-----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, DQBjk3Twr4bpQtF729pRF8kbLlpBTnnP5EhGL0MeVRz3CE9JjA9PJwWkGH7H2Zoa icb+ibv5ovZu1wh1IxXcdQ== 0000950116-98-001809.txt : 19980831 0000950116-98-001809.hdr.sgml : 19980831 ACCESSION NUMBER: 0000950116-98-001809 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 19980531 FILED AS OF DATE: 19980828 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERMAGNETICS GENERAL CORP CENTRAL INDEX KEY: 0000351012 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS FABRICATED METAL PRODUCTS [3490] IRS NUMBER: 141537454 STATE OF INCORPORATION: NY FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-11344 FILM NUMBER: 98700671 BUSINESS ADDRESS: STREET 1: 450 OLD NISKAYUNA RD STREET 2: PO BOX 461 CITY: LATHAM STATE: NY ZIP: 12110-0461 BUSINESS PHONE: 5187821122 MAIL ADDRESS: STREET 1: 450 OLD NISKAYUNA ROAD STREET 2: PO BOX 461 CITY: LATHAM STATE: NY ZIP: 12110-0461 10-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [X] Annual report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended May 31, 1998 ------------ or [ ] Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ____________ to ___________ Commission File Number 1-11344 ------- INTERMAGNETICS GENERAL CORPORATION ------------------------------------------------ (Exact name of registrant as specified in its charter.) New York 14-1537454 - ------------------------------- ------------------ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 450 Old Niskayuna Road, Latham, New York 12110 -------------------------------------- ----------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (518) 782-1122 -------------- Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered Common Stock - $.10 par value American Stock Exchange - -------------------------------- ----------------------------------- Securities registered pursuant to Section 12(g) of the Act: None ---------------- (Title of Class) 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 the registrant's knowledge, in definitive proxy or information statements in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the voting stock held by non-affiliates of the registrant is approximately $82,420,000. Such aggregate market value was computed by reference to the closing price of the Common Stock as reported on the American Stock Exchange on August 14, 1998. It assumes that all directors and officers of the registrant are affiliates. In making such calculation, the registrant does not determine whether any director, officer or other holder of Common Stock is an affiliate for any other purpose. ii The number of shares of the registrant's Common Stock outstanding, net of Treasury shares, as of August 14, 1998 was 12,263,456. DOCUMENTS INCORPORATED BY REFERENCE The information required for Part III hereof is incorporated by reference from the registrant's Proxy Statement for its 1998 Annual Meeting of Shareholders to be filed within 120 days after the end of the registrant's fiscal year. iii TABLE OF CONTENTS PART I ITEM 1. BUSINESS DESCRIPTION................................................ 1 MAGNETIC PRODUCTS................................................... 1 REFRIGERATION PRODUCTS................................................... 8 RESEARCH AND DEVELOPMENT................................................ 12 INVESTMENTS................................................ 16 PERSONNEL.................................................. 17 EXECUTIVE OFFICERS OF THE REGISTRANT................................................. 18 ITEM 2. PROPERTIES........................................................... 20 ITEM 3. LEGAL PROCEEDINGS.................................................... 20 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.................. 21 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.............................................................. 21 ITEM 6. SELECTED FINANCIAL DATA.............................................. 22 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS............................................ 23 RESULTS OF OPERATIONS...................................... 24 LIQUIDITY AND CAPITAL COMMITMENTS.......................... 26 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.......................... 27 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE............................................. 28 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.................. 28 ITEM 11. EXECUTIVE COMPENSATION.............................................. 28 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.......................................................... 28 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...................... 28 PART IV. ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K..... 29 (a) FINANCIAL STATEMENTS, SCHEDULES AND EXHIBITS.......... 29 (b) REPORTS ON FORM 8-K.................................... 32 SIGNATURES................................................................... 33 iv SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 The statements contained in this report, and any other report filed by Intermagnetics General Corporation (the "Company") from time to time, which are not historical fact are "forward-looking statements" that involve various important assumptions, risks, uncertainties and other factors which could cause the Company's actual results for 1999 and beyond to differ materially from those expressed in such forward-looking statements. These important factors include, without limitation, the assumptions, risks, and uncertainties set forth in Management's Discussion and Analysis of Financial Condition and Results of Operations, as well as other assumptions, risks, uncertainties and factors disclosed elsewhere in this report and the Company's other securities filings. PART I ITEM 1. BUSINESS DESCRIPTION The Company designs, develops, manufactures and sells products in two significant segments: Magnetic Products and Refrigeration Products. Magnetic Products consist primarily of low temperature superconducting ("LTS") magnets, wires and cable, and radio frequency ("RF") coils. These products are developed and sold through two corporate divisions -- the IGC Magnet Business Group ("IGC-MBG") and IGC Advanced Superconductors ("IGC-AS") -- and through IGC Medical Advances Inc. ("IGC-MAI"), a wholly-owned subsidiary. The Magnetic Products segment also includes low-cost, permanent magnet based MRI systems, other permanent magnet products and high temperature superconducting ("HTS") products developed and sold through IGC Technology Development ("IGC-TD"), a division that includes IGC Field Effects. Three wholly-owned subsidiaries make up the Company's Refrigeration Products segment. APD Cryogenics Inc. ("APD") and IGC Polycold Systems Inc. ("IGC Polycold") design, develop, manufacture and sell low and very low temperature refrigeration equipment. This segment also includes refrigerants for mobile and stationary applications, which are designed, developed and sold through the Company's wholly-owned subsidiary, InterCool Energy Corporation ("ICE"). MAGNETIC PRODUCTS About Superconductivity Generally Superconductivity is the phenomenon in which certain materials lose all resistance to the flow of electrical current when cooled below a critical temperature. Consequently, devices made with superconductive materials require special refrigeration equipment, known as cryogenic systems, to maintain the materials at the very cold temperatures at which superconductivity occurs. Superconductors offer advantages over conventional conductors, such as copper, by carrying electricity with virtually no energy loss, and generating comparatively more powerful magnetic fields. There are two broad classes of superconductive materials. Low temperature superconducting (LTS) materials are metals and alloys that become superconductive when cooled to temperatures near absolute zero (4.2 Kelvin or minus 452 F). Because of their superior ductile characteristics, LTS materials are generally used in the form of flexible wire or tape ("Wire/Tape"). HTS materials are composed of ceramic-like compounds that become superconductive when cooled to temperatures close to that of liquid nitrogen (77 Kelvin or minus 321 F). Although HTS materials are not yet economically viable in existing 1 superconducting applications, the Company is working to develop practical materials suitable for various applications of HTS technology. See "Research and Development - New Products" below. The single largest existing commercial application for superconductivity is the magnetic resonance imaging ("MRI") medical diagnostic system ("MRI System"). MRI Systems are used in hospitals and clinics for non-invasive, diagnostic imaging of organs within a patient's body. At the core of an MRI System is a large, highly engineered magnet system. The magnet system can be based upon a conventional resistive electro-magnet, a permanent magnet or a more sophisticated superconductive magnet. Superconductive magnets offer far more powerful, high-quality magnetic fields with virtually no power loss. Higher magnetic field strengths correlate with improved "signal-to-noise" ratios which can in turn lead to higher quality images in shorter acquisition times. The annual commercial market for MRI Systems is estimated at approximately $2 billion worldwide. The MRI industry is increasingly dominated by a small number of systems integrators worldwide who sell MRI Systems to end-users. The General Electric Company ("GE"), Siemens Corporation, Philips Medical Systems Nederlands B.V. ("Philips"), Hitachi Medical Corporation ("Hitachi"), Toshiba Corp., Picker International Ltd., Elscint, Ltd. and Shimadzu Corporation are the major MRI System integrators. The Company is a supplier of key components to several of the MRI Systems integrators. See "Principal Products" below. Other existing applications for superconductivity include nuclear magnetic resonance ("NMR") spectroscopy (used in biological and chemical research and testing of the composition and structure of non-ferrous materials) and other scientific, defense and research applications. See "Principal Products Other Superconductive Magnet Systems" below. Emerging areas for application of LTS and/or HTS Wire/Tape include superconductive magnetic energy storage ("SMES") systems, fault current limiters, transformers and other electric power equipment. See "Research and Development - New Product Development: SMES" below, and "Research and Development - New Product Development: HTS" below. Although these potential newer applications for superconductivity would incorporate technology currently in use or in development by the Company, there can be no assurances that commercially usable applications will emerge in the future, or that the Company will be able to participate in them successfully. About MRI Radio Frequency (RF) Coils Generally An RF Coil is a necessary component of an MRI System. An RF coil is placed inside the bore of the magnet of an MRI System, or more generally placed onto a human patient. The RF coil acts as an antenna to receive, or transmit and receive, radio frequency signals from the human body as it lies inside the strong magnetic field of the MRI System. These radio frequency signals are transferred electronically to the MRI System computer where they are reconstructed into a clinically useful diagnostic image. Specialized RF coils - those dedicated to imaging particular parts of the human anatomy, such as the knee, neck, wrist, foot, etc. - increase the number of diagnostic applications for which an MRI System can be used. The increased number of applications increases the potential utilization rate of a given MRI System, which typically helps to justify economically the acquisition of that system. Specialized RF coils also enhance the diagnostic confidence obtained from the images produced by an MRI System. That is, an RF coil designed to image a specific part of the human body will yield a sharper, more detailed image that is typically more clinically useful than a similar image produced with a multi-purpose RF coil. Consequently, each MRI System could benefit from multiple RF coils. The Company estimates that each MRI System could benefit from an array of six to nine separate specialized RF coils. An RF coil must work very closely with the MRI system in which it is used. Consequently, RF coils are designed for a specific manufacturer's system configuration and its related characteristics. Hence, RF coils may not easily be moved between MRI Systems manufactured by different companies, from one field 2 strength magnet to another, or even among different models manufactured by a single company. The unique characteristics of each MRI System mean that RF Coils must be engineered and manufactured to meet the needs of a particular model of an MRI System. Consequently, the market opportunity for any particular RF coil model usually is limited to the specific system for which it is designed and built. Principal Products Within its Magnetic Products segment, the Company produces the following: o Superconductive MRI Magnet Systems. Through IGC-MBG, the Company manufactures and sells superconductive MRI magnet systems to MRI Systems integrators for use in stationary and mobile MRI Systems. During fiscal years 1998, 1997 and 1996, MRI magnet systems accounted for 43%, 43% and 41%, respectively, of the Company's net sales. The Company's latest generation of superconductive MRI magnet systems consists of three types of systems with field strengths of 0.5, 1.0 and 1.5 Tesla. The Company's magnets for MRI Systems are made with wire from its division, IGC-AS, and fitted with cryogenic refrigerators supplied by its subsidiary, APD. In fact, the Company is the only vertically integrated manufacturer of superconductive MRI magnet systems, which the Company believes is an important source of competitive strength. o Superconductive Wire. Through IGC-AS, the Company manufactures and sells the two principal LTS materials that are commercially available for the construction of superconductive magnets: niobium-titanium ("Nb-Ti") wire, and niobium-tin ("Nb3Sn") wire. In contrast to the relatively large market for Nb-Ti wire, Nb3Sn multi-filamentary wire, which has been under development for many years, is sold only in limited quantities. This is because Nb-Ti is more cost effective for MRI magnet systems, which is the leading market for superconductive wire. During fiscal years 1998, 1997 and 1996, sales of superconductive wire accounted for 12%, 12% and 22%, respectively, of the Company's net sales. o Other Superconductive Magnet Systems. Through IGC-MBG, the Company also designs and builds superconductive magnet systems for various scientific and defense applications. These special purpose superconductive magnet systems are often one of a kind, custom built systems. For example, the Company manufactured a portion of a 45 Tesla Hybrid Magnet for the National High Magnetic Field Laboratory at Florida State University ("NHMFL"). The Company also has designed and built a SMES System. See "Research and Development - New Product Development: SMES" below. In addition, the Company is working with NHMFL regarding the design and manufacture of a technology-leading superconductive magnet for NMR for application at 900 MHz. o RF Coils for MRI Systems. Since March, 1997, when the Company acquired IGC-MAI, the Company manufactures and sells RF coils for use in MRI Systems. The Company's current products include ten (10) anatomical applications with over forty five (45) product groups available in magnetic field strengths from 0.35T to 2.0T, for a total of more than 150 products. Typical RF coils have a selling price between $5,000 and $30,000, although some custom or high end coils may sell for substantially more. RF Coils accounted for 11% of the Company's sales in fiscal year 1998. Because the Company acquired IGC-MAI in March, 1997, RF coils accounted for substantially less than 5% of sales in fiscal year 1997, and no sales in fiscal year 1996. o Permanent Magnet Products. Through IGC Field Effects, a part of IGC-TD, the Company develops, manufactures and sells permanent magnet systems for use in low field-strength MRI Systems. In connection with the Company's strategic alliance with the UK-based firm of Surrey Medical Imaging Systems 3 Limited ("SMIS") (see "Investments - Surrey Medical Imaging Systems" below), IGC Field Effects has combined its MRI permanent magnet and system components with SMIS' products to create a complete permanent magnet-based MRI System. Under a distribution agreement entered into in fiscal year 1998, this product is marketed by Trex Medical Corporation, an internationally recognized manufacturer and distributor of X-ray and other diagnostic equipment. See "Research And Development - New Product Development: Low-cost, Permanent Magnet-Based MRI Systems" below. The potentially lower capital and operating costs of permanent magnet MRI Systems may enable many smaller community hospitals and hospitals located in developing countries to provide MRI diagnostic services to their patients. The imaging quality of such systems is adequate for many diagnostic purposes, but it may not, under current technology, be comparable to images obtained with higher field-strength superconductive systems. The Company's sales of such magnet systems to date have not been significant and there can be no assurances this product will gain wide-spread market acceptance. Marketing The Company markets its magnetic products and technology through its own personnel, and, in addition, licenses the manufacture and marketing of superconductive MRI magnet systems for certain customers to its European joint venture. See "European Joint Venture" below. The Company also has a wholly-owned European marketing and service subsidiary located in England, as well as a foreign sales corporation located in Barbados. The Company markets its RF coils through a direct sales force to domestic end-users, such as hospitals, clinics and research facilities, and to MRI System integrators. The Company also markets its RF coils internationally to end-users through a distributor network. Export Sales. Products sold to foreign-based companies, such as Philips, a Dutch company, Elscint, an Israeli Company or Hitachi, a Japanese company, were accounted for as export sales even if some of the products sold were installed in the US. On that basis, the Company's net export sales (including the Refrigeration Products segment) for fiscal years 1998, 1997 and 1996 totaled $57.3, $53.1 and $46.5 million, respectively, most of which were to European customers. Principal Customers. A significant portion of the Company's sales are through its Magnetic Products segment, and most of those sales consist of MRI related products - superconductive MRI magnet systems, superconductive wire for use in such systems or RF coils for use in such systems. During the past three fiscal years, sales to customers accounting for more than 10% of the Company's net sales in such years aggregated approximately 55% of net sales in fiscal 1998, 50% of net sales in fiscal 1997 and 62% of net sales in fiscal 1996. See Notes J and K of Notes to Consolidated Financial Statements, included in response to Item 8 hereto. A substantial portion of the Company's sales to the MRI industry are to four customers, two of which are significant. Philips is the current principal customer for the Company's MRI products. Pursuant to an agreement (which was extended through December, 2000, and subject to automatic extension for successive one-year periods thereafter unless previously terminated in accordance with the agreement), the Company sells to Philips certain superconductive MRI magnet systems of various field strengths for incorporation in Philips' proprietary MRI Systems. Sales to Philips (including sales by the Refrigeration Products segment) amounted to approximately 45%, 50% and 44% of the Company's net sales for fiscal 1998, 1997 and 1996, respectively. The Company's second principal customer for MRI products is GE. The Company sells superconductive wire to GE for use in GE's MRI magnets. Under the Company's current arrangement with GE, GE places orders from time to time with 4 the Company. This current arrangement supersedes a formal contract between GE and the Company which expired in December, 1996. GE accounted for approximately 11%, 9% and 18% of the Company's net sales for fiscal 1998, 1997 and 1996, respectively. European Joint Venture The Company and Alstom Energy, S.A. (formerly GEC Alsthom S.A.) ("Alstom"), a leading French industrial group in the areas of electrical and electromechanical equipment, have participated since 1987 in a joint venture named Alstom Intermagnetics (formerly GEC Alsthom Intermagnetics S.A) ("AISA"). AISA manufactures in France, under license from the Company, superconductive MRI magnet systems. AISA is a party to the Company's supply agreement with Philips, and supplies a portion of Philips' requirements for superconductive MRI magnet systems. Under the current agreement between the Company and Alstom, AISA transferred its capability for the manufacture of superconductive wire to Alstom, and the Company increased its ownership interest in AISA from 25% to 45%. Additionally, the license from the Company under which AISA manufactures superconductive MRI magnet systems was extended to May, 2005. AISA pays a royalty to the Company for licensed technology, and the Company shares in AISA's profits in proportion to its ownership interest. The Company's investment in AISA has been accounted for using the equity method of accounting. Competition/Market The Company derived more than 70% and 68% of its net sales in its fiscal years 1998 and 1997, respectively, from the sale of products in its Magnetic Products segment (see "Principal Products" above). US demand for MRI Systems appears to have recovered from flat sales recorded in 1995 and 1996. Non-US demand continues to grow. The Company believes that worldwide sales of MRI Systems in 1999 should grow over such sales in 1998. The Company's growth in this segment is dependent on its customers' ability to grow their respective businesses, and on the Company's ability to attract new customers. There are no assurances that the such growth will occur. In addition, the economic slowdown in Asia may adversely impact the overall growth in sales of MRI Systems. A significant factor affecting the Company is the fact that MRI Systems compete indirectly with other diagnostic imaging methods such as conventional and digital X-ray systems, nuclear medical systems, ultrasound, and X-ray CT scanners. While most large MRI Systems suppliers perceive that there are technical advantages to higher field-strength (0.5T or greater) imaging systems based upon superconductive magnets, there are MRI Systems that use resistive electromagnets and permanent magnets, which are limited in field strength either by high power consumption or by basic material properties. Lower field strengths generally translate into lower quality images, although rapid gains in computer technology have offset some of this quality loss. The cost of certain cryogenic liquids, such as helium, may cause markets in developing countries to prefer the use of resistive or permanent magnets, despite image quality. Moreover, improved MRI System components for low field strength magnet systems have improved image quality. Indeed, several MRI Systems integrators, including the Company, through IGC Field Effects, have introduced MRI Systems based upon such low field resistive or permanent magnets. See "Research And Development - New Product Development: Low-cost, Permanent Magnet-Based MRI Systems" below. The Company's Magnetic Products are subject to substantial competition within each of the markets for its principal products. Moreover, practical and cost-effective conductors developed by the Company and others, as a result of new discoveries in the field of HTS materials, could eventually reduce the market for the Company's current LTS technology, although the Company (based 5 upon the information currently available to it) does not believe this is likely to happen in the near future. See "Research and Development - New Product Development: HTS" below. o Superconductive MRI Magnet Systems. Within the market for superconductive MRI magnet systems, the Company's competitors fall into two categories: (1) magnet manufacturers that make MRI magnet systems for sale to MRI Systems integrators, and (2) MRI Systems integrators that manufacture superconductive magnet systems for their own use. The Company considers its principal competitor in the manufacture of superconductive MRI magnet systems to be Oxford Magnet Technology Limited ("OMT"), a joint-venture between Siemens AG (51%) and Oxford Instruments Group, plc (49%) ("Oxford"), a United Kingdom company that formerly owned 100% of OMT. While OMT has sold substantially more superconductive MRI magnet systems, has greater production capacity, and greater financial resources than the Company, the Company believes it can compete effectively against OMT on both technological and cost bases. The Company's joint venture, AISA, also sells superconductive MRI magnet systems and has one principal customer, Philips, which it shares with the Company. See "European Joint Venture" above. MRI Systems integrators, such as GE, manufacture MRI magnet systems for use in their own MRI Systems. Historically, such integrators have been unavailable to the Company as customers for its superconductive MRI magnet systems, notwithstanding the fact that they represent a substantial portion of the potential market for superconductive MRI magnet systems. The Company has instead treated these companies as customers or potential customers for the Company's component products, such as superconductive wire or cryogenic coolers. Within the market for superconductive MRI magnet systems, the Company has also seen increased competition from low-field "open" MRI magnet systems. These systems are designed to reduce the feeling of claustrophobia in a patient undergoing imaging, and may give medical personnel greater access to the patient during imaging. While the Company does not currently manufacture such an "open" MRI magnet system, such magnet systems have represented one of the fastest growing segments of the market. The Company does manufacture a product for another rapidly growing segment of the market: compact high field systems. o Superconductive Wires. The single largest market for superconductive wire is MRI. In fact, most of the superconductive wire manufactured by the Company is used to manufacture superconductive MRI system magnets (either internally by IGC-MBG, or externally by other customers). The Company believes that it, Oxford Superconducting Technology and, to a smaller extent, Supercon, Inc. are the major suppliers of Nb-Ti in wire form for the domestic market. The Company also believes that these three companies are the major suppliers of Nb3Sn superconductive materials for the domestic markets. There are several foreign manufacturers of Nb-Ti superconductive materials in wire form; none of them has been a significant factor in the domestic market. Because industry capacity for Nb-Ti wire is greater than current demand, the Company has seen substantial pressure on prices. The Company's prices for superconductive materials are currently competitive, and the Company believes that product quality and the ability to meet delivery schedules are factors important to its market position. There are no assurances, however, that the Company can remain competitive without future price reductions, or that the Company can find means to offset price reductions with further cost reductions. o Other Superconductive Magnet Systems. With respect to Other Superconductive Magnet Systems, the Company has no single identifiable competitor. Historically, the Company has competed against many different companies domestically and internationally (including Oxford, which dominates the worldwide market for NMR magnets) for the opportunity to design and build 6 non-MRI superconductive magnet systems. The Company expects that competition for such opportunities will vary on a case to case basis, but that such competition will generally focus on price and technology. While the Company believes that it can remain competitive within this area, there can be no assurances that the Company will continue to be successful. o RF Coils for MRI Systems. The Company currently believes that the market for RF coils will grow faster than the market for MRI Systems because: (i) the number of applications for MRI which use specialized RF coils is increasing, requiring a higher number of RF coils to be purchased for each new and existing MRI System; (ii) RF coil technology is being continuously improved and with an average technology obsolescence rate of approximately three years, existing coils need to be upgraded to later-generation products; and (iii) an increasing number of existing MRI Systems are being upgraded by OEM's, at a much lower cost than replacing an entire MRI System. An added set of RF coils is typically needed in connection with each system upgrade. With respect to RF coils for MRI Systems, the Company's primary competitors consist of independent manufacturers that make RF coils for sale to MRI Systems integrators and end-users such as hospitals, clinics and research facilities. The Company also experiences competition from MRI Systems integrators that manufacture RF coils for sale with their MRI Systems. Most MRI Systems integrators outsource RF coil development and manufacture to companies such as IGC-MAI, though, to the best of the Company's knowledge, Siemens and Philips have maintained the most extensive in-house coil development activities of the major MRI Systems integrators. It is generally felt by the MRI Systems integrators that RF coils can be outsourced at a lower cost and faster time-to-market than possible with in-house resources. If the MRI Systems integrators decide to pull all RF coil development in-house, access to the market for the independent RF coil manufacturers could be substantially limited. The Company believes this risk is remote because such a fundamental shift in strategic approach would substantially increase the cost of future hardware and software upgrades for existing customers of MRI Systems integrators. There are several independent RF coil manufacturers of various size that make RF coils for sale to MRI Systems integrators and end users. The Company believes that, of these companies, three compete with IGC-MAI against its full product range. The other competitors offer limited product lines and generally lack an organizational infrastructure and extensive product development capabilities to compete across IGC-MAI's broad product line at this time. Competition is generally based upon price and quality. To remain competitive, the Company must continue to offer high quality, technically advanced products while cutting costs. As competition increases, however, price pressures grow and there are no assurances that IGC-MAI can remain competitive in the marketplace. o Permanent Magnet Products. IGC Field Effects has several competitors in the development and manufacture of permanent magnets for MRI Systems. Sumitomo Special Metals Co., Ltd. ("Sumitomo"), a Japanese company, produces much of the neodymium boron iron (NdBFe) materials used in such systems. The Company believes that Sumitomo's primary customer for its permanent magnet products is Hitachi Medical, which dominates the market for permanent magnet based MRI Systems. While the Company believes it offers a product that is attractive both technically and economically, there are no assurances it can compete against larger, more experienced companies like Hitachi Medical. The Company believes at the present time that patents are not a significant competitive factor in the conduct of its business in this segment. While the Company does not have any substantial patent protection in this segment, it directly or indirectly either owns, or is a licensee under, a number of patents relating to RF coils, superconductive materials, the manufacture of superconductive materials, and the permanent magnet systems manufactured by IGC 7 Field Effects. There are no assurances that changing technology and/or emerging patents will not adversely impact the Companies current patent position or its competitiveness. Backlog The Company no longer considers backlog to be material to an understanding of the Magnetic Products segment. The Company has reached this conclusion based on two main factors: (1) the manufacturing cycle for magnet products has shortened significantly and the Company believes this trend will continue and (2) backlog is not a factor in the Company's RF coil business because of the short manufacturing lead times. Raw Materials and Inventory The Company's manufacturing process for superconducting and permanent magnet systems generally requires production periods of up to twelve weeks. Most materials and parts used in production are ordered for delivery based on production needs. The Company's investment in inventories for production of MRI magnet systems is based primarily on production schedules required to fill existing and anticipated customer orders. Nb-Ti raw material required for production of Nb-Ti superconductive wire is available from several different sources. While the Company has not experienced substantial difficulty in obtaining such materials, fluctuation in demand caused by large projects such as the Large Hadron Collider being constructed at CERN in Switzerland, could create temporary imbalances in supply and demand and thus adversely impact the price of such raw material. IGC Field Effects uses primarily permanent magnet (principally ferrite) materials. There are several qualified domestic and international sources for these ferrite materials. In light of the current low level of demand for its permanent magnet products and efficient management of its needs, the Company does not at this time believe that a decrease in the supply of permanent magnet materials would have a substantial impact on its business. IGC-MAI, believes that there are alternative suppliers at competitive prices for each of the parts, materials and components that it purchases for the manufacture of its RF coils. The Company does not currently expect any difficulty in obtaining these parts, materials and components. Warranty The expense to the Company to date for performance of its warranty obligations has not been significant. REFRIGERATION PRODUCTS Principal Products Three wholly-owned subsidiaries comprise the Company's Refrigeration Products segment. APD Cryogenics Inc. ("APD") and IGC Polycold Systems Inc. ("IGC Polycold") design, manufacture and sell cryogenic refrigeration equipment. InterCool Energy Corporation ("ICE") designs, develops and sells refrigerants, and is developing refrigeration equipment. 8 APD's product line includes shield coolers (refrigerators) used in the production of MRI magnet systems. APD also manufactures a specialized cryogenic refrigeration system sold under the registered tradename CRYOTIGER, specialized water pump systems sold under the registered tradename AquaTrap, cryopumps used primarily in the manufacture of semiconductors, and laboratory cryogenic research systems. Shield coolers make up the largest portion of APD's sales. IGC Polycold manufactures and sells a line of low temperature refrigeration systems in the -40 to -160 Celsius range. The Company acquired IGC Polycold in November 1997. See "Management's Discussion and Analysis of Financial Condition and Results of Operations: Liquidity and Capital Commitments" included in response to Item 7 hereto. IGC Polycold's refrigeration systems are used in several markets, including optical coating, semiconductor manufacturing, magnetic media, decorative coating, plastic coating and roll/web coating. The optical coating industry currently is the largest market for IGC Polycold's products, accounting for approximately 20% of its sales. The Company's Refrigeration Products segment also includes proprietary refrigerants. ICE pursues commercialization of its family of environmentally acceptable refrigerants, sold under the registered tradename of FRIGC, and related air conditioning and refrigeration equipment. The Company believes that FRIGC has broad-based commercial potential to replace ozone-depleting chlorofluorocarbons ("CFC's") currently being used as refrigerants and scheduled to be phased out of use globally under the Montreal Protocol, an international treaty signed by the US and ninety-three other nations. ICE markets FRIGC FR-12 refrigerant for use as a replacement for R-12 (a CFC) for mobile air conditioning and stationary refrigerant applications. The formula for FRIGC FR-12 is protected by U.S. Patent 5,425,890 and foreign patents are pending for certain countries targeted by ICE as potentially viable markets. The Environmental Protection Agency lists FRIGC FR-12 as an acceptable substitute for R-12 in mobile air conditioning applications, and as a replacement for R-12 in certain stationary applications. Use of FRIGC FR-12 refrigerant is subject to certain standard conditions (for example, the use of special fittings and labels which are required for all refrigerants in mobile applications) to prevent unintended mixing of different refrigerants and facilitate recovery of refrigerants for recycling. Marketing The Company markets APD's MRI products through a direct sales force based in APD's Allentown, Pennsylvania headquarters, APD's West Coast office in Sunnyvale, California and a European office near Reading, England. APD markets its laboratory systems, cryopump and other products worldwide through scientific and vacuum equipment sales representatives and distributors. APD has a worldwide partnership with Daikin Industries, Ltd. ("Daikin"), a Japanese company, pursuant to which the parties sell common cryopumps under the "Marathon" trademark in well-defined territories. IGC Polycold does not employ a direct sales force. Rather, it markets its line of low temperature refrigeration systems through a worldwide network of sales representatives and two key distributors located in Japan and Germany. IGC Polycold's headquarters are based in San Rafael, California. Because ICE does not have extensive experience distributing and selling refrigerants, it continues to pursue a strategy of securing distributors, nationally and internationally, with significantly greater experience in relevant markets. In the North American market, ICE appointed the Pennzoil Products Company ("Pennzoil") in 1995 as its primary distributor for all mobile applications and certain stationary applications. Since March, 1997, ICE has aggressively sought to add additional distributors in the North American market to accelerate commercialization of FRIGC FR-12 refrigerant. During calendar year 9 1998, ICE successfully added a number of regional and national distribution outlets for FRIGC FR-12, including United Refrigerants, Johnstone Supply, and Dynatemp. Internationally, ICE signed Sumitomo Corporation of America ("SCOA") in 1997 as the distributor for certain Asian-Pacific markets. The Agreement, which currently is non-exclusive except for Australia, covers China, Japan, Malaysia, Korea, Taiwan, Philippines, Indonesia, Singapore, Australia, New Zealand and Thailand. SCOA, in turn, has added BOC Gases Australia, Ltd. ("BOC Australia"), as a distributor in Australia. With substantial technical support from ICE, BOC Australia has succeeded in making FRIGC FR-12 refrigerant the number one alternative to R-12 in mobile applications during the 1997-1998 Australian summer. BOC Australia is also beginning to explore stationary application for FRIGC FR-12 refrigerant. ICE has also signed other international distributors, and has made sales of FRIGC FR-12 in the Middle East. ICE is continually working to identify qualified distributors for new and existing territories. Competition/Market IGC-MBG uses APD refrigerators for its superconductive MRI magnet systems. In addition, APD sells these refrigerators to other manufacturers of superconducting MRI magnet systems. APD licenses Daikin to produce shield coolers and other cryogenic products for the Japanese market. Daikin has captured a significant portion of that market for shield coolers. The Company considers its principal competitor in the manufacture of shield coolers to be Leybold AG ("Leybold"). Leybold is headquartered in Germany, and has sold substantially more shield coolers than the Company. Moreover, Leybold has greater production capacity and financial resources than the Company, and has successfully locked up many of APD's potential customers in multi-year supply agreements. In addition, Sumitomo Heavy Industries recently began supplying shield coolers to a major MRI Systems integrator. The Company nonetheless believes that it can compete with Leybold and Sumitomo on both technological and cost bases. There are no assurances, however, that APD will attract new customers for its shield coolers. With respect to APD's laboratory cryogenic systems, the Company has no single identifiable competitor. Historically, the Company has competed against many different companies, domestically and internationally. The Company generally competes in this area on the basis of price and product quality. With respect to APD's cryopumps, the Company believes Helix Technology Corporation ("Helix") (which markets its products under the names "CTI Cryogenics" and "CTI") is the market leader in distributing cryopumps. The Company believes that Helix controls 80% or more of the world market for cryopumps. Notwithstanding Helix's market predominance, the Company believes that it can retain its position in the market on technological and equipment performance bases. APD's CRYOTIGER line is based upon proprietary technology developed and patented by APD. CRYOTIGER refrigeration systems presently compete against certain closed-cycle machines, known as Stirling refrigerators, which the Company believes are more costly and less reliable than its CRYOTIGER product. Additionally, CRYOTIGER refrigerators, which are closed-cycle refrigeration systems, compete principally against open-cycle coolers that rely on reservoirs of liquid nitrogen which must be replenished periodically. Although the initial purchase price for a CRYOTIGER refrigerator may exceed the price of a comparable liquid nitrogen cooler, this higher initial cost will be offset by lower operating and maintenance costs and greater ease of use. The Company feels that there is a significant opportunity for this product in the marketplace, however, there are no assurances it will achieve widespread commercial success. 10 APD's AquaTrap Systems are based principally on the Company's proprietary CRYOTIGER technology, and are protected by US patents. Foreign patents are pending. The Company sees its single largest competitor as Helix. Helix dominates the market for cryopumps, and it makes a water pump compatible with its cryopump. Another significant competitor is Ebara Technologies, Inc. which sells an integrated turbopump and water pump. Nonetheless, the Company believes that the superior performance of its water pump, coupled with its compact design and ease of installation and operation, will enable it to compete effectively. IGC Polycold's major competitors include Sanyo and Shin Meiwa in Japan and Helix domestically. IGC Polycold also competes with the use of liquid nitrogen as an alternative to IGC Polycold's low temperature refrigeration systems. The Company generally competes in this area on the basis of price, availability and product quality. ICE's FRIGC FR-12 product is offered as an environmentally friendlier alternative to ozone-depleting R-12. In its mobile application, FRIGC FR-12 refrigerant is a substitute for R-12 in automobile, truck and bus air conditioning systems. Since 1994, most new mobile air conditioning systems have been designed to use R-134a (an HCFC). Mobile air conditioning systems manufactured before 1994 relied on R-12. ICE believes that its FRIGC FR-12 refrigerant is the most cost-effective alternative refrigerant for use in these systems because its use does not require equipment changes. By contrast, the use of R-134a refrigerant in such a system entails in most cases substantial equipment changes to deliver effective and reliable cooling. Although the market for pre-1994 automobile air conditioning systems is finite in nature, ICE believes that through its sales in this market it will gain valuable experience and name recognition that will facilitate future commercialization of other FRIGC refrigerants. ICE has recently begun exploiting the potential for FRIGC FR-12 as a direct substitute for R-12 in stationary applications, exemplified by building air conditioning systems, refrigeration systems, and food chillers. The stationary market employs a wide variety of refrigerants. R-12 sales in the stationary market accounted for approximately 12 million pounds of refrigerant sold nationally in 1997. Since 1994, vendors and end-users have been looking for alternative refrigerants that provide effective, cost efficient cooling. The Company believes that end-users with R-12-based equipment who wish to end their use of ozone-depleting R-12 face three choices: (1) make an expensive hardware purchase of either new equipment (that uses other refrigerants) or major new components that convert existing systems to R-134a refrigerant, (2) purchase an R-22-based alternative blended refrigerant, such as R-401A offered by DuPont, or (3) purchase FRIGC FR-12. The Company believes that FRIGC FR-12 refrigerant provides a superior alternative to items (1) and (2) above. With respect to item (1) above, FRIGC FR-12 requires little to no investment in hardware upgrades. This is particularly true for medium temperature refrigeration applications such as vending and ice machines. With respect to item (2) above, FRIGC FR-12 provides superior operating performance relative to R-22-based refrigerant blends, primarily in the form of significant operating savings and potentially less wear and tear on refrigeration equipment. The Company believes that ICE's FRIGC refrigerants still face significant challenges ahead, and there are no assurances they will win wide-spread acceptance. For example, notwithstanding the phase-out of domestic production of R-12 refrigerant at the end of 1996, there remain substantially greater stocks of such refrigerant today than previously anticipated. Moreover, to a smaller extent, the success of FRIGC FR-12 and other alternative refrigerants in displacing R-12 has had the twin effect of reducing demand for R-22 and returning recycled R-12 into national stockpiles. The relatively easy access to R-12 has had an adverse impact on the near-term ability of ICE to market FRIGC FR-12 refrigerant in both the mobile and stationary markets. Moreover, there are other alternative refrigerants offered by competitors as substitutes for R-12. In mobile applications, there are several alternative refrigerants, including several that sell at lower prices. The Company believes that FRIGC FR-12's superior technical performance and safety record give it a strategic advantage. In fact, within the mobile market, the 11 Company believes that its biggest competitive challenges come from the continuing availability of R-12, and low cost (incomplete or "dirty") retrofit kits to adapt R-12 systems to the use of R-134a. In stationary applications, FRIGC FR-12 refrigerant faces competition from alternative refrigerant blends based on R-22 such as R-409A and R-401A. These two products are each marketed by companies with significantly greater resources and access to better-established distribution systems than those currently available to ICE. Nonetheless, the Company believes that the technical and operating advantages of FRIGC FR-12 refrigerant are such that it can compete effectively against these alternative refrigerants. Backlog Due to the relatively short production cycle for products in this segment, the Company does not consider backlog to be material to an understanding of the Refrigeration Products business. Raw Materials and Inventory For its cryogenics products, APD purchases certain major components from single sources, but the Company believes alternate sources are available. APD generally maintains a sufficient inventory of raw materials, assembled parts, and partially and fully assembled major components to meet production requirements. IGC Polycold purchases certain major standard components for its products from a single source. While alternative sources are available, an unplanned loss or severe reduction in supply from this source could result in added cost and temporary production delays to the Company. The Company generally maintains a sufficient inventory of raw materials, assembled parts and partially and fully assembled major components to meet production requirements. With respect to its refrigerant products, ICE has an agreement with Schenectady International, Inc. ("SII") for the purchase of FRIGC FR-12 refrigerant for the domestic market. SII's ability to supply commercial quantities of FRIGC FR-12 refrigerant, however, will depend on the availability of certain raw materials, which are manufactured by a small number of companies. On March 7, 1997, SII announced that it had secured an agreement with AlliedSignal, a major chemical production company, for the supply of FRIGC FR-12 refrigerant. AlliedSignal is a world leader in the production and supply of environmentally safer CFC substitutes for refrigeration, air conditioning, foam insulation, sterilization and precision cleaning applications. Warranty The expense to the Company to date for the performance of its warranty obligations has not been significant. RESEARCH AND DEVELOPMENT General Research and Development The Company believes its research and development activities are important to its continued success in new and existing markets. Externally funded development programs have directly increased sales of design services and 12 products and, at the same time, assisted in expanding the Company's technical capabilities without burdening operating expenses. Under many of the Company's government contracts, the Company must share any new technology resulting from such contracts with the government, which would include the rights to transfer such technology to other government contractors; however, the Company does not currently expect such rights to have a material adverse effect on it. Previously, a substantial portion of research and development expenditures had been covered by external funding, principally from the US government. In fiscal 1998, approximately 37% of total research and development activities were paid by such external programs compared to approximately 47% and 56% in fiscal years 1997 and 1996, respectively. During fiscal years 1998, 1997 and 1996, product research and development expenses, including those of the Refrigeration Products segment, were $13,072,000, $13,012,000 and $11,678,000, respectively. The Company expects total research and development expenditures to continue to increase somewhat in absolute dollar amounts, but the percentage of these activities funded by external sources to decrease. The Company believes that, apart from continued reductions in federal spending on research and development, two other trends will limit external funding from US government sources. First, and especially in the context of HTS technology, government contracts are emphasizing cost-sharing, which requires the awardee to contribute 20% to 50% of the total cost of the development effort. This cost-sharing requirement may limit the Company's reliance on the government as a significant source of research and development funds. Second, the Company's continued growth has placed it outside the definition of a "small business" for certain government-sponsored research and development programs for small businesses, such as Small Business Innovation Research ("SBIR") grants. "Small businesses" are defined, for this purpose, as concerns which employ fewer than 500 employees. The Company can experience, in any given year, significant increases or decreases in external funding depending on its success in obtaining funded contracts. New Product Development: HTS The Company believes that HTS materials in the form of Wire/Tape may, in the future, have a substantial impact on commercial markets and applications for superconductors. In particular, the Company believes HTS materials could be suitable for larger scale, specialized electric power applications and high field magnets in five to ten years, depending upon further advances. The Company's activities in this area have been funded in part through government-supported research and development programs, including joint research agreements. The Company's research and development activities are focused on: (1) converting HTS materials into usable Wire/Tape with acceptable electrical current densities and competitive pricing levels, and (2) creating devices and equipment based upon such Wire/Tape. The Company has primarily focused on bismuth-based HTS materials, but may broaden its technology base by developing wires using yttrium-based materials, which show promise of even higher superconducting performance than their bismuth-based counterparts. Although the Company has done some basic research on identifying new HTS materials, the Company does not believe it currently has the resources to make a meaningful contribution in the highly competitive and costly endeavor of identifying new HTS materials. 13 The Company has continued to develop applications of HTS materials and advanced devices in partnership with various utilities, manufacturers and government laboratories, including a 1 MVA HTS transformer, a 15-kV HTS Fault Current Limiter, HTS RF coils for low field MRI systems, and HTS current leads. All of these products are in the development stage, and as yet remain technologically and economically unproven. The Company has established a dedicated facility for the manufacture and sale of bismuth-based HTS tape for use in sufficient quantities to develop certain of these prototype devices. The Company does not believe its current operations depend upon successful market acceptance of HTS-based products or devices, nor are the Company's continued operations necessarily dependent on its success in the HTS marketplace even if HTS-based products or devices do become commercially viable. However, if technical problems are solved and HTS materials become economically feasible for commercial applications in fields in which the Company competes, then the Company could be adversely affected unless it is able to develop products or devices using HTS materials. Accordingly, while representing a relatively high-risk, long-term investment of its resources, the Company perceives HTS technology as an important future commercial opportunity of significance. Consequently, the Company expects to continue to work and invest research and development efforts in this area. Because of the perceived high commercial potential of HTS materials, HTS research is a highly competitive field, and currently involves many commercial and academic institutions around the world that may have more substantial economic and human resources to devote to HTS research and development than the Company. In addition, due to the proliferation of patents and patent applications, there can be no assurance that the Company will be able to compete effectively in this area due to the potential patent position of competitors. New Product Development: SMES The Company is seeking to participate in the potential commercial opportunity for superconductive magnetic energy storage ("SMES") systems. A SMES system acts as an electro-magnetic storage system that can protect critical electrical power loads from interruptions, spikes and sags. End users currently minimize power interruptions through use of Uninterruptible Power Supplies ("UPS"), which may use hundreds or even thousands of conventional lead acid batteries per system, require costly maintenance, and present an environmental hazard upon disposal. By contrast, a SMES system is more energy efficient, has a life of more than 20 years, and is environmentally friendly. The Company has developed an advanced micro-SMES unit under a contract it won in fiscal year 1996 to build a self-contained micro SMES system for the US Air Force. That system was delivered and installed in fiscal year 1998. While SMES may be commercially viable in the future, there can be no assurances that the market will develop or that the Company will be able to successfully build on its entrance into that market. At this time the cost of SMES is significantly higher than for other energy storage systems. Additionally, the Company faces other competitors interested in the SMES market, some of which may have superior resources and patent positions. New Product Development: Refrigerants and Refrigeration Equipment ICE currently expects that, over the long run, it will introduce other refrigerants from its FRIGC family of refrigerants for other carefully targeted market opportunities. ICE believes that its refrigerant technology - which is an outgrowth of its expertise in cryogenic technology - may give it a superior insight into refrigerant design and more flexibility in designing refrigerating hardware. Nonetheless, many other companies and research facilities currently are working to identify environmentally acceptable alternatives to the existing CFC- and HCFC-based refrigerants. Many of these companies are larger, better 14 financed, better staffed and more experienced in the refrigerant business than ICE. There can be no assurances that ICE's future refrigerants will win market acceptance. Moreover, ICE's success in developing FRIGC refrigerants and associated technology will depend on its continued ability to obtain patents, maintain trade secret protection and operate without infringing on the proprietary rights of others. ICE expects to continue filing additional patent applications relating to its new refrigerant technology in the near future. No assurance can be given that any additional patents will issue with respect to patent applications filed or to be filed by ICE. Furthermore, even if such patents issue, there can be no assurance that any issued patents will protect against competitive products or otherwise be commercially valuable. ICE is also developing refrigeration equipment and has recently obtained a patent for an advanced subcooler device. ICE is in the process of Beta Site testing this device for the stationary market. This hardware could dramatically increase the energy efficiency of existing and new stationary refrigeration systems, such as low temperature display case systems (typically found in supermarkets), refrigerated warehouses and ice rinks. ICE will be competing in this market with other larger companies with potentially greater resources, and there are no assurances that the Company can create a device with sufficient technical and cost advantages to compete against such larger companies. New Product Development: Low-cost, Permanent Magnet-Based MRI Systems The Company has been working through IGC Field Effects with SMIS (see "Investments - Surrey Medical Imaging Systems Limited" below) to develop a low-cost, permanent magnet-based MRI System. In May, 1996, the Company formally entered a joint venture with SMIS through the formation of a limited liability company, IMiG MRI Systems LLC ("IMiG LLC"). Under the joint venture agreement, the Company initially owned a 50% share of IMiG. As a result of the application of certain provisions of that agreement, however, the Company acquired a 90% percent share of IMiG LLC and the balance was owned by SMIS. In fiscal year 1998, IMiG LLC was dissolved and its operations merged into IGC Field Effects. IGC Field Effects will continue to market products developed jointly by the Company and SMIS, including a permanent magnet-based MRI system for clinical diagnostic use. In fiscal year 1997, IMiG LLC won FDA approval of this system for sale as a medical diagnostic device in the US market. The Company believes that FDA approval will also help it market this system in non-US markets. In November, 1997, the Company entered into an exclusive, worldwide distribution agreement with Trex Medical Corporation ("Trex") to market this system under the Trex name. Trex is an internationally recognized manufacturer and distributor of X-ray and other diagnostic equipment. While the Company believes that it has developed a product which is especially attractive in certain niche markets by virtue of its relatively low purchase, operating and maintenance costs, there can be no assurance that it will be able to compete successfully in markets which have until now been largely dominated by the major MRI systems integrators referenced earlier. Sales of this new product to date have not been significant. New Product Development: MR-Based Materials Inspection Systems The Company has been working with SMIS (see "Investments - Surrey Medical Imaging Systems Limited", below) to develop materials inspection systems ("Inspection System") using Magnetic Resonance ("MR") technology. The Inspection System employs magnetic resonance to examine various product or material parameters for quality assurance and/or process control purposes. The Company sees the need for such a non-destructive inspection system stemming from the unrelenting drive for improved productivity, higher product quality and greater product yield in nearly all manufacturing industries worldwide. The Company believes that Inspection Systems based on MR may be well suited for a variety of 15 industries, including food and beverages, plastics and rubbers, petrochemicals, ceramics, explosives and narcotics, fuel propellants and even timber. While sales of this new class of products to date have not been significant, the Company has developed and sold two systems which are installed on line at manufacturing facilities to inspect food cartons. Successful sales of Inspection Systems will depend on a variety of factors. Most significantly, the Company must find a cost effective means of tailoring each Inspection System to meet the highly specific needs of each application. This tailoring process may include both the magnet (which in the systems already sold, were developed and manufactured by the Company through IGC Field Effects) but also the electronic hardware and software components currently made by its partner SMIS. Additionally, given the relatively high cost of the critical components of an Inspection System, the Company must find and gain entree to markets in which the additional value-added provided by the highly accurate Inspection System exceeds the substantial capital and operating cost of such a System. There can be no assurances that the Company can successfully meet these challenges. INVESTMENTS ULTRALIFE BATTERIES, INC. The Company owns 975,753 shares of the common stock (approximately 9.3% of the outstanding common stock) of Ultralife Batteries, Inc. ("Ultralife"), acquired at a cost of $7,015,000. Headquartered in Newark, N.Y., Ultralife focuses on markets which require increased energy density and extended shelf life. Ultralife produces lithium batteries that are the same size and voltage as standard batteries, but have double the operating life and a longer shelf life (up to 10 years) than alkaline or zinc carbon batteries. These batteries currently command a premium price in the market for long-life batteries. In addition, Ultralife produces advanced rechargeable batteries that are being commercialized for notebook computers, cellular telephones and other portable electronic products. The Company is represented on Ultralife's Board of Directors. Ultralife's common stock is traded on the NASDAQ National Market System under the symbol ULBI. The market value of the Company's total investment in Ultralife, the sale of which is restricted under US securities laws, was $11,221,000 and $10,123,000 at May 31, 1998 and May 25, 1997, respectively. During fiscal year 1996, the Company sold, in a series of transactions, 85,000 shares of its Ultralife holdings on which it reported an aggregate gain of $1,414,000. The Company sold no shares of its Ultralife holdings in its fiscal years 1998 and 1997. The Company may in the future sell additional Ultralife shares as market conditions warrant. SURREY MEDICAL IMAGING SYSTEMS LIMITED As of May 31, 1998, the Company owns 354,223 of the outstanding ordinary shares (approximately 23%) of Surrey Medical Imaging Systems Limited ("SMIS"), acquired at a cost of $3,530,000. The Company adopted the equity method of accounting for its investment during the first quarter of fiscal 1996. The acquisition cost exceeded the underlying equity in net assets by $3,298,000, which is being amortized over a period of 40 years. At May 31, 1998 and May 25, 1997, accumulated amortization was approximately $247,000 and $164,000, respectively. As SMIS is privately held, the market value of this investment is not readily determinable. As a result of amortization and recognition of a portion of SMIS' losses, the carrying value of the investment has been reduced to $2,854,000 at May 31, 1998. The Company also owns 980,000 redeemable preference shares of SMIS purchased at a cost of $1,511,000, and has provided additional loans to SMIS which are convertible into capital stock of SMIS. For a discussion of these 16 loans see Note C of the Notes of Consolidated Financial Statement included in response to Item 8 hereto. During the year ended May 31, 1998, SMIS obtained a line of credit financing in the amount of 2,500,000 British Pounds Sterling ("Pounds") ($4,177,000). The Company has guaranteed repayment of one half of the outstanding balance up to 1,250,000 Pounds ($2,088,500) in the event of default by SMIS. As of May 31, 1998, SMIS has drawn approximately 1,880,000 Pounds (approximately $3,141,000) against the line. Located in Guildford, England, SMIS focuses on developing and marketing electronics and software for MRI and nuclear magnetic resonance spectroscopy applications. It also supplies equipment using Ultrasonics for use in the non-destructive testing of a variety of materials. The Company and SMIS have worked together closely to develop complete magnetic resonance system products combining SMIS' electronics and software with the Company's permanent magnet systems. In this way, the Company and SMIS are able to access certain niche markets in both the clinical and industrial sectors which would be largely unavailable to each party separately. See "Research and Development - New Product Development: Low-cost, Permanent Magnet-Based MRI Systems" above. KRYOTECH, INC. On March 23, 1998, the Company acquired 1,172,840 shares (the "B Shares") of the Series B Convertible Preferred Stock, $.01 par value per share (the "Series B Stock"), of KryoTech, Inc., a privately-held, South Carolina corporation ("KryoTech"), and a warrant (the "Warrant") to purchase an additional 237,416 shares (the "Warrant Shares") of Series B Stock. The Company paid $4,750,000 for the B Shares. The Warrant may be exercised, in whole or in part, at any time on or before it expires on March 23, 2008. The Warrant may be exercised at a price equal to $1.053 per Warrant Share. On an as-converted basis, the Company's holdings represent 20.7% of the outstanding equity, on a fully diluted basis, of KryoTech. KryoTech was formed on March 15, 1996 for the purpose of developing, marketing, manufacturing and selling thermal management products which are designed specifically for the computer industry. More specifically, KryoTech has successfully demonstrated that active cooling of computer chips can improve chip performance. As partial consideration for the Warrant, Intermagnetics granted to KryoTech an exclusive, worldwide, fully paid up, irrevocable right (the "Right") to represent and sell products for application to, and use in, computer chip cooling, based upon APD's and IGC Polycold's refrigeration technology (including mixed gas technology). Unless otherwise renewed or extended by agreement of the parties, the Right has a term ending on the later of (1) the seventh anniversary of March 28, 1998, or (2) the date on which Intermagnetics' equity ownership interest in KryoTech falls below 15% on a fully diluted basis. KryoTech may not sublicense, sell or transfer the Right. The scope of the Right expressly excludes the cryo-cooling of other electronic devices, such as communications equipment of any type. PERSONNEL On May 31, 1998, the Company employed 591 people. Within the Magnetic Products segment, the production and maintenance employees of the Company's IGC-AS Division, which is located in Waterbury, Connecticut, are represented by the United Steelworkers of America ("United Steelworkers"). In fiscal year 1998, the Company and the United Steelworkers negotiated a five year collective bargaining agreement, effective June 1, 1998. Within the Refrigeration Products segment, the production employees of the 17 Company's subsidiary, APD, which is located in Allentown, Pennsylvania, are also represented by a labor union, the International Association of Machinists and Aerospace Workers ("IAMAW"). The Company and IAMAW negotiated a three year collective bargaining agreement effective August 23, 1997. There is great demand for trained scientific and technical personnel, and the Company's growth and success will require it to attract and retain such personnel. Many of the prospective employers of such personnel are larger and have greater financial resources than the Company and may be in a better position to compete with the Company for prospective employees. EXECUTIVE OFFICERS OF THE REGISTRANT The executive officers of the Company are:
Name Position Age - ---- -------- --- Carl H. Rosner Chairman of the Board of Directors, 69 and Chief Executive Officer Glenn H. Epstein President and Chief Operating Officer 40 Michael C. Zeigler Senior Vice President - Finance 52 & Chief Financial Officer Leo Blecher Vice President and General Manager - 52 IGC Magnet Business Group Gary L. Hamilton Senior Vice President and General Manager - 48 InterCool Energy Corporation Ian L. Pykett Vice President - IGC Technology 45 Development Robert S. Sokolowski Vice President and General Manager - 45 IGC Advanced Superconductors Richard J. Stevens Vice President and General Manager - 56 IGC Medical Advances Inc. Ronald W. Sykes Vice President and General Manager - 66 IGC Polycold Systems Inc. Bruce A. Zeitlin Corporate Vice President and General Manager - 55 APD Cryogenics Inc.
A principal founder of the Company, Mr. Rosner has been Chairman of the Board of Directors of the Company since the Company's formation in 1971 and before that headed the Superconductive Products Operation of the General Electric Company. Mr. Rosner also serves as the Company's Chief Executive Officer. 18 Mr. Epstein was named President and Chief Operating Officer on May 5, 1997. Prior to joining the Company, Mr. Epstein worked for Oxford Instruments Group, plc in various capacities between 1986 and April, 1997. He most recently held the position of President of the Nuclear Measurements Group, Inc., a wholly-owned subsidiary of Oxford Instruments, plc. Mr. Epstein also worked for the General Electric Company between 1981 and 1986. Mr. Zeigler was appointed Senior Vice President - Finance and Chief Financial Officer of the Company in September, 1993. He previously served as Vice President-Finance and Chief Financial Officer of the Company from June, 1987 until his appointment as a Senior Vice President, and served as the Company's Controller from June, 1985 through June, 1987. Mr. Blecher was appointed Vice President and General Manager - IGC Magnet Business Group in April, 1997. He previously held the title of Deputy Manager of IGC-MBG. He originally joined the Company in 1988 as Manager of Technology Projects. Prior to joining the Company, Mr. Blecher held various positions of responsibility with Israel Aircraft Industry, most recently holding the title of Manager Engineering and Project Manager, for the Space Technology Division. Mr. Hamilton was appointed Senior Vice President and General Manager - InterCool Energy Corporation in February, 1995. Prior to that appointment, Mr. Hamilton had served as Vice President and General Manager - APD Cryogenics Inc., since 1990. Before joining the Company, he was employed by Leybold Vacuum Products, Inc. from 1982 to 1990, most recently as Vice President of Marketing. Dr. Pykett was appointed Vice President of IGC Technology Development in 1991. Prior to joining the Company, he had been President and Chief Executive Officer of Advanced NMR Systems, Inc. (now Caprius, Inc.), a diagnostic imaging company he co-founded in 1983. Dr. Sokolowski was appointed Vice President and General Manager of the Company's IGC Advanced Superconductors division in February, 1996. Dr. Sokolowski served as the Company's Manager of High Temperature Superconductor Operations, a part of IGC Technology Development, between November, 1992 and February, 1996. Mr. Stevens became Vice President and General Manager - IGC Medical Advances Inc. upon its acquisition by the Company in March, 1997. An original founder of Medical Advances, Inc., Mr. Stevens had been its President since 1985. Prior to that, Mr. Stevens was a marketing and advertising executive for seventeen years with the General Electric Company. He spent twelve years of his career at the General Electric Company in the Medical Systems Group and five years in materials technologies businesses, and held the title of Manager of Computed Tomography Marketing in the Medical Systems Group from 1981 to 1985. Mr. Sykes became Vice President and General Manager - IGC Polycold Systems Inc. upon its acquisition by the Company in November, 1997. Mr. Sykes had been President of Polycold Systems International, Inc. since December, 1991. Prior to that, he held executive level positions in the electronic scale industry, holding the title of Senior Vice President at Weigh - Tronix, Inc. from 1987 to 1991, and CEO of National Controls from 1984 to 1986. Mr. Sykes also worked for several years in the optical coating industry. Mr. Zeitlin has been employed by the Company in various capacities since 1974. He was responsible for marketing superconductive materials between 1982 and 1996, and became Vice President Materials Technology in 1985. Mr. Zeitlin also headed the Company's superconductive materials operations (now IGC-AS) between 1987 and February, 1996 when Mr. Zeitlin was appointed Corporate Vice President and General Manager - APD Cryogenics, Inc. 19 ITEM 2. PROPERTIES. The Company's corporate offices, IGC Magnet Business Group, IGC Technology Development and InterCool Energy Corporation offices are located in approximately 146,000 square feet of space located in Latham, New York (the "Latham Facility"). The Company owns the Latham Facility, which is subject to a $5.8 million mortgage bearing interest at the rate of 7.5%, and maturing in May, 2001. The Company's HTS facility dedicated to the manufacture of Bismuth-based HTS Wire/Tape is located in approximately 19,000 square feet of leased space located in Cohoes, New York. The lease is a three (3) year lease that expires on January 31, 2000, with two consecutive three year renewal terms. IGC Advanced Superconductors' offices and production facilities are located in Waterbury, Connecticut in premises of approximately 212,700 square feet (of which 57,900 square feet are presently being used) pursuant to a thirty year prepaid lease which expires in December, 2021. The facility's equipment includes a drawbench with a pulling force of up to 150,000 pounds and a length of approximately 400 feet. The Company believes that this drawbench is one of the largest in the world. IGC Field Effects currently operates out of premises totaling approximately 21,900 square feet in Tyngsboro, Massachusetts. The facilities are subject to a five year lease expiring in the fall of 2001. APD Cryogenics, Inc. operates out of a building, which it owns, in Allentown, Pennsylvania totaling approximately 56,550 square feet. IGC Medical Advances Inc. leases approximately 20,800 square feet in a building located in the Milwaukee County Research Park's Technology Innovation Center. Approximately 9,000 square feet are used for office space with the remaining space dedicated to lab, assembly, shipping and material storage. The lease expires in September, 1998 and may be renewed for a successive one year term. The Company currently believes that it will be able to renew this lease. The Company believes that IGC-MAI has sufficient room to expand in this facility to meet its currently projected needs through the balance of the lease term. IGC Polycold Systems Inc. leases approximately 27,900 square feet of manufacturing and office space in three buildings located in San Rafael, California. The leases expire in 1999 (for one building) and 2002 (for two of the buildings). The Company believes that IGC Polycold has sufficient room in these facilities to meet its current projected needs through the balance of the lease terms. The Company believes its facilities are adequate and suitable for its current and near-term needs. ITEM 3. LEGAL PROCEEDINGS. Neither the Company nor any of its subsidiaries is a party to any material legal proceeding. To the Company's knowledge, no director, officer, affiliate of the Company, holder of 5% or more of the Company's Common Stock, or associate of any of the foregoing, is a party adverse to, or has a material interest adverse to, the Company or any of its subsidiaries in any proceedings. 20 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not applicable. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The Company's Common Stock is traded on the American Stock Exchange under the symbol IMG. The high and low sales prices of the Common Stock for each quarterly period for the last two fiscal years, as reported on the American Stock Exchange, are shown below. Closing Prices(1) ----------------- High Low ---- --- Fiscal Year 1997 - ---------------- Quarter Ended August 25, 1996 $ 18 1/4 $ 12 13/16 Quarter Ended November 24, 1996 14 1/2 12 5/8 Quarter Ended February 23, 1997 13 5/16 10 15/16 Quarter Ended May 25, 1997 12 7 9/16 Fiscal Year 1998 - ---------------- Quarter Ended August 24, 1997 $ 13 7/16 $ 9 15/16 Quarter Ended November 23, 1997 11 7/8 8 7/16 Quarter Ended February 22, 1998 9 3/16 7 3/4 Quarter Ended May 31, 1998 11 1/2 9 ------------------------ (1) The closing prices have been adjusted to reflect a two percent stock dividend distributed on September 16, 1997 to stockholders of record on August 26, 1997, rounded to the nearest $1/16, and a two percent stock dividend to be distributed on September 17, 1998, to stockholders of record on August 27, 1998. There were 2,048 holders of record of Common Stock as of August 14, 1998. The Company has not paid cash dividends in the past ten years, and it does not anticipate that it will pay cash dividends or adopt such a cash dividend policy in the near future. The Board of Directors of the Company has declared a policy of granting annual stock dividends where, and to the extent that, the performance of the Company warrants such a declaration. Under the Company's bank agreements, prior bank approval is required for cash dividends in excess of the Company's net income for the year to which the dividend pertains. 21 ITEM 6. SELECTED FINANCIAL DATA The following selected financial information has been taken from the consolidated financial statements of the Company. The selected statement of operations data and the selected balance sheet data set forth below should be read in conjunction with, and is qualified in its entirety by, Management's Discussion and Analysis of Financial Condition and Results of Operations and the Consolidated Financial Statements and related Notes included in response to Items 7 and 8 hereto. (Prior years have been reclassified to conform with the current year presentation.)
