SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1994
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-475
A.O. SMITH CORPORATION
Delaware 39-0619790
(State of Incorporation) (IRS Employer ID Number)
P. O. Box 23972, Milwaukee, Wisconsin 53223-0972
Telephone: (414) 359-4000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Class A Common Stock Outstanding as of April 29, 1994: 6,077,129
Common Stock Outstanding as of April 29, 1994: 14,786,792
Index
A. O. Smith Corporation
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Statements of Earnings and Retained Earnings
- Three months ended March 31, 1994 and 1993 3
Condensed Consolidated Balance Sheet
- March 31, 1994 and December 31, 1993 4-5
Condensed Consolidated Statements of Cash Flows
- Three months ended March 31, 1994 and 1993 6
Notes to Condensed Consolidated Financial Statements
- March 31, 1994 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8-11
Part II. Other Information
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
PART I--FINANCIAL INFORMATION
ITEM 1--FINANCIAL STATEMENTS
A. O. SMITH CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
AND RETAINED EARNINGS
Three months ended March 31, 1994 and 1993
(000 omitted except for per share data)
(Unaudited)
Three Months Ended
March 31
EARNINGS 1994 1993
Electrical Products Company $ 70,441 $63,734
Automotive Products Company 182,615 155,438
Water Products Company 68,002 59,629
Smith Fiberglass Products Inc. 12,700 11,412
Agricultural Products 6,045 5,885
--------- ---------
NET REVENUES $339,803 $296,098
Cost of products sold 286,420 248,019
-------- ---------
Gross profit 53,383 48,079
Selling, general and administrative expenses 25,540 23,192
Interest expense 2,972 3,524
Other expense - net 216 311
---------- ---------
24,655 21,052
Provision for income taxes 9,303 8,501
---------- ---------
Earnings before equity in earnings of
affiliated companies 15,352 12,551
Equity in earnings of affiliated companies 354 475
---------- ---------
NET EARNINGS 15,706 13,026
RETAINED EARNINGS
Balance at beginning of period 177,543 147,065
Cash dividends on common shares (2,276) (5,624)
-------- --------
BALANCE AT END OF PERIOD $190,973 $154,467
======== ========
DIVIDENDS PER COMMON SHARE
Regular (Class A and common) $ .11 $ .10
Special (Common stock only) $ - $ .25
NET EARNINGS PER COMMON SHARE $ .76 $ .64
See accompanying notes to unaudited condensed consolidated financial
statements.
PART I--FINANCIAL INFORMATION
ITEM 1--FINANCIAL STATEMENTS
A. O. SMITH CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
March 31, 1994 and December 31, 1993
(000 omitted)
(unaudited)
March 31, 1994 December 31, 1993
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 5,410 $ 11,902
Trade receivables 159,489 126,949
Finance subsidiary receivables and leases 18,795 19,151
Customer tooling 19,957 15,471
Inventories (note 2) 98,105 89,804
Deferred income taxes 27,068 27,614
Other current assets 15,518 12,987
-------- ----------
TOTAL CURRENT ASSETS 344,342 303,878
Investment in and advances to affiliated companies 24,012 23,669
Deferred model change 20,498 22,095
Finance subsidiary receivables and leases 48,107 53,481
Other assets 46,391 44,962
Property, plant and equipment 834,458 823,786
Less accumulated depreciation 458,777 448,772
-------- ---------
Net property, plant and equipment 375,681 375,014
-------- ---------
TOTAL ASSETS $859,031 $823,099
======== ========
LIABILITIES AND STOCKHOLDERS'EQUITY
CURRENT LIABILITIES
Trade payables $119,513 $ 99,320
Accrued payroll and pension 36,771 38,347
Postretirement benefit obligation 9,106 8,950
Other current liabilities 60,835 62,155
Long-term debt due within one year 8,744 8,819
Finance subsidiary long-term debt due within one
year 3,493 5,598
-------- ----------
TOTAL CURRENT LIABILITIES 238,462 223,189
Long-term debt (note 3) 154,025 148,851
Finance subsidiary long-term debt 37,774 41,723
Postretirement benefit obligation 70,218 69,773
Other liabilities 30,059 28,652
Deferred income taxes 43,143 41,281
STOCKHOLDERS' EQUITY:
Preferred stock -- --
Class A common stock, $5 par value: authorized
7,000,000 shares; issued 6,081,592 and 6,084,845 30,408 30,424
Common stock, $1 par value: authorized
24,000,000 shares; issued 15,618,058 and
15,614,805 15,618 15,615
Capital in excess of par value 67,294 65,950
Retained earnings (note 3) 190,973 177,543
Pension liability adjustment (9,141) (9,141)
Cumulative foreign currency translation
adjustments (1,060) (841)
Treasury stock at cost (8,742) (9,920)
---------- ---------
TOTAL STOCKHOLDERS' EQUITY 285,350 269,630
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $859,031 $823,099
======== ========
See accompanying notes to unaudited condensed consolidated financial
statements.
PART I--FINANCIAL INFORMATION
ITEM 1--FINANCIAL STATEMENTS
A. O.SMITH CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Three months ended March 31, 1994 and 1993
(000 omitted)
(unaudited)
1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $15,706 $ 13,026
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation 11,338 9,970
Deferred income taxes 2,408 2,755
Equity in earnings of affiliates, net of dividends (354) (475)
Deferred model change and software amortization 2,162 2,310
Other - net 395 1,334
Change in current assets and liabilities:
Trade receivables and customer tooling (36,793) (31,694)
Current income tax accounts-net 2,229 4,943
Inventories (8,301) (10,025)
Prepaid expenses and other (1,882) (1,280)
Trade payables 20,193 22,336
Accrued liabilities, payroll and pension (4,955) 4,106
Net change in noncurrent assets and liabilities 4,660 880
--------- ---------
CASH PROVIDED BY OPERATING ACTIVITIES 6,806 18,186
-------- ---------
CASH FLOW FROM INVESTING ACTIVITIES
Capital expenditures (12,063) (13,869)
Other - net (512) (140)
------- ---------
CASH USED BY INVESTING ACTIVITIES (12,575) (14,009)
------ ---------
CASH FLOW BEFORE FINANCING ACTIVITIES (5,769) 4,177
------- ---------
CASH FLOW FROM FINANCING ACTIVITIES
Long-term debt incurred 8,909 10,441
Long-term debt retired (3,810) (3,683)
Finance subsidiary net long-term debt retired (6,054) (4,880)
Proceeds from common stock options exercised 1,023 898
Other stock transactions 1,485 268
Dividends paid (2,276) (5,624)
--------- ---------
CASH USED BY FINANCING ACTIVITIES (723) (2,580)
Net increase (decrease) in cash and cash equivalents (6,492) 1,597
Cash and cash equivalents-beginning of period 11,902 6,025
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5,410 $ 7,622
======== =========
See accompanying notes to unaudited condensed consolidated financial
statements.
PART I--FINANCIAL INFORMATION
ITEM 1--FINANCIAL STATEMENTS
A. O. SMITH CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1994
(unaudited)
1. Basis of Presentation
The financial statements presented herein are based on interim
figures and are subject to audit. In the opinion of management, all
adjustments consisting of normal accruals considered necessary for
fair presentation of the results of operations and of financial
position have been made. The results of operations for the three-
month period ended March 31, 1994 are not necessarily indicative of
the results expected for the full year. The consolidated balance
sheet as of December 31, 1993 is derived from the audited financial
statements but does not include all disclosures required by generally
accepted accounting principles.
