-----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, CL3LXBNPxoe03f17kBBZ8ortDp91Uf9JnasRUPSZYxTo0Z6DqtJdKOhceelLaJXm oO6pHwimCP80q4t7wHfWdg== 0000950152-01-002082.txt : 20010409 0000950152-01-002082.hdr.sgml : 20010409 ACCESSION NUMBER: 0000950152-01-002082 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010402 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PARK OHIO HOLDINGS CORP CENTRAL INDEX KEY: 0000076282 STANDARD INDUSTRIAL CLASSIFICATION: METAL FORGING & STAMPINGS [3460] IRS NUMBER: 346520107 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-03134 FILM NUMBER: 1591267 BUSINESS ADDRESS: STREET 1: 23000 EUCLID AVE CITY: CLEVELAND STATE: OH ZIP: 44117 BUSINESS PHONE: 2166927200 MAIL ADDRESS: STREET 1: 23000 EUCLID AVE CITY: CLEVELAND STATE: OH ZIP: 44117 FORMER COMPANY: FORMER CONFORMED NAME: PARK OHIO INDUSTRIES INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: GROWTH INTERNATIONAL INC DATE OF NAME CHANGE: 19730404 FORMER COMPANY: FORMER CONFORMED NAME: DISCOUNT CENTERS INC DATE OF NAME CHANGE: 19680605 10-K405 1 l87010be10-k405.txt PARK-OHIO HOLDINGS CORP. 10-K405 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 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 DECEMBER 31, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _________________ TO _________________ COMMISSION FILE NUMBER 0-3134 PARK-OHIO HOLDINGS CORP. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) OHIO 34-1867219 - ----------------------------------------------------- ----------------------------------------------------- (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.) INCORPORATION OR ORGANIZATION) 23000 EUCLID AVENUE CLEVELAND, OHIO 44117 - ----------------------------------------------------- ----------------------------------------------------- (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code: (216) 692-7200 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK, PAR VALUE $1.00 PER SHARE ------------------------------------------------------ (TITLE OF CLASS) PARK-OHIO HOLDINGS CORP. IS A SUCCESSOR ISSUER TO PARK-OHIO INDUSTRIES, INC. Indicate by check mark whether the registrant (1) has filed 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. [X] Aggregate market value of the voting stock held by non-affiliates of the registrant as of March 29, 2001: Approximately $34,100,000. Number of shares outstanding of the registrant's Common Stock, par value $1.00 per share, as of March 23, 2001: 10,433,791. DOCUMENTS INCORPORATED BY REFERENCE PORTIONS OF THE REGISTRANT'S DEFINITIVE PROXY STATEMENT FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON MAY 24, 2001 ARE INCORPORATED BY REFERENCE INTO PART III OF THIS FORM 10-K. 2 PARK-OHIO HOLDINGS CORP. FORM 10-K ANNUAL REPORT FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000 TABLE OF CONTENTS
ITEM NO. PAGE NO. -------- -------- PART I 1. Business.................................................... 1 2. Properties.................................................. 6 3. Legal Proceedings........................................... 7 4. Submission of Matters to a Vote of Security Holders......... 7 4A. Executive Officers of the Registrant........................ 7 PART II 5. Market for the Registrant's Common Stock and Related Security Holder Matters..................................... 8 6. Selected Consolidated Financial Data........................ 8 7. Management's Discussion and Analysis of Financial Condition and Results of Operations................................... 10 7A. Quantitative and Qualitative Disclosure about Market Risk... 14 8. Financial Statements and Supplementary Data................. 15 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.................................... 32 PART III Part III information will appear in the Registrant's Proxy Statement in connection with its 2000 Annual Meeting of Shareholders. Such Proxy Statement will be filed with the Securities and Exchange Commission pursuant to Regulation 14A and such information will be incorporated herein by reference as of the date of such filing..................... 32 PART IV 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K......................................................... 33 SIGNATURES ............................................................ 34
3 PART I ITEM 1. BUSINESS THE COMPANY Park-Ohio Holdings Corp. ("Holdings") was incorporated as an Ohio corporation in 1998. Holdings, primarily through the subsidiaries owned by its direct subsidiary, Park-Ohio Industries, Inc. ("Park-Ohio") is a leading provider of logistics services and a manufacturer of highly engineered products. Reference herein to the "Company" includes, where applicable, Holdings, Park-Ohio and its direct and indirect subsidiaries and its predecessor companies, which have operated for more than 150 years. The Company operates through three segments, Integrated Logistics Solutions ("ILS"), Aluminum Products and Manufactured Products, which serve a wide variety of industrial markets. ILS is a leading logistics provider of Class C production components to original equipment manufacturers ("OEMs"), other manufacturers and distributors. In connection with the supply of such industrial products, ILS provides a variety of value-added, cost-effective supply chain management solutions to major OEMs. The principal customers of ILS are OEMs in the heavy duty truck, vehicle parts and accessories, industrial equipment, electrical controls, HVAC, appliances and motors, and lawn and garden industries. Aluminum Products manufactures cast aluminum components primarily for automotive OEMs. Aluminum Products also provides value-added services such as design and engineering, machining and assembly. Manufactured Products operates a diverse group of niche manufacturing businesses that design and manufacture a broad range of high quality products engineered for specific customer applications. The principal customers of Manufactured Products are OEMs and end-users in the automotive, railroad, truck, oil and aerospace industries. Between 1995 and 2000, the Company grew significantly, through both internal growth and acquisitions. Over this period, the Company's net sales increased from $289.5 million to $754.7 million, income from continuing operations before income taxes on a pro forma basis excluding the loss on the sale of Kay Home Products increased from $12.9 million to $23.0 million, and EBITDA increased from $24.9 million to $68.7 million excluding $5.2 million in gains from fire insurance. As of December 31, 2000, the Company employed approximately 3,800 persons. OPERATIONS The following chart highlights the Company's three business segments, the primary industries they serve and the key products they sell.
NET SALES FOR THE YEAR ENDED DEC. 31, SEGMENT PRIMARY INDUSTRIES SERVED SELECTED PRODUCTS/SERVICES 2000 ------- ------------------------- -------------------------- ---------- (MILLIONS) INTEGRATED LOGISTICS Heavy duty truck, vehicle Supply chain management $482.3 SOLUTIONS parts and accessories, programs, procurement and industrial equipment, engineering of a wide electrical controls, HVAC, variety of industrial appliances and motors, lawn components. and garden
1 4
NET SALES FOR THE YEAR ENDED DEC. 31, SEGMENT PRIMARY INDUSTRIES SERVED SELECTED PRODUCTS/SERVICES 2000 ------- ------------------------- -------------------------- ---------- (MILLIONS) ALUMINUM PRODUCTS Automotive Engineering and 111.4 manufacturing of the following: Aluminum castings such as transmission pump housings, pinion carriers, clutch retainers, intake manifolds, oil filter adapters and other die, sand and permanent mold machined castings. MANUFACTURED PRODUCTS Automotive, aerospace, Engineering and $161.0 railroad, oil and truck manufacturing of the following: forged and machined products such as aircraft landing gears, locomotive crankshafts and camshafts; induction heating systems; industrial rubber products; and oil pipe threading systems.
INTEGRATED LOGISTICS SOLUTIONS ILS is a leading provider of cross-industry supply chain management services and specializes in the process of planning, implementing, and managing the physical flow of production components to large OEMs from the point of origin to the point of use. ILS operates out of branches located throughout the United States, Canada, Puerto Rico, Mexico and England, and has a central distribution center located in Dayton, Ohio. ILS generated net sales of $482.3 million, or 64% of the Company's net sales for the year ended December 31, 2000. OEMs continue to make it a priority to reduce their total cost of purchasing and handling of production components. Due to the low unit cost and the large number of different Class C items used to manufacture or assemble a single product, administrative and overhead costs comprise a substantial portion of an OEM's Class C related costs. ILS provides a wide array of value-added services and is a reliable source for just-in-time delivery and is well positioned to capitalize on these trends. In addition, OEMs are increasingly relying on suppliers to provide design and applications-engineering support, enabling more efficient use of internal engineering resources thereby allowing ILS to increase the amount of low unit cost items supplied to OEMs. Products and Services. Supply chain management, which is ILS' primary focus for future growth, involves offering customers supply chain management services and comprehensive, on-site management for most of their Class C production component needs. Class C components are characterized by low per unit costs relative to the indirect costs of vendor management, quality assurance, inventory management and delivery to the production line. Examples of Class C items include nuts, bolts, screws, washers, rivets, clips, clamps, cable ties, caps and various plastics and rubber components. In addition, ILS delivers a broad range of higher cost per unit products such as valves, fittings, steering components and many others. Supply chain management customers receive various value-added services, such as part usage and cost analysis, supplier selection, quality assurance, bar coding, product packaging and tracking, just-in-time delivery, electronic billing services and ongoing technical support. ILS also provides engineering and design services to its customers. Applications-engineering specialists and the direct sales force work closely with the engineering staff of OEM customers to recommend the appro- 2 5 priate Class C components for a new product or to suggest alternative components that reduce overall production costs, streamline assembly or enhance the appearance or performance of the end product. Supply chain management services are typically provided to customers pursuant to supply chain services contracts. These agreements enable ILS' customers to both reduce procurement costs and better focus on their core manufacturing competencies by: (i) significantly reducing the administrative and labor costs associated with Class C component procurement by outsourcing certain internal purchasing, quality control and inventory fulfillment responsibilities; (ii) reducing the amount of working capital invested in inventory; (iii) achieving purchasing efficiencies as a result of vendor consolidation; and (iv) receiving technical expertise in the selection of Class C and other components for certain manufacturing processes. Although supply chain services are often inventory intensive, management believes that such agreements foster longer-lasting supply relationships with customers, who increasingly rely on the Company for their Class C production component needs, as compared to traditional buy/sell distribution relationships. Sales pursuant to supply chain service agreements have increased significantly in recent years and represented over 69% of ILS' net sales for the year ended December 31, 2000. ILS' remaining sales are generated through the wholesale supply of industrial products to OEMs, other manufacturers and distributors pursuant to master or authorized distributor relationships. ILS also engineers and manufactures precision cold formed and cold extruded products including locknuts, SPAC(R) nuts and wheel hardware, which are principally used in applications where controlled tightening is required due to high vibration. ILS produces both standard items and specialty products to customer specifications, which are used in large volumes by customers in the automotive, truck and railroad industries. Markets and Customers. In 2000, approximately 87% of ILS' net sales were to domestic customers. Remaining sales were primarily to Canada, Mexico and the United Kingdom. Supply chain management services and Class C components are used extensively by OEMs in a variety of industries, and demand is generally related to the state of the economy and to the overall level of manufacturing activity. ILS markets and sells its services to over 15,000 customers domestically and internationally. The principal markets served by ILS are transportation equipment, including manufacturers of heavy trucks and recreational vehicles; vehicle parts and accessories; industrial equipment; electrical equipment, including manufacturers of electrical controls; appliances and motors; lawn and garden equipment and HVAC. The four largest customers, of which ILS sells to multiple operating divisions or locations, accounted for approximately 24% of sales of ILS. Three of the four largest customers are in the heavy duty truck industry. The loss of any one of these customers would have a material adverse effect on this segment. Competition. There are numerous competitors in the supply chain services industry. Management believes that substantially all of ILS' competitors operate on a regional basis and do not provide customers with the wide array of supply chain management services offered by ILS. ILS competes primarily on the basis of its value-added services, delivery capabilities, geographic reach, extensive product selection, price and reputation for high service levels with primarily domestic competitors who are capable of providing inventory management programs. ALUMINUM PRODUCTS The Aluminum Products segment generated net sales of $111.4 million, or 15% of the Company's net sales for the year ended December 31, 2000. Aluminum permanent mold, sand-casted, and die-casted products are produced at Aluminum Products multiple locations in four states. Management believes Aluminum Products is one of the few automotive part suppliers that has the capabilities of providing high volume, automotive quality permanent mold, sand-casted and die-casted products. Aluminum Products' cast aluminum parts are manufactured primarily for automotive OEMs. Aluminum Products' principal automotive products include: transmission pump housings, intake manifolds, planetary pinion carriers, oil filter adapters, clutch retainers, rotor castings and bearing cups. Aluminum 3 6 Products also provides value-added services such as secondary casting, machining, drilling, tapping and part assembly. Although these parts are lightweight, they possess high durability and integrity characteristics even under extreme pressure and temperature conditions. Demand by automotive OEMs for aluminum castings has increased in recent years as OEMs have sought lighter alternatives to heavier steel and iron components. Lighter aluminum cast components increase an automobile's fuel efficiency without decreasing its structural integrity. Management believes this replacement trend will continue as government standards regarding fuel efficiency become increasingly stringent. Aluminum Products sells its products primarily to automotive and non-automotive customers located in North America. The three largest customers, of which Aluminum Products sells to multiple operating divisions, accounted for approximately 89% of Aluminum Products sales in 2000. The loss of any one of these customers would have a material adverse effect on this segment. The domestic aluminum castings industry is highly competitive. Aluminum Products competes principally on the basis of its ability to: (i) engineer and manufacture high quality, cost effective, machined castings in large volumes; (ii) provide timely delivery; and (iii) retain the manufacturing flexibility necessary to quickly adjust to the needs of its customers. Although there are a number of smaller domestic companies with aluminum casting capabilities, the automotive industry's stringent quality and service standards enable only large suppliers with the requisite quality certifications to compete effectively. As one of these suppliers, Aluminum Products is structured to benefit as automotive OEMs continue to consolidate their supplier base. MANUFACTURED PRODUCTS The Manufactured Products segment includes forged and machined products, capital equipment, and industrial rubber products. Manufactured Products generated net sales of $161 million, or 21% of the Company's net sales for the year ended December 31, 2000. The three largest customers, of which Manufactured Products sells to multiple operating divisions, accounted for approximately 24% of Manufactured Products sales in 2000. The loss of business from any one of these customers would have a material adverse effect on this segment. The Company's forged and machined products business is carried out at three operating units consisting of Park Drop Forge, Ohio Crankshaft, and Park-Ohio Structural Hardware. The forging process enables metal to be shaped while generally retaining higher structural integrity than metal shaped through other processes. Park Drop Forge manufactures closed-die metal forgings of up to 6,000 pounds, including crankshafts and aircraft landing gears. Park Drop Forge's products are sold primarily to machining companies, including Ohio Crankshaft and subassemblers who finish the products for sale to OEMs in the railroad and aerospace industries. Ohio Crankshaft machines, induction hardens and surface finishes crankshafts and camshafts used primarily in locomotives. Park-Ohio Structural Hardware manufactures and machines specialized hardware such as turnbuckles and clevises for construction companies. Its products are manufactured according to customers' specific dimensional and/or strength requirements. Forged and machined products are sold to a wide variety of domestic and international OEMs and other manufacturers in the transportation, and construction industries. The Company's forged and machined products business competes domestically and internationally with other small to medium-sized businesses on the basis of product quality and precision. The Company manufactures large industrial equipment through its operating units consisting of Tocco, Feco, PMC-Colinet and Ajax. Tocco specializes in the engineering and construction of induction heating systems primarily for the automotive and truck industries. Tocco's induction heating systems are engineered and built to customer specifications and are used primarily by OEMs for surface hardening. Feco produces complete oven systems that combine heat processing and curing technologies with material handling and conveying methods. Feco's principal products include industrial drying and curing ovens for automotive components, metal can curing ovens, specialized conveyor and automation systems for lightweight containers, and plastic and glass bottle coating and finishing systems. PMC-Colinet produces tube threading machines and related parts for the oil drilling industry. Ajax engineers, manufactures and services mechanical forging presses ranging in size from 500 to 8,000 tons that are used worldwide in the automotive and truck manufacturing industries. The Company's capital 4 7 equipment units compete with large domestic and international equipment manufacturers on the basis of service capability, ability to meet customer specifications, delivery performance and engineering expertise. The Company manufactures injection and transfer molded products, lathe-cut goods, roll coverings and various items requiring rubber to metal bonding for use in industrial applications through three operating units consisting of Castle Rubber, Cicero Flexible Products and Geneva Rubber. Castle manufactures valve seals, power and conveyor rolls and slitter rings. Cicero develops and manufacturers injection molded silicone rubber products for customers in the automotive, food processing and consumer appliance industries, such as wire harnesses, spark plug boots and nipples and general sealing gaskets. Geneva manufactures injection molded rubber products for customers in the automotive, telecommunications and heavy truck industries. Its products include primary wire harnesses, transoceanic cable boots and shock and vibration mounts. The industrial rubber products operating units compete primarily on the basis of price and product quality with other domestic small to medium-sized manufacturers of rubber products. On June 6, 2000, the Company experienced a fire at its Cicero Flexible Products facility. The Company carries both property damage and business interruption insurance and, as a result, does not expect the fire to have a material adverse impact on the Company's financial results. The total amount due from the insurance company for business interruption, property damage and other related expenses has not been determined. The deductible portion of the loss has been recorded. The Company has received interim payments from its insurance carrier related primarily to replacement of property, plant and equipment destroyed in the fire which resulted in a pre-tax involuntary conversion gain of $5.2 million. On June 30, 2000, the Company sold substantially all the assets of Kay Home Products, for cash of approximately $9.2 million and recorded a pre-tax loss of approximately $15.3 million. SALES AND MARKETING ILS markets its products and services in the United States, Mexico, Canada and Europe, primarily through its direct sales force, which is assisted by applications engineers who provide the technical expertise necessary to assist the engineering staff of OEM customers in designing new products and improving existing products. ILS often obtains new customers as a result of referrals from existing customers. Aluminum Products and Manufactured Products markets and sells its products through both internal sales personnel and independent sales representatives. In some instances, the internal engineering staff assists in the sales and marketing effort through joint design and applications-engineering efforts with major customers. RAW MATERIALS AND SUPPLIERS ILS purchases substantially all of its Class C and other components from third party suppliers. Aluminum Products and Manufactured Products purchase substantially all of their raw materials, principally metals and certain component parts incorporated into their products, from third-party suppliers and manufacturers. Management believes that raw materials and component parts other than certain specialty fasteners are available from alternative sources. ILS has multiple sources of supply for standard products, but has limited supply sources for certain specialty products. Approximately 25% of ILS' delivered components are purchased from suppliers in foreign countries, primarily Canada, Taiwan, Japan and Korea. The Company is dependent upon the ability of such suppliers to meet stringent quality and performance standards and to conform to delivery schedules. Most raw materials required by Aluminum Products and Manufactured Products are commodity products available from several domestic suppliers. 5 8 BACKLOG Management believes that backlog is not a meaningful measure for ILS, as a majority of ILS' customers require just-in-time delivery of Class C production components. Management believes that Aluminum Products' and Manufactured Products' backlog as of any particular date is not a meaningful measure of sales for any future period as a significant portion of sales are on a release or firm order basis. ENVIRONMENTAL REGULATIONS The Company is subject to numerous federal, state and local laws and regulations designed to protect public health and the environment ("Environmental Laws"), particularly with regard to discharges and emissions, as well as handling, storage, treatment and disposal, of various substances and wastes. Pursuant to certain Environmental Laws, owners or operators of facilities may be liable for the costs of response or other corrective actions for contamination identified at or emanating from current or former locations, without regard to whether the owner or operator knew of, or was responsible for, the presence of any such contamination, and for related damages to natural resources. Additionally, persons who arrange for the disposal or treatment of hazardous substances or materials may be liable for costs of response at sites where they are located, whether or not the site is owned or operated by such person. In general, the Company has not experienced difficulty in complying with Environmental Laws in the past, and compliance with Environmental Laws has not had a material adverse effect on the Company's financial condition, liquidity and results of operations. The Company's capital expenditures on environmental control facilities were not material during the past five years and such expenditures are not expected to be material to the Company in the foreseeable future. The Company has been identified as a potentially responsible party at third-party sites under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, or comparable state laws which provide for strict and, under certain circumstances, joint and several liability. The Company is participating in the cost of certain clean-up efforts at several of these sites. The availability of third-party payments or insurance for environmental remediation activities is subject to risks associated with the willingness and ability of the third party to make payments. However, the Company's share of such costs has not been material and based on available information, the Company does not expect its exposure at any of these locations to have a material adverse effect on its results of operations, liquidity or financial condition. INFORMATION AS TO INDUSTRY SEGMENT REPORTING AND GEOGRAPHIC AREAS The information contained under the heading of "Note J -- Industry Segments" of notes to consolidated financial statements included herein, relating to net sales, operating income, identifiable assets and other information by industry segment for the years ended December 31, 2000, 1999, and 1998 is incorporated herein by reference. RECENT DEVELOPMENTS The information contained under the heading of "Note B -- Acquisitions and Disposition" of notes to consolidated financial statements included herein, is incorporated by reference. ITEM 2. PROPERTIES The Company's operations include numerous manufacturing and warehousing facilities located in twenty-five states in the United States and in four other countries. Approximately 48% of the available square footage is owned. In 2000, approximately 42% of the available domestic square footage was used by the ILS segment; approximately 42% was used by the Manufactured Products segment and 16% by the Aluminum Products segment. Approximately 50% of the available foreign square footage was used by 6 9 the ILS segment and 50% was used by the Manufactured Products segment. In the opinion of management, Park-Ohio's facilities are generally well maintained and are suitable and adequate for their intended uses. ITEM 3. LEGAL PROCEEDINGS The Company is subject to various pending and threatened lawsuits in which claims for monetary damages are asserted in the ordinary course of business. While any litigation involves an element of uncertainty, in the opinion of management, liabilities, if any, arising from currently pending or threatened litigation will not have a material adverse effect on the Company's financial condition, liquidity or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of security holders during the fourth quarter of 2000. ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT Information with respect to the executive officers of the Company is as follows:
NAME AGE POSITION ---- --- -------- EXECUTIVE OFFICERS Edward F. Crawford......................... 61 Chairman of the Board, Chief Executive Officer and President Felix J. Tarorick.......................... 58 Vice Chairman of the Board and Vice President of Operations Richard P. Elliott......................... 44 Vice President and Chief Financial Officer Ronald J. Cozean........................... 37 Secretary and General Counsel Matthew V. Crawford........................ 31 Assistant Secretary, Corporate Counsel and Director Patrick W. Fogarty......................... 40 Director of Corporate Development
Edward F. Crawford has been Chairman of the Board and Chief Executive Officer of the Company since 1992. Felix J. Tarorick became Vice Chairman of the Board in 1998 and has been Vice President of Operations since 1996. From 1992 to 1995, Mr. Tarorick served as President of the former consumer products group. Mr. Tarorick joined the Company in 1992. Mr. Tarorick became a director of the Company in February, 1998. Richard P. Elliott has been Vice President and Chief Financial Officer since joining the Company in May, 2000. Mr. Elliott held various positions, including partner, at Ernst and Young LLP from January, 1986 to April, 2000. Ronald J. Cozean has served as Secretary and General Counsel since joining the Company in 1994. Matthew V. Crawford has served as Assistant Secretary and Corporate Counsel since joining the Company in February 1995. Mr. M. Crawford became a director of the Company in August 1997 and has served as President of Crawford Container Company since 1991. Mr. E. Crawford is the father of Mr. M. Crawford. Patrick W. Fogarty has been Director of Corporate Development since 1997 and joined the Company in 1995 as Director of Finance. 7 10 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS The Company's common stock, $1 par value, trades on The NASDAQ Stock Market(R) under the symbol PKOH. The table presents its high and low sales prices during the periods presented. No dividends were paid during the periods. QUARTERLY COMMON STOCK PRICE RANGES
2000 1999 ------------------ ------------------- QUARTER HIGH LOW HIGH LOW - ------- ------ ----- ------ ------ 1st $11.25 $6.63 $17.13 $13.25 2nd 10.75 7.94 17.63 12.63 3rd 10.88 7.38 18.50 12.44 4th 8.75 3.75 12.50 9.00
The number of shareholders of record for the Company's common stock as of March 23, 2001 was 1,133. ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31, ---------------------------------------------------------- 2000 1999 1998 1997 1996 -------- -------- -------- -------- -------- Selected Income Statement Data(a): Net sales.......................... $754,674 $717,222 $551,793 $441,110 $347,679 Cost of products sold.............. 625,205 591,439 455,167 368,734 289,400 -------- -------- -------- -------- -------- Gross profit..................... 129,469 125,783 96,626 72,376 58,279 Selling, general and administrative expenses......................... 80,838 72,613 56,478 44,396 38,131 Restructuring charge............... -- -- -- -- 2,652 -------- -------- -------- -------- -------- Operating income(b).............. 48,631 53,170 40,148 27,980 17,496 Non-operating items, net(c)........ 10,118 -- -- (320) (4,204) Interest expense................... 30,812 24,752 17,488 9,101 6,947 -------- -------- -------- -------- -------- Income from continuing operations before income taxes........... 7,701 28,418 22,660 19,199 14,753 Income taxes....................... 7,183 12,164 9,726 7,903 5,060 -------- -------- -------- -------- -------- Income from continuing operations before extraordinary charge... $ 518 $ 16,254 $ 12,934 $ 11,296 $ 9,693 ======== ======== ======== ======== ======== Income per common share from continuing operations before extraordinary charge --diluted... $ .05 $ 1.51 $ 1.16 $ 1.01 $ .88 ======== ======== ======== ======== ========
8 11
YEAR ENDED DECEMBER 31, ---------------------------------------------------------- 2000 1999 1998 1997 1996 -------- -------- -------- -------- -------- Supplemental per common share data: Pro forma income per common share from continuing operations before loss on the sale of Kay Home Products in 2000 and extraordinary charge for early retirement of debt in 1997 on a fully taxed basis -- diluted..... $ 1.30 $ 1.51 $ 1.16 $ 1.01 $ .88 ======== ======== ======== ======== ======== Other Financial Data: Net cash flows provided (used) by operating activities............. $ 24,025 $ (728) $ 3,627 $(10,039) $ 7,726 EBITDA(d).......................... 68,679 71,868 52,901 38,345 28,146 Capital expenditures............... 24,968 22,650 22,681 15,947 15,590 Selected Balance Sheet Data: Cash and cash equivalents........ $ 2,612 $ 5,867 $ 4,320 $ 1,814 $ 4,659 Working capital.................. 213,368 208,810 176,932 146,444 99,094 Total assets..................... 635,332 629,881 489,554 413,109 282,910 Total debt....................... 345,402 340,620 238,105 172,755 82,989 Shareholders' equity............. 152,126 154,685 141,187 129,010 115,069
(a) The selected consolidated financial data is not directly comparable on a year-to-year basis due to acquisitions made throughout the five years ended December 31, 2000 which include the following: 2000 -- IBM's plant automation software product lines and related assets. 1999 -- The Metalloy Corporation, Columbia Nut and Bolt Corp., Industrial Fasteners Corporation, M.P. Colinet, St Louis Screw and Bolt and PMC Industries. 1998 -- Direct Fasteners Limited and GIS Industries, Inc. 1997 -- Arden Industrial Products, Inc. All of the acquisitions were accounted for as purchases. In addition, during 2000, the Company sold substantially all of the assets of Kay Home Products. (b) Operating income is defined as net sales less cost of products sold, selling, general and administrative expenses and a restructuring charge. In 1996, the Company incurred a restructuring charge of $2.7 million related to the consolidation of three of the Company's manufacturing facilities into one and the discontinuation of certain product lines. (c) In 1996, non-operating income was comprised of (i) a gain of $2.7 million in connection with the full settlement of subordinated notes receivable resulting from the sale of two manufacturing facilities and (ii) a gain of $1.5 million on the sale of certain securities by the Company in the third quarter of 1996. In 2000, other non-operating items, net was comprised of (i) a loss of $15.3 million on the sale of substantially all of the assets of Kay Home Products and (ii) a gain of $5.2 million resulting from interim payments from the Company's insurance carrier related primarily to replacement of property, plant and equipment destroyed in a fire at its Cicero Flexible Products facility. (d) EBITDA is defined as earnings from continuing operations before interest, income taxes, depreciation, amortization, non-operating income and expense and non-recurring items. Non-recurring items include a restructuring charge of $2.7 million in the fourth quarter of 1996 related to the consolidation of three of the Company's manufacturing facilities into one and the discontinuation of certain 9 12 product lines. EBITDA is not a measure of performance under generally accepted accounting principles ("GAAP"). While EBITDA should not be considered in isolation or as a substitute for net income, cash flows from operating activities and other income or cash flow statement data prepared in accordance with GAAP or as a measure of profitability or liquidity, management understands that EBITDA is customarily used as an indication of a company's ability to incur and service debt. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" for a discussion of other measures of liquidity and operations that are covered by the audited financial statements. EBITDA as defined herein may not be comparable to other similarly titled measures of other companies. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The consolidated financial statements of the Company include the accounts of Park-Ohio Holdings Corp. and its subsidiaries. All significant intercompany transactions have been eliminated in consolidation. The historical financial information is not directly comparable on a year-to-year basis due to an acquisition and a divestiture made in 2000, acquisitions made in 1999 and 1998, and gains recognized relating to fire insurance in 2000. In September 2000, the Company acquired IBM's plant automation software product lines to form ILS Technology (a new unit within its ILS segment). On June 30, 2000, the Company sold substantially all the assets of Kay Home Products, for cash of approximately $9.2 million and recorded a pretax loss of approximately $15.3 million. In June 2000, one of the Company's manufacturing plants was destroyed in a fire. In 2000, $5.2 million of pretax involuntary conversion gains were recognized, which represented the difference between replacement cost and net book value of substantially all equipment, the building and tooling destroyed in the fire. During 1999, the Company acquired six businesses for an aggregate purchase price of $65.4 million. In January, the Company acquired all of the shares of The Metalloy Corporation ("Metalloy") and substantially all of the assets of St. Louis Screw & Bolt Co. ("St. Louis Screw"). Metalloy is a full service aluminum casting and machining company. St. Louis Screw is a manufacturer of bolts used in the construction industry. In February, the Company acquired substantially all of the assets of PMC Industries, ("PMC") and, in September, the Company acquired all of the shares of M.P. Colinet ("Colinet"). PMC and Colinet provide capital equipment and associated parts for the oil drilling industry. In July, the Company acquired all of the shares of Columbia Nut and Bolt Corp. ("Columbia") and Industrial Fasteners Corporation ("Industrial"). Columbia and Industrial are logistics providers of industrial components. During 1998, the Company acquired two businesses for $40.2 million. In October, the Company acquired all of the shares of GIS Industries, Inc. ("Gateway"). Gateway is a logistics provider of fastener-related components and a manufacturer of metal products and fasteners. In April, the Company acquired all of the shares of Direct Fasteners Limited ("Direct"), a logistics provider of fastener related components located in Ontario, Canada. Each of these transactions has been accounted for as a purchase and consequently their results are included in the consolidated financial statements from their respective dates of acquisition. OVERVIEW The Company has three operating segments: Integrated Logistics Solutions ("ILS"), Aluminum Products and Manufactured Products. ILS is a leading logistics provider of Class C production components to original equipment manufacturers ("OEMs"), other manufacturers and distributors. In connection with the supply of such industrial products, ILS provides a variety of value-added, cost-effective supply chain management services to major OEM's. The principal customers of ILS are in the heavy duty truck, vehicle parts and accessories, industrial equipment, electrical controls, HVAC, appliances and motors and lawn and garden equipment industries. Aluminum Products manufactures cast aluminum components primarily for automotive OEMs. Aluminum Products also provides value-added services such as design and engineering, machining and assembly. Manufactured Products operates a diverse group of niche manufacturing businesses that design and manufacture a broad range of high quality 10 13 products engineered for specific customer applications. The principal customers of Manufactured Products are OEMs and end-users in the automotive, railroad, truck, oil and aerospace industries. Between 1993 and 2000, the Company has grown significantly, both internally and through acquisitions. Over this period, the Company's net sales increased at a 35% compounded annual growth rate ("CAGR"), from $94.5 million to $754.7 million. Over the same period income on a fully taxed basis, excluding the 2000 effects of the sale of Kay Home Products and fire insurance gains, increased at a 23% CAGR from $2.4 million to $10.1 million. Recent growth has been primarily attributable to the Company's strategy of making selective acquisitions in order to complement internal growth. The Company has acquired businesses with potential for: (i) significant cost reductions through improved labor, supplier and customer relations and increased purchasing power and (ii) revenue enhancement due to better asset utilization and management practices, as well as increased access to capital. The Company's internal growth has been driven primarily by the addition of ILS customers under supply chain service agreements and by the leveraging of existing customer relationships in the Aluminum and Manufactured Products segments. Between January 1, 1994 and December 31, 2000, the Company's continuing operations incurred $111.9 million of capital expenditures, the majority of which was used to expand existing manufacturing facilities, upgrade equipment and enhance the Company's management information systems. RESULTS OF OPERATIONS 2000 versus 1999 Net sales increased by $37.5 million, or 5%, from $717.2 million in 1999 to $754.7 million in 2000. Of this, $9.9 million represented organic growth. Net sales grew $27.6 million from acquisitions made in the second half of 1999 and in 2000 partially offset by the divestiture in 2000. For ILS, net sales increased 9%, or $39.2 million, of which $16.1 million related to internal growth and $23.1 million related to acquisitions made in July 1999 and September 2000. For Manufactured Products, sales increased 10%, or $14.0 million, of which $9.5 million related to organic growth and $4.5 million growth resulted from acquisitions net of divestiture. For Aluminum Products, net sales decreased 12%, or $15.7 million, primarily due to the ending of certain sales contracts at Metalloy, which was expected at the time of its purchase in 1999, partially offset by organic growth. During the second half of 2000, sales volumes to heavy truck customers (primarily in the ILS segment) dropped significantly while sales volumes to automotive customers (primarily in the Aluminum Products segment) weakened in the fourth quarter. Management anticipates weakness in the truck and automotive sectors will continue in 2001. Gross profit increased by $3.7 million, or 3%, from $125.8 million in 1999 to $129.5 million in 2000 and is primarily related to acquisitions made in 1999 and 2000. The Company's consolidated gross margin was approximately 17.2% in 2000 and 17.5% in 1999. Margin declined in 2000 partially due to the effects of a strike at Park Drop Forge which was settled in December. Selling, general and administrative costs increased by 11% to $80.8 million for 2000 from $72.6 million for 1999. The increase was primarily related to recent acquisitions. During 2000, selling, general and administrative expenses benefited from an increase in net pension credits of $2.8 million, reflecting favorable investment returns on pension plan assets. Consolidated selling, general and administrative expenses as a percentage of net sales were 10.7% during the current period and 10.1% for 1999. Interest expense increased by $6.0 million from $24.8 million in 1999 to $30.8 million in 2000 due to higher average debt outstanding and higher average interest rates during 2000. For the year ended December 31, 2000, the Company averaged outstanding borrowings of $342.4 million as compared to $294.6 million for 1999. The $47.8 million increase related primarily to acquisitions completed during the second half of 1999. The average borrowing rate of 9.00% for the year ended December 31, 2000 is 60 basis points higher than the average rate of 8.40% for 1999. This rate increase was due both to the $50 million 9.25% Senior Subordinated Notes issued in June 1999, and to increased interest rates on the Company's bank revolving credit facility, primarily caused by Federal Reserve action. 11 14 Before considering the tax effect of the sale of Kay Home Products and the gain on fire insurance, the effective income tax rate for 2000 was 41%, while for 1999 it was 43%. The decrease in tax rate resulted from creating a foreign sales corporation and an increase in research and experimental credits. The divestiture of Kay Home Products generated a book loss of $15.3 million, but only reduced income taxes by $2.1 million due to the exclusion of goodwill as a deduction for tax purposes. Income taxes of $2.1 million were provided for the $5.2 million pretax fire insurance gain. At December 31, 2000, subsidiaries of the Company had $5.7 million of net operating loss carry forwards for federal tax purposes. 1999 versus 1998 Net sales increased by $165.4 million, or 30%, from $551.8 million in 1998 to $717.2 million in 1999. This growth resulted primarily from acquisitions and related to the ILS and the Aluminum Products segments. For ILS, the growth in net sales amounted to $78.5 million of which $51.7 million related to acquisitions and the remainder was organic growth. For Aluminum Products, net sales increased by $87.3 million of which $81.2 million related to the acquisition of Metalloy and the remainder to internal growth. Gross profit increased by $29.2 million, or 30%, from $96.6 million in 1998 to $125.8 million in 1999 and is directly related to acquisitions made in 1999. The Company's consolidated gross margin of approximately 17.5% was the same for both periods. Selling, general and administrative costs increased by 29% to $72.6 million for 1999 from $56.5 million for 1998. The increase was related to acquisitions. Consolidated selling, general and administrative expenses as a percentage of net sales were 10.1% during 1999 and 10.2% for 1998. Interest expense increased by $7.3 million from $17.5 million in 1998 to $24.8 million in 1999 due to higher average debt outstanding during the current period offset by lower average interest rates in 1999 versus 1998. For the year ended December 31, 1999, the Company averaged outstanding borrowings of $294.6 million as compared to $205.3 million for 1998. The $89.3 million increase related primarily to acquisitions completed during the latter part of 1998 and in 1999. The average borrowing rate of 8.40% for the year ended December 31, 1999 is 12 basis points lower than the average rate of 8.52% for 1998 primarily because of increased borrowings under the Company's bank revolving credit which carries a lower effective interest rate as compared to the 9.25% on the Company's Senior Subordinated Notes. The effective income tax rate for 1999 and 1998 was 43%. At December 31, 1999, subsidiaries of the Company had $1.1 million of net operating loss carry forwards for federal tax purposes. LIQUIDITY AND SOURCES OF CAPITAL The Company's liquidity needs are primarily for working capital and capital expenditures. The Company's primary sources of liquidity have been funds provided by operations and funds available from existing bank credit arrangements and the sale of Senior Subordinated Notes. On December 21, 2000, Park-Ohio signed a new credit agreement with a group of banks under which it may borrow up to $180 million secured by receivables and inventory. The proceeds from the credit agreement (as amended on March 12, 2001), which expires on December 31, 2003 will be used for general corporate purposes. Amounts borrowed under the new credit agreement may be borrowed at Park-Ohio's election at either (i) the bank's prime lending rate plus up to 125 basis points or (ii) LIBOR plus 137.5-300 basis points depending on a ratio specified in the new credit agreement, reflecting higher interest rates than the previous credit agreement. (See Note D -- "Financing Arrangements" of notes to consolidated financial statements included herein.) As of December 31, 2000, $138.5 million was outstanding under the facility; this had increased to $149.5 million at March 30, 2001, due to increased working capital. On June 3, 1999, the Company sold an additional $50 million of its 9.25% Senior Subordinated Notes due 2007 bringing the amount of Notes outstanding to $200 million. The Company used the net proceeds from the sale of the Notes ($49.5 million) to repay outstanding bank borrowings. 