-----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, PIaVtPLO6NAIwAeviFt1lbZWTcd2bh874WdNCXnBbxQVrgRMseQ9ZUfGrQuXZY/G XgbYvFRGmh6xEToQKTbf0A== 0000892569-96-000320.txt : 19960401 0000892569-96-000320.hdr.sgml : 19960401 ACCESSION NUMBER: 0000892569-96-000320 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 17 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960329 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: BWIP INC CENTRAL INDEX KEY: 0000817637 STANDARD INDUSTRIAL CLASSIFICATION: GENERAL INDUSTRIAL MACHINERY & EQUIPMENT [3560] IRS NUMBER: 330270574 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-19162 FILM NUMBER: 96541762 BUSINESS ADDRESS: STREET 1: 200 OCEANGATE BLVD STE 900 CITY: LONG BEACH STATE: CA ZIP: 90802 BUSINESS PHONE: 3104353700 MAIL ADDRESS: STREET 1: 200 OCEANGATE BLVD STREET 2: STE 900 CITY: LONG BEACH STATE: CA ZIP: 90802 FORMER COMPANY: FORMER CONFORMED NAME: BWIP HOLDING INC DATE OF NAME CHANGE: 19920703 10-K 1 FORM 10-K FOR FISCAL YEAR ENDED DECEMBER 31, 1995 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1995 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 0-19162 BW/IP, INC. (Exact name of registrant as specified in its charter) DELAWARE 33-027054 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 200 OCEANGATE BOULEVARD SUITE 900 LONG BEACH, CALIFORNIA 90802 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (310) 435-3700 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01 par value Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the Common Stock held by non-affiliates of the registrant (based on the last reported sale price per share of the Common Stock as quoted through the National Association of Securities Dealers Automated Quotation National Market System on March 8, 1996) was approximately $372 million. The number of shares outstanding of the registrant's Common Stock as of March 8, 1996: 24,275,000 shares DOCUMENTS INCORPORATED BY REFERENCE Certain portions of the registrant's definitive proxy statement (to be filed with the Securities and Exchange Commission on or before April 29, 1996) pursuant to Regulation 14A of the Securities and Exchange Act of 1934 in connection with the annual meeting of stockholders of the registrant to be held on or about May 14, 1996, are incorporated by reference into Part III of this Form 10-K. Certain portions of the registrant's Annual Report to Stockholders for the fiscal year ended December 31, 1995, are incorporated by reference into Parts I, II and IV of this Form 10-K. 2 PART I ITEM 1. BUSINESS BW/IP, Inc. ("BW/IP") was incorporated in Delaware on March 12, 1987 by Clayton, Dubilier & Rice, Inc. ("Clayton, Dubilier & Rice"), a private investment firm, to acquire BW/IP International, Inc. ("International"), International's foreign marketing affiliates and certain related assets in The Netherlands and other overseas locations (the "Acquisition") from Borg- Warner Corporation ("Borg-Warner"). All of BW/IP's operations are conducted through International and International's subsidiaries (BW/IP, International and its consolidated subsidiaries are together referred to as the "Company"). Prior to the Acquisition, Borg-Warner had operated certain of the International businesses for over 30 years. In the course of an initial public offering in May 1991 and a number of secondary offerings, all of the shares previously held by Clayton, Dubilier & Rice affiliates, as well as a substantial number of shares of Common Stock acquired by certain institutional investors in connection with the Acquisition from Borg-Warner, were sold to the public. The Company is a worldwide supplier of advanced technology fluid transfer and control equipment, systems and services. Its principal products are pumps and mechanical seals. The Company designs, manufactures, distributes and services both highly engineered and standard centrifugal pumps primarily for use in the power and petroleum industries and mechanical seals and seal support systems primarily for use in the petroleum and chemical industries throughout the world. The Company has manufacturing facilities in seven different countries and service centers in 20 countries. At December 31, 1995, the Company had 3,002 employees, of whom approximately 50% were located outside the United States. Since disposition of its Fluid Controls segment in October 1994, the Company has operated in one business segment: Pump/Seal. For certain financial information by geographic location see Note 10 to Consolidated Financial Statements on page 35 of the 1995 Annual Report to Stockholders which page is incorporated by reference in this Form 10-K. MARKETS SERVED Pump products and services accounted for approximately 66%, 71% and 77% of the Company's 1995, 1994 and 1993 net sales, respectively, and seal products and services accounted for approximately 34%, 29% and 23% of net sales, respectively, for such periods. Sales of the Company's pumps and seals are primarily made to the petroleum, power and (to a lesser extent) chemical markets. Approximately 74% of the Company's 1995 net sales were to the petroleum and power markets worldwide. The principal segments of the petroleum industry that the Company serves are refineries and pipelines. In addition to the U.S. market, which in 1995 accounted for approximately 52% of the Company's net sales to the petroleum industry, the Company serves the petroleum industry in Europe, Africa, Asia, South America, Canada, Mexico and the Middle East. Another principal market served is the power generation market worldwide. Sales to this market are to both nuclear and fossil fuel powered generating utilities. The majority of the Company's sales in the nuclear power market are in the United States and Japan, where the Company's large installed base of equipment provides a continuing market for products and 2 3 services to ensure safety and reliability, a major customer concern. A significant characteristic of the nuclear market worldwide is the stringent requirements that must be met in order to sell products to nuclear power plants. For example, the Company maintains a Nuclear Stamp ("N Stamp") from the American Society of Mechanical Engineers, which is required for qualification to supply certain kinds of products to the U.S. nuclear industry. The Company must comply with significant requirements (including triennial audits) in order to maintain its N Stamp. The Company's next audit will occur in 1996. Sales to the nuclear power industry comprised approximately 12% of the Company's 1995 sales. The Company's 1995 sales to the nuclear power industry related primarily to aftermarket products and services. The Company could face liability in excess of its own commercial or government provided insurance if any of its products were found to contribute to an accident at a nuclear power facility or at other industrial facilities. The Company does not maintain nuclear liability insurance for the United States or Canada, but maintains an aggregate of $15 million in nuclear liability insurance for all other countries. The Federal Price-Anderson Act of 1954 provides U.S. nuclear utilities with a system of no-fault insurance coverage up to $7 billion for third party losses or damages resulting from a nuclear incident. Canada's Nuclear Liability Act provides for a system of insurance coverage that generally makes the operator of a nuclear installation absolutely liable for third party claims arising as a result of a nuclear incident, up to a maximum liability of Can. $75 million. No assurance can be given that the Company's insurance coverages will be adequate in the event of a major nuclear incident. Most of the non-nuclear power sales are to utilities in the United States, Mexico, Canada, Europe and the Far East. The Company also serves agricultural, municipal water, chemical, pulp and paper, mineral and ore processing and other general industry markets. PRODUCTS AND SERVICES The Company designs, manufactures, distributes and services centrifugal pumps, valves, submersible electric motors and pumps, mechanical seals and seal support systems. While the Company produces standard products, its technical focus and expertise is in engineered products for severe service applications where a specialized product is required for extreme temperatures, high horsepower, high speed or high pressure. Compared to standard products, the Company's specialty products are usually capable of higher performance, are more differentiated from each other and have greater engineering content. Because the Company's specialized products have unique designs and high engineering content, the Company's customers tend to purchase more aftermarket services than customers of the Company's standard products. Pump Products. Pump products for the power generating industry include a variety of pumps used in both nuclear and fossil fuel utilities to generate steam. Products for the nuclear power generating industry include reactor coolant pumps, horizontal multi-stage pumps for steam generators, and vertical circulating pumps. A line of gate, globe and check valves is also produced for the nuclear power market. Products for the fossil fuel power generation industry are horizontal double case pumps for high pressure boiler feed, horizontal multi-stage pumps for low pressure boiler feed, vertical double case pumps and vertical circulating pumps. Pump products for the petroleum industry include horizontal double case pumps used especially for hot oils under high pressure, horizontal multi-stage pumps used in pipelines, 3 4 vertical pumps used for low temperature processes, vertical circulating pumps used for cooling water, submersible pumps used for water or brine injection in oil fields, and submersible water pumps used on offshore platforms to supply water for fire fighting. The Company also supplies pumps for other industrial uses, including industrial production, utility services and pollution control, the mining industry and pumps and related aftermarket parts and services to the U.S. military, primarily the U.S. Navy. In 1995 the Company broadened its product lines through the acquisition of the Wilson-Snyder centrifugal pump and coker switch-valve products. Seal Products. The mechanical seal is critical to the smooth operation of centrifugal pumps, compressors and mixers because mechanical seals control leakage between a rotating shaft and a stationary casing and in doing so, reduce shaft wear on pumps, compressors and mixers used in many industries. The need to reduce or eliminate the leakage of liquids and gases due to increasingly stringent environmental regulations and safety concerns has expanded the market for mechanical seals. The Company's seals are used on booster and boiler feed pumps, condensate extraction pumps, heater drain pumps and a wide variety of pumps used principally in the oil refining and chemical processing industries. The Company also manufactures a dry gas seal used in gas transmission and oil and gas production markets. Aftermarket Products. Aftermarket products and services for pumps and mechanical seals include supplying parts, making repairs, and providing a variety of technical services for maintenance life extension, retrofitting and upgrading of customer equipment. For example, the Company repairs pumps and seals to acceptable operating condition, provides field diagnostic analysis and in-place machinery repair and remanufactures pumps to restore them to their original or upgraded condition. WORLDWIDE FACILITIES AND DISTRIBUTION The Company is engaged in the design, manufacture, distribution and service of its products throughout the world. Pumps are produced in plant facilities in the United States (two in California, one in Oklahoma, two in New Mexico), The Netherlands, Mexico, Argentina and Belgium. Seals are produced in facilities in the United States, The Netherlands, Germany, Mexico, Argentina and Japan. In 1995, a new large-component facility in New Mexico was completed and, in conjunction with the Company's existing small-component facility, will provide a significant portion of pump components previously manufactured at the Company's three integrated U.S. pump plants. These three U.S. plants will be focused on the engineering, assembly and testing of pumps. The two specialized component manufacturing facilities will also be utilized to supply components to other Company plants outside of the U.S. on an economically selective basis. The construction of the large-component facility was an important element of the Company's restructuring program which is described in more detail in Management's Discussion and Analysis of Financial Condition and Results of Operations and in Note 3 to Consolidated Financial Statements starting respectively on page 14 and 25 of the 1995 Annual Report to Stockholders. In 1995, nearly 35% of the Company's products manufactured in the United States, measured by gross sales (which include intercompany sales), were shipped to international markets. Pump manufacturing facilities in The Netherlands and seal manufacturing facilities in 4 5 The Netherlands and Germany are the primary source of pumps and seals sold in Europe, Africa and the Middle East. The Argentine facility provides products primarily for Argentine customers, while the Japanese plant provides products for Japan and parts of Southeast Asia. The Company is a party to numerous license agreements and joint ventures for the manufacture and/or service of pump and seal products. The Company's Mexican operation, which has approximately 270 employees, manufactures pumps and mechanical seals. Its principal customers are Petroleos Mexicanos (the state-owned oil company) and Comision Federal de Electricidad (the national electric power company). The Company's worldwide pump and seal sales forces sell its pump and seal products directly to end-users and engineering and construction firms. The Company's worldwide pump sales organization sells to petroleum, power and general industry customers within regional territories. A portion of the Company's seal products are sold directly to original equipment ("OE") manufacturers, for either pumps, compressors, mixers or other rotating equipment requiring sealing. Distributors, dealers, commissioned representatives and sales agents are used to a lesser extent in the distribution and sale of the products except for Five Star Seal products, a business acquired by the Company in 1994, which are sold primarily through a distributor network. The Company has sales offices in most European countries and has independent representatives to support foreign sales efforts where the Company does not maintain a presence. Of the Company's 47 service facilities, 26 are located outside the United States in Argentina, Belgium, Canada, France, Germany, Indonesia, Italy, Japan, Malaysia, Mexico, The Netherlands, Saudi Arabia, Singapore, Spain, Switzerland, Thailand, United Arab Emirates, United Kingdom and Venezuela. An agent of the Company operates one service facility in Saudi Arabia. COMPETITION In general, the markets for the Company's pump and seal products are highly competitive. In the OE market, the Company competes against a variety of other companies, some of which are significantly larger, have greater financial resources, broader product lines or have larger overall market shares; this is particularly true in the mechanical seal market where the Company estimates that John Crane Inc. has a substantially larger market share than the Company or any other competitor. Competition, particularly for OE sales, has been increasing in a number of the Company's served markets. Competition occurs on the basis of price, technical expertise, delivery, previous installation history and reputation for quality. Delivery speed and the proximity of service centers are particularly important with respect to aftermarket products and services. The Company's customers are more likely to rely on the Company for aftermarket products and services relating to more highly engineered and customized