of the definition of Permitted Liens, (ii) the aggregate amount of Indebtedness then outstanding and permitted under subsection 6.2(c) and (iii) the amount of Guarantee Obligations outstanding and permitted under subsection 6.3(g) shall exceed 15% of Consolidated Net Tangible Assets. 6.12 FISCAL YEAR. Change the fiscal year of Borrower. 6.13 AMENDMENTS TO ORGANIZATIONAL DOCUMENTS. Amend, modify or waive, or permit any amendment, modification or waiver as to any material provision of its articles of incorporation, by-laws or other similar governing documents if such amendment, modification or waiver would adversely affect the interests of Administrative Agent or the Lenders. 6.14 ACCOUNTING CHANGES. Make or permit to be made any change in accounting policies affecting the presentation of financial statements or reporting practices from those employed by it on the date hereof, unless (i) such change is required by GAAP, (ii) such change is disclosed to the Lenders through Administrative Agent or otherwise and (iii) relevant prior financial statements that are affected by such change are restated (in form and detail satisfactory to Administrative Agent) as may be required by GAAP to show comparative results. 6.15 LINES OF BUSINESS. Enter into or acquire any line of business which is not reasonably related to the business engaged in as of the date hereof. ARTICLE VII EVENTS OF DEFAULT 7.1 EVENTS OF DEFAULT. If any of the events, acts, conditions or occurrences (each, an "Event of Default") hereinafter set forth shall occur or exist (for any reason whatsoever, and whether such happening shall be voluntary or involuntary or come about or be effected by operation of law or pursuant to or in accordance with any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (a) FAILURE TO MAKE PAYMENTS WHEN DUE. (i) Borrower shall default in the payment when due of principal on any Loan in accordance with the terms hereof; or (ii) Borrower shall default in the payment when due of interest on any Loan in accordance with the terms hereof and such default shall continue for five (5) days after the date when due; or (iii) Borrower shall default in the payment when due of any other amount owing hereunder or any other Loan Document and such default shall continue for ten (10) days after the date when due; or (b) REPRESENTATIONS. Any representation or warranty made or deemed to be made by Borrower or any Loan Party herein or in any document, instrument or certificate delivered pursuant hereto shall prove to have been incorrect or misleading in any material respect on or as of the date made or deemed made; or (c) BREACH OF CERTAIN COVENANTS. Borrower shall fail to perform or comply with any term or condition contained in Article VI other than nonconsensual Liens under Section 6.4 or subsection 5.3 (a); or (d) OTHER DEFAULTS UNDER AGREEMENT OR LOAN DOCUMENTS. Borrower or any of its Subsidiaries shall default in the performance or observance of any term, covenant, condition or agreement contained in this Agreement (other than as provided in clauses (a), (b) or (c) of this subsection 7.1), and such default shall continue unremedied for a period of 30 days after written notice thereof shall have been given to Borrower by Administrative Agent or the Majority Lenders; or (e) DEFAULT UNDER OTHER AGREEMENTS. Borrower or any of its Subsidiaries (i) shall default in the payment when due (after giving effect to any applicable grace period), whether at stated maturity or otherwise, of principal or interest in respect of Indebtedness having an aggregate principal amount of $10,000,000 or more; or (ii) shall fail to perform or observe any other condition or covenant, or any other event shall occur or condition exist, under any agreement or instrument relating to any such Indebtedness, if the effect of any such failure, event or condition is to cause, or to permit the holder or holders of such Indebtedness or beneficiary or beneficiaries of such Indebtedness (or a trustee or agent on behalf of such holder or holders or beneficiary or beneficiaries) to cause (determined without regard to whether any notice of acceleration or similar notice is required), such Indebtedness to be declared to be due and payable prior to its stated maturity, or cash collateral in respect thereof to be demanded; or (f) JUDGMENTS. One or more judgments or decrees shall be entered against Borrower or any of its Subsidiaries involving, individually or in the aggregate, a liability of $10,000,000 or more and all such judgments or decrees shall not have been vacated, discharged or stayed pending appeal within sixty (60) days from the entry thereof but in any event prior to the commencement of enforcement proceedings; or (g) VOLUNTARY INSOLVENCY, ETC. Borrower or any of its Material Subsidiaries shall become insolvent, generally fail to pay, or state in writing or publicly its inability or unwillingness to pay, its debts as they become due or call a meeting of creditors for the purpose of adjusting its debts; or Borrower or any of its Material Subsidiaries shall become insolvent or shall voluntarily commence any proceeding or file any petition under any bankruptcy, insolvency or similar law seeking dissolution or reorganization or the appointment of a receiver, trustee, custodian or liquidator for it or a substantial portion of its property, assets or business, or to effect a plan or other arrangement with its creditors, or shall file any answer admitting the jurisdiction of the court and the material allegations of an involuntary petition filed against it in any bankruptcy, insolvency or similar proceeding, or shall be adjudicated bankrupt, or shall make a general assignment for the benefit of creditors, or shall consent to, or acquiesce in the appointment of, a receiver, trustee, custodian or liquidator for a substantial portion of its property, assets or business; or (h) INVOLUNTARY INSOLVENCY, ETC. Involuntary proceedings or an involuntary petition shall be commenced or filed against Borrower or any of its Material Subsidiaries under any bankruptcy, insolvency or similar law or seeking the dissolution or reorganization of it or the appointment of a receiver, trustee, custodian or liquidator for it or of a substantial part of its property, assets or business, or any writ, judgment, warrant of attachment, execution or similar process shall be issued or levied against a substantial part of its property, assets or business, and such proceedings or petition shall not be dismissed, or such writ, judgment, warrant of attachment, execution or similar process shall not be released, vacated or fully bonded, within sixty (60) days after commencement, filing or levy, as the case may be, or any order for relief shall be entered in any such proceeding; or (i) UNENFORCEABILITY. This Agreement shall cease for any reason to be in full force and effect (other than by reason of the satisfaction of all Borrower's or any of its Subsidiaries' obligations thereunder) or Borrower or any of its Subsidiaries or any other Person (other than the Lenders or Administrative Agent) shall disavow its obligations under any provision hereof or thereof, or shall deny that it has any or further obligations under any provision thereof, or shall contest the validity or enforceability of any provision thereof; or (j) ERISA. (i) A Reportable Event or Reportable Events, or a failure to make a required installment or other payment (within the meaning of Section 412(n)(l) of the Code), shall have occurred with respect to any Plan or Plans that would reasonably be expected to result in liability of Borrower to the PBGC or to a Plan in an aggregate amount exceeding $10,000,000 and the Administrative Agent shall have notified Borrower in writing that (x) the Majority Lenders have made a determination that, on the basis of such Reportable Event or Reportable Events or such failure to make a required payment, there are reasonable grounds (A) for the termination of such Plan or Plans by the PBGC, (B) for the appointment by the appropriate United States District Court of a trustee to administer such Plan or Plans or (C) for the imposition of a lien in favor of a Plan and (y) as a result thereof an Event of Default exists hereunder; or a Termination Event shall have occurred; or (ii) The Borrower or any ERISA Affiliate shall have been notified by the sponsor of a Multiemployer Plan that it has incurred Withdrawal Liability to such Multiemployer Plan and the amount of the Withdrawal Liability specified in such notice, when aggregated with all other Withdrawal Liabilities (determined as of the date or dates of such notification), exceeds $10,000,000; or (iii) Borrower or any ERISA Affiliate shall have been notified by the sponsor of a Multiemployer Plan that such Multiemployer Plan is in reorganization or is being terminated, within the meaning of Title IV of ERISA, if solely as a result of such reorganization or termination the aggregate annual contributions of Borrower and its ERISA Affiliates to all Multiemployer Plans that are then in reorganization or have been or are being terminated have been or will be increased over the amounts required to be contributed to such Multiemployer Plans for their most recently completed plan years by an amount exceeding $10,000,000; or (k) CHANGE OF CONTROL. A Change of Control shall occur; or (l) ENVIRONMENTAL DEFAULT. The Borrower or any of its Subsidiaries shall be the subject of any proceeding or investigation pertaining to the release by Borrower or any of its Subsidiaries, or any other Person of any toxic or hazardous waste or substance into the environment, or any violation of any Environmental Law, which, in either case, would reasonably be expected to have a Material Adverse Effect. THEN, and in any such event (except an Event of Default specified in paragraph (g) or (h) of this subsection) and at any time thereafter while an Event of Default is continuing, Administrative Agent may with the consent of Majority Lenders, and at the direction of the Majority Lenders shall, take one or more of the following actions: (A) declare the Revolving Commitments terminated, whereupon the Revolving Commitment(s) of each Lender hereunder shall terminate immediately and all fees and other amounts accrued in accordance with this Agreement shall forthwith become due and payable without any other notice of any kind; (B) declare all sums then owing by Borrower hereunder and under the Notes to be forthwith due and payable, whereupon all such sums shall become and be immediately due and payable without presentment, demand, protest or notice of any kind, all of which are hereby expressly waived by Borrower; and (C) exercise on behalf of itself and the Lenders all rights and remedies available to it and the Lenders under the Loan Documents or applicable law; PROVIDED, HOWEVER, that if an Event of Default specified in paragraph (g) or (h) of this subsection shall occur, the result which would occur upon the giving of notice by Administrative Agent to Borrower, as specified in clauses (A) or (B) above, shall occur automatically without the giving of any such notice. Promptly following the making of any such declaration, Administrative Agent shall give notice thereof to Borrower and each Lender, but failure to notify any Person shall not impair the effect of such declaration. If any Lender which made a Competitive Loan shall suffer an Event of Default under subsection 7.1(a) due to Borrower's failure to pay any amount of principal of or interest on any Competitive Loan, such Lender may send a written request to Administrative Agent to obtain approval of the Majority Lenders to terminate the Revolving Commitments and, if such approval is not obtained within ten Business Days after the date such request is received, the requesting Lender (or assignee) may commence enforcement of such default by any and all legal means. Any payments received after the Lenders have taken action pursuant to paragraph (B) above shall be allocated ratably among the Committed Loans and the Competitive Loans. 7.2 RESCISSION OF ACCELERATION. Anything in subsection 7.1 to the contrary notwithstanding, Administrative Agent shall, at the request of the Majority Lenders, rescind and annul any acceleration of the Notes under this Agreement by written instrument filed with Borrower; PROVIDED, HOWEVER, that at the time such acceleration is so rescinded and annulled: (i) all past due interest and principal, if any, on the Notes and all other sums payable under this Agreement (except any principal and interest on any Notes which has become due and payable solely by reason of such acceleration) shall have been duly paid, and (ii) no other Event of Default or Unmatured Event of Default shall have occurred and be continuing which shall not have been waived in accordance with this Agreement. 