12 15 Current financial resources (working capital and available bank borrowing arrangements) and anticipated funds from operations are expected to be adequate to meet current cash requirements. Bank borrowings are contingent upon meeting various covenants, including financial covenants. The Company's ability to meet those covenants would be materially impacted if recent negative economic trends worsen. Capital expenditures for 2001 are projected to be approximately $12-$18 million which will fund additions and improvements to the Company's facilities, equipment and information systems. This projection excludes capital expenditures to be reimbursed from fire insurance proceeds. The ratio of current assets to current liabilities was 2.96 at December 31, 2000 versus 2.93 at December 31, 1999. Working capital increased by $4.6 million to $213.4 million at December 31, 2000 from $208.8 million at December 31, 1999, as a result of the inclusion of acquisitions completed in 2000 and to support the internal growth of the Company. During 2000, the Company generated $36.9 million of cash from operations before changes in operating assets and liabilities. After giving effect to the use of $12.9 million in the operating accounts, the Company provided $24.0 million from operating activities in 2000 compared to using $.7 million in 1999. During the year, the Company invested $25.0 million in capital expenditures (including $7.0 million to replace a portion of the equipment destroyed in the rubber plant fire), used $3.9 million for acquisitions, provided $9.2 million from divestitures, used $6.1 million for fire related business interruption costs and used $1.5 million for other purposes, primarily the purchase of treasury shares. These activities resulted in a decrease in cash for the year of $3.3 million. During 1999, the Company generated $41.9 million of cash from operations before changes in operating assets and liabilities. After giving effect to the use of $42.6 million in the operating accounts, the Company used $.7 million from operating activities compared to providing $3.6 million in 1998. During the year, the Company invested $22.7 million in capital expenditures, used $65.4 million for acquisitions and used $3.9 million for other purposes, primarily the purchase of treasury shares. These activities were funded by issuing $49.5 million of 9.25% Senior Subordinated Notes and a net increase of $44.8 million in bank borrowings which resulted in an increase in cash for the year of $1.6 million. During 1998, the Company generated $32.3 million of cash from operations before changes in operating assets and liabilities. After giving effect to the use of $28.6 million in the operating accounts, the Company provided $3.6 million from operating activities. During the year, the Company invested $22.7 million in facilities, machinery and equipment, and information systems, used $40.2 million for acquisitions and used $2.8 million to purchase common shares for the treasury. These activities were funded by a net increase in bank borrowings of $64.3 million offset by a $2.5 million increase in cash during the period. ENVIRONMENTAL The Company has been identified as a potentially responsible party at third-party sites under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, or comparable state laws which provide for strict and, under certain circumstances, joint and several liability. The Company is participating in the cost of certain clean-up efforts at several of these sites. However, the Company's share of such costs has not been material and based on available information, management of the Company does not expect the Company's exposure at any of these locations to have a material adverse effect on its results of operations, liquidity or financial condition. SEASONALITY; VARIABILITY OF OPERATING RESULTS The Company's results of operations are typically stronger in the first six months rather than the last six months of each calendar year due to scheduled plant maintenance in the third quarter to coincide with customer plant shutdowns and to holidays in the fourth quarter. 13 16 The timing of orders placed by the Company's customers has varied with, among other factors, orders for customers' finished goods, customer production schedules, competitive conditions and general economic conditions. The variability of the level and timing of orders has, from time to time, resulted in significant periodic and quarterly fluctuations in the operations of the Company's business units. Such variability is particularly evident at the capital equipment businesses, included in the Manufactured Products segment, which typically ship a few large systems per year. FORWARD-LOOKING STATEMENTS This Form 10-K contains certain statements that are "forward-looking statements" within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. Certain statements in this Management's Discussion and Analysis of Financial Condition and Results of Operations contain forward-looking statements, including without limitation, discussion regarding the Company's anticipated levels and funding of capital expenditures and credit availability. Forward-looking statements are necessarily subject to risks, uncertainties and other factors, many of which are outside the control of the Company, that could cause actual results to differ materially from such statements. These uncertainties and other factors include such things as: general business conditions, competitive factors, including pricing pressures and product innovation and quality; raw material availability and pricing; changes in the Company's relationships with customers and suppliers; the ability of the Company to successfully integrate recent and future acquisitions into its existing operations; changes in general domestic economic conditions such as inflation rates, interest rates and tax rates; the ability of the Company to meet various covenants, including financial covenants, contained in its credit agreement and the indenture governing the Senior Subordinated Notes; increasingly stringent domestic and foreign governmental regulations including those affecting the environment; inherent uncertainties involved in assessing the Company's potential liability for environmental remediation-related activities; the outcome of pending and future litigation and other claims; dependence on the automotive and heavy truck industries; dependence on key management; and dependence on information systems. Any forward-looking statement speaks only as of the date on which such statement is made, and the Company undertakes no obligation to update any forward-looking statement, whether as a result of new information, future events or otherwise. In light of these and other uncertainties, the inclusion of a forward-looking statement herein should not be regarded as a representation by the Company that the Company's plans and objectives will be achieved. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK The Company is exposed to market risk including changes in interest rates. The Company is subject to interest rate risk on its floating rate revolving credit facility which consisted of borrowings of $138.5 million at December 31, 2000. A 100 basis point increase in the interest rate would have resulted in an increase in interest expense of approximately $1.4 million for the year ended December 31, 2000. 14 17 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY FINANCIAL DATA
PAGE ---- Report of Independent Auditors.............................. 16 Consolidated Balance Sheets -- December 31, 2000 and December 31, 1999......................................... 17 Consolidated Statements of Income -- Years Ended December 31, 2000, 1999 and 1998................................... 18 Consolidated Statements of Shareholders' Equity -- Years Ended December 31, 2000, 1999 and 1998.................... 19 Consolidated Statements of Cash Flows -- Years Ended December 31, 2000, 1999 and 1998.......................... 20 Notes to Consolidated Financial Statements.................. 21 Supplementary Financial Data: Selected Quarterly Financial Data (Unaudited) -- Years Ended December 31, 2000 and 1999................................ 32
15 18 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS Board of Directors and Shareholders Park-Ohio Holdings Corp. We have audited the accompanying consolidated financial statements of Park-Ohio Holdings Corp. and subsidiaries, listed in the index at Item 14(a)(i). These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Park-Ohio Holdings Corp. and subsidiaries at December 31, 2000 and 1999 and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States. /s/ Ernst & Young LLP Cleveland, Ohio March 26, 2001 16 19 PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
DECEMBER 31 ---------------------- 2000 1999 --------- --------- (DOLLARS IN THOUSANDS) ASSETS Current Assets Cash and cash equivalents................................. $ 2,612 $ 5,867 Accounts receivable, less allowances for doubtful accounts of $3,292 in 2000 and $3,296 in 1999.................... 117,318 112,896 Inventories............................................... 189,023 192,270 Other current assets...................................... 13,191 5,850 -------- -------- Total Current Assets............................... 322,144 316,883 Property, Plant and Equipment Land and land improvements................................ 5,993 6,471 Buildings................................................. 35,026 32,504 Machinery and equipment................................... 193,444 172,118 -------- -------- 234,463 211,093 Less accumulated depreciation............................. 101,757 86,721 -------- -------- 132,706 124,372 Other Assets Excess purchase price over net assets acquired, net of accumulated amortization of $12,283 in 2000 and $11,941 in 1999................................................. 133,612 137,905 Other..................................................... 46,870 50,721 -------- -------- $635,332 $629,881 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Trade accounts payable.................................... $ 76,041 $ 72,452 Accrued expenses.......................................... 28,831 33,064 Current portion of long-term liabilities.................. 3,904 2,557 -------- -------- Total Current Liabilities.......................... 108,776 108,073 Long-Term Liabilities, less current portion Long-term debt............................................ 343,248 339,813 Other postretirement benefits............................. 24,487 25,470 Other..................................................... 6,695 1,840 -------- -------- 374,430 367,123 Shareholders' Equity Capital stock, par value $1 a share Serial preferred stock: Authorized -- 632,470 shares; Issued and outstanding -- none.................................. -0- -0- Common stock: Authorized -- 40,000,000 shares; Issued -- 11,209,862 shares in 2000 and 11,147,462 in 1999............................. 11,210 11,148 Additional paid-in capital................................ 56,135 55,684 Retained earnings......................................... 97,192 96,674 Treasury stock, at cost, 713,671 shares in 2000 and 583,571 in 1999......................................... (9,092) (7,969) Accumulated other comprehensive (loss).................... (2,858) (852) Unearned compensation -- restricted stock awards.......... (461) -0- -------- -------- 152,126 154,685 -------- -------- $635,332 $629,881 ======== ========
See notes to consolidated financial statements. 17 20 PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31 -------------------------------- 2000 1999 1998 -------- -------- -------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) Net sales................................................. $754,674 $717,222 $551,793 Cost of products sold..................................... 625,205 591,439 455,167 -------- -------- -------- Gross profit............................................ 129,469 125,783 96,626 Selling, general and administrative expenses.............. 80,838 72,613 56,478 -------- -------- -------- Operating income........................................ 48,631 53,170 40,148 Non-operating items, net.................................. 10,118 -0- -0- Interest expense.......................................... 30,812 24,752 17,488 -------- -------- -------- Income before income taxes........................... 7,701 28,418 22,660 Income taxes.............................................. 7,183 12,164 9,726 -------- -------- -------- Net income...................................... $ 518 $ 16,254 $ 12,934 ======== ======== ======== Net Income per common share: Basic................................................... $ .05 $ 1.52 $ 1.18 ======== ======== ======== Diluted................................................. $ .05 $ 1.51 $ 1.16 ======== ======== ========
See notes to consolidated financial statements. 18 21 PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
ACCUMULATED OTHER ADDITIONAL COMPREHENSIVE COMMON PAID-IN RETAINED TREASURY INCOME UNEARNED STOCK CAPITAL EARNINGS STOCK (LOSS) COMPENSATION TOTAL ------- ---------- -------- -------- ------------- ------------ -------- (DOLLARS IN THOUSANDS) Balance at January 1, 1998................. $10,960 $53,476 $67,486 $(2,087) $ (825) $ -0- $129,010 Comprehensive income: Net income........... 12,934 12,934 Foreign currency translation adjustment......... (757) (757) -------- Comprehensive income............. 12,177 Issuance of General Aluminum Mfg. Company earn-out shares............. 188 2,306 2,494 Exercise of stock options.............. (27) 294 267 Purchase of treasury stock................ (2,761) (2,761) ------- ------- ------- ------- ------- ----- -------- Balance at December 31, 1998................. 11,148 55,755 80,420 (4,554) (1,582) -0- 141,187 Comprehensive income: Net income........... 16,254 16,254 Foreign currency translation adjustment......... 730 730 -------- Comprehensive income............. 16,984 Exercise of stock options.............. (71) 330 259 Purchase of treasury stock................ (3,745) (3,745) ------- ------- ------- ------- ------- ----- -------- Balance at December 31, 1999................. 11,148 55,684 96,674 (7,969) (852) -0- 154,685 Issuance of restricted stock................ 62 500 (562) Amortization of restricted stock..... 101 101 Comprehensive income (loss): Net income........... 518 518 Foreign currency translation adjustment......... (2,006) (2,006) -------- Comprehensive (loss)............. (1,488) Exercise of stock options.............. (49) 172 123 Purchase of treasury stock................ (1,295) (1,295) ------- ------- ------- ------- ------- ----- -------- Balance at December 31, 2000................. $11,210 $56,135 $97,192 $(9,092) $(2,858) $(461) $152,126 ======= ======= ======= ======= ======= ===== ========
See notes to consolidated financial statements. 19 22 PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31 ------------------------------ 2000 1999 1998 -------- -------- -------- (DOLLARS IN THOUSANDS) OPERATING ACTIVITIES Net Income................................................ $ 518 $ 16,254 $ 12,934 Adjustments to reconcile net income to net cash (used) provided by operations: Gain from fire insurance............................. (5,200) -0- -0- Loss on the sale of Kay Home Products................ 15,318 -0- -0- Depreciation and amortization........................ 20,048 18,698 12,753 Deferred income taxes................................ 6,217 6,904 6,659 -------- -------- -------- 36,901 41,856 32,346 Changes in operating assets and liabilities excluding acquisitions of businesses: Accounts receivable.................................. (7,121) (5,127) (2,312) Inventories.......................................... 3,775 (32,726) (10,404) Accounts payable and accrued expenses................ (7,701) (2,427) (7,810) Other................................................ (1,829) (2,304) (8,193) -------- -------- -------- Net Cash Provided (Used) by Operating Activities..... 24,025 (728) 3,627 INVESTING ACTIVITIES Purchases of property, plant and equipment, net........... (24,968) (22,650) (22,681) Costs of acquisitions, net of cash acquired............... (3,890) (65,426) (40,175) Proceeds from the sale of Kay Home Products............... 9,177 -0- -0- Other, net................................................ (6,100) (445) (101) -------- -------- -------- Net Cash (Used) by Investing Activities.............. (25,781) (88,521) (62,957) FINANCING ACTIVITIES Proceeds from bank arrangements........................... 23,000 101,500 66,000 Payments on long-term debt................................ (23,327) (56,726) (1,670) Issuance of 9.25% senior subordinated notes, net of deferred financing costs............................... -0- 49,508 -0- Issuance of common stock under stock option plan.......... 123 259 267 Purchase of treasury stock................................ (1,295) (3,745) (2,761) -------- -------- -------- Net Cash (Used) Provided by Financing Activities..... (1,499) 90,796 61,836 (Decrease) Increase in Cash and Cash Equivalents..... (3,255) 1,547 2,506 Cash and Cash Equivalents at Beginning of Year....... 5,867 4,320 1,814 -------- -------- -------- Cash and Cash Equivalents at End of Year............. $ 2,612 $ 5,867 $ 4,320 ======== ======== ======== Taxes paid................................................ $ 3,261 $ 6,892 $ 2,326 Interest paid............................................. 30,194 23,646 17,947
See notes to consolidated financial statements. 20 23 PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000, 1999 AND 1998 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Consolidation: The consolidated financial statements include the accounts of the Company and all of its subsidiaries. All significant intercompany accounts and transactions have been eliminated upon consolidation. Accounting Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash Equivalents: The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Inventories: Inventories are stated at the lower of cost (principally the first-in, first-out method) or market value. If the first-in, first-out method of inventory accounting had been used exclusively by the Company, inventories would have been approximately $4,956 and $5,098 higher than reported at December 31, 2000 and 1999, respectively. Major Classes of Inventories
DECEMBER 31 ------------------- 2000 1999 -------- -------- In-process and finished goods........................... $164,833 $160,648 Raw materials and supplies.............................. 24,190 31,622 -------- -------- $189,023 $192,270 ======== ========
Property, Plant and Equipment: Property, plant and equipment are carried at cost. Major additions and associated interest costs are capitalized and betterments are charged to accumulated depreciation; expenditures for repairs and maintenance are charged to operations. Depreciation of fixed assets is computed principally by the straight-line method based on the estimated useful lives of the assets. Excess Purchase Price Over Net Assets Acquired: The Company records amortization of excess purchase price over the fair value of net assets acquired primarily over forty years using the straight-line method. Management periodically evaluates for possible impairment of the current value of these intangibles, and other long-lived assets, through undiscounted cash flow analyses as required by Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" which established accounting standards for determining the impairment of long-lived assets to be held and used, certain identifiable intangibles, and goodwill related to those assets and for long-lived assets and certain identifiable intangibles to be disposed of. Amortization expense related to the excess purchase price over net assets acquired totalled $3,907, $3,836 and $2,277 in 2000, 1999 and 1998, respectively. Pensions and Other Postretirement Benefits: The Company and its subsidiaries have pension plans, principally noncontributory defined benefit or noncontributory defined contribution plans, covering substantially all employees. In addition, the Company has two postretirement benefit plans. For the defined benefit plans, benefits are based on the employee's years of service and the Company's policy is to fund that amount recommended by its independent actuaries. For the defined contribution plans, the 21 24 PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED costs charged to operations and the amount funded are based upon a percentage of the covered employees' compensation. Stock-Based Compensation: The Company has elected to account for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued to Employees" ("APB 25"), and related interpretations. Under APB 25, because the exercise price of the Company's employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. Income Taxes: The Company accounts for income taxes under the liability method whereby deferred tax assets and liabilities are determined based on temporary differences between the financial reporting and the tax bases of assets and liabilities and are measured using the current enacted tax rates. Revenue Recognition: For the majority of its operations, the Company recognizes revenues upon shipment of its product. Revenues on long-term contracts are recognized using the percentage of completion method of accounting, under which the sales value of performance is recognized on the basis of the percentage each contract's cost to date bears to the total estimated cost. The recognition of profit, based upon anticipated final costs, is made only after evaluation of the contract status at critical milestones. The Company's contracts generally provide for billing to customers at various points prior to contract completion. Revenues earned on contracts in process in excess of billings are classified in other current assets in the accompanying balance sheet. Environmental: The Company accrues environmental costs related to existing conditions resulting from past or current operations and from which no current or future benefit is discernible. Costs which extend the life of the related property or mitigate or prevent future environmental contamination are capitalized. The Company records a liability when environmental assessments and/or remedial efforts are probable and can be reasonably estimated. The estimated liability of the Company is not discounted or reduced for possible recoveries from insurance carriers. Concentration of Credit Risk: The Company sells its products to customers in diversified industries. The Company performs ongoing credit evaluations of its customers' financial condition but does not require collateral to support customer receivables. The Company establishes an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends and other information. As of December 31, 2000 the Company had uncollateralized receivables with seven customers in the automotive and truck industry, each with several locations, approximating $33,466 which represents approximately 29% of the Company's trade accounts receivable. During 2000, sales to these customers amounted to approximately $252,128 which represents 33% of the Company's net sales. Impact of Recently Issued Accounting Pronouncements: The Company adopted Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial Statements," which outlines the basic criteria that must be met to recognize revenue and provides guidelines for disclosure related to revenue recognition policies, in the fourth quarter of 2000. There was no impact on the Company's financial position or results of operations as a result of the adoption. The Company adopted Financial Accounting Standards Board Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities", as amended, on January 1, 2001. Because of the Company's minimal use of derivatives, adoption of the new Statement will not have a significant effect on earnings or the financial position of the Company. Reclassification: Certain amounts in the prior period's financial statements have been reclassified to be consistent with the current presentation. 22 25 PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE B -- ACQUISITIONS AND DISPOSITION On September 30, 2000, the Company acquired IBM's plant automation software product lines and related assets for cash of approximately $3.9 million. The transaction has been accounted for as a purchase and the results of operations prior to the date of acquisition were not deemed to be significant as defined in Regulation S-X. On June 30, 2000 the Company completed the sale of substantially all of the assets of Kay Home Products for cash of approximately $9.2 million and recorded a loss of approximately $15.3 million, which is included in non-operating items, net in the consolidated statement of income. Kay Home Products was a non-core business producing and distributing barbecue grills, tray tables, screen houses and plant stands. During 1999, the Company acquired all of the stock of The Metalloy Corporation ("Metalloy"), Columbia Nut and Bolt Corp. ("Columbia"), Industrial Fasteners Corporation ("Industrial"), M.P. Colinet ("Colinet") and substantially all of the assets of St. Louis Screw & Bolt Co. ("St. Louis Screw") and PMC Industries ("PMC") for cash of approximately $65.4 million. Metalloy is a full service aluminum casting and machining company. Columbia and Industrial are logistics providers of Class C components. St. Louis Screw is a manufacturer of bolts and PMC and Colinet provide capital equipment and associated parts for the oil drilling industry. Each of these transactions has been accounted for as a purchase. The purchase price and the results of operations of each of these businesses prior to their respective dates of acquisition were not deemed to be significant as defined in Regulation S-X. During 1998, the Company completed the acquisitions of Direct Fasteners Limited ("Direct") and GIS Industries, Inc. ("Gateway"). The transactions have been accounted for as purchases. Direct is a logistics provider of Class C components. Gateway is a logistics provider of industrial components and manufacturer of fabricated metal products and fasteners. The aggregate purchase price and the results of operations of Direct and Gateway prior to their respective dates of acquisition were not deemed to be significant as defined in Regulation S-X. NOTE C -- ACCRUED EXPENSES Accrued expenses include the following:
DECEMBER 31 ------------------ 2000 1999 ------- ------- Self-insured liabilities................................ $ 3,267 $ 3,924 Warranty and installation accruals...................... 2,662 3,348 Accrued payroll and payroll-related items............... 3,065 3,844 State and local taxes................................... 1,730 2,533 Advance billings........................................ 883 2,549 Acquisition liabilities................................. 1,694 2,780 Interest payable........................................ 1,882 2,187 Sundry.................................................. 13,648 11,899 ------- ------- Totals............................................. $28,831 $33,064 ======= =======
23 26 PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE D -- FINANCING ARRANGEMENTS Long-term debt consists of the following:
DECEMBER 31 -------------------- 2000 1999 -------- -------- 9.25% Senior Subordinated Notes due 2007.............. $199,930 $200,000 Revolving credit maturing on December 31, 2003........ 138,500 138,000 Other................................................. 6,972 2,620 -------- -------- 345,402 340,620 Less current maturities............................... 2,154 807 -------- -------- Total....................................... $343,248 $339,813 ======== ========
In December 2000, Park-Ohio entered into a credit and security agreement with a group of banks (as amended in March, 2001) under which it may borrow up to $180 million. Interest is payable quarterly at either the bank's prime lending rate plus up to 1.25% (9.0% at December 31, 2000) or at Park-Ohio's election at LIBOR plus 1.375% - 3% (8.56% at December 31, 2000). The interest rate is dependent on the Company's ratio of total funded indebtedness to pro forma earnings before interest, taxes, depreciation and amortization ("EBITDA") as defined in the credit agreement and is adjusted every quarter. The credit agreement expires on December 31, 2003. The revolving credit is secured by the Company's accounts receivable and inventories. Provisions of the Senior Subordinated Notes and the revolving credit agreement contain restrictions on the Company's ability to incur additional indebtedness, to create liens or other encumbrances, to make certain payments, investments, loans and guarantees and to sell or otherwise dispose of a substantial portion of assets to or merge or consolidate with, an unaffiliated entity. The revolving credit agreement also requires maintenance of specific financial ratios. On June 3, 1999, the Company sold an additional $50 million of its 9.25% Senior Subordinated Notes due 2007 at a price of 99.016% of face value. The Company used the net proceeds to reduce the amount borrowed under its credit facility. The weighted average interest rate on all debt was 8.93% at December 31, 2000. The fair market value of the Senior Subordinated Notes at December 31, 2000 was approximately $150,947. The Company has agreements on which up to $6.7 million in standby letters of credit and commercial letters of credit may be issued. In addition to the bank's customary letter of credit fees, a 3/4% fee is assessed on standby letters of credit on an annual basis. As of December 31, 2000, in addition to amounts borrowed under the revolving credit agreement, there is $3.8 million outstanding primarily for standby letters of credit. A fee of .25% to .55% is imposed by the bank on the unused portion of available borrowings. Maturities of long-term debt during each of the five years following December 31, 2000 are approximately $2,154 in 2001, $910 in 2002, $139,106 in 2003, $352 in 2004 and $334 in 2005. 24 27 PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE E -- INCOME TAXES Significant components of the Company's net deferred tax assets and liabilities are as follows:
DECEMBER 31, ------------------ 2000 1999 ------- ------- Deferred tax assets: Postretirement benefit obligation......................... $ 9,000 $ 9,400 Inventory................................................. 5,800 6,700 Tax net operating loss carryforwards and credits.......... 2,000 2,000 Other -- net.............................................. 4,400 1,600 ------- ------- Total deferred tax assets......................... 21,200 19,700 Deferred tax liabilities: Tax over book depreciation................................ 13,200 10,200 Pension................................................... 9,100 6,500 ------- ------- Total deferred tax liabilities.................... 22,300 16,700 ------- ------- Net deferred tax (liabilities) assets....................... $(1,100) $ 3,000 ======= =======
Income taxes consisted of the following:
YEAR ENDED DECEMBER 31 --------------------------- 2000 1999 1998 ------ ------- ------ Current: Federal............................................ $ 106 $ 3,007 $1,023 State.............................................. 774 1,246 1,037 Foreign............................................ 86 1,007 1,007 ------ ------- ------ 966 5,260 3,067 Deferred: Federal............................................ 5,025 6,029 6,195 State.............................................. 1,192 875 464 ------ ------- ------ 6,217 6,904 6,659 ------ ------- ------ Income taxes............................................ $7,183 $12,164 $9,726 ====== ======= ======
The reasons for the difference between income taxes and the amount computed by applying the statutory Federal income tax rate to income before income taxes are as follows:
YEAR ENDED DECEMBER 31 --------------------------- 2000 1999 1998 ------ ------- ------ Computed statutory amount............................... $2,617 $ 9,662 $7,700 Effect of state income taxes payable.................... 1,304 1,400 1,000 Goodwill................................................ 715 751 535 Non deductible goodwill write off upon sale of Kay Home Products.............................................. 3,513 -0- -0- Other, net.............................................. (966) 351 491 ------ ------- ------ Income taxes............................................ $7,183 $12,164 $9,726 ====== ======= ======
25 28 PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED At December 31, 2000, subsidiaries of the Company have net operating loss carryforwards for income tax purposes of approximately $5.7 million subject to certain limitations, which expire in 2001 to 2020. NOTE F -- STOCK PLANS Under the provisions of the Company's Amended and Restated 1992 Stock Option Plan, incentive stock options or non-statutory options to purchase 850,000 shares of the Company's stock were granted to officers and other key employees at the market price on the respective date of grant. The option rights are exercisable only if and after the employee shall have remained in the employ of the Company for one year from the date the option is granted. During 1996 the Chairman and Chief Executive Officer of the Company was granted a non-statutory stock option to purchase 500,000 shares of common stock at $13.625 per share which was the market price at the date of grant. The options become 100% exercisable after five years and terminate fifteen years from the option date. The 1996 Non-Employee Director Stock Option Plan authorized the granting of options on 250,000 shares of common stock to directors who are not employees of the Company. Annually, each non-employee director may receive options to acquire 6,000 shares at the market price on the date of grant in lieu of any retainer or meeting fees. Options under this plan are exercisable six months from the date of grant. Under the provisions of the 1998 Long-Term Incentive Plan ("1998 Plan"), which is administered by the Compensation Committee, incentive stock options, non-statutory stock options, stock appreciation rights ("SARs"), restricted shares, performance shares or stock awards may be awarded to all employees of the Company and its subsidiaries. Stock options will be exercisable in whole or in installments as may be determined provided that no options will be exercisable more than ten years from date of grant. The exercise price will be the market price at the date of grant. The aggregate number of shares of the Company's stock which may be awarded under the 1998 Plan is 550,000, all of which may be incentive stock options. No more than 250,000 shares shall be the subject of awards to any individual participant in any one calendar year. During 2000, 62,400 restricted shares were awarded under the 1998 Plan. During 1999, options to purchase 100,000 shares of common stock were awarded under the 1998 Plan. During 1998, there were no awards under the 1998 Plan. Had compensation cost for stock options granted been determined based on the fair value method of FASB Statement No. 123, the Company's net income and diluted earnings per share would have been reduced by $1,008 ($.10 per share) in 2000, $1,077 ($.10 per share) in 1999, and $1,235 ($.11 per share) in 1998. The effects on 2000, 1999 and 1998 net earnings may not be representative of the effect on future years net earnings amounts as the compensation cost on each year's grant is recognized over the vesting period. Fair value was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions for 2000, 1999 and 1998, respectively: risk-free interest rates of 5.83%, 6.25% and 4.75%; zero dividend yield; expected volatility of 42%, 38% and 39% and expected option lives of 6 years. 26 29 PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED The following table reflects activity under all stock plans from January 1, 1998 through December 31, 2000, and the weighted average exercise prices:
WEIGHTED NUMBER AVERAGE PRICE OF SHARES PER SHARE --------- ------------- Outstanding, January 1, 1998.......................................... 915,000 $13.13 Granted.................................................. 145,000 18.45 Exercised................................................ (20,817) 12.82 Forfeited................................................ (3,333) 13.62 Outstanding, December 31, 1998........................................ 1,035,850 13.88 Granted.................................................. 124,000 10.66 Exercised................................................ (24,000) 10.81 Forfeited................................................ (4,000) 18.25 Outstanding, December 31, 1999........................................ 1,131,850 13.57 Granted.................................................. 12,000 9.78 Exercised................................................ (13,500) 9.13 Forfeited................................................ (40,850) 13.08 --------- Outstanding, December 31, 2000........................................ 1,089,500 $13.61 =========
The following table summarizes information about options outstanding as of December 31, 2000:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ------------------------------------- ----------------------- NUMBER WEIGHTED NUMBER OUTSTANDING AVERAGE WEIGHTED EXERCISABLE WEIGHTED AS OF REMAINING AVERAGE AS OF AVERAGE RANGE OF DECEMBER 31, CONTRACTUAL EXERCISE DECEMBER 31, EXERCISE EXERCISE PRICES 2000 LIFE PRICE 2000 PRICE - --------------- ------------ ----------- -------- ------------ -------- $ 9.125-$13.000 227,500 6.47 $10.51 164,174 $10.81 13.125- 14.250 688,000 8.70 13.63 588,000 13.63 14.438- 19.375 174,000 7.45 17.59 139,009 17.36 --------- ------- 1,089,500 891,183 ========= =======
NOTE G -- LEGAL PROCEEDINGS The Company is subject to various pending and threatened lawsuits in which claims for monetary damages are asserted in the ordinary course of business. While any litigation involves an element of uncertainty, in the opinion of management, liabilities, if any, arising from currently pending or threatened litigation will not have a material adverse effect on the Company's financial condition, liquidity and results of operations. 27 30 PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE H -- PENSIONS AND OTHER POSTRETIREMENT BENEFITS
PENSION BENEFITS OTHER BENEFITS -------------------- -------------------- 2000 1999 2000 1999 -------- -------- -------- -------- CHANGE IN BENEFIT OBLIGATION Benefit obligation at beginning of year........ $ 46,820 $ 45,701 $ 19,720 $ 21,718 Service cost................................... 503 561 157 150 Amendments and other........................... 846 306 -0- -0- Acquisitions................................... 2,218 4,686 -0- -0- Interest cost.................................. 3,529 3,387 1,539 1,449 Plan participants' contributions............... -0- -0- 108 118 Actuarial losses (gains)....................... 1,135 (3,469) 1,793 (1,516) Benefits paid.................................. (4,344) (4,352) (2,308) (2,199) -------- -------- -------- -------- Benefit obligation at end of year.............. $ 50,707 $ 46,820 $ 21,009 $ 19,720 ======== ======== ======== ======== CHANGE IN PLAN ASSETS Fair Value of plan assets at beginning of year......................................... $106,570 $ 83,960 $ -0- $ -0- Actual return on plan assets................... 1,869 23,299 -0- -0- Acquisitions................................... 3,808 3,504 -0- -0- Company contributions.......................... -0- 159 2,200 2,081 Plan participants' contributions............... -0- -0- 108 118 Benefits paid.................................. (4,344) (4,352) (2,308) (2,199) -------- -------- -------- -------- Fair value of plan assets at end of year....... $107,903 $106,570 $ -0- $ -0- ======== ======== ======== ======== Funded (underfunded) status of the plan........ $ 57,196 $ 59,750 $(21,009) $(19,720) Unrecognized net transition obligation......... (944) (380) -0- -0- Unrecognized net actuarial gain................ (28,654) (39,190) (4,663) (6,856) Unrecognized prior service cost................ 1,982 1,686 (565) (644) -------- -------- -------- -------- Prepaid (accrued) benefit cost................. $ 29,580 $ 21,866 $(26,237) $(27,220) ======== ======== ======== ======== The prepaid pension benefit is included in other assets. WEIGHTED-AVERAGE ASSUMPTIONS AS OF DECEMBER 31 Discount rate.................................. 7.50% 7.75% 7.50% 7.75% Expected return on plan assets................. 8.25% 8.25% N/A N/A Rate of compensation increase.................. 2.50% 2.50% N/A N/A
For measurement purposes, a 6.75% percent annual rate of increase in the per capita cost of covered health care benefits was assumed for 2000. The rate was assumed to decrease gradually to 5.5% for 2004 and remain at that level thereafter. 28 31 PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
PENSION BENEFITS OTHER BENEFITS --------------------------- ------------------------ 2000 1999 1998 2000 1999 1998 ------- ------- ------- ------ ------ ------ COMPONENTS OF NET PERIODIC BENEFIT COST Service costs.......................... $ 503 $ 561 $ 403 $ 157 $ 150 $ 133 Interest costs......................... 3,529 3,387 3,136 1,539 1,449 1,496 Expected return on plan assets......... (8,599) (7,062) (6,642) -0- -0- -0- Transition obligation.................. 23 63 77 -0- -0- -0- Amortization of prior service cost..... 367 229 181 (79) (79) (79) Recognized net actuarial gain.......... (2,574) (1,132) (1,225) (243) (255) (343) ------- ------- ------- ------ ------ ------ Benefit (income) costs................. $(6,751) $(3,954) $(4,070) $1,374 $1,265 $1,207 ======= ======= ======= ====== ====== ======
The Company has two non-pension postretirement benefit plans. Health care benefits are provided on both a contributory and noncontributory basis. The life insurance plan is primarily noncontributory. The assumed health care cost trend rate has a significant effect on the amounts reported. A one-percentage-point change in the assumed health care cost trend rate would have the following effects:
1-PERCENTAGE 1-PERCENTAGE POINT POINT INCREASE DECREASE ------------- ------------ Effect on total of service and interest cost components in 2000................................................ $ 137 $ 117 Effect on post retirement benefit obligation as of December 31, 2000...................................... $1,358 $1,192
The total contribution charged to pension expense for the Company's defined contribution plans was $1,418 in 2000, $1,158 in 1999 and $876 in 1998. NOTE I -- LEASES Rental expense for 2000, 1999 and 1998 was $12,816, $11,814 and $7,056, respectively. Future minimum lease commitments during each of the five years following December 31, 2000 are as follows: $9,644 in 2001, $7,268 in 2002, $5,117 in 2003, $2,836 in 2004, $1,821 in 2005 and $3,494 thereafter. NOTE J -- INDUSTRY SEGMENTS The Company manages its business based upon three operating segments: Integrated Logistics Solutions ("ILS"), Aluminum Products and Manufactured Products. ILS is a leading logistics provider of Class C production components to original equipment manufacturers ("OEMs"), other manufacturers and distributors. In connection with the supply of such industrial products, ILS provides a variety of value-added, supply chain management services to major OEMs. The principal customers of ILS are in the heavy duty truck, vehicle parts and accessories, industrial equipment, electrical controls, HVAC, appliances and motors, and lawn and garden industries. Aluminum Products manufactures cast aluminum components primarily for automotive original equipment manufacturers. In addition, Aluminum Products also provides value-added services such as design and engineering, machining and assembly. Manufactured Products operates a diverse group of niche manufacturing businesses that design and manufacture a broad range of high quality products engineered for specific customer applications. The principal customers of Manufactured Products are original equipment manufacturers and end-users in the automotive, railroad, truck and aerospace industries. 29 32 PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED The Company's sales are made through its own sales organization, distributors and representatives. Intersegment sales are immaterial and eliminated in consolidation and are not included in the figures presented. Intersegment sales are accounted for at values based on market prices. Income allocated to segments excludes certain corporate expenses, interest expense and amortization of excess purchase price over net assets acquired. Identifiable assets by industry segment include assets directly identified with those operations. Corporate assets generally consist of cash and cash equivalents, deferred tax assets, property and equipment, and other assets.
