-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EfptssXdQYYtlQANTe7u7LeNLqxs3hd28lVwV1pm5ECAjlk7jDG1zJJUKx/gsE5s UasvJSNN3T5Q/L3fOVKBcA== 0001000227-97-000002.txt : 19970327 0001000227-97-000002.hdr.sgml : 19970327 ACCESSION NUMBER: 0001000227-97-000002 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19970103 FILED AS OF DATE: 19970326 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: TB WOODS CORP CENTRAL INDEX KEY: 0001000227 STANDARD INDUSTRIAL CLASSIFICATION: GENERAL INDUSTRIAL MACHINERY & EQUIPMENT, NEC [3569] IRS NUMBER: 251771145 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-14056 FILM NUMBER: 97563097 BUSINESS ADDRESS: STREET 1: 440 N FIFTH AVE CITY: CHAMBERSBURG STATE: PA ZIP: 17201 10-K 1 FORM 10-K ANNAUL REPORT FOR TB WOOD'S CORPORATION SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended January 3, 1997 Commission file number 1-14182 ................................ TB Wood's Corporation ............................................................................ (Exact name of registrant as specified in its charter) Delaware 25-1771145 ....................................................... ................ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 440 North Fifth Avenue, Chambersburg, PA 17201 ....................................................... ................ (Address of principal executive office (Zip Code) Registrant's telephone number, including area code (717) 264-7161 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered ........................................ ................................ Common Stock, $.01 par value New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: NONE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of voting stock held by non-affiliates of the registrant based on the closing price on March 10, 1997, was $41,832,600. On March 10, 1997, there were 5,827,397 shares of the registrant's common stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Proxy Statement for the 1996 Annual Meeting of Shareholders are incorporated by reference into Part III hereof. Only those specific portions so incorporated are to be deemed filed as part of this Form 10-K. TB WOOD'S CORPORATION 1996 FORM 10-K ANNUAL REPORT TABLE OF CONTENTS PART I.........................................................................2 Item 1. Business...........................................................2 Item 2. Properties.........................................................6 Item 3. Legal Proceedings..................................................7 Item 4. Submission of Matters to a Vote of Security Holders................7 PART II........................................................................7 Item 5. Market for Registrant's Common Equity and Related Shareholder Matters ...............................................7 Item 6. Selected Financial Data and Results of Operation ..........................................7 Item 7. Management's Discussion and Analysis of Financial Condition .......8 Item 8. Financial Statements and Supplementary Data.......................12 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure .........................................29 PART III......................................................................29 Item 10. Directors and Executive Officers of the Registrant ..............29 Item 11. Executive Compensation ..........................................29 Item 12. Security Ownership of Certain Beneficial Owners and Management ......................................................30 Item 13. Certain Relationships and Related Transactions...................30 PART IV.......................................................................30 Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K .....................................................30 SIGNATURES....................................................................35 PART I Item 1. Business. General TB Wood's Corporation (the "Company" or "TB Wood's") is an established designer, manufacturer and marketer of electronic and mechanical industrial power transmission products. The Company was incorporated in 1995. In January 1996, a subsidiary of the Company merged with TB Wood's Incorporated ("TBW"), a Pennsylvania Corporation that was formed in 1857, with TBW as the surviving corporation in the merger. The Company's products are sold to North American and international manufacturers and users of industrial equipment. Headquartered in Chambersburg, Pennsylvania, the Company operates ten production facilities with over 1,000 employees in the United States, Canada and Mexico. The Company has a network of more than 700 select distributors with over 1,900 locations nationwide. History Since 1992, the Company has increased the breadth of the E-trAC(R) ("WFC"), NEMA 4, AC electronic drive product line and in 1993, introduced the E-trAC(R) micro electronic drive product line. During 1996, the Company introduced six new products or product line extensions. The Company's new WFC-HT line of full-featured electronic drives improves motor performance at low speeds, thereby expanding the applications for these products. The Company extended it's very successful line of micro-inverters to 20 horsepower. The Company introduced a line of electronic drives for specific Original Equipment Manufacturer (OEM) applications that are more cost-effective than using a general purpose electronic drive, a series of 575 volt electronic drives for the Canadian market and a new DVC line of high-performance electronic drives for motor sizes up to 700 horsepower. Since 1992, several new mechanical products (two synchronous drives, one hydrostatic drive, and four couplings) have also been introduced. During 1996, the Company introduced the Dura-Flex(R) coupling to expand it's line of flexible couplings into higher performance applications and a new step-precision winding technology for electronic drive systems used in the synthetic fibers industry. TB Wood's seeks acquisitions that enhance product offerings, leverages fixed costs, and extend global reach. In April 1993, the Company acquired several lines of business including a flexible coupling and mechanical variable speed drive product line as well as two manufacturing facilities. In January 1994, the Company acquired Plant Engineering Consultants, Inc. ("PEC"), an integrated electronic drive systems manufacturer and marketer. In early 1996, the Company acquired Grupo Blaju S.A. de C.V., providing a leading market share position in belted drive components in Mexico and a strong and cost-effective Mexican manufacturing operation. In October 1996, the Company acquired the assets of Ambi-Tech Industries, Inc., a leading manufacturer of electronic brakes. Ambi-Tech provides an important electronic product extension, as well as new technical capability to support the Company's aggressive growth plans in the electronics business. In November 1996, the Company acquired certain assets of Deck Manufacturing, a producer of gear couplings. Deck provides a valuable addition to the Company's line of couplings, the fastest growing area of the Company's mechanical business. The Company completed three other acquisitions between 1992 and 1995. The Company uses strategic alliances to gain access to technology and products that can not be as easily or effectively obtain through internal development or acquisition and to expand international market penetration. In 1996, the Company entered into a strategic alliance to sell electronic drives in Taiwan and the rapidly expanding market in China. Through other alliances, TB Wood's electronic drives are sold throughout Europe, Australia, and New Zealand. 2 Industry Overview The power transmission industry provides electronic and mechanical products used in automated manufacturing and material processing activities that transfer power from a motor or engine to a machine. The power transmission industry consists of three product categories: mechanical power transmission components, gear boxes and electronic drives. The Company competes in the electronic drives and mechanical power transmission components product categories. Products The Company designs, manufactures and markets electronic and mechanical power transmission products. During 1994, 1995 and 1996, net sales for these product offerings were as follows:
1996 1995 1994 ---- ---- ---- Net Sales % Net Sales % Net Sales % --------- - --------- - --------- - Electronic power ....................... 32.9 32.1% 34.2 33.4% 30.4 31.9% transmission products Mechanical power ....................... 69.6 67.9% 68.1 66.6% 64.9 68.1% transmission products ------- ------ ------- ------- ------- ------ 102.5 100.0% 102.3 100.0% 95.3 100.0%
Electronic Product Offering The Company designs and manufactures Alternating Current ("AC") and Direct Current ("DC") electronic drives and integrated electronic drive systems which are marketed throughout North America and internationally. These products are used to control the speed of electric motors in manufacturing processes. The Company's standard AC electronic drive products, which represent most of its electronic drive product offering net sales, are programmable to meet the needs of general requirements with particular strengths in food processing, materials handling, packaging and general machinery applications. The Company's electronic products are designed to meet both North American and European standards. The Company's integrated electronic drive systems consist of uniquely configured AC and/or DC electronic drives, programmable logic controllers and in-house designed custom software. These systems are packaged in custom enclosures to meet the requirements of specific applications. Mechanical Product Offering The Company's mechanical product offering includes a full line of stock and make-to-order products including V-belt drives, synchronous drives, open belted variable speed drives, a broad line of flexible couplings, as well as hydrostatic drives, clutches and brakes. These products are used in a variety of industrial applications to transmit power from motors and engines to machines. The primary markets for these products are the construction, oil field and specialized industrial machinery, food processing, material handling, pumps, compressors, mining, pulp and paper and agricultural equipment industries. Marketing and Distribution The Company markets its products in North America and internationally. In North America, the Company sells to selected, authorized, industrial distributors which resell the Company's products to industrial consumers and Original Equipment Manufacturers ("OEMs"). The Company also sells directly to approximately 1,250 OEMs. The 3 Company's products are sold principally throughout North America and, to a lesser extent, internationally. The Company's marketing alliances include licensing agreements and distribution agreements with distributors and manufacturers which, in some cases, market the Company's products under private label agreements. The Company has a technical sales force of more than 30 people and several specialized manufacturers' representatives. The Company operates central distribution centers in Chambersburg, Pennsylvania; Stratford, Ontario and Mexico City, Mexico and regional distribution centers in Atlanta, Georgia; Elk Grove, Illinois; Dallas, Texas; Los Angeles, California; Portland, Oregon; Montreal, Quebec and Edmonton, Alberta. Most of the Company's products are manufactured to maintain stock inventories, and on-time delivery is important, therefore order backlogs are generally less than one month's shipments. Customers The Company's products are consumed principally by industrial users. The Company's OEM customers include a number of Fortune 500 companies. The Company's distributor customers include, among others, Motion Industries and Kaman Industrial Technologies which are among the largest distributors in the industry. In addition, the Company's distributors also sell to OEMs. Management believes that the Company is one of the leading suppliers of power transmission products, based on sales volume, to its distributors. The Company's five largest customers accounted for approximately 29% of the Company's net sales in 1996. Motion Industries accounted for more than 10% of the Company's total net sales in 1996 and has been a significant customer of the Company for more than 15 years. Competition The power transmission industry is highly competitive. Competitive factors in the AC and DC electronic drive product categories include product performance, physical size of the product, tolerance for hostile environments, application support, availability and price. The Company's competitors in these product categories include large multi-national companies in North America, Europe and Asia, as well as many small, domestic niche manufacturers. The integrated electronic drive system market is driven by increased demand for greater speed and process control from end users. This market includes maintenance and replacement of existing systems, upgrades to existing systems and new capacity expansion. Competitive factors include process knowledge and engineering, software design, product durability and price. Major systems competitors include Control Techniques Drives, Inc./Emerson Electric Co. Inc., Asea Brown Boveri, Allen Bradley and Siemens Corp. The Company competes with several divisions of large industrial companies as well as many small to mid-sized independent companies in the mechanical product category. Competitive factors include availability, quality, price, size capability, engineering and customer support. The Company's most significant competitors in the mechanical product category include Dodge, Emerson Electric Co. Inc., Martin Sprocket and Gear, Rexnord Corp. and Lovejoy Industries Inc. Management believes that there are no significant foreign competitors in the North American mechanical product category market because of a fragmented customer base, prohibitive freight costs as compared to selling price and difficult access to existing distribution channels. Research and Development The Company's research and development efforts include the development of new products, the testing of products and the enhancement of manufacturing techniques and processes. The Company's annual expenditures for research and development (including royalties and payments to third parties) during the last three fiscal years have averaged 2.8% of net sales, with a higher percentage being spent on electronic products. Raw Materials 4 The Company uses purchased standard components in all of its electronics products. The Company also purchases components designed by its engineers. These purchased components include transformers, aluminum heat sinks, plastic enclosures and sheet metal stampings. These electronic parts and components are purchased from a number of suppliers and management has taken steps to qualify multiple sources for key items. The principal raw materials used in the Company's mechanical manufacturing operations are various types of steel, including pig iron, metal stampings, castings, forgings and powdered metal components. The Company also designs, tools and outsources special components made of aluminum, powdered metal and polymers. The Company purchases the materials used in its mechanical manufacturing operations from a number of suppliers and management believes that the availability of its materials is adequate. Patents and Trademarks The Company owns patents relating to its coupling, composite, synchronous drive, open belted variable speed drive, electronic drive and clutch/brake product lines. The Company also owns several patents relating to the design of its products. From time to time, the Company grants to others licenses under certain of its patents and obtains licenses under the patents of others. In addition, the Company owns, or has the right to use, registered United States trademarks for the following principal products: Sure-Flex(R), Formflex(R), Ultra-V(R), Roto-Cone(R), Var-A-Cone(TM), True Tube(TM), E-trAC(R), Ultracon(R) and Fiberlink(TM). Employees As of January 3, 1997, the Company employed approximately 1,068 people. Approximately 30 of the Company's hourly employees located at its Stratford, Ontario facility are represented by the United Steelworkers of Canada pursuant to a collective bargaining agreement dated January 20, 1995 that expires on January 19, 1998. Approximately 100 of the Company's employees located at its Mexico City, Mexico facility are represented by the National Metal Workers' Union of Mexico pursuant to a collective bargaining agreement that expires on January 31, 1998. Environmental Matters As with most industrial companies, the Company's operations and properties are required to comply with and are subject to liability under federal, state, local and foreign laws, regulations and ordinances relating to the use, storage, handling, generation, treatment, emission, release, discharge and disposal of certain materials, substances and wastes. The nature of the Company's operations exposes it to the risk of claims with respect to environmental matters and there can be no assurance that material costs will not be incurred in connection with such liabilities or claims. Both the Mt. Pleasant, Michigan (the "Mt. Pleasant Facility") and the Chambersburg, Pennsylvania (the "Chambersburg Facility") facilities had been listed on the Comprehensive Environmental Response, Compensation, and Liability Information System ("CERCLIS") (a list of sites maintained by the United States Environmental Protection Agency ("USEPA") for which a determination was to be made concerning whether investigation or remediation under CERCLA would be required). Both have been designated by USEPA as requiring no further action under CERCLA; therefore, the Company does not believe that material expenditures for these sites will be incurred under the CERCLA program. However, this does not assure that such expenditures would not be required under other federal and/or state programs. The Mt. Pleasant Facility is currently listed on Michigan's inactive hazardous waste site list pursuant to the Michigan version of CERCLA (formerly known as "Act 307", amended and recodified on June 5, 1995 as Part 201 of the Natural Resources and Environmental Protection Act ("Part 201")). The Mt. Pleasant Facility was first placed on the Michigan hazardous waste site list in 1991, when the Facility was owned by Dana Corporation. When the Company acquired the Mt. Pleasant Facility from Dana Corporation, the Asset Purchase Agreement dated March 5 31, 1993 (the "Asset Purchase Agreement") included an environmental indemnity provision. Pursuant to this provision, Dana Corporation agreed to indemnify the Company with respect to any environmental liabilities to the extent they arose out of environmental conditions first occurring on or before the closing date, including the presence or release of any hazardous substances at, in, or under the Mt. Pleasant Facility and with respect to the identification of the Mt. Pleasant Facility on the Michigan list of inactive hazardous waste sites. It is not known at this time whether Dana Corporation will be required to conduct further investigation or remediation with respect to the volatile organic compounds found in soils and groundwater. The Company has not been notified by the Michigan Department of Natural Resources or any other governmental agency or person that it has any responsibility for investigating or remediating such environmental conditions. Although the Company has no reason to believe Dana Corporation cannot fulfill its remediation and indemnification obligations under the Asset Purchase Agreement, if Dana Corporation is unable to fulfill such commitments, then the Company may incur additional costs. The Company believes that its facilities are in substantial compliance with current regulatory standards applicable to air emissions, under the Clean Air Act Amendments of 1990 ("CAAA"). At this time, the Company cannot estimate when other new air standards will be imposed or what technologies or changes in processes the Company may have to install or undertake to achieve compliance with any applicable new requirements at its facilities. The Company has no reason to believe that such expenditures are likely to be material. Similarly, based upon the Company's experience to date, the Company believes that the future cost of currently anticipated compliance with existing environmental laws relating to wastewater, hazardous waste and employee and community right-to-know should not have a material adverse effect on the Company's financial condition. The Company's capital expenditures for environmental matters were $39,151 in 1994, $51,758 in 1995 and $4,530 in 1996. Item 2. Properties The Company owns and operates the following facilities: Location Operations Sq. Feet -------- ---------- -------- Chambersburg, Foundry production of iron, and manufacturing 440,000 Pennsylvania and engineering of mechanical products. Central distribution, administrative offices and corporate headquarters. Scotland, Manufacturing and engineering of electronic 40,400 Pennsylvania products. Trenton, Manufacturing of mechanical products. 60,000 Tennessee Stratford, Manufacturing of mechanical products. Central 46,000 Ontario distribution and administrative offices for Canada. San Marcos, Manufacturing and engineering of mechanical 31,000* Texas products. Mt. Pleasant, Manufacturing of mechanical products. 30,000 Michigan Chattanooga, Manufacturing, engineering and sales of integrated 22,500* Tennessee electronic drive systems. Headquarters of PEC. Elk Grove, Distribution center. 21,700 Illinois ______________________________ *Includes certain leased space 6 In addition, the Company leases manufacturing facilities in: Hillsdale, New Jersey; Granger, Indiana; Mexico City, Mexico, and distribution facilities in: Atlanta, Georgia; Dallas, Texas; Montreal, Quebec; Edmonton, Alberta; Los Angeles, California and Portland, Oregon. Item 3. Legal Proceedings The Company is a party to various lawsuits arising in the ordinary course of business. The Company does not believe that the outcome of any of these lawsuits will have a material adverse effect on the consolidated financial position of the Company. Item 4. Submission of Matters to a Vote of Security Holders None. PART II Item 5. Market for Registrant's Common Equity and Related Shareholder Matters. The Company consummated the initial public offering of its common stock on February 8, 1996 and its Common Stock is listed on the New York Stock Exchange. The high and low prices for the Common Stock, and dividends paid on Common Stock, during the period from February 8, 1996 though January 3, 1997 were as follows: Sales Price Dividends ----------- --------- Fiscal Year 1996 High Low Paid in Cash ---------------- ---- --- ------------ 1st quarter $12.125 $10.875 $.00 2nd quarter 11.750 8.875 .08 3rd quarter 9.875 8.250 .08 4th quarter 11.750 7.625 .08 On March 10, 1997, there were 86 registered shareholders of the Company's Common Stock, and the high and low sales prices for the Common Stock were $14.25 and $14.00, respectively. During fiscal year 1996, the Company paid total dividends of $.24 and declared total dividends of $.32 on the shares of its Common Stock. The declaration of any dividend, including the amount thereof, will be at the discretion of the Board of Directors of the Company, and will depend on the Company's then current financial condition, results of operations and capital requirements, and such other factors as the Board of Directors deems relevant. Item 6. Selected Financial Data The following tables set forth selected historical financial and operating data for the Company for each of the five years through fiscal year 1996 and have been derived from the Company's financial statements which have been audited by the Company's independent public accountants. The information set forth below should be read in conjunction with the Company's Consolidated Financial Statements and notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operation." 7 Effective fiscal year 1995, The Company changed its year end to the Friday closest to the last day of December. Fiscal year-ends are as follows: 1996 January 3, 1997 1995 December 29, 1995 1994 & prior December 31 of calendar year.
Selected Financial Data (in thousands, except per share data) Fiscal Year 1996 1995 1994 1993 1992 Revenue and Income Net sales ........................... $ 102,505 $ 102,307 $ 95,315 $ 72,375 $ 55,875 Gross profit ........................ 37,747 36,111 32,886 24,922 20,386 Operating income .................... 12,573 12,593 9,795 6,329 3,837 Net income, before one-time charges* 6,294 4,599 3,077 1,779 (750) --------- --------- --------- --------- --------- Cash Flow Cash provided by operations ......... $ 9,090 $ 9,214 $ 5,379 $ 5,647 $ 2,732 Capital expenditures ................ 3,762 4,531 2,722 2,202 1,155 --------- --------- --------- --------- --------- Assets and Liabilities Working capital** ................... $ 26,962 $ 26,160 $ 24,931 $ 19,815 $ 16,046 Total assets ........................ 73,395 66,631 61,075 57,237 39,381 Total debt .......................... 22,227 41,463 42,661 42,900 37,132 Shareholders' equity (deficit) ...... 16,875 (7,488) (12,866) (16,537) (13,672) --------- --------- --------- --------- --------- Per Share Data Net income, before one-time charges* $ 1.12 $ 1.21 $ .82 $ .50 $ (.25) Cash dividends declared ............. .32 -- -- -- -- Book value ......................... 3.01 (1.97) (3.43) (4.64) (4.56) --------- --------- --------- --------- --------- Weighted average shares outstanding . 5,600 3,810 3,750 3,563 3,000 * Before $1,654 of one-time charges in 1996 related to the write-off of a non-compete agreement and the early retirement of debt related to the Initial Public Offering, $839 of one-time income in 1994 related to the sale of a product line, and $9,477 of net one-time charges in 1993 related to extraordinary income from the early repayment of debt and the cumulative effect of changes in the accounting for postretirement benefits. ** Working capital is defined as the sum of accounts receivable, inventory, and other current assets, less accounts payable and accrued expenses.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation. Year Ended January 3, 1997, Compared to Year Ended December 29, 1995 Net sales for fiscal 1996 increased to $102.5 million from $102.3 million in 1995, an increase of $.2 million, or .2%. The Company's overall 1996 sales, excluding sales from the three businesses acquired during the year, declined by approximately $2.3 million as compared to 1995. This decline resulted primarily from reduced sales of electronic drive products to distributors who delayed purchases in anticipation of the Company's introduction of a higher performance series of electronic drives during the second half of 1996. Gross profit increased to $37.7 million from $36.1 million in 1995, an increase of $1.6 million, or 4.5%. Gross profit as a percent of net sales increased to 36.8% from 35.3%, due primarily to productivity improvements and cost reductions resulting from the Company's capital expenditure and Total Quality Management programs. 8 SG&A expense for fiscal 1996 increased to $25.2 million from $23.5 million in 1995, an increase of $1.7 million, or 7.0%. SG&A expense as a percent of net sales increased to 24.6% from 23.0%. The increase in SG&A expense resulted primarily from increases in research and development and marketing expenses related to new product introductions in the Company's electronics business, as well as additional SG&A expenses from acquired operations. Other expense for fiscal 1996 decreased to $2.6 million from $4.9 million in 1995, a decrease of $2.4 million, or 47.7%. This decrease was due primarily to lower interest costs as a result of debt repayment from the proceeds of the Initial Public Offering (IPO), prepayment of a subordinated note at a discount, and reduced interest rates on the Company's new revolving line of credit. Other expense included a $.6 million write-off of a non-compete agreement. The effective tax rate for 1997 was 40.5%. Details of the provision for income taxes are discussed in Note 5. An extraordinary item of $1.3 million, net of tax, was related to early repayment of debt with the proceeds from the IPO. Net income for fiscal 1996 was $4.6 million, unchanged from 1995. In 1996 net income before one time charges, net of tax, increased by $1.7 million over 1995, or 36.9%. Year Ended December 29, 1995, Compared to Year Ended December 31, 1994 Net sales increased from $95.3 million to $102.3 million, an increase of $7.0 million, or 7.3%. This increase included approximately $3.9 million of continued growth from AC electronic drive products. The balance of this increase was due primarily to price increases, market expansion, and increased market penetration by the Company's other existing product lines. Gross profit increased from $32.9 million to $36.1 million, an increase of $3.2 million, or 9.7%. Gross profit as a percent of net sales increased from 34.5% to 35.3%, due primarily to continued consolidations of acquisitions made in prior years, focusing of our factories, and restructuring of the Company's Canadian subsidiary. SG&A expense increased from $23.1 million to $23.5 million, an increase of $.4 million, or 1.8%. SG&A expense as a percent of net sales decreased from 24.2% to 23.0%. SG&A expense for 1995 included a 28.3% increase in research and development expense over the prior year, primarily in electronic products. SG&A expense in 1995 included $.7 million of non-cash compensation expense related to stock options granted in 1991 and 1992. Excluding non-cash stock option compensation expense, SG&A expense as a percent of net sales decreased from 24.2% to 22.3%. Operating income increased from $9.8 million to $12.6 million, an increase of $2.8 million, or 28.6%. Excluding the non-cash stock option compensation expense referred to above, operating income increased from $9.8 million to $13.3 million, an increase of $3.5 million, or 35.7%. Other expense increased from $3.5 million to $4.9 million, principally because other expense was reduced in 1994 by a $1.4 million gain from the sale of the magnetic clutch and brake product lines which was part of an earlier acquisition. Interest expense and other finance charges increased from $4.4 million to $4.5 million, an increase of $.1 million, or 2.2%. The effective tax rate for the year was 40.0%. Without giving effect to the gain on the sale of the magnetic clutch and brake product lines, other expense remained at $4.9 million. Net income increased from $3.9 million to $4.6 million, an increase of $.7 million, or 17.9%. Net income in 1994 included a $.9 million gain, net of income taxes, on the sale of the magnetic clutch and brake product lines. Excluding the gain on the sale and the non-cash stock option expense referred to above, net income increased from $3.0 million to $5.0 million, an increase of $2.0 million, or 66.7%. 9 Liquidity and Capital Resources The Company's principal sources of funds are cash flow from operations and borrowings under the Company's revolving credit agreement. Cash provided from operations in 1996 was $9.1 million, down slightly from $9.2 million in 1995. In 1996, cash used for increases in net working capital was only $.1 million versus $1.0 million in 1995. Net cash used for investing activities during fiscal years 1996, 1995, and 1994 was $9.2 million, $6.4 million, and $4.4 million, respectively. The Company's investing activities were primarily acquisitions and capital expenditures. In 1996, the Company acquired the assets of Deck Manufacturing Corp. and Ambi-Tech, Inc., and purchased the stock of Grupo Blaju S.A. de C.V. for a total of $3.7 million in cash and notes. Also in 1996, the Company purchased 21% of T.B. Wood's Canada Ltd. for $1.6 million in order to make the Company's Canadian operations a wholly-owned subsidiary. Capital expenditures for fiscal years 1996, 1995, and 1994 were $3.8 million, $4.5 million, and $2.7 million, respectively. During the last three fiscal years, the Company has made significant capital investments in computer numerically controlled (CNC) machine tools, test and production equipment at the Company's foundry in Chambersburg, and equipment to improve and modernize plants we acquired through our recent purchases of businesses. These capital expenditures reduce costs, improve product quality, and provide additional capacity for meeting the Company's growth objectives. On February 8, 1996, the Company completed an Initial Public Offering of its Common Stock that raised approximately $22.5 million in aggregate gross proceeds for the Company. The proceeds, net of issuance costs of $19.8 million, were used to repay debt. In July, the Company repurchased a $16.7 junior subordinated note for $10.7 million. The gain on extinguishment of this debt, net of taxes, was $3.0 million and was booked directly to shareholders' equity. In October, the Company entered into a $40 million, unsecured revolving credit facility arranged by PNC Bank, N.A., of which $19.8 million was unused at year end. The Company declared $1.9 million in dividends during 1996. The Company paid an $.08 per share dividend following of the first, second, and third quarters of 1996, and declared an $.08 dividend on January 3, 1997, paid on January 31, 1997, to shareholders of record on January 17, 1997. The Company believes that it will have sufficient cash flow from operations and available borrowings to meet its future cash needs for interest, operating expenses, and capital expenditures. NOTE The Securities and Exchange Commission has qualified Mexico as a highly inflationary economy under the provisions of SFAS No. 52. In 1997, the financial statements of the Mexican operation will be remeasured with the US dollar as the functional currency. Any gain or loss will be recorded in the Company's statements of operations. Safe Harbor Statement This Annual Report contains various forward-looking statements and includes assumptions concerning the Company's operations, future results and prospects. These forward-looking statements are based on current expectations and are subject to risk and uncertainties. In connection with the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, the Company provides the following cautionary statement identifying important economic, political and technology factors which, among others, could cause the actual results or events to differ materially from those set forth in or implied by the forward-looking statements and related assumptions. Such factors include the following: (i) changes in the current and future business environment, including 10 interest rates and capital and consumer spending; (ii) competitive factors and competitor responses to the Company's initiatives; (iii) successful development and market introductions of anticipated new products; (iv) changes in government laws and regulations, including taxes; and (v) favorable environment to make acquisitions, domestic and foreign, including regulatory requirements and market value of candidates. 11 Item 8. Financial Statements and Supplementary Data Page ---- Report of Independent Public Accountants ....................................13 Consolidated Balance Sheets as of January 3, 1997 and December 29, 1995 ......................................................14 Consolidated Statements of Operations for the Years Ended January 3, 1997, December 29, 1995 and December 31, 1994 ...............15 Consolidated Statements of Changes in Shareholders' Equity (Deficit) for the Years Ended January 3, 1997, December 29, 1995 and December 31, 1994 ..................................................16 Consolidated Statements of Cash Flows for the Years Ended January 3, 1997, December 29, 1995 and December 31, 1994 ...............17 Notes to Consolidated Financial Statements ..................................18 12 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors of TB Wood's Corporation: We have audited the accompanying consolidated balance sheets of TB Wood's Corporation (a Delaware corporation) and subsidiaries as of January 3, 1997, and December 29, 1995, and the related consolidated statements of operations, changes in shareholders' equity(deficit), and cash flows for each of the three years in the period ended January 3, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of TB Wood's Corporation and subsidiaries as of January 3, 1997 and December 29, 1995 and the results of their operations and their cash flows for each of the three years in the period ended January 3, 1997 in conformity with generally accepted accounting principles. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed under Item 14(a)(2) of this Form 10-K is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP Atlanta, Georgia February 7, 1997 13
TB Wood's Corporation And Subsidiaries Consolidated Balance Sheets (in thousands, except per share and share amounts) 1996 1995 - -------------------------------------------------------------------------------- -------- -------- ASSETS Current Assets: Cash and cash equivalents ...................................................... $ 306 $ 417 Accounts receivable, less allowances for doubtful accounts, discounts, and claims of $437 and $510 in 1996 and 1995, respectively ................ 15,518 14,132 Inventories: Finished goods ............................................................ 16,293 16,057 Work in process ........................................................... 7,994 6,420 Raw materials ............................................................. 3,755 3,211 LIFO reserve .............................................................. (4,057) (3,881) -------- -------- 23,985 21,807 -------- -------- Other current assets ........................................................... 1,053 504 -------- -------- Total current assets ...................................................... 40,862 36,860 -------- -------- Property, Plant, and Equipment: Machinery and equipment ........................................................ 33,075 28,030 Land, buildings, and improvements .............................................. 8,577 8,207 -------- -------- 41,652 36,237 Less accumulated depreciation .................................................. 21,154 18,424 -------- -------- 20,498 17,813 ======== ======== Other Assets: Deferred income taxes (Note 5) ................................................. 5,249 5,049 Goodwill, net of accumulated amortization of $958 and $846 in 1996 and 1995, respectively .............................. 4,603 3,639 Other .......................................................................... 2,183 3,270 -------- -------- Total other assets ........................................................ 12,035 11,958 -------- -------- $ 73,395 $ 66,631 ======== ======== Liabilities and Shareholders' Equity (Deficit) Current Liabilities: Current maturities of long-term debt (Note 4) .................................. $ 520 $ 1,759 Accounts payable ............................................................... 5,210 3,943 Checks outstanding ............................................................. 1,532 2,048 Accrued expenses (Note 3) ...................................................... 8,384 6,340 Deferred income taxes (Note 5) ................................................. 539 1,897 Total current liabilities ................................................. 16,185 15,987 -------- -------- Long-term debt, less current maturities (Note 4) ............................... 21,707 39,704 -------- -------- Postretirement benefit obligation, less current portion ........................ 18,628 18,428 -------- -------- Commitments and Contingencies (Note 8) Shareholders' Equity (Deficit): Preferred stock, $.01 par value; 5,000,000 shares authorized, no shares issued or outstanding ........................................... 0 0 Common stock, $.01 par value; 40,000,000 shares authorized, 5,827,397 and 3,375,000 shares issued and outstanding in 1996 and 1995, respectively .... 58 33 Warrants ....................................................................... 0 500 Additional paid-in capital ..................................................... 28,158 6,104 Accumulated deficit ............................................................ (11,306) (14,094) Foreign currency translation adjustment ........................................ (35) (31) Total shareholders' equity (deficit) ...................................... 16,875 (7,488) -------- -------- $ 73,395 $ 66,631 ======== ======== The accompanying notes are an integral part of these consolidated financial statements
14
TB Wood's Corporation And Subsidiaries Consolidated Statements of Operations (in thousands, except per share amounts) 1996 1995 1994 -------------------------------------------------------------------------------------- ---- ---- ---- Net sales ............................................................................. $ 102,505 $ 102,307 $ 95,315 Cost of sales ......................................................................... 64,758 66,196 62,429 --------- --------- --------- Gross profit ..................................................................... 37,747 36,111 32,886 Selling, general, and administrative expenses ......................................... 25,174 23,518 23,091 --------- --------- --------- Operating income ................................................................. 12,573 12,593 9,795 --------- --------- --------- Other (expense) income: Interest expense and other finance charges ....................................... (1,982) (4,461) (4,355) Gain on sale of product lines .................................................... 0 0 1,398 Other, net ....................................................................... (593) (467) (542) --------- --------- --------- Other expense, net .......................................................... (2,575) (4,928) (3,499) --------- --------- --------- Income before provision for income taxes and extraordinary item ....................... 9,998 7,665 6,296 Provision for income taxes (Note 5) ................................................... 4,053 3,066 2,380 --------- --------- --------- Income before extraordinary item ...................................................... 5,945 4,599 3,916 Extraordinary item, early extinguishment of debt (less related income tax benefit of $870) ........................................ (1,305) 0 0 --------- --------- --------- Net income ............................................................................ $ 4,640 $ 4,599 $ 3,916 ========= ========= ========= Per share of common stock: Income before extraordinary item ................................................. $ 1.06 $ 1.21 $ 1.04 Extraordinary item ............................................................... (.23) .00 .00 --------- --------- --------- Net income per common share ........................................................... $ .83 $ 1.21 $ 1.04 --------- --------- --------- Weighted average shares of common stock and equivalents outstanding ...................................................... 5,600 3,810 3,750 ========= ========= ========= The accompanying notes are an integral part of these consolidated financial statements
15
TB Wood's Corporation And Subsidiaries Consolidated Statements of Changes in Shareholders' Equity (Deficit) Foreign Additional Currency Common Paid-In Accumulated Translation (in thousands) Stock Warrants Capital Deficit Adjustment - -------------- ----- -------- ------- ------- ---------- Balance, December 31, 1993 .............. $ 33 $ 500 $ 5,429 $(22,609) $ 110 Net income .............................. 0 0 0 3,916 0 Foreign currency translation adjustment . 0 0 0 0 (245) - ----------------------------------------- -------- -------- -------- -------- -------- Balance, December 31, 1994 .............. 33 500 5,429 (18,693) (135) Net income .............................. 0 0 0 4,599 0 Stock option compensation ............... 0 0 675 0 0 Foreign currency translation adjustment . 0 0 0 0 104 - ----------------------------------------- -------- -------- -------- -------- -------- Balance, December 29, 1995 .............. 33 500 6,104 (14,094) (31) Net income .............................. 0 0 0 4,640 0 Issuance of stock in connection with the Initial Public Offering ............. 20 0 19,803 0 0 Investment in Wood's-Canada ............. 0 0 (1,600) 0 0 Exercise of warrants .................... 4 (500) 500 0 0 Gain on repayment of subordinated note .. 0 0 2,992 0 0 Dividends declared ...................... 0 0 0 (1,852) 0 Stock option compensation and proceeds from options exercised .................. 1 0 359 0 0 Foreign currency translation adjustment . 0 0 0 0 (4) - ----------------------------------------- -------- -------- -------- -------- -------- Balance, January 3, 1997 ................ $ 58 $ 0 $ 28,158 $(11,306) $ (35) ======== ======== ======== ======== ======== The accompanying notes are an integral part of these consolidated financial statements.