7.3 RIGHTS NOT EXCLUSIVE. The rights provided for in this Agreement and the other Loan Documents are cumulative and are not exclusive of any other rights, powers, privileges or remedies provided by law or in equity, or under any other instrument, document or agreement now existing or hereafter arising. ARTICLE VIII ADMINISTRATIVE AGENT 8.1 APPOINTMENT AND AUTHORIZATION. Each Lender hereby irrevocably appoints, designates and authorizes BT as Administrative Agent (and each holder of any Note by the acceptance of such Note shall be deemed irrevocably to have authorized Administrative Agent) to take such action on its behalf under the provisions of this Agreement and each other Loan Document and to exercise such powers and perform such duties as are expressly delegated to it by the terms of this Agreement or any other Loan Document, together with such powers as are reasonably incidental thereto (including, without limitation, to give notices and take such actions on behalf of the Majority Lenders as are consented to in writing by the Majority Lenders). Administrative Agent may perform any of its duties hereunder, or under the other Loan Documents, by or through its agents or employees. 8.2 NATURE OF DUTIES. Administrative Agent shall have no duties or responsibilities except those expressly set forth in this Agreement. The duties of Administrative Agent shall be mechanical and administrative in nature. EACH LENDER HEREBY ACKNOWLEDGES AND AGREES THAT ADMINISTRATIVE AGENT SHALL NOT HAVE, BY REASON OF THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, A FIDUCIARY RELATIONSHIP TO OR IN RESPECT OF ANY LENDER. Nothing in any of the Loan Documents, expressed or implied, is intended to or shall be so construed as to impose upon Administrative Agent any obligations in respect of any of the Loan Documents except as expressly set forth herein or therein. Each Lender shall make its own independent investigation of the financial condition and affairs of Borrower in connection with the making and the continuance of the Loans hereunder and shall make its own appraisal of the credit worthiness of Borrower, and Administrative Agent shall have no duty or responsibility, either initially or on a continuing basis, to provide any lender with any credit or other information with respect thereto, whether coming into its possession before making of the Loans or at any time or times thereafter. Administrative Agent will promptly notify each Lender at any time that the Majority Lenders have instructed it to act or refrain from acting pursuant to Article VII. 8.3 LIABILITY OF ADMINISTRATIVE AGENT. Administrative Agent, its Affiliates, or any of their respective officers, directors, employees, agents, affiliates or attorneys-in-fact (collectively, the "Agent-Related Persons") shall not (i) be liable to any of the Lenders for any action taken or omitted to be taken by any of them under or in connection with this Agreement or any other Loan Document (except for their own gross negligence or willful misconduct), or (ii) be responsible in any manner to any of the Lenders for any recital, statement, representation or warranty made by Borrower or Affiliate of Borrower, or any officer thereof, contained in this Agreement or in any other Loan Document, or in any certificate, report, statement or other document referred to or provided for in, or received by Administrative Agent, or the Co-Agent under or in connection with, this Agreement or any other Loan Document, or the execution, validity, effectiveness, genuineness, enforceability, collectibility or sufficiency of this Agreement or any other Loan Document, or for any failure of Borrower to perform its obligations hereunder or thereunder. No Agent-Related Person shall be under any obligation to any Lender to ascertain or to inquire as to the observance or performance of any of the terms or provisions contained in, or conditions of, this Agreement or any other Loan Document, or the financial condition of Borrower, or the existence or possible existence of any Unmatured Event of Default or Event of Default unless requested to do so by the Majority Lenders, or to inspect the properties, books or records of Borrower or any of its Subsidiaries or Affiliates. 8.4 RELIANCE BY ADMINISTRATIVE AGENT. (a) The Lenders agree that Administrative Agent shall be entitled to rely, and shall be fully protected in relying, upon any writing, resolution, notice, consent, certificate, affidavit, letter, telegram, facsimile, telex or telephone message, statement or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons, and upon advice and statements of legal counsel (including counsel to Borrower), independent accountants and other experts selected by Administrative Agent. Administrative Agent may at any time request instructions from the Lenders with respect to actions or approvals (including the failure to act or approve) which by the terms of any of the Loan Documents Administrative Agent is permitted or required to take or to grant. The Lenders agree that Administrative Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other Loan Document unless it shall first receive such advice or concurrence of the Majority Lenders as it deems appropriate and, if it so requests, it shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Lenders agree that Administrative Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement or any other Loan Document in accordance with a request or consent of the Majority Lenders and such request or consent and any action taken or failure to act pursuant thereto shall be binding upon all of the Lenders. (b) For purposes of determining compliance with the conditions specified in subsections 4.1, 4.2 and 4.3, each Lender that has executed this Agreement shall be deemed to have consented to, approved or accepted or to be satisfied with each document or other matter required thereunder to be consented to or approved by or acceptable or satisfactory to the Lender, unless an officer of Administrative Agent, responsible for the transactions contemplated by the Loan Documents shall have received notice from the Lender prior to the initial Borrowing specifying in reasonable detail its objection thereto and either such objection shall not have been withdrawn by notice to Administrative Agent to that effect, or the Lender shall not have made available to Administrative Agent the Lender's ratable portion of such Borrowing. 8.5 NOTICE OF DEFAULT. Administrative Agent shall not be deemed to have knowledge or notice of the occurrence of any Event of Default or Unmatured Event of Default, except with respect to defaults in the payment of principal, interest and fees required to be paid to Administrative Agent for the account of the Lenders, unless Administrative Agent shall have received written notice from a Lender or Borrower referring to this Agreement, describing such Event or Default or Unmatured Event of Default and stating that such notice is a "notice of default". In the event that Administrative Agent receives such a notice, Administrative Agent shall give notice thereof to the Lenders. Administrative Agent shall take such action with respect to such Event of Default or Unmatured Event of Default as shall be requested by the Majority Lenders in accordance with Article VII; PROVIDED, HOWEVER, that unless and until Administrative Agent shall have received any such request, Administrative Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Event of Default or Unmatured Event of Default as it shall deem advisable or in the best interest of the Lenders. 8.6 CREDIT DECISION. Each Lender expressly acknowledges that none of the Agent-Related Persons has made any representation or warranty to it and that no act by any Agent, hereinafter taken, including any review of the affairs of Borrower and its Subsidiaries shall be deemed to constitute any representation or warranty by such Agent to any Lender. Each Lender represents to Administrative Agent that it has, independently and without reliance upon Administrative Agent and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, prospects, operations, property, financial and other condition and creditworthiness of Borrower and its Subsidiaries, and all applicable bank regulatory laws relating to the transactions contemplated thereby, and made its own decision to enter into this Agreement and extend credit to Borrower hereunder. Each Lender also represents that it will, independently and without reliance upon Administrative Agent, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and the other Loan Documents, and to make such investigations as it deems necessary to inform itself as to the business, prospects, operations, property, financial and other condition and creditworthiness of Borrower or its Subsidiaries. Except for notices, reports and other documents expressly herein required to be furnished to the Lenders by Administrative Agent, Administrative Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the business, prospects, operations, property, financial and other condition or creditworthiness of Borrower which may come into the possession of any of the Agent-Related Persons. 8.7 INDEMNIFICATION. The Lenders shall indemnify upon demand the Agent-Related Persons (to the extent not reimbursed by or on behalf of Borrower and without limiting the obligation of Borrower to do so), ratably according to each Lender's Commitment Percentage from and against any and all liabilities, obligations, losses, damages, claims, penalties, actions, judgments, suits, costs, and reasonable expenses and disbursements of any kind whatsoever which may at any time (including at any time following the repayment of the Loans) be imposed on, incurred by or asserted against any such Person any way relating to or arising out of this Agreement or any document contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby or any action taken or omitted by any such Person under or in connection with any of the foregoing; PROVIDED, HOWEVER, that no Lender shall be liable for the payment to the Agent-Related Persons of any portion of such liabilities, obligations, losses, damages, claims, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from such Person's gross negligence or willful misconduct. Without limitation of the foregoing, each Lender shall reimburse Administrative Agent upon demand for its ratable share of any reasonable costs or out-of-pocket expenses (including Attorney Costs) incurred by Administrative Agent in connection with the preparation, execution, delivery, administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement, any other Loan Document, or any document contemplated by or referred to herein to the extent that Administrative Agent is not reimbursed for such expenses by or on behalf of Borrower. Without limiting the generality of the foregoing, if the IRS or any authority of the U.S. or other jurisdiction asserts a claim that Administrative Agent did not properly withhold tax from amounts paid to or for the account of any Lender (because the appropriate form was not delivered, was not properly executed, or because such Lender failed to notify Administrative Agent of a change in circumstances which rendered the exemption from, or reduction of, withholding tax ineffective, or for any other reason) such Lender shall indemnify Administrative Agent fully for all amounts paid, directly or indirectly, by Administrative Agent as tax or otherwise, including penalties and interest, and including any taxes imposed by any jurisdiction on the amounts payable to Administrative Agent under this subsection 8.7, together with all Attorney Costs. The obligation of the Lenders in this subsection 8.7 shall survive the payment of all Obligations hereunder and termination of the Agreement. 8.8 ADMINISTRATIVE AGENT IN INDIVIDUAL CAPACITY. Administrative Agent and its Affiliates may make loans to, issue letters of credit for the account of, accept deposits from, acquire equity interests in and generally engage in any kind of banking, trust, financial advisory or other business with Borrower and its Subsidiaries and Affiliates as though Administrative Agent were not Administrative Agent hereunder and without notice to the Lenders. With respect to its Loans, Administrative Agent shall have the same rights and powers under this Agreement as any other Lender and may exercise the same as though it were not Administrative Agent hereunder or under any other Loan Document, including, without limitation, the acceptance of fees or other consideration for services without having to account for the same to any of the Lenders. The terms "Lender" and "Lenders" shall include BT in its individual capacity. 