YEAR ENDED DECEMBER 31 -------------------------------- 2000 1999 1998 -------- -------- -------- Net sales ILS..................................................... $482,274 $443,078 $364,546 Aluminum products....................................... 111,370 127,148 39,871 Manufactured products................................... 161,030 146,996 147,376 -------- -------- -------- $754,674 $717,222 $551,793 ======== ======== ======== Income before income taxes ILS..................................................... $ 42,118 $ 39,217 $ 34,595 Aluminum products....................................... 4,947 10,925 1,842 Manufactured products................................... 12,586 11,214 10,162 -------- -------- -------- 59,651 61,356 46,599 Amortization of excess purchase price over net assets acquired............................................. (3,907) (3,836) (2,277) Corporate costs......................................... (7,113) (4,350) (4,174) Interest expense........................................ (30,812) (24,752) (17,488) Loss on the sale of Kay Home Products................... (15,318) -0- -0- Gain from fire insurance................................ 5,200 -0- -0- -------- -------- -------- $ 7,701 $ 28,418 $ 22,660 ======== ======== ======== Identifiable assets ILS..................................................... $349,444 $343,522 $288,713 Aluminum products....................................... 99,208 97,717 40,063 Manufactured products................................... 164,524 170,267 147,032 General corporate....................................... 22,156 18,375 13,746 -------- -------- -------- $635,332 $629,881 $489,554 ======== ======== ======== Depreciation and amortization expense ILS..................................................... $ 8,096 $ 7,710 $ 6,124 Aluminum products....................................... 5,145 4,929 1,268 Manufactured products................................... 6,379 5,864 5,173 General corporate....................................... 428 195 188 -------- -------- -------- $ 20,048 $ 18,698 $ 12,753 ======== ======== ======== Capital expenditures ILS..................................................... $ 3,126 $ 6,046 $ 4,274 Aluminum products....................................... 7,302 4,963 1,650 Manufactured products................................... 14,190 8,904 16,666 General corporate....................................... 350 2,737 91 -------- -------- -------- $ 24,968 $ 22,650 $ 22,681 ======== ======== ========
The Company had sales of $73,039 in 2000 to Ford Motor Company which represented approximately 10% of consolidated net sales. 30 33 PARK-OHIO HOLDINGS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED In 2000, approximately 88% of the Company's net sales are within the United States, none of the net sales to any foreign country represented more than 6% of the Company's total sales and approximately 92% of the Company's assets are maintained in the United States. NOTE K -- EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per share:
YEARS ENDED DECEMBER 31 ----------------------------- 2000 1999 1998 ------- ------- ------- NUMERATOR Net Income.................................................. $ 518 $16,254 $12,934 ======= ======= ======= DENOMINATOR Denominator for basic earnings per share-weighted average shares.................................................... 10,492 10,685 10,958 Effect of dilutive securities: Employee stock options.................................... 35 86 203 ------- ------- ------- Denominator for diluted earnings per share-adjusted weighted-average shares and assumed conversions........ 10,527 10,771 11,161 Net income per common share -- basic........................ $ .05 $ 1.52 $ 1.18 ======= ======= ======= Net income per common share -- diluted...................... $ .05 $ 1.51 $ 1.16 ======= ======= =======
NOTE L -- INVOLUNTARY CONVERSION OF ASSETS During 2000, the Company experienced a fire at one of its rubber manufacturing facilities. The Company carries both property damage and business interruption insurance and, as a result, does not expect the fire to have a material adverse impact on the Company's financial results. The total amount due from the insurance company for business interruption, property damage, and other related expenses has not been determined. The deductible portion of the loss has been recorded. The Company has received interim payments from its insurance carrier related primarily to replacement of property, plant and equipment destroyed in the fire which resulted in a pre-tax, involuntary conversion gain of $5.2 million, which is included in non-operating items, net in the consolidated statement of income. The net book value of other property damaged by the fire along with business interruption related expenses have been recorded as a receivable ($8.4 million) which is included in other current assets. 31 34 SUPPLEMENTARY FINANCIAL DATA SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
QUARTER ENDED -------------------------------------------- 2000 MARCH 31 JUNE 30 SEPT. 30 DEC. 31 ---- -------- -------- -------- -------- ($ IN THOUSANDS, EXCEPT PER SHARE DATA) Net sales....................................... $206,360 $204,539 $170,923 $172,852 Gross profit.................................... 36,277 37,293 27,706 28,193 Net Income (Loss)............................... $ 4,560 $ (8,267) $ 4,798 $ (573) ======== ======== ======== ======== Diluted Earnings (Loss) Per Share............... $ .43 $ (.79) $ .46 $ (.05) ======== ======== ======== ========
QUARTER ENDED -------------------------------------------- 1999 MARCH 31 JUNE 30 SEPT. 30 DEC. 31 ---- -------- -------- -------- -------- Net sales....................................... $171,403 $186,917 $178,087 $180,815 Gross profit.................................... 30,967 33,813 31,545 29,458 Net Income...................................... $ 4,348 $ 4,536 $ 3,876 $ 3,494 ======== ======== ======== ======== Diluted Earnings Per Share...................... $ .40 $ .42 $ .36 $ .33 ======== ======== ======== ========
NOTE 1 -- On June 3, 1999, the Company sold $50 million of its 9.25% Senior Subordinated Notes due 2007. The Company used the net proceeds to reduce the amount borrowed under its credit facility. NOTE 2 -- In July, 1999, the Company acquired all of the shares of Columbia Nut & Bolt Corp. and Industrial Fasteners Corporation. These transactions have been accounted for as purchases. These companies distribute fasteners and other industrial products. In addition, Industrial Fasteners manufactures fasteners, primarily screws, rivets and pins. NOTE 3 -- On June 30, 2000, the Company sold substantially all of the assets of Kay Home Products for cash and recorded a pretax loss of $15.3 million. NOTE 4 -- The Company recorded interim payments from its insurance carrier related primarily to replacement of property, plant and equipment destroyed at its Cicero Flexible Products facility which resulted in a pretax gain of $4.7 million recorded in the quarter ended September 30, 2000 and $.5 million recorded in the quarter ended December 31, 2000. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There were no changes in nor disagreements with Park-Ohio's independent auditors on accounting and financial disclosure matters within the two-year period ended December 31, 2000. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information concerning directors required under this item is incorporated herein by reference from the material contained under the caption "Election of Directors" in the registrant's definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A, not later than 120 days after the close of the fiscal year. Information relating to executive officers is contained under Part I of this Annual Report on Form 10-K. 32 35 ITEM 11. EXECUTIVE COMPENSATION The information relating to executive compensation contained under the headings "Certain Matters Pertaining to the Board of Directors" and "Executive Compensation" in the registrant's definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A, not later than 120 days after the close of the fiscal year, is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required under this item is incorporated herein by reference from the material contained under the caption "Principal Shareholders" in the registrant's definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A, not later than 120 days after the close of the fiscal year. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required under this item is incorporated herein by reference from the material contained under the caption "Certain Transactions" in the registrant's definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A, not later than 120 days after the close of the fiscal year. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a)(1) The following financial statements are included in Part II, Item 8:
PAGE ---- Report of Independent Auditors............................ 16 Financial Statements Consolidated balance sheets -- December 31, 2000 and 1999.................................................. 17 Consolidated statements of income -- years ended December 31, 2000, 1999 and 1998...................... 18 Consolidated statements of shareholders' equity -- years ended December 31, 2000, 1999 and 1998.................................................. 19 Consolidated statements of cash flows -- years ended December 31, 2000, 1999 and 1998...................... 20 Notes to consolidated financial statements............. 21 Selected quarterly financial data (unaudited) -- years ended December 31, 2000 and 1999....................... 32
(2) Financial Statement Schedules All Schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are not applicable and, therefore, have been omitted. (3) Exhibits: The Exhibits filed as part of this Form 10-K are listed on the Exhibit Index immediately preceding such exhibits, incorporated herein by reference. (b) Reports on Form 8-K filed in the fourth quarter of 2000: None 33 36 SIGNATURES PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED. PARK-OHIO HOLDINGS CORP. (Registrant) By: /s/ RONALD J. COZEAN ------------------------------------ Ronald J. Cozean, Secretary Date: March 30, 2001 PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED. * Chairman, Chief Executive Officer and - ------------------------------------------------ President (Principal Executive Officer) Edward F. Crawford and Director * Vice President -- and Chief Financial - ------------------------------------------------ Officer (Principal Financial and Richard P. Elliott Accounting Officer) * Director - ------------------------------------------------ Matthew V. Crawford * Director - ------------------------------------------------ Kevin R. Greene * Director March 30, 2001 - ------------------------------------------------ Lewis E. Hatch, Jr. * Director - ------------------------------------------------ Thomas E. McGinty * Director - ------------------------------------------------ Lawrence O. Selhorst * Director - ------------------------------------------------ Felix J. Tarorick * Director - ------------------------------------------------ James W. Wert
* The undersigned, pursuant to a Power of Attorney executed by each of the Directors and officers identified above and filed with the Securities and Exchange Commission, by signing his name hereto, does hereby sign and execute this report on behalf of each of the persons noted above, in the capacities indicated. March 30, 2001 By: /s/ RONALD J. COZEAN ------------------------------------ Ronald J. Cozean, Attorney-in-Fact 34 37 ANNUAL REPORT ON FORM 10-K PARK-OHIO HOLDINGS CORP. FOR THE YEAR ENDED DECEMBER 31, 2000 EXHIBIT INDEX
EXHIBIT - ------- 3.1 Amended and Restated Articles of Incorporation of Park-Ohio Holdings Corp. (filed as Exhibit 3.1 to the Form 10-K of Park-Ohio Holdings Corp. for the year ended December 31, 1998, SEC File No. 000-03134 and incorporated by reference and made a part hereof) 3.2 Code of Regulations of Park-Ohio Holdings Corp. (filed as Exhibit 3.2 to the Form 10-K of Park-Ohio Holdings Corp. for the year ended December 31, 1998, SEC File No. 000-03134 and incorporated by reference and made a part hereof) 4.1 Indenture, dated June 3, 1999 by and among Park-Ohio Industries, Inc. and Norwest Bank Minnesota, N.A., as trustee (filed as Exhibit 4.2 of the Company's Registration Statement on Form S-4, filed on July 23, 1999, SEC File No. 333-83117 and incorporated by reference and made a part hereof) 4.2 Credit and Security Agreement among Park-Ohio Industries, Inc., and various financial institutions dated December 22, 2000. 4.3 First amendment, dated March 12, 2001, to the Credit and Security Agreement among Park-Ohio Industries, Inc. and various financial institutions 10.1 Form of Indemnification Agreement entered into between Park-Ohio Holdings Corp. and each of its directors and certain officers (filed as Exhibit 10.1 to the Form 10-K of Park-Ohio Holdings Corp. for the year ended December 31, 1998, SEC File No. 000-03134 and incorporated by reference and made a part hereof) 10.2* Park-Ohio Industries, Inc. Amended and Restated 1992 Stock Option Plan (filed as Exhibit A to Schedule 14A of Park-Ohio Industries, Inc. filed on May 12, 1995, SEC File No. 000-03134 and incorporated by reference and made a part hereof) 10.3* Non-Statutory Stock Option Agreement dated February 22, 1996 by and between Park-Ohio Industries, Inc., and Edward F. Crawford (filed as Appendix A to the Definitive Proxy Statement of Park-Ohio Industries, Inc., filed on April 16, 1996, SEC File No. 000-03134 and incorporated by reference and made a part hereof) 10.4* 1996 Non-employee Director Stock Option Plan (filed as Appendix B to the Definitive Proxy Statement of Park-Ohio Industries, Inc., filed on April 16, 1996, SEC File No. 000-03134 and incorporated by reference and made a part hereof) 10.5* 1998 Long-Term Incentive Plan (filed as appendix E to the Definitive Proxy Statement of Park-Ohio Industries, Inc., filed on April 24, 1998, SEC File No. 000-03134 and incorporated by reference and made a part hereof) 12.1 Computation of Ratios 21.1 List of Subsidiaries of Park-Ohio Holdings Corp. 23.1 Consent of Ernst & Young LLP 24.1 Power of Attorney
- --------------- * Reflects management contract or other compensatory arrangement required to be filed as an exhibit pursuant to Item 14(c) of this Report. 35 EX-4.2 2 l87010bex4-2.txt EXHIBIT 4.2 1 EXHIBIT 4.2 CREDIT AND SECURITY AGREEMENT dated as of December 21, 2000 among PARK-OHIO INDUSTRIES, INC., as Borrower, VARIOUS FINANCIAL INSTITUTIONS, as Banks, KEYBANK NATIONAL ASSOCIATION, as Administrative Agent, and THE HUNTINGTON NATIONAL BANK, as Co-Agent. 2 TABLE OF CONTENTS
Page ---- ARTICLE I. DEFINITIONS 1 ARTICLE II. AMOUNT AND TERMS OF CREDIT 19 SECTION 2.1. AMOUNT AND NATURE OF CREDIT 19 SECTION 2.2. CONDITIONS TO LOANS AND CHANGES IN INTEREST RATE 20 SECTION 2.3. PAYMENT ON NOTES, ETC 22 SECTION 2.4. PREPAYMENT 22 SECTION 2.5. COMMITMENT AND OTHER FEES; REDUCTION OF COMMITMENT 23 SECTION 2.6. COMPUTATION OF INTEREST AND FEES; DEFAULT RATE 24 SECTION 2.7. MANDATORY PAYMENT 24 SECTION 2.8. FIXED CHARGE COVERAGE RATIO CONDITION 24 SECTION 2.9. EXTENSION OF COMMITMENT 24 ARTICLE III. ADDITIONAL PROVISIONS RELATING TO LIBOR INTEREST SEGMENTS; INCREASED CAPITAL; TAXES 25 SECTION 3.1. RESERVES OR DEPOSIT REQUIREMENTS, ETC. 25 SECTION 3.2. TAX LAW, ETC. 25 SECTION 3.3. EURODOLLAR DEPOSITS UNAVAILABLE OR INTEREST RATE UNASCERTAINABLE 26 SECTION 3.4. INDEMNITY 26 SECTION 3.5. CHANGES IN LAW RENDERING LIBOR RATE OPTIONS UNLAWFUL 27 SECTION 3.6. FUNDING 27 SECTION 3.7. CAPITAL ADEQUACY 27 ARTICLE IV. CONDITIONS PRECEDENT 28 SECTION 4.1. NOTES 28 SECTION 4.2. GUARANTIES OF PAYMENT OF DEBT 28 SECTION 4.3. SECURITY AGREEMENTS 28 SECTION 4.4. PLEDGE AGREEMENTS 28 SECTION 4.5. OFFICER'S CERTIFICATE, RESOLUTIONS, ORGANIZATIONAL DOCUMENTS 28 SECTION 4.6. LEGAL OPINION 29 SECTION 4.7. GOOD STANDING CERTIFICATES 29 SECTION 4.8. INDENTURE 29 SECTION 4.9. INSURANCE CERTIFICATES 29 SECTION 4.10. ADMINISTRATIVE AGENT FEE LETTER; CLOSING FEE LETTER AND LEGAL FEES 29
i 3 SECTION 4.11. FINANCING STATEMENTS AND LIEN SEARCHES 29 SECTION 4.12. EXISTING CREDIT AGREEMENT 29 SECTION 4.13. LANDLORDS' AND MORTGAGEES' WAIVERS 30 SECTION 4.14. NO MATERIAL ADVERSE CHANGE 30 SECTION 4.15. MISCELLANEOUS 30 ARTICLE V. COVENANTS 30 SECTION 5.1. INSURANCE 30 SECTION 5.2. MONEY OBLIGATIONS 31 SECTION 5.3. FINANCIAL STATEMENTS 31 SECTION 5.4. FINANCIAL RECORDS 32 SECTION 5.5. FRANCHISES 32 SECTION 5.6. ERISA COMPLIANCE 32 SECTION 5.7. FINANCIAL COVENANTS 33 SECTION 5.8. BORROWING 33 SECTION 5.9. LIENS 35 SECTION 5.10. REGULATIONS U and X 35 SECTION 5.11. INVESTMENTS AND LOANS 35 SECTION 5.12. MERGER AND SALE OF ASSETS 36 SECTION 5.13. ACQUISITIONS 37 SECTION 5.14. NOTICE 38 SECTION 5.15. ENVIRONMENTAL COMPLIANCE 38 SECTION 5.16. AFFILIATE TRANSACTIONS 39 SECTION 5.17. USE OF PROCEEDS 39 SECTION 5.18. CORPORATE NAMES AND LOCATION OF COLLATERAL 39 SECTION 5.19. COLLATERAL 40 SECTION 5.20 RESTRICTED PAYMENTS 41 SECTION 5.21. SUBSIDIARIES CREATED, ACQUIRED OR HELD SUBSEQUENT TO THE CLOSING DATE 41 SECTION 5.22. AMENDMENT OF ORGANIZATIONAL DOCUMENTS 42 SECTION 5.23. INTEREST RATE PROTECTION 42 SECTION 5.24. RIGHT TO TAKE ADDITIONAL COLLATERAL 42 ARTICLE VI. SECURITY 42 SECTION 6.1. SECURITY INTEREST IN COLLATERAL 42 SECTION 6.2. COLLECTIONS AND RECEIPT OF PROCEEDS BY BORROWER 42 SECTION 6.3. COLLECTIONS AND RECEIPT OF PROCEEDS BY AGENT 43 SECTION 6.4. USE OF INVENTORY 44 ARTICLE VII. REPRESENTATIONS AND WARRANTIES 44 SECTION 7.1. CORPORATE EXISTENCE; SUBSIDIARIES; FOREIGN QUALIFICATION 44 SECTION 7.2. CORPORATE AUTHORITY 45
ii 4 SECTION 7.3. COMPLIANCE WITH LAWS 45 SECTION 7.4. LITIGATION AND ADMINISTRATIVE PROCEEDINGS 45 SECTION 7.5. LOCATION 45 SECTION 7.6. TITLE TO ASSETS 46 SECTION 7.7. LIENS AND SECURITY INTERESTS 46 SECTION 7.8. TAX RETURNS 46 SECTION 7.9. ENVIRONMENTAL LAWS 46 SECTION 7.10. EMPLOYEE BENEFITS PLANS 47 SECTION 7.11. CONSENTS OR APPROVALS 47 SECTION 7.12. SOLVENCY 47 SECTION 7.13. FINANCIAL STATEMENTS 48 SECTION 7.14. REGULATIONS 48 SECTION 7.15. MATERIAL AGREEMENTS 48 SECTION 7.16. INTELLECTUAL PROPERTY 48 SECTION 7.17. INSURANCE 48 SECTION 7.18. ACCURATE AND COMPLETE STATEMENTS 48 SECTION 7.19. INDENTURE 49 SECTION 7.20. REVOLVING CREDIT FACILITY 49 SECTION 7.21. DEFAULTS 49 ARTICLE VIII. EVENTS OF DEFAULT 49 SECTION 8.1. PAYMENTS 49 SECTION 8.2. SPECIAL COVENANTS 49 SECTION 8.3. OTHER COVENANTS 49 SECTION 8.4. REPRESENTATIONS AND WARRANTIES 49 SECTION 8.5. CROSS DEFAULT 50 SECTION 8.6. ERISA DEFAULT 50 SECTION 8.7. CHANGE IN MANAGEMENT/CONTROL 50 SECTION 8.8. MONEY JUDGMENT 50 SECTION 8.9. MATERIAL ADVERSE CHANGE 50 SECTION 8.10. DESIGNATED SENIOR INDEBTEDNESS 50 SECTION 8.11. INDENTURE 51 SECTION 8.12. VALIDITY OF LOAN DOCUMENTS 51 SECTION 8.13. SOLVENCY 51 ARTICLE IX. REMEDIES UPON DEFAULT 51 SECTION 9.1. OPTIONAL DEFAULTS 51 SECTION 9.2. AUTOMATIC DEFAULTS 52 SECTION 9.3. OFFSETS 52 SECTION 9.4. EQUALIZATION PROVISION 52 SECTION 9.5. COLLATERAL 53 ARTICLE X. THE AGENT 53 SECTION 10.1. APPOINTMENT AND AUTHORIZATION 54 SECTION 10.2. NOTE HOLDERS 54 SECTION 10.3. CONSULTATION WITH COUNSEL 54
iii 5 SECTION 10.4. DOCUMENTS 54 SECTION 10.5. AGENT AND AFFILIATES 54 SECTION 10.6. KNOWLEDGE OF DEFAULT 54 SECTION 10.7. ACTION BY AGENT 54 SECTION 10.8. NOTICES, DEFAULT, ETC. 54 SECTION 10.9. INDEMNIFICATION OF AGENT 55 SECTION 10.10. SUCCESSOR AGENT 55 ARTICLE XI. MISCELLANEOUS 55 SECTION 11.1. BANKS' INDEPENDENT INVESTIGATION 55 SECTION 11.2. NO WAIVER; CUMULATIVE REMEDIES 56 SECTION 11.3. AMENDMENTS, CONSENTS 56 SECTION 11.4. NOTICES 56 SECTION 11.5. COSTS, EXPENSES AND TAXES 57 SECTION 11.6. INDEMNIFICATION 57 SECTION 11.7. OBLIGATIONS SEVERAL; NO FIDUCIARY OBLIGATIONS 57 SECTION 11.8. EXECUTION IN COUNTERPARTS 58 SECTION 11.9. BINDING EFFECT; BORROWER'S ASSIGNMENT 58 SECTION 11.10. BANK ASSIGNMENTS/PARTICIPATIONS 58 SECTION 11.11. SEVERABILITY OF PROVISIONS; CAPTIONS; ATTACHMENTS 60 SECTION 11.12. INVESTMENT PURPOSE 60 SECTION 11.13. ENTIRE AGREEMENT 61 SECTION 11.14. GOVERNING LAW; SUBMISSION TO JURISDICTION 61 SECTION 11.15. JURY TRIAL WAIVER 62 SCHEDULE 1 BANKS AND COMMITMENTS 63 SCHEDULE 2 GUARANTORS OF PAYMENT 64 EXHIBIT A REVOLVING CREDIT NOTE 65 EXHIBIT B NOTICE WITH RESPECT TO LOAN 67 EXHIBIT C COMPLIANCE CERTIFICATE 69 EXHIBIT D WEEKLY COMPLIANCE CERTIFICATION 70 EXHIBIT E REQUEST FOR EXTENSION 72 EXHIBIT F FORM OF ASSIGNMENT AND ACCEPTANCE AGREEMENT 73
iv 6 This CREDIT AND SECURITY AGREEMENT (as the same may from time to time be amended, restated or otherwise modified, this "Agreement") is made effective as of the 21st day of December, 2000, among PARK-OHIO INDUSTRIES, INC., an Ohio corporation, 23000 Euclid Avenue, Euclid, Ohio 44117 ("Borrower"), the banking institutions named in Schedule 1 hereto (collectively, "Banks" and, individually, "Bank") and KEYBANK NATIONAL ASSOCIATION, 127 Public Square, Cleveland, Ohio 44114-1306, as administrative agent for the Banks under this Agreement ("Agent"), and THE HUNTINGTON NATIONAL BANK, 917 Euclid Avenue, Cleveland, Ohio 44115, as co-agent for the Banks under this Agreement ("Co-Agent"). As used in this Agreement, the term "Agent" shall not include Co-Agent. WITNESSETH: WHEREAS, Borrower and the Banks desire to contract for the establishment of credits in the aggregate principal amounts hereinafter set forth, to be made available to Borrower upon the terms and subject to the conditions hereinafter set forth; NOW, THEREFORE, it is mutually agreed as follows: ARTICLE I. DEFINITIONS As used in this Agreement, the following terms shall have the following meanings: "Account" shall mean (a) all accounts, as defined in Chapter 1309 of the Ohio Revised Code as in effect from time to time; (b)(i) any right to payment now or hereafter owing to Borrower (including but not limited to any such right to payment by reason of any lease, sale, manufacture, repair, processing or fabrication of personal property formerly, now or hereafter owned or otherwise held by Borrower, by reason of any services formerly, now or hereafter rendered by or on behalf of Borrower or by reason of any former, existing or future contract for any such lease, sale, manufacture, repair, processing, fabrication and/or services), whether such right to payment be classified by law as an instrument, chattel paper, contract right, account, document, general intangible or otherwise; (ii) the security, if any, for such right to payment; (iii) Borrower's right, title and interest (including, without limitation, all of Borrower's rights as an unpaid vendor, and any applicable right of stoppage in transit) in or to the personal property, if any, that is the subject of such right to payment; and (iv) all books and records pertaining to such right to payment; and (c) all proceeds of any of the foregoing, irrespective of the form or kind thereof. "Account Debtor" shall mean any Person obligated to pay all or any part of any Account in any manner and includes (without limitation) any Guarantor thereof. "Acquisition" shall mean any transaction or series of related transactions for the purpose of or resulting, directly or indirectly, in (a) the acquisition of all or substantially all of the assets of any Person, or any business or division of any Person, (b) the acquisition of in excess of fifty percent (50%) of the stock (or other equity interest) of any Person, or (c) the acquisition of 7 another Person (other than a Company) by a merger or consolidation or any other combination with such Person. "Administrative Agent Fee Letter" shall mean the Administrative Agent Fee Letter between Borrower and Agent, dated as of the Closing Date. "Advantage" shall mean any payment (whether made voluntarily or involuntarily, by offset of any deposit or other indebtedness or otherwise) received by any Bank in respect of the Debt, if such payment results in that Bank having less than its pro rata share of the Debt then outstanding, than was the case immediately before such payment. "Affiliate" shall mean any Person, directly or indirectly, controlling, controlled by or under common control with a Company and "control" (including the correlative meanings, the terms "controlling", "controlled by" and "under common control with") shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Company, whether through the ownership of voting securities, by contract or otherwise. "Applicable Commitment Fee Rate" shall mean: (a) for the period from the Closing Date through March 31, 2001, forty-five (45) basis points; and (b) commencing with the financial statements for the fiscal quarter ending December 31, 2000, the number of basis points set forth in the following matrix, based upon the result of the computation of the Leverage Ratio, shall be used to establish the number of basis points that will go into effect on April 1, 2001 and thereafter:
APPLICABLE LEVERAGE RATIO COMMITMENT FEE RATE -------------- ------------------- Greater than or equal to 4.50 to 1.00 50 basis points Greater than or equal to 4.25 to 1.00, but less than 4.50 to 1.00 45 basis points Greater than or equal to 4.00 to 1.00, but less than 4.25 to 1.00 40 basis points Greater than or equal to 3.75 to 1.00, but less than 4.00 to 1.00 35 basis points Greater than or equal to 3.40 to 1.00, but less than 3.75 to 1.00 30 basis points Less than 3.40 to 1.00 25 basis points
Changes to the Applicable Commitment Fee Rate shall be effective on the first day of the month following the date upon which Agent received, or, if earlier, should have received, pursuant to Section 5.3(a) and (b) hereof, the financial statements of Borrower. The above matrix does not modify or waive, in any respect, the requirements of Section 5.7 hereof, the rights of the Banks 2 8 to charge the Default Rate, or the rights and remedies of Agent and the Banks pursuant to Articles VIII and IX hereof. "Applicable Margin" shall mean: (a) for the period from the Closing Date through March 31, 2001, twenty-five (25) basis points for each Base Interest Segment and one hundred ninety (190) basis points for each LIBOR Interest Segment; and (b) commencing with the financial statements for the fiscal quarter ending December 31, 2000, the number of basis points (for each Base Interest Segment or LIBOR Interest Segment, as appropriate) set forth in the following matrix, based upon the result of the computation of the Leverage Ratio, shall be used to establish the number of basis points that will go into effect on April 1, 2001 and thereafter:
APPLICABLE BASIS POINTS APPLICABLE BASIS POINTS LEVERAGE RATIO FOR EACH BASE FOR EACH LIBOR INTEREST SEGMENT INTEREST SEGMENT Greater than or equal to 4.75 to 1.00 100 basis points 275 basis points Greater than or equal to 4.50 to 1.00, but less than 4.75 to 1.00 50 basis points 235 basis points Greater than or equal to 4.25 to 1.00, but less than 4.50 to 1.00 25 basis points 190 basis points Greater than or equal to 4.00 to 1.00, but less than 4.25 to 1.00 0 basis points 175 basis points Greater than or equal to 3.75 to 1.00, but less than 4.00 to 1.00 0 basis points 162.50 basis points Greater than or equal to 3.40 to 1.00, but less than 3.75 to 1.00 0 basis points 150 basis points Less than 3.40 to 1.00 0 basis points 137.50 basis points
Changes to the Applicable Margin shall be effective on the first day of the month following the date upon which Agent received, or, if earlier, should have received, pursuant to Section 5.3(a) and (b) hereof, the financial statements of Borrower. The above matrix does not modify or waive, in any respect, the requirements of Section 5.7 hereof, the rights of the Banks to charge the Default Rate, or the rights and remedies of Agent and the Banks pursuant to Articles VIII and IX hereof. "Assignment Agreement" shall mean an Assignment and Acceptance Agreement in the form of Exhibit F hereto. "Base Interest Segment" shall mean, with respect to each Revolving Loan made hereunder, that portion of the outstanding principal balance of such Revolving Loan, as selected by Borrower in accordance with the provisions of Section 2.1 hereof, on which Borrower shall pay interest at a Base Rate Option. 3 9 "Base Rate" shall mean a rate per annum equal to the greater of (a) the Prime Rate or (b) one-half of one percent (1/2%) in excess of the Federal Funds Effective Rate. Any change in the Base Rate shall be effective immediately from and after such change in the Base Rate. "Base Rate Option" shall mean an interest rate determined with reference to the Base Rate. "Business Day" shall mean a day of the year on which banks are not required or authorized to close in Cleveland, Ohio, and, if the applicable Business Day relates to any LIBOR Interest Segment, on which dealings are carried on in the London interbank eurodollar market. "Capital Distribution" shall mean a payment made, liability incurred or other consideration given for the purchase, acquisition, redemption or retirement of any capital stock or other equity interest of any Company or as a dividend, return of capital or other distribution (other than any stock dividend, stock split or other equity distribution payable only in capital stock or other equity of such Company) in respect of the capital stock or other equity interest of any Company. "Cash Collateral Account" shall mean a commercial Deposit Account designated "cash collateral account" and maintained by Borrower with Agent, without liability by Agent or the Banks to pay interest thereon, from which account Agent, on behalf of the Banks, shall have the exclusive right to withdraw funds until all of the Debt is paid in full. "Cash-Flow Coverage Ratio" shall mean the ratio of Consolidated Pro-Forma EBITDA to Consolidated Pro-Forma Fixed Charges. "Cash Security" shall mean all cash, instruments, Deposit Accounts and other cash equivalents, whether matured or unmatured, whether collected or in the process of collection, upon which Borrower presently has or may hereafter have any claim, wherever located, including but not limited to any of the foregoing that are presently or may hereafter be existing or maintained with, issued by, drawn upon, or in the possession of Agent or any Bank. "Change in Control" shall mean (a) the acquisition by any Person or group (other than Edward F. Crawford and his immediate family) of beneficial ownership (within the meaning of Rule 13d-3 of the SEC under the Securities Exchange Act of 1934, as then in effect) of thirty-three percent (33%) or more of the outstanding shares of voting stock of (i) Borrower or (ii) Parent, or (b) the occurrence of a Change of Control, as defined in the Indenture. "Closing Date" shall mean the effective date of this Agreement. "Closing Fee Letter" shall mean the Closing Fee Letter from Borrower to the Banks, dated as of the Closing Date. "Code" shall mean the Internal Revenue Code of 1986, as amended, together with the rules and regulations promulgated thereunder. 4 10 "Collateral" shall mean all of Borrower's existing and future (a) Accounts, instruments, contract rights, chattel paper, documents, Investment Property, General Intangibles and Inventory; (b) funds now or hereafter on deposit in the Cash Collateral Account, if any; (c) Cash Security; and (d) Proceeds, products, profits, and rents of any of (a) through (c) above. "Commitment" shall mean the obligation hereunder of the Banks to make Loans pursuant to the Revolving Credit Commitments up to the Total Commitment Amount during the Commitment Period. "Commitment Percentage" shall mean, for each Bank, the percentage set forth opposite such Bank's name under the column headed "Commitment Percentage" as described in Schedule 1 hereto. "Commitment Period" shall mean the period from the Closing Date to December 31, 2003, or such earlier date on which the Commitment shall have been terminated pursuant to Article IX hereof. "Companies" shall mean Borrower, Parent and all Subsidiaries of Borrower. "Company" shall mean Borrower, Parent or a Subsidiary of Borrower. "Compliance Certificate" shall mean a certificate, substantially in the form of Exhibit C hereto. "Consideration" shall mean, in connection with an Acquisition, the aggregate consideration paid, including borrowed funds, cash, the issuance of securities or notes, the assumption or incurring of liabilities (direct or contingent), the payment of consulting fees or fees for a covenant not to compete and any other consideration paid for the purchase. "Consolidated" shall mean the resultant consolidation of the financial statements of Borrower and its Subsidiaries in accordance with GAAP, including principles of consolidation consistent with those applied in preparation of the consolidated financial statements referred to in Section 7.13 hereof. "Consolidated Capital Expenditures" shall mean, for any period, the amount of capital expenditures of Borrower, as determined on a Consolidated basis and in accordance with GAAP. "Consolidated Depreciation and Amortization Charges" shall mean, for any period, the aggregate of all depreciation and amortization charges for fixed assets, leasehold improvements and general intangibles (specifically including goodwill) of Borrower for such period, as determined on a Consolidated basis and in accordance with GAAP. "Consolidated EBIT" shall mean, for any period, on a Consolidated basis and in accordance with GAAP, Consolidated Net Earnings for such period plus the aggregate amounts 5 11 deducted in determining such Consolidated Net Earnings in respect of (a) income taxes, and (b) Consolidated Interest Expense. "Consolidated EBITDA" shall mean, for any period, on a Consolidated basis and in accordance with GAAP, (a) Consolidated EBIT, plus (b) Consolidated Depreciation and Amortization Charges. "Consolidated Fixed Charges" shall mean, for any period, on a Consolidated basis and in accordance with GAAP, the aggregate of (a) Consolidated Interest Expense, (b) cash expenditures for income taxes as reported in Borrower's quarterly or annual financial statements, as the case may be, delivered pursuant to Sections 5.3(a) and (b) hereof, respectively, (c) principal payments on Funded Indebtedness (other than payments made with respect to (i) the Revolving Credit Notes and (ii) Indebtedness that is being refinanced simultaneously with the making of such payment), as reported in Borrower's quarterly or annual financial statements, as the case may be, delivered pursuant to Sections 5.3(a) and (b) hereof, respectively, (d) Capital Distributions of Borrower on a Consolidated basis (and specifically adding the amount of any loans made by Borrower to Parent for the purpose of making Capital Distributions), and (e) unfunded Consolidated Capital Expenditures as reported in Borrower's quarterly or annual financial statements, as the case may be, delivered pursuant to Sections 5.3(a) and (b) hereof, respectively, provided that for purposes of this definition, "unfunded Consolidated Capital Expenditures" shall be determined by excluding Capital Expenditures financed by (i) loans secured by purchase money liens on the assets purchased with the proceeds of such loans, (ii) capital leases, and (iii) payment of insurance proceeds for the purchase of replacement capital assets, except to the extent that any such payments are included (as a nonrecurring gain), on and after October 1, 2000, in the calculation of Consolidated Net Earnings. "Consolidated Interest Expense" shall mean, for any period, interest expense of Borrower for such period (including, without limitation, the "imputed interest" portion of capital leases), as determined on a Consolidated basis and in accordance with GAAP. "Consolidated Net Earnings" shall mean the net earnings (losses) of Borrower, after taxes and after extraordinary items, as determined on a Consolidated basis and in accordance with GAAP; provided, however, that (a) all nonrecurring gains (other than insurance amounts specifically paid for loss of income due to casualty) that occur on or after October 1, 2000 and (b) all nonrecurring losses shall be excluded from the calculation of Consolidated Net Earnings, except that Borrower may include, on or after October 1, 2000, in the calculation of Net Earnings up to a maximum amount of Two Million Dollars ($2,000,000) in gains resulting from insurance proceeds received as reimbursement for the loss of fixed assets due to the fire at Borrower's rubber plant in Cicero, Illinois. "Consolidated Net Worth" shall mean, at any date, the Consolidated stockholders' equity of Borrower, determined as of such date in accordance with GAAP. "Consolidated Pro-Forma EBIT" shall mean, for any period, the sum of (a) Consolidated EBIT, and (b)(i) without duplication, the EBIT of Companies acquired by Borrower and its Subsidiaries during the most recently completed four (4) fiscal quarters to the extent that such 6 12 EBIT of Companies acquired is confirmed by audited financial or other information satisfactory to Agent, minus (ii) the EBIT of Companies disposed of by Borrower and its Subsidiaries during the most recently completed four (4) fiscal quarters (but only to the extent that such EBIT is included in the calculation of Consolidated EBIT). "Consolidated Pro-Forma EBITDA" shall mean, for any period, the sum of (a) Consolidated EBITDA, and (b)(i) without duplication, the EBITDA of Companies acquired by Borrower and its Subsidiaries during the most recently completed four (4) fiscal quarters to the extent that such EBITDA of Companies acquired is confirmed by audited financial or other information satisfactory to Agent, minus (ii) the EBITDA of Companies disposed of by Borrower and its Subsidiaries during the most recently completed four (4) fiscal quarters (but only to the extent that such EBITDA is included in Consolidated EBITDA). "Consolidated Pro-Forma Fixed Charges" shall mean, for any period, the sum of (a) Consolidated Fixed Charges, and (b)(i) Consolidated Pro-Forma Interest Expense, minus (ii) Consolidated Interest Expense. "Consolidated Pro-Forma Interest Expense" shall mean, for any period, the sum of (a) Consolidated Interest Expense during the most recently completed four (4) fiscal quarters (the "Four Quarter Period"), and (b) (i) without duplication, the interest expense that would have been incurred had any Acquisitions of Companies acquired by Borrower and its Subsidiaries during the Four Quarter Period occurred on the first day of the Four Quarter Period, minus (ii) the interest expense that would not have been incurred had any Companies disposed of by Borrower and its Subsidiaries during the Four Quarter Period been disposed of on the first day of the Four Quarter Period. For purposes of subpart (b) of this definition, interest expense of any Company acquired or disposed of shall be an amount equal to the following: (A) the amount of cash paid or debt issued in the case of an acquisition or the amount of the proceeds received in the case of a disposition, times (B)(1)(x) the number of days that elapsed from the first day of the Four (4) Quarter Period for which such interest expense is being calculated through the date of the acquisition or disposition in question, divided by (y) three hundred sixty (360), times (2) the Derived LIBOR Rate in effect on the last day of the Four Quarter Period for which such interest expense is being calculated. "Controlled Group" shall mean a Company and each Person required to be aggregated with a Company under Code Sections 414(b), (c), (m) or (o). "Debt" shall mean, collectively, (a) all Indebtedness incurred by Borrower to Agent or the Banks (or any affiliate thereof) pursuant to this Agreement and includes the principal of and interest on all Notes; (b) each extension, renewal or refinancing thereof in whole or in part; (c) the commitment and other fees, and any prepayment premium payable hereunder; and (d) all Related Expenses. "Default" shall mean an event or condition that constitutes, or with the lapse of any applicable grace period or the giving of notice or both would constitute, an Event of Default and that has not been waived by the Required Banks in writing. 7 13 "Default Rate" shall mean a rate per annum equal to two percent (2%) in excess of the Derived Base Rate from time to time in effect. "Deposit Account" shall mean (a) any deposit account, and (b) any demand, time, savings, passbook, or a similar account maintained with a bank, savings and loan association, credit union, or similar organization. "Depreciation and Amortization Charges" shall mean, for any period, in accordance with GAAP, the aggregate of all depreciation and amortization charges for fixed assets, leasehold improvements and general intangibles (specifically including goodwill) of a Person for such period. "Derived LIBOR Rate" shall mean a rate per annum equal to the sum of the Applicable Margin (from time to time in effect) plus the LIBOR Rate. "Derived Base Rate" shall mean a rate per annum equal to the sum of the Applicable Margin (from time to time in effect) plus the Base Rate. "Domestic Subsidiary" shall mean a Subsidiary of Borrower organized under the laws of a state or territory of the United States. "EBIT" shall mean, for any period, in accordance with GAAP, Net Earnings for such period, plus the aggregate amounts deducted in determining such Net Earnings in respect of (a) income taxes, and (b) interest expense. "EBITDA" shall mean, for any period, in accordance with GAAP, (a) EBIT, plus (b) Depreciation and Amortization Charges. "Environmental Laws" shall mean all provisions of law, statutes, ordinances, rules, regulations, permits, licenses, judgments, writs, injunctions, decrees, orders, awards and standards promulgated by the government of the United States of America or by any state or municipality thereof or by any court, agency, instrumentality, regulatory authority or commission of any of the foregoing concerning health, safety and protection of, or regulation of the discharge of substances into, the environment. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated pursuant thereto. "ERISA Event" shall mean (a) the existence of a condition or event with respect to an ERISA Plan that presents a risk of the imposition of an excise tax or any other liability on a Company or of the imposition of a Lien on the assets of a Company; (b) a Controlled Group member has engaged in a non-exempt "prohibited transaction" (as defined under ERISA Section 406 or Code Section 4975) or a breach of a fiduciary duty under ERISA that could result in liability to a Company; (c) a Controlled Group member has applied for a waiver from the minimum funding requirements of Code Section 412 or ERISA Section 302 or a Controlled Group member is required to provide security under Code Section 401(a)(29) or ERISA Section 8 14 307; (d) a Reportable Event has occurred with respect to any Pension Plan as to which notice is required to be provided to the PBGC; (e) a Controlled Group member has withdrawn from a Multiemployer Plan in a "complete withdrawal" or a "partial withdrawal" (as such terms are defined in ERISA Sections 4203 and 4205, respectively); (f) a Multiemployer Plan is in or is likely to be in reorganization under ERISA Section 4241; (g) an ERISA Plan (and any related trust) that is intended to be qualified under Code Sections 401 and 501 fails to be so qualified or any "cash or deferred arrangement" under any such ERISA Plan fails to meet the requirements of Code Section 401(k); (h) the PBGC takes any steps to terminate a Pension Plan or appoint a trustee to administer a Pension Plan, or a Controlled Group member takes steps to terminate a Pension Plan; (i) a Controlled Group member or an ERISA Plan fails to satisfy any requirements of law applicable to an ERISA Plan; (j) a claim, action, suit, audit or investigation is pending or threatened with respect to an ERISA Plan, other than a routine claim for benefits; or (k) a Controlled Group member incurs or is expected to incur any liability for post-retirement benefits under any Welfare Plan, other than as required by ERISA Section 601, et. seq. or Code Section 4980B. "ERISA Plan" shall mean an "employee benefit plan" (within the meaning of ERISA Section 3(3)) that a Controlled Group member at any time sponsors, maintains, contributes to, has liability with respect to or has an obligation to contribute to such plan. "Eurocurrency Reserve Percentage" shall mean, for any Interest Period in respect of any LIBOR Interest Segment, as of any date of determination, the aggregate of the then stated maximum reserve percentages (including any marginal, special, emergency or supplemental reserves), expressed as a decimal, applicable to such Interest Period (if more than one such percentage is applicable, the daily average of such percentages for those days in such Interest Period during which any such percentage shall be so applicable) by the Board of Governors of the Federal Reserve System, any successor thereto, or any other banking authority, domestic or foreign, to which a Bank may be subject in respect to eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in Regulation D of the Federal Reserve Board) or in respect of any other category of liabilities including deposits by reference to which the LIBOR Rate with respect to any LIBOR Interest Segment is determined or any category of extension of credit or other assets that include any such LIBOR Interest Segment. For purposes hereof, such reserve requirements shall include, without limitation, those imposed under Regulation D of the Federal Reserve Board and the amount of each LIBOR Interest Segment shall be deemed to constitute Eurocurrency Liabilities subject to such reserve requirements without benefit of credits for proration, exceptions or offsets that may be available from time to time to any Bank under said Regulation D. "Event of Default" shall mean an event or condition that constitutes an event of default as defined in Article VIII hereof. "Federal Funds Effective Rate" shall mean, for any day, the rate per annum (rounded upward to the nearest one one-hundredth of one percent (1/100 of 1%)) announced by the Federal Reserve Bank of New York (or any successor) on such day as being the weighted average of the rates on overnight federal funds transactions arranged by federal funds brokers on the previous trading day, as computed and announced by such Federal Reserve Bank (or any 9 15 successor) in substantially the same manner as such Federal Reserve Bank computes and announces the weighted average it refers to as the "Federal Funds Effective Rate" as of the Closing Date. "Financial Officer" shall mean any of the following officers: chief executive officer, president, chief financial officer or controller. "Fixed Charge Coverage Ratio Condition" shall mean any time that (a) Borrower's Consolidated Fixed Charge Coverage Ratio (as defined in the Indenture) is less than 2.25 to 1.00, as calculated in accordance with the terms and conditions of the Indenture, or (b) the Consolidated Fixed Charge Coverage Ratio (as defined in the Indenture) of any Subsidiary of Borrower is less than 2.50 to 1.00, as calculated in accordance with the terms and conditions of the Indenture. "Foreign Subsidiary" shall mean a Subsidiary of Borrower or any of its Subsidiaries that is organized outside of the United States. "Funded Indebtedness" shall mean all Indebtedness that is funded, including, but not limited to, current, long-term and Subordinated Indebtedness; provided, however, that (a) reimbursement obligations (contingent or otherwise) under any letter of credit, banker's acceptance, interest rate swap, cap, collar or floor agreement or other interest rate management device shall not be deemed to be "funded" so long as such obligation remains solely a contingent obligation, and (b) any guaranty shall be deemed to be "funded" but shall be measured without duplication to Indebtedness otherwise already included as "funded". "GAAP" shall mean generally accepted accounting principles as in effect in the United States from time to time, which shall include the official interpretations thereof by the Financial Accounting Standards Board, applied on a basis consistent with the past accounting practices and procedures of Borrower; provided that, with respect to changes in generally accepted accounting principles that become effective following the Closing Date with respect to non-cash items, such changes shall not be given effect if Borrower, Agent and the Required Banks agree not to give effect to such changes for the purpose of evaluating the financial condition or performance of the Companies under this Agreement. "General Intangibles" shall mean all general intangibles now or hereafter acquired by Borrower, including but not limited to general intangibles as defined in Chapter 1309 of the Ohio Revised Code as in effect from time to time, choses in action, causes of action, all customer lists, corporate or other business records, goodwill, computer software, rights to indemnification and tax refunds, and all proceeds of any of the foregoing, irrespective of the form or kind thereof, but specifically excluding inventions, designs, patents, patent applications, service marks, registrations, trade names, trademarks and copyrights. "Guarantor" shall mean a Person that pledges its credit or property in any manner for the payment or other performance of the indebtedness, contract or other obligation of another and includes (without limitation) any guarantor (whether of payment or of collection), surety, co- 10 16 maker, endorser or Person that agrees conditionally or otherwise to make any purchase, loan or investment in order thereby to enable another to prevent or correct a default of any kind. "Guarantor of Payment" shall mean any one of the Companies listed on Schedule 2 attached hereto, which Companies are each executing and delivering a Guaranty of Payment, or any other Person that shall execute and deliver a Guaranty of Payment to Agent, for the benefit of the Banks, subsequent to the Closing Date. "Guaranty of Payment" shall mean each of the Guaranties of Payment of Debt executed and delivered on or after the Closing Date in connection herewith by a Guarantor of Payment, as the same may from time to time be amended, restated or otherwise modified. "Hedge Agreement" shall mean any hedge agreement, interest rate swap, cap, collar or floor agreement, or other interest rate management device entered into by Borrower with Agent or any of the Banks, or any of their respective affiliates, in connection with the Debt. "Indebtedness" shall mean, for any Company (excluding in all cases trade payables payable in the ordinary course of business by such Company), (a) all obligations to repay borrowed money, direct or indirect, incurred, assumed, or guaranteed, (b) all obligations for the deferred purchase price of capital assets, (c) all obligations under conditional sales or other title retention agreements, (d) all obligations (contingent or otherwise) under any letter of credit, banker's acceptance, currency swap agreement, interest rate swap, cap, collar or floor agreement or other interest rate management device, (e) all synthetic leases, (f) all lease obligations that have been or should be capitalized on the books of such Company in accordance with GAAP, (g) all obligations of such Company with respect to asset securitization financing programs to the extent that there is recourse against such Company or such Company is liable (contingent or otherwise) under any such program, (h) all obligations to advance funds to, or to purchase assets, property or services from, any other Person in order to maintain the financial condition of such Person, and (i) any other transaction (including forward sale or purchase agreements) having the commercial effect of a borrowing of money entered into by such Company to finance its operations or capital requirements. "Indenture" shall mean that certain Indenture dated as of June 2, 1999, between Borrower, as Issuer, and Norwest Bank Minnesota, National Association, as Trustee, pursuant to which the Senior Subordinated Notes were issued to the Senior Subordinated Noteholders, as the same may, with the prior written consent of Agent and the Required Banks, be from time to time amended, restated or otherwise modified. "Interest Adjustment Date" shall mean the last day of each Interest Period. "Interest Period" shall mean, with respect to any LIBOR Interest Segment, the period commencing on the date such LIBOR Interest Segment began to bear interest at a LIBOR Rate Option and ending on the last day of such period, as selected by Borrower pursuant to the provisions hereof, and, thereafter, each subsequent period commencing on the last day of the immediately preceding Interest Period and ending on the last day of such period, as selected by Borrower pursuant to the provisions hereof. The duration of each Interest Period for any LIBOR 11 17 Interest Segment shall be one (1) month, two (2) months, three (3) months or six (6) months, in each case as Borrower may select, as set forth in Section 2.2 hereof, provided that (a) if Borrower fails to so select the duration of any Interest Period, Borrower shall be deemed to have made a Notice With Respect to Loan of a Base Rate Option with respect to such LIBOR Interest Segment at the end of the then current Interest Period; and (b) Borrower may not select any Interest Period for a LIBOR Interest Segment that ends after any date when principal is due on the Revolving Loan applicable to such LIBOR Interest Segment. "Interest Rate Protection" shall mean, with respect to Indebtedness of Borrower, that either (a) Borrower has obtained a fixed rate of interest on such Indebtedness, or (b) Borrower has entered into a Hedge Agreement or Hedge Agreements; either of which shall be upon such terms and conditions as shall be satisfactory to Agent. "Inventory" shall mean all (a) inventory, as defined in Chapter 1309 of the Ohio Revised Code as in effect from time to time; (b) goods that are raw materials; (c) goods that are work-in-process; (d) goods that are materials used or consumed in the ordinary course of Borrower's business; (e) goods that are, in the ordinary course of Borrower's business, held for sale or lease or furnished or to be furnished under contracts of service; and (f) substitutes and replacements for, and parts, accessories, additions, attachments or accessions to (a) through (f) above. "Investment Property" shall mean all investment property, as defined in Chapter 1309 of the Ohio Revised Code as in effect from time to time, unless the Uniform Commercial Code as in effect in another jurisdiction would govern the perfection and/or priority of a security interest in investment property, and, in such case, investment property shall be defined in accordance with the law of that jurisdiction as in effect from time to time. "KeyBank Letter of Credit Obligations" shall mean, collectively, all obligations of Borrower or any of its Subsidiaries to KeyBank National Association pursuant to any letter of credit facility, including any reimbursement or other obligations in connection therewith. "Leverage Ratio" shall mean, at any time, on a Consolidated basis and in accordance with GAAP, the ratio for Borrower of (a) Total Funded Indebtedness (for the most recently completed fiscal quarter of Borrower) to (b) Consolidated Pro-Forma EBITDA (for the most recently completed four (4) fiscal quarters of Borrower). "LIBOR Breakage Fees" shall mean the fees set forth in the second paragraph of Section 2.4 hereof. "LIBOR Interest Segment" shall mean, with respect to each Revolving Loan made hereunder, each part of the outstanding principal balance of such Revolving Loan, as selected by Borrower in accordance with the provisions of Section 2.1 hereof, on which Borrower shall pay interest at a LIBOR Rate Option. "LIBOR Rate" shall mean, for any Interest Period with respect to any LIBOR Interest Segment, the quotient (rounded upwards, if necessary, to the nearest one sixteenth of one percent 12 18 (1/16th of 1%)) of (a) the per annum rate of interest, determined by Agent in accordance with its usual procedures (which determination shall be conclusive absent manifest error) as of approximately 11:00 A.M. (London time) two (2) Business Days prior to the beginning of such Interest Period pertaining to such LIBOR Interest Segment, as provided by Dow Jones Markets Service (successor to Telerate Service), Bloomberg's or Reuters (or any other similar company or service that provides rate quotations comparable to those currently provided by such companies) as the rate in the London interbank market for dollar deposits in immediately available funds with a maturity comparable to such Interest Period, divided by (b) a number equal to 1.00 minus the Eurocurrency Reserve Percentage. In the event that such rate quotation is not available for any reason, then the rate (for purposes of clause (a) hereof) shall be the rate, determined by Agent as of approximately 11:00 A.M. (London time) two (2) Business Days prior to the beginning of such Interest Period pertaining to such LIBOR Interest Segment, to be the average (rounded upwards, if necessary, to the nearest one sixteenth of one percent (1/16th of 1%)) of the per annum rates at which dollar deposits in immediately available funds in an amount comparable to the principal amount of such LIBOR Interest Segment and with a duration comparable to such Interest Period are offered to the prime banks by leading banks in the London interbank market. The LIBOR Rate shall be adjusted automatically on and as of the effective date of any change in the Eurocurrency Reserve Percentage. "LIBOR Rate Option" shall mean an interest rate determined with reference to the LIBOR Rate. "Lien" shall mean any mortgage, security interest, lien (statutory or other), charge, encumbrance on, pledge or deposit of, or conditional sale, leasing, sale with a right of redemption or other title retention agreement and any capitalized lease with respect to any property (real or personal) or asset. "Loan" shall mean any Revolving Loan extended to Borrower by the Banks in accordance with Section 2.1 hereof. "Loan Documents" shall mean, collectively, this Agreement, each Note, each Guaranty of Payment, each Security Agreement, each Pledge Agreement, the Agent Fee Letter, the Closing Fee Letter, all U.C.C. financing statements executed in connection with this Agreement and any of the foregoing agreements, as any of the foregoing may from time to time be amended, restated or otherwise modified or replaced. "Material Adverse Effect" shall mean a material adverse effect on (a) the business, operations, property, condition (financial or otherwise) or prospects of Borrower or (b) the business, operations, property, condition (financial or otherwise) or prospects of Borrower and its Subsidiaries taken as a whole. "Maximum Amount" shall mean, for each Bank, the amount set forth opposite such Bank's name under the column headed "Maximum Amount" as listed on Schedule 1 hereto. "Moody's" shall mean Moody's Investors Service, Inc., or any successor to such company. 13 19 "MP Colinet" shall mean Mecanique de Precision Colinet s.p.r.l., together with its successors and assigns. "Multiemployer Plan" shall mean a Pension Plan that is subject to the requirements of Subtitle E of Title IV of ERISA. "Net Earnings" shall mean, for any period, the net income (loss) for such period (excluding from the calculation any nonrecurring gains or losses), determined in accordance with GAAP. "Note" shall mean any Revolving Credit Note, or any other note delivered pursuant to this Agreement. "Notice With Respect to Loan" shall mean, with respect to any request for, or change in the Interest Period or interest rate applicable to any portion of the outstanding principal balance of, a Loan, or a prepayment of any Loan, or any part thereof, a Notice With Respect to Loan in the form of Exhibit B hereto. "Obligor" shall mean (a) a Person whose credit or any of whose property is pledged to the payment of the Debt and includes, without limitation, any Guarantor, and (b) any signatory to a Related Writing. "Organizational Documents" shall mean, with respect to any Person (other than an individual), such Person's Articles (Certificate) of Incorporation, or equivalent formation documents, and Regulations (Bylaws), or equivalent governing documents, and any amendments to any of the foregoing. "Parent" shall mean Park-Ohio Holdings Corp., an Ohio corporation, together with its successors and assigns. "PBGC" shall mean the Pension Benefit Guaranty Corporation, or its successor. "Pension Plan" shall mean an ERISA Plan that is a "pension plan" (within the meaning of ERISA Section 3(2)). "Permitted Foreign Subsidiary Investments and Loans" shall mean (a) the investments by Borrower or a Domestic Subsidiary in Foreign Subsidiaries existing as of the Closing Date, as set forth on Schedule 5.11(b) hereto; (b) loans and investments by Borrower or a Domestic Subsidiary to or in a Foreign Subsidiary (other than MP Colinet) made on or after the Closing Date in the ordinary course of business, so long as the aggregate amount of all such loans and investments does not exceed Fifteen Million Dollars ($15,000,000) at any time, provided, however, that, upon the disposition of any Foreign Subsidiary by Borrower or a Domestic Subsidiary in accordance with the provisions of this Agreement, the foregoing amount shall be reduced by an amount equal to the aggregate amount of loans outstanding to such Foreign Subsidiary on the Closing Date; and (c)unsecured Indebtedness of MP Colinet to any Person (other than a Company), so long as the aggregate amount of all such Indebtedness of MP Colinet does not exceed Four Million Dollars ($4,000,000) at any time. 14 20 "Permitted Investment" shall mean (a) any endorsement of a check or other medium of payment for deposit or collection through normal banking channels or similar transaction in the normal course of business; (b) any investment in direct obligations of the United States of America or in certificates of deposit issued by a member bank of the Federal Reserve System; (c) any investment in commercial paper or securities that at the time of such investment is assigned the highest quality rating in accordance with the rating systems employed by either Moody's or Standard & Poor's; (d) the holding by Borrower or a Subsidiary of Borrower, as the case may be, of Subsidiaries listed on Schedule 7.1 hereto; (e) any advance or loan to an officer or employee of a Company made in the ordinary course of such Company's business, so long as all such advances and loans from all Companies aggregate not more than the maximum principal sum of Five Hundred Thousand Dollars ($500,000) at any time outstanding; (f) the holding of any Domestic Subsidiary by Borrower or a Guarantor of Payment as a result of an Acquisition made pursuant to Section 5.13 hereof so long as such Domestic Subsidiary complies with the requirements of Section 5.21 hereof; (g) the creation by Borrower or a Subsidiary of Borrower, as the case may be, of a Subsidiary so long as such Subsidiary complies with the requirements of Section 5.21 hereof; or (h) payments, directly or indirectly, to employees of Borrower to repurchase capital stock of Parent upon the death, disability or termination of employment of such employees, in amounts not to exceed the aggregate, for all such payments pursuant to this subpart (h), of One Million Five Hundred Thousand Dollars ($1,500,000) per fiscal year. "Permitted Parent Loans" shall mean loans or transfers, as the case may be, to Parent from Borrower or a Subsidiary of Borrower for any of the following purposes: (a) franchise taxes and other fees required to maintain Parent's corporate existence, (b) costs associated with preparation of required documents for filing with the SEC and with any exchange on which Parent's securities are traded, (c) federal, state, foreign and local taxes to the extent that such taxes are attributable to Parent's ownership of Borrower and its Subsidiaries, (d) payments, directly or indirectly, to employees of Parent to repurchase capital stock of Parent upon the death, disability or termination of employment of such employees, in amounts not to exceed the aggregate, for all such payments pursuant to this subpart (d) and subpart (h) of the definition of "Permitted Investment", of One Million Five Hundred Thousand Dollars ($1,500,000) per fiscal year, and (e) in addition to the loans or transfers permitted by subparts (a) through (d) hereof, and so long as no Default or Event of Default shall not have occurred, loans made by Borrower or any Subsidiary of Borrower to Parent which shall not exceed the aggregate amount, for all such loans by Borrower and its Subsidiaries, of Five Million Dollars ($5,000,000) at any time outstanding. "Person" shall mean any individual, sole proprietorship, partnership, joint venture, unincorporated organization, corporation, limited liability company, institution, trust, estate, government or other agency or political subdivision thereof or any other entity. "Pledge Agreement" shall mean each of the Pledge Agreements executed and delivered to Agent, for the benefit of the Banks, by Borrower or a Guarantor of Payment, as applicable, with respect the Pledged Securities, on or after the Closing Date, as the same may from time to time be amended, restated or otherwise modified. 15 21 "Pledged Securities" shall mean sixty-five percent (65%) of the stock or other equity interest of each Foreign Subsidiary of (a) Borrower or (b) any Subsidiary of Borrower, whether now owned or hereafter acquired or created, and all proceeds thereof. "Prime Rate" shall mean the interest rate established from time to time by Agent as Agent's prime rate, whether or not such rate is publicly announced; the Prime Rate may not be the lowest interest rate charged by Agent for commercial or other extensions of credit. Each change in the Prime Rate shall be effective immediately from and after such change. "Proceeds" shall mean (a) any proceeds, and (b) whatever is received upon the sale, exchange, collection, or other disposition of Collateral or proceeds, whether cash or non-cash. Cash proceeds includes, without limitation, moneys, checks, and Deposit Accounts. Proceeds includes, without limitation, any Account arising when the right to payment is earned under a contract right, any insurance payable by reason of loss or damage to the Collateral, and any return or unearned premium upon any cancellation of insurance. Except as expressly authorized in this Agreement, the right of Agent and the Banks to Proceeds specifically set forth herein or indicated in any financing statement shall never constitute an express or implied authorization on the part of Agent or any Bank to Borrower's sale, exchange, collection, or other disposition of any or all of the Collateral. "Related Expenses" shall mean any and all costs, liabilities, and expenses (including, without limitation, losses, damages, penalties, claims, actions, reasonable attorneys' fees, legal expenses, judgments, suits, and disbursements) (a) incurred by Agent in the exercise of its reasonable discretion, or imposed upon or asserted against, Agent or any Bank in any attempt by Agent, on behalf of the Banks, to (i) obtain, preserve, perfect or enforce any security interest evidenced by this Agreement or any Related Writing; (ii) obtain payment, performance or observance of any and all of the Debt; or (iii) maintain, insure, audit, collect, preserve, repossess or dispose of any of the collateral securing the Debt or any thereof, including, without limitation, costs and expenses for appraisals, assessments, and audits by Agent of Borrower or any such collateral; or (b) incidental or related to (a) above, including, without limitation, interest thereupon from the date incurred, imposed, or asserted until paid at the Default Rate. "Related Writing" shall mean each Loan Document and any other assignment, mortgage, security agreement, guaranty agreement, subordination agreement, financial statement, audit report or other writing furnished by a Company or any Obligor, or any of their respective officers, to the Banks pursuant to or otherwise in connection with this Agreement. "Reportable Event" shall mean a reportable event as that term is defined in Title IV of ERISA, except actions of general applicability by the Secretary of Labor under Section 110 of such Act. "Repurchase" shall mean the purchase by Parent of any of its outstanding capital stock. "Request for Extension" shall mean a notice, substantially in the form of Exhibit E hereto. 16 22 "Required Banks" shall mean the holders of at least sixty-six and two-thirds percent (66-2/3%) of the Total Commitment Amount, or, if there is any borrowing hereunder, the holders of at least sixty-six and two-thirds percent (66-2/3%) of the aggregate amount outstanding under the Notes. "Restricted Payment" shall mean, with respect to any Company, (a) any Capital Distribution, or (b) (i) any amount paid on, or in respect of the redemption (including any mandatory redemption or optional redemption), retirement, repurchase, direct or indirect, of the Senior Subordinated Notes or any other Subordinated Indebtedness, or (ii) the exercise by such Company of any right of defeasance or covenant defeasance or similar right with respect to the Senior Subordinated Notes or any other Subordinated Indebtedness. "Revolving Credit Commitment" shall mean the obligation hereunder of each Bank, during the Commitment Period, to participate in the making of Revolving Loans up to the aggregate amount set forth opposite such Bank's name under the column headed "Revolving Credit Commitment Amount" as set forth on Schedule 1 hereto (or such lesser amount as shall be determined pursuant to Section 2.5 hereof). "Revolving Credit Note" shall mean any Revolving Credit Note executed and delivered pursuant to Section 2.1 hereof. "Revolving Loan" shall mean a Loan granted to Borrower by the Banks in accordance with Section 2.1 hereof. "SEC" shall mean the United States Securities and Exchange Commission, or any governmental body or agency succeeding to any of its principal functions. "Secured Debt" shall mean, collectively, (a) the Debt; (b) all obligations and liabilities now existing or hereafter incurred under, arising out of or in connection with any Hedge Agreement; and (c) the KeyBank Letter of Credit Obligations. "Senior Debt Coverage Ratio" shall mean the ratio of Total Senior Funded Indebtedness to Consolidated Pro-Forma EBITDA. "Senior Subordinated Noteholder" shall mean the holder or purchaser of any Note (as defined in the Indenture) under the Indenture. "Senior Subordinated Note" shall mean the Notes (as defined in the Indenture) issued pursuant to the Indenture. "Sister Company" shall mean a Person that is not a Subsidiary of Borrower, but that is (a) a Subsidiary of Parent or (b) a Person in which Parent or a Subsidiary of Parent has an ownership interest. "Special Account" shall mean an Account with respect to which the Account Debtor is the United States of America or any state, city, county or other governmental authority or any 17 23 department, agency or instrumentality of any of them, or any foreign government or instrumentality thereof or any business which is located in a foreign country. "Standard & Poor's" shall mean Standard & Poor's Ratings Group, a division of McGraw-Hill, Inc., or any successor to such company. "Subordinated", as applied to Indebtedness, shall mean that the Indebtedness has been subordinated (by written terms or written agreement being, in either case, in form and substance satisfactory to Agent and the Required Banks) in favor of the prior payment in full of the Debt. "Subsidiary" of a Person shall mean (a) a corporation more than fifty percent (50%) of the Voting Power of which is owned, directly or indirectly, by such Person or by one or more other Subsidiaries of such Person or by such Person and one or more Subsidiaries of such Person, (b) a partnership or limited liability company of which such Person, one or more other Subsidiaries of such Person or such Person and one or more Subsidiaries of such Person, directly or indirectly, is a general partner or managing member, as the case may be, or otherwise has the power to direct the policies, management and affairs thereof, or (c) any other Person (other than a corporation) in which such Person or one or more other Subsidiaries of such Person, directly or indirectly, has at least a majority interest in the Voting Power or the power to direct the policies, management and affairs thereof. "Security Agreement" shall mean each Security Agreement executed and delivered to Agent, for the benefit of the Banks, by a Guarantor of Payment on or after the Closing Date, as the same may from time to time be amended, restated or otherwise modified. "Total Commitment Amount" shall mean the principal amount of One Hundred Eighty Million Dollars ($180,000,000) (or such lesser amount as shall be determined pursuant to Section 2.5 hereof). "Total Funded Indebtedness" shall mean, on a Consolidated basis and in accordance with GAAP, all Funded Indebtedness of Borrower. "Total Senior Funded Indebtedness" shall mean Total Funded Indebtedness other than Subordinated Indebtedness. "Voting Power" shall mean, with respect to any Person, the exclusive ability to control, through the ownership of shares of capital stock, partnership interests, membership interests or otherwise, the election of members of the board of directors or other similar governing body of such Person, and the holding of a designated percentage of Voting Power of a Person means the ownership of shares of capital stock, partnership interests, membership interests or other interests of such Person sufficient to control exclusively the election of that percentage of the members of the board of directors or similar governing body of such Person. "Weekly Compliance Certification" shall mean a Weekly Compliance Certification, substantially in the form of Exhibit D hereto. 18 24 "Welfare Plan" shall mean an ERISA Plan that is a "welfare plan" within the meaning of ERISA Section 3 (l). "Wholly-Owned Subsidiary" shall mean, with respect to any Person, any corporation, limited liability company or other entity, all of the securities or other ownership interest of which having ordinary voting power to elect a majority of the board of directors, or other persons performing similar functions, are at the time directly or indirectly owned by such Person. Any accounting term not specifically defined in this Article I shall have the meaning ascribed thereto by GAAP. Unless otherwise defined in this Article I, terms that are defined in Chapter 1309 of the Ohio Revised Code, as in effect from time to time, are used herein as so defined. The foregoing definitions shall be applicable to the singular and plurals of the foregoing defined terms. ARTICLE II. AMOUNT AND TERMS OF CREDIT SECTION 2.1. AMOUNT AND NATURE OF CREDIT. Subject to the terms and conditions of this Agreement, each Bank will participate, to the extent hereinafter provided, in making Revolving Loans to Borrower in such aggregate amount as Borrower shall request pursuant to the Commitment; provided, however, that in no event shall the aggregate principal amount of all Revolving Loans outstanding under this Agreement be in excess of the Total Commitment Amount. Each Bank, for itself and not one for any other, agrees to participate in Loans made hereunder during the Commitment Period on such basis that (a) immediately after the completion of any borrowing by Borrower hereunder, the aggregate principal amount then outstanding on the Notes issued to such Bank, shall not be in excess of the Maximum Amount for such Bank, and (b) such aggregate principal amount outstanding on the Notes issued to such Bank shall represent that percentage of the aggregate principal amount then outstanding on all Notes (including the Notes held by such Bank) that is such Bank's Commitment Percentage. Each borrowing from the Banks hereunder shall be made pro rata according to the Banks' respective Commitment Percentages. Each Revolving Loan shall mature on the last day of the Commitment Period and shall bear interest at a Base Rate Option or one or more LIBOR Rate Options as selected by Borrower in accordance with the terms and conditions set forth herein. With respect to the Base Interest Segment of each Revolving Loan, Borrower shall pay interest on the unpaid principal amount thereof outstanding from time to time from the date thereof until paid, commencing December 31, 2000, and on the last day of each succeeding March, June, September and December thereafter and at the maturity thereof, at the Derived Base Rate from time to time in effect. 19 25 With respect to each LIBOR Interest Segment of each Revolving Loan, Borrower shall pay interest on the unpaid principal amount thereof outstanding from time to time, from the first day of the Interest Period applicable thereto through the last day of the Interest Period applicable thereto. Interest on each such LIBOR Interest Segment shall be at the Derived LIBOR Rate, as calculated on the first day of the Interest Period applicable thereto (fixed for such Interest Period with respect to the LIBOR Rate, but subject to changes in the Applicable Margin), and shall be payable on the Interest Adjustment Date with respect to such Interest Period (provided that if an Interest Period exceeds three (3) months, the interest must be paid every three (3) months, commencing three (3) months from the beginning of such Interest Period). At the request of Borrower to Agent, subject to the notice and other provisions of Section 2.2 hereof, the Banks shall change all or any part of a Base Rate Segment of any Revolving Loan to a LIBOR Rate Option at any time, and shall change any LIBOR Interest Segment of any Revolving Loan to a Base Rate Option on the Interest Adjustment Date applicable to such LIBOR Interest Segment. The obligation of Borrower to repay the Revolving Loans made by each Bank and to pay interest thereon shall be evidenced by a Revolving Credit Note of Borrower in the form of Exhibit A hereto, payable to the order of such Bank in the principal amount of its Revolving Credit Commitment, or, if less, the aggregate unpaid principal amount of Revolving Loans made hereunder by such Bank. Subject to the provisions of this Agreement, Borrower shall be entitled under this Section 2.1 to borrow funds, repay the same in whole or in part and re-borrow hereunder at any time and from time to time during the Commitment Period. SECTION 2.2. CONDITIONS TO LOANS AND CHANGES IN INTEREST RATE. The obligation of the Banks to make a Loan, and change the interest rate applicable to any portion of the outstanding principal balance of such Loan is conditioned, in the case of each borrowing and upon each change of interest rate hereunder, upon: (a) all conditions precedent as listed in Article IV hereof shall have been satisfied on or before the Closing Date; (b) with respect to a request for a Revolving Loan to be borrowed at a Base Rate Option, receipt by Agent of a Notice With Respect to Loan by 11:00 A.M. (Cleveland, Ohio time) on the proposed date of borrowing, and, with respect to a request for a Revolving Loan to be borrowed at one (1) or more LIBOR Rate Options, by 11:00 A.M. (Cleveland, Ohio time) three (3) Business Days prior to the proposed date of borrowing. Such Notice With Respect to Loan shall be signed by a Financial Officer of Borrower, except that, with respect to a notice requesting Loans in an aggregate amount of less than Five Million Dollars ($5,000,000), such Notice With Respect to Loan may be signed by Anita Woodworth, or such other agent of Borrower who may be authorized by Borrower in a writing delivered to Administrative Agent. Agent shall notify each Bank of the date, amount and initial Interest Period (if applicable) promptly upon the receipt of such Notice With Respect to Loan, and, in any event, by 2:00 P.M. (Cleveland, Ohio time) on the date such Notice With Respect to Loan is received. On the date such Loan is to be made, each Bank shall provide Agent, not later than 3:00 P.M. (Cleveland, 20 26 Ohio time), with the amount in federal or other immediately available funds, required of it, and, upon receipt by Agent of such funds from all of the Banks, Agent shall, by 5:00 P.M. (Cleveland, Ohio time) remit the proceeds of such Loan to Borrower. If Agent elects to advance the proceeds of such Loan prior to receiving funds from any Bank, Agent shall have the right, upon prior notice to Borrower, to debit any account of Borrower or otherwise receive from Borrower, on demand, such amount, in the event that such Bank fails to reimburse Agent. Agent shall also have the right to receive interest from such Bank at the Federal Funds Rate in the event that such Bank shall fail to provide its portion of the Loan on the date requested and Agent elects to provide such funds; (c) with respect to a request for a change in or continuation of an interest rate option relating to any outstanding Revolving Loan, receipt by Agent of a Notice With Respect to Loan by (i) 11:00 A.M. (Cleveland, Ohio time) on the proposed date that any Base Rate Option is to become effective, and, (ii) 11:00 A.M. (Cleveland, Ohio time) three (3) Business Days prior to the proposed date that any LIBOR Rate Option is to become effective. Such Notice With Respect to Loan shall be signed by a Financial Officer of Borrower, except that, with respect to a notice requesting a change in or continuation of an interest option relating to outstanding Revolving Loans the aggregate principal amount of which is less than Five Million Dollars ($5,000,000), such Notice With Respect to Loan may be signed by Anita Woodworth, or such other agent of Borrower who may be authorized by Borrower in a writing delivered to Administrative Agent. Agent shall notify each Bank of the date, amount and Interest Period (if applicable) promptly upon the receipt of any such Notice With Respect to Loan, and, in any event, by 2:00 P.M. (Cleveland, Ohio time) on the date such Notice With Respect to Loan is received; (d) with respect to a request for a Revolving Loan or change in or continuation of an interest rate option, (i) each Base Rate Segment shall be in an amount of not less than Five Hundred Thousand Dollars ($500,000), increased by increments of One Hundred Thousand Dollars ($100,000), and (ii) each LIBOR Interest Segment shall be in an amount of not less than Five Million Dollars ($5,000,000), increased by increments of One Million Dollars ($1,000,000); (e) the fact that no Default or Event of Default shall then exist; and (f) the fact that each of the representations and warranties contained in Article VII hereof shall be true and correct in all material respects, except to the extent that any thereof expressly relate to an earlier date. At no time shall Borrower have selected more than ten (10) different Interest Periods for LIBOR Rate Options, and, if any Base Rate Option has been selected, then Borrower shall not have selected more than nine (9) different Interest Periods. Each request by Borrower for the making of a Loan, or for the change in or continuation of, an interest rate option, shall be deemed to be a representation and warranty by Borrower as of the date of such request as to the facts specified in (e) and (f) above. 21 27 Each notice of a selection or continuation of, or change to, a LIBOR Rate Option shall be irrevocable and binding on Borrower and Borrower shall indemnify Agent and the Banks against any loss or expense incurred by Agent or the Banks as a result of any failure by Borrower to consummate such transaction including, without limitation, any loss (including loss of anticipated profits) or expense incurred by reason of liquidation or re-employment of deposits or other funds acquired by the Banks to fund any LIBOR Interest Segment. A certificate as to the amount of such loss or expense submitted by the Banks to Borrower shall be conclusive and binding for all purposes, absent manifest error. SECTION 2.3. PAYMENT ON NOTES, ETC. All payments of principal, interest and commitment and other fees shall be made to Agent in immediately available funds for the account of the Banks. Agent, on the same Business Day, shall distribute to each Bank its ratable share of the amount of principal, interest, and commitment and other fees received by it for the account of such Bank. Each Bank shall record (a) any principal, interest or other payment, and (b) the principal amount of each Revolving Loan, and the amount of each Base Interest Segment and LIBOR Interest Segments applicable thereto, and all prepayments thereof and the applicable dates with respect thereto, by such method as such Bank may generally employ; provided, however, that failure to make any such entry shall in no way detract from Borrower's obligations under each Note. The aggregate unpaid amount of Loans set forth on the records of Agent shall be rebuttably presumptive evidence of the principal and interest owing and unpaid on each Note. Whenever any payment to be made hereunder, including, without limitation, any payment to be made on any Note, shall be stated to be due on a day that is not a Business Day, such payment shall be made on the next succeeding Business Day and such extension of time shall in each case be included in the computation of the interest payable on such Note; provided, however, that, with respect to any LIBOR Interest Segment, if the next succeeding Business Day falls in the succeeding calendar month, such payment shall be made on the preceding Business Day and the relevant Interest Period shall be adjusted accordingly. SECTION 2.4. PREPAYMENT. Borrower shall have the right at any time or from time to time to prepay, on a pro rata basis for all of the Banks, all or any part of the principal amount of the Revolving Loans then outstanding, as designated by Borrower, plus interest accrued on the amount so prepaid to the date of such prepayment. With respect to a prepayment of any Base Rate Interest Segment, Borrower shall have delivered to Agent a Notice With Respect to Loan by not later than 11:00 A.M. (Cleveland, Ohio time) on the Business Day such prepayment is to be made and, with respect to a prepayment of any LIBOR Interest Segment, Borrower shall have delivered to Agent a Notice With Respect to Loan by not later than 1:00 P.M. (Cleveland, Ohio time) three (3) Business Days before the Business Day on which such prepayment is to be made. Prepayment of a Base Interest Segment shall be without any premium or penalty, other than any prepayment fees, penalties or other charges that may be contained in any Hedge Agreement. In any case of change of a LIBOR Interest Segment to a Base Rate Option or different LIBOR Rate Option, or of prepayment of any amount of any LIBOR Interest Segment, prior to the last day of the Interest Period applicable thereto (a "Revision To Interest Period"), Borrower agrees that if the reinvestment rate, as quoted by the money desk of Agent ("Reinvestment Rate"), shall be lower than the LIBOR Rate applicable to the LIBOR Interest Segment that is intended to have a Revision To Interest Period (hereinafter, "Last LIBOR"), then Borrower shall, 22 28 upon written notice by Agent, promptly pay to Agent, for the benefit of the Banks, in immediately available funds, a LIBOR breakage fee equal to the product of (a) a rate that shall be equal to the difference between the Last LIBOR and the Reinvestment Rate, times (b) the principal amount of the LIBOR Interest Segment that is to have a Revision To Interest Period, times (c) (i) the number of days remaining in the Interest Period of the LIBOR Interest Segment that is to have a Revision To Interest Period divided by (ii) three hundred sixty (360). In addition, Borrower shall immediately pay directly to Agent, for the account of the Banks, the amount of any additional costs or expenses (including, without limitation, cost of telex, wires, or cables) incurred by Agent or the Banks in connection with such Revision To Interest Period, upon Borrower's receipt of a written statement from Agent. Each such change of a LIBOR Interest Segment to a Base Rate Option or a different LIBOR Rate option, or of prepayment of any amount of any LIBOR Interest Segment shall be in the aggregate principal sum of not less than Five Million Dollars ($5,000,000), except in the case of a mandatory prepayment pursuant to Section 2.7 or Article III hereof. SECTION 2.5. COMMITMENT AND OTHER FEES; REDUCTION OF COMMITMENT. (a) Borrower shall pay to Agent, for the ratable account of the Banks, as a consideration for the Commitment hereunder, a commitment fee from the Closing Date to and including the last day of the Commitment Period, payable quarterly, equal to (i) the Applicable Commitment Fee Rate in effect on the payment date, times (ii) (A) the maximum Total Commitment Amount in effect during such quarter, less (B) the average daily aggregate principal amount of all Revolving Loans outstanding during such quarter. The commitment fee shall be payable, in arrears, on December 31, 2000, and on the last day of each March, June, September and December thereafter, and on the last day of the Commitment Period. (b) Borrower shall pay to Agent, for its sole benefit, all fees set forth in the Administrative Agent Fee Letter. (c) Borrower may at any time or from time to time permanently reduce in whole or ratably in part the Commitment of the Banks hereunder to an amount not less than the aggregate principal amount of the Loans then outstanding, by giving not fewer than three (3) Business Days' notice of such reduction, provided that any such partial reduction shall be in an aggregate amount, for all of the Banks, of not less than Five Million Dollars ($5,000,000) or any multiple thereof. Agent shall promptly notify each Bank of the date of each such reduction and such Bank's proportionate share thereof. After each such reduction, the commitment fees payable hereunder shall be calculated upon the Total Commitment Amount as so reduced. If Borrower reduces in whole the Commitment of the Banks, on the effective date of such reduction (Borrower having prepaid in full the unpaid principal balance, if any, of the Notes, together with all interest and commitment and other fees accrued and unpaid), all of the Notes shall be delivered to Agent marked "Canceled" and Agent shall redeliver such Notes to Borrower. Any partial reduction in the Commitment of the Banks shall be effective during the remainder of the Commitment Period. 