products than for standard products. Price competition tends to be more significant for original equipment than aftermarket services and has been increasingly important with ongoing over capacity in the Company's pump and seal markets. Due to the high cost of inventory, customers for pump and seal products are attempting to reduce the number of vendors from which they purchase in order to reduce the size and diversity of inventory. Although vendor reduction programs could adversely affect the 5 6 Company's business, the Company has been successful in entering into "partnering" arrangements with a number of companies both in the United States and overseas. Under these arrangements, in exchange for certain services the customer commits to using the Company as a principal or sole source. The Company is seeking to enter into similar arrangements with additional customers. Until 1995 the Company was the only corporation among its global competitors which manufactured and distributed both pumps and mechanical seals. Within the last twelve months a domestic pump and competing domestic seal company have merged, and another domestic pump company has announced a global alliance with another competing seal company. The impact of these events is not yet known. In the aftermarket portion of its pump and seal business, the Company competes against both large and well-established national or global competitors and, in some markets, against smaller regional and local companies, as well as the in-house maintenance departments of the Company's end-user customers. In the petroleum industry the competitors for aftermarket services tend to be the customers themselves because of their sophisticated in-house capabilities, whereas in other industries, except the nuclear power industry, the competitors for aftermarket services tend to be low cost replicators of spare parts for the Company's products. In the sale of aftermarket products and services the Company enjoys the benefit of a large installed base of pumps and mechanical seals which require maintenance, repair and replacement parts. The Company has certain competitive advantages in the nuclear power industry because it has obtained and maintained the N Stamp that is required to service customers in that industry, and because the Company has a considerable base of proprietary knowledge. CUSTOMERS The Company sells to a wide variety of customers. No individual customer accounted for more than 3% of the Company's 1995 net sales and the Company's ten largest customers represented less than 16% of the Company's net sales in 1995. BACKLOG The Company's backlog of firm unfilled orders totaled approximately $148.2 million as of December 31, 1995, compared with approximately $159.4 million as of December 31, 1994. The year-end backlog at December 31, 1995, is comprised of 31% aftermarket parts and services compared with 35% for the prior year. The Company estimates approximately 83% of the December 31, 1995, backlog will be shipped by December 31, 1996. RISKS OF INTERNATIONAL BUSINESS The Company's activities are subject to the customary risks of operating in an international environment, such as unstable political situations, local laws, the potential imposition of trade restrictions or tariff increases and currency fluctuations. Historically, U.S. dollar currency fluctuations have not significantly affected export orders from either the United States or any foreign Company location. The risk of currency fluctuations is mitigated by the fact that most of the Company's foreign business transactions are conducted in the local 6 7 currency. To minimize the impact of foreign exchange rate movements on its operating results, the Company enters into forward exchange contracts to hedge specific foreign currency denominated transactions. Given the nature of its business, the Company's financial results are subject to fluctuations in foreign currency rates against the U.S. dollar within the countries where it operates. See Note 1 to Consolidated Financial Statements on page 23 of the 1995 Annual Report to Stockholders, which page is incorporated by reference in this Form 10-K. The Company conducts substantial business activities in the Middle East and is a leading supplier of pump and seal products to Saudi Arabia and Iran. The Middle East region is subject to additional risks such as changes in governmental policies, political risk, wars, transportation delays, tariffs, and import, export, exchange and tax controls. RESEARCH AND DEVELOPMENT The Company conducts research and development at its own facilities in various locations. In 1995, 1994, and 1993, the Company spent approximately $6.6 million, $5.3 million, and $4.2 million, respectively, on Company-sponsored research and development. Management believes current expenditures are adequate to sustain ongoing research and development activities. The Company's research and development group consists of engineers involved in new product development as well as development of existing products. Additionally, the Company sponsors consortium programs conducted by the University of Virginia; Concepts, Eti; Georgia Institute of Technology; the University of Twente and others. Limited development work is also done jointly with certain of the Company's vendors, licensees and customers. INTELLECTUAL PROPERTY Most of the intangible property that the Company uses in its business, including technology, licenses, patents, copyrights, trademarks and trade names, was acquired in connection with the Acquisition. The Company considers its trademarks Byron Jackson(R), United Centrifugal(R), Byron Jackson/United(TM), BW Seals(R), GASPAC(R), Pacific Wietz(TM), Five Star Seal(R) and Wilson-Snyder(R) to be important to its business. The patents underlying much of the technology for the Company's products have been in the public domain for many years. Surviving patents are not considered, either individually or in the aggregate, material to the Company's business. However, the Company's pool of proprietary information, consisting of know-how and trade secrets relating to the design, manufacture and operation of its products and their use, is considered particularly important and valuable. Accordingly the Company actively protects such proprietary information. RAW MATERIALS The principal raw materials used by the Company in the manufacture of its industrial products are normally readily available. While all raw materials are purchased from outside sources, the Company has been able to obtain an adequate supply of raw materials and no shortage of such materials is currently anticipated. The Company has elected to obtain certain materials from a single supplier for certain requirements, but alternate sources could be developed without creating a critical shortage for the Company. The Company intends to expand its use of worldwide sourcing to capitalize on low cost sources of purchased goods. 7 8 Suppliers of raw materials for nuclear markets must be qualified by the American Society of Mechanical Engineers and, accordingly, are limited in number. However, the Company to date has experienced no significant difficulty in obtaining such materials. EMPLOYEES AND LABOR RELATIONS The Company's worldwide work force at December 31, 1995, consisted of 3,002 employees, of whom 1,492 were located outside of the United States. The Long Beach headquarters has approximately 30 employees, all of whom perform managerial or administrative functions. The Company's hourly employees at its three principal U.S. pump manufacturing plants in Los Angeles, San Jose and Tulsa are unionized. The Company's U.S. operations have been conducted without a work stoppage since 1978. The Company's operations in Mexico, The Netherlands, Germany and Belgium are unionized. Unions represent approximately 24% of the Company's worldwide work force. The Company believes employee relations throughout its operations are satisfactory. ENVIRONMENTAL REGULATIONS AND PROCEEDINGS The Company is subject to pollution and hazardous waste disposal regulations in all jurisdictions in which it has operating facilities and periodically makes capital expenditures to meet environmental requirements. The Company believes that future expenditures will not have a material adverse effect on its financial position and has established allowances which it believes to be adequate to cover potential environmental liabilities. In connection with the Acquisition, Borg-Warner agreed to bring certain environmental matters into compliance with applicable regulations, including matters at the Temecula, California facility. In addition, under the Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, the Company was named a potentially responsible party ("PRP") at the Operating Industries, Inc. Superfund Site (Monterey Park, California) ("Operating Industries") and the Stringfellow Acid Pits Superfund Site (Glen Avon, California) ("Stringfellow") due to waste materials from the Company's plants having been disposed of at these sites. These sites have been administered by the U.S. Environmental Protection Agency. Borg-Warner is contractually obligated by the agreements relating to the Acquisition to indemnify the Company in the event it is held liable as a PRP at the Operating Industries and Stringfellow sites. Borg-Warner has undertaken the active defense or representation of the Company in the legal and administrative proceedings related to the Operating Industries and Stringfellow matters, and has paid amounts as they have become due in connection therewith. As a result of pre-existing contamination found at its property in San Jose, California, the Company is in the process of performing remediation work on the site. The Company has established an allowance for certain remediation and other anticipated costs and initiated legal action against the prior owner for indemnification of past and anticipated future expenses. EXPORT LICENSES Licenses are required from U.S. government agencies to export from the United States many of the Company's products. In particular, products with nuclear applications are 8 9 restricted, although limitations are placed on the export of certain other pump and seal products as well. ITEM 2. PROPERTIES The following tables set forth certain information relating to the Company's principal facilities. The Company operates other smaller domestic and foreign manufacturing facilities, service centers and sales offices which are omitted from these tables.
OWNED FACILITIES Location Square Footage Principal Operations -------- -------------- -------------------- Albuquerque, New Mexico 50,000 Manufacture of pump products Benicia, California 22,200 Service of pump products Boothwyn, Pennsylvania 17,500 Service of pump products Elgin, Illinois 24,578 Service of pump products Etten-Leur, Netherlands 175,100 Manufacture of pump products Florence, South Carolina 24,873 Service of seal products Houston, Texas 34,900 Service of pump products Leduc, Alberta, Canada 30,000 Service of pump products Los Angeles, California 273,220 Service and manufacture of pump products Roosendaal, Netherlands 48,400 Manufacture of seal products Santa Clara, Mexico 154,262 Manufacture of pump and seal products Santa Fe, New Mexico 30,025 Manufacture of pump products San Jose, California 99,588 Manufacture of pump products Temecula, California 64,284 Manufacture of seal products Tulsa, Oklahoma 319,656 Manufacture of pump products LEASED FACILITIES Location Square Footage Principal Operations -------- -------------- -------------------- Charleroi, Belgium (1) 119,700 Manufacture of pump products Dortmund, Germany (2) 70,000 Manufacture of seal products Guelph, Ontario, Canada (3) 18,080 Service of pump products Osaka, Japan (4) 25,000 Manufacture of seal products Mendoza, Argentina (5) 80,900 Manufacture of pump and seal products Long Beach, California (6) 36,902 Administrative headquarters
- ------------------------------------ (1) Expires 2001. (2) Expires 2012. (3) Expires 1997. (4) Expires 2004. (5) Expires 1998. (6) Expires 2000. 9 10 The Company maintains a total of 21 domestic and 26 foreign service centers and 25 domestic and 25 foreign sales offices. The Company believes that its manufacturing facilities, including its machinery and equipment, are in good condition, well maintained and once the planned restructuring program is completed, and planned additions of facilities, machinery and equipment are in place, will be adequate for its needs in the foreseeable future. The Company has offered for sale its manufacturing facility in Van Nuys, California which had been used by the Fluid Controls business segment. ITEM 3. LEGAL PROCEEDINGS The Company is involved in ordinary routine litigation incidental to its business, none of which it believes to be material to its financial condition. See also "Environmental Regulations and Proceedings" above. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 10 11 EXECUTIVE OFFICERS OF THE REGISTRANT The executive officers of BW/IP, all positions and offices with BW/IP presently held by each person named, their ages as of March 22, 1996, and their business experience during the last five years are stated below. Executive officers serve at the discretion of the Board of Directors.
Name and Position Age Principal Occupation During Past Five Years ----------------- --- ----------------------------------------------------- Bernard G. Rethore 54 President and Chief Executive Officer of BW/IP and International Chief Executive Officer, since 1995; Senior Vice President of Phelps Dodge President and Director Corporation and President of Phelps Dodge Industries, its diversified international manufacturing business, from 1989 to 1995. Eugene P. Cross 60 Executive Vice President, Finance, and Chief Financial Executive Executive Vice President, Finance, and Officer of BW/IP and International since 1991; Vice President, Chief Financial Officer Finance of BW/IP from 1987 to 1991; Vice President, Finance of International from 1975 to 1991. John D. Hannesson 44 Vice President, General Counsel and Secretary of BW/IP and Vice President, General Counsel International since 1987. and Secretary Darrach G. Taylor 61 Vice President, Human Resources of BW/IP since 1987 and Vice Vice President, President, Human Resources of International since 1976. Human Resources Ronald W. Hoppel 58 Vice President of BW/IP since 1987; Vice President of Vice President and President - Pump International since 1984; President of the Pump Division Division since 1995; Vice President - General Manager of the Pump Division from 1991 to 1995 and Vice President - General Manager of the Seal Division from 1982 to 1991. Richard R. Testwuide 47 Vice President of BW/IP since 1987; Vice President of Vice President and President - Seal International since 1984; President of the Seal Division Division since 1995; Vice President - General Manager of the Seal Division from 1991 to 1995 and Vice President - General Manager of the Fluid Controls Division from 1982 to 1991. Zohar Ziv 43 Treasurer of BW/IP and International since 1989. Treasurer
