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 June 30, 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 July 29, 1994: 14,833,322
Common Stock Outstanding as of July 29, 1994: 6,068,299
Exhibit Index Page 15
Index
A. O. Smith Corporation
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Statements of Earnings and Retained Earnings
- Six months ended June 30, 1994 and 1993 3
Condensed Consolidated Balance Sheet
- June 30, 1994 and December 31, 1993 4-5
Condensed Consolidated Statements of Cash Flows
- Six months ended June 30, 1994 and 1993 6
Notes to Condensed Consolidated Financial Statements
- June 30, 1994 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8-10
Part II. Other Information
Item 1. Legal Proceedings 11
Item 2. Changes in Securities 11
Item 4. Submission of Matters to a Vote of Security Holders 11-13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
Index to Exhibits 15
PART I--FINANCIAL INFORMATION
ITEM 1--FINANCIAL STATEMENTS
A. O. SMITH CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
AND RETAINED EARNINGS
Three and Six months ended June 30, 1994 and 1993
(000 omitted except for per share data)
(Unaudited)
Three Months Ended Six Months Ended
June 30 June 30
EARNINGS 1994 1993 1994 1993
Electrical Products Company $ 74,858 $ 66,280 $145,299 $130,014
Automotive Products Company 185,611 158,862 368,226 314,300
Water Products Company 62,764 62,875 130,766 122,504
Smith Fiberglass Products Inc. 15,857 17,452 28,557 28,864
Agricultural Products 11,102 10,333 17,147 16,218
------- --------- -------- --------
NET REVENUES 350,192 315,802 689,995 611,900
Cost of products sold 291,653 263,907 578,073 511,926
------- --------- -------- --------
Gross profit 58,539 51,895 111,922 99,974
Selling, general and
administrative expenses 26,013 25,319 51,553 48,511
Interest expense 3,083 3,428 6,055 6,952
Other (income) expense - net 922 (594) 1,138 (283)
------- --------- -------- --------
28,521 23,742 53,176 44,794
Provision for income taxes 10,810 9,459 20,113 17,960
------- --------- -------- --------
Earnings before equity in earnings
of affiliated companies 17,711 14,283 33,063 26,834
Equity in earnings of affiliated
companies aftertax 247 794 601 1,269
------- --------- -------- --------
NET EARNINGS 17,958 15,077 33,664 28,103
RETAINED EARNINGS
Balance at beginning of period 190,973 154,467 177,543 147,065
Cash dividends on common shares (2,712) (2,049) (4,988) (7,673)
-------- -------- -------- --------
BALANCE AT END OF PERIOD $206,219 $167,495 $206,219 $167,495
======== ======== ======== ========
DIVIDENDS PER COMMON SHARE
Regular (Class A and common) $ .13 $ .10 $ .24 $ .20
Special (Common stock only) $ .-- $ .-- $ .-- $ .25
NET EARNINGS PER COMMON SHARE $ .86 $ .74 $1.62 $1.37
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
June 30, 1994 and December 31, 1993
(000 omitted)
(unaudited)
June 30, 1994 December 31, 1993
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 7,289 $ 11,902
Trade receivables 164,910 126,949
Finance subsidiary receivables and
leases 17,282 19,151
Customer tooling 19,464 15,471
Inventories (note 2) 97,436 89,804
Deferred income taxes 26,667 27,614
Other current assets 20,988 12,987
--------- ----------
TOTAL CURRENT ASSETS 354,036 303,878
Investment in and advances to
affiliated companies 24,338 23,669
Deferred model change 19,124 22,095
Finance subsidiary receivables and
leases 46,423 53,481
Other assets 45,955 44,962
Property, plant and equipment 851,229 823,786
Less accumulated depreciation 470,238 448,772
--------- ---------
Net property, plant and equipment 380,991 375,014
--------- ---------
TOTAL ASSETS $870,867 $823,099
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade payables $114,542 $ 99,320
Accrued payroll and pension 41,465 38,347
Postretirement benefit obligation 9,855 8,950
Other current liabilities 65,167 62,155
Long-term debt due within one year 3,700 8,819
Finance subsidiary long-term debt due
within one year 4,053 5,598
---------- ----------
TOTAL CURRENT LIABILITIES 238,782 223,189
Long-term debt (note 3) 150,579 148,851
Finance subsidiary long-term debt 35,356 41,723
Postretirement benefit obligation 70,715 69,773
Other liabilities 27,202 28,652
Deferred income taxes 45,831 41,281
STOCKHOLDERS' EQUITY:
Preferred stock -- --
Class A common stock, $5 par value:
authorized 7,000,000 shares; issued
6,072,059 and 6,084,845 30,360 30,424
Common stock, $1 par value:
authorized 24,000,000 shares; issued
15,627,591 and 15,614,805 15,628 15,615
Capital in excess of par value 68,025 65,950
Retained earnings (note 3) 206,219 177,543
Pension liability adjustment (9,141) (9,141)
Cumulative foreign currency
translation adjustments (568) (841)
Treasury stock at cost (8,121) (9,920)
---------- ---------
TOTAL STOCKHOLDERS' EQUITY 302,402 269,630
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $870,867 $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
Six months ended June 30, 1994 and 1993
(000 omitted) - (unaudited)
CASH FLOWS 1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 33,664 $28,103
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation 24,546 20,691
Deferred income taxes 5,497 4,022
Equity in earnings of affiliates, net of
dividends (601) 331
Deferred model change and software
amortization 4,549 4,522
Other - net 870 3,429
Change in current assets and liabilities:
Trade receivables and customer tooling (40,278) (29,312)
Current income tax accounts-net (150) 6,133
Inventories (7,632) (11,535)
Prepaid expenses and other (7,355) (7,590)
Trade Payables 15,222 27,300
Accrued liabilities, payroll and pension 7,202 14,975
Net change in noncurrent assets and liabilities 3,752 6,014
--------- ---------
CASH PROVIDED BY OPERATING ACTIVITIES 39,286 67,083
-------- ---------
CASH FLOW FROM INVESTING ACTIVITIES
Capital expenditures (30,696) (25,453)
Other - net (733) (708)
---------- ---------
CASH USED BY INVESTING ACTIVITIES (31,429) (26,161)
--------- ---------
CASH FLOW BEFORE FINANCING ACTIVITIES 7,857 40,922
-------- ---------
CASH FLOW FROM FINANCING ACTIVITIES
Long-term debt incurred 828 10,000
Long-term debt retired (4,219) (35,126)
Finance subsidiary net long-term debt retired (7,912) (10,365)
Proceeds from common stock options exercised 1,850 1,770
Other stock transactions 1,971 227
Dividends paid (4,988) (7,673)
---------- ---------
CASH USED BY FINANCING ACTIVITIES (12,470) (41,167)
Net decrease in cash and cash equivalents (4,613) (245)
Cash and cash equivalents-beginning of period 11,902 6,025
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 7,289 $ 5,780
======== =========
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
June 30, 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 six-month
period ended June 30, 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) June 30, 1994 December 31, 1993
Finished products $ 52,620 $ 53,337
Work in process 36,127 37,215
Raw materials 43,236 36,371
Supplies 6,883 5,228
------- -------
138,866 132,151
Allowance to state
inventories at LIFO cost 41,430 42,347
------- -------
$ 97,436 $ 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.