16
TB Wood's Corporation And Subsidiaries Consolidated Statements Of Cash Flows (in thousands) 1996 1995 1994 - -------------------------------------------------------------- -------- -------- -------- Cash Flows from Operating Activities: Net income ................................................... $ 4,640 $ 4,599 $ 3,916 -------- -------- -------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ........................... 3,427 3,618 3,210 Deferral of interest and management fees payable to affiliates 288 1,152 1,019 Change in deferred income taxes, net .................... (1,095) 205 673 Stock option compensation expense ....................... 140 675 0 Gain on sale of product lines ........................... 0 0 (1,398) Net loss (gain) on sale of assets ....................... (44) 0 19 Write off of non-compete agreement ...................... 563 0 0 Extraordinary loss on early extinguishment of debt, net . 1,305 0 0 Changes in working capital, net of effects of acquisitions: Accounts receivable, net ........................... (854) (115) (1,634) Inventories, net ................................... (1,615) (1,612) (1,379) Prepaid expenses and other current assets .......... (751) (34) 185 Accounts payable ................................... 631 (467) (334) Accrued and other liabilities ...................... 2,455 1,193 1,102 -------- -------- -------- Total adjustments ............................. 4,450 4,615 1,463 -------- -------- -------- Net cash provided by operating activities ..... 9,090 9,214 5,379 -------- -------- -------- Cash Flows from Investing Activities: Acquisitions, net of cash acquired ........................... (2,920) 0 (3,987) Capital expenditures ......................................... (3,762) (4,531) (2,722) Proceeds from sales of product lines ......................... 0 0 2,200 Purchase of minority interest in subsidiary .................. (1,600) 0 0 Proceeds from sales of fixed assets .......................... 128 44 50 Other, net ................................................... (1,004) (1,915) 28 -------- -------- -------- Net cash used in investing activities ................... (9,158) (6,402) (4,431) -------- -------- -------- Cash Flows from Financing Activities: Change in checks outstanding ................................. (516) (383) 1,388 Repayments of subordinated note and associated taxes ......... (13,094) 0 (2,000) Repayments of long-term debt, net ............................ (14,564) (2,131) (2,068) Proceeds from (repayments of) original revolving credit facility, net (Note 4) ................. (10,721) (313) 2,244 Proceeds from new revolving credit facility, net (Note 4) .... 20,200 0 0 Proceeds from public sale of common stock .................... 19,823 0 0 Payment of dividends ......................................... (1,386) 0 0 Proceeds from issuance of stock upon option exercise ......... 219 0 0 -------- -------- -------- Net cash used in financing activities ................... (39) (2,827) (436) -------- -------- -------- Effect of changes in foreign exchange rates .................. (4) 103 (245) -------- -------- -------- Net (decrease) increase in cash and cash equivalents ......... (111) 88 267 Cash and cash equivalents at beginning of year ............... 417 329 62 ======== ======== ======== Cash and cash equivalents at end of year ..................... $ 306 $ 417 $ 329 ======== ======== ======== Income taxes paid during the year ............................ $ 5,409 $ 2,140 $ 1,585 ======== ======== ======== Interest paid during the year ................................ $ 2,040 $ 2,868 $ 2,684 ======== ======== ======== The accompanying notes are an integral part of these consolidated statements.
17 TB Wood's Corporation And Subsidiaries Notes To Consolidated Financial Statements (in thousands, except per share and share amounts) 1. NATURE OF BUSINESS AND PRINCIPLES OF CONSOLIDATION TB Wood's Corporation and Subsidiaries (collectively, "Wood's" or the "Company") is an established designer, manufacturer, and marketer of electronic and mechanical industrial power transmission products which are sold to domestic and international manufacturers and users of industrial equipment. Principal products of TB Wood's Incorporated ("Wood's-U.S."), a wholly owned subsidiary of TB Wood's Corporation, include electronic drives, integrated electronic drive systems, mechanical belted drives, and flexible couplings. Plant Engineering Consultants, Inc. ("PEC" (Note 9)), a wholly owned subsidiary of Wood's-U.S., manufactures integrated electronic drive systems. TB Wood's Canada, Ltd. ("Wood's-Canada"(Note 9)) and TB Wood's Mexico, S.A., de C.V. ("Wood's-Mexico"(Note 9)), wholly owned subsidiaries of Wood's-U.S., manufacture and market mechanical industrial power transmission products and act as distributors for electronic and mechanical products manufactured by the domestic operations of Wood's-U.S. Wood's-U.S. was organized in 1857 and was incorporated in Pennsylvania in 1906. The accompanying consolidated financial statements include the accounts of TB Wood's Corporation and its wholly owned subsidiaries. The minority interest in Wood's-Canada, purchased by Wood's-U.S. in connection with the Initial Public Offering ("Offering"(Note 9)), was not separately classified in the accompanying financial statements for 1995 because the minority owners were the same individuals who owned the common stock of Wood's-U.S. All significant intercompany balances and transactions have been eliminated. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Cash Equivalents The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. Property, Plant, and Equipment The Company depreciates its property, plant, and equipment using principally the straight-line method over the estimated useful lives of the assets. Equipment under capital leases is depreciated over the assets estimated useful life and is included in machinery and equipment. Maintenance and repair costs are charged to expense as incurred, and major renewals and betterments are capitalized. When property and equipment are retired or otherwise disposed of, the related carrying value and accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected in income. Inventories Wood's-U.S. and PEC inventories are stated at the lower of cost or market using the last-in, first-out ("LIFO") method. Wood's-Canada and Wood's-Mexico inventories are stated at the lower of cost or market using the first-in, first-out ("FIFO") method. Market is defined as net realizable value. Cost includes raw materials, direct labor, and manufacturing overhead. Approximately 90% and 89% of total inventories were valued using the LIFO method at January 3, 1997 and December 29, 1995, respectively. 18 Self-Insurance The Company maintains workers' compensation insurance policies which have the potential for retrospective premium adjustments and a partially self-insured group health insurance policy which is subject to specific retention levels. Insurance administrators assist the Company in estimating the fully developed workers' compensation liability and group health insurance reserves which are accrued by the Company. In the opinion of management, adequate provision has been made for all incurred claims. The Company has issued letters of credit totaling $1,700 to cover incurred claims and other costs related to the workers' compensation policy. Foreign Currency Translation The financial statements of Wood's-Canada and Wood's-Mexico have been translated into U.S. dollars in accordance with Statement of Financial Accounting Standards ("SFAS") No. 52, "Foreign Currency Translation." Translation adjustments, which result from the process of translating financial statements into U.S. dollars, are accumulated as a separate component of shareholders' equity(deficit). Exchange gains and losses resulting from foreign currency transactions, primarily intercompany sales of products between Wood's-U.S., Wood's-Canada and Wood's-Mexico, are included in other income (expense) in the accompanying statements of operations and are not material. The Securities and Exchange Commission has qualified Mexico as a highly inflationary economy under the provisions of SFAS No. 52. In 1997, the financial statements of the Mexico operation will be remeasured with the U.S. dollar as the functional currency. Any gain or loss will be recorded in the Company's statement of operations. Goodwill The excess of cost over the net assets acquired ("Goodwill") is being amortized to income on a straight-line basis over a period of 40 years. Goodwill relates to the acquisition of the Company in 1986 and the acquisition of certain businesses and product lines (Note 9). Long Lived Assets and Intangible Assets The Company adopted SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of," effective December 30, 1995. Adoption of this statement did not have any effect on the financial statements of the Company. The Company reviews the carrying values assigned to long-lived assets and certain identifiable intangible assets based on expectations of undiscounted future cash flows and operating income generated by the long-lived assets or the tangible assets underlying certain identifiable intangible assets in determining whether the carrying amount of such assets is recoverable. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, the disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cyclical Industry The markets for some of the Company's products are cyclical, generally following changes in the overall economy. Consequently, during periods of economic expansion, the Company has experienced increased demand for its products, and during periods of economic contraction, the Company has experienced decreased demand for its products. Such changes in the general economy affect the Company's results of operations in the relevant fiscal periods. 19 Sales The Company's five largest customers accounted for approximately 29%, 28%, and 27% of net sales for fiscal years 1996, 1995, and 1994, respectively. Of these customers, one accounted for approximately 20% of net sales for the year ended January 3, 1997. The loss of one or more of these customers would have an adverse effect on the Company's performance and operations. Export sales accounted for 17.7%, 14.7%, and 13.8% of total sales in fiscal years 1996, 1995, and 1994, respectively. Intercompany transactions are consummated on terms equivalent to those that prevail in arms-length transactions. Information regarding the Company's domestic and foreign operations is as follows: United States Foreign Eliminations Consolidated - ------------------------ ---------- --------- ------------- ------------- Year ended January 3, 1997 Net Sales .............. $100,637 $14,789 $(12,921) $102,505 Operating Profit ....... 11,946 627 0 12,573 Identifiable Assets .... 77,679 7,248 (11,532) 73,395 Supply of Electronic Raw Materials and Purchased Components Historically, the electronics component industry, which supplies components for the Company's electronic products, has from time to time experienced heavy demand for certain components during periods of growth in the consumer electronic industry. The rapid growth of the AC electronic drive market has also created heavy demand for power control electronics. While certain of the Company's components are obtained from a single or limited number of sources, the Company has potential alternate suppliers for most of the specialty components used in its manufacturing operations. There can be no assurance, however, that the Company will not experience shortages of raw materials or components essential to the production of its products or be forced to seek alternative sources of supply, which may increase costs or adversely affect the Company's ability to obtain and fulfill orders for its products. Net Income Per Share Net income per share is computed using the weighted average number of shares of common stock outstanding. Common equivalent shares resulting from stock options and warrants (using the treasury stock method) have been included in the computation when dilution results. The difference between primary and fully diluted net income per share is not material for any of the periods presented and has therefore been excluded. Year-End Effective fiscal year 1995, the Company changed its year-end to the Friday closest to the last day of December. Fiscal year-ends are as follows: 1996 January 3, 1997 1995 December 29, 1995 1994 December 31, 1994 Reclassifications Certain prior period amounts have been reclassified to conform with the current period presentation. 20 3. ACCRUED EXPENSES Components of accrued expenses were as follows: 1996 1995 - --------------------------------------------------- -------------- ------------- Accrued payroll and other compensation ............ $2,619 $2,115 Other accrued liabilities ......................... 4,525 2,971 Accrued workers' compensation ..................... 1,240 1,254 ------ ------ Total ............................................. $8,384 $6,340 ====== ====== 4. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS Long-term debt and capital lease obligations consist of the following: 1996 1995 - ----------------------------------------------- ------------ ------------ Senior Fleet Term loan ........................ $ 0 $ 5,005 Senior Fleet Revolver loan .................... 0 10,721 Senior subordinated debt per the USL Agreement .................... 0 9,595 Junior subordinated note payable .............. 0 14,983 Unsecured Revolving Line of Credit ............ 20,200 0 Note payable to a former shareholder of Wood's ................................ 321 309 Capital lease obligations ..................... 307 560 Other ......................................... 1,399 290 ---------- ------------ 22,227 41,463 Less current maturities ....................... (520) (1,759) ========== ============ $21,707 $39,704 ========== ============ Aggregate future maturities of long-term debt and capital lease obligations as of January 3, 1997 are as follows: 1997 ...................................................................$ 520 1998 ................................................................... 648 1999 ................................................................... 276 2000 ................................................................... 278 2001 ................................................................... 20,425 Thereafter ............................................................. 80 -------- $22,227 ======== A Senior Credit Agreement with Fleet provided for a Term Loan and a Revolving Loan. Interest was charged on the Senior Credit Facilities at prime rate, as defined, plus .75% or the 30-, 90-, or 180-LIBOR rate plus 2.75%. The USL Capital Agreement provided for up to $10,000 of senior subordinated debt with detachable warrants to purchase up to 375,000 shares of Wood's common stock. The senior subordinated debt was comprised of a fixed interest rate note bearing interest at 12.25% and a floating interest rate note bearing interest at the 90-day LIBOR plus 5.5%. 21 The junior subordinated note payable to a company formerly related by common ownership, was booked at a discount and bore interest at an effective interest rate of 8.5%. On July 18, 1996, the Company repaid principal of approximately $16,674 for approximately $10,677. The gain on extinguishment of $2,992, net of tax, is reflected as a component of shareholders' equity. In connection with the proceeds received from the Offering of the Company's common stock (Note 9), the Company repaid the Fleet Term Loan, the USL Agreement, and a portion of the Fleet Revolver Loan. An extraordinary loss of approximately $1,305, net of taxes, was incurred in the first quarter as a result of the repayment of certain indebtedness. On October 10, 1996, the Company entered into a new $40,000 unsecured revolving credit facility arranged by PNC Bank, N.A. The Company used the proceeds of the new credit facility to repay the balance of the Senior Fleet Revolver Loan. The Company realized an initial rate reduction of approximately 50 basis points with future rates based on the ratio of total indebtedness to EBITDA, as defined. The loan agreement contains numerous restrictive financial covenants which require the Company to comply with certain financial tests, including, among other things, maintaining minimum tangible net worth, as defined, and maintaining certain specified ratios. The loan agreement also contains other restrictive covenants which include, among other things, restrictions on outside investments and restrictions on capital expenditures. The gross proceeds from (repayments of) the revolving credit facilities are as follows: 1996 1995 1994 - --------------------------------- ------------ ------------ -------------- Proceeds from the original revolving credit facility .. $88,507 $100,977 $90,396 Repayments of original revolving credit facility .. (99,228) (101,290) (88,152) Proceeds from new revolving credit facility .. 32,900 0 0 Repayments of new revolving credit facility .. (12,700) 0 0 ------------ ------------ -------------- Under SFAS No. 107, "Disclosures About Fair Value of Financial Instruments," the fair value of the Company's long-term debt is estimated based on the current rates offered to the Company for debt of similar terms and maturities. At January 3, 1997, the Company's fair value of long-term debt approximates the carrying value. 5. INCOME TAXES The components of the provision (benefit) for income taxes are shown below: 1996 1995 1994 - --------------------------------- --------------------------------------------- Current: Federal and state .......... $ 4,407 $ 2,837 $ 1,822 Foreign .................... 442 24 (115) ---------- --------- --------- 4,849 2,861 1,707 ---------- --------- --------- Deferred: Federal and state .......... (796) 203 673 Foreign .................... 0 2 0 ---------- --------- --------- (796) 205 673 ---------- --------- --------- Provision for income taxes ...... $ 4,053 $ 3,066 $ 2,380 ========== ========= ========= 22 Under SFAS No. 109, deferred tax assets or liabilities at the end of each period are determined by applying the current tax rate to the difference between the financial reporting and income tax bases of assets and liabilities. The deferred tax benefit is determined based on changes in deferred tax items exclusive of deferred tax implications of the early extinguishment of debt and reclassifications between deferred and current taxes. The components of deferred income taxes are as follows: 1996 1995 - -------------------------------------------- -------------------------------- Deferred income tax liabilities: Book basis in property over tax basis ...... $(1,536) $(1,326) LIFO inventory basis differences ........... (3,127) (3,192) Long-term debt basis differences ........... 0 (440) Other ...................................... (964) (1,194) -------------------------------- Total deferred income tax liabilities ...... (5,627) (6,152) -------------------------------- Deferred income tax assets: Postretirement benefits not currently deductible .................. 7,652 7,572 Accrued liabilities not currently deductible 1,394 745 Allowance for doubtful accounts and inventory reserves .................... 662 582 Stock option compensation not currently deductible .................. 326 270 Other ...................................... 303 135 -------------------------------- Total deferred income tax assets ........... 10,337 9,304 -------------------------------- Net deferred income tax asset .............. $ 4,710 $ 3,152 ================================ A reconciliation of the provision for income taxes at the statutory federal income tax rate to the Company's tax provision as reported in the accompanying statements of operations is shown below: 1996 1995 1994 - ------------------------------------ ---------- ----------- ----------- Federal statutory income tax rate ...................... $3,399 $2,606 $2,141 State income taxes, net of federal income tax benefit .... 456 460 378 Changes in the valuation allowance ..................... 0 (112) (193) Other, net ......................... 198 112 54 ---------- ----------- ----------- $4,053 $3,066 $2,380 ========== =========== =========== In 1996, 1995, and 1994, earnings before income taxes included $884, $283, and ($524), respectively, of earnings generated by the Company's foreign operations. No federal or state income taxes have been provided on such earnings, since undistributed earnings have been reinvested and are not expected to be remitted to the Parent Company. In December 1996, the Company was notified of a review of its 1994 federal income tax return by the Internal Revenue Service. Management believes this review will not have a material effect on operations. In 1996, Revenue Canada completed audits of Wood's-Canada's 1993, 1994, and 1995 federal income tax returns. Management believes this review will not have a material effect on operations. 23 6. BENEFIT PLANS Compensation Plans Wood's maintains a discretionary compensation plan for its salaried and hourly employees which provides for incentive awards based on certain levels of earnings, as defined. Amounts awarded under the plan and charged to expense in the accompanying statements of operations were $1,664, $1,443, and $1,190, for fiscal years 1996, 1995, and 1994, respectively. Profit-Sharing Plans Since January 1, 1988, the Company has maintained a separate defined contribution 401(k) profit-sharing plan covering all salaried and nonproduction unit domestic hourly employees. Under this plan, the Company matches a specified percentage of each eligible employee's contribution. Amounts contributed by the Company under this profit-sharing plan were approximately $500, $500, and $353, for fiscal years 1996, 1995, and 1994, respectively. In addition, the Company has other noncontributory profit-sharing plans covering its eligible production employees and Canadian employees for which $40, $41, and $44, were charged to expense for the fiscal years 1996, 1995, and 1994, respectively. Stock Options In March 1991, the Company granted nonqualified stock options to the president of the Company to purchase 157,893 shares of the Company's common stock at an option price of $6.33 per share. The options vest 30% in January 1993, 15% in January 1994, 1995, 1996, and 1997, and 10% in January 1998. On March 30, 1992, the option agreement was amended to set the option price at $1.58 per share plus an amount equal to the average yield on the 30-year U.S. Treasury bond maturing on the day closest to the fifteenth anniversary of the option measurement date. The options are exercisable on or after the seventh anniversary of the measurement date and expire one year thereafter. During 1992, the controlling shareholder granted an additional 47,367 options on the controlling shareholder's shares to a director, with terms similar to the 1991 options, as amended. Also in 1992, the Company granted an additional 30,000 options to an employee with terms similar to the 1991 options, as amended, with vesting beginning in 1994. The options are exercisable beginning on the seventh anniversary of the measurement date, as defined, and expire on the eighth anniversary of the measurement date. The option agreements contain various fair value puts and calls, with fair value to be determined the board of directors or an independent appraiser. As a result of the above amendment, beginning in March 1992, the Company began accounting for the options under variable plan accounting, whereby increases in the value of the Company's common stock above the option price resulted in the recording of compensation expense by the Company. Through December 31, 1994, the Company recorded no compensation expense related to the options as, in the opinion of management, the fair value of the Company's common stock was equal to or below the option price, as adjusted. Due to increases in the estimated fair value of the Company's common stock, as determined by an independent appraiser, the Company recorded stock option compensation expense of $675 for the year ended December 29, 1995. Additional stock option compensation expense of approximately $230 will be recorded in future periods based on the vesting schedule of options. In July 1995, the option agreements were amended to remove features of the options that resulted in variable plan accounting. Accordingly, subsequent to July 1, 1995, the options are being accounted for as fixed options whereby future increases in the value of the Company's common stock will not result in additional stock option compensation expense. In February 1994, the Company granted an additional 105,000 options with terms similar to those discussed above, except that the February 1994 options do not have a put feature and have an option price which 24 escalates during the vesting period at a fixed rate of 6% per year. The February 1994 options are exercisable at a fixed exercise price for a one-year period following the vesting period. The Company accounts for the February 1994 options as fixed options whereby future increases in the value of the Company's common stock do not result in the recording of compensation expense by the Company. The option agreements contain various fair value puts and calls, with fair value to be determined by the board of directors or an independent appraiser. In December 1994, the controlling shareholder of the Company granted 89,004 options on the controlling shareholder's shares to certain members of management which contain terms similar to the February 1994 options, except that the option price escalates during the vesting period at a fixed rate of 7.86% per year. As of January 3, 1997, 77,397 options have been exercised and 67,791 options are exercisable. The Company has adopted a 1996 Stock-Based Incentive Compensation Plan (the "1996 Plan"), the purpose of which is to assist the Company in attracting and retaining valued personnel by offering them a greater stake in the Company's success and a closer identity with the Company, and to encourage ownership of the Company's common stock by such personnel. The 1996 Plan is administered by a committee designated by the board of directors (the "Committee"). The aggregate maximum number of shares of common stock available for awards under the 1996 Plan is 500,000, subject to adjustment to reflect changes in the Company's capitalization. Awards under the 1996 Plan may be made to all officers and key employees of the Company. No awards can be made under the 1996 Plan after January 31, 2006. The Committee may grant shares of common stock in the form of either deferred stock or restricted stock, as defined in the 1996 Plan. Options granted under the 1996 Plan may be either incentive stock options ("ISOs") or nonqualified stock options. ISOs are intended to qualify as incentive stock options within the meaning of Section 422 of the Internal Revenue Code. Unless an option is specifically designated at the time of grant as an ISO, options under the 1996 Plan will be nonqualified. The exercise price of the options will be determined by the Committee. The maximum term of an option or Stock Appreciation Rights (SAR) granted under the 1996 Plan shall not exceed ten years from the date of grant or five years from the date of grant if the recipient on the date of grant owns, directly or indirectly, shares possessing more than 10% of the total combined voting power of all classes of stock of the Company. No option or SAR may be exercisable sooner than six months from the date the option or SAR is granted. As of January 3, 1997, no options have been granted under the 1996 Plan. Effective fiscal year 1996, the Company adopted SFAS No. 123, "Accounting for Stock-Based Compensation." SFAS No. 123 requires companies to estimate the value of all stock-based compensation using a recognized pricing model. However, it also allows an entity to continue to measure compensation cost for those plans using the method of accounting prescribed by Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees." Entities electing to remain with the accounting in APB No. 25 must make pro forma disclosures of net income and, if presented, earnings per share, as if the fair value-based method of accounting defined in the statement had been applied. The Company has elected to account for its stock-based compensations plan under APB No. 25; however, the Company has computed for pro forma disclosure purposes the value of all options amended during 1995 using the Black Sholes options pricing model as prescribed by SFAS No. 123 using the following assumptions: Risk free interest rate ............................................. 5.7% Expected lives ...................................................... 4 years Expected volatility ................................................. 33.0% 25 The total value of the options amended during the year ended December 29, 1995 was $975, which would be amortized over the vesting period of the options. If the Company had accounted for these plans in accordance with SFAS No. 123, the Company's reported pro forma net income and pro forma net income per share for the fiscal years 1996 and 1995 would have been as follows: 1996 1995 ---- ---- Net income as reported ..................... $4,640 $4,599 Pro forma .................................. 4,629 4,575 Primary EPS as reported .................... .83 1.21 Pro forma .................................. .83 1.20 Postretirement Benefits The Company sponsors a defined benefit postretirement medical plan which provides coverage for retirees and their dependents. A portion of the plan is paid for by retiree cost sharing. The accounting for the plan anticipates future cost sharing increases to keep pace with health care inflation. The plan is unfunded. The following table summarizes the Company's postretirement benefit obligations and the assumptions used in determining postretirement benefit cost. 1996 1995 - ----------------------------------------------- ------------ -------------- Accumulated postretirement benefit obligation: Retirees ...................................... $ 4,061 $ 8,607 Fully eligible active plan participants ....... 938 34 Other active participants ..................... 1,474 1,823 ------------ -------------- Total obligation .............................. 6,473 10,464 Unrecognized prior service gain and actuarial gains ...................... 12,655 8,464 ------------ -------------- Postretirement benefit obligation ............. $19,128 $18,928 ============ ============== Discount Rate ................................. 7.75% 7.50% ------------ -------------- Initial health care cost trend ................ 8.00% 9.00% ------------ -------------- Ultimate health care cost trend rate .......... 5.00% 6.00% ------------ -------------- Year ultimate health care cost trend rate reached ....................... 2004 2007 ------------ -------------- The health care cost trend rate has an effect on the amounts reported. To illustrate, increasing the assumed health care cost trend rate by 1% for each year would increase the APBO as of January 3, 1997 by approximately $950 and the aggregate of service and interest costs components of net periodic postretirement benefit cost for fiscal year 1996 by approximately $135. Net periodic postretirement benefit costs include the following components: 1996 1995 ---- ---- Service cost ...................................... $140 $158 Interest cost ..................................... 762 868 Amortization ...................................... (475) (437) ---- ---- Net benefit cost .................................. $427 $589 ==== ==== 26 7. TRANSACTIONS WITH AFFILIATE Prior to the Offering (Note 9), the Company had a management services agreement and aircraft use agreement. The Company paid The NTC Group, Inc. an aggregate of $36, $400, and $396, in fiscal years 1996, 1995, and 1994, respectively. 8. COMMITMENTS AND CONTINGENCIES Legal Proceedings The Company is subject to a number of legal actions arising in the ordinary course of business. In management's opinion, the ultimate resolution of these actions will not materially affect the Company's financial position or results of operations. Environmental Risks The Company's operations and properties are subject to federal, state, and local laws, regulations, and ordinances relating to certain materials, substances, and wastes. The nature of the Company's operations exposes it to the risk of claims with respect to environmental matters. Based on the Company's experience to date, management believes that the future cost of compliance with existing environmental requirements will not have a material adverse effect on the Company's operations or financial position. Operating Lease Commitments The Company leases office space, office equipment, and other items under noncancelable operating leases. The expense for noncancelable operating leases was approximately $600, $582, and $617, for fiscal years 1996, 1995, and 1994, respectively. At January 3, 1997, future minimum lease payments under noncancelable operating leases are as follows: 1997 ................................. $460 1998 ................................. 168 1999 ................................. 88 2000 ................................. 25 2001 and thereafter .................. 12 ---- $753 ==== 9. ACQUISITIONS, MERGERS AND PUBLIC OFFERING Acquisitions On January 7, 1994, the Company acquired PEC. PEC manufactures integrated electronic drive systems. The acquisition was structured as a stock purchase with total cash consideration of approximately $3,386. The purchase price is subject to adjustment for certain performance-based earn-out provisions contained in the purchase agreement. As of January 3, 1997, the amount of the earn-out has been immaterial. Goodwill associated with the purchase is being amortized over 40 years using the straight-line method (Note 2). In May 1994, the Company acquired the composite drive shaft and industrial couplings rolls product lines from CCDI Composites, Inc. ("CCDI") for total cash consideration of approximately $711. Adjustments to the purchase price will be reflected as an adjustment to goodwill. Goodwill associated with the purchase is being amortized over 40 years using the straight-line method (Note 2). 27 In May 1994, the Company sold certain product lines to a third party for total cash consideration of approximately $2,200. The Company has recorded a gain on sale of approximately $1,398 in the accompanying statements of operations for the year ended December 31, 1994. In February 1996, the Company exercised an option to purchase the outstanding shares of Grupo Blaju, S.A., de C.V. (subsequently renamed TB Wood's Mexico, S.A., de C.V.) and its subsidiaries for approximately $458, including legal and professional fees. There was no goodwill associated with the purchase. In October 1996, the Company purchased the assets of Ambi-Tech Industries, Inc.("Ambi-Tech"), a leading manufacturer of electronic brakes for electric motors, for approximately $991 of cash, including legal and professional fees, and an $800 note payable at 7% interest. Principal is due in five annual installment of $160 beginning September, 1997. Goodwill associated with the purchase is being amortized over 40 years using the straight-line method (Note 2). In November 1996, the Company acquired certain assets of Deck Manufacturing Corp. ("Deck"), an established designer and manufacturer of industrial disc and gear couplings, for approximately $1,471 of cash, including legal and professional fees. Goodwill associated with the purchase is being amortized over 40 years using the straight-line method (Note 2). The Company also loaned Deck $400 which is secured by the excess accounts receivable and the inventory not acquired. The note receivable is included in other assets. The acquisitions of Wood's-Mexico, Ambi-Tech, and Deck are not material to the consolidated financial statements. Accordingly, pro forma results of operations for the year ended January 3, 1997 have not been presented. Merger In January 1996, the Company completed a merger (the "Merger") in contemplation of an initial public offering of the Company's common stock. Pursuant to the Merger, a subsidiary of a newly formed holding company merged with Wood's-U.S., with Wood's-U.S. as the surviving corporation. In the Merger, the shareholders of Wood's-U.S. received three shares of the holding company's stock in exchange for each share of Wood's-U.S. stock. The financial statements of the Company, prior to January 1996, have been restated to include the effects of the Merger. Initial Public Offering Effective February 8, 1996, the Company completed an Offering of its common stock that raised approximately $22,478 in aggregate gross proceeds for the Company. The net proceeds (after deducting issuance costs) of approximately $19,823 from the Offering were used to repay $4,767 of the Fleet Term Loan, $5,203 of the Senior Fleet Revolver Loan, and $10,000 of the USL Fixed and Floating Rate Notes. In addition, the Company paid approximately $616 to USL. In conjunction with the Offering, USL redeemed warrants to purchase 375,000 shares of the Company's stock which were included in the shares of common stock issued by selling shareholders. The Company also purchased the remaining 21% interest of Wood's-Canada held by the shareholders of Wood's-U.S. for approximately $1,600. The effects of interest and other charges in fiscal 1996, prior to the Offering, are not material to the consolidated financial statements. Accordingly, pro forma results of operations for the year ended January 3, 1997 have not been presented. 28 QUARTERLY FINANCIAL DATA (UNAUDITED) Fiscal Quarters 1996 First Second Third Fourth - -------------------------------- ---------- ---------- --------- ------------ Sales .......................... $23,813 $25,107 $25,849 $27,736 Gross profit ................... 8,892 9,190 9,324 10,341 Gross profit % ................. 37.3% 36.6% 36.1% 37.3% Net income(loss) before extraordinary item ........ 933 (1) 1,515 1,684 1,813 Per share of common stock: Net income (loss) before extraordinary item ........ .19 (1) .26 .29 .31 Net income ..................... (.08)(2) .26 .29 .31 Dividends declared ............. - .08 .08 .08 ========== ========== ========= ============ (1) Includes a non-recurring charge of $349 ($.07 per share) net of taxes, related to the write-off of a non-compete agreement in February 1996. (2) Includes extraordinary charges of $1,305 ($.27 per share), net of taxes, for the early repayment of debt related to the Offering of stock in February 1996. Fiscal Quarters 1995 First Second Third Fourth - ---------------------- ------------- -------------- -------------- ------------- Sales ................ $25,474 $27,055 $25,263 $24,515 Gross profit ......... 9,032 9,761 8,784 8,534 Gross profit % ....... 35.5% 36.1% 34.8% 34.8% Net income ........... 1,001 1,207 1,196 1,195 Net income per common share .... 0.27 0.32 0.31 0.31 ------------- -------------- -------------- ------------- Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None. PART III Item 10. Directors and Executive Officers of the Registrant. The information called for by this Item regarding directors and executive officers is set forth in the Company's definitive Proxy Statement for the 1997 Annual Meeting in the Sections entitled "Election of Director," "Management" and "Compliance with Section 16(a) of the Exchange Act" and is incorporated herein by reference. Item 11. Executive Compensation. The information called for by this Item is set forth in the Company's definitive Proxy Statement for the 1997 Annual Meeting in the Section entitled "Executive Compensation" and is incorporated herein by reference. 29 Item 12. Security Ownership of Certain Beneficial Owners and Management. The information called for by this Item is set forth in the Company's definitive Proxy Statement for the 1997 Annual Meeting in the Section entitled "Security Ownership of Certain Beneficial Owners and Management" and is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions The information called for by this Item is set forth in the Company's definitive Proxy Statement for the 1997 Annual Meeting in the Section entitled "Certain Relationships and Related Transactions" and is incorporated herein by reference. PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. (a) The following documents are filed as a part of this report: (1) All financial statements; The CONSOLIDATED financial statements of the Company and its subsidiaries on pages 12 through 29 hereof and the report thereon of Arthur Andersen LLP appearing on page 13 hereof. (2) Financial Statement Schedule Schedule II for the fiscal year ended January 3, 1997 and the report of Arthur Andersen thereon. (3) Exhibits Number Description - ------ ----------- 3.1 Amended Certificate of Incorporation of the Company (incorporated by reference to T.B. Wood's Corporation Registration Statement filed on Form S-1, as amended, File No. 33-96498 ("Form S-1") Exhibit 3.1). 3.2 Amended and Restated By-laws of the Company (incorporated by reference to Form S-1 Exhibit 3.2). 4.1 Shareholders' Agreements by and among T.B. Wood's Sons Company, Thomas C. Foley and Gifford P. Foley, Barton J. Winokur, Kurt A. Herwald, Michael L. Hurt, Michael H. Iversen, David H. Halleen, Stanley L. Mann, Lee J. McCullough, Carl R. Christenson, Harold L. Coder, III, James E. Williams, Joseph S. Augustine, Bernard M. Goldsmith, Harvey R. Heller, Robert Patterson Saltsman, F. Philip Handy, F. Philip Handy, as Guardian of the Property of Kate Elizabeth Handy, F. Philip Handy, as Guardian of the Property of Philip Breckenridge Handy and F. Philip Handy, as Guardian of the Property of Abigail Slocum Handy (incorporated by reference to Form S-1 Exhibit 4.1). 4.2 Amendments to Shareholders' Agreements by and among TB Wood's Incorporated (formerly known as "T.B. Wood's Sons Company"), Thomas C. Foley and Gifford P. Foley, Barton J. Winokur, Kurt A. Herwald, Michael L. Hurt, Michael H. Iversen, David H. Halleen, Stanley L. Mann, Lee J. McCullough, Carl R. Christenson, Harold L. Coder, III, James E. Williams, Joseph S. Augustine (incorporated by reference to Form S-1 Exhibit 4.2). 9.1 Voting Trust Agreement dated March 31, 1989, among T.B. Wood's Son's Company and Bernard M. Goldsmith, Harvey R. Heller, Robert Patterson Saltsman, F. Philip Handy, F. Philip Handy, as Guardian of 30 the Property of Abigail Slocum Handy, Kate Elizabeth Handy, Philip Breckenridge Handy and F. Philip Handy, as Trustee (incorporated by reference to Form S-1 Exhibit 9.1). 10.1 Stock Purchase Agreement dated January 7, 1994 by and among T.B. Wood's Sons Company, Plant Engineering Consultants, Inc. and John Morris, Jesse Batten, Ralph Pedigo, Ronald Bingham, Walter Taeubel and Cook Family Trust (incorporated by reference to Form S-1 Exhibit 10.1). 10.2 Asset Purchase Agreement dated May 12, 1994 by and between T.B. Wood's Sons Company and Magnetic Power Systems, Inc. (incorporated by reference to Form S-1 Exhibit 10.2). 10.3 Loan and Security Agreement dated March 31, 1993 by and between T.B. Wood's Sons Company and Barclays Business Credit, Inc. (incorporated by reference to Form S-1 Exhibit 10.3). 10.4 Revolving Credit Note dated March 31, 1993 issued by T.B. Wood's Sons Company in favor of Barclays Business Credit, Inc. (incorporated by reference to Form S-1 Exhibit 10.4). 10.5 Term Note dated March 31, 1993 issued by T.B. Wood's Sons Company in favor of Barclays Business Credit, Inc. (incorporated by reference to Form S-1 Exhibit 10.5). 10.6 Pledge Agreement dated March 31, 1993 by and between T.B. Wood's Sons Company and Barclays Business Credit, Inc. (incorporated by reference to Form S-1 Exhibit 10.6). 10.7 Debenture dated March 1993 issued by TB Wood's Canada, Ltd. in favor of Barclays Business Credit, Inc. (incorporated by reference to Form S-1 Exhibit 10.7). 10.8 Guarantee dated March 26, 1993 issued by TB Wood's Canada, Ltd. in favor of Barclays Business Credit, Inc. (incorporated by reference to Form S-1 Exhibit 10.8). 10.9 Trademark Collateral Security Agreement dated March 31, 1993 by and between T.B. Wood's Sons Company and Barclays Business Credit, Inc. (incorporated by reference to Form S-1 Exhibit 10.9). 10.10 Trademark Assignment of Security dated March 31, 1993 by T.B. Wood's Sons Company in favor of Barclays Business Credit, Inc. (incorporated by reference to Form S-1 Exhibit 10.10). 10.11 Patent Collateral Security Agreement dated March 31, 1993 by and between T.B. Wood's Sons Company in favor of Barclays Business Credit, Inc. (incorporated by reference to Form S-1 Exhibit 10.11). 10.12 Patent Assignment of Security Agreement dated March 31, 1993 in favor of Barclays Business Credit, Inc. (incorporated by reference to Form S-1 Exhibit 10.12). 10.13 Open-end Mortgage and Security Agreement dated as of March 31, 1993 by T.B. Wood's Sons Company to Barclays Business Credit, Inc. (incorporated by reference to Form S-1 Exhibit 10.13). 10.14 Deed of Trust, Assignment of Rents and Security Agreement from T.B. Wood's Sons Company to David G. Williams, Esq. for the benefit of Barclays Business Credit, Inc. (incorporated by reference to Form S-1 Exhibit 10.14). 10.15 Deed of Trust, Assignment of Rents and Security Agreement dated as of March 31, 1993 from T.B. Wood's Sons Company to Steve Lawrence, Esq. for the benefit of Barclays Business Credit, Inc. (incorporated by reference to Form S-1 Exhibit 10.15). 31 10.16 Mortgage and Security Agreement dated as of March 31, 1993 by T.B. Wood's Sons Company to Barclays Business Credit, Inc. (incorporated by reference to Form S-1 Exhibit 10.16). 10.17 Mortgage and Security Agreement dated as of March 31, 1993 by T.B. Wood's Sons Company to Barclays Business Credit, Inc. (incorporated by reference to Form S-1 Exhibit 10.17). 10.18 First Amendment dated April 2, 1993 to Loan and Security Agreement dated March 31, 1993 between T.B. Wood's Sons Company and Barclays Business Credit, Inc. (incorporated by reference to Form S-1 Exhibit 10.18). 10.19 Amendment #2 dated June 7, 1994 to Loan and Security Agreement dated March 31, 1993 between T.B. Wood's Sons Company and Barclays Business Credit, Inc. (incorporated by reference to Form S-1 Exhibit 10.19). 10.20 Stock Pledge Agreement dated as of June 7, 1994 between T.B. Wood's Sons Company and Barclays Business Credit, Inc. (incorporated by reference to Form S-1 Exhibit 10.20). 10.21 Guaranty dated June 7, 1994 issued by Plant Engineering Consultants, Inc. in favor of Barclays Business Credit, Inc. (incorporated by reference to Form S-1 Exhibit 10.21). 10.22 Security Agreement dated June 7, 1994 by and between Plant Engineering Consultants, Inc. and Barclays Business Credit, Inc. (incorporated by reference to Form S-1 Exhibit 10.22). 10.23 Note and Warrant Purchase Agreement dated as of March 31, 1993 between T.B. Wood's Sons Company and Unites States Leasing International, Inc. (incorporated by reference to Form S-1 Exhibit 10.23). 10.24 12.25% Senior Subordinated Fixed Rate Note due March 31, 2002 issued by T.B. Wood's Sons Company in favor of United States Leasing International, Inc. (incorporated by reference to Form S-1 Exhibit 10.24). 10.25 Senior Subordinated Floating Rate Note due March 31, 2003 issued by T.B. Wood's Sons Company in favor of United States Leasing International, Inc. (incorporated by reference to Form S-1 Exhibit 10.25). 10.26 Lien Priority Agreement dated as of March 31, 1993 by and among United States Leasing International, Inc., T.B. Wood's Sons Company and Barclays Business Credit, Inc. (incorporated by reference to Form S-1 Exhibit 10.26). 10.27 Subordinated Guaranty dated as of March 31, 1993 by TB Wood's Canada, Ltd. in favor of United States Leasing, Inc. (incorporated by reference to Form S-1 Exhibit 10.27). 10.28 Subsidiary Pledge Agreement dated as of March 31, 1993 by the Shareholders listed on the signature page thereto in favor of United States Leasing, Inc. (incorporated by reference to Form S-1 Exhibit 10.28). 10.29 Subordination Agreement dated as of March 31, 1993 by T.B. Wood's Sons Company and the junior subordinated creditors listed on the signature pages thereto (incorporated by reference to Form S-1 Exhibit 10.29). 10.30 Warrant to Purchase Common Stock dated April 1993 issued by T.B. Wood's Sons Company in favor of United States Leasing International, Inc. (incorporated by reference to Form S-1 Exhibit 10.30). 10.31 Junior Subordinated Promissory Note dated March 31, 1993 issued by T.B. Wood's Sons Company in favor of The Bibb Company (incorporated by reference to Form S-1 Exhibit 10.31). 32 10.32 Warrant to Purchase Common Stock dated April 1993 issued by T.B. Wood's Sons Company to The Bibb Company (incorporated by reference to Form S-1 Exhibit 10.32). 10.33 Subordinated Promissory Note dated April 2, 1993 issued by T.B. Wood's Sons Company in favor of Charles O. Wood, III, together with a Subordination Agreement dated April 2, 1993 by T.B. Wood's Sons Company, TB Wood's Canada, Ltd., Mr. Wood and the subordinated creditors listed on the signature pages thereto (incorporated by reference to Form S-1 Exhibit 10.33). 10.34 Management Services Agreement dated as of January 1, 1993 between T.B. Wood's Sons Company and The NTC Group, Inc., together with Amendment No. 1 dated as of April 2, 1993 (incorporated by reference to Form S-1 Exhibit 10.34). 10.35 Letter confirming Aircraft Services Agreement dated January 1, 1993 between T.B. Wood's Sons Company and The NTC Group, Inc. (incorporated by reference to Form S-1 Exhibit 10.35). 10.36 Non-Qualified Stock Option Agreements between T.B. Wood's Sons Company and Joseph S. Augustine, Michael H. Iversen, David H. Halleen, Stanley L. Mann, Lee J. McCullough, Carl R. Christenson, Harold L. Coder, III and James E. Williams (incorporated by reference to Form S-1 Exhibit 10.36). 10.37 Non-Qualified Stock Option Agreement dated as of March 15, 1991 between T.B. Wood's Sons Company and Michael L. Hurt, together with Addendum dated as of March 30, 1992 (incorporated by reference to Form S-1 Exhibit 10.37). 10.38 Asset Purchase Agreement between T.B. Wood's Sons Company and Dana Corporation dated March 31, 1993 (includes Schedule 7.11 On-Site Environmental Procedures) (incorporated by reference to Form S-1 Exhibit 10.38). 10.39 TB Wood's Corporation 1996 Stock-Based Incentive Compensation Plan (incorporated by reference to Form S-1 Exhibit 10.39). 10.40 Amendments to the Non-Qualified Stock Option Agreements between TB Wood's Incorporated (formerly known as "T.B. Wood's Sons Company") and Joseph S. Augustine, Michael H. Iversen, David H. Halleen, Stanley L. Mann, Lee J. McCullough, Carl R. Christenson, Harold L. Coder, III and James E. Williams (incorporated by reference to Form S-1 Exhibit 10.40). 10.41 Second Addendum dated July 1, 1995 to the Non-Qualified Stock Option Agreement dated as of March 15, 1991 between TB Wood's Incorporated (formerly known as "T. B. Wood's Sons Company") and Michael L. Hurt (incorporated by reference to Form S-1 Exhibit 10.41). 10.42 Termination Agreement dated January 27, 1996 between the NTC Group, Inc. and TB Wood's Incorporated (formerly known as "T.B. Wood's Sons Company") terminating the Management Services Agreement dated as of January 1, 1993 (incorporated by reference to Form S-1 Exhibit 10.42). 10.43 Stock Purchase Agreement by and among TB Wood's Incorporated and Grupo Blaju, S.A. de C.V. and Jorge R. Kiewek, Ninfa D. de Callejas and Marcela Kiewek G., dated February 14, 1996 (incorporated by reference to Form 10k, for fiscal year 1995, Exhibit 10.43). 10.44 Revolving Credit Agreement by and among TB Wood's Incorporated, Plant Engineering Consultants, Inc., Grupo Blaju, S.A., de C.V., TB Wood's Canada, Ltd. and the Banks Party thereto and PNC Bank, National Association, as Agent, dated October 10, 1996. 33 10.45 TB Wood's Employee Stock Purchase Plan, dated March 1, 1997. 11.1 Statement regarding Computation of Per Share Earnings. 21.1 Subsidiaries of Registrant (incorporated by reference to Form S-1 Exhibit 21.1). (b) Reports on Form 8-K. There were no reports on Form 8-K by the Registrant during the fourth quarter of fiscal year 1996. 34 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Chambersburg and Commonwealth of Pennsylvania, on March 25, 1997. TB WOOD'S CORPORATION By: /s/ MICHAEL L. HURT ------------------- Michael L. Hurt President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated. /s/ THOMAS C. FOLEY Chairman of the Board March 25, 1997 - ------------------- Thomas C. Foley (Principal Executive Officer) /s/ MICHAEL L. HURT President and Director March 25, 1997 - ------------------- Michael L. Hurt (Principal Executive Officer) /s/ JEAN-PIERRE L. CONTE Director March 25, 1997 - ------------------------ Jean-Pierre L. Conte /s/ CRAIG R. STAPLETON Director March 25, 1997 - ---------------------- Craig R. Stapleton /s/ DAVID H. HALLEEN Vice President of Finance, March 25, 1997 - -------------------- David H. Halleen Treasurer and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) 35
TB Wood's Corporation And Subsidiaries Schedule II Valuation And Qualifying Accounts Column A Column B Column C Column D Column E Additions --------- Balance at Deductions (write-offs beginning of Charged to costs Charged to other of bad debts, discounts Balance at Description period and expenses accounts and claims in excess of end of period provision)(1) - ---------------------------------------------------------------------------------------------------------------------------- Year ended December 31, 1994: Allowance for doubtful $156 65 (49) $172 accounts Allowance for discounts and 357 13 (163) 207 claims --------------------------------------------------------------------------------------------- 513 78 0 (212) 379 ============================================================================================= Year ended December 29, 1995: Allowance for doubtful $172 273 (81) $364 accounts Allowance for discounts and 207 62 (123) 146 claims --------------------------------------------------------------------------------------------- 379 335 0 (204) 510 ============================================================================================= Year ended January 3, 1997: Allowance for doubtful $364 65 (63) $366 accounts Allowance for discounts and 146 (75) 71 claims --------------------------------------------------------------------------------------------- 510 65 0 (138) 437 ============================================================================================= ______________ Note: (1) Represents write-off accounts to be uncollectible, less recoveries of amounts previously written off.