11 12 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Information on the market prices and dividends regarding the Company's Common Stock, which appears on page 37 of the 1995 Annual Report to Stockholders, is incorporated herein by reference. As of March 8, 1996, BW/IP's Common Stock was held by approximately 4,200 stockholders of record or through nominee or street name accounts with brokers. BW/IP's ability to pay dividends on its Common Stock depends on International's ability to pay dividends to BW/IP. International's domestic credit agreement and senior notes restrict the payment of dividends by International to BW/IP (and thereby limit BW/IP's ability to pay dividends on the Common Stock) except in certain specified circumstances or unless certain financial tests are met. As of December 31, 1995, after giving effect to the dividends declared to date, approximately $36.7 million is available for the payment of dividends by International to BW/IP pursuant to the most restrictive covenants. ITEM 6. SELECTED FINANCIAL DATA Selected financial data for the five years ended December 31, 1995, which appears on page 19 of the 1995 Annual Report to Stockholders, is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management's Discussion and Analysis of Financial Condition and Results of Operations appears on pages 14 through 18 of the 1995 Annual Report to Stockholders and is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements, together with the report thereon of Price Waterhouse LLP dated February 15, 1996, appearing on pages 20 through 36 of the 1995 Annual Report to Stockholders, are incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. 12 13 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information contained under the heading "Proposal No. 1 -- Election of Directors" in the definitive Proxy Statement for the Annual Meeting of Stockholders to be held on or about May 14, 1996, (the "1996 Proxy Statement") is incorporated herein by reference. For information concerning the executive officers of BW/IP, see "Executive Officers of the Registrant" in Part I of this Form 10-K. DISCLOSURE PURSUANT TO ITEM 405 OF REGULATION S-K Information contained under the heading "Beneficial Ownership of Common Stock Compliance With Section 16(a) of the Exchange Act" in the 1996 Proxy Statement is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION The information contained under the heading "Executive Compensation" in the 1996 Proxy Statement is incorporated herein by reference (except for the sections "Report of the Compensation and Benefits Committee" and "Performance Graph for Common Stock" which are not deemed to be filed as part of this Form 10-K). ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information contained under the heading "Beneficial Ownership of Common Stock" in the 1996 Proxy Statement is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS None. 13 14 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) 1. Financial Statements The financial statements, together with the report thereon of Price Waterhouse LLP dated February 15, 1996, appearing on pages 20 through 36 of the 1995 Annual Report to Stockholders are incorporated herein by reference. 2. Financial Statement Schedules The required financial statement schedules together with the report thereon of Price Waterhouse LLP dated February 15, 1996, listed in the accompanying index on page F-1, are filed as part of this Form 10-K. 3. Exhibits The exhibits listed on the accompanying index to exhibits on pages 16 through 19 are filed as part of this Form 10-K. (b) Reports on Form 8-K None. (c) See Item 14(a)3 above. (d) See Item 14(a) 2 above. 14 15 INDEX TO EXHIBITS Exhibit DESCRIPTION No. 3.a Form of Third Restated Certificate of Incorporation of BW/IP, Inc. (formerly BWIP Holding, Inc.) ("BW/IP"), as filed with the Secretary of State of Delaware. Incorporated by reference to Appendix A of BW/IP's Proxy Statement for the 1994 Annual Meeting of Stockholders dated April 11, 1994, as filed with the SEC. 3.b Certificate of Designation of Junior Participating Cumulative Preferred Stock of BW/IP ("Certificate of Designation of Junior Participating Cumulative Preferred Stock"), as filed with the Secretary of State of Delaware. Incorporated by reference to Exhibit 3a of BW/IP's quarterly report on Form 10-Q for the quarter ended September 30, 1993 as filed with the SEC 3.c Bylaws of BW/IP, as amended and restated on October 19, 1995. Incorporated by reference to Exhibit 4b of BW/IP's Registration Statement on Form S-8 (Registration No. 33-64143 as filed on November 13, 1995, with the SEC ("BW/IP's 1995 Form S-8"). 4.a Rights Agreement between BW/IP and Bank One, Indianapolis, N. A., Rights Agent, dated as of July 26, 1993 which includes as Exhibit B the form of Right Certificate (assumed by American Stock Transfer & Trust Company as of November 1, 1995). Incorporated by reference to Exhibit 4 of BW/IP's Report on Form 8-K dated July 30, 1993 as filed with the SEC. 10.a Credit Agreement, dated as of December 1, 1995, among BW/IP International, Inc., the Financial Institutions named therein, Citicorp USA, Inc., as Agent , and ABN AMRO Bank, as Co-Agent (filed herewith ). 10.b Credit Agreement, dated as of July 5, 1991, between BW/IP International B.V. and Algemene Bank Nederland N.V. Incorporated by reference to Exhibit 4t of BW/IP's Registration Statement on Form S-8 ( Registration No. 33-44806) as filed on December 27, 1991, with the SEC (the "1991 Form S- 8"). 10.c Guaranty, dated October 9, 1991, by BW/IP International, Inc. to Algemene Bank Nederland N.V. Incorporated by reference to Exhibit 4u of the 1991 Form S-8. 10.d BW/IP International, Inc. 1992 Long-Term Incentive Plan. Incorporated by reference to Appendix A of BW/IP's Proxy Statement for the 1992 Annual Meeting of Stockholders, dated April 17, 1992, as filed with the SEC.* 10.e Supplemental Executive Retirement Plan. Incorporated by reference to Exhibit 10rrrr of the Company's Registration Statement on Form S-1 (Registration No. 33-45165) as filed February 18, 1992, with the SEC.* 15 16 10.f Note Agreement, dated as of April 15, 1992, between BW/IP International, Inc. and the Note Purchasers named therein, with respect to $50,000,000 principal amount of 7.92% Senior Notes due May 15, 1999. Incorporated by reference to Exhibit 4a of BW/IP's quarterly report on Form 10-Q for the quarter ended June 30, 1992 as filed with the SEC. 10.g BW/IP International, Inc. Retirement Plan (as amended and restated as of January 1, 1993). Incorporated by reference to Exhibit 99l to BW/IP's 1995 Form S-8.* 10.h Amendment Number One to the BW/IP International, Inc. Retirement Plan. Incorporated by reference to Exhibit 99m to BW/IP's 1995 Form S-8.* 10.i Amendment Number Two to the BW/IP International, Inc. Retirement Plan. Incorporated by reference to Exhibit 99n to BW/IP's 1995 Form S-8.* 10.j Amendment Number Three to the BW/IP International, Inc. Retirement Plan. Incorporated by reference to Exhibit 99o to BW/IP's 1995 Form S-8.* 10.k Amendment Number Four to the BW/IP International, Inc. Retirement Plan. Incorporated by reference to Exhibit 99p to BW/IP's 1995 Form S-8.* 10.l Amendment Number Five to the BW/IP International, Inc. Retirement Plan. Incorporated by reference to Exhibit 99q to BW/IP's 1995 Form S-8.* 10.m Amendment Number Six to the BW/IP International, Inc. Retirement Plan (filed herewith).* 10.n Amendment Number Seven to the BW/IP International, Inc. Retirement Plan (filed herewith).* 10.o BW/IP Holding, Inc. Non Employee Directors' Stock Option Plan. Incorporated by reference to Appendix A of BW/IP's Proxy Statement for the 1993 Annual Meeting of Stockholders dated April 16, 1993 as filed with the SEC.* 10.p Non Employee Directors' Charitable Gift Plan. Incorporated by reference to Exhibit kk to BW/IP's 1992 Annual Report on Form 10-K for the fiscal year ended December 31, 1992, as filed with the SEC.* 10.q Credit Agreement, dated as of September 10, 1993 between BW/IP International B.V. and ABN/AMRO. Incorporated by reference to Exhibit 10dd to BW/IP's 1993 Annual Report on Form 10-K for the fiscal year ended December 31, 1993, as filed with the SEC (the "Company's 1993 Annual Report on Form 10-K"). 10.r Guaranty, dated July 30, 1995, by BW/IP International, Inc. to ABN-AMRO Bank N.V. Incorporated by reference to Exhibit 4s to BW/IP's 1995 Form S-8. 16 17 10.s Amendment Number One to the Supplemental Executive Retirement Plan. Incorporated by reference to Exhibit 10ee to BW/IP's 1993 Annual Report on Form 10-K.* 10.t Amended and Restated BW/IP International, Inc. Retiree Health Care Plan. Incorporated by reference to Exhibit 10jj to BW/IP's 1993 Annual Report on Form 10-K.* 10.u Bond Purchase Agreement, dated January 27, 1995, among BW/IP-New Mexico, Inc., the City of Albuquerque, New Mexico and BW/IP International, Inc. (Not filed herewith pursuant to Item 601(b)(4)(iii) of Regulation S-K. BW/IP hereby agrees to furnish a copy of such bond purchase agreement to the SEC upon request.) 10.v BW/IP International, Inc. 1995 Management Incentive Plan. Incorporated by reference to Exhibit 10kk to BW/IP's 1994 Annual Report on Form 10-K for the fiscal year ended December 31, 1994, as filed with the SEC ("BW/IP's 1994 Annual Report on Form 10-K").* 10.w Amendment to the BW/IP International, Inc. Retiree Health Care Plan. Incorporated by reference to Exhibit 10mm to BW/IP's 1994 Annual Report on Form 10-K.* 10.x Amendment to the BW/IP International, Inc. Retiree Health Care Plan (filed herewith).* 10.y Amendment to the BW/IP International, Inc. Supplemental Executive Retirement Plan. Incorporated by reference to Exhibit 10nn to BW/IP's 1994 Annual Report on Form 10-K.* 10.z Amendment to the BW/IP International, Inc. Supplemental Executive Retirement Plan (filed herewith).* 10.aa Form of Employment Continuation Agreement (filed herewith).* 10.bb Employment Agreement, dated October 19, 1995, between BW/IP, Inc. and Bernard G. Rethore (filed herewith).* 10.cc Employment Continuation Agreement, dated December 14, 1995, between BW/IP, Inc. and Bernard G. Rethore (filed herewith).* 10.dd 1995 Stock Option Agreements, dated as of October 19, 1995, between BW/IP, Inc. and Bernard G. Rethore (filed herewith).* 10.ee Consulting Agreement, dated December 14, 1995, between BW/IP, Inc. and Peter C. Valli (filed herewith).* 10.ff BW/IP International, Inc. 1996 Management Incentive Plan (filed herewith).* 13.a 1995 Annual Report to Stockholders of BW/IP (filed herewith as part of this report to the extent incorporated herein by reference). 17 18 21.a Subsidiaries of BW/IP (filed herewith). 23.a Consent of Price Waterhouse LLP (filed herewith). 24.a Powers of Attorney (filed herewith). 27.a Financial Data Schedule, submitted to the SEC in electronic format. * Management contracts and compensatory plans and arrangements required to be filed as exhibits to this form pursuant to Item 14(c) of Form 10-K. 18 19 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 on this 28th day of March 1996. BW/IP, INC. By: /s/ Eugene P. Cross Eugene P. Cross Executive Vice President, Finance and Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE - --------- ----- ---- /s/ BERNARD G. RETHORE President, Chief Executive Officer and Director March 28, 1996 - ------------------------------------- (Principal Executive Officer) Bernard G. Rethore /s/ EUGENE P. CROSS Executive Vice President, Finance, March 28, 1996 - ------------------------------------- Chief Financial Officer Eugene P. Cross (Principal Financial Officer and Principal Accounting Officer) /s/PETER C. VALLI* Chairman of the Board of Directors March 28, 1996 - ------------------------------------- Peter C. Valli /s/ JAMES J. GAVIN, JR.* Director March 28, 1996 - ------------------------------------- James J. Gavin, Jr. /s/ GEORGE D. LEAL* Director March 28, 1996 - ------------------------------------- George D. Leal /s/ H. JACK MEANY* Director March 28, 1996 - ------------------------------------- H. Jack Meany /s/ JAMES S. PIGNATELLI* Director March 28, 1996 - ------------------------------------- James S. Pignatelli /s/ JAMES O. ROLLANS* Director March 28, 1996 - ------------------------------------- James O. Rollans /s/ WILLIAM C. RUSNACK* Director March 28, 1996 - ------------------------------------- William C. Rusnack *By: /s/ John D. Hannesson - ------------------------------------- (John D. Hannesson, Attorney-in-fact)
19 20 BW/IP, INC. INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES ITEM 14(A)(1) AND (2)
ANNUAL REPORT ANNUAL REPORT TO ON STOCKHOLDERS FORM 10-K ------------ --------- BW/IP, Inc. Consolidated Financial Statements Report of Independent Accountants 36 Consolidated Balance Sheets at December 31, 1995 and 1994 20 For the three years ended December 31, 1995: Consolidated Statements of Income and Retained Earnings 21 Consolidated Statements of Cash Flows 22 Notes to Consolidated Financial Statements 23-35 BW/IP, Inc. Financial Statement Schedules at December 31, 1995 and 1994 or for the three years ended December 31, 1995. Report of Independent Accountants on Financial Statement Schedules F-2 Schedule I - Condensed Financial Information of Parent Company F-3 - F-5 Schedule II - Valuation and Qualifying Accounts F-6
Financial statement schedules not included in this Annual Report on Form 10-K have been omitted because they are not applicable or the required information is shown in the consolidated financial statements or notes thereto. F-1 21 REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULES To the Board of Directors and Stockholders of BW/IP, Inc. Our audits of the consolidated financial statements referred to in our report dated February 15, 1996 appearing on page 36 of the 1995 Annual Report to Stockholders of BW/IP, Inc. (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the Financial Statement Schedules listed in Item 14(a) of this Form 10-K. In our opinion, these Financial Statement Schedules present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. PRICE WATERHOUSE LLP Los Angeles, California February 15, 1996 F-2 22 BW/IP, INC. SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY The following condensed financial statements of BW/IP, Inc. reflect the parent company only, using the equity method of accounting for its wholly owned subsidiary, BW/IP International, Inc. All footnote disclosure has been omitted since all information has been included in the BW/IP, Inc. consolidated financial statements included elsewhere in this Form 10-K. BW/IP, INC. (PARENT COMPANY ONLY) DECEMBER 31, 1995 AND 1994 (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) --------------------------------
Assets 1995 1994 ------ ---- ---- Due from subsidiary $ 2,670 $ 2,428 Investment in subsidiary 179,474 165,914 -------- -------- Total assets $182,144 $168,342 ======== ======== Liabilities and Stockholders' Equity ------------------------------------ Accrued liabilities $ 2,670 $ 2,428 -------- -------- Total current liabilities 2,670 2,428 Other long-term liabilities -- -- Commitments and contingencies Stockholders' equity: Preferred stock, $.01 par value; 10,000,000 shares authorized and unissued -- -- Common stock, $.01 par value; 40,000,000 shares authorized; 24,450,000 shares issued and outstanding 245 245 Paid-in capital 85,763 85,763 Retained earnings 92,008 79,097 Cumulative translation adjustment 2,071 1,422 -------- -------- 180,087 166,527 Less common stock in treasury, at cost (613) (613) -------- -------- Total stockholders' equity 179,474 165,914 -------- -------- Total liabilities and stockholders' equity $182,144 $168,342 ======== ========
F-3 23 BW/IP, INC. SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY BW/IP, INC. (PARENT COMPANY ONLY) CONDENSED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (DOLLAR AMOUNTS IN THOUSANDS) --------------------------------------------
1995 1994 1993 ---- ---- ---- Equity in net income of wholly owned subsidiary(1) $23,349 $24,985 $4,345 ------- ------- ------ Net income $23,349 $24,985 $4,345 ======= ======= ======
(1) BW/IP, Inc. files a consolidated tax return with its wholly owned subsidiary, BW/IP International, Inc. Any necessary income taxes on the equity in net income of BW/IP International, Inc. are provided by BW/IP International, Inc. Effective January 1, 1994, certain employees and related costs of the corporate office were transferred from BW/IP International, Inc. to BW/IP, Inc. and a management agreement was executed. Under the terms of the agreement, all amounts incurred by BW/IP, Inc. are reimbursed by BW/IP International, Inc. F-4 24 BW/IP, INC. SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY BW/IP, INC. (PARENT COMPANY ONLY) CONDENSED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (DOLLAR AMOUNTS IN THOUSANDS) -------------------------------------------