On June 15, 1994, the Corporation put in place a $140 million
revolving credit agreement which replaced a $115 million A. O. Smith
facility and a $30 million AgriStor Credit Corporation facility. The
term of the amended agreement was extended two years until April 3,
1998. In addition to lower fees and lower borrowing rates the
agreement contains fewer restrictive covenants. Due to a continuing
reduction in funding needs, AgriStor Credit Corporation terminated its
commercial paper program on June 15, 1994.
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 $91.9 million were unrestricted as of June 30, 1994 for
cash dividends and treasury stock purchases.
PART 1--FINANCIAL INFORMATION
ITEM 2--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operatons - First six months of 1994 compared to 1993
The combination of effective business strategies and favorable economic
conditions were reflected in the Corporation's results for the first six
months and second quarter of 1994 as sales and earnings for these periods
surpassed those of any previous comparable period. Through the first half
of the year, all product operations of the Corporation except Fiberglass
Products, exceeded their sales and earnings of the corresponding period
last year.
Revenues for the first half of 1994 were $690 million or almost 13 percent
better than the $611.9 million of revenues in the same period of 1993.
Revenues of $350.2 million in the second quarter of 1994 surpassed last
year's second quarter by $34.4 million or almost 11 percent.
The Corporation earned $33.7 million for the first half of 1994 compared
to $28.1 million in the first half of 1993. Second quarter earnings were
$18.0 million in 1994, an increase of $2.9 million or 19 percent over the
$15.1 million earned in the same quarter of 1993.
The second quarter gross margin of 16.7 percent compared favorably to the
16.4 percent margin in the same period of 1993. Increased volume and
improved manufacturing efficiencies at the Electrical Products Company
were the major reasons for the second quarter improvement in profit margin
and offset higher new product launch costs at Automotive. The gross
profit margin through the first half of the year was 16.2 percent or
slightly lower than the 16.3 percent realized in the same period in 1993
reflecting conditions in the first quarter including new product launch
costs at Automotive and competitive conditions in the electric motors
markets.
The domestic automotive industry demonstrated a continuation of the market
expansion that has occurred over the past year and a half, with
particularly high demand for light truck products in which the Automotive
Products Company has a concentration of its revenues. Automotive
increased sales by approximately 17 percent in both the first half and
second quarter of 1994 when compared to the same periods of 1993.
Automotive's earnings during 1994 have been sufficient to absorb the costs
associated with a number of new product launches during the year and
reflected double digit percentage increases over the comparable periods of
1993. Assuming the continued popularity of the vehicles for which the
Company is a supplier, the outlook for the remainder of the year is
encouraging.
Equity in earnings of the Corporation's 40 percent owned Mexican affiliate
were lower in the second quarter and first half of 1994 compared to 1993
as the result of start up costs for new product along with costs incurred
to realign manufacturing operations. These costs are expected to diminish
through the rest of 1994 and second half results should show some
improvement.
Year-to-date sales in 1994 for the Water Products company were $130.8
million or 6.7 percent higher than the first half of 1993. The majority
of the increase in sales from year-to-year occurred in the residential
heater business. Sales for the second quarter of 1994 were comparable to
1993 second quarter sales and reflected both increased residential sales
and an industry wide downturn in the commercial heater business due to a
build-up of distributor inventories which occurred late in 1993 and early
1994.
Operating profits for Water Products in the first half of 1994 were
improved over the same period of 1993. The impact of increased
residential heater volume more than offset the adverse effect of a
reduction in the volume of the higher margin commercial product. Profits
for the second quarter of 1994 were at the same level as the second
quarter of 1993. Improved demand for commercial product is expected in
the third quarter as distributors begin to replenish their inventory.
Given year-to-date results, strengthening demand for commercial product
and the introduction of a number of new residential and commercial
products during the second half of the year, 1994 should show another
solid earnings performance by Water Products.
Management has been encouraged by the recent performance of the Electrical
Products Company. Favorable conditions in the pump, air compressor, HVAC,
and replacement segments of the business have manifested themselves in the
form of increased sales in both the second quarter and first half of 1994
when compared to the same periods of 1993. 1994 first half sales were
more than $15 million or 11.7 percent higher than the same period in 1993.
The pace of incoming orders suggests that the outlook for third quarter
volume is also good.
The increased volume along with improved factory performance had a
positive influence on Electrical Products earnings in the first six months
of 1994 with an even more pronounced improvement in the second quarter
compared to 1993.
Sales for Smith Fiberglass Products were lower in 1994 than in 1993 for
both the first half and second quarter as the prior year benefited from
two large oil field shipments. Earnings were also lower than the same
periods of 1993 as a result of reduced volume and the favorable impact
last year of a non-recurring patent infringement lawsuit.
The losses incurred by the agricultural operations in the second quarter
and first half of 1994 were less than those incurred in the same period of
1993. The reasons for the reduced losses were twofold. Earnings for A.
O. Smith Harvestore Products, Inc. were higher than those of the previous
years due to strong activity in the municipal and industrial and water and
waste storage markets and provisions in 1994 for product liability and bad
debts were lower.
Selling, general and administrative expenses in 1994 were higher than the
respective periods of 1993 but declined as a percentage of sales. The
$3.0 million increase from the first half of 1993 to the first half of
1994 was due to higher employee incentive and profit sharing accruals
associated with increased earnings and higher commissions and other
expenses in support of increased sales volumes. Through the first six
months of 1994, interest expense was 13 percent lower than in the same
period of 1993 reflecting an approximate $20 million decline in debt since
June 30, 1993, and refinancing of relatively higher cost borrowings.
Non-operating expenses for 1994 reflect an unfavorable swing of
approximately $1.5 million for both the second quarter and first half when
compared to the same periods of 1993. A judgment in a patent infringement
suit and the settlement of a malpractice suit resulted in approximately
$4.7 million of non-operating income in the second quarter of 1993 offset
in part by a $2.8 million write-off related to impaired assets.
The effective tax rate declined from approximately 40% in 1993 to around
38% in 1994. The favorable impact of research and development and foreign
tax credits recognized in 1994 more than offset the rate increase
associated with the Revenue Reconciliation Act of 1993.
The Corporation remains optimistic that the markets it serves will
continue to expand throughout 1994 and into 1995, and that 1994 financial
results should surpass last year's record setting results.
Liquidity and Capital Resources
--------------------------------
The Corporation's working capital was $115.3 million at June 30, 1994
compared to $80.7 million at December 31, 1993. Increased sales and
seasonally related increases in trade receivables, inventories and other
current assets were partially offset by related increases in trade
payables and other accrued liabilities.
Cash flow provided by operations was $27.8 million less than the same
period last year as the improved earnings were more than offset by higher
working capital requirements. While the Corporation's long-term debt
increased slightly in the first six months to $150.6 million due to the
increased working capital requirements, the debt to equity ratio of 49.8%
was improved over the same time last year when it was 55.2%. The long-
term debt of the finance subsidiary declined $6.4 million to $35.4 million
reflecting the continuing liquidation of that business.