EX-10 2 EXHIBIT 10.44 $40,000,000 REVOLVING CREDIT FACILITY REVOLVING CREDIT AGREEMENT by and among TB WOOD'S INCORPORATED and PLANT ENGINEERING CONSULTANTS, INC. and GRUPO BLAJU, S.A., de C.V. and TB WOOD'S CANADA, LTD. and THE BANKS PARTY HERETO and PNC BANK, NATIONAL ASSOCIATION, as Agent Dated as of October 10, 1996 TABLE OF CONTENTS Section Page - ------- ---- 1. CERTAIN DEFINITIONS ........................................................1 1.1 Certain Definitions ..................................................1 1.2 Construction ........................................................16 1.2.1 Number; Inclusion ................................................16 1.2.2 Determination ....................................................16 1.2.3 Agent's Discretion and Consent ...................................17 1.2.4 Documents Taken as a Whole .......................................17 1.2.5 Headings .........................................................17 1.2.6 Implied References to this Agreement .............................17 1.2.7 Persons ..........................................................17 1.2.8 Modifications to Documents .......................................17 1.2.9 From, To and Through .............................................17 1.2.10 Shall; Will ......................................................18 1.3 Accounting Principles ...............................................18 2. REVOLVING CREDIT FACILITY .................................................18 2.1 Commitments .........................................................18 2.1.1 Loans ............................................................18 2.1.2 Voluntary Reduction of Commitment ................................18 2.2 Nature of Banks' Obligations with Respect to Loans ..................19 2.3 Commitment Fees .....................................................19 2.4 Revolving Credit Facility Fee .......................................20 2.5 Loan Requests .......................................................20 2.6 Making Loans ........................................................20 2.7 Notes ...............................................................21 2.8 Use of Proceeds .....................................................21 2.9 Letter of Credit Subfacility ........................................21 2.9.1 Issuance of Letters of Credit ....................................21 2.9.2 Letter of Credit Fees ............................................22 2.9.3 Disbursements, Reimbursement .....................................22 2.9.4 Repayment of Participation Advances ..............................23 2.9.5 Documentation ....................................................23 2.9.6 Determinations to Honor Drawing Requests .........................24 2.9.7 Nature of Participation and Reimbursement Obligations ............24 i TABLE OF CONTENTS Section Page - ------- ---- 2.9.8 Indemnity .......................................................25 2.9.9 Liability for Acts and Omissions ................................26 2.10 Extension by Banks of the Expiration Date ...........................26 2.10.1 Requests; Approval by All Banks ................................26 2.10.2 Approval by Required Banks .....................................27 3. [RESERVED] ................................................................27 4. INTEREST RATES ............................................................27 4.1 Interest Rate Options ...............................................27 4.1.1 Revolving Credit Interest Rate Options ..........................27 4.1.2 Rate Quotations .................................................28 4.2 Interest Periods ....................................................29 4.2.1 Ending Date and Business Day ....................................29 4.2.2 Amount of Borrowing Tranche .....................................29 4.2.3 Termination Before Expiration Date ..............................29 4.2.4 Renewals ........................................................29 4.3 Interest After Default ..............................................29 4.3.1 Letter of Credit Fees, Interest Rate ............................29 4.3.2 Other Obligations ...............................................30 4.3.3 Acknowledgment ..................................................30 4.4 Euro-Rate Unascertainable; Illegality; Increased Costs; Deposits Not Available 30 4.4.1 Unascertainable .....................30 4.4.2 Illegality; Increased Costs; Deposits Not Available .............30 4.4.3 Agent's and Bank's Rights .......................................31 4.4.4 Uniform Application .............................................31 4.5 Selection of Interest Rate Options ..................................31 5. PAYMENTS ..................................................................32 5.1 Payments ............................................................32 5.2 Pro Rata Treatment of Banks .........................................32 5.3 Interest Payment Dates ..............................................32 5.4 Voluntary Prepayments ...............................................33 5.4.1 Right to Prepay .................................................33 5.4.2 Change of Lending Office ........................................34 ii TABLE OF CONTENTS Section Page - ------- ---- 5.5 [RESERVED] ..........................................................34 5.6 Additional Compensation in Certain Circumstances ....................34 5.6.1 Increased Costs or Reduced Return Resulting From Taxes, Reserves, Capital Adequacy Requirements, Expenses, Etc. .........34 5.6.2 Indemnity .......................................................35 5.7 Special Provisions Concerning Foreign Borrowers .....................36 6. REPRESENTATIONS AND WARRANTIES ............................................36 6.1 Representations and Warranties ......................................36 6.1.1 Organization and Qualification ..................................36 6.1.2 Capitalization and Ownership ....................................36 6.1.3 Subsidiaries ....................................................36 6.1.4 Power and Authority .............................................37 6.1.5 Validity and Binding Effect .....................................37 6.1.6 No Conflict .....................................................37 6.1.7 Litigation ......................................................38 6.1.8 Title to Properties .............................................38 6.1.9 Financial Statements ............................................38 6.1 10 Use of Proceeds; Margin Stock ...................................39 6.1.11 Full Disclosure .................................................39 6.1.12 Taxes ...........................................................39 6.1.13 Consents and Approvals ..........................................40 6.1.14 No Event of Default; Compliance with Instruments ................40 6.1.15 Patents, Trademarks, Copyrights, Licenses, Etc. .................40 6.1.16 Insurance .......................................................40 6.1.17 -Compliance with Laws ...........................................40 6.1.18 Material Contracts; Burdensome Restrictions .....................41 6.1.19 Investment Companies; Regulated Entities ........................41 6.1.20 Plans and Benefit Arrangements ..................................41 6.1.21 Employment Matters ..............................................42 6.1.22 Environmental Matters ...........................................43 6.1.23 Senior Debt Status ..............................................44 7. CONDITIONS OF LENDING .....................................................44 7.1 First Loans .........................................................44 7.1.1 Officer's Certificate ...........................................44 7.1.2 Secretary's Certificate .........................................45 7.1.3 Delivery of Loan Documents ......................................45 7.1.4 Opinion of Counsel ..............................................45 7.1.5 Legal Details ...................................................45 7.1.6 Payment of Fees .................................................46 7.1.7 Lien Searches and Fleet Payoff ..................................46 7.1.8 [RESERVED] ......................................................46 iii TABLE OF CONTENTS Section Page - ------- ---- 7.1.9 Consents ........................................................46 7.1.10 Officer's Certificate Regarding MACs ............................46 7.1.11 No Violation of Laws ............................................46 7.1.12 No Actions or Proceedings .......................................46 7.1.13 Insurance Policies; Certificates of Insurance; Endorsements .....47 7.2 Each Additional Loan ................................................47 8. COVENANTS .................................................................47 8.1 Affirmative Covenants ...............................................47 8.1.1 Preservation of Existence, Etc. .................................47 8.1.2 Payment of Liabilities, Including Taxes, Etc. ...................48 8.1.3 Maintenance of Insurance ........................................48 8.1.4 Maintenance of Properties and Leases ............................48 8.1.5 Maintenance of Patents, Trademarks, Etc. ........................48 8.1.6 Visitation Rights ...............................................49 8.1.7 Keeping of Records and Books of Account .........................49 8.1.8 Plans and Benefit Arrangements ..................................49 8.1.9 Compliance with Laws ............................................49 8.1.10 Use of Proceeds .................................................50 8.1.11 Further Assurances ..............................................50 8.1.12 Subordination of Intercompany Loans .............................50 8.2 Negative Covenants ..................................................50 8.2.1 Indebtedness .....................................................51 8.2.2 Liens ............................................................51 8.2.3 Guaranties .......................................................51 8.2.4 Loans and Investments ............................................52 8.2.5 Dividends and Related Distributions ..............................52 8.2.6 Liquidations, Mergers, Consolidations, Acquisitions ..............53 8.2.7 Dispositions of Assets or Subsidiaries ...........................54 8.2.8 Affiliate Transactions ...........................................55 8.2.9 Subsidiaries, Partnerships and Joint Ventures ....................55 8.2.10 Continuation of or Change in Business ...........................55 8.2.11 Plans and Benefit Arrangements ..................................55 8.2.12 Fiscal Year .....................................................56 8.2.13 Issuance of Stock ...............................................56 8.2.14 Changes in Organizational Documents .............................57 8.2.15 Capital Expenditures and Leases .................................57 8.2.16 Minimum Interest Coverage Ratio .................................57 8.2.17 Minimum Tangible Net Worth ......................................57 8.2.18 Maximum Leverage Ratio ..........................................58 8.2.19 Operating Assets; Acquisitions ..................................58 8.2.20 Outside Investment Limit ........................................58 8.3 Reporting Requirements ..............................................58 iv TABLE OF CONTENTS Section Page - ------- ---- 8.3.1 [RESERVED] ......................................................58 8.3.2 Quarterly Financial Statements ..................................58 8.3.3 Annual Financial Statements .....................................58 8.3.4 Certificate of the Borrower .....................................59 8.3.5 Notice of Default ...............................................59 8.3.6 Notice of Litigation ............................................59 8.3.7 Certain Events ..................................................59 8.3.8 Budgets, Forecasts, Other Reports and Information ...............60 8.3.9 Notices Regarding Plans and Benefit Arrangements ................60 8.3.10 Material Venture Investments ....................................62 9. DEFAULT ...................................................................62 9.1 Events of Default ...................................................62 9.1.1 Payments Under Loan Documents ...................................62 9.1.2 Breach of Warranty ..............................................62 9.1.3 Breach of Negative Covenants or Visitation Rights ...............63 9.1.4 Breach of Other Covenants .......................................63 9.1.5 Defaults in Other Agreements or Indebtedness ....................63 9.1.6 Final Judgments or Orders .......................................63 9.1.7 Loan Document Unenforceable .....................................63 9.1.8 Uninsured Losses; Proceedings Against Assets ....................64 9.1.9 Notice of Lien or Assessment ....................................64 9.1.10 Insolvency ......................................................64 9.1.11 Events Relating to Plans and Benefit Arrangements ...............64 9.1.12 Cessation of Business ...........................................65 9.1.13 Change of Control ...............................................65 9.1.14 Involuntary Proceedings .........................................65 9.1.15 Voluntary Proceedings ...........................................65 9.2 Consequences of Event of Default ....................................66 9.2.1 Events of Default Other Than Bankruptcy, Insolvency or Reorganization Proceedings ......................................66 9.2.2 Bankruptcy, Insolvency or Reorganization Proceedings ............66 9.2.3 Set-off .........................................................66 9.2.4 Suits, Actions, Proceedings .....................................67 9.2.5 Application of Proceeds .........................................67 9.2.6 Other Rights and Remedies .......................................68 10. THE AGENT ................................................................68 10.1 Appointment ........................................................68 10.2 Delegation of Duties ...............................................68 10.3 Nature of Duties; Independent Credit Investigation .................68 10.4 Actions in Discretion of Agent; Instructions from the Banks ........69 v TABLE OF CONTENTS Section Page - ------- ---- 10.5 Reimbursement and Indemnification of Agent by the Borrower .........69 10.6 Exculpatory Provisions; Limitation of Liability ....................70 10.7 Reimbursement and Indemnification of Agent by Banks ................71 10.8 Reliance by Agent ..................................................71 10.9 Notice of Default ..................................................71 10.10 Notices ...........................................................71 10.11 Banks in Their Individual Capacities ..............................72 10.12 Holders of Notes ..................................................72 10.13 Equalization of Banks .............................................72 10.14 Successor Agent ...................................................73 10.15 Agent's Fee .......................................................73 10.16 Availability of Funds .............................................73 10.17 Calculations ......................................................74 10.18 Beneficiaries .....................................................74 11. MISCELLANEOUS ............................................................74 11.1 Modifications, Amendments or Waivers ...............................74 11.1.1 Increase of Commitment; Extension or Expiration Date ...........74 11.1.2 Extension of Payment; Reduction of Principal Interest or Fees; Modification of Terms of Payment. ........................74 11.1.3 Release of Guarantor ...........................................75 11.1.4 Miscellaneous ..................................................75 11.2 No Implied Waivers; Cumulative Remedies; Writing Required ..........75 11.3 Reimbursement and Indemnification of Banks by the Borrower; Taxes 75 11.4 Holidays ...........................................................76 11.5 Funding by Branch, Subsidiary or Affiliate .........................77 11.5.1 Notional Funding ...............................................77 11.5.2 Actual Funding .................................................77 11.6 Notices ............................................................77 vi TABLE OF CONTENTS Section Page - ------- ---- 11.7 Severability .......................................................78 11.8 Governing Law ......................................................78 11.9 Prior Understanding ................................................78 11.10 Duration; Survival ................................................78 11.11 Successors and Assigns ............................................79 11.12 Confidentiality ...................................................80 11.13 Counterparts ......................................................80 11.14 Agent's or Bank's Consent .........................................80 11.15 Exceptions ........................................................80 11.16 CONSENT TO FORUM; WAIVER OF JURY TRIAL ............................81 11.17 Tax Withholding Clause ............................................81 11.18 Joinder of Borrowers ..............................................82 vii LIST OF SCHEDULES AND EXHIBITS SCHEDULE SCHEDULE 1.1(B) - COMMITMENTS OF BANKS AND ADDRESSES FOR NOTICES SCHEDULE 1.1(P) - PERMITTED LIENS SCHEDULE 6.1.1 - QUALIFICATIONS TO DO BUSINESS SCHEDULE 6.1.2 - CAPITALIZATION SCHEDULE 6.1.3 - BORROWERS/SUBSIDIARIES EXCEPTIONS SCHEDULE 6.1.16 - INSURANCE POLICIES SCHEDULE 6.1.20 - EMPLOYEE BENEFIT PLAN DISCLOSURES SCHEDULE 6.1.22 - ENVIRONMENTAL DISCLOSURES SCHEDULE 8.2.1 - PERMITTED INDEBTEDNESS EXHIBITS EXHIBIT 1.1(A) - ASSIGNMENT AND ASSUMPTION AGREEMENT EXHIBIT 1.1(B) - BORROWER AGENCY AGREEMENT EXHIBIT 1.1(C) - COLLATERAL ASSIGNMENT EXHIBIT 1.1 (J) - JOINDER EXHIBIT 1.1(G) - GUARANTY AGREEMENT EXHIBIT 1.1(1) - INTERCOMPANY SUBORDINATION AGREEMENT EXHIBIT 1.1(R) - NOTE EXHIBIT 2.5 - LOAN REQUEST EXHIBIT 8.2.6 - ACQUISITION COMPLIANCE CERTIFICATE EXHIBIT 8.3.4 - QUARTERLY COMPLIANCE CERTIFICATE viii REVOLVING CREDIT AGREEMENT THIS REVOLVING CREDIT AGREEMENT is dated as of October 10, 1996 and is made by and among TB WOOD'S INCORPORATED, a Pennsylvania corporation (the "Company") and PLANT ENGINEERING CONSULTANTS, INC., a Tennessee corporation, GRUPO BLAJU, S.A., de C.V., a Mexican corporation and TB WOOD'S CANADA, LTD., an Ontario corporation (such Persons, together with the Company, being the "Borrowers" and each being a "Borrower"), TB WOOD'S CORPORATION, a Delaware corporation, as Guarantor, the BANKS (as hereinafter defined), and PNC BANK, NATIONAL ASSOCIATION, in its capacity as agent for the Banks under this Agreement (hereinafter referred to in such capacity as the "Agent"). WITNESSETH: WHEREAS, the Borrowers have requested the Banks to provide revolving credit facility to the Borrowers in an aggregate principal amount not to exceed $40,000,000 including a sublimit for approved letters of credit not to exceed $5,000,000; and WHEREAS, the revolving credit shall be used to refinance existing secured indebtedness and for general corporate purposes, including permitted acquisitions; and WHEREAS, the Banks are willing to provide such credit upon the terms and conditions hereinafter set forth; NOW, THEREFORE, the parties hereto, in consideration of their mutual covenants and agreements hereinafter set forth and intending to be legally bound hereby, covenant and agree as follows: 1. CERTAIN DEFINITIONS 1.1 Certain Definitions. In addition to words and terms defined elsewhere in this Agreement, the following words and terms shall have the following meanings, respectively, unless the context hereof clearly requires otherwise: Affiliate as to any Person shall mean any other Person (i) which directly or indirectly controls, is controlled by, or is under common control with such Person, (ii) which beneficially owns or holds 5% or more of any class of the voting or other equity interests of such Person, or (iii) 5% or more of any class of voting interests or other equity interests of which is beneficially owned or held, directly or indirectly, by such Person. Control, as used in this definition, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ownership of voting securities, by contract or otherwise, including the power to elect a majority of the directors or trustees of a corporation or trust, as the case may be. Agent shall mean PNC Bank, National Association, and its successors and assigns. Agent's Fees shall have the meaning assigned to that term in Section 10.15. Agent's Letter shall have the meaning assigned to that term in Section 10.15. Agreement shall mean this Revolving Credit Agreement, as the same may be supplemented or amended from time to time, including all schedules and exhibits. Annual Statements shall have the meaning assigned to that term in Section 6.1.9(i). Applicable Margin shall have the meaning assigned to that term in Section 4.1.1. Assignee Bank shall have the meaning assigned to such term in Section 2.10.2. Assignment and Assumption Agreement shall mean an Assignment and Assumption Agreement by and among a Purchasing Bank, a Transferor Bank and the Agent, as Agent and on behalf of the remaining Banks, substantially in the form of Exhibit 1.1(A). Authorized Officer shall mean those individuals, designated by written notice to the Agent from the Borrowers, authorized to execute notices, reports and other documents on behalf of the Loan Parties required hereunder. The Borrower may amend such list of individuals from time to time by giving written notice of such amendment to the Agent. Bank to be Terminated shall have the meaning assigned to such term in Section 2.10.2. Banks shall mean the financial institutions named on Schedule 1.1 (B) and their respective successors and assigns as permitted hereunder, each of which is referred to herein as a Bank. Base Rate shall mean the greater of (i) the interest rate per annum announced from time to time by the Agent at its Principal Office as its then prime rate, which rate may not be the lowest rate then being charged commercial borrowers by the Agent, or (ii) the Federal Funds Effective Rate plus 1/2 % per annum. 2 Base Rate Option shall mean the option of the Borrower to have Loans bear interest at the rate and under the terms and conditions set forth in Section 4. 1.1 (i). Benefit Arrangement shall mean an "employee benefit plan," within the meaning of Section 3(3) of ERISA, which is neither a Plan, a Multiple Employer Plan nor a Multiemployer Plan and which is maintained, sponsored or otherwise contributed to by any member of the ERISA Group. Borrower shall mean any of the Company, Plant Engineering Consultants, Inc., a Tennessee corporation, Grupo Blaju, S.A., de C.V., a Mexican corporation and TB Wood's Canada, Ltd., an Ontario corporation and Borrowers shall mean all of such Persons together. Borrower Agency Agreement shall mean that certain agreement among the Borrowers, substantially in the form of Exhibit 1.1 (B) hereto, pursuant to which the Borrowers authorize and appoint the Company to act on behalf of the Borrowers to take any and all actions that may be required to be taken by any Borrower or the Borrowers hereunder, including, without limitation, making requests for and borrowing any Loan. Borrowing Date shall mean, with respect to any Loan, the date for the making thereof or the renewal or conversion thereof at or to the same or a different Interest Rate Option, which shall be a Business Day. Borrowing Tranche shall mean specified portions of Loans outstanding as follows: (i) any Loans to which a Euro-Rate Option applies which become subject to the same Interest Rate Option under the same Loan Request by the Borrower and which have the same Interest Period shall constitute one Borrowing Tranche, and (ii) all Loans to which a Base Rate Option applies shall constitute one Borrowing Tranche. Business Day shall mean any day other than a Saturday or Sunday or a legal holiday on which commercial banks are authorized or required to be closed for business in Camp Hill, Pennsylvania. Closing Date shall mean the Business Day on which the first Loan shall be made, which shall be the date hereof. The closing shall take place at 10:30 a.m. on the Closing Date at the offices of Buchanan Ingersoll Professional Corporation in Philadelphia, Pennsylvania or at such other time and place as the parties agree. Closing Fees shall mean the fees referred to in Sections 2.4. Commercial Letter of Credit shall mean any Letter of Credit which is a commercial letter of credit issued in respect of the purchase of goods or services by one or more of the Borrowers in the ordinary course of their business. 3 Commitment shall mean, as to any Bank at any time, the amount initially set forth opposite its name on Schedule 1.1(B) in the column labeled "Amount of Commitment for Loans," and thereafter on Schedule I to the most recent Assignment and Assumption Agreement, and Commitments shall mean the aggregate Commitments of all of the Banks. Commitment Fee shall have the meaning assigned to that term in Section 2.3. Commitment Fee Applicable Margin shall have the meaning assigned to that term in Section 2.3. Company shall mean TB Wood's Incorporated, a Pennsylvania corporation. Consideration shall mean with respect to any Permitted Acquisition, the aggregate of (i) the cash paid by any of the Parent, directly or indirectly, to the seller in connection therewith, (ii) the Indebtedness incurred or assumed by any of the Loan Parties, whether in favor of the seller or otherwise and whether fixed or contingent, (iii) any Guaranty given or incurred by any Loan Party in connection therewith, and (iv) any other consideration given or obligation incurred by any of the Loan Parties in connection therewith. Consolidated Tangible Net Worth shall mean as of any date of determination total stockholders' equity of the Parent less intangible assets of the Parent as of such date determined and consolidated in accordance with GAAP. Dollar, Dollars, U.S. Dollars and the symbol $ shall mean lawful money of the United States of America. Domestic shall mean, when used with reference to a Borrower or a Subsidiary, a Borrower or Subsidiary organized under the laws of, and conducting operations in, the United States of America, a state thereof, the District of Columbia, Puerto Rico or the United States Virgin Islands. Drawing, Date shall have the meaning assigned to that ten-n in Section 2.9.3.2. EBIT shall mean net income before extraordinary items, interest expense and income tax expense calculated in respect of the prior four (4) consecutive fiscal quarters in each case of the Parent on a consolidated basis and determined and consolidated in accordance with GAAP and (x) shall be calculated to include the operation of any business acquired in a Permitted Acquisition if either (1) the Borrower provides to the Banks audited financial statements of such business, and such business ( if it is a legal entity) becomes a Loan Party contemporaneously with such Permitted Acquisitions or (2) Required Banks have consented to such inclusions and (y) shall be calculated to exclude any portion of the net earnings of any Subsidiary which is not a Borrower or that, by reason of any contract or charter restriction or 4 applicable law or regulation, is unavailable for payment of dividends to any Loan Party or any portion of the net earnings of any Loan Party that cannot freely be converted into Dollars in the ordinary course of business. EBITDA shall mean net income before extraordinary items, depreciation, amortization, interest expense and income tax expense calculated in respect of the prior four (4) consecutive fiscal quarters in each case of the Parent on a consolidated basis and determined and consolidated in accordance with GAAP and (x) shall be calculated to include the operation of any business acquired in a Permitted Acquisition if either (1) the Borrower provides to the Banks audited financial statements of such business, and such business (if it is a legal entity) becomes a Loan Party contemporaneously with such Permitted Acquisition or (2) Required Banks have consented to such inclusions and (y) shall be calculated to exclude any portion of the net earnings of any Subsidiary that is not a Borrower or that, by reason of any contract or charter restriction or applicable law or regulation, is unavailable for payment of dividends to any Loan Party or any portion of the net earnings of any Loan Party that cannot freely be converted into Dollars in the ordinary course of business. Environmental Complaint shall mean any written complaint setting forth a cause of action for personal injury or property damage or natural resource damage or equitable relief, order, notice of violation, citation, request for information issued pursuant to any Environmental Laws by an Official Body, subpoena or other written notice of any type relating to, arising out of, or issued pursuant to, any of the Environmental Laws or any Environmental Conditions, as the case may be. Environmental Conditions shall mean any conditions of the environment, including the workplace, the ocean, natural resources (including flora or fauna), soil, surface water, groundwater, any actual or potential drinking water supply sources, substrata or the ambient air, relating to or arising out of, or caused by, the use, handling, storage, treatment, recycling, generation, transportation release, spilling, leaking, pumping, emptying, discharging, injecting, escaping, leaching, disposal, dumping, threatened release or other management or mismanagement of Regulated Substances resulting from the use of, or operations on, any Property. Environmental Laws shall mean all applicable federal, state, local and foreign Laws and regulations, including pen-nits, licenses, authorizations, bonds, orders, judgments, and consent decrees issued, or entered into, pursuant thereto, relating to pollution or protection of human health or the environment or employee safety in the workplace. ERISA shall mean the Employee Retirement Income Security Act of 1974, as the same may be amended or supplemented from time to time, and any successor statute of similar import, and the rules and regulations thereunder, as from time to time in effect. ERISA Group shall mean the Loan Parties and all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common 5 control and all other entities which, together with the Loan Parties, are treated as a single employer under Section 414 of the Internal Revenue Code. Euro-Rate shall mean, with respect to the Loans comprising any Borrowing Tranche to which the Euro-Rate Option applies for any Interest Period, the interest rate per annum determined by the Agent by dividing (the resulting quotient rounded upward to the nearest 1/100th of 1% per annum) (i) the rate of interest determined by the Agent in accordance with its usual procedures (which determination shall be conclusive absent manifest error) to be the London interbank offered rate of interest per annum appearing on Telerate display page 3750 or such other display page on the Telerate System as may replace such page (or appropriate successor or, if the British Bankers' Association or its successor ceases to provide such quotes, a comparable replacement determined by the Agent) at approximately 11:00 a.m., London time, two (2) Business Days prior to the first day of such Interest Period for an amount comparable to such Borrowing Tranche and having a borrowing date and a maturity comparable to such Interest Period by (ii) a number equal to 1.00 minus the Euro-Rate Reserve Percentage. The Euro-Rate may also be expressed by the following formula: Euro-Rate = Telerate page 3750 quoted by British Bankers' Association or appropriate successor 1.00 - Euro-Rate Reserve Percentage The Euro-Rate shall be adjusted with respect to any Euro-Rate Option outstanding on the effective date of any change in the Euro-Rate Reserve Percentage as of such effective date. The Agent shall give prompt notice to the Borrower of the Euro-Rate as determined or adjusted in accordance herewith, which determination shall be conclusive absent manifest error. Euro-Rate Option shall mean the option of the Borrower to have Loans bear interest at the rate and under the terms and conditions set forth in Section 4. 1.1 (ii). Euro-Rate Reserve Percentage shall mean the maximum percentage (expressed as a decimal rounded upward to the nearest 1/100 of 1%) as determined by the Agent which is in effect during any relevant period, as prescribed by the Board of Governors of the Federal Reserve System (or any successor) for determining the reserve requirements (including supplemental, marginal and emergency reserve requirements) with respect to eurocurrency funding (currently referred to as "Eurocurrency Liabilities") of a member bank in such System. Event of Default shall mean any of the events described in Section 9.1 and referred to therein as an "Event of Default." Expiration Date shall mean, with respect to the Commitments, October 10, 2001, as such date may be extended in accordance with Section 2. 10. Extending Bank shall have the meaning assigned to such term in Section 2.10.2. 6 Federal Funds Effective Rate for any day shall mean the rate per annum (based on a year of 360 days and actual days elapsed and rounded upward to the nearest 1/100 of 1%) announced by the Federal Reserve Bank of New York (or any successor) on such day as being the weighted average of the rates on overnight federal funds transactions arranged by federal funds brokers on the previous trading day, as computed and announced by such Federal Reserve Bank (or any successor) in substantially the same manner as such Federal Reserve Bank computes and announces the weighted average it refers to as the "Federal Funds Effective Rate" as of the date of this Agreement; provided, if such Federal Reserve Bank (or its successor) does not announce such rate on any day, the "Federal Funds Effective Rate" for such day shall be the Federal Funds Effective Rate for the last day on which such rate was announced. Financial Projections shall have the meaning assigned to that term in Section 6.1.9(ii). Foreign shall mean, when used with reference to a Borrower or a Subsidiary, a Borrower or Subsidiary that is not a Domestic Borrower or a Domestic Subsidiary. GAAP shall mean generally accepted accounting principles as are in effect from time to time, subject to the provisions of Section 1.3, and applied on a consistent basis both as to classification of items and amounts. Governmental Acts shall have the meaning assigned to that term in Section 2.9.8. Guarantor shall mean the Parent and each of the parties to this Agreement which may after the Closing Date be designated as a "Guarantor". Guaranty of any Person shall mean any obligation of such Person guaranteeing or in effect guaranteeing any liability or obligation of any other Person in any manner, whether directly or indirectly, including any agreement to indemnify or hold harmless any other Person, any performance bond or other suretyship arrangement and any other form of assurance against loss, except endorsement of negotiable or other instruments for deposit or collection in the ordinary course of business. Guaranty Agreement shall mean the Guaranty and Suretyship Agreement in substantially the form of Exhibit 1.1(G) executed and delivered by the Guarantor to the Agent for the benefit of the Banks. Historical Statements shall have the meaning assigned to that term in Section 6.1.9(i). Indebtedness shall mean, as to any Person at any time, any and all indebtedness, obligations or liabilities (whether matured or unmatured, liquidated or unliquidated, direct or indirect, absolute or contingent, or joint or several) of such Person for or in respect of.- (i) borrowed money, (ii) amounts raised under or liabilities in respect of any note 7 purchase or acceptance credit facility, (iii) reimbursement obligations (contingent or otherwise) under any letter of credit, (iv) any other transaction (including forward sale or purchase agreements, capitalized leases and conditional sales agreements) having the commercial effect of a borrowing of money entered into by such Person to finance its operations or capital requirements (but not including trade payables and accrued expenses incurred in the ordinary course of business which are not represented by a promissory note or other evidence of indebtedness), or (v) any Guaranty of Indebtedness for borrowed money. Ineligible Security shall mean any security which may not be underwritten or dealt in by member banks of the Federal Reserve System under Section 16 of the Banking Act of 1933 (12 U.S.C. Section 24, Seventh), as amended. Insolvency Proceeding shall mean, with respect to any Person, (a) case, action or proceeding with respect to such Person (i) before any court or any other Official Body under any bankruptcy, insolvency, reorganization or other similar Law now or hereafter in effect, or (ii) for the appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator, conservator (or similar official) of any Loan Party or otherwise relating to liquidation, dissolution, winding-up or relief of such Person, or (b) any general assignment for the benefit of creditors, composition, marshaling of assets for creditors, or other, similar arrangement in respect of such Person's creditors generally or any substantial portion of its creditors undertaken under any Law. Intercompany Subordination Agreement shall mean a Subordination Agreement among the Loan Parties in the form attached hereto as Exhibit 1.1 (1). Interest Period shall have the meaning assigned to such term in Section 4.2. Interest Rate Option shall mean any Euro-Rate Option or Base Rate Option. Interim Statements shall have the meaning assigned to that term in Section 6.1.9(i). Internal Revenue Code shall mean the Internal Revenue Code of 1986, as the same may be amended or supplemented from time to time, and any successor statute of similar import, and the rules and regulations thereunder, as from time to time in effect. Joinder shall mean a joinder by a Person as a Borrower under this Agreement and the other Loan Documents in the form of Exhibit 1.1 (J). Labor Contracts shall mean all employment agreements, employment contracts, collective bargaining agreements and other agreements among any Loan Party or Subsidiary of a Loan Party and its employees. 8 Law shall mean any law (including common law), constitution, statute, treaty, regulation, rule, ordinance, opinion, release, ruling, order, injunction, writ, decree or award of any Official Body. Letter of Credit shall have the meaning assigned to that term in Section 2.9. 1, Letter of Credit Borrowing shall mean an extension of credit resulting from a drawing under any Letter of Credit which shall not have been reimbursed on the date when made and shall not have been converted into a Loan under Section 2.9.3.2. Letter of Credit Fee shall have the meaning assigned to that term in Section 2.9.2. Letters of Credit Outstanding shall mean at any time the sum of (i) the aggregate undrawn face amount of outstanding Letters of Credit and (ii) the aggregate amount of all unpaid and outstanding Reimbursement Obligations. Leverage Ratio shall mean the ratio of (x) Total Debt to (y) EBITDA. Lien shall mean any mortgage, deed of trust, pledge, lien, security interest, charge or other encumbrance or security arrangement of any nature whatsoever, whether voluntarily or involuntarily given, including any conditional sale or title retention arrangement, and any assignment, deposit arrangement or lease intended as, or having the effect of, security and any filed financing statement or other notice of any of the foregoing (whether or not a lien or other encumbrance is created or exists at the time of the filing). Loan Documents shall mean this Agreement, the Agent's Letter, the Guaranty Agreement, the Intercompany Subordination Agreement, the Notes, any other instruments, certificates or documents (including reimbursement agreements relating to the Letters of Credit) delivered or contemplated to be delivered hereunder or thereunder or in connection herewith or therewith, as the same may be supplemented or amended from time to -time in accordance herewith or therewith, and Loan Document shall mean any of the Loan Documents. Loan Parties shall mean the Borrowers and the Guarantors and Loan Party shall mean any Borrower or Guarantor. Loan Request shall have the meaning given to such term in Section 2.5. Loans shall mean collectively and Loan shall mean separately all Loans or any Loan made by the Banks or one of the Banks to the Borrower pursuant to Section 2.1 or 2.9.3. 