2. Inventories
(000 omitted) March 31, 1994 December 31, 1993
Finished products $ 53,394 $ 53,337
Work in process 36,737 37,215
Raw materials 43,255 36,371
Supplies 6,056 5,228
------- -------
139,442 132,151
Allowance to state
inventories at LIFO cost 41,337 42,347
------- -------
$ 98,105 $ 89,804
======== =======
3. Long-Term Debt
On April 5, 1994, the $12.5 million 8.9 percent term loan agreement
was amended to carry a floating interest rate as of April 1994 and
the final maturity was extended from April 1996 to April 1999. The
interest rate is set at 50 basis points over LIBOR and the loan can
be repaid at any time without penalty.
The Corporation's long-term credit agreements contain certain
conditions and provisions which restrict the Corporation's payment of
dividends. Under the most restrictive of these provisions, retained
earnings of $82.4 million were unrestricted as of March 31, 1994 for
cash dividends and treasury stock purchases.
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
FIRST THREE MONTHS OF 1994 COMPARED TO 1993
Revenues for the first quarter of 1994 were $339.8 million representing
the best quarterly performance on record and surpassing last year's first
quarter revenues by $43.7 million or 14.8 percent. Net earnings of $15.7
million or $.76 per share in the first quarter of 1994 also exceeded those
of any prior quarter and were $2.7 million higher than the $13.0 million
or $.64 per share reported in the same period last year.
Most of the Corporation's operating units benefitted from an expanding
economy which commenced in 1993 and continued in 1994 manifesting itself
in the form of increased sales for all of the Corporation's manufacturing
units and increased earnings in three of the Corporation's four largest
operating units when comparing the first quarter of 1994 to the same
period in 1993. While sales increased significantly in the first quarter
of 1994, the Corporation's overall gross profit margin declined from 16.2
percent in 1993's first quarter to 15.7 percent in the first quarter of
1994. The decline in the gross profit margin was due largely to costs
associated with new product launches within the Automotive Products
Company and competitive conditions in the electric motors markets.
The Automotive Products Company was the most notable beneficiary of the
expanding economy as they provided over 60 percent of the Corporation's
first quarter revenue increase. Automotive's 1994 first quarter sales
were $182.6 million representing an increase of $27.2 million or 17.5
percent over last year's first quarter. The significant sales increase
was the result of strong demand, particularly for light truck products in
which the company has a strong product presence.
The significant volume increase at Automotive resulted in 1994's earnings
being improved over the same period last year. The earnings
improvement was achieved despite having to contend with the costs
associated with a number of aggressive new product launches during the
quarter. The company began initial shipments of engine cradles and
trailing axles for the new Ford Windstar mini van. Full production of
this product is scheduled to occur by the end of the second quarter.
Automotive also began manufacturing the Toyota Camry rear suspension
assembly during the first quarter with full production anticipated by the
end of summer.
In the second quarter Automotive will begin shipping the engine cradle for
Ford's new Contour/Mystique passenger car. The company is responsible for
all North American cradle production and this program solidifies its
position as Ford's number one structure supplier.
In April, Automotive became aware that at the beginning of the 1998 model
year, it will no longer manufacture the engine cradle which is a component
of the front-suspension module it supplies for Chrysler's LH vehicles. In
1993 the cradle represented about $20 million in annual sales. Automotive
expects it will continue to supply both the front- and rear-suspension
modules for these vehicles.
Also in April, Automotive was awarded the contract to manufacture the full
frame for the 1996 model year Chrysler Dodge Ram extended cab model
pickup truck. This new business is expected to represent $35 million of
incremental sales. The company was also awarded a contract to manufacture
side member assemblies for the 1997 model Isuzu Rodeo and Honda Passport,
which should result in approximately $10 million of added annual sales and
continues to increase the company's penetration in the Japanese automotive
transplant segment of the market.
Equity in earnings of the Corporation's 40 percent owned Mexican
affiliate, Metalsa S.A. were modestly lower in the first quarter of 1994
compared to 1993. Start-up costs for new product and a continuation of
plant consolidation costs contributed to the lower earnings. Earnings are
expected to improve for the balance of 1994.
The Water Products Company experienced a 14 percent increase in sales in
the first quarter of 1994, climbing from $59.6 million in the first
quarter of 1993 to $68.0 million. Sales of residential water heaters were
particularly strong, reflecting the company's very competitive position in
the replacement market and the growth in new housing.
The incremental earnings for Water Products in the first quarter of 1994
over the same quarter last year were consistent with the increase in
residential product sales.
First quarter sales for the Electrical Products Company increased $6.7
million or 10.5 percent from the first quarter of 1993. The company's
first quarter earnings declined from 1993 first quarter levels as a result
of continuing pricing pressures within the motor market and certain
manufacturing inefficiencies.
Sales for Smith Fiberglass Products increased 11.3 percent when comparing
the first quarter of 1994 to 1993. First quarter shipments of service
station pipe were higher than the previous year despite the poor weather
conditions that hindered field installation. The chemical/industrial
markets and international petroleum production market also showed strength
in the first quarter.
First quarter earnings for Fiberglass Products were significantly higher
than those of the prior year's first quarter as a direct result of
increased volume and favorable product mix.
Smith Fiberglass received a boost to its international marketing efforts
during the first quarter when the Little Rock, AR facility earned ISO-9001
certification. With most countries outside the U.S. accepting ISO-9000
standards, this designation will enable the company to expand overseas
sales activity, especially for service station and oil field pipe. To
support this increased international presence, a sales and marketing
office was opened in London, England during the first quarter.
Revenues for A. O. Smith Harvestore Products, Inc. (AOSHPI) increased
modestly in the first quarter of 1994 as they experienced increased sales
especially in the municipal/industrial and water and waste storage
markets. Revenues for AgriStor Credit Corporation declined from the
levels of a year ago as the process of liquidating this finance subsidiary
continues. The loss incurred in the quarter reflects the seasonality of
AOSHPI's business and was at an expected level consistent with the first
quarter of 1993.
Selling, general and administrative expenses in the first quarter were
approximately $2.3 million more than the same period of 1993 but declined
as a percentage to sales from 7.8 percent in 1993 to 7.5 percent in 1994.
The absolute increase in expense was due mostly to higher employee
incentive and profit sharing accruals associated with the increased
earnings. Interest expense for the first quarter declined $.6 million
from the levels incurred in last year's first quarter as a result of lower
debt. The Corporation's effective tax rate in 1994 was lower than the
1993 rate due to the recognition of foreign tax credits.
The record sales and earnings established in the first quarter of 1994
supports the Corporation's objective of surpassing 1993's record
results. Assuming increases in short term borrowing rates do not
significantly impact the current favorable conditions within the
automotive and housing industries, the favorable trend established in the
first quarter should continue throughout the year. In view of this
projection, in April the Board of Directors increased the quarterly
dividend by 18 percent, from $.11 to $.13 per share commencing with the
dividend paid in May.
In the quarter, the corporation sent a delegation of senior executives
including the chief executive officer to the Peoples Republic of China
in order to assess opportunities in that market.
In March, the Corporation learned that the United States District
Court for the Southern District of Ohio ruled that a lawsuit filed by
three Ohio farmers in 1992 against the Corporation and Harvestore Products
can conditionally proceed as a class action on behalf of all purchasers of
Harvestore/R/ structures. The court's ruling does not address the merits of
the claims, and the court retains the discretion to decertify the class at
any time. The Corporation remains confident this issue can be resolved,
that adequate insurance and reserves are in place and the original
strategy of selling Harvestore and liquidating AgriStor can be pursued.