The Corporation anticipates that a combination of current earnings trends
and moderating seasonal working capital requirements will reduce debt and
further improve its debt-to-equity ratio during the balance of 1994.
Capital spending continues at higher levels due largely to new automotive
product programs and could exceed $70 million in 1994.
In April, the $12.5 million 8.9 percent term loan agreement was amended to
carry a floating interest rate and the final maturity was extended from
April 1996 to April 1999. In addition, in June, the Corporation put in
place a $140 million revolving credit agreement which replaced a $115
million A. O. Smith facility and a $30 million AgriStor Credit Corporation
facility. The term of the agreement was extended two years to April 3,
1998. In addition to lower fees and lower borrowing rates, the agreement
contains fewer restrictive covenants (see Note 3).
At its June 7, 1994 meeting, A. O. Smith's Board of Directors declared a
regular quarterly dividend of $.13 per share on its common stock (Classes
A and Common). The dividend is payable on August 15, 1994 to shareholders
of record as of July 29, 1994.
PART II -- OTHER INFORMATION
ITEM 1 -- LEGAL PROCEEDINGS
At June 30, 1994, the Corporation or A. O. Smith Harvestore Products, Inc.
("AOSHPI"), a wholly-owned subsidiary of the Corporation, were defendants
in approximately twenty-seven (27) cases and two putative class action
lawsuits 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 second quarter of 1994, three new
cases were filed against the Corporation and AOSHPI and two cases were
favorably resolved. The United States District Court for the Southern
District of Ohio has set an October 16, 1995 trial date and approved the
form of Notice which was mailed during the quarter to the class members in
the conditionally certified class action brought on behalf of purchasers
and lessees of Harvestore structures manufactured by the Corporation and
AOSHPI. Information on these lawsuits was previously reported in Part I,
Item 3 of the Corporation's 1992 and 1993 annual reports on Form 10-K and
in Part II, Item 1 of the Corporation's Form 10-Q report for the quarterly
period ended March 31, 1994 which are incorporated herein by reference.
There have been no material changes in the environmental matters
previously reported in Part I, Item 3 in the Corporation's 1993 annual
report on Form 10-K which is incorporated herein by reference.
ITEM 2 -- CHANGES IN SECURITIES
Previously reported in Item 2, Part II of the Corporation's quarterly
report on Form 10-Q for the quarter ended March 31, 1994, which is
incorporated herein by reference.
ITEM 4 -- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On March 3, 1994 the Corporation mailed a proxy statement to its
stockholders relating to the annual meeting of stockholders on April 13,
1994. The annual meeting included the election of directors and the
consideration and action upon proposals to increase the number of shares
of Common Stock reserved under and make certain other amendments to and
restate the 1990 Long Term Executive Incentive Compensation Plan, to
approve the ratification of Ernst & Young as the independent auditors of
the Corporation and to act upon two stockholder proposals, one relating to
the cumulative voting in the election of directors and the other relating
to the Maquiladora Operations.
Directors are elected by the holders of each class of stock, voting as
separate classes, with the holders of Class A Common Stock entitled to
elect six directors and the holders of Common Stock entitled to elect
three directors. In the other matters voted upon at the meeting, both
classes of stock vote together as a single class, with the Class A Common
Stock holders having one vote per share and the Common Stock holders
having 1/10th vote per share. The voting results from the matters voted
upon at the annual meeting were as follows:
1. Election of Directors
Votes Broker
Votes For Withheld Non-Votes
Class A Common Stock
Directors
Tom H. Barrett 5,714,918 7,805 0
Glen R. Bomberger 5,717,420 5,303 0
Thomas I. Dolan 5,716,720 6,003 0
Robert J. O'Toole 5,717,420 5,303 0
Donald J. Schuenke 5,717,020 5,703 0
Arthur O. Smith 5,716,720 6,003 0
Common Stock Directors
Russell G. Cleary 10,928,491 68,593 0
Leander W. Jennings 10,929,205 67,879 0
Dr. Agnar Pytte 10,929,205 67,879 0
2. Amendment and Restatement of the 1990 Long-Term Executive Incentive
Compensation Plan
Votes Broker
Votes For Against Abstentions Non-Votes
COMBINED CLASS VOTE:
Class A Common Stock and
Common Stock (1/10th vote) 6,622,697 90,412 20,162 89,160
3. Ratification of Ernst & Young as Independent Auditors
Votes Broker
Votes For Against Abstentions Non-Votes
COMBINED CLASS VOTE:
Class A Common Stock and
Common Stock (1/10th vote) 6,795,081 15,177 12,173 0
4. Stockholder Proposal on Cumulative Voting in Election of Directors
Votes Broker
Votes For Against Abstentions Non-Votes
COMBINED CLASS VOTE:
Class A Common Stock and
Common Stock (1/10th vote) 573,307 5,992,706 17,689 238,728
5. Stockholder Proposal on Maquiladora Operations
Votes Broker
Votes For Against Abstentions Non-Votes
COMBINED CLASS VOTE:
Class A Common Stock and
Common Stock (1/10th vote) 179,210 6,303,221 101,272 238,728
ITEM 6 -- EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(4) Extension and First Amendment, dated as of June 15, 1994,
to the Amended and Restated Credit Agreement, dated as of
February 26, 1993.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Corporation in the
second 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
August 8, 1994 THOMAS W. RYAN
Thomas W. Ryan
Vice President
Treasurer and Controller
August 8, 1994 G. R. BOMBERGER
G. R. Bomberger
Executive Vice President
and Chief Financial Officer
INDEX TO EXHIBITS
Exhibit
Number Description
4 Extension and First Amendment, dated as of June 15, 1994, to the
Amended and Restated Credit Agreement, dated as of February 26,
1993.
EXECUTION COPY
EXTENSION AND FIRST AMENDMENT
EXTENSION AND FIRST AMENDMENT, dated as of June 15, 1994, to the
Amended and Restated Credit Agreement, dated as of February 26, 1993 (as
amended, supplemented or otherwise modified from time to time, the "Credit
Agreement"), among A.O. SMITH CORPORATION, a Delaware corporation (the
"Borrower"), the banks parties thereto (the "Banks"), and Chemical Bank,
as agent (in such capacity, the "Agent").
W I T N E S S E T H :
WHEREAS, the Borrower, the Banks, and the Agent are parties to
the Credit Agreement;
WHEREAS, the Borrower has requested that the Agent and the Banks
amend certain provisions of the Credit Agreement in order to increase the
aggregate Commitments (as defined in the Credit Agreement) to $140,000,000
with a temporary $30,000,000 sublimit for borrowings by AgriStor Credit
Corporation ("AgriStor Credit") and to revise certain negative covenants;
and
WHEREAS, the Agent and the Banks are willing to agree to such
amendments and waiver only upon the terms and subject to the conditions
set forth herein;
NOW, THEREFORE, in consideration of the premises, the parties
hereto hereby agree as follows:
1. Defined Terms. Unless otherwise defined herein, capitalized
terms which are defined in the Credit Agreement are used herein as therein
defined.