9 Material Adverse Change shall mean any set of circumstances or events which (a) has or could reasonably be expected to have any material adverse effect whatsoever upon the validity or enforceability of this Agreement or any other Loan Document, (b) is or could reasonably be expected to be material and adverse to the business, properties, assets, financial condition, results of operations or prospects of the Loan Parties taken as a whole, (c) impairs materially or could reasonably be expected to impair materially the ability of the Loan Parties taken as a whole to duly and punctually pay or perform-n any material part of their aggregate Indebtedness, or (d) impairs materially or could reasonably be expected to impair materially the ability of the Agent or any of the Banks, to the extent permitted, to enforce their legal remedies pursuant to this Agreement or any other Loan Document. Material Venture Investment shall mean any investment in or loan, advance or capital contribution to any Person by a Loan Party, or any commitment to do so, having a value of $2,000,000 or more. Month, with respect to an Interest Period under the Euro-Rate Option, shall mean the interval between the days in consecutive calendar months numerically corresponding to the first day of such Interest Period. If any Euro-Rate Interest Period begins on a day of a calendar month for which there is no numerically corresponding day in the month in which such Interest Period is to end, the final month of such Interest Period shall be deemed to end on the last Business Day of such final month. Multiemployer Plan shall mean any employee benefit plan which is a "multiemployer plan" within the meaning of Section 4001(a)(3) of ERISA and either (i) to which any member of the ERISA Group is making or accruing an obligation to make contributions or (ii) within the preceding five years any entity which at such time was a member of the ERISA Group, has made or had an obligation to make such contributions and with respect to which the Borrower is reasonably likely to have liability under Subtitle E of Title IV of ERISA. Multiple Employer Plan shall mean an employee pension benefit plan (but excluding any Multiemployer Plan) which is covered by Title IV of ERISA or is subject to the minimum funding standards under Section 412 of the Internal Revenue Code and which has two or more contributing sponsors (including the Borrower or any member of the ERISA Group) at least two of whom are not under common control, as such a plan is described in Sections 4063 and 4064 of ERISA. Notes shall mean collectively and Note shall mean separately all the Notes of the Borrower in the form of Exhibit 1.1 (R) evidencing the Loans together with all amendments, extensions, renewals, replacements, refinancings or refundings thereof in whole or in part. notices shall have the meaning assigned to that term in Section 1 1.6. Obligation shall mean any obligation or liability of any of the Loan Parties to the Agent or any of the Banks, howsoever created, arising or evidenced, whether direct or 10 indirect, absolute or contingent, now or hereafter existing, or due or to become due, under or in connection with this Agreement, the Notes, the Letters of Credit, the Agent's Letter or any other Loan Document. Official Body shall mean any national, federal, state, local or other government or political subdivision or any agency, authority, bureau, central bank, commission, department or instrumentality of either, or any court, tribunal, grand jury or arbitrator, in each case whether foreign or domestic. Outside Investment Amount shall mean the sum of the dollar value of (i) outstanding Guarantees of Persons in which investments are permitted under Section 8.2.9; (ii) investments made under Section 8.2.9; (iii) investments made under Section 8.2.4(vi); (iv) Permitted Acquisitions made under Section 8.2.6(xi), (v) asset sales made under clause (B) of Section 8.2.7(iii) and (vi) investments in Persons who are not Borrowers which are made under Section 8.2.9, each as made or (as to Guarantees referred to in Clause (i) hereof) existing from time to time after the Closing Date. Outside Investment Limit shall mean $7,500,000. Parent shall mean TB Wood's Corporation, a Delaware corporation, which owns 100% of the issued and outstanding capital stock of the Company and which is the Guarantor hereunder. Participation Advance shall mean, with respect to any Bank, such Bank's payment in respect of its participation in a Letter of Credit Borrowing according to its Ratable Share pursuant to Section 2.9.4. PBGC shall mean the Pension Benefit Guaranty Corporation established pursuant to Subtitle A of Title IV of ERISA or any successor statute. Permitted Acquisitions shall have the meaning assigned to such ten-n in Section 8.2.6. Permitted Amount shall have the meaning assigned to such term in Section 8.2.15. Permitted Investments shall mean: (i) direct obligations of the United States of America or any agency or instrumentality thereof or obligations backed by the full faith and credit of the United States of America maturing in twelve (I 2) months or less from the date of acquisition; (ii) commercial paper maturing in 180 days or less rated not lower than A- 1, by Standard & Poor's or P-1 by Moody's Investors Service, Inc. on the date of acquisition; and 11 (iii) demand deposits, time deposits or certificates of deposit maturing within one year in any Bank or any commercial banks whose obligations are rated A-1, A or the equivalent or better by Standard & Poor's on the date of acquisition. Permitted Liens shall mean: (i) Liens for taxes, assessments, or similar charges, incurred in the ordinary course of business and which are not yet due and payable; (ii) Pledges or deposits made in the ordinary course of business to secure payment of workmen's compensation, or to participate in any fund in connection with workmen's compensation, unemployment insurance, old-age pensions or other social security programs; (iii) Liens of mechanics, materialmen, warehousemen, carriers, or other like Liens, securing obligations incurred in the ordinary course of business that are not yet due and payable and Liens of landlords securing obligations to pay lease payments that are not yet due and payable or in default; (iv) Good-faith pledges or deposits made in the ordinary course of business to secure performance of bids, tenders, contracts (other than for the repayment of borrowed money) or leases, not in excess of the aggregate amount due thereunder, or to secure statutory obligations, or surety, appeal, indemnity, performance or other similar bonds required in the ordinary course of business; (v) Encumbrances consisting of zoning restrictions, easements or other restrictions on the use of real property, none of which materially impairs the use of such property or the value thereof, and none of which is violated in any material respect by existing or proposed structures or land use; (vi) Liens, security interests and mortgages in favor of the Agent for the benefit of the Banks; (vii) Liens on property leased by any Loan Party or Subsidiary of a Loan Party under capital and operating leases permitted in Section 8.2.15 securing obligations of such Loan Party or Subsidiary to the lessor under such leases; (viii) Any Lien existing on the date of this Agreement and described on Schedule 1.1 (P), provided that the principal amount secured thereby is not hereafter increased, and no additional assets become subject to such Lien; (ix) Purchase Money Security Interests, provided that the aggregate amount of loans and deferred payments secured by such Purchase Money Security Interests shall not exceed $2,500,000 (excluding for the purpose of this computation any loans or deferred payments secured by Liens described on Schedule 1.1(P)); 12 (x) - The following, (A) if the validity or amount thereof is being contested in good faith by appropriate and lawful proceedings diligently conducted so long as levy and execution thereon have been stayed and continue to be stayed or (B) if a final judgment is entered and such judgment is discharged within thirty (30) days of entry, and in either case they do not materially impair the ability of any Loan Party to perform-n its Obligations hereunder or under the other Loan Documents: (1) Claims or Liens for taxes, assessments or charges due and payable and subject to interest or penalty, provided that the applicable Loan Party maintains such reserves or other appropriate provisions as shall be required by GAAP and pays all such taxes, assessments or charges forthwith upon the commencement of proceedings to foreclose any such Lien; (2) Claims, Liens or encumbrances upon, and defects of title to, real or personal property, including any attachment of personal or real property or other legal process prior to adjudication of a dispute on the merits; (3) Claims or Liens of mechanics, materialmen, warehousemen, carriers, or other statutory nonconsensual Liens; (4) Liens resulting from final judgments or orders described in Section 9.1.6, and (xi) Liens which are outstanding on any fixed assets at the time such fixed assets are acquired by a Borrower or which are outstanding on any fixed asset of an entity acquired by a Borrower at the time such entity is acquired; provided that such Liens do not extend to or cover any other property or assets. Permitted Transferee shall mean (i) any person controlled by Thomas C. Foley (the term "control" having the same meaning as such term in the definition of "Affiliate"), (ii) any director or executive officer of any Person described in clause (i) above as of one year prior to the date of determination, (iii) any heir, executor, administrator, testamentary trustee, legatee, beneficiary or distributes of Thomas C. Foley and (iv) any trust, the beneficiaries of which include only Thomas C. Foley and any Person described in clause (iii) above. Person shall mean any individual, corporation, partnership, limited liability company, association, joint-stock company, trust, unincorporated organization, joint venture, government or political subdivision or agency thereof, or any other entity. Plan shall mean an employee pension benefit plan (but excluding any Multiple Employer Plan or Multiemployer Plan) which is covered by Title IV of ERISA or is subject to the minimum funding standards under Section 412 of the Internal Revenue Code and either (i) is maintained by any member of the ERISA Group for employees of any member of the ERISA Group or (ii) has at any time within the preceding five years been maintained by any entity which was at such time a member of the ERISA Group for employees of any entity which 13 was at such time a member of the ERISA Group and with respect to which a Loan Party is reasonably likely to have liability under Section 4062, 4063 or 4064 of ERISA. PNC Bank shall mean PNC Bank, National Association, its successors and assigns. Potential Default shall mean any event or condition which with notice, passage of time or a determination by the Agent or the Required Banks, or any combination of the foregoing, would constitute an Event of Default. Principal Office shall mean the main banking office of the Agent in Camp Hill, Pennsylvania. Prohibited Transaction shall mean any prohibited transaction as defined in Section 4975 of the Internal Revenue Code or Section 406 of ERISA for which neither an individual nor a class exemption has been issued by the United States Department of Labor. Property shall mean all real property, both owned and leased, of any Loan Party or Subsidiary of a Loan Party. Purchase Money Security Interest shall mean Liens upon tangible personal property securing loans to any Loan Party or Subsidiary of a Loan Party or deferred payments by such Loan Party or Subsidiary for the purchase of such tangible personal property. Purchasing Bank shall mean a Bank which becomes a party to this Agreement by executing an Assignment and Assumption Agreement. Ratable Share shall mean the proportion that a Bank's Commitment bears to the Commitments of all of the Banks. Regulated Substances shall mean any substance, including any solid, liquid, semisolid, gaseous, thermal, thoriated or radioactive material, refuse, garbage, wastes, chemicals, petroleum products, by-products, coproducts, impurities, dust, scrap, heavy metals, defined as a "hazardous substance," "pollutant," "pollution," "contaminant," "hazardous or toxic substance," "extremely hazardous substance," "toxic chemical," "toxic waste," "hazardous waste," "industrial waste," "residual waste," "solid waste," "municipal waste," "mixed waste," "infectious waste," "chemotherapeutic waste," "medical waste," or "regulated substance" or any related materials, substances or wastes as now or hereafter defined pursuant to any Environmental Laws, ordinances, rules, regulations or other directives of any Official Body, the generation, manufacture, extraction, processing, distribution, treatment, storage, disposal, transport, recycling, reclamation, use, reuse, spilling, leaking, dumping, injection, pumping, leaching, emptying, discharge, escape, release or other management or mismanagement of which is regulated by the Environmental Laws. 14 Regulation U shall mean Regulation U, T, G or X as promulgated by the Board of Governors of the Federal Reserve System, as amended from time to time. Reimbursement Obligation shall have the meaning assigned to such term in Section 2.9.3.2. Reportable Event shall mean a reportable event described in Section 4043 of ERISA and regulations thereunder with respect to a Plan or Multiemployer Plan. Required Banks shall mean (i) if there are no Loans, Reimbursement Obligations or Letter of Credit Borrowings outstanding, Banks whose Commitments aggregate at least 66-2/3% of the Commitments of all of the Banks, or (ii) if there are Loans, Reimbursement Obligations, or Letter of Credit Borrowings outstanding, any Bank or group of Banks if the sum of the Loans, Reimbursement Obligations and Letter of Credit Borrowings of such Banks then outstanding aggregates at least 66-2/3% of the total principal amount of all of the Loans, Reimbursement Obligations and Letter of Credit Borrowings then outstanding. Reimbursement Obligations and Letter of Credit Borrowings shall be deemed, for purposes of this definition, to be in favor of the Agent and not a participating Bank if such Bank has not made its Participation Advance in respect thereof and shall be deemed to be in favor of such Bank to the extent of its Participation Advance if it has made its Participation Advance in respect thereof. Revolving Facility Usage shall mean at any time the sum of the Loans outstanding and the Letters of Credit Outstanding. Section 20 Subsidiary shall mean the Subsidiary of the bank holding company controlling any Bank, which Subsidiary has been granted authority by the Federal Reserve Board to underwrite and deal in certain Ineligible Securities. Shares shall have the meaning assigned to that term in Section 6.1.2. Standard & Poor's shall mean Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc. Standby Letter of Credit shall mean a Letter of Credit issued to support obligations of one or more of the Loan Parties, contingent or otherwise, which finance the working capital and business needs of the Loan Parties incurred in the ordinary course of business. Subsidiary of any Person at any time shall mean (i) any corporation or trust of which 50% or more (by number of shares or number of votes) of the outstanding capital stock or shares of beneficial interest normally entitled to vote for the election of one or more 15 directors or trustees (regardless of any contingency which does or may suspend or dilute the voting rights) is at such time owned directly or indirectly by such Person or one or more of such Person's Subsidiaries, (ii) any partnership of which such Person is a general partner or of which 50% or more of the partnership interests is at the time directly or indirectly owned by such Person or one or more of such Person's Subsidiaries, (iii) any limited liability company of which such Person is a member or of which 50% or more of the limited liability company interests is at the time directly or indirectly owned by such Person or one or more of such Person's Subsidiaries or (iv) any corporation, trust, partnership, limited liability company or other entity which is controlled or capable of being controlled by such Person or one or more of such Person's Subsidiaries. Syndications Period shall mean the period between the Closing Date and the date which is sixty (60) days after the Closing Date. TB Wood's Incorporated shall mean TB Wood's Incorporated, a Pennsylvania corporation and a "Borrower" and the "Company" hereunder. Total Debt shall mean long-term and short term Indebtedness for borrowed money of the Parent on a consolidated basis including subordinated debt on which interest is contractually payable and obligations under capital leases, guarantees and letters of credit (including the Letters of Credit). Transferor Bank shall mean the selling Bank pursuant to an Assignment and Assumption Agreement. 1.2 Construction. Unless the context of this Agreement otherwise clearly requires, the following rules of construction shall apply to this Agreement and each of the other Loan Documents: 1.2.1 Number; Inclusion. references to the plural include the singular, the plural, the part and the whole; "or" has the inclusive meaning represented by the phrase "and/or," and "including" has the meaning represented by the phrase "including without limitation"; 1.2.2 Determination. references to "determination" of or by the Agent or the Banks shall be deemed to include good-faith estimates by the Agent or the Banks (in the case of quantitative determinations) and good-faith beliefs by the Agent or the Banks (in the case of qualitative determinations) and such determination shall be conclusive absent manifest error; 16 1.2.3 Agent's Discretion and Consent. whenever the Agent or the Banks are granted the right herein to act in its or their sole discretion or to grant or withhold consent such right shall be exercised in good faith; 1.2.4 Documents Taken as a Whole. the words "hereof," "herein," "hereunder," "hereto" and similar terms in this Agreement or any other Loan Document refer to this Agreement or such other Loan Document as a whole and not to any particular provision of this Agreement or such other Loan Document; 1.2.5 Headings. the section and other headings contained in this Agreement or such other Loan Document and the Table of Contents (if any), preceding this Agreement or such other Loan Document are for reference purposes only and shall not control or affect the construction of this Agreement or such other Loan Document or the interpretation thereof in any respect; 1.2.6 Implied References to this Agreement. article, section, subsection, clause, schedule and exhibit references are to this Agreement or other Loan Document, as the case may be, unless otherwise specified; 1.2.7 Persons. reference to any Person includes such Person's successors and assigns but, if applicable, only if such successors and assigns are permitted by this Agreement or such other Loan Document, as the case may be, and reference to a Person in a particular capacity excludes such Person in any other capacity; 1.2.8 Modifications to Documents. reference to any agreement (including this Agreement and any other Loan Document together with the schedules and exhibits hereto or thereto), document or instrument means such agreement, document or instrument as amended, modified, replaced, substituted for, superseded or restated; 1.2.9 From, To and Through. relative to the determination of any period of time, "from" means "from and including," "to" means "to but excluding," and "through" means "through and including"; and 17 1.2.10 Shall; Will. references to "shall" and "will" are intended to have the same meaning. 1.3 Accounting Principles. Except as otherwise provided in this Agreement, all computations and determinations as to accounting or financial matters and all financial statements to be delivered pursuant to this Agreement shall be made and prepared in accordance with GAAP (including principles of consolidation where appropriate), and all accounting or financial terms shall have the meanings ascribed to such terms by GAAP; provided, however, that all accounting terms used in Section 8.2 (and all defined terms used in the definition of any accounting term used in Section 8.2 shall have the meaning given to such terms (and defined terms) under GAAP as in effect on the date hereof applied on a basis consistent with those used in preparing the Annual Statements referred to in Section 6.1.9(i). In the event of any change after the date hereof in GAAP, and if such change would result in the inability to determine compliance with the financial covenants set forth in Section 8.2 based upon the Parent's regularly prepared financial statements by reason of the preceding sentence, then the parties hereto agree to endeavor, in good faith, to agree upon an amendment to this Agreement that would adjust such financial covenants in a manner that would not affect the substance thereof, but would allow compliance therewith to be determined in accordance with the Loan Parties' financial statements at that time. 2. REVOLVING CREDIT FACILITY 2.1 Commitments. 2.1.1 Loans. Subject to the terms and conditions hereof and relying upon the representations and warranties herein set forth each Bank severally agrees to make Loans to the Borrowers at any time or from time to time on or after the Closing Date to the Expiration Date provided that after giving effect to such Loan the aggregate amount of Loans from such Bank shall not exceed such Bank's Commitment minus such Bank's Ratable Share of the Letters of Credit Outstanding. Within such limits of time and amount and subject to the other provisions of this Agreement, the Borrowers may borrow, repay and reborrow pursuant to this Section 2. 1. 2.1.2 Voluntary Reduction of Commitment. The Borrowers shall have the right at any time and from time to time upon five (5) Business Days' prior written notice to the Agent to permanently reduce, in a minimum amount of $ 1,000,000 and whole multiples of $100,000 of principal, or terminate the Commitment, without penalty or premium except as hereinafter set forth, provided that any such reduction or termination shall be accompanied by prepayment of the Notes, together with the full 18 amount of interest accrued on the principal sum to be prepaid (and all amounts referred to in Section 5.6.2 hereof), to the extent that the aggregate amount thereof then outstanding exceeds the Commitment as so reduced or terminated. 2.2 Nature of Banks' Obligations with Respect to Loans. Each Bank shall be obligated to participate in each request for Loans pursuant to Section 2.5 in accordance with its Ratable Share. The aggregate of each Bank's Loans outstanding hereunder to the Borrowers at any time shall never exceed its Commitment minus its Ratable Share of the Letter of Credit Outstandings. The obligations of each Bank hereunder are several. The failure of any Bank to perform its obligations hereunder shall not affect the Obligations of the Borrowers to any other party nor shall any other party be liable for the failure of such Bank to perform its obligations hereunder. The Banks shall have no obligation to make Loans hereunder on or after the Expiration Date. 2.3 Commitment Fees. Accruing from the date hereof until the Expiration Date, the Borrowers agree to pay to the Agent for the account of each Bank, as consideration for such Bank's Commitment hereunder, a nonrefundable commitment fee (the "Commitment Fee") computed using the rate per annum (the "Commitment Fee Applicable Margin") set forth below measured in respect of the Borrowers' Leverage Ratio as of the end of each fiscal quarter: (a) if the Borrowers' Leverage Ratio is less than or equal to 1.0 to 1.0, then the Commitment Fee Applicable Margin shall be .20%; and (b) if the Borrowers' Leverage Ratio is greater than 1.0 to 1.0 but less than or equal to 1.5 to 1.0, then the Commitment Fee Applicable Margin shall be .25%; and (c) if the Borrower's Leverage Ratio is greater than 1.5 to 1.0 but less than or equal to 2.0 to 1.0, then the Commitment Fee Applicable Margin shall be .30%; and (d) if the Borrower's Leverage Ratio is greater than 2.0 to 1.0 but less than or equal to 2.5 to 1.0, then the Commitment Fee Applicable Margin shall be .3 5 %; and (e) if the Borrower's Leverage Ratio is greater than 2.5 to 1.0, then the Commitment Fee Applicable Margin shall be .40%. The Commitment Fee shall be computed on the basis of a year of 365 or 366 days, as the case may be, and actual days elapsed on the average daily difference between the amount of such Bank's Commitment as the same may be constituted from time to time and the Revolving Facility Usage. Any changes in the Commitment Fee pursuant to the provisions of this Section 2.3 shall become effective from the fifth day after the Agent shall have received the Certificate delivered pursuant to Section 8.3.4 in respect of such fiscal quarter; provided, that, in the event that the Certificate delivered pursuant to Section 8.3.4 for any fiscal quarter is not delivered 19 within ten (10) days of the date required by Section 8.3 (no waiver by the Agent being implied thereby), then the Commitment Fee shall be calculated on the basis of the percentage set forth in item (e) above commencing as of the date such certificate was required to be delivered until the delivery of such certificate. All Commitment Fees shall be payable in arrears on the first Business Day of each January, April, July and October after the date hereof and on the Expiration Date or upon acceleration of the Notes. Notwithstanding anything herein to the contrary, the Commitment Fee Applicable Margin prior to the end of the first fiscal quarter ending after the Closing Date shall be .25%. 2.4 Revolving, Credit Facility Fee. The Borrowers agree to pay on the Closing Date to the Agent for the account of each Bank, as consideration for such Bank's Commitment, a nonrefundable closing fee equal to .I% of each Bank's Commitment. 2.5 Loan Requests. Except as otherwise provided herein, the Borrowers may from time to time prior to the Expiration Date request the Banks to make Loans, or renew or convert the Interest Rate Option applicable to existing Loans pursuant to Section 4.2, by delivering to the Agent, not later than 11:00 a.m., Camp Hill time, (i) three (3) Business Days prior to the proposed Borrowing Date with respect to the making of Loans to which the Euro-Rate Option applies or the conversion to or the renewal of the Euro-Rate Option for any Loans; and (ii) the Business Day of the proposed Borrowing Date with respect to the making of a Loan to which the Base Rate Option applies or the last day of the preceding Interest Period with respect to the conversion to the Base Rate Option for any Loan, of a duly completed request therefor substantially in the form of Exhibit 2.5 or a request by telephone immediately confirmed in writing by letter, facsimile or telex in such form (each, a "Loan Request"), it being understood that the Agent may rely on the authority of any individual making such a telephonic request without the necessity of receipt of such written confirmation. Each Loan Request shall be irrevocable and shall specify (i) the proposed Borrowing Date; (ii) the aggregate amount of the proposed Loans comprising each Borrowing Tranche, which shall be in integral multiples of $100,000 and not less than $ 1,000,000 for each Borrowing Tranche to which the Euro-Rate Option applies and not less than the lesser of $500,000 or the maximum amount available for Borrowing Tranches to which the Base Rate Option applies; (iii) whether the Euro-Rate Option or Base Rate Option shall apply to the proposed Loans comprising the applicable Borrowing Tranche; and (iv) in the case of a Borrowing Tranche to which the Euro-Rate Option applies, an appropriate Interest Period for the proposed Loans comprising such Borrowing Tranche. 2.6 Making, Loans. The Agent shall, promptly after receipt by it of a Loan Request pursuant to Section 2.5, notify the Banks of its receipt of such Loan Request specifying: (i) the proposed Borrowing Date and the time and method of disbursement of the Loans requested thereby; 20 (ii) the amount and type of each such Loan and the applicable Interest Period (if any); and (iii) the apportionment among the Banks of such Loans as determined by the Agent in accordance with Section 2.2. Each Bank shall remit the principal amount of each Loan to the Agent such that the Agent is able to, and the Agent shall, to the extent the Banks have made funds available to it for such purpose and subject to Section 7.2, fund such Loans to the Borrower in U.S. Dollars and immediately available funds at the Principal Office prior to 2:00 p.m., Camp Hill time, on the applicable Borrowing Date, provided that if any Bank fails to remit such funds to the Agent in a timely manner, the Agent may elect in its sole discretion to fund with its own funds the Loans of such Bank on such Borrowing Date, and such Bank shall be subject to the repayment obligation in Section 10. 16. 2.7 Notes. The Obligation of the Borrowers to repay the aggregate unpaid principal amount of the Loans made to it by each Bank, together with interest thereon, shall be evidenced by a Note dated the Closing Date payable to the order of such Bank in a face amount equal to the Commitment of such Bank. 2.8 Use of Proceeds. The proceeds of the Loans shall be used to refinance existing indebtedness and for general corporate purposes, including making Permitted Acquisitions and in accordance with Section 8.1.10. 2.9 Letter of Credit Subfacility. 2.9.1 Issuance of Letters of Credit. The Borrowers may request the issuance of a letter of credit (each a "Letter of Credit") on behalf of itself or another Loan Party by delivering to the Agent a completed application and agreement for letters of credit in such form as the Agent may specify from time to time by no later than 10:00 a.m., Camp Hill time, at least three (3) Business Days, or such shorter period as may be agreed to by the Agent, in advance of the proposed date of issuance. Promptly after such request, the Agent shall notify each Bank of such request. Each Letter of Credit shall be either a Standby Letter of Credit or a Commercial Letter of Credit. Subject to the terms and conditions hereof and in reliance on the agreements of the other Banks set forth in this Section 2.9, the Agent will issue a Letter of Credit provided that each Letter of Credit shall (A) have a maximum maturity of twelve (12) months from the date of issuance and shall be renewable for up to twelve (I 2) more months at the Agent's discretion, and (B) in no event expire later than one Business Day prior to the Expiration Date and providing that in no event shall (i) the Letters of Credit Outstanding exceed, at any one time, $5,000,000 or (ii) the Revolving Facility Usage exceed, at any one time, the Commitments. 21 2.9.2 Letter of Credit Fees. The Borrowers shall pay (i) to the Agent for the ratable account of the Banks a fee (the "Letter of Credit Fee") equal to the Applicable Margin, and (ii) to the Agent for its own account a fronting fee equal to 1/8% per annum, which fees shall be computed on the daily average Letters of Credit Outstanding and shall be payable quarterly in arrears commencing with the first Business Day of each January, April, July and October following issuance of each Letter of Credit and on the Expiration Date and calculated on the basis of a year of 365/365 days. The Borrowers shall also pay to the Agent for the Agent's sole account the Agent's then in effect customary fees and administrative expenses payable with respect to the Letters of Credit as the Agent may generally charge or incur from time to time in connection with the issuance, maintenance, modification (if any), assignment or transfer (if any), negotiation, and administration of Letters of Credit. 2.9.3 Disbursements, Reimbursement. 2.9.3.1 Immediately upon the Issuance of each Letter of Credit, each Bank shall be deemed to, and hereby irrevocably and unconditionally agrees to, purchase from the Agent a participation in such Letter of Credit and each drawing thereunder in an amount equal to such Bank's Ratable Share of the maximum amount available to be drawn under such Letter of Credit and the amount of such drawing, respectively. 2.9.3.2 In the event of any request for a drawing under a Letter of Credit by the beneficiary or transferee thereof, the Agent will promptly notify the Borrowers. Provided that it shall have received such notice, the Borrowers shall reimburse (such obligation to reimburse the Agent shall sometimes be referred to as a "Reimbursement Obligation") the Agent prior to 12:00 noon, Camp Hill time on each date that an amount is paid by the Agent under any Letter of Credit (each such date, an "Drawing Date") in an amount equal to the amount so paid by the Agent. In the event the Borrower fails to reimburse the Agent for the full amount of any drawing under any Letter of Credit by 12:00 noon, Camp Hill time, on the Drawing Date, the Agent will promptly notify each Bank thereof, and the Borrowers shall be deemed to have requested that Loans be made by the Banks under the Base Rate Option to be disbursed on the Drawing Date under such Letter of Credit, subject to the amount of the unutilized portion of the Commitment and subject to the conditions set forth in Section 7.2 other than any notice requirements. Any notice given by the Agent pursuant to this Section 2.9.3.2 may be oral if immediately confirmed in writing; provided that the lack of such an immediate confirmation shall not affect the conclusiveness or binding effect of such notice. 2.9.3.3 Each Bank shall upon any notice pursuant to Section 2.9.3.2 make available to the Agent an amount in immediately available funds equal to its Ratable Share of the amount of the drawing, whereupon the participating Banks shall (subject to Section 2.9.3.4) each be deemed to have made a Loan under the Base Rate Option to the Borrowers in that amount. If any Bank so notified fails to make available to the Agent for the account of the Agent the amount of such Bank's Ratable Share of such amount by no later than 22 2:00 p.m., Camp Hill time on the Drawing Date, then interest shall accrue on such Bank's obligation to make such payment, from the Drawing Date to the date on which such Bank makes such payment, at a rate per annum equal to the Federal Funds Effective Rate in effect from time to time during such period. The Agent will promptly give notice of the occurrence of the Drawing Date, but failure of the Agent to give any such notice on the Drawing Date or in sufficient time to enable any Bank to effect such payment on such date shall not relieve such Bank from its obligation under this Section 2.9.3.3. 2.9.3.4 With respect to any unreimbursed drawing that is not converted into Loans under the Base Rate Option to the Borrowers in whole or in part as contemplated by Section 2.9.3.2, because of the Borrowers' failure to satisfy the conditions set forth in Section 7.2 other than any notice requirements or for any other reason, the Borrowers shall be deemed to have incurred from the Agent a Letter of Credit Borrowing in the amount of such drawing. Such Letter of Credit Borrowing shall be due and payable on demand (together with interest) and shall bear interest at the rate per annum applicable to the Loans under the Base Rate Option. Each Bank's payment to the Agent pursuant to Section 2.9.3.3 shall be deemed to be a payment in respect of its participation in such Letter of Credit Borrowing and shall constitute a Participation Advance from such Bank in satisfaction of its participation obligation under this Section 2.9.3. 2.9.4 Repayment of Participation Advances. 2.9.4.1 Upon (and only upon) receipt by the Agent for its account of immediately available funds from the Borrowers (i) in reimbursement of any payment made by the Agent under the Letter of Credit with respect to which any Bank has made a Participation Advance to the Agent, or (ii) in payment of interest on such a payment made by the Agent under such a Letter of Credit, the Agent will pay to each Bank, in the same funds as those received by the Agent, the amount of such Bank's Ratable Share of such funds, except the Agent shall retain the amount of the Ratable Share of such funds of any Bank that did not make a Participation Advance in respect of such payment by Agent. 2.9.4.2 If the Agent is required at any time to return to any Loan Party, or to a trustee, receiver, liquidator, custodian, or any official in any Insolvency Proceeding, any portion of the payments made by any Loan Party to the Agent pursuant to Section 2.9.4.1 in reimbursement of a payment made under the Letter of Credit or interest or fee thereon, each Bank shall, on demand of the Agent, forthwith return to the Agent the amount of its Ratable Share of any amounts so returned by the Agent plus interest thereon from the date such demand is made to the date such amounts are returned by such Bank to the Agent, at a rate per annum equal to the Federal Funds Effective Rate in effect from time to time. 2.9.5 Documentation. Each Loan Party agrees to be bound by the terms of the Agent's application and agreement for letters of credit and the Agent's written regulations and customary practices relating to letters of credit, though such interpretation may be different from the such 23 Loan Party's own. In the event of a conflict between such application or agreement and this Agreement, this Agreement shall govern. It is understood and agreed that, except in the case of gross negligence or willful misconduct, the Agent shall not be liable for any error, negligence and/or mistakes, whether of omission or commission, in following any Loan Party's instructions or those contained in the Letters of Credit or any modifications, amendments or supplements thereto. 2.9.6 Determinations to Honor Drawing Requests. In determining whether to honor any request for drawing under any Letter of Credit by the beneficiary thereof, the Agent shall be responsible only to determine that the documents and certificates required to be delivered under such Letter of Credit have been delivered and that they comply on their face with the requirements of such Letter of Credit. 2.9.7 Nature of Participation and Reimbursement Obligations. Each Bank's obligation in accordance with this Agreement to make the Loans or Participation Advances, as contemplated by Section 2.9.3, as a result of a drawing under a Letter of Credit, and the Obligations of the Borrowers to reimburse the Agent upon a draw under a Letter of Credit, shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of this Section 2.9 under all circumstances, including the following circumstances: (i) any set-off, counterclaim, recoupment, defense or other right which such Bank may have against the Agent, the Borrowers or any other Person for any reason whatsoever; (ii) the failure of any Loan Party or any other Person to comply, in connection with a Letter of Credit Borrowing, with the conditions set forth in Section 2.1, 2.5, 2.6 or 7.2 or as otherwise set forth in this Agreement for the making of a Loan, it being acknowledged that such conditions are not required for the making of a Letter of Credit Borrowing and the obligation of the Banks to make Participation Advances under Section 2.9.3; (iii) any lack of validity or enforceability of any Letter of Credit; (iv) the existence of any claim, set-off, defense or other right which any Loan Party or any Bank may have at any time against a beneficiary or any transferee of any Letter of Credit (or any Persons for whom any such transferee may be acting), the Agent or any Bank or any other Person or, whether in connection with this Agreement, the transactions contemplated herein or any unrelated transaction (including any underlying transaction between any Loan Party or Subsidiaries of a Loan Party and the beneficiary for which any Letter of Credit was procured); 24 (v) any draft, demand, certificate or other document presented under any Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect even if the Agent has been notified thereof, (vi) payment by the Agent under any Letter of Credit against presentation of a demand, draft or certificate or other document which does not comply with the terms of such Letter of Credit; (vii) any adverse change in the business, operations, properties, assets, condition (financial or otherwise) or prospects of any Loan Party or Subsidiaries of a Loan Party; (viii) any breach of this Agreement or any other Loan Document by any party thereto; (ix) the occurrence or continuance of an Insolvency Proceeding with respect to any Loan Party; (x) the fact that an Event of Default or a Potential Default shall have occurred and be continuing; (xi) the fact that the Expiration Date shall have passed or this Agreement or the Commitments hereunder shall have been terminated; and (xii) any other circumstance or happening whatsoever, whether or not similar to any of the foregoing; provided that each Bank's obligation to make Loans under Section 2.9.3.3 is subject to the conditions set forth in Section 7.2. 2.9.8 Indemnity. In addition to amounts payable as provided in Section 10.5, the Borrowers hereby agree to protect, indemnify, pay and save harmless the Agent from and against any and all claims, demands, liabilities, damages, losses, costs, charges and expenses (including reasonable fees, expenses and disbursements of counsel and allocated costs of internal counsel) which the Agent may incur or be subject to as a consequence, direct or indirect, of (i) the issuance of any Letter of Credit, other than as a result of (A) the gross negligence or willful misconduct of the Agent as determined by a final judgment of a court of competent jurisdiction or (B) subject to the following clause (ii), the wrongful dishonor by the Agent of a proper demand for payment made under any Letter of Credit, or (ii) the failure of the Agent to honor a drawing under any such Letter of Credit as a result of any act or omission, whether rightful or wrongful, of any present or future de jure or de facto government or governmental authority (all such acts or omissions herein called "Governmental Acts"). 25 2.9.9 Liability for Acts and Omissions. As between any Loan Party and the Agent, such Loan Party assumes all risks of the acts and omissions of, or misuse of the Letters of Credit by, the respective beneficiaries of such Letters of Credit. In furtherance and not in limitation of the foregoing, the Agent shall not be responsible for: (i) the form, validity, sufficiency, accuracy, genuineness or legal effect of any document submitted by any party in connection with the application for an issuance of any such Letter of Credit, even if it should in fact prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent or forged (even if the Agent shall have been notified thereof); (ii) the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign any such Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason; (iii) the failure of the beneficiary of any such Letter of Credit, or any other party to which such Letter of Credit may be transferred, to comply fully with any conditions required in order to draw upon such Letter of Credit or any other claim of any Loan Party against any beneficiary of such Letter of Credit, or any such transferee, or any dispute between or among any Loan Party and any beneficiary of any Letter of Credit or any such transferee; (iv) errors, omissions, interruptions or delays in transmission or delivery of any messages, by mail, cable, telegraph, telex or otherwise, whether or not they be in cipher; (v) errors in interpretation of technical terms; (vi) any loss or delay in the transmission or otherwise of any document required in order to make a drawing under any such Letter of Credit or of the proceeds thereof-, (vii) the misapplication by the beneficiary of any such Letter of Credit of the proceeds of any drawing under such Letter of Credit; or (viii) any consequences arising from causes beyond the control of the Agent, including any Governmental Acts, and none of the above shall affect or impair, or prevent the vesting of, any of the Agent's rights or powers hereunder. In furtherance and extension and not in limitation of the specific provisions set forth above, any action taken or omitted by the Agent under or in connection with the Letters of Credit issued by it or any documents and certificates delivered thereunder, if taken or omitted in good faith and not resulting from the Agent's gross negligence, shall not put the Agent under any resulting liability to the Borrowers or any Bank. 2.10 Extension by Banks of the Expiration Date. 2.10.1 Requests-, Approval by All Banks. Upon or promptly after the first anniversary of the Closing Date or any subsequent anniversary of theClosing Date, the Borrowers may request a one-year extension of the Expiration Date by written notice to the Banks, and the Banks agree to respond to the Borrower's request for an extension by sixty (60) days following receipt of the request; provided, however, that the failure of any Bank to respond within such time period shall not in any manner constitute an agreement by such Bank to extend the Expiration Date. If all Banks elect to extend, the Expiration Date shall be extended for a period of one year. If one or more Banks decline to extend or do not respond to Borrower's request, the provisions of Section 2.10.2 shall apply. 