8.9 RESIGNATION BY ADMINISTRATIVE AGENT. (a) Administrative Agent may resign from the performance of all its functions and duties hereunder at any time by giving fifteen (15) Business Days' prior written notice to Borrower and the Lenders. Such resignation shall take effect upon the acceptance by a successor Administrative Agent of appointment pursuant to clauses (b) and (c) below or as otherwise provided below. (b) Upon any such notice of resignation, the Majority Lenders shall appoint a successor Administrative Agent who shall (unless an Event of Default has occurred and is continuing) be satisfactory to Borrower and shall be an incorporated bank or trust company. (c) If a successor Administrative Agent shall not have been so appointed within said 15 Business Day period, Administrative Agent, with the consent of Borrower, shall then appoint a successor Administrative Agent who shall serve as Administrative Agent until such time, if any, as the Majority Lenders, with the consent of Borrower, appoint a successor Administrative Agent as provided above. (d) If no successor Administrative Agent has been appointed pursuant to clause (b) or (c) by the 20th Business Day after the date such notice of resignation was given by Administrative Agent, Administrative Agent's resignation shall become effective and the Majority Lenders shall thereafter perform all the duties of Administrative Agent hereunder until such time, if any, as the Majority Lenders, with the consent of Borrower, appoint a successor Administrative Agent as provided above. (e) Upon the effective date of such resignation, only such successor Administrative Agent shall succeed to all the rights, powers and duties of the retiring Administrative Agent and the term "Administrative Agent" shall mean such successor agent and the retiring Administrative Agent's rights, powers and duties in such capacity shall be terminated. After any retiring Administrative Agent resigns hereunder as Administrative Agent the provisions of this Article VIII and subsection 9.4 shall inure to their respective benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent under this Agreement; except with respect to indemnification provisions under this Agreement which shall survive as to such resigning Administrative Agent. ARTICLE IX MISCELLANEOUS 9.1 NO WAIVER; MODIFICATIONS IN WRITING. (a) No failure or delay on the part of any Agent or any Lender in exercising any right, power or remedy under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy. The remedies provided for in this Agreement are cumulative and are not exclusive of any remedies that may be available to any Agent or any Lender at law or in equity or otherwise. No amendment, modification, supplement, termination or waiver of or to any provision of this Agreement or any Revolving Note, nor consent to any departure by Borrower therefrom, shall be effective unless the same shall be consented to by or on behalf of the Majority Lenders; PROVIDED, HOWEVER, that the consent of all of the Lenders shall be required to effect any amendment, modification, supplement, termination, waiver or consent, as the case may be (any of the foregoing, a "Modification"), which has the effect of (i) reducing the aggregate principal amount of, or interest rate on, any of the Revolving Notes or releasing any Subsidiary Guarantor (other than as a result of a transaction permitted by subsection 6.5 or an Asset Disposition made in accordance with the terms of this Agreement) or the aggregate amount of any fees provided for in this Agreement, except that any Modification that has the effect of reducing the aggregate amount of any fees payable to Administrative Agent for its own account shall require only the consent of Administrative Agent; (ii) extending the stated final maturity of any of the Revolving Commitments or the Revolving Notes or the date of any portion of any payment of principal of, or interest or fees in respect of, any of the Revolving Commitments or the Revolving Notes (other than by way of (a) Modification of any provision for, or having the effect of requiring, any mandatory prepayment of any portion of any Loan, or (b) Modification or waiver of any Event of Default (other than an Event of Default described in subsection 7.1(a)(i), 7.1(g) or 7.1(h)) or Unmatured Event of Default); or (iii) changing this proviso or the first sentence of subsection 9.9(a), reduce the percentage specified in the definition of the term "Majority Lenders", or (except in connection with a permitted assignment by any Lender under this Agreement) the definition of the terms "Revolving Commitment" or "Commitment Percentage" (it being understood with respect to all of the foregoing that, with the consent of the Majority Lenders, additional extensions of credit pursuant to this Agreement may be included in the determination of the Majority Lenders on substantially the same basis as the extensions of Revolving Commitments are included in such determination on the date hereof); PROVIDED, HOWEVER, that the consent of Administrative Agent shall be required to effect any Modification that has the effect of (x) increasing the duties or obligations of Administrative Agent, (y) increasing the standard of care or performance required on the part of Administrative Agent, or (z) reducing or eliminating the indemnities, exculpations or immunities to which Administrative Agent is entitled; PROVIDED, FURTHER, that no Modification shall increase the Revolving Commitment of any Lender over the amount thereof then in effect without the consent of such Lender (it being understood that waivers or modifications of conditions precedent, covenants, Events of Default or Unmatured Events of Default shall not constitute an increase of the Commitment of any Lender, and that an increase in the available portion of any Commitment of any Lender shall not constitute an increase in the Commitment of such Lender); PROVIDED FURTHER, HOWEVER, that any Modification which has the effect of reducing the aggregate principal amount of, or interest rate on, any of the Competitive Loans shall only require the consent of the Competitive Lender making such Competitive Loan. Any Modification of or to any provision of this Agreement shall be effective only in the specific instance and for the specific purpose for which made or given and only if in writing. Except where notice is specifically required by this Agreement, no notice to or demand on Borrower or any other Person in any case shall entitle Borrower or such other Person to any other or further notice or demand in similar or other circumstances. (b) If, in connection with any proposed change, waiver, discharge or termination to any of the provisions of this Agreement as contemplated by clauses (a)(i) through (iii), inclusive, of the first proviso to the third sentence of SUBSECTION (a), the consent of the Majority Lenders is obtained but the consent of one or more of such other Lenders whose consent is required is not obtained, then Borrower shall have the right, so long as all non-consenting Lenders whose individual consent is required are treated as described in either clauses (A) or (B) below, to either (A) replace each such non-consenting Lender or Lenders with one or more Replacement Lenders pursuant to SUBSECTION 2.21 so long as at the time of such replacement, each such Replacement Lender consents to the proposed amendment, modification, supplement. waiver, discharge, termination or other change or (B) terminate such non-consenting Lender's Revolving Commitment and repay all outstanding Loans of such Lender which gave rise to the need to obtain such Lender's consent, in accordance with SUBSECTION 2.6(b) and/or 2.7(d); PROVIDED that, unless the Revolving Commitment terminated and Loans repaid pursuant to the preceding clause (B) are immediately replaced in full at such time through the addition of new Lenders or the increase of the Commitments and/or outstanding Loans of existing Lenders (who in each case must specifically consent thereto), then in the case of any action pursuant to preceding clause (B) the Majority Lenders (determined before giving effect to the proposed action) shall specifically consent thereto, PROVIDED, FURTHER, that in any event Borrower shall not have the right to replace a Lender, terminate its Revolving Commitment or repay its Loans solely as a result of the exercise of such Lender's rights (and the withholding of any required consent by such Lender) contemplated by the first proviso to this SUBSECTION 9.1(b). 9.2 FURTHER ASSURANCES. Borrower agrees to do, and to cause each Subsidiary to do, such further acts and things and to execute, acknowledge and deliver to the Lenders and/or Administrative Agent such assignments, agreements, documents, powers, instruments and opinions of counsel as any such Person may reasonably require or deem advisable to carry into effect the purposes of this Agreement or any of the Loan Documents or to better assure and confirm unto Administrative Agent and/or the Lenders, as applicable, their respective rights, powers and remedies under this Agreement. 9.3 NOTICES, ETC. Except where telephonic instructions or notices are authorized herein to be given, all notices, demands, instructions and other communications required or permitted to be given to or made upon any party hereto or any other Person shall be in writing and (except for written confirmations of telephonic instructions or notices and financial statements pertaining to Borrower, which may be sent by telex or first-class mail, postage prepaid) shall be personally delivered or sent by registered or certified mail, postage prepaid, return receipt requested, or by a reputable courier delivery service, or by prepaid telex, TWX or telegram (with messenger delivery specified in the case of a telegram), or by telecopier, and shall be deemed to be given for purposes of this Agreement on the third day after deposit in registered or certified mail, postage prepaid, and otherwise on the day that such writing is delivered or sent to the intended recipient thereof, or in the case of notice delivered by telecopy, upon completion of transmission with a copy of such notice also being delivered under any of the methods provided above, all in accordance with the provisions of this subsection provided that any notice, request or demand to or upon any Agent or the Lenders pursuant to subsections 2.1, 2.2, 2.3, 2.6 or 2.12 shall not be effective until received. Unless otherwise specified in a notice sent or delivered in accordance with the foregoing provisions of this subsection, notices, demands, instructions and other communications in writing shall be given to or made upon the respective parties hereto at their respective addresses (or to their respective telex, TWX or telecopier numbers) indicated on SCHEDULE 9.3 attached hereto or in any applicable Assignment and Assumption Agreement and, in the case of telephonic instructions or notices, by calling the telephone number or numbers indicated for such party on SCHEDULE 9.3 attached hereto. 