Liquidity and Capital Resources
The Corporation's working capital was $105.9 million at March 31, 1994
compared to $80.7 million at December 31, 1993. The majority of the
increase can be attributed to sales related increases in trade receivables
of $32 million and inventories of $8 million offset by a corresponding
increase in trade payables of $20 million.
Cash flow provided by operations was $11.4 million less than the same
period last year primarily due to increased working capital requirements.
The Corporation's long-term debt increased $5.2 million in the first three
months of 1994 to $154 million to finance working capital. The finance
subsidiary's long-term debt decreased $3.9 million during the first
quarter to $37.8 million, reflecting the continuing liquidation of the
business.
The Corporation anticipates that a combination of current earnings trends
and moderating working capital requirements will reduce debt and its debt-
to-equity ratio during the balance of 1994. Capital spending continues
at higher levels due largely to new autmotive product programs and is
expected to exceed $80 million in 1994.
On April 5, 1994, the $12.5 million 8.9 percent term loan agreement was
amended to carry a floating interest rate as of April 1994 and the final
maturity was extended from April 1996 to April 1999 (see Note 3).
At its April 14, 1994 meeting, A. O. Smith's Board of Directors increased
the regular quarterly dividend to $.13 per share on its common stock
(Classes A and Common) from $.11 per share. The dividend is payable on
May 16, 1994 to shareholders of record as of April 29, 1994.
PART II -- OTHER INFORMATION
ITEM 1 -- LEGAL PROCEEDINGS
At March 31, 1994, the Corporation or A.O. Smith Harvestore Products, Inc.
("AOSHPI"), a wholly-owned subsidiary of the Corporation, were defendants
in approximately twenty-six (26) cases filed by various plaintiffs who
were alleging damages for economic losses claimed to have arisen out of
alleged defects in AOSHPI's animal feed storage equipment. In the first
quarter of 1994, three new cases were filed against the Corporation and
AOSHPI and three cases were settled. Among the pending cases is a case in
the New York State Court in the County of Dutchess brought by five parties
on "behalf of themselves and all other New York State residents similarly
situated who have purchased or leased Harvestore structures from any
defendant at anytime." The plaintiffs are seeking to recover for the
putative class the lease payments or purchase price paid for the
Harvestore structures, restitution for damages together with interest and
attorney fees. To date, the Corporation and AOSHPI have procured rulings
from the Court striking a number of the plaintiffs' claims, the balance of
the claims are also being procedurally attacked and the Corporation and
AOSHPI have filed their answers.
On March 25, 1994, the United States District Court for the Southern
District of Ohio ruled that a lawsuit filed by three Ohio farmers in 1992
against the Corporation and AOSHPI, as previously described in Part I,
Item 3, of the Corporation's 1992 and 1993 annual reports on Form 10-K,
can conditionally proceed as a class action on behalf of all purchasers of
Harvestore/R/ structures. The Court's ruling does not address the merits
of the claims, and the court retains the discretion to decertify the class
at any time. The Corporation believes that any damages, including any
punitive damages, arising out of the pending cases, including the
conditionally certified class action, are adequately covered by insurance
and recorded reserves.
There have been no material changes in the environmental matters
previously reported in Item 3 in the Company's Form 10-K Report for the
fiscal year ended December 31, 1993 which is incorporated herein by
reference.
PART II -- OTHER INFORMATION
ITEM 2 -- CHANGES IN SECURITIES
On April 5, 1994 the Corporation's $12.5 million term loan agreement with
NBD Bank, N.A. was amended to carry a floating interest rate as of April
1994 and the final maturity was extended from April 1996 to April 1999.
The covenants and restrictions on the payment of dividends remain
essentially the same. Refer to Note 3 on page 7 of this report for more
detailed information regarding the Corporation's debt covenants, dividend
payment restrictions and retained earnings.
PART II -- OTHER INFORMATION
ITEM 6 -- EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(4) Term Loan Agreement, dated April 5, 1994, between A. O. Smith
Corporation and NBD Bank, N.A.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Corporation in the first
quarter of 1994.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly casued this report to be signed on its behalf by the
undersigned thereunto duly authorized.
A. O. SMITH CORPORATION
May 6, 1994 THOMAS W. RYAN
Thomas W. Ryan
Vice President
Treasurer and Controller
May 6, 1994 G. R. BOMBERGER
G. R. Bomberger
Executive Vice President
and Chief Financial Officer
EXHIBIT INDEX
Exhibit
Number Exhibit
(4) Term Loan Agreement, dated April 5, 1994, between A. O. Smith
Corporation and NBD Bank, N.A.
Execution Copy
A.O. SMITH CORPORATION
_______________________________________
$12,500,000
TERM LOAN AGREEMENT
dated as of April 5, 1994
_______________________________________
NBD BANK, N.A.
TABLE OF CONTENTS
I. DEFINITIONS
1.1 Certain Definitions..........................
1.2 Other Definitions; Rules of Construction.....
II. THE COMMITMENT AND THE TERM LOAN
2.1 Commitment of the Bank.......................
2.2 Termination and Reduction of Commitment......
2.3 Disbursement of Term Loan....................
2.4 Conditions for Disbursement..................
2.5 Further Conditions for Disbursement..........
III. PAYMENTS Of TERM LOAN
3.1 Principal Payments...........................
3.2 Interest Payments............................
3.3 Payment Method...............................
3.4 No Setoff or Deduction.......................
3.5 Payment on Non-Business Day;
Payment Computations.......................
3.6 Indemnification..............................
3.7 Additional Costs.............................
IV. REPRESENTATIONS AND WARRANTIES
4.1 Corporate Existence and Power................
4.2 Corporate Authority..........................
4.3 Binding Effect...............................
4.4 Credit Agreement Representations.............
4.5 Litigation...................................
4.6 Financial Condition..........................
4.7 Use of Term Loan.............................
4.8 Consents, Etc................................
V. COVENANTS
5.1 Incorporation of Covenants
from Credit Agreement......................
VI. DEFAULT
6.1 Incorporation of Events of Default
from Credit Agreement......................
6.2 Remedies.....................................
VII. MISCELLANEOUS
7.1 Amendments, Etc..............................
7.2 Notices......................................
7.3 No Waiver By Conduct; Remedies Cumulative....
7.4 Reliance on and Survival of Various
Provisions.................................
7.5 Expenses.....................................
7.6 Successors and Assigns.......................
7.7 Counterparts.................................
7.8 Governing Law................................
7.9 Contents and Headings........................
7.10 Integration and Severability.................
7.11 Interest Rate Limitation.....................
7.12 Waiver of Jury Trial.........................
EXHIBITS
Exhibit A Term Note....................................
THIS TERM LOAN AGREEMENT, dated as of April 5, 1994 (this Agreement),
is by and between A.O. SMITH CORPORATION, a Delaware corporation (the
"Company") and NBD BANK, N.A., a national banking association (the
"Bank").
INTRODUCTION
The Company desires to obtain a term loan in the aggregate principal
amount of $12,500,000 in order to replace and extend an existing term loan
owing to the Bank, and the Bank is willing to make such term loan on the
terms and conditions herein set forth.
In consideration of the premises and of the mutual agreements herein
contained, the parties hereto agree as follows:
ARTICLE I.