1995 1994 1993 ---- ---- ---- Cash flows from financing activities: Dividends paid $(10,196) $(8,739) $(6,797) Dividend from wholly owned subsidiary 10,196 8,739 6,797 -------- ------- ------- Net change in cash and cash equivalents (1) $ -- $ -- $ -- ======== ======= ======= Supplemental schedule of non-cash financing activities: Dividends declared but not paid $ 2,670 $ 2,428 $ 1,942
(1) BW/IP, Inc. had no other transactions impacting cash and cash equivalents during each of the three years. F-5 25 BW/IP, INC. SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (DOLLAR AMOUNTS IN THOUSANDS)
ADDITIONS BALANCE AT CHARGED TO AMOUNTS LESS: BALANCE BEGINNING PROFIT AND WRITTEN FLUID CONTROLS AT END OF PERIOD LOSS OFF OTHER(1) SEGMENT(2) OF PERIOD --------- ---------- ------- -------- -------------- --------- Receivables - Allowance for doubtful accounts: 1995 $2,967 2,073 (1,288) 23 -- $ 3,775 ====== ===== ====== ===== ======= ======= 1994 $2,805 1,059 (916) 19 -- $ 2,967 ====== ===== ====== ===== ======= ======= 1993 $3,082 1,138 (1,297) 6 (124) $ 2,805 ====== ===== ====== ===== ======= ======= Inventories - Reserves: 1995 $12,107 1,098 (582) 1,148 -- $13,771 ======= ===== ====== ===== ====== ======= 1994 $ 7,624 2,192 (740) 3,031 -- $12,107 ======= ===== ====== ===== ====== ======= 1993 $10,641 606 (939) 166 (2,850) $ 7,624 ======= ===== ====== ===== ====== =======
(1) Represents foreign currency translation adjustments, acquisitions and other adjustments. (2) Amounts reclassified to net assets held for disposition. F-6 EX-10.A 2 CREDIT AGREEMENT DATED AS OF DECEMBER 1, 1995 1 EXHIBIT 10.a CONFORMED COPY =============================================================================== CREDIT AGREEMENT DATED AS OF DECEMBER 1, 1995 Among BW/IP INTERNATIONAL, INC., THE FINANCIAL INSTITUTIONS NAMED HEREIN, CITICORP USA, INC., as Agent, and ABN AMRO BANK N.V., as Co-Agent =============================================================================== 2 TABLE OF CONTENTS
Page ARTICLE I DEFINITIONS AND ACCOUNTING TERMS....................... 1 SECTION 1.01. Certain Defined Terms.............................................. 1 SECTION 1.02. Computation of Time Periods........................................ 21 SECTION 1.03. Accounting Terms................................................... 21 SECTION 1.04. Currency Equivalents Generally..................................... 22 ARTICLE II AMOUNTS AND TERMS OF THE ADVANCES....................... 22 SECTION 2.01. The Committed Advances............................................. 22 SECTION 2.02. Making the Committed Advances...................................... 23 SECTION 2.03. The Bid Advances................................................... 28 SECTION 2.04. Fees............................................................... 32 SECTION 2.05. Optional Increase of the Commitments............................... 33 SECTION 2.06. Reduction of the Commitments....................................... 35 SECTION 2.07. Repayment of the Committed Advances................................ 35 SECTION 2.08. Interest on the Committed Advances................................. 35 SECTION 2.09. Interest Rate Determination........................................ 36 SECTION 2.10. Voluntary Conversion or Continuation of Committed Advances......... 37 SECTION 2.11. Prepayments........................................................ 38 SECTION 2.12. Increased Costs, Etc............................................... 39 SECTION 2.13. Payments and Computations.......................................... 42 SECTION 2.14. Taxes.............................................................. 45 SECTION 2.15. Sharing of Payments, Etc........................................... 48 SECTION 2.16. Evidence of Debt................................................... 49 SECTION 2.17. Currency Equivalents............................................... 50 SECTION 2.18. Letters of Credit.................................................. 50 SECTION 2.19. Use of Proceeds.................................................... 61 ARTICLE III CONDITIONS OF LENDING............................. 61 SECTION 3.01. Conditions Precedent to Initial Advances........................... 61 SECTION 3.02. Conditions Precedent to Each Committed Borrowing................... 65 SECTION 3.03. Conditions to All Letters of Credit................................ 65 SECTION 3.04. Conditions Precedent to Each Bid Borrowing......................... 66 ARTICLE IV REPRESENTATIONS AND WARRANTIES........................ 66 SECTION 4.01. Due Incorporation, Etc............................................. 66 SECTION 4.02. Authorization of Borrowing, Etc.................................... 66 SECTION 4.03. Financial Condition................................................ 67 SECTION 4.04. Absence of Litigation; Litigation Description...................... 68
(i) 3 SECTION 4.05. Payment of Taxes................................................... 68 SECTION 4.06. Governmental Regulation............................................ 68 SECTION 4.07. Not a Purpose Credit............................................... 68 SECTION 4.08. ERISA.............................................................. 69 SECTION 4.09. Disclosure......................................................... 69 SECTION 4.10. Insurance.......................................................... 70 SECTION 4.11. Environmental Matters.............................................. 70 SECTION 4.12. Performance of Agreements.......................................... 70 ARTICLE V COVENANTS OF THE COMPANY........................... 71 SECTION 5.01. Affirmative Covenants.............................................. 71 SECTION 5.02. Negative Covenants................................................. 77 ARTICLE VI EVENTS OF DEFAULT............................... 92 SECTION 6.01. Events of Default.................................................. 92 SECTION 6.02. Actions in Respect of Letters of Credit............................ 96 ARTICLE VII THE AGENT AND THE CO-AGENT.......................... 97 SECTION 7.01. Authorization and Action........................................... 97 SECTION 7.02. Agent's and Co-Agent's Reliance, Etc............................... 98 SECTION 7.03. CUSA, ABN AMRO and Affiliates...................................... 99 SECTION 7.04. Lender Credit Decision............................................. 99 SECTION 7.05. Indemnification.................................................... 99 SECTION 7.06. Successor Agent.................................................... 100 ARTICLE VIII THE PARENT GUARANTY.............................. 100 SECTION 8.01. Guaranty of the Guarantied Obligations............................. 100 SECTION 8.02. Liability of the Company........................................... 101 SECTION 8.03. Waivers by the Company............................................. 104 SECTION 8.04. Payment by the Company............................................. 105 SECTION 8.05. Subrogation........................................................ 105 SECTION 8.06. Subordination of Other Obligations................................. 106 SECTION 8.07. Expenses........................................................... 106 SECTION 8.08. Continuing Guaranty; Termination of Parent Guaranty................ 107 SECTION 8.09. Authority of the Company or the Borrowers.......................... 107 SECTION 8.10. Financial Condition of the Borrowers............................... 107 SECTION 8.11. Rights Cumulative.................................................. 107 SECTION 8.12. Bankruptcy; Post-Petition Interest; Reinstatement of the Parent Guaranty........................................................... 108 SECTION 8.13. Set Off............................................................ 109 SECTION 8.14. Successors and Assigns............................................. 109 SECTION 8.15. Further Assurances................................................. 109 ARTICLE IX
(ii) 4
Page MISCELLANEOUS................................. 110 SECTION 9.01. Amendments, Etc.................................................... 110 SECTION 9.02. Notices, Etc....................................................... 110 SECTION 9.03. No Waiver; Remedies................................................ 111 SECTION 9.04. Costs, Expenses and Taxes.......................................... 111 SECTION 9.05. Right of Setoff.................................................... 112 SECTION 9.06. Judgment........................................................... 112 SECTION 9.07. Binding Effect..................................................... 113 SECTION 9.08. Assignments, Designations and Participations....................... 113 SECTION 9.09. Consent to Jurisdiction............................................ 120 SECTION 9.10. Waiver of Jury Trial............................................... 120 SECTION 9.11. Governing Law...................................................... 121 SECTION 9.12. Execution in Counterparts.......................................... 121 SECTION 9.13. Indemnification.................................................... 121 SECTION 9.14. Confidentiality.................................................... 122 SECTION 9.15. Independence of Covenants.......................................... 123 SECTION 9.16. Survival of Warranties and Certain Agreements...................... 123 SECTION 9.17. Severability....................................................... 123 SECTION 9.18. Headings........................................................... 123
(iii) 5 EXHIBITS EXHIBIT A - FORM OF ASSIGNMENT AND ACCEPTANCE EXHIBIT B - FORM OF BORROWER DESIGNATION AND ACCEPTANCE EXHIBIT C - FORM OF NOTICE OF COMMITTED BORROWING EXHIBIT D - FORM OF NOTICE OF BID BORROWING EXHIBIT E - FORM OF DESIGNATION AGREEMENT EXHIBIT F-1 - FORM OF PROMISSORY NOTE (COMMITTED ADVANCES) EXHIBIT F-2 - FORM OF PROMISSORY NOTE (BID ADVANCES) EXHIBIT G - FORM OF NOTICE OF ISSUANCE OF LETTER OF CREDIT EXHIBIT H - FORM OF LETTER OF CREDIT EXHIBIT I - FORM OF OPINION OF DEBEVOISE & PLIMPTON EXHIBIT J - FORM OF OPINION OF SENIOR COUNSEL OF BORROWER EXHIBIT K - FORM OF OPINION OF O'MELVENY & MYERS EXHIBIT L - SUBSIDIARY GUARANTY EXHIBIT M - FORM OF INCREASED COMMITMENT ACCEPTANCE EXHIBIT N - FORM OF NEW COMMITMENT ACCEPTANCE EXHIBIT O - SUBORDINATION PROVISIONS SCHEDULES SCHEDULE 1.01(A) - ADDRESS OF LENDER'S OFFICES SCHEDULE 1.01(B) - DESIGNATED SUBSIDIARIES SCHEDULE 1.01(C) - EXISTING LETTERS OF CREDIT SCHEDULE 4.01 - GOOD STANDING JURISDICTIONS SCHEDULE 5.02(a) - EXISTING DEBT OF BORROWER & SUBSIDIARIES SCHEDULE 5.02(c)(v) - EXISTING JOINT VENTURES SCHEDULE 5.02(d)(x) - SURETY & PERFORMANCE BONDS SCHEDULE 5.02(m) - EXISTING AFFILIATE AGREEMENTS (iv) 6 CREDIT AGREEMENT DATED AS OF DECEMBER 1, 1995 BW/IP INTERNATIONAL, INC., a Delaware corporation (the "Company"), as a Borrower and Parent Guarantor, the financial institutions (the "Financial Institutions") listed on the signature pages hereof, CITICORP USA, INC. ("CUSA"), as agent (the "Agent") for the Lenders hereunder, and ABN AMRO BANK ("ABN AMRO") N.V., as co-agent for the Lenders hereunder (the "Co-Agent") agree as follows: ARTICLE I DEFINITIONS AND ACCOUNTING TERMS SECTION 1.01. CERTAIN DEFINED TERMS. As used in this Agreement, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined): "ACCEPTED LENDER" has the meaning specified in Section 2.05. "ADJUSTED CONSOLIDATED TOTAL DEBT" means Consolidated Total Debt minus 50% of the aggregate amount of Minority Interest Subsidiary Debt; provided that Minority Interest Subsidiary Debt shall not be subtracted to the extent that the Company or another Subsidiary of the Company has a Contingent Obligation with respect to such Minority Interest Subsidiary Debt. "ADVANCE" means a Committed Advance or a Bid Advance. "ALTERNATIVE CURRENCY" means any currency other than a Major Currency that in the opinion of the Majority Lenders is freely traded in the offshore interbank foreign exchange markets and is freely transferable and freely convertible into Dollars and in which dealings in deposits are carried out on the London interbank market. "APPLICABLE LENDING OFFICE" means, with respect to each Lender, such Lender's Domestic Lending Office in the case of a Base Rate Advance, such Lender's Eurocurrency Lending Office in the case of a Eurocurrency Advance and, in the case of a Bid Advance which is not a Eurocurrency Advance, the office of such Lender notified by such Lender to the Agent as its Applicable Lending Office with respect to such Bid Advance. 1 7 "APPLICABLE MARGIN" means, for any date of determination, (i) 0.215% per annum if Level 1 is applicable, (ii) 0.275% per annum if Level 2 is applicable, (iii) 0.325% per annum if Level 3 is applicable, (iv) 0.425% per annum if Level 4 is applicable and (v) 0.50% per annum if Level 5 is applicable. For purposes of this definition, (a) if any change in the rating established by S&P or Moody's with respect to Long-Term Debt shall result in a change in the Level, the change in the Applicable Margin shall be effective as of the date on which such rating change is publicly announced and (b) if any change in the Company's Leverage shall result in a change in the Level, the change in the Applicable Margin shall be effective as of the last date of the period covered by the financial statements delivered by the Company pursuant to Section 5.01(a) hereof reflecting such change in Leverage; provided that there shall not be a change in the Applicable Margin with respect to a Eurocurrency Advance if the Eurocurrency Interest Period for such Eurocurrency Advance ends prior to the date of delivery of such financial statements. "ARRANGER" means Citicorp Securities, Inc. "ASSIGNMENT AND ACCEPTANCE" means an assignment and acceptance entered into by a Lender and an Eligible Assignee, and accepted by the Agent, in substantially the form of EXHIBIT A hereto. "BANKRUPTCY CODE" means Title 11 of the United States Code entitled "Bankruptcy" as now and hereafter in effect, or any successor statute. "BASE RATE" means, for any period, a fluctuating interest rate per annum as shall be in effect from time to time which rate per annum shall at all times be equal to the highest of: (a) the rate of interest announced publicly by Citibank in New York, New York, from time to time, as Citibank's base rate; or (b) 1/2 of one percent per annum above the latest three-week moving average of secondary market morning offering rates in the United States for three-month certificates of deposit of major United States money market banks, such three-week moving average being determined weekly on each Monday (or, if any such date is not a Business Day, on the next succeeding Business Day) for the three-week period ending on the previous Friday by Citibank on the basis of such rates reported by 2 8 certificate of deposit dealers to and published by the Federal Reserve Bank of New York or, if such publication shall be suspended or terminated, on the basis of quotations for such rates received by Citibank from three New York certificate of deposit dealers of recognized standing selected by Citibank, in either case adjusted to the nearest 1/16 of one percent or, if there is no nearest 1/16 of one percent, to the next higher 1/16 of one percent; or (c) for any day 1/2 of one percent per annum above the Federal Funds Rate. "BASE RATE ADVANCE" means a Committed Advance which bears interest at a rate per annum determined on the basis of the Base Rate, as provided in Section 2.08(a). "BID ADVANCE" means an advance by a Lender to a Borrower as part of a Bid Borrowing resulting from the auction bidding procedure described in Section 2.03(a). "BID BORROWING" means a borrowing consisting of simultaneous Bid Advances of the same Type from each of the Lenders whose offer to make one or more Bid Advances as part of such borrowing has been accepted by a Borrower under the auction bidding procedure described in Section 2.03(a). "BID REDUCTION" has the meaning specified in Section 2.01(a). "BORROWER" means (i) the Company, in the Company's capacity as a borrower hereunder