23 29 SECTION 2.6. COMPUTATION OF INTEREST AND FEES; DEFAULT RATE. Interest on Loans, Related Expenses and commitment and other fees and charges hereunder shall be computed on the basis of a year having three hundred sixty (360) days and calculated for the actual number of days elapsed. Anything herein to the contrary notwithstanding, if an Event of Default shall occur hereunder, at the option of the Required Banks, the principal of each Note and the unpaid interest thereon shall bear interest, until paid, at the Default Rate. In no event shall the rate of interest hereunder exceed the maximum rate allowable by law. SECTION 2.7. MANDATORY PAYMENT. If the aggregate principal amount of all Loans outstanding at any time exceeds the Total Commitment Amount, Borrower shall, as promptly as practicable, but in no event later than the next Business Day, prepay an aggregate principal amount of the Loans sufficient to bring the aggregate outstanding principal amount of all Loans within the Commitment of the Banks. Any prepayment of a LIBOR Interest Segment pursuant to this Section 2.7 shall be subject to the prepayment fees set forth in Section 2.4 hereof. SECTION 2.8. FIXED CHARGE COVERAGE RATIO CONDITION. Borrower shall (a) provide immediate written notice to Agent and the Banks at any time that the Fixed Charge Coverage Ratio Condition exists or, within the next three (3) months, is likely to exist, and, so long as the Fixed Charge Coverage Ratio exists, Borrower shall not request any Loan, and the Banks shall not be obligated to make any Loan, unless (i) the proceeds of such Loan shall constitute Permitted Indebtedness (as defined in the Indenture), and (ii) upon request of Agent, Borrower shall provide to the Banks such evidence of use of proceeds of the Loans and such opinion of counsel with respect to the Indenture, as Agent may require in its reasonable discretion, and (b) on the first Business Day of each week, commencing on the Monday after the Closing Date, furnish to Agent, a Weekly Compliance Certification, certified by a Financial Officer of Borrower. SECTION 2.9. EXTENSION OF COMMITMENT. Contemporaneously with the delivery of the financial statements required pursuant to Section 5.3 (b) hereof (beginning with the financial statements for Borrower's fiscal year ending December 31, 2001), Borrower may deliver a Request for Extension, requesting that the Banks extend the maturity of the Commitment for an additional year. Each such extension shall require the unanimous written consent of all of the Banks and shall be upon such terms and conditions as may be agreed to by Agent, Borrower and the Banks. Borrower shall pay any attorneys' fees or other expenses of Agent in connection with the documentation of any such extension, as well as such other fees as may be agreed upon between Borrower and Agent. ARTICLE III. ADDITIONAL PROVISIONS RELATING TO LIBOR INTEREST SEGMENTS; INCREASED CAPITAL; TAXES. SECTION 3.1. RESERVES OR DEPOSIT REQUIREMENTS, ETC. If, at any time, any law, treaty or regulation (including, without limitation, Regulation D of the Board of Governors of the Federal Reserve System) or the interpretation thereof by any governmental authority charged with the administration thereof or any central bank or other fiscal, monetary or other 24 30 authority shall impose (whether or not having the force of law), modify or deem applicable any reserve and/or special deposit requirement (other than reserves included in the Eurocurrency Reserve Percentage, the effect of which is reflected in the interest rate(s) of the LIBOR Interest Segment(s) in question) against assets held by, or deposits in or for the amount of any LIBOR Interest Segment by, any Bank, and the result of the foregoing is to increase the cost (whether by incurring a cost or adding to a cost) to such Bank of maintaining hereunder such LIBOR Interest Segment or to reduce the amount of principal or interest received by such Bank with respect to such LIBOR Interest Segment, then, upon demand by such Bank, Borrower shall pay to such Bank from time to time on Interest Adjustment Dates with respect to such LIBOR Interest Segment, as additional consideration hereunder, additional amounts sufficient to fully compensate and indemnify such Bank for such increased cost or reduced amount, assuming (which assumption such Bank need not corroborate) such additional cost or reduced amount was allocable to such LIBOR Interest Segment. A certificate as to the increased cost or reduced amount as a result of any event mentioned in this Section 3.1, setting forth the calculations therefor, shall be promptly submitted by such Bank to Borrower and shall, in the absence of manifest error, be conclusive and binding as to the amount thereof. Notwithstanding any other provision of this Agreement, after any such demand for compensation by any Bank, Borrower, upon at least three (3) Business Days' prior written notice to such Bank through Agent, may select a Base Rate Option regardless of the Interest Period thereof. Any such selection of a Base Rate Option for a LIBOR Interest Segment prior to the end of the Interest Period for such LIBOR Interest Segment shall be subject to the LIBOR Breakage Fees. Each Bank shall notify Borrower as promptly as practicable (with a copy thereof delivered to Agent) of the existence of any event that will likely require the payment by Borrower of any such additional amount under this Section. SECTION 3.2. TAX LAW, ETC. In the event that by reason of any law, regulation or requirement or in the interpretation thereof by an official authority, or the imposition of any requirement of any central bank whether or not having the force of law, any Bank shall, with respect to this Agreement or any transaction under this Agreement, be subjected to any tax, levy, impost, charge, fee, duty, deduction or withholding of any kind whatsoever (other than any tax imposed upon the total net income of such Bank) and if any such measures or any other similar measure shall result in an increase in the cost to such Bank of any LIBOR Rate Option or in a reduction in the amount of principal or interest receivable by such Bank in respect thereof, then such Bank shall promptly notify Borrower stating the reasons therefor. Borrower shall thereafter pay to such Bank, upon demand from time to time on Interest Adjustment Dates with respect to such LIBOR Interest Segment, as additional consideration hereunder, such additional amounts as shall fully compensate such Bank for such increased cost or reduced amount. A certificate as to any such increased cost or reduced amount, setting forth the calculations therefor, shall be submitted by such Bank to Borrower and shall, in the absence of manifest error, be conclusive and binding as to the amount thereof. If any Bank receives such additional consideration from Borrower pursuant to this Section 3.2, such Bank shall use reasonable efforts to obtain the benefits of any refund, deduction or credit for any taxes or other amounts on account of which such additional consideration has been paid and shall reimburse Borrower to the extent, but only to the extent, that such Bank shall receive a refund of such taxes or other amounts together with any interest 25 31 thereon or an effective net reduction in taxes or other governmental charges (including any taxes imposed on or measured by the total net income of such Bank) of the United States or any state or subdivision thereof by virtue of any such deduction or credit, after first giving effect to all other deductions and credits otherwise available to such Bank. If, at the time any audit of such Bank's income tax return is completed, such Bank determines, based on such audit, that it was not entitled to the full amount of any refund reimbursed to Borrower as aforesaid or that its net income taxes are not reduced by a credit or deduction for the full amount of taxes reimbursed to Borrower as aforesaid, Borrower, upon demand of such Bank, shall promptly pay to such Bank the amount so refunded to which such Bank was not so entitled, or the amount by which the net income taxes of such Bank were not so reduced, as the case may be. Notwithstanding any other provision of this Agreement, after any such demand for compensation by any Bank, Borrower, upon at least three (3) Business Days' prior written notice to such Bank through Agent, may select a Base Rate Option for such LIBOR Interest Segment regardless of the Interest Period of any such LIBOR Interest Segment. Any such selection of a Base Rate Option for a LIBOR Interest Segment prior to the end of the Interest Period for such LIBOR Interest Segment shall be subject to the LIBOR Breakage Fees. SECTION 3.3. EURODOLLAR DEPOSITS UNAVAILABLE OR INTEREST RATE UNASCERTAINABLE. In respect of any LIBOR Interest Segment, in the event that Agent shall have determined that dollar deposits of the relevant amount for the relevant Interest Period for such LIBOR Interest Segment are not available to Agent in the applicable eurodollar market or that, by reason of circumstances affecting such market, adequate and reasonable means do not exist for ascertaining the LIBOR Rate applicable to such Interest Period, as the case may be, Agent shall promptly give notice of such determination to Borrower and (a) any notice of a new LIBOR Interest Segment (or change of interest rate from a Base Rate Option to a LIBOR Rate Option) previously given by Borrower and not yet finalized shall be deemed to be a request for a Base Rate Option, and (b) Borrower shall be obligated to select a Base Rate Option for each LIBOR Interest Segment on the last day of the then current Interest Period with respect thereto. SECTION 3.4. INDEMNITY. Without prejudice to any other provisions of this Article III, Borrower hereby agrees to indemnify each Bank against any loss or expense that such Bank may sustain or incur as a consequence of any default by Borrower in payment when due of any amount hereunder in respect of any LIBOR Interest Segment, including, but not limited to, any loss of profit, premium or penalty incurred by such Bank in respect of funds obtained by it for the purpose of providing or maintaining such LIBOR Rate Option, as determined by such Bank in the exercise of its sole but reasonable discretion. A certificate as to any such loss or expense shall be promptly submitted by such Bank to Borrower and shall, in the absence of manifest error, be conclusive and binding as to the amount thereof. SECTION 3.5. CHANGES IN LAW RENDERING LIBOR RATE OPTIONS UNLAWFUL. If at any time any new law, treaty or regulation, or any change in any existing law, treaty or regulation, or any interpretation thereof by any governmental or other regulatory authority charged with the administration thereof, shall make it unlawful for any Bank to fund 26 32 any LIBOR Interest Segment that it is committed to make hereunder with moneys obtained in the eurodollar market, the commitment of such Bank to fund such LIBOR Interest Segment shall, upon the happening of such event forthwith be suspended for the duration of such illegality, and such Bank shall by written notice to Borrower and Agent declare that its commitment with respect to such LIBOR Rate Option has been so suspended and, if and when such illegality ceases to exist, such suspension shall cease and such Bank shall similarly notify Borrower and Agent. If any such change shall make it unlawful for any Bank to continue in effect the funding in the applicable eurodollar market of any LIBOR Interest Segment previously made by it hereunder, such Bank shall, upon the happening of such event, notify Borrower, Agent and the other Banks thereof in writing stating the reasons therefor, and Borrower shall, on the earlier of (a) the last day of the then current Interest Period or (b) if required by such law, regulation or interpretation, on such date as shall be specified in such notice, select a Base Rate Option. Any such selection of a Base Rate Option for a LIBOR Interest Segment prior to the end of the Interest Period for such LIBOR Interest Segment shall be subject to the LIBOR Breakage Fees. SECTION 3.6. FUNDING. Each Bank may, but shall not be required to, fund any LIBOR Interest Segment hereunder with moneys obtained outside the United States. SECTION 3.7. CAPITAL ADEQUACY. If any Bank shall have determined, after the Closing Date, that the adoption of any applicable law, rule, regulation or guideline regarding capital adequacy, or any change therein, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Bank (or its lending office) with any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on such Bank's capital (or the capital of its holding company) as a consequence of its obligations hereunder to a level below that which such Bank (or its holding company) could have achieved but for such adoption, change or compliance (taking into consideration such Bank's policies or the policies of its holding company with respect to capital adequacy) by an amount deemed by such Bank to be material, then from time to time, within fifteen (15) days after demand by such Bank (with a copy to Agent), Borrower shall pay to such Bank such additional amount or amounts as shall compensate such Bank (or its holding company) for such reduction, provided that Borrower's obligation under this Section 3.7 are limited to the parts of such reduction directly related to the Loans. No Bank shall enforce this provision solely against Borrower or against a few of such Bank's customers without in each case generally enforcing these (or similar) provisions in other contracts; provided that, anything herein to the contrary notwithstanding, (a) no Bank shall be required to disclose to any Company the identity of or the nature of the Bank's relationship with, any other of such Bank's customers and (b) a general written statement of Bank regarding the satisfaction of this requirement shall be satisfactory to Borrower). Each Bank shall designate a different lending office if such designation will avoid the need for, or reduce the amount of, such compensation and will not, in the judgment of such Bank, be otherwise disadvantageous to such Bank. A certificate of any Bank claiming compensation under this Section and setting forth the additional amount or amounts to be paid to it hereunder shall be conclusive in the absence of manifest error. In determining such amount, such Bank may use any reasonable averaging and attribution methods. Failure on the part of any Bank to demand compensation for any reduction in return on capital with respect to any period 27 33 shall not constitute a waiver of such Bank's rights to demand compensation for any reduction in return on capital in such period or in any other period; provided, however, that no Bank shall be entitled to demand compensation for any reduction in return on capital pursuant to this Section for any period if longer than one (1) year has elapsed since such Bank became aware of the reduction in return on capital for such period. The protection of this Section shall be available to each Bank regardless of any possible contention of the invalidity or inapplicability of the law, regulation or other condition that shall have been imposed. ARTICLE IV. CONDITIONS PRECEDENT The obligation of the Banks to make the first Loan is subject to Borrower satisfying each of the following conditions: SECTION 4.1. NOTES. Borrower shall have executed and delivered to each Bank its Revolving Credit Note. SECTION 4.2. GUARANTIES OF PAYMENT OF DEBT. Each Guarantor of Payment shall have executed and delivered to Agent, for the benefit of the Banks, a Guaranty of Payment, in form and substance satisfactory to Agent. SECTION 4.3. SECURITY AGREEMENTS. Each Guarantor of Payment shall have executed and delivered to Agent, for the benefit of the Banks, a Security Agreement, in form and substance satisfactory to Agent. SECTION 4.4. PLEDGE AGREEMENTS. Borrower and each Guarantor of Payment, as applicable, shall have executed and delivered to Agent, for the benefit of the Banks, a Pledge Agreement, in form and substance satisfactory to Agent, together with delivery of the Pledged Securities and stock transfer powers required by the terms of each respective Pledge Agreement. SECTION 4.5. OFFICER'S CERTIFICATE, RESOLUTIONS, ORGANIZATIONAL DOCUMENTS. Borrower and each Guarantor of Payment shall have delivered to each Bank an officer's certificate certifying the names of the officers of Borrower or such Guarantor of Payment authorized to sign the Loan Documents, together with the true signatures of such officers and certified copies of (a) the resolutions of the board of directors of Borrower and each Guarantor of Payment evidencing approval of the execution and delivery of the Loan Documents and the execution of other Related Writings to which Borrower or such Guarantor of Payment, as the case may be, is a party, and (b) the Organizational Documents of Borrower and each Guarantor of Payment. SECTION 4.6. LEGAL OPINION. Borrower shall have delivered to Agent an opinion of counsel for Borrower and each Guarantor of Payment, in form and substance satisfactory to Agent and the Banks. SECTION 4.7. GOOD STANDING CERTIFICATES. Borrower shall have delivered to Agent a good standing certificate for Borrower and each Guarantor of Payment, issued on or 28 34 about the Closing Date by the Secretary of State in the state(s) where Borrower or such Guarantor of Payment is incorporated or qualified as a foreign corporation. SECTION 4.8. INDENTURE. With respect to the Indenture, Borrower shall have provided to Agent and the Banks (a) a copy of the Indenture, together with any amendments or supplements thereto, certified by an officer of Borrower as being true and complete, and (b) an officer's certificate, signed by a Financial Officer of Borrower, and otherwise in form and substance satisfactory to Agent and the Banks, certifying that (i) no Default (as defined in the Indenture) or Event of Default (as defined in the Indenture) exists under the Indenture, nor will exist after the making of the first Loan hereunder, (ii) the Fixed Charge Coverage Ratio Condition does not exist, nor will it exist after the making of the first Loan hereunder, and (iii) all of the Debt constitutes both Senior Indebtedness (as defined in the Indenture) and Designated Senior Indebtedness (as defined in the Indenture). SECTION 4.9. INSURANCE CERTIFICATES. Borrower shall have delivered to Agent evidence of insurance on ACORD 27 form and otherwise satisfactory to Agent of adequate personal property and liability insurance of Borrower and each Guarantor of Payment, with Agent listed as loss payee and additional insured. SECTION 4.10. ADMINISTRATIVE AGENT FEE LETTER; CLOSING FEE LETTER AND LEGAL FEES. Borrower shall have (a) executed and delivered to Agent the Administrative Agent Fee Letter and paid to Agent, for its sole benefit, the fees described therein; (b) executed and delivered to the Banks the Closing Fee Letter and paid to Agent, for the benefit of the Banks, the fees described therein; and (c) paid all legal fees and expenses of Agent in connection with the preparation and negotiation of the Loan Documents. SECTION 4.11. FINANCING STATEMENTS AND LIEN SEARCHES. With respect to the property owned or leased by Borrower and each Guarantor of Payment, Borrower shall have caused to be delivered to Agent (a) U.C.C. financing statements satisfactory to Agent and the Banks; (b) the results of U.C.C. lien searches, satisfactory to Agent and the Banks; (c) the results of federal and state tax lien and judicial lien searches, satisfactory to Agent and the Banks; and (d) U.C.C. termination statements reflecting termination of all financing statements previously filed by any party other than Agent that has a security interest in any part of the Collateral or any other property securing the Debt and that is not expressly permitted pursuant to this Agreement. SECTION 4.12. EXISTING CREDIT AGREEMENT. Borrower shall have terminated the Amended and Restated Credit Agreement among Borrower, the banking institutions a party thereto, KeyBank National Association, as administrative agent, and The Huntington National Bank, as co-agent, dated as of November 2, 1998, as amended, which termination shall be deemed to have occurred upon payment in full of the "Debt", as defined therein. SECTION 4.13. LANDLORDS' AND MORTGAGEES' WAIVERS. Borrower shall have delivered to Agent a landlord's waiver and a mortgagee's waiver, if applicable, each 29 35 in form and substance satisfactory to Agent and the Banks, for each location where any of the Collateral is located, unless such location is owned by Borrower or any of its Subsidiaries. SECTION 4.14. NO MATERIAL ADVERSE CHANGE. No material adverse change, in the opinion of Agent, shall have occurred in the financial condition, operations or prospects of Borrower and its Subsidiaries taken as a whole since September 30, 2000. SECTION 4.15. MISCELLANEOUS. Borrower shall have provided to Agent and the Banks such other items and shall have satisfied such other conditions as may be reasonably required by Agent or the Banks. ARTICLE V. COVENANTS Borrower agrees that so long as the Commitment remains in effect and thereafter until all of the Debt shall have been paid in full, Borrower shall perform and observe, and, as appropriate, shall cause each other Company to perform and observe, each of the following provisions: SECTION 5.1. INSURANCE. Borrower and each Subsidiary of Borrower shall at all times maintain insurance upon its Inventory and other personal and real property in such form, written by such companies, in such amounts, for such period, and against such risks as may be reasonably acceptable to Agent, with provisions reasonably satisfactory to Agent, for payment of all losses thereunder with respect to the Collateral and the collateral described in the Security Agreements to Agent, for the benefit of the Banks, and Borrower or such Subsidiary, as the case may be, as their interests may appear (loss payable endorsement in favor of Agent, for the benefit of the Banks), and, if required by Agent, Borrower shall deliver certificates or other evidence of such policies to Agent. Any such policies of insurance shall provide for no fewer than thirty (30) days prior written notice of cancellation to Agent. Any sums received by Agent, for the benefit of the Banks, in payment of insurance losses, returns, or unearned premiums under the policies may, at the option of Agent, be applied upon any Debt whether or not the same is then due and payable, or may be delivered to Borrower for the purpose of replacing, repairing, or restoring the insured property; provided, however, that, so long as no Event of Default exists, any sums received by Agent shall be paid to Borrower, if Borrower so requests, for the sole purpose of replacing, repairing, or restoring the insured property that has been damaged or destroyed. Agent is hereby authorized to act as attorney-in-fact for Borrower at any time that an Event of Default exists in obtaining, adjusting, settling and canceling such insurance and indorsing any drafts. In the event of failure to provide such insurance as herein provided, Agent may, at its option, provide such insurance and Borrower shall pay to Agent, upon demand, the cost thereof. Should Borrower fail to pay such sum to Agent upon demand, interest shall accrue thereon, from the date of demand until paid in full, at the Default Rate. Within ten (10) days of Agent's written request, Borrower shall furnish to Agent such information about Borrower's insurance as Agent may from time to time reasonably request, which information shall be prepared in form and detail satisfactory to Agent and certified by a Financial Officer of Borrower. SECTION 5.2. MONEY OBLIGATIONS. Borrower and its Subsidiaries shall pay in full (a) prior in each case to the date when penalties would attach, all taxes, assessments and 30 36 governmental charges and levies (except only those so long as and to the extent that the same shall be contested in good faith by appropriate and timely proceedings and for which adequate reserves have been established in accordance with GAAP) for which Borrower or such Subsidiary may be or become liable or to which any or all of the properties of Borrower or such Subsidiary may be or become subject; (b) all wage obligations of Borrower or such Subsidiary to the employees of Borrower or such Subsidiary in compliance with the Fair Labor Standards Act (29 U.S.C. 206-207) or any comparable provisions; and (c) all of the other obligations of Borrower or such Subsidiary calling for the payment of money (except only those so long as and to the extent that the same shall be contested in good faith and for which adequate reserves have been established in accordance with GAAP) before such payment becomes overdue. SECTION 5.3. FINANCIAL STATEMENTS. Borrower shall furnish to each Bank: (a) within sixty (60) days after the end of each of the first three (3) quarter-annual periods of each fiscal year of Parent and Borrower, balance sheets of Parent and Borrower as of the end of such period and statements of income (loss), stockholders' equity and cash flow for the quarter and fiscal year to date periods, prepared on a consolidated basis as to Parent and a Consolidated and consolidating basis as to Borrower (independent of Parent), all such statements to be prepared in accordance with GAAP and in form and detail satisfactory to the Banks and certified by a Financial Officer of Borrower, subject only to changes from audit and year-end adjustments and except that such statements need not contain notes; (b) within one hundred twenty (120) days after the end of each fiscal year of Parent and Borrower, an annual audit report of Parent and Borrower for that year prepared on a consolidated basis as to Parent and a Consolidated and consolidating basis as to Borrower (independent of Parent), all such statements to be prepared in accordance with GAAP and in form and detail satisfactory to the Banks and certified by an independent public accountant satisfactory to the Banks, which report shall include balance sheets and statements of income (loss), stockholders' equity and cash-flow for that period; (c) concurrently with the delivery of the financial statements in (a) and (b) above, a Compliance Certificate; (d) with the delivery of the quarterly and annual financial statements in (a) and (b) above, a copy of any letter disclosing material weaknesses in the internal controls of Borrower or any Subsidiary of Borrower or such similar writings; (e) within one hundred twenty (120) days after the end of each fiscal year of Borrower, annual pro-forma projections of Borrower on a Consolidated and consolidating basis, and including pro-forma calculations of the financial covenants set forth in Section 5.7 hereof, for the then current fiscal year and the next two (2) succeeding fiscal years, to be in form reasonably acceptable to Agent; (f) on the first Business Day of each week, commencing on the Monday after the Closing Date, a Weekly Compliance Certification, certified by a Financial Officer of Borrower, in accordance with Section 2.8 hereof; 31 37 (g) as soon as available or, if later, as soon as lawfully permitted under any applicable rule or regulation of the SEC, copies of all material notices, reports, definitive proxy or other statements and other documents sent by Borrower (or Parent, if applicable) to its shareholders, to the holders of any of its debentures or bonds or the trustee of any indenture securing the same or pursuant to which they are issued, or sent by Borrower (or Parent, if applicable) in final form to any securities exchange or over the counter authority or system, or to the SEC or any similar federal agency having regulatory jurisdiction over the issuance of Borrower's or Parent's securities; and (h) within ten (10) days of Agent's written request, such other information about the financial condition, properties and operations of any Company as Agent may from time to time reasonably request, which information shall be submitted in form and detail satisfactory to Agent and certified by a Financial Officer of the Company or Companies in question. SECTION 5.4. FINANCIAL RECORDS. Borrower and each of its Subsidiaries shall at all times maintain true and complete records and books of account, including, without limiting the generality of the foregoing, appropriate reserves for possible losses and liabilities, all in accordance with GAAP, and at all reasonable times (during normal business hours and upon notice to such Company) permit Agent, or any representative of Agent, to examine the books and records of Borrower or any such Subsidiary and to make excerpts therefrom and transcripts thereof. SECTION 5.5. FRANCHISES . Except as permitted pursuant to Section 5.12 hereof, each Company shall preserve and maintain at all times its existence. SECTION 5.6. ERISA COMPLIANCE. No Company shall incur any material accumulated funding deficiency within the meaning of ERISA, or any material liability to the PBGC, established thereunder in connection with any ERISA Plan. Borrower shall furnish to the Banks (a) as soon as possible and in any event within thirty (30) days after any Company knows or has reason to know that any Reportable Event with respect to any ERISA Plan has occurred, a statement of the Financial Officer of such Company, setting forth details as to such Reportable Event and the action that such Company proposes to take with respect thereto, together with a copy of the notice of such Reportable Event given to the PBGC if a copy of such notice is available to such Company, and (b) promptly after receipt thereof a copy of any notice such Company, or any member of the Controlled Group may receive from the PBGC or the Internal Revenue Service with respect to any ERISA Plan administered by such Company; provided, that this latter clause shall not apply to notices of general application promulgated by the PBGC or the Internal Revenue Service. Borrower shall promptly notify the Banks of any material taxes assessed, proposed to be assessed or that Borrower has reason to believe may be assessed against a Company by the Internal Revenue Service with respect to any ERISA Plan. As used in this Section "material" means the measure of a matter of significance that shall be determined as being an amount equal to five percent (5%) of the Consolidated Net Worth of Borrower and its Subsidiaries. As soon as practicable, and in any event within twenty (20) days, after any Company becomes aware that an ERISA Event has occurred, such Company shall provide Bank with notice of such ERISA Event with a certificate by a Financial Officer of such Company setting forth the details of the event and the action such Company or another Controlled Group 32 38 member proposes to take with respect thereto. Borrower shall, at the request of Agent, deliver or cause to be delivered to Agent true and correct copies of any documents relating to the ERISA Plan of any Company. SECTION 5.7. FINANCIAL COVENANTS. (a) INTEREST COVERAGE RATIO. Borrower shall not suffer or permit, at any time, for the most recently completed four (4) fiscal quarters of Borrower, the ratio of (i) Consolidated Pro-Forma Pre-Tax Earnings plus Consolidated Pro-Forma Interest Expense to (ii) Consolidated Pro-Forma Interest Expense to be less than 1.60 to 1.00. (b) SENIOR DEBT COVERAGE RATIO. Borrower shall not suffer or permit, at any time, for the most recently completed four (4) fiscal quarters of Borrower, the Senior Debt Coverage Ratio to exceed (i) 2.85 to 1.00 from the Closing Date through December 30, 2001, and (ii) 2.50 to 1.00 on December 31, 2001 and thereafter. (c) LEVERAGE RATIO. Borrower shall not suffer or permit, at any time, for the most recently completed four (4) fiscal quarters of Borrower, the Leverage Ratio to exceed 4.80 to 1.00. (d) CASH-FLOW COVERAGE RATIO. Borrower shall not suffer or permit, at any time, for the most recently completed four (4) fiscal quarters of Borrower, the Cash-Flow Coverage Ratio to be less than 1.25 to 1.00. (e) NET WORTH. Borrower shall not suffer or permit Consolidated Net Worth, at any time, based upon the financial statements of Borrower for the most recently completed fiscal quarter, to be less than the current minimum amount required, which current minimum amount required shall be One Hundred Thirty-Nine Million Five Hundred Fourteen Thousand Dollars ($139,514,000) on the Closing Date through December 30, 2000, with such current minimum amount required to be positively increased by the Increase Amount on December 31, 2000, and by an additional Increase Amount on the last day of each fiscal quarter thereafter. As used herein, the term "Increase Amount" shall mean an amount equal to (i) sixty-five percent (65%) of the positive Consolidated Net Earnings of Borrower for the fiscal quarter then ended, plus (ii) one hundred percent (100%) of the proceeds of any equity offering by Borrower or any of its Subsidiaries or any debt offering by Borrower or any of its Subsidiaries to the extent converted to equity. SECTION 5.8. BORROWING. No Company (including, but not limited to Parent) shall create, incur or have outstanding any obligation for borrowed money or any Indebtedness of any kind; provided, that this Section shall not apply to: (a) the Loans or any other Indebtedness under this Agreement; (b) Permitted Parent Loans; 33 39 (c) loans or capital leases to Borrower or a Guarantor of Payment for the purchase or lease of assets, which loans or leases are secured by the assets being purchased or leased, so long as the aggregate principal amount of all such loans and leases does not exceed Seven Million Five Hundred Thousand Dollars ($7,500,000) at any time outstanding; (d) the Indebtedness of Borrower or a Guarantor of Payment existing on the Closing Date as set forth in Schedule 5.8 hereto; (e) the Subordinated Indebtedness of Borrower incurred under the Senior Subordinated Notes in an aggregate original principal amount not to exceed One Hundred Ninety-Nine Million Nine Hundred Thirty Thousand Dollars ($199,930,000), provided that such Subordinated Indebtedness may not be renewed, extended, refinanced or increased; (f) loans by Borrower or a Guarantor of Payment to Borrower or a Guarantor of Payment in the ordinary course of business; (g) Indebtedness under any Hedge Agreement; (h) unsecured Indebtedness of Borrower or a Guarantor of Payment so long as such Indebtedness has been Subordinated to the Debt pursuant to the terms and conditions of a Subordination Agreement in form and substance satisfactory to Agent; (i) Indebtedness incurred by Borrower or a Guarantor of Payment in connection with any synthetic lease, so long as the aggregate principal amount of all such Indebtedness incurred by Borrower and all Guarantors of Payment in connection with all synthetic leases does not exceed One Million Dollars ($1,000,000) at any time outstanding; (j) Indebtedness of Borrower or a Guarantor of Payment in connection with any letter of credit issued for the account of Borrower or such Guarantor of Payment, so long as the aggregate amount of all such Indebtedness of Borrower and all Guarantors of Payment in connection with all such letters of credit does not exceed Five Million Dollars ($5,000,000) at any time; (k) Permitted Foreign Subsidiary Loans and Investments; or (l) in addition to the Indebtedness permitted pursuant to subparts (a) through (k) above, other unsecured Indebtedness of Borrower or a Guarantor of Payment so long as the aggregate outstanding principal amount of all such unsecured Indebtedness of Borrower and all Guarantors of Payment does not exceed Five Hundred Thousand Dollars ($500,000) at any time. SECTION 5.9. LIENS. No Company shall create, assume or suffer to exist any Lien upon any of its property or assets, whether now owned or hereafter acquired; provided that this Section shall not apply to the following: (a) Liens for taxes not yet due or that are being actively contested in good faith by appropriate proceedings and for which adequate reserves have been established in accordance with GAAP; 34 40 (b) other statutory Liens incidental to the conduct of its business or the ownership of its property and assets that (i) were not incurred in connection with the borrowing of money or the obtaining of advances or credit, and (ii) do not in the aggregate materially detract from the value of its property or assets or materially impair the use thereof in the operation of its business; (c) Liens on property or assets of Borrower or a Subsidiary of Borrower to secure obligations of Borrower or such Subsidiary of Borrower to a Guarantor of Payment; (d) Liens on fixed assets securing the loans or capital leases pursuant to Section 5.8 (c) hereof, provided that such Lien only attaches to the property being acquired; (e) easements or other minor defects or irregularities in title of real property not interfering in any material respect with the use of such property in the business of any Company; (f) the Liens existing on the Closing Date as set forth in Schedule 5.9 hereto; (g) any Lien granted to Agent, for the benefit of the Banks; or (h) any Lien on fixed assets owned by a Company (other than Parent) as a result of an Acquisition permitted pursuant to Section 5.13 hereof, so long as such Lien is released within thirty (30) days of such Acquisition (unless Borrower shall have obtained the prior written consent of Agent and the Required Banks). No Company shall enter into any contract or agreement that would prohibit Agent or the Banks from acquiring a security interest, mortgage or other Lien on, or a collateral assignment of, any of the property or assets of a Company. SECTION 5.10. REGULATIONS U and X. Neither Borrower nor any Subsidiary of Borrower shall take any action that would result in any non-compliance of the Loans with Regulations U and X of the Board of Governors of the Federal Reserve System. SECTION 5.11. INVESTMENTS AND LOANS. (a) Borrower and its Subsidiaries shall not (i) make or hold any investment in any stocks, bonds or securities of any kind in any Sister Company, or (ii) make or keep outstanding any advance or loan to any Sister Company. (b) Without the prior written consent of Agent and the Required Banks, Borrower and its Subsidiaries shall not (i) make or hold any investment in any stocks, bonds or securities of any kind in any Person that is not a Guarantor of Payment, (ii) make or keep outstanding any advance or loan to any Person that is not a Guarantor of Payment, or (iii) be or become a Guarantor of any kind; provided that this Section 5.11(b) shall not apply to: (A) Permitted Parent Loans; (B) Permitted Investments; 35 41 (C) loans made by Borrower or a Guarantor of Payment to Borrower or a Guarantor of Payment in the ordinary course of business; (D) guaranties of the Secured Debt by Subsidiaries of Borrower; (E) guaranties by Borrower of Indebtedness of Guarantor of Payment; (F) investments in any Person that is not Parent, a Sister Company or Borrower so long as all such investments do not exceed the aggregate amount of Ten Million Dollars ($10,000,000) at any time; or (G) loans or investments made by Borrower or a Domestic Subsidiary that constitute Permitted Foreign Subsidiary Investments and Loans. (c) Parent shall not (i) make or hold any investment in any stocks, bonds or securities of any kind in any Person that is not Borrower or a Guarantor of Payment, (ii) make or keep outstanding any advance or loan to any Person that is not Borrower or a Guarantor of Payment, or (iii) be or become a Guarantor of any kind, except guaranties securing only Indebtedness of Borrower and its Subsidiaries incurred or permitted pursuant to this Agreement; provided, that this Section shall not apply to (A) any investments or loans of Parent that do not exceed the aggregate amount, for all such investments and loans, of Five Million Dollars ($5,000,000) at any time existing or outstanding, or (B) the holding of any stock of any Sister Company. (d) Anything herein to the contrary notwithstanding, in no event shall any Subsidiary of Borrower become a Guarantor of all or any part of the Indebtedness incurred in connection with the Senior Subordinated Notes. SECTION 5.12. MERGER AND SALE OF ASSETS. Without the prior written consent of Agent and the Required Banks, no Company shall merge or consolidate with any other Person or sell, lease or transfer or otherwise dispose of any of its assets to any Person, except that: (a) any Company may sell, lease, transfer or otherwise dispose of its assets in the ordinary course of business or may dispose of obsolete equipment in the ordinary course of business that is no longer useful; (b) if no Default or Event of Default shall then exist or immediately thereafter shall begin to exist, any Subsidiary of Borrower may merge with one (1) or more Guarantors of Payment, provided that either (i) the continuing or surviving corporation shall be a Wholly-Owned Subsidiary that is a Guarantor of Payment, or (ii) after giving effect to any merger pursuant to this subsection (a), Borrower and/or one or more Wholly-Owned Subsidiaries that are Guarantors of Payment shall own not less than the same percentage of the outstanding Voting Power of the continuing or surviving corporation as Borrower and/or one or more Wholly-Owned Subsidiaries (which are Guarantors of Payment) owned of the merged Subsidiary of Borrower immediately prior to such merger; 36 42 (c) if no Default or Event of Default shall then exist or immediately thereafter shall begin to exist, any Subsidiary of Borrower may sell, lease, transfer or otherwise dispose of any of its assets to (i) Borrower, (ii) any Wholly-Owned Subsidiary that is a Guarantor of Payment, or (iii) any Guarantor of Payment, of which Borrower and/or one or more Wholly-Owned Subsidiaries, that are Guarantors of Payment, shall own not less than the same percentage of Voting Power as Borrower and/or one or more Wholly-Owned Subsidiaries (which are Guarantors of Payment) then own of the Subsidiary of Borrower making such sale, lease, transfer or other disposition; (d) if no Default or Event of Default shall then exist or immediately thereafter shall begin to exist, (i) Borrower or any of its Subsidiaries may sell all of the outstanding stock of any Subsidiary of Borrower with total assets of less than Two Hundred Fifty Thousand Dollars ($250,000) that is not required to be a Guarantor of Payment pursuant to Section 5.21 hereof, or (ii) any Subsidiary of Borrower with total assets of less than Two Hundred Fifty Thousand Dollars ($250,000) that is not required to be a Guarantor of Payment pursuant to Section 5.21 hereof may dispose of all or a substantial part of such assets for fair market value; (e) if no Default or Event of Default shall then exist or immediately thereafter shall begin to exist, any Foreign Subsidiary may merge or consolidate with any other Foreign Subsidiary that is a Wholly-Owned Subsidiary so long as such Wholly-Owned Subsidiary is the surviving entity; and (f) if no Default or Event of Default shall then exist or immediately thereafter shall begin to exist, any Foreign Subsidiary may sell, lease, transfer or otherwise dispose of any of its assets to any other Foreign Subsidiary that is a Wholly-Owned Subsidiary. SECTION 5.13. ACQUISITIONS. Borrower shall not acquire or permit any Subsidiary of Borrower to acquire the assets or stock of any other Person; provided, however, that Borrower may acquire the stock, and any Guarantor of Payment may acquire the stock or assets of, another Person so long as: (a) such Guarantor of Payment is the surviving entity of the Acquisition (in the case of a merger, consolidation or other combination) or the Person to be acquired becomes a Guarantor of Payment promptly after such Acquisition (in the case of the acquisition of the stock (or other equity interest) of a Person) in accordance with Section 5.21 hereof; (b) no Default of Event of Default shall then exist or immediately thereafter begin to exist; (c) Borrower shall have provided to Agent and the Banks, at least fifteen (15) Business Days prior to the date of such Acquisition, historical financial statements of the target entity and a pro forma financial statement of the Companies accompanied by a Compliance Certificate of a Financial Officer of Borrower showing pro forma compliance with Section 5.7 hereof, both before and after the proposed Acquisition, together with a certificate listing the 37 43 aggregate amount of Consideration paid for all Acquisitions by Borrower and all Guarantors of Payment during the preceding four (4) fiscal quarters; and (d) Borrower shall have obtained the prior written consent of Agent and the Required Banks with respect to any Acquisition by Borrower or any Guarantor of Payment in which the Consideration to be paid by Borrower or such Guarantor of Payment would cause the aggregate amount of Consideration paid for all Acquisitions by Borrower and all Guarantors of Payment during any four (4) consecutive fiscal quarters to exceed the aggregate amount of Twenty-Five Million Dollars ($25,000,000). SECTION 5.14. NOTICE. (a) Borrower shall cause a Financial Officer of Borrower to promptly notify Agent and the Banks whenever any Default or Event of Default may occur hereunder or any representation or warranty made in Article VII hereof or elsewhere in this Agreement or in any Related Writing may for any reason cease in any material respect to be true and complete; (b) Borrower shall cause a Financial Officer of Borrower to promptly notify Agent and the Banks if (i) any Guarantor of Payment shall sell, lease transfer or otherwise dispose of more than ten percent (10%) of the total assets of such Guarantor of Payment to Borrower, (ii) any Guarantor of Payment shall make any loan or advance to Borrower in excess of One Million Dollars ($1,000,000), or (iii) any Guarantor of Payment makes any Capital Distribution to Borrower in excess of One Million Dollars ($1,000,000) that simultaneously with the making thereof is not going to be used by Borrower to (A) make Permitted Parent Loans, (B) make Repurchases permitted pursuant to Section 5.20(b) hereof, (C) make dividends to shareholders of Parent as the Companies shall determine, provided, that such dividends shall actually be paid in such amount, or (D) repay Indebtedness of Borrower otherwise permitted to be paid pursuant to this Agreement; and (c) Borrower shall provide written notice to Agent and the Banks contemporaneously with any notice provided to the trustee or the Senior Subordinated Noteholders under the Indenture or the Senior Subordinated Notes. SECTION 5.15. ENVIRONMENTAL COMPLIANCE. Each Company shall comply in all material respects with any and all Environmental Laws including, without limitation, all Environmental Laws in jurisdictions in which any Company owns or operates a facility or site, arranges for disposal or treatment of hazardous substances, solid waste or other wastes, accepts for transport any hazardous substances, solid waste or other wastes or holds any interest in real property or otherwise. Borrower shall furnish to the Banks, promptly after receipt thereof, a copy of any notice any Company may receive from any governmental authority, private Person or otherwise that any material litigation or proceeding pertaining to any environmental, health or safety matter has been filed or is threatened against such Company, any real property in which such Company holds any interest or any past or present operation of such Company. No Company shall allow the release or disposal of hazardous waste, solid waste or other wastes on, under or to any real property in which any Company holds any interest or performs any of its operations, in material violation of any Environmental Law. As used in this 38 44 Section, "litigation or proceeding" means any demand, claim, notice, suit, suit in equity action, administrative action, investigation or inquiry whether brought by any governmental authority, private Person or otherwise. Borrower shall defend, indemnify and hold Agent and the Banks harmless against all costs, expenses, claims, damages, penalties and liabilities of every kind or nature whatsoever (including attorneys' fees) arising out of or resulting from the noncompliance of any Company with any Environmental Law. Such indemnification shall survive any termination of this Agreement. SECTION 5.16. AFFILIATE TRANSACTIONS. Borrower shall not, and shall not permit any Subsidiary of Borrower to, directly or indirectly, enter into or permit to exist any transaction (including, without limitation, the purchase, sale, lease or exchange of any property or the rendering of any service) with any Affiliate of Borrower or such Subsidiary of Borrower on terms that are less favorable to Borrower or such Subsidiary of Borrower, as the case may be, than those that might be obtained at the time in a transaction with a non-Affiliate; provided, however, that the foregoing shall not prohibit (a) the payment of customary and reasonable directors' fees to directors who are not employees of a Company or any Affiliate of a Company; or (b) any transaction between Borrower and an Affiliate (if a Guarantor of Payment) that Borrower reasonably determines in good faith is beneficial to Borrower and its Affiliates as a whole and that is not entered into for the purpose of hindering the exercise by Agent or the Banks of their rights or remedies under this Agreement. SECTION 5.17. USE OF PROCEEDS. Borrower's use of the proceeds of the Revolving Credit Notes shall be