(Dollars in Thousands, Except Per Share Amounts) ---------------------------------------------------------------------------------- For the Fiscal Year Ended May 31, 1998 May 25, 1997 May 26, 1996 May 28, 1995 May 29, 1994 ------------ ------------ ------------ ------------ ------------ Net sales $95,894 $87,052 $88,467 $83,877 $51,238 Gross Margin 35,685 26,200 22,279 23,703 16,344 Income before income taxes 4,744 4,035 6,882 6,512 2,099 Net income 2,753 2,615 4,427 4,007 2,148 Per common share - diluted: Income before cumulative effect of accounting change 0.21 0.20 0.35 0.33 0.11 Cumulative effect of accounting change 0.07 Net income 0.21 0.20 0.35 0.33 0.18 ---- At End of Fiscal Year 1998 1997 1996 1995 1994 ---- ---- ---- ---- ---- Working capital $45, 493 $49,346 $53,642 $52,655 $49,339 Total assets 127,776 115,889 112,397 103,706 93,787 Long-term debt (net of current maturities) 28,833 29,105 29,364 39,807 39,859 Accumulated deficit (1,081) (1,643) (1,727) (2,495) (2,595) Shareholders' equity 83,801 73,087 67,296 53,305 46,935
- ---------- (a) Income per common share - diluted has been computed during each period based on the weighted average number of shares of Common Stock outstanding plus dilutive potential common shares (where applicable). (b) The Company did not pay a cash dividend on its Common Stock during any of the periods indicated. (c) Net income per common share-diluted has been restated to give effect to the 2% stock dividend declared July 21, 1998, the 2% stock dividend distributed in September, 1997 and August, 1996, the five-for-four stock split effected September 8, 1994, and the 3% stock dividend distributed in June, 1995. (d) Net income for the fiscal year ended May 29, 1994 reflects a cumulative effect of accounting change in the amount of $888,000 or $.07 per common share-diluted. 22 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SUMMARY The following tables set forth, for the periods indicated, the percentages which certain items reflected in the financial data bear to net sales of the Company and the percentage change of such items from period to period. See the Consolidated Financial Statements, located elsewhere in this report, for financial information to which the percentages set forth below relate. (Prior years have been reclassified to conform with the current year presentation.)
Period to Period Relationship to Net Sales Increase (Decrease) -------------------------------------------- -------------------------- Fiscal Year Ended Fiscal Years -------------------------------------------- -------------------------- May 31, May 25, May 26, 1997- 1996- 1998 1997 1996 1998 1997 ------------ ------------ ------------ ----------- ----------- Net sales 100.0% 100.0% 100.0% 10.2% (1.6%) Cost of products sold 62.8 69.9 74.8 (1.1) (8.1) ------ ------ ------ Gross margin 37.2 30.1 25.2 36.2 17.6 Product research and development 8.4 7.8 5.7 19.9 35.5 Marketing, general and administrative 21.7 18.2 14.0 31.6 27.5 Amortization of intangible assets 1.3 0.4 0.3 261.3 31.6 ------ ------ ------ 31.4 26.4 20.0 31.5 29.8 ------ ------ ------ Operating income 5.8 3.7 5.2 69.6 (29.4) Interest and other income 2.5 3.4 4.7 (20.2) (28.4) Realized gain on sale of available for sale -- -- 1.6 ** ** securities Interest and other expense (2.2) (2.3) (2.9) 6.5 (21.0) Equity in net loss of unconsolidated affiliates (1.1) (0.2) (0.8) 454.4 (75.7) ------ ------ ------ Income before income taxes 5.0 4.6 7.8 17.6 (41.4) Provision for income taxes 2.1 1.6 2.8 40.2 (42.2) ------ ------ ------ Net income 2.9% 3.0% 5.0% 5.3% (40.9%) ====== ====== ======
- ---------- ** Not applicable for purposes of this table. 23 The statements contained in this annual report which are not historical fact are "forward-looking statements" that involve various important assumptions, risks, uncertainties and other factors which could cause the Company's actual results for 1999 and beyond to differ materially from those expressed in such forward-looking statements. These important factors include, without limitation, the assumptions, risks, and uncertainties set forth herein, as well as other assumptions, risks, uncertainties and factors disclosed elsewhere in this report and in the Company's press releases, shareholders' reports and filings with the Securities and Exchange Commission. RESULTS OF OPERATIONS -- FISCAL 1998 and FISCAL 1997 Consolidated Net sales increased 10.2% in fiscal 1998 compared to a decrease of 1.6% in fiscal 1997. Sales for fiscal 1998 grew mainly due to the inclusion of full year results from the acquisition of Medical Advances, Inc. ("MAI") and half year results from the November, 1997 acquisition of Polycold Systems International, Inc. ("Polycold"). In fiscal 1997, increases in sales of both magnet systems and refrigeration products were offset by a substantial reduction in sales of superconducting materials. As a percentage of net sales, gross margins improved again in fiscal 1998 after a good recovery in fiscal 1997. The increase in both years was due to continuing cost-reduction efforts and a more favorable product mix, primarily in the Magnetic Products segment, despite continuing competitive pressure on selling prices for magnets and superconducting materials. The recent acquisitions, MAI and Polycold, had a favorable impact on gross margins, as did improvements in fiscal 1998 for the superconducting magnets and wire businesses. Looking forward, the Company expects greater sales and earnings in fiscal 1999. This expectation is based on the following assumptions, among others: -the market for MRI systems continues to grow; -the Company can successfully contend with continued competitive pressure on selling prices in the MRI marketplace for magnets and materials; -anticipated sales of refrigerants occur; and, -reductions in production costs in both business segments continue. In addition, fiscal 1999 will include the operations of Polycold for the full year. Polycold was acquired in November, 1997 as described in "Liquidity and Capital Commitments". Company-funded product research and development expenses increased 19.9% in fiscal 1998, almost all of which resulted from the recent acquisitions, compared to a 35.5% increase in fiscal 1997. Company-funded product research and development spending increased in all business segments. Because the Company is no longer qualified as a small business and thus is not eligible for certain government-funded research awards, external funding for research and development expenses continues to decline, and has been replaced by internal funding. Marketing, general and administrative expenses grew 31.6% in fiscal 1998 compared with growth of 27.5% in fiscal 1997. This was due primarily to the recent acquisitions, increased marketing expenses for APD Cryogenics, and a non-cash charge of $600,000 associated with the issuance of a warrant to Sumitomo Corporation of America in connection with a distribution agreement. The increase in fiscal 1997 was due to the creation of two separate organizations: InterCool Energy Corporation ("ICE") in fiscal 1996, and, IMiG MRI, LLC ("IMiG"), a joint venture with Surrey Medical Imaging Systems Limited ("SMIS"), in fiscal 1997. ICE's purpose is to develop and market FRIGC(R) refrigerants. IMiG was formed to commercialize a new, low-cost permanent magnet-based magnetic 24 resonance imaging system. In fiscal 1998, the Company discontinued IMiG and named Trex Medical Corporation as the exclusive world-wide distributor for the IMiG MRI system. In fiscal 1998 the Company began to separately report the amortization of intangible assets due to the significance of such expense resulting from the acquisitions of MAI and Polycold. The excess of the purchase price over the fair market value of net assets acquired for these acquisitions is being written off over 15 years. Interest income declined in fiscal 1998 because a substantial portion of invested cash was used for acquisitions and investments in and advances to affiliates. Equity in net loss of unconsolidated affiliates increased because the affiliates had higher losses in the current fiscal year. Interest expense was slightly higher in fiscal 1998 principally due to the issuance of a short-term note as part of the Polycold acquisition and was lower in fiscal 1997 due to the repayment of $2,167,000 of installment notes in December, 1996. The Company's effective income tax rate increased in fiscal 1998 to 42%, up from 35% in fiscal 1997, due mainly to the effect of non-deductible amortization of intangible assets associated with the recent acquisitions. Fiscal 1997 benefited from the utilization of certain tax credits. See Note G of Notes to Consolidated Financial Statements, located elsewhere in this report, for detailed information regarding income taxes. In May, 1997, the Company entered into a distributorship agreement with Sumitomo Corporation of America to market FR-12 refrigerant in the Asia-Pacific market. In June, 1997, the Company entered into a Warrant Agreement with Sumitomo under which Sumitomo could purchase up to 1,200,000 shares of Common Stock. Sumitomo paid $120,000 for the rights to the warrants. The Company issued an initial warrant (which expires on November 16, 1998) to purchase 500,000 shares at $12.50 per share. In connection with the initial Warrant, the Company incurred a non-cash charge of $600,000 in fiscal 1998. In July, 1998, the Company announced that it was extending the near-term marketing emphasis of FRIGC(R) refrigerants to commercial stationary applications because of the unsatisfactory penetration of the U.S. mobile market and the larger-than-projected availability of Freon R-12. It also announced that it had appointed three additional North American distributors and was restructuring its international distribution plan to have several non-exclusive international distributors. Segment Discussion Magnetic Products Segment. This segment consists of the design, development, manufacture and sale of superconductive magnets and materials, permanent magnets, RF coils, and other magnetic products. Sales for the segment increased 13.4% in fiscal 1998 compared to a decline of 9.2% in fiscal 1997, principally due to the inclusion of MAI for the full year. Magnet system sales (including MAI) increased by 15.5% in fiscal 1998 compared with an increase of 6.8% in fiscal 1997. Material sales increased approximately 4% in fiscal 1998 compared to a decline of approximately 46% in fiscal 1997. The sales decline in this segment in fiscal 1997 was principally due to substantially lower superconducting material sales to a major customer who decided not to renew a long-term supply agreement. Sales to this customer increased in fiscal 1998. In fiscal 1998 gross profit margins increased for both magnet products and superconducting materials due to continued cost improvements, higher sales and improved product mix, including MAI's impact on the full year. Gross margins in fiscal 1997 increased for magnet products due to a more favorable product mix and improved production costs, but declined substantially for materials due to lower sales volume and continued yield losses in wire manufacturing. 25 Refrigeration Products Segment. This segment, which consists of the design, development, manufacture and sale of cryogenic refrigeration equipment and refrigerants, had increased sales of approximately 3% in fiscal 1998 and 20% in fiscal 1997. Fiscal 1998 includes Polycold sales for six months, which slightly exceeded the reduction in sales of FRIGC(R) refrigerants and APD Cryogenics' refrigeration equipment due to reduced demand for both product lines. The increase in fiscal 1997 was primarily the result of sales of FR-12(TM) refrigerant and a substantial increase in sales of laboratory and Cryotiger systems. Gross margin, as a percentage of net sales, increased slightly in fiscal 1998 and 9.3% in fiscal 1997. The fiscal 1997 increase was due to cost reductions for refrigerants and cryogenic refrigeration equipment. See Note J of Notes to Consolidated Financial Statements, located elsewhere in this report, for financial information by industry segment. Year 2000 Compliance The Company has developed and is implementing an assessment and remediation plan to identify and fix any potential problems that could occur because of a computer's failure to properly deal with the Year 2000 and beyond. This plan encompasses all of the Company's business entities, business partners and all suppliers of materials and services. While, at present, the Company believes that the cost of completing the plan will not be material, and that the risks to the Company with respect to Year 2000 issues are not significant, the Company cannot, at this time, fully assess the potential impact. If risks are identified during the Company's Year 2000 review, the Company will take steps to eliminate or reduce such risks. The Company is in the process of installing a new computer software system common to all its operating locations together with additional hardware at a cost estimated to be between $1,500,000 and $2,000,000. The implementation of this software is expected to be completed during the Company's current fiscal year. Most of these costs will be capitalized. LIQUIDITY AND CAPITAL COMMITMENTS In fiscal 1998 the Company generated net cash of $6,422,000 from operating activities, which, together with available cash, was used to purchase property, plant and equipment, to make additional investments in SMIS and an investment in KryoTech, Inc., to purchase Treasury Stock, repay debt and to acquire Polycold. On November 24, 1997, the Company acquired Polycold of San Rafael, CA., a manufacturer of low-temperature refrigeration systems including water vapor cryopumps, cryocoolers, cold trap chillers and gas chillers, for an aggregate consideration of approximately $16,500,000 consisting of a 90-day promissory note for $6,821,000, 281,568 shares of the Company's Common Stock and 69,992 shares of Series A Preferred Stock, which is redeemable in cash or Common Stock at the option of the Company. The $10,175,000 excess of purchase price over the fair market value of net assets acquired is being amortized over 15 years. The Preferred Stock is redeemable in cash by the Company at any time at $100 per share. Also, the Company may convert some or all of the Preferred Stock into Common Stock at any time after December 11, 1998, but before December 1, 1999. If any of the Preferred Stock is not so converted by the Company, it shall automatically convert into Common Stock as of December 1, 1999. The conversion shall be effected by dividing the conversion price ($100 per share) by the average of the closing prices of the Common Stock on the ten trading days preceding the date of conversion. The promissory note was paid in March 1998 using working capital and $3,706,000 of cash acquired from Polycold. During fiscal 1998, under the Company's stock buy-back program, the Company repurchased a total of 465,500 shares of Common Stock for $4,066,000. 26 During fiscal 1998, the Company increased its loans to SMIS by 900,000 British Pounds Sterling ("Pounds") ($1,479,000) at dates of advances and repayments, net of repayments. These loans bear interest at the rate of 11% per annum. Interest and principal are due and payable on December 31, 1998, but may be prepaid by SMIS without penalty. Subsequent to December 31, 1998, if the loans are not repaid, the Company has the right to tender the loans to SMIS in exchange for 1% of the "enlarged equity" of SMIS for each 100,000 Pounds of loans tendered. The "enlarged equity" equals the shares outstanding prior to the tender, plus those issued as a result of the tender. The amount of loans available for tender is equal to approximately 900,000 Pounds ($1,503,720) at May 31, 1998. During the year ended May 31, 1998, SMIS obtained line of credit financing in the amount of 2,500,000 Pounds ($4,177,000). The Company has guaranteed (by issuing a letter of credit) repayment of one half of the outstanding balance, up to 1,250,000 Pounds ($2,088,500) in the event of default by SMIS. Another of SMIS' shareholders guaranteed the balance. As of May 31, 1998, SMIS has drawn approximately 1,880,000 Pounds (approximately $3,141,000) against the line. In March 1998, the Company acquired 1,172,840 shares of the Series B Convertible Preferred Stock, $.01 par value per share of KryoTech, Inc., a privately-held corporation ("KryoTech"), and a warrant to purchase an additional 237,416 shares of the Series B Convertible Preferred Stock at $1.053 per share. The warrant expires in March, 2008. On an "as converted" basis, the Series B Convertible Preferred Shares equal approximately 21% of KryoTech. KryoTech, located in Columbia, S.C., develops, manufactures and markets value-added thermal management solutions for the computer industry. In connection with this investment, the Company has granted KryoTech exclusive worldwide rights to sell computer chip cooling equipment using the Company's refrigeration technology. See the Consolidated Statements of Cash Flows in the Consolidated Financial Statements, located elsewhere in this report, for a detailed description of the sources and uses of cash during fiscal 1998 as well as the two preceding years. The Company's capital resource commitments as of August 2, 1998 consisted principally of capital equipment commitments of approximately $970,000 and outstanding bank loans. The Company has a three year, unsecured $25,000,000 line of credit with two banks that bears interest at the London Interbank Offered Rate (LIBOR) plus .50%, or prime less .50%, and will expire in November, 2000, of which $2,000,000 was in use on August 2, 1998. The Company believes that it will have sufficient working capital to meet its needs for the short term by using internally generated funds and existing credit facilities. However, on a longer-term basis with substantial increases in sales volume and/or unusually large expenditure requirements to commercialize the FRIGC(R) family of refrigerants, the Company may be required to obtain additional lines of credit for working capital purposes and possibly make periodic public offerings or private placements in order to meet the liquidity needs of such growth. While the Company does not believe it will be restricted in financing such growth, there can be no assurances that such sources of financing will be available to the Company in sufficient amounts or on acceptable terms. Under such circumstances, the Company would expect to manage its growth within the financing available. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. Attached hereto and filed as part of this report are the financial statements and supplementary data listed in the list of Financial Statements and Schedules included in response to Item 14 of this report. 27 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 concerning directors called for by Item 10 of Form 10-K will be set forth under the heading "Election of Directors" in the Company's definitive proxy statement relating to the 1998 Annual Meeting of Shareholders (the "Proxy Statement"), and is hereby incorporated herein by reference. The information concerning executive officers called for by Item 10 of Form 10-K is set forth in "Item 1. Business" of this annual report on Form 10-K. ITEM 11. EXECUTIVE COMPENSATION. The information with respect to compensation of certain executive officers and all executive officers of the Company as a group to be contained under the headings "Executive Compensation" and "Certain Transactions" in the Proxy Statement is hereby incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information with respect to ownership of the Company's Common Stock by management and by certain other beneficial owners to be contained under the heading "Security Ownership of Certain Beneficial Owners and Management" in the Proxy Statement is hereby incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information with respect to certain relationships and related transactions to be contained under the heading "Certain Transactions" in the Proxy Statement is hereby incorporated herein by reference. 28 PART IV. ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a) FINANCIAL STATEMENTS, SCHEDULES AND EXHIBITS. Attached hereto and filed as part of this report are the financial statements, schedules and the exhibits listed below. 1. Financial Statements Report of Independent Auditors Consolidated Balance Sheets as of May 31, 1998 and May 25, 1997 Consolidated Statements of Income for the fiscal years ended May 31, 1998, May 25, 1997 and May 26, 1996 Consolidated Statements of Shareholders' Equity for the fiscal years ended May 31, 1998, May 25, 1997 and May 26, 1996 Consolidated Statements of Cash Flows for the fiscal years ended May 31, 1998, May 25, 1997 and May 26, 1996 Notes to Consolidated Financial Statements 2. Schedule II Valuation and Qualifying Accounts All other schedules are not required or are inapplicable and, therefore, have been omitted. 3. Exhibits Articles of Incorporation and By-laws * 3(i) Restated Certificate of Incorporation 3(ii) By-laws, as amended (3) (Exhibit 3.2) Instruments defining the rights of security holders, including indentures 4.1 Form of Common Stock certificate (5) (Exhibit 4.1) * 4.2 Intermagnetics General Corporation Indenture dated as of September 15, 1993 * 4.3 Second Amended and Restated Loan and Agency Agreement dated as of October 23, 1997 among Corestates Bank, N.A. and Intermagnetics General Corporation, APD Cryogenics Inc., Magstream Corporation, Medical Advances, Inc. and InterCool Energy Corporation * 4.4 First Amendment dated as of May 18, 1998 to the Second Amended and Restated Loan Agreement dated as of October 23, 1997 among Corestates Bank, N.A. and Intermagnetics General Corporation, APD Cryogenics Inc., Magstream Corporation, Medical Advances, Inc. and InterCool Energy Corporation 29 Material Contracts 10.1 Agreement Restating and Superseding Lease and Granting Rights to Use Common Areas and Other Rights dated as of December 23, 1991 between Waterbury Industrial Commons Associates, IGC Advanced Superconductors Inc. and Intermagnetics General Corporation (5) (Exhibit 10.1) + 10.2 1990 Stock Option Plan (4) (Appendix A) + 10.3 1981 Stock Option Plan, as amended (2) (Exhibit 10.7) + 10.4 Supplemental Executive Benefit Agreement (1) (Exhibit 10.37) 10.5 Agreement dated June 2, 1992 between Philips Medical Systems Nederlands B.V. and Intermagnetics General Corporation for sales of magnet systems (7) (Exhibit 10.6) 10.6 Amendment No. 3 dated January 1, 1997 to the Agreement of June 2, 1992 between Philips Medical Systems Nederlands B.V. and Intermagnetics General Corporation for sales of magnet systems (8) (Exhibit 10.6) +* 10.7 Employment Agreement dated April 20, 1998 between Intermagnetics General Corporation and Carl H. Rosner +* 10.8 Employment Agreement dated April 1, 1997 between Intermagnetics General Corporation and Glenn H. Epstein + 10.9 Employment Agreement dated March 10, 1997 between Intermagnetics General Corporation and Richard J. Stevens (9) (Exhibit 10.1) + 10.10 Employment Agreement dated November 24, 1997 between Intermagnetics General Corporation and Ronald W. Sykes (10) (Exhibit 10.1) 10.11 Share Purchase Agreement, dated January 23, 1992, by and between Ultralife Batteries, Inc. and Intermagnetics General Corporation (6) (Exhibit 10.1) Subsidiaries of the registrant * 21 Subsidiaries of the Company 30 Consents of experts and counsel * 23 Consent of KPMG Peat Marwick LLP with respect to the Registration Statements Numbers 2-80041, 2-94701, 33-2517, 33-12762, 33-12763, 33-38145, 33-44693, 33-50598, 33-55092, 33-72160, 333-10553 and 333-42163 on Form S-8. - ---------------------------------------------------- (1) Exhibit incorporated herein by reference to the Registration Statement on Form S-2 (Registration No. 2-99408) filed by the Company on August 2, 1985. (2) Exhibit incorporated herein by reference to the Annual Report on Form 10-K filed by the Company for the fiscal year ended May 31, 1987. (3) Exhibit incorporated herein by reference to the Annual Report on Form 10-K filed by the Company for the fiscal year ended May 27, 1990. (4) Exhibit incorporated herein by reference to the Proxy Statement dated October 4, 1991 for the 1991 Annual Meeting of Shareholders. (5) Exhibit incorporated herein by reference to the Annual Report on Form 10-K filed by the Company for the fiscal year ended May 31, 1992, as amended by Amendment No. 1 on Form 8 dated November 17, 1992. (6) Exhibit incorporated herein by reference to the Quarterly Report on Form 10-Q filed by the Company for the six months ended November 29, 1992. (7) Exhibit incorporated herein by reference to the Annual Report on Form 10-K/A2 for the fiscal year ended May 29, 1994. Portions of this Exhibit were omitted and filed separately with the Secretary of the Securities and Exchange Commission pursuant to an Application for Confidential Treatment under Rule 24b-2 of the Securities Exchange Act of 1934, as amended. (8) Exhibit incorporated herein by reference to the Annual Report on Form 10-K/A filed by the Company for the fiscal year ended May 25, 1997. (9) Exhibit incorporated herein by reference to the Current Report of Form 8-K filed by the Company on March 10, 1997. (10) Exhibit incorporated herein by reference to the Current Report of Form 8-K filed by the Company on November 24, 1997. * Filed with the Annual Report on Form 10-K for the fiscal year ended May 31, 1998. + Management contract or compensatory plan or arrangement required to be filed as an exhibit to this annual report on Form 10-K. 31 The Company agrees to provide the SEC upon request with copies of certain long-term debt obligations which have been omitted pursuant to the applicable rules. The Company agrees to furnish supplementally a copy of omitted Schedules and Exhibits, if any, with respect to Exhibits listed above upon request. (b) REPORTS ON FORM 8-K None. 32 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. INTERMAGNETICS GENERAL CORPORATION Date: August 27, 1998 By: /s/ Carl H. Rosner ------------------------------------ Carl H. Rosner Chairman and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Each person in so signing also makes, constitutes and appoints Carl H. Rosner, Chairman and Chief Executive Officer, Michael C. Zeigler, Senior Vice President - Finance and Chief Financial Officer, and each of them, his true and lawful attorneys-in-fact, in his name, place and stead to execute and cause to be filed with the Securities and Exchange Commission any or all amendments to this report. Name Capacity Date - ---- -------- ---- /s/ Carl H. Rosner Chairman and August 27, 1998 --------------------------- Chief Executive Officer Carl H. Rosner (principal executive officer) and Director /s/ Glenn H. Epstein President, Chief Operating August 27, 1998 --------------------------- Officer and Director Glenn H. Epstein /s/ Michael C. Zeigler Senior Vice President- August 27, 1998 --------------------------- Finance; Chief Financial Michael C. Zeigler Officer (principal financial and accounting officer) /s/ Joseph C. Abeles Director August 27, 1998 --------------------------- Joseph C. Abeles /s/ John M. Albertine Director August 27, 199 --------------------------- John M. Albertine /s/ Edward E. David, Jr. Director August 27, 1998 --------------------------- Edward E. David, Jr. /s/ James S. Hyde Director August 27, 1998 --------------------------- James S. Hyde /s/ Thomas L. Kempner Director August 27, 1998 --------------------------- Thomas L. Kempner /s/ Stuart A. Shikiar Director August 27, 1998 --------------------------- Stuart A. Shikiar /s/ Sheldon Weinig Director August 27, 1998 --------------------------- Sheldon Weinig 33 1. Financial Statements 34 Independent Auditors' Report The Board of Directors and Shareholders Intermagnetics General Corporation: We have audited the consolidated financial statements of Intermagnetics General Corporation and subsidiaries, as listed in the accompanying index. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule as listed in the accompanying index. These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule 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 consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Intermagnetics General Corporation and subsidiaries as of May 31, 1998 and May 25, 1997, and the results of their operations and their cash flows for each of the years in the three-year period ended May 31, 1998, in conformity with generally accepted accounting principles. Also in our opinion, the related financial statement schedule when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. /s/ KPMG Peat Marwick LLP Albany, New York July 14, 1998 35 CONSOLIDATED BALANCE SHEETS INTERMAGNETICS GENERAL CORPORATION (Dollars in Thousands, Except Per Share Amounts)
May 31, May 25, 1998 1997 --------- --------- ASSETS CURRENT ASSETS Cash and short-term investments $ 2,993 $ 12,667 Trade accounts receivable, less allowance (1998 - $350; 1997 - $302) 14,802 16,899 Costs and estimated earnings in excess of billings on uncompleted contracts 4,660 3,543 Inventories: Finished products 1,045 811 Work in process 18,313 14,196 Materials and supplies 13,491 11,410 -------- -------- 32,849 26,417 Deferred income taxes 3,583 2,453 Prepaid expenses and other 1,423 819 -------- -------- TOTAL CURRENT ASSETS 60,310 62,798 PROPERTY, PLANT AND EQUIPMENT Land and improvements 1,479 1,479 Buildings and improvements 16,604 16,425 Machinery and equipment 39,421 36,181 Leasehold improvements 649 35 -------- -------- 58,153 54,120 Less allowances for depreciation and amortization 32,445 28,616 -------- -------- 25,708 25,504 Equipment in process of construction 2,231 3,048 -------- -------- 27,939 28,552 INTANGIBLE AND OTHER ASSETS Available for sale securities 3,450 3,112 Other investments 9,888 4,986 Investment in affiliate 2,854 3,946 Notes receivable from affiliate 2,476 972 Excess of cost over net assets acquired, less accumulated amortization (1998 - $1,166; 1997 - $169) 18,966 9,538 Other assets 1,893 1,985 -------- -------- TOTAL ASSETS $127,776 $115,889 ======== ========
(Continued) 36
May 31, May 25, 1998 1997 ---------------- ---------------- LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Current portion of long-term debt $ 272 $ 259 Accounts payable 6,076 6,441 Salaries, wages and related items 3,647 2,660 Customer advances and deposits 298 811 Product warranty reserve 996 911 Accrued income taxes 2,411 1,453 Other liabilities and accrued expenses 1,117 917 --------- --------- TOTAL CURRENT LIABILITIES 14,817 13,452 LONG-TERM DEBT, less current portion 28,833 29,105 DEFERRED INCOME TAXES 325 245 SHAREHOLDERS' EQUITY Preferred Stock, par value $.10 per share: Authorized - 2,000,000 shares Issued and outstanding - 69,992 shares 6,999 Common Stock, par value $.10 per share: Authorized - 40,000,000 shares Issued and outstanding (including shares in treasury): 1998 - 13,334,280 shares 1997 - 12,892,084 shares 1,334 1,264 Additional paid-in capital 81,008 74,378 Accumulated deficit (1,081) (1,643) Unrealized gain on available for sale securities, net 850 613 Foreign currency translation adjustments (354) (16) --------- --------- 88,756 74,596 Less cost of Common Stock in treasury (1998 - 562,175 shares; 1997 - 163,700 shares) (4,955) (1,509) --------- --------- TOTAL SHAREHOLDERS EQUITY 83,801 73,087 --------- --------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 127,776 $ 115,889 ========= =========
See notes to consolidated financial statements. 37 CONSOLIDATED STATEMENTS OF INCOME INTERMAGNETICS GENERAL CORPORATION (Dollars in Thousands, Except Per Share Amounts)
Fiscal Year Ended --------------------------------------------------------------- May 31, May 25, May 26, 1998 1997 1996 ---------------- ----------------- ----------------- Net sales $ 95,894 $ 87,052 $ 88,467 Cost of products sold 60,209 60,852 66,188 -------- -------- -------- Gross margin 35,685 26,200 22,279 Product research and development 8,128 6,779 5,003 Marketing, general and administrative 20,840 15,836 12,420 Amortization of intangible assets 1,203 333 154 -------- -------- -------- 30,171 22,948 17,577 -------- -------- -------- Operating income 5,514 3,252 4,702 Interest and other income 2,364 2,961 4,138 Realized gain on sale of available for sale securities 1,414 Interest and other expense (2,125) (1,996) (2,624) Equity in net loss of unconsolidated affiliates (1,009) (182) (748) -------- -------- -------- Income before income taxes 4,744 4,035 6,882 Provision for income taxes 1,991 1,420 2,455 -------- -------- -------- NET INCOME $ 2,753 $ 2,615 $ 4,427 ======== ======== ======== Earnings per Common Share: Basic $ .22 $ .21 $ .37 ======== ======== ======== Diluted $ .21 $ .20 $ .35 ======== ======== ========
See notes to consolidated financial statements. 38 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY INTERMAGNETICS GENERAL CORPORATION Fiscal Years Ended May 31, 1998, May 25, 1997, May 26, 1996 (Dollars in Thousands)
Unrealized Gain/(Loss) on Foreign Additional Available Currency Common Paid-in Accumulated For Sale Translation Treasury Stock Capital Deficit Securities, net Adjustments Stock ------------ ------------ ----------- ---------------- ------------ --------- Balances at May 28, 1995 $1,108 $55,166 $(2,495) $1,787 $(46) $(2,215) Net income 4,427 Tax benefit from exercise of stock options 837 Sale of 217,778 shares of Common Stock, including receipt of 17,072 shares of Treasury Stock, upon exercise of stock options 21 1,236 (275) Sale of 7,875 shares of Common Stock to IGC Savings Trust 1 140 Stock dividends and payment for fractional shares 23 3,623 (3,659) Unrealized gain on available for sale securities, net 559 Unrealized loss on foreign currency translation (50) Purchase of 62,700 shares of Treasury Stock (985) Conversion of $8,375,000 of 5.75% convertible subordinated debentures 55 8,038 ------------ ------------ ----------- ------------- ------------- ---------- Balances at May 26, 1996 1,208 69,040 (1,727) 2,346 (96) (3,475) Net income 2,615 Tax benefit from exercise of stock options 412 Sale of 133,024 shares of Common Stock, including receipt of 15,644 shares of Treasury Stock, upon exercise of stock options 13 669 (185) Sale of 8,356 shares of Common Stock to IGC Savings Trust 1 116 Stock dividends and payments for fractional shares 23 2,495 (2,531) Unrealized loss on available for sale securities, net (1,733) Unrealized gain on foreign currency translation 80 Purchase of 291,100 shares of Treasury Stock (3,358) Issuance of 678,517 shares of Common Stock, including 474,895 Treasury Shares in payment for acquisition 19 1,646 5,509 ------------ ------------ ----------- ------------- ------------- ---------- Balances at May 25, 1997 1,264 74,378 (1,643) 613 (16) (1,509) Net income 2,753 Tax benefit from exercise of stock options 177 Sale of 132,214 shares of Common Stock, including receipt of 21,993 shares of Treasury Stock, upon exercise of stock options 13 739 (226) Sale of 7,023 shares of Common Stock to IGC Savings Trust 1 69 Stock dividends and payments for fractional shares 25 2,157 (2,191) Unrealized gain on available for sale securities, net 237 Unrealized loss on foreign currency translation (338) Purchase of 465,800 shares of Treasury Stock (4,065) Issuance of 312,650 shares of Common Stock and 69,992 shares of Series A Preferred Stock in payment for acquisitions 31 2,719 Issuance of 89,018 shares of Treasury Stock for purchase of inventory 25 845 Issuance of warrant to acquire 500,000 shares of Common Stock 720 Other 24 ------------ ------------ ----------- ------------- ------------- ---------- Balances at May 31, 1998 $1,334 $81,008 $(1,081) $ 850 $ (354) $(4,955) ============ ============ =========== ============= ============= ==========
See notes to consolidated financial statements. 39 CONSOLIDATED STATEMENTS OF CASH FLOWS INTERMAGNETICS GENERAL CORPORATION (Dollars in Thousands)
Fiscal Year Ended ----------------------------------------------- May 31, May 25, May 26, 1998 1997 1996 ------------- -------------- -------------- OPERATING ACTIVITIES Net income $ 2,753 $ 2,615 $ 4,427 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 5,424 3,964 3,165 Provision for deferred taxes (1,028) (589) (533) Other non-cash activity (255) Non-cash expense from warrants issued 600 Imputed interest on unsecured notes 137 210 Equity in net loss of unconsolidated affiliates 1,009 182 748 Gain on sale of available for sale securities (1,414) Loss (gain) on sale and disposal of assets 60 (374) Change in operating assets and liabilities, net of effects of acquisitions: (Increase) decrease in accounts receivable and costs and estimated earnings in excess of billings on uncompleted contracts 3,494 3,299 (1,270) (Increase) decrease in inventories and prepaid expenses and other (5,579) (1,447) 1,482 Increase in accounts payable and accrued expenses 27 919 3,365 Change in foreign currency translation adjustments (338) 80 (50) ------------- -------------- -------------- NET CASH PROVIDED BY OPERATING ACTIVITIES 6,422 8,531 10,130 INVESTING ACTIVITIES Purchases of property, plant and equipment (3,146) (5,446) (4,079) Proceeds from sale of assets 92 935 Proceeds from sale of available for sale securities 1,927 Acquisitions, net of cash acquired (3,115) (4,139) Investment in and advances to unconsolidated affiliates (6,855) (972) (2,070) Repayment of advances by unconsolidated affiliate 470 (Increase) decrease in other assets 66 83 (121) ------------- -------------- -------------- NET CASH USED IN INVESTING ACTIVITIES (12,488) (9,539) (4,343) FINANCING ACTIVITIES Proceeds from sale of warrants 120 Purchase of Treasury Stock (4,065) (3,358) (985) Proceeds from sales of Common Stock 596 614 1,123 Principal payments on note payable and long-term debt (259) (2,277) (238) ------------- -------------- -------------- NET CASH USED IN FINANCING ACTIVITIES (3,608) (5,021) (100) ------------- -------------- -------------- INCREASE (DECREASE) IN CASH AND SHORT-TERM INVESTMENTS (9,674) (6,029) 5,687 CASH AND SHORT-TERM INVESTMENTS AT BEGINNING OF PERIOD 12,667 18,696 13,009 ------------- -------------- -------------- CASH AND SHORT-TERM INVESTMENTS AT END OF PERIOD $ 2,993 $12,667 $18,696 ============= ============== ============== SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: Exchange of Common Stock in partial payment of exercise price on options $ 226 $ 185 $ 275 ============= ============== ============== Issuance of Common Stock, Preferred Stock, and Treasury Stock for acquisitions $ 9,749 $ 7,174 ============= ============== Issuance of Treasury Stock for purchase of inventory $ 870 ============= Tax benefit from exercise of stock options $ 177 $ 412 $ 837 ============= ============== ============== Stock dividends $ 2,191 $ 2,531 $ 3,659 ============= ============== ============== Conversion of debt to equity, net of deferred debt issue cost reduction of $282 $ 8,093 ==============
See notes to consolidated financial statements. 40 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS INTERMAGNETICS GENERAL CORPORATION NOTE A - ACCOUNTING POLICIES Description of Business: Intermagnetics General Corporation (the "Company") operates in two industry segments: Magnetic Products and Refrigeration Products. The Magnetic Products segment consists primarily of the manufacture and sale of superconductive materials, magnets, permanent magnets and radio frequency coils used mainly in Magnetic Resonance Imaging ("MRI") for medical diagnostics. The majority of the Company's sales in this segment are to US and European customers. The Refrigeration Products segment consists of cryogenic refrigeration equipment produced by two subsidiaries, APD Cryogenics Inc. and IGC Polycold Systems Inc., and refrigerants which are sold by another subsidiary, InterCool Energy Corporation. Cryogenic refrigeration equipment is used in the vacuum deposition industry, the semiconductor manufacturing process, MRI, and in a variety of research applications. Refrigerants consist of a family of environmentally friendly refrigerants designed to replace recently banned CFC refrigerants. Sales of this segment are primarily to US and European customers. The Company operates on a 52/53 week year ending the last Sunday during the month of May. See Notes J and K for additional information regarding financial information by segment and sales to principal customers. Basis of Presentation: The Company is presenting its consolidated statements of income in a multi-step format and, accordingly, certain reclassifications of prior year amounts have been made to conform to this presentation. Principles of Consolidation: The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany transactions have been eliminated in consolidation. The Company's 45% investment in ALSTOM Intermagnetics, 23% investment in Surrey Medical Imaging Systems Limited ("SMIS"), and 21% investment in KryoTech, Inc. ("KryoTech") are accounted for using the equity method of accounting. 41 Cash Flows: The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Short-term investments ($68,000 at May 31, 1998 and $5,974,000 at May 25, 1997) consist primarily of US Government and Agency obligations, commercial paper, and other corporate obligations and are stated at market. The Company considers these short-term investments to be cash equivalents for purposes of the Consolidated Statements of Cash Flows. Sales: Sales are generally recognized as of the date of shipment or in accordance with customer agreements. Sales to the United States Government or its contractors under cost reimbursement contracts are recorded as costs are incurred and include estimated earned profits. Sales of products involving long-term production periods and manufactured to customer specifications are generally recognized by the percentage-of-completion method, by multiplying the total contract price by the percentage that incurred costs to date bear to estimated total job costs, except when material costs are substantially incurred at the beginning of a contract, in which case material costs are charged to the contract as they are placed into production. At the time a loss on a contract is indicated, the Company accrues the entire amount of the estimated ultimate loss. The Company accrues for possible future claims arising under terms of various warranties made in connection with the sale of products. Inventories: Inventories are stated at the lower of cost (first-in, first-out) or market value. Property, Plant and Equipment: Land and improvements, buildings and improvements, machinery and equipment and leasehold improvements are recorded at cost. Provisions for depreciation are computed using straight-line and accelerated methods in a manner that is intended to amortize the cost of such assets over their estimated useful lives. 42 Leasehold improvements are amortized on a straight-line basis over the remaining initial term of the lease. For financial reporting purposes, the Company provides for depreciation of property, plant and equipment over the following estimated useful lives: Land improvements 25 years Buildings and improvements 7 - 40 years Machinery and equipment 3 - 15 years Leasehold improvements 2 - 15 years Investments: Certain investments are categorized as available for sale securities in accordance with Statement of Financial Accounting Standards ("SFAS") 115, "Accounting for Certain Investments in Debt and Equity Securities". Available for sale securities are reported at fair value, with unrealized gains and losses included in shareholders' equity. A decline in the market value of any available for sale security below cost that is deemed other than temporary is charged to earnings, resulting in the establishment of a new cost basis for the security. Dividend and interest income are recognized when earned. Realized gains and losses for securities classified as available for sale are included in earnings and are derived using the specific identification method for determining the cost of securities sold. Income Taxes: Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. 43 Foreign Currency Translation: Foreign currency translation adjustments arise from conversion of the Company's foreign subsidiary's financial statements to US currency for reporting purposes, and are reflected in shareholders' equity in the accompanying consolidated balance sheets. Realized foreign currency transaction gains and losses are included in interest and other expense in the accompanying consolidated statements of income. Pension Plan: The Company has a pension plan covering all eligible employees. Prior service costs are amortized over a period of 30 years. It is the policy of the Company to fund pension costs accrued on an annual basis. Excess of Cost Over Net Assets Acquired: Excess of cost over the fair value of net assets acquired in acquisitions is being amortized on a straight-line basis over 15 years. The Company periodically assesses recoverability, and impairments would be recognized in operating results if a permanent diminution in value were to occur. Impairment of Long-Lived Assets: Long-lived assets, including intangible assets, used in the Company's operations are reviewed for impairment when circumstances indicate that the carrying amount of an asset may not be recoverable. The primary indicators of recoverability are the associated current and forecasted undiscounted operating cash flows. Stock-Based Compensation: The intrinsic value method of accounting is used for stock-based compensation plans. Under the intrinsic value method, compensation cost is measured as the excess, if any, of the quoted market price of the stock at the grant date over the amount an employee must pay to acquire the stock. 44 Use of Estimates: Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities, and the disclosure of contingent assets and liabilities, to prepare these consolidated financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. Per Share Amounts: During the year ended May 31, 1998, the Company adopted the provisions of SFAS No. 128, "Earnings Per Share". SFAS No. 128 establishes standards for computing and presenting "Earnings Per Share" ("EPS"). SFAS No. 128 supersedes Accounting Principles Board Opinion No. 15, "Earnings Per Share" and related interpretations. SFAS No. 128 requires dual presentation of basic and diluted EPS on the face of the income statement for all entities with complex capital structures and specifies additional disclosure requirements. Basic EPS excludes dilution and is computed by dividing income available to common shareholders by the weighted average number of Common Shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue Common Stock were exercised or converted into Common Stock or resulted in the issuance of Common Stock that then shared in the earnings of the entity (such as stock options). All prior-period EPS data have been restated to conform to the provisions of SFAS No. 128. New Accounting Pronouncements: In June, 1997, the Financial Accounting Standards Board ("FASB") issued SFAS 130, "Reporting Comprehensive Income". SFAS 130 establishes standards for reporting and display of comprehensive income and its components in a full set of general purpose financial statements. SFAS 130 requires that all items that are required to be recognized under accounting standards as components of comprehensive income be reported in a financial statement that is displayed in equal prominence with the other financial statements. SFAS 130 is effective for fiscal years beginning after December 15, 1997. Comparative financial statements provided for earlier periods are required to be reclassified to reflect the provisions of this Statement. The Company will comply with the reporting requirements of SFAS 130 beginning with the quarter ending August 30, 1998. 45 In June, 1997, the FASB issued SFAS 131, "Disclosures about Segments of an Enterprise and Related Information". SFAS 131 establishes standards for the way public business enterprises are to report information about operating segments in annual financial statements and requires those enterprises to report selected information about operating segments in interim financial reports issued to shareholders. SFAS 131 focuses on a "management approach" concept as the basis for identifying reportable segments. The management approach is based on the way that management organizes the segments within the enterprise for making operating decisions and assessing performance. SFAS 131 is effective for fiscal years beginning after December 15, 1997. The Company will comply with the reporting requirements of SFAS 131 for the fiscal year ending May 30, 1999. Management anticipates that the effect of the adoption of SFAS 131 will not significantly impact the current presentation of the Company's segment disclosure as the current reportable segments are consistent with the "management approach" methodology outlined in SFAS 131. In February, 1998, the FASB issued SFAS 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits." SFAS 132 revises employers' disclosures about pension and other postretirement benefit plans, but does not change the measurement or recognition of those plans. SFAS 132 is effective for fiscal years beginning after December 15, 1997. The Company will comply with the reporting requirements of SFAS 132 for the fiscal year ending May 30, 1999. In March, 1998, the American Institute of Certified Public Accountants ("AICPA") issued Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." SOP 98-1 requires that certain costs related to the development or purchase of internal-use software be capitalized and amortized over the estimated useful life of the software. SOP 98-1 also requires that costs related to the preliminary project stage and post-implementation/operations stage of an internal-use computer software development project be expensed as incurred. SOP 98-1 is effective for fiscal years beginning after December 15, 1998. The Company will comply with the reporting requirements of SOP 98-1 for the fiscal year ending May 28, 2000. Management anticipates that the effect of adoption of SOP 98-1 will not have a material effect on the Company's consolidated financial statements. In March, 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of Start-up Activities." SOP 98-5 requires the expensing of certain costs such as pre-operating expenses and organizational costs associated with a company's 46 start-up activities. SOP 98-5 is effective for fiscal years beginning after December 15, 1998. The effect of adoption is required to be accounted for as a cumulative change in accounting principle. The Company will comply with the reporting requirements of SOP 98-5 for the fiscal year ending May 30, 1999. Management anticipates that the effect of adoption of SOP 98-5 will not have a material effect on the Company's consolidated financial statements. In June, 1998, the FASB issued SFAS 133, "Accounting for Derivative Instruments and Hedging Activities," which establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. SFAS 133 is effective for all fiscal quarters of fiscal years beginning after June 15, 1999. Management is currently evaluating the impact of SFAS 133 on the Company's consolidated financial statements. NOTE B - ACQUISITIONS On November 24, 1997, the Company issued a note for, and on March 11, 1998, paid $3,115,000 in cash, net of cash acquired, and issued 281,568 shares of Common Stock, valued at $8.879 per share, and 69,992 shares of Series A Preferred Stock, valued at $100 per share, for all of the outstanding shares of Polycold Systems International, Inc. ("Polycold") Common Stock. The acquisition has been accounted for using the purchase method of accounting, and the results of operations of Polycold have been included in the consolidated financial statements since November 24, 1997, the date of acquisition. The excess of cost over the fair value of net assets acquired of approximately $10,175,000 is being amortized on a straight-line basis over 15 years. On March 11, 1997, the Company paid $4,139,000 in cash, net of cash acquired, and issued 678,517 shares of Common Stock, valued at $10.573 per share, including 474,895 shares of Treasury Stock, for all of the outstanding shares of Medical Advances, Inc. ("MAI") Common Stock. The acquisition agreement provides for the issuance of up to 101,777 additional shares as part of the purchase price if the average of the Company's closing price on the American Stock Exchange during the ninety calendar day period following the release of earnings for fiscal 1997 is less than $11.053. During fiscal 1998 this contingency was resolved and the Company issued 31,082 additional Common Shares. 47 The acquisition has been accounted for using the purchase method of accounting, and the results of operations of MAI have been included in the consolidated financial statements since March 11, 1997, the date of acquisition. The excess of cost over the fair value of net assets acquired of approximately $9,700,000 is being amortized on a straight-line basis over 15 years. The following unaudited pro forma information presents a summary of consolidated results of operations of the Company, Polycold and MAI as if the acquisitions had occurred at the beginning of fiscal year 1997, with pro forma adjustments to give effect to amortization of the excess of cost over the fair value of net assets acquired and interest income on short-term investments, together with related income tax effects. (Dollars in Thousands, Except Per Share Amounts) Fiscal Year Ended ---------------------------------------- May 31, 1998 May 25, 1997 ------------ ------------ Total revenue $107,518 $110,722 Net income 2,900 3,687 Earnings per Common Share: Basic .22 .28 Diluted .21 .26 Total amortization of excess of cost over the fair value of net assets acquired for the fiscal years ended May 31, 1998, May 25, 1997, and May 26, 1996 amounted to $997,000, $169,000, and $0, respectively. NOTE C - INVESTMENTS AND NOTES RECEIVABLE Available for Sale Securities: As of May 31, 1998 and May 25, 1997, the Company owned 975,753 shares (approximately 9%) of the common stock of Ultralife Batteries, Inc. ("Ultralife"), a manufacturer of lithium batteries, acquired at a cost of $7,015,000. The market value of the Company's total investment in Ultralife, the sale of which is restricted under US Securities laws, was $11,221,000 and $10,123,000 at May 31, 1998 and May 25, 1997, respectively. The cost and market value of "Available for Sale" securities, representing those shares saleable under Securities laws, were as shown below: May 31, 1998 May 25, 1997 ------------ ------------ Cost $2,154,000 $2,154,000 Gross unrealized holding gain 1,296,000 958,000 --------- ---------- Market value $3,450,000 $3,112,000 ========== ========== 48 During fiscal 1996, the Company sold 85,000 shares, with proceeds from the sale totaling $1,927,000, resulting in a pretax gain of $1,414,000. The cost of the securities sold was based on specific identification of the securities held at the time of sale. There were no such sales in fiscal 1998 and 1997. The balance of the Ultralife investment is included at cost in other investments. Other Investments: Investments in other securities at May 31, 1998 and May 25, 1997 consist of: (Dollars in Thousands) 1998 1997 ------- ------- Ultralife 4,861 4,861 KryoTech 4,710 Other 317 125 ------- ------- $ 9,888 $ 4,986 ======= ======= On March 23, 1998, the Company acquired 1,172,840 shares of the Series B Convertible Preferred Stock, $.01 par value per share, of KryoTech, a privately-held, South Carolina corporation, and a warrant to purchase an additional 237,416 shares, at a cost of $4,750,000. The warrant may be exercised, in whole or in part, at any time on or before March 23, 2008 at a price equal to $1.053 per share. On an as-converted basis, the Company's holdings represent approximately 20.7% of the outstanding voting securities, on a fully diluted basis, of KryoTech. KryoTech was formed on March 15, 1996 for the purpose of developing, marketing, manufacturing and selling thermal management products, which are designed specifically for the computer industry. The Preferred shares have the same voting rights as Common Stock. Accordingly, the Company is accounting for its investment in KryoTech using the equity method of accounting. The acquisition cost exceeded the underlying equity in net assets by $3,645,000, which is being amortized over a period of 15 years. At May 31, 1998, accumulated amortization was $40,000. As KryoTech is privately held, the market value of this investment is not readily determinable. 49 Investment and Advances - SMIS: As of May 31, 1998 and May 25, 1997 the Company owned 354,223 ordinary shares (approximately 23%) of SMIS acquired at a cost of $3,530,000. SMIS is a European company engaged in the manufacture and sale of electronics and software for magnetic resonance imaging and nuclear magnetic resonance spectroscopy applications. The Company is accounting for its investment in SMIS under the equity method of accounting. The acquisition cost exceeded the underlying equity in the net assets by $3,298,000, which is being amortized over a period of 40 years. At May 31, 1998 and May 25, 1997, accumulated amortization was $247,000 and $164,000, respectively. As SMIS is privately held, the market value of this investment is not readily determinable. In addition, the Company purchased 980,000 SMIS redeemable preference shares during the year ended May 26, 1996 at a cost of $1,511,000. These shares are non-voting unless SMIS is unable to attain certain specified financial targets and are redeemable on the earlier of October 31, 1997 or the date of a public offering; however, SMIS did not redeem them on their due date. The shares carry a cumulative redemption premium of 15% per annum. The purchase of the preference shares included the acquisition of an option to purchase 2.5% of SMIS' Common Stock at a price of approximately $6 per share. During the year ended May 25, 1997, the Company provided $972,000 of additional funding in the form of convertible notes to SMIS. The notes were non-interest bearing until February 27, 1998; thereafter, they bear interest at the rate of 15% per annum. They are immediately repayable, with accrued interest, in the event of certain conditions as outlined in the note agreement and are redeemable by SMIS at any time. The noteholders may require redemption at any time after February 26, 1998. The noteholders have the right at any time prior to redemption, to convert the notes plus accrued interest into capital stock of SMIS. During the year ended May 31, 1998, the Company provided 900,000 British Pounds Sterling ("Pounds") (approximately $1,479,000) of additional loans to SMIS, net of amounts repaid during the year. These loans bear interest at 11% per annum and are due on December 31, 1998. Subsequent to December 31, 1998, if the loans are not repaid, the Company has the right to tender the loans to SMIS in exchange for 1% of the "enlarged equity" of SMIS for each 100,000 Pounds (approximately $164,000) of loans tendered. The "enlarged equity" equals the shares outstanding prior to the tender plus those issued as a result of the tender. The amount of loans available for tender is equal to approximately 900,000 Pounds (approximately $1,504,000) at May 31, 1998. 50 During the year ended May 31, 1998, SMIS obtained line of credit financing in the amount of 2,500,000 Pounds (approximately $4,177,000). The Company has guaranteed repayment of one half of the outstanding balance, up to 1,250,000 Pounds (approximately $2,088,500), in the event of default by SMIS. As of May 31, 1998, SMIS has drawn approximately 1,880,000 Pounds (approximately $3,141,000) against the line. Following is selected financial information with respect to SMIS, contained in its internal financial statements as of April 30, 1998 and October 31, 1997 and for the six months and fiscal year then ended, respectively: (Dollars in Thousands) April 30, October 31, 1998 1997 ---------------- ------------- Current assets $5,265 $4,060 Non-current assets 446 576 Current liabilities 5,395 5,040 Non-current liabilities 3,025 2,746 Redeemable Preferred Stock 5,497 5,508 Fiscal Year Six Months Ended Ended October April 30, 1998 31, 1997 ---------------- ------------- Net sales $1,995 $6,153 Gross margin 652 2,062 Loss from continuing operations 1,496 3,576 Net loss 1,496 3,576 NOTE D - NOTES PAYABLE AND LONG-TERM DEBT The Company has an unsecured line of credit of $25,000,000, which expires in November 2000, none of which was in use on May 31, 1998. The Company may elect 51 to apply interest rates to borrowings under the line which relate to either the London Interbank Offered Rate (LIBOR) or prime, whichever is the most favorable. Long-term debt consists of the following: (Dollars in Thousands) May 31, May 25, 1998 1997 ------- ------- Revenue bonds $ 1,650 $ 1,725 Mortgage payable 5,830 6,014 Convertible debentures 21,625 21,625 ------- ------- 29,105 29,364 Less current portion 272 259 ------- ------- Long-term debt $28,833 $29,105 ======= ======= Revenue bonds consist of a subsidiary's obligation under an agreement with an Economic Development Authority with respect to revenue bonds issued in connection with the acquisition of certain land, building and equipment acquired at a total cost of $2,408,000. The bonds bear interest at a weekly adjustable annual rate (convertible to fixed rate at the option of the Company) which averaged 4.04% for the year ended May 31, 1998 (3.88% for the year ended May 25, 1997). The bonds mature serially in amounts ranging from $100,000 in December, 1998 to $200,000 in December, 2009. In the event of default or upon the occurrence of certain conditions, the bonds are subject to mandatory redemption at prices ranging from 100% to 103% of face value. As long as the interest rate on the bonds is adjustable weekly, the bonds are redeemable at the option of the Company at face value. The Company makes monthly advance payments to restricted cash accounts in amounts sufficient to meet the interest and principal payments on the bonds when due. The balances of these accounts, included in "Cash and Short-Term Investments" on the accompanying Consolidated Balance Sheets, were $51,000 at May 31, 1998 and $32,000 at May 25, 1997. The mortgage payable bears interest at the rate of 7.5% and is payable in monthly installments of $52,000, including principal and interest, through April 2001 with a final payment of $5,155,000 due in May 2001. The loan is secured by land and buildings and certain equipment acquired at a cost of approximately $10,800,000. Convertible debentures at May 31, 1998 consist of $21,625,000 of 5.75% convertible subordinated debentures due September, 2003, issued in a private placement. The debentures are convertible into Common Stock at approximately $14.272 per share. Interest on the debentures is payable semi-annually. The debentures are redeemable, in whole or in part, at the option of the Company at any time at prices ranging from 103.450% to 100.575%. The debentures also 52 provide for redemption at the option of the holder upon a change in control of the Company, as defined, and are subordinated to senior indebtedness, as defined. Aggregate maturities of long-term debt for the next five fiscal years are: 1999 - - $272,000; 2000 - $312,000; 2001 - $5,521,000; 2002 - $100,000; and 2003 - $125,000. Interest paid for the years ended May 31, 1998, May 25, 1997, and May 26, 1996 amounted to $1,910,000, $1,800,000, and $2,214,000, respectively. NOTE E - SHAREHOLDERS' EQUITY In July, 1998, the Company declared a 2% stock dividend to be distributed on all outstanding shares, except Treasury Stock, on September 17, 1998. The consolidated financial statements have been adjusted retroactively to reflect this stock dividend in all numbers of shares, prices per share and earnings per share. The Company has established two stock option plans: the 1981 Stock Option Plan and the 1990 Stock Option Plan. Shares and prices per share have been adjusted to reflect the 2% stock dividends declared in July, 1998, July, 1997 and May, 1996, respectively. The total shares authorized for grant under the 1981 and 1990 plans are 1,492,996 and 2,634,207, respectively. 53 Option activity under these plans was as follows:
Fiscal Year Ended ---------------------------------------------------------------------------------------------- May 31, 1998 May 25, 1997 May 26, 1996 ------------------------------ ------------------------------- ------------------------------- Weighted Weighted Weighted Average Average Average Number Exercise Number Exercise Number Exercise of Shares Price of Shares Price of Shares Price --------- ----- --------- ----- --------- -------- Outstanding, beginning of year 1,687,977 $ 9.319 1,552,307 $ 8.656 1,553,157 $ 7.405 Granted 353,485 9.567 365,221 10.785 222,870 14.505 Exercised (132,214) 5.684 (133,024) 5.124 (217,778) 5.758 Forfeited (106,544) 11.953 (96,527) 9.993 (5,942) 7.161 ---------- ---------- ------------ Outstanding, end of year 1,802,704 9.477 1,687,977 9.319 1,552,307 8.656 ========= ========= ========= Exercisable, end of year 1,060,485 $ 8.648 870,331 $ 7.842 690,026 $ 6.684 ========= ========== ========== May 31, 1998 ------------------------------------------------------------------------------------------ Options Outstanding Options Exercisable ---------------------------------------------------- ---------------------------------- Weighted Weighted Average Weighted Average Remaining Average Range of Option Exercise Number Exercise Contractual Number Exercise Prices Outstanding Price Life Exercisable Price ---------------- ---------------- ------------------ ------------------- -------------- $3.265 to $6.553 552,972 $ 4.956 3.9 years 496,682 $ 4.823 $7.779 to $10.813 523,528 9.298 7.0 years 144,962 9.791 $11.253 to $13.127 493,754 11.727 4.4 years 297,002 11.571 $13.428 to $20.142 232,450 15.859 5.6 years 121,839 15.752 --------- ---------- 1,802,704 $ 9.477 5.1 years 1,060,485 $ 8.648 ========= =========
The Company uses the intrinsic value based method of accounting for stock-based compensation, under which compensation cost is measured as the excess, if any, of the quoted market price of the stock at the grant date over the amount an employee must pay to acquire the stock. Since the exercise price of stock options granted under the 1981 and 1990 Stock Option Plans is not less than the market price of the underlying stock on the date of grant, no compensation cost has been recognized for such grants. 54 The following pro forma net income and earnings per share information has been determined as if the Company had accounted for stock-based compensation awarded under the 1990 Stock Option Plan using the fair value-based method. Under the fair value method, the estimated fair value of awards would be charged against income ratably by installments over the vesting period. The pro forma effect on net income for fiscal years 1998, 1997 and 1996 is not representative of the pro forma effect on net income in future years because, as required by SFAS 123, "Accounting for Stock Based Compensation", no consideration has been given to awards granted prior to fiscal 1996. (Dollars in Thousands, Except Per Share Amounts)
Fiscal Year Ended -------------------------- -- --------------------------- -- --------------------------- May 31, 1998 May 25, 1997 May 26, 1996 -------------------------- --------------------------- --------------------------- As Reported Pro Forma As Reported Pro Forma As Reported Pro Forma ----------- --------- ----------- --------- --------- ----------- Net income $2,753 $1,816 $2,615 $1,886 $4,427 $4,311 Earnings per Common Sshare: Basic .22 .14 .21 .15 .37 .36 Diluted .21 .14 .20 .15 .35 .34
The weighted average fair value of each option granted under the 1981 and 1990 Stock Option Plans during fiscal years 1998, 1997 and 1996 was $5.446, $6,550 and $10.333, respectively. The fair value of each option grant was estimated on the date of grant using the Black-Scholes Model with the following weighted average assumptions. The risk-free interest rates for fiscal years 1998, 1997 and 1996 were 5.9%, 6.3% and 6.6%, respectively. The expected volatility of the market price of the Company's Common Stock for fiscal years 1998, 1997 and 1996 grants was 55.3%, 58.4% and 56.8%, respectively. The expected average term of the granted options for fiscal years 1998, 1997 and 1996 was 5.9 years, 6.4 years and 6.2 years, respectively. There was no expected dividend yield for the options granted for fiscal years 1998, 1997 and 1996. Following are the shares of Common Stock reserved for issuance and the related exercise prices for the outstanding stock options, convertible subordinated debentures, Preferred Stock, and Warrants at May 31, 1998: 55
Number Exercise Price of Shares Per Share . --------- ----------- 1981 Stock Option Plan 48,233 $3.265 to $4.605 1990 Stock Option Plan 1,754,471 $4.103 to $20.142 Convertible subordinated debentures 1,515,207 $14.272 Preferred Stock 800,000 Warrants 1,200,000 --------- Shares reserved for issuance 5,317,911 =========
In June 1997, the Company, as part of a long-term strategic alliance, entered into a Warrant Agreement with a distributor under which the distributor could purchase up to 1,200,000 shares of Common Stock. The distributor paid $120,000 for the rights to the warrants and an initial warrant (which expires on November 16, 1998) to purchase 500,000 shares at $12.50 per share was issued. Future warrants are conditioned on the distributor meeting specified performance levels and would be issued at market prices at that time. In connection with the initial warrant, the Company incurred a non-cash charge of $600,000 in fiscal 1998 which was included as marketing, general and administrative expense in the accompanying consolidated statement of income. During the year ended May 31, 1998, the Company issued 69,992 shares of Series A Preferred Stock, valued at $100 per share, in connection with its acquisition of Polycold. These shares are redeemable, at the option of the Company, at any time, for cash of $100 per share, or after the first anniversary of their issuance, for Common Stock valued at $100 per share. In the event the shares have not been redeemed by November 30, 1999, or upon the occurrence of certain change of control events, they will automatically convert to Common Stock. The price of Common Stock used for redemption or conversion is based on the average trading price for a specified ten-day period preceding the redemption or conversion. The Series A Preferred Stock issued by the Company is non-voting, and has no dividend or liquidation preference, but is entitled to participate in any cash dividend or liquidation distribution, on an "as converted" basis, with the Company's Common Stock. During the year ended May 31, 1998, the Company issued 89,018 shares of Treasury Stock at fair market value in connection with the purchase of inventory from a supplier. In addition, in connection with the grant of a stock option to consultants, the Company recognized compensation cost of $24,000. 56 NOTE F - RETIREMENT PLANS The Company has a non-contributory, defined benefit plan covering all eligible employees. Benefits under the plan are based on years of service and employees' career average compensation. The Company's funding policy is to contribute annually an amount sufficient to meet or exceed the minimum funding standard contained in the Internal Revenue Code. Contributions are intended to provide not only for benefits attributable to service to date, but also for those expected to be earned in the future. The following table sets forth the plan's funded status and amounts recognized in the Company's consolidated balance sheets at May 31, 1998 and May 25, 1997:
(Dollars in Thousands) 1998 1997 --------- --------- Actuarial present value of benefit obligation: Accumulated benefit obligation, including vested benefits of $7,096 and $4,949 as of May 31, 1998 and May 25, 1997, respectively $ (7,325) $ (5,125) ======== ======== Projected benefit obligation for service rendered to date $ (9,399) $ (7,065) Plan assets (consisting of common stock, US Government and corporate debt obligations and money funds), at fair value 9,583 7,114 --------- --------- Plan assets in excess of (less than) projected benefit obligation 184 49 Unrecognized net gain from past experience different from that assumed and effects of changes in assumptions (1,454) (506) Prior service cost not yet recognized in net periodic pension cost 649 73 Unrecognized net transition obligation 28 34 --------- --------- Accrued pension cost included in salaries, wages and related items $ (593) $ (350) ========= =========
The increase in unrecognized prior service cost at May 31, 1998 in the foregoing table was due to an update of earnings used for benefit calculations. This update sets the career average earnings for participants with service dates prior to 1990 at their average earnings for the period from December 1, 1990 through November 30, 1995.