2. Amendment of Section 1 of the Credit Agreement. Section 1.1
of the Credit Agreement is hereby amended by deleting the definitions of
"Capital Debt", "Commitment", "Consolidated Current Assets", "Consolidated
Current Liabilities", "Consolidated Debt", "Included AgriStor Debt" and
"Restricted Payment" and by inserting the following definitions in the
proper alphabetical order:
"'Borrower Guarantee' means the Borrower Guarantee, dated as of
June 15, 1994 executed by the Borrower in favor of the Agent for the
benefit of the Banks."
"'Commitment' means, with respect to each Bank, the amount set
forth opposite the name of such Bank on Schedule I attached hereto,
as such amount may be reduced from time to time pursuant to Sections
2.7 and 2.8."
"'Consolidated Net Earnings' means, for any period, (a) the
consolidated net income of the Borrower, its Consolidated
Subsidiaries and AgriStor for such period (considered as a single
accounting period), but excluding any equity of the Borrower, any
Consolidated Subsidiary or AgriStor in the undistributed earnings of
any Person which is not a Consolidated Subsidiary or AgriStor, but
without regard to the effect, if any, of FASB 106, less (b) the
aggregate amount of all dividends and other distributions paid or
declared by the Borrower on its preferred stock during such period."
"'First Amendment' means the Extension and First Amendment to
this Agreement, dated as of June 15, 1994, among the Borrower,
AgriStor Credit, the Banks and the Agent."
"'Funded Debt' means, with respect to the Borrower at any time,
the aggregate, without duplication, of all Debt and Guarantees of the
Borrower, its Consolidated Subsidiaries and AgriStor Credit."
"'Interest Rate Leverage Percentage' means, as to any CD Loan or
Euro-Dollar Loan, the percentage set forth in the table below under
the appropriate column opposite the Leverage Ratio range which
includes the Leverage Ratio of the Borrower:
Interest Rate Leverage Percentage
Leverage Ratio Euro-Dollar Loan CD Loan
Less than 35.0% .45% .575%
Greater than or
equal to 35.0% and
less than 47.5% .50% .625%
Greater than or
equal to 47.5% and
less than 55.0% .55% .675%
Greater than or
equal to 55.0% .625% .75%"
For purposes of this definition, the Leverage Ratio shall be
determined on the basis of each notice furnished to the Banks from
time to time pursuant to Section 5.10(a) or (b) and shall be
effective from the date of receipt by the Agent of such notice for
the period from such date until the date of receipt of the next such
notice.
"'Leverage Ratio' means, with respect to the Borrower, the
ratio, expressed as a percentage, of Funded Debt to Total
Capitalization."
"'Total Capitalization' means, with respect to the Borrower, the
sum of (i) Funded Debt, (ii) consolidated stockholders equity of the
Borrower (including AgriStor Credit) and (iii) minority interests,
with respect to clauses (ii) and (iii) hereof as determined in
accordance with GAAP without adjustment for Financial Accounting
Standards Nos. 87 and 106."
3. Amendments to Section 2 of the Credit Agreement. (a)
Sections 2.1, 2.6(b) and 2.8 of the Credit Agreement are hereby amended by
deleting the date "April 3, 1996" wherever it appears in such subsections
and inserting in lieu thereof the date "April 3, 1998".
(b) Section 2.5(b) of the Credit Agreement is hereby amended by
deleting the phrase "3/4 of 1%" where it appears in the definition of
"Fixed CD Rate" contained in such subsection and inserting in lieu thereof
the phrase "the Interest Rate Leverage Percentage".
(c) Section 2.5(c) of the Credit Agreement is hereby amended by
deleting the phrase "5/8 of 1%" where it appears in the first paragraph of
such subsection and inserting in lieu thereof the phrase "Interest Rate
Leverage Percentage".
(d) Section 2.6(a) of the Credit Agreement is hereby amended by
deleting such subsection in its entirety and inserting in lieu thereof the
following subsection (a):
"(a) Commitment Fees. The Borrower shall pay to the Agent for
the account of each Bank a commitment fee on the daily unused portion
of such Bank's Commitment at the per annum rate set forth in the
table below opposite the range of Leverage Ratios which includes the
applicable Leverage Ratio of the Borrower on such day:
Leverage Ratio Per Annum Rate
Less than 35.0% 0.1875%
Greater than or
equal to 35.0% and
less than 47.5% 0.2250%
Greater than or
equal to 47.5% and
less than 55.0% 0.2500%
Greater than or
equal to 55.0% 0.3500%
For purposes of this Section 2.6(a), the Leverage Ratio shall be
determined on the basis of each notice furnished to the Banks from
time to time pursuant to Section 5.10 (a) and (b) and shall be
effective from the date of receipt by the Agent of such notice for
the period from such date until the date of receipt of the next such
notice. Such commitment fees shall accrue from and including the
date hereof to and including April 3, 1998 and shall be payable
quarterly on each April 3, July 3, October 3 and January 3."
(e) Section 2.6(b) of the Credit Agreement is hereby amended by
deleting the percentage ".125%" where it appears in such subsection and
inserting in lieu thereof the percentage ".0625%" and by deleting the
percentage ".25%" where it appears in such subsection and inserting in
lieu thereof the percentage ".125%".
4. Amendment to Section 3 of the Credit Agreement. Section
3.1(d) is hereby amended by deleting the date "December 31, 1991" and
inserting in lieu thereof the date "December 31, 1993".
5. Amendments to Section 4 of the Credit Agreement. (a)
Section 4.4(a) is hereby amended by deleting the references to "December
31, 1991" and "the Borrower's Restated 1991 Form 10-K" in such Section and
inserting in lieu thereof references to "December 31, 1993" and the
"Borrower's annual report in Form 10-K for 1993, as filed with the
Securities and Exchange Commission", respectively.
(b) Section 4.4(b) is hereby amended by deleting the date
"September 30, 1992" and inserting in lieu thereof the date "December 31,
1993".
6. Amendments to Section 5 of the Credit Agreement. (a)
Section 5.1(g) of the Credit Agreement is hereby amended by deleting the
word "and" where it appears at the end of such section.
(b) Sections 5.2 and 5.5 of the Credit Agreement are hereby
amended by deleting the text of such subsections in its entirety and
inserting in lieu thereof in each case the following: "[INTENTIONALLY
OMITTED]".
(c) Section 5.3 of the Credit Agreement is hereby amended by
deleting such subsection in its entirety and inserting in lieu thereof the
following subsection 5.3:
"Section 5.3 Leverage Ratio. The Leverage Ratio will not, as
measured as of the end of any month, equal or exceed 57.5%."
(d) A new Section 5.10 is hereby added to the Credit Agreement,
reading in its entirety as follows:
"Section 5.10 Notice of Leverage Ratio Changes. The Borrower
will (a) concurrently with the effective date of the First Amendment
give notice to the Agent of the then-current Leverage Ratio and (b)
thereafter promptly, and in any event within ten Domestic Business
Days, give notice to the Agent of any change of which the Borrower
has become aware, based upon its monthly or quarterly financial
statements (whether or not required to be delivered to the Banks), in
the Leverage Ratio, provided that such change affects the Interest
Rate Leverage Percentage or the calculation of the applicable
commitment fee pursuant to Section 2.6(a). Notice pursuant to this
Section 5.10 will be given by telephone or by facsimile, confirmed in
writing."