26 2.10.2 Approval by Required Banks. In the event that one or more Banks do not agree to extend the Expiration Date or do not respond to Borrowers' request for an extension within the time required under Section 2.10.1 (each a "Bank to be Terminated"), but the Required Banks agree to such extension within such time then, the Banks which have agreed to such extension within the time required under Section 2.10.1 (each an "Extending Bank") may, with the prior written approval of the Borrowers and the Agent, arrange to have one or more other banks (each an "Assignee Bank") purchase all of the outstanding Loans, if any, of the Bank to be Terminated and succeed to and assume the Commitments and all other rights, interests and obligations of the Bank to be Terminated under this Agreement and the other Loan Documents. Any such purchase and assumption shall be (1) pursuant to an Assignment and Assumption Agreement, (2) subject to and in accordance with Section I 1. I 1, and (3) effective on the last day of the Interest Period if any Loans are outstanding under the Euro-Rate Option. The Borrowers shall pay all amounts due and payable to the Bank to be Terminated on the effective date of such Assignment and Assumption Agreement. In the event that the Agent shall become a Bank to be Terminated, the provisions of this Section 2.10 shall be subject to Section l0.14. In the event that the Loans and Commitments of a Bank to be Terminated are not fully assigned and assumed pursuant to Section 2.10.2 within 120 days following the receipt of the request to extend, then the Expiration Date shall not be extended for any Bank. 3 [RESERVED] 4. INTEREST RATES 4.1 Interest Rate Options. The Borrowers shall pay interest in respect of the outstanding unpaid principal amount of the Loans as selected by it from the Base Rate Option or Euro-Rate Option set forth below applicable to the Loans, it being understood that, subject to the provisions of this Agreement, the Borrowers may select different Interest Rate Options and different Interest Periods to apply simultaneously to the Loans comprising different Borrowing Tranches and may convert to or renew one or more Interest Rate Options with respect to all or any portion of the Loans comprising any Borrowing Tranche, provided that there shall not be at any one time outstanding more than four (4) Borrowing Tranches in the aggregate among all of the Loans accruing interest at a Euro-Rate Option. If at any time the designated rate applicable to any Loan made by any Bank exceeds such Bank's highest lawful rate, the rate of interest on such Bank's Loan shall be limited to such Bank's highest lawful rate. 4.1.1 Revolving Credit Interest Rate Options. The Borrowers shall have the right to select from the following Interest Rate Options applicable to the Loans: 27 (i) Base Rate Option: A fluctuating rate per annum (computed on the basis of a year of 365 or 366 days, as the case may be, and actual days elapsed) equal to the Base Rate, such interest rate to change automatically from time to time effective as of the effective date of each change in the Base Rate; (ii) Revolving Credit Euro-Rate Option: A rate per annum (computed on the basis of a year of 360 days and actual days elapsed) equal to the Euro-Rate plus the rate per annum (the "Applicable Margin") described below measured in respect of the Borrowers' Leverage Ratio as of the end of each fiscal quarter: (a) if the Borrowers' Leverage Ratio is less than or equal to 1.0 to 1.0, then the Applicable Margin shall be .75%; and (b) if the Borrowers' Leverage Ratio is greater than 1.0 to 1.0 but less than or equal to 1.5 to 1.0, then the Applicable Margin shall be 1.00%; and (c) if the Borrowers' Leverage Ratio is greater than 1.5 to 1.0 but less than or equal to 2.0 to 1.0, then the Applicable Margin shall be 1.25%; and (d) if the Borrowers' Leverage Ratio is greater than 2.0 to 1.0 but less than or equal to 2.5 to 1.0, then the Applicable Margin shall be 1.375%; and (e) if the Borrowers' Leverage Ratio is greater than 2.5 to 1.0, then the Applicable Marginshall be 1.50%. Any changes in the Applicable Margin pursuant to the provisions of this Section 4.1 (a)(ii) shall become effective from the fifth day after the Agent shall have received the Certificate delivered pursuant to Section 8.3.4 in respect of such fiscal quarter; provided, that, in the event that the Certificate delivered pursuant to Section 8.3.4 for any fiscal quarter is not timely delivered, then the Applicable Margin shall be the amount set forth in item (e) above commencing as of the date such certificate was required to be delivered until the delivery of such certificate. (iii)Notwithstanding anything herein to the contrary, any Euro-Rate Loan made before the end of the first full fiscal quarter beginning after the Closing Date shall have an Applicable Margin of 1.0%. 4.1.2 Rate Quotations. The Borrowers may call the Agent on or before the date on which a Loan Request is to be delivered to receive an indication of the rates then in effect, but it is acknowledged that such projection shall not be binding on the Agent or the Banks nor affect the rate of interest which thereafter is actually in effect when the election is made. 28 4.2 Interest Periods. At any time when the Borrowers shall select, convert to or renew a Euro-Rate Option, the Borrowers shall notify the Agent thereof at least three (3) Business Days prior to the effective date of such Euro-Rate Option by delivering a Loan Request. The notice shall specify an interest period (the "Interest Period") during which such Interest Rate Option shall apply, such Interest Period to be (i) one Month if Borrower selects the Euro-Rate Option during the Syndications Period and (ii) one, two, three or six Months in the event Borrower selects the Euro-Rate Option after the Syndications Period has ended. Notwithstanding the preceding sentence, the following provisions shall apply to any selection of, renewal of, or conversion to a Euro-Rate Option: 4.2.1 Ending Date and Business Day any Interest Period which would otherwise end on a date which is not a Business Day shall be extended to the next succeeding Business Day unless such Business Day falls in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day; 4.2.2 Amount of Borrowing Tranche. each Borrowing Tranche of Euro-Rate Loans shall be in integral multiples of $ 1 00,000 and not less than $1,000,000; 4.2.3 Termination Before Expiration Date. the Borrowers shall not select, convert to or renew an Interest Period for any portion of the Loans that would end after the Expiration Date; and 4.2.4 Renewals. in the case of the renewal of a Euro-Rate Option at the end of an Interest Period, the first day of the new Interest Period shall be the last day of the preceding Interest Period, without duplication in payment of interest for such day. 4.3 Interest After Default. To the extent permitted by Law, upon the occurrence of an Event of Default and until such time such Event of Default shall have been cured or waived: 4.3.1 Letter of Credit Fees, Interest Rate. the Letter of Credit Fees and the rate of interest for each Loan otherwise applicable pursuant to Section 2.9.2 or Section 4. 1, respectively, shall be increased by 2.0% per annum; and 29 4.3.2 Other Obligations. each other Obligation hereunder if not paid when due shall bear interest at a rate per annum equal to the sum of the rate of interest applicable under the Base Rate Option plus an additional 2.0 % per annum from the time such Obligation becomes due and payable and until it is paid in full. 4.3.3 Acknowledgment. The Borrowers acknowledge that the increase in rates referred to in this Section 4.3 reflects, among other things, the fact that such Loans or other amounts have become a substantially greater risk given their default status and that the Banks are entitled to additional compensation for such risk; and all such interest shall be payable by Borrowers upon demand by Agent. 4.4 Euro-Rate Unascertainable, Illegality, increased Costs-, Deposits Not Available 4.4.1 Unascertainable. If on any date on which a Euro-Rate would otherwise be determined, the Agent shall have determined that: (i) adequate and reasonable means do not exist for ascertaining such Euro-Rate, or (ii) a contingency has occurred which materially and adversely affects the secondary market for negotiable certificates of deposit maintained by dealers of recognized standing relating to the London interbank eurodollar market relating to the Euro-Rate, the Agent shall have the rights specified in Section 4.4.3. 4.4.2 Illegality; Increased Costs, Deposits Not Available. If at any time any Bank shall have determined that: (i) the making, maintenance or funding of any Loan to which a Euro-Rate Option applies has been made impracticable or unlawful by compliance by such Bank in good faith with any Law or any interpretation or application thereof by any Official Body or with any request or directive of any such Official Body (whether or not having the force of Law), or (ii) such Euro-Rate Option will not adequately and fairly reflect the cost to such Bank of the establishment or maintenance of any such Loan, or (iii) after making all reasonable efforts, deposits of the relevant amount in Dollars for the relevant Interest Period for a Loan to which a Euro-Rate 30 Option applies are not available to such Bank at the effective cost of funding a proposed Loan in the London interbank market, then the Agent shall have the rights specified in Section 4.4.3. 4.4.3 Agent's and Bank's Rights. In the case of any event specified in Section 4.4.1 above, the Agent shall promptly so notify the Banks and the Borrowers thereof, and in the case of an event specified in Section 4.4.2 above, such Bank shall promptly so notify the Agent and endorse a certificate to such notice as to the specific circumstances of such notice, and the Agent shall promptly send copies of such notice and certificate to the other Banks and the Borrowers. Upon such date as shall be specified in such notice (which shall not be earlier than the date such notice is given), the obligation of (A) the Banks, in the case of such notice given by the Agent, or (B) such Bank, in the case of such notice given by such Bank, to allow the Borrowers to select, convert to or renew a Euro-Rate Option shall be suspended until the Agent shall have later notified the Borrowers, or such Bank shall have later notified the Agent, of the Agent's or such Bank's, as the case may be, determination that the circumstances giving rise to such previous determination no longer exist. If at any time the Agent makes a determination under Section 4.4.1 and the Borrowers have previously notified the Agent of its selection of, conversion to or renewal of a Euro-Rate Option and such Interest Rate Option has not yet gone into effect, such notification shall be deemed to provide for selection of, conversion to or renewal of the Base Rate Option otherwise available with respect to such Loans. If any Bank notifies the Agent of a determination under Section 4.4.2, the Borrowers shall, subject to the Borrowers' indemnification Obligations under Section 5.6.2, as to any Loan of the Bank to which a Euro-Rate Option applies, on the date specified in such notice either convert such Loan to the Base Rate Option otherwise available with respect to such Loan or prepay such Loan in accordance with Section 5.4. Absent due notice from the Borrowers of conversion or prepayment, such Loan shall automatically be converted to the Base Rate Option otherwise available with respect to such Loan upon such specified date. 4.4.4 Uniform Application. Notwithstanding any other provision of this Section 4.4.1 or Section 4.4.2, the Agent and the Banks shall not apply the provisions of thereof with respect to the Borrowers if it shall not at the time be the general policy or practice of the Agent of the Bank exercising its rights thereunder to apply the provisions similar to those of Section 4.4.1 or 4.4.2 to other borrowers in substantially similar circumstances under substantially comparable provisions of other credit agreements. 4.5 Selection of Interest Rate Options. If the Borrowers fail to select a new Interest Period to apply to any Borrowing Tranche of Loans under the Euro-Rate Option at the expiration of an existing Interest Period applicable to such Borrowing Tranche in accordance with the provisions of Section 4.2, the 31 Borrowers shall be deemed to have converted such Borrowing Tranche to the Base Rate Option commencing upon the last day of the existing Interest Period. 5. PAYMENTS 5.1 Payments. All payments and prepayments to be made in respect of principal, interest, Commitment Fees, Closing Fees, Letter of Credit Fees, Agent's Fee or other fees or amounts due from the Borrowers hereunder shall be payable prior to I 1:00 a.m., Camp Hill time, on the date when due without presentment, demand, protest or notice of any kind, all of which are hereby expressly waived by the Borrowers, and without set-off, counterclaim or other deduction of any nature, and an action therefor shall immediately accrue. Such payments shall be made to the Agent at the Principal Office for the ratable accounts of the Banks with respect to the Loans in U.S. Dollars and in immediately available funds, and the Agent shall promptly distribute such amounts to the Banks in immediately available funds, provided that in the event payments are received by I 1:00 a.m., Camp Hill time, by the Agent with respect to the Loans and such payments are not distributed to the Banks on the same day received by the Agent, the Agent shall pay the Banks the Federal Funds Effective Rate with respect to the amount of such payments for each day held by the Agent and not distributed to the Banks. The Agent's and each Bank's statement of account, ledger or other relevant record shall, in the absence of manifest error, be conclusive as the statement of the amount of principal of and interest on the Loans and other amounts owing under this Agreement. 5.2 Pro Rata Treatment of Banks. Each borrowing shall be allocated to each Bank according to its Ratable Share, and each selection of, conversion to or renewal of any Interest Rate Option and each payment or prepayment by the Borrowers with respect to principal, interest, Commitment Fees, Closing Fees, Letter of Credit Fees, or other fees (except for the Agent's Fee) or amounts due from the Borrower hereunder to the Banks with respect to the Loans, shall (except as provided in Section 4.4.3 in the case of an event specified in Section 4.4 [Euro-Rate Unascertainable]; or 5.6 [Additional Compensation in Certain Circumstances]) be made in proportion to the applicable Loans outstanding from each Bank and, if no such Loans are then outstanding, in proportion to the Ratable Share of each Bank. 5.3 Interest Payment Dates. Interest on Loans to which the Base Rate Option applies shall be due and payable in arrears on the first Business Day of each January, April, July and October after the date hereof and on the Expiration Date or upon acceleration of the Notes. Interest on Loans to which the Euro-Rate Option applies shall be due and payable on the last day of each Interest Period for those Loans and, if such Interest Period is longer than three (3) Months, also on the 90th day of such Interest Period. Interest on the principal amount of each Loan or other monetary Obligation 32 shall be due and payable on demand after such principal amount or other monetary Obligation becomes due and payable (whether on the stated maturity date, upon acceleration or otherwise). 5.4 Voluntary Prepayments. 5.4.1 Right to Prepay. The Borrowers shall have the right at its option from time to time to prepay the Loans in whole or part without premium or penalty (except as provided in Section 5.6): (I) at any time with respect to any Loan to which the Base Rate Option applies, (ii) on the last day of the applicable Interest Period with respect to Loans to which a Euro-Rate Option applies, (iii) on the date specified in a notice by any Bank pursuant to Section 4.4 [Euro-Rate Unascertainable] with respect to any Loan to which a Euro-Rate Option applies. Whenever the Borrowers desire to prepay any part of the Loans, it shall provide a prepayment notice to the Agent on or before I 1:00 a.m. (Camp Hill time) at least one (1) Business Day prior to the date of prepayment of Loans setting forth the following information: (x) the date, which shall be a Business Day, on which the proposed prepayment is to be made; (y) a statement indicating the application of the prepayment between the Loans; and (z) the total principal amount of such prepayment- 9 which shall not be less than $ 1 00,000. All prepayment notices shall be irrevocable. The principal amount of the Loans for which a prepayment notice is given, together with interest on such principal amount except with respect to Loans to which the Base Rate Option applies, shall be due and payable on the date specified in such prepayment notice as the date on which the proposed prepayment is to be made. Except as provided in Section 4.4.3, if the Borrowers prepay a Loan but fail to specify the applicable Borrowing Tranche which the Borrowers are prepaying, the prepayment shall be applied first to Loans to which the Base Rate Option applies, then to Loans to which the Euro-Rate Option applies. Any prepayment hereunder shall be subject to the Borrowers' Obligation to indemnify the Banks under Section 5.6.2. 33 5.4.2 Change of Lending Office. Each Bank agrees that upon the occurrence of any event giving rise to increased costs or other special payments under Section 4.4.2 [Illegality, etc.] or 5.6.1 [Increased Costs, etc.] with respect to such Bank, it will if requested by the Borrowers, use reasonable efforts (subject to overall policy considerations of such Bank) to designate another lending office for any Loans or Letters of Credit affected by such event, provided that such designation is made on such terms that such Bank and its lending office suffer no economic, legal or regulatory disadvantage, with the object of avoiding the consequence of the event giving rise to the operation of such Section. Nothing is this Section 5.4.2 shall affect or postpone any of the Obligations of the Borrowers or any other Loan Party or the rights of the Agent or any Bank provided in this Agreement. 5.5 [RESERVED] 5.6 Additional Compensation in Certain Circumstances. 5.6.1 Increased Costs or Reduced Return Resulting From Taxes, Reserves, Capital Adequacy Requirements, Expenses, Etc. If any change in any Law, guideline or interpretation or application thereof by any Official Body charged with the interpretation or administration thereof or compliance with any request or directive (whether or not having the force of Law) of any central bank or other Official Body: (i) subjects any Bank to any tax or changes the basis of taxation with respect to this Agreement, the Notes, the Loans or payments by the Borrower of principal, interest, Commitment Fees, or other amounts due from the Borrowers hereunder or under the Notes (except for taxes on the overall net income of such Bank), (ii) imposes, modifies or deems applicable any reserve, special deposit or similar requirement against credits or commitments to extend credit extended 'by, or assets (funded or contingent) of, deposits with or for the account of, or other acquisitions of funds by, any Bank, or - (iii) imposes, modifies or deems applicable any capital adequacy or similar requirement (A) against assets (funded or contingent) of, or letters of credit, other credits or commitments to extend credit extended by, any Bank, or (B) otherwise applicable to the obligations of any Bank under this Agreement, and the result of any of the foregoing is to increase the cost to, reduce the income receivable by, or impose any expense (including loss of margin) upon any Bank with respect to this Agreement, the Notes or the making, maintenance or funding of any part of the Loans (or, in the case of any capital adequacy or similar requirement, to have the effect of reducing the rate of return on any Bank's capital, taking into consideration such Bank's customary policies with respect to capital 34 adequacy) by an amount which such Bank in its sole discretion deems to be material, such Bank shall from time to time notify the Borrowers and the Agent of the amount determined in good faith (using any averaging and attribution methods employed in good faith) by such Bank to be necessary to compensate such Bank for such increase in cost, reduction of income, additional expense or reduced rate of return. Such notice shall set forth in reasonable detail the basis for such determination. Such amount shall be due and payable by the Borrowers to such Bank ten (10) Business Days after such notice is given. Notwithstanding any other provision of this Section 5.6. 1, the Agent and the Banks shall not apply the provisions of hereof with respect to the Borrowers if it shall not at the time be the general policy or practice of the Agent or the Bank exercising its rights hereunder to apply the provisions similar to those of this Section 5.6.1 to other borrowers in substantially similar circumstances under substantially comparable provisions of other credit agreements. 5.6.2 Indemnity. In addition to the compensation required by Section 5.6. 1, the Borrowers shall indemnify each Bank against all liabilities, losses or expenses (including loss of margin, any loss or expense incurred in liquidating or employing deposits from third parties and any loss or expense incurred in connection with funds acquired by a Bank to find or maintain Loans subject to a Euro-Rate Option) which such Bank sustains or incurs as a consequence of any (i) payment, prepayment, conversion or renewal of any Loan to which a Euro-Rate Option applies on a day other than the last day of the corresponding Interest Period (whether or not such payment or prepayment is mandatory, voluntary or automatic and whether or not such payment or prepayment is then due), (ii) attempt by the Borrowers to revoke (expressly, by later inconsistent notices or otherwise) in whole or part any Loan Requests under Section 2.5 or Section 4.2 or notice relating to prepayments under Section 5.4, or (iii)default by the Borrowers in the performance or observance of any covenant or condition contained in this Agreement or any other Loan Document, including any failure of the Borrower to pay when due (by acceleration or otherwise) any principal, interest, Commitment Fee or any other amount due hereunder. If any Bank sustains or incurs any such loss or expense, it shall from time to time notify the Borrowers of the amount determined in good faith by such Bank (which determination may include such assumptions, allocations of costs and expenses and averaging or attribution methods as such Bank shall deem reasonable) to be necessary to indemnify such Bank for such loss or expense. Such notice shall set forth in reasonable detail the basis for such determination. Such amount shall be due and payable by the Borrowers to such Bank ten (10) Business Days after such notice is given. 35 5.7 Special Provisions Concerning Foreign Borrowers. Notwithstanding the joint and several liability of the Borrowers with respect to the Obligations, the liability of a Foreign Borrower on account of the principal and interest on the Loans shall be limited to the principal amount advanced to such Borrower and interest and costs of collection thereon. 6. REPRESENTATIONS AND WARRANTIES 6.1 Representations and Warranties. The Loan Parties, jointly and severally, represent and warrant to the Agent and each of the Banks as follows: 6.1.1 Organization and Qualification. Each Loan Party and each Subsidiary of each Loan Party is a corporation, partnership or limited liability company duly organized, validly existing and in good standing under the laws of its jurisdiction of organization. Each Loan Party and each Subsidiary of each Loan Party has the lawful power to own or lease its properties and to engage in the business it presently conducts or proposes to conduct. Each Loan Party and each Subsidiary of each Loan Party is duly licensed or qualified and in good standing in each jurisdiction listed on Schedule 6. 1.1 and in all other jurisdictions where the property owned or leased by it or the nature of the business transacted by it or both makes such licensing or qualification necessary except where the failure to be so licensed or qualified would not result in a Material Adverse Change. 6.1.2 Capitalization and Ownership. The authorized capital stock of each Borrower and the issued and outstanding shares thereof (referred to herein as the "Shares") are as set forth on Schedule 6.1.2. All of the Shares have been validly issued and are fully paid and nonassessable. There are no options, warrants or other rights outstanding to purchase any such shares except as indicated on Schedule 6.1.2. 6.1.3 Subsidiaries. 6.1.3.1 Borrower Subsidiaries. The Borrowers have no Subsidiaries which are not Borrowers other than those represented by investments permitted by Section 8.2.4(vi) or 8.2.6(xi), or as shown on Schedule 6.1.3. 6.1.3.2 Affiliates and Subsidiaries of the Parent. 36 The Parent has no Subsidiaries, direct or indirect, other than the Borrowers, those Persons represented by investments permitted by Section 8.2.4(vi) or 8.2.6(xi), or as shown on Schedule 6.1.3. 6.1.4 Power and Authority Each Loan Party has full power to enter into, execute, deliver and carry out this Agreement and the other Loan Documents to which it is a party, to incur the Indebtedness contemplated by the Loan Documents and to perform its Obligations under the Loan Documents to which it is a party, and all such actions have been duly authorized by all necessary proceedings on its part. 6.1.5 Validity and Binding Effect. This Agreement has been duly and validly executed and delivered by each Loan Party, and each other Loan Document which any Loan Party is required to execute and deliver on or after the date hereof will have been duly executed and delivered by such Loan Party on the required date of delivery of such Loan Document. This Agreement and each other Loan Document constitutes, or will constitute, legal, valid and binding obligations of each Loan Party which is or will be a party thereto on and after its date of delivery thereof, enforceable against such Loan Party in accordance with its terms, except to the extent that enforceability of any of such Loan Document may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforceability of creditors' rights generally or limiting the right of specific performance. 6.1.6 No Conflict. Neither the execution and delivery of this Agreement or the other Loan Documents by any Loan Party nor the consummation of the transactions herein or therein contemplated or compliance with the terms and provisions hereof or thereof by any of them will conflict with, constitute a default under or result in any breach of (i) the terms and conditions of the certificate of incorporation, bylaws, certificate of limited partnership, partnership agreement, certificate of formation, limited liability company agreement or other organizational documents of any Loan Party or (ii) any Law or any material agreement or instrument or order, writ, judgment, injunction or decree to which any Loan Party or any of its Subsidiaries is a party or by which it or any of its Subsidiaries is bound or to which it is subject, or result in the creation or enforcement of any Lien, charge or encumbrance whatsoever upon any property (now or hereafter acquired) of any Loan Party or any of its Subsidiaries (other than Liens granted under the Loan Documents). 37 6.1.7 Litigation. There are no actions, suits, proceedings or investigations pending or, to the knowledge of any Loan Party, threatened against such Loan Party or any Subsidiary of such Loan Party at law or equity before any Official Body which individually or in the aggregate may result in any Material Adverse Change. None of the Loan Parties or any Subsidiaries of any Loan Party is in violation of any order, writ, injunction or any decree of any Official Body which would result in any Material Adverse Change. 6.1.8 Title to Properties. Each Loan Party and each Subsidiary of each Loan Party has good and marketable title to or valid leasehold interest in all properties, assets and other rights which it purports to own or lease or which are reflected as owned or leased on its books and records, free and clear of all Liens and encumbrances except Permitted Liens, and subject to the terms and conditions of the applicable leases. All leases of property are in full force and effect without the necessity for any consent which has not previously been obtained upon consummation of the transactions contemplated hereby. 6.1.9 Financial Statements. (i) Historical Statements. The Borrowers have delivered to the Agent copies of the Parent's audited consolidated year-end financial statements for and as of the end of the three fiscal years ended December 31, 1995 (the "Annual Statements"). In addition, the Borrower has delivered to the Agent copies of its unaudited consolidated interim financial statements for the fiscal year to date and as of the end of the fiscal quarter ended June 30, 1996 (the "Interim Statements") (the Annual and Interim Statements being collectively referred to as the "Historical Statements"). The Historical Statements were compiled from the books and records maintained by the Parent's management, are correct and complete in accordance with GAAP and fairly represent the consolidated financial condition of the Parent's and its Subsidiaries as of their dates and the results of operations for the fiscal periods then ended and have been prepared in accordance with GAAP, subject (in the case of the Interim Statements) to normal year-end audit adjustments. (ii) Financial Projections. The Borrowers have delivered to the Agent financial projections of the Company for the period ended December 31, 2001 derived from various assumptions of the Borrower's management (the "Financial Projections"). The Financial Projections represent a reasonable range of possible results in light of the history of the business, present and foreseeable conditions and the intentions of the Borrower's management. The Financial Projections accurately reflect the liabilities of the Borrowers upon consummation of the transactions contemplated hereby as of the Closing Date. (iii)Accuracy of Financial Statements. As of the Closing Date, the Borrowers have no liabilities, contingent or otherwise, or forward or long-term commitments that are not disclosed in the Historical Statements or in the notes thereto, and 38 except as disclosed therein there are no unrealized or anticipated losses from any commitments of the Borrowers which may cause a Material Adverse Change. Since December 31, 1995, no Material Adverse Change has occurred. 6.1.10 Use of Proceeds-, Margin Stock. The Loan Parties intend to use the proceeds of the Loans in accordance with Sections 2.8, and 8. 1. I 0. None of the Loan Parties or any Subsidiaries of any Loan Party engages or intends to engage principally, or as one of its important activities, in the business of extending credit for the purpose, immediately, incidentally or ultimately, of purchasing or carrying margin stock (within the meaning of Regulation U). No part of the proceeds of any Loan has been or will be used, immediately, incidentally or ultimately, to purchase or carry any margin stock or to extend credit to others for the purpose of purchasing or carrying any margin stock or to refund Indebtedness originally incurred for such purpose, or for any purpose which entails a violation of or which is inconsistent with the provisions of the regulations of the Board of Governors of the Federal Reserve System. None of the Loan Parties or any Subsidiary of any Loan Party holds or intends to hold margin stock in such amounts that more than 25% of the reasonable value of the assets of any Loan Party or Subsidiary of any Loan Party are or will be represented by margin stock. 6.1.11 Full Disclosure. Neither this Agreement nor any other Loan Document, nor any certificate, statement, agreement or other documents furnished to the Agent or any Bank in connection herewith or therewith, contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein and therein, in light of the circumstances under which they were made, not misleading. There is no fact known to any Loan Party which materially adversely affects the business, property, assets, financial condition, results of operations or prospects of the Loan Parties taken as a whole which has not been set forth in this Agreement or in the certificates, statements, agreements or other documents furnished in writing to the Agent and the Banks prior to or at the date hereof in connection with the transactions contemplated hereby. 6.1.12 Taxes. All federal, state, local and other tax returns required to have been filed with respect to each Loan Party and each Subsidiary of each Loan Party have been filed, and payment or adequate provision has been made for the payment of all taxes, fees, assessments and other governmental charges which have or may become due pursuant to said returns or to assessments received, except to the extent that such taxes, fees, assessments and other charges are being contested in good faith by appropriate proceedings diligently conducted and for which such reserves or other appropriate provisions, if any, as shall be required by GAAP shall have been made. As of the Closing Date, there are no agreements or waivers extending the statutory period of limitations applicable to any federal income tax return of any Loan Party or Subsidiary of any Loan Party for any period. 39 6.1.13 Consents and Approvals. No consent, approval, exemption, order or authorization of, or a registration or filing with, any Official Body or any other Person is required by any Law or any agreement in connection with the execution, delivery and carrying out of this Agreement and the other Loan Documents by any Loan Party. 6.1.14 No Event of Default; Compliance with Instruments. No event has occurred and is continuing and no condition exists or will exist after giving effect to the borrowings or other extensions of credit to be made on the Closing Date under or pursuant to the Loan Documents which constitutes an Event of Default or Potential Default. None of the Loan Parties or any Subsidiaries of any Loan Party is in violation of (i) any term of its certificate of incorporation, bylaws, certificate of limited partnership, partnership agreement, certificate of formation, limited liability company agreement or other organizational documents or (ii) any material agreement or instrument to which it is a party or by which it or any of its properties may be subject or bound where such violation would constitute a Material Adverse Change. 6.1.15 Patents, Trademarks, Copyrights, Licenses, Etc. Each Loan Party and each Subsidiary of each Loan Party owns or possesses all the material patents, trademarks, service marks, trade names, copyrights, licenses, registrations, franchises, permits and rights necessary to own and operate its properties and to carry on its business as presently conducted and planned to be conducted by such Loan Party or Subsidiary, without known possible, alleged or actual conflict with the rights of others. 6.1.16 Insurance. Schedule 6.1.16 lists all insurance policies and other bonds to which any Loan Party or Subsidiary of any Loan Party is a party as of the Closing Date, all of which are valid and in full force and effect. No notice has been given or claim made and no grounds exist to cancel or avoid any of such policies or bonds or to reduce the coverage provided thereby. Such policies and bonds provide adequate coverage from reputable and financially sound insurers in amounts sufficient to insure the assets and risks of each Loan Party and each Subsidiary of each Loan Party in accordance with prudent business practice in the industry of the Loan Parties and their Subsidiaries. 6.1.17 Compliance with Laws. The Loan Parties and their Subsidiaries are in compliance in all material respects with all applicable Laws (other than Environmental Laws which are specifically addressed in Section 6.1.22) in all jurisdictions in which any Loan Party or Subsidiary of any Loan Party is presently or will be doing business except where the failure to do so would not constitute a Material Adverse Change. 40 6.1.18 Material Contracts-, Burdensome Restrictions. All material contracts of each Loan Party are valid, binding and enforceable upon such Loan Party and each of the other parties thereto in accordance with their respective terms, and there is no default thereunder, to the Loan Parties' knowledge, with respect to parties other than such Loan Party except where such failure would not result in a Material Adverse Change. None of the Loan Parties or their Subsidiaries is bound by any contractual obligation, or subject to any restriction in any organization document, or any requirement of Law which would result in a Material Adverse Change. 6.1.19 Investment Companies-, Regulated Entities. None of the Loan Parties or any Subsidiaries of any Loan Party is an "investment company" registered or required to be registered under the Investment Company Act of 1940 or under the "control" of an "investment company" as such terms are defined in the Investment Company Act of 1940 and shall not become such an "investment company" or under such "control." None of the Loan Parties or any Subsidiaries of any Loan Party is subject to any other Federal state statute or regulation limiting its ability to incur Indebtedness for borrowed money. 6.1.20 Plans and Benefit Arrangements. Except as set forth on Schedule 6.1.20: (i) The Borrowers and each other member of the ERISA Group are in compliance in all material respects with any applicable provisions of ERISA with respect to all Benefit Arrangements, Plans, Multiple Employer Plans and Multiemployer Plans. There has been no Prohibited Transaction with respect to any Benefit Arrangement or any Plan or, to the best knowledge of the Borrowers, with respect to any Multiemployer Plan or Multiple Employer Plan, which could result in any material liability of the Borrower or any other member of the ERISA Group. The Borrowers and all other members of the ERISA Group have made when due any and all payments required to be made under any agreement relating to a Multiemployer Plan or a Multiple Employer Plan or any Law pertaining thereto. With respect to each Plan and Multiemployer Plan, the Borrower and each other member of the ERISA Group (i) have fulfilled in all material respects their obligations under the minimum funding standards of ERISA, (ii) have not incurred any liability to the PBGC, and (iii) have not had asserted against them any penalty for failure to fulfill the minimum funding requirements of ERISA. (ii) To the best of the Borrowers' knowledge, each Multiemployer Plan and Multiple Employer Plan is able to pay benefits thereunder when due. (iii)Neither the Borrowers nor any other member of the ERISA Group has instituted or intends to institute proceedings to terminate any Plan. 41 (iv) No event requiring notice to the PBGC under Section 302(0(4)(A) of ERISA has occurred or is reasonably expected to occur with respect to any Plan, and no amendment with respect to which security is required under Section 307 of ERISA has been made or is reasonably expected to be made to any Plan. (v) The aggregate actuarial present value of all benefit liabilities (whether or not vested) under each Plan, determined on a plan termination basis, as disclosed in, and as of the date of, the most recent actuarial report for such Plan, does not exceed the aggregate fair market value of the assets of such Plan. (vi) Neither the Borrowers nor any other member of the ERISA Group has incurred or reasonably expects to incur any material withdrawal liability under ERISA to any Multiemployer Plan or Multiple Employer Plan. Neither the Borrowers nor any other member of the ERISA Group has been notified by any Multiemployer Plan or Multiple Employer Plan that such Multiemployer Plan or Multiple Employer Plan has been terminated within the meaning of Title IV of ERISA and, to the best knowledge of the Borrowers, no Multiemployer Plan or Multiple Employer Plan is reasonably expected to be reorganized or terminated, within the meaning of Title IV of ERISA. (vii)To the extent that any Benefit Arrangement is insured, the Borrower and all other members of the ERISA Group have paid when due all premiums required to be paid for all periods through the Closing Date. To the extent that any Benefit Arrangement is funded other than with insurance, the Borrower and all other members of the ERISA Group have made when due all contributions required to be paid for all periods through the Closing Date. (viii) All Plans, Benefit Arrangements, Multiple Employer Plans and Multiemployer Plans have been administered in material compliance with their terms and applicable Law. 6.1.21 Employment Matters. Each of the Loan Parties and each of their Subsidiaries is in compliance with the Labor Contracts and all applicable federal, state and local labor and employment Laws including those related to equal employment opportunity and affirmative action, labor relations, minimum wage, overtime, child labor, medical insurance continuation, worker adjustment and relocation notices, immigration controls and worker and unemployment compensation, where the failure to comply would constitute a Material Adverse Change. There are no outstanding grievances, arbitration awards or appeals therefrom arising out of the Labor Contracts or current or threatened strikes, picketing, handbilling or other work stoppages or slowdowns at facilities of any of the Loan Parties which in any case would constitute a Material Adverse Change. 