Net pension cost includes the following components: Fiscal Year Ended ------------------------------------------ May 31, May 25, May 26, (Dollars in Thousands) 1998 1997 1996 ------- ------- ------- Service cost - benefits earned during the period $ 590 $ 495 $ 468 Interest cost on projected benefit obligation 571 453 410 Actual return on plan assets (2,370) (474) (398) Net amortization and deferral 1,850 15 15 ------- ------- ------- Net pension cost $ 641 $ 489 $ 495 ======= ======= =======
57 The weighted average discount rate used in determining the actuarial present value of the projected benefit obligation was 7.0% in the fiscal year ended May 31, 1998, 7.5% in the fiscal year ended May 25, 1997, and 8.0% in the fiscal year ended May 26, 1996. The rate of increase in future compensation levels used in determining the aforementioned obligation was 4.5% in the fiscal years ended May 31, 1998 and May 25, 1997, and 6.0% for May 26, 1996. The expected long-term rate of return on plan assets in the fiscal years ended May 31, 1998, May 25, 1997 and May 26, 1996, was 8.0%. The Company also maintains an employee savings plan, covering substantially all employees, under Section 401(k) of the Internal Revenue Code. Under this plan, the Company matches a portion of employees' contributions. Expenses under the plan during the fiscal years ended May 31, 1998, May 25, 1997 and May 26, 1996 aggregated $350,000, $277,000 and $249,000, respectively. The Company maintains supplemental retirement and disability plans for certain of its executive officers. These plans utilize life insurance contracts for funding purposes. Expenses under these plans were $67,000, $22,000 and $37,000 for the fiscal years ended May 31, 1998, May 25, 1997 and May 26, 1996, respectively. NOTE G - INCOME TAXES The components of the provision for income taxes are as follows:
(Dollars in Thousands) Fiscal Year Ended ------------------------------------------------------------------------ May 31, 1998 May 25, 1997 May 26, 1996 --------------------- --------------------- --------------------- Current Federal $ 2,487 $ 1,513 $ 2,356 State 352 280 448 Foreign 180 216 184 ------- ------- ------- Total current 3,019 2,009 2,988 Deferred Federal (920) (527) (477) State (108) (62) (56) ------- ------- ------- Total deferred (1,028) (589) (533) ------- ------- ------- Provision for income taxes $ 1,991 $ 1,420 $ 2,455 ======= ======= =======
58 The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are as follows:
(Dollars in Thousands) May 31, 1998 May 25, 1997 ------------ ------------ Deferred tax assets: Inventory reserves $2,264 $2,056 Non-deductible accruals 1,161 576 Product warranty reserve 431 388 Foreign subsidiaries 317 317 Equity in net loss of unconsolidated affiliate 736 353 ------ ------ Total gross deferred tax assets 4,909 3,690 Less valuation allowance (604) (834) ------ ------ Deferred tax assets 4,305 2,856 Deferred tax liabilities: Unrealized gain on available for sale securities (446) (345) Depreciation differences (446) (294) Other, net (155) (9) ------ ------ Total gross deferred tax liabilities (1,047) (648) ------ ------ Net deferred tax assets $3,258 $2,208 ====== ======
The foregoing assets and liabilities are classified in the accompanying consolidated balance sheets as follows:
(Dollars in Thousands) May 31, 1998 May 25, 1997 ------------ ------------ Net current deferred tax assets $3,583 $2,453 Net long-term deferred tax liabilities 325 245 ------ ------ $3,258 $2,208 ====== ======
During fiscal 1998, in connection with the acquisition of Polycold, the Company recorded $123,000 of deferred tax assets. During fiscal 1997, in connection with the acquisition of MAI, the Company recorded $75,000 of deferred tax assets. The Company reduced the valuation allowance based on recent levels of taxable income and reasonable and prudent tax planning strategies. Changes made to the valuation allowance during fiscal 1998 and 1997 were $230,000 and $0, respectively. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is 59 dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers projected future taxable income and tax planning strategies in making this assessment. The Company had Federal taxable income of approximately $7,000,000 in fiscal 1998, $3,700,000 in fiscal 1997, and $5,600,000 in fiscal 1996. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not the Company will realize the benefits of these deductible differences. The amount of the deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income are reduced. The reasons for the differences between the provision for income taxes and the amount of income tax determined by applying the applicable statutory Federal tax rate to income before income taxes are as follows:
(Dollars in Thousands) Fiscal Year Ended ------------------------------------------------------------------ May 31, 1998 May 25, 1997 May 26, 1996 -------------------- ------------------- ------------------- Pre-tax income at statutory tax rate (34%) $ 1,613 $ 1,372 $ 2,340 State taxes, net of Federal benefit 161 200 259 Benefit of Foreign Sales Corporation (288) (186) (172) Non-deductible distribution expense 204 Amortization of intangibles 392 110 42 Non-deductible loss on IMiG LLC 36 151 Benefit of tax credits (257) Change in valuation allowance (230) Other, net 103 30 (14) ------- ------- ------- Provision for income taxes $ 1,991 $ 1,420 $ 2,455 ======= ======= =======
The Company paid income taxes, net of cash refunds received, of $1,815,000, $1,347,000, and $1,153,000 during the years ended May 31, 1998, May 25, 1997, and May 26, 1996, respectively. 60 NOTE H - PER SHARE INFORMATION The following table provides calculations of basic and diluted earnings per share: (Dollars in Thousands, Except Per Share Amounts)
Fiscal Year Ended ---------------- --------------------------- ----- ------ -------- May 31, 1998 May 25, 1997 May 26, 1996 ------------ ------------ ------------ Income available to common stockholders $ 2,753 $ 2,615 $ 4,427 =========== =========== =========== Weighted average shares 12,755,733 12,325,001 11,976,697 Dilutive potential Common Shares: Convertible Preferred Stock 325,925 Stock options 323,519 468,935 843,159 ----------- ----------- ----------- Adjusted weighted average shares 13,405,177 12,793,936 12,819,856 =========== =========== =========== Earnings per Common Share: Basic $ 0.22 $ 0.21 $ 0.37 =========== =========== =========== Diluted $ 0.21 $ 0.20 $ 0.35 =========== =========== ===========
Shares issuable upon conversion of warrants to purchase 500,000 Common Shares and shares issuable upon conversion of convertible debentures are considered in calculating "diluted" earnings per share, but have been excluded, as the effect would be anti-dilutive. The Company declared a 2% stock dividend on July 21, 1998 to be distributed to shareholders on September 17, 1998. The Company distributed a 2% stock dividend to shareholders on September 16, 1997 and August 22, 1996. All data with respect to earnings per share, weighted average shares outstanding and common stock equivalents have been adjusted to reflect these stock dividends. NOTE I - COMMITMENTS The Company leases certain manufacturing facilities and equipment under operating lease agreements expiring at various dates through January, 2003. Certain of the leases provide for renewal options. Total rent expense was $400,000 for the year ended May 31, 1998, $331,000 for the year ended May 25, 1997, and $266,000 for the year ended May 26, 1996. 61 Future minimum rental commitments, excluding renewal options, under the noncancellable leases covering certain manufacturing facilities and equipment through the term of the lease are as follows: Fiscal Year ----------- 1999 $ 696,000 2000 596,000 2001 504,000 2002 265,000 2003 42,000 ---------- Total $2,103,000 ========== In addition to operating lease agreements, the Company also has a five-year maintenance agreement for $113,000 per year beginning January 1, 1999 for a newly implemented computer system. At May 31, 1998, the Company's capital equipment commitments were approximately $950,000. NOTE J - INFORMATION BY INDUSTRY SEGMENT Net sales by business segment represent sales to unaffiliated customers. No significant transfers between segments have occurred. Income (loss) from operations represents net sales less operating expenses. Identifiable assets are those used specifically in each segment's operations. Income of foreign subsidiaries, primarily in the Refrigeration Products segment, amounted to $398,000, $565,000 and $171,000 in fiscal 1998, 1997 and 1996, respectively. 62 The Company's segment information is as follows:
(Dollars in Thousands) Fiscal Year Ended -------------------------------------------------------------------------------------------------------- May 31, 1998 May 25, 1997 May 26, 1996 ------------------------------- ------------------------------- -------------------------------- Magnetic Refrigeration Magnetic Refrigeration Magnetic Refrigeration Products Products Total Products Products Total Products Products Total -------- -------- ----- -------- --------- ----- -------- -------- ----- Net sales: Magnet systems $45,460 $45,460 $46,694 $46,694 $45,562 $45,562 Superconductive wire 11,131 11,131 10,698 10,698 19,822 19,822 R F Coils 10,746 10,746 1,981 1,981 Refrigeration products $28,557 28,557 $27,679 27,679 $23,083 23,083 --------- -------- -------- -------- --------- --------- -------- -------- -------- Total 67,337 28,557 95,894 59,373 27,679 87,052 65,384 23,083 88,467 Income (loss) from operations 5,917 (403) 5,514 1,145 2,107 3,252 5,200 (498) 4,702 Net income (loss) 3,037 (284) 2,753 1,074 1,541 2,615 3,998 429 4,427 Identifiable assets 83,479 44,297 127,776 94,819 21,070 115,889 94,139 18,258 112,397 Depreciation and amortization expense 4,862 562 5,424 3,441 523 3,964 2,736 429 3,165 Additions to property, plant and equipment, exclusive of acquisitions 2,721 425 3,146 4,564 882 5,446 3,623 456 4,079
63 NOTE K - PRINCIPAL CUSTOMERS AND EXPORT SALES Sales to significant customers, substantially all of which were sales by the Magnetic Products segment, during the last three fiscal years are as follows: (Dollars in Thousands)
1998 1997 1996 ----------------------------- ---------------------------- ---------------------------- % of % of % of Sales Sales Sales Sales Sales Sales Customer A $42,751 44.6% $43,548 50.0% $38,971 44.1% Customer B 10,408 10.8% 7,378 8.5% 15,634 17.7% ------- ---- ------- ---- ------- ---- Total $53,159 55.4% $50,926 58.5% $54,605 61.8% ======= ==== ======= ==== ======= ====
The Company's net export sales for the fiscal years ended May 31, 1998, May 25, 1997, and May 26, 1996 totaled $57,266,000, $53,137,000 and $46,543,000, respectively, substantially all of which were to European customers. NOTE L - FAIR VALUE OF FINANCIAL INSTRUMENTS The following disclosure of the estimated fair value of financial instruments is made in accordance with the requirements of SFAS 107, "Disclosures About Fair Value of Financial Instruments". Although the estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies, the estimates presented are not necessarily indicative of the amounts that the Company could realize in current market exchanges. The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments: Cash and short-term investments, receivables, and accounts payable: The carrying amounts reported in the Consolidated Balance Sheets approximate their fair values. Available for sale securities and other investments: The fair value of the Ultralife investment is estimated from market prices (see Note C). The fair values of the SMIS and KryoTech investments are not readily determinable as the companies are privately held. The carrying value of long-term debt, including current portion, was approximately $29,100,000 and $29,400,000 at May 31, 1998 and May 25, 1997, 64 respectively, while the estimated fair value was $27,900,000 and $28,200,000, respectively, based upon interest rates available to the Company for issuance of similar debt with similar terms and remaining maturities. NOTE M - QUARTERLY FINANCIAL INFORMATION (UNAUDITED) Summarized quarterly financial data for fiscal 1998 and 1997 are as follows: (Dollars in Thousands, Except Per Share Amounts)
Earnings Per -------------------- Net Gross Net Basic Diluted Sales Margin Income Share Share ----- ------ ------ ----- ------- 1998 Quarter Ended August 24, 1997 $21,020 $8,048 $ 461 $ .04 $ .04 November 23, 1997 22,215 7,770 592 .05 .05 February 22, 1998 25,235 9,058 815 .06 .06 May 31, 1998 27,424 10,809 885 .07 .06 1997 Quarter Ended August 25, 1996 $21,370 $6,429 $1,053 $ .09 $ .08 November 24, 1996 23,260 7,092 827 .07 .06 February 23, 1997 17,325 4,595 24 .00 .00 May 25, 1997 25,097 8,084 711 .06 .05
65 2. Schedule INTERMAGNETICS GENERAL CORPORATION SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS (Dollars in Thousands)
- ------------------------------------------------------------------------------------------------------------------------------------ COL. A COL. B COL. C COL. D COL. E - ------------------------------------------------------------------------------------------------------------------------------------ Additions ------------------------------- Balance at Charged to Charged to Beginning Costs and Other Accounts- Deductions- Balance at DESCRIPTION of Period Expenses Describe Describe End of Period - ------------------------------------------------------------------------------------------------------------------------------------ Year Ended May 31, 1998 Deducted from asset accounts: Allowance for doubtful accounts $ 302 $ 60 $ 88(2) $ 130(3) $ 350 30(7) Reserve for inventory obsolescence 6,653 1,266 (9)(6) 1,087(5) 6,843 20(7) Included in liability accounts: Product warranty reserve 911 929 70(7) 649(1) 1,261 Contract adjustment reserve (4) 274 184 458 Upgrade Reserve (4) 60 60 60(8) 60 Year Ended May 25, 1997 Deducted from asset accounts: Allowance for doubtful accounts $ 169 $ 92 $ 2(6) $ 1(3) $ 302 40(7) Reserve for inventory obsolescence 5,225 1,465 1(6) 58(5) 6,653 20(7) Included in liability accounts: Product warranty reserve 1,100 724 29(7) 942(1) 911 Contract adjustment reserve (4) 234 81 41(2) 274 Upgrade Reserve (4) 0 8 60(7) 8(8) 60 Year Ended May 26, 1996 Deducted from asset accounts: Allowance for doubtful accounts $ 145 $ 30 $(4)(6) $ 2(3) $ 169 Reserve for inventory obsolescence 4,404 1,208 387(5) 5,225 Included in liability accounts: Product warranty reserve 822 1,159 881(1) 1,100 Contract adjustment reserve (4) 149 85 234
(1) Cost of warranty performed. (2) Adjustments from accruals. (3) Write-off uncollectible accounts. (4) Classified in the Balance Sheet with other liabilities and accrued expenses. (5) Write-off or sale of obsolete inventory. (6) Foreign currency translation. (7) Balance at date of acquisition of subsidiary. (8) Cost of upgrade work performed. 66 3. Exhibits Exhibit Index Page Exhibit 3 Restated Certificate of Incorporation 4.1 Intermagnetics General Corporation Indenture dated as of September 15, 1993 4.2 Second Amended and Restated Loan and Agency Agreement dated as of October 23, 1997 among Corestates Bank, N.A. and Intermagnetics General Corporation, APD Cryogenics Inc., Magstream Corporation, Medical Advances, Inc. and InterCool Energy Corporation 4.3 First Amendment dated as of May 18, 1998 to the Second Amended and Restated Loan Agreement dated as of October 23, 1997 among Corestates Bank, N.A. and Intermagnetics General Corporation, APD Cryogenics Inc., Magstream Corporation, Medical Advances, Inc. and InterCool Energy Corporation 10.1 Employment Agreement dated April 20, 1998 between Intermagnetics General Corporation and Carl H. Rosner 10.2 Employment Agreement dated April 1, 1997 between Intermagnetics General Corporation and Glenn H. Epstein 21 Subsidiaries of Intermagnetics General Corporation 23 Consent of KPMG Peat Marwick LLP with respect to the Registration Statements Numbers 2-80041, 2-94701, 33-2517, 33-12762, 33-12763, 33-38145, 33-44693, 33-50598, 33-55092, 33-72160, 333-10553 and 333-42163 on Form S-8 67 EX-3 2 EXHIBIT 3 Exhibit 3 RESTATED CERTIFICATE OF INCORPORATION OF INTERMAGNETICS GENERAL CORPORATION Under Section 807 of the Business Corporation Law We, the undersigned, Carl H. Rosner, Glenn H. Epstein, and Catherine E. Arduini, being, respectively, the Chairman and Chief Executive Officer, the President, and the Secretary of INTERMAGNETICS GENERAL CORPORATION ("Corporation"), pursuant to section 807 of the Business Corporation Law of the State of New York, do hereby restate, certify and set forth: 1. The name of the Corporation is Intermagnetics General Corporation. 2. The name under which the Corporation was formed is Magnetics International Corporation. 3. The Certificate of Incorporation was filed in the office of the Secretary of State, Albany, New York, on April 1, 1971. 4. The Certificate of Incorporation, as amended heretofore, is hereby further amended to increase the number of authorized shares of common stock, $.10 par value per share, from 20 million to 40 million, and to delete the requirement that the Corporation's headquarters be maintained within the City of Albany. To effect the foregoing amendment Article THIRD shall be deleted and in its stead substituted a new Article THIRD which shall read as follows: "The Corporation shall have the authority to issue 40 million shares of common stock, par value $.10 per share." and Article FIFTH shall be deleted in its entirety, and in its stead substituted a new Article FIFTH which shall read as follows: "The office of the Corporation is to be located in the County of Albany and State of New York." 5. The stated capital of the Corporation is not changed as a result of this amendment. 6. The text of the certificate of incorporation is hereby restated and amended to read as herein set forth in full: FIRST: The name of the Corporation is INTERMAGNETICS GENERAL CORPORATION. SECOND: The purposes for which it is to be formed are: To manufacture, buy, sell, import, export, trade, and deal in wire and wire products, other electrical conductors and apparatus including electro magnetic devices and equipment and electric and electronic components and all phases of cryogenic equipment technology. To manufacture, buy, sell, install, erect and generally deal in and deal with conductors, insulators, insulating materials, wires, coils, conduits, cables, fixtures, motors, instruments, generators, meters, switches and all other equipment, appurtenances, goods, and devices capable of being employed in connection with the generation, control, storage, distribution, transmission, and use of electricity; and to manufacture, buy, sell, and deal in all materials used for or in connection with the manufacture of the articles aforesaid, or which may be advantageously dealt in by the Corporation in connection therewith. To manufacture, make, buy, sell, exchange, install, repair, service, supply, exploit, develop, protect, and generally trade and deal in (as principal or agent) products, processes and techniques of all kinds pertaining or related to or connected with superconductivity, magnetics, electronics, cryogenic and related industries, including without limitation, equipment, parts and components for industrial and military electronics, transistors, electrical components, and all other conductors and superconductors of every kind and description. To acquire, by purchase, lease or otherwise, equip, maintain and operate a general machine shop. To manufacture tools, machinery, mechanical equipment, furnaces, cryogenic equipment, motors and all things made wholly or partly from metals. To do repairing, welding, brazing, soldering, polishing, molding, canting, patternmaking, blacksmithing, lacquering, enameling, metal stamping and cutting, electrical work of all kinds. To engage in all kinds of mechanical and manufacturing business. To sell, manage, improve, assign, transfer, convey, lease, sub-lease, pledge or otherwise alienate or dispose of, and to mortgage or otherwise encumber the land, buildings, real property, chattels, real and other property of this Corporation, real and personal, and wheresoever situate, and any and all legal and equitable rights therein. To acquire any and all property necessary to effectuate the purposes of the Corporation. To borrow money, with or without pledge of or mortgage on all or any of its property, real or personal, as security and to loan and advance money upon mortgages on personal and real property, or on either of them. To do, or engage in, any other lawful act or activity for which a corporation may be lawfully organized under the laws of the State of New York, provided that the Corporation shall not do, or engage in, any act or activity which requires the consent or approval of any state official, department, board, agency or other body, without such consent or approval first being obtained. To have, in furtherance of its corporate purposes, all the powers conferred upon corporations formed under the Business Corporation Law, subject to any limitations provided by the laws of the State of New York or in the Certificate of Incorporation. THIRD: The Corporation shall have the authority to issue 40 million shares of common stock, par value $.10 per share. THIRD-A: The Corporation shall have the authority to issue 2 million shares of preferred stock, par value $.10 per share. The board of directors of the Corporation shall have the full authority permitted by law, subject to any limitations and procedures of the Business Corporation Law, to establish and designate one or more series of the preferred stock and to fix for each series the number of shares of the series, the designation thereof and full, limited, multiple, fractional or no voting rights, and such other relative rights, preferences and limitations of the shares of each such series as may be desired. THIRD-B: Pursuant to Article THIRD-A, the board of directors has designated 70,000 shares of preferred stock as Series A Preferred Stock. The designations, relative rights, preferences and limitations in respect of such Series A Preferred Stock of the Corporation shall be as follows: (a) Voting Rights. Except as otherwise expressly required pursuant to the Business Corporation Law, the holders of shares of the Series A Preferred Stock shall not be entitled to vote such shares in any elections or proceedings, and shall be entitled to no notice of any such elections or proceedings. (b) Dividends. The holders of the Series A Preferred Stock shall not be entitled to any preferential dividends. Notwithstanding the foregoing, holders of the Series A Preferred Stock shall be entitled to share ratably with the holders of the Corporation's common stock, $.10 par value per share (the "Common Stock"), out of funds legally available therefor, any cash dividends when and if declared and paid with respect to the Common Stock. In determining the ratable share of the Series A Preferred Stock, each share of such Series A Preferred Stock shall be deemed equal to the number of shares of Common Stock issuable if such share of Series A Preferred Stock had been converted as of the record date for such dividend into Common Stock in accordance with the terms hereof. With respect to any stock dividends declared and distributed with respect to the Common Stock, holders of the Series A Preferred Stock shall be entitled to participate through an adjustment of the Series A Redemption Price and the Series A Conversion Price, as such terms are defined below, as follows: the Redemption Price or the Conversion Price, as the case may be, then in effect upon the record date for such stock dividend shall be adjusted upward by a percentage amount equal to the percentage amount of the stock dividend(s) declared and payable up to the date of redemption or conversion, and for which the adjustment is being calculated. (c) Liquidation Preference. Upon any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, or in the event of its insolvency, after the payment, or provision for payment, of all debts and liabilities of the Corporation but subject to the liquidation rights and preferences of any class or series of Preferred Stock other than the Series A Preferred Stock, any and all remaining assets available for distribution shall be distributed ratably to the holders of the Series A Preferred Stock and the holders of Common Stock. In determining the ratable share of the Series A Preferred Stock, each share of such Series A Preferred Stock shall be deemed equal to the number of shares of Common Stock issuable if such share of Series A Preferred Stock had been converted as of the record date for such distribution into Common Stock in accordance with the terms hereof. (d) Redemption. The Corporation shall have the right, upon approval of a majority of the board of directors, to redeem the Series A Preferred Stock, in whole or in part, at any time and from time to time after issuance. If less than all of the outstanding shares of Series A Preferred Stock are to be redeemed, the shares of Series A Preferred Stock to be redeemed shall be selected by the Corporation by such method as the Corporation shall deem appropriate. With respect to any redemption, the Corporation shall provide to all holders of the shares of Series A Preferred Stock to be redeemed, a written notice (the "Notice of Redemption") of its intention to redeem such shares. Within sixty days after receipt of the Notice of Redemption, the holders of the shares of Series A Preferred Stock to be redeemed shall deliver such certificates representing such shares of Series A Preferred Stock to the Corporation for redemption and cancellation against payment of the applicable redemption price. If any of the shares of Series A Preferred Stock represented by a certificate so delivered to the Corporation have not been called for redemption, the Corporation shall issue to the holder of such certificate, upon delivery of such certificate, a new certificate for such unredeemed shares of Series A Preferred Stock. In the event that any holder of shares of Series A Preferred Stock called for redemption shall fail to deliver any certificate or certificates representing such shares, such shares of Series A Preferred Stock shall be deemed redeemed and canceled, and the Corporation shall set aside and reserve for payment upon delivery of such certificates the redemption price payable therefor. The redemption price payable with respect to each share of Series A Preferred Stock that is the subject of a Notice of Redemption shall be $100 (the "Series A Redemption Price"), as adjusted from time to time as provided above for any stock dividends, plus all accrued and unpaid cash dividends, if any, as of the date of such Notice of Redemption upon such share. (e) Conversion. The Corporation shall have the right, upon approval of a majority of the board of directors, to convert, in accordance with the terms hereof, any or all of the outstanding shares of the Series A Preferred Stock into Common Stock at any time and from time to time after the first anniversary of the date of issuance. If less than all of the outstanding shares of Series A Preferred Stock are to be converted, the shares of Series A Preferred Stock to be converted shall be selected by the Corporation by such method as the Corporation shall deem appropriate. If the Corporation does not exercise its right to redeem or convert all of the shares of Series A Preferred Stock on or before November 30, 1999, then the outstanding shares of Series A Preferred Stock at that time shall automatically convert, in accordance with the terms hereof, into Common Stock effective as of December 1, 1999. If (i) the Corporation is involved in a consolidation or merger into, or with, any other entity or entities other than a wholly owned subsidiary, and the Corporation is not the surviving corporation, or (ii) the Corporation engages in a sale, transfer or other disposition of all or substantially all of its assets, then the Series A Preferred Stock shall automatically convert, in accordance with the terms hereof, into Common Stock effective as of the day prior to the effective day for such event. With respect to any conversion, the Corporation shall provide to all holders of shares of Series A Preferred Stock which are to be converted a written notice (the "Notice of Conversion") of its intention to convert into Common Stock such shares of Series A Preferred Stock. Within sixty days after receipt of the Notice of Conversion, the holders of the shares of Series A Preferred Stock selected for conversion shall deliver all certificates representing such shares of Series A Preferred Stock to the Corporation for conversion and cancellation. The Corporation shall issue and deliver, or cause to be issued and delivered, to such holder, in such denomination or denominations, and registered in such name or names as specified in writing by such holder, a certificate or certificates for the number of whole shares of Common Stock issuable upon the conversion of the shares of Series A Preferred Stock surrendered by such holder. Notwithstanding the foregoing, the Corporation shall not be required to pay any tax or duty which may be payable in respect of any transfer involved in the issue and delivery of shares of Common Stock in a name other than that of a holder of shares of Series A Preferred Stock to be converted, and no such delivery shall be made unless and until the person requesting such issue has paid to the Corporation the amount of any such tax or duty, or has established to the satisfaction of the Corporation that such tax or duty has been paid. If any of the shares of Series A Preferred Stock represented by a certificate delivered to the Corporation for conversion have not been selected for conversion, the Corporation shall deliver to the holder of such certificate a new certificate for such unconverted shares of Series A Preferred Stock. In the event that any holder of shares of Series A Preferred Stock selected for conversion shall fail to deliver any certificate or certificates representing such shares, the shares of Series A Preferred Stock selected for conversion and represented thereby shall be deemed converted and canceled and the Corporation shall set aside and reserve for issuance upon delivery of such certificates new certificates representing the applicable number of shares of Common Stock. The applicable number of shares of Common Stock into which each share of Series A Preferred Stock that is the subject of a Notice of Conversion shall be converted shall be equal to the Series A Conversion Price, divided by the average of the closing price of the Corporation's Common Stock on the American Stock Exchange (or, if the Common Stock is not then listed on the American Stock Exchange, on such other exchange or automated quotation system upon which the Common Stock is then listed or quoted) for the ten trading days immediately following the fiftieth day after the date of the Notice of Conversion (the "Market Price"). No fractional shares shall be issued upon conversion of Series A Preferred Stock. In lieu of any such fractional shares, the Corporation shall pay in cash an amount equal to the fractional share multiplied by the Market Price. At the time of conversion, the Corporation shall pay in cash an amount equal to the value of all dividends, if any, accrued and unpaid on the shares of Series A Preferred Stock being converted, as of the date of such Notice of Conversion. The Series A Conversion Price shall be $100, as adjusted from time to time as provided above for any stock dividends. The Corporation will at all times reserve and keep available out of its authorized Common Stock, solely for the purpose of issuance on the conversion of the Series A Preferred Stock as herein provided, such number of shares of Common Stock as the board of directors reasonably and prudently determines, from time to time, would likely be issuable upon the conversion of all outstanding shares of Series A Preferred Stock. The Corporation will take all such action as may be necessary to assure that all such shares of Common Stock may be so issued without violation of any applicable law or regulation, or of any requirement of any national securities exchange upon which the Common Stock may be listed. (f) Effect of Conversion or Redemption. Except as otherwise expressly provided herein, no share of Series A Preferred Stock shall be entitled to any rights of conversion, redemption or dividends accruing after the date of the Notice of Redemption or Notice of Conversion, as the case may be, relating to such share, and as of such date all rights of the holder of such share as such holder, other than the right to receive the applicable redemption price or applicable number of shares of Common Stock, will cease, and such share will not be deemed to be outstanding thereafter. FOURTH: Board of Directors (a) Number of Directors. The board of directors of the Corporation shall consist of such number of directors as shall be fixed from time to time by resolution of the board adopted by a vote of a majority of the entire board. No change in the size of the board shall shorten or otherwise affect the term of any incumbent director. (b) Classification of Directors. The board of directors shall be divided into two classes, which shall be as nearly equal in number as possible. Directors of each class shall serve for a term of two years and until their successors shall have been elected and qualified. Except as otherwise provided by law, if the number of directors is changed, any increase or decrease shall be apportioned among the classes as to maintain the number of directors in each class as nearly equal as possible. The two initial classes of directors shall be comprised as follows: Class I shall be comprised of directors who shall serve until the annual meeting of shareholders in 1989 and until their successors shall have been elected and qualified. Class II shall be comprised of directors who shall serve until the annual meeting of shareholders in 1990 and until their successors shall have been elected and qualified. (c) Removal of Directors. Subject to the rights of the holders of any class or series of preferred stock then outstanding, any director or directors of the Corporation may be removed from office only for cause and only by vote of the shareholders. (d) Election of Directors. In all elections of directors of this Corporation, each shareholder shall be entitled to as many votes as shall equal the number of votes which (except for these provisions) he would be entitled to cast for the election of directors with respect to his shares multiplied by the number of directors to be elected, and he may cast all of such votes for a single director or may distribute them among the number to be voted for, or any two or more of them, as he may see fit. (e) By-laws. By-laws may be adopted, amended or repealed by the board of directors to the full extent permitted by law. (f) Definition. As used in this Article FOURTH, "entire board" means the total number of directors that the Corporation would have if there were no vacancies. (g) Preferred Stock Provisions. Notwithstanding the foregoing provisions of this Article FOURTH, whenever the holders of any one or more classes or series of preferred stock issued by the Corporation shall have the right, voting separately by class or series, to elect directors at any annual or special meeting of shareholders, the election, term of office, filling of vacancies and other features of such directorships shall be governed by the terms of this certificate of incorporation applicable thereto, and the directors so elected shall not be divided into classes pursuant to this Article FOURTH unless expressly provided by such terms. FIFTH: The office of the Corporation is to be located in the County of Albany and State of New York. SIXTH: Qualifications of Directors (a) Nominating Procedure. A person shall not be appointed or elected a director of the Corporation unless the name of such person, together with such consents and information concerning present and prior occupations, transactions with the Corporation or its subsidiaries and other matters as may at the time be required by or pursuant to the by-laws, shall have been filed with the Secretary of the Corporation no later than a time fixed by or pursuant to the by-laws immediately preceding the annual or special meeting at which such person intends to be a candidate for director. (b) Shareholdings. It shall not be necessary that a director be a shareholder. SEVENTH: The Secretary of State is designated as agent of the Corporation upon whom process against it may be served. The post office address to which the Secretary of State shall mail a copy of any process against the Corporation served upon it is P.O. Box 461, Latham, New York 12110. EIGHTH: Shareholder Approval of Certain Corporation Action (a) Corporate Action Recommended by Management. Whenever any corporate action, other than the election of directors, is to be taken by vote of the shareholders on recommendation of the affirmative vote of three-quarters or more of the entire board, the proposed corporate action, including a Fundamental Transaction, shall be authorized upon receiving the minimum vote required for the authorization of such action by law, after taking into account the express terms of any class or series of shares of the Corporation with respect to such vote. (b) Other Corporate Action. Except as provided in paragraph (a) of this Article EIGHTH, whenever any corporate action, other than the election of directors, is to be taken by vote of the shareholders, the proposed corporate action, including a Fundamental Transaction, shall be authorized only upon receiving at least 66 2/3 of the votes entitled to be cast by the holders of all then outstanding shares of Voting Stock entitled to vote on such proposed corporate action, voting together as a single class, and, in addition, the affirmative vote of the number or proportion of shares of any class or series of shares of the Corporation, if any, as shall at the time be required by law or the express terms of any such class or series of shares of the Corporation. (c) Definitions. The following terms, as used in this Article EIGHTH, shall have the meanings indicated: (1) "Entire board" means the total number of directors that the Corporation would have if there were no vacancies. (2) "Fundamental Transaction: shall mean: (i) any of the following, if such action is to be effected by vote of the shareholders: amendment of this certificate of incorporation; adoption, amendment or repeal of the by-laws; or removal of one or more directors; or (ii) any of the following, if any such transaction requires the approval of the shareholders under the certificate of incorporation of the Corporation as then in effect or the New York Business Corporation Law as then in effect with respect to the Corporation; the sale, lease, exchange or other disposition of all or substantially all of the assets of the Corporation; or a share exchange or merger, consolidation, division, reorganization, recapitalization, dissolution, liquidation or winding up of the Corporation. (3) "Voting Stock" means all shares issued from time to time under Articles THIRD and THIRD-A of this certificate of incorporation and which by their terms may be voted generally in the election of directors of the Corporation. NINTH: No shareholder of this Corporation shall have a preemptive right because of his shareholdings to have first offered to him any part of any of the presently authorized shares of this Corporation hereafter issued, optioned, or sold, or any part of any debenture, bonds, notes, commercial paper, or securities of this Corporation convertible into shares hereafter issued, optioned, or sold by the Corporation. This provision shall operate to defeat rights in all shares bonds, notes or securities of the Corporation which may be convertible into shares, and also to defeat preemptive rights in any and all shares and classes of shares and securities convertible into shares which this Corporation may be hereafter authorized to issue by any amended certificate duly filed. Thus, any and all of the shares of this Corporation presently authorized, and any and all debentures, bonds, notes, commercial paper, or securities of this Corporation convertible into shares and any and all of the shares of this Corporation which may hereafter be authorized, may at any time be issued, optioned, and contracted for sale, and/or sold and disposed of by direction of the Board of Directors of this Corporation to such persons, and upon such terms and conditions as may to the Board of Directors seem proper and advisable, including offering the said shares of securities, or any part thereof, to existing holders. TENTH: The Corporation shall, to the fullest extent permitted by the general laws of the State of New York now or hereafter in force, indemnify any and all past, present and future directors and officers of the Corporation and each designated representative from and against any and all liabilities, including any and all judgments, fines, penalties, punitive damages, excise taxes assessed with respect to an employee benefit plan, amounts paid in settlement, costs and expenses (including attorneys' fees) of any nature whatsoever, incurred at any time in connection with any pending, threatened or completed action, suit or proceeding (whether commenced by or in the right of the Corporation, by a class of its security holders or otherwise) by reason of the fact that such person is or was serving as a director, officer or designated representative of the Corporation. Notwithstanding the preceding sentence, the Corporation shall not indemnify any director, officer or designated representative for any liability incurred in connection with any action, suit or proceeding initiated by such person unless the action, suit or proceeding is authorized, either before or after its commencement, by the affirmative vote of a majority of the directors in office. The rights granted by any provision of these articles to a director, officer or designated representative shall not be deemed exclusive of any other rights to which such person may be entitled under any statute, by-law, agreement, resolution of shareholders or directors or otherwise, shall continue as to a person who has ceased to be a director, officer or designated representative and shall inure to the benefit of the heirs, executors, administrators and personal representatives of such person. The board of directors of the Corporation may at any time adopt resolutions or by-laws, or authorize the Corporation to enter into agreements, providing for indemnification of any director, officer or designated representative in accordance with this article, or in addition to the indemnification provided herein. For purposes of this article, a "designated representative" shall mean any person designated as an indemnified representative by the board of directors of the Corporation (which may include, but need not be limited to, any person serving at the request of the Corporation as a director, officer, fiduciary or trustee of another corporation, partnership, joint venture, trust, employee benefit plan or other entity or enterprise). Each person who shall act as a director, officer or designated representative of the Corporation shall be deemed to be doing so in reliance upon the rights of indemnification provided by this Article. All rights to indemnification under this Article shall be deemed a contract between the Corporation and each such director, officer or designated representative, pursuant to which the Corporation and each such person intend to be legally bound. Any repeal, amendment or modification hereof shall be prospective only and shall not affect any rights or obligations then existing. ELEVENTH: (a) A director of the Corporation shall not be personally liable to the Corporation or its shareholders for damages (including, without limitation, any judgment, amount paid in settlement, fine, penalty, punitive damages, excise tax assessed with respect to any employee benefit plan, or expense of any nature (including, without limitation, attorneys' fees and disbursements) for any breach of duty in such capacity, except to the extent a judgment or other final adjudication adverse to the director establishes that the director is liable for: (i) acts or omissions in bad faith or involving intentional misconduct or a knowing violation of law; (ii) financial profit or other advantage personally gained by such director to which such director was not legally entitled; or (iii) acts in violation of Section 719 of the New York Business Corporation Law. (b) An officer of this Corporation shall not be personally liable to the Corporation or its shareholders for damages (including, without limitation, any judgment, amount paid in settlement, fine, penalty, punitive damages, excise tax assessed with respect to an employee benefit plan, or expense of any nature (including, without limitation, attorneys' fees and disbursements) for any breach of duty in such capacity, except to the extent a judgment or other final adjudication adverse to the officer establishes that the officer is liable for: (i) acts or omissions in bad faith or involving intentional misconduct or a knowing violation of law; or (ii) financial profit or other advantage personally gained by such officer to which such officer was not legally entitled. (c) Each person who serves as a director or officer of this Corporation while this Article is in effect shall be deemed to be doing so in reliance on the provisions of this Article, and neither the amendment or repeal of this Article, nor the adoption of any provision of this certificate of incorporation inconsistent with this Article, shall apply to or have any effect on the liability or alleged liability of any director or officer of this Corporation for or with respect to any acts or omissions of such director of officer occurring prior to such amendment, repeal or adoption of an inconsistent provision. The provisions of this Article are cumulative and shall be in addition to and independent of any and all other limitations on or eliminations of the liabilities of directors or officers of this Corporation, as such, whether such limitations or eliminations arise under or are created by any statute, rule of law, by-law, agreement, vote of shareholders or disinterested directors or otherwise. 7. The foregoing amendment of the increase in the authorized shares of the Corporation and restatement of the Certificate of Incorporation was authorized and approved by unanimous vote of the entire Board of Directors of the Corporation on September 11, 1997, followed by a vote of a majority of the Corporation's Shareholders on November 11, 1997. The foregoing amendment of the location of the Corporation's headquarters was authorized and approved by unanimous vote of the entire Board of Directors of the Corporation on May 18, 1998. IN WITNESS WHEREOF, we have each signed this Restated Certificate of Incorporation this _____ day of June 1998, and we jointly and severally affirm the statements contained herein as true under penalty of perjury. /S/ Carl H. Rosner /S/ Glenn H. Epstein /S/ Catherine E. Arduini - ---------------------- -------------------------- ----------------------- Carl H. Rosner Glenn H. Epstein Catherine E. Arduini As: Chairman and Chief As: President As: Secretary Executive Officer EX-4.1 3 EXHIBIT 4.1 - -------------------------------------------------------------------------------- INTERMAGNETICS GENERAL CORPORATION TO American Stock Transfer & Trust Company Trustee ------- -------------------- Indenture Dated as of September 15, 1993 -------------------- $34,500,000 5.75% Convertible Subordinated Debentures Due 2003 - -------------------------------------------------------------------------------- Certain Sections of this Indenture relating to Sections 310 through 318 of the Trust Indenture Act of 1939 Trust Indenture Indenture Acts Section Section - --------------- ---------- Section 310(a)(1) .................................... 609 (a)(2) .................................... 609 (a)(3) .................................... Not Applicable (a)(4) .................................... Not Applicable (b) .................................... 608 610 Section 311(a) .................................... 613 (b) .................................... 613 Section 312(a) .................................... 701 702(a) (b) .................................... 702(b) (c) .................................... 702(c) Section 313(a) .................................... 703(a) (b) .................................... 703(a) (c) .................................... 703(a) (d) .................................... 703(b) Section 314(a) .................................... 704 (b) .................................... Not Applicable (c)(1) .................................... 102 (c)(2) .................................... 102 (c)(3) .................................... Not Applicable (d) .................................... Not Applicable (e) .................................... 102 Section 315(a) .................................... 601 (b) .................................... 602 (c) .................................... 601 (d) .................................... 601 (e) .................................... 514 TABLE OF CONTENTS Page ---- Parties ................................................................ 1 Recitals of the Company ................................................ 1 ARTICLE ONE Definitions and other Provisions of General Application SECTION 101. Definitions: Act .................................................................. 2 Affiliate; control ................................................... 2 Authenticating Agent ................................................. 2 Board of Directors ................................................... 2 Board Resolution ..................................................... 2 Business Day ......................................................... 2 Change of Control .................................................... 2 Closing Price ........................................................ 3 Commission ........................................................... 3 Common Stock ......................................................... 3 Company .............................................................. 3 Company Notice ....................................................... 3 Company Request; Company Order ....................................... 3 Conversion Rate ...................................................... 4 Corporate Trust Office ............................................... 4 Corporation .......................................................... 4 Defaulted Interest ................................................... 4 Depositary ........................................................... 4 Event of Default ..................................................... 4 Exchange Act ......................................................... 4 Expiration Time ...................................................... 4 Global Security ...................................................... 4 Holder ............................................................... 4 Indenture ............................................................ 4 Initial Purchaser .................................................... 4 Institutional Accredited Investor .................................... 5 Interest Payment Date ................................................ 5 Maturity ............................................................. 5 NASDAQ/NMS ........................................................... 5 Non-U.S. Person ...................................................... 5 Officers' Certificate ................................................ 5 Opinion of Counsel ................................................... 5 - ------------- Note: This table of contents shall not, for any purpose, be deemed to be a part of the Indenture. -i- Page ---- Outstanding .......................................................... 5 Paying Agent ......................................................... 6 Person ............................................................... 6 Predecessor Security ................................................. 6 Private Placement Legend ............................................. 6 Proceeding ........................................................... 7 Purchased Shares ..................................................... 7 QIB .................................................................. 7 Redemption Date ...................................................... 7 Redemption Price ..................................................... 7 Registered Individual Securities ..................................... 7 Regular Record Date .................................................. 7 Regulation S ......................................................... 7 Repurchase Date ...................................................... 7 Repurchase Price ..................................................... 7 Responsible Officer .................................................. 7 Rule 144 ............................................................. 7 Rule 144A ............................................................ 7 Securities ........................................................... 7 Securities Act ....................................................... 7 Securities Payment ................................................... 8 Security Register; Security Registrar ................................ 8 Senior Indebtedness .................................................. 8 Special Record Date .................................................. 8 Stated Maturity ...................................................... 8 Subsidiary ........................................................... 8 Trading Day .......................................................... 8 Trustee .............................................................. 9 Trust Indenture Act .................................................. 9 U.S. Person .......................................................... 9 United States ........................................................ 9 Vice President ....................................................... 9 SECTION 102. Compliance Certificates and Opinions ..................... 9 SECTION 103. Form of Documents Delivered to Trustee ................... 10 SECTION 104. Acts of Holders; Record Dates ............................ 11 SECTION 105. Notices, Etc., to Trustee and Company .................... 12 - -------------- Note: This table of contents shall not, for any purpose, be deemed to be a part of the Indenture. -ii- Page ---- SECTION 106. Notice to Holders; Waiver ............................... 13 SECTION 107. The Application of Trust Indenture Act .................. 13 SECTION 108. Effect of Headings and Table of Contents ................ 13 SECTION 109. Successors and Assigns .................................. 14 SECTION 110. Separability Clause ..................................... 14 SECTION 1ll. Benefits of Indenture ................................... 14 SECTION 112. Governing Law ........................................... 14 SECTION 113. Legal Holidays .......................................... 14 ARTICLE TWO Security Forms SECTION 201. Forms Generally ......................................... 15 SECTION 202. Form of Face of Security ................................ 16 SECTION 203. Form of Reverse of Security ............................. 19 SECTION 204. Form of Legend for Global Securities .................... 25 SECTION 205. Form of Trustee's Certificate of Authentication ......... 26 ARTICLE THREE The Securities SECTION 301. Title and Terms ......................................... 26 SECTION 302. Denominations ........................................... 27 SECTION 303. Execution, Authentication, Delivery and Dating .......... 27 - -------------- Note: This table of contents shall not, for any purpose, be deemed to be a part of the Indenture. -iii- Page ---- SECTION 304. Temporary Securities ..................................... 28 SECTION 305. Registration, Registration of Transfer and Exchange ...... 29 SECTION 306. Mutilated, Destroyed, Lost and Stolen Securities ......... 35 SECTION 307. Payment of Interest; Interest Rights Preserved ........... 36 SECTION 308. Persons Deemed Owners .................................... 38 SECTION 309. Cancellation ............................................. 38 SECTION 310. Computation of Interest .................................. 38 ARTICLE FOUR Satisfaction and Discharge SECTION 401. Satisfaction and Discharge of Indenture .................. 38 SECTION 402. Application of Trust Money ............................... 40 ARTICLE FIVE Remedies SECTION 501. Events of Default ....................................... 40 SECTION 502. Acceleration of Maturity; Rescission and Annulment ...... 42 SECTION 503. Collection of Indebtedness and Suits for Enforcement by Trustee .............................................. 43 SECTION 504. Trustee May File Proofs of Claim ........................ 44 - --------------- Note: This table of contents shall not, for any purpose, be deemed to be a part of the Indenture. -iv- Page ---- SECTION 505. Trustee May Enforce Claims Without Possession of Securities ........................................... 45 SECTION 506. Application of Money Collected .......................... 45 SECTION 507. Limitation on Suits ..................................... 46 SECTION 508. Unconditional Right of Holders to Receive Principal, Premium and Interest and to Convert ..................... 46 SECTION 509. Restoration of Rights and Remedies ...................... 47 SECTION 510. Rights and Remedies Cumulative .......................... 47 SECTION 511. Delay or Omission Not Waiver ............................ 47 SECTION 512. Control by Holders ...................................... 48 SECTION 513. Waiver of Past Defaults ................................. 48 SECTION 514. Undertaking for Costs ................................... 48 SECTION 515. Waiver of Stay or Extension Laws ........................ 49 ARTICLE SIX The Trustee SECTION 601. Certain Duties and Responsibilities ..................... 49 SECTION 602. Notice of Defaults ...................................... 50 SECTION 603. Certain Rights of Trustee ............................... 50 SECTION 604. Not Responsible for Recitals or Issuance of Securities ........................................... 51 SECTION 605. May Hold Securities .................................... 52 SECTION 606. Money Held in Trust ..................................... 52 - --------------- Note: This table of contents shall not, for any purpose, be deemed to be a part of the Indenture. -v- Page ---- SECTION 607. Compensation and Reimbursement ........................... 52 SECTION 608. Disqualification; Conflicting Interests .................. 53 SECTION 609. Corporate Trustee Required; Eligibility .................. 53 SECTION 610. Resignation and Removal; Appointment of Successor ........ 53 SECTION 611. Acceptance of Appointment by Successor ................... 55 SECTION 612. Merger, Conversion, Consolidation or Succession to Business .............................................. 55 SECTION 613. Preferential Collection of Claims Against Company ........ 56 SECTION 614. Appointment of Authenticating Agent ...................... 56 ARTICLE SEVEN Holders' Lists and Reports by Trustee and Company SECTION 701. Company to Furnish Trustee Names and Addresses of Holders ............................................... 58 SECTION 702. Preservation of Information; Communications to Holders ............................................... 58 SECTION 703. Reports by Trustee ....................................... 59 SECTION 704. Reports by Company ....................................... 59 ARTICLE EIGHT Consolidation, Merger, Conveyance, Transfer or Lease SECTION 801. Company May Consolidate, Etc., only on Certain Terms ............................................ 60 - ------------- Note: This table of contents shall not, for any purpose, be deemed to be a part of the Indenture. -vi- Page ---- SECTION 802. Successor Substituted .................................... 61 ARTICLE NINE Supplemental Indentures SECTION 901. Supplemental Indentures Without Consent of Holders ....... 61 SECTION 902. Supplemental Indentures with Consent of Holders .......... 62 SECTION 903. Execution of Supplemental Indentures ..................... 63 SECTION 904. Effect of Supplemental Indentures ........................ 64 SECTION 905. Conformity with Trust Indenture Act ...................... 64 SECTION 906. Reference in Securities to Supplemental Indentures ....... 64 ARTICLE TEN Covenants SECTION 1001. Payment of Principal, Premium and Interest ............... 65 SECTION 1002. Maintenance of Office or Agency .......................... 65 SECTION 1003. Money for Security Payments to Be Held in Trust .......... 66 SECTION 1004. Statement by Officers as to Default ...................... 67 SECTION 1005. Existence ................................................ 67 SECTION 1006. Maintenance of Properties ................................ 68 SECTION 1007. Payment of Taxes and Other Claims ........................ 68 SECTION 1008. Delivery of Certain Information .......................... 68 - -------------- Note: This table of contents shall not, for any purpose, be deemed to be a part of the Indenture. -vii- Page ---- ARTICLE ELEVEN Redemption of Securities SECTION 1101. Right of Redemption ...................................... 69 SECTION 1102. Applicability of Article ................................. 69 SECTION 1103. Election to Redeem; Notice to Trustee .................... 69 SECTION 1104. Selection by Trustee of Securities to Be Redeemed ........ 69 SECTION 1105. Notice of Redemption ..................................... 70 SECTION 1106. Deposit of Redemption Price .............................. 71 SECTION 1107. Securities Payable on Redemption Date .................... 71 SECTION 1108. Securities Redeemed in Part .............................. 72 ARTICLE TWELVE Subordination of Securities SECTION 1201. Securities Subordinate to Senior Indebtedness ............ 72 SECTION 1202. Payment Over of Proceeds Upon Dissolution, Etc. .......... 73 SECTION 1203. Prior Payment to Senior Indebtedness Upon Acceleration of Securities; No Payment when Senior Indebtedness in Default ............................................... 74 SECTION 1204. Payment Permitted If No Default .......................... 75 SECTION 1205. Subrogation to Rights of Holders of Senior Indebtedness ............................................. 76 - --------------- Note: This table of contents shall not, for any purpose, be deemed to be a part of the Indenture. -viii- Page ---- SECTION 1206. Provisions Solely to Define Relative Rights .............. 76 SECTION 1207. Trustee to Effectuate Subordination ...................... 77 SECTION 1208. No Waiver of Subordination Provisions .................... 77 SECTION 1209. Notice to Trustee ........................................ 78 SECTION 1210. Reliance on Judicial Order or Certificate of Liquidating Agent ........................................ 79 SECTION 1211. Trustee Not Fiduciary for Holders of Senior Indebtedness ............................................. 79 SECTION 1212. Rights of Trustee as Holder of Senior Indebtedness; Preservation of Trustee's Rights ......................... 79 SECTION 1213. Article Applicable to Paying Agents ...................... 80 SECTION 1214. Certain Conversions Deemed Payment ....................... 80 ARTICLE THIRTEEN Conversion of Securities SECTION 1301. Conversion Privilege and Conversion Rate ................. 81 SECTION 1302. Exercise of Conversion Privilege ......................... 81 SECTION 1303. Fractions of Shares ...................................... 84 SECTION 1304. Adjustment of Conversion Rate ........................... 84 SECTION 1305. Notice of Adjustments of Conversion Rate ................. 89 SECTION 1306. Notice of Certain Corporate Action ....................... 90 - ------------ Note: This table of contents shall not, for any purpose, be deemed to be a part of the Indenture. -ix- Page ---- SECTION 1307. Company to Reserve Common Stock .......................... 91 SECTION 1308. Taxes on Conversions ..................................... 91 SECTION 1309. Covenant as to Common Stock .............................. 91 SECTION 1310. Cancellation of Converted Securities ..................... 92 SECTION 1311. Provisions in Case of Consolidation, Merger or Sale of Assets ........................................ 92 SECTION 1312. Trustee's Disclaimer ..................................... 93 ARTICLE FOURTEEN Repurchase of Securities at the Option of the Holder Upon a Change in Control SECTION 1401. Right to Require Repurchase .............................. 93 SECTION 1402. Notices; Method of Exercising Repurchase Right, Etc. ..... 94 SECTION 1403. Certain Definitions ...................................... 95 TESTIMONIUM ............................................................ 97 SIGNATURES AND SEALS ................................................... 98 ACKNOWLEDGMENTS ........................................................ 99 - ------------- Note: This table of contents shall not, for any purpose, be deemed to be a part of the Indenture. -x- INDENTURE, dated as of September 15, 1993, between Intermagnetics General Corporation, a corporation duly organized and existing under the laws of the State of New York (herein called the "Company"), having its principal office at Charles Industrial Park, New Karner Road, Guilderland, New York 12084, and American Stock Transfer & Trust Company, a trust company duly organized and existing under the laws of the State of New York as Trustee (herein called the "Trustee"). RECITALS OF THE COMPANY The Company has duly authorized the creation of an issue of its 5.75% Convertible Subordinated Debentures Due 2003 (herein called the "Securities") of substantially the tenor and amount hereinafter set forth, and to provide therefor the Company has duly authorized the execution and delivery of this Indenture. All things necessary to make the Securities, when executed by the Company and authenticated and delivered hereunder and duly issued by the Company, the valid obligations of the Company, and to make this Indenture a valid agreement of the Company, in accordance with their and its terms, have been done. NOW, THEREFORE, THIS INDENTURE WITNESSETH: For and in consideration of the premises and the purchase of the Securities by the Holders thereof, it is mutually agreed, for the equal and proportionate benefit of all Holders of the Securities, as follows: ARTICLE ONE Definitions and Other Provisions of General Application SECTION 101. Definitions. For all purposes of this Indenture, except as otherwise expressly provided or unless the context otherwise requires: (1) the terms defined in this Article have the meanings assigned to them in this Article and include the plural as well as the singular; (2) all other terms used herein which are defined in the Trust Indenture Act as in effect on the date hereof, either directly or by reference therein, have the meanings assigned to them therein; (3) all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with generally accepted accounting principles in the United States; and (4) the words "herein", "hereof" and "hereunder" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision. "Act", when used with respect to any Holder, has the meaning specified in Section 104. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control" when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Authenticating Agent" means any Person authorized by the Trustee pursuant to Section 614 to act on behalf of the Trustee to authenticate securities. "Board of Directors" means either the board of directors of the Company or any duly authorized committee of that board. "Board Resolution" means a copy of a resolution certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification, and delivered to the Trustee. "Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banking institutions in the Borough of Manhattan, The City of New York are authorized or obligated by law or executive order to close. "Change of Control" has the meaning specified in Section 1403(c). -2- "Closing Price" has the meaning specified in Section 1304(8). "Commission" means the Securities and Exchange Commission, as from time to time constituted, created under the Securities Exchange Act of 1934, or, if at any time after the execution of this instrument such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties at such time. "Common Stock" includes any stock of any class of the Company which has no preference in respect of dividends or of amounts payable in the event of any voluntary or involuntary liquidation, dissolution or winding-up of the Company and which is not subject to redemption by the Company. However, subject to the provisions of Section 1311, shares issuable on conversion of Securities shall include only shares of the class designated as Common Stock of the Company at the date of this instrument or shares of any class or classes resulting from any reclassification or reclassifications thereof and which have no preference in respect of dividends or of amounts payable in the event of any voluntary or involuntary liquidation, dissolution or winding-up of the Company and which are not subject to redemption by the Company; provided that if at any time there shall be more than one such resulting class, the shares of each such class then so issuable shall be substantially in the proportion which the total number of shares of such class resulting from all such reclassifications bears to the total number of shares of all such classes resulting from all such reclassifications. "Company" means the Person named as the "Company" in the first paragraph of this instrument until a successor Person shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Company" shall mean such successor Person. "Company Notice" has the meaning specified in Section 1402. "Company Request" or "Company Order" means a written request or order signed in the name of the Company by its Chairman of the Board, its Vice Chairman of the Board, its President or a Vice President, and by its Chief Financial Officer, Treasurer, an Assistant Treasurer, its Secretary or an Assistant Secretary, and delivered to the Trustee. -3- "Conversion Rate" has the meaning specified in Section 1301. "Corporate Trust Office" means the principal office of the Trustee in the Borough of Manhattan, The City of New York at which at any particular time its corporate trust business shall be administered. "Corporation" means a corporation, association, company, joint-stock company or business trust. "Defaulted Interest" has the meaning specified in Section 307. "Depositary" means, with respect to the Securities issued in whole or in part in the form of one or more Global Securities, a clearing agency registered under the Exchange Act that is designated to act as Depositary for such Securities as contemplated by Section 305. "Event of Default" has the meaning specified in Section 501. "Exchange Act" means the Securities Exchange Act of 1934 as it may be amended from time to time, and any successor act thereto, and the rules and regulations of the Commission promulgated thereunder. "Expiration Time" has the meaning specified in Section 1304(6). "Global Security" means a Security that evidences all or part of the Securities issued to the Depositary in accordance with Section 303 and bearing the legend prescribed in Section 204. "Holder" means a Person in whose name a Security is registered in the Security Register. "Indenture" means this instrument as originally executed or as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into pursuant to the applicable provisions hereof, including, for all purposes of this instrument and any such supplemental indenture, the provisions of the Trust Indenture Act that are deemed to be a part of and govern this instrument and any such supplemental indenture, respectively. "Initial Purchaser" means Lazard Freres & Co. -4- "Institutional Accredited Investor" means an institutional investor that is an "accredited investor" as defined in Rule 501(a)(1),(2),(3) or (7) of Regulation D under the Securities Act. "Interest Payment Date" means the Stated Maturity of an instalment of interest on the Securities. "Maturity", when used with respect to any Security, means the date on which the principal of such Security becomes due and payable as therein or herein provided, whether at the Stated Maturity or by declaration of acceleration, call for redemption or otherwise. "NASDAQ/NMS" has the meaning specified in Section 1304(6). "Non-U.S. Person" means a person other than a U.S. Person. "Officers' Certificate" means a certificate signed by the Chairman of the Board or a Vice Chairman of the Board or the President or a Vice President, and by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary, of the Company, and delivered to the Trustee. One of the officers signing an Officers' Certificate given pursuant to Section 1004 shall be the principal executive, financial or accounting officer of the Company. "Opinion of Counsel" means a written opinion of counsel, who may be counsel for the Company, and who shall be acceptable to the Trustee. "Outstanding", when used with respect to Securities, means, as of the date of determination, all Securities theretofore authenticated and delivered under this Indenture, except: (i) Securities theretofore cancelled by the Trustee or delivered to the Trustee for cancellation; (ii) Securities for whose payment or redemption money in the necessary amount has been theretofore deposited with the Trustee or any Paying Agent (other than the Company) in trust or set aside and segregated in trust by the Company (if the Company shall act as its own Paying Agent) for the Holders of such Securities; provided that, if such Securities are to be redeemed, notice of such redemption has been duly given pursuant to -5- this Indenture or provision therefor satisfactory to the Trustee has been made; and (iii) Securities which have been paid pursuant to Section 306 or in exchange for or in lieu of which other Securities have been authenticated and delivered pursuant to this Indenture, other than any such Securities in respect of which there shall have been presented to the Trustee proof satisfactory to it that such Securities are held by a bona fide purchaser in whose hands such Securities are valid obligations of the Company; provided, however, that in determining whether the Holders of the requisite principal amount of the Outstanding Securities have given any request, demand, authorization, direction, notice, consent or waiver hereunder, Securities owned by the Company or any other obligor upon the securities or any Affiliate of the Company or of such other obligor shall be disregarded and deemed not to be Outstanding, except that, in determining whether the Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Securities which the Trustee knows to be so owned shall be so disregarded. Securities so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee's right so to act with respect to such Securities and that the pledgee is not the Company or any other obligor upon the securities or any Affiliate of the Company or of such other obligor. "Paying Agent" means any Person authorized by the Company to pay the principal of (and premium, if any) or interest on any Securities on behalf of the Company. "Person" means any individual, corporation, partnership, joint venture, trust, unincorporated organization or government or any agency or political subdivision thereof. "Predecessor Security" of any particular Security means every previous Security evidencing all or a portion of the same debt as that evidenced by such particular Security; and, for the purposes of this definition, any Security authenticated and delivered under Section 306 in exchange for or in lieu of a mutilated, destroyed, lost or stolen Security shall be deemed to evidence the same debt as the mutilated, destroyed, lost or stolen Security. -6- "Private Placement Legend" has the meaning specified in Section 202. "Proceeding" has the meaning specified in Section 1202. "Purchased Shares" has the meaning specified in Section 1304(6). "QIB" means "qualified institutional buyer" as defined in Rule 144A. "Redemption Date", when used with respect to any Security to be redeemed, means the date fixed for such redemption by or pursuant to this Indenture. "Redemption Price", when used with respect to any Security to be redeemed, means the price at which it is to be redeemed pursuant to this Indenture. "Registered Individual Securities" means certificated Securities not including Global Securities. "Regular Record Date" for the interest payable on any Interest Payment Date means the March 1 or September 1 (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. "Regulation S" means Regulation S under the Securities Act. "Repurchase Date" has the meaning specified in Section 1401. "Repurchase Price" has the meaning specified in Section 1401. "Responsible Officer", when used with respect to the Trustee, means any officer of the Trustee assigned by the Trustee to administer its corporate trust matters. "Rule 144" means Rule 144 under the Securities Act. "Rule 144A" means Rule 144A under the Securities Act. "Securities" has the meaning set forth in the first recital of this Indenture and more particularly means the Global Securities and Registered Individual Securities. -7- "Securities Act" means the Securities Act of 1933 as it may be amended from time to time, and any successor act thereto, and the rules and regulations of the Commission promulgated thereunder. "Securities Payment" has the meaning specified in Section 1202. "Security Register" and "Security Registrar" have the respective meanings specified in Section 305. "Senior Indebtedness" means the principal of (and premium, if any) and interest on (i) indebtedness of the Company for money borrowed evidenced by bonds, notes, debentures or similar obligations, including any guaranty by the Company of any indebtedness for money borrowed of any other person, whether outstanding on the date of the Indenture or thereafter created, assumed or incurred; (ii) indebtedness incurred, assumed or guaranteed by the Company in connection with the acquisition by it or a subsidiary of any other business, properties or other assets; and (iii) any refundings, renewals or extensions of any indebtedness described in clauses (i) and (ii), unless in the instrument creating or evidencing the indebtedness it is provided that such indebtedness is not superior in right of payment to the Securities. "Special Record Date" for the payment of any Defaulted Interest means a date fixed by the Trustee pursuant to Section 307. "Stated Maturity", when used with respect to any Security or any instalment of interest thereon, means the date specified in such Security as the fixed date on which the principal of such Security or such instalment of interest is due and payable. "Subsidiary" means a corporation more than 50% of the outstanding voting stock of which is owned, directly or indirectly, by the Company or by one or more other Subsidiaries, or by the Company and one or more other Subsidiaries. For the purposes of this definition, "voting stock" means stock which ordinarily has voting power for the election of directors, whether at all times or only so long as no senior class of stock has such voting power by reason of any contingency. "Trading Day" means each Monday, Tuesday, Wednesday, Thursday and Friday, other than any day on which securities are not traded on the applicable securities exchange or in the applicable securities market. -8- "Trustee" means the Person named as the "Trustee" in the first paragraph of this instrument until a successor Trustee shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Trustee" shall mean such successor Trustee. "Trust Indenture Act" means the Trust Indenture Act of 1939 as in force at the date as of which this instrument was executed; provided, however, that in the event the Trust Indenture Act of 1939 is amended after such date, "Trust Indenture Act" means, to the extent required by any such amendment, the Trust Indenture Act of 1939 as so amended. "U.S. Person" has the meaning given it by Regulation S. "United States" means the United States of America (including the States thereof and the District of Columbia), its territories, its possessions and other areas subject to its jurisdiction. "Vice President", when used with respect to the Company or the Trustee, means any vice president, whether or not designated by a number or a word or words added before or after the title "vice president". SECTION 102. Compliance Certificates and Opinions Upon any application or request by the Company to the Trustee to take any action under any provision of this Indenture, the Company shall furnish to the Trustee an officers' Certificate, if to be given by an officer of the Company, or an Opinion of Counsel, if to be given by counsel, stating that all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with. Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture shall include (1) a statement that each individual signing such certificate or opinion has read such covenant or condition and the definitions herein relating thereto; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions -9- contained in such certificate or opinion are based; (3) a statement that, in the opinion of each such individual, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condi- tion has been complied with; and (4) a statement as to whether, in the opinion of each such individual, such condition or covenant has been complied with. SECTION 103. Form of Documents Delivered to Trustee. In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents. Any certificate or opinion of an officer of the Company may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such officer knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to the matters upon which his certificate or opinion is based are erroneous. Any such certificate or opinion of counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an officer or officers of the Company stating that the information with respect to such factual matters is in the possession of the Company, unless such counsel knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to such matters are erroneous. Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument. -10- SECTION 104. Acts of Holders; Record Dates. (a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Holders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by an agent duly appointed in writing; and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are delivered to the Trustee and, where it is hereby expressly required, to the Company. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of the Holders signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture and (subject to Section 601) conclusive in favor of the Trustee and the Company, if made in the manner provided in this Section. Without limiting the generality of the foregoing, a Holder, including the Depositary that is a Holder of a Global Security, may make, give or take, by a proxy, or proxies, duly appointed in writing, any request, demand, authorization, direction, notice, consent, waiver or other action provided or permitted in this Indenture to be made, given or taken by Holders, and the Depositary that is a Holder of a Global Security may provide its proxy or proxies to the beneficial owners of interest in any such Global Security. (b) The fact and date of the execution by any Person of any such instrument or writing may be proved by the affidavit of a witness of such execution or by a certificate of a notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him the execution thereof. Where such execution is by a signer acting in a capacity other than his individual capacity, such certificate or affidavit shall also constitute sufficient proof of his authority. The fact and date of the execution of any such instrument or writing, or the authority of the Person executing the same, may also be proved in any other manner which the Trustee deems sufficient. (c) The Company may, in the circumstances permitted by the Trust Indenture Act, fix any day as the record date for the purpose of determining the Holders entitled to give or take any request, demand, authorization, -11- direction, notice, consent, waiver or other action, or to vote on any action, authorized or permitted to be given or taken by Holders. If not set by the Company prior to the first solicitation of a Holder made by any Person in respect of any such action, or, in the case of any such vote, prior to such vote, the record date for any such action or vote shall be the 30th day (or, if later, the date of the most recent list of Holders required to be provided pursuant to Section 701) prior to such first solicitation or vote, as the case may be. With regard to any record date, only the Holders on such date (or their duly designated proxies) shall be entitled to give or take, or vote on, the relevant action. (d) The ownership of Securities shall be proved by the Security Register. (e) Any request, demand, authorization, direction, notice, consent, waiver or other Act of the Holder of any Security shall bind every future Holder of the same Security and the Holder of every Security issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done, omitted or suffered to be done by the Trustee or the company in reliance thereon, whether or not notation of such action is made upon such Security. SECTION 105. Notices, Etc., to Trustee and Company. Any request, demand, authorization, direction, notice, consent, waiver or Act of Holders or other document provided or permitted by this Indenture to be made upon, given or furnished to, or filed with, (1) the Trustee by any Holder or by the Company shall be sufficient for every purpose hereunder if made, given, furnished or filed in writing to or with the Trustee at its Corporate Trust Office, Attention: Herbert Lemmer, Corporate Trust Department, 40 Wall Street, New York, New York 10005, or (2) the Company by the Trustee or by any Holder shall be sufficient for every purpose hereunder (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to the Company addressed to it at the address of its principal office specified in the first paragraph of this instrument, to the -12- attention of the Secretary, or at any other address previously furnished in writing to the Trustee by the Company. SECTION 106. Notice to Holders; Waiver. Where this Indenture provides for notice to Holders of any event, such notice shall be sufficiently given (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to each Holder affected by such event, at his address as it appears in the Security Register, not later than the latest date (if any), and not earlier than the earliest date (if any), prescribed for the giving of such notice. In any case where notice to Holders is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Holder shall affect the sufficiency of such notice with respect to other Holders. Where this Indenture provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. In case by reason of the suspension of regular mail service or by reason of any other cause it shall be impracticable to give such notice by mail, then such notification as shall be made with the approval of the Trustee shall constitute a sufficient notification for every purpose hereunder. SECTION 107. The Application of Trust Indenture Act. This Indenture shall be construed as though the Trust Indenture Act applied hereto for purposes, where applicable, of interpreting, constructing and defining the rights and obligations hereunder. If any provision set forth herein limits, qualifies or conflicts with any provision of the Trust Indenture Act used for the purposes described in the preceding sentence, the provision set forth herein shall control. SECTION 108. Effect of Headings and Table of Contents. The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. -13- SECTION 109. Successors and Assigns. All covenants and agreements in this Indenture by the Company shall bind its successors and assigns, whether so expressed or not. SECTION 110. Separability Clause. In case any provision in this Indenture or in the Securities shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 111. Benefits of Indenture. Nothing in this Indenture or in the securities, express or implied, shall give to any Person, other than the parties hereto and their successors hereunder, the holders of Senior Indebtedness and the Holders of Securities, any benefit or any legal or equitable right, remedy or claim under this Indenture. SECTION 112. GOVERNING LAW. THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. SECTION 113. Legal Holidays. In any case where any Interest Payment Date, Redemption Date, Repurchase Date or Stated Maturity of any Security or the last date on which a Holder has the right to convert his Securities shall not be a Business Day, then (notwithstanding any other provision of this Indenture or of the Securities) payment of interest or principal (and premium, if any) or conversion of the securities need not be made on such date, but may be made on the next succeeding Business Day with the same force and effect as if made on the Interest Payment Date, Redemption Date or Repurchase Date, or at the Stated Maturity, or on such last day for conversion, provided that no interest shall accrue with respect to the amount so payable for the period from and after such Interest Payment Date, Redemption Date, Repurchase Date or Stated Maturity, as the case may be. -14- ARTICLE TWO Security Forms SECTION 201. Forms Generally. The Securities and the Trustee's certificates of authentication shall be in substantially the forms set forth in this Article, with such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture (including forms of notices of conversion and exercise of repurchase right), and may have such letters, numbers or other marks of identification and such legends or endorsements placed thereon as may be required to comply with the rules of any securities exchange or Depositary therefor or as may, consistently herewith, be determined by the officers executing such Securities, as evidenced by their execution of the Securities. The definitive Securities shall be printed, lithographed or engraved or produced by any combination of these methods on steel engraved borders or may be produced in any other manner, all as determined by the officers executing such securities, as evidenced by their execution of such Securities. In certain cases described elsewhere herein, the legends set forth in Section 202 may be omitted from Securities issued hereunder. Securities offered and sold to Institutional Accredited Investors or in reliance on Regulation S shall be issued in the form of Registered Individual Securities in definitive, fully registered form without interest coupons, substantially in the form of security set forth in Sections 202 and 203, with such applicable legends as are provided for in Section 202, except as otherwise permitted herein. Securities offered and sold in reliance on Rule 144A shall be issued in the form of one or more Registered Individual Securities or in the form of a single Global Security in definitive, fully registered form without interest coupons, substantially in the form of Security set forth in Sections 202 and 203, with such applicable legends as are provided for in Section 202 and Section 204, except as otherwise permitted herein. Such Global Security shall be registered in the name of a nominee of the Depositary and deposited with the Trustee, at its New York office, as -15- custodian for the Depositary, duly executed by the Company and authenticated by the Trustee as hereinafter provided. The aggregate principal amount of the Global Security may from time to time be increased or decreased by adjustments made on the records of the Trustee, as custodian for the Depositary, in connection with a corresponding decrease or increase in the aggregate principal amount of Registered Individual Securities, as hereinafter provided. SECTION 202. Form of Face of Security. (Insert the following legend (the "Private Placement Legend") -- THE DEBENTURE EVIDENCED HEREBY HAS NOT BEEN REGISTERED AND WILL NOT BE REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1),(2),(3) OR (7) UNDER THE SECURITIES ACT) ("INSTITUTIONAL ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS SECURITY IN AN OFFSHORE TRANSACTION; (2) AGREES THAT IT WILL NOT WITHIN THREE YEARS AFTER THE ORIGINAL ISSUANCE OF THE DEBENTURE EVIDENCED HEREBY RESELL OR OTHERWISE TRANSFER THE DEBENTURE EVIDENCED HEREBY OR THE COMMON STOCK ISSUABLE UPON CONVERSION OF SUCH DEBENTURE EXCEPT IN A TRANSACTION NOT REQUIRING REGISTRATION UNDER THE SECURITIES ACT (A) TO INTERMAGNETICS GENERAL CORPORATION OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) INSIDE THE UNITED STATES TO AN INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO AMERICAN STOCK TRANSFER & TRUST COMPANY, NEW YORK, NEW YORK AS TRUSTEE OR TRANSFER AGENT, AS THE CASE MAY BE, A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THE DEBENTURE EVIDENCED HEREBY OR THE COMMON STOCK ISSUABLE UPON CONVERSION OF SUCH DEBENTURE (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM SUCH TRUSTEE OR TRANSFER AGENT), (D) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT OR (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE); AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THE DEBENTURE EVIDENCED -16- HEREBY WITHIN THREE YEARS AFTER THE ORIGINAL ISSUANCE OF SUCH DEBENTURE, THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO THE AMERICAN STOCK TRANSFER & TRUST COMPANY, AS TRUSTEE. IF THE PROPOSED TRANSFEREE IS AN INSTITUTIONAL ACCREDITED INVESTOR OR A PURCHASER WHO IS NOT A U.S. PERSON, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE TRUSTEE SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS IT MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U. S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT.] INTERMAGNETICS GENERAL CORPORATION 5.75% Convertible Subordinated Debentures Due 2003 No. _________ $_________ Intermagnetics General Corporation, a corporation duly organized and existing under the laws of New York (herein called the "Company", which term includes any successor Person under the Indenture hereinafter referred to), for value received, hereby promises to pay to ____________, or registered assigns, the principal sum of ___________ Dollars on September 15, 2003, and to pay interest thereon from September 20, 1993 or from the most recent Interest Payment Date to which interest has been paid or duly provided for, semi-annually on March 15 and September 15 in each year, commencing March 15, 1994, at the rate of 5.75% per annum, until the principal hereof is paid or made available for payment. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in such Indenture, be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest, which shall be the March 1 or September 1 (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. Any such interest not so punctually paid or duly provided for will forthwith cease to be payable to the Holder on such Regular Record Date and may either be paid to the Person in whose name this Security (or one or more Predecessor securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice -17- whereof shall be given to Holders of Securities not less than 10 days prior to such Special Record Date, or be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities may be listed, and upon such notice as may be required by such exchange, all as more fully provided in said Indenture. Payment of the principal of (and premium, if any) and interest on this Security will be made at the office or agency of the Company maintained for that purpose in the Borough of Manhattan, The City of New York, and at any other office or agency maintained by the Company for such purpose, in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts; provided, however, that at the option of the Company payment of interest may be made by check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register. Reference is hereby made to the further provisions of this Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed under its corporate seal. Dated: INTERMAGNETICS GENERAL CORPORATION By____________________________ -18- [Seal] Attest: ______________________________ SECTION 203. Form of Reverse of Security. This Security is one of a duly authorized issue of Securities of the Company designated as its 5.75% Convertible Subordinated Debentures Due 2003 (herein called the "Securities"), limited in aggregate principal amount to $34,500,000, issued and to be issued under an Indenture, dated as of September 15, 1993 (herein called the "Indenture"), between the Company and American Stock Transfer & Trust Company, as Trustee (herein called the "Trustee", which term includes any successor trustee under the Indenture), to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee, the holders of Senior Indebtedness and the Holders of the Securities and of the terms upon which the Securities are, and are to be, authenticated and delivered. Subject to and upon compliance with the provisions of the Indenture, the Holder of this Security is entitled, at his option, at any time on or before the close of business on September 15, 2003, or in case this Security or a portion hereof is called for redemption or is subject to repurchase upon exercise of the Holder's right under the Indenture to cause the Company to repurchase this Security following the occurrence of a Change in Control, then in respect of this Security or such portion hereof until and including, but (unless the Company defaults in making the payment due upon redemption or repurchase, as the case may be) not after, the close of business on the Business Day preceding the Redemption Date or the second Trading Day preceding the Repurchase Date, respectively, to convert this Security (or any portion of the principal amount hereof which is $1,000 or an integral multiple thereof), at the principal amount hereof (or of such portion), into fully paid and non-assessable shares (calculated as to each conversion to the nearest 1/100 of a share) of Common Stock of the Company at the rate of 51.282 shares of Common Stock for each $1,000 principal amount of Securities (or at the current adjusted conversion rate if an adjustment has been -19- made as provided in the Indenture) by surrender of this Security, duly endorsed or assigned to the Company or in blank, to the Company at its office or agency in the Borough of Manhattan, The City of New York, accompanied by written notice to the Company that the Holder hereof elects to convert this Security, or if less than the entire principal amount hereof is to be converted, the portion hereof to be converted, and, in case such surrender shall be made during the period from the close of business on any Regular Record Date next preceding the corresponding Interest Payment Date to the opening of business on such Interest Payment Date (unless this Security or the portion hereof being converted has been called for redemption on a Redemption Date within such period), also accompanied by payment in New York Clearing House or other funds acceptable to the Company of an amount equal to the interest payable on such Interest Payment Date on the principal amount of this Security then being converted. If this Security is converted after having been called for redemption, interest accrued and unpaid hereon to the date of conversion shall be payable on such date. Subject to the aforesaid and, in the case of a conversion after the Regular Record Date next preceding any Interest Payment Date and on or before such Interest Payment Date, to the right of the Holder of this Security (or any Predecessor Security) of record at such Regular Record Date to receive an instalment of interest (with certain exceptions provided in the Indenture), no payment or adjustment is to be made on conversion for interest accrued hereon or for dividends on the Common Stock issued on conversion. No fractions of shares or scrip representing fractions of shares will be issued on conversion, but instead of any fractional interest the Company shall pay a cash adjustment as provided in the Indenture. The conversion rate is subject to adjustment as provided in the Indenture. In addition, the Indenture provides that in case of certain consolidations or mergers to which the Company is a party or the transfer of substantially all of the assets of the Company, the Indenture shall be amended, without the consent of any Holders of Securities, so that this Security, if then outstanding, will be convertible thereafter, during the period this Security shall be convertible as specified above, only into the kind and amount of securities, cash and other property receivable upon the consolidation, merger or transfer by a holder of the number of shares of Common Stock into which this Security might have been converted immediately prior to such consolidation, merger or transfer (assuming such holder of Common Stock failed to exercise any rights of election and received per share the kind and amount received per share by a plurality of non-electing shares). -20- The Securities are subject to redemption upon not less than 30 days' or more than 60 days' notice by mail, at any time on or after September 15, 1996, as a whole or in part, at the election of the Company, at the following Redemption Prices (expressed as percentages of the principal amount). If redeemed during the 12-month period beginning September 15 of the years indicated: Redemption Redemption Year Price Year Price - ---- ---------- ---- ---------- 1996 ..... 104.025% 2000 .... 101.725% 1997 ..... 103.450% 2001 .... 101.150% 1998 ..... 102.875% 2002 .... 100.575% 1999 ..... 102.300% and at maturity at 100% of the principal amount. Such amounts will be paid together with accrued interest to the Redemption Date, but interest installments whose Stated Maturity is on or prior to such Redemption Date will be payable to the Holders of such Securities, or one or more Predecessor Securities, of record at the close of business on the relevant Record Dates referred to on the face hereof, all as provided in the Indenture. The Indenture provides that if a Change in Control (as defined therein) occurs, each Holder of Securities shall have the right, in accordance with the provisions of the Indenture, to require the Company to repurchase all of such Holder's Securities, or any portion thereof that is an integral multiple of $1,000, for cash at a price equal to 100% of the principal amount of such Securities to be repurchased together with accrued interest to the Repurchase Date. The Securities do not have the benefit of any sinking fund. In the event of redemption, conversion or repurchase of this Security in part only, a new Security or Securities for the portion hereof not redeemed, converted or repurchased will be issued in the name of the Holder hereof upon the cancellation hereof. The indebtedness evidenced by this Security is, to the extent provided in the Indenture, subordinate and subject in right of payment to the prior payment in full of all Senior Indebtedness, and this Security is issued subject to the provisions of the Indenture with respect thereto. Each Holder of this Security, by accepting the same, (a) agrees to and shall be bound by such provisions, -21- (b) authorizes and directs the Trustee on his behalf to take such action as may be necessary or appropriate to effectuate the subordination so provided and (c) appoints the Trustee his attorney-in-fact for any and all such purposes. If an Event of Default shall occur and be continuing, the principal of all the Securities may be declared due and payable in the manner and with the effect provided in the Indenture. The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders of the Securities under the Indenture at any time by the Company and the Trustee with the consent of the Holders of a majority in aggregate principal amount of the Securities at the time Outstanding. The Indenture also contains provisions permitting the Holders of specified percentages in aggregate principal amount of the Securities at the time Outstanding, on behalf of the Holders of all the securities, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security issued upon the registration of transfer hereof or in exchange herefore or in lieu hereof, whether or not notation of such consent or waiver is made upon this Security. No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of (and premium, if any) and interest on this Security at the times, place and rate, and in the coin or currency, herein prescribed or to convert this Security as provided in the Indenture. As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Security is registrable in the Security Register, upon surrender of this Security for registration of transfer at the office or agency of the Company in the Borough of Manhattan, The City of New York, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Securities, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. -22- The Securities are issuable only in registered form without coupons. Securities subject to the transfer restrictions provided in the Indenture are issuable only in denominations of $50,000 and integral multiples of $1,000 in excess thereof, except that such Securities may be issued in lesser denominations in connection with a partial conversion, redemption or repurchase (but not in connection with any proposed transfer of Securities thereafter). Securities not subject to such transfer restrictions are issuable in denominations of $1,000 plus integral multiples thereof. As provided in the Indenture and subject to certain limitations therein set forth, Securities are exchangeable for a like aggregate principal amount of Securities of a different authorized denomination, as requested by the Holder surrendering the same. No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. Prior to due presentment of this Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Security is registered as the owner hereof, for all purposes, whether or not payment of or on this Security is overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary. Interest on this Security shall be computed on the basis of a 360-day year of twelve 30-day months. All terms used in this security which are defined in the Indenture shall have the meanings assigned to them in the Indenture. THE INDENTURE AND THIS SECURITY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. [THE FOLLOWING PROVISION TO BE INCLUDED ON ALL CERTIFICATES OTHER THAN THE GLOBAL CERTIFICATE) In connection with any transfer of this Security occurring prior to [insert date that is three years following the-date of initial issuance of the Securities], the undersigned confirms that without utilizing any general solicitation or general advertising that: (Check One) -23- [ ] (a) this Security is being transferred in compliance with the exemption from registration under the Securities Act provided by Rule 144A thereunder. or [ ] (b) this Security is being transferred other than in accordance with (a) above and documents are being furnished which comply with the conditions of transfer set forth in this Security and the Indenture. If none of the foregoing boxes is checked, the Trustee or the Security Registrar shall not be obligated to register this Security in the name of any Person other than the Holder hereof unless and until the conditions to any such transfer of registration set forth herein shall have been satisfied. Date:______________________ ____________________________________ NOTICE: The signature to this assignment must correspond with the name as written upon the face of the within-mentioned instrument in every particular, without alteration or any change whatever. TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED. The undersigned represents and warrants that it is purchasing this Security for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a "qualified institutional buyer" within the meaning of Rule 144A under the Securities Act and is aware that the sale to it is being made in reliance on Rule 144A under the Securities Act and acknowledges that it has received such information regarding the Company as the undersigned has requested pursuant to Rule 144A under the Securities Act or has determined not to request such information and that it is aware that the transferor is relying upon the undersigned's foregoing representations in order to claim the exemption from registration provided by Rule 144A under the securities Act. Dated:______________________ ____________________________________ -24- NOTICE: To be executed by an executive officer (IN ALL CERTIFICATES OTHER THAN THE GLOBAL CERTIFICATE INSERT CONVERSION NOTICE AND NOTICE OF REPURCHASE IN CUSTOMARY FORM] SECTION 204. form of Legend for Global Securities. Any Global Security authenticated and delivered hereunder shall bear a legend in substantially the following form: THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE THEREOF. THIS SECURITY MAY NOT BE EXCHANGED IN WHOLE OR IN PART FOR A SECURITY REGISTERED, AND NO TRANSFER OF THIS SECURITY IN WHOLE OR IN PART MAY BE REGISTERED, IN THE NAME OF ANY PERSON OTHER THAN SUCH DEPOSITARY OR A NOMINEE THEREOF, EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. -25- SECTION 205. Form of Trustee's Certificate of Authentication. This is one of the Securities referred to in the within-mentioned Indenture. AMERICAN STOCK TRANSFER & TRUST COMPANY, as Trustee By_______________________________ Authorized Signature ARTICLE THREE The Securities SECTION 301. Title and Terms. The aggregate principal amount of Securities which may be authenticated and delivered under this Indenture is limited to $34,500,000, except for Securities authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Securities pursuant to Section 304, 305, 306, 906, 1108, 1302 or 1402. The Securities shall be known and designated as the "5.75% Convertible Subordinated Debentures due 2003" of the Company. Their Stated Maturity shall be September 15, 2003, and they shall bear interest at the rate of 5.75% per annum, from September 20, 1993 or from the most recent Interest Payment Date to which interest has been paid or duly provided for, as the case may be, payable semi-annually on March 15 and September 15, commencing March 15, 1994, until the principal thereof is paid or made available for payment. The principal of (and premium, if any) and interest on the Securities shall be payable at the office or agency of the Company in the Borough of Manhattan, The City of New York, maintained for such purpose and at any other office or agency maintained by the Company for such purpose; provided, however, that at the option of the Company payment of interest may be made by check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register. -26- The Depositary for the Global securities, beneficial interests in which may be originally purchased by QIBs, is the Depository Trust Company. The Securities shall be redeemable by the Company as provided in Article Eleven. The Securities shall be subordinated in right of payment to Senior Indebtedness as provided in Article Twelve. The Securities shall be convertible as provided in Article Thirteen. The Securities shall be subject to repurchase by the Company at the option of the Holders thereof as provided in Article Fourteen. SECTION 302. Denominations. The Securities shall be issuable only in registered form without coupons. Securities that are required, in accordance with Section 305, to bear the Private Placement Legend shall be issuable only in denominations of $50,000 and integral multiples of $1,000 in excess thereof. Notwithstanding the foregoing, a new Security may be issued in a denomination less than $50,000 in the case of any Security which is redeemed in part only under Section 1108, converted in part only under Section 1302 or repurchased in part only under Section 1402(e) (but not in the case of a proposed transfer under Section 305(b) thereafter). Securities that not required, in accordance with Section 305, to bear the Private Placement Legend are issuable in denominations of $1,000 and integral multiples thereof. SECTION 303. Execution, Authentication, Delivery and Dating. The Securities shall be executed on behalf of the Company by its Chairman of the Board, its Vice Chairman of the Board, its President or one of its Vice Presidents, under its corporate seal reproduced thereon attested by its secretary or one of its Assistant Secretaries. The signature of any of these officers on the Securities may be manual or facsimile. Securities bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Company shall bind the Company, -27- notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Securities or did not hold such offices at the date of such Securities. At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Securities executed by the Company to the Trustee for authentication, together with a Company Order for the authentication and delivery of such Securities; and the Trustee in accordance with such Company order shall authenticate and deliver such Securities as in this Indenture provided and not otherwise. Each Security shall be dated the date of its authentication. No Security shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose unless there appears on such Security a certificate of authentication substantially in the form provided for herein executed by the Trustee by manual signature, and such certificate upon any Security shall be conclusive evidence, and the only evidence, that such Security has been duly authenticated and delivered hereunder. The Company shall execute and the Trustee shall authenticate and deliver one or more Global Securities that (i) shall represent an aggregate amount equal to the aggregate principal amount of the Outstanding Securities originally purchased by QIBs, (ii) shall be registered in the name of the Depositary or the nominee of the Depositary, (iii) shall be delivered by the Trustee to the Depositary or pursuant to the Depositary's instruction and (iv) shall bear a legend substantially to the effect specified in Section 204 hereof (or in the form required by the Depositary). The Depositary must, at all times while it serves as such Depositary, be a clearing agency registered under the Exchange Act and any other applicable statute or regulation. Any securities initially offered and sold to Institutional Accredited Investors or in reliance on Regulation S shall be issued in the form of Registered Individual Securities. -28- SECTION 304. Temporary Securities. Pending the preparation of definitive Securities, the Company may execute, and upon Company Order the Trustee shall authenticate and deliver, temporary Securities which are printed, lithographed, typewritten, mimeographed or otherwise produced, in any authorized denomination, substantially of the tenor of the definitive Securities in lieu of which they are issued and with such appropriate insertions, omissions, substitutions and other variations as the officers executing such securities may determine, as evidenced by their execution of such Securities. If temporary Securities are issued, the Company will cause definitive Securities to be prepared without unreasonable delay. After the preparation of definitive Securities, the temporary Securities shall be exchangeable for definitive Securities upon surrender of the temporary Securities at any office or agency of the Company designated pursuant to Section 1002, without charge to the Holder. Upon surrender for cancellation of any one or more temporary Securities the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a like principal amount of definitive Securities of authorized denominations. Until so exchanged the temporary Securities shall in all respects be entitled to the same benefits under this Indenture as definitive Securities. SECTION 305. Registration, Registration of Transfer and Exchange. (a) The Company shall cause to be kept at the Corporate Trust Office of the Trustee a register (the register maintained in such office and in any other office or agency designated pursuant to Section 1002 being herein sometimes collectively referred to as the "Security Register") in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration of Securities and of transfers and exchanges of Securities. The Trustee is hereby appointed "Security Registrar" for the purpose of registering securities and transfers and exchanges of Securities as herein provided. (b) Subject to the transfers on restrictions specified below in this Section 305, upon surrender for registration of transfer or exchange of any Security at an office or agency of the Company designated pursuant to Section 1002 for such purpose, the Company shall execute, and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new -29- Securities of any authorized denominations and of a like aggregate principal amount. At the option of the Holder, Securities may be exchanged for other Securities of any authorized denominations and of a like aggregate principal amount, upon surrender of the Securities to be exchanged at such office or agency. Whenever any Securities are so surrendered for exchange, the Company shall execute, and the Trustee shall authenticate and deliver, the Securities which the Holder making the exchange is entitled to receive. If the proposed transferor of Securities is a member of, or participant in, the Depositary (an "Agent Member") holding a beneficial interest in the Global Security, and the Securities transferred or exchanged are to be taken in the form Registered Individual Securities, then subject to the restrictions on transfers specified below in this Section 305, and upon receipt of the instructions in accordance with the Depositary's and the Security Registrar's procedures, the Security Registrar shall reflect on its books and records the date and a decrease in the principal amount of the Global Security in an amount equal to the principal amount of the beneficial interest in the Global Security to be transferred, and the Company shall execute, and the Trustee shall authenticate and deliver, one or more Registered Individual Securities of like tenor and amount. If the proposed transferee of Securities is an Agent Member that proposes to hold such Securities by way of a beneficial interest in the Global Security, and the Securities to be transferred consist of Registered Individual Securities, then subject to the restrictions on transfers specified below in this Section 305, and upon receipt by the Security Registrar of instructions given in accordance with the Depositary's and the Security Registrar's procedures, the Security Registrar shall reflect on its books and records the date and an increase in the principal amount of the Global Security in an amount equal to the principal amount of the Registered Individual Securities to be transferred, and the Trustee shall cancel the Registered Individual Securities so transferred. All securities issued upon any registration of transfer or exchange of Securities shall be the valid obligations of the company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Securities surrendered upon such registration of transfer or exchange. -30- (c) Every Security presented or surrendered for registration of transfer or for exchange shall (if so required by the Company or the Trustee) be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed, by the Holder thereof or his attorney duly authorized in writing. (d) No service charge shall be made for any registration of transfer or exchange of Securities, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of securities, other than exchanges pursuant to Section 304, 906, 1108, 1302 or 1402 not involving any transfer. (e) The Company shall not be required (i) to issue, register the transfer of or exchange any Security during a period beginning at the opening of business 15 days before the day of the mailing of a notice of redemption of Securities selected for redemption under Section 1104 and ending at the close of business on the day of such mailing, or (ii) to register the transfer of or exchange any Security so selected for redemption in whole or in part, except the unredeemed portion of any Security being redeemed in part. (f) Notwithstanding any other provision of this Section, unless and until it is exchanged in whole or in part for Registered Individual Securities represented thereby, a Global Security representing all or a portion of the Securities may not be transferred except as a whole by the Depositary to a nominee of such Depositary or by a nominee of such Depositary to such Depositary or another nominee of such Depositary or by such Depositary or any such nominee to a successor Depositary or a nominee of such successor Depositary. If at any time the Depositary notifies the Company that it is unwilling or unable to continue as Depositary or if at any time the Depositary shall no longer be eligible under Section 303, the Company shall appoint a successor Depositary. If a successor Depositary is not appointed by the Company within 90 days after the Company receives such notice or becomes aware of such ineligibility, the Company will execute, and the Trustee, upon receipt of a Company Order for the authentication and delivery of Registered Individual Securities, will authenticate and deliver, Registered Individual Securities in an aggregate principal amount equal to the principal amount of the Global Security or Securities representing the Securities in exchange for such Global Security or Securities. -31- The Company may at any time and in its sole discretion determine that individual Securities issued in the form of one or more Global Securities shall no longer be represented by such Global Security or Securities. In such event, or if an Event of Default has occurred and is continuing, the Company will execute, and the Trustee, upon receipt of a Company Order for the authentication and delivery of Registered Individual Securities, will authenticate and deliver, Registered Individual Securities in an aggregate principal amount equal to the principal amount of the Global Security or Securities representing the Securities in exchange for such Global Security or Securities. The Depositary may surrender a Global Security in exchange in whole or part for Registered Individual Securities on such terms as are acceptable to the Company and such Depositary. Thereupon, the Company shall execute, and the Trustee shall authenticate and deliver, (i) to each Person specified by such Depositary a new Registered Individual Security of any authorized denomination as requested by such Person in aggregate principal amount equal to and in exchange for such Person's beneficial interest in the Global Security; and (ii) to such Depositary a new Global Security in a denomination equal to the difference, if any, between the principal amount of the surrendered Global Security and the aggregate principal amount of the Registered Individual Securities delivered to Holders thereof. Upon the exchange of a Global Security for Registered Individual Securities, such Global Security shall be canceled by the Trustee. Individual Securities issued in exchange for a Global Security pursuant to this Section shall be registered in such names and in such authorized denominations as the Depositary for such Global Security, pursuant to instructions from its direct or indirect participants or otherwise, shall instruct the Trustee. The Trustee and the Company shall not have any liability for the accuracy of the instructions received from the Depositary. The Trustee shall deliver such securities to the Persons in whose names such Securities are so registered. (g) Agent Members shall have no rights under this Indenture with respect to any Global Security held on their behalf by the Depositary, or the Paying Agent as its -32- custodian, or under the Global Security, and the Depositary may be treated by the Company, the Trustee and any agent of the Company or the Trustee as the absolute owner of such Global Security for all purposes whatsoever. Neither the Company nor the Trustee shall have any responsibility or obligation to any participant in the Depositary, any Person claiming a beneficial ownership interest in the Securities under or through the Depositary or any such participant, or any other Person which is not shown on the Security Register as being a Holder, with respect to (1) the Securities; (2) the accuracy of any records maintained by the Depositary or any such participant; (3) the payment by the Depositary or any such participant of any amount in respect of the principal of or premium or interest on the Securities; (4) any notice which is permitted or required to be given to Holders of Securities under this Indenture; (5) the selection by the Depositary or any such participant of any Person to receive payment in the event of a partial redemption of the Securi- ties; or (6) any consent given or other action taken by the Depositary as Holder of Securities. (h) Subject to the following subsection (i) of this Section 305, every Security issued upon transfer or exchange or replacement thereof shall bear the Private Placement Legend and shall be subject to the restrictions on transfer provided therein. (i) The restrictions described in the Private Placement Legend upon the transferability of any Security shall cease and terminate: (x) when such Security has been sold pursuant to an effective registration statement under the Securities Act, (y) when the Company has delivered to the Trustee a Company Order that states that a period of at least three years has elapsed since the Securities were acquired by the Initial Purchaser and that the Security may be issued without the Private Placement Legend, or (z) when such Security has otherwise been transferred in compliance with Rule 144 under the Securities Act (or any successor provision thereto). Any Security as to which such restrictions on transfer shall have terminated may, upon surrender of such Security for exchange to the Security Registrar in accordance with the provisions of this section 305, be -33- exchanged for a new Security, of like tenor and aggregate principal amount, which shall not bear the Private Placement Legend. In the event that such restrictions on transfer have terminated by reason of a transfer in compliance with Rule 144 or any successor provision, in accordance with subsection (i)(z) of this Section 305, such Security shall be accompanied by an opinion of counsel (such counsel having experience in practice under the Securities Act and otherwise reasonably acceptable to the Company), addressed to the Company and in form acceptable to the Company, to the effect that the transfer of such Security has been made in compliance with Rule 144 or such successor provision. The Trustee shall not be liable for any action taken or omitted to be taken by it in good faith in accordance with the aforementioned opinion of counsel or registration statement. As used in subsections (i) and (j) of this Section 305, the term "transfer" encompasses any sale, pledge, transfer, hypothecation or other disposition of any Security. (j) So long as the restrictions on transfer of securities specified in this Section 305 remain in effect, the Security Registrar shall register any proposed transfer of a Security to a QIB pursuant to Rule 144A, only if such transfer is being made by a proposed transferor who has checked the box provided for on the form of Security stating, or has otherwise advised the Company and the Security Registrar in writing, that the sale has been made in compliance with the provisions of Rule 144A to a transferee who has signed the certification provided for on the form of Security stating, or has otherwise advised the Company and the Security Registrar in writing, that it is purchasing the Rule 144A Security for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a QIB within the meaning of Rule 144A, and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as it has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon its foregoing representations in order to claim the exemption from registration provided by Rule 144A. (k) So long as the restrictions on transfer of Securities specified in this Section 305 remain in effect, the Security Registrar shall register any proposed transfer of a Registered Individual Security to a Non-U.S. Person only upon receipt from the proposed transferor of a certificate substantially in the form of Exhibit A hereto. -34- (1) So long as the restrictions on transfer of Securities specified in this Section 305 remain in effect, the Security Registrar shall register any proposed transfer of a Registered Individual security to an Institutional Accredited Investor (that is not a QIB) only upon receipt from the proposed transferee of a certificate substantially in the form of Exhibit B hereto. SECTION 306. Mutilated, Destroyed, Lost and Stolen Securities. If any mutilated Security is surrendered to the Trustee, the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a new Security of like tenor and principal amount and bearing a number not contemporaneously outstanding. If there shall be delivered to the Company and the Trustee (i) evidence to their satisfaction of the destruction, loss or theft of any Security and (ii) such security or indemnity as may be required by them to save each of them and any agent of either of them harmless, then, in the absence of notice to the Company or the Trustee that such Security has been acquired by a bona fide purchaser, the Company shall execute and the Trustee shall authenticate and deliver, in lieu of any such destroyed, lost or stolen Security, a new Security of like tenor and principal amount and bearing a number not contemporaneously outstanding. In case any such mutilated, destroyed, lost or stolen Security has become or is about to become due and payable, the Company in its discretion may, instead of issuing a new Security, pay such Security. Upon the issuance of any new Security under this Section, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith. Every new Security issued pursuant to this Section in lieu of any destroyed, lost or stolen security shall constitute an original additional contractual obligation of the Company, whether or not the destroyed, lost or stolen Security shall be at any time enforceable by anyone, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Securities duly issued hereunder. -35- The provisions of this Section are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities. SECTION 307. Payment of Interest; Interest Rights Preserved. Interest on any Security which is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid to the Person in whose name that Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest. Any interest on any Security which is payable, but is not punctually paid or duly provided for, on any Interest Payment Date (herein called "Defaulted Interest") shall forthwith cease to be payable to the Holder on the relevant Regular Record Date by virtue of having been such Holder, and such Defaulted Interest may be paid by the Company, at its election in each case, as provided in Clause (1) or (2) below: (1) The Company may elect to make payment of any Defaulted Interest to the Persons in whose names the Securities (or their respective Predecessor Securities) are registered at the close of business on a Special Record Date for the payment of such Defaulted Interest, which shall be fixed in the following manner. The Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each Security and the date of the proposed payment, and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such Defaulted Interest as in this Clause provided. Thereupon the Trustee shall fix a Special Record Date for the payment of such Defaulted Interest which shall be not more than 15 days and not less than 10 days prior to the date of the proposed payment and not -36- less than 10 days after the receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Company of such Special Record Date and, in the name and at the expense of the Company, shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be mailed, first-class postage prepaid, to each Holder at his address as it appears in the Security Register, not less than 10 days prior to such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor having been so mailed, such Defaulted Interest shall be paid to the Persons in whose names the Securities (or their respective Predecessor Securities) are registered at the close of business on such Special Record Date and shall no longer be payable pursuant to the following Clause (2). (2) The Company may make payment of any Defaulted Interest in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities may be listed, and upon such notice as may be required by such exchange, if, after notice given by the Company to the Trustee of the proposed payment pursuant to this Clause, such manner of payment shall be deemed practicable by the Trustee. Subject to the foregoing provisions of this Section, each Security delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any other Security shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Security. In the case of any Security which is converted after any Regular Record Date and on or prior to the next succeeding Interest Payment Date (other than any Security whose Maturity is prior to such Interest Payment Date), interest whose Stated Maturity is on such Interest Payment Date shall be payable on such Interest Payment Date notwithstanding such conversion, and such interest (whether or not punctually paid or duly provided for) shall be paid to the Person in whose name that Security (or one or more Predecessor Securities) is registered at the close of business on such Regular Record Date. Except as otherwise -37- expressly provided in the immediately preceding sentence, and except in the case of any Security which is converted after having been called for redemption, interest whose Stated Maturity is after the date of conversion of such Security shall not be payable. SECTION 308. Persons Deemed Owners. Prior to due presentment of a Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name such Security is registered as the owner of such Security for the purpose of receiving payment of principal of (and premium, if any) and (subject to Section 307) interest on such Security and for all other purposes whatsoever, whether or not such Security be overdue, and neither the Company, the Trustee nor any agent of the Company or the Trustee shall be affected by notice to the contrary. SECTION 309. Cancellation. All Securities surrendered for payment, redemption, registration of transfer, exchange or conversion shall, if surrendered to any Person other than the Trustee, be delivered to the Trustee and shall be promptly cancelled by it. The Company may at any time deliver to the Trustee for cancellation any Securities previously authenticated and delivered hereunder which the Company may have acquired in any manner whatsoever, and all Securities so delivered shall be promptly cancelled by the Trustee. No Securities shall be authenticated in lieu of or in exchange for any Securities cancelled as provided in this Section, except as expressly permitted by this Indenture. All cancelled Securities held by the Trustee shall be disposed of as directed by a Company Order. SECTION 310. Computation of Interest. Interest on the Securities shall be computed on the basis of a 360-day year of twelve 30-day months. -38- ARTICLE FOUR Satisfaction and Discharge SECTION 401. Satisfaction and Discharge of Indenture. This Indenture shall cease to be of further effect (except as to any surviving rights of conversion, registration of transfer or exchange of Securities herein expressly provided for), and the Trustee, on demand of and at the expense of the Company, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture, when (1) either (A) all Securities theretofore authenticated and delivered (other than (i) Securities which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 306 and (ii) Securities for whose payment money has theretofore been deposited in trust or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust, as provided in Section 1003) have been delivered to the Trustee for cancellation; or (B) all such Securities not theretofore delivered to the Trustee for cancellation (i) have become due and payable, or (ii) will become due and payable at their Stated Maturity within one year, or (iii) are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company, -39- and the Company, in the case of (i), (ii) or (iii) above, has deposited or caused to be deposited with the Trustee as trust funds in trust for the purpose an amount sufficient to pay and discharge the entire indebtedness on such Securities not theretofore delivered to the Trustee for cancellation, for principal (and premium, if any) and interest to the date of such deposit (in the case of Securities which have become due and payable) or to the Stated Maturity or Redemption Date, as the case may be; (2) the Company has paid or caused to be paid all other sums payable hereunder by the Company; and (3) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture have been complied with. Notwithstanding the satisfaction and discharge of this Indenture, the obligations of the Company to the Trustee under Section 607, the obligations of the Company to any Authenticating Agent under Section 614 and, if money shall have been deposited with the Trustee pursuant to subclause (B) of Clause (1) of this Section, the obligations of the Trustee under Section 402 and the last paragraph of Section 1003 shall survive. SECTION 402. Application of Trust Money. Subject to the provisions of the last paragraph of Section 1003, all money deposited with the Trustee pursuant to Section 401 shall be held in trust and applied by it, in accordance with the provisions of the Securities and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of the principal (and premium, if any) and interest for whose payment such money has been deposited with the Trustee. All moneys deposited with the Trustee pursuant to Section 401 (and held by it or any Paying Agent) for the payment of Securities subsequently converted shall be returned to the Company upon Company Request. -40- ARTICLE FIVE Remedies SECTION 501. Events of Default. "Event of Default", wherever used herein, means any one of the following events (whatever the reason for such Event of Default and whether it shall be occasioned by the provisions of Article Twelve or be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (1) default in the payment of any interest upon any Security when it becomes due and payable, and continuance of such default for a period of 30 days; or (2) default in the payment of the principal of (or premium, if any, on) any Security at its Maturity; or (3) default in the performance, or breach, of any covenant or warranty of the Company in this Indenture (other than a covenant or warranty a default in whose performance or whose breach is elsewhere in this Section specifically dealt with), and continuance of such default or breach for a period of 60 days after there has been given, by registered or certified mail, to the Company by the Trustee or to the Company and the Trustee by the Holders of at least 10% in principal amount of the Outstanding Securi- ties a written notice specifying such default or breach and requiring it to be remedied and stating that such notice is a "Notice of Default" hereunder; or (4) the entry by a court having jurisdiction in the premises of (A) a decree or order for relief in respect of the Company in an involuntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or (B) a decree or order adjudging the -41- Company a bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement, adjustment or composition of or in respect of the Company under any applicable Federal or State law, or appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or of any substantial part of its property, or ordering the winding up or liquidation of its affairs, and the continuance of any such decree or order for relief or any such other decree or order unstayed and in effect for a period of 60 consecutive days; or (5) the commencement by the Company of a voluntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or of any other case or proceeding to be adjudicated a bankrupt or insolvent, or the consent by it to the entry of a decree or order for relief in respect of the Company in an involuntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or to the commencement of any bankruptcy or insolvency case or proceeding against it, or the filing by it of a petition or answer or consent seeking reorganization or relief under any applicable Federal or State law, or the consent by it to the filing of such petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or of any substantial part of its property, or the making by it of an assignment for the benefit of creditors, or the admission by it in writing of its inability to pay its debts generally as they become due, or the taking of corporate action by the Company in furtherance of any such action. SECTION 502. Acceleration of Maturity; Rescission and Annulment. If an Event of Default occurs and is continuing, then and in every such case the Trustee or the Holders of not less than 25% in principal amount of the outstanding -42- Securities may declare the principal of all the Securities to be due and payable immediately, by a notice in writing to the Company (and to the Trustee if given by Holders), and upon any such declaration such principal shall become immediately due and payable. At any time after such a declaration of acceleration has been made and before a judgment or decree for payment of the money due has been obtained by the Trustee as hereinafter in this Article provided, the Holders of a majority in principal amount of the Outstanding Securities, by written notice to the Company and the Trustee, may rescind and annul such declaration and its consequences if (1) the Company has paid or deposited with the Trustee a sum sufficient to pay (A) all overdue interest on all Securities, (B) the principal of (and premium, if any, on) any Securities which have become due otherwise than by such declaration of acceleration and interest thereon at the rate borne by the Securities, (C) to the extent that payment of such interest is lawful, interest upon overdue interest at the rate borne by the Securities, and (D) all sums paid or advanced by the Trustee hereunder and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel; and (2) all Events of Default, other than the non-payment of the principal of Securities which have become due solely by such declaration of acceleration, have been cured or waived as provided in Section 513. No such rescission shall affect any subsequent default or impair any right consequent thereon. -43- SECTION 503. Collection of Indebtedness and Suits for Enforcement by Trustee. The Company covenants that if (1) default is made in the payment of any interest on any Security when such interest becomes due and payable and such default continues for a period of 30 days, or (2) default is made in the payment of the principal of (or premium, if any, on) any Security at the Maturity thereof, the Company will, upon demand of the Trustee, pay to it, for the benefit of the Holders of such Securities, the whole amount then due and payable on such Securities for principal (and premium, if any) and interest, and, to the extent that payment of such interest shall be legally enforceable, interest on any overdue principal (and premium, if any) and on any overdue interest, at the rate borne by the Securities, and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. If an Event of Default occurs and is continuing, the Trustee may in its discretion proceed to protect and enforce its rights and the rights of the Holders by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein, or to enforce any other proper remedy. SECTION 504. Trustee May File Proofs of Claim. In case of any judicial proceeding relative to the Company (or any other obligor upon the Securities), its property or its creditors, the Trustee shall be entitled and empowered, by intervention in such proceeding or otherwise, to take any and all actions authorized under the Trust Indenture Act in order to have claims of the Holders and the Trustee allowed in any such proceeding. In particular, the Trustee shall be authorized to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same; and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is -44- hereby authorized by each Holder to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 607. No provision of this Indenture shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. SECTION 505. Trustee May Enforce Claims Without Possession of Securities. All rights of action and claims under this Indenture or the Securities may be prosecuted and enforced by the Trustee without the possession of any of the Securities or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, be for the ratable benefit of the Holders of the Securities in respect of which such judgment has been recovered. SECTION 506. Application of Money Collected. Subject to Article Twelve, any money collected by the Trustee pursuant to this Article shall be applied in the following order, at the date or dates fixed by the Trustee and, in case of the distribution of such money on account of principal (or premium, if any) or interest, upon presentation of the Securities and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid: FIRST: To the payment of all amounts due the Trustee under Section 607; and SECOND: To the payment of the amounts then due and unpaid for principal of (and -45- premium, if any) and interest on the Securities in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the amounts due and payable on such Securities for principal (and premium, if any) and interest, respectively. SECTION 507. Limitation on Suits. No Holder of any Security shall have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless (1) such Holder has previously given written notice to the Trustee of a continuing Event of Default; (2) the Holders of not less than 25% in principal amount of the outstanding Securities shall have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee hereunder; (3) such Holder or Holders have offered to the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request; (4) the Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and (5) no direction inconsistent with such written request has been given to the Trustee during such 60-day period by the Holders of a majority in principal amount of the outstanding Securities; it being understood and intended that no one or more Holders shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other Holders, or to obtain or to seek to obtain priority or preference over any other Holders or to enforce any right under this Indenture, -46- except in the manner herein provided and for the equal and ratable benefit of all the Holders. SECTION 508. Unconditional Right of Holders to Receive Principal, Premium and Interest and to Convert. Notwithstanding any other provision in this Indenture, the Holder of any Security shall have the right, which is absolute and unconditional, to receive payment of the principal of (and premium, if any) and (subject to Section 307) interest on such Security on the respective Stated Maturities expressed in such Security (or, in the case of redemption, on the Redemption Date) and to convert such Security in accordance with Article Thirteen and to institute suit for the enforcement of any such payment and right to convert, and such rights shall not be impaired without the consent of such Holder. SECTION 509. Restoration of Rights and Remedies. If the Trustee or any Holder has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then and in every such case, subject to any determination in such proceeding, the Company, the Trustee and the Holders shall be restored severally and respectively to their former positions hereunder and thereafter all rights and remedies of the Trustee and the Holders shall continue as though no such proceeding had been instituted. SECTION 510. Rights and Remedies Cumulative. Except as otherwise provided with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities in the last paragraph of Section 306, no right or remedy herein conferred upon or reserved to the Trustee or to the Holders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. -47- SECTION 511. Delay or Omission Not Waiver. No delay or omission of the Trustee or of any Holder of any Securities to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article Five or by law to the Trustee or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Holders, as the case may be. SECTION 512. Control by Holders. The Holders of a majority in principal amount of the Outstanding Securities shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee, provided that (1) such direction shall not be in conflict with any rule of law or with this Indenture, and (2) the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction. SECTION 513. Waiver of Past Defaults. The Holders of not less than a majority in principal amount of the Outstanding Securities may on behalf of the Holders of all the Securities waive any past default hereunder and its consequences, except a default (1) in the payment of the principal of (or premium, if any) or interest on any Security, or (2) in respect of a covenant or provision hereof which under Article Nine cannot be modified or amended without the consent of the Holder of each Outstanding Security affected. Upon any such waiver, such default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this -48- Indenture; but no such waiver shall extend to any subsequent or other default or impair any right consequent thereon. SECTION 514. Undertaking for Costs. In any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action taken, suffered or omitted by it as Trustee, a court may require any party litigant in such suit to file an undertaking to pay the costs of such suit, and may assess costs against any such party litigant, in the manner and to the extent provided in the Trust Indenture Act; provided, that neither this Section nor the Trust Indenture Act shall be deemed to authorize any court to require such an undertaking or to make such an assessment in any suit instituted by the Company or in any suit for the enforcement of the right to convert any security in accordance with Article Thirteen. SECTION 515. Waiver of Stay or Extension Laws. The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. ARTICLE SIX The Trustee SECTION 601. Certain Duties and Responsibilities. The duties and responsibilities of the Trustee shall be as provided by the Trust Indenture Act. Notwithstanding the foregoing, no provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of -49- its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. Whether or not therein expressly so provided, every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Section. SECTION 602. Notice of Defaults. The Trustee shall give the Holders notice of any default hereunder known to the Trustee as and to the extent provided by the Trust Indenture Act; provided, however, that in the case of any default of the character specified in Section 501(3), no such notice to Holders shall be given until at least 30 days after the occurrence thereof. For the purpose of this Section, the term "default" means any event which is, or after notice or lapse of time or both would become, an Event of Default. SECTION 603. Certain Rights of Trustee. Subject to the provisions of Section 601: (a) the Trustee may rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties; (b) any request or direction of the Company mentioned herein shall be sufficiently evidenced by a Company Request or Company Order and any resolution of the Board of Directors may be sufficiently evidenced by a Board Resolution; (c) whenever in the administration of this Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Trustee (unless other evidence be herein specifically -50- prescribed) may, in the absence of bad faith on its part, rely upon an Officers' Certificate; (d) the Trustee may consult with counsel and the written advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon; (e) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders pursuant to this Indenture, unless such Holders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction; (f) the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company, personally or by agent or attorney; and (g) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder. -51- SECTION 604. Not Responsible for Recitals or Issuance of Securities. The recitals contained herein and in the Securities, except the Trustee's certificates of authentication, shall be taken as the statements of the Company, and the Trustee assumes no responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this Indenture or of the Securities. The Trustee shall not be accountable for the use or application by the Company of Securities or the proceeds thereof. SECTION 605. May Hold Securities. The Trustee, any Authenticating Agent, any Paying Agent, any Security Registrar or any other agent of the Company, in its individual or any other capacity, may become the owner or pledgee of Securities and, subject to Sections 608 and 613, may otherwise deal with the Company with the same rights it would have if it were not Trustee, Authenticating Agent, Paying Agent, Security Registrar or such other agent. SECTION 606. Money Held in Trust. Money held by the Trustee in trust hereunder need not be segregated from other funds except to the extent required by law. The Trustee shall be under no liability for interest on any money received by it hereunder except as otherwise agreed with the Company. SECTION 607. Compensation and Reimbursement. The Company agrees (1) to pay to the Trustee from time to time reasonable compensation for all services rendered by it hereunder (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust); (2) except as otherwise expressly provided herein, to reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any provision of this Indenture (including the -52- reasonable compensation and the expenses and disbursements of its agents and counsel), except any such expense, disbursement or advance as may be attributable to its negligence or bad faith; and (3) to indemnify the Trustee for, and to hold it harmless against, any loss, liability or expense incurred without negligence or bad faith on its part, arising out of or in connection with the acceptance or administration of this trust, including the costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder. SECTION 608. Disqualification; Conflicting Interests. If the Trustee has or shall acquire a conflicting interest within the meaning of the Trust Indenture Act, the Trustee shall either eliminate such interest or resign, to the extent and in the manner provided by, and subject to the provisions of, the Trust Indenture Act and this Indenture. SECTION 609. Corporate Trustee Required; Eligibility. There shall at all times be a Trustee hereunder which shall be a Person that is eligible pursuant to the Trust Indenture Act to act as such and has a combined capital and surplus of at least $10,000,000 and its Corporate Trust Office in the Borough of Manhattan, The City of New York. If such Person publishes reports of condition at least annually, pursuant to law or to the requirements of said supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such Person shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect hereinafter specified in this Article. SECTION 610. Resignation and Removal; Appointment of Successor. (a) No resignation or removal of the Trustee and no appointment of a successor Trustee pursuant to this -53- Article shall become effective until the acceptance of appointment by the successor Trustee in accordance with the applicable requirements of Section 611. (b) The Trustee may resign at any time by giving written notice thereof to the Company. If an instrument of acceptance by a successor Trustee shall not have been delivered to the Trustee within 30 days after the giving of such notice of resignation, the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor Trustee. (c) The Trustee may be removed at any time by Act of the Holders of a majority in principal amount of the Outstanding Securities, delivered to the Trustee and to the Company. (d) If at any time: (1) the Trustee shall fail to comply with Section 608 after written request therefor by the Company or by any Holder who has been a bona fide Holder of a Security for at least six months, or (2) the Trustee shall cease to be eligible under Section 609 and shall fail to resign after written request therefor by the Company or by any such Holder, or (3) the Trustee shall become incapable of acting or shall be adjudged a bankrupt or insolvent or a receiver of the Trustee or of its property shall be appointed or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, then, in any such case, (i) the Company by a Board Resolution may remove the Trustee, or (ii) subject to Section 514, any Holder who has been a bona fide Holder of a Security for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. (e) If the Trustee shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Trustee for any cause, the Company, by a Board Resolution, shall promptly appoint a successor Trustee. If, -54- within one year after such resignation, removal or incapability, or the occurrence of such vacancy, a successor Trustee shall be appointed by Act of the Holders of a majority in principal amount of the Outstanding Securities delivered to the Company and the retiring Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance of such appointment, become the successor Trustee and supersede the successor Trustee appointed by the Company. If no successor Trustee shall have been so appointed by the Company or the Holders and accepted appointment in the manner hereinafter provided, any Holder who has been a bona fide Holder of a Security for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor Trustee. (f) The Company shall give notice of each resignation and each removal of the Trustee and each appointment of a successor Trustee to all Holders in the manner provided in Section 106. Each notice shall include the name of the successor Trustee and the address of its Corporate Trust Office. SECTION 611. Acceptance of Appointment by Successor. Every successor Trustee appointed hereunder shall execute, acknowledge and deliver to the Company and to the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee; but, on request of the Company or the successor Trustee, such retiring Trustee shall, upon payment of its charges, execute and deliver an instrument transferring to such successor Trustee all the rights, powers and trusts of the retiring Trustee and shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder. Upon request of any such successor Trustee, the Company shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Trustee all such rights, powers and trusts. No successor Trustee shall accept its appointment unless at the time of such acceptance such successor Trustee shall be qualified and eligible under this Article. -55- SECTION 612. Merger, Conversion, Consolidation or Succession to Business. Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to all or substantially all the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder, provided such corporation shall be otherwise qualified and eligible under this Article, without the execution or filing of any paper or any further act on the part of any of the parties hereto. In case any Securities shall have been authenticated, but not delivered, by the Trustee then in office, any successor by merger, conversion or consolidation to such authenticating Trustee may adopt such authentication and deliver the Securities so authenticated with the same effect as if such successor Trustee had itself authenticated such Securities. SECTION 613. Preferential Collection of Claims Against Company. If and when the Trustee shall be or become a creditor of the Company (or any other obligor upon the Securities), the Trustee shall be subject to the provisions of the Trust Indenture Act regarding the collection of claims against the Company (or any such other obligor). SECTION 614. Appointment of Authenticating Agent. The Trustee may appoint an Authenticating Agent or Agents which shall be authorized to act on behalf of the Trustee to authenticate Securities issued upon original issue and upon exchange, registration of transfer, partial conversion, partial redemption or partial repurchase or pursuant to Section 306, and Securities so authenticated shall be entitled to the benefits of this Indenture and shall be valid and obligatory for all purposes as if authenticated by the Trustee hereunder. Wherever reference is made in this Indenture to the authentication and delivery of Securities by the Trustee or the Trustee's certificate of authentication, such reference shall be deemed to include authentication and delivery on behalf of the Trustee by an Authenticating Agent and a certificate of authentication executed on behalf of the Trustee by an Authenticating Agent. Each Authenticating Agent shall be acceptable to the Company and shall at all times be a corporation organized and doing business under the laws of the United States of America, any State thereof or the District of Columbia, authorized under such laws to act as Authenticating Agent, -56- having a combined capital and surplus of not less than $10,000,000 and subject to supervision or examination by Federal or State authority. If such Authenticating Agent publishes reports of condition at least annually, pursuant to law or to the requirements of said supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such Authenticating Agent shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time an Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, such Authenticating Agent shall resign immediately in the manner and with the effect specified in this Section. Any corporation into which an Authenticating Agent may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which such Authenticating Agent shall be a party, or any corporation succeeding to the corporate agency or corporate trust business of an Authenticating Agent, shall continue to be an Authenticating Agent, provided such corporation shall be otherwise eligible under this Section, without the execution or filing of any paper or any further act on the part of the Trustee or the Authenticating Agent. An Authenticating Agent may resign at any time by giving written notice thereof to the Trustee and to the Company. The Trustee or the Company may at any time terminate the agency of an Authenticating Agent by giving written notice thereof to such Authenticating Agent and to the Company. Upon receiving such a notice of resignation or upon such a termination, or in case at any time such Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, the Trustee may, upon receipt of a Company Request, appoint a successor Authenticating Agent and shall mail written notice of such appointment by first-class mail, postage prepaid, to all Holders as their names and addresses appear in the Security Register. Any successor Authenticating Agent upon acceptance of its appointment hereunder shall become vested with all the rights, powers and duties of its predecessor hereunder, with like effect as if originally named as an Authenticating Agent. No successor Authenticating Agent shall be appointed unless eligible under the provisions of this Section. The Trustee agrees to pay to each Authenticating Agent from time to time reasonable compensation for its services under this section, and the Trustee shall be -57- entitled to be reimbursed for such payments, subject the provisions of section 607. If an appointment is made pursuant to this Section, the Securities may have endorsed thereon, in addition to the Trustee's certificate of authentication, an alternative certificate of authentication in the following form: This is one of the Securities referred to in the within-mentioned Indenture. AMERICAN STOCK TRANSFER & TRUST COMPANY, As Trustee By______________________________________, As Authenticating Agent By______________________________________ Authorized Officer ARTICLE SEVEN Holders' Lists and Reports by Trustee and Company SECTION 701. Company to Furnish Trustee Names and Addresses of Holders. The Company will furnish or cause to be furnished to the Trustee (a) semi-annually, not more than 15 days after each Regular Record Date, a list, in such form as the Trustee may reasonably require, of the names and addresses of the Holders as of such Regular Record Date, and (b) at such other times as the Trustee may request in writing, within 30 days after the receipt by the Company of any such request, a list of similar form and content -58- as of a date not more than 15 days prior to the time such list is furnished; excluding from any such list names and addresses received by the Trustee in its capacity as security Registrar. SECTION 702. Preservation of Information; Communications to Holders. (a) The Trustee shall preserve, in as current a form as is reasonably practicable, the names and addresses of Holders contained in the most recent list furnished to the Trustee as provided in Section 701 and the names and addresses of Holders received by the Trustee in its capacity as Security Registrar. The Trustee may destroy any list furnished to it as provided in Section 701 upon receipt of a new list so furnished. (b) The rights of Holders to communicate with other Holders with respect to their rights under this Indenture or under the Securities, and the corresponding rights and duties of the Trustee, shall be as provided by the Trust Indenture Act. (c) Every Holder of Securities, by receiving and holding the same, agrees with the Company and the Trustee that neither the Company nor the Trustee nor any agent of either of them shall be held accountable by reason of any disclosure of information as to names and addresses of Holders made pursuant to the Trust Indenture Act. SECTION 703. Reports by Trustee. (a) The Trustee shall transmit to Holders such reports concerning the Trustee and its actions under this Indenture as would be required pursuant to the Trust Indenture Act at the times and in the manner provided pursuant thereto. (b) A copy of each such report shall, at the time of such transmission to Holders, be filed by the Trustee with each stock exchange upon which the Securities are listed, with the Commission, if applicable, and with the Company. The Company will notify the Trustee if and when the Securities are listed on any stock exchange. -59- SECTION 704. Reports by Company. The Company shall file with the Trustee and the Commission, if applicable, and transmit to Holders, such information, documents and other reports, and such summaries thereof, as would be required pursuant to the Trust Indenture Act at the times and in the manner provided pursuant to such Act; provided that any such information, documents or reports required to be filed with the commission pursuant to Section 13 or 15(d) of the Exchange Act shall be filed with the Trustee within 15 days after the same is so required to be filed with the commission. ARTICLE EIGHT Consolidation, Merger, Conveyance, Transfer or Lease SECTION 801. Company May Consolidate, Etc., Only on Certain Terms. The Company shall not consolidate with or merge into any other Person or convey, transfer or lease its properties and assets substantially as an entirety to any Person, and the Company shall not permit any Person to consolidate with or merge into the Company or convey, transfer or lease its properties and assets substantially as an entirety to the Company, unless: (1) in case the Company shall consolidate with or merge into another Person or convey, transfer or lease its properties and assets substantially as an entirety to any Person, the Person formed by such consolidation or into which the Company is merged or the Person which acquires by conveyance or transfer, or which leases, the properties and assets of the Company substantially as an entirety shall be a corporation, partnership or trust, shall be organized and validly existing under the laws of the United States of America, any State thereof or the District of Columbia and shall expressly assume, by an indenture supplemental hereto, executed and delivered to the Trustee, in form satisfactory to the Trustee, the due and punctual payment of the principal of (and premium, if any) and interest on all the Securities and the performance or observance of every -60- covenant of this Indenture on the part of the Company to be performed or observed and shall have provided for conversion rights in accordance with Section 1311; (2) immediately after giving effect to such transaction and treating any indebtedness which becomes an obligation of the Company or a Subsidiary as a result of such transaction as having been incurred by the Company or such Subsidiary at the time of such transaction, no Event of Default, and no event which, after notice or lapse of time or both, would become an Event of Default, shall have happened and be continuing; and (3) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger, conveyance, transfer or lease and, if a supplemental indenture is required in connection with such transaction, such supplemental indenture comply with this Article and that all conditions precedent herein provided for relating to such transaction have been complied with. SECTION 802. Successor Substituted. Upon any consolidation of the Company with, or merger of the Company into, any other Person or any conveyance, transfer or lease of the properties and assets of the Company substantially as an entirety in accordance with Section 801, the successor Person formed by such consolidation or into which the Company is merged or to which such conveyance, transfer or lease is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture with the same effect as if such successor Person had been named as the Company herein, and thereafter, except in the case of a lease, the predecessor Person shall be relieved of all obligations and covenants under this Indenture and the Securities. -61- ARTICLE NINE Supplemental Indentures SECTION 901. Supplemental Indentures Without Consent of Holders. Without the consent of any Holders, the Company, when authorized by a Board Resolution, and the Trustee, at any time and from time to time, may enter into one or more indentures supplemental hereto, in form satisfactory to the Trustee, for any of the following purposes: (1) to evidence the succession of another Person to the Company and the assumption by any such successor of the covenants of the Company herein and in the Securities; or (2) to add to the covenants of the Company for the benefit of the Holders, or to surrender any right or power herein conferred upon the Company; or (3) to secure the Companys obligations in respect of the Securities; or (4) to make provision with respect to the conversion rights of Holders pursuant to the requirements of Section 1311; or (5) to cure any ambiguity, to correct or supplement any provision herein which may be inconsistent with any other provision herein, or to make any other provisions with respect to matters or questions arising under this Indenture which shall not be inconsistent with the provisions of this Indenture, provided that such action pursuant to this Clause (5) shall not adversely affect the interests of the Holders in any material respect. SECTION 902. Supplemental Indentures with Consent of Holders. With the consent of the Holders of a majority in principal amount of the Outstanding Securities , by Act of said Holders delivered to the Company and the Trustee, the -62- Company, when authorized by a Board Resolution, and the Trustee may enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of modifying in any manner the rights of the Holders under this Indenture; provided, however, that no such supplemental indenture shall, without the consent of the Holder of each Outstanding Security affected thereby, (1) change the Stated Maturity of the principal of, or any installment of interest on, any Security, or reduce the principal amount thereof or the rate of interest thereon or any premium payable upon the redemption thereof, or change the place of payment where, or the coin or currency in which, any Security or any premium or interest thereon is payable, or impair the right to institute suit for the enforcement of any such payment on or after the Stated Maturity thereof (or, in the case of redemption or repurchase, on or after the Redemption Date or Repurchase Date, as the case may be), or adversely affect the right to convert any Security provided in Article Thirteen (except as permitted by Section 901(4)), or adversely affect the right to cause the Company to repurchase any Security pursuant to Article Fourteen, or modify the provisions of this Indenture with respect to the subordination or redemption of the Securities in a manner adverse to the Holders, or (2) reduce the percentage in principal amount of the Outstanding Securities, the consent of whose Holders is required for any such supplemental indenture, or the consent of whose Holders is required for any waiver (of compliance with certain provisions of this Indenture or certain defaults hereunder and their consequences) provided for in this Indenture, or (3) modify any of the provisions of this Section or Section 513, except to increase any such percentage or to provide that certain other provisions of this Indenture cannot be modified or waived without the consent of the Holder of each outstanding Security affected thereby. -63- It shall not be necessary for any Act of Holders under this Section to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such Act shall approve the substance thereof. SECTION 903. Execution of Supplemental Indentures. In executing, or accepting the additional trusts created by, any supplemental indenture permitted by this Article Nine or the modifications thereby of the trusts created by this Indenture, the Trustee shall be entitled to receive, and (subject to Section 601) shall be fully protected in relying upon, an Opinion of Counsel stating that the execution of such supplemental indenture is authorized or permitted by this Indenture. The Trustee may, but shall not be obligated to, enter into any such supplemental indenture which affects the Trustee's own rights, duties or immunities under this Indenture or otherwise. SECTION 904. Effect of Supplemental Indentures. Upon the execution of any supplemental indenture under this Article, this Indenture shall be modified in accordance therewith, and such supplemental indenture shall form a part of this Indenture for all purposes; and every Holder of Securities theretofore or thereafter authenticated and delivered hereunder shall be bound thereby. SECTION 905. Conformity with Trust Indenture Act. Every supplemental indenture executed pursuant to this Article shall conform to the requirements of the Trust Indenture Act. SECTION 906. Reference in Securities to Supplemental Indentures. Securities authenticated and delivered after the execution of any supplemental indenture pursuant to this Article may, and shall if required by the Trustee, bear a notation in form approved by the Trustee as to any matter provided for in such supplemental indenture. If the Company shall so determine, new Securities so modified as to conform, in the opinion of the Trustee and the Company, to any such supplemental indenture may be prepared and executed by -64- the Company and authenticated and delivered by the Trustee in exchange for Outstanding Securities. ARTICLE TEN Covenants SECTION 1001. Payment of Principal, Premium and Interest. The Company will duly and punctually pay the principal of (and premium, if any) and interest on the Securities in accordance with the terms of the Securities and this Indenture. SECTION 1002. Maintenance of Office or Agency. The Company will maintain in the Borough of Manhattan, The City of New York an office or agency where Securities may be presented or surrendered for payment, where Securities may be surrendered for registration of transfer or exchange, where Securities may be surrendered for conversion and where notices and demands to or upon the Company in respect of the Securities and this Indenture may be served. The Company will give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee, and the Company hereby appoints the Trustee as its agent to receive all such presentations, surrenders, notices and demands. The company may also from time to time designate one or more other offices or agencies (in or outside the Borough of Manhattan, The City of New York) where the Securities may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in the Borough of Manhattan, The City of New York for such purposes. The company will give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency. -65- SECTION 1003. Money for Security Payments to Be Held in Trust. If the Company shall at any time act as its own Paying Agent, it will, on or before each due date of the principal of (and premium, if any) or interest on any of the Securities, segregate and hold in trust for the benefit of the Persons entitled thereto a sum sufficient to pay the principal (and premium, if any) or interest so becoming due until such sums shall be paid to such Persons or otherwise disposed of as herein provided and will promptly notify the Trustee of its action or failure so to act. Whenever the Company shall have one or more Paying Agents, it will, prior to each due date of the principal of (and premium, if any) or interest on any securities, deposit with a Paying Agent a sum sufficient to pay such amount, such sum to be held as provided by the Trust Indenture Act, and (unless such Paying Agent is the Trustee) the Company will promptly notify the Trustee of its action or failure so to act. The Company will cause each Paying Agent other than the Trustee to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee, subject to the provisions of this Section 1003, that such Paying Agent will (1) hold all sums held by it for the payment of the principal of, premium, if any, or interest on Securities in trust for the benefit of the Persons entitled thereto until such sums shall be paid to such Persons or otherwise disposed of as herein provided; (2) give the Trustee notice of any default by the Company (or any other obligor upon the securities) in the making of any payment of principal, premium, if any, or interest; and (3) at any time during the continuance of any such default, upon the written request of the Trustee, forthwith pay to the Trustee all sums so held in trust by such Paying Agent. The Company may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, pay, or by Company Order direct any Paying Agent to pay, to the Trustee all sums held in trust by the Company or such Paying Agent, such sums to be held by the Trustee upon the same trusts as those upon which such sums were held by the Company or such Paying Agent; -66- and, upon such payment by any Paying Agent to the Trustee, such Paying Agent shall be released from all further liability with respect to such money. Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of (and premium, if any) or interest on any security and remaining unclaimed for two years after such principal (and premium, if any) or interest has become due and payable shall be paid to the Company on Company Request, or (if then held by the Company) shall be discharged from such trust; and the Holder of such Security shall thereafter, as an unsecured general creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, shall at the expense of the Company cause to be published once, in a newspaper published in the English language, customarily published on each Business Day and of general circulation in The City of New York, notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such publication, any unclaimed balance of such money then remaining will be repaid to the Company. SECTION 1004. Statement by Officers as to Default. The Company will deliver to the Trustee, within 120 days after the end of each fiscal year of the Company ending after the date hereof, an Officers' Certificate, stating whether or not to the best knowledge of the signers thereof the Company is in default in the performance and observance of any of the terms, provisions and conditions of this Indenture (without regard to any period of grace or requirement of notice provided hereunder) and, if the Company shall be in default, specifying all such defaults and the nature and status thereof of which they may have knowledge. SECTION 1005. Existence. Subject to Article Eight, the Company will do or cause to be done all things necessary to preserve and keep in full force and effect its existence, rights (charter and statutory) and franchises; provided, however, that the Company shall not be required to preserve any such right or franchise if the Board of Directors shall determine that the -67- preservation thereof is no longer desirable in the conduct of the business of the Company and that the loss thereof is not disadvantageous in any material respect to the Holders. SECTION 1006. Maintenance of Properties. The Company will cause all properties used or useful in the conduct of its business or the business of any Subsidiary to be maintained and kept in good condition, repair and working order and supplied with all necessary equipment and will cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in the judgment of the Company may be necessary so that the business carried on in connection therewith may be properly and advantageously conducted at all times; provided, however, that nothing in this Section shall prevent the Company from discontinuing the operation or maintenance of any of such properties if such discontinuance is, in the judgment of the Company, desirable in the conduct of its business or the business of any subsidiary and not disadvantageous in any material respect to the Holders. SECTION 1007. Payment of Taxes and Other Claims. The Company will pay or discharge or cause to be paid or discharged, before the same shall become delinquent, (1) all taxes, assessments and governmental charges levied or imposed upon the Company or any Subsidiary or upon the income, profits or property of the Company or any Subsidiary, and (2) all lawful claims for labor, materials and supplies which, if unpaid, might by law become a lien upon the property of the Company or any Subsidiary; provided, however, that the Company shall not be required to pay or discharge or cause to be paid or discharged any such tax, assessment, charge or claim whose amount, applicability or validity is being contested in good faith by appropriate proceedings. SECTION 1008. Delivery of Certain Information. At any time when the Company is not subject to Section 13 or 15(d) of the Exchange Act, upon the request of a Holder or the holder of shares of Common Stock issued upon conversion thereof, the Company will promptly furnish or cause to be furnished Rule 144A Information (as defined below) to such Holder or such holder of shares of Common Stock issued upon conversion of Securities, or to a -68- prospective purchaser of any such security designated by any such Holder or holder, as the case may be, to the extent required to permit compliance by such Holder or holder with Rule 144A under the Securities Act in connection with the resale of any such security. "Rule 144A Information" shall be such information as is specified pursuant to Rule 144A(d)(4) under the Securities Act. ARTICLE ELEVEN Redemption of Securities SECTION 1101. Right of Redemption. The Securities may be redeemed at the election of the Company, as a whole or from time to time in part, upon not less than 30 days' or more than 60 days' notice by mail, at any time on or after September 15, 1996, at the Redemption Prices specified in the form of Security hereinbefore set forth, together with accrued interest to the Redemption Date. SECTION 1102. Applicability of Article. Redemption of Securities at the election of the Company, as permitted by any provision of this Indenture, shall be made in accordance with such provision and this Article. SECTION 1103. Election to Redeem; Notice to Trustee. The election of the Company to redeem any securities pursuant to Section 1101 shall be evidenced by a Board Resolution. In case of any redemption at the election of the Company of less than all the Securities, the Company shall, at least 60 days prior to the Redemption Date fixed by the Company (unless a shorter notice shall be satisfactory to the Trustee), notify the Trustee of such Redemption Date and of the principal amount of Securities to be redeemed. SECTION 1104. Selection by Trustee of Securities to Be Redeemed. If less than all the Securities are to be redeemed, the particular Securities to be redeemed shall be selected not more than 60 days prior to the Redemption Date -69- by the Trustee, from the Outstanding Securities not previously called for redemption, by such method as the Trustee shall deem fair and appropriate and which may provide for the selection for redemption of portions (equal to $1,000 or any integral multiple thereof) of the principal amount of Securities of a denomination larger than $1,000. If any Security selected for partial redemption is converted in part before termination of the conversion right with respect to the portion of the Security so selected, the converted portion of such Security shall be deemed (so far as may be) to be the portion selected for redemption. Securities which have been converted during a selection of Securities to be redeemed shall be treated by the Trustee as outstanding for the purpose of such selection. The Trustee shall promptly notify the Company and each Security Registrar in writing of the Securities selected for redemption and, in the case of any Securities selected for partial redemption, the principal amount thereof to be redeemed. For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to the redemption of Securities shall relate, in the case of any Securities redeemed or to be redeemed only in part, to the portion of the principal amount of such Securities which has been or is to be redeemed. SECTION 1105. Notice of Redemption. Notice of redemption shall be given by first-class mail, postage prepaid, mailed not less than 30 nor more than 60 days prior to the Redemption Date, to each Holder of Securities to be redeemed, at his address appearing in the Security Register. All notices of redemption shall state: (1) the Redemption Date, (2) the Redemption Price, (3) if less than all the Outstanding Securities are to be redeemed, the identification (and, in the case of partial redemption of any Securities, the principal amounts) of the particular Securities to be redeemed, -70- (4) that on the Redemption Date the Redemption Price will become due and payable upon each such Security to be redeemed and that interest thereon will cease to accrue on and after said date, (5) the conversion rate, the date on which the right to convert the Securities to be redeemed will terminate and the place or places where such Securities may be surrendered for conversion, and (6) the place or places where such Securities are to be surrendered for payment of the Redemption Price. Notice of redemption of Securities to be redeemed at the election of the Company shall be given by the Company or, at the Company's request, by the Trustee in the name and at the expense of the Company. SECTION 1106. Deposit of Redemption Price. Prior to any Redemption Date, the Company shall deposit with the Trustee or with a Paying Agent (or, if the Company is acting as its own Paying Agent, segregate and hold in trust as provided in Section 1003) an amount of money sufficient to pay the Redemption Price of, and (except if the Redemption Date shall be an Interest Payment Date) accrued interest on, all the Securities which are to be redeemed on that date other than any Securities called for redemption on that date which have been converted prior to the date of such deposit. If any Security called for redemption is converted, any money deposited with the Trustee or with any Paying Agent or so segregated and held in trust for the redemption of such Security shall (subject to any right of the Holder of such Security or any Predecessor Security to receive interest as provided in the last paragraph of Section 307) be paid to the Company upon Company Request or, if then held by the Company, shall be discharged from such trust. SECTION 1107. Securities Payable on Redemption Date. Notice of redemption having been given as aforesaid, the Securities so to be redeemed shall, on the Redemption Date, become due and payable at the Redemption -71- Price therein specified, and from and after such date (unless the Company shall default in the payment of the Redemption Price and accrued interest) such Securities shall cease to bear interest. Upon surrender of any such Security for redemption in accordance with said notice, such Security shall be paid by the Company at the Redemption Price, together with accrued interest to the Redemption Date; provided, however, that installments of interest whose Stated Maturity is on or prior to the Redemption Date shall be payable to the Holders of such Securities, or one or more Predecessor Securities, registered as such at the close of business on the relevant Record Dates according to their terms and the provisions of Section 307. If any Security called for redemption shall not be so paid upon surrender thereof for redemption, the principal (and premium, if any) shall, until paid, bear interest from the Redemption Date at the rate borne by the Security. SECTION 1108. Securities Redeemed in Part. Any Security which is to be redeemed only in part shall be surrendered at an office or agency of the Company designated for that purpose pursuant to Section 1002 (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company or the Trustee duly executed by, the Holder thereof or his attorney duly authorized in writing), and the Company shall execute, and the Trustee shall authenticate and deliver to the Holder of such Security without service charge, a new Security or Securities, of any authorized denomination as requested by such Holder, in aggregate principal amount equal to and in exchange for the unredeemed portion of the principal amount of the Security so surrendered. ARTICLE TWELVE Subordination of Securities SECTION 1201. Securities Subordinate to Senior Indentedness. The Company covenants and agrees, and each Holder of a Security, by his acceptance thereof, likewise covenants and agrees, that, to the extent and in the manner hereinafter set forth in this Article, the indebtedness -72- represented by the Securities and the payment of the principal of (and premium, if any) and interest on each and all of the Securities (including any repurchases or payments pursuant to Article Fourteen) are hereby expressly made subordinate and subject in right of payment to the prior payment in full of all Senior Indebtedness. SECTION 1202. Payment Over of Proceeds Upon Dissolution, Etc. In the event of (a) any insolvency or bankruptcy case or proceeding, or any receivership, liquidation, reorganization or other similar case or proceeding in connection therewith, relative to the Company or to its creditors, as such, or to its assets, or (b) any liquidation, dissolution or other winding up of the Company, whether voluntary or involuntary and whether or not involving insolvency or bankruptcy, or (c) any assignment for the benefit of creditors or any other marshalling of assets and liabilities of the Company, then and in any such event specified in (a), (b) or (c) above (each such event, if any, herein sometimes referred to as a "Proceeding") the holders of Senior Indebtedness shall be entitled to receive payment in full of all amounts due or to become due on or in respect of all Senior Indebtedness, or provision shall be made for such payment in cash or cash equivalents or otherwise in a manner satisfactory to the holders of Senior Indebtedness, before the Holders of the Securities are entitled to receive any payment or distribution of any kind or character, whether in cash, property or securities (including any such payment or distribution which may be payable or deliverable by reason of the payment of any other indebtedness of the Company being subordinated to the payment of the Securities), on account of principal of (or premium, if any) or interest on the Securities or on account of any purchase (including any repurchase pursuant to Article Fourteen) or other acquisition of Securities by the Company or any Subsidiary of the Company (all such payments, distributions, purchases and acquisitions herein referred to, individually and collectively, as a "Securities Payment"), and to that end the holders of all Senior Indebtedness shall be entitled to receive, for application to the payment thereof, any Securities Payment which may be payable or deliverable in respect of the Securities in any such Proceeding. In the event that, notwithstanding the foregoing provisions of this Section, the Trustee or the Holder of any Security shall have received any Securities Payment before all Senior Indebtedness is paid in full or payment thereof -73- provided for in cash or cash equivalents or otherwise in a manner satisfactory to the holders of Senior Indebtedness, and if such fact shall, at or prior to the time of such Securities Payment, have been made known to the Trustee or, as the case may be, such Holder, then and in such event such Securities Payment shall be paid over or delivered forthwith to the trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee, agent or other Person making payment or distribution of assets of the Company for application to the payment of all Senior Indebtedness remaining unpaid, to the extent necessary to pay all Senior Indebtedness in full, after giving effect to any concurrent payment or distribution to or for the holders of Senior Indebtedness. For purposes of this Article only, the words "any payment or distribution of any kind or character, whether in cash, property or securities" shall not be deemed to include a payment or distribution of stock or securities of the Company provided for by a plan of reorganization or readjustment authorized by an order or decree of a court of competent jurisdiction in a reorganization proceeding under any applicable bankruptcy law or of any other corporation provided for by such plan of reorganization or readjustment which stock or securities are subordinated in right of payment to all then outstanding Senior Indebtedness to substantially the same extent as the Securities are so subordinated as provided in this Article. The consolidation of the Company with, or the merger of the Company into, another Person or the liquidation or dissolution or the Company following the conveyance or transfer of all or substantially all of its properties and assets as an entirety to another Person upon the terms and conditions set forth in Article Eight shall not be deemed a Proceeding for the purposes of this Section if the Person formed by such consolidation or into which the Company is merged or the Person which acquires by conveyance or transfer such properties and assets as an entirety, as the case may be, shall, as a part of such consolidation, merger, conveyance or transfer, comply with the conditions set forth in Article Eight. SECTION 1203. Prior Payment to senior Indebtedness Upon Acceleration of Securities; No Payment When Senior Indebtedness in Default. In the event that any Securities are declared due and payable before their Stated Maturity, then and in such event the holders of the Senior Indebtedness outstanding at the time such Securities so become due and payable shall be entitled to receive payment in full of all amounts due or to -74- become due on or in respect of all Senior Indebtedness, or provision shall be made for such payment in cash or cash equivalents or otherwise in a manner satisfactory to the holders of such Senior Indebtedness, before the Holders of the Securities are entitled to receive any Securities Payment. In the event and during the continuation of any default in the payment of principal of (or premium, if any) or interest on any Senior Indebtedness beyond any applicable grace period with respect thereto, or in the event that any event of default with respect to any Senior Indebtedness shall have occurred and be continuing permitting the holders of such Senior Indebtedness (or a trustee on behalf of the holders thereof) to declare such Senior Indebtedness due and payable prior to the date on which it would otherwise have become due and payable, unless and until such event of default shall have been cured or waived or shall have ceased to exist and such acceleration shall have been rescinded or annulled, or in the event any judicial proceeding shall be pending with respect to any such default in payment or event of default, then no Securities Payment shall be made. In the event that, notwithstanding the foregoing, the Company shall make any Securities Payment to the Trustee or any Holder prohibited by the foregoing provisions of this Section, and if such fact shall, at or prior to the time of such Securities Payment, have been made known to the Trustee or, as the case may be, such Holder, then and in such event such Securities Payment shall be paid over and delivered forthwith to the Company. The provisions of this Section shall not apply to any Securities Payment with respect to which Section 1202 would be applicable. SECTION 1204. Payment Permitted If No Default. Nothing contained in this Article or elsewhere in this Indenture or in any of the Securities shall prevent (a) the Company, at any time except during the pendency of any Proceeding referred to in Section 1202 or under the conditions described in Section 1203, from making Securities Payments, or (b) the application by the Trustee of any money deposited with it hereunder to Securities Payments or the retention of such Securities Payment by the Holders, if, at the time of such application by the Trustee, it did not have knowledge that such Securities Payment would have been prohibited by the provisions of this Article. -75- SECTION 1205. Subrogation to Rights of Holders of Senior Indebtedness. Subject to the payment in full of all amounts due or to become due on or in respect of Senior Indebtedness, or the provision for such payment in cash or cash equivalents or otherwise in a manner satisfactory to the holders of Senior Indebtedness, the Holders of the Securities shall be subrogated to the extent of the payments or distributions made to the holders of Senior Indebtedness pursuant to the provisions of this Article to the rights of the holders of such Senior Indebtedness to receive payments and distributions of cash, property and securities applicable to the Senior Indebtedness until the principal of (and premium, if any) and interest on the Securities shall be paid in full. For purposes of such subrogation, no payments or distributions to the holders of the Senior Indebtedness of any cash, property or securities to which the Holders of the Securities or the Trustee would be entitled except for the provisions of this Article, and no payments over pursuant to the provisions of this Article to the holders of Senior Indebtedness by Holders of the Securities or the Trustee, shall, as among the Company, its creditors other than holders of Senior Indebtedness and the Holders of the Securities, be deemed to be a payment or distribution by the Company to or on account of the Senior Indebtedness. SECTION 1206. Provisions Solely to Define Relative Rights. The provisions of this Article are and are intended solely for the purpose of defining the relative rights of the Holders on the one hand and the holders of Senior Indebtedness on the other hand. Nothing contained in this Article or elsewhere in this Indenture or in the Securities is intended to or shall (a) impair, as among the Company, its creditors other than holders of Senior Indebtedness and the Holders of the Securities, the obligation of the Company, which is absolute and unconditional (and which, subject to the rights under this Article of the holders of Senior Indebtedness, is intended to rank equally with all other general obligations of the Company), to pay to the Holders of the Securities the principal of (and premium, if any) and interest on, and to make any repurchases required by Article Fourteen of, the Securities as and when the same shall become due and payable in accordance with their terms; or (b) affect the relative rights against the Company of the Holders of the Securities and creditors of the Company other than the holders of Senior Indebtedness; or (c) prevent the Trustee or the Holder of any Security from exercising all remedies -76- otherwise permitted by applicable law upon default under this Indenture, subject to the rights, if any, under this Article of the holders of Senior Indebtedness to receive cash, property and securities otherwise payable or deliverable to the Trustee or such Holder. SECTION 1207. Trustee to Effectuate Subordination. Each Holder of a Security by his acceptance thereof authorizes and directs the Trustee on his behalf to take such action as may be necessary or appropriate to effectuate the subordination provided in this Article and appoints the Trustee his attorney-in-fact for any and all such purposes. SECTION 1208. No Waiver of Subordination Provisions. No right of any present or future holder of any Senior Indebtedness to enforce subordination as herein provided shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Company or by any act or failure to act, in good faith, by any such holder, or by any noncompliance by the Company with the terms, provisions and covenants of this Indenture, regardless of any knowledge thereof any such holder may have or be otherwise charged with. Without in any way limiting the generality of the foregoing paragraph, the holders of Senior Indebtedness may, at any time and from time to time, without the consent of or notice to the Trustee or the Holders of the Securities, without incurring responsibility to the Holders of the Securities and without impairing or releasing the subordination provided in this Article or the obligations hereunder of the Holders of the Securities to the holders of Senior Indebtedness, do any one or more of the following: (i) change the manner, place or terms of payment or extend the time of payment of, or renew or alter, Senior Indebtedness, or otherwise amend or supplement in any manner Senior Indebtedness or any instrument evidencing the same or any agreement under which Senior Indebtedness is outstanding; (ii) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing Senior Indebtedness; (iii) release any Person liable in any manner for the collection of Senior Indebtedness; and (iv) exercise or refrain from exercising any rights against the Company and any other Person. -77- SECTION 1209. Notice to Trustee. The Company shall give prompt written notice to the Trustee of any fact known to the Company which would prohibit the making of any payment to or by the Trustee in respect of the Securities. Notwithstanding the provisions of this Article or any other provision of this Indenture, the Trustee shall not be charged with knowledge of the existence of any facts which would prohibit the making of any payment to or by the Trustee in respect of the Securities, unless and until the Trustee shall have received written notice thereof from the Company or a holder of Senior Indebtedness or from any trustee therefor; and, prior to the receipt of any such written notice, the Trustee, subject to the provisions of Section 601, shall be entitled in all respects to assume that no such facts exist; provided, however, that if the Trustee shall not have received the notice provided for in this Section at least two Business Days prior to the date upon which by the terms hereof any money may become payable for any purpose (including, without limitation, the payment of the principal of (and premium, if any) or interest on, or amounts payable upon repurchase of, any Security), then, anything herein contained to the contrary notwithstanding, the Trustee shall have full power and authority to receive such money and to apply the same to the purpose for which such money was received and shall not be affected by any notice to the contrary which may be received by it within two Business Days prior to such date. Subject to the provisions of Section 601, the Trustee shall be entitled to rely on the delivery to it of a written notice by a Person representing himself to be a holder of Senior Indebtedness (or a trustee therefor) to establish that such notice has been given by a holder of Senior Indebtedness (or a trustee therefor). In the event that the Trustee determines in good faith that further evidence is required with respect to the right of any Person as a holder of Senior Indebtedness to participate in any payment or distribution pursuant to this Article, the Trustee may request such Person to furnish evidence to the reasonable satisfaction of the Trustee as to the amount of Senior Indebtedness held by such Person, the extent to which such Person is entitled to participate in such payment or distribution and any other facts pertinent to the rights of such Person under this Article, and if such evidence is not furnished, the Trustee may defer any payment to such Person pending judicial determination as to the right of such Person to receive such payment. -78- SECTION 1210. Reliance on Judicial Order or Certificate of Liquidating Agent. Upon any payment or distribution of assets of the Company referred to in this Article, the Trustee, subject to the provisions of Section 601, and the Holders of the Securities shall be entitled to rely upon any order or decree entered by any court of competent jurisdiction in which such Proceeding is pending, or a certificate of the trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee for the benefit of creditors, agent or other Person making such payment or distribution, delivered to the Trustee or to the Holders of Securities, for the purpose of ascertaining the Persons entitled to participate in such payment or distribution, the holders of the Senior Indebtedness and other indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article. SECTION 1211. Trustee Not Fiduciary for Holders of Senior Indebtedness. The Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior Indebtedness and shall not be liable to any such holders if it shall in good faith mistakenly pay over or distribute to Holders of Securities or to the Company or to any other Person cash, property or securities to which any holders of Senior Indebtedness shall be entitled by virtue of this Article or otherwise. SECTION 1212. Rights of Trustee as Holder of Senior Indebtedness; Preservation of Trustee's Rights. The Trustee in its individual capacity shall be entitled to all the rights set forth in this Article with respect to any Senior Indebtedness which may at any time be held by it, to the same extent as any other holder of Senior Indebtedness, and nothing in this Indenture shall deprive the Trustee of any of its rights as such holder. Nothing in this Article shall apply to claims of, or payments to, the Trustee under or pursuant to Section 607. -79- SECTION 1213. Article Applicable to Paying Agents. In case at any time any Paying Agent other than the Trustee shall have been appointed by the Company and be then acting hereunder, the term "Trustee" as used in this Article shall in such case (unless the context otherwise requires) be construed as extending to and including such Paying Agent within its meaning as fully for all intents and purposes as if such Paying Agent were named in this Article in addition to or in place of the Trustee; provided, however, that Section 1212 shall not apply to the Company or any Affiliate of the Company if it or such Affiliate acts as Paying Agent. SECTION 1214. Certain Conversions Deemed Payment. For the purposes of this Article only, (1) the issuance and delivery of junior securities upon conversion of securities in accordance with Article Thirteen shall not be deemed to constitute a payment of distribution on account of the principal of or premium or interest on Securities or on account of the purchase or other acquisition of Securities, and (2) the payment, issuance or delivery of cash, property or securities (other than junior securities) upon conversion of a Security shall be deemed to constitute payment on account of the principal of such Security. For the purposes of this Section, the term "junior securities" means (a) shares of any stock of any class of the Company and (b) securities of the Company which are subordinated in right of payment to all Senior Indebtedness which may be outstanding at the time of issuance or delivery of such securities to the same extent as, or to a greater extent than, the Securities are so subordinated as provided in this Article. Nothing contained in this Article or elsewhere in this Indenture or in the Securities is intended to or shall impair, as among the company, its creditors other than holders of Senior Indebtedness and the holders of the Securities, the right, which is absolute and unconditional, of the Holder of any Security to convert such Security in accordance with Article Thirteen. -80- ARTICLE THIRTEEN Conversion of Securities SECTION 1301. Conversion Privilege and Conversion Rate. Subject to and upon compliance with the provisions of this Article, at the option of the Holder thereof, any Security or any portion of the principal amount thereof which is $1,000 or an integral multiple of $1,000 may be converted at the principal amount thereof, or of such portion thereof, into fully paid and nonassessable shares (calculated as to each conversion to the nearest 1/100 of a share) of Common Stock of the Company at the conversion rate, determined as hereinafter provided, in effect at the time of conversion. Such conversion right shall expire at the close of business on September 15, 2003. In case a Security or portion thereof is called for redemption at the election of the Company or delivered for repurchase pursuant to Article Fourteen, such conversion right in respect of the Security or portion so called shall expire at the close of business on the Business Day prior to the Redemption Date or the second Trading Day preceding the Repurchase Date, as the case may be, unless the Company defaults in making the payment due upon redemption or repurchase. The rate at which shares of Common Stock shall be delivered upon conversion (herein called the "conversion rate") shall be initially 51.282 shares of Common Stock for each $1,000 principal amount of Securities. The conversion rate shall be adjusted in certain instances as provided in this Article. SECTION 1302. Exercise of Conversion Privilege. In order to exercise the conversion privilege, the Holder of any Security to be converted shall surrender such Security, duly endorsed or assigned to the Company or in blank, at any office or agency of the Company maintained for that purpose pursuant to Section 1002, accompanied by (a) written notice to the Company at such office or agency that the Holder elects to convert such security or, if less than the entire principal amount thereof is to be converted, the portion thereof to be converted and (b) if any portion of such Security not to be converted are to be issued in the name of a Person other than the Holder thereof, and the restrictions on transfer of such Security set forth in the Private Placement Legend remain in effect, a certification of the Holder as to compliance with such restrictions (as -81- set forth in Section 305). Securities surrendered for conversion during the period from the close of business on any Regular Record Date next preceding any Interest Payment Date to the opening of business on such Interest Payment Date shall (except in the case of Securities or portions thereof which have been called for redemption on a Redemption Date within such period) be accompanied by payment in New York Clearing House funds or other funds acceptable to the Company of an amount equal to the interest payable on such Interest Payment Date on the principal amount of Securities being surrendered for conversion. Subject to the provisions of Section 307 relating to the payment of Defaulted Interest by the Company, the interest payment with respect to a Security called for redemption on a Redemption Date during the period from the close of business on any Regular Record Date next preceding any Interest Payment Date to the opening of business on such Interest Payment Date shall be payable on such Interest Payment Date to the Holder of such Security at the close of business on such Regular Record Date notwithstanding the conversion of such Security after such Regular Record Date and prior to such Interest Payment Date, and the Holder converting such Security need not include a payment of such interest payment amount upon surrender of such Security for conversion. Except as provided in the second preceding sentence and subject to the final paragraph of Section 307, no payment or adjustment shall be made upon any conversion on account of any interest accrued on the Securities surrendered for conversion or on account of any dividends on the Common Stock issued upon conversion. Securities shall be deemed to have been converted immediately prior to the close of business on the day of surrender of such Securities for conversion in accordance with the foregoing provisions, and at such time the rights of the Holders of such Securities as Holders shall cease, and the Person or Persons entitled to receive the Common Stock issuable upon conversion shall be treated for all purposes as the record holder or holders of such Common Stock at such time. As promptly as practicable on or after the conversion date, the Company shall issue and shall deliver at such office or agency a certificate or certificates for the number of full shares of common Stock issuable upon conversion, together with payment in lieu of any fraction of a share, as provided in Section 1303. If the restrictions on transfer of a Security set forth in the Private Placement Legend remain in effect, all shares of Common Stock delivered upon conversion thereof shall bear a restrictive legend substantially in the following form: -82- THE COMMON STOCK EVIDENCED HEREBY HAS NOT BEEN REGISTERED AND WILL NOT BE REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. THE HOLDER HEREOF AGREES THAT UNTIL THE EXPIRATION OF THREE YEARS AFTER THE ORIGINAL ISSUANCE OF THE DEBENTURE UPON THE CONVERSION OF WHICH THE COMMON STOCK EVIDENCED HEREBY WAS ISSUED, (1) IT WILL NOT RESELL OR OTHERWISE TRANSFER THE COMMON STOCK EVIDENCED HEREBY EXCEPT IN A TRANSACTION NOT REQURING REGISTRATION UNDER THE SECURITIES ACT (A) TO INTERMAGNETICS GENERAL CORPORATION OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES TO A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) INSIDE THE UNITED STATES TO AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a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n the case of any Security which is converted in part only, upon such conversion the Company shall execute and the Trustee shall authenticate and deliver to the Holder thereof, at the expense of the Company, a new Security or Securities of authorized denominations in aggregate principal amount equal to the unconverted portion of the principal amount of such Security. -83- SECTION 1303. Fractions of Shares. No fractional shares of Common Stock shall be issued upon conversion of Securities. If more than one Security shall be surrendered for conversion at one time by the same Holder, the number of full shares which shall be issuable upon conversion thereof shall be computed on the basis of the aggregate principal amount of the Securities (or specified portions thereof) so surrendered. Instead of any fractional share of Common Stock which would otherwise be issuable upon conversion of any Security or Securities (or specified portions thereof), the Company shall pay a cash adjustment in respect of such fraction in an amount equal to the same fraction of the daily closing price per share of Common Stock (consistent with Section 1304(8) below) at the close of business on the day of conversion. SECTION 1304. Adjustment of Conversion Rate. (1) In case the Company shall pay or make a dividend or other distribution on any class of capital stock of the Company in Common Stock, the conversion rate in effect at the opening of business on the day following the date fixed for the determination of stockholders entitled to receive such dividend or other distribution shall be increased by dividing such conversion rate by a fraction of which the numerator shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination and the denominator shall be the sum of such number of shares and the total number of shares constituting such dividend or other distribution, such increase to become effective immediately after the opening of business on the day following the date fixed for such determination. For the purposes of this paragraph (1), the number of shares of Common Stock at any time outstanding shall not include shares held in the treasury of the Company but shall include shares issuable in respect of scrip certificates issued in lieu of fractions of shares of Common Stock. The Company will not pay any dividend or make any distribution on shares of Common Stock held in the treasury of the Company. (2) In case the Company shall issue rights, options or warrants to all holders of its Common Stock (not being available on an equivalent basis to Holders of the Securities upon conversion) entitling them to subscribe for or purchase shares of Common Stock at a price per share less than the current market price per share (determined as provided in paragraph (8) of this Section) of the Common Stock on the date fixed for the determination of -84- stockholders entitled to receive such rights, options or warrants, the conversion rate in effect at the opening of business on the day following the date fixed for such determination shall be increased by dividing such conversion rate by a fraction of which the numerator shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination plus the number of shares of Common Stock which the aggregate of the offering price of the total number of shares of Common Stock so offered for subscription or purchase would purchase at such current market price and the denominator shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination plus the number of shares of Common Stock so offered for subscription or purchase, such increase to become effective immediately after the opening of business on the day following the date fixed for such determination. For the purposes of this paragraph (2), the number of shares of Common Stock at any time outstanding shall not include shares held in the treasury of the Company but shall include shares issuable in respect of scrip certificates issued in lieu of fractions of shares of Common Stock. The Company will not issue any rights or warrants in respect of shares of Common Stock held in the options of the Company. (3) In case outstanding shares of Common Stock shall be subdivided into a greater number of shares of Common Stock, the conversion rate in effect at the opening of business on the day following the day upon which such subdivision becomes effective shall be proportionately increased, and, conversely, in case outstanding shares of Common Stock shall each be combined into a smaller number of shares of Common Stock, the conversion rate in effect at the opening of business on the day following the day upon which such combination becomes effective shall be proportionately reduced, such increase or reduction, as the case may be, to become effective immediately after the opening of business on the day following the day upon which such subdivision or combination becomes effective. (4) In case the Company shall, by dividend or otherwise, distribute to all holders of its Common Stock evidences of its indebtedness or assets (including securities, but excluding any rights or warrants referred to in paragraph (2) of this Section, any dividend or distribution paid exclusively in cash and any dividend or distribution referred to in paragraph (1) of this Section), the conversion rate shall be adjusted so that the same shall equal the rate determined by dividing the conversion rate in effect immediately prior to the close of business on the date fixed for the determination of stockholders entitled to -85- receive such distribution by a fraction of which the numerator shall be the current market price per share (determined as provided in paragraph (8) of this Section) of the Common Stock on the date fixed for such determination less the then fair market value (as determined by the Board of Directors, whose determination shall be conclusive and described in a Board Resolution filed with the Trustee) of the portion of the assets or evidences of indebtedness so distributed applicable to one share of Common Stock and the denominator shall be such current market price per share of the Common Stock, such adjustment to become effective immediately prior to the opening of business on the day following the date fixed for the determination of stockholders entitled to receive such distribution. (5) In case the Company shall, by dividend or otherwise, distribute to all holders of its Common Stock cash (excluding any cash that is distributed upon a merger or consolidation to which Section 1313 applies or as part of a distribution referred to in paragraph (4) of this Section) in an aggregate amount that, combined together with (I) the aggregate amount of any other distributions to all holders of its Common Stock made exclusively in cash within the 12 months preceding the date of payment of such distribution and in respect of which no adjustment pursuant to this paragraph (5) has been made and (II) the aggregate of any cash plus the fair market value (as determined by the Board of Directors, whose determination shall be conclusive and described in a Board Resolution) of consideration payable in respect of any tender offer by the Company or any of its subsidiaries for all or any portion of the Common Stock concluded within the 12 months preceding the date of payment of such distribution and in respect of which no adjustment pursuant to paragraph (6) of this Section has been made, exceeds 15% of the product of the current market price per share of the Common Stock on the date for the determination of holders of shares of Common Stock entitled to receive such distribution times the number of shares of Common Stock outstanding on such date, then, and in each such case, immediately after the close of business on such date for determination, the conversion rate shall be increased so that the same shall equal the rate determined by dividing the conversion rate in effect immediately prior to the close of business on the date fixed for determination of the stockholders entitled to receive such distribution by a fraction (i) the numerator of which shall be equal to the current market price per share (determined as provided in paragraph (8) of this Section) of the Common Stock on the date fixed for such determination less an amount equal to the quotient of (x) the excess of such combined amount over such 15% and (y) the number of shares of Common Stock -86- outstanding on such date for determination and (ii) the denominator of which shall be equal to the current market price per share (determined as provided in paragraph (8) of this Section) of the Common Stock on such date for determination. (6) In case a tender offer made by the Company or any Subsidiary for all or any portion of the Common Stock shall expire and such tender offer (as amended upon the expiration thereof) shall require the payment to stockholders (based on the acceptance (up to any maximum specified in the terms of the tender offer) of Purchased Shares (as defined below)) of an aggregate consideration having a fair market value (as determined by the Board of Directors, whose determination shall be conclusive and described in a Board Resolution) that combined together with (I) the aggregate of the cash plus the fair market value (as determined by the Board of Directors, whose determination shall be conclusive and described in a Board Resolution), as of the expiration of such tender offer, of consideration payable in respect of any other tender offer, by the Company or any Subsidiary for all or any portion of the Common Stock expiring within the 12 months preceding the expiration of such tender offer and in respect of which no adjustment pursuant to this paragraph (6) has been made and (II) the aggregate amount of any distributions to all holders of the Company's Common Stock made exclusively in cash within 12 months preceding the expiration of such tender offer and in respect of which no adjustment pursuant to paragraph (5) of this Section has been made, exceeds 15% of the product of the current market price per share of the Common Stock (determined as provided in paragraph (8) of this Section) as of the last time (the "Expiration Time") tenders could have been made pursuant to such tender offer (as it may be amended) times the number of shares of Common Stock outstanding (including any tendered shares) on the Expiration Time, then, and in each such case, immediately prior to the opening of business on the day after the date of the Expiration Time, the conversion rate shall be adjusted so that the same shall equal the price determined by dividing the conversion rate immediately prior to close of business on the date of the Expiration Time by a fraction (i) the numerator of which shall be equal to (A) the product of (I) the current market price per share of the Common Stock (determined as provided in paragraph (8) of this Section) on the date of the Expiration Time and (II) the number of shares of Common Stock outstanding (including any tendered shares) on the Expiration Time less (B) the amount of cash plus the fair market value (determined as aforesaid) of the aggregate consideration payable to stockholders based on the acceptance (up to any maximum specified in the terms -87- of the tender offer) of Purchased Shares, and (ii) the denominator of which shall be equal to the product of (A) the current market price per share of the Common Stock (determined as provided in paragraph (8) of this Section) as of the Expiration Time and (B) the number of shares of Common Stock outstanding (including any tendered shares) as of the Expiration Time less the number of all shares validly tendered and not withdrawn as of the Expiration Time (the shares deemed so accepted up to any such maximum, being referred to as the "Purchased Shares"). (7) The reclassification of Common Stock into securities including securities other than Common Stock (other than any reclassification upon a consolidation or merger to which Section 1311 applies) shall be deemed to involve (a) a distribution of such securities other than Common Stock to all holders of Common Stock (and the effective date of such reclassification shall be deemed to be "the date fixed for the determination of stockholders entitled to receive such distribution" and the "date fixed for such determination" within the meaning of paragraph (4) of this Section), and (b) a subdivision or combination, as the case may be, of the number of shares of Common Stock outstanding immediately prior to such reclassification into the number of shares of Common Stock outstanding immediately thereafter (and the effective date of such reclassification shall be deemed to be "the day upon which such subdivision becomes effective" or "the day upon which such combination becomes effective", as the case may be, and "the day upon which such subdivision or combination becomes effective" within the meaning of paragraph (3) of this Section). (8) For the purpose of any computation under paragraphs (2), (4), (5) and (6) of this Section, the current market price per share of Common Stock on any day shall be deemed to be the average of the daily Closing Prices for the 5 consecutive Trading Days selected by the Company commencing not more than 20 Trading Days before, and ending not later than, the earlier of the day in question and the day before the "ex" date with respect to the issuance or distribution requiring such computation. The "Closing Price" for each day shall be the reported last sale price regular way or, in case no such reported sale takes place on such day, the average of the reported closing bid and asked prices regular way, in either case on the American Stock Exchange or, if the Common Stock is not listed or admitted to trading on such Exchange, on the principal national securities exchange on which the Common Stock is listed or admitted to trading or, if not listed or admitted to trading on any national securities exchange, on the National Association of Securities Dealers Automated -88- Quotations National Market System ("NASDAQ/NMS") or, if the Common Stock is not listed or admitted to trading on any national securities exchange or quoted on such National Market System, the average of the closing bid and asked prices in the over-the-counter market as furnished by any American Stock Exchange member firm selected from time to time by the Company for that purpose. For purposes of this paragraph, the term "'ex' date", when used with respect to any issuance or distribution, shall mean the first date on which the Common Stock trades regular way on such exchange or in such market without the right to receive such issuance or distribution. (9) No adjustment in the conversion rate shall be required unless such adjustment (plus any adjustments not previously made by reason of this paragraph (9)) would require an increase or decrease of at least 1% in such rate; provided, however, that any adjustments which by reason of this paragraph (9) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this paragraph (9) shall be made to the nearest cent. (10) The Company may make such increases in the conversion rate, in addition to those required by paragraphs (1), (2), (3), (4), (5) and (6) of this Section, as it considers to be advisable in order to avoid or diminish any income tax to any holders of shares of Common Stock resulting from any dividend or distribution of stock or issuance of rights or warrants to purchase or subscribe for stock or from any event treated as such for income tax purposes. SECTION 1305. Notice of Adjustments of Conversion Rate. Whenever the conversion rate is adjusted as herein provided: (a) the Company shall compute the adjusted conversion rate in accordance with Section 1304 and shall prepare a certificate signed by the Treasurer of the Company setting forth the adjusted conversion rate and showing in reasonable detail the facts upon which such adjustment is based, and such certificate shall forthwith be filed at each office or agency maintained for the purpose of conversion of securities pursuant to Section 1002; and (b) a notice stating that the conversion rate has been adjusted and setting forth the adjusted conversion -89- rate shall forthwith be required, and as soon as practicable after it is required, such notice shall be mailed by the Company to all Holders at their last addresses as they shall appear in the Security Register. SECTION 1306. Notice of Certain Corporate Action. In case: (a) the Company shall declare a dividend (or any other distribution) on its Common Stock payable otherwise than in cash out of its earned surplus; or (b) the Company shall authorize the granting to the holders of its Common Stock of rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any other rights; or (c) of any reclassification of the Common Stock of the Company (other than a subdivision or combination of its outstanding shares of Common Stock), or of any consolidation, merger or share exchange to which the Company is a party and for which approval of any stockholders of the Company is required, or of the sale or transfer of all or substantially all of the assets of the Company; or (d) of the voluntary or involuntary dissolution, liquidation or winding up of the Company; then the Company shall cause to be filed at each office or agency maintained for the purpose of conversion of Securities pursuant to Section 1002, and shall cause to be mailed to all Holders at their last addresses as they shall appear in the Security Register, at least 20 days (or 10 days in any case specified in clause (a) or (b) above) prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, rights or warrants, or, if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, distribution, rights or warrants are to be determined, or (y) the date on which such reclassification, consolidation, merger, share exchange, sale, transfer, dissolution, liquidation or winding up is expected to become effective, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities, cash or other property deliverable -90- upon such reclassification, consolidation, merger, share exchange, sale, transfer, dissolution, liquidation or winding up. Neither the failure to give such notice nor any defect therein shall affect the legality or validity of the proceedings described in clauses (a) through (d) of this Section 1306. If at the time the Trustee shall not be the conversion agent, a copy of such notice shall also forthwith be filed by the Company with the Trustee. SECTION 1307. Company to Reserve Common Stock. The Company shall at all times reserve and keep available, free from pre-emptive rights, out of its authorized but unissued Common Stock, for the purpose of effecting the conversion of Securities, the full number of shares of Common Stock then issuable upon the conversion of all outstanding Securities. SECTION 1308. Taxes on Conversions. The Company will pay any and all taxes that may be payable in respect of the issue or delivery of shares of Common Stock on conversion of Securities pursuant hereto. The Company shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of shares of Common Stock in a name other than that of the Holder of the Security or Securities to be converted, and no such issue or delivery shall be made unless and until the Person requesting such issue has paid to the Company the amount of any such tax, or has established to the satisfaction of the Company that such tax has been paid. SECTION 1309. Covenant as to Common-Stock. The Company covenants that all shares of Common Stock which may be issued upon conversion of Securities will upon issue be newly issued (and not treasury shares) and be duly authorized, validly issued, fully paid and nonassessable and, except as provided in Section 1308, the Company will pay all taxes, liens and charges with respect to the issue thereof. -91- SECTION 1310. Cancellation of Converted Securities. All Securities delivered for conversion shall be delivered to the Trustee to be cancelled by or at the direction of the Trustee, which shall dispose of the same as provided in Section 309. SECTION 1311. Provisions in Case of Consolidation, Merger or Sale of Assets. In case of any consolidation of the Company with, or merger of the Company into, any other Person, any merger of another Person into the Company (other than a merger which does not result in any reclassification, conversion, exchange or cancellation of outstanding shares of Common Stock of the Company) or any sale or transfer of all or substantially all of the assets of the Company, the Person formed by such consolidation or resulting from such merger or which acquires such assets, as the case may be, shall execute and deliver to the Trustee a supplemental indenture providing that the Holder of each Security then outstanding shall have the right thereafter, during the period such Security shall be convertible as specified in Section 1301, to convert such Security only into the kind and amount of securities, cash and other property receivable upon such consolidation, merger, sale or transfer by a holder of the number of shares of Common Stock of the Company into which such Security might have been converted immediately prior to such consolidation, merger, sale or transfer, assuming such holder of Common Stock of the Company is not a Person with which the Company consolidated or into which the Company merged or which merged into the Company or to which such sale or transfer was made, as the case may be ("constituent Person"), or an Affiliate of a constituent Person, and failed to exercise his rights of election, if