7. Addition of Schedule I. The Credit Agreement is hereby
further amended by attaching thereto and incorporating therein Schedule I
attached hereto.
8. Borrowing by AgriStor Credit. (a) Each Bank severally
agrees, on the terms and conditions set forth in the Credit Agreement as
amended by this First Amendment, to make loans to AgriStor Credit
("AgriStor Loans") from time to time prior to August 1, 1994 in amounts
not to exceed in the aggregate at any one time outstanding the amount of
such Bank's Commitment less any Loans to the Borrower outstanding;
provided that the aggregate principal amount of all AgriStor Loans at any
one time outstanding shall not exceed $30,000,000. At any time that
AgriStor Loans are outstanding, the aggregate principal amount of Loans
made to the Borrower and AgriStor Loans made to AgriStor by any Bank shall
not exceed such Bank's Commitment.
(b) The AgriStor Loans shall be evidenced by notes (the
"AgriStor Notes") substantially similar to the Domestic Notes and the
Euro-Dollar Notes and shall be governed in all respects by those
provisions in the Credit Agreement governing Loans made to the Borrower,
including without limitation those provisions relating to principal
amounts, interest, procedures for borrowing, payments and conditions for
borrowing, with the sole exception that the primary obligor of the
AgriStor Loans shall be AgriStor Credit rather than the Borrower. Any
Default or Event of Default under the Credit Agreement shall likewise be
deemed to be a Default or Event of Default, as the case may be, with
respect to the AgriStor Loans and the AgriStor Notes, and shall give rise
to the same remedies and other rights with respect thereto as shall obtain
under the Credit Agreement with respect to the Loans.
9. Representations and Warranties of Borrower. The Borrower
hereby represents and warrants that each of the representations and
warranties of the Borrower contained in the Credit Agreement, as amended
by this First Amendment, is true and correct on the date hereof as if made
on and as of the date hereof except that representations and warranties
that apply to a specific date were true and correct as of such date (with
all references to "this Agreement" contained in the Credit Agreement being
deemed to refer to the Credit Agreement as amended by this First Amendment
and to this First Amendment). After giving effect to this First Amendment
and the transactions contemplated hereby, no Default or Event of Default
has occurred and is continuing.
10. Representations and Warranties of AgriStor Credit.
AgriStor Credit hereby represents and warrants that:
(a) AgriStor Credit is a corporation duly incorporated, validly
existing and in good standing under the laws of Delaware, and has all
corporate powers and all material governmental licenses,
authorizations, consents and approvals required to carry on its
business as now conducted.
(b) The execution, delivery and performance by AgriStor Credit
of this First Amendment and the AgriStor Notes are within AgriStor
Credit's corporate powers, have been duly authorized by all necessary
corporate action, require no action by or in respect of, or filing
with, any governmental body, agency or official and do not
contravene, or constitute a default under, any provision of
applicable law or regulation or of the certificate of incorporation
or by-laws of AgriStor Credit or of any agreement, judgment,
injunction, order, decree or other instrument binding upon AgriStor
Credit or result in the creation or imposition of any Lien on any
asset of AgriStor Credit or any of its Subsidiaries.
(c) This First Amendment constitutes, and each AgriStor Note,
when executed and delivered in accordance with this First Amendment,
will constitute, the valid and binding obligation of AgriStor Credit
enforceable in accordance with its terms, except as enforceability
may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting the enforcement of creditors'
rights generally and by general equitable principles.
11. Effectiveness. This First Amendment shall become effective
as of June 15, 1994 (the "Effective Date") when the following conditions
shall have been met:
(i) the Agent shall have received counterparts hereof, duly
executed by the Borrower, AgriStor Credit and all the
Banks;
(ii) the Agent shall have received evidence satisfactory to it
that the Credit Agreement dated as of June 6, 1987 among
AgriStor, the banks parties thereto and Continental
Illinois N.A., as agent for said banks, as heretofore
amended, supplemented or otherwise modified, has been
terminated and no obligations of AgriStor remain
thereunder;
(iii) the Agent shall have received written confirmation from
Canadian Imperial Bank of Commerce evidencing its
withdrawal as a party to the Credit Agreement,
substantially in the form of Exhibit C;
(iv) the Agent shall have received, for the account of each
Bank, the AgriStor Notes, duly executed by AgriStor;
(v) the Agent shall have received the Borrower Guarantee, in
form and substance satisfactory to the Agent and
substantially similar to Exhibit B hereto, duly
executed by the Borrower; and
(vi) the Agent shall have received an opinion of W. David
Romoser, General Counsel of the Borrower, substantially
identical in form and substance to Exhibit A.
The amendments provided for herein shall be effective on the
Effective Date, and any interest or fees accrued or payable for the period
prior to the Effective Date shall be payable for such period at the
interest rates and fee amounts provided for in the Credit Agreement prior
to giving effect to this First Amendment. The Borrower hereby reaffirms
its obligation to pay all fees and disbursements of Simpson Thacher &
Bartlett, special counsel for the Agent and the Banks, incurred in
connection with this First Amendment.
12. Continuing Effect of Credit Agreement. This First
Amendment shall not constitute a waiver or amendment of any other
provision of the Credit Agreement not expressly referred to herein and
shall not be construed as a waiver or consent to any further or future
action on the part of the Borrower or AgriStor Credit that would require a
waiver or consent of the Banks or the Agent. Except as expressly amended
and waived hereby, the provisions of the Credit Agreement are and shall
remain in full force and effect.
13. Counterparts. This First Amendment may be executed by the
parties hereto in any number of counterparts, and all of such counterparts
taken together shall be deemed to constitute one and the same instrument.
14. GOVERNING LAW. THIS FIRST AMENDMENT SHALL BE GOVERNED BY,
AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
NEW YORK.
IN WITNESS WHEREOF, the parties hereto have caused this First
Amendment to be duly executed and delivered in New York, New York by their
proper and duly authorized officers as of the day and year first above
written.
A.O. SMITH CORPORATION
By:______________________________
Title:
AGRISTOR CREDIT CORPORATION
By:______________________________
Title:
CHEMICAL BANK, as Agent and
as a Bank
By:______________________________
Title:
CONTINENTAL BANK N.A.
By:______________________________
Title:
MORGAN GUARANTY TRUST COMPANY OF
NEW YORK
By:______________________________
Title:
M & I MARSHALL & ILSLEY BANK
By:______________________________
Title:
CITIBANK, N.A.
By:______________________________
Title:
FIRST BANK MILWAUKEE
By:______________________________
Title:
FIRSTAR BANK MILWAUKEE, N.A.
By:______________________________
Title:
BANK ONE, MILWAUKEE, N.A.
By:______________________________
Title:
NATIONAL BANK OF DETROIT
By:______________________________
Title:
NORWEST BANK WISCONSIN, N.A.