9.4 COSTS, EXPENSES AND TAXES; INDEMNITY. (a) Borrower agrees to pay promptly upon request, at any time and from time to time, all reasonable costs and expenses of Administrative Agent in connection with the negotiation, preparation, printing, typing, reproduction, execution, delivery and administration of the Loan Documents, any amendments or waivers thereto and any other agreements or documents that may be delivered, from time to time, in connection therewith or to implement any provision thereof, including, without limitation, reasonable allocated costs of staff counsel, the reasonable fees and expenses of Winston & Strawn, special counsel to Administrative Agent, and any local counsel retained by them, from time to time with respect to advising Administrative Agent as to its rights and responsibilities under or in respect of any Loan Document (including, without limitation, the reasonable fees and expenses of any accountants, environmental engineers, consultants, appraisers or other Persons retained by any of them and of which Borrower or its counsel shall have been notified prior to such retention; PROVIDED, HOWEVER, that after the occurrence and during the continuance of an Event of Default no such notice shall be required) and all such costs and expenses incurred by any Lender in connection with (i) any and all amounts which any Agent, or any Lender has paid relative to the curing of any Event of Default resulting from the acts or omissions of Borrower or any of its Affiliates under any Loan Document, (ii) the enforcement of any Loan Document and the perfection and preservation of any Agent's or any Lender's rights hereunder or thereunder. In addition, Borrower agrees to pay promptly upon request, at any time and from time to time, after the occurrence and during the continuance of an Event of Default, all reasonable costs and expenses of Administrative Agent and the Lenders (including, without limitation, Attorney Costs and the reasonable fees and expenses of any accountants, environmental engineers, consultants, appraisers or other Persons retained by any of them) in connection with (A) the enforcement of any Lien granted pursuant to any Loan Document, (B) the collection of any Obligation or (C) with respect to advising Administrative Agent and the Lenders as to their respective rights and responsibilities under or in respect of any of the Loan Documents. In addition, Borrower shall pay, upon the request of Administrative Agent, any and all stamp, transfer and other taxes or fees payable or determined to be payable in connection with the execution, delivery, filing and recording of any instrument or document that may be delivered in connection with this Agreement and/or the Notes, and agrees to save Administrative Agent and each Lender harmless from and against any and all liabilities with respect to or resulting from any delay in paying, or omission to pay, such taxes, fees and expenses. (b) Borrower will indemnify and hold harmless Administrative Agent and each Lender and each director, officer, employee, agent and Affiliate of each Agent and each Lender (collectively, the "Indemnified Persons") from and against all losses, claims, damages, penalties, causes of action, obligations, costs, expenses or liabilities (including, without limitation, Attorney Costs and reasonable expenses, consultant fees and investigation fees) (collectively, "Expenses") to which such Indemnified Person shall become subject, insofar as such Expenses (or actions, suits or proceedings, including, without limitation, any inquiry or investigation or claim in respect thereof, whether or not any Indemnified Person is named as a party) arise out of, in any way relate to, or result from the transactions contemplated by this Agreement and to reimburse each Indemnified Person upon its demand, for any legal or other expenses incurred in connection with investigating, preparing to defend or defending any such loss, claim, damage, liability, action or claim; PROVIDED, HOWEVER, that Borrower shall have no obligation to an Indemnified Person hereunder with respect to indemnified liabilities arising from the gross negligence or willful misconduct of any such Indemnified Person; and PROVIDED, FURTHER, HOWEVER, that no Indemnified Person may settle any such action, suit or proceeding without the consent of Borrower which consent shall not be unreasonably withheld or delayed. If an action, suit or proceeding arising from any of the foregoing is brought against any Indemnified Person, Borrower shall, if requested by such Indemnified Person, resist and defend at its own expense such action, suit or proceeding or cause the same to be resisted and defended by counsel reasonably satisfactory to such Indemnified Person. Each Indemnified Person shall have the right to employ its own counsel to investigate and control the defense of any matter covered by such indemnity and the reasonable fees and expenses of such counsel shall be at the expense of the indemnifying party, PROVIDED, HOWEVER, that in any one action or separate but similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances, Borrower shall not be liable for fees and expenses of more than one counsel (in addition to any local counsel), which counsel shall be designated by the Administrative Agent PROVIDED, FURTHER, HOWEVER, each Indemnified Person shall have the right to employ separate counsel in any such inquiry, action, claim or proceeding and to control the defense thereof, and the reasonable fees and expenses of such counsel shall be at the expense of the Borrower if (i) Borrower shall have agreed in writing to pay such fees and expenses or (ii) such Indemnified Person shall have notified Borrower that it has been advised by counsel that there may be one or more legal defenses available to such Indemnified Person that are different from or additional to those available to the other Indemnified Persons and that such common representation would adversely impact the adequacy of the proposed representation. If Borrower shall fail to do, or cause to be done, any act or thing which it has covenanted to do or cause to be done under this Agreement or any representation or warranty on the part of Borrower contained in any Loan Document shall be breached, Administrative Agent may (but shall not be obligated to) do the same or cause it to be done or remedy any such breach, and may expend its own funds for such purpose, and will use its best efforts to give prompt written notice to Borrower that it proposes to take such action; PROVIDED, HOWEVER, that any failure by Administrative Agent to do any such act or thing or give any such notice shall not relieve Borrower of any such obligations and shall not impose or result in the imposition of any liability on Administrative Agent or any Lender. Any and all amounts so expended by Administrative Agent shall be due and payable by Borrower promptly upon Administrative Agent's demand therefor, together with interest thereon at a rate per annum equal to the Default Rate during the period from and including the date so demanded by Administrative Agent to the date of repayment. To the extent that the undertaking to indemnify, pay or hold harmless Administrative Agent or Lender as set forth in this SUBSECTION 9.4 may be unenforceable because it is violative of any law or public policy, Borrower shall make the maximum contribution to the payment and satisfaction of each of the indemnified liabilities which is permissible under applicable law. (c) The obligations of Borrower under this subsection and the other indemnification obligations of the Borrower under this Agreement shall be effective and binding on Borrower irrespective of whether any Loans are made and shall survive (i) the termination of this Agreement and the discharge of Borrower's other obligations hereunder and under the Notes and (ii) the assignment by any Lender of any of its interests herein pursuant to subsection 9.9(c) with respect to any acts, omissions and/or events occurring or arising prior to the Effective Date of such assignment. (d) Nothing contained in this subsection shall be deemed to limit or reduce any indemnity in favor of any Agent or any Lender contained in any other Loan Document or agreement. 9.5 CONFIRMATIONS. Each of Borrower and each holder of a Note agrees, 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 Administrative Agent) the aggregate unpaid principal amount of the Loans then outstanding under such Note and each such holder agrees, from time to time, upon written request received by it from Borrower, to make the Notes held by it (including any schedules (or continuation thereof) attached thereto) available for reasonable inspection by Borrower at the office of such holder. 9.6 TRANSFER OF NOTES. In the event that the holder of any Revolving Note (including any Lender) shall transfer such Note, it shall immediately advise Administrative Agent and Borrower of such transfer, and Administrative Agent and Borrower shall be entitled conclusively to assume that no transfer of any Note has been made by any holder (including any Lender) unless and until Administrative Agent and Borrower shall have received written notice to the contrary. Each transferee of any Note shall take such Note subject to the provisions of this Agreement and to any Modification or other action taken under this Agreement prior to the receipt by Administrative Agent and Borrower of written notice of such transfer by each previous holder of such Note and, except as expressly otherwise provided in such notice, Administrative Agent and Borrower shall be entitled conclusively to assume that the transferee named in such notice shall thereafter be vested with all rights and powers under this Agreement with respect to the Loans of the Lender named as the payee of the Note which is the subject of such transfer. 9.7 ADJUSTMENTS; SET-OFF. (a) If, other than as expressly set forth elsewhere herein, any Lender shall obtain on account of the Committed Loans made by it any payment (whether voluntary, involuntary, through the exercise of any right of set-off, or otherwise) in excess of its Commitment Percentage of payments on account of the Committed Loans obtained by all the Lenders, such Lender shall forthwith (x) notify Administrative Agent of such fact, and (y) purchase from the other Lenders such participations in the Committed Loans made by them as shall be necessary to cause such purchasing Lender to share the excess payment ratably with each of them; PROVIDED, HOWEVER, that if all or any portion of such excess payment is thereafter recovered from the purchasing Lender, such purchase shall to that extent be rescinded and each other Lender shall repay to the purchasing Lender the purchase price paid thereto together with an amount equal to such paying Lender's Commitment Percentage (according to the proportion of (i) the amount of such paying Lender's required repayment to (ii) the total amount so recovered from the purchasing Lender, of any interest or other amount paid or payable by the purchasing Lender in respect of the total amount so recovered. Administrative Agent will keep records (which shall be conclusive and binding in the absence of manifest error), of participations purchased pursuant to this subsection 9.7 and will in each case promptly notify the Lenders and Borrower following any such purchases. Any payments received after the Lenders have taken action pursuant to this subsection 9.7 shall be allocated ratably among the Revolving Loans, the Competitive Loans and the Swing Line Loans of all the Lenders. (b) Borrower agrees that any Lender so purchasing a participation from another Lender pursuant to this subsection 9.7 may, to the fullest extent permitted by law, exercise all its rights of payment (including the right of set-off, but subject to subsection 9.7(d)) with respect to such participation as fully as if such Lender were the direct creditor of Borrower in the amount of such participation. (c) Nothing herein shall require any Lender to exercise any right of set-off or similar rights or shall affect the right of any Lender to exercise, and retain the benefits of exercising, any such right with respect to any other Indebtedness or obligation of Borrower. (d) In addition to any rights and remedies of the Lenders provided by law, each Lender shall have the right, without prior notice to Borrower or any other Person, any such notice being expressly waived by Borrower to the extent permitted by applicable law, upon the occurrence of an Event of Default to set-off and apply against any Obligations any and all deposits (general or special, time or demand, provisional or final), in any currency, and any other credits, indebtedness or claims, in any currency, in each case whether direct or indirect, absolute or contingent, whether matured or unmatured, of Borrower to such Lender, any amount owing from such Lender or any branch or agency thereof to or for the credit or account of Borrower. Each Lender agrees promptly to notify Borrower and Administrative Agent after any such set-off and application made by such Lender; PROVIDED, HOWEVER, that the failure to give such notice shall not affect the validity of such set-off and application. 9.8 EXECUTION IN COUNTERPARTS. This Agreement may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which counterparts, when so executed and delivered, shall be deemed to be an original and all of which counterparts, taken together, shall constitute but one and the same Agreement and it shall not be necessary in making proof of this Agreement to produce more than one such counterpart or counterparts bearing the signatures of all of the parties thereto. 