any, as to the kind or amount of securities, cash and other property receivable upon such consolidation, merger, sale or transfer (provided that if the kind or amount of securities, cash and other property receivable upon such consolidation, merger, sale or transfer is not the same for each share of Common Stock of the Company held immediately prior to such consolidation, merger, sale or transfer by others than a constituent Person or an Affiliate thereof and in respect of which such rights of election shall not have been exercised ("non-electing share"), then for the purpose of this Section the kind and amount of securities, cash and other property receivable upon such consolidation, merger, sale or transfer by each non-electing share shall be deemed to be the kind and amount so receivable per share by a plurality of the non-electing shares). Such supplemental indenture shall -92- provide for adjustments which, for events subsequent to the effective date of such supplemental indenture, shall be as nearly equivalent as may be practicable to the adjustments provided for in this Article. The above provisions of this Section shall similarly apply to successive consolidations, mergers, sales or transfers. SECTION 1312. Trustee's Disclaimer. The Trustee has no duty to determine when an adjustment under this Article should be made, how it should be made or what it should be. The Trustee makes no representation as to the validity or value of any securities or assets issued upon conversion of Securities. The Trustee shall not be responsible for the Company's failure to comply with this Article. Each Conversion Agent other than the Company shall have the same protection under this Section as the Trustee. ARTICLE FOURTEEN Repurchase of Securities at the Option of the Holder Upon a Change in Control SECTION 1401. Right to Require Repurchase. In the event that a Change in Control (as hereinafter defined) shall occur, then each Holder shall have the right, at the Holder's option, to require the Company to repurchase, and upon the exercise of such right the Company shall repurchase, all of such Holder's Securities, or any portion of the principal amount thereof that is an integral multiple of $1,000, on the date (the "Repurchase Date") that is 45 days after the date of the Company Notice (as defined in Section 1402) for cash at a purchase price equal to 100% of the principal amount of the Securities to be repurchased (the "Repurchase Price"), together in each case with accrued interest to the Repurchase Date. Such right to require the repurchase of the Securities shall not continue after a discharge of the Company from its obligations with respect to the Securities in accordance with Article Four, unless a Change in Control shall have occurred prior to such discharge. -93- SECTION 1402. Notices; Method of Exercising Repurchase Right, Etc. (a) Unless the Company shall have theretofore called for redemption all of the Outstanding Securities, on or before the 30th day after the occurrence of a Change in control, the Company or, at the request of the Company, the Trustee, shall mail to all Holders a notice (the "Company Notice") of the occurrence of the Change in Control and of the repurchase right set forth herein arising as a result thereof. The Company shall also deliver a copy of such notice of a repurchase right to the Trustee and cause a copy of such notice of a repurchase right, or a summary of the information contained therein, to be published in a newspaper of general circulation in The City of New York. Each notice of a repurchase right shall state: (1) the Repurchase Date, (2) the date by which the repurchase right must be exercised, (3) the Repurchase Price, (4) a description of the procedure which a Holder must follow to exercise a repurchase right, and (5) the conversion rate then in effect, the date on which the right to convert the principal amount of the Securities to be repurchased will terminate and the place or places where such Securities may be surrendered for conversion. No failure of the Company to give the foregoing notices or defect therein shall limit any Holder's right to exercise a repurchase right or affect the validity of the proceedings for the repurchase of Securities. If any of the foregoing provisions are inconsistent with applicable law, such law shall govern. (b) To exercise a repurchase right, a Holder shall deliver to the Trustee on or before the 30th day after the date of the Company Notice (i) written notice of the Holder's exercise of such right, which notice shall set forth the name of the Holder, the principal amount of the Securities to be repurchased, a statement that an election to exercise the repurchase right is being made thereby, and (ii) the Securities with respect to which the repurchase right is being exercised, duly endorsed for transfer to the -94- Company. Such written notice shall be irrevocable, except that the right of the Holder to convert the Securities with respect to which the repurchase right is being exercised shall continue until the close of business on the second Trading Day preceding the Repurchase Date. (c) In the event a repurchase right shall be exercised in accordance with the terms hereof, the Company shall pay or cause to be paid the Repurchase Price in cash to the Holder on the Repurchase Date, together with accrued and unpaid interest to the Repurchase Date payable with respect to the Securities as to which the purchase right has been exercised; provided, however, that installments of interest that mature on or prior to the Repurchase Date shall be payable in cash to the Holders of such Securities, or one or more predecessor Securities, registered as such at the close of business on the relevant Regular Record Date according to the terms and provisions of Article Three. (d) If any Security surrendered for repurchase shall not be so paid on the Repurchase Date, the principal shall, until paid, bear interest to the extent permitted by applicable law from the Repurchase Date at the rate borne by the Security and each Security shall remain convertible into Common Stock until the principal of such Security shall have been paid or duly provided for. (e) Any security which is to be repurchased only in part shall be surrendered to the Trustee (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or his attorney duly authorized in writing), and the Company shall execute, and the Trustee shall authenticate and deliver to the Holder of such Security without service charge, a new Security or Securities, containing identical terms and conditions, of any authorized denomination as requested by such Holder in aggregate principal amount equal to and in exchange for the unrepurchased portion of the principal of the Security so surrendered. SECTION 1403. Certain Definitions. For purposes of this Article Fourteen, (a) the term "beneficial owner" shall be determined in accordance with Rule 13d-3, as in effect on the date of the original execution of this Indenture, promulgated by the Securities and Exchange Commission pursuant to the Exchange Act, as amended; -95- (b) the term "Person", for purposes of the definition of Change in Control, shall include any syndicate or group which would be deemed to be a "person" under Section 13(d)(3) of the Exchange Act, as amended, as in effect on the date of the original execution of this Indenture; (c) a "Change in Control" shall be deemed to have occurred at such time as: (i) any Person (other than the Company, any Subsidiary of the Company or any employee benefit plan of the Company) is or becomes the beneficial owner, directly or indirectly, through a purchase, merger or other acquisition transaction or series of transactions, of shares of capital stock of the Company entitling such Person to exercise 50% or more of the total voting power of all shares of capital stock of the Company entitled to vote generally in the elections of directors (any shares of voting stock of which such person or group is the beneficial owner that are not then outstanding being deemed outstanding for purposes of calculating such percentage); or (ii) any consolidation of the Company with, or merger of the Company into, any other Person, any merger of another Person into the Company, or any sale or transfer of all or substantially all of the assets of the Company to another Person (other than a merger (x) which does not result in any reclassification, conversion, exchange or cancellation of outstanding shares of Common Stock or (y) which is effected solely to change the jurisdiction of incorporation of the Company and results in a reclassification, conversion or exchange of outstanding shares of Common Stock into solely shares of Common Stock); provided, however, that a Change in Control with respect to the Securities shall not be deemed to have occurred if with respect to clause (ii) above, all the consideration (excluding cash payments for fractional shares) to be paid for the Common Stock in the transaction or transactions -96- constituting the Change in Control consists of shares of common stock traded on a national securities exchange or quoted on the NASDAQ/NMS and as a result of such transaction or transactions the Securities become convertible solely into such common stock. ________________________ This instrument may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. -97- IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed, and their respective corporate seals to be hereunto affixed and attested, all as of the day and year first above written. INTERMAGNETICS GENERAL CORPORATION By /s/ Carl H. Rosner ---------------------- Name: Carl H. Rosner Title: President [Seal] Attest: /s/ Alfred L. Goldberger - ----------------------------- Name: Alfred L. Goldberger Secretary AMERICAN STOCK TRANSFER & TRUST COMPANY By -------------------------------------- Name: Title: [Seal] Attest: - ----------------------------- Name: Title: -98- IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed, and their respective corporate seals to be hereunto affixed and attested, all as of the day and year first above written. INTERMAGNETICS GENERAL CORPORATION By -------------------------------------- Name: Title: [Seal] Attest: - ----------------------------- Name: Secretary AMERICAN STOCK TRANSFER & TRUST COMPANY By /s/ Herbert J. Lemmer ---------------------------- Name: Herbert J. Lemmer Title: VICE PRESIDENT [Seal] Attest: /s/ Susan Silber - ---------------------------- Name: Susan Silber Title: ASSISTANT SECRETARY -99- State of New York ) ss.: County of Albany ) On the 20th day of September 1993, before me personally came Carl H. Rosner, to me known, who, being by me duly sworn, did depose and say that he is President of Intermagnetics General Corporation, one of the corporations described in and which executed the foregoing instrument; that he knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal; that it was so affixed by authority of the Board of Directors of said corporation, and that he signed his name thereto by like authority. /s/ Myron E. Leach ------------------------------------ MYRON E. LEACH Notary Public, State of New York Presiding in Albany County Commission Expires ) ss.: ) On the _________ day of ________ 1993, before me personally came ____________, to me known, who, being by me duly sworn, did depose and say that __________________________ is ________________ of __________________, one of the corporations described in and which executed the foregoing instrument; that she knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal; that it was so affixed by authority of the Board of Directors of said corporation, and that she signed her name thereto by like authority. -100- ) ss.: ) On the ________ day of ________, 1993, before me personally came __________________, to me known, who, being by me duly sworn, did depose and say that he is _____________________________________ of Intermagnetics General Corporation, one of the corporations described in and which executed the foregoing instrument; that he knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal; that it was so affixed by authority of the Board of Directors of said corporation, and that he signed his name thereto by like authority. ________________________________ STATE OF NEW YORK ) ss.: COUNTY OF KINGS ) On the 15th day of September, 1993, before me personally came Herbert J. Lemmer to me known, who, being by me duly sworn, did depose and say that he is a Vice President of American Stock Transfer & Trust Company, one of the corporations described in and which executed the foregoing instrument; that he knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal; that it was so affixed by authority of the Board of Directors of said corporation, and that he signed his name thereto by like authority. /s/ James E. Hogan ------------------------------------ JAMES E. HOGAN Notary Public, State of New York No. 30-4518684 Qualified in Nassau County Commission Expires April 30, 1994 EXHIBIT A Form of Certificate to be Delivered in connection with Transfers pursuant to Regulation S _______________, ______ American Stock Transfer & Trust Company 40 Wall Street New York, New York 10005 Attention: Corporate Trust Office Re: Intermagnetics General Corporation (the "Company") 5.75% Convertible Subordinated Debentures Due 2003 (the "Securities") ---------------------------------- Dear Sirs: In connection with our proposed sale of $ ______ aggregate principal amount of the Securities, we confirm that such sale has been effected pursuant to an in accordance with Regulation S under the Securities Act of 1933, as amended, and, accordingly we represent that: (1) the offer of the securities was not made to a person in the United States; (2) either (a) at the time the buy order was originated, the transferee was outside the United States or we and any person acting on our behalf reasonably believed that the transferee was outside the United States, or (b) the transaction was executed in, on or through the facilities of a designated off-shore securities market and neither we nor any person acting on our behalf knows that the transaction has been prearranged with a buyer in the United States (3) no directed selling efforts have been made in the United States in contravention of the requirements of Rule 903(b) of Regulation S, as applicable; (4) the transaction is not part of a plan or scheme to evade the registration requirements of the U.S. Securities Act of 1933; and (5) the Securities to be transferred are not in denominations smaller than $50,000. In addition, if the sale is made during a restricted period and the provision of Rule 903(c)(2) or (3) or Rule 904(l) of Regulation S are applicable thereto, we confirm that such sale has been made in accordance with the applicable A-1 provisions of Rule 903(c)(2) or (3) or Rule 904(c)(1), as the case may be. You and the Company are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative legal proceedings or official inquiry with respect to the matters covered hereby. Terms used in this certificate have the meanings set forth in Regulation S. Very truly yours, [Name of Transferor] By: _______________________ Authorized Signature A-2 EXHIBIT B Form of Certificate to be Delivered in connection with Transfers to Non-QIB Accredited Investors _______________, ______ American Stock Transfer & Trust Company 40 Wall Street New York, New York 10005 Attention: Corporate Trust Office Re: Intermagnetics General Corporation (the "Company") 5.75% Convertible Subordinated Debentures Due 2003 (the "Securities") ---------------------------------- Dear Sirs: In connection with our proposed purchase of $______ aggregate principal amount of the Securities, we confirm that: 1. We understand that any subsequent transfer of the Securities is subject to certain restrictions and conditions set forth in the Indenture dated as of September 15, 1993 relating to the Securities (the "Indenture") and the undersigned agrees to be bound by, and not to resell, pledge or otherwise transfer the Securities except in compliance with, such restrictions and conditions and the Securities Act of 1933, as amended (the "Securities Act"). 2. We understand that the offer and sale of the Securities have not been registered under the Securities Act, and that the Securities may not be offered or sold except as permitted in the following sentence. We agree, on our own behalf and on behalf of any accounts for which we are acting as hereinafter stated, that if we should sell any Securities, we will do so only (A) to the Company or any subsidiary thereof, (B) inside the United States in accordance with Rule 144A under the Securities Act to a "qualified institutional buyer" (as defined therein), (C) inside the United States to an institutional "accredited investor" (as defined below) that, prior to such transfer, furnishes to you a signed letter substantially in the form of this letter, (D) outside the United States in accordance with Rule 904 of Regulation S under the Securities Act or (E) pursuant to the exemption from registration provided by Rule 144 B-1 under the Securities Act, and we further agree to provide to any person purchasing any of the Securities from us a notice advising such purchaser that resales of the Securities are restricted as stated herein. 3. We understand that, on any proposed resale of any Securities, we will be required to furnish to you and the Company such certifications, legal opinions and other information as you and the Company may reasonably require to confirm that the proposed sale complies with the foregoing restrictions. We further understand that the Securities purchased by us will bear a legend to the foregoing effect. 4. We are an institutional investor and an "accredited investor" (as defined in Rule 501(a) of Regulation D under the Securities Act) (an "Accredited Investor") and understand that we may not hold any Securities in denominations smaller than $50,000, and have such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of our investment in the Securities, and we and any accounts for which we are acting are each able to bear the economic risk of our or its investment. We understand that we may not transfer any Securities to any Accredited Investor who is not a QIB unless the aggregate principal amount transferred exceeds $250,000, except that we may transfer a smaller principal amount if such principal amount constitutes all of the Securities owned by us. 5. (A) We are acquiring the Securities purchased by us for our own account or for one or more accounts (each of which is an Accredited Investor) as to each of which we exercise sole investment discretion; if we are purchasing for the accounts of other Accredited Investors, (1) we reasonably believe that each such Accredited Investor can bear the economic risk of its investment in the Securities and (2) we have all necessary authority to make the foregoing representations on behalf of, and to act for, each such Accredited Investor, or (B) we are a "bank", within the meaning of Section 3(a)(2) of the Securities Act, or a "savings and loan association" or other institution described in Section 3(a)(5)(A) of the Securities Act that is acquiring the Securities as fiduciary for the account of one or more institutions for which we exercise sole investment discretion. 6. We are not acquiring the Securities with a view to distribution thereof or with any present intention of offering or selling any of the Securities, B-2 except pursuant to an effective registration statement under the Securities Act or (a) inside the United States in accordance with Rule 144A under the Securities Act or (b) outside the United States in accordance with Regulation S under the Securities Act. We acknowledge that you, the Issuer, and others will rely upon our confirmations, acknowledgements and agreements set forth herein, and we agree to notify you promptly in writing if any of our representations or warranties herein ceases to be accurate and complete. We hereby irrevocably agree that this letter or a copy hereof may be produced to any interested party in any administrative or legal proceeding or official inquiry with respect to the matters covered hereby. We hereby certify that all necessary action has been taken to authorize the purchase of the Securities and the execution of this letter. Very truly yours, [Name of Transferee] By:_______________________ Authorized Signature B-3 EX-4 4 EXHIBIT 4.2 Exhibit 4.2 SECOND AMENDED AND RESTATED LOAN AND AGENCY AGREEMENT among INTERMAGNETICS GENERAL CORPORATION APD CRYOGENICS INC. MAGSTREAM CORPORATION MEDICAL ADVANCES, INC. INTERCOOL ENERGY CORPORATION and CORESTATES BANK, N.A. AND THE OTHER BANKS PARTY HERETO with CORESTATES BANK, N.A. as Agent October 23, 1997 TABLE OF CONTENTS
Page ---- I. CERTAIN DEFINITIONS..................................................................................1 1.1 Definitions...................................................................................1 1.2 Accounting Terms..............................................................................8 II. THE CREDIT 9 2.1 Revolving Credit Loans........................................................................9 2.2 The Revolving Credit Notes....................................................................10 2.3 Funding Procedures............................................................................10 2.4 Interest......................................................................................12 2.5 Fees..........................................................................................14 2.6 Reduction or Termination of Aggregate Revolving Loan Commitment...............................14 2.7 Voluntary Prepayments.........................................................................14 2.8 Payments......................................................................................15 2.9 Changes in Circumstances; Yield Protection....................................................16 2.10 Illegality....................................................................................18 2.11 Joint and Several Liability...................................................................18 2.12 Optional Cash Management Facility.............................................................18 III. REPRESENTATIONS AND WARRANTIES 19 3.1 Good Standing of the Borrowers; Authorization.................................................19 3.2 Compliance with Laws and Other Agreements.....................................................19 3.3 No Conflict; Governmental Approvals...........................................................19 3.4 Financial and Other Information Regarding Borrowers...........................................19 3.5 Taxes.........................................................................................20 3.6 Liens and Guaranties..........................................................................20 3.7 Material Adverse Changes......................................................................20 3.8 Compliance with Federal Reserve Board Regulations.............................................20 3.9 ERISA.........................................................................................21 3.10 Pending Litigation............................................................................21 3.11 Valid, Binding and Enforceable................................................................21 3.12 No Untrue Statements..........................................................................21 IV. CONDITIONS PRECEDENT 21 4.1 Conditions Precedent to All Loans.............................................................21 4.2 Conditions Precedent to First Loan............................................................22 V. AFFIRMATIVE COVENANTS 23 5.1 Use of Proceeds...............................................................................23 5.2 Accounting Records, Reports and Financial Statements..........................................23 5.3 Ordinary Course of Business; Records..........................................................24
5.4 Information for the Banks.....................................................................24 5.5 Insurance.....................................................................................24 5.6 Maintenance...................................................................................25 5.7 Taxes.........................................................................................25 5.8 Leases........................................................................................25 5.9 Corporate Existence; Certain Rights; Laws.....................................................25 5.10 Notice of Litigation..........................................................................25 5.11 Indebtedness..................................................................................25 5.12 Notice of Events of Default...................................................................26 5.13 ERISA.........................................................................................26 5.14 Deposit Accounts..............................................................................26 5.15 Management....................................................................................26 5.16 Financial Covenants...........................................................................26 VI. NEGATIVE COVENANTS 26 6.1 Fundamental Corporate Changes.................................................................27 6.2 Indebtedness..................................................................................27 6.3 Liens.........................................................................................27 6.4 Guaranties....................................................................................28 6.5 Sales and Lease-Backs.........................................................................28 6.6 Loans; Investments............................................................................28 6.7 Change in Business............................................................................28 6.8 Sale or Discount of Receivables...............................................................28 6.9 ERISA.........................................................................................28 6.10 Restricted Payments...........................................................................29 VII. DEFAULT 29 7.1 Borrowers' Failure to Pay.....................................................................29 7.2 Breach of Covenants or Conditions.............................................................29 7.3 Defaults in Other Agreements..................................................................29 7.4 Agreements Invalid............................................................................29 7.5 False Warranties; Breach of Representations...................................................30 7.6 Judgments.....................................................................................30 7.7 Bankruptcy or Insolvency of a Borrower........................................................30 VIII. REMEDIES 31 8.1 Further Advances; Acceleration; Setoff........................................................31 8.2 Further Remedies..............................................................................32 IX. AGENT 32 9.1 Appointment and Authorization.................................................................32 9.2 Duties and Obligations........................................................................32 9.3 The Agent as a Bank...........................................................................33 9.4 Independent Credit Decisions..................................................................33 9.5 Indemnification...............................................................................33
9.6 Successor Agent...............................................................................34 9.7 Allocations Made By Agent.....................................................................34 9.8 Benefits of Article IX........................................................................34 9.9 Mutual Disclosure.............................................................................35 9.10 Reports and Notices..........................................................................35 X. MISCELLANEOUS 35 10.1 Waiver........................................................................................35 10.2 Amendments....................................................................................35 10.3 Governing Law.................................................................................35 10.4 Participations and Assignments................................................................36 10.5 Captions......................................................................................37 10.6 Notices.......................................................................................37 10.7 Sharing of Collections, Proceeds and Set-Offs; Application of Payments........................38 10.8 Expenses of the Agent; Indemnification of the Agent and the Banks.............................39 10.9 Survival of Warranties and Certain Agreements.................................................40 10.10 Severability..................................................................................40 10.11 Banks' Obligations Several; Independent Nature of Banks' Rights...............................40 10.12 No Fiduciary Relationship.....................................................................40 10.13 CONSENT TO JURISDICTION AND SERVICE OF PROCESS................................................41 10.14 WAIVER OF JURY TRIAL..........................................................................41 10.15 Counterparts; Effectiveness...................................................................41 10.16 Use of Defined Terms..........................................................................42
LIST OF EXHIBITS: Exhibit A Form of Borrowing Notice Exhibit B Form of Covenant Compliance Certificate Exhibit C Form of Competitive Bid Note LIST OF SCHEDULES: Schedule A Applicable Margin for LIBO Rate Loans Schedule 3.4(c) Borrowers' Investments Schedule 5.16 Financial Covenants Schedule 6.2 Existing Indebtedness SECOND AMENDED AND RESTATED LOAN AND AGENCY AGREEMENT THIS SECOND AMENDED AND RESTATED LOAN AND AGENCY AGREEMENT, dated as of October 23, 1997 (this "Agreement"), is entered into by and among INTERMAGNETICS GENERAL CORPORATION, a New York corporation ("IGC"), APD CRYOGENICS INC., a Pennsylvania corporation ("APD"), MAGSTREAM CORPORATION, a New York corporation ("MC"), MEDICAL ADVANCES, INC., a Wisconsin corporation ("MA"), and INTERCOOL ENERGY CORPORATION, a Delaware corporation ("IEC") (each, a "Borrower" and collectively, the "Borrowers"), the banking institutions signatories hereto and such other institutions that hereafter become a "Bank" pursuant to Section 10.4 hereof (each, a "Bank" and collectively, the "Banks") and CORESTATES BANK, N.A., a national banking association ("CoreStates"), as agent for the Banks under this Agreement (in such capacity, the "Agent"). WITNESSETH: WHEREAS, the Agent and IGC, APD and MC (collectively, the "Existing Borrowers") are parties to a certain Amended and Restated Loan Agreement dated as of December 23, 1991, as amended on February 26, 1992, June 14, 1994, and August 1, 1994 (as amended, the "Existing Loan Agreement"), pursuant to which the Agent has made available to the Existing Borrowers certain credit facilities. WHEREAS, the parties hereto desire to amend and restate the Existing Loan Agreement in its entirety to, among other things: add MA and IEC (the "New Borrowers") as additional co-borrowers; add the Banks other than the Agent as additional co-lenders; and set forth the terms on which the Agent shall act as agent for the Banks; and WHEREAS, the Banks and the Borrowers desire the Agent, and the Agent has agreed, to act as the agent for the Banks as provided herein. NOW, THEREFORE, in consideration of the premises and intending to be legally bound hereby, the parties hereto agree to amend and restate the Existing Loan Agreement in its entirety as follows: I. CERTAIN DEFINITIONS 1.1 Definitions. As used in this Agreement, the following terms shall have these meanings: "Additional Amount" shall have the meaning set forth in Section 2.1. "Adjusted Base Rate" shall mean the Base Rate less one-half of one percent (0.5%). "Affiliate" shall mean any Person: (1) which directly or indirectly controls, or is controlled by, or is under common control with any Borrower or any Subsidiary; (2) which directly or indirectly beneficially owns or holds ten percent (10%) or more of any class of voting stock of any Borrower or any Subsidiary; or (3) ten percent (10%) or more of the voting stock of which is, directly or indirectly, beneficially owned or held by any Borrower or any Subsidiary. The term "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract, or otherwise. "Agreement" shall mean this Second Amended and Restated Loan and Agency Agreement, as amended, supplemented, or modified from time to time, and all exhibits and schedules attached hereto. "Aggregate Revolving Loan Commitment" shall have the meaning set forth in Section 2.1. "Applicable Margin" shall mean the margin applicable to LIBO Rate Loans, determined in accordance with Schedule A hereto. "Base Rate" shall mean, for any day, the prime commercial lending rate of CoreStates, as announced from time to time at its head office, calculated on the basis of the actual number of days elapsed in a year of 360 days. "Base Rate Loans" shall mean Revolving Credit Loans accruing interest based on the Adjusted Base Rate. "Business Day" shall mean any day other than a Saturday, Sunday, or other day on which commercial banks in Philadelphia are authorized or required to close under the laws of the Commonwealth of Pennsylvania and, if the applicable day relates to a LIBO Rate Loan, or notice with respect to a LIBO Rate Loan, a day on which dealings in Dollar deposits are also carried on in the London interbank market and banks are open for business in London ("London Business Day"). "Capitalized Lease" shall mean all lease obligations of any Person for any property (whether real, personal or mixed) which have been or should be capitalized on the books of the lessee in accordance with Generally Accepted Accounting Principles. "Closing Date" shall mean the date hereof. "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time, and all rules and regulations with respect thereto in effect from time to time. "Commitment Percentage" shall mean with respect to each Bank, the percentage set forth opposite its name on the signature page hereof. "Competitive Bid Loan" shall mean a Loan made by a Bank to the Borrowers pursuant to Section 2.4(c) hereof. "Competitive Bid Notes" shall mean notes issued by the Borrowers to evidence Loans made pursuant to Section 2.4(c) hereof. "Covenant Compliance Certificate" shall mean a certificate, completed by the Chief Financial Officer of IGC on behalf of the Borrowers and submitted to the Agent, in the form of Exhibit B hereto. "Current Assets" shall mean, at any time, all assets which, in accordance with GAAP, should be classified as current assets of any Borrower. "Default Rate" on any Loan shall mean the lower of (i) 2% per annum above the Base Rate; or (ii) the highest interest rate permitted by applicable law. "Dollars" shall mean the lawful currency of the United States of America. "EBITDA" shall mean, for any period, the sum (without duplication) of (i) Net Income, (ii) provision for taxes based on income, (iii) Interest Expenses, and (iv) to the extent Net Income has been reduced thereby, amortization expense, depreciation expense and other expenses not ultimately settled in cash, all as determined for the Borrowers on a consolidated basis in accordance with GAAP. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as it may be amended from time to time. "ERISA Affiliate" shall mean any corporation which is a member of the same controlled group of corporations as any Borrower within the meaning of Section 414(b) of the Code, or any trade or business which is under common control with any Borrower within the meaning of Section 414(c) of the Code. "Event of Default" shall have the meaning set forth in Section 7.1. "Environmental Laws" shall mean the Federal Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. ss.ss. 9601, et seq., the Federal Resource Conservation and Recovery Act, 42 U.S.C. ss.ss. 6901, et seq., the Hazardous Materials Transportation Act, 49 U.S.C. ss.ss. 1801, et seq., all other federal, state and local environmental or health laws applicable to any Borrower or its business, operations or assets now or hereafter enacted, and all rules, regulations, orders and publications adopted or promulgated pursuant thereto from time to time. "Federal Funds Rate" shall mean, for any day, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day, provided that if the day for which such rate is to be determined is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day. "Guaranty" shall mean any guaranty or other agreement to be a surety or other contingent liability (other than any endorsement for collection or deposit in the ordinary course of business), direct or indirect, with respect to any obligation of another Person. "Generally Accepted Accounting Principles" or "GAAP" shall mean generally accepted accounting principles as in effect from time to time in the United States, consistently applied. "Governmental Authority" shall mean the federal, state, county or municipal government, or any department, agency, bureau or other similar type body obtaining authority therefrom or created pursuant to any laws, including, without limitation, Environmental Laws. "Indebtedness" shall mean any obligation for borrowed money, including, without limitation: (i) any obligation owed for all or any part of the purchase price of property or other assets or for the cost of property or other assets constructed or improvements thereto, other than accounts payable included in current liabilities and incurred in respect of property purchased in the ordinary course of business; and (ii) any Capitalized Lease obligation. "Interest Expenses" shall mean, for any period, the gross interest expense for the Borrowers on a consolidated basis for such period, as determined in accordance with GAAP. "Interest Period" shall mean, with respect to any LIBO Rate Loan, each period commencing on the date any such Loan is made or, with respect to a Loan being renewed, the last day of the next preceding Interest Period with respect to a Loan, and ending on the numerically corresponding day (or, if there is no numerically corresponding day, on the last day of the calendar month) in the first, second, third or sixth calendar month thereafter as selected under the procedures specified in Section 2.3, if the Banks are then offering LIBO Rate Loans for such period; provided that each LIBO Rate Loan Interest Period which would otherwise end on a day which is not a Business Day (or, for purposes of Loans to be repaid on a London Business Day, such day is not a London Business Day) shall end on the next succeeding Business Day (or London Business Day, as appropriate) unless such next succeeding Business Day (or London Business Day, as appropriate) falls in the next succeeding calendar month, in which case the Interest Period shall end on the next preceding Business Day (or London Business Day, as appropriate). "LIBO Rate" shall mean, for the applicable Interest Period, (i) the rate, rounded upwards to the next one-sixteenth of one percent, determined by the Agent two London Business Days prior to the date of the corresponding LIBO Rate Loan, at which the Agent is offered deposits in dollars at approximately 11:00 A.M. London time by leading banks in the interbank eurodollar or eurocurrency market for delivery on the date of such Loan in an amount and for a period comparable to the amount and Interest Period of such Loan and in like funds, divided by (ii) a number equal to one (1.0) minus the LIBO Rate Reserve Percentage. The LIBO Rate shall be adjusted automatically with respect to any LIBO Rate Loan outstanding on the effective date of any change in the LIBO Rate Reserve Percentage, as of such effective date. LIBO Rate shall be calculated on the basis of the number of days elapsed in a year of 360 days. "LIBO Rate Reserve Percentage" shall mean, for any LIBO Rate Loan for any Interest Period therefor, the daily average of the stated maximum rate (expressed as a decimal) at which reserves (including any marginal, supplemental, or emergency reserves) are required to be maintained during such Interest Period under Regulation D by the Agent against "Eurocurrency liabilities" (as such term is used in Regulation D) but without benefit of credit proration, exemptions, or offsets that might otherwise be available to the Agent from time to time under Regulation D. Without limiting the effect of the foregoing, the LIBO Rate Reserve Percentage shall reflect any other reserves required to be maintained by the Agent against (1) any category of liabilities which includes deposits by reference to which the rate for LIBO Rate Loans is to be determined; or (2) any category of extension of credit or other assets which include LIBO Rate Loans. "LIBO Rate Loans" shall mean Revolving Credit Loans accruing interest based on the LIBO Rate. "Lien" shall mean any lien, mortgage, security interest, chattel mortgage, pledge or other encumbrance (statutory or otherwise) of any kind securing satisfaction of an obligation, including any agreement to give any of the foregoing, any conditional sales or other title retention agreement, any lease in the nature thereof, and the filing of or the agreement to give any financing statement under the Uniform Commercial Code of any jurisdiction or similar evidence of any encumbrance, whether within or outside the United States. "Loan" or "Loans" shall mean a Revolving Credit Loan or Revolving Credit Loans and a Competitive Bid Loan or Competitive Bid Loans. "Loan Documents" shall mean this Agreement, the Notes, and each other agreement, document and instrument executed in connection herewith. "Multiemployer Plan" shall mean a multiemployer plan as defined in ERISA Section 4001(a)(3), which covers employees of any Borrower or any ERISA Affiliate. "Net Income" shall mean, for any period, the consolidated net income (after the deduction of federal and state income taxes) of the Borrowers, determined in accordance with GAAP, excluding: (a) the proceeds of any insurance policy; (b) any gain or loss arising from: (1) the sale or other disposition of any assets, other than in the ordinary course of business (other than Current Assets); (2) any write-up of assets; or (3) the acquisition of outstanding securities representing Indebtedness of any Borrower; (c) any earnings, prior to the date of acquisition, of any Person acquired in any manner; (d) any earnings of a successor to or transferee of the assets of any Borrower prior to becoming such successor or transferee; (e) any deferred credit (or amortization of a deferred credit) arising from the acquisition of any Person; and (f) any other item constituting an extraordinary gain or loss under GAAP. "Notes" shall mean the Revolving Credit Notes and Competitive Bid Notes. "Obligations" shall mean all now existing or hereafter arising debts, obligations, covenants, and duties of payment or performance of every kind, matured or unmatured, direct or contingent, owing, arising, due, or payable to the Banks or the Agent by or from the Borrowers or any Subsidiary arising out of this Agreement or any other Loan Document, including, without limitation, all obligations to repay principal of and interest on all the Revolving Credit Loans, and to pay interest, fees, costs, charges, expenses, professional fees, and all sums chargeable to the Borrowers or any Subsidiary or for which any Borrower or any Subsidiary is liable as indemnitor under the Loan Documents, whether or not evidenced by any note or other instrument. "Operating Lease" shall mean an operating lease as defined by Generally Accepted Accounting Principles, excluding all leases the expenses for which may be charged to a customer of any Borrower pursuant to the written terms of the contract with such customer. "PBGC" shall mean the Pension Benefit Guaranty Corporation and any successor thereto. "Pension Plan" shall mean, at any time, any Plan (including a Multiemployer Plan), the funding requirements of which (under ERISA Section 302 or Code Section 412) are, or at any time within the six years immediately preceding the time in question were, in whole or in part, the responsibility of any Borrower or any ERISA Affiliate. "Permitted Acquisitions" shall mean acquisitions by the Borrowers, or any of them, of the assets and/or capital stock of other businesses and/or Persons, for which cash consideration (net of any cash acquired directly by the Borrowers or retained by the entity that is acquired by the Borrowers as part of the acquisition transaction) is paid in an amount not to exceed $10,000,000 in the aggregate between the Closing Date and the Revolver Termination Date. "Person" shall mean any individual, corporation, partnership, joint venture, association, company, business trust or entity, or other entity of whatever nature. "Plan" shall mean an employee benefit plan as defined in Section 3(3) of ERISA, other than a Multiemployer Plan, whether formal or informal and whether legally binding or not. "Potential Default" shall mean an event, condition or circumstance that with the giving of notice or lapse of time or both would become an Event of Default. "Regulation" shall mean any statute, law, ordinance, regulation, order or rule of any United States or foreign, federal, state, local or other government or governmental body, including, without limitation, those covering or related to banking, financial transactions, securities, public utilities, environmental control, energy, safety, health, transportation, bribery, record keeping, zoning, anti-discrimination, antitrust, wages and hours, employee benefits, and price and wage control matters. "Regulation D" shall mean Regulation D of the Board of Governors of the Federal Reserve System, as it may be amended from time to time. "Regulatory Change" shall mean any change after the date of this Agreement in any Regulation (including Regulation D) or the adoption or making after such date of any interpretations, directives or requests of or under any Regulation (whether or not having the force of law) by any court or governmental or monetary authority charged with the interpretation or administration thereof applying to a class of banks including any one of the Banks but excluding any foreign office of any Bank. "Reportable Event" shall mean, with respect to a Pension Plan: (a) Any of the events set forth in ERISA Sections 4043(b) (other than a reportable event as to which the provision of 30 days' notice to the PBGC is waived under applicable regulations) or 4063(a) or the regulations thereunder, (b) an event requiring any Borrower or any ERISA Affiliate to provide security to a Pension Plan under Code Section 401(a)(29) and (c) any failure by any Borrower or any ERISA Affiliate to make payments required by Code Section 412(m). "Required Banks" at any time shall mean Banks whose Revolving Loan Commitments equal or exceed 51% of the total of such Revolving Loan Commitments if no Loans are outstanding or, if Loans are outstanding, Banks whose outstanding Loans equal or exceed 51% of the Loans; provided, however, that with respect to Sections 5.1, 5.11, 5.14, 5.16, 6.1, 6.2, 6.3, 6.4, 6.6, 6.7, 6.8, 6.10 and 8.1 of this Agreement, the term "Required Banks" shall mean Banks whose Revolving Loan Commitments equal 100% of the total of such Revolving Loan Commitments if no Loans are outstanding or, if Loans are outstanding, Banks whose outstanding Loans equal 100% of the Loans. "Revolver Termination Date" shall have the meaning set forth in Section 2.1. "Revolving Loan Commitment" shall have the meaning set forth in Section 2.1. "Revolving Credit Loan" or "Loan" shall have the meaning set forth in Section 2.1. "Revolving Credit Note" shall have the meaning set forth in Section 2.2. "Senior Funded Debt" shall mean (i) Indebtedness, excluding Subordinated Indebtedness; (ii) Capitalized Lease obligations; (iii) all Guaranties, direct or indirect, except (A) those that guarantee obligations that would already be included in this definition and (B) guarantees of obligations arising under Operating Leases; (iv) contingent obligations in connection with issued and outstanding standby letters of credit, except those obligations that would already be included in this definition; and (v) obligations in connection with bankers' acceptances. "Subordinated Indebtedness" shall mean, at any time, all Indebtedness of the Borrowers subordinated to the Obligations on terms reasonably satisfactory to the Banks, including the outstanding portion of the $30,000,000 of 5.75% convertible subordinated debentures due September 19, 2003. "Subsidiary" shall mean a corporation or other entity, the shares of stock or other equity interests of which having ordinary voting power (other than stock or other equity interests having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such corporation are at the time owned, or the management of which is otherwise controlled, directly or indirectly through one or more intermediaries or both, by any Borrower. "Taxes" shall have the meaning set forth in Section 2.9. "Termination Event" shall mean, with respect to a Pension Plan: (a) a Reportable Event, (b) the termination of a Pension Plan, or the filing of a notice of intent to terminate a Pension Plan, or the treatment of a Pension Plan amendment as a termination under ERISA Section 4041(c), (c) the institution of proceedings to terminate a Pension Plan under ERISA Section 4042 or (d) the appointment of a trustee to administer any Pension Plan under ERISA Section 4042. 1.2 Accounting Terms. All accounting terms not specifically defined herein shall be construed in accordance with Generally Accepted Accounting Principles consistent with those applied in the preparation of the Financial Statements referred to in Section 3.4, and all financial data submitted pursuant to this Agreement shall be prepared in accordance with such principles. II. THE CREDIT 2.1 Revolving Credit Loans. (a) Subject to the terms and conditions hereof and in reliance upon the representations, warranties and covenants contained herein, each Bank agrees, severally and not jointly with the other Banks, to make revolving credit loans (collectively called the "Revolving Credit Loans" and each individually a "Revolving Credit Loan") to the Borrowers from time to time during the period commencing on the Closing Date and ending three (3) years following the Closing Date, or on any earlier date as provided in Section 2.7(b) or Section 8.1 hereof (the "Revolver Termination Date"), in principal amounts not to exceed at any time outstanding in the aggregate the amount set forth opposite the name of each such Bank on the signature page hereof (each such amount being hereinafter called such Bank's "Revolving Loan Commitment" and collectively, the Banks' "Aggregate Revolving Loan Commitment"). All Loans shall be made by the Banks simultaneously and pro rata in accordance with the Revolving Loan Commitments. The failure of any one or more of the Banks to make Revolving Credit Loans in accordance with its or their obligations shall not relieve the other Banks of their several obligations under this Section 2.1(a), but in no event shall the aggregate amount at any one time outstanding which any Bank shall be required to lend under this Section 2.1(a) exceed the amount of such Bank's Revolving Loan Commitment at that time. (b) The Borrowers may request Revolving Credit Loans to bear interest at either the Adjusted Base Rate or LIBO Rate options described in Section 2.4. The Revolving Credit Loans outstanding at any one time may involve any combination of such interest rate options in such amounts as the Borrowers may determine, subject to the terms and conditions hereof, including the requirement concerning minimum Loan requests and the requirements that (i) no request may be made which would require more than one interest rate option or more than one Interest Period to apply to a single Revolving Credit Loan, and (ii) in the case of LIBO Rate Loans, no LIBO Rate Loan may have an Interest Period extending beyond the Revolver Termination Date. (c) Notwithstanding the foregoing, the Borrowers shall not be entitled to a Revolving Credit Loan if, after giving effect to such Revolving Credit Loan, the unpaid principal amount of the Revolving Credit Loans to the Borrowers exceeds the Aggregate Revolving Loan Commitment. (d) Except for Revolving Credit Loans which exhaust the full remaining amount of the Aggregate Revolving Loan Commitment and conversions which result in the conversion of all Revolving Credit Loans subject to a particular interest rate option, each of which may be in lesser amounts, each Loan when made and each conversion of Loans of one type into Loans of another type hereunder shall be in an amount at least equal to $500,000 or, if greater, then in such minimum amount plus $100,000 multiples. (e) Within the limits of the Aggregate Revolving Loan Commitment, the Borrowers may borrow, prepay (in accordance with Section 2.8) and reborrow Revolving Credit Loans. All Revolving Credit Loans shall, in any event, be repaid by the Borrowers on the Revolver Termination Date. (f) If any principal of a LIBO Rate Loan shall be voluntarily repaid (whether upon prepayment, reduction of the Aggregate Revolving Loan Commitment after acceleration or for any other reason) or converted to a Base Rate Loan pursuant to Section 2.11 prior to the last day of the Interest Period applicable to such LIBO Rate Loan or if the Borrowers fail for any reason to borrow a LIBO Rate Loan after giving irrevocable notice pursuant to Section 2.3, the Borrowers shall pay to each Bank, in addition to the principal and interest then to be paid, such additional amounts as may be necessary to compensate each Bank for all appropriate direct and indirect costs and losses (including losses resulting from redeployment of prepaid or unborrowed funds at rates lower than the cost of such funds to such Bank, and including lost profits incurred or sustained by such Bank) as a result of such repayment or failure to borrow (the "Additional Amount"). The Additional Amount (which each Bank shall take reasonable measures to minimize) shall be specified in a written notice or certificate delivered to the Borrowers by the Agent in the form provided by each Bank sustaining such costs or losses. Such notice or certificate shall contain a calculation in reasonable detail of the Additional Amount to be compensated and shall be conclusive as to the facts and the amounts stated therein, absent manifest error. 2.2 The Revolving Credit Notes. The Revolving Credit Loans made by each Bank shall all be evidenced by a single promissory note of the Borrowers (each such promissory note as it may be amended, extended, modified or renewed a "Revolving Credit Note") in principal face amount equal to such Bank's Revolving Loan Commitment, payable to the order of such Bank and otherwise in form and substance satisfactory to the Banks. The Revolving Credit Notes shall be dated the Closing Date, shall bear interest at the rate per annum and be payable as to principal and interest in accordance with the terms hereof. The Revolving Credit Notes shall mature upon the Revolver Termination Date, and upon maturity each outstanding Revolving Credit Loan evidenced thereby shall be due and payable. The Agent shall maintain records of all Loans evidenced by the Revolving Credit Notes and of all payments thereon, which records shall be conclusive absent manifest error. 2.3 Funding Procedures. (a) Each request for a Revolving Credit Loan or the conversion or renewal of an interest rate with respect to a Loan shall be made not later than 11:00 a.m. on a Business Day by delivery to the Agent of a written request signed by IGC on behalf of the Borrowers or, in the alternative, a telephone request followed promptly by written confirmation of the request, specifying the date and amount of the Loan to be made, converted or renewed, selecting the interest rate option applicable thereto, and in the case of LIBO Rate Loans, specifying the Interest Period applicable to such Loan. The form of request attached hereto as Exhibit A ("Borrowing Notice") shall be used to request the making, conversion or renewal of Revolving Credit Loans unless otherwise agreed. Each request shall be received not less than one (1) Business Day prior to the date of the proposed borrowing, conversion or renewal in the case of Base Rate Loans, and three (3) London Business Days prior to the date of the proposed borrowing, conversion or renewal in the case of LIBO Rate Loans. No request shall be effective until actually received in writing by the Agent. (b) Upon receipt of a request for a Loan or the conversion of a Loan, and if the conditions precedent provided herein shall be satisfied at the time of such request, the Agent promptly shall notify each Bank of such request and of such Bank's ratable share of such Loan. Upon receipt by the Agent, the request for a Loan or the conversion of a Loan shall not be revocable by the Borrowers. (c) Not later than 11:00 A.M. on the date of each Loan, each Bank shall make available (except as provided in clause (d) below) its ratable share of such Loan, in immediately available funds, to the Agent at the address set forth in Section 10.6 hereof or at such account in London as the Agent shall specify to the Borrowers and the Banks. Unless the Agent knows that any applicable condition specified herein has not been satisfied, the Agent will make the funds so received from the Banks immediately available to the Borrowers on the date of each Loan by a credit to the account of the Borrowers at the Agent's aforesaid address. (d) Unless the Agent shall have been notified by any Bank at least one (1) Business Day prior to the date of the making, conversion or renewal of any LIBO Rate Loan, or by 3:00 P.M. on the date a Base Rate Loan is requested, that such Bank does not intend to make available to the Agent such Bank's portion of the total amount of the Loan to be made, converted or renewed on such date, the Agent may assume that such Bank has made such amount available to the Agent on the date of the Loan and the Agent may, in reliance upon such assumption, make available to the Borrowers a corresponding amount. If and to the extent such Bank shall not have made such funds available to the Agent, such Bank agrees to repay the Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to the Borrowers until the date such amount is repaid to the Agent, at the Federal Funds Rate plus 50 basis points for three (3) Business Days, and thereafter at the Base Rate. If such Bank shall repay to the Agent such corresponding amount, such amounts so repaid shall constitute such Bank's Loan for purposes of this Agreement. If such Bank does not repay such corresponding amount forthwith upon the Agent's demand therefor, the Agent shall promptly notify the Borrowers, and the Borrowers shall immediately pay such corresponding amount to the Agent, without any prepayment penalty or premium, but with interest on the amount repaid, for each day from the date such amount is made available to the Borrowers until the date such amount is repaid to the Agent, at the rate of interest applicable at the time to such Loan. Nothing herein shall be deemed to relieve any Bank of its obligation to fulfill its Revolving Loan Commitment hereunder or to prejudice any rights which the Borrowers may have against any Bank as a result of any default by such Bank hereunder. (e) If the Banks make a Loan on a day on which all or any part of an outstanding Loan from the Banks is to be repaid, each Bank shall apply the proceeds of its new Loan to make such repayment and only an amount equal to the difference (if any) between the amount being borrowed and the amount being repaid shall be made available by such Bank to the Agent as provided in clause (c). 2.4 Interest. (a) Base Rate. Each Base Rate Loan shall bear interest on the principal amount thereof from the date made until such Loan is paid in full or converted, at a rate per annum equal to the Adjusted Base Rate determined from time to time. (b) LIBO Rate. Each LIBO Rate Loan shall bear interest on the principal amount thereof from the date made until such Loan is paid in full, renewed, or converted, at a rate per annum equal to the applicable LIBO Rate plus the Applicable Margin determined from time to time. (1) After receipt of a request for a LIBO Rate Loan, the Agent shall proceed to determine the LIBO Rate to be applicable thereto. The Agent shall give prompt notice by telephone or facsimile to the Borrowers and to each Bank of the LIBO Rate thus determined in respect of each LIBO Rate Loan or any change therein. (2) In the event the Borrowers fail to, or are not permitted to, select an Interest Period for any LIBO Rate Loan within the time period and otherwise as provided herein, such Loan shall be automatically converted into a Base Rate Loan on the last day of the Interest Period for such Loan. (c) Competitive Bid Rate. For working capital advances, the Borrowers may request the Agent to solicit competitive bids from the Banks for a rate of interest (the "Competitive Bid Rate") quoted by the Banks, the amount and duration of which Competitive Bid Rate shall be offered to the Borrowers in each Bank's sole discretion; provided, however, that the Banks reserve the right to limit the number of such requests for Competitive Bid Rate bids in any given period. In the event that the Borrowers desire the Agent to solicit competitive bids with respect to the Competitive Bid Rate, IGC, on behalf of the Borrowers, shall notify the Agent of such request in writing in the manner set forth in Section 10.6 hereof, with authorized signatures and with the executed original sent to the Agent under separate cover (each, a "Request for Competitive Bids"), the contents of which shall be irrevocable and binding on the Borrowers. The Agent, upon receipt thereof, shall forward copies of such Request for Competitive Bids to each Bank by telecopier on the day of such receipt in the event that the Agent receives such Request for Competitive Bids not later than 11:00 a.m. that day and otherwise not later than 11:00 a.m. of the next Business Day. Each Request for Competitive Bids shall specify (i) the requested borrowing date (the "Borrowing Date"), (ii) the amount of the Loan desired, (iii) the use of the Loan proceeds, and (iv) if applicable, the Interest Period applicable to the desired advance. Each Bank shall have the right, but not the obligation, to submit a bid to make such desired advance to the Borrowers; provided that such bid, if any, shall be delivered in writing by telecopier to the Agent not later than 11:00 a.m. on the Business Day next following the Bank's receipt of a copy of the Request for Competitive Bids from the Agent (the "Bid Deadline"); and provided further that such bid, if any, shall specify the principal amount which such Bank is willing to make available to the Borrowers and the interest rate at which such Bank is willing to make such advance available. The Agent agrees that in the event it elects to submit a bid pursuant to such Request for Competitive Bids, the Agent must submit its bid, if any, not later than thirty (30) minutes prior to the Bid Deadline. The Agent shall furnish copies of the bids, if any, which it receives on or before the Bid Deadline to IGC, by telecopier, on the day of Agent's receipt thereof in the event that the Agent receives such bids not later than 11:00 a.m. that day and otherwise not later than the next Business Day. IGC shall determine the aggregate amount of any of the bids, if any, submitted by the Banks which IGC desires to accept. To the extent that IGC desires to accept some or all of the bids so submitted, IGC shall accept the bids in order of the lowest to highest interest rates ("Bid Rates"), and IGC must notify the Agent by telephone, confirmed in writing delivered to the Agent by telecopier not later than 11:00 a.m. on the Business Day next following the date on which IGC receives copies of the bids, if any, from the Agent (the "Acceptance Deadline"). In the event that IGC fails to so notify the Agent prior to the Acceptance Deadline of the amount of any of the bids, if any, submitted by the Banks which IGC desires to accept, IGC shall automatically be deemed to have rejected all such bids. If, pursuant to a particular Request for Competitive Bids, two or more Banks bid at the same Bid Rate and the aggregate amount of bids accepted by IGC is less than the aggregate amount of such bids, then the amount to be borrowed at such Bid Rate shall be allocated among such Banks according to their respective Commitment Percentages. Any amounts advanced by any Bank pursuant to a Request for Competitive Bids as set forth in this Section shall be deemed to be a Loan hereunder; provided, however, that any advance made by a Bank pursuant to a Request for Competitive Bids shall not reduce that Bank's obligation to advance its pro rata share of any remaining undrawn availability under the Revolving Loan Commitment of such Bank. Notwithstanding anything herein to the contrary, each Loan pursuant to a Request for Competitive Bids shall be in an amount equal to or in excess of $500,000 and shall be evidenced by a promissory note in the form attached hereto as Exhibit C, with such changes thereto as may be required by the Bank making such Loan in order to reflect the terms of such Loan. (d) Renewals and Conversions of Loans. The Borrowers shall have the right to convert Base Rate Loans into LIBO Rate Loans, and vice versa, and to renew LIBO Rate Loans from time to time, provided that: (i) IGC, on behalf of the Borrowers, shall give the Agent notice of each permitted conversion or renewal as provided in Section 2.3 hereof; (ii) LIBO Rate Loans may be converted or renewed only as of the last day of the applicable Interest Period for such Loans; and (iii) no Interest Period may be renewed if on the proposed date of conversion an Event of Default, or Potential Default exists or would thereby occur. The Agent shall use its best efforts to notify the Borrowers of the effectiveness of each such conversion or renewal, and the new interest rate to which the converted or renewed Loan is subject, as soon as practicable after the conversion; provided, however, that any failure to give such notice shall not affect the Borrowers' obligations or the Banks' rights and remedies hereunder in any way whatsoever. (e) Continuing Liability of Borrowers. The liability of the Borrowers under this Section 2.4 shall continue to be effective or be automatically reinstated, as the case may be, if at any time payment, in whole or in part, of any of the payments to the Banks is rescinded or must otherwise be restored or returned upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of any Borrower or any other person, or upon or as a result of the appointment of a custodian, receiver, trustee or other officer with similar powers with respect to any Borrower or other Person or any substantial part of its property, or otherwise, all as though such payment had not been made. 2.5 Fees. (a) The Borrowers shall pay to the Agent for the ratable benefit of the Banks, and as compensation for the Banks' Revolving Loan Commitments, a fee (the "Commitment Fee") computed at the rate per annum equal to 12.5 basis points (0.125%) on the average daily amount of the unused portion of the Aggregate Revolving Loan Commitment accrued from and after the date hereof. The Commitment Fee shall be payable in arrears on the first day of each January, April, July and October, commencing October 1, 1997 (for the three month period or portion thereof ended on the preceding day), and on the Revolver Termination Date. Payment shall be made to the Agent on behalf of the Banks and the Agent shall promptly forward to each Bank the portion of the Commitment Fee amount due such Bank. The Commitment Fee shall be calculated on the basis of a 360 day year. (b) The Borrowers shall pay to the Agent for its own account, the fees and expenses agreed to between the Borrowers and the Agent in the letter agreement between the Agent and IGC, dated , 1997 (the "Side Letter"). 2.6 Reduction or Termination of Aggregate Revolving Loan Commitment. (a) Voluntary. The Borrowers may at any time, on not less than three (3) Business Days' written notice, terminate or permanently reduce the Aggregate Revolving Loan Commitment pro rata among the Banks, provided that any reduction shall be in the amount of $1,000,000 or a multiple thereof and that no such reduction shall cause the principal amount of Loans outstanding to exceed the Aggregate Revolving Credit Commitment as reduced. (b) Termination. In the event the Aggregate Revolving Loan Commitment is terminated pursuant to the terms of this Agreement, the Revolver Termination Date shall accelerate and the Borrowers shall, simultaneously with such termination, repay the Base Rate Loans and LIBO Rate Loans in accordance with Section 2.8. 2.7 Voluntary Prepayments. (a) Base Rate Loans. On one (1) Business Day's notice to the Banks, the Borrowers may, at their option, prepay the Base Rate Loans in whole at any time or in part from time to time, provided that each partial prepayment shall be in the principal amount of $500,000 or, if greater, then in $100,000 multiples. (b) LIBO Rate Loans. The Borrowers may, at their option, prepay any LIBO Rate Loan, provided that if the Borrowers shall prepay a LIBO Rate Loan prior to the last day of the applicable Interest Period, or shall fail to borrow any LIBO Rate Loan on the date such Loan is to be made, the Borrowers shall pay to each Bank, in addition to the principal and interest then to be paid in the case of a prepayment, on such date of prepayment, the Additional Amount incurred or sustained by such Bank as a result of such prepayment or failure to borrow as provided in Section 2.1(f)). 2.8 Payments. (a) LIBO Rate Loans. Accrued interest on LIBO Rate Loans with Interest Periods of one, two or three months shall be due and payable on the last day of such Interest Period. Accrued interest on LIBO Rate Loans with Interest Periods of six months shall be due and payable at the end of the third month and on the last day of such Interest Period. (b) Base Rate Loans. Accrued interest on all Base Rate Loans shall be due and payable on the first Business Day of each month and upon the Revolver Termination Date. (c) Form of Payments; Application of Payments; Payment Administration, Etc. Provided that no Event of Default or Potential Default then exists, all payments and prepayments shall be applied to the Loans in such order and to such extent as shall be specified by the Borrowers, by written notice to the Agent at the time of such payment or prepayment. Except as otherwise provided herein, all payments of principal, interest, fees, or other amounts payable by the Borrowers hereunder shall be remitted to the Agent on behalf of the Banks at the address set forth opposite its name on the signature page hereof or at such office or account as the Agent shall specify to the Borrowers and the Banks, in immediately available funds not later than 2:00 p.m. on the day when due. The Agent will promptly distribute to each Bank by wire transfer in immediately available funds each Bank's pro rata share of such payment based upon such Bank's Commitment Percentage. Whenever any payment is stated as due on a day which is not a Business Day, the maturity of such payment shall, except as otherwise provided in the definition of "Interest Period" in Section 1.1, be extended to the next succeeding Business Day and interest and commitment fees shall continue to accrue during such extension. Each Borrower authorizes the Agent to deduct from any account of any Borrower maintained at the Agent or over which the Agent has control any amount payable under this Agreement, the Notes or any other Loan Document which is not paid in a timely manner. The Agent's failure to deliver any bill, statement or invoice with respect to amounts due under this Section or under any Loan Document shall not affect the Borrowers' obligations to pay any installment of principal, interest or any other amount under this Agreement when due and payable. (d) Net Payments. All payments made to the Banks and the Agent by the Borrowers hereunder, under any Note or under any other Loan Document will be made without set off, counterclaim or other defense. All such payments will be made free and clear of, and without deduction or withholding for, any present or future taxes, levies, imposts, duties, fees, assessments or other charges of whatever nature, now or hereafter imposed, by any jurisdiction or any political subdivision or taxing authority thereof or therein (but excluding, except as provided below, any Bank Taxes (as defined herein)), and all interest, penalties or similar liabilities with respect thereto (collectively, together with any amounts payable pursuant to the next sentence, "Taxes"). The Borrowers shall also reimburse each Bank, upon the written request of such Bank, for Taxes imposed on or measured by the gross or net income of such Bank pursuant to the laws of the United States of America (or any State or political subdivision thereof), or the jurisdiction (or any political subdivision or taxing authority thereof) in which the principal office or applicable lending office of such Bank is located (collectively, "Bank Taxes") as such Bank shall determine are payable by such Bank due to the amount of Taxes paid to or on behalf of such Bank pursuant to this or the preceding sentence. If any Taxes are so levied or imposed, each Borrower agrees to pay the full amount of such Taxes, and such additional amounts as may be necessary so that every payment of all amounts due hereunder, under any Note or under any other Loan Document, after withholding or deduction for or on account of any Taxes, will not be less than the amount provided for herein or in such Note. Each Borrower will furnish to the Agent upon request certified copies of tax receipts evidencing such payment by such Borrower. The Borrowers will, on a joint and several basis, indemnify and hold harmless the Agent and each Bank, and reimburse the Agent or such Bank upon its written request, for the amount of any Taxes so levied or imposed and paid or withheld by such Bank. 2.9 Changes in Circumstances; Yield Protection. (a) If any Regulatory Change or compliance by the Banks with any request made after the date of this Agreement by the Board of Governors of the Federal Reserve System or by any Federal Reserve Bank or other central bank or fiscal, monetary or similar authority (in each case whether or not having the force of law) shall: (i) impose, modify or make applicable any reserve, special deposit, Federal Deposit Insurance Corporation premium or similar requirement or imposition against assets held by, or deposits in or for the account of, or loans made by, or any other acquisition of funds for loans or advances by, the Banks; (ii) impose on the Banks any other condition regarding the Notes; (iii) subject the Banks to, or cause the withdrawal or termination of any previously granted exemption with respect to, any tax (including any withholding tax but not including any income tax not currently causing the Banks to be subject to withholding) or any other levy, impost, duty, charge, fee or deduction on or from any payments due from the Borrowers; or (iv) change the basis of taxation of payments from the Borrowers to the Banks (other than by reason of a change in the method of taxation of a Bank's net income); and the result of any of the foregoing events is to increase the cost to a Bank of making or maintaining any Loan or to reduce the amount of principal, interest or fees to be received by the Bank hereunder in respect of any Loan, the Agent will immediately so notify the Borrowers. If a Bank determines in good faith that the effects of the change resulting in such increased cost or reduced amount cannot reasonably be avoided or the cost thereof mitigated, then upon notice by the Agent to the Borrowers, the Borrowers shall pay to such Bank on each interest payment date of the Loan, such additional amount as shall be necessary to compensate the Bank for such increased cost or reduced amount. (b) If any Bank shall reasonably determine that any Regulation regarding capital adequacy or the adoption of any Regulation regarding capital adequacy, which Regulation is applicable to banks (or their holding companies) generally and not such Bank (or its holding company) specifically, or any change therein, or any change in the interpretation or administration thereof by any Governmental Authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by such Bank (or its holding company) with any such request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, has the effect of reducing the rate of return on such Bank's capital as a consequence of its obligations hereunder to a level below that which such Bank could have achieved but for such adoption, change or compliance (taking into consideration such Bank's policies with respect to capital adequacy) by an amount reasonably deemed by such Bank to be material, the Borrowers shall promptly pay to the Agent for the account of such Bank, upon the demand of such Bank, such additional amount or amounts as will compensate such Bank for such reduction. (c) If the Agent shall reasonably determine (which determination will be made after consultation with any Bank requesting same and shall be, in the absence of fraud or manifest error, conclusive and binding upon all parties hereto) that by reason of abnormal circumstances affecting the interbank eurodollar or applicable eurocurrency market, adequate and reasonable means do not exist for ascertaining the LIBO Rate to be applicable to the requested LIBO Rate Loan or that eurodollar or eurocurrency funds in amounts sufficient to fund all the LIBO Rate Loans are not obtainable on reasonable terms, the Agent shall give notice of such inability or determination by telephone to the Borrowers and to each Bank at least two (2) Business Days prior to the date of the proposed Loan and thereupon the obligations of the Banks to make, convert other Loans to, or renew such LIBO Rate Loan shall be excused, subject, however, to the right of the Borrowers at any time thereafter to submit another request. (d) Determination by a Bank for purposes of this Section 2.9 of the effect of any Regulatory Change or other change or circumstance referred to above on its costs of making or maintaining Loans or on amounts receivable by it in respect of the Loans and of the additional amounts required to compensate such Bank in respect of any additional costs, shall be made in good faith and shall be evidenced by a certificate, signed by an officer of such Bank and delivered to the Borrowers, as to the fact and amount of the increased cost incurred by or the reduced amount accruing to the Bank owing to such event or events. Such certificate shall be prepared in reasonable detail and shall be conclusive as to the facts and amounts stated therein, absent manifest error. (e) The affected Bank will notify the Borrowers of any event occurring after the date of this Agreement that will entitle the Bank to compensation pursuant to this Section as promptly as practicable after it obtains knowledge thereof and determines to request such compensation. Said notice shall be in writing, shall specify the applicable Section or Sections of this Agreement to which it relates and shall set forth the amount of amounts then payable pursuant to this Section. The Borrowers shall pay such Bank the amount shown as due on such notice within 10 days after their receipt of the same. 2.10 Illegality. Notwithstanding any other provision in this Agreement, if the adoption of any applicable Regulation, or any change therein, or any change in the interpretation or administration thereof by any Governmental Authority, central bank, or comparable agency charged with the interpretation or administration thereof, or compliance by the Banks with any request or directive (whether or not having the force of law) of any such authority, central bank, or comparable agency shall make it unlawful or impossible for the Banks to (1) maintain their Revolving Loan Commitments, then upon notice to the Borrowers by the Agent, the Revolving Loan Commitments shall terminate; or (2) maintain or fund their LIBO Rate Loans, then upon notice to the Borrowers of such event, the Borrowers' outstanding LIBO Rate Loans shall be converted into Base Rate Loans. 