or (ii) any Designated Subsidiary, and "BORROWERS" means the Company and all Designated Subsidiaries, collectively. "BORROWER DESIGNATION AND ACCEPTANCE" means a designation by the Company of a Designated Subsidiary, and the acceptance of such Subsidiary of its designation by the Company, as a Borrower under this Agreement, and the Agent's consent to such designation, in substantially the form of EXHIBIT B hereto. "BORROWING" means a Committed Borrowing or a Bid Borrowing. "BUSINESS DAY" means a day of the year on which banks are not required or authorized to close in New York City and if the applicable Business Day relates to any Eurocurrency Advances, on which dealings are carried on in the London interbank market and on which 3 9 banks are open for business in the country of issue of the currency of such Eurocurrency Advance (if other than Dollars). "CAPITAL LEASE OBLIGATION" means, with respect to any lease of property which, in accordance with GAAP, should be capitalized on the lessee's balance sheet or for which the amount of the assets and liabilities thereunder, if so capitalized, should be disclosed in a note to such balance sheet, the amount of the liability which should be so capitalized or disclosed. "CHANGE OF CONTROL" means the acquisition by any Person, or two or more Persons acting in concert, in each case excluding Holding, of beneficial ownership (within the meaning of Rule 13d-3 of the Exchange Act) of 40% or more of the outstanding shares of voting stock of Holding or the Company. "CITIBANK" means Citibank, N.A. "CLOSING DATE" means the date and time on or before December 1, 1995 on which all of the closing conditions in Article III are satisfied. "COMMERCIAL LETTER OF CREDIT" means any letter of credit issued for the account of a Borrower for the purpose of providing the principal payment mechanism in connection with the purchase of goods by the Company or any of its Subsidiaries in the ordinary course of business. "COMMITMENT" has the meaning specified in Section 2.01(a). "COMMITTED ADVANCE" means an advance by a Lender to a Borrower as part of a borrowing consisting of simultaneous Advances from each of the Lenders pursuant to Section 2.01. "COMMITTED BORROWING" means a borrowing consisting of simultaneous Committed Advances made by each of the Lenders pursuant to Section 2.01(b). "COMPANY" means BW/IP International, Inc., a Delaware corporation, in its capacity as a Borrower hereunder, in its capacity as Parent Guarantor hereunder or both, as the context may require. "CONSOLIDATED FIXED CHARGES" means, for any period, (i) total net interest expense (including any interest expense or discount of the Company or any of its Subsidiaries associated with any sale or other 4 10 financing of accounts permitted under Section 5.02(n)) plus (ii) the sum of the payments of principal that were scheduled to be made by the Company and its Subsidiaries during such period including payments with respect to Capital Lease Obligations plus (iii) operating lease payments, all on a consolidated basis for the Company and its Subsidiaries. "CONSOLIDATED GROSS CASH FLOW" means, for any period, (i) the sum of (A) net income, plus (B) net interest expense (including any interest expense or discount of the Company or any of its Subsidiaries associated with any sale or other financing of accounts permitted under Section 5.02(n)), plus (C) depreciation expense, plus (D) amortization expense of goodwill and financing costs, plus (E) operating lease payments and payments made in respect of Capital Lease Obligations, plus (F) extraordinary losses, plus (G) Federal, state, local and foreign income tax expense, plus (H) other non-cash charges that could never be converted to cash to the extent deducted from net income minus (ii) extraordinary gains, all of the foregoing shall be on a consolidated basis for the Company and its Subsidiaries. "CONSOLIDATED NET INCOME" means, for any period, the net income of the Company and its Subsidiaries on a consolidated basis for such period determined in accordance with GAAP. "CONSOLIDATED TANGIBLE NET WORTH" of any Person means the consolidated shareholders' equity of such Person and its consolidated Subsidiaries determined in accordance with GAAP (but without taking into account any adjustments for the effects of foreign currency translation pursuant to Statement No. 52 of the Financial Accounting Standards Board, or any similar statement issued in substitution therefor), minus, without duplication, the carrying value of goodwill, debt issuance costs and any covenant not to compete, capitalized organizational expenses, intellectual property and licenses therefor and rights therein, and other similar intangibles, and any other items which are treated as intangibles in conformity with GAAP (except for prepaid expenses). "CONSOLIDATED TOTAL ASSETS" means, as of any date of determination, all assets that should be reflected as assets on a consolidated balance sheet of the Company and its Subsidiaries on such date prepared in accordance with GAAP. 5 11 "CONSOLIDATED TOTAL CAPITALIZATION" means Consolidated Total Assets minus (i) Consolidated Total Liabilities, plus (ii) Adjusted Consolidated Total Debt. "CONSOLIDATED TOTAL DEBT" means items (i), (ii), (iii) and (iv) of the definition of Debt plus the aggregate amount of liability assumed or net cash proceeds received with respect to outstanding accounts receivables subject to a Receivables Program in a sale or other financing of accounts permitted by Section 5.02(n)(iii), all on a consolidated basis for the Company and its Subsidiaries. "CONSOLIDATED TOTAL LIABILITIES" means, as of any date of determination, all liabilities that should be reflected as liabilities on a consolidated balance sheet of Company and its Subsidiaries on such date prepared in accordance with GAAP. "CONTINGENT OBLIGATION", as applied to any Person, means any direct or indirect liability, contingent or otherwise, of the Person with respect to any Debt, lease, dividend, letter of credit or other obligation of another, including, without limitation, any such obligation directly or indirectly guarantied, endorsed (other than for collection or deposit in the ordinary course of business), co-made, or discounted or sold with recourse by that Person, or in respect of which that Person is otherwise directly or indirectly liable, including without limitation, any such obligation for which that Person is in effect liable through any agreement (contingent or otherwise) to purchase, repurchase or otherwise acquire such obligation or any security therefor, or to provide funds for the payment or discharge of such obligation (whether in the form of loans, advances, stock purchases, capital contributions or otherwise), or to maintain the solvency or any balance sheet item, level of income or other financial condition of the obligor of such obligation, or to make payment for any products, materials or supplies or for any transportation, services or lease regardless of the non-delivery or non-furnishing thereof, in any case if the purpose or intent of such agreement is to provide assurance that such obligation will be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders of such obligation will be protected (in whole or in part) against loss in respect thereof. The amount of any Contingent Obligation shall be equal to the amount of the obligation so guarantied or otherwise supported. 6 12 "CONVERT," "CONVERSION" and "CONVERTED" each refers to a conversion of Advances of one Type into Advances of another Type pursuant to Section 2.10. "DEBT" means, without duplication, (i) indebtedness for borrowed money, (ii) obligations evidenced by bonds (other than performance bonds), debentures, notes or other similar instruments, (iii) obligations to pay the deferred purchase price of property or services (other than trade payables incurred in the ordinary course of business and not more than 60 days past due or being contested in good faith by appropriate proceedings), (iv) Capital Lease Obligations, (v) obligations under direct or indirect guaranties in respect of, and obligations (contingent or otherwise) to purchase or otherwise acquire, or otherwise to assure a creditor against loss in respect of, indebtedness or obligations of others of the kinds referred to in clauses (i) through (iv) above, and (vi) liabilities in respect of unfunded vested benefits under plans covered by Title IV of ERISA. "DESIGNATED BIDDER" means (i) an Eligible Assignee or (ii) a special purpose corporation which is engaged in making, purchasing or otherwise investing in commercial loans in the ordinary course of its business and that issues (or the parent of which issues) commercial paper rated at least "Prime-1" by Moody's or "A-1" by S&P or a comparable rating from the successor or either of them, that, in either case, (w) is organized under the laws of the United States or any State thereof, (x) shall have become a party hereto pursuant to Section 9.08(d), (e) and (f), (y) is not otherwise a Lender and (z) shall have been consented to by the Company, which consent shall not be unreasonably withheld. "DESIGNATED ISSUER" means a financial institution which has been designated by a Lender as such Lender's "Designated Issuer" for purposes of issuing Letters of Credit and (x) in the case of a Lender which is a party to this Agreement on the Closing Date, which has executed this Agreement and (y) in each case shall have been consented to by the Company, which consent shall not be unreasonably withheld. "DESIGNATED SUBSIDIARY" means each Subsidiary of the Company (x) which has been designated by the Company as a Borrower under this Agreement, (y) which is listed on SCHEDULE 1.01(B) or is acceptable to Agent and 100% of the Lenders (which acceptance shall not be unreasonably withheld) and (z) which has evidenced corporate acceptance of such designation by executing 7 13 and delivering to the Agent a Borrower Designation and Acceptance. "DESIGNATION AGREEMENT" means a designation agreement entered into by a Lender (other than a Designated Bidder) and a Designated Bidder, and accepted by the Agent, in substantially the form of EXHIBIT E hereto. "DOLLARS" and the sign "$" each means lawful money of the United States of America. "DOMESTIC LENDING OFFICE" means, with respect to any Lender, the office of such Lender specified as its "Domestic Lending Office" opposite its name on SCHEDULE 1.01(A) hereto or in the Assignment and Acceptance or New Commitment Acceptance pursuant to which it became a Lender, or such other office of such Lender as such Lender may from time to time specify to the Borrowers and the Agent. "DUTCH FACILITY" means the unsecured Dutch Guilder 50,000,000 Credit Agreement, dated July 5, 1991, as amended, between BW/IP International B.V. and ABN AMRO Bank N.V. (formerly Algemene Bank Nederland N.V.) and the guaranty executed and delivered in connection therewith by the Company. "ELIGIBLE ASSIGNEE" means any financial institution or entity engaged in the business of extending credit or buying loans approved in writing by the Company and the Agent as an Eligible Assignee for purposes of this Agreement, provided that the Company's approval shall not be unreasonably withheld. "ENVIRONMENTAL LAW" means any and all statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants, franchises, licenses, agreements or other governmental restrictions of any federal, state or local governmental authority within the United States or any State or Territory thereof and which relate to the environment or the release of any materials into the environment. "EQUITY PROCEEDS" means, as of any date of determination, the aggregate amount of the net proceeds received by the Company from the sale or sales of, or capital contributions with respect to, its or Holding's common stock, preferred stock or other capital stock or rights, options or warrants therefor, after deduction of costs, discounts and commissions incurred in 8 14 connection with such sale or sales, to such date of determination. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and rulings issued thereunder. "ERISA AFFILIATE" means any Person who for purposes of Title IV of ERISA is a member of the Company's controlled group, or under common control with the Company, within the meaning of Section 414 of the Code and the regulations promulgated and rulings issued thereunder. "ERISA EVENT" means (i) the occurrence of a reportable event, within the meaning of Section 4043 of ERISA, unless the 30-day notice requirement with respect thereto has been waived by the PBGC; (ii) the provision by the administrator of any Pension Plan of a notice of intent to terminate such Pension Plan, pursuant to Section 4041(a)(2) of ERISA (including any such notice with respect to a plan amendment referred to in Section 4041(e) of ERISA); (iii) the cessation of operations at a facility in the circumstances described in Section 4068(f) of ERISA; (iv) the withdrawal by the Company or an ERISA Affiliate from a Multiple Employer Plan during a plan year for which it was a substantial employer, as defined in Section 4001(a)(2) of ERISA; (v) the failure by the Company or any ERISA Affiliate to make a payment to a Pension Plan required under Section 302(f)(1) of ERISA, which Section imposes a lien for failure to make required payments; (vi) the adoption of an amendment to a Pension Plan requiring the provision of security to such Pension Plan, pursuant to Section 307 of ERISA; or (vii) the institution by the PBGC of proceedings to terminate a Pension Plan, pursuant to Section 4042 of ERISA, or the occurrence of any event or condition which, in the reasonable judgment of the Company, might constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, a Pension Plan. "EUROCURRENCY ADVANCE" means a Committed Advance which bears interest at a rate per annum determined on the basis of the Eurocurrency Rate, as provided in Section 2.08(b), or a Bid Advance which bears interest at a rate per annum determined on the basis of the Eurocurrency Rate, as provided in Section 2.03(a). "EUROCURRENCY INTEREST PERIOD" means, for any Eurocurrency Advance, the period commencing on the date 9 15 of such Advance or, if applicable, the date of any Conversion of any Advance (pursuant to Section 2.10) into such an Advance or any continuance of any Advance and ending on the last day of the period determined pursuant to the provisions below and in Section 2.13(f). The duration of the Eurocurrency Interest Period for any Eurocurrency Advance which is a Committed Advance shall be one, two, three or six or, if available to all of the Lenders (as determined by each of them in its sole judgment), 12 months and the duration of the Eurocurrency Interest Period for any Eurocurrency Advance which is a Bid Advance shall be a period of whole months ranging from one month to 12 months in duration, in each case, as the applicable Borrower may select in the applicable Notice of Committed Borrowing or Notice of Bid Borrowing. The Agent shall promptly advise the Lenders of the Eurocurrency Interest Period determined as above provided for the Eurocurrency Advances comprising each Borrowing. "EUROCURRENCY LENDING OFFICE" means, with respect to any Lender, the office of such Lender specified as its "Eurocurrency Lending Office" opposite its name on SCHEDULE 1.01(A) hereto or in the Assignment and Acceptance or New Commitment Acceptance pursuant to which it became a Lender (or, if no such office is specified, its Domestic Lending Office), or such other office of such Lender as such Lender may from time to time specify to the Borrowers and the Agent. "EUROCURRENCY LIABILITIES" has the meaning assigned to that term in Regulation D of the Board of Governors of the Federal Reserve System, as in effect from time to time. "EUROCURRENCY RATE" means, for any Eurocurrency Interest Period for each Eurocurrency Advance comprising part of the same Committed Borrowing or the same Bid Borrowing, as the case may be, an interest rate per annum equal to the rate per annum