By:______________________________
Title:
SCHEDULE I
COMMITMENT AMOUNTS
Commitment
Chemical Bank $ 26,000,000
Continental Bank N.A. 26,000,000
Morgan Guaranty Trust Company 26,000,000
of New York
M & I Marshall & Ilsley Bank 12,000,000
Citibank, N.A. 12,000,000
Firstar Bank Milwaukee, N.A. 10,000,000
First Bank Milwaukee 10,000,000
Bank One, Milwaukee, N.A. 6,000,000
National Bank of Detroit 6,000,000
Norwest Bank Wisconsin, N.A. 6,000,000
$140,000,000
EXHIBIT A
OPINION OF
COUNSEL FOR THE BORROWER
[Dated the date of
the Agreement]
To the Banks and the Agent
Referred to Below
c/o Chemical Bank,
as Agent
270 Park Avenue
New York, New York 10017
Dear Sirs:
I have acted as counsel for A.O. Smith Corporation (the
"Borrower") in connection with the Extension and First Amendment, dated as
of June 15, 1994 (the "First Amendment"), to the Amended and Restated
Credit Agreement (the "Credit Agreement") dated as of February 26, 1993
among the Borrower, the banks listed on the signature pages thereof and
Chemical Bank, as Agent. Terms defined in the Credit Agreement are used
herein as therein defined.
I have examined originals or copies, certified or otherwise
identified to my satisfaction, of such documents, corporate records,
certificates of public officials and other instruments and have conducted
such other investigations of fact and law as I have deemed necessary or
advisable for purposes of this opinion.
Upon the basis of the foregoing, I am of the opinion that:
1. Each of the Borrower and AgriStor Credit Corporation
("AgriStor") is a corporation duly incorporated, validly existing and in
good standing under the laws of Delaware, and has all corporate powers and
all material governmental licenses, authorizations, consents and approvals
required to carry on its business as now conducted.
2. The execution, delivery and performance by the Borrower of
the First Amendment and the Borrower Guarantee is within the Borrower's
corporate powers, has been duly authorized by all necessary corporate
action, requires no action by or in respect of, or filing with, any
governmental body, agency or official and does not contravene, or
constitute a default under, any certificate of incorporation or by-laws of
the Borrower or, to the best of my knowledge, of any agreement, judgment,
injunction, order, decree or other instrument binding upon the Borrower or
result in the creation or imposition of any Lien on any asset of the
Borrower or any of its Subsidiaries.
3. The execution, delivery and performance by AgriStor Credit
of the First Amendment and the AgriStor Notes is within AgriStor Credit's
corporate powers, has been duly authorized by all necessary corporate
action, requires no action by or in respect of, or filing with, any
governmental body, agency or official and does not contravene, or
constitute a default under, any certificate of incorporation or by-laws of
AgriStor Credit or, to the best of my knowledge, of any agreement,
judgment, injunction, order, decree or other instrument binding upon
AgriStor Credit or result in the creation or imposition of any Lien on any
asset of AgriStor Credit or any of its Subsidiaries.
4. The First Amendment, the Borrower Guarantee and the AgriStor
Notes constitute the valid and the binding obligations of the Borrower and
AgriStor Credit enforceable in accordance with their terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles.
5. Except as set forth in the Ilhardt, et al. v. A.O. Smith
Corp., et al. lawsuit, there is no action, suit or proceeding pending
against, or to the best of my knowledge threatened against or affecting,
the Borrower or any of its Subsidiaries before any court or arbitrator or
any governmental body, agency or official, in which there is a reasonable
possibility of an adverse decision which could materially adversely affect
the business, consolidated financial position or consolidated results of
operations of the Borrower and its Consolidated Subsidiaries or AgriStor
Credit, considered as a whole or which in any manner draws into question
the validity of the First Amendment.
6. Each of the Borrower's Subsidiaries is a corporation validly
existing and in good standing under the laws of its jurisdiction of
incorporation, and has all corporate powers and all material governmental
licenses, authorizations, consents and approvals required to carry on its
business as now conducted.
Very truly yours,
EXHIBIT B
GUARANTEE
GUARANTEE, dated as of June 15, 1994, made by A.O. SMITH
CORPORATION, a Delaware corporation (the "Guarantor"), in favor of
CHEMICAL BANK, as agent (in such capacity, the "Agent") for the banks (the
"Banks") parties to the Extension and First Amendment (as amended,
supplemented or otherwise modified from time to time, the "First
Amendment"), dated as of the date hereof, among AgriStor Credit
Corporation ("AgriStor Credit") the Guarantor, the Banks and the Agent,
to the Amended and Restated Credit Agreement, dated as of February 26,
1993 (as amended, supplemented or otherwise modified from time to time,
the "Credit Agreement"), among the Guarantor, the Banks and the Agent.
W I T N E S S E T H:
WHEREAS, pursuant to the First Amendment, the Banks have
severally agreed to make AgriStor Loans to AgriStor Credit upon the terms
and subject to the conditions set forth therein, to be evidenced by the
AgriStor Notes issued by AgriStor Credit under the First Amendment;
WHEREAS, it is a condition precedent to the obligation of the
Banks to make their respective AgriStor Loans to AgriStor Credit under the
First Amendment that the Guarantor shall have executed and delivered this
Guarantee to the Agent for the ratable benefit of the Banks; and
WHEREAS, Guarantor is the Parent of AgriStor Credit, and it is
to the advantage of Guarantor that the Banks make the AgriStor Loans to
AgriStor Credit.
NOW, THEREFORE, in consideration of the premises and to induce
the Agent and the Banks to enter into the First Amendment and to induce
the Banks to make their respective loans to AgriStor Credit under the
First Amendment, the Guarantor hereby agrees with the Agent, for the
ratable benefit of the Banks, as follows:
1. Defined Terms. (a) Unless otherwise defined herein, terms
defined in the First Amendment and used herein shall have the meanings
given to them in the First Amendment.
(b) As used herein, "Obligations" means the collective
reference to the unpaid principal of and interest on the AgriStor Notes
and all other obligations and liabilities of AgriStor Credit to the Agent
and the Banks (including, without limitation, interest accruing at the
then applicable rate provided in the First Amendment after the maturity of
the AgriStor Loans and interest accruing at the then applicable rate
provided in the First Amendment after the filing of any petition in
bankruptcy, or the commencement of any insolvency, reorganization or like
proceeding, relating to AgriStor Credit whether or not a claim for post-
filing or post-petition interest is allowed in such proceeding), whether
direct or indirect, absolute or contingent, due or to become due, or now
existing or hereafter incurred, which may arise under, out of, or in
connection with, the First Amendment, the AgriStor Notes or any other
document made, delivered or given in connection therewith, in each case
whether on account of principal, interest, reimbursement obligations,
fees, indemnities, costs, expenses or otherwise (including, without
limitation, all fees and disbursements of counsel to the Agent or to the
Banks that are required to be paid by AgriStor Credit or the Guarantor
pursuant to the terms of the First Amendment or this Agreement or any
other related document).
(c) The words "hereof," "herein" and "hereunder" and words of
similar import when used in this Guarantee shall refer to this Guarantee
as a whole and not to any particular provision of this Guarantee, and
section and paragraph references are to this Guarantee unless otherwise
specified.
(d) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
2. Guarantee. (a) The Guarantor hereby unconditionally and
irrevocably guarantees to the Agent, for the ratable benefit of the Banks
and their respective successors, indorsees, transferees and assigns, the
prompt and complete payment and performance by AgriStor Credit when due
(whether at the stated maturity, by acceleration or otherwise) of the
Obligations.