9.9 BINDING EFFECT; ASSIGNMENT; ENTIRE AGREEMENT. (a) This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors and assigns; PROVIDED, HOWEVER, that Borrower may not assign or transfer any of its interest, or delegate any of its duties or obligations, under this Agreement without the prior written consent of all of the Lenders signatory hereto. Except as expressly provided to the contrary in this Agreement, this Agreement shall not be construed so as to confer any right or benefit upon any Person other than the parties hereto and their respective successors and permitted assigns. (b) Subject to subsection 2.20(b) hereof, any Lender may make, carry or transfer Loans at, to or for the account of any of its branch offices or the office of an Affiliate of such Lender. (c) (i) Any Lender may at any time and from time to time, assign to any other Lender or any Affiliate thereof or, with the prior written consent of Borrower and Administrative Agent, which consent shall not be unreasonably withheld, assign to any other Eligible Assignee, all or any ratable part of the Committed Loans and the Revolving Commitments and the other rights and obligations of such Lender with respect thereto, and shall thereupon be released from, its obligations attributable to such rights under this Agreement and the other Loan Documents (including, without limitation, the applicable ratable portion of its Commitment Percentage of any or all of the Revolving Loans and Swing Line Loans under this Agreement); PROVIDED, HOWEVER, that (A) each such assignment (other than to another Lender or, to the extent such assignment provides Borrower with recourse to the assigning Lender, any Affiliate thereof) shall be in the amount of $5,000,000 or any larger amount or shall be an assignment of all (but not less than all) of such Lender's rights and obligations under this Agreement and the other Loan Documents; (B) an administrative fee of $3,500 shall have been paid to BT, as Administrative Agent, for BT's account, by the assigning Lender or its assignee in connection with each such assignment; and (C) the parties to each such assignment shall execute and deliver to Administrative Agent (with a copy to Borrower), for recording in the Register, an Assignment and Assumption Agreement. From and after the "Effective Date" specified in such Assignment and Assumption Agreement (x) the assignee thereunder shall be and become a "Lender" under, and party to, this Agreement and shall have all of the rights and obligations of a Lender hereunder (to the extent of the assignment effected by such Assignment and Assumption Agreement), and its address for notice purposes and Lending and Payment Offices shall be as set forth in such Assignment and Assumption Agreement and (y) the applicable Loans, Commitment Percentages and Available Revolving Commitments shall be adjusted to reflect such assignment. By executing and delivering an Assignment and Assumption Agreement, the Lender that is assignor thereunder and the assignee thereunder confirm to the other parties hereto that such assignee is an Eligible Assignee. Administrative Agent shall maintain at its address referred to in SCHEDULE 9.3 a copy of each Assignment and Assumption Agreement delivered to and accepted by it and a register for the recordation of the names and addresses of the Lenders and their respective Commitment Percentages of the Committed Loans (the "Register"). The entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and Borrower, the Lenders and Administrative Agent may treat each Person whose name is recorded in the Register as a Lender hereunder for all purposes of this Agreement and the other Loan Documents. The Register shall be available for inspection by Borrower or any Lender at any reasonable time and from time to time upon reasonable prior notice to Administrative Agent. At the request of any assigning Lender, Administrative Agent shall acknowledge, agree and consent to any Assignment and Assumption Agreement that appears to comply with the provisions of this subsection, and upon receipt by Administrative Agent of notice from the assigning Lender of the effectiveness of such assignment, Administrative Agent shall record the information contained therein in the Register. Borrower, at its own expense, after receipt of notice from the assigning Lender of the effectiveness of such assignment, shall execute and deliver, to the assignor Lender and the assignee Lender in exchange for the Note or Notes that were assigned in part, replacement Notes and new Notes, as the case may be, payable to the order of the assignor Lender and the assignee Lender, respectively, reflecting their respective Commitment Percentage of the Loans that were the subject of such assignment. Such replacement Notes and new Notes shall be dated such Effective Date of the applicable Assignment and Assumption Agreement and shall otherwise be in substantially the form required by this Agreement. (ii) Each Assignee (other than any Lender organized and existing under the laws of the U.S. or any political subdivision in or of the U.S.), by executing and delivering an Assignment and Assumption Agreement, (A) agrees to execute and deliver to Administrative Agent, as promptly as practicable, four signed copies (two for Administrative Agent and two for delivery by Administrative Agent to Borrower) of Form 1001, Form 4224 or Form W-8 of the IRS (or any successor form or comparable form) claiming complete exemption from withholding and deduction for or on account of United States Federal taxes on or in respect of payments of principal and interest under or in respect of this Agreement (it being understood that if the applicable form is not so delivered, payments under or in respect of this Agreement may be subject to withholding and deduction); (B) represents and warrants to Borrower and Administrative Agent that the form so delivered is true and accurate and that, as of the Effective Date of the applicable Assignment and Assumption Agreement, each of such assignee Lender's Lending Offices is entitled to receive payments of principal and interest under or in respect of this Agreement without withholding or deduction for or on account of any taxes imposed by the U.S.; (C) agrees to annually hereafter deliver to each of Borrower and Administrative Agent not later than December 31 of the year preceding the year to which it will apply, two further properly completed signed copies of Form 1001, Form 4224 or Form W-8 of the IRS (or any successor form or comparable form), as appropriate, unless an event has occurred which renders the relevant form inapplicable (it being understood that if the applicable form is not so delivered, payments under or in respect of this Agreement may be subject to withholding and deduction); (D) agrees to promptly notify Borrower and Administrative Agent in writing if it ceases to be entitled to receive payments of principal and interest under or in respect of this Agreement without withholding or deduction for or on account of any taxes imposed by the U.S. or any political subdivision in or of the U.S. (it being understood that payments under or in respect of this Agreement may be subject to withholding and deduction in such event); (E) acknowledges that in the event it ceases to be exempt from withholding and/or deduction of such taxes, Administrative Agent may withhold and/or deduct the applicable amount from any payments to which such assignee Lender would otherwise be entitled, without any liability to such assignee Lender therefor; and (F) agrees to indemnify Borrower and Administrative Agent from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs or expenses that result from such assignee Lender's breach of any such representation, warranty or agreement. (iii) A Competitive Bid Lender may sell, transfer, assign or grant participations to any Eligible Assignee in all or any part of the Competitive Loans made by it; PROVIDED, HOWEVER, that in the case of any sale, transfer or assignment, Borrower and Administrative Agent shall be entitled to treat such Competitive Bid Lender as the holder of such Competitive Loans for all purposes hereunder until notified of such sale or assignment. Upon notice to Borrower and Administrative Agent, any Lender may assign all or any portion of its rights and obligations to participate in competitive bidding pursuant to subsection 2.3 to a Subsidiary or Affiliate pursuant to an assignment and assumption agreement in form satisfactory to Administrative Agent. From and after the effective date specified in such assignment and assumption agreement, the assignee thereunder (i) shall be and become a "Lender" under, and party to, this Agreement and (ii) shall be subject to the provisions of each subparagraph of subsection 9.9(c)(ii). (d) Any Lender party to this Agreement, from time to time and without the consent of Borrower or any other Person, may pledge or assign for security purposes any portion of its Loans or any other interests in this Agreement and the other Loan Documents to any Federal Reserve Bank and may sell participations in its Loans or any other interests in this Agreement and the other Loan Documents to another Lender or other Person. (e) In the case of a participation, (i) the Lender shall remain a "Lender" for all purposes hereunder and the participant shall not constitute a "Lender" hereunder and the participant shall not have any rights under this Agreement or any Note, as applicable, or any other Loan Document delivered in connection therewith (the participant's rights against such Lender in respect of such participation to be those set forth in the agreement executed by such Lender in favor of the participant relating thereto) and all amounts payable by Borrower with respect to increased costs, capital adequacy and funding losses of any of the Lenders pursuant to this Agreement shall be determined as if the Lender had not sold such participation and (ii) no participant or participants, other than an Affiliate of such Lender, shall be entitled, directly or indirectly, under such agreement with a Lender to require that such Lender obtain its participant's consent to any Modification of or under this Agreement, any Note, as applicable, other than those Modifications that are referred to in clauses (i) and (ii) of subsection 9.1, excluding Modifications that waive the applicability of any post-default increase in interest rates. (f) This Agreement and the other Loan Documents constitute the entire agreement among the parties hereto with respect to the subject matter hereof. 9.10 CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL. (a) Borrower hereby irrevocably and unconditionally submits to the nonexclusive jurisdiction of any United States Federal or New York State court sitting in New York County in any action or proceeding arising out of or relating to this Agreement or any Note, and Borrower hereby irrevocably and unconditionally agrees that all claims in respect of such action or proceeding may be heard and determined in any such United States Federal or New York State court. Any action or proceeding brought against Administrative Agent or any Lender shall be brought in such United States Federal or New York State court. Borrower hereby irrevocably appoints CT Corporation System (the "Process Agent"), with an office on the date hereof at 1633 Broadway, New York, New York 10019, as its authorized agent and attorney-in-fact to receive on behalf of Borrower and its property service of copies of the summons and complaint and any other process which may be served in any such action or proceeding brought in any court in or of the State of New York. Such service may be made by mailing by certified mail or delivering a copy of such process to Borrower in care of the Process Agent at the Process Agent's above address and Borrower hereby irrevocably authorizes and directs the Process Agent to accept such service on its behalf and agrees that the failure of the Process Agent to give any notice of any such service to Borrower shall not impair or affect the validity of such service or of any judgment rendered in any action or proceeding based thereon. As an alternative method of service, Borrower also irrevocably consents to the service of any and all process in any such action or proceeding brought in any court in or of the State of New York by the delivery of copies of such process to Borrower at its address specified in SCHEDULE 9.3 or by certified or registered mail directed to such address. If for any reason CT Corporation System shall cease to act as Process Agent or shall cease to maintain an office in the Borough of Manhattan, New York, New York, Borrower shall appoint forthwith, in the manner provided for herein, a successor Process Agent qualified to act as an agent for service of process with respect to all courts in and of the State of New York. Nothing herein shall affect the right of any Agent, any Lender or any holder of a Note to serve process in any other manner permitted by law or otherwise proceed against Borrower in any other jurisdiction. (b) THE PARTIES HERETO HEREBY EXPRESSLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN RESPECT OF ANY ACTION UNDER OR COUNTERCLAIM RELATING TO THIS AGREEMENT OR ANY NOTE, AND BORROWER HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY OBJECTION, INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OR MAINTAINING OF ANY SUCH ACTION OR PROCEEDING IN THE RESPECTIVE JURISDICTIONS REFERENCED IN SUBSECTION 9.10(a). 