obtained by dividing (i) the average (rounded upward to the nearest whole multiple of 1/16 of 1% per annum, if such average is not such a multiple) of the rate per annum at which deposits in Dollars or in the relevant Major Currency or Alternative Currency are offered by the principal office of the Eurocurrency Reference Banks in London, England to prime banks in the London interbank market at 11:00 A.M. (London time) two Business Days before the first day of such Eurocurrency Interest Period in an amount substantially equal to the amount of such Borrowing and for a period equal to such Eurocurrency Interest Period by (ii) a percentage equal to 100% 10 16 minus the Eurocurrency Reserve Percentage. The Eurocurrency Rate for any Eurocurrency Interest Period for each Eurocurrency Advance comprising part of the same Borrowing shall be determined by the Agent on the basis of applicable rates furnished to and received by the Agent from the Eurocurrency Reference Banks two Business Days before the first day of such Eurocurrency Interest Period, subject, however, to the provisions of Section 2.09. "EUROCURRENCY REFERENCE BANKS" means Citibank, Bank of America National Trust and Savings Association and ABN AMRO Bank N.V. "EUROCURRENCY RESERVE PERCENTAGE" of any Lender for any Eurocurrency Interest Period for any Eurocurrency Advance means the reserve percentage applicable during such Eurocurrency Interest Period (or if more than one such percentage shall be so applicable, the daily average of such percentages for those days in such Eurocurrency Interest Period during which any such percentage shall be so applicable) under regulations issued from time to time by the Board of Governors of the Federal Reserve System (or any successor) or, with respect to any Eurocurrency Advance denominated in a Major Currency other than Dollars or an Alternative Currency, any Governmental Authority having jurisdiction with respect to such currency, for determining the maximum reserve requirement (including, without limitation, any emergency, supplemental or other marginal reserve requirement) for such Lender with respect to liabilities or assets consisting of or including Eurocurrency Liabilities having a term equal to such Eurocurrency Interest Period. "EVENTS OF DEFAULT" has the meaning specified in Section 6.01. "EXISTING CREDIT AGREEMENT" means the Credit Agreement dated as of August 23, 1991 among the Company, the lenders named therein and Citibank, N.A., as agent, as amended to the date hereof. "EXISTING LETTERS OF CREDIT" means the letters of credit issued pursuant to the Existing Credit Agreement that have not been drawn upon or expired as of the Closing Date and are listed on SCHEDULE 1.01(C) hereto. "FEDERAL FUNDS RATE" means, for any period, a fluctuating interest rate per annum equal for each day during such period to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds 11 17 brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by the Agent from three Federal funds brokers of recognized standing selected by it. "FINANCIAL STANDBY LETTER OF CREDIT" means any Standby Letter of Credit that is not a Performance Standby Letter of Credit. "FIXED RATE" means, for the period for each Fixed Rate Advance comprising part of the same Bid Borrowing, the fixed interest rate per annum determined for such Advance, as provided in Section 2.03(a). "FIXED RATE ADVANCE" means a Bid Advance which bears interest at a fixed rate per annum determined as provided in Section 2.03(a). "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant segment of the accounting profession, which are applicable to the circumstances as of the date of determination. "GOVERNMENTAL AUTHORITY" means any nation or government, any state or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "GUARANTIED OBLIGATIONS" has the meaning specified in Section 8.01. "HOLDING" means BW/IP, Inc., a Delaware corporation and the Company's parent. "INCREASE DATE" has the meaning specified in Section 2.05. "INCREASED COMMITMENT ACCEPTANCE" means an acceptance of a Proposed Increased Commitment entered 12 18 into by a Lender and accepted by the Agent, in substantially the form of EXHIBIT M hereto. "INCREASE REMAINDER" has the meaning specified in Section 2.05. "INSUFFICIENCY" means the amount of outstanding unfunded benefit liabilities under Section 4001(a)(18) of ERISA plus, in the case of a terminated Pension Plan, any liability owed under Section 4062(c) of ERISA (excluding interest). "INVESTMENT", as applied to any Person means any direct or indirect purchase or other acquisition by that Person of, or a beneficial interest in, stock or other Securities of any other Person, or any direct or indirect loan, advance (other than advances to employees or consultants for moving and travel expenses, drawing accounts and similar expenditures in the ordinary course of business) or capital contribution by that Person to any other Person, including all Debt and accounts receivable from that other Person which are not current assets or did not arise from sales to that other Person in the ordinary course of business. The amount of any Investment shall be the original cost of such Investment plus the cost of all additions thereto, without any adjustments for increases or decreases in value, or write-ups, write-downs or write-offs with respect to such Investment. "ISSUING BANK" means (i) with respect to Syndicated Letters of Credit each of the Lenders acting severally, and not any single Lender individually, either directly or through its Designated Issuer, pursuant to the procedures and on the terms and conditions described in Section 2.18 (other than Section 2.18(c)), (ii) with respect to Non-Syndicated Letters of Credit, Citibank, acting either directly or through its Designated Issuer and (iii) with respect to the Existing Letters of Credit, the Lenders that have issued such Existing Letters of Credit, acting either directly or through their respective Designated Issuers. "JOINT VENTURE" means a joint venture, partnership or other similar arrangement, whether in corporate, partnership or other legal form; provided that in no event shall any corporate Subsidiary of any Person be considered to be a Joint Venture to which such Person is a party. "LENDERS" means the Financial Institutions and each Eligible Assignee and Accepted Lender that shall 13 19 become a party hereto pursuant to Section 9.08 and, except when used in reference to a Committed Advance, a Committed Borrowing, a Commitment or a related term, each Designated Bidder. "LETTERS OF CREDIT" means Standby Letters of Credit and Commercial Letters of Credit issued by the Issuing Banks for the account of a Borrower pursuant to Section 2.18. "LETTER OF CREDIT USAGE" means, as at any date of determination, the sum of (i) the maximum aggregate amount that is or at any time thereafter may become available for drawings under all Letters of Credit then outstanding plus (ii) the aggregate amount of all drawings under Letters of Credit honored by the Issuing Banks and not theretofore reimbursed by a Borrower; provided that the term Letter of Credit Usage shall include the amount of all outstanding Existing Letters of Credit as described in Section 2.18(e). "LEVEL" means Level 1, Level 2, Level 3, Level 4 or Level 5, as the case may be. "LEVEL 1" means that, as of any date of determination, at least one of the following conditions is satisfied: (a) the Company's Long-Term Debt has a rating of BBB+ or better by S&P, (b) the Company's Long-Term Debt has a rating of Baa1 or better by Moody's, or (c) Leverage of the Company is less than 0.25:1.00. "LEVEL 2" means that, as of any date of determination, none of the conditions set forth in the definition of "Level 1" are satisfied and at least one of the following conditions is satisfied: (a) the Company's Long-Term Debt has a rating of BBB or better by S&P, (b) the Company's Long-Term Debt has a rating of Baa2 or better by Moody's, or (c) Leverage of the Company is greater than or equal to 0.25:1.00 and less than 0.35:1.00. "LEVEL 3" means that, as of any date of determination, none of the conditions set forth in the definitions of "Level 1" and "Level 2" are satisfied and at least one of the following conditions is satisfied: (a) the Company's Long-Term Debt has a rating of BBB- or better by S&P, (b) the Company's Long-Term Debt has a rating of Baa3 or better by Moody's, or (c) Leverage of the Company is greater than or equal to 0.35:1.00 and less than 0.45:1.00. 14 20 "LEVEL 4" means that, as of any date of determination, none of the conditions set forth in the definitions of "Level 1", "Level 2" and "Level 3" are satisfied and at least one of the following conditions is satisfied: (a) the Company's Long-Term Debt has a rating of BB+ or better by S&P, (b) the Company's Long- Term Debt has a rating of Ba1 or better by Moody's, or (c) Leverage of the Company is greater than or equal to 0.45:1.00 and less than 0.50:1.00. "LEVEL 5" means that, as of any date of determination, none of the conditions set forth in the definitions of "Level 1", "Level 2", "Level 3" and "Level 4" are satisfied. "LEVERAGE" means Adjusted Consolidated Total Debt divided by Consolidated Total Capitalization. "LIEN" means any lien, mortgage, pledge, security interest, charge, encumbrance, easement, exception or assessment of any kind (including any conditional sale or other title retention agreement, any lease in the nature thereof, and, with respect to an asset or assets that are material, any agreement to give any security interest in the future). "LOAN DOCUMENTS" means this Agreement and any Subsidiary Guaranty entered into pursuant to Section 5.01(b) hereto and any promissory note executed and delivered by a Borrower pursuant to Section 2.16(d) hereof. "LONG-TERM DEBT" means, as of any date of determination, senior, unsecured debt securities of the Company with a scheduled maturity in excess of twelve months from such determination date. "MAJOR CURRENCY" means Dollars, Canadian Dollars, Pounds Sterling, Deutschemarks, and Japanese Yen. "MAJORITY LENDERS" means at any time Lenders owed 51% or more of the aggregate unpaid principal amount of the Committed Advances then outstanding or, if no Committed Advances are then outstanding, Lenders having 51% or more of the Commitments. "MATERIAL ADVERSE EFFECT" means a material adverse effect, individually or in the aggregate, upon (i) the business, operations, properties, prospects, assets or condition (financial or otherwise) of the Company and its Subsidiaries, taken as a whole, or (ii) the financial ability of the Company and its Subsidiaries, taken as a whole, or otherwise the Company or any 15 21 Subsidiary (if a party thereto) to perform or of the Lenders to enforce the Obligations under the Loan Documents. "MATERIAL SUBSIDIARY" means (i) any Subsidiary Guarantor and (ii) any Subsidiary having total assets in excess of $1,000,000. For purposes of this definition, "total assets" means all assets that should be reflected as such on the balance sheet of such Subsidiary in accordance with GAAP. "MAXIMUM PERMITTED AGGREGATE COMMITMENT" means $150,000,000; provided that at any time any Commitments are reduced in accordance with Section 2.06 hereof, the Maximum Permitted Aggregate Commitment shall be reduced by the aggregate amount of such reduction of the Commitments. "MINORITY INTEREST SUBSIDIARY DEBT" means the portion of the Debt of a Subsidiary of the Company which is allocable to third-party owners of the capital stock of such Subsidiary based on the ownership interest of such third party owners in relation to the ownership interests of the Company and its Subsidiaries. "MOODY'S" means Moody's Investors Service, Inc. "MULTIEMPLOYER PLAN" means a "multiemployer plan" as defined in Section 4001(a)(3) of ERISA to which the Company or any ERISA Affiliate of the Company is making, or is obligated to make, contributions or has within any of the preceding five plan years made or accrued an obligation to make contributions. "MULTIPLE EMPLOYER PLAN" means a single employer plan, as defined in Section 4001(a)(15) of ERISA, which (i) is maintained for employees of the Company or an ERISA Affiliate and at least one Person other than the Borrower and its ERISA Affiliates or (ii) was so maintained and in respect of which the Company or an ERISA Affiliate could have liability under Section 4064 or 4069 of ERISA in the event such plan has been or were to be terminated. "NEW COMMITMENT ACCEPTANCE" means an acceptance of a Proposed New Commitment entered into by an Accepted Lender and accepted by the Agent, in substantially the form of EXHIBIT N hereto. "NON-HOSTILE ACQUISITION" means an acquisition (whether by purchase of capital stock or assets, merger or otherwise) which has been approved by resolutions of 16 22 the Board of Directors of the Person being acquired or by similar action if the Person is not a corporation and as to which such approval has not been withdrawn. "NON-RECOURSE DEBT" means, as applied to any Receivables Program, Debt under the terms of which no personal recourse may be had against the Company or any of its Subsidiaries for the payment of the principal of or interest or premium on such Debt solely as a result of a default by one or more account debtors in the payment of any accounts receivable included in such Receivables Program. "NON-SYNDICATED LETTER OF CREDIT" means a Letter of Credit (i) denominated in a currency other than Dollars, (ii) requested by a Borrower to be a Non- Syndicated Letter of Credit in such Borrower's request for a Letter of Credit or (iii) issued pursuant to the first proviso of the last paragraph of Section 2.18(b). "NOTICE OF BID BORROWING" has the meaning specified in Section 2.03(a). "NOTICE OF BORROWING" means a Notice of Committed Borrowing or a Notice of Bid Borrowing, as the case may be. "NOTICE OF COMMITTED BORROWING" has the meaning specified in Section 2.02(a). "OBLIGATIONS" means all loans, advances, debts, reimbursement obligations, liabilities, obligations, covenants and duties owing by the Company or any of its Subsidiaries to any Lender, the Agent, the Co-Agent, the Issuing Banks, any affiliate of any Lender or the Agent or the Co-Agent, or any Person entitled to indemnification pursuant to Section 9.13 of this Agreement, of any kind or nature, present or future, whether or not evidenced by any note, guaranty or other instrument, arising under this Agreement or under any Guaranties executed by any of the Company's Subsidiaries in favor of the Agent on behalf of the Lenders, whether or not for the payment of money, whether arising by reason of an extension of credit, loan, guaranty, indemnification, letter of credit transactions or bankers' acceptance transactions or in any other manner, whether direct or indirect (including those acquired by assignment), absolute or contingent, due or to become due, now existing or hereafter arising and however acquired. The term includes, without limitation, all interest, charges, expenses, fees, attorneys' fees and disbursements and any other sum 17 23 chargeable to the Company or any of its Subsidiaries under this Agreement or any Guaranties executed by any of the Company's Subsidiaries in favor of the Agent on behalf of the Lenders. "OTHER TAXES" has the meaning specified in Section 2.14(b). "PARENT GUARANTOR" means the Company, in its capacity as guarantor of the Guarantied Obligations pursuant to the Parent Guaranty. "PARENT GUARANTY" shall have the meaning set forth in Section 8.01. "PAYMENT OFFICE" means, for Dollars, the principal office of Citibank, located on the date hereof at 1 Court Square, 7th Floor, Long Island City, New York 11120 (or such other place as the Agent may designate by notice to the Borrowers and the Lenders from time to time), and, for any Major Currency (other than Dollars) or Alternative Currency, such office of Citibank as shall be from time to time selected by the Agent and notified by the Agent to the Borrowers and the Lenders. "PBGC" means the U.S. Pension Benefit Guaranty Corporation. "PENSION PLAN" means any employee plan that is subject to the provisions of Title IV of ERISA or subject to the minimum funding standards of Section 412 of the Internal Revenue Code and that is maintained for employees of the Company or any ERISA Affiliate of the Company, other than a Multiemployer Plan. "PERFORMANCE STANDBY LETTER OF CREDIT" means a Standby Letter of Credit covering potential default by the Person for whose account the Standby Letter of Credit is issued of performance-related, non-financial contractual obligations. By way of example, and not by limitation, performance-related contractual obligations include construction, bid or performance bonds, performance warranties payable upon breach, releases of funds retained to cover performance and refunds of advance payments on contractual obligations where default of a performance related contract has occurred. "PERSON" means an individual, partnership, corporation (including a business trust), joint stock company, trust, unincorporated association, Joint Venture or other entity, or a government or any political subdivision or agency thereof. 