2.11 Joint and Several Liability. Each Borrower, on a joint and several basis, unconditionally and irrevocably guarantees to each Bank the due, prompt and complete payment by each other Borrower of its payment of principal of and interest on each Revolving Credit Loan, when and as the same shall become due and payable, and any and all other amounts with respect to which any other Borrower is obligated under any Loan Document. The obligation of each Borrower under this Section 2.11 is a guaranty of payment and not of collectability and is no way conditioned or contingent upon any attempt to collect from or enforce compliance by any other Borrower or upon any other event, contingency or circumstance whatsoever. The obligation of each Borrower under this Section shall be primary, absolute and unconditional, shall not be subject to any counterclaim, set-off, deduction, diminution, abatement, recoupment, suspension, deferment, reduction, or defense based upon any claim any Borrower or any other Person may have against any other Borrower or any other Person, and shall remain in full force and effect without regard to, and shall not be released, discharged or in any way affected by, any circumstance or condition whatsoever (whether or not any Borrower shall have any knowledge or notice thereof). No Borrower shall be subrogated to the rights of the Banks in respect of any payment or other obligation with respect to which an amount has been payable by such Borrower under this Section 2.11 and no Borrower shall seek to exercise any rights of subrogation, reimbursement or indemnity arising from payments made by it pursuant to the provisions of this Section 2.11. 2.12 Optional Cash Management Facility. Should the Borrowers, or any of them, become continuing borrowers with CoreStates or any other Bank and wish to utilize the cash management services of CoreStates or such other Bank, the Banks may agree to allow $500,000 of the Revolving Loan Commitment of CoreStates or such other Bank to be dedicated to fund, on a daily basis, the cash management requirements of such Borrower(s), without allocating such borrowings among the Banks on a pro rata basis. III. REPRESENTATIONS AND WARRANTIES In order to induce the Banks to execute and deliver this Agreement and to make the Loans available to the Borrowers, the Borrowers, jointly and severally, represent and warrant to the Banks that: 3.1 Good Standing of the Borrowers; Authorization. Each of the Borrowers is duly incorporated, validly existing and in good standing in its jurisdiction of incorporation. Each Borrower is duly qualified as a foreign corporation and authorized to do Business in all other jurisdictions wherein the nature of its business or property makes such qualification necessary except where the failure to so qualify would not have a material adverse effect on the financial condition of such Borrower, and has the corporate power to own its properties and to carry on its business as now conducted. The execution, delivery and performance of this Agreement and the Loan Documents have been duly authorized by all necessary corporate proceedings on the part of each of the Borrowers. 3.2 Compliance with Laws and Other Agreements. Each Borrower is in compliance in all material respects with all Regulations applicable to such Borrower and has not received, and has no knowledge of, any order or notice of any governmental investigation or of any violation or claim of violation of any Regulation that might have a materially adverse effect on any Borrower. 3.3 No Conflict; Governmental Approvals. The execution, delivery, and performance of this Agreement and each of the Loan Documents will not (i) conflict with, violate, constitute a default under, or result in a breach of any provision of any applicable law, rule, regulation, judgment, decree, order, instrument or other agreement, or (ii) conflict with or result in a breach of any provision of the certificate or articles of incorporation or by-laws of any Borrower. No authorization, permit, consent or approval of or other action by, and no filing, registration or declaration with, any governmental authority or regulatory body is required to be obtained or made by any Borrower for the due execution and performance of this Agreement or any of the Loan Documents, except such as have been duly obtained or made prior to the Closing Date and are in full force and effect as of the Closing Date (copies of which have been delivered to the Banks on or before the Closing Date). 3.4 Financial and Other Information Regarding Borrowers. (a) The Borrowers have delivered to the Banks true, correct and complete copies of the consolidated balance sheets of IGC and its consolidated Subsidiaries as of May 23, 1997, and related statements of income for the period then ended, together with notes thereto and the unqualified opinion thereon, dated July 11, 1997, of KPMG Peat Marwick LLP. The Borrowers shall, upon request by the Agent, supply the Banks with true and correct copies of consolidating balance sheets of IGC and its consolidated subsidiaries for the aforementioned periods. Those financial statements and the notes thereto (together, the "Financial Statements") present fairly the financial position of IGC and its consolidated Subsidiaries as at such dates and the results of their operations for the periods then ended in conformity with GAAP. (b) As of the date of this Agreement, no Borrower has any Indebtedness other than as shown in the Financial Statements. (c) Except as set forth on Schedule 3.4(c), as of the date of this Agreement, no Borrower has any "investment" (as such term is defined under GAAP), whether by stock purchase, capital contribution, loan, advance, purchase of property or otherwise, in any Person. 3.5 Taxes. No Borrower is delinquent in the payment of any material income, property or other tax, except for any delinquency in the payment of a tax which is contested in good faith by a Borrower and for which appropriate reserves have been established in accordance with GAAP. 3.6 Liens and Guaranties. (a) All properties and assets of each Borrower are owned by that Borrower free and clear of all Liens except (i) those for taxes or other government charges either not yet delinquent or the nonpayment of which is permitted by Section 3.5 of this Agreement; (ii) those not arising in connection with Indebtedness that do not materially impair the use or value of the properties or assets of that Borrower in the conduct of its businesses; (iii) Liens whose release and termination is evidenced by the Borrowers' delivery to the Banks of appropriate documents on the Closing Date; and (iv) Liens permitted under the Loan Documents. (b) Except as permitted hereby, no Borrower is obligated under any Guaranty. 3.7 Material Adverse Changes. Since May 23, 1997, there has not been any material adverse change in the business, operations, properties or financial position of any of the Borrowers. No Borrower knows of any fact (other than matters of a general economic or political nature) which materially adversely affects, or, so far as that Borrower can now reasonably foresee, will materially adversely affect, the business, operations, properties or financial position of any Borrower or the performance by any Borrower of its obligations under this Agreement and the other Loan Documents. 3.8 Compliance with Federal Reserve Board Regulations. No part of the proceeds of the Loans will be used, directly or indirectly, for the purpose of purchasing or carrying any "margin security" within the meaning of Regulations G or U of the Board of Governors of the Federal Reserve System (12 C.F.R. 207, 221), or for the purpose of purchasing or carrying or trading in any securities under such circumstances as to involve any Borrower in a violation of Regulation X of the said Board (12 C.F.R. 224). The assets of the Borrowers do not include any margin securities, and no Borrower has any present intention of acquiring any margin security. 3.9 ERISA. The provisions of each Plan maintained by any Borrower complies in all material respects with all applicable requirements of ERISA and of the Code, and with all applicable rulings and regulations issued under the provisions of ERISA and the Code setting forth those requirements. No Reportable Event has occurred with respect to any Plan; no Plan to which Section 4021 of ERISA applies has been terminated; no Plan has incurred any liability to PBGC as provided in Section 4062, 4063 and 4064 of ERISA; no Plan has been involved in any prohibited transaction within the meaning of Section 406 of ERISA or Section 4975 of the Code; and no Termination Event has occurred. 3.10 Pending Litigation. There are no actions, suits, proceedings or investigations pending, or, to the knowledge of any of the Borrowers, threatened against or affecting any Borrower, before any court, arbitrator or administrative or governmental body which, in the aggregate, might adversely affect any action taken or to be taken by any Borrower under this Agreement and the other Loan Documents or which, in the aggregate, might materially adversely affect the business, operations, properties or financial position of any Borrower, or the ability of any Borrower to perform its obligations under this Loan Agreement and the other Loan Documents. 3.11 Valid, Binding and Enforceable. This Agreement and the Loan Documents have been duly and validly executed and delivered by the parties thereto (other than the Banks) and constitute the valid and legally binding obligations of such parties enforceable in accordance with their respective terms, except as enforcement of this Agreement, and the Loan Documents may be limited by bankruptcy, insolvency or other laws of general application relating to or affecting the enforcement of creditors' rights and except as enforcement is subject to general equitable principles. 3.12 No Untrue Statements. Neither this Agreement, the Loan Documents nor any other document, certificate or statement furnished or to be furnished by the Borrowers or by any other party to the Banks in connection herewith contains, or at the time of delivery will contain, any untrue statement of a material fact or omits or will omit to state a material fact necessary in order to make the statements contained herein and therein not misleading. IV. CONDITIONS PRECEDENT 4.1 Conditions Precedent to All Loans. The obligation of each Bank to make any Loan is conditioned upon the following: (a) Documents. The Borrowers shall have delivered and the Agent shall have received a Borrowing Notice and all such other documents as may be reasonably requested by the Banks; provided, that if the Banks should request any such additional documents, the Borrowers shall have thirty (30) days following such request in which to deliver such additional documents to the Agent. (b) Covenants; Representations. Each Borrower shall be in compliance with all covenants, agreements and conditions in each Loan Document and each representation and warranty contained in each Loan Document shall be true with the same effect as if such representation or warranty had been made on the date such Loan is made or issued. (c) Defaults. Immediately prior to and after giving effect to such transaction, no Event of Default or Potential Default shall exist. 4.2 Conditions Precedent to First Loan. The obligation of each Bank to make the first Loan hereunder is conditioned upon the following: (a) Articles, Bylaws. The Agent shall have received copies of the Articles or Certificates of Incorporation and Bylaws of each of the Borrowers, certified by the Corporate Secretary or Assistant Corporate Secretary of each such entity; together with a Certificate of Good Standing for each Borrower from any jurisdiction where the nature of its business or the ownership of its properties requires such qualification except where the failure to be so qualified would not have a material adverse effect on the business, operations, assets or condition (financial or otherwise) of the Borrowers and their Subsidiaries taken as a whole. (b) Evidence of Authorization. The Agent shall have received copies, certified by the Corporate Secretary or Assistant Corporate Secretary of each Borrower or other appropriate official in the case of a Person who is not a Borrower, of all corporate or other action taken by each Person other than a Bank who is a party to any Loan Document to authorize its execution and delivery and performance of the Loan Documents and to authorize the Revolving Credit Loans, together with such other related papers as the Banks shall reasonably require. (c) Incumbency. The Agent shall have received a certificate signed by the Corporate Secretary or Assistant Corporate Secretary of each corporate signatory to the Loan Documents other than a Bank, together with the true signature of the officer or officers authorized to execute and deliver the Loan Documents and certificates thereunder, upon which the Banks shall be entitled to rely conclusively until the Agent shall have received a further certificate of the appropriate secretary or assistant secretary amending the prior certificate and submitting the signature of the officer or officers named in the new certificate as being authorized to execute and deliver Loan Documents and certificates thereunder; (d) Notes. Each Bank shall have received an executed Note payable to the order of such Bank. (e) Documents. The Agent shall have received all certificates, instruments and other documents then required to be delivered pursuant to any Loan Documents, in each instance in form and substance reasonably satisfactory to the Agent and the Banks. (f) Consents. The Borrowers shall have provided to the Agent evidence satisfactory to the Agent that all governmental, shareholder and third party consents and approvals necessary in connection with the transactions contemplated hereby have been obtained and remain in effect. (g) Other Agreements. The Borrowers shall have executed and delivered each other Loan Document required hereunder. (h) Borrowing Notice. The Borrowers shall have delivered and the Agent shall have received a Borrowing Notice, which shall, at a minimum, set forth the information regarding the conversion of the Existing Indebtedness into a Base Rate Loan or a LIBO Rate Loan. (i) Fees. The Borrowers shall have paid all fees required as of the Closing Date by Section 2.5 (a) and (b) hereof. (j) Legal Opinion. The Agent shall have received a favorable written opinion of general counsel to the Borrowers, which shall be addressed to the Banks and be dated the date of the first Loan, in form and substance satisfactory to the Banks. V. AFFIRMATIVE COVENANTS The Borrowers, jointly and severally, hereby covenant and agree that, from and after the date hereof and so long as the Revolving Loan Commitments are in effect or any Obligations remain unpaid or outstanding, unless the Required Banks have otherwise consented in writing, the Borrowers shall do the following: 5.1 Use of Proceeds. Use the proceeds of the Loans only for working capital and Permitted Acquisitions. 5.2 Accounting Records, Reports and Financial Statements. Furnish to the Agent: (a) Within one hundred and five (105) days after the end of each fiscal year, IGC's Form 10-K filed with the Securities and Exchange Commission for that year, including consolidated financial statements of IGC and the other Borrowers. Such financial statements shall present fairly the consolidated financial position of IGC and the other Borrowers as of the close of such year and the results of its operations and changes in its financial position during such year, in accordance with GAAP, and shall be audited and accompanied by the unqualified opinion of an independent public accountant acceptable to the Banks. With each Form 10-K delivered to the Banks, the Borrowers shall, upon request by the Agent, supply, as supplemental information, unaudited consolidating financial statements of the Borrowers used in the preparation of such Form 10-K; (b) Within sixty (60) days after the end of each fiscal quarter, IGC's Form 10-Q filed with the Securities and Exchange Commission for that quarter, including unaudited consolidated financial statements of IGC and the other Borrowers. Such financial statements shall present fairly the financial position of the Borrowers as of the end of such quarter and the results of their operations and changes in their financial position during each quarter in accordance with GAAP. With each Form 10-Q delivered to the Banks, IGC, on behalf of all Borrowers, shall, upon request by the Agent, supply, as supplemental information, consolidating financial statements of the Borrowers used in the preparation of such Form 10-Q; (c) With reasonable promptness, and when reasonably requested by the Banks unless any Borrower's compliance with such request would conflict with any law, regulation or contractual obligation applicable to such Borrower, copies of all financial reports, statements and returns which each Borrower shall file with any federal or state department, commission, board, bureau, agency or instrumentality and any report, statement or return delivered by any Borrower to any supplier or other creditor which is material to that Borrower's operations or financial condition; (d) Within sixty (60) days after the end of each fiscal quarter, a complete and fully-executed Covenant Compliance Certificate; and (e) All such other documents and information as may be reasonably requested by the Banks, within thirty (30) days following any such request by the Banks. 5.3 Ordinary Course of Business; Records. Conduct its business only in the ordinary course and keep accurate and complete books and records of its assets, liabilities and operations consistent with sound business practices and in accordance with GAAP. 5.4 Information for the Banks. Make available during normal business hours for inspection by the Banks or their designated representatives any of its books and records when reasonably requested by the Banks to do so, and furnish the Banks any information reasonably requested regarding their operations, business affairs and financial condition within a reasonable time after the Banks give notice of their request therefor. In particular, and without limiting the foregoing, each Borrower shall permit, during normal business hours, representatives of the Banks' Audit Departments to make such periodic inspections of its books, records and assets as such representatives deem necessary and proper. The first two sentences of this Section 5.4 notwithstanding, no Borrower shall be required to disclose any information which such Borrower is required by law, regulation or contractual obligation to maintain confidential, and the Banks shall use their best efforts to coordinate the timing of any inspections made pursuant to this Section in order to minimize any resultant disruption of the Borrowers' businesses. 5.5 Insurance. Carry and maintain, in full force and effect at all times with financially sound and reputable insurers: (i) all workers' compensation or similar insurance as may be required under the laws of any jurisdiction applicable to such Borrower; (ii) public liability insurance against claims for personal injury, death or property damage suffered upon, in or about any premises occupied by them or occurring as a result of the ownership, maintenance or operation by them of any automobile, truck or other vehicle or as a result of the use of products manufactured, constructed or sold by them, or services rendered by them; (iii) business interruption insurance covering risk of loss as a result of the cessation for all or any part of one year of any substantial part of the business conducted by them; (iv) insurance against such other risks as are usually insured against by business entities of established reputation engaged in the same or similar businesses and similarly situated. The insurance specified in clauses (ii), (iii), and (iv) shall be maintained in such amounts (and with co-insurance and deductibles) as such insurance is usually carried by business entities of established reputation engaged in the same or similar business and similarly situated. 5.6 Maintenance. Maintain their equipment, real property and other properties in good condition and repair (normal wear and tear excepted) and pay and discharge the cost of repairs thereto or maintenance thereof other than idle equipment no longer used or useful, in connection with the Borrowers' operations. 5.7 Taxes. Pay all taxes, assessments, charges and levies imposed upon them or on any of their property, or which they are required to withhold and pay over, and provide evidence of payment thereto to the Banks if the Banks so request, except where contested in good faith by lawful and appropriate proceedings and where adequate reserves therefor have been set aside on their books; provided, however, that each Borrower shall pay all such taxes, assessments, charges and levies forthwith whenever foreclosure on any lien which attaches or security therefor appears imminent. 5.8 Leases. Pay all rent or other sums required by every lease to which any Borrower is a party as the same become due and payable; perform all their obligations as tenant or lessee thereunder except where contested in good faith by lawful and appropriate proceedings and where adequate reserves therefor have been set aside; and keep all such leases at all times in full force and effect during the terms thereof. 5.9 Corporate Existence; Certain Rights; Laws. Do all things necessary to preserve and keep in full force and effect the corporate existence, licenses, rights, patents, trademarks, trade names and franchises of each Borrower (except that any Borrower may merge into or consolidate with another Borrower as long as the Agent receives written notice prior thereto) and comply with all present and future laws, ordinances, rules and regulations applicable to them in the operation of their businesses; provided, however, that a Borrower may terminate any patent, trademark or license and other rights conferred by jurisdictions outside the United States as long as such Borrower's business judgment requires such termination. 5.10 Notice of Litigation. Give immediate notice to the Agent of the institution of any litigation or any administrative proceeding involving any Borrower which might materially and adversely affect the operation, financial condition, property or business of any Borrower individually, or the Borrowers as a whole. 5.11 Indebtedness. Jointly and severally, pay or cause to be paid when due (or within applicable grace periods) all Indebtedness of the Borrowers. 5.12 Notice of Events of Default. Give immediate notice to the Agent if any Borrower becomes aware of the occurrence of any Event of Default or Potential Default, or of the failure of any Borrower to observe or perform any of the conditions or covenants to be observed or performed by it under this Agreement. 5.13 ERISA. Maintain each Plan in compliance with all applicable requirements of ERISA and of the Code and with all applicable rulings and regulations issued under the provisions of ERISA and of the Code. As promptly as practicable (but in any event not later than ten days) after any Borrower receives from the PBGC a notice of intent to terminate any Plan or to appoint a trustee to administer any Plan, after a Borrower has notified the PBGC that any Reportable Event has occurred, or after a Borrower has filed a notice of intent to terminate with the PBGC with respect to any Plan, a certificate of the chief executive officer of that Borrower shall be furnished to the Agent setting forth the details with respect to the events resulting in such reportable event, as the case may be, and the action which such Borrower proposes to take with respect thereto, together with a copy of the notice of intent to terminate or to appoint a trustee from the PBGC, of the notice of such reportable event or of a Borrower's notice of intent to terminate, as the case may be. 5.14 Deposit Accounts. Use the Banks as their primary depository institutions to the extent reasonably feasible unless otherwise agreed in writing by the Banks; and notify the Agent, in writing and on a continuing basis, of all deposit accounts and certificates of deposit (including the numbers thereof) maintained with or purchased from other banks and other financial institutions. 5.15 Management. Furnish to the Agent within thirty (30) days of any election or appointment of officers or directors, written notice of any change in the persons who from time to time become officers and directors of each Borrower. 5.16 Financial Covenants. Observe the financial covenants set forth on Schedule 5.16 hereto; provided, however, that the financial covenants set forth in Schedule 5.16 shall supersede any financial covenants set forth in any other agreement between CoreStates and any of the Borrowers. VI. NEGATIVE COVENANTS The Borrowers, jointly and severally, hereby covenant and agree that, from and after the date hereof, and so long as the Revolving Loan Commitments are in effect or any Obligations remain unpaid or outstanding, they will not do any one or more of the following without first obtaining the written consent of the Required Banks: 6.1 Fundamental Corporate Changes. (a) Change any Borrower's name, enter into any merger, consolidation, reorganization or recapitalization, or dissolve, provided that any Borrower may merge into or consolidate with another Borrower; (b) Sell, transfer, lease or otherwise dispose of all or (except in the ordinary course of business) any material part of any Borrower's assets or any significant product line or process of any Borrower; or (c) Have any Subsidiary; provided, however, that IGC may have the other Borrowers as its Subsidiaries and any Borrower may have a Subsidiary as long as such Subsidiary becomes a party to this Agreement, and subject to its terms. 6.2 Indebtedness. Incur, create, assume or have any Indebtedness except (i) existing Indebtedness reflected in the Financial Statements, (ii) existing Indebtedness set forth on Schedule 6.2 attached hereto, (iii) Subordinated Indebtedness issued by IGC in an aggregate amount not to exceed $30,000,000, (iv) Indebtedness incurred pursuant to this Agreement, (v) additional Indebtedness incurred to finance Permitted Acquisitions, and (vi) purchase money Indebtedness for the acquisition of non-current assets following the date of this Agreement; provided, however, that the aggregate of any Indebtedness incurred from time to time pursuant to Section 6.5 of this Agreement and clauses (v) and (vi) of this Section shall not exceed $12,000,000. 6.3 Liens. Create or allow any Lien to be on or otherwise affect any Borrower's property or assets except: (a) Liens in favor of the Banks; (b) Liens for taxes, assessments and other governmental charges incurred in the ordinary course of business which are not yet due and payable or which are being properly contested in good faith by lawful and appropriate proceedings; (c) 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 workman's compensation, unemployment insurance or other social security obligations; (d) Good faith pledges or deposits made in the ordinary course of business to secure performance of tenders, contracts (other than for the repayment of Indebtedness) or leases or to secure statutory or surety, appeal, indemnity, performance or other similar bonds required in the ordinary course of business; (e) Liens of mechanics, materialmen, warehousemen, carriers or other similar liens, securing obligations incurred in the ordinary course of business that are not yet due and payable or are being contested in good faith by appropriate and lawful proceedings; (f) Liens securing Indebtedness permitted under Subsections 6.2(i), (ii), (iv) and (vi) of this Agreement; (g) Liens, if any, otherwise expressly permitted by this Agreement. 6.4 Guaranties. Except for a guaranty of Indebtedness of another Borrower or other guaranties of indebtedness not to exceed $1,000,000 in the aggregate, directly or indirectly make any Guaranty. 6.5 Sales and Lease-Backs. Sell, transfer or otherwise dispose of any property, real or personal, now owned or hereafter acquired, with the intention of directly or indirectly taking back a lease on such property which cumulatively in the aggregate has a fair market value in excess of $2,000,000. 6.6 Loans; Investments. Purchase, invest in, or make any loan in the nature of an investment in the stocks, bonds, notes or other securities or evidence of Indebtedness of any Person (other than another Borrower) or make any loan or advance to or for the benefit of any Person (other than to another Borrower) and except for short term (less than one year) loans and advances to employees in the ordinary course of business, except for (i) short-term obligations of the Treasury of the United States of America; (ii) certificates of deposit issued by banks with shareholders' equity of at least $100,000,000; (iii) repurchase agreements not exceeding 29 days in duration by banks with shareholders' equity of at least $100,000,000; (iv) notes and other instruments generally known as "commercial paper" which arise out of current transactions, which have maturities at the time of issuance thereof not exceeding nine months and which have, at the time of such purchase, investment or other acquisition, either of the two highest credit ratings of Standard & Poor's Corporation or Moody's Investors Service, Inc.; (v) other investments in an aggregate amount not to exceed $5,000,000 during the period commencing on the Closing Date and ending on the Revolver Termination Date; and (vi) Permitted Acquisitions. 6.7 Change in Business. Discontinue any substantial part, or change the nature of, the business of IGC and its Subsidiaries taken as a whole or enter into any new business unrelated to the present business conducted by IGC and its Subsidiaries, taken as a whole. 6.8 Sale or Discount of Receivables. Sell any notes receivable or account receivable, with or without recourse. 6.9 ERISA. (a) Terminate any Plan maintained by any Borrower to which Section 4021 of ERISA applies; (b) Allow the value of the benefits guaranteed under Title IV of ERISA to exceed the value of assets allocable to such benefits; or (c) Incur a withdrawal liability within the meaning of Section 4201 of ERISA. 6.10 Restricted Payments. Declare or pay any dividend (except stock dividends), or make any distributions of cash or property, to holders of any shares of its capital stock, or, directly or indirectly, redeem or otherwise acquire any such shares of any Borrower; provided, however, that: (i) payments of one Borrower to another Borrower shall be permitted (as long as the recipient Borrower holds shares of the payee Borrower's stock); (ii) IGC may pay cash dividends in any fiscal year in an amount not exceeding its Net Income for the preceding fiscal year; and (iii) IGC may make payments pursuant to its existing stock buy-back program. VII. DEFAULT The Borrowers shall be in default if any one or more of the following events (each an "Event of Default") occurs and is continuing, whatever the reason therefor: 7.1 Borrowers' Failure to Pay. The Borrowers jointly or severally fail to pay any amount of principal, interest, fees or other sums as and when due under this Agreement or any of the Loan Documents, whether upon stated maturity, acceleration, or otherwise and have not remedied and fully cured such failure to pay within ten (10) Business Days after the date such payment is so due. 7.2 Breach of Covenants or Conditions. The Borrowers, individually or collectively, fail to perform or observe any term, covenant, agreement or condition in this Agreement or any of the other Loan Documents or are in violation of or non-compliance with any provision of this Agreement or any of the Loan Documents, and have not remedied and fully cured such non-performance, non-observance, violation of or non-compliance within thirty (30) days after the Agent has given written notice thereof to the Borrowers; provided, however, that during such thirty (30) day period the Banks' obligations to make further Loans to the Borrowers shall be suspended. 7.3 Defaults in Other Agreements. The Borrowers, individually or collectively, fail to perform or observe any material term, covenant, agreement or condition contained in any other agreement applicable to the Borrowers (except for financial covenants contained in any other agreement between CoreStates and any of the Borrowers that are superseded by the financial covenants set forth on Schedule 5.16) or by which they are individually or collectively bound involving a material liability of any Borrower which shall not be remedied within the period of time (if any) within which such other agreement permits such default to be remedied, unless such default is waived by the other party thereto or excused as a matter of law. 7.4 Agreements Invalid. The validity, binding nature of, or enforceability of any material term or provision of any of the Loan Documents is disputed by, on behalf of, or in the right or name of any Borrower or any material term or provision of any such Loan Document is found or declared to be invalid, avoidable, or non-enforceable by any court of competent jurisdiction. 7.5 False Warranties; Breach of Representations. Any warranty or representation made by the Borrowers, individually or collectively, in this Agreement or any other Loan Document or in any certificate or other writing delivered under or pursuant to this Agreement or any other Loan Document, or in connection with any provision of this Agreement or related to the transactions contemplated hereby shall prove to have been false or incorrect or breached in any material aspect on the date as of which made. 7.6 Judgments. A final judgment or judgments is entered, or an order or orders of any judicial authority or governmental entity is issued against the Borrowers, individually or collectively, (such judgment(s) and order(s) hereinafter collectively referred to as "Judgment") (i) for payment of money, which Judgment, in the aggregate, exceeds Two Hundred Thousand Dollars ($200,000.00) outstanding at any one time; or (ii) for injunctive or declaratory relief which would have a material adverse effect on the ability of any Borrower individually or the Borrowers as a whole to conduct their business, and such Judgment is not discharged or execution thereon or enforcement thereof stayed pending appeal, within thirty (30) days after entry or issuance thereof, or, in the event of such a stay, such Judgment is not discharged within thirty (30) days after such stay expires. 7.7 Bankruptcy or Insolvency of a Borrower. (a) A Borrower becomes insolvent, or generally fails to pay, or is generally unable to pay, or admits in writing its inability to pay, its debts as they become due or applies for, consents to, or acquiesces in , the appointment of a trustee, receiver or other custodian for it or a substantial part of its property, or makes a general assignment for the benefit of creditors. (b) A Borrower commences any bankruptcy, reorganization, debt arrangement, or other case or proceeding under any state or federal bankruptcy or insolvency law, or any dissolution or liquidation proceeding. (c) Any bankruptcy, reorganization, debt arrangement, or other case or proceeding under any state or federal bankruptcy or insolvency law, or any dissolution or liquidation proceeding, is involuntarily commenced against or in respect of a Borrower, which is not dismissed within forty-five (45) days, or an order for relief is entered in any such proceeding. (d) A trustee, receiver, or other custodian is appointed for a Borrower or a substantial part of its property. VIII. REMEDIES 8.1 Further Advances; Acceleration; Setoff. (a) Upon the occurrence of any one or more Events of Default, the Agent shall, upon the written request of the Required Banks, terminate the Revolving Loan Commitments and refuse to make any further advances or Loans to the Borrowers. (b) Automatically upon the occurrence of any Event of Default described in Section 7.6 of this Agreement, and in the sole discretion of the Required Banks upon the occurrence of any other Event of Default, the unpaid principal balance of all Loans, all interest and fees accrued and unpaid thereon, and all other amounts and Obligations payable by the Borrowers under this Agreement and the other Loan Documents shall immediately become due and payable in full, all without protest, presentment, demand, or further notice of any kind to the Borrowers, all of which are expressly waived by the Borrowers. (c) If any one or more Events of Default shall have occurred, the Banks, any affiliate of any Bank and any other participant in the Loans shall have the right, in addition to all other rights and remedies available to them, without notice to the Borrowers, to apply toward and set-off against and apply to the then unpaid balance of the Notes and the other Obligations any items or funds held by any Bank or any such affiliate or participant, any and all deposits (whether general or special, time or demand, matured or unmatured, fixed or contingent, liquidated or unliquidated) now or hereafter maintained by any Borrower for its own account with any Bank or any such affiliate or participant, and any other indebtedness at any time held or owing by any Bank or any such affiliate or participant, to or for the credit or the account of such Borrowers. For such purpose, the Banks and any such affiliate or participant shall have, and each Borrower hereby grant to the Banks and any such affiliate or participant, a first lien on all such deposits. The Banks and any such affiliate or participant are hereby authorized to charge any such account or indebtedness for any amounts due to the Banks and any such affiliate or participant. Such right of set-off shall exist whether or not the Banks shall have made any demand under this Agreement, the Notes or any other Loan Document and whether or not the Notes and the other Obligations are matured or unmatured. Each Borrower hereby confirms the Banks' and any such affiliate's or participant's lien on such accounts and right of set-off, and nothing in this Agreement shall be deemed any waiver or prohibition of such lien and right of set-off. (d) Any date on which the Loans and such other obligations are declared due and payable pursuant to this Section shall be the Revolver Termination Date for purposes of this Agreement. Prior to the Revolver Termination Date, so long as an Event of Default shall have occurred and be continuing, and at all times after the Revolver Termination Date the Loans shall bear interest at the Default Rate. 8.2 Further Remedies. Upon the occurrence of any one or more Events of Default, the Agent and the Banks may proceed to protect and enforce their rights under this Agreement and the other Loan Documents by exercising such remedies as are available to the Agent and the Banks in respect thereof under applicable law, either by suit in equity or by action at law, or both, whether for specific performance of any provision contained in this Agreement or any of the other Loan Documents or in aid of the exercise of any power granted in this Agreement or any of the other Loan Documents. IX. AGENT 9.1 Appointment and Authorization. Each Bank hereby irrevocably appoints and authorizes the Agent to take such action on its behalf and to exercise such powers under this Agreement and the Loan Documents as are specifically delegated to the Agent by the terms hereof or thereof, together with such other powers as are reasonably incidental thereto. The relationship between the Agent and each Bank has no fiduciary aspects, and the Agent's duties (as Agent) hereunder are acknowledged to be only ministerial and not involving the exercise of discretion on its part. Nothing in this Agreement or any Loan Document shall be construed to impose on the Agent any duties or responsibilities other than those for which express provision is made herein or therein. In performing its duties and functions hereunder, the Agent does not assume and shall not be deemed to have assumed, and hereby expressly disclaims, any obligation with or for the Borrowers. As to matters not expressly provided for in this Agreement or any Loan Document, the Agent shall not be required to exercise any discretion or to take any action or communicate any notice, but shall be fully protected in so acting or refraining from acting upon the instructions of the Required Banks and their respective successors and assigns; provided, however, that in no event shall the Agent be required to take any action which exposes it to personal liability or which is contrary to this Agreement, any Loan Document or applicable law, and the Agent shall be fully justified in failing or refusing to take any action hereunder unless it shall first be specifically 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 omitting to take any such action. If an indemnity furnished to the Agent for any purpose shall, in the reasonable opinion of the Agent, be insufficient or become impaired, the Agent may call for additional indemnity from the Banks and not commence or cease to do the acts for which such indemnity is requested until such additional indemnity is furnished. 9.2 Duties and Obligations. In performing its functions and duties hereunder on behalf of the Banks, the Agent shall exercise the same care and skill as it would exercise in dealing with loans for its own account. Neither the Agent nor any of its directors, officers, employees or other agents shall be liable for any action taken or omitted to be taken by it or them under or in connection with this Agreement or any Loan Document except for its or their own gross negligence or willful misconduct. Without limiting the generality of the foregoing, the Agent (a) may consult with legal counsel and other experts selected by it and shall not be liable for any action taken or omitted to be taken by it in good faith and in accordance with the advice of such experts; (b) makes no representation or warranty to any Bank as to, and shall not be responsible to any Bank for, any recital, statement, representation or warranty made in or in connection with this Agreement, any Loan Document or in any written or oral statement (including a financial or other such statement), instrument or other document delivered in connection herewith or therewith or furnished to any Bank by or on behalf of any Borrower; (c) shall have no duty to ascertain or inquire into any Borrower's performance or observance of any of the covenants or conditions contained herein or to inspect any of the property (including the books and records) of any Borrower or inquire into the use of the proceeds of the Revolving Credit Loans or (unless the officers of the Agent active in their capacity as officers of the Agent on the Borrowers' account have actual knowledge thereof or have been notified in writing thereof) to inquire into the existence or possible existence of any Event of Default or Potential Default; (d) shall not be responsible to any Bank for the due execution, legality, validity, enforceability, effectiveness, genuineness, sufficiency, collectability or value of this Agreement or any other Loan Document or any instrument or document executed or issued pursuant hereto or in connection herewith, except to the extent that such may be dependent on the due authorization and execution by the Agent itself; (e) except as expressly provided herein in respect of information and data furnished to the Agent for distribution to the Banks, shall have no duty or responsibility, either initially or on a continuing basis, to provide to any Bank any credit or other information with respect to any Borrower, whether coming into its possession before the making of the Loans or at any time or times thereafter; and (f) shall incur no liability under or in respect of this Agreement or any other Loan Document for, and shall be entitled to rely and act upon, any notice, consent, certificate or other instrument or writing (which may be by facsimile (telecopier), telegram, cable, or other electronic means) believed by it to be genuine and correct and to have been signed or sent by the proper party or parties. 9.3 The Agent as a Bank. With respect to its Revolving Loan Commitment and the Loans made and to be made by it, the Agent shall have the same rights and powers under this Agreement and all other Loan Documents as the other Banks and may exercise the same as if it were not the Agent. The terms "Bank" and "Banks" as used herein shall, unless otherwise expressly indicated, include the Agent in its individual capacity. The Agent and any successor Agent which is a commercial bank, and their respective affiliates, may accept deposits from, lend money to, act as trustee under indentures of and generally engage in any kind of business with, the Borrowers and their affiliates from time to time, all as if such entity were not the Agent hereunder and without any duty to account therefor to any Bank. 9.4 Independent Credit Decisions. Each Bank acknowledges to the Agent that it has, independently and without reliance upon the Agent or any other Bank, and based upon such documents and information as it has deemed appropriate, made its own independent credit analysis and decision to enter into this Agreement. Each Bank also acknowledges that it will, independently or through other advisers and representatives but without reliance upon the Agent or any other Bank, and based upon such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or refraining from taking any action under this Agreement or any Loan Document. 9.5 Indemnification. The Banks agree to indemnify the Agent (to the extent not reimbursed by the Borrowers), ratably in proportion to each Bank's Commitment Percentage, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses and disbursements of any kind or nature whatsoever which may be imposed on, incurred by or asserted against the Agent in such capacity in any way relating to or arising out of this Agreement or any Loan Document or any action taken or omitted to be taken by the Agent in such capacity hereunder or under any Loan Document; provided that none of the Banks shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the Agent's gross negligence or willful misconduct. Without limiting the generality of the foregoing, each Bank agrees to reimburse the Agent, promptly on demand, for such Bank's ratable share (based upon the aforesaid apportionment) of any out-of-pocket expenses (including counsel fees and disbursements) incurred by the Agent in connection with the preparation, execution, administration or enforcement of, or the preservation of any rights under, this Agreement and the Loan Documents to the extent that the Agent is not reimbursed for such expenses by the Borrowers. 9.6 Successor Agent. The Agent may resign at any time by giving written notice of such resignation to the Banks and the Borrowers, such resignation to be effective only upon the appointment of a successor Agent as hereinafter provided. Additionally, the Agent may be removed by the Required Banks if: (i) the aggregate Commitment Percentages of the Agent and its affiliates do not equal at least fifteen percent (15%); or (ii) a conservator, receiver or trustee in bankruptcy is appointed for the Agent and such appointment is not vacated within ninety (90) days of such appointment. Upon any such resignation or removal of the Agent, the Banks shall jointly appoint a successor Agent upon written notice to the Borrowers and the retiring or removed Agent. If no successor Agent shall have been jointly appointed by such Banks and shall have accepted such appointment within thirty (30) days after a retiring Agent shall have given notice of resignation, the retiring Agent may, upon notice to the Borrowers and the Banks, appoint a successor Agent. Upon its acceptance of any appointment as Agent hereunder, the successor Agent shall succeed to and become vested with all the rights, powers, privileges and duties of the previous Agent, and the previous Agent shall be discharged from its duties and obligations as Agent under this Agreement and the Loan Documents. After any Agent's resignation or removal hereunder, the provisions hereof shall inure to its benefit as to any actions taken or omitted to be taken by it while it was the Agent under this Agreement and the Loan Documents. 9.7 Allocations Made By Agent. As between the Agent and the Banks, unless a Bank objecting to a determination or allocation made by the Agent pursuant to this Agreement delivers to the Agent written notice of such objection within one hundred twenty (120) days after the date any distribution was made by the Agent, such determination or allocation shall be conclusive on such one hundred twentieth day and only those items expressly objected to in such notice shall be deemed disputed by such Bank. The Agent shall not have any duty to inquire as to the application by the Banks of any amounts distributed to them. 9.8 Benefits of Article IX. The parties hereto agree that the provisions of this Article IX are intended solely for the benefit of the Agent, and the Banks and the Borrowers shall not be entitled to rely on any provisions or assert any such provisions of this Article in any claim or as a defense against the Agent or the Banks. 9.9 Mutual Disclosure. The Banks and the Agent each agree to disclose to the others immediately upon receipt any information that is not required to be delivered pursuant to Section 9.10 of this Agreement and (i) that concerns the financial condition of the Borrowers and is material to the conduct of the Borrowers' business operations as going concerns, or (ii) relates to the ability of the Borrowers to perform their respective obligations under the Loan Documents. In addition, if any Bank receives any notice, document, financial statement or report from the Borrowers which such Bank is aware has not been delivered to the other Banks and the Agent, such Bank shall promptly forward to the other Banks and the Agent a copy of such notice, document, financial statement or report. 9.10 Reports and Notices. The Borrowers hereby agree that whenever herein or in any other Loan Document any report, notice, statement or other information is to be given to any Bank or the Agent, such report, notice, statement or other information shall be given to all Banks contemporaneously and within the period of time required for giving such report, notice, statement or information. X. MISCELLANEOUS 10.1 Waiver. No failure or delay on the part of the Agent or any Bank or any holder of any Note in exercising any right, power or remedy under any Loan Document shall operate as a waiver thereof; nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy under any Loan Document. The remedies provided under the Loan Documents are cumulative and not exclusive of any remedies provided by law. 10.2 Amendments. No amendment, modification, termination or waiver of any Loan Document or any provision thereof nor any consent to any departure by any Borrower therefrom shall be effective unless the same shall have been approved in writing by all of the Banks, be in writing and be signed by the Agent and the applicable Borrower or Borrowers, and then any such waiver or consent shall be effective only in the instance and for the specific purpose for which given. No notice to or demand on the Borrowers shall entitle the Borrowers to any other or further notice or demand in similar or other circumstances. Notwithstanding any other provision contained in any Loan Document, no amendment, modification, termination or waiver shall affect the payment of principal (including without limitation the date when due), reduce any interest rate margin or any fee provided herein, increase any Revolving Loan Commitment, extend the Revolver Termination Date, modify the definition of "Required Banks" or any voting rights of the Banks without the written consent of all the Banks. The rights and responsibilities of the Agent hereunder cannot be changed without the Agent's prior written consent. 10.3 Governing Law. The Loan Documents and all rights and obligations of the parties thereunder shall be governed by and be construed and enforced in accordance with the laws of the Commonwealth of Pennsylvania without regard to Pennsylvania or federal principles of conflict of laws. 10.4 Participations and Assignments. Each Borrower hereby acknowledges and agrees that a Bank may at any time: (a) grant participations in all or any portion of its Revolving Loan Commitment, any Note, or of its right, title and interest therein or in or to this Agreement (collectively, "Participations") to any other lending office or to any other bank, lending institution or other entity which has the requisite sophistication to evaluate the merits and risks of investments in Participations ("Participants") (but only with the consent of the Borrowers, which consent shall not be unreasonably withheld); provided, however, that: (i) all amounts payable by the Borrowers hereunder shall be determined as if such Bank had not granted such Participation; (ii) any agreement pursuant to which any Bank may grant a Participation: (x) shall provide that such Bank shall retain the sole right and responsibility to enforce the obligations of the Borrowers hereunder including, without limitation, the right to approve any amendment, modification or waiver of any provisions of this Agreement; (y) such participation agreement may provide that such Bank will not agree to any modification, amendment or waiver of this Agreement without the consent of the Participant if such modification, amendment or waiver would reduce the principal of or rate of interest on the Loan or postpone the date fixed for any payment of principal of or interest on the Loan; and (z) shall not relieve such Bank from its obligations, which shall remain absolute, to make Loans hereunder; and (iii) notwithstanding the foregoing, if any Event of Default with respect to Sections 5.16 or 7.1 of this Agreement has occurred within the six (6) months immediately preceding the date of the proposed participation (whether or not such Event of Default is ongoing or has been cured), the consent of the Borrowers and the Agent shall not be necessary to such participation; and (b) assign any of its Loans and its Revolving Credit Commitment (but only with the consent of the Borrowers and the Agent, which consent shall not be unreasonably withheld), provided that: (i) each such assignment shall be in an amount of at least $5,000,000 (unless, after giving effect to such assignment and all other such assignments by such assigning Bank occurring simultaneously or substantially simultaneously therewith, such assigning Bank shall hold no Revolving Credit Commitment or Loan hereunder); (ii) each such assignment by a Bank of its Loans or Revolving Credit Commitment shall be made in such manner so that the same portion of its Loans, Note and Revolving Credit Commitment is assigned to the respective assignee; and (iii) notwithstanding the foregoing, if any Event of Default with respect to Sections 5.16 or 7.1 of this Agreement has occurred within the six (6) months immediately preceding the date of the proposed assignment (whether or not such Event of Default is ongoing or has been cured), the consent of the Borrowers and the Agent shall not be necessary to such assignment. Upon execution and delivery by the assignee to the Borrowers and the Agent of an instrument in writing pursuant to which such assignee agrees to become a "Bank" hereunder (if not already a Bank) having the Revolving Credit Commitment(s) and Loans specified in such instrument, and upon consent thereto by the Borrowers and the Agent, to the extent required above, the assignee shall have, to the extent of such assignment (unless otherwise provided in such assignment with the consent of the Borrowers and the Agent), the obligations, rights and benefits of a Bank hereunder holding the Revolving Credit Commitment(s) and Loans (or portions thereof) assigned to it (in addition to the Revolving Credit Commitment(s) and Loans, if any, theretofore held by such assignee) and the assigning Bank shall, to the extent of such assignment, be released from the Commitment(s) (or portion(s) thereof) so assigned. Upon each such assignment the assigning Bank shall pay the Agent an assignment fee of $3,000. 10.5 Captions. Captions in the Loan Documents are included for convenience of reference only and shall not constitute a part of any Loan Document for any other purpose. 10.6 Notices. All notices, requests, demands, directions, declarations and other communications between the Banks and the Borrowers provided for in any Loan Document shall, except as otherwise expressly provided, be mailed by registered or certified mail, return receipt requested, or telegraphed, or telefaxed, or delivered in hand to the applicable party at the following addresses: If to the Borrowers: Intermagnetics General Corporation 450 Old Niskayuna Road Latham, NY 12110 Attention: Michael Zeigler, Senior Vice President - Finance Telephone: (518) 782-1122 Telecopy: (518) 782-1105 with a copy to: Intermagnetics General Corporation 450 Old Niskayuna Road Latham, NY 12110 Attention: Christopher J. Lord, Esquire, Corporate Counsel Telephone: (518) 782-1122 Telecopy: (518) 782-1105 If to the Agent or the Banks: CoreStates Bank, N.A. 645 Hamilton Mall Allentown, PA 18101 Attention: Kaj Karch, Vice President Telephone:(610) 439-4566 Telecopy:(610) 439-4574 with a copy to: Duane, Morris & Heckscher LLP One Liberty Place Philadelphia, PA 19103 Attention: Stephen D. Teaford, Esquire Telephone: (215) 979-1220 Telecopy:(215) 979-1020 Notices shall be effective and deemed received three (3) days after being deposited in the mails, postage prepaid, addressed as aforesaid and shall whenever sent by telegram, telegraph or telefax or delivered in hand be effective when received. Any party may change its address by a communication in accordance herewith. 10.7 Sharing of Collections, Proceeds and Set-Offs; Application of Payments. (a) If any Bank, by exercising any right of set-off, counterclaim or foreclosure against trade collateral or otherwise, receives payment of principal or interest or other amount due on any Loan which is greater than the percentage share of such Bank (determined as set forth below), the Bank receiving such proportionately greater payment shall purchase such participations in the Loans held by the other Banks, and such other adjustments shall be made as may be required, so that all such payments shall be shared by the Banks on the basis of their percentage shares; provided that if all or any portion of such proportionately greater payment of such indebtedness is thereafter recovered from, or must otherwise be restored by, such purchasing Bank, the purchase shall be rescinded and the purchase price restored to the extent of such recovery, but without interest being paid by such purchasing Bank. The percentage share of each Bank shall be based on the portion of the outstanding Loans of such Bank (prior to receiving any payment for which an adjustment must be made under this Section in relation to the aggregate outstanding Loans of all the Banks. Each Borrower agrees, to the fullest extent it may effectively do so under applicable law, that any holder of a participation in a Loan or reimbursement obligation, whether or not acquired pursuant to the foregoing arrangements, may exercise rights of set-off or counterclaim and other rights with respect to such participation as fully as if such holder of a participation were a direct creditor of such Borrower in the amount of such participation. If under any applicable bankruptcy, insolvency or other similar law, any Bank receives a secured claim in lieu of a set-off to which this Section would apply, such Bank shall, to the extent practicable, exercise its rights in respect of such secured claim in a manner consistent with the rights of the Banks entitled under this Section to share in the benefits of any recovery on such secured claim. (b) If an Event of Default or Potential Default shall have occurred and be continuing the Agent and each Bank and the Borrowers agree that all payments on account of the Loans shall be applied by the Agent and the Banks as follows: (1) First, to the Agent for any Agent fees then due and payable under this Agreement until such fees are paid in full; (2) Second, to the Agent for any fees, costs or expenses (including expenses described in Section 10.8) incurred by the Agent under any of the Loan Documents or this Agreement, then due and payable and not reimbursed by the Borrowers or the Banks until such fees, costs and expenses are paid in full; (3) Third, to the Banks for their percentage shares of the Commitment Fee then due and payable under this Agreement until such fee is paid in full; (4) Fourth, to the Banks for their respective shares of all costs, expenses and fees then due and payable from the Borrowers until such costs, expenses and fees are paid in full; (5) Fifth, to the Banks for their percentage shares of all interest then due and payable from the Borrowers until such interest is paid in full, which percentage shares shall be calculated by determining each Bank's percentage share (determined as set forth in Section 10.7(a)) of the amounts allocated in (a) above; and (6) Sixth, to the Banks for their percentage shares of the principal amount of the Loans then due and payable from the Borrowers until such principal is paid in full, which percentage shares shall be calculated by determining each Bank's percentage share (determined as set forth in Section 10.7(a)) of the amounts allocated in (a) above. 10.8 Expenses of the Agent; Indemnification of the Agent and the Banks. (a) The Borrowers will from time to time reimburse the Agent promptly following demand for all reasonable out-of-pocket expenses (including the reasonable fees and expenses of legal counsel) in connection with (i) the preparation of the Loan Documents, (ii) the making of any Loans, (iii) the administration of the Loan Documents, (iv) the enforcement of the Loan Documents, and (v) the Side Letter; and will reimburse the Banks for all out-of-pocket expenses (including reasonable fees and expenses of legal counsel) in connection with the foregoing, including, without limitation, the enforcement of the Loan Documents, which expenses shall not be unreasonable. Notwithstanding the foregoing, the Bank shall use their good faith best efforts to engage common legal counsel with respect to any attempts by the Banks to enforce any of the Loan Documents. (b) In addition to the payment of the foregoing expenses, the Borrowers hereby agree, jointly and severally, to indemnify, protect and hold the Agent, each Bank and any holder of the Notes and the officers, directors, employees, agents, affiliates and attorneys of the Agent, each Bank and such holder (collectively, the "Indemnitees") harmless from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses and disbursements of any kind or nature, including reasonable fees and expenses of legal counsel, which may be imposed on, incurred by, or asserted against such Indemnitee by any Borrower or other third parties and arise out of or relate to this Agreement or the other Loan Documents or any other matter whatsoever related to the transactions contemplated by or referred to in this Agreement or the other Loan Documents; provided, however, that the Borrowers shall have no obligation to an Indemnitee hereunder to the extent that the liability incurred by such Indemnitee has been determined by a court of competent jurisdiction to be the result of gross negligence or willful misconduct of such Indemnitee. 10.9 Survival of Warranties and Certain Agreements. All agreements, representations and warranties made or deemed made herein shall survive the execution and delivery of this Agreement, the making of the Loans hereunder and the execution and delivery of the Notes. Notwithstanding anything in this Agreement or implied by law to the contrary, the agreements of the Borrowers set forth in Sections 2.1(f), 2.5(a), 2.10, and 10.8, and the agreements of the Banks set forth in Sections 9.1, 9.5 and 10.7 shall survive the payment of the Loans and the termination of this Agreement. This Agreement shall remain in full force and effect until the latest to occur of the termination of the Aggregate Revolving Loan Commitment or the repayment in full of all amounts owed by the Borrowers under any Loan Document. 10.10 Severability. The invalidity, illegality or unenforceability in any jurisdiction of any provision in or obligation under this Agreement, the Notes or other Loan Documents shall not affect or impair the validity, legality or enforceability of the remaining provisions or obligations under this Agreement, the Notes or other Loan Documents or of such provision or obligation in any other jurisdiction. 10.11 Banks' Obligations Several; Independent Nature of Banks' Rights. The obligation of each Bank hereunder is several and not joint and no Bank shall be the agent of any other (except to the extent the Agent is authorized to act as such hereunder). No Bank shall be responsible for the obligation or commitment of any other Bank hereunder. In the event that any Bank at any time should fail to make a Loan as herein provided, the other Banks, or any of them as may then be agreed upon, at their sole option, may make the Loan that was to have been made by the Bank so failing to make such Loan. Nothing contained in any Loan Document and no action taken by Agent or any Bank pursuant hereto or thereto shall be deemed to constitute Banks to be a partnership, an association, a joint venture or any other kind of entity. The amounts payable at any time hereunder to each Bank shall be a separate and independent debt, and, subject to the terms of this Agreement, each Bank shall be entitled to protect and enforce its rights arising out of this Agreement and it shall not be necessary for any other Bank to be joined as an additional party in any proceeding for such purpose. 10.12 No Fiduciary Relationship. No provision in this Agreement or in any of the other Loan Documents and no course of dealing between the parties shall be deemed to create any fiduciary duty by Agent or any Bank to the Borrowers. 10.13 CONSENT TO JURISDICTION AND SERVICE OF PROCESS. EACH OF THE BORROWERS, THE AGENT AND EACH BANK HEREBY CONSENTS TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED WITHIN THE EASTERN DISTRICT OF PENNSYLVANIA AND IRREVOCABLY AGREES THAT, ANY ACTIONS OR PROCEEDINGS ARISING OUT OF OR RELATING TO THE NOTES, THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS MAYBE LITIGATED IN SUCH COURTS. EACH PARTY TO THIS AGREEMENT ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID COURTS AND WAIVES ANY DEFENSE OF FORUM NON CONVENIENT, AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT, SUCH NOTE, OR SUCH OTHER LOAN DOCUMENT. 10.14 WAIVER OF JURY TRIAL. EACH OF THE BORROWERS, THE AGENT AND EACH BANK HEREBY WAIVES ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT, ANY OF THE LOAN DOCUMENTS, OR ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS AGREEMENT AND THE LENDER/BORROWER RELATIONSHIP ESTABLISHED HEREBY. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS TRANSACTION, INCLUDING WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. EACH OF THE BORROWERS, THE AGENT AND EACH BANK ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO THE TRANSACTION, THAT EACH HAS ALREADY RELIED ON THE WAIVER IN ENTERING INTO THIS AGREEMENT AND THAT EACH WILL CONTINUE TO RELY ON THE WAIVER IN THEIR RELATED FUTURE DEALINGS. EACH OF THE BORROWERS, THE AGENT AND EACH BANK FURTHER WARRANTS AND REPRESENTS THAT EACH HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL, AND THAT EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS IRREVOCABLE, AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT, THE LOAN DOCUMENTS, OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE LOANS. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT. 10.15 Counterparts; Effectiveness. This Agreement and any amendment hereto or waiver hereof may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Agreement and any amendments hereto or waivers hereof shall become effective when the Agent shall have received signed counterparts or notice by telecopy of the signature page that the counterpart has been signed and is being delivered to the Agent or facsimile that such counterparts have been signed by all the parties hereto or thereto. 10.16 Use of Defined Terms. All words used herein in the singular or plural shall be deemed to have been used in the plural or singular where the context or construction so requires. Any defined term used in the singular preceded by "any" shall be taken to indicate any number of the members of the relevant class. IN WITNESS WHEREOF, and intending to be legally bound hereby, the Borrowers and the Banks have caused this Agreement to be executed by their proper corporate officers thereunto duly authorized as of the day and year first above written. INTERMAGNETICS GENERAL CORPORATION By: /s/ Carl H. Rosner ------------------------------- Name: Carl H. Rosner Title: CEO APD CRYOGENICS INC. By: /s/ Michael C. Zeigler ------------------------------- Name: Michael C. Zeigler Title: Treasurer MAGSTREAM CORPORATION By: /s/ Michael C. Zeigler ------------------------------- Name: Michael C. Zeigler Title: Treasurer MEDICAL ADVANCES, INC. By: /s/ Carl H. Rosner ------------------------------- Name: Carl H. Rosner Title: CEO INTERCOOL ENERGY CORPORATION By: /s/ Michael C. Zeigler ------------------------------- Name: Michael C. Zeigler Title: Treasurer Commitment Percentage: 60% CORESTATES BANK, N.A., Revolving Loan Commitment: $15,000,000 individually and as Agent By: /s/ Kaj E. Karch ---------------------------- Name: Kaj E. Karch Title: Vice President Commitment Percentage: 40% THE CHASE MANHATTAN BANK Revolving Loan Commitment: $10,000,000 By: /s/ Stephen P. Malinowski ---------------------------- Name: Stephen P. Malinowski Title: Vice President STATE OF NEW YORK ) ) ss. COUNTY OF ALBANY ) On this 23rd day of October, 1997, before me personally came Carl H. Rosner, to me known, who, being by me duly sworn, did depose and say that he is the CEO of Intermagnetics General Corporation, the corporation described in and which executed the foregoing instrument and that he signed his name thereto by order of the board of directors of said corporation. /s/ Katherine M. Sheehan NOTARY PUBLIC STATE OF NEW YORK ) ) ss. COUNTY OF ALBANY ) On this 23rd day of October, 1997, before me personally came M. C. Zeigler, to me known, who, being by me duly sworn, did depose and say that he is the Treasurer of APD Cryogenics Inc., the corporation described in and which executed the foregoing instrument and that he signed his name thereto by order of the board of directors of said corporation. /s/ Katherine M. Sheehan NOTARY PUBLIC STATE OF NEW YORK ) ) ss. COUNTY OF ALBANY ) On this 23rd day of October, 1997, before me personally came Carl H. Rosner, to me known, who, being by me duly sworn, did depose and say that he is the CEO of Magstream Corporation, the corporation described in and which executed the foregoing instrument and that he signed his name thereto by order of the board of directors of said corporation. /s/ Katherine M. Sheehan NOTARY PUBLIC STATE OF NEW YORK ) ) ss. COUNTY OF ALBANY ) On this 23rd day of October, 1997, before me personally came Carl H. Rosner, to me known, who, being by me duly sworn, did depose and say that he is the CEO of Medical Advances, Inc., the corporation described in and which executed the foregoing instrument and that he signed his name thereto by order of the board of directors of said corporation. /s/ Katherine M. Sheehan NOTARY PUBLIC STATE OF NEW YORK ) ) ss. COUNTY OF ALBANY ) On this 23rd day of October, 1997, before me personally came M.C. Zeigler, to me known, who, being by me duly sworn, did depose and say that he is the Treasurer of InterCool Energy Corporation, the corporation described in and which executed the foregoing instrument and that he signed his name thereto by order of the board of directors of said corporation. /s/ Katherine M. Sheehan NOTARY PUBLIC STATE OF NEW YORK ) ) ss. COUNTY OF ALBANY ) On this 23 day of October, 1997, before me personally came Kaj Karch, to me known, who, being by me duly sworn, did depose and say that he is the Vice President of CoreStates Bank, N.A., the corporation described in and which executed the foregoing instrument and that he signed his name thereto by order of the board of directors of said corporation. /s/ Katherine M. Sheehan NOTARY PUBLIC STATE OF NEW YORK ) ) ss. COUNTY OF ALBANY ) On this 23 day of October, 1997, before me personally came Stephen Malinowski, to me known, who, being by me duly sworn, did depose and say that he is the Vice President of The Chase Manhattan Bank, the corporation described in and which executed the foregoing instrument and that he signed his name thereto by order of the board of directors of said corporation. /s/ Katherine M. Sheehan NOTARY PUBLIC Exhibit A Form of Borrowing Notice CoreStates Bank, N.A. 645 Hamilton Mall Allentown, PA 18101 Attention: Kaj Karch, Vice President Ladies and Gentlemen: The undersigned, INTERMAGNETICS GENERAL CORPORATION, on behalf of itself and APD CRYOGENICS INC., MAGSTREAM CORPORATION, MEDICAL ADVANCES, INC. and INTERCOOL ENERGY CORPORATION (collectively, the "Borrowers"), refers to the Second Amended and Restated Loan and Agency Agreement, dated as of October 23, 1997, among the Borrowers, CoreStates Bank, N.A., as agent (the "Agent"), and the Banks (as defined therein) (as amended, modified and/or extended to date, the "Loan Agreement"), capitalized terms used herein having the definitions given such terms in the Loan Agreement, and hereby: 1. Gives you notice, irrevocably, pursuant to Section 2.3 of the Loan Agreement, that IGC on behalf of the Borrowers hereby requests a Loan under the Loan Agreement and, in that regard, sets forth below the information relating to that Loan (the "Proposed Advance") as required by Section 2.3 of the Loan Agreement: (a) the requested Business Day of the Proposed Advance is ______; (b) the aggregate amount of the Proposed Advance is $________; and (c) the Proposed Advance is intended to be a LIBO Rate Loan, and the Interest Period for the Proposed Advance is ____ months; or the Proposed Advance is intended to be a Base Rate Loan. 2. Certifies to you as follows: (i) each Borrower is on the date hereof, and will be on the date of the Proposed Advance, in compliance with all covenants, agreements and conditions in each Loan Document; (ii) each representation and warranty contained in each Loan Document is true on the date hereof and will be true on the date of the Proposed Advance, with the same effect as if such representation or warranty had been made on each such respective date; and (iii) immediately prior to and after giving effect to the Proposed Advance, no Event of Default or Potential Default shall exist. Very truly yours, INTERMAGNETICS GENERAL CORPORATION Dated: _______________, _________ By: Name: Title: Exhibit B Form of Covenant Compliance Certificate CoreStates Bank, N.A. 645 Hamilton Mall Allentown, PA 18101 Attention: Kaj Karch, Vice President Ladies and Gentlemen: This Covenant Compliance Certificate (this "Certificate") is executed and delivered pursuant to Section 5.2(d) of the Second Amended and Restated Loan and Agency Agreement, dated October 23, 1997 (the "Loan Agreement"), by and among Intermagnetics General Corporation, APD Cryogenics Inc., Magstream Corporation, Medical Advances, Inc. and InterCool Energy Corporation (collectively, the "Borrowers"), the Banks (as such term is defined in the Loan Agreement), and CoreStates Bank, N.A., as agent for the Banks (the "Agent"). All capitalized terms used herein without definition shall have the meanings given to them in the Loan Agreement and Schedule 5.16 thereto. The undersigned has reviewed the terms of the Loan Agreement and has made, or caused to be made under his or her supervision, a review in reasonable detail of the transactions and financial condition of the Borrowers during the fiscal period covered by this Certificate. As of ________, the following financial covenants have the following values: COVENANT ACTUAL ----------- --------- 1. Minimum Tangible Net Worth $55,000,000 $ 2. Maximum Ratio of Senior Debt 0.5:1.0 to Tangible Net Worth 3. Minimum Ratio of EBIT to 2.0:1.0 Interest Expenses Attached hereto are the calculations and information necessary to determine the foregoing covenant values. As of the date hereof: (a) no Event of Default or Potential Default has occurred and is continuing; (b) the representations and warranties of the Borrowers contained in Article III of the Loan Agreement are true and correct in all material respects as of the date hereof, except that the representations and warranties in Section 3.4 of the Loan Agreement shall refer to the most recent financial statements delivered to the Banks. This Certificate is executed on _________, by the Chief Financial Officer of IGC, on behalf of the Borrowers. The undersigned hereby certifies that each and every matter contained herein is derived from the Borrowers' books and records and is, to the best knowledge of the undersigned, true and correct. Chief Financial Officer, Intermagnetics General Corporation Schedule 5.16 Financial Covenants This Schedule is a part of the Second Amended and Restated Loan Agreement dated October 23, 1997 (the "Loan Agreement"), among CoreStates Bank, N.A. (as Bank and Agent), The Chase Manhattan Bank, Intermagnetics General Corporation, and the other parties defined therein as the "Borrowers." A. Tangible Net Worth. The Borrowers shall at all times maintain a Tangible Net Worth of not less than $55,000,000; provided, however, that if (i) within six (6) months of the date hereof, IGC shall have consummated a contemplated acquisition pursuant to a certain letter of intent, a copy of which has been provided to the Agent, and (ii) IGC acquires not less than $7,000,000 in goodwill as a result of such transaction, then from and after the date of such acquisition, the Borrowers shall at all times maintain a Tangible Net Worth of not less than $50,000,000. B. Ratio of Senior Debt to Tangible Net Worth. The Borrowers, on a consolidated basis, shall have a ratio of Senior Debt to Tangible Net Worth at the end of each fiscal quarter of not more than 0.5 to 1.0. C. Ratio of EBIT to Interest Expenses. The Borrowers, on a consolidated basis, shall have a ratio of EBIT to Interest Expenses at the end of each fiscal quarter on a rolling four quarter basis, of not less than 2.0 to 1.0. For purposes of this Schedule, all capitalized terms used herein and not otherwise defined shall have the meanings given to them, respectively, in the Loan Agreement, and the following terms shall have the following meanings: "EBIT" shall mean, for any period, the Net Income (or net loss) of the Borrowers on a consolidated basis for such period as determined in accordance with GAAP, plus the sum of, without duplication, the following for the Borrowers on a consolidated basis: (i) Interest Expenses, and (ii) total income tax expense. "Senior Debt" shall mean, at any time, all Indebtedness less all Subordinated Indebtedness. "Stockholders' Equity" shall mean, at any time, stockholders' equity as determined in accordance with GAAP. "Tangible Net Worth" shall mean, at any time, the aggregate Stockholders' Equity, less all intangible assets of the Borrowers, on a consolidated basis, including, without limitation, organization costs, securities issuance costs, unamortized debt discount and expense, goodwill, excess of purchase costs over net assets acquired, patents, trademarks, trade names, copyrights, trade secrets, know how, licenses, franchises, capitalized research and development expenses, and amounts owing from officers and/or Affiliates. EX-4 5 EXHIBIT 4.3 Exhibit 4.3 FIRST AMENDMENT TO SECOND AMENDED AND RESTATED LOAN AND AGENCY AGREEMENT THIS FIRST AMENDMENT TO SECOND AMENDED AND RESTATED LOAN AND AGENCY AGREEMENT (this "Amendment"), dated as of May 15, 1998, is by and among INTERMAGNETICS GENERAL CORPORATION, a New York corporation, APD CRYOGENICS INC., a Pennsylvania corporation, MAGSTREAM CORPORATION, a New York corporation, MEDICAL ADVANCES, INC., a Wisconsin corporation, and INTERCOOL ENERGY CORPORATION, a Delaware corporation (each, an "Existing Borrower" and collectively, the "Existing Borrowers"), POLYCOLD SYSTEMS INTERNATIONAL, INC., a Delaware corporation (the "New Borrower" and, collectively with the Existing Borrowers, the "Borrowers"), CORESTATES BANK, N.A., and THE CHASE MANHATTAN BANK (the "Banks"). BACKGROUND WHEREAS, the Existing Borrowers and the Banks are parties to a Second Amended and Restated Loan and Agency Agreement dated October 23, 1997 (as at any time amended and/or extended, the "Loan Agreement"), pursuant to which the Banks agreed to make available to the Existing Borrowers certain credit facilities upon the terms and conditions specified in the Loan Agreement; and WHEREAS, the parties wish to amend the Loan Agreement as set forth herein to, inter alia, add the New Borrower as a Borrower under the Loan Agreement; NOW, THEREFORE, in consideration of the promises and mutual agreements herein contained, the parties hereto, intending to be legally bound hereby, agree to amend the Loan Agreement as herein stated. 