(b) The Guarantor further agrees to pay any and all expenses
(including, without limitation, all fees and disbursements of counsel)
which may be paid or incurred by the Agent or any Bank in enforcing, or
obtaining advice of counsel in respect of, any rights with respect to, or
collecting, any or all of the Obligations and/or enforcing any rights with
respect to, or collecting against, the Guarantor under this Guarantee.
This Guarantee shall remain in full force and effect until the Obligations
are paid in full and the Commitments are terminated, notwithstanding that
from time to time prior thereto AgriStor Credit may be free from any
Obligations.
(c) No payment or payments made by AgriStor Credit or any other
Person or received or collected by the Agent or any Bank from AgriStor
Credit or any other Person by virtue of any action or proceeding or any
set-off or appropriation or application, at any time or from time to time,
in reduction of or in payment of the Obligations shall be deemed to
modify, reduce, release or otherwise affect the liability of the Guarantor
hereunder which shall, notwithstanding any such payment or payments made
by the Guarantor, or received or collected from the Guarantor, in respect
of the Obligations pursuant to this Guarantee, remain liable for the
Obligations until the Obligations are paid in full and the Commitments are
terminated.
(d) The Guarantor agrees that whenever, at any time, or from
time to time, it shall make any payment to the Agent or any Bank on
account of its liability hereunder, it will notify the Agent and such Bank
in writing that such payment is made under this Guarantee for such
purpose.
3. Right of Set-off. Upon the occurrence of any Event of
Default, the Agent and each Bank is hereby irrevocably authorized at any
time and from time to time without notice to the Guarantor, any such
notice being expressly waived by the Guarantor, to set off and appropriate
and apply any and all deposits (general or special, time or demand,
provisional or final), in any currency, and any other credits,
indebtedness or claims, in any currency, in each case whether direct or
indirect, absolute or contingent, matured or unmatured, at any time held
or owing by the Agent or such Bank to or for the credit or the account of
the Guarantor, or any part thereof in such amounts as the Agent or such
Bank may elect, against or on account of the obligations and liabilities
of the Guarantor to the Agent or such Bank hereunder and claims of every
nature and description of the Agent or such Bank against the Guarantor, in
any currency, whether arising hereunder, under the First Amendment, any
AgriStor Note or otherwise, as the Agent or such Bank may elect, whether
or not the Agent or such Bank has made any demand for payment and although
such obligations, liabilities and claims may be contingent or unmatured.
The Agent and each Bank shall notify the Guarantor promptly of any such
set-off and the application made by the Agent or such Bank, as the case
may be, of the proceeds thereof; provided that the failure to give such
notice shall not affect the validity of such set-off and application. The
rights of the Agent and each Bank under this paragraph are in addition to
other rights and remedies (including, without limitation, other rights of
set-off) which the Agent or such Bank may have.
4. No Subrogation. Notwithstanding anything to the contrary in
this Guarantee, the Guarantor hereby irrevocably waives all rights which
may have arisen in connection with this Guarantee to be subrogated to any
of the rights (whether contractual, under the Bankruptcy Code, including
Section 509 thereof, under common law or otherwise) of the Bank against
AgriStor Credit or against any collateral security or guarantee or right
of offset held by the Bank for the payment of the Obligations. The
Guarantor hereby further irrevocably waives all contractual, common law,
statutory or other rights of reimbursement, contribution, exoneration or
indemnity (or any similar right) from or against AgriStor Credit or any
other Person which may have arisen in connection with this Guarantee. So
long as the Obligations remain outstanding, if any amount shall be paid by
or on behalf of AgriStor Credit to the Guarantor on account of any of the
rights waived in this paragraph, such amount shall be held by the
Guarantor in trust, segregated from other funds of such Guarantor, and
shall, forthwith upon receipt by such Guarantor, be turned over to the
Agent in the exact form received by the Guarantor (duly indorsed by the
Guarantor to the Agent, if required), to be applied against the
Obligations, whether matured or unmatured, in such order as the Agent may
determine. The provisions of this paragraph shall survive the termination
of this Guarantee and the payment in full of the Obligations and the
termination of the Commitments.
5. Amendments, etc. with respect to the Obligations; Waiver of
Rights. The Guarantor shall remain obligated hereunder notwithstanding
that, without any reservation of rights against the Guarantor, and without
notice to or further assent by the Guarantor, any demand for payment of
any of the Obligations made by the Agent or any Bank may be rescinded by
the Agent or such Bank, and any of the Obligations continued, and the
Obligations, or the liability of any other party upon or for any part
thereof, or any collateral security or guarantee therefor or right of
offset with respect thereto, may, from time to time, in whole or in part,
be renewed, extended, amended, modified, accelerated, compromised, waived,
surrendered or released by the Agent or any Bank, and the First Amendment,
any AgriStor Notes, and any other documents executed and delivered in
connection therewith may be amended, modified, supplemented or terminated,
in whole or in part, as the Agent (or the Required Banks, as the case may
be) may deem advisable from time to time, and any collateral security,
guarantee or right of offset at any time held by the Agent or any Bank for
the payment of the Obligations may be sold, exchanged, waived, surrendered
or released. Neither the Agent nor any Bank shall have any obligation to
protect, secure, perfect or insure any Lien at any time held by it as
security for the Obligations or for this Guarantee or any property subject
thereto. When making any demand hereunder against the Guarantor, the
Agent or any Bank may, but shall be under no obligation to, make a similar
demand on AgriStor Credit or any other guarantor, and any failure by the
Agent or any Bank to make any such demand or to collect any payments from
AgriStor Credit or any such other guarantor or any release of AgriStor
Credit or such other guarantor shall not relieve the Guarantor of its
obligations or liabilities hereunder, and shall not impair or affect the
rights and remedies, express or implied, or as a matter of law, of the
Agent or any Bank against the Guarantor. For the purposes hereof "demand"
shall include the commencement and continuance of any legal proceedings.