solely for working capital and other general corporate purposes of Borrower and its Subsidiaries and for Acquisitions permitted pursuant to the terms of this Agreement. SECTION 5.18. CORPORATE NAMES AND LOCATION OF COLLATERAL. Neither Borrower nor any of its Subsidiaries shall change its corporate name (including a change in name as a result of a merger permitted pursuant to Section 5.13 hereof), unless, in each case, Borrower shall provide Agent and the Banks with at least thirty (30) days prior written notice thereof. Except as set forth on Schedule 7.5 hereto, neither Borrower nor any of its Subsidiaries shall use trade names, assumed names or fictitious names without giving Agent and the Banks at least thirty (30) days prior written notice thereof. Borrower shall also provide Bank with at least thirty (30) days prior written notification of (a) any change in any location where the Inventory of Borrower or any of its Subsidiaries is maintained, and any new locations where any Inventory of Borrower or any of its Subsidiaries is to be maintained; (b) any change in the location of the office where any records of Borrower or any of its Subsidiaries pertaining to their Accounts are kept; (c) the location of any new places of business of Borrower or any of its Subsidiaries and the changing or closing of any of their existing places of business; and (d) any change in the chief executive office of Borrower or any of its Subsidiaries. In the event of any of the foregoing, Borrower shall promptly execute and deliver to Agent (and Borrower agrees that Bank may execute and deliver the same as Borrower's irrevocable attorney-in-fact) new U.C.C. financing statements describing the Collateral and otherwise in form and substance sufficient for recordation wherever necessary or appropriate, as determined in Agent's sole discretion, to perfect or continue perfected the security interest of Agent, for the benefit of the Banks, in the Collateral, based upon such new places of business or names, and Borrower shall pay all filing 39 45 and recording fees and taxes in connection with the filing or recordation of such financing statements and shall immediately reimburse Agent therefor if Agent pays the same. Such amounts shall be Related Expenses hereunder. SECTION 5.19. COLLATERAL. Borrower shall: (a) at all reasonable times allow Agent or any Bank by or through any of its officers, agents, employees, attorneys, or accountants to (i) examine, inspect, and make extracts from Borrower's books and other records, including, without limitation, the tax returns of Borrower; (ii) arrange for verification of Borrower's Accounts, under reasonable procedures, directly with Account Debtors or by other methods; and (iii) examine and inspect Borrower's Inventory, wherever located; (b) promptly furnish to Agent upon Agent's reasonable request (i) additional statements and information with respect to the Collateral, and all writings and information relating to or evidencing any of Borrower's Accounts (including, without limitation, computer printouts or typewritten reports listing the mailing addresses of all present Account Debtors), and (ii) any other writings and information as Agent may reasonably request; (c) with respect to Special Accounts, Borrower shall (i) promptly furnish to Agent upon Agent's reasonable request a statement as to the aggregate amount of all such Special Accounts of Borrower and its Subsidiaries, together with such other information as Agent may reasonably request, and (ii) take such action and execute and deliver such documents or instruments as Agent shall request to allow Agent, on behalf of the Banks, to make the appropriate filings under the Federal Assignment of Claims Act, or such other special filings as Agent shall deem necessary or appropriate with respect to such Special Accounts; (d) immediately notify Agent and the Banks in writing of any information that Borrower has or may receive with respect to the Collateral that might in any manner materially and adversely affect the value thereof or the rights of Agent or the Banks with respect thereto; and (e) upon request of Agent, promptly take such action and promptly make, execute, and deliver all such additional and further items, deeds, assurances, and instruments as Agent may require, including, without limitation, financing statements, so as to completely vest in and ensure to Agent and the Banks their respective rights hereunder and in or to the Collateral. A carbon, photographic, or other reproduction of this Agreement may be used as a financing statement. Borrower hereby authorizes Agent, on behalf of the Banks, to file financing statements with respect to the Collateral. If certificates of title or applications for title are issued or outstanding with respect to any of Borrower's Inventory, Borrower shall upon Agent's request (i) execute and deliver to Agent a short form security agreement, in form acceptable to Agent, and (ii) deliver such certificate or application to Agent and cause the interest of the Banks to be properly noted thereon. Borrower hereby authorizes Agent or Agent's designated agent (but without obligation by Agent to do so) to incur Related Expenses (whether prior to, upon, or subsequent to any Default), and Borrower shall promptly repay, reimburse, and indemnify Agent 40 46 and the Banks for any and all Related Expenses. All Related Expenses are payable to Agent upon demand therefor; Agent may, at its option, debit Related Expenses directly to the Revolving Credit Notes or any other Notes. SECTION 5.20 RESTRICTED PAYMENTS. No Company shall make any Restricted Payment, except that: (a) if no Event of Default shall then exist or immediately thereafter shall begin to exist, (i) any Subsidiary of Borrower may pay or commit itself to pay a Capital Distribution at any time to Borrower or a Guarantor of Payment, and (ii) Borrower may make regularly scheduled payments of interest with respect to any Subordinated Indebtedness; (b) if no Default or Event of Default shall then exist or immediately thereafter shall begin to exist, Borrower may make Capital Distributions to Parent in an aggregate amount sufficient to allow Parent to make (i) Capital Distributions to the shareholders of Parent pursuant to subpart (c) below, provided that such Capital Distributions shall be actually paid in such amount, (ii) Repurchases pursuant to subpart (d) below and (iii) investments and loans permitted pursuant to Section 5.11(c) hereof; (c) if no Default or Event of Default shall then exist or immediately thereafter shall begin to exist, Parent may make Capital Distributions to the shareholders of Parent; and (d) Parent may make a Repurchase if (i) no Default or Event of Default shall then exist or immediately thereafter shall begin to exist; (ii) Borrower shall have provided to Agent and the Banks, as early as possible and, in any event, not fewer than five (5) days prior to the date of such Repurchase, (A) written notice of such Repurchase, and (B) a projected Consolidated financial statement of Borrower accompanied by a certificate of a Financial Officer of Borrower showing projected compliance with Section 5.7 hereof as of the end of the fiscal quarter in which such Repurchase is to occur; and (iii) the amount of consideration to be paid for any Repurchase would not cause the aggregate amount of consideration paid for all Repurchases prior to payment in full of the Debt and termination of this Agreement to exceed Fifteen Million Dollars ($15,000,000). SECTION 5.21. SUBSIDIARIES CREATED, ACQUIRED OR HELD SUBSEQUENT TO THE CLOSING DATE. (a) Each Domestic Subsidiary created, acquired or held subsequent to the Closing Date, shall immediately execute and deliver to Agent and the Banks a Guaranty of Payment and Security Agreement, together with (i) such U.C.C. financing statements and other documents as may be necessary or appropriate, in the opinion of Agent, and (ii) such corporate governance and authorization documents and an opinion of counsel as may be deemed necessary or advisable by Agent; provided, however, that a Domestic Subsidiary shall not be required to become a Guarantor of Payment or otherwise comply with the foregoing requirements so long as (A) the total assets of such Domestic Subsidiary are less than the amount of Two Hundred Fifty Thousand Dollars ($250,000), and (B) the aggregate of the total assets of all such Domestic 41 47 Subsidiaries with total asset values of less than Two Hundred Fifty Thousand Dollars ($250,000) does not exceed the aggregate amount of One Million Dollars ($1,000,000). (b) With respect to the creation or acquisition of a Foreign Subsidiary, Borrower, or a Guarantor of Payment, as appropriate, shall deliver to Agent, for the benefit of the Banks, the share certificates (or other evidence of equity interest) pursuant to the terms of the Pledge Agreement; provided, however, that, no Company shall be required to pledge more than sixty-five (65%) of the outstanding shares of stock of any Foreign Subsidiary. SECTION 5.22. AMENDMENT OF ORGANIZATIONAL DOCUMENTS. Neither Parent, Borrower nor any Guarantor of Payment shall make any material amendment to its Articles (Certificate) of Incorporation, Articles of Organization or Operating Agreement, as applicable, without the prior written consent of Agent. SECTION 5.23. INTEREST RATE PROTECTION . Upon the request of Agent and the Required Banks, Borrower shall obtain Interest Rate Protection with respect to Borrower's Indebtedness in such amounts as shall be determined by Agent and the Required Banks. SECTION 5.24. RIGHT TO TAKE ADDITIONAL COLLATERAL. In addition to any other right that Agent and the Banks may have pursuant to this Agreement or otherwise, upon written request of Agent whenever made after the occurrence of an Event of Default, Borrower shall, and shall cause each Guarantor of Payment, to grant to Agent, for the benefit of the Banks, as additional security for the Secured Debt a first priority security interest in or Lien on any real or personal property of Borrower and each Guarantor of Payment in which Agent does not have a first priority security interest Lien . Borrower agrees that, within thirty (30) days after such written request, Borrower shall secure all of the Debt by delivering to Agent, for the benefit of the Banks, security agreements, intellectual property assignment agreements, pledge agreements, mortgages (or deeds of trust, if applicable) or other documents, instruments or agreements or such thereof as Agent and the Required Banks may reasonably require. Borrower shall pay all recordation, legal and other expenses in connection therewith. ARTICLE VI. SECURITY SECTION 6.1. SECURITY INTEREST IN COLLATERAL. In consideration of and as security for the full and complete payment of all of the Secured Debt, Borrower hereby grants to Agent for the benefit of the Banks a security interest in and an assignment of the Collateral. SECTION 6.2. COLLECTIONS AND RECEIPT OF PROCEEDS BY BORROWER. (a) Prior to exercise by Agent and the Banks of their rights under Article IX of this Agreement, both (i) the lawful collection and enforcement of all of Borrower's Accounts, and (ii) the lawful receipt and retention by Borrower of all Proceeds of all of Borrower's Accounts and Inventory shall be as agent of the Banks. Upon written notice to Borrower from Agent after the occurrence of an Event of Default, a Cash Collateral Account shall be opened by Borrower at the main office of Agent and all such lawful collections of Borrower's Accounts and such Proceeds of 42 48 Borrower's Accounts and Inventory shall be remitted daily by Borrower to Agent in the form in which they are received by Borrower, either by mailing or by delivering such collections and Proceeds to Agent, appropriately endorsed for deposit in the Cash Collateral Account. In the event that such notice is given to Borrower from Agent, Borrower shall not commingle such collections or Proceeds with any of Borrower's other funds or property, but shall hold such collections and Proceeds separate and apart therefrom upon an express trust for Agent, for the benefit of the Banks. In such case, Agent may, in its sole discretion, at any time and from time to time, apply all or any portion of the account balance in the Cash Collateral Account as a credit against (a) the outstanding principal or interest of the Notes, or (b) any other Secured Debt. If any remittance shall be dishonored, or if, upon final payment, any claim with respect thereto shall be made against Agent on its warranties of collection, Agent may charge the amount of such item against the Cash Collateral Account or any other Deposit Account maintained by Borrower with Agent or with any other Bank, and, in any event, retain the same and Borrower's interest therein as additional security for the Secured Debt. Agent may, in its sole discretion, at any time and from time to time, release funds from the Cash Collateral Account to Borrower for use in Borrower's business. The balance in the Cash Collateral Account may be withdrawn by Borrower upon termination of this Agreement and payment in full of all of the Secured Debt. At Agent's request, after the occurrence of an Event of Default, Borrower shall cause all remittances representing collections and Proceeds of Collateral to be mailed to a lock box in Cleveland, Ohio, to which Agent shall have access for the processing of such items in accordance with the provisions, terms and conditions of Agent's customary lock box agreement. Agent, or Agent's designated agent, is hereby constituted and appointed Borrower's attorney-in-fact with authority and power to endorse, after the occurrence of an Event of Default, any and all instruments, documents, and chattel paper upon Borrower's failure to do so. Such authority and power, being coupled with an interest, shall be (a) irrevocable until all of the Debt is paid, (b) exercisable by Agent at any time and without any request upon Borrower by Agent to so endorse, and (c) exercisable in Agent's name or Borrower's name. Borrower hereby waives presentment, demand, notice of dishonor, protest, notice of protest, and any and all other similar notices with respect thereto, regardless of the form of any endorsement thereof. Neither Agent nor the Banks shall be bound or obligated to take any action to preserve any rights therein against prior parties thereto. SECTION 6.3. COLLECTIONS AND RECEIPT OF PROCEEDS BY AGENT. Borrower hereby constitutes and appoints Agent, or Agent's designated agent, as Borrower's attorney-in-fact to exercise, at any time after the occurrence of an Event of Default, all or any of the following powers which, being coupled with an interest, shall be irrevocable until the complete and full payment of all of the Secured Debt: (a) to receive, retain, acquire, take, endorse, assign, deliver, accept, and deposit, in Agent's name or Borrower's name, any and all of Borrower's cash, instruments, chattel paper, documents, Proceeds of Accounts, Proceeds of Inventory, collection of Accounts, and any other writings relating to any of the Collateral; (b) to transmit to Account Debtors, on any or all of Borrower's Accounts, notice of assignment to Agent for the benefit of the Banks thereof and Agent's, for the benefit of the 43 49 Banks, security interest therein and to request from such Account Debtors at any time, in Agent's name or in Borrower's name, information concerning Borrower's Accounts and the amounts owing thereon; (c) to transmit to purchasers of any or all of Borrower's Inventory, notice of Agent's security interest therein, and to request from such purchasers at any time, in Agent's name or in Borrower's name, information concerning Borrower's Inventory and the amounts owing thereon by such purchasers; (d) to notify and require Account Debtors on Borrower's Accounts and purchasers of Borrower's Inventory to make payment of their indebtedness directly to Agent; (e) to take or bring, in Agent's name or Borrower's name, all steps, actions, suits, or proceedings deemed by Agent necessary or desirable to effect the receipt, enforcement, and collection of the Collateral; and (f) to accept all collections in any form relating to the Collateral, including remittances that may reflect deductions, and to deposit the same, into Borrower's Cash Collateral Account or, at the option of Agent, to apply them as a payment against any Note or Notes or any other Debt. SECTION 6.4. USE OF INVENTORY. Until the exercise by Agent and the Banks of their rights under Article IX of this Agreement, Borrower may (a) retain possession of and use its Inventory in any lawful manner not inconsistent with this Agreement or with the terms, conditions, or provisions of any policy of insurance thereon; (b) sell or lease its Inventory in the ordinary course of business (provided, however, that a sale or lease in the ordinary course of business does not include a transfer in partial or total satisfaction of an Indebtedness); and (c) use and consume any raw materials or supplies, the use and consumption of which are necessary in order to carry on Borrower's business. ARTICLE VII. REPRESENTATIONS AND WARRANTIES Borrower represents and warrants that the statements set forth in this Article VII are true, correct and complete. SECTION 7.1. CORPORATE EXISTENCE; SUBSIDIARIES; FOREIGN QUALIFICATION. Borrower and each of its Subsidiaries is a corporation or limited liability company, as the case may be, duly organized or formed, validly existing, and in good standing under the laws of its state of incorporation or organization and is duly qualified and authorized to do business and is in good standing as a foreign corporation or limited liability company in the jurisdictions set forth opposite its name on Schedule 7.1 hereto, which are all of the states or jurisdictions where the character of its property or its business activities makes such qualification necessary, except where the failure to so qualify will not cause or result in a Material Adverse Effect. Schedule 7.1 hereto sets forth each Subsidiary of Borrower, its state of incorporation, the 44 50 location of its chief executive offices and its principal place of business. Except as disclosed on Schedule 7.1 hereto, Borrower owns all of the capital stock of each of its Subsidiaries. SECTION 7.2. CORPORATE AUTHORITY. Borrower and each of its Subsidiaries has the right and power and is duly authorized and empowered to enter into, execute and deliver the Loan Documents to which it is a party and to perform and observe the provisions of the Loan Documents. The Loan Documents to which Borrower and each of its Subsidiaries is a party have been duly authorized and approved by the Board of Directors of Borrower and each such Subsidiary and are the valid and binding obligations of Borrower or such Subsidiary, enforceable against such Borrower or such Subsidiary in accordance with their respective terms. The execution, delivery and performance of the Loan Documents will not conflict with nor result in any breach in any of the provisions of, or constitute a default under, or result in the creation of any Lien (other than Liens permitted under Section 5.9 of this Agreement) upon any assets or property of the Companies under the provisions of the Companies respective Organizational Documents or other agreements. SECTION 7.3. COMPLIANCE WITH LAWS. Borrower and each of its Subsidiaries: (a) holds permits, certificates, licenses, orders, registrations, franchises, authorizations, and other approvals from federal, state, local, and foreign governmental and regulatory bodies necessary for the conduct of its business and is in material compliance with all applicable laws relating thereto; (b) is in material compliance with all federal, state, local, or foreign applicable statutes, rules, regulations, and orders including, without limitation, those relating to environmental protection, occupational safety and health, and equal employment practices; and (c) is not in violation of or in default under any material agreement to which it is a party or by which its assets are subject or bound. SECTION 7.4. LITIGATION AND ADMINISTRATIVE PROCEEDINGS. Except as disclosed on Schedule 7.4 hereto, there are (a) no lawsuits, actions, investigations, or other proceedings pending or threatened against Borrower or any of its Subsidiaries, or in respect of which Borrower or any of its Subsidiaries may have any liability, in any court or before any governmental authority, arbitration board, or other tribunal, (b) no orders, writs, injunctions, judgments, or decrees of any court or government agency or instrumentality to which Borrower or any of its Subsidiaries is a party or by which the property or assets of Borrower or any of its Subsidiaries are bound, and (c) no grievances, disputes, or controversies outstanding with any union or other organization of the employees of Borrower or any of its Subsidiaries, or threats of work stoppage, strike, or pending demands for collective bargaining, that, as to subsections (a) through (c), above, if violated or determined adversely, would not be reasonably expected to have a Material Adverse Effect. SECTION 7.5. LOCATION. The chief executive office of Borrower and each Guarantor of Payment is set forth on Schedule 7.5 attached hereto. The office where Borrower and each Guarantor of Payment keep their records concerning its Accounts is set forth on Schedule 7.5 45 51 hereof. Borrower and each Guarantor of Payment has places of business or maintains its Inventory or Equipment at the locations set forth on Schedule 7.5 hereof. SECTION 7.6. TITLE TO ASSETS. Each Company has good title to and ownership of all property it purports to own, which property is free and clear of all Liens, except those permitted under Section 5.9 hereof. SECTION 7.7. LIENS AND SECURITY INTERESTS. On and after the Closing Date, except for Liens permitted pursuant to Section 5.9 hereof, (a) there is no financing statement outstanding covering any personal property of any Company, other than a financing statement in favor of Agent, for the benefit of the Banks; (b) there is no mortgage outstanding covering any real property of any Company, other than a mortgage in favor of Agent, for the benefit of the Banks, if any; and (c) no real or personal property of any Company is subject to any security interest or Lien of any kind other than any security interest or Lien granted to Agent, for the benefit of the Banks, in connection with this Agreement. No Company has entered into any contract or agreement that exists on or after the Closing Date that would prohibit Agent or the Banks from acquiring a security interest, mortgage or other Lien on, or a collateral assignment of, any of the property or assets of any Company. SECTION 7.8. TAX RETURNS. All federal, state and local tax returns and other reports required by law to be filed in respect of the income, business, properties and employees of Borrower have been filed and all taxes, assessments, fees and other governmental charges which are due and payable have been paid, except as otherwise permitted herein or the failure to do so does not and will not cause or result in a Material Adverse Effect. The provision for taxes on the books of Borrower is adequate for all years not closed by applicable statutes and for the current fiscal year. SECTION 7.9. ENVIRONMENTAL LAWS. Borrower and each of its Subsidiaries is in material compliance with any and all Environmental Laws, including, without limitation, all Environmental Laws in all jurisdictions in which Borrower or any of its Subsidiaries owns or operates, or has owned or operated, a facility or site, arranges or has arranged for disposal or treatment of hazardous substances, solid waste or other wastes, accepts or has accepted for transport any hazardous substances, solid waste or other wastes or holds or has held any interest in real property or otherwise. Except as set forth on Schedule 7.4 hereto, no litigation or proceeding arising under, relating to or in connection with any Environmental Law is pending or, to the best knowledge of Borrower and each Subsidiary of Borrower, threatened, against Borrower or any Subsidiary of Borrower, any real property in which Borrower or any Subsidiary of Borrower holds or has held an interest or any past or present operation of Borrower or any Subsidiary of Borrower. No material release, threatened release or disposal of hazardous waste, solid waste or other wastes is occurring, or has occurred (other than those that are currently being cleaned up in accordance with Environmental Laws), on, under or to any real property in which Borrower or any Subsidiary of Borrower holds any interest or performs any of its operations, in violation of any Environmental Law. As used in this Section, "litigation or proceeding" means any demand, claim, notice, suit, suit in equity, action, administrative action, investigation or inquiry whether brought by any governmental authority, private Person or otherwise. 46 52 SECTION 7.10. EMPLOYEE BENEFITS PLANS. No ERISA Event has occurred or is expected to occur with respect to an ERISA Plan. Full payment has been made of all amounts which a Controlled Group member is required, under applicable law or under the governing documents, to have been paid as a contribution to or a benefit under each ERISA Plan. The liability of each Controlled Group member with respect to each ERISA Plan has been fully funded based upon reasonable and proper actuarial assumptions, has been fully insured, or has been fully reserved for on its financial statements. No changes have occurred or are expected to occur that would cause a material increase in the cost of providing benefits under the ERISA Plan. With respect to each ERISA Plan that is intended to be qualified under Code Section 401(a): (a) the ERISA Plan and any associated trust operationally comply with the applicable requirements of Code Section 401(a), (b) the ERISA Plan and any associated trust have been amended to comply with all such requirements as currently in effect, other than those requirements for which a retroactive amendment can be made within the "remedial amendment period" available under Code Section 401(b) (as extended under Treasury Regulations and other Treasury pronouncements upon which taxpayers may rely), (c) the ERISA Plan and any associated trust have received a favorable determination letter from the Internal Revenue Service stating that the ERISA Plan qualifies under Code Section 401(a), that the associated trust qualifies under Code Section 501(a) and, if applicable, that any cash or deferred arrangement under the ERISA Plan qualifies under Code Section 401(k), unless the ERISA Plan was first adopted at a time for which the above-described "remedial amendment period" has not yet expired, (d) the ERISA Plan currently satisfies the requirements of Code Section 410(b), without regard to any retroactive amendment that may be made within the above-described "remedial amendment period", and (e) no contribution made to the ERISA Plan is subject to an excise tax under Code Section 4972. With respect to any Pension Plan, the "accumulated benefit obligation" of Controlled Group members with respect to the Pension Plan (as determined in accordance with Statement of Accounting Standards No. 87, "Employers' Accounting for Pensions") does not exceed the fair market value of Pension Plan assets. The aggregate potential amount of liability that would result if all Controlled Group members withdrew from all Multiemployer Plans in a "complete withdrawal" (within the meaning of ERISA Section 4203) is not material. SECTION 7.11. CONSENTS OR APPROVALS. No consent, approval or authorization of, or filing, registration or qualification with, any governmental authority or any other Person is required to be obtained or completed by Borrower in connection with the execution, delivery or performance of any of the Loan Documents, that has not already been obtained or completed, other than the filing of UCC financing statements in connection with this Agreement or any Security Agreement. SECTION 7.12. SOLVENCY. Borrower has received consideration that is the reasonable equivalent value of the obligations and liabilities that Borrower has incurred to the Banks. Borrower is not insolvent as defined in any applicable state or federal statute, nor will Borrower be rendered insolvent by the execution and delivery of the Loan Documents to Agent and the Banks. Borrower is not engaged or about to engage in any business or transaction for which the assets retained by it are or will be an unreasonably small amount of capital, taking into consideration the obligations to Agent and the Banks incurred hereunder. Borrower does not 47 53 intend to, nor does it believe that it will, incur debts beyond its ability to pay such debts as they mature. SECTION 7.13. FINANCIAL STATEMENTS. The audited Consolidated financial statements of Borrower and its Subsidiaries for the fiscal year ended December 31, 1999 and the unaudited financial statements of Borrower and its Subsidiaries for the fiscal quarter ended September 30, 2000, furnished to Agent and the Banks, are true and complete, have been prepared in accordance with GAAP, and fairly present the financial condition of the Companies as of the dates of such financial statements and the results of their operations for the periods then ending, subject, in case of such unaudited interim statements, to changes from audit and year-end adjustments. Since the dates of such statements, there has been no material adverse change in the financial condition, properties or business of Borrower and its Subsidiaries taken as a whole nor any change in any Company's accounting procedures. SECTION 7.14. REGULATIONS. Borrower is not engaged principally or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying any "margin stock" (within the meaning of Regulation U of the Board of Governors of the Federal Reserve System of the United States of America). Neither the granting of any Loan (or any conversion thereof) nor the use of the proceeds of any Loan will violate, or be inconsistent with, the provisions of Regulation U or X or any other Regulation of such Board of Governors. SECTION 7.15. MATERIAL AGREEMENTS. Except as disclosed on Schedule 7.15 hereto, no Company is a party to any (a) debt instrument; (b) lease (capital, operating or otherwise), whether as lessee or lessor thereunder; (c) contract, commitment, agreement, or other arrangement involving the purchase or sale of any inventory by it, or the license of any right to or by it; (d) contract, commitment, agreement, or other arrangement with any of its "Affiliates" (as such term is defined in the Securities Exchange Act of 1934, as amended); (e) management or employment contract or contract for personal services with any of its Affiliates that is not otherwise terminable at will or on less than ninety (90) days' notice without liability; (f) collective bargaining agreement; or (g) other contract, agreement, understanding, or arrangement that, as to subsections (a) through (g), above, has been violated, breached, or terminated and which violation, breach or termination has had or would be reasonably expected to have a Material Adverse Effect. SECTION 7.16. INTELLECTUAL PROPERTY. Borrower and each of its Subsidiaries owns, possesses, or has the right to use all of the patents, patent applications, trademarks, service marks, copyrights, licenses, and rights with respect to the foregoing necessary for the conduct of its business without any known conflict with the rights of others. SECTION 7.17. INSURANCE. Borrower and each of its Subsidiaries maintains with financially sound and reputable insurers insurance with coverage and limits as required by law and as is customary with persons engaged in the same businesses as Borrower and its 48 54 Subsidiaries. Schedule 7.17 hereto sets forth all insurance carried by Borrower and its Subsidiaries, setting forth in detail the amount and type of such insurance. SECTION 7.18. ACCURATE AND COMPLETE STATEMENTS. Neither the Loan Documents nor any written statement made by any Company in connection with any of the Loan Documents contains any untrue statement of a material fact or omits a material fact necessary to make the statements contained therein or in the Loan Documents not misleading. SECTION 7.19. INDENTURE. (a) No Event of Default (as defined in the Indenture) or Default (as defined in the Indenture) exists, nor will any such Event of Default or Default exist immediately after the granting or continuation of any Loan, under the Indenture, the Senior Subordinated Notes or any agreement executed by Borrower in connection therewith; (b) no Company has incurred (as defined in the Indenture) any Designated Senior Indebtedness (as defined in the Indenture) other than the Debt; (c) no Company has incurred (as defined in the Indenture) either prior to or after the granting of any Loan, any Indebtedness (as defined in the Indenture) in violation of Section 4.06 (Limitation on Additional Indebtedness) of the Indenture; and (d) all of the Debt constitutes both Senior Indebtedness (as defined in the Indenture) and Designated Senior Indebtedness (as defined in the Indenture). SECTION 7.20. REVOLVING CREDIT FACILITY. This Agreement (a) constitutes "Revolving Credit Facility" (as defined in the Indenture), and (b) is a replacement of the Amended and Restated Credit Agreement dated as of November 2, 1998, as amended, among Borrower, the lenders a party thereto, KeyBank National Association, as administrative agent, and The Huntington National Bank, as co-agent. SECTION 7.21. DEFAULTS. No Default or Event of Default exists hereunder, nor will any begin to exist immediately after the execution and delivery hereof. ARTICLE VIII. EVENTS OF DEFAULT Each of the following shall constitute an Event of Default hereunder: SECTION 8.1. PAYMENTS. If (a) interest on any Note or any commitment or other fee shall not be paid in full punctually when due or within five (5) Business Days thereafter; or (b) the principal on any Note shall not be paid in full punctually when due. SECTION 8.2. SPECIAL COVENANTS. If any Company or any Obligor shall fail or omit to perform and observe Sections 5.7, 5.8, 5.9, 5.11, 5.12, 5.13 or 5.20 hereof. SECTION 8.3. OTHER COVENANTS. If any Company or any Obligor shall fail or omit to perform and observe any agreement or other provision (other than those referred to in Sections 8.1 or 8.2 hereof) contained or referred to in this Agreement or any Related Writing that is on such Company's or Obligor's part, as the case may be, to be complied with, and that Default shall not have been fully corrected within thirty (30) days after the giving of written notice thereof to Borrower by Agent or any Bank that the specified Default is to be remedied. 49 55 SECTION 8.4. REPRESENTATIONS AND WARRANTIES. If any representation, warranty or statement made in or pursuant to this Agreement or any Related Writing or any other material information furnished by any Company or any Obligor to the Banks or any thereof or any other holder of any Note, shall be false or erroneous in any material respect; provided, however, that with respect to Sections 7.3, 7.4, 7.6, 7.7, 7.8, 7.9, 7.11, 7.14, 7.15, 7.16, 7.17 and 7.21 hereof, such inaccuracy shall not constitute an Event of Default if it is corrected within thirty (30) days after the giving of written notice thereof to Borrower by Agent that the specified Default is to be remedied. SECTION 8.5. CROSS DEFAULT. If any Company or any Obligor shall default in the payment of principal or interest due and owing upon any other obligation for borrowed money in excess of the aggregate, for all such obligations for all such Companies and Obligors, of Five Hundred Thousand Dollars ($500,000) beyond any period of grace provided with respect thereto or in the performance or observance of any other agreement, term or condition contained in any agreement under which such obligation is created, if the effect of such default is to allow the acceleration of the maturity of such Indebtedness or to permit the holder thereof to cause such Indebtedness to become due prior to its stated maturity. SECTION 8.6. ERISA DEFAULT. The occurrence of one or more ERISA Events that (a) the Required Banks determine could have a Material Adverse Effect , or (b) results in a Lien on any of the assets of any Company in excess, for all such Liens of Five Hundred Thousand Dollars ($500,000). SECTION 8.7. CHANGE IN MANAGEMENT/CONTROL. If (a) any Change of Control shall occur, (b) Parent shall cease to own one hundred percent (100%) of the voting stock of Borrower, (c) Edward F. Crawford or his immediate family shall cease to own or control, directly or indirectly, at least twenty percent (20%) of the voting stock of Parent, or (d) either (i) Edward F. Crawford shall cease to perform his role as chief executive officer of Borrower or (ii) Edward F. Crawford shall die or become incompetent, and, within one hundred eighty (180) days thereafter, Borrower shall not have selected a replacement Chief Executive Officer with experience and management skills similar to Edward F. Crawford. SECTION 8.8. MONEY JUDGMENT. A final judgment or order for the payment of money shall be rendered against any Company or any Obligor by a court of competent jurisdiction, that remains unpaid or unstayed and undischarged for a period (during which execution shall not be effectively stayed) of thirty (30) days after the date on which the right to appeal has expired, provided that the aggregate of all such judgments for all such Companies and Obligors shall exceed Five Hundred Thousand Dollars ($500,000). SECTION 8.9. MATERIAL ADVERSE CHANGE. There shall have occurred any condition or event that Agent or the Required Banks determine has or is reasonably likely to have a Material Adverse Effect or a material adverse effect on the rights and remedies of Agent or the Banks under the Loan Documents or the ability of Borrower or any of its Subsidiaries to perform their respective obligations under the Loan Documents. 50 56 SECTION 8.10. DESIGNATED SENIOR INDEBTEDNESS. If any Company shall incur or permit to exist any Designated Senior Indebtedness (as defined in the Indenture) other than the Debt. SECTION 8.11. INDENTURE. If (a) any Default (as defined in the Indenture) or Event of Default (as defined in the Indenture) shall exist under the Indenture, the Senior Subordinated Notes or any agreement executed by Borrower in connection therewith, (b) without the prior written consent of Agent and the Required Banks, the Indenture or the Senior Subordinated Notes shall be amended or modified in any respect or replaced, or (c) the Senior Subordinated Notes shall be accelerated for any reason. SECTION 8.12. VALIDITY OF LOAN DOCUMENTS. (a) The validity, binding effect or enforceability of any Loan Document against Borrower or any Guarantor of Payment shall be contested by any Company or any other Obligor; (b) Borrower or any Guarantor of Payment shall deny that it has any or further liability or obligation under any Loan Document; or (c) any Loan Document shall, without the prior written consent of Agent and the Required Banks (or all of the Banks, as the case may be), be terminated, invalidated or set aside, or be declared ineffective or inoperative and, in the case of this subpart (c) only, a replacement document to such Loan Document, in form and substance satisfactory to Agent, is not immediately thereafter executed by Borrower, Agents and the Banks. SECTION 8.13. SOLVENCY. If any Company or any Obligor shall (a) except as permitted pursuant to Section 5.12 hereof, discontinue business, (b) generally not pay its debts as such debts become due, (c) make a general assignment for the benefit of creditors, (d) apply for or consent to the appointment of a receiver, a custodian, a trustee, an interim trustee or liquidator of all or a substantial part of its assets, (e) be adjudicated a debtor or have entered against it an order for relief under Title 11 of the United States Code, as the same may be amended from time to time, (f) file a voluntary petition in bankruptcy or file a petition or an answer seeking reorganization or an arrangement with creditors or seeking to take advantage of any other law (whether federal or state) relating to relief of debtors, or admit (by answer, by default or otherwise) the material allegations of a petition filed against it in any bankruptcy, reorganization, insolvency or other proceeding (whether federal or state) relating to relief of debtors, (g) suffer or permit to continue unstayed and in effect for thirty (30) consecutive days any judgment, decree or order entered by a court of competent jurisdiction, that approves a petition seeking its reorganization or appoints a receiver, custodian, trustee, interim trustee or liquidator of all or a substantial part of its assets, or (h) take, or omit to take, any action in order thereby to effect any of the foregoing. ARTICLE IX. REMEDIES UPON DEFAULT Notwithstanding any contrary provision or inference herein or elsewhere, SECTION 9.1. OPTIONAL DEFAULTS. If any Event of Default referred to in Section 8.1, 8.2., 8.3, 8.4, 8.5, 8.6, 8.7, 8.8, 8.9, 8.10, 8.11 or 8.12 hereof shall occur, the Required Banks shall have the right, in their discretion, by directing Agent, on behalf of the Banks, to give written notice to Borrower, to: 51 57 (a) terminate the Commitment and the credits hereby established, if not previously terminated, and, immediately upon such election, the obligations of the Banks, and each thereof, to make any further Loan hereunder immediately shall be terminated, and/or (b) accelerate the maturity of all of the Debt (if the Debt is not already due and payable), whereupon all of the Debt shall become and thereafter be immediately due and payable in full without any presentment or demand and without any further or other notice of any kind, all of which are hereby waived by Borrower. SECTION 9.2. AUTOMATIC DEFAULTS. If any Event of Default referred to in Section 8.13 hereof shall occur: (a) all of the Commitment and the credits hereby established shall automatically and immediately terminate, if not previously terminated, and no Bank thereafter shall be under any obligation to grant any further Loan hereunder, and (b) the principal of and interest then outstanding on all of the Notes, and all of the other Debt shall thereupon become and thereafter be immediately due and payable in full (if the Debt is not already due and payable), all without any presentment, demand or notice of any kind, which are hereby waived by Borrower. SECTION 9.3. OFFSETS. If there shall occur or exist any Event of Default referred to in Section 8.13 hereof or if the maturity of the Notes is accelerated pursuant to Section 9.1 or 9.2 hereof, each Bank shall have the right at any time to set off against, and to appropriate and apply toward the payment of, any and all Debt then owing by Borrower to that Bank (including, without limitation, any participation purchased or to be purchased pursuant to Section 9.4 hereof), whether or not the same shall then have matured, any and all deposit balances and all other indebtedness then held or owing by that Bank to or for the credit or account of Borrower or any Guarantor of Payment, all without notice to or demand upon Borrower or any other Person, all such notices and demands being hereby expressly waived by Borrower. SECTION 9.4. EQUALIZATION PROVISION. Each Bank agrees with the other Banks that if it, at any time, shall obtain any Advantage over the other Banks or any thereof in respect of the Debt (except under Article III hereof), it shall purchase from the other Banks, for cash and at par, such additional participation in the Debt as shall be necessary to nullify the Advantage. If any such Advantage resulting in the purchase of an additional participation as aforesaid shall be recovered in whole or in part from the Bank receiving the Advantage, each such purchase shall be rescinded, and the purchase price restored (but without interest unless the Bank receiving the Advantage is required to pay interest on the Advantage to the Person recovering the Advantage from such Bank) ratably to the extent of the recovery. Each Bank further agrees with the other Banks that if it at any time shall receive any payment for or on behalf of Borrower on any indebtedness owing by Borrower to that Bank by reason of offset of any deposit or other indebtedness, it will apply such payment first to any and all Debt owing by Borrower to that Bank (including, without limitation, any participation purchased or to be purchased pursuant to this Section or any other Section of this Agreement). Borrower agrees that any Bank so 52 58 purchasing a participation from the other Banks or any thereof pursuant to this Section may exercise all its rights of payment (including the right of set-off) with respect to such participation as fully as if such Bank was a direct creditor of Borrower in the amount of such participation. SECTION 9.5. COLLATERAL. Upon the occurrence of an Event of Default and at all times thereafter, Agent and the Banks shall have the rights and remedies of a secured party under the Ohio Revised Code, in addition to the rights and remedies of a secured party provided elsewhere within this Agreement, in any other writing executed by Borrower or otherwise provided by law or equity. Agent and the Banks may require Borrower to assemble the Collateral, which Borrower agrees to do, and make it available to Agent and the Banks at a reasonably convenient place to be designated by Agent. Agent and the Banks may, with or without notice to or demand upon Borrower and with or without the aid of legal process, make use of such force as may be necessary to enter any premises where the Collateral, or any thereof, may be found and to take possession thereof (including anything found in or on the Collateral that is not specifically described in this Agreement, each of which findings shall be considered to be an accession to and a part of the Collateral) and for that purpose may pursue the Collateral wherever the same may be found, without liability for trespass or damage caused thereby to Borrower. After any delivery or taking of possession of the Collateral, or any thereof, pursuant to this Agreement, then, with or without resort to Borrower personally or any other Person or property, all of which Borrower hereby waives, and upon such terms and in such manner as Agent may deem advisable, Agent, in its discretion, may sell, assign, transfer and deliver any of the Collateral at any time, or from time to time. No prior notice need be given to Borrower or to any other Person in the case of any sale of Collateral that Agent determines