DEFINITIONS
1.1 Certain Definitions. As used herein the following terms shall
have the following respective meanings:
"Business Day" shall mean a day other than a Saturday, Sunday or
other day on which the Bank is not open to the public for carrying on
substantially all of its banking functions.
"Commitment" shall mean the commitment of the Bank to make the Term
Loan pursuant to Section 2.1 in the principal amount of $12,500,000.
"Consolidated Subsidiary" means at any date any Subsidiary or other
entity the accounts of which would be consolidated with those of the
Company in its consolidated financial statements as of such date,
provided, however, that the term "Consolidated Subsidiary" shall not
include AgriStor Credit Corporation ("AgriStor Credit") and AgriStor
Credit Corporation Canada, Ltd. ("AgriStor Canada; collectively with
AgriStor Credit, "AgriStor").
"Credit Agreement" shall mean the Credit Agreement dated as of
February 26, 1993 among the Company, the banks named therein and Chemical
Bank, as agent for such banks.
"Default" shall mean any of the events or conditions described in
Section 6.1 which would become an Event of Default with notice or lapse of
time or both.
"Dollars" and "$" shall mean the lawful money of the United States of
America.
"Effective Date" shall mean the effective date specified in the final
paragraph of this Agreement.
"Eurodollar Business Day" shall mean any day which is both a Business
Day and a London Banking Day.
"Eurodollar Interest Period" shall mean the period commencing on the
Effective Date and ending on the date one, two, three or six months
thereafter, as the Company may elect under Section 2.3(c) and each
subsequent period commencing on the last day of the immediately preceding
Eurodollar Interest Period and ending on the date one, two, three or six
months thereafter, as the Company may elect under Section 2.3(c),
provided, however, that (a) any Eurodollar Interest Period which commences
on the last Eurodollar Business Day of a calendar month (or on any day for
which there is no numerically corresponding day in the appropriate
subsequent calendar month) shall end on the last Eurodollar Business Day
of the appropriate subsequent calendar month, (b) each Eurodollar Interest
Period which would otherwise end on a day which is not a Eurodollar
Business Day shall end on the next succeeding Eurodollar Business Day or,
if such next succeeding Eurodollar Business Day falls in the next
succeeding calendar month, on the next preceding Eurodollar Business Day,
and (c) no Eurodollar Interest Period which would end after the Maturity
Date shall be permitted.
"Eurodollar Rate" shall mean, with respect to the Eurodollar Rate
Loan and the related Eurodollar Interest Period, the per annum rate that
is equal to the sum of:
(a) one-half of one percent (1/2%) per annum, plus
(b) the rate per annum obtained by dividing (i) the per annum
rate of interest at which deposits in Dollars for such Eurodollar Interest
Period and in an aggregate amount comparable to the amount of such
Eurodollar Rate Loan are offered to the Bank by other prime banks in the
London interbank market at approximately 11:00 a.m. London time on the
second London Banking Day prior to the first day of such Eurodollar
Interest Period by (ii) an amount equal to one minus the stated maximum
rate (expressed as a decimal) of all reserve requirements (including,
without limitation, any marginal, emergency, supplemental, special or
other reserves) that is specified on the first day of such Eurodollar
Interest Period by the Board of Governors of the federal Reserve System
(or any successor agency thereto) for determining the maximum reserve
requirement with respect to eurocurrency funding (currently referred to as
"Eurocurrency liabilities" in Regulation D of such Board) maintained by a
member bank of such System;
all as determined by the Bank, such sum to be rounded up, if necessary, to
the nearest whole multiple of one one-hundredth of one percent (1/100 of
1%).
"Eurodollar Rate Loan" shall mean the Term Loan during any time it
bears interest at the Eurodollar Rate.
"Event of Default" shall mean any of the events or conditions
described in Section 6.1.
"Generally Accepted Accounting Principles" shall mean generally
accepted accounting principles applied on a basis consistent with that
reflected in the financial statements referred to in Section 4.6.
"Interest Payment Date" shall mean the last day of each Eurodollar
Interest Period and, in the case of any Eurodollar Interest Period
exceeding three months, those days that occur during such Eurodollar
Interest Period at intervals of three months after the first day of such
Interest Period.
"London Banking Day" shall mean any day in which dealings and
deposits in U.S. dollars are transacted in the London interbank market.
"Maturity Date" shall mean the earlier of April 5, 1999 or the date
the Term Loan is accelerated pursuant to Section 6.2 hereof.
"Overdue Rate" shall mean a rate per annum that is equal to the sum
of three percent (3%) per annum plus the Prime Rate.
"Person" or "person" shall include an individual, a corporation, an
association, a partnership, a trust or estate, a joint stock company, a
joint venture, a trade or business (whether or not incorporated), a
government (foreign or domestic) and any agency or political subdivision
thereof, or any other entity.
"Prime Rate" shall mean the per annum rate announced by the Bank from
time to time as its "prime rate" (it being acknowledged that such
announced rate may not necessarily be the lowest rate charged by the Bank
to any of its customers), which Prime Rate shall change simultaneously
with any change in such announced rate.
"Subsidiary" means any corporation or other entity of which
securities or other ownership interests 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 the
Company.
"Term Loan" shall mean the borrowing under Section 2.3 evidenced by
the Term Note and made pursuant to Section 2.1.
"Term Note" shall mean any promissory note of the Company evidencing
the Term Loan, in substantially the form annexed hereto as Exhibit A, as
amended or modified from time to time and together with any promissory
note or notes issued in exchange or replacement therefor.
1.2 Other Definitions; Rules of Construction. As used herein, the
terms "Bank," "Company" and "this Agreement" shall have the respective
meanings ascribed thereto in the introductory paragraph of this Agreement.
Such terms, together with the other terms defined in Section 1.1, shall
include both the singular and the plural forms thereof and shall be
construed accordingly. All computations required hereunder and all
financial terms used herein shall be made or construed in accordance with
Generally Accepted Accounting Principles unless such principles are
inconsistent with the express requirements of this Agreement. Use of the
terms "herein", "hereof", and "hereunder" shall be deemed references to
this Agreement in its entirety and not to the Section or clause in which
such term appears.
ARTICLE II.
THE COMMITMENT AND THE TERM LOAN
2.1 Commitment of the Bank. The Bank agrees, subject to the terms
and conditions of this Agreement, to make a single Term Loan to the
Company, and the Company agrees to borrow such Term Loan from the Bank, on
April 5, 1994, in the principal amount of $12,500,000. The Term Loan
shall be used solely to pay in full a term loan in the original principal
amount of $15,000,000 made to the Company by the Bank on April 5, 1991.
2.2 Termination and Reduction of Commitment. Neither the Company
nor the Bank shall have the right to terminate or reduce the Commitment
without the mutual agreement of both the Company and the Bank.
2.3 Disbursement of Term Loan. (a) Subject to the terms and condi-
tions of this Agreement, the proceeds of the Term Loan shall be made
available to the Company by depositing the proceeds thereof, in
immediately available funds, in an account maintained and designated by
the Company at the Bank or by wire transfer or otherwise as requested by
the Company.