9.11 GOVERNING LAW. THIS AGREEMENT AND EACH NOTE SHALL BE DEEMED TO BE A CONTRACT MADE UNDER THE INTERNAL LAWS OF THE STATE OF NEW YORK, AND FOR ALL PURPOSES SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH SUCH LAWS OF SAID STATE, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS. 9.12 REGISTRY. Borrower hereby designates Administrative Agent to serve as Borrower's agent, solely for purposes of this SUBSECTION 9.12 to maintain a register (the "REGISTER") on which it will record the Commitment from time to time of each of the Lenders, the Loans made by each of the Lenders and each repayment in respect of the principal amount of the Loans of each Lender. Failure to make any such recordation, or any error in such recordation shall not affect Borrower's obligations in respect of such Loans. With respect to any Lender, the transfer of the Commitments of such Lender and the rights to the principal of, and interest on, any Loan made pursuant to such Commitment shall not be effective until such transfer is recorded on the Register maintained by Administrative Agent with respect to ownership of such Commitment and Loans and prior to such recordation all amounts owing to the transferor with respect to such Commitments and Loans shall remain owing to the transferor. The registration of assignment or transfer of all or part of any Commitment and Loans shall be recorded by Administrative Agent on the Register only upon the acceptance by Administrative Agent of a properly executed and delivered Assignment and Assumption Agreement pursuant to SUBSECTION 9.9. Coincident with the delivery of such an Assignment and Assumption Agreement to Administrative Agent for acceptance and registration of assignment or transfer of all or part of a Loan, or as soon thereafter as practicable, the assigning or transferor Lender shall surrender the Note evidencing such Loan, and thereupon one or more new Notes in the same aggregate principal amount then owing to such assignor or transferor Lender shall be issued to the assigning or transferor Lender and/or the new Lender. Borrower agrees to indemnify Administrative Agent from and against any and all losses, claims, damages and liabilities of whatsoever nature which may be imposed on, asserted against or incurred by Administrative Agent in performing its duties under this SUBSECTION 9.12. 9.13 SEVERABILITY OF PROVISIONS. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or affecting the validity or enforceability of such provision in any other jurisdiction. 9.14 HEADINGS. The Table of Contents and Article, subsection and subsection headings used in this Agreement are for convenience of reference only and shall not affect the construction of this Agreement. 9.15 INDEPENDENT NATURE OF LENDERS' RIGHTS. The amounts payable at any time under this Agreement to each Agent and each Lender shall be separate and independent debts; each Lender shall be entitled to protect and enforce its rights arising out of this Agreement; and it shall not be necessary for any Agent or any other Lender to be joined as an additional party in any proceeding for such purpose. 9.16 SURVIVAL OF REPRESENTATIONS. Unless a longer period is provided herein, all covenants, agreements and representations in this Agreement shall survive the making by the Lenders of the Loans and the execution and delivery to Administrative Agent for the account of the Lenders of the Notes evidencing the Loans, regardless of any investigation made by any Agent or the Lenders and of the Agent's and the Lenders' access to any information, and shall continue in full force and effect until the final and indefeasible payment in full of the Notes and all of Borrower's obligations under this Agreement and the termination of the Revolving Commitments in their entirety. 9.17 CONFIDENTIALITY. Each of the Lenders severally agrees to use reasonable efforts to keep confidential all non-public information pertaining to Borrower or its Subsidiaries which is provided to it by Borrower or its Subsidiaries, and shall not intentionally disclose such information to any Person except: (i) to the extent such information is public when received by such Lender or becomes public thereafter due to the act or omission of any party other than such Lender; (ii) to the extent such information is independently obtained from a source other than Borrower or any of its Subsidiaries and such information from such source is not, to such Lender's knowledge, subject to an obligation of confidentiality or, if such information is subject to an obligation of confidentiality, that disclosure of such information is permitted; (iii) to counsel, auditors or accountants retained by any Agent or any Lender or to Affiliates of any Lender provided they agree to keep such information confidential as if such Affiliates were Lenders party to this Agreement and to financial institution regulators, including examiners of any Lender or any Agent or any Affiliate in the course of examinations of such Persons; (iv) in connection with any litigation or the enforcement or preservation of the rights of Administrative Agent or any Lender under this Agreement; (v) to the extent required by any applicable statute, rule or regulation or court order (including, without limitation, by way of subpoena) or pursuant to the request of any regulatory or governmental authority having jurisdiction over any Lender; PROVIDED, HOWEVER, that such Lender shall endeavor (if not otherwise prohibited by law) to notify Borrower prior to any disclosure made pursuant to this clause (v), except that no Lender shall be subject to any liability whatsoever for any failure to so notify Borrower; or (vi) to the extent disclosure to other financial institutions is appropriate in connection with any proposed or actual assignment or grant of a participation by any of the Lenders of interests in this Agreement and/or any Note to such other financial institutions (who will in turn be required to agree to maintain confidentiality as if they were Lenders party to this Agreement). 9.18 WAIVER OF IMMUNITIES. Subject to subsection 9.10 of this Agreement, each Lender waives, in relation to any action or proceeding arising out of or relating to this Agreement or any Note, any sovereign immunity or other immunity to suit or to execution or attachment to which such Lender or any of its property may be or become entitled. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. HON INDUSTRIES INC. By: /s/ David C. Stuebe ------------------------ Name: David C. Stuebe ------------------------ Title: Vice President and CFO ---------------------- BANKERS TRUST COMPANY, individually as a Lender and as Administrative Agent By: /s/ Mary Jo Jolly ------------------------ Name: Mary Jo Jolly ------------------------ Title: Assistant Vice President ------------------------ LENDERS ABN AMROC BANK N.V. CENTRAL STATE BANK BANK AUSTRIA AG, BANQUE NATIONALE DE PARIS NEW YORK BRANCH WACHOVIA BANK, N.A. THE BANK OF NEW YORK FIRST NATIONAL BANK OF MUSCATINE CAISSE NATIONALE DE CREDIT AGRICOLE THE SANWA BANK, LIMITED, CHICAGO BRANCH THE FIRST NATIONAL BANK OF CHICAGO THE BANK OF TOKYO-MITSUBISHI, LTD., CHICAGO BRANCH COREST ATES BANK, N.A. THE FUJI BANK, LIMITED THE NORTHERN TRUST COMPANY THE INDUSTRIAL BANK OF JAPAN, LIMITED
FIRST AMENDMENT TO CREDIT AGREEMENT & WAIVER This First Amendment to Credit Agreement & Waiver (this "FIRST AMENDMENT") dated as of October 20, 1997 is by and among HON Industries Inc. (the "BORROWER"), Bankers Trust Company, in its individual capacity and as administrative agent for the Lenders (the "ADMINISTRATIVE AGENT"), and the financial institutions from time to time party to the Credit Agreement described below (the "LENDERS"). R E C I T A L S: WHEREAS, the Borrower, the Administrative Agent and the Lenders are parties to a Credit Agreement dated as of June 11, 1997 (as hereafter amended, restated, supplemented or otherwise modified, the "CREDIT AGREEMENT"), pursuant to which the Lenders have made and may hereafter make loans, advances and other extensions of credit to the Borrower; WHEREAS, the Borrower has filed with the Securities and Exchange Commission (the "SEC") a Registration Statement on Form S-3 (as it may be amended or supplemented from time to time, the "Registration Statement") whereby (i) Borrower (a) will issue and sell 800,000 shares of its Common Stock, par value $1.00 per share (the "Common Stock"), pursuant to the terms of the U.S. Purchase Agreement to be executed among Borrower, Bandag, Incorporated (the "Selling Shareholder"), Merrill Lynch, Pierce, Fenner & Smith Incorporated, William Blair & Company, L.L.C., Robert W. Baird & Co. Incorporated and McDonald & Company Securities, Inc. as Representatives of the several U.S. Underwriters named in Schedule A thereto and (b) may issue and sell to the U.S. Underwriters up to an additional 407,400 shares of Common Stock if the U.S. Underwriters elect to exercise their over-allotment option, (ii) the Selling Shareholder will sell 1,916,000 shares of Common Stock pursuant to the terms of the U.S. Purchase Agreement, (iii) Borrower (a) will issue and sell 200,000 shares of Common Stock pursuant to the terms of the International Purchase Agreement to be executed among Borrower, the Selling Shareholder, Merrill Lynch International, William Blair & Company, L.L.C., Robert W. Baird & Co. Incorporated and McDonald & Company Securities, Inc. as Representatives of the several International Managers named in Schedule A thereto and (b) may issue and sell to the International Managers up to an additional 101,850 shares of Common Stock if the International Managers elect to exercise their over-allotment option and (iv) the Selling Shareholder will sell 479,000 shares of Common Stock pursuant to the terms of the International Purchase Agreement (all of the foregoing hereafter collectively referred to as the "Offering"); WHEREAS, the Registration Statement contemplates that the Borrower will, among other things, pay all expenses of the Offering, including, without limitation, the Selling Shareholder's pro rata share of (a) the filing fee payable to the SEC in connection with the filing of the Registration Statement and (b) the fee payable to the National Association of Securities Dealers, Inc. (the "NASD") in connection with the NASD's review of the terms of the Offering, but not including (x) any stamp duties, capital duties and stock transfer taxes, if any, payable upon the sale of the Secondary Shares to the Underwriters, (y) any fees and expenses of the Selling Shareholder's counsel, accountants or other advisors or incidental expenses of its personnel, or (z) the underwriting discounts and commissions attributable to the Secondary Shares; WHEREAS, on October 2, 1996, Heatilator Inc. ("Heatilator"), a wholly-owned subsidiary of the Borrower consummated the acquisition of Heat-N-Glo Fireplace Products, Inc., a Minnesota corporation ("Heat-N-Glo"), pursuant to a merger of Heat-N-Glo into Heatilator and the concurrent acquisition of certain affiliated companies (the "Merger"). The Merger was effected pursuant to an Agreement and Plan of Merger dated October 2, 1996 between Heatilator and Heat-N-Glo (the "Merger Agreement"). Pursuant to the Merger, shareholders of Heat-N-Glo received consideration consisting of an aggregate of $59 million in cash (including cash received pursuant to a one-day note), a $5 million in principal amount long-term note of Heatilator (the "Note") and $12 million in aggregate principal amount of 7% Convertible Debentures of Heatilator (the "Debentures"). The Debentures are convertible at the option of the holders into shares of Common Stock, $ 1.00 par value, of Heatilator representing 10% of Heatilator's total issued and outstanding shares of capital stock. The Notes and Debentures are guaranteed by HON. The amount of the consideration was determined in arms-length negotiations, wherein Heatilator and Heat-N-Glo were each represented by independent counsel. Heatilator has since changed its name to Hearth Technologies Inc.; WHEREAS, the Borrower has requested that the Administrative Agent and the Lenders waive the occurrence of an Event of Default under the Credit Agreement as set forth herein and the Lenders and the Administrative Agent are agreeable to the same, subject to the terms and conditions hereof; WHEREAS, the Borrower, the Administrative Agent and the Lenders are willing to amend the Credit Agreement as set forth herein all subject to the express terms and conditions specified in this First Amendment; and WHEREAS, this First Amendment shall constitute a Loan Document and these Recitals shall be construed as part of this First Amendment. NOW, THEREFORE, in consideration of the foregoing and the agreements, promises and covenants set forth below, and for other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. DEFINITIONS. Capitalized terms used but not otherwise defined in this First Amendment shall have the meanings ascribed to them in the Credit Agreement. 