to be perishable or to be declining speedily in value or that is customarily sold in any recognized market, but in any other case Agent shall give Borrower not fewer than ten (10) days prior notice of either the time and place of any public sale of the Collateral or of the time after which any private sale or other intended disposition thereof is to be made. Borrower waives advertisement of any such sale and (except to the extent specifically required by the preceding sentence) waives notice of any kind in respect of any such sale. At any such public sale, Agent or the Banks may purchase the Collateral, or any part thereof, free from any right of redemption, all of which rights Borrower hereby waives and releases. After deducting all Related Expenses, and after paying all claims, if any, secured by Liens having precedence over this Agreement, Agent may apply the net proceeds of each such sale to or toward the payment of the Debt, whether or not then due, in such order and by such division as Agent, in its sole discretion, may deem advisable. Any excess, to the extent permitted by law, shall be paid to Borrower, and Borrower shall remain liable for any deficiency. In addition, Agent shall at all times have the right to obtain new appraisals of Borrower or the Collateral, the cost of which shall be paid by Borrower. ARTICLE X. THE AGENT The Banks authorize KeyBank National Association and KeyBank National Association hereby agrees to act as agent for the Banks in respect of this Agreement upon the terms and conditions set forth elsewhere in this Agreement, and upon the following terms and conditions: 53 59 SECTION 10.1. APPOINTMENT AND AUTHORIZATION. Each Bank hereby irrevocably appoints and authorizes Agent to take such action as agent on its behalf and to exercise such powers hereunder as are delegated to Agent by the terms hereof, together with such powers as are reasonably incidental thereto. Neither Agent nor any of its affiliates, directors, officers, attorneys or employees shall be liable for any action taken or omitted to be taken by it or them hereunder or in connection herewith, except for its or their own gross negligence or willful misconduct. SECTION 10.2. NOTE HOLDERS. Agent may treat the payee of any Note as the holder thereof until written notice of transfer shall have been filed with it, signed by such payee and in form satisfactory to Agent. SECTION 10.3. CONSULTATION WITH COUNSEL. Agent may consult with legal counsel selected by it and shall not be liable for any action taken or suffered in good faith by it in accordance with the opinion of such counsel. SECTION 10.4. DOCUMENTS. Agent shall not be under any duty to examine into or pass upon the validity, effectiveness, genuineness or value of any Loan Documents or any other Related Writing furnished pursuant hereto or in connection herewith or the value of any collateral obtained hereunder, and Agent shall be entitled to assume that the same are valid, effective and genuine and what they purport to be. SECTION 10.5. AGENT AND AFFILIATES. With respect to the Loans, Agent shall have the same rights and powers hereunder as any other Bank and may exercise the same as though it were not Agent, and Agent and its affiliates may accept deposits from, lend money to and generally engage in any kind of business with any Company or any affiliate thereof. SECTION 10.6. KNOWLEDGE OF DEFAULT. It is expressly understood and agreed that Agent shall be entitled to assume that no Default or Event of Default has occurred, unless Agent has been notified by a Bank in writing that such Bank believes that a Default or Event of Default has occurred and is continuing and specifying the nature thereof. SECTION 10.7. ACTION BY AGENT. Subject to the other terms and conditions hereof, so long as Agent shall be entitled, pursuant to Section 10.6 hereof, to assume that no Default or Event of Default shall have occurred and be continuing, Agent shall be entitled to use its discretion with respect to exercising or refraining from exercising any rights that may be vested in it by, or with respect to taking or refraining from taking any action or actions that it may be able to take under or in respect of, this Agreement. Subject to the other terms and conditions hereof, Agent shall incur no liability under or in respect of this Agreement by acting upon any notice, certificate, warranty or other paper or instrument believed by it to be genuine or authentic or to be signed by the proper party or parties, or with respect to anything that it may do or refrain from doing in the reasonable exercise of its judgment, or that may seem to it to be necessary or desirable. SECTION 10.8. NOTICES, DEFAULT, ETC. In the event that Agent shall have acquired actual knowledge of any Default or Event of Default, Agent shall promptly notify the 54 60 Banks and shall take such action and assert such rights under this Agreement as the Required Banks shall direct and Agent shall inform the other Banks in writing of the action taken. Subject to the other terms and conditions hereof, Agent may take such action and assert such rights as it deems to be advisable, in its discretion, for the protection of the interests of the holders of the Notes. SECTION 10.9. INDEMNIFICATION OF AGENT. The Banks agree to indemnify Agent (to the extent not reimbursed by Borrower) ratably, according to their respective Commitment Percentages, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever that may be imposed on, incurred by or asserted against Agent in its capacity as agent in any way relating to or arising out of this Agreement or any Loan Document or any action taken or omitted by Agent with respect to this Agreement or any Loan Document, provided that no Bank shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses (including attorneys' fees) or disbursements resulting from Agent's gross negligence, willful misconduct or from any action taken or omitted by Agent in any capacity other than as agent under this Agreement. SECTION 10.10. SUCCESSOR AGENT. Agent may resign as agent hereunder by giving not fewer than thirty (30) days prior written notice to Borrower and the Banks. If Agent shall resign under this Agreement, then either (a) the Required Banks shall appoint from among the Banks a successor agent for the Banks (with the consent of Borrower so long as an Event of Default has not occurred and which consent shall not be unreasonably withheld or delayed), or (b) if a successor agent shall not be so appointed and approved within the thirty (30) day period following Agent's notice to the Banks of its resignation, then Agent shall appoint a successor agent (with the consent of Borrower so long as an Event of Default has not occurred and which consent shall not be unreasonably withheld or delayed) that shall serve as agent until such time as the Required Banks appoint a successor agent (with the consent of Borrower so long as an Event of Default has not occurred and which consent shall not be unreasonably withheld or delayed). Upon its appointment, such successor agent shall succeed to the rights, powers and duties as agent, and the term "Agent" shall mean such successor effective upon its appointment, and the former agent's rights, powers and duties as agent shall be terminated without any other or further act or deed on the part of such former agent or any of the parties to this Agreement. ARTICLE XI. MISCELLANEOUS SECTION 11.1. BANKS' INDEPENDENT INVESTIGATION. Each Bank, by its signature to this Agreement, acknowledges and agrees that Agent has made no representation or warranty, express or implied, with respect to the creditworthiness, financial condition, or any other condition of any Company or with respect to the statements contained in any information memorandum furnished in connection herewith or in any other oral or written communication between Agent and such Bank. Each Bank represents that it has made and shall continue to make its own independent investigation of the creditworthiness, financial condition and affairs of the Companies in connection with the extension of credit hereunder, and agrees that Agent has no duty or responsibility, either initially or on a continuing basis, to provide any Bank with any 55 61 credit or other information with respect thereto (other than such notices as may be expressly required to be given by Agent to the Banks hereunder), whether coming into its possession before the granting of the first Loans hereunder or at any time or times thereafter. Each Bank has received a copy of the Indenture and has reviewed the terms and conditions thereof, including, but limited to, the conditions relating to the status of the Debt as Designated Senior Indebtedness (as defined in the Indenture) and Senior Indebtedness (as defined in the Indenture) under the Indenture. Furthermore, none of the Banks shall be deemed to have a fiduciary relationship with any other Bank. SECTION 11.2. NO WAIVER; CUMULATIVE REMEDIES. No omission or course of dealing on the part of Agent, any Bank or the holder of any Note in exercising any right, power or remedy hereunder or under any of the Loan Documents 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 hereunder or under any of the Loan Documents. The remedies herein provided are cumulative and in addition to any other rights, powers or privileges held by operation of law, by contract or otherwise. SECTION 11.3. AMENDMENTS, CONSENTS. No amendment, modification, termination, or waiver of any provision of any Loan Document nor consent to any variance therefrom, shall be effective unless the same shall be in writing and signed by the Required Banks (except that Agent may consent to the release of any collateral or other property securing the Debt in an aggregate amount not to exceed a fair market value of One Million Dollars ($1,000,000) during any fiscal year of Borrower) and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. Anything herein to the contrary notwithstanding, unanimous consent of the Banks shall be required with respect to (a) any increase in the Commitment hereunder, (b) the extension of maturity of the Notes, the payment date of principal or interest thereunder, or the payment of commitment or other fees or amounts payable hereunder, (c) any reduction in the rate of interest on the Notes, or in any amount of principal or interest due on any Note, or the payment of commitment or other fees hereunder or any change in the manner of pro rata application of any payments made by Borrower to the Banks hereunder, (d) any change in any percentage voting requirement, voting rights, or the Required Banks definition in this Agreement, (e) the release of any Guarantor of Payment or, except as set forth in the first sentence of this Section 11.3 or except in connection with the sale, lease, transfer or other disposition of assets permitted pursuant to Section 5.12 hereof, of any collateral securing the Debt or any part thereof, or (f) any amendment to this Section 11.3 or Section 9.4 hereof. Notice of amendments or consents ratified by the Banks hereunder shall immediately be forwarded by Borrower to all Banks. Each Bank or other holder of a Note shall be bound by any amendment, waiver or consent obtained as authorized by this Section 11.3, regardless of its failure to agree thereto. SECTION 11.4. NOTICES. All notices, requests, demands and other communications provided for hereunder shall be in writing and, if to Borrower, mailed or delivered to it, addressed to it at the address specified on the signature pages of this Agreement, if to a Bank, mailed or delivered to it, addressed to the address of such Bank specified on the signature pages of this Agreement, or, as to each party, at such other address as shall be designated by such party in a written notice to each of the other parties. All notices, statements, 56 62 requests, demands and other communications provided for hereunder shall be given by overnight delivery or first class mail with postage prepaid by registered or certified mail, addressed as aforesaid, or sent by facsimile with telephonic confirmation of receipt, except that all notices hereunder shall not be effective until received. SECTION 11.5. COSTS, EXPENSES AND TAXES. Borrower agrees to pay on demand all reasonable costs and expenses of Agent, and all Related Expenses, including, but not limited to, (a) administration and out-of-pocket expenses, including but not limited to attorneys' fees and expenses, of Agent in connection with the preparation, negotiation and closing of the Loan Documents and the administration of the Loan Documents, the collection and disbursement of all funds hereunder and the other instruments and documents to be delivered hereunder, (b) extraordinary expenses of Agent in connection with the administration of the Loan Documents and the other instruments and documents to be delivered hereunder, (c) the reasonable fees and out-of-pocket expenses of special counsel for Agent, with respect to the foregoing, and of local counsel, if any, who may be retained by said special counsel with respect thereto, and (d) all costs and expenses of, including reasonable attorneys' fees, in connection with the restructuring or enforcement of the Debt, this Agreement or any Related Writing. In addition, Borrower shall pay any and all stamp and other taxes and fees payable or determined to be payable in connection with the execution and delivery of the Loan Documents, and the other instruments and documents to be delivered hereunder, and agrees to hold Agent and each Bank harmless from and against any and all liabilities with respect to or resulting from any delay in paying or omission to pay such taxes or fees. SECTION 11.6. INDEMNIFICATION. Borrower agrees to defend, indemnify and hold harmless Agent and the Banks (and their respective affiliates, officers, directors, attorneys, agents and employees) from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses (including reasonable attorneys' fees) or disbursements of any kind or nature whatsoever that may be imposed on, incurred by or asserted against Agent or any Bank in connection with any investigative, administrative or judicial proceeding (whether or not such Bank or Agent shall be designated a party thereto) or any other claim by any Person relating to or arising out of any Loan Document or any actual or proposed use of proceeds of the Loans or any of the Debt, or any activities of any Company or any Obligor or any of their respective Affiliates; provided that no Bank nor Agent shall have the right to be indemnified under this Section for its own gross negligence or willful misconduct as determined by a court of competent jurisdiction. All obligations provided for in this Section 11.6 shall survive any termination of this Agreement. SECTION 11.7. OBLIGATIONS SEVERAL; NO FIDUCIARY OBLIGATIONS. The obligations of the Banks hereunder are several and not joint. Nothing contained in this Agreement and no action taken by Agent or the Banks pursuant hereto shall be deemed to constitute the Banks a partnership, association, joint venture or other entity. No default by any Bank hereunder shall excuse the other Banks from any obligation under this Agreement; but no Bank shall have or acquire any additional obligation of any kind by reason of such default. The relationship among Borrower and the Banks with respect to the Loan Documents and the Related Writings is and shall be solely that of debtor and creditors, respectively, and neither Agent nor 57 63 any Bank has any fiduciary obligation toward Borrower with respect to any such documents or the transactions contemplated thereby. SECTION 11.8. EXECUTION IN COUNTERPARTS. This Agreement 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 agreement. SECTION 11.9. BINDING EFFECT; BORROWER'S ASSIGNMENT. This Agreement shall become effective when it shall have been executed by Borrower, Agent and by each Bank and thereafter shall be binding upon and inure to the benefit of Borrower, Agent and each of the Banks and their respective successors and assigns, except that Borrower shall not have the right to assign its rights hereunder or any interest herein without the prior written consent of Agent and all of the Banks. SECTION 11.10. BANK ASSIGNMENTS/PARTICIPATIONS. A. Assignments of Commitments. Each Bank shall have the right at any time or times to assign to another financial institution, without recourse, all or a percentage of all of the following: (a) that Bank's Commitment, (b) all Loans made by that Bank, and (c) that Bank's Notes; provided, however, in each such case, that the assignor and the assignee shall have complied with the following requirements: (i) Prior Consent. No assignment may be consummated pursuant to this Section 11.10 without the prior written consent of Borrower and Agent (other than an assignment by any Bank to any affiliate of such Bank which affiliate is either wholly-owned by such Bank or is wholly-owned by a Person that wholly owns, either directly or indirectly, such Bank), which consent of Borrower and Agent shall not be unreasonably withheld; provided, however, that, Borrower's consent shall not be required if, at the time of the proposed assignment, any Default or Event of Default shall then exist. Anything herein to the contrary notwithstanding, any Bank may at any time make a collateral assignment of all or any portion of its rights under the Loan Documents to a Federal Reserve Bank, and no such assignment shall release such assigning Bank from its obligations hereunder; (ii) Minimum Amount. Each such assignment shall be in a minimum amount of the lesser of Ten Million Dollars ($10,000,000) of the assignor's Commitment and interest herein or the entire amount of the assignor's Commitment and interest herein; (iii) Assignment Fee; Assignment Agreement. Unless the assignment shall be to an affiliate of the assignor or the assignment shall be due to merger of the assignor or for regulatory purposes, either the assignor or the assignee shall remit to Agent, for its own account, an administrative fee of Three Thousand Five Hundred Dollars ($3,500). Unless the assignment shall be due to merger of the assignor or a collateral assignment for regulatory purposes, the assignor shall (A) cause the assignee to execute and deliver to Borrower and Agent an Assignment Agreement, and (B) execute and deliver, or cause 58 64 the assignee to execute and deliver, as the case may be, to Agent such additional amendments, assurances and other writings as Agent may reasonably require; and (iv) Non-U.S. Assignee. If the assignment is to be made to an assignee which is organized under the laws of any jurisdiction other than the United States or any state thereof, the assignor Bank shall cause such assignee, at least five (5) Business Days prior to the effective date of such assignment, (A) to represent to the assignor Bank (for the benefit of the assignor Bank, Agent and Borrower) that under applicable law and treaties no taxes will be required to be withheld by Agent, Borrower or the assignor with respect to any payments to be made to such assignee in respect of the Loans hereunder, (B) to furnish to the assignor (and, in the case of any assignee registered in the Register (as defined below), Agent and Borrower) either (1) U.S. Internal Revenue Service Form 4224 or U.S. Internal Revenue Service Form 1001 or (2) United States Internal Revenue Service Form W-8 or W-9, as applicable (wherein such assignee claims entitlement to complete exemption from U.S. federal withholding tax on all interest payments hereunder), and (C) to agree (for the benefit of the assignor, Agent and Borrower) to provide the assignor Bank (and, in the case of any assignee registered in the Register, Agent and Borrower) a new Form 4224 or Form 1001 or Form W-8 or W-9, as applicable, upon the expiration or obsolescence of any previously delivered form and comparable statements in accordance with applicable U.S. laws and regulations and amendments duly executed and completed by such assignee, and to comply from time to time with all applicable U.S. laws and regulations with regard to such withholding tax exemption. Upon satisfaction of the requirements specified in clauses (i) through (iv) above, Borrower shall execute and deliver (A) to Agent, the assignor and the assignee, any consent or release (of all or a portion of the obligations of the assignor) required to be delivered by Borrower in connection with the Assignment Agreement, and (B) to the assignee, an appropriate Note or Notes. After delivery of the new Note or Notes, the assignor's Note or Notes being replaced shall be returned to Borrower marked "replaced". Upon satisfaction of the requirements of set forth in (i) through (iv), and any other condition contained in this Section 11.10A, (A) the assignee shall become and thereafter be deemed to be a "Bank" for the purposes of this Agreement, (B) in the event that the assignor's entire interest has been assigned, the assignor shall cease to be and thereafter shall no longer be deemed to be a "Bank" and (C) the signature pages hereto and Schedule 1 hereto shall be automatically amended, without further action, to reflect the result of any such assignment. Agent shall maintain at its address referred to in Section 11.4 hereof a copy of each Assignment Agreement delivered to it and a register (the "Register") for the recordation of the names and addresses of the Banks and the Commitment of, and principal amount of the Loans owing to, each Bank from time to time. The entries in the Register shall be conclusive, in the absence of manifest error, and Borrower, Agent and the Banks may treat each financial institution whose name is recorded in the Register as the owner of the Loan recorded therein for all purposes of this Agreement. The Register shall be available for inspection by Borrower or any Bank at any reasonable time and from time to time upon reasonable prior notice. 59 65 B. Sale of Participations. Each Bank shall have the right at any time or times, without the consent of Agent or Borrower, to sell one or more participations or sub-participations to a financial institution, as the case may be, in all or any part of (a) that Bank's Commitment, (b) that Bank's Commitment Percentage, (c) any Loan made by that Bank, (d) any Note delivered to that Bank pursuant to this Agreement, and (e) that Bank's interest in any participation, if any, purchased pursuant to Section 9.4 hereof or this Section 11.10B. The provisions of Article III and Section 11.6 shall inure to the benefit of each purchaser of a participation or sub-participation and Agent shall continue to distribute payments pursuant to this Agreement as if no participation has been sold. If any Bank shall sell any participation or sub-participation, that Bank shall, as between itself and the purchaser, retain all of its rights (including, without limitation, rights to enforce against Borrower the Loan Documents and the Related Writings) and duties pursuant to the Loan Documents and the Related Writings, including, without limitation, that Bank's right to approve any waiver, consent or amendment pursuant to Section 11.3, except if and to the extent that any such waiver, consent or amendment would: (i) reduce any fee or commission allocated to the participation or sub-participation, as the case may be, (ii) reduce the amount of any principal payment on any Loan allocated to the participation or sub-participation, as the case may be, or reduce the principal amount of any Loan so allocated or the rate of interest payable thereon, or (iii) extend the time for payment of any amount allocated to the participation or sub-participation, as the case may be. No participation or sub-participation shall operate as a delegation of any duty of the seller thereof. Under no circumstance shall any participation or sub-participation be deemed a novation in respect of all or any part of the seller's obligations pursuant to this Agreement. SECTION 11.11. SEVERABILITY OF PROVISIONS; CAPTIONS; ATTACHMENTS. 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. The several captions to Sections and subsections herein are inserted for convenience only and shall be ignored in interpreting the provisions of this Agreement. Each schedule or exhibit attached to this Agreement shall be incorporated herein and shall be deemed to be a part hereof. SECTION 11.12. INVESTMENT PURPOSE. Each of the Banks represents and warrants to Borrower that it is entering into this Agreement with the present intention of acquiring any Note issued pursuant hereto for investment purposes only and not for the purpose of distribution or resale, it being understood, however, that each Bank shall at all times retain full control over the disposition of its assets. 60 66 SECTION 11.13. ENTIRE AGREEMENT. This Agreement, any Note and any other Loan Document or other agreement, document or instrument attached hereto or executed on or as of the Closing Date integrate all the terms and conditions mentioned herein or incidental hereto and supersede all oral representations and negotiations and prior writings with respect to the subject matter hereof. This Agreement is intended to, and Borrower, Agent and the Banks agree that this Agreement shall, (a) constitute "Revolving Credit Facility" (as defined in the Indenture), and (b) is a replacement of the Amended and Restated Credit Agreement dated as of November 2, 1998, as amended, among Borrower, the lenders a party thereto and KeyBank National Association, as agent. SECTION 11.14. GOVERNING LAW; SUBMISSION TO JURISDICTION. This Agreement, each of the Notes and any Related Writing shall be governed by and construed in accordance with the laws of the State of Ohio and the respective rights and obligations of Borrower and the Banks shall be governed by Ohio law, without regard to principles of conflict of laws. Borrower hereby irrevocably submits to the non-exclusive jurisdiction of any Ohio state or federal court sitting in Cleveland, Ohio, over any action or proceeding arising out of or relating to this Agreement, the Debt or any Related Writing, and Borrower hereby irrevocably agrees that all claims in respect of such action or proceeding may be heard and determined in such Ohio state or federal court. Borrower, on behalf of itself and its Subsidiaries, hereby irrevocably waives, to the fullest extent permitted by law, any objection it may now or hereafter have to the laying of venue in any action or proceeding in any such court as well as any right it may now or hereafter have to remove such action or proceeding, once commenced, to another court on the grounds of FORUM NON CONVENIENS or otherwise. Borrower agrees that a final, nonappealable judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. [Remainder of page intentionally left blank] 61 67 SECTION 11.15. JURY TRIAL WAIVER. BORROWER, AGENT AND EACH OF THE BANKS WAIVE ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE, AMONG BORROWER, AGENT AND THE BANKS, OR ANY THEREOF, ARISING OUT OF, IN CONNECTION WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH THIS AGREEMENT OR ANY NOTE OR OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH OR THE TRANSACTIONS RELATED THERETO. THIS WAIVER SHALL NOT IN ANY WAY AFFECT, WAIVE, LIMIT, AMEND OR MODIFY AGENT'S OR ANY BANK'S ABILITY TO PURSUE REMEDIES PURSUANT TO ANY CONFESSION OF JUDGMENT OR COGNOVIT PROVISION CONTAINED IN ANY NOTE OR OTHER INSTRUMENT, DOCUMENT OR AGREEMENT AMONG BORROWER, AGENT AND THE BANKS, OR ANY THEREOF.
Address: 23000 Euclid Avenue PARK-OHIO INDUSTRIES, INC. Euclid, Ohio 44117 Attn: Corporate Secretary By: /s/ Richard Paul Elliott --------------------------------------- Title: Vice President & CFO ------------------------------------ Address: Key Tower KEYBANK NATIONAL ASSOCIATION, 127 Public Square as Agent and as a Bank Cleveland, Ohio 44114-1306 Attn: Middle Market Lending- By: /s/ Kenneth M. Merhar, Vice President Downtown Division --------------------------------------- Kenneth M. Merhar, Vice President Address: Huntington Building THE HUNTINGTON NATIONAL BANK, 917 Euclid Avenue as a Bank and as Co-Agent Cleveland, Ohio 44115 Attention: Commercial By: /s/ Timothy M. Ward, Vice President Banking Division --------------------------------------- Timothy M. Ward, Vice President Address: 50 South LaSalle Street THE NORTHERN TRUST COMPANY Chicago, Illinois 60675 Attention:___________ By: /s/ David Sullivan --------------------------------------- Title: Vice President ------------------------------------ Address: 1404 East Ninth Street FIFTH THIRD BANK, NORTHEASTERN OHIO Third Floor Cleveland, Ohio 44114 Attention:___________ By: /s/ Roy Lanctot --------------------------------------- Title: Vice President ------------------------------------
62 68 SCHEDULE 1 BANKS AND COMMITMENTS
REVOLVING CREDIT COMMITMENT COMMITMENT BANKING INSTITUTIONS PERCENTAGE AMOUNT MAXIMUM AMOUNT -------------------- -------------------- -------------------- -------------------- KeyBank National Association 41.6670% $75,000,000 $75,000,000 Huntington National Bank 41.667% $75,000,000 $75,000,000 The Northern Trust Company 8.333% $15,000,000 $15,000,000 Fifth Third Bank, Northeastern Ohio 8.333% $15,000,000 $15,000,000 Total Commitment Amount 100% $180,000,000 $180,000,000
63 69 SCHEDULE 2 GUARANTORS OF PAYMENT ATBD, Inc., an Ohio corporation Castle Rubber Company, a Pennsylvania corporation Cicero Flexible Products, Inc., an Ohio corporation Columbia Nut & Bolt LLC, an Ohio limited liability corporation Donegal Bay Ltd., an Ohio limited liability company GIS Industries, Inc., a Pennsylvania corporation General Aluminum Mfg. Company, an Ohio corporation ILS Technology, Inc., an Ohio corporation Industrial Fasteners LLC, an Ohio limited liability company Integrated Holding Company, an Ohio corporation Integrated Logistics Solutions, Inc., an Ohio corporation Integrated Logistics Solutions LLC , an Ohio limited liability company Integrated Logistics Holding Company, an Ohio corporation Park Avenue Travel Ltd., an Ohio limited liability company Park-Ohio Structural Hardware LLC, an Ohio limited liability company Pharmaceutical Logistics, Inc., an Ohio corporation Pharmacy Wholesale Logistics, Inc., an Ohio corporation PMC-Colinet, Inc., an Ohio corporation PMC Industries Corp., an Ohio corporation Precision Machining Connection LLC, an Ohio limited liability company RB&W Manufacturing LLC, an Ohio limited liability company The Ajax Manufacturing Company, an Ohio corporation The Metalloy Corporation, a Michigan corporation Tocco, Inc., an Alabama corporation Trickeration, Inc., an Ohio corporation 64 70 EXHIBIT A REVOLVING CREDIT NOTE $__________ Cleveland, Ohio December 21, 2000 FOR VALUE RECEIVED, the undersigned, PARK-OHIO INDUSTRIES, INC., an Ohio corporation ("Borrower"), promises to pay on the last day of the Commitment Period, as defined in the Credit Agreement (as hereinafter defined), to the order of _________ ("Bank") at the Main Office of KEYBANK NATIONAL ASSOCIATION, as Agent, 127 Public Square, Cleveland, Ohio 44114-1306 the principal sum of DOLLARS or the aggregate unpaid principal amount of all Revolving Loans made by Bank to Borrower pursuant to Section 2.1 of the Credit Agreement, whichever is less, in lawful money of the United States of America. As used herein, "Credit Agreement" means the Credit and Security Agreement dated as of December 21, 2000, among Borrower, the banks named therein, KeyBank National Association, as Agent, and The Huntington National Bank, as Co-Agent, as the same may from time to time be amended, restated or otherwise modified. Capitalized terms used herein shall have the meanings ascribed to them in the Credit Agreement. Borrower also promises to pay interest on the unpaid principal amount of each Revolving Loan from time to time outstanding, from the date of such Revolving Loan until the payment in full thereof, at the rates per annum that shall be determined in accordance with the provisions of Section 2.1 of the Credit Agreement. Such interest shall be payable on each date provided for in such Section 2.1; provided, however, that interest on any principal portion that is not paid when due shall be payable on demand. The portions of the principal sum hereof from time to time representing each Base Interest Segment and LIBOR Interest Segment, and payments of principal of any thereof, shall be shown on the records of Bank by such method as Bank may generally employ; provided, however, that failure to make any such entry shall in no way detract from Borrower's obligations under this Note. If this Note shall not be paid at maturity, whether such maturity occurs by reason of lapse of time or by operation of any provision for acceleration of maturity contained in the Credit Agreement, the principal hereof and the unpaid interest thereon shall bear interest, until paid, at a rate per annum equal to the Default Rate. All payments of principal of and interest on this Note shall be made in immediately available funds. In the event of a failure to pay interest or principal, when the same becomes due, Bank may collect and Borrower agrees to pay a late charge of an amount equal to the greater of (a) ten percent (10%) of the amount of such late payment, or (b) Twenty Five Dollars ($25). This Note is one of the Revolving Credit Notes referred to in the Credit Agreement. Reference is made to the Credit Agreement for a description of the right of the undersigned to 65 71 anticipate payments hereof, the right of the holder hereof to declare this Note due prior to its stated maturity, and other terms and conditions upon which this Note is issued. Except as expressly provided in the Credit Agreement, Borrower expressly waives presentment, demand, protest and notice of any kind. The undersigned authorizes any attorney at law at any time or times after the maturity hereof (whether maturity occurs by lapse of time or by acceleration) to appear in any state or federal court of record in the United States of America, to waive the issuance and service of process, to admit the maturity of this Note and the nonpayment thereof when due, to confess judgment against the undersigned in favor of the holder of this Note for the amount then appearing due, together with interest and costs of suit, and thereupon to release all errors and to waive all rights of appeal and stay of execution. The foregoing warrant of attorney shall survive any judgment, and if any judgment be vacated for any reason, the holder hereof nevertheless may thereafter use the foregoing warrant of attorney to obtain an additional judgment or judgments against the undersigned. The undersigned agrees that Agent or the Banks' attorney may confess judgment pursuant to the foregoing warrant of attorney. The undersigned further agrees that the attorney confessing judgment pursuant to the foregoing warrant of attorney may receive a legal fee or other compensation from Agent or the Banks. PARK-OHIO INDUSTRIES, INC. By: ------------------------------- Title: ---------------------------- "WARNING -- BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT TRIAL. IF YOU DO NOT PAY ON TIME A COURT JUDGMENT MAY BE TAKEN AGAINST YOU WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT, OR ANY OTHER CAUSE." 66 72 EXHIBIT B NOTICE WITH RESPECT TO LOAN [Date]_______________________, 20____ KeyBank National Association, as Agent 127 Public Square Cleveland, Ohio 44114-0616 Attention: ________________ Ladies and Gentlemen: The undersigned, a duly elected Financial Officer, as defined in the Credit and Security Agreement (as hereinafter defined), or otherwise duly authorized employee of PARK-OHIO INDUSTRIES, INC. ("Borrower"), refers to the Credit and Security Agreement, dated as of December 21, 2000 (as the same may from time to time be amended, restated or otherwise modified, the "Credit Agreement", the terms defined therein being used herein as therein defined), among Borrower, the Banks, KeyBank National Association, as Agent, and The Huntington National Bank, as Co-Agent. The undersigned hereby gives you notice of the following (check one): _____ Borrower hereby requests a Revolving Loan as set forth in subpart I below. _____ Borrower hereby requests a change in or continuation of an interest rate option as set forth in subpart II below. _____ Borrower is hereby making a prepayment of a Revolving Loan as set forth in subpart III below. I. Request for Loan Borrower hereby requests a Revolving Loan (the "Proposed Loan") pursuant to Section 2.2(a) of the Credit Agreement as follows: (i) The Business Day of the Proposed Loan is __________, 20__. (ii) The amount of the Proposed Loan is $_______________. (iii) The Proposed Loan shall consist of a Base Rate Option____ / LIBOR Rate Option___. (Check one.) (iv) If the Proposed Loan is to consist of a LIBOR Rate Option, the Interest Period requested is one month ___, two months ___, three months ___, six months ____. (Check one.) 67 73 II. Request for Change/Continuation of Interest Rate Option Borrower hereby requests a change or continuation of an interest rate option ("Interest Rate Option") pursuant to Section 2.2(b) of the Credit Agreement as follows: (i) The Interest Rate Option relates to the Revolving Loan made on ___________ in the amount of $_________________. (ii) The Business Day of the Interest Rate Option __________, 20__. (iii) The amount of the Interest Rate Option is $_______________. (iv) The Interest Rate Option is to be a Base Rate Option ____ /LIBOR Rate Option ___. (Check one.) (v) If the Interest Rate Option is a LIBOR Rate Option, the Interest Period requested is one month ___, two months ___, three months ___, six months ____. (Check one.) III. Notice of Prepayment Borrower hereby notifies Agents and the Banks that Borrower is making a prepayment of a Revolving Loan ("Prepaid Loan") pursuant to Section 2.5 of the Credit Agreement as follows: (i) The Business Day for payment on the Prepaid Loan is __________, 20__ (if such Loan, is a LIBOR Loan the Business Day must be three (3) Business Days after the date of this Notice and must be the last day of the applicable Interest Period). (ii) The amount of the Prepaid Loan to be prepaid is $_______________ (if such Loan is a LIBOR Loan, such amount must be at least $5,000,000). Very truly yours, PARK-OHIO INDUSTRIES, INC. By: ---------------------------------- Name: -------------------------------- 68 74 EXHIBIT C COMPLIANCE CERTIFICATE For Fiscal Quarter ended _______________ THE UNDERSIGNED HEREBY CERTIFY THAT: (1) I am the duly elected Chief Financial Officer of PARK-OHIO INDUSTRIES, INC., an Ohio corporation ("Borrower"); (2) I am familiar with the terms of that certain Credit and Security Agreement, dated as of December 21, 2000, among the undersigned, the Banks, as defined in the Credit and Security Agreement, KeyBank National Association, as Agent and The Huntington National Bank, as Co-Agent (as the same may from time to time be amended, restated or otherwise modified, the "Credit Agreement", the terms defined therein being used herein as therein defined), and the terms of the other Loan Documents, and I have made, or have caused to be made under my supervision, a review in reasonable detail of the transactions and condition of Borrower and its Subsidiaries during the accounting period covered by the attached financial statements; (3) The review described in paragraph (2) above did not disclose, and I have no knowledge of, the existence of any condition or event that constitutes or constituted a Default or Event of Default, at the end of the accounting period covered by the attached financial statements or as of the date of this Certificate; (4) The representations and warranties made by Borrower contained in each Loan Document are true and correct as though made on and as of the date hereof; and (5) Set forth on Attachment I hereto are calculations of the financial covenants set forth in Section 5.7 of the Credit Agreement and a calculation of the Consolidated Fixed Charge Coverage Ratio (as defined in the Indenture) for Borrower, which calculations show compliance with the terms thereof. IN WITNESS WHEREOF, we have signed this certificate the ___ day of _________, 20___. PARK-OHIO INDUSTRIES, INC. By: -------------------------------- Title: ----------------------------- 69 75 EXHIBIT D WEEKLY COMPLIANCE CERTIFICATION [Date]_______________________, 20____ KeyBank National Association, as Agent 127 Public Square Cleveland, Ohio 44114-0616 Attention: ________________ Ladies and Gentlemen: The undersigned, PARK-OHIO INDUSTRIES, INC. ("Borrower"), refers to the Credit and Security Agreement, dated as of December 21, 2000 (as the same may from time to time be amended, restated or otherwise modified, the "Credit Agreement", the terms defined therein being used herein as therein defined), among Borrower, the Banks, KeyBank National Association, as Agent, and The Huntington National Bank, as Co-Agent, and pursuant to Section 2.8 of the Credit Agreement hereby certifies that, as of the date hereof and as of the date of the making of any Loan under the Credit Agreement or of the changing or continuation of the interest rate applicable to any portion of the outstanding principal balance of any Loan during the preceding week (each a "Certification Date"), as follows: (a) the Consolidated Fixed Charge Coverage Ratio (as defined in the Indenture) is, and as of each Certification Date at all such times was, greater than or equal to 2.25 to 1.00, as calculated in accordance with the terms and conditions of the Indenture, and is not likely to be less than 2.25 to 1.00 at any time within the next three (3) months; (b) the Consolidated Fixed Charge Coverage Ratio (as defined in the Indenture) of each Subsidiary of Borrower is, and as of each Certification Date at all such times was, greater than or equal to 2.50 to 1.00, as calculated in accordance with the terms and conditions of the Indenture, and is not likely to be less than 2.50 to 1.00 at any time within the next three (3) month;. (c) the undersigned has made, or has caused to be made, under the undersigned's supervision, a review of the terms and conditions of the Indenture; (d) based on the foregoing review, as of the date hereof there is, and as of each Certification Date there was, no Default (as defined in the Indenture) or Event of Default (as defined in the Indenture) that exists or existed; (e) the representations and warranties contained in each Loan Document are correct as of the date hereof and were true and correct as of each Certification Date; (f) no event has occurred and is continuing that constitutes a Default or Event of Default; and 70 76 (g) the conditions set forth in Section 2.2 and Article IV of the Credit Agreement have been satisfied. Very truly yours, PARK-OHIO INDUSTRIES, INC. By: ----------------------------------- Title: -------------------------------- 71 77 EXHIBIT E REQUEST FOR EXTENSION [Date]_______________________, _____ KeyBank National Association, as Agent 127 Public Square Cleveland, Ohio 44114 Attention: __________________ Ladies and Gentlemen: The undersigned, PARK-OHIO INDUSTRIES, INC., refers to the Credit and Security Agreement, dated as of December 21, 2000 (as the same may from time to time be amended, restated or otherwise modified, the "Credit Agreement", the terms defined therein being used herein as therein defined), among the undersigned, the Banks, as defined in the Credit Agreement, KeyBank National Association, as Agent, and The Huntington National Bank, as Co-Agent, and hereby gives you notice, pursuant to Section 2.9 of the Credit Agreement that the undersigned hereby requests an extension as set forth below (the "Extension") under the Credit Agreement, and in connection with the Extension sets forth below the information relating to the Extension as required by Section 2.9 of the Credit Agreement. The undersigned hereby requests the Banks to extend the Commitment Period from ______________ _____, 20___ to ________________ _____, 20___. The undersigned hereby certifies that the following statements are true on the date hereof, and will be true on the date of the Extension: (i) the representations and warranties contained in each Loan Document are correct, before and after giving effect to the Extension and the application of the proceeds therefrom, as though made on and as of such date; (ii) no event has occurred and is continuing, or would result from such Extension, or the application of proceeds therefrom, which constitutes a Default or an Event of Default; and (iii) the conditions set forth in Section 2.2 and Article IV of the Credit Agreement have been satisfied. Very truly yours, PARK-OHIO INDUSTRIES, INC. By: ____________________________ Title: _________________________ 72 78 EXHIBIT F FORM OF ASSIGNMENT AND ACCEPTANCE AGREEMENT This Assignment and Acceptance Agreement (this "Assignment Agreement") between ______________________ (the "Assignor") and ______________________ (the "Assignee") is dated as of ________, 20___. The parties hereto agree as follows: 1. Preliminary Statement. Assignor is a party to a Credit and Security Agreement, dated as of December 21, 2000 (which, as the same may from time to time be amended, restated or otherwise modified is herein called the "Credit Agreement"), among PARK-OHIO INDUSTRIES, INC., an Ohio corporation ("Borrower"), the banking institutions named on Schedule 1 thereto (collectively, "Banks" and, individually, "Bank"), KEYBANK NATIONAL ASSOCIATION, as administrative agent for the Banks ("Agent"), and THE HUNTINGTON NATIONAL BANK, as Co-Agent ("Co-Agent"). Capitalized terms used herein and not otherwise defined herein shall have the meanings attributed to them in the Credit Agreement. 2. Assignment and Assumption. Assignor hereby sells and assigns to Assignee, and Assignee hereby purchases and assumes from Assignor, an interest in and to Assignor's rights and obligations under the Credit Agreement, effective as of the Assignment Effective Date (as hereinafter defined), equal to the percentage interest specified on Annex 1 hereto (hereinafter, "Assignee's Percentage") of Assignor's right, title and interest in and to (a) the Commitment of Assignor as set forth on Annex 1 (hereinafter, "Assigned Amount"), (b) any Loan made by Assignor which is outstanding on the Assignment Effective Date, (c) any Note delivered to Assignor pursuant to the Credit Agreement, and (d) the Credit Agreement and the other Related Writings. After giving effect to such sale and assignment and on and after the Assignment Effective Date, Assignee shall be deemed to have a "Commitment Percentage" under the Credit Agreement equal to the Commitment Percentage set forth in subparts I.C on Annex 1 hereto. 