1. Effect of Prior Agreements. This Amendment is intended to amend the Loan Agreement as it has been in effect to the date hereof and as it shall be amended on and after the date hereof. All terms used herein as defined terms shall have the meanings ascribed to them in the Loan Agreement unless herein provided to the contrary. 2. Amendments. (a) The introductory paragraph of the Loan Agreement is hereby amended and restated in its entirety as follows: THIS SECOND AMENDED AND RESTATED LOAN AND AGENCY AGREEMENT, dated as of October 23, 1997 (this "Agreement"), is entered into by and among INTERMAGNETICS GENERAL CORPORATION, a New York corporation ("IGC"), APD CRYOGENICS INC., a Pennsylvania corporation ("APD"), MAGSTREAM CORPORATION, a New York corporation ("MC"), MEDICAL ADVANCES, INC., a Wisconsin corporation ("MA"), INTERCOOL ENERGY CORPORATION, a Delaware corporation ("IEC"), and POLYCOLD SYSTEMS INTERNATIONAL, INC., a Delaware corporation (each, a "Borrower" and collectively, the "Borrowers"), the banking institutions signatories hereto and such other institutions that hereafter become a "Bank" pursuant to Section 10.4 hereof (each, a "Bank" and collectively, the "Banks") and CORESTATES BANK, N.A., a national banking association ("CoreStates"), as agent for the Banks under this Agreement (in such capacity, the "Agent"). (b) The following definitions are hereby added to Article I of the Loan Agreement, in alphabetical order: "L/C Agreement" shall mean an Agreement for Standby Letter of Credit, substantially in the form of Exhibit D hereto, and in form and substance satisfactory to the Agent. "Letter of Credit Sublimit" shall mean Four Million Dollars ($4,000,000). (c) The following definitions set forth in Article I of the Loan Agreement are hereby amended and restated in their entirety as follows: "Loan Documents" shall mean this Agreement, the Notes, the L/C Agreements, and all agreements, amendments, certificates, financing statements, schedules, reports, notices, and exhibits now or hereafter executed or delivered in writing in connection with any of the foregoing, as may be in effect from time to time. (d) A new Section 2.1(g) is hereby added to the Loan Agreement, to read as follows: (g) Letters of Credit. (1) Generally. In addition to making Revolving Credit Loans to the Borrowers as provided in this Section 2.1, the Agent, on behalf of the Banks, shall, upon the request of the Borrowers and subject to the terms of this Agreement, also issue one or more letters of credit and/or bank guarantees ("Letters of Credit") for the account of the Borrowers, provided that in connection with each issuance of a Letter of Credit the Borrowers shall execute and deliver to the Agent an L/C Agreement substantially in the form of Exhibit D hereto; and provided further, that in the event of any conflict between the terms of any L/C Agreement and the terms of this Agreement, the terms of this Agreement shall be controlling. All amounts drawn under Letters of Credit shall be deemed to be Revolving Credit Loans evidenced by the Revolving Credit Notes, and the amount available to be borrowed under the Revolving Credit facility, and the Letter of Credit Sublimit, shall be reduced by the aggregate amounts drawn and available to be drawn at any time under all outstanding Letters of Credit. In no event shall the aggregate amount available to be drawn on all outstanding Letters of Credit plus the outstanding principal balance of Revolving Credit Loans exceed the Aggregate Revolving Loan Commitment. In no event shall the aggregate amount available to be drawn on all outstanding Letters of Credit exceed the lesser of (i) the Aggregate Revolving Loan Commitment, or (ii) the Letter of Credit Sublimit. The duration of any Letter of Credit shall not extend beyond the Revolver Termination Date. Not more than three (3) Letters of Credit with a face amount of less than $25,000 shall be outstanding hereunder at any one time. No Letter of Credit in excess of $4,000,000 shall be issued by the Agent on behalf of the Banks except upon the approval of the Required Banks, in their sole discretion. Each Bank hereby absolutely and unconditionally agrees to pay to the Agent such Bank's Commitment Percentage of each disbursement made by the Agent pursuant to a Letter of Credit and not reimbursed by the Borrowers pursuant to Section 2.1(g)(3), or of any reimbursement payment required to be refunded to the Borrowers for any reason ("LC Disbursements"). (2) Issuance of Letters of Credit. Subject to the provisions of Section 2.1(g)(1), the Agent, on behalf of the Banks, shall issue Letters of Credit for the account of the Borrowers, provided that the Borrowers (i) provide a written request for each such Letter of Credit specifying the terms thereof, including, without limitation, the amount and the name and address of the beneficiary of such Letter of Credit; (ii) execute and deliver to the Agent an application for each such Letter of Credit pursuant to the form provided for such purpose by the Agent; and (iii) execute and deliver to the Agent such other documents and instruments which the Agent, in its sole and absolute discretion, deems reasonable and necessary. In connection with each Letter of Credit, the Borrowers shall pay to the Agent, for the benefit of the Banks, a non-refundable fee equal to: (A) for bank guarantees, the Applicable Margin in effect on each day during the calendar quarter, and (B) for letters of credit, such rate as the Agent and the Borrowers may agree upon, in either case multiplied by the amount of such Letter of Credit outstanding each day during such calendar quarter (after giving effect to any drawings thereunder); which fee shall be payable quarterly in arrears. The Borrowers shall also pay to the Agent, for the benefit of the Agent, and not for the benefit of the other Banks, all transactional and customary fees required by the Agent in connection with the issuance of each Letter of Credit hereunder, including, without limitation, the Agent's standard remittance, transfer and issuance fees, which fees may be deducted by the Agent from the Borrowers' account as such fees are incurred. (3) Reimbursement. If the Agent shall make any LC Disbursement in respect of a Letter of Credit, then either (i) the Borrowers shall reimburse such LC Disbursement by paying to the Agent an amount equal to such LC Disbursement not later than 12:00 noon, Philadelphia time, on the date that such LC Disbursement is made, if the Borrowers shall have received notice of such LC Disbursement prior to 10:00 a.m. Philadelphia time on such date, or, if such notice is received by the Borrowers after 10:00 a.m. Philadelphia time on such date, then not later than 10:00 a.m. Philadelphia time on the Business Day immediately following the day on which the Borrowers receive such notice; or (ii) such LC Disbursement shall become and be deemed a Revolving Credit Loan, bearing interest at the Adjusted Base Rate in effect at such time. The Agent shall notify each Bank of any LC Disbursement, the payment then due from the Borrowers in respect thereof, and such Bank's Commitment Percentage thereof. Promptly following receipt of such notice, each Bank shall pay to the Agent its Commitment Percentage of the payment then due from the Borrowers, in the same manner as provided in Section 2.3, with respect to Loans. Promptly following receipt by the Agent of any payment from the Borrowers pursuant to this Section 2.1(g)(3), the Agent shall distribute such payment to the Banks, to the extent that such Banks have made payments pursuant to this Section to reimburse the Agent. Any payment made by a Bank pursuant to this Section to reimburse the Agent for any LC Disbursement shall not relieve the Borrowers of their obligations to reimburse such LC Disbursement. (4) Obligations Absolute. The Borrowers' obligations to reimburse LC Disbursements as provided in Section 2.1(g)(3) shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of this Agreement under any and all circumstances whatsoever and irrespective of (i) any lack of validity or enforceability of any Letter of Credit or this Agreement or any term or provision thereof; (ii) any draft or other document presented under a Letter of Credit proving to be forged, fraudulent or invalid in any respect or any statement therein being untrue or inaccurate in any respect; (iii) payment by the Agent under a Letter of Credit against presentation of a draft or other document that does not comply with the terms of such Letter of Credit; or (iv) any other event or circumstance whatsoever, whether or not similar to any of the foregoing, that might, but for the provisions of this Section, constitute a legal or equitable discharge of, or provide a right of setoff against, the Borrowers' obligations hereunder. Neither the Agent nor the Banks, nor any of their Affiliates, shall have any liability or responsibility by reason of or in connection with the issuance or transfer of any Letter of Credit or any payment or failure to make any payment thereunder (irrespective of any of the circumstances referred to in the preceding sentence), or any error, omission, interruption, loss or delay in transmission or delivery of any draft, notice or other communication under or relating to any Letter of Credit (including any documents required to make a drawing thereunder), any error in interpretation of technical terms or any consequence arising from causes beyond the control of the Agent; provided, that the foregoing shall not be construed to excuse the Agent from liability to the Borrowers to the extent of any direct damages (as opposed to consequential damages, claims in respect of which are hereby waived by the Borrowers to the extent permitted by applicable law) suffered by the Borrowers that are caused by the Agent's failure to exercise care when determining whether drafts and other documents presented under a Letter of Credit comply with the terms thereof. The parties hereto expressly agree that, in the absence of gross negligence or willful misconduct on the part of the Agent (as finally determined by a court of competent jurisdiction), the Agent shall be deemed to have exercised care in each such determination. In furtherance of the foregoing and without limiting the generality thereof, the parties agree that, with respect to documents presented which appear on their face to be in substantial compliance with the terms of a Letter of Credit, the Agent may, in its sole discretion, either accept and make payment upon such documents without responsibility for further investigation, regardless of any notice or information to the contrary, or refuse to accept and make payment upon such documents if such documents are not in strict compliance with the terms of such Letter of Credit. Each Bank acknowledges and agrees that its obligations to make payments to the Agent pursuant to this Section 2.1(g) are absolute and unconditional and shall not be affected by any circumstance whatsoever, including any amendment, renewal or extension of any Letter of Credit or the occurrence and continuance of an Event of Default or reduction or termination of the Revolving Loan Commitments, and that each such payment shall be made without any offset, abatement, withholding or reduction whatsoever. (e) Section 2.5(a) of the Loan Agreement is hereby amended and restated in its entirety as follows: (a) The Borrowers shall pay to the Agent for the ratable benefit of the Banks, and as compensation for the Banks' Revolving Loan Commitments, a fee (the "Commitment Fee") computed at the rate per annum equal to 12.5 basis points (0.125%) on the average daily amount of the unused portion of the Aggregate Revolving Loan Commitment (reduced by the amount of Letters of Credit outstanding from time to time) accrued from and after the date hereof. The Commitment Fee shall be payable in arrears on the first day of each January, April, July and October, commencing October 1, 1997 (for the three month period or portion thereof ended on the preceding day), and on the Revolver Termination Date. Payment shall be made to the Agent on behalf of the Banks and the Agent shall promptly forward to each Bank the portion of the Commitment Fee amount due such Bank. The Commitment Fee shall be calculated on the basis of a 360 day year. (f) Section 2.6(a) of the Loan Agreement is hereby amended and restated in its entirety as follows: (a) Voluntary. The Borrowers may at any time, on not less than three (3) Business Days' written notice, terminate or permanently reduce the Aggregate Revolving Loan Commitment pro rata among the Banks, provided that (i) any reduction shall be in the amount of $1,000,000 or a multiple thereof, (ii) no such termination or reduction shall cause the sum of the aggregate principal amount of Loans outstanding and the aggregate face amount of any Letters of Credit then outstanding to exceed the Aggregate Revolving Loan Commitment, as reduced, and (iii) no termination of the Aggregate Revolving Loan Commitment shall reduce the Aggregate Revolving Loan Commitment to an amount which is less than the aggregate face amount of any Letters of Credit then outstanding. 3. Joinder of New Borrower The New Borrower hereby joins in the Loan Agreement, the Obligations thereunder, the Notes and all other Loan Documents as a joint and several obligor thereunder and party thereto, subject to all the terms and provisions thereof. Without limiting the foregoing, the New Borrower expressly agrees to be jointly and severally liable for all fees under the Loan Agreement and all other amounts of principal and charges which may be due thereunder, and hereby ratifies all actions heretofore taken, and all obligations incurred by the Existing Borrowers under the Loan Agreement and the other Loan Documents executed in connection therewith. 4. Representations, Warranties and Covenants. Each Borrower hereby affirms and reaffirms to the Banks all representations and warranties made and to be made under the Loan Agreement, and confirms that all are true and correct as of the date hereof and that no Default has occurred and is continuing. Each Borrower further represents and warrants that it has the authority and legal right to execute, deliver and carry out the terms of this Amendment, that such actions were duly authorized by its Board of Directors and that the officers executing this Amendment on its behalf were similarly authorized and empowered, and that this Amendment does not contravene any provision of its Certificate or Articles of Incorporation or Bylaws, or of any contract or agreement to which it is a party or by which it or any of its properties is bound. Each Borrower hereby affirms and reaffirms to the Banks all of the covenants contained in the Loan Agreement including, without limitation, those contained in Articles V and VI of the Loan Agreement and agrees to abide thereby until all of the Obligations to the Banks are satisfied and/or discharged in their entirety. 5. Conditions. To induce the Banks to enter into this Amendment, the Borrowers agree as follows: (a) The Borrowers shall execute and deliver to the Agent, on behalf of the Banks, this Amendment, an Allonge to Revolving Credit Note in form and substance satisfactory to the Agent, and all other documents as the Agent may require; (b) The Borrowers shall deliver to the Agent, on behalf of the Banks, certified resolutions of the Board of Directors of each Borrower authorizing the execution and delivery of the Amendment and all other documents executed in connection herewith and therewith, all in form and substance satisfactory to the Agent; and (c) Each Borrower shall deliver to the Bank an Officer's Certificate in form and substance satisfactory to the Agent. 6. Further Assurances. Each Borrower hereby agrees to execute and deliver to the Agent, on behalf of the Banks, such further agreements, and other documentation as may be requested by the Agent at any time to assure the protection and enforcement of the Banks' rights under the Loan Agreement as amended hereby. 7. Reservation of Rights. To the extent any Event of Default exists on the date hereof, any and all undertakings of any Bank under or pursuant to this Amendment shall not be deemed a waiver by such Bank of any such Event of Default or any of such Bank's rights and remedies under the Loan Agreement and/or applicable law; and the Banks hereby reserve any and all such rights and remedies. 8. Payment of Expenses. The Borrowers shall pay or reimburse the Agent, on behalf of the Banks, for their respective reasonable attorneys' fees and expenses in connection with the preparation and execution of this Amendment and all other related documents. 9. Reaffirmation and Extension of Agreement. Except as modified by the terms hereof, all of the terms and conditions of the Loan Agreement and all other Loan Documents, including, without limitation, the Notes, are hereby affirmed and shall continue in full force and effect. 10. Counterparts. This Amendment may be executed in two or more counterparts, and by different parties on different counterparts, each of which shall be deemed an original and all of which, taken together, shall constitute one and the same instrument. 11. Governing Law. This Amendment and the rights and obligations of the parties hereunder shall be construed in accordance with and shall be governed by the laws of the Commonwealth of Pennsylvania. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed and delivered by their proper and duly authorized officers, as of the date first above written. INTERMAGNETICS GENERAL CORPORATION By: /s/ Carl H. Rosner --------------------------------------- Name: Carl H. Rosner Title: Chairman and Chief Executive Officer APD CRYOGENICS INC. By: /s/ Michael C. Zeigler --------------------------------------- Name: Michael C. Zeigler Title: Treasurer MAGSTREAM CORPORATION By: /s/ Michael C. Zeigler --------------------------------------- Name: Michael C. Zeigler Title: Treasurer MEDICAL ADVANCES, INC. By: /s/ Carl H. Rosner --------------------------------------- Name: Carl H. Rosner Title: Chief Executive Officer INTERCOOL ENERGY CORPORATION By: /s/ Michael C. Zeigler --------------------------------------- Name: Michael C. Zeigler Title: Treasurer POLYCOLD SYSTEMS INTERNATIONAL, INC. By: /s/ Carl H. Rosner --------------------------------------- Name: Carl H. Rosner Title: Chairman and Chief Executive Officer CORESTATES BANK, N.A., individually and as Agent By: /s/ Kaj E. Karch ------------------------------ Name: Kaj E. Karch Title: Vice President THE CHASE MANHATTAN BANK By: /s/ Stephen P. Malinowski ------------------------------ Name: Stephen P. Malinowski Title: Vice President STATE OF NEW YORK ) ) ss. COUNTY OF ALBANY ) On this 20th day of May, 1998, before me personally came Carl H. Rosner, to me known, who, being by me duly sworn, did depose and say that he is the Chairman and Chief Executive Officer of Intermagnetics General Corporation, the corporation described in and which executed the foregoing instrument and that he signed his name thereto by order of the board of directors of said corporation. /s/ Karen A. Greene NOTARY PUBLIC STATE OF NEW YORK ) ) ss. COUNTY OF ALBANY ) On this 20th day of May, 1998, before me personally came Michael C. Zeigler, to me known, who, being by me duly sworn, did depose and say that he is the Treasurer of APD Cryogenics Inc., the corporation described in and which executed the foregoing instrument and that he signed his name thereto by order of the board of directors of said corporation. /s/ Karen A. Greene NOTARY PUBLIC STATE OF NEW YORK ) ) ss. COUNTY OF ALBANY ) On this 20th day of May, 1998, before me personally came Michael C. Zeigler, to me known, who, being by me duly sworn, did depose and say that he is the Treasurer of Magstream Corporation, the corporation described in and which executed the foregoing instrument and that he signed his name thereto by order of the board of directors of said corporation. /s/ Karen A. Greene NOTARY PUBLIC STATE OF NEW YORK ) ) ss. COUNTY OF ALBANY ) On this 20th day of May, 1998, before me personally came Carl H. Rosner, to me known, who, being by me duly sworn, did depose and say that he is the Chief Executive Officer of Medical Advances, Inc., the corporation described in and which executed the foregoing instrument and that he signed his name thereto by order of the board of directors of said corporation. /s/ Karen A. Greene NOTARY PUBLIC STATE OF NEW YORK ) ) ss. COUNTY OF ALBANY ) On this 20th day of May, 1998, before me personally came Michael C. Zeigler, to me known, who, being by me duly sworn, did depose and say that he is the Treasurer of InterCool Energy Corporation, the corporation described in and which executed the foregoing instrument and that he signed his name thereto by order of the board of directors of said corporation. /s/ Karen A. Greene NOTARY PUBLIC STATE OF NEW YORK ) ) ss. COUNTY OF ALBANY ) On this 20th day of May, 1998, before me personally came Carl H. Rosner, to me known, who, being by me duly sworn, did depose and say that he is the Chairman & Chief Executive Officer of Polycold Systems International, Inc., the corporation described in and which executed the foregoing instrument and that he signed his name thereto by order of the board of directors of said corporation. /s/ Karen A. Greene NOTARY PUBLIC COMMONWEALTH OF PENNSYLVANIA ) ) ss. COUNTY OF LEHIGH ) On this 15th day of May, 1998, before me personally came Kaj E. Karch, to me known, who, being by me duly sworn, did depose and say that he is the Vice President of CoreStates Bank, N.A., the corporation described in and which executed the foregoing instrument and that he signed his name thereto by order of the board of directors of said corporation. /s/ Wanda A. Beahm NOTARY PUBLIC STATE OF NEW YORK ) ) ss. COUNTY OF ALBANY ) On this day 5th of May, 1998, before me personally came Stephen P. Malinowski, to me known, who, being by me duly sworn, did depose and say that he is the Vice President of The Chase Manhattan Bank, the corporation described in and which executed the foregoing instrument and that he signed his name thereto by order of the board of directors of said corporation. /s/ Katherine M. Vermilyea NOTARY PUBLIC EX-10 6 EXHIBIT 10.1 Exhibit 10.1 ROSNER - INTERMAGNETICS 1998 EMPLOYMENT AND CONSULTING AGREEMENT EMPLOYMENT AND CONSULTING AGREEMENT (the "Agreement") dated as of April 20, 1998 between Intermagnetics General Corporation, a New York corporation (the "Company"), and Carl H. Rosner ("Employee"). WHEREAS, Employee served as the President and Chief Executive Officer of the Company under an Employment and Consulting Agreement dated September 22, 1992 between the Company and Employee (the "1992 Agreement"); WHEREAS, the 1992 Agreement was subsequently superseded by a new Employment and Consulting Agreement, dated December 15, 1994, between the Company and the Employee (the "1994 Agreement") which, among other things, extended the service term of the employment provisions of the 1992 Agreement for an additional two years; WHEREAS. the parties reached an understanding during the summer of 1996 to extend the service term of the employment provisions of the 1994 Agreement for an additional year, which understanding, although not reduced to writing, was nonetheless documented in the minutes of the Compensation Committee and the minutes of the Board of Directors of the Company for July and August of 1996, and which understanding has been fully performed by both parties (the "1996 Understanding"); WHEREAS, the parties now wish to extend the service term of the employment provisions of the 1996 Understanding and make certain other changes in the employment and consulting relationship between the Company and the Employee on such terms and conditions as will secure the benefit of Employees services to the Company; and WHEREAS, Employee and the Company desire that the 1992 Agreement, the 1994 Agreement and the 1996 Understanding all be superseded by this Agreement. NOW, THEREFORE, the parties hereto, intending to be legally bound, agree as follows: 1. Employment. The Company hereby employs or retains Employee, and Employee hereby accepts such employment or consulting assignment and agrees to perform his duties and responsibilities hereunder, in accordance with the terms and conditions hereinafter set forth. 1.1. Term. (a) Employment Term. Employee shall be employed as a full-time employee of the Company for the term (the "Employment Term") running two fiscal years beginning retroactive to June 1, 1997 and ending on May 31, 1999. (b) Consulting Term. For the five fiscal years immediately following the Employment Term (the "Consulting Term"), Employee shall serve as a consultant to the Company as set forth in Section 1.7 hereof. (c) Agreement Term. The term of this Agreement (the "Agreement Term") shall commence retroactively as of June 1, 1997 and shall continue for the Employment Term plus the Consulting Term, unless terminated prior thereto in accordance with Section 8 or 9 hereof. 1.2. Duties and Responsibilities. (a) During the Employment Term, Employee shall serve as Chief Executive Officer of the Company and shall perform all duties and accept all responsibilities incidental to such position or as may be assigned to him by the Company's board of directors, and he shall cooperate fully with the board of directors and other executive officers of the Company. During the Employment Term, Employee shall also be available to perform similar duties on behalf of subsidiaries or divisions of the Company. During the Employment Term, employee shall at all times comply with policies and procedures adopted by the Company for employees of the Company and its subsidiaries, including without limitation the procedures and policies adopted by the Company regarding conflicts of interest. (b) During the Consulting Term, Employee shall provide consulting services to the Company, and as such be involved in the Company's external activities, policies and interests, including joint ventures, investments, acquisitions, etc. During the Consulting Term, Employee shall provide such consulting services to the Company as an independent contractor and not as an employee of the Company. Employee shall at all times during the Consulting Term act as an independent contractor and during such period nothing hereunder shall create or imply a relationship of employer-employee between the Company and Employee. During the Consulting Term, Employee shall also be available to perform similar duties on behalf of subsidiaries or divisions of the Company. During the Consulting Term, Employee shall at all times comply with policies and procedures adopted by the Company for consultants to the Company, including without limitation the procedures and policies adopted by the Company regarding conflicts of interest. (c) Employee represents and covenants to the Company that he is not subject, or a party, to any employment agreement, non-competition covenant, non-disclosure agreement or any similar agreement, covenant, understanding or restriction which would prohibit Employee from executing this Agreement and performing his duties and responsibilities hereunder during both the Employment Term and the Consulting Term, or which would in any manner, directly or indirectly, limit or affect the duties and responsibilities which may now or in the future be assigned to Employee by the Company or the scope of assistance to which he may now or in the future provide to subsidiaries or divisions of the Company, including without limitation any duties and responsibilities relating to the development, production and/or sale of (i) superconductive wire and materials, (ii) permanent and superconductive magnet systems, or RF coils, used in MRI diagnostic imaging systems, (iii) NMR spectroscopy systems, (iv) devices for separation of materials by magnetic means, (v) cryogenic equipment and refrigeration systems, (vi) permanent magnet applications as part of the U.S. strategic defense initiative program, or (vii) CFC replacement products. 1.3. Extent of Service. (a) During the Employment Term, Employee agrees to use his best efforts to carry out his duties and responsibilities under Section 1.2(a} hereof and to devote his full time, attention and energy thereto, provided, however, that Employee shall not be required to transfer to a location other than the metropolitan Albany, New York area without his prior consent. Employee further agrees not to work either on a part time or independent contracting basis for any other business or enterprise during the Employment Term without the prior consent of the board of directors of the Company. (b) During the Consulting Term, Employee agrees to devote approximately twenty (20) hours a week (inclusive of pro rata vacation, holiday and sick leave) of his time, attention and energy thereto; provided, however, that (i) Employee-shall have complete discretion to select the specific dates required for the performance of consulting activities hereunder, and (ii) Employee shall not be required to perform such consulting services outside the metropolitan Albany, New York area without his prior consent. (c) Except as provided in Section 5 hereof, neither subsection (a) nor (b) hereof shall be construed as preventing Employee from making investments in other businesses or enterprises, or from serving as a director of any other business or enterprise, provided that Employee agrees not to become engaged in any other business activity which may interfere with his ability to discharge his duties and responsibilities to the Company as an employee or consultant. 1.4. Base Compensation During Employment Term. For all the services rendered by Employee during the Employment Term, the Company shall pay Employee an annual salary at the rate of $335,000 for each full year of the Employment Term, plus unused vacation at the end of each year and such additional amounts, if any, as may be approved by the Company's board of directors, less withholding required by law or agreed to by Employee, payable in installments at such times as the Company customarily pays its other senior officers (but in any event no less often than monthly). The Compensation Committee of the board of directors of the Company shall annually review Employee's salary to determine if an increase is appropriate. During the Employment Term, Employee shall also be (i) entitled to participate in such vacation pay, life insurance, pension benefits and other fringe benefit plans as may exist from time to time for the senior officers of the Company (subject to payment of such portion of the costs thereof as the Company requires from its senior officers); (ii) provided with one social club membership as chosen by Employee; (iii) provided with a term life insurance policy payable to Employee's designated beneficiary or beneficiaries in the face amount of $500,000 less any amount currently provided under the Company's group life insurance coverage; and (iv) entitled to be reimbursed for the reasonable expenses incurred by him in obtaining advice and services related to financial and retirement planning. Notwithstanding the foregoing, during the Employment Term, the Company shall purchase a disability insurance policy for Employee with minimum coverage equal to 60% of his base salary adjusted annually for inflation, payable for the periods set forth on Schedule 1 hereto, with a waiting period not to exceed 26 weeks, subject to reductions for Social Security disability and worker's compensation payments, if any, received by Employee. The disability policy shall define "disability" to be Employee's inability to perform all of his material duties on a full-time basis, and shall provide for partial disability coverage in the event the Employee is unable to perform those duties on a full-time basis and his income is reduced because of such disability. 1.5. Incentive Compensation. In addition to the compensation set forth above, during the Employment Term Employee shall be entitled to participate in such incentive compensation or bonus plans, if any, as may be adopted by the board of directors of the Company from time to time (without any obligation to the board of directors of the Company to do so). Notwithstanding the foregoing, Employee shall receive in respect of each of the two fiscal years during the Employment Term a minimum cash bonus equal to not less than 1% of the Company's income before taxes for such fiscal year. The bonus shall be paid to Employee as soon as possible after the audited financial statements for such fiscal year are available, but in no event later than 90 days after the end of the fiscal year. 1.6. Stock Options. In consideration for Employee's continued employment under this Agreement, the Company on June 1, 1999 will grant to Employee, if he elects to begin the Consulting Term and if the Company at such date continues to be a publicly held company whose shares of Common Stock are registered under the Securities Exchange Act of 1934 (the "1934 Act"), a non-qualified option to purchase 75,000 shares (subject to adjustment for future stock dividends or splits) of Common Stock of the Company, with the option vesting at a rate of 33.33% on each of June 1, 2000, June 1, 2001 and June 1, 2002. The grant will be made pursuant to the 1990 Stock Option Plan of the Company, or any successor plan qualified under the rules and regulations pursuant to Section 16 of the 1934 Act, and adopted by the Company's shareholders as required by Rule 16b-3 of the 1934 Act, and a stock option agreement for non-qualified options in the form used generally by the Company. The exercise price of the option will be equal to the fair market value of the Company's common stock on the date of grant, and the term of the stock option is five years. 1.7. Consulting Term. For all services rendered by Employee as a consultant to the Company during the Consulting Term, the Company shall pay Employee compensation at the annual rate of 50% of his annual salary at the end of the Employment Term for each full year of the Consulting Term, provided however that for any week during the Consulting Term in which Employee works more than twenty (20) hours, the Company shall pay Employee additional compensation of 125% of the Employee's then daily rate for each eight (8) hours, or portion thereof, beyond such twenty (20) hours that the Employee worked that week. For the purposes of the foregoing, hours worked shall include time spent traveling on behalf of the Company. The Company shall also pay Employee an incentive bonus in respect of each of the five fiscal years during the Consulting Term equal to not less than 1/2% of the Company's income before taxes for such fiscal year. The bonus shall be paid to Employee as soon as possible after the audited financial statements for such fiscal year are available, but in no event later than 90 days after the end of the fiscal year, plus such additional amounts, if any, as may be approved by the Company's board of directors, payable in installments at such time as the Company customarily pays its senior offices. During the Consulting Term, Employee shall also be entitled to suitable office space at the Company, including access to telephones, computers and copiers, and appropriate executive support. During the Consulting Term, Employee shall also be entitled to life, disability and health insurance benefits provided generally to senior officers of the Company, and any other privileges and perquisites granted to the Company's President, Chief Operating Officer or Chief Executive Officer, during such periods of time (subject to payment of such portion of the costs thereof as the Company requires from its senior officers). During the Consulting Term, Employee shall be solely responsible for the payment of all federal, state and local taxes or contributions imposed or required under unemployment insurance, social security and income tax laws that pertain to the compensation paid to Employee for his performance of consulting services. 2. Expenses. Employee shall be reimbursed for the reasonable business expenses incurred by him in connection with his performance of services hereunder during the Agreement Term upon presentation of an itemized account in accordance with Company policies. 3. Developments. All developments (including inventions, whether patentable or otherwise, trade secrets, discoveries, improvements, ideas and writings) which either directly or indirectly relate to or may be useful in the business of the Company or any of its affiliates (the "Developments") which Employee, either by himself or in conjunction with any other person or persons, has conceived, made, developed, acquired or acquired knowledge of while an employee of the Company or which Employee, either by himself or in conjunction with any other person or persons, shall conceive, make, develop, acquire or acquire knowledge of during the Agreement Term, shall become and remain the sole and exclusive property of the Company. Employee hereby assigns, transfers and conveys, and agrees to so assign, transfer and convey, all of his right, title and interest in and to any and all such Developments and to disclose fully as soon as practicable, in writing, all such Developments to the board of directors of the Company. At any time and from time to time, upon the request and at the expense of the Company, Employee will execute and deliver any and all instruments, documents and papers, give evidence and do any and all other acts which, in the opinion of counsel for the Company, are or may be necessary or desirable to document such transfer or to enable the Company to file and prosecute applications for and to acquire, maintain and enforce any and all patents, trademark registrations or copyrights under United States or foreign law with respect to any such Developments or to obtain any extension, validation, re-issue, continuance or renewal of any such patent, trademark or copyright. The Company will be responsible for the preparation of any such instruments, documents and papers and for the prosecution of any such proceedings and will reimburse Employee for all reasonable expenses incurred by him in compliance with the provisions of this Section. 4. Confidential Information. Employee recognizes and acknowledges that by reason of his employment by the Company, he has had, and, by reason of his continued employment by and consulting to the Company, he will continue to have, access to confidential information of the Company and its affiliates, including, without limitation, information and knowledge pertaining to products, inventions, innovations, designs, ideas, plans, trade secrets, proprietary information, manufacturing, packaging, advertising, distribution and sales methods and systems, sales and profit figures, customer and client lists, and relationships between the Company and its affiliates and dealers, distributors, wholesalers, customers, clients, suppliers and others who have had or will have business dealings with the Company and its affiliates ("Confidential Information"). Employee acknowledges that such Confidential Information is a valuable and unique asset and covenants that he will not, either during or after the Agreement Term, disclose any such Confidential Information to any person for any reason whatsoever (except as his duties during the Agreement Term may require) without the prior written authorization of the Company's board of directors, unless such information is in the public domain through no fault of Employee or except as may be required by law. 5. Non-Competition. 5.1 Limitation. During such time as Employee is employed by the Company as an employee or consultant and until the later of (x) June 1, 2001 or (y) one year after termination of Employee's employment or consulting relationship with the Company (whether such termination is during or after the Agreement Term), Employee will not, unless acting pursuant hereto or with the prior written consent of the board of directors of the Company, directly or indirectly, own, manage, operate, join, control, finance or participate in the ownership, management, operation, control or financing of, or be connected as a director, officer, employee, partner, principal, agent, representative, consultant or otherwise with or use or permit his name to be used in connection with, any business or enterprise engaged in the development, production, sale, rental or repair of (i) superconductive wire and materials, (ii) permanent and superconductive magnet systems, or RF coils, used in MRI diagnostic imaging systems, (iii) NMR spectroscopy systems, (iv) devices for separation of materials by magnetic means, (v) cryogenic equipment and refrigeration systems, (vi) permanent magnet applications as part of the U.S. strategic defense initiative program, or (vii) CFC replacement products. It is recognized by Employee that the business of the Company and the other subsidiaries or divisions of the Company which provide similar products or services and Employee's connection therewith is or will be international in scope, and that geographical limitations on this non-competition covenant (and the non-solicitation covenant set forth in Section 6 hereof) are therefore not appropriate. 5.2 Exception. The foregoing restriction shall not be construed to prohibit the ownership by Employee of not more than five percent (5%) of any class of securities of any corporation which is engaged in any of the foregoing businesses having a class of securities registered pursuant to the Securities Exchange Act of 1934 (the "Exchange Act"), provided that such ownership represents a passive investment and that neither Employee nor any group of persons including Employee in any way, either directly or indirectly, manages or exercises control of any such corporation, guarantees any of its financial obligations, otherwise takes any part in its business (other than exercising his rights as a shareholder), or seeks to do any of the foregoing. 6. No Solicitation. Employee agrees that until the later of (x) June 1, 2001 or (y) one year after termination of Employee's employment or consulting relationship with the Company (whether such termination is during or after the Agreement Term) he will not call on or solicit, either directly or indirectly, any person, firm, corporation or other entity who or which at the time of such termination was, or within two years prior to the termination of Employee's employment or consulting relationship with the Company had been, a customer of the Company or any of its affiliates with respect to the activities prohibited by Section 5 hereof. 7. Equitable Relief. 7.1 Right to Equitable Relief. Employee acknowledges that the restrictions contained in Sections 4, 5 and 6 hereof are reasonable and necessary to protect the legitimate interests of the Company and its affiliates, that the Company would not have entered into this Agreement in the absence of such restrictions, and that any violation of any provision of those Sections will result in irreparable injury to the Company for which there would be no adequate remedy at law. Employee also acknowledges that the Company shall be entitled to preliminary and permanent injunctive relief, without the necessity of proving actual damages, as well as an equitable accounting of all earnings, profits and other benefits arising from any such violation, which rights shall be cumulative and in addition to any other rights or remedies to which the Company may be entitled. Employee agrees that in the event of any such violation, an action may be commenced by the Company for any such preliminary and permanent injunctive relief and other equitable relief in any court of competent jurisdiction within the State of New York or in a court of competent jurisdiction in any other state. Employee hereby waives any objections on the grounds of improper jurisdiction or venue to the commencement of an action in the State of New York and agrees that effective service of process may be made upon him by mail under the notice provisions contained in Section 16 hereof. In the event that any of the provisions of Sections 4, 5 or 6 hereof should ever be adjudicated to exceed the time, geographic, product or other 'imitations permitted by applicable law in any jurisdiction, then such provisions shall be deemed reformed in such jurisdiction to the maximum time, geographic, product or other 'imitations permitted by applicable law. (b) Dissemination of Restrictions. Employee agrees that until the expiration of the covenants contained in Sections 3, 4, 5 and 6 of this Agreement, he will provide, and that the Company may similarly provide, a copy of the covenants contained in such Sections to any business or enterprise (i) which he may directly or indirectly own, manage, operate, finance, join, control or participate in the ownership, management, operation, financing or control of, or (ii) with which he may be connected with as a director, officer, employee, partner, principal, agent, representative, consultant or otherwise, or in connection with which he may use or permit his name to be used. 8. Termination. This Agreement shall terminate prior to the expiration of the Agreement Term upon the occurrence of any one of the following events: 8.1. Disability. In the event that Employee is unable fully to perform his duties and responsibilities hereunder to the full extent required by the board of directors of the Company by reason of illness, injury or incapacity for 26 consecutive weeks, during which time he shall continue to be compensated as provided in Section 1.4 or 1.7 hereof, as applicable (less any payments due Employee under disability benefit programs, including Social Security disability, worker's compensation and disability retirement benefits), this Agreement may be terminated by the Company, and the Company shall have no further liability or obligation to Employee for compensation hereunder; provided, however, that Employee will be entitled to receive, in addition to amounts due him in such circumstances under any pension or benefit plans of the Company (including, without limitation, the Company's Retirement Plan, Supplemental Retirement Plan, Supplemental Income Plan and Savings Plan), (i) during the Employment Term, the payments prescribed under any disability benefit plan which may be in effect for employees of the Company and in which he participated (subject, however, to the minimum disability benefit provisions set forth in Section 1.4 hereof), and a pro rata portion of the incentive compensation, if any, referred to in Section 1.5 hereof in respect of the period prior to the date on which Employee first became disabled, and (ii) during the Consulting Term, an equivalent level of benefits as provided by Section 1.7 hereof. Employee agrees, in the event of any dispute under this Section 8.1, to submit to a physical examination by a licensed physician selected by the board of directors of the Company. 8.2. Death. In the event that Employee dies during the Agreement Term, the Company shall pay to his executors, legal representatives or administrators an amount equal to the installment of his salary or compensation referred to in Section 1.4 or 1.7 hereof, as applicable, for the month in which he dies plus a further amount equal to three months' salary or compensation referred to in Section 1.4 or 1.7 hereof, as applicable, and thereafter the Company shall have no further liability or obligation hereunder to his executors, legal representatives, administrators, heirs or assigns or any other person claiming under or through him; provided, however, that Employee's estate or designated beneficiaries shall be entitled to receive, in addition to amounts due him in such circumstances under any pension or benefit plans of the Company (including, without limitation, the Company's Retirement Plan, Supplemental Retirement Plan, Supplemental Income Plan and Savings Plan), (i) during the Employment Term, the payments prescribed for such recipients under any death benefit plan which may be in effect for employees of the Company and in which Employee participated (subject, however, to the minimum life insurance provisions set forth in Section 1.4 hereof), and a pro rata portion of the incentive compensation, if any, referred to in Section 1.5 hereof in respect of the year during which Employee died, and (ii) during the Consulting Term, an equivalent level of benefits as provided by Section 1.7 hereof. 8.3. Voluntary Termination. In the event that subsequent to June 1, 2000 Employee voluntarily terminates the Consulting Term at any time upon 30 days prior written notice to the Company. 8.4. Cause. Nothing in this Agreement shall be construed to prevent its termination by the Company at any time for "cause." For purposes of this Agreement, "cause" shall mean the willful and intentional failure of Employee to perform or observe any of the material terms or provisions of this Agreement, dishonesty, conviction of a crime involving moral turpitude, habitual insobriety, substance abuse or misappropriation of funds. The Company's liability, if any, for payments to Employee by virtue of any wrongful termination of Employee's employment or consulting relationship pursuant to this Agreement shall be reduced by and to the extent of any earnings received by or accrued for the benefit of Employee during any unexpired part of the Agreement Term. 9. Extraordinary Termination. In the event of an Extraordinary Termination during the Agreement Term, as defined in Section 9.1(b), the following provisions shall apply. 9.1. Definitions. The following terms shall have the meanings indicated for purposes of this Section 9: (a) "Control Transaction" means a change in control of the Company of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Exchange Act, as in effect on the date of this Agreement, in a Form 8-K filed under the Exchange Act or in any other filing by the Company with the Securities and Exchange Commission; provided that, without limitation, such a Control Transaction shall be deemed to have occurred if: (1) any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes a "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 30% or more of the voting power of the then outstanding securities of the Company; (2) during any period of two consecutive calendar years there is a change of 25% or more in the composition of the board of directors of the Company in office at the beginning of the period except for changes approved by at least two-thirds of the directors then in office who were directors at the beginning of the period. (b) "Extraordinary Termination" means (i) termination by the Company of the employment of Employee with the Company, or termination of the retention of Employee as a consultant, or in either case for any reason other than as set forth in Section 8 hereof, within three years after a Control Transaction, or (ii) resignation of Employee upon the occurrence of any of the following events within three years after a Control Transaction: (A) an assignment to Employee of any duties inconsistent with, or a significant change in the nature or scope of Employee's authority or duties from, those held by Employee immediately prior to the Control Transaction; (B) a reduction in Employee's annual salary, consulting payment or incentive compensation opportunities, as in effect immediately prior to the Control Transaction or as the same may be increased thereafter; (C) a relocation of the site of employment of Employee (or the site to which Employee regularly reports to work as a consultant) more than 15 miles from his site of employment or work at the time of the Control Transaction, or, if Employee consents to his relocation, the failure of the Company to pay (or promptly fully reimburse him for) all reasonable moving expenses incurred by him relating to a change of his principal residence in connection with such relocation and to indemnify him against any loss realized in the sale of his principal residence in connection with any change of residence; (D) during the Employment Term, the failure by the Company to provide Employee with a reasonable number of paid vacation days at least equal to the number of paid vacation days to which he was entitled in the last full calendar year prior to the Control Transaction; (E) the failure of the Company to provide Employee with substantially the same fringe benefits that were provided to him immediately prior to the Control Transaction, or with a package of fringe benefits that, though one or more of such benefits may vary from those in effect immediately prior to the Control Transaction, is substantially at least as beneficial to Employee in all material respects to such fringe benefits taken as a whole; or (F) the failure of the Company to obtain the express written assumption of and agreement to perform this Agreement by any successor as and to the extent required by Section 12 of this Agreement. 9.2. Termination Payments. (a) In the event of an Extraordinary Termination during the Agreement Term, the Company shall, in addition to any amounts due for periods prior to the Extraordinary Termination, pay to Employee in cash within ten days after the Extraordinary Termination an amount equal to the sum of: (i) three times the greater of (A) Employee's annual salary or annual consulting compensation at the time of the Control Transaction, or (B) Employee's annual salary or annual consulting compensation immediately prior to the Extraordinary Termination; plus (ii) if the Extraordinary Termination occurs during the Employment Term, three times the greater of (A) the most recent annual bonus paid to Employee prior to the Extraordinary Termination or (B) the estimated amount of his bonus for the year that includes the date of the Extraordinary Termination; plus (iii) at the option of Employee and in lieu of his exercising any stock options that he might hold at the time, an amount equal to the excess of the aggregate market price at the close of business on the date of the Extraordinary Termination of the Company's shares subject to all stock options outstanding and unexercised, whether vested or unvested, over the aggregate exercise price of all such stock options; plus (iv) if the Extraordinary Termination occurs during the Employment Term, payment in lieu of all unused vacation or sick time. (b) Employee may elect to defer the payment of all or part of the amount to be paid to him under subsection (a) for up to twelve months after the Extraordinary Termination, or to have all or part of such amount paid to him in installments over a period not to exceed twelve months after the Extraordinary Termination. (c) In addition to payment of the amounts specified in subsection (a), for a period of twelve months following an Extraordinary Termination during the Employment Term or the Consulting Term, the Company will continue or cause to be continued, at no cost to Employee, medical care and life insurance benefits substantially comparable to those furnished to Employee by the Company immediately prior to the Extraordinary Termination. (d) It is the intention of the parties that the payments under this Section 9 shall not constitute "excess parachute payments" within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended, and any regulations promulgated by the Internal Revenue Service thereunder. In the event that the independent accountants acting as auditors for the Company on the date of a Control Transaction (or another accounting firm designated by them) determine that the payments under this Section constitute "excess parachute payments," the amounts payable under this Section shall be reduced to the maximum amount which may be paid without constituting the payments "excess parachute payments." Such determination shall take into account (i) whether the payments under this Agreement are "parachute payments" within the meaning of Section 280G and, if so, (ii) the amount of payments under this Section that constitutes reasonable compensation within the meaning of Section 280G. The fees and expenses of the accountants performing this calculation shall be paid in full by the Company. Nothing contained in this Agreement shall prevent the Company after a Control Transaction from agreeing to pay Employee compensation or benefits in excess of those provided in this Agreement. 9.3. Interest and Expenses. If the Company shall fail or refuse to pay any amount due under this Section 9 within the time required, the Company shall pay to Employee, in addition to the payment of any other sums required under this Section. (1) interest, compounded daily, on any amount remaining unpaid from the date payment is required under this Section until payment to Employee, at the rate from time to time announced by Corestates Bank as its prime rate plus 1.5%, each change in the rate of interest hereunder to take effect on the effective date of the change in such prime rate; and (2) on demand, the amount necessary to reimburse Employee for all expenses (including reasonable attorneys' fees and disbursements) incurred by Employee in enforcing any of the obligations of the Company under this Section. 9.4. Payment Obligations Absolute. The obligation of the Company to pay Employee the compensation and to make the arrangements provided herein shall be absolute and unconditional and shall not be affected by any circumstances, including, without limitation, any setoff, counterclaim, recoupment, defense or other right that the Company may have against him or anyone else. All amounts payable by the Company hereunder shall be paid without notice or demand. The Company waives all rights which it may now have or may hereafter have conferred upon it, by statute or otherwise, to terminate, cancel or rescind this Section, or any other section of this Agreement, in whole or in part. Each and every payment made hereunder by the Company shall be final and the Company will not seek to recover all or any part of such payment from Employee or from whomsoever may be entitled thereto, for any reason whatsoever, except as provided in Section 9.2(d) hereof. Employee shall not be required to mitigate the amount of any payment provided for in this Section by seeking other employment or otherwise. 10. Withholding of Taxes. The Company may withhold from any payments under this Agreement all federal, state or local taxes as shall be required pursuant to any law, regulation or ruling. 11. Non-Alienation. Employee shall not have any right to pledge, hypothecate, anticipate or in any way create a lien upon any amounts provided under this Agreement, and no benefit payable hereunder shall be assignable in anticipation of payment either by voluntary or involuntary acts, or by operation of law. 12. Successor Company. The Company shall require any successor or successors (whether direct or indirect, by purchase, merger, consolidation or otherwise, and whether in one transaction or a series of transactions) to all or substantially all of the business and/or assets of the Company, by agreement in form and substance satisfactory to Employee, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such agreement prior to the effectiveness of any such succession shall be a breach of this Agreement. As used in this Agreement, the "Company'" shall mean the Company as hereinbefore defined and any such successors to its business and/or assets. 13. Survival. Notwithstanding the termination of this Agreement by reason of Employee's disability under Section 8.1, for cause under Section 8.3 or upon an Extraordinary Termination of Employment under Section 9, his obligations under Sections 3, 4, 5 and 6 hereof shall survive and remain in full force and effect indefinitely, or for such shorter period therein provided, and the provisions for equitable relief against Employee in Section 7 hereof shall likewise continue in force. 14. Governing Law. This Agreement shall be governed by and interpreted under the laws of the State of New York without giving effect to any conflict of laws provisions. 15. Litigation Expenses. In the event of a lawsuit by either party to enforce the provisions of this Agreement, the prevailing party shall be entitled to recover reasonable costs, expenses and attorneys' fees from the other party. 16. Notices. All notices and other communications required or permitted hereunder or necessary or convenient in connection herewith shall be in writing and shall be deemed to have been given when hand delivered or mailed by registered or certified mail, as follows (provided that notice of change of address shall be deemed given only when received): If to the Company, to: Intermagnetics General Corporation 450 Old Niskayuna Road P.O. Box 461 Latham, N.Y. 12110 Attention: Board of Directors If to Employee, to: Carl H. Rosner 1180 Ruffner Road Schenectacy, NY 1230. or to such other names or addresses as the Company or Employee, as the case may be, shall designate by notice to each other person entitled to receive notices in the manner specified in this Section. 17. Contents of Agreement; Amendment and Assignment. (a) This Agreement supersedes all prior agreement (including the 1992 Agreement, the 1994 Agreement and the 1996 Understanding) and sets forth the entire understanding among the parties hereto with respect to the subject matter hereof and cannot be changed, modified, extended or terminated except upon written amendment approved by the board of directors of the Company and executed on its behalf by a duly authorized officer; provided, however, that (i) the provisions of Sections 3, 4 and 7 shall be in addition to, and not in limitation of, any other invention assignment, confidentiality or similar agreement between the Company and Employee, and (ii) the representations of Employee set forth in Section 1.2(b) of the Employment Agreement dated January 12, 1988 between the Company and Employee, Section 1.2(c) of the Employment Agreement dated February 14, 1990 between the Company and the Employee and Section 1.2(c) of the 1992 Agreement shall continue in full force and effect. Without limitation, nothing in this Agreement shall be construed as giving Employee any right to be retained in the employ of the Company or as a consultant to the Company except as specifically provided herein during the Agreement Term. (b) Employee acknowledges that from time to time, the Company may establish, maintain and distribute employee manuals or handbooks or personnel policy manuals, and officers or other representatives of the Company may make written or oral statements relating to personnel policies and procedures. Such manuals, handbooks and statements are intended only for general guidance. No policies, procedures or statements of any nature by or on behalf of the Company (whether written or oral, and whether or not contained in any employee manual or handbook or personnel policy manual), and no acts or practices of any nature, shall be construed to modify this Agreement or to create express or implied obligations of any nature to Employee. (c) All of the terms and provisions of this Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective heirs, executors, administrators, legal representatives, successors and assigns of the parties hereto, except that the duties and responsibilities of Employee hereunder are of a personal nature and shall not be assignable or delegable in whole or in part by Employee. 18. Severabilitv. If any provision of this Agreement or application thereof to anyone or under any circumstances is adjudicated to be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect any other provision or application of this Agreement which can be given effect without the invalid or unenforceable provision or application and shall not invalidate or render unenforceable such provision or application in any other jurisdiction. 19. Remedies Cumulative; No Waiver. No remedy conferred upon the Company by this Agreement is intended to be exclusive of any other remedy, and each and every such remedy shall be cumulative and shall be in addition to any other remedy given hereunder or now or hereafter existing at law or in equity. No delay or omission by the Company in exercising any right, remedy or power hereunder or existing at law or in equity shall be construed as a waiver thereof, and any such right, remedy or power may be exercised by the Company from time to time and as often as may be deemed expedient or necessary by the Company in its sole discretion IN WITNESS WHEREOF, the ,undersigned have executed this Employment and Consulting Agreement as of the date first above written. ATTEST INTERMAGNETICS GENERAL CORPORATION - -------------------- -------------------- Catherine E. Arduini Thomas L. Kempner Corporate Secretary Chairman, Compensation Committee of the Board of Directors Witness CARL H. ROSNER - -------------------- -------------------- Catherine E. Arduini EX-10.2 7 EXHIBIT 10.2 EXHIBIT A AMENDMENT TO OFFER OF EMPLOYMENT LETTER This document is an Amendment to "Letter of Employment Agreement" made by and between Intermagnetics General Corporation, a corporation having a principal place of business at 450 Old Niskayuna Road, Latham, New York 12110-0461 ("Company") and Glenn H. Epstein, an individual having a residence address of 11129 Oak Hollow Road, Knoxville, Tennessee 37932 ("Epstein"). RECITALS Company and Epstein have entered an Offer of "Employment Letter" (as executed by both parties) agreement dated March 20, 1997 (the "Letter"). Company and Epstein desire that the terms of the Letter, as clarified by this Amendment, shall serve as a mutually binding employment agreement under which Epstein shall be employed by the Company and agrees to devote his full time, attention and energy thereto, as its President and Chief Operating Officer, reporting to the Chief Executive Officer of the Company. In consideration of the premises, the mutual covenants and agreements contained in the Letter and this Amendment, as well as other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged by both parties, Epstein and the Company agree as follows: 1. Incorporation of Amendment. The terms and conditions of the Letter (a copy to which this Amendment is annexed as Exhibit A) as explained and clarified by this Amendment are incorporated into the Letter as fully set forth in this document. 2. Term of Employment. Epstein's employment by the Company pursuant to this Amendment (the "Term") shall commence on Epstein's first day of employment by the Company and shall continue for two (2) consecutive years, including a possible one year "termination"). Epstein's annual base compensation throughout the Term (the "Base Salary") shall be at a minimum of $180,000.00. As used in this Amendment, the phrase "year" shall refer to a three hundred and sixty-five (365) day period. 3. Termination. A. In the event that the Company terminates Epstein's employment or this Letter/Amendment involuntarily any time prior to the end or during the first year of the Term, other than "for cause", Company will pay Epstein (1) in a lump sum, a severance equal to the difference between two times the amount of his then current Base Salary less the amount of then current Base Salary paid to Epstein on the effective date of such termination; plus if applicable, (ii) the "performance bonus" described in paragraph 2, page 1 of the Letter. The salary used to calculate the said performance bonus shall be Epstein's then current total annual Base Salary rate. B. In the event that the Company terminates Epstein's employment involuntarily any time during or after the second year of the Term, other than "for cause", the Company will pay Epstein in a lump sum, a severance payment equal to one full year of his then current Base Salary. The provisions of this paragraph 3-B shall survive the expiration or other termination of this Amendment and continue throughout Epstein's employment by the Company. C. The Company shall withhold from any such one year severance payment required by paragraphs 3-A or B all income, payroll and employment taxes required by applicable law or regulation to be withheld. The Company shall pay Epstein any severance payment due under the terms of paragraphs 3-A or 3-B within thirty (30) days after the effective date of any such involuntary termination; as well as any performance bonus earned within thirty (30) days after the final audited results of fiscal year 1998 are accepted by the Board of Directors. D. As used in this Amendment, the phrase "for cause" shall mean and shall be limited to involuntary termination in case of; Epstein's conviction or plea of guilty or no contest to any crime involving moral turpitude; Epstein's misrepresentation of a material fact, dishonesty or misappropriation of funds, or concealment of a material fact from the Company's Chief Executive Officer; or Epstein's willful violation of any material rule, regulation or policy that may be established from time to time for the conduct of the Company's business of which Epstein is aware of or has notice. E. The payments due under this paragraph 3 do not prevent Epstein from competing with the Company after the effective date of any involuntary termination of his employment, provided he maintains his obligations and observes the terms of the confidentiality agreement signed by him upon entering employment with the Company. 4. Signing Bonus. With respect to the "earned bonus"/"signing bonus" referred to in paragraph 3, page 1 of the Letter, the Company will pay Epstein a $32,500.00 signing bonus within thirty-sixth (30-60) days of the date that Epstein provides the Company with a copy of Oxford Instrument, Inc.'s ("Oxford") written bonus scheme, and provides a signed affidavit that Epstein has forfeited all bonus entitlements from Oxford for the 1996/97 fiscal year. 5. Moving Expenses. A. The "house" referred to in paragraph 6, page 1 of the Letter includes two separately deeded properties: one for Epstein's home and surrounding lot and one for an adjoining lot. The appraisals described in paragraph 6, page 1 of the Letter shall be prepared by three Tennessee State-certified appraisers, and the cost of those three appraisals, shall be shared equally by Epstein and the Company. If Epstein is unable to sell the "home" within ninety (90) days of the date of start of employment, the Company or its designee will purchase the home from Epstein and his wife at a purchase price equal to the greater of (1) the average of the three appraisals referenced above or (ii) Epstein and his wife's documented cost basis as defined per IRS guidelines. Detailed information on such additional costs will be provided by Epstein to the Company in the event that purchase of the "home" by the company is required. B. The "reasonable and actual moving expenses" referred to in paragraph 6, page 1 of the Letter shall include Epstein's house sale related realtor, legal and closing costs, and all such reasonable and actual moving expenses shall be reimbursed by the Company within thirty (30) days after Epstein's submission to the Company of reasonable evidence of payment thereof. C. The one month's salary to cover "sundry expenditures" referenced in paragraph 6, page 1 of the Letter shall be paid by the Company to Epstein within thirty to sixty (30-60) days of his start of employment by the Company. 6. References. After the execution of the Letter/Amendment, Epstein will supply the three additional personal and business references requested in paragraph 4, page 2 of the Letter. 7. Entire Amendment. This Amendment, including the Letter, constitutes the entire written understanding and employment agreement between the Company and Epstein with regard to all matters therein. This Amendment may be changed only in a writing signed by both parties. 8. Severability. If any provision of this Letter/Amendment shall be held, be deemed to be or shall in fact be invalid, inoperative or unenforceable by law, such circumstances shall not have the effect of rendering the provision(s) in question or any other provision(s) in this Letter/Amendment invalid, and this Letter/Amendment shall be reformed and construed as if the invalid, inoperative or unenforceable provision had never been contained herein and the provision reformed so that it would be valid, operative and enforceable to the maximum extent permitted. 9. Remedies Cumulative; No Waiver. No remedy conferred upon the Company by this Amendment is intended to be exclusive of any other remedy, and each and every such remedy shall be cumulative and shall be in addition to any other remedy given hereunder or now or hereafter existing at law or in equity. No delay or omission by the Company in exercising any right, remedy or power hereunder or existing at law or in equity shall be construed as a waiver thereof, and any such right, remedy or power may be exercised by the Company from time to time and as often as may be deemed expedient or necessary by the Company in its sole discretion. Intermagnetics General Corporation Dated April 1st, 1997 By: /s/ Carl H. Rosner --------------- --------------------- Carl H. Rosner Chairman of the Board and Chief Executive Officer Glenn H. Epstein Dated 1 April, 1997 /s/ Glenn Epstein ------------- ----------------- EX-21 8 EXHIBIT 21 Exhibit 21 Subsidiaries of Intermagnetics General Corporation - -------------------------------------------------- APD Cryogenics Inc. Intermagnetics General (Europe) Ltd. Magstream Corporation (inactive) Intermagnetics General Corporation Foreign Sales Corporation InterCool Energy Corporation IGC Medical Advances Inc. IGC Polycold Systems Inc. EX-23 9 EXHIBIT 23 Exhibit 23 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the registration statements on Form S-8 (Nos. 2-80041, 2-94701, 33-2517, 33-12762, 33-12763, 33-38145, 33-50598, 33-44693, 33-55092, 33-72160, 333-10553 and 333-42163) of Intermagnetics General Corporation of our report dated July 14, 1998, relating to the consolidated balance sheets of Intermagnetics General Corporation and subsidiaries as of May 31, 1998 and May 25, 1997, and the related consolidated statements of income, shareholders' equity and cash flows for each of the years in the three-year period ended May 31, 1998, and the related schedule, which report appears in the May 31, 1998 annual report on Form 10-K of Intermagnetics General Corporation. /s/ KPMG Peat Marwick LLP Albany, New York August 27, 1998 EX-27.1 10 ART.5 FDS FOR FY1998 10-K
5 1,000 YEAR MAY-31-1998 MAY-31-1998 2,993 0 15,152 350 32,849 60,310 60,384 32,445 127,776 14,817 28,833 0 6,999 1,334 75,468 127,776 95,894 98,258 60,209 60,209 31,180 0 2,125 4,744 1,991 2,753 0 0 0 2,753 .22 .21
EX-27.2 11 ART.5 FDS FOR FY1997 10-K
5 1,000 YEAR MAY-25-1997 MAY-25-1997 12,667 0 17,201 302 26,417 62,798 57,168 28,616 115,889 13,452 29,105 0 0 1,264 71,823 115,889 87,052 90,013 60,852 60,852 23,130 0 1,996 4,035 1,420 2,615 0 0 0 2,615 .21 .20
EX-27.3 12 ART.5 FDS FRO FY1996 10-K
5 1,000 YEAR MAY-26-1996 MAY-26-1996 18,696 0 20,756 169 24,857 67,815 52,024 25,648 111,608 14,173 29,364 0 0 1,208 66,088 111,608 88,467 94,019 66,188 66,188 18,325 0 2,624 6,882 2,455 4,427 0 0 0 4,427 .37 .35
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