(b) The Term Loan made under this Section 2.3 shall be
evidenced by the Term Note, and the Term Loan shall be due and payable and
bear interest as provided in Article III and in the Term Note. The Bank
is hereby authorized by the Company to record on the schedule attached to
the Term Note, or in its books and records, the amount of each payment or
prepayment of principal thereon, and the other information provided for on
such schedule, which schedule or books and records, as the case may be,
shall constitute prima facie evidence of the information so recorded,
provided, however, that failure of the Bank to record, or any error in
recording, any such information shall not relieve the Company of its
obligation to repay the outstanding principal amount of the Term Loan, all
accrued interest thereon and other amounts payable with respect thereto in
accordance with the terms of this Agreement, nor shall any failure of the
Bank to record any payment made by the Company require the Company to
repay the amount previously paid by the Company.
(c) The Company may elect to have a Eurodollar Interest Period
applicable to Term Loan of one, two, three or six months by giving the
Bank notice, in the case of the initial Eurodollar Interest Period, no
later than 10:00 a.m. Detroit time three Eurodollar Business Days prior to
the Effective Date and, in the case of all subsequent Eurodollar Interest
Periods, three Eurodollar Business Days prior to the end of each
Eurodollar Interest Period. If the Company shall not timely deliver such
notice with respect to any outstanding Eurodollar Interest Period, the
Company shall be deemed to have elected a Eurodollar Interest Period of
one month. Notwithstanding anything herein to the contrary, the Company
shall elect Eurodollar Interest Periods such that the last day of a
Eurodollar Interest Period occurs in October, 1997, in April, 1998, in
October, 1998 and in April, 1999.
2.4 Conditions for Disbursement. The obligation of the Bank to make
the Term Loan hereunder is subject to receipt by the Bank of the following
documents and completion of the following matters, in form and substance
satisfactory to the Bank:
(a) Charter Documents. Certificates of recent date of the
appropriate authority or official of the Company's state of incorporation
listing all charter documents of the Company on file in that office and
certifying as to the good standing and corporate existence of the Company
together with copies of such charter documents of the Company, certified
as of a recent date by such authority or official and certified as true
and correct as of the Effective Date by a duly authorized officer of the
Company;
(b) By-Laws and Corporate Authorizations. Copies of the by-
laws of the Company together with all authorizing resolutions and evidence
of other corporate action taken by the Company to authorize the execution,
delivery and performance by the Company of this Agreement and the Term
Note and the consummation by the Company of the transactions contemplated
hereby, certified as true and correct as of the Effective Date by a duly
authorized officer of the Company;
(c) Incumbency Certificate. Certificates of incumbency of the
Company containing, and attesting to the genuineness of, the signatures of
those officers authorized to act on behalf of the Company in connection
with this Agreement and the Term Note and the consummation by the Company
of the transactions contemplated hereby, certified as true and correct as
of the Effective Date by a duly authorized officer of the Company;
(d) Term Note. The Term Note duly executed on behalf of the
Company;
(e) Legal Opinions. The favorable written opinion of W. David
Romoser, general counsel and secretary for the Company, with respect to
each of the matters set forth in Article IV (other than Section 4.6); and
(f) Consents, Approvals, Etc. Copies of all governmental and
nongovernmental consents, approvals, authorizations, declarations,
registrations or filings, if any, required on the part of the Company in
connection with the execution, delivery and performance of this Agreement,
or the Term Note or consummation of the transactions contemplated hereby
or as a condition to the legality, validity or enforceability of this
Agreement and the Term Note, certified as true and correct in full force
and effect as of the Effective Date by a duly authorized officer of the
Company, or if none are required, a certificate of such officer to that
effect.
2.5 Further Conditions for Disbursement. The obligation of the Bank
to make the Term Loan is further subject to the satisfaction of the
following conditions precedent:
(a) The representations and warranties contained in Article IV
hereof shall be true and correct on and as of the date such Term Loan is
made (both before and after such Loan is made) as if such representations
and warranties were made on and as of such date; and
(b) No Event of Default or Default shall exist or shall have
occurred and be continuing on the date such Term Loan is made (whether
before or after such Term Loan is made).
The Company shall be deemed to have made a representation and warranty to
the Bank at the time of the making of the Term Loan to the effects set
forth in clauses (a) and (b) of this Section 2.5.
ARTICLE III.
PAYMENTS Of TERM LOAN
3.1 Principal Payments.
(a) Unless earlier payment is required under this Agreement,
the Company shall pay to the Bank the outstanding principal amount of the
Term Loan in four semi-annual principal payments of $3,125,000 each, with
the first such principal payment due on the Interest Payment Date
occurring in October, 1997 and payable on each Interest Payment Date
occurring in each April and October thereafter and on the Maturity Date,
when the entire outstanding principal amount of, and accrued interest on,
the Term Loan shall be due and payable.
(b) The Company may prepay the entire outstanding principal
amount of the Term Loan and may make partial prepayments of the Term Loan,
provided that such partial prepayments must be in a minimum amount of
$1,000,000 and in integral multiples thereof and that all such
prepayments, whether partial or of the entire outstanding principal
amount, shall be permitted to be made only on an Interest Payment Date.
All partial prepayments shall be applied to principal installments in the
inverse order of their maturities.
3.2 Interest Payments. (a) The Company shall pay interest to the
Bank on the unpaid principal amount of the Term Loan, for the period
commencing on the date such Term Loan is made until such Term Loan is paid
in full, on each Interest Payment Date and at maturity (whether at stated
maturity, by acceleration or otherwise), and thereafter on demand, at the
applicable Eurodollar Rate. Notwithstanding the foregoing, the Company
shall pay interest on demand at the Overdue Rate on the outstanding
principal amount of the Term Loan and any other amount payable by the
Company hereunder (other than interest) which is not paid in full when due
(whether at stated maturity, by acceleration or otherwise) for the period
commencing on the due date thereof until the same is paid in full.
(b) Notwithstanding any other provision of this Agreement to
the contrary, if (i) deposits in Dollars for the periods comparable to the
relevant Eurodollar Interest Periods are not available to the Bank in the
London interbank market, or (ii) the Eurodollar Rate will not adequately
and fairly reflect the cost of the Bank of making, funding or maintaining
the Eurodollar Rate Loan, or (iii) by reason of national or international
financial, political or economical conditions or by reasons of any
applicable law, treaty, rule or regulation (whether domestic or foreign)
now or hereafter in effect, or the interpretation or administration
thereof by any governmental authority charged with the interpretation or
administration thereof, or compliance by the Bank with any guideline,
request or directive of such authority (whether or not having the force of
law), including without limitation exchange controls, it is impracticable,
unlawful or impossible for the Bank to make, fund or maintain the
Eurodollar Rate Loan, the interest rate applicable thereafter shall be the
Prime Rate.
3.3 Payment Method. (a) All payments to be made by the Company
hereunder will be made in Dollars and in immediately available funds to
the Bank at its address set forth in Section 7.2 not later than 1:00 p.m.
Detroit time on the date on which such payment shall become due. Payments
received after 1:00 p.m. Detroit time shall be deemed to be payments made
prior to 1:00 p.m. Detroit time on the next succeeding Business Day.
(b) At the time of making each such payment, the Company shall,
subject to the other terms and conditions of this Agreement, specify to
the Bank that obligation of the Company hereunder to which such payment is
to be applied. In the event that the Company fails to so specify the
relevant obligation or if an Event of Default shall have occurred and be
continuing, the Bank may apply such payments as it may determine in its
sole discretion to obligations of the Company to the Bank arising under
this Agreement or otherwise.