3. Assignment Effective Date. The Assignment Effective Date (the "Assignment Effective Date") shall be the earlier of ___________ ____, 20___ or the date upon which the following conditions precedent have been satisfied: (a) receipt by Agent of this Assignment Agreement, including Annex 1 hereto, properly executed by Assignor and Assignee and accepted and consented to by Agents and, if necessary pursuant to the provisions of Section 11.10(A)(i) of the Credit Agreement, by Borrower; (b) receipt by Agent from Assignor of a fee of Three Thousand Five Hundred Dollars ($3,500), in accordance with Section 11.10A of the Credit Agreement; (c) receipt by Agent from Assignee of an administrative questionnaire, or other similar document, which shall include (i) the address for notices under the Credit Agreement, (ii) the address of its Lending Office, (iii) wire transfer instructions for delivery of funds by Agent, (iv) and such other information as Agent shall request; and 73 79 (d) receipt by Administrative Agent from Assignor or Assignee of any other information required pursuant to Section 11.10 of the Credit Agreement or otherwise necessary to complete the transaction contemplated hereby. 4. Payment Obligations. In consideration for the sale and assignment of Loans hereunder, Assignee shall pay Assignor, on the Assignment Effective Date, an amount in Dollars equal to Assignee's Percentage. Any interest, fees and other payments accrued prior to the Assignment Effective Date with respect to the Assigned Amount shall be for the account of Assignor. Any interest, fees and other payments accrued on and after the Assignment Effective Date with respect to the Assigned Amount shall be for the account of Assignee. Each of Assignor and Assignee agrees that it will hold in trust for the other part any interest, fees or other amounts which it may receive to which the other party is entitled pursuant to the preceding sentence and to pay the other party any such amounts which it may receive promptly upon receipt thereof. 5. Credit Determination; Limitations on Assignor's Liability. Assignee represents and warrants to Assignor, Borrower, Agent and the other Banks (a) that it is capable of making and has made and shall continue to make its own credit determinations and analysis based upon such information as Assignee deemed sufficient to enter into the transaction contemplated hereby and not based on any statements or representations by Assignor, (b) Assignee confirms that it meets the requirements to be an assignee as set forth in Section 11.10 of the Credit Agreement; (c) Assignee confirms that it is able to fund the Loans as required by the Credit Agreement; (d) Assignee agrees that it will perform in accordance with their terms all of the obligations which by the terms of the Credit Agreement and the Related Writings are required to be performed by it as a Bank thereunder; and (e) Assignee represents that it has reviewed each of the Loan Documents. It is understood and agreed that the assignment and assumption hereunder are made without recourse to Assignor and that Assignor makes no representation or warranty of any kind to Assignee and shall not be responsible for (i) the due execution, legality, validity, enforceability, genuineness, sufficiency or collectability of the Credit Agreement or any Related Writings, (ii) any representation, warranty or statement made in or in connection with the Credit Agreement or any of the Related Writings, (iii) the financial condition or creditworthiness of Borrower or any Guarantor of Payment, (iv) the performance of or compliance with any of the terms or provisions of the Credit Agreement or any of the Related Writings, (v) inspecting any of the property, books or records of Borrower, or (vi) the validity, enforceability, perfection, priority, condition, value or sufficiency of any collateral securing or purporting to secure the Loans. Neither Assignor nor any of its officers, directors, employees, agents or attorneys shall be liable for any mistake, error of judgment, or action taken or omitted to be taken in connection with the Loans, the Credit Agreement or the Related Writings, except for its or their own bad faith or willful misconduct. Assignee appoints Agent to take such action as agent on its behalf and to exercise such powers under the Credit Agreement as are delegated to Agent by the terms thereof. 6. Indemnity. Assignee agrees to indemnify and hold Assignor harmless against any and all losses, cost and expenses (including, without limitation, attorneys' fees) and liabilities incurred by Assignor in connection with or arising in any manner from Assignee's performance or non-performance of obligations assumed under this Assignment Agreement. 74 80 7. Subsequent Assignments. After the Assignment Effective Date, Assignee shall have the right pursuant to Section 11.10 of the Credit Agreement to assign the rights which are assigned to Assignee hereunder, provided that (a) any such subsequent assignment does not violate any of the terms and conditions of the Credit Agreement, any of the Related Writings, or any law, rule, regulation, order, writ, judgment, injunction or decree and that any consent required under the terms of the Credit Agreement or any of the Related Writings has been obtained, (b) the assignee under such assignment from Assignee shall agree to assume all of Assignee's obligations hereunder in a manner satisfactory to Assignor and (c) Assignee is not thereby released from any of its obligations to Assignor hereunder. 8. Reductions of Aggregate Amount of Commitments. If any reduction in the Total Commitment Amount occurs between the date of this Assignment Agreement and the Assignment Effective Date, the percentage of the Total Commitment Amount assigned to Assignee shall remain the percentage specified in Section 1 hereof and the dollar amount of the Commitment of Assignee shall be recalculated based on the reduced Total Commitment Amount. 9. Acceptance of Agent; Notice by Assignor. This Assignment Agreement is conditioned upon the acceptance and consent of Agent and, if necessary pursuant to Section 11.10A of the Credit Agreement, upon the acceptance and consent of Borrower; provided, that the execution of this Assignment Agreement by Agent and, if necessary, by Borrower is evidence of such acceptance and consent. 10. Entire Agreement. This Assignment Agreement embodies the entire agreement and understanding between the parties hereto and supersede all prior agreements and understandings between the parties hereto relating to the subject matter hereof. 11. Governing Law. This Assignment Agreement shall be governed by the internal law, and not the law of conflicts, of the State of Ohio. 12. Notices. Notices shall be given under this Assignment Agreement in the manner set forth in the Credit Agreement. For the purpose hereof, the addresses of the parties hereto (until notice of a change is delivered) shall be the address set forth under each party's name on the signature pages hereof. [Remainder of page intentionally left blank.] 75 81 IN WITNESS WHEREOF, the parties hereto have executed this Assignment Agreement by their duly authorized officers as of the date first above written. ASSIGNOR: Address: _____________________ ____________________________ _____________________ _____________________ Attn: ________________ By:__________________________ Phone:_______________ Title:_________________________ Fax:_________________ ASSIGNEE: Address: _____________________ ____________________________ _____________________ _____________________ Attn: ________________ By:__________________________ Phone:_______________ Title:_________________________ Fax:_________________ Accepted and Approved this ___ day of _____________, 200_: KEYBANK NATIONAL ASSOCIATION, as Agent By: __________________________ Title:_________________________ Accepted and Consented to this ___ day of ____________, 20___, by: PARK-OHIO INDUSTRIES, INC. By:_______________________________ Title:_____________________________ 76 82 ANNEX 1 TO ASSIGNMENT AND ACCEPTANCE AGREEMENT On and after ______________ ____, 20___ (the "Assignment Effective Date"), the Commitment of Assignee, and, if this is less than an assignment of all of Assignor's interest, Assignor, shall be as follows: I. ASSIGNEE'S COMMITMENT A. Assignee's Percentage __________% B. Assigned Amount $__________ C. Assignee's Commitment Percentage under the Credit Agreement __________% II. ASSIGNOR'S COMMITMENT A. Assignor's Commitment Percentage under the Credit Agreement __________% B. Assignor's Commitment Amount under the Credit Agreement $__________ 77 EX-4.3 3 l87010bex4-3.txt EXHIBIT 4.3 1 Exhibit 4.3 FIRST AMENDMENT AGREEMENT This First Amendment Agreement (this "Amendment") is made as of the 12th day of March, 2001, by and among PARK-OHIO INDUSTRIES, INC., an Ohio corporation ("Borrower"), the banking institutions listed on Schedule 1 to the Credit Agreement, as hereinafter defined ("Banks"), KEYBANK NATIONAL ASSOCIATION, as administrative agent for the Banks ("Agent"), and THE HUNTINGTON NATIONAL BANK, as co-agent for the Banks ("Co-Agent"). WHEREAS, Borrower, Agent and the Banks are parties to a certain Credit and Security Agreement, dated as of December 21, 2000, as the same may from time to time be amended, restated or otherwise modified, which provides, among other things, for revolving loans and other financial accommodations aggregating One Hundred Eighty Million Dollars ($180,000,000), all upon certain terms and conditions stated therein (the "Credit Agreement"); WHEREAS, Borrower, Agent and the Banks desire to amend the Credit Agreement to modify certain provisions thereof; and WHEREAS, each capitalized term used herein shall be defined in accordance with the Credit Agreement; NOW, THEREFORE, in consideration of the premises and of the mutual covenants herein contained and for other valuable considerations, Borrower, Agent and the Banks hereby agree as follows: 1. Article I of the Credit Agreement is hereby amended to delete the definitions of "Applicable Commitment Fee" and "Applicable Margin" in their entirety and to substitute in place thereof, respectively, the following: "Applicable Commitment Fee Rate" shall mean: (a) for the period from the Closing Date through March 31, 2001, forty-five (45) basis points; (b) for the period from April 1, 2001 through May 31, 2001, fifty (50) basis points; and (c) commencing with the financial statements for the fiscal quarter ending March 31, 2001, the number of basis points set forth in the following matrix, based upon the result of the computation of the Leverage Ratio, shall be used to establish the number of basis points that will go into effect on June 1, 2001 and thereafter: 2
APPLICABLE LEVERAGE RATIO COMMITMENT FEE RATE Greater than or equal to 4.90 to 1.00 55 basis points Greater than or equal to 4.50 to 1.00, but less than 4.90 to 50 basis points 1.00 Greater than or equal to 4.25 to 1.00, but less than 4.50 to 45 basis points 1.00 Greater than or equal to 4.00 to 1.00, but less than 4.25 to 40 basis points 1.00 Greater than or equal to 3.75 to 1.00, but less than 4.00 to 35 basis points 1.00 Greater than or equal to 3.40 to 1.00, but less than 3.75 to 30 basis points 1.00 Less than 3.40 to 1.00 25 basis points
Changes to the Applicable Commitment Fee Rate shall be effective on the first day of the month following the date upon which Agent received, or, if earlier, should have received, pursuant to Section 5.3(a) and (b) hereof, the financial statements of Borrower. The above matrix does not modify or waive, in any respect, the requirements of Section 5.7 hereof, the rights of the Banks to charge the Default Rate, or the rights and remedies of Agent and the Banks pursuant to Articles VIII and IX hereof. "Applicable Margin" shall mean: (a) for the period from the Closing Date through March 31, 2001, twenty-five (25) basis points for each Base Interest Segment and one hundred ninety (190) basis points for each LIBOR Interest Segment; (b) for the period from April 1, 2001 through May 31, 2001, one hundred (100) basis points for each Base Interest Segment and two hundred seventy-five (275) basis points for each LIBOR Interest Segment; and (c) commencing with the financial statements for the fiscal quarter ending March 31, 2001, the number of basis points (for each Base Interest Segment or LIBOR Interest Segment, as appropriate) set forth in the following matrix, based upon the result of the computation of the Leverage Ratio, shall be used to establish the number of basis points that will go into effect on June 1, 2001 and thereafter: 2 3
APPLICABLE BASIS POINTS APPLICABLE BASIS POINTS LEVERAGE RATIO FOR EACH BASE FOR EACH LIBOR INTEREST SEGMENT INTEREST SEGMENT Greater than or equal to 4.90 125 basis points 300 basis points to 1.00 Greater than or equal to 4.75 to 1.00, but less than 4.90 to 100 basis points 275 basis points 1.00 Greater than or equal to 4.50 to 1.00, but less than 4.75 to 50 basis points 235 basis points 1.00 Greater than or equal to 4.25 to 1.00, but less than 4.50 to 25 basis points 190 basis points 1.00 Greater than or equal to 4.00 to 1.00, but less than 4.25 to 0 basis points 175 basis points 1.00 Greater than or equal to 3.75 to 1.00, but less than 4.00 to 0 basis points 162.50 basis points 1.00 Greater than or equal to 3.40 to 1.00, but less than 3.75 to 0 basis points 150 basis points 1.00 Less than 3.40 to 1.00 0 basis points 137.50 basis points
Changes to the Applicable Margin shall be effective on the first day of the month following the date upon which Agent received, or, if earlier, should have received, pursuant to Section 5.3(a) and (b) hereof, the financial statements of Borrower. The above matrix does not modify or waive, in any respect, the requirements of Section 5.7 hereof, the rights of the Banks to charge the Default Rate, or the rights and remedies of Agent and the Banks pursuant to Articles VIII and IX hereof. 2. Article I of the Credit Agreement is hereby amended to add the following new definitions thereto: "Certified Acquisition Amount" shall mean the amount of borrowings used for acquisitions for the period from November 25, 1997 through the day prior to first day of the Fixed Charge Condition Period, as certified to Agent and the Banks in a certificate signed by a Financial Officer of Borrower dated as of the first day of the Fixed Charge Condition Period. 3 4 "Fixed Charge Condition Period" shall mean the time period from the date that the determination is made that the Fixed Charge Coverage Ratio Condition exists or, within the next three (3) months, is likely to exist, until the date when Borrower has presented evidence to Agent, satisfactory to Agent in its sole discretion, that the Fixed Charge Coverage Ratio Condition no longer exists and, within the next three (3) months, will not be likely to exist. 3. The Credit Agreement is hereby amended to delete Sections 2.8 therefrom in its entirety and to insert in place thereof the following: SECTION 2.8. FIXED CHARGE COVERAGE RATIO CONDITION. (a) Borrower shall (i) provide immediate written notice to Agent and the Banks at any time that the Fixed Charge Coverage Ratio Condition exists or, within the next three (3) months, is likely to exist, and, during any Fixed Charge Condition Period, Borrower shall not request any Loan, and the Banks shall not be obligated to make any Loan, unless (A) Borrower complies with the requirements of subparts (b), (c) and (d) below, (B) the proceeds of such Loan shall constitute Permitted Indebtedness (as defined in the Indenture), and (C) upon request of Agent, Borrower shall provide to the Banks such evidence of use of proceeds of the Loans and such opinion of counsel with respect to the Indenture, as Agent may from time to time require in its sole discretion, and (ii) on the first Business Day of each week, commencing on the Monday after the Closing Date, furnish to Agent, a Weekly Compliance Certification, certified by a Financial Officer of Borrower. (b) During any Fixed Charge Condition Period, in addition to the requirements set forth in this Article 2 or elsewhere in this Agreement, Borrower shall not request any Loan, and the Banks shall not be obligated to make any Loan, unless: (i) after giving effect to the making of such Loan, the aggregate principal amount of all Loans outstanding on such date (minus the Certified Acquisition Amount) shall be less than an amount equal to the greater of (A) Fifty Million Dollars ($50,000,000), or (B) the sum of (1) forty-five percent (45%) of the book value of accounts receivable of Borrower and its Subsidiaries and (2) twenty-five percent (25%) of the book value of the inventory of Borrower and its Subsidiaries; (ii) concurrently with the request for any Loan, and in addition to the requirements set forth in Section 2.2 hereof, Borrower shall have submitted to Agent a Borrowing Base Certificate certified by a Financial Officer of Borrower, in the form of Exhibit G-1 hereto and otherwise in form and substance satisfactory to Agent and the Banks, certifying that both the book value and the actual value of accounts receivable and inventory of Borrower and its Subsidiaries are no less than (A) One Hundred Million Dollars ($100,000,000) (or such lesser amount as Borrower, Agent and the Required 4 5 Banks may agree to in writing), with respect to accounts receivable, and (B) One Hundred Sixty Million Dollars ($160,000,000) (or such lesser amount as Borrower, Agent and the Required Banks may agree to in writing), with respect to inventory; (iii) on the fifteenth (15th) day of each month, commencing on March 15, 2001, Borrower shall have provided to Agent and the Banks a Monthly Borrowing Base Report certified by a Financial Officer of Borrower, in the form of Exhibit G-2 hereto and otherwise in form and substance satisfactory to Agent and the Banks, certifying as to the specific value of accounts receivable and inventory of Borrower and its Subsidiaries on such date; and (iv) Borrower shall have provided such evidence as Agent may require with respect to the actual use of the proceeds of any Loan, certified by a Financial Officer of Borrower and otherwise in form and substance satisfactory to Agent and the Banks. (c) During the Fixed Charge Condition Period, and notwithstanding anything in this Agreement to the contrary: (i) neither Borrower nor any of its Subsidiaries shall make, or commit to make, any Acquisition; (ii) the use of proceeds of any Loan by Borrower and its Subsidiaries shall be solely for working capital purposes of Borrower and its Subsidiaries; provided, however, that the use of proceeds of any Loan by Borrower and its Subsidiaries may be for capital expenditures of Borrower and its Subsidiaries so long as: (1) any such Loan shall constitute Permitted Indebtedness (as defined in the Indenture) pursuant to subpart (iv) of the definition of Permitted Indebtedness set forth in the Indenture; (2) the aggregate principal amount of all such Loans the proceeds of which are used for capital expenditures in accordance with this subpart shall not exceed (when combined with all other loans and capitalized leases used to finance capital expenditures, so long as such other loans and capital leases are permitted pursuant to Section 5.8(c) hereof) at any time the lesser of (y) five percent (5%) of the tangible consolidated total assets or (z) Eighteen Million Five Hundred Thousand Dollars ($18,500,000); (3) without the prior written consent of Agent and the Required Banks, Borrower and its Subsidiaries shall not make or commit to make Consolidated Capital Expenditures in excess of the amount of (y) Eighteen 5 6 Million Five Hundred Thousand Dollars ($18,500,000) during the 2001 fiscal year of Borrower and (z) thereafter such amounts as Borrower, Agent and the Required Banks may agree to in writing (provided that such amount shall be zero until such agreement is reached); provided, however, that, the aggregate amount of capital expenditures made by Borrower to replace the fixed assets lost due to the fire at the Cicero, Illinois rubber plant shall be excluded from the limitations set forth in this subpart so long as such capital expenditures are made solely with and directly from the insurance proceeds received as reimbursement for the loss of fixed assets due to such fire; (4) with respect to the capital asset being purchased with the proceeds of such Loan, within five (5) Business Days after the purchase of such asset, the appropriate Company shall have executed and delivered to Agent, for the benefit of the Banks, such security agreements, UCC financing statements and other documents as Agent, in its discretion, shall require so that Agent has, for the benefit of the Banks, a first priority security interest and Lien on such asset; (iii) neither Borrower nor any of its Subsidiaries shall make any loan or advance to any Subsidiary of Borrower unless such Subsidiary is a Wholly-Owned Subsidiary of Borrower and no Subsidiary of Borrower that is not a Wholly Owned Subsidiary of Borrower shall make a loan or advance to Borrower or any of its Subsidiaries; provided, however, that, during the Fixed Charge Condition Period, Borrower may make loans or advances to PMC-Colinet, Inc. and PMC-Colinet, Inc. may make loans or advances to Borrower so long as (A) the aggregate amount of all such loans and advances does not exceed One Million Dollars ($1,000,000) at any time and (B) each such loan or advance constitutes Permitted Indebtedness (as defined in the Indenture); and (iv) neither Borrower nor any of its Subsidiaries shall incur any Indebtedness during the Fixed Charge Condition Period other than (A) Indebtedness incurred under this Agreement or the Secured Debt, (B) loans or capital leases made in accordance with subpart (c)(ii) above and Section 5.8(c) hereof, (C) unsecured Indebtedness incurred by MP Colinet under its existing line of credit so long as (1) the aggregate principal amount of all such Indebtedness incurred during the Fixed Charge Condition Period does not exceed One Million Dollars ($1,000,000), and (2) such Indebtedness constitutes Permitted Indebtedness (as defined in the Indenture). (d) Notwithstanding anything in this Section 2.8 or elsewhere in this Agreement to the contrary, if, at any time, Agent, in its sole discretion, is unable to agree with Borrower that any Loan made, or requested to be made, during the Fixed Charge Condition Period constitutes Permitted Indebtedness (as defined in the Indenture), then the Banks shall not be 6 7 obligated to make any Loan until such time as any uncertainty is resolved in a manner reasonably satisfactory to Agent. 4. The Credit Agreement is hereby amended to delete Sections 5.7(a), (c) and (d) in their entirety and to insert in place thereof, respectively, the following: (a) INTEREST COVERAGE RATIO. Borrower shall not suffer or permit, at any time, for the most recently completed four (4) fiscal quarters of Borrower, the ratio of (i) Consolidated Pro-Forma Pre-Tax Earnings plus Consolidated Pro-Forma Interest Expense to (ii) Consolidated Pro-Forma Interest Expense to be less than (A) 1.60 to 1.00 on the Closing Date through December 31, 2000, (B) 1.40 to 1.00 on January 1, 2001 through December 30, 2001, and (C) 1.60 to 1.00 on December 31, 2001 and thereafter. (c) LEVERAGE RATIO. Borrower shall not suffer or permit, at any time, for the most recently completed four (4) fiscal quarters of Borrower, the Leverage Ratio to exceed (i) 4.80 to 1.00 on the Closing Date through December 31, 2000, (ii) 5.25 to 1.00 on January 1, 2001 through December 30, 2001, and (iii) 4.80 to 1.00 on December 31, 2001 and thereafter. (d) CASH-FLOW COVERAGE RATIO. Borrower shall not suffer or permit, at any time, for the most recently completed four (4) fiscal quarters of Borrower, the Cash-Flow Coverage Ratio to be less than (i) 1.25 to 1.00 on the Closing Date through December 31, 2000, (ii) 1.20 to 1.00 on January 1, 2001 through December 30, 2001, and (iii) 1.25 to 1.00 on December 31, 2001 and thereafter. 5. The Credit Agreement is hereby amended to delete Sections 5.24 therefrom in its entirety and to insert in place thereof the following: SECTION 5.24. RIGHT TO TAKE ADDITIONAL COLLATERAL. (a) In addition to any other right that Agent and the Banks may have pursuant to this Agreement or otherwise, if the Leverage Ratio shall be greater than 5.00 to 1.00 for two (2) consecutive fiscal quarters or (a) In addition to any other right that Agent and the Banks may have pursuant to this Agreement or otherwise, if the Leverage Ratio shall be greater than 5.00 to 1.00 for two (2) consecutive fiscal quarters or upon the occurrence of an Event of Default (each a "Collateral Event"), Borrower shall, and shall cause each Guarantor of Payment to, grant to Agent, for the benefit of the Banks, as additional security for the Secured Debt a first priority security interest in or Lien on any real or personal property of Borrower and each Guarantor of Payment in which Agent does not already have a first priority security interest or Lien (the "Additional Collateral"). (b) On or prior to March 27, 2001, the Companies shall execute and deliver to Agent, for the benefit of the Banks, such security agreements, intellectual property assignment agreements, pledge agreements, mortgages (or deeds of trust, if applicable) or other documents, instruments or agreements or such thereof as Agent and the Required 7 8 Banks may reasonably require in connection with security interests and Liens to be granted in the Additional Collateral pursuant to subpart (a) above (collectively, the "Additional Collateral Documents"). Agent and the Banks hereby agree that the Additional Collateral Documents shall be held by Agent in escrow until the occurrence of a Collateral Event pursuant to subpart (a) hereof, whereupon Agent, at the written direction of the Required Banks, shall release the Additional Collateral Documents from escrow and the Lien granted in each such Additional Collateral Document shall be immediately effective, without any action on the part of any Person. In connection with the foregoing, Agent shall be authorized to file or record such UCC financing statements or mortgages or other evidence of the Liens granted pursuant to the Additional Collateral Documents. Borrower agrees to provide such assistance and further assurances as may be required by Agent in connection with the Additional Collateral. (c) If, at any time after the occurrence of the Collateral Event, the Leverage Ratio shall have been less than or equal to 4.80 to 1.00 for two (2) consecutive fiscal quarters and so long as no Default or Event of Default shall exist or immediately thereafter shall begin to exist and the Fixed Charge Condition Period shall have ended, upon written request of Borrower to Agent, Agent, on behalf of the Banks, shall release the Additional Collateral, provided that no such release shall be effective until confirmed by Agent in writing. In connection with such release Agent shall provide to Borrower, and the Banks hereby authorize Agent to provide to Borrower, such UCC partial release statements and mortgage releases as are appropriate. (d) At any time after the Additional Collateral has been released pursuant to subpart (c) above or otherwise, and in addition to any other right that Agent and the Banks may have pursuant to this Agreement or otherwise, upon written request of Agent whenever made after the occurrence of an Event of Default, Borrower shall, and shall cause each Guarantor of Payment, to promptly grant to Agent, for the benefit of the Banks, as additional security for the Secured Debt a first priority security interest in or Lien on the Additional Collateral pursuant to such security agreements, intellectual property assignment agreements, pledge agreements, mortgages (or deeds of trust, if applicable) or other documents, instruments or agreements or such thereof as Agent and the Required Banks may reasonably require. 6. The Credit Agreement is hereby amended to add a new Exhibit G-1 and Exhibit G-2 in the form of Exhibit G-1 and Exhibit G-2, respectively, attached hereto. 7. Concurrently with the execution of this Amendment, Borrower shall: (a) cause each Guarantor of Payment to consent and agree to and acknowledge the terms of this Amendment; 8 9 (b) pay to Agent, for the pro rata benefit of the Banks, an amendment fee of One Hundred Eighty Thousand Dollars ($180,000); (c) deliver to Agent and the Banks a certificate, signed by Financial Officer of Borrower, certifying as to the Certified Acquisition Amount and otherwise in form and substance satisfactory to Agent; and (d) pay all legal fees and expenses of Agent in connection with this Amendment. 8. Borrower hereby represents and warrants to Agent and the Banks that (a) Borrower has the legal power and authority to execute and deliver this Amendment, (b) the officers executing this Amendment have been duly authorized to execute and deliver the same and bind Borrower with respect to the provisions hereof, (c) the execution and delivery hereof by Borrower and the performance and observance by Borrower of the provisions hereof do not violate or conflict with the organizational agreements of Borrower or any law applicable to Borrower or result in a breach of any provision of or constitute a default under any other agreement, instrument or document binding upon or enforceable against Borrower, (d) no Default or Event of Default exists under the Credit Agreement, nor will any occur immediately after the execution and delivery of this Amendment or by the performance or observance of any provision hereof, (e) Borrower is not aware of any claim or offset against, or defense or counterclaim to, any of Borrower's obligations or liabilities under the Credit Agreement or any Related Writing and (f) this Amendment constitutes a valid and binding obligation of Borrower in every respect, enforceable in accordance with its terms. 9. Borrower, by signing below, hereby waives and releases Agent and each of the Banks and their respective directors, officers, employees, attorneys, affiliates and subsidiaries from any and all claims, offsets, defenses and counterclaims of which Borrower is aware, such waiver and release being with full knowledge and understanding of the circumstances and effect thereof and after having consulted legal counsel with respect thereto. 10. Each reference that is made in the Credit Agreement or any Related Writing to the Credit Agreement shall hereafter be construed as a reference to the Credit Agreement as amended hereby. Except as herein otherwise specifically provided, all provisions of the Credit Agreement shall remain in full force and effect and be unaffected hereby. This Amendment is a Related Writing as defined in the Credit Agreement. 11. This Amendment may be executed in any number of counterparts, by different parties hereto in separate counterparts and by facsimile signature, 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 agreement. 9 10 12. The rights and obligations of all parties hereto shall be governed by the laws of the State of Ohio, without regard to principles of conflicts of laws. [Remainder of page intentionally left blank.] 10 11 13. JURY TRIAL WAIVER. BORROWER, AGENT AND EACH OF THE BANKS HEREBY WAIVE ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE, AMONG BORROWER, AGENT AND THE BANKS, OR ANY THEREOF, ARISING OUT OF, IN CONNECTION WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH THIS AGREEMENT OR ANY NOTE OR OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH OR THE TRANSACTIONS RELATED THERETO. THIS WAIVER SHALL NOT IN ANY WAY AFFECT, WAIVE, LIMIT, AMEND OR MODIFY AGENT'S OR ANY BANK'S ABILITY TO PURSUE REMEDIES PURSUANT TO ANY CONFESSION OF JUDGMENT OR COGNOVIT PROVISION CONTAINED IN ANY NOTE OR OTHER INSTRUMENT, DOCUMENT OR AGREEMENT AMONG BORROWER, AGENT AND THE BANKS, OR ANY THEREOF. PARK-OHIO INDUSTRIES, INC. By: /s/ Ronald J. Cozean --------------------------------------- Name: Ronald J. Cozean Title: Secretary and General Counsel KEYBANK NATIONAL ASSOCIATION, as Agent and as a Bank By: /s/ Kenneth M. Merhar --------------------------------------- Kenneth M. Merhar, Vice President THE HUNTINGTON NATIONAL BANK, as Co-Agent and as a Bank By: /s/ Michael Milliken --------------------------------------- Michael Milliken, Senior Vice President THE NORTHERN TRUST COMPANY By: /s/ David Sullivan --------------------------------------- Name: David Sullivan Title: Vice President 11 12 FIFTH THIRD BANK, NORTHEASTERN OHIO By: /s/ Roy Lanctot --------------------------------- Name: Roy Lanctot Title: Vice President 12 13 GUARANTOR ACKNOWLEDGMENT The undersigned consents and agrees to and acknowledges the terms of the foregoing First Amendment Agreement. The undersigned specifically agrees to the waivers set forth in such agreement, including, but not limited to, the jury trial waiver. The undersigned further agrees that the obligations of the undersigned pursuant to the Guaranty of Payment executed by the undersigned shall remain in full force and effect and be unaffected hereby. The undersigned hereby waives and releases Bank and Bank's directors, officers, employees, attorneys, affiliates and subsidiaries from any and all claims, offsets, defenses and counterclaims of which the undersigned is aware, such waiver and release being with full knowledge and understanding of the circumstances and effect thereof and after having consulted legal counsel with respect thereto. ATBD, INC. CASTLE RUBBER COMPANY CICERO FLEXIBLE PRODUCTS, INC. DONEGAL BAY LTD. GENERAL ALUMINUM MFG. COMPANY ILS TECHNOLOGY, INC. INTEGRATED HOLDING COMPANY INTEGRATED LOGISTICS SOLUTIONS, INC. INTEGRATED LOGISTICS SOLUTIONS LLC for itself and as successor by merger to Columbia Nut & Bolt LLC, GIS Industries, Inc. and Industrial Fasteners LLC) INTEGRATED LOGISTICS HOLDING COMPANY PARK AVENUE TRAVEL LTD. PARK-OHIO STRUCTURAL HARDWARE LLC PHARMACEUTICAL LOGISTICS, INC. PHARMACY WHOLESALE LOGISTICS, INC. PMC-COLINET, INC. PMC INDUSTRIES CORP. PRECISION MACHINING CONNECTION LLC RB&W MANUFACTURING LLC THE AJAX MANUFACTURING COMPANY THE METALLOY CORPORATION TOCCO, INC. TRICKERATION, INC. By: /s/ Ronald J. Cozean __________________________________________ Ronald J. Cozean, Secretary of each of the foregoing companies 13 14 EXHIBIT G-1 BORROWING BASE CERTIFICATE [Date]_______________________, 20____ KeyBank National Association, as Agent 127 Public Square Cleveland, Ohio 44114-0616 Attention: ________________ Ladies and Gentlemen: The undersigned, a duly elected Financial Officer, as defined in the Credit and Security Agreement (as hereinafter defined), or otherwise duly authorized employee of PARK-OHIO INDUSTRIES, INC. ("Borrower"), refers to the Credit and Security Agreement, dated as of December 21, 2000 (as amended and as the same may from time to time be further amended, restated or otherwise modified, the "Credit Agreement", the terms defined therein being used herein as therein defined), among Borrower, the Banks, KeyBank National Association, as Agent, and The Huntington National Bank, as Co-Agent. Concurrently herewith, Borrower has submitted a Notice With Respect to Loan pursuant to which Borrower has requested a Loan under the Credit Agreement. Pursuant to Section 2.8(b)(ii) of the Credit Agreement, the undersigned hereby certifies that on the proposed date of the Loan both prior to and after giving effect thereto: (a) the aggregate principal amount of all Loans outstanding on such date (minus the Certified Acquisition Amount) is less than an amount equal to the greater of (i) Fifty Million Dollars ($50,000,000), or (ii) the sum of (A) forty-five percent (45%) of the book value of accounts receivable of Borrower and its Subsidiaries and (B) twenty-five percent (25%) of the book value of the inventory of Borrower and its Subsidiaries; (b) the book value of accounts receivable and inventory of Borrower and its Subsidiaries are no less than (i) One Hundred Million Dollars ($100,000,000), with respect to accounts receivable, and (ii) One Hundred Sixty Million Dollars ($160,000,000), with respect to inventory; and (c) set forth on Schedule 1 hereto are calculations confirming the amounts and values set forth in subparts (a) and (b) above. 14 15 (d) the use of the proceeds of the Loan are for (Check One): _____ working capital purposes only; or _____ are for the purchase of capital assets and the requirements of Section 2.8(c)(ii) of the Credit Agreement have been met (and set forth on Schedule 1 hereto are calculations confirming the amounts and values required to be confirmed pursuant to such Section 2.8(c)(ii)); (e) under the undersigned's supervision, a review of the terms and conditions of the Indenture has been made and, based on such review, as of the date hereof, there is no Default (as defined in the Indenture) or Event of Default (as defined in the Indenture) that exists; (e) the representations and warranties contained in each Loan Document are correct as of the date hereof; (f) no event has occurred and is continuing that constitutes a Default or Event of Default; and (g) the conditions set forth in Section 2.2, Section 2.8 and Article IV of the Credit Agreement have been satisfied. Very truly yours, PARK-OHIO INDUSTRIES, INC. By:___________________________ Name:_________________________ Title:________________________ 15 16 Schedule 1 to Borrowing Base Certificate I. FOR ALL LOANS A. Book Value of Accounts Receivable Greater $_______________(1) than(no less than $100,000,000) B. Book Value of Inventory (no less than $_______________(2) $160,000,000) C. 45% of Book Value of Accounts Receivable $__________________ D. 25% of Book Value of Inventory $__________________ E. Total of C + D $__________________ F. (1) Aggregate amount of Loans $________________ outstanding (2) Minus Certified Acquisition Amount $________________ Total of (1) minus (2) $__________________ G. Total of E minus F (availability) $__________________ H. Amount of requested Loan $__________________ I. Total of G minus H $__________________ II. FOR LOANS FOR CAPITAL EXPENDITURES A. Aggregate amount of capital expenditures made $________________ since January 1, 2001(3) B. Aggregate amount of loans and capital leases $________________ the proceeds of which have been used for capital expenditures C. Amount of requested Loan $________________ D. Total of B + C(4) $________________ - -------------------------- (1) An entry of "No less than $100,000,000" is sufficiently specific for this Certificate. (2) An entry of "No less than $160,000,000" is sufficiently specific for this Certificate. (3) Must be less than $17,500,000 (4) Must be less than the lesser of (a) five percent (5%) of the tangible consolidated total assets or (b) $17,500,000 16 17 EXHIBIT G-2 MONTHLY BORROWING BASE REPORT [Date]_______________________, 20____ KeyBank National Association, as Agent 127 Public Square Cleveland, Ohio 44114-0616 Attention: ________________ Ladies and Gentlemen: The undersigned, a duly elected Financial Officer, as defined in the Credit and Security Agreement (as hereinafter defined) of PARK-OHIO INDUSTRIES, INC. ("Borrower"), refers to the Credit and Security Agreement, dated as of December 21, 2000 (as amended and as the same may from time to time be further amended, restated or otherwise modified, the "Credit Agreement", the terms defined therein being used herein as therein defined), among Borrower, the Banks, KeyBank National Association, as Agent, and The Huntington National Bank, as Co-Agent. Pursuant to Section 2.8(b)(iii) of the Credit Agreement, the undersigned hereby certifies that, as of the date hereof: (a) the book value of accounts receivable of Borrower and its Subsidiaries is $___________________; (b) the book value of the inventory of Borrower and its Subsidiaries is $________________; (c) under the undersigned's supervision, a review of the terms and conditions of the Indenture and based on such review, as of the date hereof, there is no Default (as defined in the Indenture) or Event of Default (as defined in the Indenture) that exists; (d) the representations and warranties contained in each Loan Document are correct as of the date hereof; (e) no event has occurred and is continuing that constitutes a Default or Event of Default; and (f) the conditions set forth in Section 2.2, Section 2.8 and Article IV of the Credit Agreement have been satisfied. 17 18 Very truly yours, PARK-OHIO INDUSTRIES, INC. By:___________________________ Name:_________________________ Title:________________________ 18 EX-12.1 4 l87010bex12-1.txt EXHIBIT 12.1 1 EXHIBIT 12.1 PARK-OHIO HOLDINGS CORP. COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (IN THOUSANDS, EXCEPT RATIO DATA)
.................................... 2000 1999 1998 1997 1996 ---- ---- ---- ---- ---- Earnings from continuing operations before income taxes................ $ 7,701 $28,418 $22,660 $19,199 $14,753 Less capitalized interest............ (1,000) Fixed charges........................ 35,084 28,690 20,840 11,495 8,787 ------- ------- ------- ------- ------- Earnings available for fixed charges............................ $42,785 $57,108 $42,500 $30,694 $23,540 Fixed charges: Interest component of rent expense.................... $ 4,272 $ 3,938 $ 2,352 $ 2,232 $ 1,584 Interest expense..................... 30,812 24,752 17,488 9,101 6,947 Interest capitalized................. 1,000 Amortization of deferred financing costs.............................. (1) --(1) --(1) 162 256 ------- ------- ------- ------- ------- Total fixed charges.................. $35,084 $28,690 $20,840 $11,495 $ 8,787 Ratio of earnings to fixed charges............................ 1.22% 2.0x 2.0x 2.7x 2.7x
(1) Included in interest expense EX-21.1 5 l87010bex21-1.txt EXHIBIT 21.1 1 Exhibit 21.1
Name State of Incorporation - ---- ---------------------- Blue Falcon Forge, Inc. Pennsylvania Castle Rubber Company Pennsylvania Cicero Flexible Products, Inc. Ohio General Aluminum Manufacturing Company II Ohio General Aluminum Mfg. Company Ohio Geneva Rubber Company Ohio IEW, Inc. Illinois ILS Technology, Inc. Ohio Integrated Holding Company Ohio Integrated Logistics Company of Canada Nova Scotia Integrated Logistics Holding Company Ohio Integrated Logistics Solutions, Inc. Ohio Integrated Logistics Solutions LLC (1) Ohio Trickeration, Inc. Ohio Park-Ohio Industries, Inc. (2) Ohio Pharmaceutical Logistics, Inc. Ohio PMC - Colinet, Inc. Ohio PMC Industries Corp. Ohio Precision Machining Connection LLC (3) Ohio RB&W Corporation of Canada Ontario RB&W Manufacturing LLC (4) Ohio The Ajax Manufacturing Company (5) Ohio The Metalloy Corporation Michigan Tocco, Inc. (6) Alabama Park-Ohio Structural Hardware LLC (7) Ohio Pharmacy Wholesale Logistics, Inc. Ohio
(1) Doing business as RB&W Logistics, Arden Fasteners, Gateway Industrial Supply, Free Gate, Georgia Industrial Fasteners (2) Doing business as Cleveland City Forge, Park Drop Forge, and Ohio Crankshaft (3) Doing business as PMC Industries and M.P. Colinet (4) Doing business as Delo Screw Products, Green Bearing, RB&W Manufacturing, Sabina Mfg., and American Fasteners (5) Doing business as Ajax Technologies and Forging Development (6) Doing business as FECO (7) Doing business as St. Louis Screw and Bolt EX-23.1 6 l87010bex23-1.txt EXHIBIT 23.1 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the following Registration Statements of Park-Ohio Holdings Corp. for the registration of its common stock of our report dated March 26, 2001 with respect to the consolidated financial statements of Park-Ohio Holdings Corp. included in this Annual Report (Form 10-K) for the year ended December 31, 2000. Shares Registration Statement Description Registered - -------------------------------------------------------------------------------- Form S-8 (33-64420) 1992 Stock Option Plan 350,000 Form S-8 (33-01047) Individual Account Retirement Plan 1,500,000 Form S-8 (333-28407) Amended and Restated 1992 Stock 750,000 Option Plan and 1996 Non-Employee Director Stock Option Plan Form S-8 (333-58161) 1998 Long-Term Incentive Plan 550,000 Form S-4 (333-46931) Formation of PKOH Holding Corporation 11,000,00 /s/ Ernest & Young LLP Cleveland, Ohio March 30, 2001 EX-24.1 7 l87010bex24-1.txt EXHIBIT 24.1 1 Exhibit 24.1 PARK-OHIO HOLDINGS CORP. FORM 10-K POWER OF ATTORNEY The undersigned directors and officers of Park-Ohio Holdings Corp., an Ohio corporation (the "Corporation"), hereby constitute and appoint, Richard P. Elliott and Ronald J. Cozean, and each of them, with full power of substitution and resubstitution, as attorneys-in-fact or attorney-in-fact of the undersigned, for him and in his name, place and stead, to execute and file with the Securities and Exchange Commission (the "Commission") under the Securities Act of 1934 the Annual Report of the Corporation on Form 10-K (the "Annual Report"), with any and all amendments, supplements and exhibits thereto, to execute and file any and all other documents to be filed with the Commission relating to the Annual Report, each such attorney to have full power to act with or without the other, and to have full power and authority to do and perform, in the name and on behalf of the undersigned, every act whatsoever necessary, advisable or appropriate to be done in the premises, hereby ratifying and approving the act of said attorneys and any of them and any such substitute. EXECUTED as of March 30, 2001. /s/ Edward F. Crawford /s/ Richard P. Elliott - ----------------------------------------------------- ----------------------------------------------------- Edward F. Crawford Richard P. Elliott President, Chief Executive Officer, Vice President and Chief Financial Officer Chairman of the Board and Director /s/ Felix J. Tarorick /s/ Ronald J. Cozean - ----------------------------------------------------- ----------------------------------------------------- Felix J. Tarorick Ronald J. Cozean Vice Chairman of the Board, Secretary and General Counsel Vice President of Operations and Director /s/ Matthew V. Crawford /s/ Patrick W. Fogarty - ----------------------------------------------------- ----------------------------------------------------- Matthew V. Crawford Patrick W. Fogarty Assistant Secretary, Corporate Counsel Director of Corporate Development and Director /s/ Lewis E. Hatch, Jr. /s/ Thomas E. McGinty - ----------------------------------------------------- ----------------------------------------------------- Lewis E. Hatch, Jr. Thomas E. McGinty Director Director /s/ Lawrence O. Selhorst /s/ James W. Wert - ----------------------------------------------------- ----------------------------------------------------- Lawrence O. Selhorst James W. Wert Director Director /s/ Kevin R. Greene - ----------------------------------------------------- Kevin R. Greene Director
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