42 6.1.22 Environmental Matters. Except as disclosed on Schedule 6.1.22 and except for (i) individual matters involving in any one (1) year liabilities, expenditures or other dollar amounts not in excess of one and one quarter percent (1.25%) of the Parent's consolidated assets or (ii) matters which do not constitute or would not cause a Material Adverse Change: (i) None of the Loan Parties has received any Environmental Complaint from any Official Body or private Person alleging that such Loan Party or any prior or subsequent owner of any of the Property is a potentially responsible party under the Comprehensive Environmental Response, Cleanup and Liability Act, 42 U.S.C. section 960 1, et IM. with respect to the Property, and none of the Loan Parties reasonably believes that such an Environmental Complaint is likely to be received. There are no pending or, to any Loan Party's knowledge, Environmental Complaints which have been threatened in writing to any Loan Party or, to any Loan Party's knowledge, any prior or subsequent owner of any of the Property pertaining to, or arising out of, any Environmental Conditions on or at the Property. (ii) To any Loan Party's knowledge, there are no circumstances at, on or under any of the Property that constitute a violation of or non-compliance with any of the Environmental Laws by any Loan Party, and there are no past or present Environmental Conditions at, on or under any of the Property or, to any Loan Party's knowledge, at, on or under adjacent property, that prevent compliance by any Loan Party with the Environmental Laws at any of the Property. (iii)To any Loan Party's knowledge, neither any of the Property nor any structures, improvements, equipment, fixtures, activities or facilities thereon or thereunder contain or use Regulated Substances except in compliance with Environmental Laws. To any Loan Party's knowledge, there are no processes, facilities, operations, equipment or other activities at, on or under any of the Property, or, to any Loan Party's knowledge, at, on or under adjacent property, that currently result in the release or threatened release of Regulated Substances onto any of the Property, except to the extent that such releases or threatened releases are not a breach of or otherwise not a violation by any Loan Party of the Environmental Laws. (iv) There are no aboveground storage tanks, underground storage tanks or underground piping associated with such tanks, used for the management of Regulated Substances by the Loan Parties at, on or under any of the Property that (a) do not have, to the extent required by Environmental Laws, a full operational secondary containment system in place, and (b) are not otherwise in compliance with all Environmental Laws. There are no abandoned underground storage tanks or underground piping associated with such tanks, previously used for the management of Regulated Substances by any Loan Party at, on or under any of the Property that have not either been closed in place in accordance with Environmental Laws or removed in compliance with all applicable Environmental Laws and, to any Loan Party's knowledge, no contamination associated with the use of such tanks exists on any of the Property that requires remediation by any Loan Party under any applicable Environmental Laws. 43 (v) Each Loan Party has all material permits, licenses, authorizations, plans and approvals necessary under the Environmental Laws for the conduct of the business of such Loan Party as presently conducted. Each Loan Party has submitted all material notices, reports and other filings required by the Environmental Laws to be submitted to an Official Body which pertain to current operations on any of the Property by such Loan Party. (vi) To any Loan Party's knowledge, all present on-site generation, storage, processing, treatment, recycling, reclamation, disposal or other use or management of Regulated Substances by the Loan Parties at, on, or under any of the Property and all off-site transportation, storage, processing, treatment, recycling, reclamation, disposal or other use or management of Regulated Substances generated by the Loan Parties have been done in accordance with the Environmental Laws. 6.1.23 Senior Debt Status. The Obligations of each Loan Party under this Agreement, the Notes, the Guaranty Agreement and each of the other Loan Documents to which it is a party do rank and will rank at least pari passu in priority of payment with all other Indebtedness of such Loan Party except Indebtedness of such Loan Party to the extent secured by Permitted Liens. There is no Lien upon or with respect to any of the properties or income of any Loan Party or Subsidiary of any Loan Party which secures indebtedness or other obligations of any Person except for Permitted Liens. 7. CONDITIONS OF LENDING The obligation of each Bank to make Loans and of the Agent to issue Letters of Credit hereunder is subject to the performance by each of the Loan Parties of its Obligations to be performed hereunder at or prior to the making of any such Loans or issuance of such Letters of Credit and to the satisfaction of the following further conditions: 7.1 First Loans. On the Closing Date: 7.1.1 Officer's Certificate. The representations and warranties of each of the Loan Parties contained in Section 6 and in each of the other Loan Documents shall be true and accurate on and as of the Closing Date with the same effect as though such representations and warranties had been made on and as of such date (except representations and warranties which relate solely to an earlier date or time, which representations and warranties shall be true and correct on and as of the specific dates or times referred to therein), and each of the Loan Parties shall have performed and complied with all covenants and conditions hereof and thereof, no Event of Default or Potential Default shall have occurred and be continuing or shall exist; and there shall be delivered to the 44 Agent for the benefit of each Bank a certificate of each of the Loan Parties, dated the Closing Date and signed by the Chief Executive Officer, President or Chief Financial Officer of each of the Loan Parties, to each such effect. 7.1.2 Secretary's Certificate. There shall be delivered to the Agent for the benefit of each Bank a certificate dated the Closing Date and signed by the Secretary or an Assistant Secretary of each of the Loan Parties, certifying as appropriate as to: (i) all action taken by each Loan Party in connection with this Agreement and the other Loan Documents; (ii) the names of the officer or officers authorized to sign this Agreement and the other Loan Documents and the true signatures of such officer or officers and specifying the Authorized Officers permitted to act on behalf of each Loan Party for purposes of this Agreement and the true signatures of such officers, on which the Agent and each Bank may conclusively rely; and (iii)copies of its organizational documents, including its certificate of incorporation, bylaws, certificate of limited partnership, partnership agreement, certificate of formation, and limited liability company agreement as in effect on the Closing Date certified by the appropriate state official where such documents are filed in a state office together with certificates from the appropriate state officials as to the continued existence and good standing of each Loan Party (dated not earlier than thirty (30) days before the Closing Date) in each state where organized. 7.1.3 Delivery of Loan Documents. The Guaranty Agreement, Notes, Intercompany Subordination Agreement and other Loan Documents shall have been duly executed and delivered to the Agent for the benefit of the Banks. 7.1.4 Opinion of Counsel. There shall be delivered to the Agent for the benefit of each Bank a written opinion of Dechert, Price & Rhoads, counsel for the Loan Parties (who may rely on the opinions of such other counsel as may be acceptable to the Agent), dated the Closing Date and in form and substance satisfactory to the Agent and its counsel as to such matters incident to the transactions contemplated herein as the Agent may reasonably request. 7.1.5 Legal Details. All legal details and proceedings in connection with the transactions contemplated by this Agreement and the other Loan Documents shall be in form and substance 45 satisfactory to the Agent and counsel for the Agent, and the Agent shall have received all such other counterpart originals or certified or other copies of such documents and proceedings in connection with such transactions, in form and substance satisfactory to the Agent and said counsel, as the Agent or said counsel may reasonably request. 7.1.6 Payment of Fees. The Borrower shall have paid or caused to be paid to the Agent for itself and for the account of the Banks to the extent not previously paid the Closing Fees, all other commitment and other fees accrued through the Closing Date and the costs and expenses for which the Agent and the Banks are entitled to be reimbursed. 7.1.7 Lien Searches and Fleet Payoff. The Borrowers shall have delivered UCC, judgment and tax lien search concerning the Loan Parties which are satisfactory to the Agent as to form, content and scope and all outstanding obligations of all Loan Parties owing to Fleet Financial Corp. shall be paid and satisfied in full, all liens released and all releases, UCC-3 termination statements, mortgage satisfactions and other lien release documents shall have been executed and delivered on the Closing Date. 7.1.8 [RESERVED]. 7.1.9 Consents. All material consents required to effectuate the transactions contemplated hereby as set forth on Schedule 6.1.13 shall have been obtained. 7.1.10 Officer's Certificate Regarding, MACS. Since December 31, 1996, no Material Adverse Change shall have occurred; prior to the Closing Date, there shall have been no material change in the management of any Loan Party or Subsidiary of any Loan Party; and there shall have been delivered to the Agent for the benefit of each Bank a certificate dated the Closing Date and signed by the Chief Executive Officer, President or Chief Financial Officer of each Loan Party to each such effect. 7.1.11 No Violation of Laws. The making of the Loans and the issuance of the Letters of Credit shall not contravene any Law applicable to any Loan Party or any of the Banks. 7.1.12 No Actions or Proceedings. No action, proceeding, investigation, regulation or legislation shall have been instituted, threatened or proposed before any court, governmental agency or legislative body to enjoin, restrain or prohibit, or to obtain damages in respect of, this Agreement, the other 46 Loan Documents or the consummation of the transactions contemplated hereby or thereby or which, in the Agent's sole discretion, would make it inadvisable to consummate the transactions contemplated by this Agreement or any of the other Loan Documents. 7.1.13 Insurance Policies-, Certificates of Insurance; Endorsements. The Loan Parties shall have delivered evidence acceptable to the Agent that adequate insurance in compliance with Section 8.1.3 is in full force and effect and that all premiums then due thereon have been paid, together with a certified copy of each Loan Party's casualty insurance policy or policies evidencing coverage reasonably satisfactory to the Agent. 7.2 Each Additional Loan. At the time of making any Loans or issuing any Letters of Credit other than Loans made or Letters of Credit issued on the Closing Date and after giving effect to the proposed extensions of credit: the representations and warranties of the Loan Parties contained in Section 6 and in the other Loan Documents, including the Schedules thereto, shall be true on and as of the date of such additional Loan or Letter of Credit with the same effect as though such representations and warranties had been made, and such Schedules delivered, on and as of such date (except representations and warranties which expressly relate solely to an earlier date or time, which representations and warranties shall be true and correct on and as of the specific dates or times referred to therein) and the Loan Parties shall have performed and complied with all covenants and conditions hereof, no Event of Default or Potential Default shall have occurred and be continuing or shall exist; the making of the Loans or issuance of such Letter of Credit shall not contravene any Law applicable to any Loan Party or Subsidiary of any Loan Party or any of the Banks; and the Borrower shall have delivered to the Agent a duly executed and completed Loan Request or application for a Letter of Credit as the case may be. 8. COVENANTS 8.1 Affirmative Covenants. The Loan Parties, jointly and severally, covenant and agree that until payment in full of the Loans, Reimbursement Obligations and Letter of Credit Borrowings, and interest thereon, expiration or termination of all Letters of Credit, satisfaction of all of the Loan Parties' other Obligations under the Loan Documents and termination of the Commitments, the Loan Parties shall comply at all times with the following affirmative covenants: 8.1.1 Preservation of Existence, Etc. Each Loan Party shall, and shall cause each of its Subsidiaries to, maintain its legal existence as a corporation, limited partnership or limited liability company and its license or qualification and good standing in each jurisdiction in which its ownership or lease of 47 property or the nature of its business makes such license or qualification necessary, except as otherwise expressly permitted in Section 8.2.6. 8.1.2 Payment of Liabilities, Including, Taxes, Etc. Each Loan Party shall, and shall cause each of its Subsidiaries to, duly pay and discharge all liabilities to which it is subject or which are asserted against it, promptly as and when the same shall become due and payable, including all taxes, assessments and governmental charges upon it or any of its properties, assets, income or profits, prior to the date on which penalties attach thereto, except to the extent that such liabilities, including taxes, assessments or charges, are being contested in good faith and by appropriate and lawful proceedings diligently conducted and for which such reserve or other appropriate provisions, if any, as shall be required by GAAP shall have been made, but only to the extent that failure to discharge any such liabilities would not result in any additional liability which would adversely affect to a material extent the financial condition of the Loan Parties taken as a whole or which would affect in a materially adverse manner the material property of the Borrowers; provided that the Loan Parties and their Subsidiaries will pay all such liabilities forthwith upon the commencement of proceedings to foreclose any Lien which may have attached as security therefor. 8.1.3 Maintenance of Insurance. Each Loan Party shall, and shall cause each of its Subsidiaries to, insure its properties and assets against loss or damage by fire and such other insurable hazards as such assets are commonly insured (including fire, extended coverage, property damage, workers' compensation, public liability and business interruption insurance) and against other risks (including errors and omissions) in such amounts as similar properties and assets are insured by prudent companies in similar circumstances carrying on similar businesses, and with reputable and financially sound insurers, including self-insurance to the extent customary. At the request of the Agent, the Loan Parties shall deliver to the Agent and each of the Banks from time to time a summary schedule indicating all insurance then in force with respect to each of the Loan Parties. 8.1.4 Maintenance of Properties and Leases. Each Loan Party shall, and shall cause each of its Subsidiaries to, maintain in good repair, working order and condition (ordinary wear and tear excepted) in accordance with the general practice of other businesses of similar character and size, all of those properties useful or necessary to its business, and from time to time, such Loan Party will make or cause to be made all appropriate repairs, renewals or replacements thereof. 8.1.5 Maintenance of Patents, Trademarks, Etc. Each Loan Party shall, and shall cause each of its Subsidiaries to, maintain in full force and effect all patents, trademarks, service marks, trade names, copyrights, licenses, franchises, permits and other authorizations necessary for the ownership and operation of its 48 properties and business if the failure so to maintain the same would constitute a. Material Adverse Change. 8.1.6 Visitation Rights. Each Loan Party shall, and shall cause each of its Subsidiaries to, permit any of the officers or authorized employees or representatives of the Agent or any of the Banks to visit and inspect any of its properties and to examine and make excerpts from its books and records and discuss its business affairs, finances and accounts with its officers, all in such detail and at such times and as often as any of the Banks may reasonably request, provided that each Bank shall provide the Borrowers and the Agent with reasonable notice prior to any visit or inspection. 8.1.7 Keeping of Records and Books of Account. The Borrowers shall maintain and keep proper books of record and account which enable the Borrowers, or the Loan Parties, as the case may be, to issue financial statements in accordance with GAAP and as otherwise required by applicable Laws of any Official Body having jurisdiction over the Borrowers and in which full, true and correct entries shall be made in all material respects of all its dealings and business and financial affairs. 8.1.8 Plans and Benefit Arrangements. The Borrower shall, and shall cause each other member of the ERISA Group to, comply with ERISA, the Internal Revenue Code and other applicable Laws applicable to Plans and Benefit Arrangements except where such failure, alone or in conjunction with any other failure, would not result in a Material Adverse Change. Without limiting the generality of the foregoing, the Borrowers shall cause all their Plans and all Plans maintained by any member of the ERISA Group to be funded in accordance with the minimum funding requirements of ERISA and shall make, and cause each member of the ERISA Group to make, in a timely manner, all contributions due to Plans, Benefit Arrangements, Multiple Employer Plans and Multiemployer Plans. 8.1.9 Compliance with Laws. Each Loan Party shall comply with all applicable Laws, including all Environmental Laws, in all respects, provided that it shall not be deemed to be a violation of this Section 8.1.9 if any failure to comply with any Law would not result in fines, penalties, remediation costs, other similar liabilities or injunctive relief which in the aggregate would constitute a Material Adverse Change. 49 8.1.10 Use of Proceeds. 8.1.10.1 General. The Loan Parties will use the Letters of Credit and the proceeds of the Loans only for (i) general corporate purposes and for working capital, (ii) to finance Permitted Acquisitions, or (iii) to repay and terminate Indebtedness outstanding under the Loan and Security Agreement dated March 31, 1993 between the Company and Fleet Capital Corporation (successor in interest to Barclay's Business Credit, Inc.), as amended. The Loan Parties shall not use the Letters of Credit and the proceeds of the Loans for any purposes which contravenes any applicable Law or any provision hereof. 8.1.10.2 Margin Stock. The Loan Parties shall not use the proceeds of the Loans to purchase margin stock as more fully provided in Section 6. 1. I 0. 8.1.10.3 Section 20 Subsidiaries. The Loan Parties will not, directly or indirectly, use any portion of the proceeds of the Loans (i) knowingly to purchase any Ineligible Securities from a Section 20 Subsidiary during any period in which such Section 20 Subsidiary makes a market in such Ineligible Securities, (ii) knowingly to purchase during the underwriting or placement period Ineligible Securities being underwritten or privately placed by a Section 20 Subsidiary, or (iii) to make payments of principal or interest on Ineligible Securities underwritten or privately placed by as Section 20 Subsidiary and issued by or for the benefit of any Loan Party or any Affiliate of any Loan Party. 8.1.11 Further Assurances. Each Loan Party shall, from time to time, at its expense, do such acts and things as the Agent in its sole discretion may deem necessary or advisable from time to time in order to exercise and enforce its rights and remedies thereunder. 8.1.12 Subordination of Intercompany Loans. Each Loan Party shall cause any intercompany Indebtedness, loans or advances owed by any Loan Party to any other Loan Party to be subordinated pursuant to the terms of the Intercompany Subordination Agreement. 8.2 Negative Covenants. The Loan Parties, jointly and severally, covenant and agree that until payment in full of the Loans, Reimbursement Obligations and Letter of Credit Borrowings and interest thereon, expiration or termination of all Letters of Credit, satisfaction of all of the Loan Parties' 50 other Obligations hereunder and termination of the Commitments, the Loan Parties shall comply with the following negative covenants: 8.2.1 Indebtedness. Each of the Loan Parties shall not, and shall not permit any of its Subsidiaries to, at any time create, incur, assume or suffer to exist any Indebtedness, except: (i) Indebtedness under the Loan Documents; (ii) Existing Indebtedness as set forth on Schedule 8.2.1 (including any extensions or renewals thereof, provided there is no increase in the amount thereof or other significant change in the terms thereof unless otherwise specified on Schedule 8.2. 1; (iii) Capitalized and operating leases as and to the extent permitted under Section 8.2.15; (iv) Indebtedness secured by Purchase Money Security Interests not exceeding the amount set forth in clause (ix) of the definition of Permitted Liens; (v) Indebtedness of a Loan Party to another Loan Party which is subordinated in accordance with the provisions of Section 8.1.12; (vi) Indebtedness not exceeding $2,000,000 in the aggregate secured by Liens described under clause (xi) of the definition of Permitted Liens; and (vii) (A) $2,000,000 of unsecured seller debt subordinated to the Obligations and (B) other seller debt subordinated on terms acceptable to Required Banks having a maturity not earlier than, and on which no interest or principal payments may be made before, 366 days after the Expiration Date and having an aggregate principal amount not in excess of $4,000,000 minus the principal amount of seller debt referred to in clause (A) hereof. 8.2.2 Liens. Each of the Loan Parties shall not, and shall not (x) permit any of its Subsidiaries to, at any time create, incur, assume or suffer to exist any Lien on any of its property or assets, tangible or intangible, now owned or hereafter acquired, or agree or become liable to do so, except Permitted Liens or (y) provide to any Person other than the Agent and the Banks a 'negative pledge" or other promise or undertaking to keep its property free of Liens, claims or encumbrances other than with respect to property on which Liens are permitted pursuant to clauses (ix) and (xi) of the definition of Permitted Liens. 8.2.3 Guaranties. Each of the Loan Parties shall not, and shall not permit any of its Subsidiaries to, at any time, directly or indirectly, become or be liable in respect of any Guaranty, 51 or assume, guarantee, become surety for, endorse or otherwise agree, become or remain directly or contingently liable upon or with respect to any obligation or liability of any other Person, except for Guaranties of Indebtedness of the Loan Parties permitted hereunder or, subject to the limitations set forth in Section 8.2.20, Guaranties of Persons in which investments are permitted under Section 8.2.9. 8.2.4 Loans and Investments. Each of the Loan Parties shall not, and shall not permit any of its Subsidiaries to, at any time make or suffer to remain outstanding any loan or advance to, or purchase, acquire or own any stock, bonds, notes or securities of, or any partnership interest (whether general or limited) or limited liability company interest in, or any other investment or interest in, or make any capital contribution to, any other Person, or agree, become or remain liable to do any of the foregoing, except, (i) trade credit extended on usual and customary terms in the ordinary course of business; (ii) advances to employees to meet expenses incurred by such employees in the ordinary course of business; (iii) Permitted Investments; (iv) loans, advances and investments in other Loan Parties; (v) investments permitted under Sections 8.2.6 and 8.2.9; and (vi) investments in Persons engaged in a business described in Section 8.2.10 provided that if such Persons are not Loan Parties, then such investments shall be subject to the limitations set forth in Section 8.2.20. 8.2.5 Dividends and Related Distributions. While any Event of Default exists, each of the Loan Parties shall not, and shall not permit any of its Subsidiaries to, make or pay, or agree to become or remain liable to make or pay, any dividend or other distribution of any nature (whether in cash, property, securities or otherwise) on account of or in respect of its shares of capital stock, partnership interests or limited liability company interests on account of the purchase, redemption, retirement or acquisition of its shares of capital stock (or warrants, options or rights therefor), partnership interests or limited liability company interests, except dividends or other distributions payable to another Loan Party. 52 8.2.6 Liquidations, Mergers, Consolidations, Acquisitions. Each of the Loan Parties shall not, and shall not pen-nit any of its Subsidiaries to, dissolve, liquidate or wind-up its affairs, or become a party to any merger or consolidation, or acquire by purchase, lease or otherwise all or substantially all of the assets or capital stock of any other Person, provided that (1) any Loan Party may consolidate or merge into another Loan Party which is wholly-owned by one or more of the other Loan Parties, and (2) any Borrower may acquire, whether by purchase or by merger, (A) all of the ownership interests of another Person or (B) substantially all of assets of another Person or of a business or division of another Person (each an "Permitted Acquisition"), provided that each of the following requirements is met: (i) such Person has had for the prior fiscal year positive operating income (calculated in accordance with GAAP); (ii) the Company demonstrates to the Banks pro forma covenant compliance over the next four (4) quarter period taking into account the projected Total Debt immediately following such acquisitions; (iii) if the Loan Parties are acquiring the ownership interests in such Person, such Person shall execute a Joinder and join this Agreement as a Borrower pursuant to, and otherwise comply with, Section II. 1 8 on or before the date of such Permitted Acquisition (unless it is subject to the provisions of clause (xi) hereof, (iv) the board of directors or other equivalent governing body of such Person shall have approved such Permitted Acquisition and the Company shall have delivered to the Banks written evidence of such approval prior to such Permitted Acquisition; (v) the business acquired, or the business conducted by the Person whose ownership interests are being acquired, as applicable, shall be substantially the same as one or more line or lines of business conducted by the Borrowers and shall comply with Section 8.2. 1 0; (vi) no Potential Default or Event of Default shall exist immediately prior to and after giving effect to such Permitted Acquisition; (vii) the Company shall demonstrate that the Loan Parties shall be in compliance with the covenants contained in Sections 8.2.15, 8.2.16 and 8.2.17 after giving effect to such Permitted Acquisition by delivering at least thirty (30) Business Days prior to such Permitted Acquisition a certificate in the form of Exhibit 8.2.6 evidencing such compliance; 53 (viii) the Consideration paid by the Borrowers for such Acquisition shall not exceed $8,000,000 and after giving effect to such acquisition, the Consideration paid by the Loan Parties for all Permitted Acquisitions made during the current fiscal year of the Loan Parties shall not exceed an amount equal to (x) $16,000,000 less (y) any amount added to the Outside Investment Amount in such fiscal year, unless Required Banks shall, in their sole discretion, consent to the payment of more Consideration; (ix) the Company shall demonstrate, on a pro forma basis after giving effect to such acquisition, availability under the Commitments of not less than $2,500,000; (x) if the Consideration to be paid in any acquisition exceeds $2,500,000, then the Company shall have delivered to the Agent financial statements of the Person acquired within sixty (60) days following such acquisition; and (xi) if the Person acquired therein will not be a Subsidiary after the acquisition, then the Consideration paid in such acquisition shall be subject to the limitation set forth in Section 8.2.20. 8.2.7 Dispositions of Assets or Subsidiaries. Each of the Loan Parties shall not, and shall not permit any of its Subsidiaries to, sell, convey, assign, lease, abandon or otherwise transfer or dispose of, voluntarily or involuntarily, any of its properties or assets, tangible or intangible (including sale, assignment, discount or other disposition of accounts, contract rights, chattel paper, equipment or general intangibles with or without recourse or of capital stock, shares of beneficial interest, partnership interests or limited liability company interests of a Subsidiary of such Loan Party), except: (i) transactions involving the sale of inventory in the ordinary course of business; (ii) any sale, transfer or lease of assets in the ordinary course of business which are no longer necessary or required in the conduct of such Loan Party's or such Subsidiary's business; (iii) (A) any sale, transfer or lease of assets by any wholly owned Subsidiary of such Loan Party to another Loan Party or, (B) subject to the limitations set forth in Section 8.2.20, to any Subsidiary which is not a Borrower or any Person in which the Borrowers are permitted to invest under Section 8.2.9; (iv) any sale, transfer or lease of assets in the ordinary course of business which are replaced by substitute assets acquired or leased within the parameters of Section 8.2.15; and 54 (v) sales of assets acquired pursuant to a transaction permitted pursuant to Section 8.2.6 if such sale was reflected in the pro forma calculations provided by the Borrowers to the Agent in connection with such acquisition. 8.2.8 Affiliate Transactions. Each of the Loan Parties shall not, and shall not permit any of its Subsidiaries to, enter into or carry out any transaction (including purchasing property or services from or selling property or services to any Affiliate of any Loan Party or other Person) unless such transaction is not otherwise prohibited by this Agreement, is entered into in the ordinary course of business upon fair and reasonable arm's-length terms and conditions which are fully disclosed to the Agent and is in accordance with all applicable Law. 8.2.9 Subsidiaries, Partnerships and Joint Ventures. Each of the Loan Parties shall not, and the Parent shall not permit any of its Subsidiaries to, own or create directly or indirectly any Subsidiaries other than (i) any Subsidiary which has joined this Agreement as a Borrower on the Closing Date and (ii) any Subsidiary formed after the Closing Date which joins this Agreement as a Borrower pursuant to Section 11.18. Each of the Loan Parties shall not become or agree to (1) become a general or limited partner in any general or limited partnership, except that the Loan Parties may be general or limited partners in other Loan Parties, (2) become a member or manager of, or hold a limited liability company interest in, a limited liability company, except that the Loan Parties may be members or managers of, or hold limited liability company interests in, other Loan Parties, or (3) become a joint venturer or hold a joint venture interest in any joint venture or any Subsidiary which is not a Borrower so long as any transaction described in clauses (1), (2) and (3) shall be subject to the limitations set forth in Section 8.2.20. 8.2.10 Continuation of or Change in Business. Each of the Loan Parties shall not, and shall not permit any of its Subsidiaries to, engage in any business other than activities within the scope of SIC codes beginning with "356", "362","336", "3321" or "3322", substantially as conducted and operated by such Loan Party or Subsidiary during the present fiscal year, and such Loan Party or Subsidiary shall not permit any material change in such business. 8.2.11 Plans and Benefit Arrangements. Each of the Loan Parties shall not, and shall not permit any of its Subsidiaries to: (i) fail to satisfy the minimum funding requirements of ERISA and the Internal Revenue Code with respect to any Plan; 55 (ii) request a minimum funding waiver from the Internal Revenue Service with respect to any Plan; (iii) engage in a Prohibited Transaction with any Plan, Benefit Arrangement, Multiple Employer Plan or Multiemployer Plan which, alone or in conjunction with any other circumstances or set of circumstances resulting in liability under ERISA, would constitute a Material Adverse Change; (iv) permit the aggregate actuarial present value of all benefit liabilities (whether or not vested) under each Plan, determined on a plan termination basis, as disclosed in the most recent actuarial report completed with respect to such Plan, to exceed, as of any actuarial valuation date, the fair market value of the assets of such Plan; (v) fail to make when due any contribution to any Multiemployer Plan that the Borrower or any member of the ERISA Group may be required to make under any agreement relating to such Multiemployer Plan, or any Law pertaining thereto; (vi) withdraw (completely or partially) from any Multiemployer Plan or withdraw (or be deemed under Section 4062(e) of ERISA to withdraw) from any Multiple Employer Plan, where any such withdrawal is likely to result in a material liability of the Borrower or any member of the ERISA Group; (vii) terminate, or institute proceedings to terminate, any Plan, where such termination is likely to result in a material liability to the Borrower or any member of the ERISA Group; (viii) make any amendment to any Plan with respect to which security is required under Section 307 of ERISA: or (ix) fail to give any and all notices and make all disclosures and governmental filings required under ERISA or the Internal Revenue Code, where such failure is reasonably likely to result in a Material Adverse Change. 8.2.12 Fiscal Year. The Borrowers shall not change their fiscal year from the twelve-month period on the Friday closest to December 31. 8.2.13 Issuance of Stock. Each of the Borrowers shall not, and shall not permit any of its Subsidiaries to, issue any additional shares of its capital stock or any options, warrants or other rights in respect thereof except that a Loan Party may issue such property to any other Loan Party. 56 8.2.14 Changes in Organizational Documents. Each of the Borrowers shall not amend in any respect its certificate of incorporation (including any provisions or resolutions relating to capital stock), bylaws, certificate of limited partnership, partnership agreement, certificate of formation, limited liability company agreement or other organizational documents without providing at least forty-five (45) calendar days' prior written notice to the Agent and the Banks and, in the event such change would be adverse to the Banks as determined by the Agent in its sole discretion, obtaining the prior written consent of the Required Banks. 8.2.15 Capital Expenditures and Leases. Each of the Loan Parties shall not, and shall not permit any of the Parent's Subsidiaries to, make any payments on account of the purchase or lease of any assets which if purchased would constitute fixed assets the amount of which (when measured over the term of such lease or any applicable purchase agreement without taking into account any interest component) exceeds 250% of the Loan Parties' depreciation expenses for the prior fiscal year (the "Permitted Amount") in the aggregate in any fiscal year; provided that any portion of the Permitted Amount which exceeds the amount of such payments made in any fiscal year shall be applied to increase the Permitted Amount for the immediately following fiscal year and provided that all such capital expenditures and leases shall be made under usual and customary terms and in the ordinary course of business. The Consideration paid in a Permitted Acquisition shall not be included in, or applied to reduce, the Permitted Amount and the depreciation expense of Persons whose financial results are set forth in audited financial statements delivered to the Agent and the Banks and who are acquired in Permitted Acquisitions shall be included in the calculation of the Permitted Amount. 8.2.16 Minimum Interest Coverage Ratio. The Loan Parties shall not permit the ratio of EBIT to consolidated interest expense of the Borrowers calculated as of the end of each fiscal quarter for the four fiscal quarters then ended, to be less than 2.5 to 1.0 8.2.17 Minimum Tangible Net Worth. The Borrowers shall not at any time permit Consolidated Tangible Net Worth to be less than the sum of $7,500,000 plus (x) 50% of consolidated net income of the Borrowers for each fiscal year in which net income was earned (as opposed to a net loss) during the period from December 31, 1995 through the date of determination minus (y) an amount not exceeding $1,500,000 in 1996, $2,000,000 in 1997 or $2,500,000 in 1998 and 1999 equal to the portion of Consideration paid since the Closing Date which represents intangible assets, calculated and determined in accordance with GAAP. 57 8.2.18 Maximum Leverage Ratio. The Borrowers shall not permit at any time their Leverage Ratio to exceed 3.0 to 1.0. 8.2.19 Operating- Assets, Acquisitions. Substantially all of the Loan Parties' operating assets which are not represented by the Outside Investment Amount shall be owned by the Borrowers. All Permitted Acquisitions which are not represented by the Outside Investment Amount shall be made by a Borrower. 8.2.20 Outside Investment Limit. The Loan Parties shall not permit at any time the Outside Investment Amount to exceed the Outside Investment Limit. 8.3 Reporting Requirements. The Loan Parties, jointly and severally, covenant and agree that ' until payment in full of the Loans, Reimbursement Obligations and Letter of Credit Borrowings and interest thereon, expiration or termination of all Letters of Credit, satisfaction of all of the Loan Parties' other Obligations hereunder and under the other Loan Documents and termination of the Commitments, the Loan Parties will furnish or cause to be furnished to the Agent and each of the Banks: 8.3.1 [RESERVED] 8.3.2 Quarterly Financial Statements. As soon as available and in any event within forty-five (45) calendar days after the end of each of the first three fiscal quarters in each fiscal year, financial statements of the Loan Parties consisting of a consolidated and consolidating balance sheet as of the end of such fiscal quarter and related consolidated and consolidating statements of income, stockholders' equity and cash flows for the fiscal quarter then ended and the fiscal year through that date, all in reasonable detail and certified (subject to normal year-end audit adjustments) by the Chief Executive Officer, President or Chief Financial Officer of the Loan Parties as having been prepared in accordance with GAAP, consistently applied, and setting forth in comparative form the respective financial statements for the corresponding date and period in the previous fiscal year. 8.3.3 Annual Financial Statements. As soon as available and in any event within ninety (90) days after the end of each fiscal year of the Loan Parties, financial statements of the Loan Parties consisting of a consolidated and consolidating balance sheet as of the end of such fiscal year, and related 58 consolidated and consolidating statements of income, stockholders' equity and cash flows for the fiscal year then ended, all in reasonable detail and setting forth in comparative form the financial statements as of the end of and for the preceding fiscal year and, as to the consolidated statements only, certified by Arthur Andersen LLP or other independent certified public accountants of nationally recognized standing. The certificate or report of accountants shall be free of qualifications (other than any consistency qualification that may result from a change in the method used to prepare the financial statements as to which such accountants concur) and shall not indicate the occurrence or existence of any event, condition or contingency which would materially impair the prospect of payment or performance of any covenant, agreement or duty of the Loan Parties taken as a whole under any of the Loan Documents. 8.3.4 Certificate of the Borrower. Concurrently with the financial statements furnished to the Agent and to the Banks pursuant to Sections 8.3.1 and 8.3.3, a certificate of the Loan Parties signed by the Chief Executive Officer, President or Chief Financial Officer of the Borrowers, in the form of Exhibit 8.3.4, to the effect that, except as described pursuant to Section 8.3.5, (i) the representations and warranties of the Borrowers contained in Section 6 and in the other Loan Documents are true on and as of the date of such certificate with the same effect as though such representations and warranties had been made on and as of such date (except representations and warranties which expressly relate solely to an earlier date or time) and the Loan Parties have performed and complied with all covenants and conditions hereof, (ii) no Event of Default or Potential Default exists and is continuing on the date of such certificate and (iii) containing calculations in sufficient detail to demonstrate compliance as of the date of such financial statements with all financial covenants contained in Section 8.2. 8.3.5 Notice of Default. Promptly after any officer of any Loan Party has learned of the occurrence of an Event of Default or Potential Default, a certificate signed by the Chief Executive Officer, President or Chief Financial Officer of such Loan Party setting forth the details of such Event of Default or Potential Default and the action which the such Loan Party proposes to take with respect thereto. 8.3.6 Notice of Litigation. Promptly after the commencement thereof, notice of all actions, suits, proceedings or investigations before or by any Official Body or any other Person against any Loan Party or Subsidiary of any Loan Party which involve a claim or series of claims in excess of $500,000 or which if adversely determined would constitute a Material Adverse Change. 8.3.7 Certain Events. Written notice to the Agent: 59 (i) at least thirty (30) calendar days prior thereto, with respect to any Permitted Acquisition; or (ii) within the time limits set forth in Section 8.2.14, any amendment to the organizational documents of any Loan Party. 