3.4 No Setoff or Deduction. All payments of principal and interest
on the Term Note and other amounts payable by the Company hereunder shall
be made by the Company without setoff or counterclaim, and free and clear
of, and without deduction or withholding for, or on account of, any
present or future taxes, levies, imposts, duties, fees, assessments, or
other charges of whatever nature, imposed by any governmental authority,
or by any department, agency or other political subdivision or taxing
authority.
3.5 Payment on Non-Business Day; Payment Computations. Except as
otherwise provided in this Agreement to the contrary, whenever any
installment of principal of, or interest on, the Term Loan or any other
amount due hereunder becomes due and payable on a day which is not a
Business Day, the maturity thereof shall be extended to the next
succeeding Business Day and, in the case of any installment of principal,
interest shall be payable thereon at the rate per annum determined in
accordance with this Agreement during such extension. Computations of
interest and other amounts due under this Agreement shall be made on the
basis of a year of 360 days for the actual number of days elapsed,
including the first day but excluding the last day of the relevant period.
3.6 Indemnification. If the Company makes any payment of principal
with respect the Term Loan on any other date than the last day of
Eurodollar Interest Period applicable thereto (whether pursuant to
Sections 3.1(b), 6.2 or otherwise), or if the Company fails to make any
payment of principal or interest in respect of the Term Loan when due, the
Company shall, in addition to any amounts that may be payable pursuant to
any other Sections of the Agreement, reimburse the Bank on demand for any
resulting loss or expense incurred by the Bank, including without
limitation any loss incurred in obtaining, liquidating or employing
deposits from third parties, whether or not the Bank shall have funded or
committed to fund such Loan. A statement as to the amount of such loss or
expense, prepared in good faith and in reasonable detail by the Bank and
submitted by the Bank to the Company, shall be conclusive and binding for
all purposes absent manifest error in computation, and amounts due under
this Section 3.6 shall be due 15 days after such statement is submitted by
the Bank to the Company.
3.7 Additional Costs. In the event that any applicable law, treaty,
rule or regulation (whether domestic or foreign) now or hereafter in
effect and whether or not presently applicable to the Bank, or any
interpretation or administration thereof by any governmental authority
charged with the interpretation or administration thereof, or compliance
by the Bank with any guideline, request or directive of any such authority
(whether or not having the force of law), including without limitation any
risk-based capital guidelines, (a) affects or would affect the amount of
capital required or expected to be maintained by the Bank (or any
corporation controlling the Bank) and the Bank determines that the amount
of such capital is increased by or based upon the existence of the Bank's
obligations hereunder and such increase has the effect of reducing the
rate of return on the Bank's (or such controlling corporation's) capital
as a consequence of such obligations hereunder to a level below that which
the Bank (or such controlling corporation) could have achieved but for
such circumstances (taking into consideration its policies with respect to
capital adequacy) by an amount deemed by the Bank to be material, or (b)
effects the basis of taxation of payments to the Bank of any amounts
payable by the Company under this Agreement (other than taxes imposed on
the overall net income of the Bank) or shall impose any other condition
with respect to this Agreement and the result of any of the foregoing is
to increase the cost to the Bank of making, funding, or maintaining the
Eurodollar Rate Loan or to reduce the amount of any sum receivable by the
Bank thereon, then the Company shall pay to the Bank, from time to time,
upon request by the Bank, additional amounts sufficient to compensate the
Bank (or such controlling corporation) for any increase in the amount of
capital and reduced rate of return or such increased costs which the Bank
reasonably determines to be allocable to the existence of the Bank's obli-
gations hereunder. A statement as to the amount of such compensation,
prepared in good faith and in reasonable detail by the Bank and submitted
by the Bank to the Company, shall be conclusive and binding for all
purposes absent manifest error in computation, and amounts due under this
Section 3.7 shall be due 15 days after such statement is submitted by the
Bank to the Company. Notwithstanding anything herein to the contrary, (i)
if the Bank at any time requests compensation hereunder, and the Company
pays such compensation, the Company may prepay the term loan in its
entirety without any amounts due under this Section 3.7 hereof or any
other prepayment premium, and (ii) the Bank may only request such
compensation prospectively, and not retroactively.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES
The Company represents and warrants that:
4.1 Corporate Existence and Power. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Delaware, and is duly qualified to do business, and is in good
standing, in all additional jurisdictions where such qualification is
necessary under applicable law. The Company has all requisite corporate
power to own or lease the properties used in its business and to carry on
its business as now being conducted and as proposed to be conducted, and
to execute and deliver this Agreement and the Term Note and to engage in
the transactions contemplated by this Agreement.
4.2 Corporate Authority. The execution, delivery and performance by
the Company of this Agreement and the Term Note have been duly authorized
by all necessary corporate action and are not in contravention of any law,
rule or regulation, or any judgment, decree, writ, injunction, order or
award of any arbitrator, court or governmental authority or of the terms
of the Company's charter or by-laws, or of any contract or undertaking to
which the Company is a party or by which the Company or its property may
be bound or affected or result in the imposition of any Lien except for
Liens permitted pursuant to Section 5.7 of the Credit Agreement.
4.3 Binding Effect. This Agreement is, and the Term Note when
delivered hereunder will be, legal, valid and binding obligations of the
Company enforceable against the Company in accordance with their
respective terms, provided that the enforcement of the rights and remedies
set forth in the Agreement and the Term Note are subject to the effective
applicable bankruptcy, insolvency and other similar laws affecting the
enforcement of creditors' rights generally, and general principles of
equity, whether applied to a proceeding at law or in equity.
4.4 Credit Agreement Representations. The representations and
warranties contained in Sections 4.6, 4.7 and 4.8 of the Credit Agreement
are true and correct as if made on and as of the Effective Date.
4.5 Litigation. The Company and its Subsidiaries are defendants in
various legal proceedings arising in the normal course of business, all of
which material proceedings are disclosed in the most recently filed form
10-K of the Company. In the opinion of the management of the Company, the
probable ultimate resolution of all actions, suits or proceedings pending
against the Company or any of its Subsidiaries will not have a material
adverse effect on the consolidated financial position of the Company and
its-Subsidiaries. The management of the Company is not aware of any
threatened actions, suits or proceedings against the Company or any of its
Subsidiaries for which the probable ultimate resolution thereof would have
a material adverse effect on the consolidated financial position of the
Company and its Subsidiaries.
4.6 Financial Condition. The consolidated balance sheet of the
Company and its Consolidated Subsidiaries and the consolidated statements
of income and cash flow of the Company and its Consolidated Subsidiaries
for the fiscal year ended December 31, 1993 and reported on by Ernst &
Young, copies of which have been furnished to the Bank, fairly present,
and the financial statements of the Company and its Subsidiaries delivered
pursuant to Section 5.1 will fairly present, the consolidated financial
position of the Company and its Consolidated Subsidiaries as at the
respective dates thereof, and the consolidated results of operations of
the Company and its Consolidated Subsidiaries for the respective periods
indicated, all in accordance with Generally Accepted Accounting Principles
consistently applied (subject, in the case of said interim statements, to
year-end audit adjustments). Except as disclosed in the press release of
the Company dated March 30, 1994, there has been no material adverse
change in the business, properties, operations or condition, financial or
otherwise, of the Company or any of its Subsidiaries since December 31,
1993. There is no material contingent liability of the Company that is
not reflected in such financial statements or in the notes thereto.