18 24 "POTENTIAL EVENT OF DEFAULT" means a condition or event which, after notice or lapse of time or both, would constitute an Event of Default if that condition or event were not cured or removed within any applicable grace or cure period. "PROPOSED AGGREGATE COMMITMENT INCREASE" has the meaning specified in Section 2.05. "PROPOSED INCREASED COMMITMENT" has the meaning specified in Section 2.05. "PROPOSED NEW COMMITMENT" has the meaning specified in Section 2.05. "RECEIVABLES PROGRAM" has the meaning specified in Section 5.02(n). "REGISTER" has the meaning specified in Section 9.08(j). "RESPONSIBLE OFFICER" of any Person shall mean the chief executive officer, the chief operating officer, the chief financial officer, the chief accounting officer, the treasurer, the chief legal officer of such Person or any individual designated by such Person from time to time to receive notices. "RESTRICTED SUBSIDIARY DEBT" means Debt of a Subsidiary of the Company owed to any Person other than the Company or a Subsidiary of the Company and reimbursement obligations under letters of credit issued for the account of a Subsidiary of the Company, except for (i) Debt of any Subsidiary Guarantor under a Subsidiary Guaranty, (ii) Debt of Subsidiaries set forth on SCHEDULE 5.02(A) and any refinancings thereof permitted pursuant to Section 5.02(a)(v), (iii) Debt of Subsidiaries permitted by Section 5.02(a)(x), and (iv) Contingent Obligations of Subsidiaries permitted by Sections 5.02(d)(i), 5.02(d)(iv), 5.02(d)(vi), 5.02(d)(x) (other than in respect of letters of credit) and Contingent Obligations constituting performance bonds. "S & P" means Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc. "SECURITIES" means any stock, shares, partnership interests, voting trust certificates, bonds, debentures, notes, or other evidences of indebtedness, secured or unsecured, convertible, subordinated or otherwise, or in general any instruments commonly known as "securities" or any certificates of interest, shares 19 25 or participations in temporary or interim certificates for the purchase or acquisition of, or any right to subscribe to, purchase or acquire, any of the foregoing. "SENIOR DEBT DOCUMENTS" means collectively the Company's 7.92% Senior Notes due 1999 issued in the aggregate principal amount of $50,000,000 and any and all agreements and instruments executed in connection with the issuance of such Senior Notes, as in effect from time to time and after giving effect to any waivers thereunder. "STANDBY L/C RATE" means, for any date of determination: (a) 0.215% per annum if Level 1 is applicable, (b) 0.275% per annum if Level 2 is applicable, (c) 0.325% per annum if Level 3 is applicable, (d) 0.425% per annum if Level 4 is applicable and (e) 0.5% per annum if Level 5 is applicable. "STANDBY LETTER OF CREDIT" means any standby letter of credit or similar instrument issued for the account of a Borrower for the purpose of supporting performance, payment, deposit or surety obligations of the Company or any of its Subsidiaries. "SUBSIDIARY" of any Person means any corporation, association, partnership or other business entity of which at least 50% of the total voting power of shares of stock or other Securities entitled to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of that Person or a combination thereof. "SUBSIDIARY GUARANTOR" means any Subsidiary of the Company which is required to execute a Subsidiary Guaranty pursuant to Section 5.01(b). "SUBSIDIARY GUARANTY" means any guaranty executed by a Subsidiary of the Company pursuant to Section 5.01(b). "SYNDICATED LETTER OF CREDIT" means a Letter of Credit denominated in Dollars other than a Non- Syndicated Letter of Credit or an Existing Letter of Credit. "TAXES" has the meaning specified in Section 2.14(a). 20 26 "TERMINATION DATE" means the earliest of (i) December 1, 2000, (ii) the date of termination in whole of the Commitments pursuant to Section 2.06 or 6.01 or (iii) delivery by the Agent, at the request of the Majority Lenders, to the Company of notice of termination at any time on or after the date on which a Change of Control shall occur. "THIRD PARTY" has the meaning specified in Section 2.05. "TOTAL UTILIZATION OF COMMITMENTS" means at any date of determination the sum of (i) the aggregate principal amount of all Committed Advances outstanding at such date plus (ii) the aggregate principal amount of all Bid Advances outstanding at such date plus (iii) the Letter of Credit Usage determined as of such date. "TYPE" means, with reference to an Advance, a Base Rate Advance, a Eurocurrency Advance or a Fixed Rate Advance. "UNITED STATES" and "U.S." each means United States of America. "WHOLLY-OWNED SUBSIDIARY" has the meaning specified in Section 5.02(g). "WITHDRAWAL LIABILITY" has the meaning given such term under Part I of Subtitle E of Title IV of ERISA. SECTION 1.02. COMPUTATION OF TIME PERIODS. In this Agreement in the computation of periods of time from a specified date to a later specified date, the word "from" means "from and including" and the words "to" and "until" each mean "to but excluding". SECTION 1.03. ACCOUNTING TERMS. All accounting terms not specifically defined herein shall be construed in accordance with GAAP. If any changes in accounting principles from those used in the preparation of the financial statements referred to in Section 4.03 hereafter occasioned by the promulgation of rules, regulations, pronouncements and opinions by or required by the Financial Accounting Standards Board or the American Institute of Certified Public Accountants (or successors thereto or agencies with similar functions) result in a change in the method of calculation of financial covenants, standards or terms found in Articles I and V hereof, the parties hereto agree promptly to enter into good faith negotiations in order to amend such provisions so as to equitably reflect such changes, effective as of the date of such changes, with 21 27 the desired result that the criteria for evaluating the financial condition of the Company and its Subsidiaries shall be the same after such changes as if such changes had not been made. SECTION 1.04. CURRENCY EQUIVALENTS GENERALLY. For all purposes of this Agreement other than Article II, the equivalent in any Major Currency (other than Dollars) or Alternative Currency of an amount in Dollars shall be determined at the rate of exchange quoted by Citibank in New York City, at 9:00 A.M. (New York City time) on the date of determination, to prime banks in New York City for the spot purchase in the New York foreign exchange market of such amount of Dollars with such Major Currency or Alternative Currency. ARTICLE II AMOUNTS AND TERMS OF THE ADVANCES SECTION 2.01. THE COMMITTED ADVANCES. (a) Each Lender severally agrees, on the terms and conditions hereinafter set forth, to make Committed Advances to the Borrowers from time to time on any Business Day during the period from the date hereof to, but excluding, the Termination Date in an aggregate amount for the Borrowers, taken together, not to exceed at any time outstanding the amount set forth opposite such Lender's name on the signature pages hereof under the caption "Commitments" or, if such Lender has entered into any Assignment and Acceptance, Increased Commitment Acceptance or New Commitment Acceptance, set forth as such Lender's Commitment in the Register maintained by the Agent pursuant to Section 9.08(j), or the equivalent thereof in one or more Major Currencies or Alternative Currencies, as such amount may be reduced pursuant to Section 2.06 (such Lender's "Commitment"); provided that the aggregate amount of the Commitments of the Lenders shall be deemed used from time to time to the extent of the aggregate amount of the Bid Advances and the Letter of Credit Usage and such deemed use of the aggregate amount of the Commitments shall be applied to the Lenders ratably according to their respective Commitments (such deemed use of the aggregate amount of the Commitments resulting from the Bid Advances being the "Bid Reduction"); provided further that (i) in no event shall the aggregate principal amount of Committed Advances from any Lender outstanding at any time exceed its Commitment then in effect and (ii) the Total Utilization of Commitments shall not exceed the aggregate Commitments then in effect. (b) Each Committed Borrowing shall be in an aggregate amount not less than (i) $500,000 or integral 22 28 multiples of $500,000 in excess thereof with respect to Base Rate Advances and (ii) $1,000,000 (or the equivalent thereof in any Major Currency or Alternative Currency) or integral multiples of $500,000 (or the equivalent thereof in any Major Currency or Alternative Currency) in excess thereof with respect to Eurocurrency Advances and shall consist of Committed Advances made in the same currency on the same day by the Lenders ratably according to their respective Commitments. Within the limits of each Lender's Commitment, each Borrower may borrow, repay pursuant to Section 2.07 and reborrow under this Section 2.01(b). For purposes of this Section 2.01 and all other provisions of this Article II, the equivalent in Dollars of any Major Currency (other than Dollars) or Alternative Currency or the equivalent in any Major Currency (other than Dollars) or Alternative Currency of Dollars or of any other Major Currency or Alternative Currency shall be determined in accordance with Section 2.17. SECTION 2.02. MAKING THE COMMITTED ADVANCES. (a) Each Committed Borrowing shall be made on notice, given: (i) not later than 1:00 P.M. (New York City time) on the day of a proposed Base Rate Advance, in each case in Dollars, (ii) not later than 1:00 P.M. (New York City time) on the third Business Day prior to the requested date of a proposed Committed Borrowing consisting of Eurocurrency Advances in any Major Currency, and (iii) not later than 1:00 P.M. (New York City time) on the tenth Business Day prior to the requested date of a proposed Committed Borrowing in an Alternative Currency, by the Borrower requesting the proposed Advance to the Agent, which shall give to each Lender prompt notice thereof by telecopier, telex or cable. Each such notice of a Committed Borrowing (a "Notice of Committed Borrowing") shall be by telecopier, telex or cable, confirmed immediately in writing, in substantially the form of EXHIBIT C hereto, specifying therein the requested (i) date of such Committed Borrowing, (ii) aggregate amount of such Committed Borrowing, (iii) currency of such Committed Borrowing, (iv) whether such Borrowing will be a Base Rate Advance or a Eurocurrency Advance and (v) in the case of a Committed Borrowing comprised of Eurocurrency Advances, the initial Eurocurrency Interest Period for each Committed Advance to be made as part of such Committed Borrowing, and specifying therein that the Total Utilization of Commitments (after 23 29 giving effect to the proposed borrowing) does not exceed the aggregate Commitments then in effect. In the case of a proposed Committed Borrowing comprised of Eurocurrency Advances in an Alternative Currency, the obligation of each Lender to make its Eurocurrency Advance in the requested Alternative Currency as part of such Committed Borrowing is subject to the confirmation by such Lender to the Agent not later than the seventh Business Day before the requested date of such Committed Borrowing that such Lender agrees to make its Eurocurrency Advance in the requested Alternative Currency, which confirmation shall be notified immediately by the Agent to the Borrower requesting the proposed Advance. If any Lender shall not have so provided to the Agent such confirmation, the Agent shall promptly notify the Borrower requesting the proposed Advance and each Lender that a Lender has not provided such confirmation, whereupon such Borrower may, by notice to the Agent not later than the fifth Business Day before the requested date of such Committed Borrowing, withdraw the Notice of Committed Borrowing relating to such requested Committed Borrowing. If such Borrower does so withdraw such Notice of Committed Borrowing, the Committed Borrowing requested in such Notice of Committed Borrowing shall not occur and the Agent shall promptly so notify each Lender. If such Borrower does not so withdraw such Notice of Committed Borrowing, the Agent shall promptly so notify each Lender and such Notice of Committed Borrowing shall be deemed to be a Notice of Committed Borrowing which requests a Committed Borrowing comprised of Eurocurrency Advances in an aggregate amount in Dollars equivalent, on the date the Agent so notifies each Lender, to the amount of the originally requested Committed Borrowing in an Alternative Currency; and in such notice by the Agent to each Lender the Agent shall state such aggregate equivalent amount of such Committed Borrowing in Dollars and such Lender's ratable portion of such Committed Borrowing. Notwithstanding the foregoing, the Agent may (but shall not be required to), if any Lender shall not have so provided to the Agent such confirmation described above, upon fulfillment of the applicable conditions set forth in Article III and with notice to the Borrower requesting the proposed Advance, make available to such Borrower for the account of such Lender such Lender's pro rata share of such Borrowing in the Alternative Currency. If Agent makes a Eurocurrency Rate Advance in the requested Alternative Currency for the account of all or any of the other Lenders, the Agent shall promptly notify each such Lender of the Agent's action and shall promptly notify all Lenders of the aggregate equivalent amount of such Borrowing in Dollars and each Lender's pro rata share of such Borrowing. 