8.3.8 Budgets, Forecasts, Other Reports and Information. Promptly upon their becoming available to the Borrowers: (i) the annual budget and any forecasts or projections of the Borrowers, to be supplied not later than sixty (60) days prior to commencement of the fiscal year to which any of the foregoing may be applicable, (ii) any reports including management letters submitted to the Borrowers or any Loan Party by independent accountants in connection with any annual, interim or special audit, (iii) any reports, notices or proxy statements generally distributed by the Borrower or any Loan Party to its stockholders on a date no later than the date supplied to such stockholders, (iv) regular or periodic reports, including Forms 10-K, 10-Q and 8-K, registration statements and prospectuses, filed by any Loan Party with the Securities and Exchange Commission, (v) a copy of any order in any proceeding to which any Borrower is a party issued by any Official Body if such order would result in a Material Adverse Change, and (vi) such other reports and information as any of the Banks may from time to time reasonably request. The Borrowers shall also notify the Banks promptly of the enactment or adoption of any Law which may result in a Material Adverse Change. 8.3.9 Notices Regarding- Plans and Benefit Arrangements. 8.3.9.1 Certain Events. Promptly upon becoming aware of the occurrence thereof, notice (including the nature of the event and, when known, any action taken or threatened by the Internal Revenue Service or the PBGC with respect thereto) of- (i) any Reportable Event with respect to any Loan Party or any other member of the ERISA Group (regardless of whether the obligation to report said Reportable Event to the PBGC has been waived), 60 (ii) any Prohibited Transaction which could subject any Loan Party or any other member of the ERISA Group to a material civil penalty assessed pursuant to Section 502(i) of ERISA or a material tax imposed by Section 4975 of the Internal Revenue Code in connection with any Plan, Multiple Employer Plan, Benefit Arrangement or any trust created thereunder, (iii) any assertion with respect to any Loan Party or any other member of the ERISA Group, of material withdrawal liability with respect to any Multiemployer Plan, (iv) any partial or complete withdrawal from a Multiemployer Plan by any Loan Party or any other member of the ERISA Group under Title IV of ERISA (or assertion thereof), where such withdrawal is likely to result in material withdrawal liability, (v) any cessation of operations (by any Loan Party or any other member of the ERISA Group) at a facility in the circumstances described in Section 4062(e) of ERISA, (vi) withdrawal by any Loan Party or any other member of the ERISA Group from a Multiple Employer Plan, (vii) a failure by any Loan Party or any other member of the ERISA Group to make a payment to a Plan required to avoid imposition of a Lien under Section 302(f) of ERISA, (viii) the adoption of an amendment to a Plan requiring the provision of security to such Plan pursuant to Section 307 of ERISA, or (ix) any change in the actuarial assumptions or funding methods used for any Plan, where the effect of such change is to materially increase or materially reduce the unfunded benefit liability or obligation to make periodic contributions. 8.3.9.2 Notices of Involuntary Termination and Annual Reports. Promptly after receipt thereof, copies of (a) all notices received by the Borrowers or any other member of the ERISA Group of the PBGC's intent to terminate any Plan administered or maintained by the Borrowers or any member of the ERISA Group, or to have a trustee appointed to administer any such Plan; and (b) at the request of the Agent or any Bank each annual report (IRS Form 5500 series) and all accompanying schedules, the most recent actuarial reports, the most recent financial information concerning the financial status of each Plan administered or maintained by the Borrowers or any other member of the ERISA Group, and schedules showing the amounts contributed to each such Plan by or on behalf of the Borrower or any other member of the ERISA Group in which any of their personnel participate 61 or from which such personnel may derive a benefit, and each Schedule B (Actuarial Information) to the annual report filed by the Borrowers or any other member of the ERISA Group with the Internal Revenue Service with respect to each such Plan. 8.3.9.3 Notice of Voluntary Termination. Promptly upon the filing thereof, copies of any Form 5 3 1 0, or any successor or equivalent form to Form 5 3 1 0, filed with the PBGC in connection with the termination of any Plan. 8.3.10 Material Venture Investments. Concurrently with the financial statements furnished to the Agent and to the Banks pursuant to Section 8.3.2 and 8.3.3, a report describing all Material Venture Investments and concurrently with the annual statements referred to in Section 8.3.3, the financial statements and a budget (of the type described in Section 8.3.8) for each Material Venture Investment. 9. DEFAULT 9.1 Events of Default. An Event of Default shall mean the occurrence or existence of any one or more of the following events or conditions (whatever the reason therefor and whether voluntary, involuntary or effected by operation of Law): 9.1.1 Payments Under Loan Documents. Any Borrower (x) shall fail to pay any principal of any Loan (including scheduled installments, mandatory prepayments or the payment due at maturity), Reimbursement Obligation or Letter of Credit Borrowing or (y) shall fail to pay any interest on any Loan, Reimbursement Obligation or Letter of Credit Borrowing when due in accordance with the terms hereof or any other amount owing hereunder or under the other Loan Documents and such failure to pay interest or other amount shall continue for three (3) Business Days after such interest or other amount becomes due in accordance with the terms hereof or thereof; 9.1.2 Breach of Warranty. Any representation or warranty made at any time by any of the Loan Parties herein or by any of the Loan Parties in any other Loan Document, or in any certificate, other instrument or statement furnished pursuant to the provisions hereof or thereof , including with respect to Section 6.1.9 and irrespective of the actual knowledge of any Borrower, shall prove to have been false or misleading in any material respect as of the time it was made or furnished; 62 9.1.3 Breach of Negative Covenants or Visitation Rights. Any of the Loan Parties shall default in the observance or performance of any covenant contained in Section 8.1.6 or Section 8.2; 9.1.4 Breach of Other Covenants. Any of the Loan Parties shall default in the observance or performance of any other covenant, condition or provision hereof or of any other Loan Document and such default shall continue unremedied for a period of twenty (20) Business Days after any officer of any Loan Party becomes aware of the occurrence thereof (such grace period to be applicable only in the event such default can be remedied by corrective action of the Loan Parties as determined by the Agent in its sole discretion); 9.1.5 Defaults in Other Agreements or Indebtedness. A default or event of default shall occur at any time under the terms of any other agreement involving borrowed money or the extension of credit or any other Indebtedness under which any Loan Party may be obligated as a borrower or guarantor in excess of $500,000 in the aggregate, and such breach, default or event of default consists of the failure to pay (beyond any period of grace permitted with respect thereto, whether waived or not) any indebtedness when due (whether at stated maturity, by acceleration or otherwise) or if such breach or default pen-nits or causes the acceleration of any indebtedness (whether or not such right shall have been waived) or the termination of any commitment to lend; 9.1.6 Final Judgments or Orders. Any final judgments or orders for the payment of money in excess of $500,000 in the aggregate shall be entered against any Loan Party by a court having jurisdiction in the premises, which judgment is not discharged, vacated, bonded or stayed pending appeal within a period of thirty (30) days from the date of entry; 9.1.7 Loan Document Unenforceable. Any of the Loan Documents shall cease to be legal, valid and binding agreements enforceable against the party executing the same or such party's successors and assigns (as permitted under the Loan Documents) in accordance with the respective terms thereof or shall in any way be terminated (except in accordance with its terms) or become or be declared ineffective or inoperative or shall in any way be challenged or contested or cease to give or provide the respective Liens, security interests, rights, titles, interests, remedies, powers or privileges intended to be created thereby; 63 9.1.8 Uninsured Losses; Proceedings Against Assets. There shall occur any material uninsured damage to or loss, theft or destruction of any of the Borrowers' tangible property in excess of $ 1,000,000 or any other of the Loan Parties' or any of their Subsidiaries' assets are attached, seized, levied upon or subjected to a writ or distress warrant; or such come within the possession of any receiver, trustee, custodian or assignee for the benefit of creditors and the same is not cured within thirty (30) days thereafter; 9.1.9 Notice of Lien or Assessment. A notice of Lien or assessment in excess of $500,000 which is not a Permitted Lien is filed of record with respect to all or any part of any of the Loan Parties' or any of their Subsidiaries' assets by the United States, or any department, agency or instrumentality thereof, or by any state, county, municipal or other governmental agency, including the PBGC, or any taxes or debts owing at any time or times hereafter to any one of these becomes payable and the same is not paid within thirty (30) days after the same becomes payable; 9.1.10 Insolvency. Any Loan Party or any Subsidiary of a Loan Party ceases to be solvent or admits in writing its inability to pay its debts as they mature; 9.1.11 Events Relating to Plans and Benefit Arrangements. Any of the following occurs: (i) any Reportable Event, which the Agent determines in good faith constitutes grounds for the termination of any Plan by the PBGC or the appointment of a trustee to administer or liquidate any Plan, shall have occurred and be continuing; (ii) proceedings shall have been instituted or other action taken to terminate any Plan, or a termination notice shall have been filed with respect to any Plan; (iii) a trustee shall be appointed to administer or liquidate any Plan; (iv) the PBGC shall give notice of its intent to institute proceedings to terminate any Plan or Plans or to appoint a trustee to administer or liquidate any Plan; and, in the case of the occurrence of (i), (ii), (iii) or (iv) above, the Agent determines in good faith that the amount of the Borrowers' liability is likely to exceed 10% of their Tangible Net Worth; (v) any Borrower or any member of the ERISA Group shall fail to make any contributions when due to a Plan or a Multiemployer Plan; (vi) the Borrower or any other member of the ERISA Group shall make any amendment to a Plan with respect to which security is required under Section 307 of ERISA; (vii) any Borrower or any other member of the ERISA Group shall withdraw completely or partially from a Multiemployer Plan; (viii) any Borrower or any other member of the ERISA Group shall withdraw (or shall be deemed under Section 4062(e) of ERISA to withdraw) from a Multiple Employer Plan; or (ix) any applicable Law is adopted, changed or interpreted by any Official Body with respect to or otherwise affecting one or more Plans, Multiemployer Plans or Benefit Arrangements and, with respect to any of the events specified in (v), (vi), (vii), (viii) or (ix), the Agent determines in good faith that 64 any such occurrence would be reasonably likely to materially and adversely affect the total enterprise represented by the Borrowers and the other members of the ERISA Group; 9.1.12 Cessation of Business. Any Loan Party or Subsidiary of a Loan Party ceases to conduct its business as contemplated, except as expressly permitted under Section 8.2.6 or 8.2.7, or any Loan Party or Subsidiary of a Loan Party is enjoined, restrained or in any way prevented by court order from conducting all or any material part of its business and such injunction, restraint or other preventive order is not dismissed within thirty (30) days after the entry thereof-, 9.1.13 Change of Control. (i) Any person (other than Thomas C. Foley or a Permitted Transferee) or group of persons (within the meaning of Sections 13(a) or 14(a) of the Securities Exchange Act of 1934, as amended) shall have acquired beneficial ownership of (within the meaning of Rule 13d-3 promulgated by the Securities and Exchange Commission under said Act) 25% or more of the voting capital stock of the Parent; or (ii) within a period of twelve (12) consecutive calendar months, individuals who were directors of the Parent on the first day of such period shall cease to constitute a majority of the board of directors of the Parent; 9.1.14 Involuntary Proceedings. A proceeding shall have been instituted in a court having jurisdiction in the premises seeking a decree or order for relief in respect of any Loan Party or Subsidiary of a Loan Party in an involuntary case under any applicable bankruptcy, insolvency, reorganization or other similar law now or hereafter in effect, or for the appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator, conservator (or similar official) of any Loan Party or Subsidiary of a Loan Party for any substantial part of its property, or for the winding-up or liquidation of its affairs, and such proceeding shall remain undismissed or unstayed and in effect for a period of thirty (30) consecutive days or such court shall enter a decree or order granting any of the relief sought in such proceeding; or 9.1.15 Voluntary Proceedings. Any Loan Party or Subsidiary of a Loan Party shall commence a voluntary case under any applicable bankruptcy, insolvency, reorganization or other similar law now or hereafter in effect, shall consent to the entry of an order for relief in an involuntary case under any such law, or shall consent to the appointment or taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator, conservator (or other similar official) of itself or for any substantial part of its property or shall make a general assignment for the benefit of creditors, or shall fail generally to pay its debts as they become due, or shall take any action in furtherance of any of the foregoing. 65 9.2 Consequences of Event of Default. 9.2.1 Events of Default Other Than Bankruptcy, Insolvency or Reorganization Proceedings. If an Event of Default specified under Sections 9.1.1 through 9.1.13 shall occur and be continuing, the Banks and the Agent shall be under no further obligation to make Loans or issue Letters of Credit, as the case may be, and the Agent may, and upon the request of the Required Banks, shall (i) by written notice to the Borrowers, declare the unpaid principal amount of the Notes then outstanding and all interest accrued thereon, any unpaid fees and all other Indebtedness of the Borrowers to the Banks hereunder and thereunder to be forthwith due and payable, and the same shall thereupon become and be immediately due and payable to the Agent for the benefit of each Bank without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived, and (ii) require the Borrowers to, and the Borrowers shall thereupon, deposit in a non-interest bearing account with the Agent, as cash collateral for its Obligations under the Loan Documents, an amount equal to the maximum amount currently or at any time thereafter available to be drawn on all outstanding Letters of Credit, and the Borrowers hereby pledge to the Agent and the Banks, and grant to the Agent and the Banks a security interest in, all such cash as security for such Obligations. Upon the curing of all existing Events of Default to the satisfaction of the Required Banks, the Agent shall return such cash collateral to the Borrowers; and 9.2.2 Bankruptcy, Insolvency or Reorganization Proceedings If an Event of Default specified under Section 9.1.14 or 9.1.15 shall occur, the Banks shall be under no further obligations to make Loans hereunder and the unpaid principal amount of the Notes then outstanding and all interest accrued thereon, any unpaid fees and all other Indebtedness of the Borrowers to the Banks hereunder and thereunder shall be immediately due and payable, without presentment, demand, protest or notice of any kind, all of which are hereby expressly waived; and 9.2.3 Set-off. If an Event of Default shall occur and be continuing, any Bank to whom any Obligation is owed by any Loan Party hereunder or under any other Loan Document or any participant of such Bank which has agreed in writing to be bound by the provisions of Section 10. 1 3 and any branch, Subsidiary or Affiliate of such Bank or participant anywhere in the world shall have the right, in addition to all other rights and remedies available to it, without notice to such Loan Party, to set-off against and apply to the then unpaid balance of all the Loans and all other Obligations of the Borrowers and the other Loan Parties hereunder or under any other Loan Document any debt owing to, and any other funds held in any manner for the account of, the Borrowers or such other Loan Party by such Bank or participant or by such branch, Subsidiary or Affiliate, including all funds in all deposit accounts (whether time or demand, general or special, provisionally credited or finally credited, or otherwise) now or hereafter maintained by the Borrowers or such other Loan Party for its own account (but not including 66 funds held in custodian or trust accounts) with such Bank or participant or such branch, Subsidiary or Affiliate. Such right shall exist whether or not any Bank or the Agent shall have made any demand under this Agreement or any other Loan Document, whether or not such debt owing to or funds held for the account of the Borrowers or such other Loan Party is or are matured or unmatured and regardless of the existence or adequacy of any Guaranty or any other security, right or remedy available to any Bank or the Agent; and 9.2.4 Suits, Actions, Proceedings. If an Event of Default shall occur and be continuing, and whether or not the Agent shall have accelerated the maturity of Loans pursuant to any of the foregoing provisions of this Section 9.2, the Agent or any Bank, if owed any amount with respect to the Notes, may proceed to protect and enforce its rights by suit in equity, action at law and/or other appropriate proceeding, whether for the specific performance of any covenant or agreement contained in this Agreement or the Notes, including as permitted by applicable Law the obtaining of the ex parte appointment of a receiver, and, if such amount shall have become due, by declaration or otherwise, proceed to enforce the payment thereof or any other legal or equitable right of the Agent or such Bank; and 9.2.5 Application of Proceeds. From and after the date on which the Agent has taken any action pursuant to this Section 9.2 and until all Obligations of the Loan Parties have been paid in full, any and all proceeds received by the Agent from any sale or other disposition of the property of the Borrower or any part thereof, or the exercise of any other remedy by the Agent, shall be applied as follows: (i) first, to reimburse the Agent and the Banks for out-of pocket costs, expenses and disbursements, including reasonable attorneys' and paralegals' fees and legal expenses, incurred by the Agent or the Banks in connection with collection of any Obligations of any of the Loan Parties under any of the Loan Documents, including advances made by the Banks or any one of them or the Agent for the reasonable maintenance, preservation, protection or enforcement of, or realization upon, the property of the Borrowers including advances for taxes, insurance, repairs and the like and reasonable expenses incurred to sell or otherwise realize on, or prepare for sale or other realization on, any of such property; (ii) second, to the repayment of all Indebtedness then due and unpaid of the Loan Parties to the Banks incurred under this Agreement or any of the other Loan Documents, whether of principal, interest, fees, expenses or otherwise, in such manner as the Agent may determine in its discretion; and (iii) the balance, if any, as required by Law. 67 9.2.6 Other Rights and Remedies. In addition to all of the rights and remedies contained in this Agreement or in any of the other Loan Documents, the Agent shall have all of the rights and remedies available under applicable Law, all of which rights and remedies shall be cumulative and non-exclusive, to the extent permitted by Law. The Agent may, and upon the request of the Required Banks shall, exercise all post-default rights granted to the Agent and the Banks under the Loan Documents or applicable Law. 10. THE AGENT 10.1 Appointment. Each Bank hereby irrevocably designates, appoints and authorizes PNC Bank to act as Agent for such Bank under this Agreement and to execute and deliver or accept on behalf of each of the Banks the other Loan Documents. Each Bank hereby irrevocably authorizes, and each holder of any Note by the acceptance of a Note shall be deemed irrevocably to authorize, the Agent to take such action on its behalf under the provisions of this Agreement and the other Loan Documents and any other instruments and agreements referred to herein, and to exercise such powers and to perform-n such duties hereunder as are specifically delegated to or required of the Agent by the terms hereof, together with such powers as are reasonably incidental thereto. PNC Bank agrees to act as the Agent on behalf of the Banks to the extent provided in this Agreement. 10.2 Delegation of Duties. The Agent may perform any of its duties hereunder by or through agents or employees (provided such delegation does not constitute a relinquishment of its duties as Agent) and, subject to Sections 10.5 and 10.6, shall be entitled to engage and pay for the advice or services of any attorneys, accountants or other experts concerning all matters pertaining to its duties hereunder and to rely upon any advice so obtained. 10.3 Nature of Duties; Independent Credit Investigation. The Agent shall have no duties or responsibilities except those expressly set forth in this Agreement and no implied covenants, functions, responsibilities, duties, obligations, or liabilities shall be read into this Agreement or otherwise exist. The duties of the Agent shall be mechanical and administrative in nature; the Agent shall not have by reason of this Agreement a fiduciary or trust relationship in respect of any Bank; and nothing in this Agreement, expressed or implied, is intended to or shall be so construed as to impose upon the Agent any obligations in respect of this Agreement except as expressly set forth herein. Without limiting the generality of the foregoing, the use of the term "agent" in this Agreement with reference to the Agent is not intended to connote any fiduciary or other implied (or express) obligations arising under agency doctrine of any applicable Law. Instead, such term is used merely as a matter of market custom, 68 and is intended to create or reflect only an administrative relationship between independent contracting parties. Each Bank expressly acknowledges (i) that the Agent has not made any representations or warranties to it and that no act by the Agent hereafter taken, including any review of the affairs of any of the Loan Parties, shall be deemed to constitute any representation or warranty by the Agent to any Bank; (ii) that it has made and will continue to make, without reliance upon the Agent, its own independent investigation of the financial condition and affairs and its own appraisal of the creditworthiness of each of the Loan Parties in connection with this Agreement and the making and continuance of the Loans hereunder; and (iii) except as expressly provided herein, that the Agent shall have no duty or responsibility, either initially or on a continuing basis, to provide any Bank with any credit or other information with respect thereto, whether coming into its possession before the making of any Loan or at any time or times thereafter. 10.4 Actions in Discretion of Agent; Instructions from the Banks. The Agent agrees, upon the written request of the Required Banks, to take or refrain from taking any action of the type specified as being within the Agent's rights, powers or discretion herein, provided that the Agent shall not be required to take any action which exposes the Agent to personal liability or which is contrary to this Agreement or any other Loan Document or applicable Law. In the absence of a request by the Required Banks, the Agent shall have authority, in its sole discretion, to take or not to take any such action, unless this Agreement specifically requires the consent of the Required Banks or all of the Banks. Any action taken or failure to act pursuant to such instructions or discretion shall be binding on the Banks, subject to Section 10.6. Subject to the provisions of Section 10.6, no Bank shall have any right of action whatsoever against the Agent as a result of the Agent acting or refraining from acting hereunder in accordance with the instructions of the Required Banks, or in the absence of such instructions, in the absolute discretion of the Agent. 10.5 Reimbursement and Indemnification of Agent by the Borrower. The Borrower unconditionally agrees to pay or reimburse the Agent and hold the Agent harmless against (a) liability for the payment of all reasonable out-of-pocket costs, expenses and disbursements, including fees and expenses of counsel (including the allocated costs of staff counsel), appraisers and environmental consultants, incurred by the Agent (i) in connection with the development, negotiation, preparation, printing, execution, syndication, interpretation and performance of this Agreement and the other Loan Documents, (ii) relating to any requested amendments, waivers or consents pursuant to the provisions hereof, (iii) in connection with the enforcement of this Agreement or any other Loan Document or collection of amounts due hereunder or thereunder or the proof and allowability of any claim arising under this Agreement or any other Loan Document, whether in bankruptcy or receivership proceedings or otherwise, and (iv) in any workout or restructuring or in connection with the protection, preservation, exercise or enforcement of any of the terms hereof or of any rights hereunder or under any other Loan Document or in connection with any foreclosure, collection or bankruptcy proceedings, and (b) all liabilities, obligations, losses, damages, penalties, actions, judgments, 69 suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by or asserted against the Agent, in its capacity as such, in any way relating to or arising out of this Agreement or any other Loan Documents or any action taken or omitted by the Agent hereunder or thereunder, provided that the Borrower shall not be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements if the same results from the Agent's gross negligence or willful misconduct, or if the Borrowers were not given notice of the subject claim and the opportunity to participate in the defense thereof, at its expense (except that the Borrowers shall remain liable to the extent such failure to give notice does not result in a loss to the Borrowers), or if the same results from a compromise or settlement agreement entered into without the consent of the Borrowers, which shall not be unreasonably withheld. 10.6 Exculpatory Provisions; Limitation of Liability. Neither the Agent nor any of its directors, officers, employees, agents, attorneys or Affiliates shall (a) be liable to any Bank for any action taken or omitted to be taken by it or them hereunder, or in connection herewith including pursuant to any Loan Document, unless caused by its or their own gross negligence or willful misconduct, (b) be responsible in any manner to any of the Banks for the effectiveness, enforceability, genuineness, validity or the due execution of this Agreement or any other Loan Documents or for any recital, representation, warranty, document, certificate, report or statement herein or made or furnished under or in connection with this Agreement or any other Loan Documents, or (c) be under any obligation to any of the Banks to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions hereof or thereof on the part of the Loan Parties, or the financial condition of the Loan Parties, or the existence or possible existence of any Event of Default or Potential Default. No claim may be made by any of the Loan Parties, any Bank, the Agent or any of their respective Subsidiaries against the Agent, any Bank or any of their respective directors, officers, employees, agents, attorneys or Affiliates, or any of them, for any special, indirect or consequential damages or, to the fullest extent permitted by Law, for any punitive damages in respect of any claim or cause of action (whether based on contract, tort, statutory liability, or any other ground) based on, arising out of or related to any Loan Document or the transactions contemplated hereby or any act, omission or event occurring in connection therewith, including the negotiation, documentation, administration or collection of the Loans, and each of the Loan Parties, (for itself and on behalf of each of its Subsidiaries), the Agent and each Bank hereby waive, releases and agree never to sue upon any claim for any such damages, whether such claim now exists or hereafter arises and whether or not it is now known or suspected to exist in its favor. Each Bank agrees that, except for notices, reports and other documents expressly required to be furnished to the Banks by the Agent hereunder or given to the Agent for the account of or with copies for the Banks, the Agent and each of its directors, officers, employees, agents, attorneys or Affiliates shall not have any duty or responsibility to provide any Bank with an credit or other information concerning the business, operations, property, condition (financial or otherwise), prospects or creditworthiness of the Loan Parties which may come into the possession of the Agent or any of its directors, officers, employees, agents, attorneys or Affiliates. 70 10.7 Reimbursement and Indemnification of Agent by Banks. Each Bank agrees to reimburse and indemnify the Agent (to the extent not reimbursed by the Borrowers and without limiting the Obligation of the Borrowers to do so) in proportion to its Ratable Share from and against all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements, including attorneys' fees and disbursements (including the allocated costs of staff counsel), and costs of appraisers and environmental consultants, of any kind or nature whatsoever which may be imposed on, incurred by or asserted against the Agent, in its capacity as such, in any way relating to or arising out of this Agreement or any other Loan Documents or any action taken or omitted by the Agent hereunder or thereunder, provided that no Bank shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements (a) if the same results from the Agent's gross negligence or willful misconduct, or (b) if such Bank was not given notice of the subject claim and the opportunity to participate in the defense thereof, at its expense (except that such Bank shall remain liable to the extent such failure to give notice does not result in a loss to the Bank), or (c) if the same results from a compromise and settlement agreement entered into without the consent of such Bank, which shall not be unreasonably withheld. In addition, each Bank agrees promptly upon demand to reimburse the Agent (to the extent not reimbursed by the Borrower and without limiting the Obligation of the Borrower to do so) in proportion to its Ratable Share for all amounts due and payable by the Borrower to the Agent in connection with the Agent's periodic audit of the Loan Parties' books, records and business properties. 10.8 Reliance by Agent. The Agent shall be entitled to rely upon any writing, telegram, telex or teletype message, resolution, notice, consent, certificate, letter, cablegram, statement, order or other document or conversation by telephone or otherwise believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons, and upon the advice and opinions of counsel and other professional advisers selected by the Agent. The Agent shall be fully justified in failing or refusing to take any action hereunder unless it shall first be indemnified to its satisfaction by the Banks against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. 10.9 Notice of Default. The Agent shall not be deemed to have knowledge or notice of the occurrence of any Potential Default or Event of Default unless the Agent has received written notice from a Bank or the Borrower referring to this Agreement, describing such Potential Default or Event of Default and stating that such notice is a "notice of default." 10.10 Notices. The Agent shall promptly send to each Bank a copy of all notices received from the Borrowers pursuant to the provisions of this Agreement or the other Loan Documents 71 promptly upon receipt thereof The Agent shall promptly notify the Borrower and the other Banks of each change in the Base Rate and the effective date thereof. 10.11 Banks in Their Individual Capacities. With respect to its Commitment, the Loans made by it and any other rights and powers given to it as a Bank hereunder or under any of the other Loan Documents, the Agent shall have the same rights and powers hereunder as any other Bank and may exercise the same as though it were not the Agent, and the term "Banks" shall, unless the context otherwise indicates, include the Agent in its individual capacity. PNC Bank and its Affiliates and each of the Banks and their respective Affiliates may, without liability to account, except as prohibited herein, make loans to, accept deposits from, discount drafts for, act as trustee under indentures of, and generally engage in any kind of banking or trust business with, the Loan Parties and their Affiliates, in the case of the Agent, as though it were not acting as Agent hereunder and in the case of each Bank, as though such Bank were not a Bank hereunder. The Banks acknowledge that, pursuant to such activities, the Agent or its Affiliates may (i) receive information regarding the Loan Parties (including information that may be subject to confidentiality obligations in favor of the Loan Parties) and acknowledge that the Agent shall be under no obligation to provide such information to them, and (ii) accept fees and other consideration from the Loan Parties for services in connection with this Agreement and otherwise without having to account for the same to the Banks. 10.12 Holders of Notes. The Agent may deem and treat any payee of any Note as the owner thereof for all purposes hereof unless and until written notice of the assignment or transfer thereof shall have been filed with the Agent. Any request, authority or consent of any Person who at the time of making such request or giving such authority or consent is the holder of any Note shall be conclusive and binding on any subsequent holder, transferee or assignee of such Note or of any Note or Notes issued in exchange therefor. 10.13 Equalization of Banks. The Banks and the holders of any participations in any Notes agree among themselves that, with respect to all amounts received by any Bank or any such holder for application on any Obligation hereunder or under any Note or under any such participation, whether received by voluntary payment, by realization upon security, by the exercise of the right of set-off or banker's lien, by counterclaim or by any other non-pro rata source, equitable adjustment will be made in the manner stated in the following sentence so that, in effect, all such excess amounts will be shared ratably among the Banks and such holders in proportion to their interests in payments under the Notes, except as otherwise provided in Section 4.4.3 or 5.6. The Banks or any such holder receiving any such amount shall purchase for cash from each of the other Banks an interest in such Bank's Loans in such amount as shall result in a ratable participation by the Banks and each such holder in the aggregate unpaid amount under the Notes, provided that if all or any portion of such excess amount is thereafter recovered from the Bank or 72 the holder making such purchase, such purchase shall be rescinded and the purchase price restored to the extent of such recovery, together with interest or other amounts, if any, required by law (including court order) to be paid by the Bank or the holder making such purchase. 10.14 Successor Agent. If the Agent shall resign under this Agreement, then either (a) the Required Banks shall appoint from among the Banks a successor agent for the Banks, subject to the consent of the Borrowers, such consent not to be unreasonably withheld, or (b) if a successor agent shall not be so appointed and approved within the thirty (30) day period following the Agent's notice to the Banks of its resignation, then the Agent shall appoint, with the consent of the Borrower, such consent not to be unreasonably withheld, a successor agent who shall serve as Agent until such time as the Required Banks appoint and the Borrower consents to the appointment of a successor agent. Upon its appointment pursuant to either clause (a) or (b) above, such successor agent shall succeed to the rights, powers and duties of the Agent, and the term "Agent" shall mean such successor agent, effective upon its appointment, and the former Agent's rights, powers and duties as Agent shall be terminated without any other or further act or deed on the part of such former Agent or any of the parties to this Agreement. After the resignation of any Agent hereunder, the provisions of this Section 10 shall inure to the benefit of such former Agent and such former Agent shall not by reason of such resignation be deemed to be released from liability for any actions taken or not taken by it while it was an Agent under this Agreement. 10. 15 Agent's Fee. The Borrowers shall pay to the Agent fees (the "Agent's Fees") under the terms of a letter (the "Agent's Letter") between the Company and Agent, as amended from time to time. 10. 16 Availability of Funds. The Agent may assume that each Bank has made or will make the proceeds of a Loan available to the Agent unless the Agent shall have been notified by such Bank on or before the close of Business on the Business Day preceding the Borrowing Date with respect to such Loan (whether using its own funds pursuant to this Section 10. 1 6 or using proceeds deposited with the Agent by the Banks and whether such finding occurs before or after the time on which Banks are required to deposit the proceeds of such Loan with the Agent). The Agent may, in reliance upon such assumption (but shall not be required to), make available to the Borrower a corresponding amount. If such corresponding amount is not in fact made available to the Agent by such Bank, the Agent shall be entitled to recover such amount on demand from such Bank (or, if such Bank fails to pay such amount forthwith upon such demand from the Borrowers) together with interest thereon, in respect of each day during the period commencing on the date such amount was made available to the Borrower and ending on the date the Agent recovers such amount, at a rate per annum equal to the applicable interest rate in respect of the Loan. 73 10.17 Calculations. In the absence of gross negligence or willful misconduct, the Agent shall not be liable for any error in computing the amount payable to any Bank whether in respect of the Loans, fees or any other amounts due to the Banks under this Agreement. In the event an error in computing any amount payable to any Bank is made, the Agent, the Borrowers and each affected Bank shall, forthwith upon discovery of such error, make such adjustments as shall be required to correct such error, and any compensation therefor will be calculated at the Federal Funds Effective Rate. 10.18 Beneficiaries. Except as expressly provided herein, the provisions of this Section 10 are solely for the benefit of the Agent and the Banks, and the Loan Parties shall not have any rights to rely on or enforce any of the provisions hereof. In performing its functions and duties under this Agreement, the Agent shall act solely as agent of the Banks and does not assume and shall not be deemed to have assumed any obligation toward or relationship of agency or trust with or for any of the Loan Parties. 11. MISCELLANEOUS 11.1 Modifications, Amendments or Waivers. With the written consent of the Required Banks, the Agent, acting on behalf of all the Banks, and the Borrowers, on behalf of the Loan Parties, may from time to time enter into written agreements amending or changing any provision of this Agreement or any other Loan Document or the rights of the Banks or the Loan Parties hereunder or thereunder, or may grant written waivers or consents to a departure from the due performance of the Obligations of the Loan Parties hereunder or thereunder. Any such agreement, waiver or consent made with such written consent shall be effective to bind all the Banks and the Loan Parties; provided, that, without the written consent of all the Banks, no such agreement, waiver or consent may be made which will: 11.1.1 Increase of Commitment; Extension or Expiration Date. Increase the amount of the Commitment of any Bank hereunder or extend the Expiration Date; 11.1.2 Extension of Payment; Reduction of Principal Interest or Fees; Modification of Terms of Payment. Whether or not any Loans are outstanding, extend the time for payment of principal or interest of any Loan (excluding the due date of any mandatory prepayment of a Loan or any mandatory Commitment reduction in connection with such a mandatory prepayment 74 hereunder except for mandatory reductions of the Commitments on the Expiration Date), the Commitment Fee or any other fee payable to any Bank, or reduce the principal amount of or the rate of interest borne by any Loan or reduce the Commitment Fee or any other fee payable to any Bank, or otherwise affect the terms of payment of the principal of or interest of any Loan, the Commitment Fee or any other fee payable to any Bank; 11.1.3 Release of Guarantor. Except for sales of assets permitted by Section 8.2.7, release any Guarantor from its Obligations under the Guaranty Agreement or any other security for any of the Loan Parties' Obligations; or 11.1.4 Miscellaneous Amend Section 5.2 [Pro Rata Treatment of Banks], 10.6 [Exculpatory Provisions, etc.] or 10.13 [Equalization of Banks] or this Section 11.1, alter any provision regarding the pro rata treatment of the Banks, change the definition of Required Banks, or change any requirement providing for the Banks or the Required Banks to authorize the taking of any action hereunder; provided, further, that no agreement, waiver or consent which would modify the interests, rights or obligations of the Agent in its capacity as Agent or as the issuer of Letters of Credit shall be effective without the written consent of the Agent 11.2 No Implied Waivers; Cumulative Remedies-, Writing Required. No course of dealing and no delay or failure of the Agent or any Bank in exercising any right, power, remedy or privilege under this Agreement or any other Loan Document shall affect any other or future exercise thereof or operate as a waiver thereof, nor shall any single or partial exercise thereof or any abandonment or discontinuance of steps to enforce such a right, power, remedy or privilege preclude any further exercise thereof or of any other right, power, remedy or privilege. The rights and remedies of the Agent and the Banks under this Agreement and any other Loan Documents are cumulative and not exclusive of any rights or remedies which they would otherwise have. Any waiver, permit, consent or approval of any kind or character on the part of any Bank of any breach or default under this Agreement or any such waiver of any provision or condition of this Agreement must be in writing and shall be effective only to the extent specifically set forth in such writing. 