4.7 Use of Term Loan. The Company will use the proceeds of the Term
Loan solely to pay in full a term loan in the original principal amount of
$15,000,000 made to the Company by the Bank on April 5, 1991. Neither the
Company nor any of its Subsidiaries extends or maintains, in the ordinary
course of business, credit for the purpose, whether immediate, incidental,
or ultimate, of buying or carrying margin stock (within the meaning of
Regulation U of the Board of Governors of the Federal Reserve System), and
no part of the proceeds of the Term Loan will be used for the purpose,
whether immediate, incidental, or ultimate, of buying or carrying any such
margin stock or maintaining or extending credit to others for such
purpose. After applying the proceeds of the Term Loan, margin stock, if
any, will not constitute more than 25% of the value of the assets (either
of the Company alone or of the Company and its Subsidiaries on a
consolidated basis) that are subject to any provisions of this Agreement
that may cause the Term Loan to be deemed secured, directly or indirectly,
by margin stock.
4.8 Consents, Etc. Except for such consents, approvals, authoriza-
tions, declarations, registrations or filings delivered by the Company
pursuant to Section 2.4(f), if any, each of which is in full force and
effect, no consent, approval or authorization of or declaration,
registration or filing with any governmental authority or any
nongovernmental person or entity, including without limitation any
creditor, lessor or stockholder of the Company or any of its Subsidiaries,
is required on the part of the Company in connection with the execution,
delivery and performance of this Agreement, the Term Note or the
transactions contemplated hereby or as a condition to the validity or
enforceability of this Agreement or the Term Note.
ARTICLE V.
COVENANTS
5.1 Incorporation of Covenants from Credit Agreement. The Company
covenants and agrees that, until payment in full of the principal of and
accrued interest on the Term Loan and the performance of all other
obligations of the Company under this Agreement, unless the Bank shall
otherwise consent in writing, it shall observe and perform, as
incorporated herein, the covenants and agreements set forth in Sections
5.1 through 5.8, inclusive, of the Credit Agreement. All such provisions
of said Sections 5.1 through 5.8, inclusive, including definitions of
defined terms used therein and exhibits referred to therein, are hereby
incorporated by reference and made a part of this Agreement to the same
extent as if set forth fully herein except that (i) all cross references
shall be deemed to refer to the relevant provision or provisions as
incorporated herein, (ii) references therein to "hereof" and "hereto" and
"herein" shall be deemed to refer to this Agreement and (iii) references
in such sections as incorporated herein to the defined terms "Banks",
"Bank", "Required Banks" and "Agent" shall be deemed references to the
defined term "Bank" as defined in this Agreement, references in such
sections as incorporated herein to the defined term "Default" shall be
deemed references to the defined term "Default" as defined in this
Agreement and references in such sections as incorporated herein to the
defined term "Events of Default" shall be deemed references to the defined
term "Event of Default" as defined in this Agreement.
Any supplement amendment, modification, waiver or consent made
or granted by the Required Banks (as defined in the Credit Agreement) in
connection with such provisions of the Credit Agreement incorporated
herein at any time after the date hereof shall be deemed a supplement,
amendment, modification, waiver or consent, as the case may be, with
respect to such provisions as incorporated herein, but only if the Bank
has consented to such supplement, amendment, modification' waiver or
consent pursuant to the terms of the Credit Agreement. Notwithstanding
anything in this Agreement to the contrary, no termination, cancellation
or expiry of the Credit Agreement shall have any effect whatsoever upon
the provisions thereof as such provisions are incorporated herein, and
such provisions of the Credit Agreement incorporated herein shall be
deemed to survive any such termination, cancellation or expiry of the
Credit Agreement and shall thereafter continue to be binding upon the
Company under this Agreement.
ARTICLE VI.
DEFAULT
6.1 Incorporation of Events of Default from Credit Agreement. For
the purpose of determining Events of Default with respect to the Company,
Sections 6.1(a) through 6.1(j), inclusive, of the Credit Agreement,
including definitions of defined terms used therein, are hereby
incorporated by reference and made a part of this Agreement to the same
extent as if set forth fully herein, except that reference in such
sections as incorporated herein to the defined terms "Notes" or "Note"
shall be deemed references to the defined term "Term Note" as defined in
this Agreement, references in such Sections as incorporated herein to the
defined terms "Loan" or "Loans" shall be deemed references to the defined
term "Term Loan" as defined in this Agreement, and reference in such
Sections as incorporated herein to the defined terms "Agent" or "Bank"
shall be deemed references to the defined term "Bank" as defined in this
Agreement. Any supplement, amendment, modification, waiver or consent
made or granted by the Required Banks in connection with such provisions
of the Credit Agreement incorporated herein at any time after the date
hereof shall be deemed a supplement, amendment, modification, waiver or
consent, as the case may be, with respect to such provisions of the above
described Section of the Credit Agreement as incorporated herein, but only
if the Bank has consented to such supplement, amendment, modification,
waiver or consent pursuant to the terms of the Credit Agreement.
Notwithstanding anything in this Agreement to the contrary, no
termination, cancellation or expiry of the Credit Agreement shall have any
effect whatsoever upon the provisions thereof as such provisions are
incorporated herein, and such provisions of the Credit Agreement
incorporated herein shall be deemed to survive any such termination,
cancellation or expiry of the Credit Agreement and shall thereafter
continue to be binding upon the Company under this Agreement.
6.2 Remedies. Upon the occurrence and during the continuance of any
Event of Default, the Bank may by notice to the Company (i) terminate the
Commitment or (ii) declare the outstanding principal of, and accrued
interest on, the Term Loan, the prepayment indemnity determined pursuant
to Section 3.6 and all other amounts owing under this Agreement to be
immediately due and payable, or any one or more of the foregoing,
whereupon the Commitment shall terminate forthwith and all such amounts
shall become immediately due and payable, as the case may be, provided
that in the case of any event or condition described in Section 6.1(g) or
6.1(h) with respect to the Company, the Commitment shall automatically
terminate forthwith and all such amounts shall automatically become
immediately due and payable without notice; in all cases without demand,
presentment, protest, diligence, notice of dishonor or other formality,
all of which are hereby expressly waived.
ARTICLE VII.
MISCELLANEOUS
7.1 Amendments. Etc. (a) No amendment, modification, termination or
waiver of any provision of this Agreement nor any consent to any departure
therefrom shall be effective unless the same shall be in writing and
signed by the Bank.
(b) Any such amendment, waiver or consent shall be effective
only in the specific instance and for the specific purpose for which
given.
7.2 Notices. All notices and other communications hereunder shall
be in writing and shall be delivered or sent to the Company at 11270 West
Park Place, Milwaukee, Wisconsin 53224.3690, Attention: Assistant
Treasurer, with a copy to the General Counsel, Facsimile
No. (414) 359-4180, and to the Bank at 611 Woodward Avenue, Detroit,
Michigan 48226 Attention: Midwest Banking Division,
Illinois/Wisconsin/Minnesota Group, Facsimile No. (313) 225-1671, or to
such other address as may be designated by the Company or the Bank by
notice to the other party hereto. All notices and other communications
shall be deemed to have been given at the time of actual delivery thereof
to such address, or if sent by certified or registered mail, postage
prepaid, to such address, on the third day after the date of mailing, or
in the case of telecopy notice, upon receipt of the appropriate
confirmation, or if sent by an overnight courier service to such address,
on the first Business Day after deposit with such overnight courier.