6. Guarantee Absolute and Unconditional. The Guarantor waives
any and all notice of the creation, renewal, extension or accrual of any
of the Obligations and notice of or proof of reliance by the Agent or any
Bank upon this Guarantee or acceptance of this Guarantee; the Obligations,
and any of them, shall conclusively be deemed to have been created,
contracted or incurred, or renewed, extended, amended or waived, in
reliance upon this Guarantee; and all dealings between AgriStor Credit or
the Guarantor, on the one hand, and the Agent and the Banks, on the other,
shall likewise be conclusively presumed to have been had or consummated in
reliance upon this Guarantee. The Guarantor waives diligence,
presentment, protest, demand for payment and notice of default or
nonpayment to or upon AgriStor Credit or the Guarantor with respect to the
Obligations. This Guarantee shall be construed as a continuing, absolute
and unconditional guarantee of payment without regard to (a) the validity,
regularity or enforceability of the First Amendment, any AgriStor Note, or
any other document executed in connection therewith, any of the
Obligations or any other collateral security therefor or guarantee or
right of offset with respect thereto at any time or from time to time held
by the Agent or any Bank, (b) any defense, set-off or counterclaim (other
than a defense of payment or performance) which may at any time be
available to or be asserted by AgriStor Credit against the Agent or any
Bank, or (c) any other circumstance whatsoever (with or without notice to
or knowledge of AgriStor Credit or the Guarantor) which constitutes, or
might be construed to constitute, an equitable or legal discharge of
AgriStor Credit for the Obligations, or of the Guarantor under this
Guarantee, in bankruptcy or in any other instance. When pursuing its
rights and remedies hereunder against the Guarantor, the Agent and any
Bank may, but shall be under no obligation to, pursue such rights and
remedies as it may have against AgriStor Credit or any other Person or
against any collateral security or guarantee for the Obligations or any
right of offset with respect thereto, and any failure by the Agent or any
Bank to pursue such other rights or remedies or to collect any payments
from AgriStor Credit or any such other Person or to realize upon any such
collateral security or guarantee or to exercise any such right of offset,
or any release of AgriStor Credit or any such other Person or of any such
collateral security, guarantee or right of offset, shall not relieve the
Guarantor of any liability hereunder, and shall not impair or affect the
rights and remedies, whether express, implied or available as a matter of
law, of the Agent or any Bank against the Guarantor. This Guarantee shall
remain in full force and effect and be binding in accordance with and to
the extent of its terms upon the Guarantor and its successors and assigns
thereof, and shall inure to the benefit of the Agent and the Banks, and
their respective successors, indorsees, transferees and assigns, until all
the Obligations and the obligations of the Guarantor under this Guarantee
shall have been satisfied by payment in full and the Commitments shall be
terminated, notwithstanding that from time to time during the term of the
First Amendment AgriStor Credit may be free from any Obligations.
7. Reinstatement. This Guarantee shall continue to be
effective, or be reinstated, as the case may be, if at any time payment,
or any part thereof, of any of the Obligations is rescinded or must
otherwise be restored or returned by the Agent or any Bank upon the
insolvency, bankruptcy, dissolution, liquidation or reorganization of
AgriStor Credit or upon or as a result of the appointment of a receiver,
intervenor or conservator of, or trustee or similar officer for, AgriStor
Credit or any substantial part of its property, or otherwise, all as
though such payments had not been made.
8. Payments. The Guarantor hereby agrees that the Obligations
will be paid to the Agent without set-off or counterclaim in U.S. Dollars
at the office of the Agent located at 270 Park Avenue, New York, New York
10017.
9. Representations and Warranties. The Guarantor represents
and warrants to the Agent and the Banks that:
(a) the Guarantor has the corporate power and authority and the
legal right to execute and deliver, and to perform its obligations under,
this Guarantee, and has taken all necessary corporate action to authorize
its execution, delivery and performance of this Guarantee; and
(b) this Guarantee constitutes a legal, valid and binding
obligation of the Guarantor enforceable in accordance with its terms,
except as affected by bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar laws relating to or affecting
the enforcement of creditors' rights generally, general equitable
principles and an implied covenant of good faith and fair dealing.
The Guarantor agrees that the foregoing representations and
warranties shall be deemed to have been made by the Guarantor on the date
of each borrowing by AgriStor Credit under the First Amendment on and as
of such date of borrowing as though made hereunder on and as of such date.
10. Authority of Agent. The Guarantor acknowledges that the
rights and responsibilities of the Agent under this Guarantee with respect
to any action taken by the Agent or the exercise or non-exercise by the
Agent of any option, right, request, judgment or other right or remedy
provided for herein or resulting or arising out of this Guarantee shall,
as between the Agent and the Banks, be governed by the First Amendment and
by such other agreements with respect thereto as may exist from time to
time among them, but, as between the Agent and the Guarantor, the Agent
shall be conclusively presumed to be acting as agent for the Banks with
full and valid authority so to act or refrain from acting, and the
Guarantor shall not be under any obligation, or entitlement, to make any
inquiry respecting such authority.
11. Notices. All notices, requests and demands to or upon the
Agent, any Bank or the Guarantor to be effective shall be made in the
manner provided for in subsection 9.1 of the Credit Agreement. The Agent,
each Bank and the Guarantor may change its address and transmission
numbers for notices by notice in the manner provided in the Credit
Agreement.
12. Severability. Any provision of this Guarantee which 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, and
any such prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other
jurisdiction.
13. Integration. This Guarantee represents the agreement of
the Guarantor with respect to the subject matter hereof and there are no
promises or representations by the Agent or any Bank relative to the
subject matter hereof not reflected herein.
14. Amendments in Writing; No Waiver; Cumulative Remedies.
(a) None of the terms or provisions of this Guarantee may be waived,
amended, supplemented or otherwise modified except by a written instrument
executed by the Guarantor and the Agent, provided that any provision of
this Guarantee may be waived by the Agent and the Banks in a letter or
agreement executed by the Agent or by telex or facsimile transmission from
the Agent.
(b) Neither the Agent nor any Bank shall by any act (except by
a written instrument pursuant to paragraph 14(a) hereof), delay,
indulgence, omission or otherwise be deemed to have waived any right or
remedy hereunder or to have acquiesced in any Default or Event of Default
or in any breach of any of the terms and conditions hereof. No failure to
exercise, nor any delay in exercising, on the part of the Agent or any
Bank, any right, power or privilege hereunder shall operate as a waiver
thereof. No single or partial exercise of any right, power or privilege
hereunder shall preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. A waiver by the Agent or
any Bank of any right or remedy hereunder on any one occasion shall not be
construed as a bar to any right or remedy which the Agent or such Bank
would otherwise have on any future occasion.
(c) The rights and remedies herein provided are cumulative, may
be exercised singly or concurrently and are not exclusive of any other
rights or remedies provided by law.
15. Section Headings. The section headings used in this
Guarantee are for convenience of reference only and are not to affect the
construction hereof or be taken into consideration in the interpretation
hereof.
16. Successors and Assigns. This Guarantee shall be binding
upon the successors and assigns of the Guarantor and shall inure to the
benefit of the Agent and the Banks and their successors and assigns.
17. Governing Law. This Guarantee shall be governed by, and
construed and interpreted in accordance with, the law of the State of New
York.
IN WITNESS WHEREOF, the undersigned has caused this Guarantee to
be duly executed and delivered by its duly authorized officer as of the
day and year first above written.
A.O. SMITH CORPORATION
By:
Title:
EXHIBIT C
CONFIRMATION
The undersigned hereby acknowledges and confirms that, upon
effectiveness of the Extension and First Amendment, dated as of June __,
1994 (the "First Amendment"), to the Amended and Restated Credit
Agreement, dated as of February 26, 1993 (as amended, supplemented or
otherwise modified from time to time, the "Credit Agreement"; terms not
defined herein are used herein as therein defined), among A.O. Smith
Corporation, a Delaware corporation, the banks parties thereto, and
Chemical Bank, as agent for said banks, the undersigned agrees to the
termination of its Commitment, the withdrawal of it as a party to the
Credit Agreement and the surrender of its Notes, in exchange for payment
of all amounts accrued for the benefit of and owing to the undersigned
under and pursuant to the Credit Agreement and the Notes as at the date of
effectiveness of the First Amendment.
CANADIAN IMPERIAL BANK OF COMMERCE
__________________________
By:
Title:
Date: , 1994