2. AMENDMENT TO THE CREDIT AGREEMENT. (a) Subject to the conditions of this First Amendment, Schedule 3.5 to the Credit Agreement is hereby amended by deleting the text "100%" at the end of the row which begins with the text "HON Financial Corporation III" and inserting in lieu thereof the text "85%". (b) Subject to the conditions of this First Amendment, SECTION 6.8 of the Credit Agreement is hereby amended by adding the following text at the end of such section: "Notwithstanding the foregoing Hearth Technologies, Inc. (f/n/a Heatilator, Inc.) may issue such shares of its Capital Stock as are necessary in connection with any conversion related to those certain $12 million in aggregate principal amount of 7% Convertible Debentures of Heatilator, Inc." 3. WAIVERS. (a) The Administrative Agent and the Lenders hereby waive any Event of Default or Unmatured Event of Default under SECTION 7.1 of the Credit Agreement arising out of the noncompliance with the terms of SECTION 6.10 with respect to the transactions described in the second and third WHEREAS clauses of this First Amendment; (b) The Administrative Agent and the Lenders hereby waive any Event of Default under SECTION 7.1(e) and under SECTION 7.1(c) (noncompliance with SECTION 5.3(a) with respect to the defaults under those agreements of Borrower for which waiver letters are attached hereto as EXHIBIT A (which waivers relate to the transactions described in the fourth WHEREAS clause of this First Amendment)). The waiver by the Administrative Agent and the Lenders as described above shall not operate as a consent or waiver of (i) any other right, power or remedy of the Administrative Agent or the Lenders under the Loan Documents or (ii) any other Event of Default or Unmatured Event of Default under the Credit Agreement. Such waiver is only applicable and shall only be effective in the specific instance and for the specific purpose for which made or given. 4. CONDITIONS PRECEDENT. Notwithstanding any other provision contained in this First Amendment or any other document, the effectiveness of this First Amendment is expressly conditioned upon the satisfaction of each matter set forth in this SECTION 4, all in form and substance acceptable to the Administrative Agent in its sole and absolute discretion: (a) FIRST AMENDMENT. The Administrative Agent shall have received a duly executed copy of this First Amendment signed by the Borrower, the Administrative Agent and the Required Lenders. (b) WARRANTIES AND REPRESENTATIONS. All of the warranties and representations of the Borrower contained in the Credit Agreement and in the other Loan Documents (including, without limitation, in this First Amendment) shall be true and correct in all material respects on and as of the date first written above (except those representations and warranties made expressly as of a different date). The Borrower hereby represents and warrants that the execution, delivery and performance of this First Amendment and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action and this First Amendment is a legal, valid and binding obligation of the Borrower enforceable against the Borrower in accordance with its terms, except as the enforcement thereof may be subject to (i) the effect of any applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws affecting creditors' rights generally and (ii) general principles of equity (regardless of whether such enforcement is sought in a proceeding in equity or at law). In furtherance of the foregoing, the Borrower hereby represents and warrants that as of the date first written above each of the conditions precedent contained in this SECTION 4 has been fully satisfied in accordance with the express terms thereof. (c) NO EVENT OF DEFAULT. No Event of Default shall have occurred and be continuing as of the date first written above, or, will occur after giving effect to this First Amendment in accordance with its terms. (d) NO LITIGATION. No litigation, investigation, proceeding, injunction, restraint or other action shall be pending or threatened against the Borrower or any Affiliate of the Borrower, or any officer, director, or executive of any thereof, which restrains, prevents or imposes adverse conditions upon, or which otherwise relates to, the execution, delivery or performance of this First Amendment. 5. FURTHER ASSURANCES. The Borrower hereby agrees, at its expense, to duly execute, acknowledge and deliver to the Administrative Agent all agreements, certificates, instruments, opinions and other documents, and take all such actions, as the Administrative Agent may request in order to further effectuate the purposes of this First Amendment and to carry out the terms hereof. 6. LIMITATION OF WAIVER. The parties hereto agree and acknowledge that nothing contained in this Agreement in any manner or respect limits or terminates any of the provisions of the Credit Agreement or any of the other Loan Documents other than as expressly set forth herein and further agree and acknowledge that the Credit Agreement (as amended hereby) and each of the other Loan Documents remain and continue in full force and effect and are hereby ratified and confirmed. Except to the extent expressly set forth herein, the execution, delivery and effectiveness of this Agreement shall not operate as a waiver of any rights, power or remedy of the Lenders or the Administrative Agent under the Credit Agreement or any other Loan Document, nor constitute a waiver of any provision of the Credit Agreement or any other Loan Document. No delay on the part of any Lender or the Administrative Agent in exercising any of their respective rights, remedies, powers and privileges under the Credit Agreement or any of the Loan Documents or partial or single exercise thereof, shall constitute a waiver thereof. None of the terms and conditions of this Agreement may be changed, waived, modified or varied in any manner, whatsoever, except in accordance with SECTION 9.1 of the Credit Agreement. 7. INCORPORATION OF CREDIT AGREEMENT. SECTIONS 9.4 and 9.10 of the Credit Agreement are incorporated herein by reference with the same effect as if set forth in full herein with only those modifications necessary to permit such sections to refer to this First Amendment. 8. COSTS, EXPENSES AND TAXES. Pursuant to SECTION 9.4 of the Credit Agreement, the Borrower agrees to pay on demand all costs and expenses of the Lenders and the Administrative Agent in connection with the preparation, execution and delivery of this First Amendment including the reasonable fees and out-of-pocket expenses of counsel to the Administrative Agent with respect thereto. 9. EXECUTION IN COUNTERPARTS. This First Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the same instrument. 10. GOVERNING LAW. THIS FIRST AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE INTERNAL CONFLICTS OF LAWS PROVISIONS THEREOF. 11. HEADINGS. Section headings in this First Amendment are included herein for convenience of reference only and shall not constitute a part of this First Amendment for any other purposes. * * * * * IN WITNESS WHEREOF, this First Amendment has been duly executed as of the date first written above. HON INDUSTRIES INC. By: /s/ David C. Stuebe ---------------------- Name: David C. Stuebe ---------------------- Title: Vice President and CFO ---------------------- BANKERS TRUST COMPANY, in its individual capacity and as Administrative Agent By: /s/ Robert R. Telesca ------------------------ Name: Robert R. Telesca ------------------------ Title: Assistant Vice President ------------------------ LENDERS ABN AMRO BANK N.V. THE NORTHERN TRUST COMPANY BANK AUSTRIA AG, THE INDUSTRIAL BANK OF JAPAN NEW YORK BRANCH THE BANK OF NEW YORK CENTRAL STATE BANK CAISSE NATIONALE DE CREDIT AGRICOLE BANQUE NATIONALE DE PARIS THE FIRST NATIONAL BANK WACHOVIA BANK, N.A. OF CHICAGO THE BANK OF TOKYO-MITSUBISHI, LTD., CHICAGO BRANCH FIRST NATIONAL BANK OF MUSCATINE CORESTATES BANK, N.A. THE SANWA BANK, LIMITED, CHICAGO BRANCH THE FUJI BANK, LIMITED
SECOND AMENDMENT TO CREDIT AGREEMENT This Second Amendment to Credit Agreement (this "AMENDMENT") dated as of January 18, 2000 is by and among HON Industries Inc. (the "BORROWER"), Bankers Trust Company, in its individual capacity and as administrative agent for the Lenders (the "ADMINISTRATIVE AGENT"), and the financial institutions party hereto. R E C I T A L S: WHEREAS, the Borrower, the Administrative Agent and various financial institutions (the "LENDERS") are parties to a Credit Agreement dated as of June 11, 1997, as amended by a First Amendment to Credit Agreement and Waiver dated as of October 20, 1997 (as heretofore and hereafter amended, restated, supplemented or otherwise modified, the "CREDIT AGREEMENT"), pursuant to which the Lenders have made and may hereafter make loans, advances and other extensions of credit to the Borrower; WHEREAS, Hearth Technologies Inc. ("HEARTH"), a Subsidiary of the Borrower, desires to acquire all of the issued and outstanding capital stock of Allied Fireside, Inc., a Wisconsin corporation ("ALLIED"), and to acquire substantially all of the assets of Madison Fire Place, Inc., a Wisconsin corporation ("MADISON"), Fireplace & Spa, Inc., a Wisconsin corporation ("FPSI"), The Minocqua Fireplace Company, a Wisconsin corporation ("MINOCQUA" and together with Allied, Madison and FPSI, the "ALLIED COMPANIES"), American Fireplace Company, a Maryland corporation ("AFC"), and Hearth & Home, Inc., a Maryland corporation ("H&H", and together with "AFC", the "AFC COMPANIES"), pursuant to a purchase agreement by and among the shareholders of the Allied Companies, Madison, FPSI, Minocqua, Hearth and the Borrower (the "ALLIED PURCHASE AGREEMENT") and a purchase agreement by and among the AFC Companies, Hearth and the Borrower (the "AFC PURCHASE AGREEMENT" and together with the Allied Purchase Agreement, the "PURCHASE AGREEMENTS"). The acquisition of the issued and outstanding stock of Allied and substantially all of the assets of Madison, FPSI, Minocqua and the AFC Companies pursuant to the Purchase Agreements is referred to herein as the "ALLIED/AFC ACQUISITION". Following the Allied/AFC Acquisition, the Borrower intends to contribute the assets acquired from the Allied Companies and the AFC Companies into a newly-formed, wholly owned Subsidiary of Hearth ("HEARTH SERVICES"), and to either merge Allied with and into Hearth Services (or a Subsidiary thereof) or to continue to operate Allied as a wholly-owned Subsidiary of Hearth. Pursuant to the Purchase Agreements, the shareholders of the Allied Companies and the AFC Companies will collectively receive consideration consisting of an aggregate of $75 million in cash, a $4.5 million in principal amount term note of the Borrower (the "NOTE") and $53 million in aggregate principal amount of 5.5% Convertible Debentures due 2005 of Hearth (the "DEBENTURES"). The Debentures are convertible at the option of the holders into shares of Common Stock, $ 1.00 par value, of Hearth representing 9.75% of Hearth's total issued and outstanding shares of capital stock. The Debentures are guaranteed by the Borrower; WHEREAS, the Borrower, the Administrative Agent and the Majority Lenders are willing to amend the Credit Agreement as set forth herein all subject to the express terms and conditions specified in this Amendment; and WHEREAS, this Amendment shall constitute a Loan Document and these Recitals shall be construed as part of this Amendment. NOW, THEREFORE, in consideration of the foregoing and the agreements, promises and covenants set forth below, and for other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. DEFINITIONS. Capitalized terms used but not otherwise defined in this Amendment shall have the meanings ascribed to them in the Credit Agreement. 