7.3 No Waiver By Conduct; Remedies Cumulative. No course of dealing
on the part of the Bank, nor any delay or failure on the part of the Bank
in exercising any right, power or privilege hereunder shall operate as a
waiver of such right, power or privilege or otherwise prejudice the Bank's
rights and remedies hereunder; nor shall any single or partial exercise
thereof preclude any further exercise thereof or the exercise of any other
right, power or privilege. No right or remedy conferred upon or reserved
to the Bank under this Agreement or the Term Note is intended to be
exclusive of any other right or remedy, and every right and remedy shall
be cumulative and in addition to every other right or remedy granted
thereunder or now or hereafter existing under any applicable law. Every
right and remedy granted by this Agreement or the Term Note or by
applicable law to the Bank may be exercised from time to time and as often
as may be deemed expedient by the Bank and, unless contrary to the express
provisions of this Agreement or the Term Note, irrespective of the
occurrence or continuance of any Default or Event of Default.
7.4 Reliance on and Survival of Various Provisions. All terms,
covenants, agreements, representations and warranties of the Company made
herein or in any certificate, report, financial statement or other
document furnished by or on behalf of the Company in connection with this
Agreement shall be deemed to be material and to have been relied upon by
the Bank, notwithstanding any investigation heretofore or hereafter made
by the Bank or on the Bank's behalf, and those covenants and agreements of
the Company set forth in Section 3.6, 3.7 and 7.5 hereof shall survive the
repayment in full of the Loans and the termination of the Commitment.
7.5 Expenses. The Company agrees to pay, or reimburse the Bank for
the payment of, on demand, (i) the reasonable fees and expenses of counsel
to the Bank, including without limitation the fees and expenses of Messrs.
Dickinson, Wright, Moon, Van Dusen & Freeman, in connection with (A) the
preparation, execution, delivery and administration of this Agreement, the
Term Note and the consummation of the transactions contemplated hereby, up
to a maximum of $1,000, and (B) in connection with advising the Bank as to
its rights and responsibilities with respect thereto, and in connection
with any amendments, waivers or consents in connection therewith, provided
that the Company shall be liable only for such amounts in excess of $200,
and (ii) all stamp and other taxes and fees payable or determined to be
payable in connection with the execution, delivery, filing or recording of
this Agreement, the Term Note and the consummation of the transactions
contemplated hereby, and any and all liabilities with respect to or
resulting from any delay in paying or omitting to pay such taxes or fees,
and (iii) all reasonable costs and expenses of the Bank (including
reasonable fees and expenses of counsel and whether incurred through
negotiations, legal proceedings or otherwise) in connection with any
Default or Event of Default or the enforcement of, or the exercise or
preservation of any rights under, this Agreement or the Term Note or in
connection with any refinancing or restructuring of the credit
arrangements provided under this Agreement.
7.6 Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective
successors and assigns, provided that the Company may not, without the
prior consent of the Bank, assign its rights or obligations hereunder or
under the Term Note and the Bank shall not be obligated to make any Loan
hereunder to any entity other than the Company.
7.7 Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the
same instrument and any of the parties hereto may execute this Agreement
by signing any such counterpart.
7.8 Governing Law. This Agreement is a contract made under, and
shall be governed by and construed in accordance with, the law of the
State of Michigan applicable to contracts made and to be performed
entirely within such State and without giving effect to choice of law
principles of such State.
7.9 Table of Contents and Headings. The table of contents and the
headings of the various subdivisions hereof are for the convenience of
reference only and shall in no way modify any of the terms or provisions
hereof.
7.10 Integration and Severability. This Agreement, including without
limitation any portion of the Credit Agreement incorporated herein,
embodies the entire agreement and understanding between the Company and
the Bank, and supersedes all prior agreements and understandings, relating
to the subject matter hereof. In case any one or more of the obligations
of the Company under this Agreement or the Term Note shall be invalid,
illegal or unenforceable in any jurisdiction, the validity, legality and
enforceability of the remaining obligations of the Company shall not in
any way be affected or impaired thereby, and such invalidity, illegality
or unenforceability in one jurisdiction shall not affect the validity,
legality or enforceability of the obligations of the Company under this
Agreement or the Term Note in any other jurisdiction.
7.11 Interest Rate Limitation. Notwithstanding any provision of this
Agreement or the Term Note, in no event shall the amount of interest paid
or agreed to be paid by the Company exceed an amount computed at the
highest rate of interest permissible under applicable law. If, from any
circumstances whatsoever, fulfillment of any provision of this Agreement
or the Term Note at the time performance of such provision shall be due,
shall involve exceeding the interest rate limitation validly prescribed by
law which a court of competent jurisdiction may deem applicable hereto,
then, ipso facto, the obligations to be fulfilled shall be reduced to an
amount computed at the highest rate of interest permissible under
applicable law, and if for any reason whatsoever the Bank shall ever
receive as interest an amount which would be deemed unlawful under such
applicable law such interest shall be automatically applied to the payment
of principal of the Term Loan outstanding hereunder (whether or not then
due and payable), without any payment required by Section 3.6 hereof, and
not to the payment of interest, or shall be refunded to the Company if
such principal and all other obligations of the Company to the Bank have
been paid in full.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered on the 5th day of April, 1994, provided
that the Effective Date of this Agreement shall be April 5, 1994,
notwithstanding the day and year first above written.
A.O. SMITH CORPORATION
By: THOMAS W. RYAN
Its: Vice President, Treasurer
and Controller
NBD BANK, N.A.
By: MAHER TOUMA
Its: Second Vice President
EXHIBIT A
TERM NOTE
$12,500,000 April 5, 1994
Detroit, Michigan
FOR VALUE RECEIVED, A.O. SMITH CORPORATION, a Delaware corporation
(the "Company"), hereby unconditionally promises to pay to the order of
NBD BANK, N.A., a national banking association (the "Bank"), at the
principal banking office of the Bank in lawful money of the United States
of America and in immediately available funds, the principal sum of Twelve
Million Five Hundred Thousand Dollars ($12,500,000), payable in four semi-
annual installments each in the amount of $3,125,000 payable on each
Interest Payment Date occurring in each April and October, commencing with
the Interest Payment Date occurring October, 1997, and on the Maturity
Date, unless earlier payment is required, when the entire outstanding
principal balance of the Term Loan evidenced hereby, and all accrued
interest thereon, shall be due and payable; and to pay interest on the
unpaid principal balance hereof from time to time outstanding, in like
money and funds, for the period from the date hereof until such Term Loan
shall be paid in full, at the rate per annum and on the dates provided in
the Term Loan Agreement referred to below.
The Company and each endorser or guarantor hereof waives demand,
presentment, protest, diligence, notice of dishonor and any other
formality in connection with this Term Note. Should the indebtedness
evidenced by this Term Note or any part thereof be collected in any
proceeding or be placed in the hands of attorneys for collection, the
Company agrees to pay, in addition to the principal, interest and other
sums due and payable hereon, all costs of collecting this Term Note,
including attorneys' fees and expenses.
This Term Note evidences a Term Loan made under a Term Loan
Agreement, dated as of April 5, 1994 (the "Term Loan Agreement"), by and
between the Company and the Bank to which reference is hereby made for a
statement of the circumstances under which this Term Note is subject to
prepayment and under which its due date may be accelerated. Capitalized
terms used but not defined in this Term Note shall have the respective
meanings assigned to them in the Term Loan Agreement.
This Term Note is made under, and shall be governed by and
construed in accordance with, the laws of the State of Michigan applicable
to contracts made and to be performed entirely within such State and
without giving effect to choice of law principles of such State.
A.O. SMITH CORPORATION
By:_________________________________
Its:__________________________