11.3 Reimbursement and Indemnification of Banks by the Borrower; Taxes. The Borrowers agree unconditionally upon demand to pay or reimburse to each Bank (other than the Agent, as to which the Borrowers' Obligations are set forth in Section 10.5) and to save such Bank harmless against (i) liability for the payment of all reasonable out-of pocket costs, expenses and disbursements (including fees and expenses of counsel (including allocated costs of staff counsel) for each Bank except with respect to (a) and (b) below), incurred 75 by such Bank (a) relating to any amendments, waivers or consents pursuant to the provisions hereof, (b) in connection with the enforcement of this Agreement or any other Loan Document, or collection of amounts due hereunder or thereunder or the proof and allowability of any claim arising under this Agreement or any other Loan Document, whether in bankruptcy or receivership proceedings or otherwise, and (c) in any workout or restructuring or in connection with the protection, preservation, exercise or enforcement of any of the terms hereof or of any rights hereunder or under any other Loan Document or in connection with any foreclosure, collection or bankruptcy proceedings, or (ii) all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by or asserted against such Bank, in its capacity as such, in any way relating to or arising out of this Agreement or any other Loan Documents or any action taken or omitted by such Bank hereunder or thereunder, provided that the Borrower shall not be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements (A) if the same results from such Bank's gross negligence or willful misconduct, or (B) if the Borrowers were not given notice of the subject claim and the opportunity to participate in the defense thereof, at its expense (except that the Borrowers shall remain liable to the extent such failure to give notice does not result in a loss to the Borrowers), or (C) if the same results from a compromise or settlement agreement entered into without the consent of the Borrowers, which shall not be unreasonably withheld. The Banks will attempt to minimize the fees and expenses of legal counsel for the Banks which are subject to reimbursement by the Borrowers hereunder by considering the usage of one law fin-n to represent the Banks and the Agent if appropriate under the circumstances. The Borrowers agree unconditionally to pay all stamp, document, transfer, recording or filing taxes or fees and similar impositions now or hereafter determined by the Agent or any Bank to be payable in connection with this Agreement or any other Loan Document, and the Borrowers agree unconditionally to save the Agent and the Banks harmless from and against any and all present or future claims, liabilities or losses with respect to or resulting from any omission to pay or delay in paying any such taxes, fees or impositions. 11.4 Holidays. Whenever payment of a Loan to be made or taken hereunder shall be due on a day which is not a Business Day such payment shall be due on the next Business Day and such extension of time shall be included in computing interest and fee, except that the Loans shall be due on the Business Day preceding the Expiration Date if the Expiration Date is not a Business Day. Whenever any payment or action to be made or taken hereunder (other than payment of the Loans) shall be stated to be due on a day which is not a business Day, such payment or action shall be made or taken on the next following Business Day (except as provided in Section 4.2 with respect to Interest Periods under the Euro-Rate Option), and such extension of time shall not be included in computing interest or fees, if any, in connection with such payment or action. If, by operation of the previous sentence of this Section 1 1.4, any payment in respect of any portion any relevant period (including any Interest Period) is made or calculated on such "next following Business Day", then such amounts shall be paid and included in amounts paid in and for the period in which such "next following Business Day" falls. 76 11.5 Funding by Branch, Subsidiary or Affiliate. 11.5.1 Notional Funding. Each Bank shall have the right from time to time, without notice to the Borrower, to deem any branch, Subsidiary or Affiliate (which for the purposes of this Section 11.5 shall mean any corporation or association which is directly or indirectly controlled by or is under direct or indirect common control with any corporation or association which directly or indirectly controls such Bank) of such Bank to have made, maintained or funded any Loan to which the Euro-Rate Option applies at any time, provided that immediately following (on the assumption that a payment were then due from the Borrower to such other office), and as a result of such change, the Borrower would not be under any greater financial obligation pursuant to Section 5.6 than it would have been in the absence of such change. Notional funding offices may be selected by each Bank without regard to such Bank's actual methods of making, maintaining or funding the Loans or any sources of funding actually used by or available to such Bank. 11.5.2 Actual Funding. Each Bank shall have the right from time to time to make or maintain any Loan by arranging for a branch, Subsidiary or Affiliate of such Bank to make or maintain such Loan subject to the last sentence of this Section 1 1.5.2. If any Bank causes a branch, Subsidiary or Affiliate to make or maintain any part of the Loans hereunder, all terms and conditions of this Agreement shall, except where the context clearly requires otherwise, be applicable to such part of the Loans to the same extent as if such Loans were made or maintained by such Bank, but in no event shall any Bank's use of such a branch, Subsidiary or Affiliate to make or maintain any part of the Loans hereunder cause such Bank or such branch, Subsidiary or Affiliate to incur any cost or expenses payable by the Borrower hereunder or require the Borrowers to pay any other compensation to any Bank (including any expenses incurred or payable pursuant to Section 5.6) which would otherwise not be incurred. 11.6 Notices. All notices, requests, demands, directions and other communications (as used in this Section 11.6, collectively referred to as "notices") given to or made upon any party hereto under the provisions of this Agreement shall be by telephone or in writing (including telex or facsimile communication) unless otherwise expressly permitted hereunder and shall be delivered or sent by telex or facsimile to the respective parties at the addresses and numbers set forth under their respective names on Schedule 1.1(B) hereof or in accordance with any subsequent unrevoked written direction from any party to the others. All notices shall, except as otherwise expressly herein provided, be effective (a) in the case of telex or facsimile, when received, (b) in the case of hand-delivered notice, when hand-delivered, (c) in the case of telephone, when telephoned, provided, however, that in order to be effective, telephonic notices must be confirmed in writing no later than the next day by letter, facsimile or telex, (d) if given by mail, four (4) days after such communication is deposited in the mail with first-class postage prepaid, 77 return receipt requested, and (e) if given by any other means (including by air courier), when delivered; provided, that notices to the Agent shall not be effective until received at the addresses of the Agent shown on Schedule 1.1(B). Any Bank giving any notice to any Loan Party shall simultaneously send a copy thereof to the Agent, and the Agent shall promptly notify the other Banks of the receipt by it of any such notice. 11.7 Severability. The provisions of this Agreement are intended to be severable. If any provision of this Agreement shall be held invalid or unenforceable in whole or in part in any jurisdiction, such provision shall, as to such jurisdiction, be ineffective to the extent of such invalidity or unenforceability without in any manner affecting the validity or enforceability thereof in any other jurisdiction or the remaining provisions hereof in any jurisdiction. 11.8 Governing Law. Each Letter of Credit and Section 2.9 shall be subject to the Uniform Customs and Practice for Documentary Credits (1993 Revision), International Chamber of Commerce Publication No. 500, as the same may be revised or amended from time to time, and to the extent not inconsistent therewith, the internal laws of the Commonwealth of Pennsylvania without regard to its conflict of laws principles and the balance of this Agreement shall be deemed to be a contract under the Laws of the Commonwealth of Pennsylvania and for all purposes shall be governed by and construed and enforced in accordance with the internal laws of the Commonwealth of Pennsylvania without regard to its conflict of laws principles. 11.9 Prior Understanding. This Agreement and the other Loan Documents supersede all prior understandings and agreements, whether written or oral, between the parties hereto and thereto relating to the transactions provided for herein and therein, including any prior confidentiality agreements and commitments. 11.10 Duration; Survival. All representations and warranties of the Loan Parties contained herein or made in connection herewith shall survive the making of Loans and issuance of Letters of Credit and shall not be waived by the execution and delivery of this Agreement, any investigation by the Agent or the Banks, the making of Loans, issuance of Letters of Credit, or payment in full of the Loans. All covenants and agreements of the Loan Parties contained in Sections 8.1, 8.2 and 8.3 herein shall continue in full force and effect from and after the date hereof so long as the Borrower may borrow or request Letters of Credit hereunder and until termination of the Commitments and payment in full of the Loans and expiration or termination of all Letters of Credit. All covenants and agreements of the Borrower contained herein relating to the payment of principal, interest, premiums, additional compensation or expenses and indemnification, including those set forth in the Notes, Section 5 and Sections 10.5, 10.7 and 11.3, shall survive 78 payment in full of the Loans, expiration or termination of the Letters of Credit and termination of the Commitments. 11.11 Successors and Assigns. (i) This Agreement shall be binding upon and shall inure to the benefit of the Banks, the Agent, the Loan Parties and their respective successors and assigns, except that none of the Loan Par-ties may assign or transfer any of its rights and Obligations hereunder or any interest herein. Each Bank may, at its own cost, make assignments of or sell participations in all or any part of its Commitment and the Loans made by it to one or more banks or other entities, subject to the consent of the Borrowers and the Agent with respect to any assignee, such consent not to be unreasonably withheld, provided that (1) no consent of the Borrowers shall be required in the case of an assignment by a Bank to an Affiliate of such Bank, and (2) assignments may not be made in amounts less than $5,000,000. In the case of an assignment, upon receipt by the Agent of the Assignment and Assumption Agreement, the assignee shall have, to the extent of such assignment (unless otherwise provided therein), the same rights, benefits and obligations as it would have if it had been a signatory Bank hereunder, the Commitments shall be adjusted accordingly, and upon surrender of any Note subject to such assignment, the Borrowers shall execute and deliver a new Note to the assignee in an amount equal to the amount of the Commitment assumed by it and a new Note to the assigning Bank in an amount equal to the Commitment retained by it hereunder. The assigning Bank shall pay to the Agent a service fee in the amount of $3,000 for each assignment. In the case of a participation, the participant shall only have the rights specified in Section 9.2.3 (the participant's rights against such Bank in respect of such participation to be those set forth in the agreement executed by such Bank in favor of the participant relating thereto and not to include any voting rights except with respect to changes of the type referenced in Sections 11.1.1, 11.1.2, or 11.1.3, all of such Bank's obligations under this Agreement or any other Loan Document shall remain unchanged, and all amounts payable by any Loan Party hereunder or thereunder shall be determined as if such Bank had not sold such participation. (ii) Any assignee or participant which is not incorporated under the Laws of the United States of America or a state thereof shall deliver to the Borrowers and the Agent the form of certificate described in Section 11.17 relating to federal income tax withholding. Each Bank may furnish any publicly available information concerning any Loan Party or its Subsidiaries and any other information concerning any Loan Party or its Subsidiaries in the possession of such Bank from time to time to assignees and participants (including prospective assignees or participants), provided that such assignees and participants agree to be bound by the provisions of Section 11.12. (iii) Notwithstanding any other provision in this Agreement, any Bank may at any time pledge or grant a security interest in all or any portion of its rights under this Agreement, its Note and the other Loan Documents to any Federal Reserve Bank in accordance with Regulation A of the FRB or U.S. Treasury Regulation 31 CFR Section 203.14 without notice to or consent of the Borrower or the Agent. No such pledge or grant of a security 79 interest shall release the transferor Bank of its obligations hereunder or under any other Loan Document. 11.12 Confidentiality. The Agent and the Banks each agree to keep confidential all information obtained from any Loan Party or its Subsidiaries which is nonpublic and confidential or proprietary in nature (including any information the Borrowers specifically designate as confidential), except as provided below, and to use such information only in connection with their respective capacities under this Agreement and for the purposes contemplated hereby. The Agent and the Banks shall be permitted to disclose such information (i) to outside legal counsel, accountants and other professional advisors who need to know such information in connection with the administration and enforcement of this Agreement, subject to agreement of such Persons to maintain the confidentiality, (ii) to assignees and participants as contemplated by Section 11.11, (iii) to the extent requested by any bank regulatory authority or, with notice to the Borrowers, as otherwise required by applicable Law or by any subpoena or similar legal process, or in connection with any investigation or proceeding arising out of the transactions contemplated by this Agreement, (iv) if it becomes publicly available other than as a result of a breach of this Agreement or becomes available from a source not known to be subject to confidentiality restrictions, or (v) if the Borrowers shall have consented to such disclosure. 11.13 Counterparts. This Agreement may be executed by different parties hereto on any number of separate counterparts, each of which, when so executed and delivered, shall be an original, and all such counterparts shall together constitute one and the same instrument. 11.14 Agent's or Bank's Consent. Whenever the Agent's or any Bank's consent is required to be obtained under this Agreement or any of the other Loan Documents as a condition to any action, inaction, condition or event, the Agent and each Bank shall be authorized to give or withhold such consent in its sole and absolute discretion and to condition its consent upon the giving of additional collateral, the payment of money or any other matter. 11.15 Exceptions. The representations, warranties and covenants contained herein shall be independent of each other, and no exception to any representation, warranty or covenant shall be deemed to be an exception to any other representation, warranty or covenant contained herein unless expressly provided, nor shall any such exceptions be deemed to permit any action or omission that would be in contravention of applicable Law. 80 11.16 CONSENT TO FORUM; WAIVER OF JURY TRIAL. EACH LOAN PARTY HEREBY IRREVOCABLY CONSENTS TO THE NONEXCLUSIVE JURISDICTION OF THE COURT OF COMMON PLEAS OF CUMBERLAND COUNTY AND THE UNITED STATES DISTRICT COURT FOR THE MIDDLE DISTRICT OF PENNSYLVANIA, AND WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS BE MADE BY CERTIFIED OR REGISTERED MAIL DIRECTED TO SUCH LOAN PARTY AT THE ADDRESSES PROVIDED FOR IN SECTION 11.6 AND SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED UPON ACTUAL RECEIPT THEREOF. EACH LOAN PARTY WAIVES ANY OBJECTION TO JURISDICTION AND VENUE OF ANY ACTION INSTITUTED AGAINST IT AS PROVIDED HEREIN AND AGREES NOT TO ASSERT ANY DEFENSE BASED ON LACK OF JURISDICTION OR VENUE. EACH LOAN PARTY, THE AGENT AND THE BANKS HEREBY WAIVE TRIAL BY JURY IN ANY ACTION, SUIT, PROCEEDING OR COUNTERCLAIM OF ANY KIND ARISING OUT OF OR RELATED TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR THE COLLATERAL TO THE FULL EXTENT PERMITTED BY LAW. 11.17 Tax Withholding Clause. Each Bank or assignee or participant of a Bank that is not incorporated under the Laws of the United States of America or a state thereof agrees that it will deliver to each of the Borrower and the Agent two (2) duly completed copies of the following: (i) Internal Revenue Service Form W-9, 4224 or 1001, or other applicable form prescribed by the Internal Revenue Service, certifying that such Bank, assignee or participant is entitled to receive payments under this Agreement and the other Loan Documents without deduction or withholding of any United States federal income taxes, or is subject to such tax at a reduced rate under an applicable tax treaty, or (ii) Internal Revenue Service Form W-8 or other applicable form or a certificate of such Bank, assignee or participant indicating that no such exemption or reduced rate is allowable with respect to such payments. Each Bank, assignee or participant required to deliver to the Borrowers and the Agent a form or certificate pursuant to the preceding sentence shall deliver such form or certificate as follows: (A) each Bank which is a party hereto on the Closing Date shall deliver such form or certificate at least five (5) Business Days prior to the first date on which any interest or fees are payable by the Borrower hereunder for the account of such Bank; (B) each assignee or participant shall deliver such form or certificate at least five (5) Business Days before the effective date of such assignment or participation (unless the Agent in its sole discretion shall permit such assignee or participant to deliver such form or certificate less than five (5) Business Days before such date in which case it shall be due on the date specified by the Agent). Each Bank, assignee or participant which so delivers a Form W-8, W-9, 4224 or 1001 further undertakes to deliver to each of the Borrowers and the Agent two (2) additional copies of such form (or a successor form) on or before the date that such form expires or becomes obsolete or after the occurrence of any event requiring a change in the most recent form so delivered by it, and such amendments thereto or extensions or renewals thereof as may be reasonably requested 81 by the Borrowers or the Agent, either certifying that such Bank, assignee or participant is entitled to receive payments under this Agreement and the other Loan Documents without deduction or withholding of any United States federal income taxes or is subject to such tax at a reduced rate under an applicable tax treaty or stating that no such exemption or reduced rate is allowable. The Agent shall be entitled to withhold United States federal income taxes at the full withholding rate unless the Bank, assignee or participant establishes an exemption or that it is subject to a reduced rate as established pursuant to the above provisions. 11.18 Joinder of Borrowers. Any Subsidiary of a Loan Party which is required to join this Agreement as a Borrower pursuant to Section 8.2.9 shall execute and deliver to the Agent (i) a Joinder in substantially the form attached hereto as Exhibit 1.1(J) pursuant to which it shall join (subject to Section 5.7) as a Borrower each of the documents to which the Borrowers are parties; and (ii) documents in the forms described in Section 7.1 modified as appropriate to relate to such Subsidiary. The Company shall deliver such Joinder and related documents to the Agent within five (5) Business Days after the date of the filing of such Subsidiary's articles of incorporation if the Subsidiary is a corporation, the date of the filing of its certificate of limited partnership if it is a limited partnership, the date of its organization if it is an entity other than a limited partnership or corporation or the date of its acquisitions by any Loan Party, as applicable. IN WITNESS WHEREOF, the parties hereto, by their officers thereunto duly authorized, have executed this Agreement as of the day and year first above written. TB WOOD'S INCORPORATED By: /s/ David H. Halleen -------------------- Title: Vice President -------------- PLANT ENGINEERING CONSULTANTS, INC. By: /s/ David H. Halleen -------------------- Title: Vice President -------------- 82 GRUPO BLAJU, S.A., de C.V. By: /s/ David H. Halleen -------------------- Title: Attorney-in-fact ---------------- TB WOOD'S CANADA, LTD. By: /s/ David H. Halleen -------------------- Title: Treasurer --------- GUARANTOR: TB WOOD'S CORPORATION By: /s/ David H. Halleen -------------------- Title: Vice President -------------- PNC BANK, NATIONAL ASSOCIATION, individually and as Agent By: /s/ Frank M. Sajer ------------------- Title: Corporate Banmking Officer -------------------------- NATIONAL CITY BANK OF PENNSYLVANIA By: /s/ Hakan Erdinc ----------------- Title: Assistant Vice President ------------------------ 83 EX-10 3 EXHIBIT 10.45 TB WOODS' CORPORATION EMPLOYEE STOCK PURCHASE PLAN The TB Woods' Corporation Employee Stock Purchase Plan (the "Plan") is intended to provide the eligible employees of TB Woods' Corporation (the "Company") a convenient means of purchasing shares of the Company's Class A common stock, par value $ .01 per share (the "Stock"). The Plan is intended to qualify as an "employee stock purchase plan" under section 423 of the Internal Revenue Code of 1986, as amended (the "Code"), and shall be administered, interpreted and construed in a manner consistent with the requirements of that section of the Code. ARTICLE I DEFINITIONS 1.1. "Account" means the bookkeeping account established on behalf of each Participant by the Committee to record payroll deduction contributions made by such Participant and shares of Stock purchased on his behalf. 1.2. "Board" means the Board of Directors of the Company. 1.3. "Business Day" means each day on which the New York Stock Exchange is open for business. 1.4. "Compensation" means all regular salary, wages or earnings but excluding overtime, commissions, bonuses, amounts realized from the exercise of a qualified or nonqualified stock option and other special incentive payments, fees or allowances. 1.5. "Committee" means the committee appointed pursuant to Article VIII to administer the Plan. 1.6. "Employee" means any person who is employed by the Company on a full-time basis or a part-time basis and whose customary employment is more than 20 hours per week. 1.7. "Effective Date" means April 1, 1997, subject to the provisions of Section 9.8 of the Plan. 1.8. "Entry Date" means January I of each Plan Year. 1.9. "Offering Commencement Date" means the first Business Day of each Offering Period. 1.10. "Offering Period" means each calendar quarter. 1.11. "Offering Termination Date" means the last Business Day of each Offering Period. 1.12. "Participant" means an Employee who has met the eligibility requirements of Article 11 and who has elected to participate pursuant to an election under Section 3. 1. 1.13. "Plan Year" means the 12-month period ending December 3 1, except that the initial Plan Year shall commence April 1, 1997 and end December 31, 1997. 1. 14. "Shares" means shares of Stock that have been allocated to a Participant's Account. 1.15. "Year of Service" means a consecutive 12-month period during which an individual was an Employee. ARTICLE II ELIGIBILITY 2.1. Eligibility. Except as provided in Section 2.2 and Section 3.6, an Employee who has completed one Year of Service prior to April 1, 1997 and who continues to be employed by the Company shall be eligible to participate in the Plan as of April 1, 1997. All other Employees, except as provided in Section 2.2 and Section 3.6, shall be eligible to participate in the Plan as of the Entry Date coinciding with or next following the completion of one Year of Service. 2.2. Eligibility Restrictions. A Participant who elects to terminate participation in the Plan in accordance with Section 3.5 shall be prohibited from participating in the Plan until the Entry Date next following the date of such termination. ARTICLE III PARTICIPATION 3.1. Commencement of Participation. An eligible Employee may become a Participant in the Plan on any Entry Date by completing an enrollment and payroll deduction form and delivering it to the Company in accordance with procedures established by the Committee. 3.2. Payroll Deduction. At the time a Participant files his enrollment and payroll deduction form, he shall elect to have after-tax deductions made from his Compensation at a rate of not less than one percent and not more than 15 percent. 3.3. Participants' Accounts. All payroll deductions made from a Participant's Compensation shall be credited to his Account and used to purchase shares of Stock in accordance with Article V. Contributions credited to a Participant's Account shall not accrue interest or earnings during the period prior to being used to purchase shares of Stock in accordance with Article V. 3.4. Changes in Payroll Deductions. The percentage designated by a Participant as his rate of contribution under Section 3.2 shall automatically apply to increases and decreases in his Compensation. Except as provided in Section 3.5, a Participant may elect to change the rate of his contributions to any other permissible rate effective as of the first day of the first payroll period of any Offering Period provided the Participant files written notice with the Committee of an election to change his contribution rate at least ten (10) Business Days before the effective date of the election. 2 3.5. Suspension and Resumption of Payroll Deductions. A Participant may terminate contributions under the Plan as of the first day of any payroll period by filing written notice thereof with the Committee at least ten (10) Business Days before the effective date of the termination. A Participant who has terminated his participation in the Plan in accordance with the preceding provisions, shall be prohibited from resuming contributions under the Plan until the following Entry Date. A Participant whose contributions have been terminated in accordance with the preceding provisions, may resume contributions under the Plan in accordance with Section 2.2. 3.6. Restrictions on Participation. Notwithstanding any provisions of the Plan to the contrary, no Employee shall be granted an option to participate in the Plan under the following conditions: 3.6.1. No Employee shall be granted an option if, immediately after the grant, such Employee would own stock, and/or hold outstanding options to purchase stock, possessing 5% or more of the total combined voting power or value of all classes of stock of the Company (for purposes of this paragraph, the rules of section 424(d) of the Code shall apply in determining stock ownership of any Employee); or 3.6.2. No Employee shall be granted an option which permits his rights to purchase Stock under the Plan and all other employee stock purchase plans (as described in section 423 of the Code) of the Company to accrue at a rate which exceeds $25,000 of fair market value of such Stock (determined at the time such option is granted) for each calendar year in which such option is outstanding at any time. For purposes of this Section 3.6.2: 3.6.2.1. the right to purchase stock under an option accrues when the option (or any portion thereof) first becomes exercisable during the calendar year; 3.6.2.2. the right to purchase stock under an option accrues at the rate provided in the option, but in no case may such rate exceed $25,000 of fair market value of such stock (determined at the time such option is granted) for any one calendar year; and 3.6.2.3. a right to purchase stock which has accrued under one option granted pursuant a plan may not be carried over to any other option. 3 ARTICLE IV OFFERINGS 4.1. Quarterly Offerings. The Plan shall be implemented through quarterly offerings of the Company's Stock. Each Offering Period shall begin on the Offering Commencement Date and shall end on the Offering Termination Date. 4.2. Purchase Price. The "Purchase Price" per share of Stock with respect to each Offering Period shall be the lesser of- 4.2.1. Ninety (90) percent of the official closing price of the Stock on the Offering Termination Date on the New York Stock Exchange (or on such other national securities exchange upon which the Stock may then be listed, hereinafter referred to as the "Exchange") or if no sale of Stock occurred on such date, the official closing price on the preceding Business Day- or 4.2.2. Ninety (90) percent of the official closing price of the Stock on the Offering commencement date on the Exchange (or if no sale of Stock occurred on such date, the closing price on the preceding business day. 4.3. Maximum Offering. The maximum number of shares of Stock which shall be issued under the Plan, subject to adjustment upon changes in capitalization of the Company as provided in Section 9.3, shall be 500,000 shares. If the total number of shares which would be purchased during any Offering Period exceeds the maximum number of available shares, the Committee shall make a pro rata allocation of the available shares in a manner that it determines to be equitable and the balance of payroll deductions credited to the Accounts of Participants shall be returned to such Participants as soon as administratively practicable. ARTICLE V PURCHASE OF STOCK 5.1. Automatic Exercise. On each Offering Termination Date, each Participant shall automatically and without any act on his part be deemed to have purchased Stock to the full extent of the payroll deductions credited to his Account during the Offering Period ending on such Offering Termination Date. 5.2. Fractional Shares. Fractional shares of Stock may be purchased under the Plan. 5.3. Acquisition of Stock. The Company may acquire Stock for use under the Plan from authorized but unissued shares, treasury shares. in the open market or in privately negotiated transactions. 5.4. Accounting for Purchased Stock. All shares of Stock purchased pursuant to Section 5.1 shall be allocated as Shares to the appropriate Participant's Account as of the Offering Termination Date on which such shares are purchased. 4 ARTICLE VI ACCOUNTING 6.1. General. The Committee shall establish procedures to account for payroll deductions made by a Participant, the number of Shares of Stock purchased on a Participant's behalf and the number of Shares allocated to a Participant's Account. 6.2. Allocation of Stock. Shares of Stock allocated to a Participant's Account shall be registered in the name of the Company or its nominee for the benefit of the Participant on whose behalf such shares were purchased. 6.3. Accounting for Distributions. Shares of Stock distributed or sold from a Participant's Account shall be debited from his Account on a first-in first-out basis. 6.4. Account Statements. Each Participant shall receive at least semiannual statements of all payroll deductions and shares of Stock allocated to his Account together with all other transactions affecting his Account. ARTICLE VII WITHDRAWALS AND DISTRIBUTIONS 7.1. Withdrawal of Shares. A Participant may elect to withdraw any number of Shares allocated to his Account by providing notification to the Company in accordance with procedures established by the Committee. As soon as administratively practicable following notification of a Participant's election to withdraw Shares, the Committee shall cause a certificate representing the number of Shares to be withdrawn to be delivered to the Participant. 7.2. Distribution Upon Termination. As soon as administratively practicable after a Participant's termination of employment with the Company for any reason, a certificate representing all of such Participant's Shares shall be distributed to him (or his executor, in the event of his death). 7.3. Distribution of Payroll Deductions. In the event a Participant terminates his employment with the Company or his participation in the Plan is terminated pursuant to Section 3.5, any payroll deductions allocated to his Account and not yet applied to purchase Stock in accordance with Section 5.1 shall be distributed to him in a cash lump sum as soon as administratively practicable thereafter. ARTICLE VIII ADMINISTRATION 8.1. Appointment of Committee. The Board shall appoint a Committee to administer the Plan, which shall consist of no fewer than three members. The Board may from time to time appoint members to the Committee in substitution for or in addition to members previously appointed and may fill vacancies, however caused, in the Committee. 5 8.2. Authority of Committee. The Committee shall have the exclusive power and authority to administer the Plan, including without limitation the right and power to interpret the provisions of the Plan and make all determinations deemed necessary or advisable for the administration of the Plan. All such actions, interpretations and determinations which are done or made by the Committee in good faith shall be final, conclusive and binding on the Company, the Participants and all other parties and shall not subject the Committee to any liability. 8.3 Committee Procedures. The Committee may select one of its members as its Chairman and shall hold its meetings at such times and places as it shall deem advisable and may hold telephone meetings. A majority of its members shall constitute a quorum. All determinations of the Committee shall be made by a majority of its members. Any decision or determination reduced to writing and signed by a majority of the members of the Committee shall be as fully effective as if it had been made by a majority vote at a meeting duly called and held. The Committee may appoint a secretary and shall make such rules and regulations for the conduct of its business as it shall deem advisable. 8.4. Expenses. The Company will pay all expenses incident to the operation of the Plan, including the costs of recordkeeping, accounting fees, legal fees and the costs of delivery of stock certificates to Participants. ARTICLE IX MISCELLANEOUS 9.1. Transferability. Neither payroll deductions credited to a Participant's Account nor any rights with regard to the purchase of Stock under the Plan may be assigned, transferred, pledged or otherwise disposed of in any way by the Participant other than by will or the laws of descent and distribution. 9.2. Status as Owner. Each Participant shall be deemed to legally own all shares of Stock allocated to his Account and shall be entitled to exercise all rights associated with ownership of the shares, including, without limitation, the right to vote such shares in all matters for which Stock is entitled to vote, receive dividends, if any, and tender such shares in response to a tender offer. 9.3. Adjustment Upon Changes in Capitalization. In the event of a reorganization, recapitalization, stock split, spin-off, split-off, split-up, stock dividend, combination of shares, merger, consolidation or any other change in the corporate structure of the Company, or a sale by the Company of all or part of its assets, the Board may make appropriate adjustments in the number and kind of shares which are subject to purchase under the Plan and in the exercise price applicable to outstanding options. 9.4. Amendment and Termination. The Board shall have complete power and authority to terminate or amend the Plan (including without limitation the power and authority to make any amendment that may be deemed to affect the interests of any Participant adversely); provided, 6 however, that the Board shall not, without the approval of the shareholders of the Company (i) increase the maximum number of shares which may be offered under the Plan (except pursuant to Section 9.3)- (ii) modify the requirements as to eligibility for participation in the Plan; or (iii) in any other way cause the Plan to fail the requirements of section 423 of the Code. The Plan and all rights of Employees hereunder shall terminate: (i) at any time, at the discretion of the Board, in which case any cash balance in Participants' Accounts shall be refunded to such Participants as soon as administratively possible- or (ii) on the Offering Termination Date on which Participants become entitled to purchase a number of shares of Stock that exceeds the maximum number of shares available under the Plan. 9.5. No Employment Rights. The Plan does not, directly or indirectly, create in any Employee any right with respect to continuation of employment by the Company and it shall not be deemed to interfere in any way with the Company's right to terminate, or otherwise modify, an Employee's terms of employment at any time. 9.6. Withholding. To the extent any payments or distributions under this Plan are subject to Federal, state or local taxes, the Company is authorized to withhold all applicable taxes. The Company may satisfy its withholding obligation by (i) withholding shares of Stock allocated to a Participant's Account, (ii) deducting cash from a Participant's Account, or (iii) deducting cash from a Participant's other compensation. A Participant's election to participate in the Plan authorizes the Company to take any of the actions described in the preceding sentence. 9.7. Use of Funds. All payroll deductions held by the Company under this Plan may be used by the Company for any corporate purpose and the Company shall not be obligated to hold such payroll deductions in trust or otherwise segregate such amounts. 9.8. Shareholder Approval. Notwithstanding the provision of Section 1.7 of the Plan, the Plan shall not take effect until approved by the shareholders of the Company. 9.9. Choice of Law. Except to the extent superseded by Federal law, the laws of the State of Delaware will govern all matters relating to the Plan. * * * * To record the adoption of the Plan, TB Woods' Corporation has caused its authorized officers to affix its Corporate name and seal this 1st day of March, 1997. [CORPORATE SEAL] TB Woods' Corporation Attest: /s/ Emma K. Gross By: /s/ David H. Halleen 7 EX-11 4 EXHIBIT 11
EXHIBIT 11.1 Statement Regarding Computation Of Per Share Earnings TB Wood's Corporation And Subsidiaries January 3, 1997 1994 1995 1996 ---- ---- ---- NET (LOSS) INCOME PER SHARE Weighted average number of common shares outstanding ........... 3,375,000 3,375,000 5,515,000 Shares issued upon assumed exercise of outstanding warrants .... 375,000 375,000 0 Shares issued upon assumed exercise of outstanding stock options 0 60,000 85,000 ---------- ---------- ---------- Weighted average number of common and common equivalent shares outstanding .................................................... 3,750,000 3,810,000 5,600,000 ---------- ---------- ---------- Income before extraordinary item ............................... 3,916 4,599 5,945 Extraordinary item ............................................. 0 0 (1,305) ---------- ---------- ---------- Net income .................................................... 3,916 4,599 4,640 ========== ========== ========== Net (loss) Income per common share: Before extraordinary item ...................................... 1.04 1.21 1.06 Extraordinary item ............................................. 0.00 0.00 (0.23) ---------- ---------- ---------- Net Income ..................................................... 1.04 1.21 .83 ========== ========== ==========
EX-21 5 EXHIBIT 21 EXHIBIT 21.1 Subsidiaries of Registrant TB Wood's Corporation And Subsidiaries January 3, 1997 Registrant: TB Wood's Corporation Chambersburg, PA Subsidiary: TB Wood's Incorporated Chambersburg, PA Subsidiaries: Plant Engineering Consultants, Incorporated Chattanooga, TN TB Wood's Canada, LTD. Stratford, Ontario, Canada TB Wood's Mexico, S.A. de C.V. Mexico City, Mexico EX-27 6 FINANCIAL DATA SCHEDULE WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JANUARY 3, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. Amounts inapplicable or not disclosed as a seperate line on the Statement of Operations are reported as herein. 0001000227 TB WOOD'S CORPORATION 1,000 U.S. DOLLARS YEAR JAN-3-1997 JAN-3-1997 306 0 15955 437 23985 40862 41652 21154 73395 16185 21707 0 0 58 16875 73395 102505 104927 64758 25174 593 0 1982 9998 4053 5945 0 1305 0 4640 0.83 0.83 Revenues are reported net of credits in the Statement of Operations.
-----END PRIVACY-ENHANCED MESSAGE-----