2. AMENDMENT TO THE CREDIT AGREEMENT. Subject to the conditions of this Amendment: (a) The definition of "Permitted Investment" contained in SECTION 1.1 of the Credit Agreement is hereby amended by deleting the "." at the conclusion of clause (xii) thereof, inserting "; and" in lieu thereof and inserting the following new clause (xiii) immediately following clause (xii): (xiii) the Allied/AFC Acquisition (as defined in the Second Amendment to Credit Agreement dated as of January 18, 2000 by and among the Borrower, the Agent and the Majority Lenders). (b) SECTION 6.7 of the Credit Agreement is hereby amended by inserting the following parenthetical clause immediately following the words "Capital Stock" in clause (i) of such Section: (provided, however, that a requirement that a Subsidiary give the holders of any Indebtedness of such Subsidiary not more than thirty days prior written notice of its intention to pay a dividend to its stockholders shall not be deemed to constitute a consensual encumbrance or restriction). (c) SECTION 6.8 of the Credit Agreement is hereby amended by deleting the last sentence of such section and inserting the following in lieu thereof: Notwithstanding the foregoing Hearth Technologies Inc. (f/n/a Heatilator, Inc.) may issue such shares of its Capital Stock as are necessary in connection with any conversion related to those certain $12 million in original aggregate principal amount of 7% Convertible Debentures of Heatilator, Inc. and/or those certain $53 million in original aggregate principal amount of 5.5% Convertible Debentures of Hearth Technologies Inc. 3. REPRESENTATIONS, WARRANTIES AND COVENANT. The Borrower hereby represents and warrants that (a) the execution, delivery and performance of this Amendment and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action; (b) this Amendment is a legal, valid and binding obligation of the Borrower enforceable against the Borrower in accordance with its terms, except as the enforcement thereof may be subject to (i) the effect of any applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws affecting creditors' rights generally and (ii) general principles of equity (regardless of whether such enforcement is sought in a proceeding in equity or at law); (c) as of the date first written above each of the conditions precedent contained in SECTION 4 has been fully satisfied in accordance with the express terms thereof; (d) after giving effect to the Allied/AFC Acquisition on a PRO FORMA basis for the Pro Forma Period (as defined in the definition of "Permitted Investments" in the Credit Agreement) on the basis that (i) Indebtedness incurred or assumed in connection with the Allied/AFC Acquisition was incurred or assumed at the beginning of the Pro Forma Period, (ii) if such Indebtedness bears interest at a floating rate, interest expense for the Pro Forma Period shall be calculated at the rate in effect on the date of the Allied/AFC Acquisition, and (iii) all income and expenses associated with the assets or entity acquired in connection with the Allied/AFC Acquisition for the most recently ended four fiscal quarter period for which such income and expense amounts are available (with good faith estimates thereof being permitted if financial statements indicating such amounts are not available) shall be treated as being earned or incurred by Borrower over the Pro Forma Period on a pro forma basis), no Event of Default or Unmatured Event of Default would exist under the Credit Agreement; and (e) the Allied/AFC Acquisition has been approved by the board of directors of each of the Allied Companies and the AFC Companies. Borrower and its Subsidiaries will comply with the requirement of subsection 5.10 of the Credit Agreement with respect to any required execution of the Subsidiary Guarantee Agreement related to the Allied/AFC Acquisition. 4. CONDITIONS PRECEDENT. Notwithstanding any other provision contained in this Amendment or any other document, the effectiveness of this Amendment is expressly conditioned upon the satisfaction of each matter set forth in this SECTION 4, all in form and substance acceptable to the Administrative Agent in its sole and absolute discretion: (a) AMENDMENT. The Administrative Agent shall have received a duly executed copy of this Amendment signed by the Borrower, the Administrative Agent and the Majority Lenders. (b) WARRANTIES AND REPRESENTATIONS. All of the warranties and representations of the Borrower contained in the Credit Agreement and in the other Loan Documents (including, without limitation, in this Amendment) shall be true and correct in all material respects on and as of the date first written above (except those representations and warranties made expressly as of a different date). (c) NO EVENT OF DEFAULT. No Event of Default shall have occurred and be continuing as of the date first written above, or, will occur after giving effect to this Amendment in accordance with its terms. (d) NO LITIGATION. No litigation, investigation, proceeding, injunction, restraint or other action shall be pending or threatened against the Borrower or any Affiliate of the Borrower, or any officer, director, or executive of any thereof, which restrains, prevents or imposes adverse conditions upon, or which otherwise relates to, the execution, delivery or performance of this Amendment. 5. FURTHER ASSURANCES. The Borrower hereby agrees, at its expense, to duly execute, acknowledge and deliver to the Administrative Agent all agreements, certificates, instruments, opinions and other documents, and take all such actions, as the Administrative Agent may request in order to further effectuate the purposes of this Amendment and to carry out the terms hereof. 6. REFERENCE TO AND EFFECT ON CREDIT AGREEMENT. The parties hereto agree and acknowledge that nothing contained in this Agreement in any manner or respect limits or terminates any of the provisions of the Credit Agreement or any of the other Loan Documents other than as expressly set forth herein and further agree and acknowledge that the Credit Agreement (as amended hereby) and each of the other Loan Documents remain and continue in full force and effect and are hereby ratified and confirmed. Except to the extent expressly set forth herein, the execution, delivery and effectiveness of this Agreement shall not operate as a waiver of any rights, power or remedy of the Lenders or the Administrative Agent under the Credit Agreement or any other Loan Document, nor constitute a waiver of any provision of the Credit Agreement or any other Loan Document. No delay on the part of any Lender or the Administrative Agent in exercising any of their respective rights, remedies, powers and privileges under the Credit Agreement or any of the Loan Documents or partial or single exercise thereof, shall constitute a waiver thereof. None of the terms and conditions of this Agreement may be changed, waived, modified or varied in any manner, whatsoever, except in accordance with SECTION 9.1 of the Credit Agreement. 7. INCORPORATION OF CREDIT AGREEMENT. SECTIONS 9.4 and 9.10 of the Credit Agreement are incorporated herein by reference with the same effect as if set forth in full herein with only those modifications necessary to permit such sections to refer to this Amendment. 8. COSTS, EXPENSES AND TAXES. Pursuant to SECTION 9.4 of the Credit Agreement, the Borrower agrees to pay on demand all reasonable costs and expenses of the Lenders and the Administrative Agent in connection with the preparation, execution and delivery of this Amendment including the reasonable fees and out-of-pocket expenses of counsel to the Administrative Agent with respect thereto. 9. EXECUTION IN COUNTERPARTS. This Amendment may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which counterparts, when so executed and delivered, shall be deemed to be an original and all of which counterparts, taken together, shall constitute but one and the same instrument and it shall not be necessary in making proof of this Amendment to produce more than one such counterpart or counterparts bearing the signatures of all of the parties hereto. 10. GOVERNING LAW. THIS FIRST AMENDMENT SHALL BE DEEMED TO BE A CONTRACT MADE UNDER THE INTERNAL LAWS OF THE STATE OF NEW YORK, AND FOR ALL PURPOSES SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH SUCH LAWS OF SAID STATE, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS. 11. HEADINGS. Section headings in this Amendment are for convenience of reference only and shall not affect the construction of this Amendment. * * * * * IN WITNESS WHEREOF, this Amendment has been duly executed as of the date first written above. HON INDUSTRIES INC. By: /s/ David C. Stuebe ---------------------- Name: David C. Stuebe ---------------------- Title: Vice President and CFO ---------------------- BANKERS TRUST COMPANY, in its individual capacity and as Administrative Agent By: /s/ Robert R. Telesca ------------------------- Name: Robert R. Telesca ------------------------- Title: Assistant Vice President ------------------------- LENDERS ABN AMRO BANK N.V. FIRST NATIONAL BANK OF MUSCATINE BANK AUSTRIA AG, FIRST UNION NATIONAL BANK NEW YORK BRANCH BANK HAPOALIM B.M. THE INDUSTRIAL BANK OF JAPAN THE BANK OF NEW YORK MORGAN GUARANTY TRUST COMPANY OF NEW YORK THE FIRST NATIONAL BANK THE NORTHERN TRUST COMPANY OF CHICAGO BANQUE NATIONALE DE PARIS THE SANWA BANK, LIMITED, CHICAGO BRANCH CENTRAL STATE BANK WACHOVIA BANK, N.A. CREDIT AGRICOLE INDOSUEZ
EX-21 3 EXHIBIT 21 EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT
Country/State of Subsidiary Incorporation Doing Business As ---------- ------------- ----------------- AHC Inc Alabama AHC Inc Allsteel Inc Illinois Allsteel Inc. BPI Inc. Iowa BPI Inc. The Gunlocke Company Iowa The Gunlocke Company Hearth Technologies Inc. Iowa Hearth Technologies Inc. HFM Partners Iowa HFM Partners Hiebert East, Inc. Iowa Hiebert East, Inc. Holga Inc. Iowa Holga Inc. HON International Inc. Iowa HON International Inc. HON Financial Corporation III Iowa HON Financial Corporation III HON Financial Services Inc. Iowa HON Financial Services Inc. HON INDUSTRIES (Canada) Inc. Canada HON INDUSTRIES (Canada) Inc. HON Mexico Holdings Inc. Iowa HON Mexico Holdings Inc. HON (Mexico) L.L.C. Iowa HON (Mexico) L.L.C. HON Technology Inc. Iowa HON Technology Inc. Murphy-Miller Co. Iowa Murphy-Miller Co. Panel Concepts, Inc. Delaware Panel Concepts, Inc. T. M. Export Inc. Barbados T. M. Export Inc. Hearth Technologies (Canada) Inc. Canada Inactive HON INDUSTRIAS S.de R.L.de C.V. Mexico HON INDUSTRIAS S.de R.L.de C.V. HON INDUSTRIAS II S.de R.L.de C.V. Mexico HON INDUSTRIAS S.de R.L.de C.V. Chandler Attwood Limited Iowa Inactive CorryHiebert Corporation Iowa Inactive Venture Concepts One Inc. Iowa Inactive Precision Gas Technology of Canada, Inc. Canada Precision Gas Technology of Canada, Inc. 1640-7041 Quebec Inc. Canada Inactive
EX-23 4 EXHIBIT 23 EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report dated February 3, 2000, included in this Form 10-K, into HON INDUSTRIES Inc.'s previously filed Registration Statement Files Nos. 033-54163, 033-61305, 333-27121, and 333-31366 on Form S-8 and No. 333-36433 on Form S-3. It should be noted that we have not audited any financial statements of the Company subsequent to January 1, 2000, or performed any audit procedures subsequent to the date of our report. Arthur Andersen LLP Chicago, Illinois March 15, 2000 EX-27 5 EXHIBIT 27
5 1,000 YEAR JAN-01-2000 JAN-03-1999 JAN-01-2000 22,168 0 200,298 3,568 74,397 316,556 705,281 249,690 906,723 225,123 119,860 0 0 60,172 441,099 906,723 1,789,281 1,789,281 1,236,612 1,236,612 406,226 0 9,712 137,575 50,215 87,360 0 0 0 87,360 1.44 1.44
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