24 30 The Lenders agree that in the event the Agent exercises its option to make an Advance for the account of any other Lender in accordance with the preceding paragraph and the Borrower fails to pay in full the principal amount of such Advance when due, the Agent shall promptly advise any such Lender of such failure and each such Lender shall pay to the Agent the excess of (i) the principal amount of such Advance in Dollars over (ii) the amount, if any, actually received by the Agent from the Borrower. The Agent shall advise each such Lender of the amount payable by such Lender pursuant to the preceding sentence and such Lender shall pay such amount to the Agent in same day funds at the office advised by the Agent no later than 11:00 A.M. (New York time) on the day after the date notified by the Agent. In the event that any such Lender fails to make available to the Agent the amount payable by such Lender as provided in this Section, the Agent shall be entitled to recover such amount on demand from such Lender together with interest at the customary rate set by the Agent for the correction of errors among banks for three Business Days and thereafter at the Base Rate. Each Lender's obligations under this Section shall be absolute and unconditional and shall not be affected by any circumstance or condition affecting or relating to (i) any setoff, counterclaim, recoupment, defense or other right which such Lender may have against the Agent, any Borrower or any other corporation or Person for any reason whatsoever; (ii) the occurrence or continuance of an Event of Default or a Potential Event of Default; (iii) any adverse change in the condition (financial or otherwise) of any Borrower; (iv) any breach of this Agreement by any Borrower or any other Lender; or (v) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing. The Agent shall transfer to each Lender which has paid all amounts payable by it under this Section with respect to any Advance made for its account by the Agent all payments received by the Agent from the Borrower in respect of such Advance made for its account when such payments are received. Each Lender shall, before 1:30 P.M. (New York City time) on the date of such Committed Borrowing, make available for the account of its Applicable Lending Office to the Agent (i) in the case of a Committed Borrowing in Dollars, at such account maintained at the Payment Office for Dollars as shall have been notified by the Agent to the Lenders prior thereto and in same day funds, such Lender's ratable portion of such Committed Borrowing in Dollars, and (ii) in the case of a Committed Borrowing in Major Currency (other than Dollars) or an Alternative Currency, at such account maintained at the Payment Office for such Major Currency or Alternative Currency as shall have been notified by the Agent to the Lenders prior thereto and in same day funds, such Lender's ratable portion of such Committed 25 31 Borrowing in such Major Currency or Alternative Currency. After the Agent's receipt of such funds and upon fulfillment of the applicable conditions set forth in Article III, the Agent will make such funds available to the Borrower requesting the proposed Borrowing at the aforesaid applicable Payment Office. (b) Anything in subsection (a) above to the contrary notwithstanding, (i) if any Lender shall, at least one Business Day before the date of any requested Committed Borrowing, Conversion or continuation in the case of a Eurocurrency Advance in any Major Currency or any Alternative Currency, notify the Agent and the Borrower requesting the proposed Borrowing that any change in or in the interpretation of any law or regulation makes it unlawful, or that any central bank or other governmental authority asserts that it is unlawful, for such Lender or its Eurocurrency Lending Office to perform its obligations hereunder to make Eurocurrency Advances in such Major Currency or Alternative Currency, as the case may be, or to fund or maintain Eurocurrency Advances in such Major Currency or Alternative Currency, as the case may be, hereunder, the amount of such requested Committed Borrowing, Conversion or continuation shall at such Borrower's option (x) be deemed to be reduced by such Lender's ratable share thereof or (y) be converted to a request for a Committed Borrowing as a Base Rate Advance, the obligation of such Lender to make, to Convert Advances into or to continue Eurocurrency Advances in such Major Currency or Alternative Currency, as the case may be, shall be terminated and (x) if such Advances which are the subject of such notice are Eurocurrency Advances in Dollars, such Advances of such Lender shall be automatically Converted into Base Rate Advances within 5 days following such Borrower's receipt of such notice from such Lender and (y) if such Advances which are the subject of such notice are Eurocurrency Advances in a Major Currency (other than Dollars) or an Alternative Currency, such Borrower shall prepay the outstanding principal amount of such Advances of such Lender together with interest accrued thereon to the date of such prepayment within 5 days following such Borrower's receipt of such notice from such Lender; provided that, before giving any such notice to the Agent and the Borrower, each Lender agrees to use reasonable efforts (consistent with its internal policy and legal and regulatory restrictions) to designate a different Eurocurrency Lending Office if the making of such designation would avoid such unlawfulness or the assertion thereof and would not, in the reasonable 26 32 judgment of such Lender, be otherwise disadvantageous to such Lender; (ii) if any two of the Eurocurrency Reference Banks do not furnish timely information to the Agent for determining the Eurocurrency Rate for any Eurocurrency Advances comprising any requested Committed Borrowing, Conversion or continuation in any Major Currency or Alternative Currency, as the case may be, the obligation of any Lender to make, to Convert Advances into or to continue such Committed Advances or any subsequent Committed Advances at Eurocurrency Rates in such Major Currency or Alternative Currency, as the case may be, shall be suspended until the Agent shall notify the Borrower requesting the Advance and the Lenders that the circumstances causing such suspension no longer exist and (x) if such Advances which are the subject of such suspension are Eurocurrency Advances in Dollars, such Advances shall, so long as such suspension continues, be automatically converted into Base Rate Advances within 5 days following such suspension and (y) if such Advances which are the subject of such suspension are Eurocurrency Advances in a Major Currency (other than Dollars) or an Alternative Currency, such Borrower shall, so long as such suspension continues, prepay the outstanding principal amount of such Advances together with interest accrued thereon to the date of such prepayment within 5 days following such suspension; (iii) if, at least one Business Day before the date of any requested Committed Borrowing, Conversion or continuation comprised of Eurocurrency Advances in any Major Currency or Alternative Currency, either (A) the Eurocurrency Reference Banks notify the Agent that deposits are not being offered in the London interbank market in such Major Currency or Alternative Currency, as the case may be, for the applicable Eurocurrency Interest Period in amounts substantially equal to the amount of such Borrowing or (B) the Majority Lenders notify the Agent that the Eurocurrency Rate for Eurocurrency Advances comprising such Committed Borrowing will not adequately reflect the cost to such Majority Lenders of making, funding or maintaining their respective Eurocurrency Advances for such Committed Borrowing, the obligation of any Lender to make, to Convert Advances into or to continue such Committed Advances or any subsequent Committed Advances comprised of Eurocurrency Advances in such Major Currency or Alternative Currency, as the case may be, shall be suspended until the Agent shall notify the Borrower requesting the Advance and the Lenders that the circumstances causing such suspension no longer 27 33 exist and (x) if such Advances which are the subject of such suspension are Eurocurrency Advances in Dollars, such Advances shall, so long as such suspension continues, be automatically converted into Base Rate Advances within 5 days following such suspension and (y) if such Advances which are the subject of such suspension are Eurocurrency Advances in a Major Currency (other than Dollars) or an Alternative Currency, such Borrower shall, so long as such suspension continues, prepay the outstanding principal amount of such Advances together with interest accrued thereon to the date of such prepayment within 5 days following such suspension; (iv) if a Borrower requesting an Advance shall fail to select the duration of any Eurocurrency Interest Period for any Eurocurrency Advances in accordance with the provisions contained in the definition of "Eurocurrency Interest Period" in Section 1.01, the Agent will forthwith so notify such Borrower and the Lenders and (x) if such Advances are Eurocurrency Advances in Dollars, then such Advances will automatically, on the last day of the then existing Eurocurrency Interest Period therefor, Convert into Base Rate Advances and (y) if such Advances are Eurocurrency Advances in a Major Currency (other than Dollars) or an Alternative Currency, then, subject to subparagraphs (i), (ii) and (iii) above in this Section 2.02(b), such Advances will automatically, on the last day of the then existing Eurocurrency Interest Period therefor, continue as Eurocurrency Advances in such Major Currency or Alternative Currency with a Eurocurrency Interest Period ending one month after such last day or, if earlier, ending on the Termination Date. (c) The failure of any Lender to make the Advance to be made by it as part of any Committed Borrowing shall not relieve any other Lender of its obligation, if any, hereunder to make its Advance on the date at such Borrowing, but no Lender shall be responsible for the failure of any other Lender to make the Advance to be made by such other Lender on the date of any Committed Borrowing. SECTION 2.03. THE BID ADVANCES. (a) Each Lender severally agrees that the Borrowers may make Bid Borrowings in Dollars under this Section 2.03 from time to time on any Business Day during the period from the Closing Date until the date occurring one month prior to the Termination Date, in the manner set forth below; provided that, after giving effect to the making of each Bid Borrowing, the Total Utilization of 28 34 Commitments shall not exceed the aggregate Commitments then in effect and the aggregate amount of the Bid Advances of all Lenders then outstanding shall not exceed the aggregate Commitments then in effect. (i) Each Borrower may request a Bid Borrowing under this Section 2.03 by delivering to the Agent, by telecopier, telex or cable, confirmed immediately in writing, a notice of a Bid Borrowing (a "Notice of Bid Borrowing"), in substantially the form of EXHIBIT D hereto, specifying the date and aggregate amount of the proposed Bid Borrowing, the maturity date for repayment of each Bid Advance to be made as part of such Bid Borrowing (which maturity date may not be earlier than the date occurring one month after the date of such Bid Borrowing, or in any case later than the Termination Date), whether the Lenders should offer to make Fixed Rate Advances or Eurocurrency Advances, the interest payment date or dates relating thereto, and any other terms to be applicable to such Bid Borrowing, not later than 10:00 A.M. (New York City time) (A) at least two Business Days prior to the date of a proposed Bid Borrowing consisting of Fixed Rate Advances and (B) at least four Business Days prior to the date of a proposed Bid Borrowing consisting of Eurocurrency Advances. The Agent shall in turn promptly notify each Lender of each request for a Bid Borrowing received by it from a Borrower by sending such Lender a copy of the related Notice of Bid Borrowing. (ii) Each Lender may, if, in its sole discretion, it elects to do so, irrevocably offer to make one or more Bid Advances to the Borrower requesting such Bid Advance as part of such proposed Bid Borrowing at a Fixed Rate or Rates or a margin or margins relative to the Eurocurrency Rate, as requested by the Borrower. Each Lender electing to make such an offer shall do so by notifying the Agent (which shall give prompt notice thereof to the Borrower), before 10:00 A.M. (New York City time) (A) one Business Day before the date of such proposed Bid Borrowing, in the case of a Notice of Bid Borrowing delivered pursuant to clause (A) of paragraph (i) above and (B) three Business Days before the date of such proposed Bid Borrowing, in the case of a Notice of Bid Borrowing delivered pursuant to clause (B) of paragraph (i) above, of the amount of each Bid Advance which such Lender would be willing to make as part of such proposed Bid Borrowing (which amount may, subject to the proviso to the first sentence of this Section 2.03(a), exceed such Lender's Commitment, if any), the Fixed Rate or Rates or margin or margins relative to the Eurocurrency Rate, as requested by the Borrower, which such Lender would be willing to accept for such 29 35 Bid Advance and such Lender's Applicable Lending Office with respect to such Bid Advance; provided that if the Agent in its capacity as a Lender, or any affiliate of the Agent in its capacity as a Lender, shall, in its sole discretion, elect to make any such offer, it shall notify the Borrower of such offer before 9:00 A.M. (New York City time) on the date on which notice of such election is to be given to the Agent by the other Lenders. (iii) The Borrower requesting the Bid Advance shall, in turn, (A) before 12:00 P.M. (New York City time) one Business Day before the date of such proposed Bid Borrowing, in the case of a Notice of Bid Borrowing delivered pursuant to clause (A) of paragraph (i) above and (B) before 12:00 Noon (New York City time) three Business Days before the date of such proposed Bid Borrowing, in the case of a Notice of Bid Borrowing delivered pursuant to clause (B) of paragraph (i) above, either (x) cancel such Bid Borrowing by giving the Agent notice to that effect, or (y) accept one or more of the offers made by any Lender or Lenders pursuant to paragraph (ii) above, in its sole discretion, by giving notice to the Agent of the amount of each Bid Advance to be made by each Lender as part of such Bid Borrowing, and reject any remaining offers made by Lenders pursuant to paragraph (ii) above by giving the Agent notice to that effect; provided that acceptance of offers may only be made on the basis of ascending rates for Bid Borrowings of the same Type and duration; and provided further that the Borrower may not accept offers in excess of the aggregate amount requested in the Notice of Bid Borrowing; and provided further still if offers are made by two or more Lenders for the same Type of Bid Borrowing for the same duration and with the same rate of interest, in an aggregate amount which is greater than the amount requested, such offers shall be accepted on a pro rata basis. (iv) If the Borrower requesting a Bid Advance notifies the Agent that such Bid Borrowing is cancelled pursuant to paragraph (iii)(x) above, the Agent shall give prompt notice thereof to the Lenders and such Bid Borrowing shall not be made. (v) If the Borrower requesting a Bid Advance accepts (which acceptance may not be revoked) one or more of the offers made by any Lender or Lenders 30 36 pursuant to paragraph (iii)(y) above, the Agent shall in turn promptly notify (A) each Lender that has made an offer as described in paragraph (ii) above, of the date and aggregate amount of such Bid Borrowing and whether or not any offer or offers made by such Lender pursuant to paragraph (ii) above have been accepted by the Borrower, (B) each Lender that is to make a Bid Advance as part of such Bid Borrowing, of the amount of each Bid Advance to be made by such Lender as part of such Bid Borrowing, and (C) each Lender that is to make a Bid Advance as part of such Bid Borrowing, upon receipt, that the Agent has received forms of documents appearing to fulfill the applicable conditions set forth in Article III. (b) Each Lender that is to make a Bid Advance as part of a Bid Borrowing shall, before 12:00 Noon (New York City time) on the date of such Bid Borrowing specified in the Notice of Bid Borrowing relating thereto, make available for the account of its Applicable Lending Office to the Agent at such account maintained at the Payment Office for Dollars as shall have been notified by the Agent to the Lenders prior thereto and in same day funds, such Lender's portion of such Bid Borrowing. Upon fulfillment of the applicable conditions set forth in Article III and after receipt by the Agent of such funds, the Agent will make such funds available to the Borrower requesting a Bid Advance at the aforesaid applicable Payment Office. Promptly after each Bid Borrowing the Agent will notify each Lender of the amount of the Bid Borrowing, the consequent Bid Reduction and the dates upon which such Bid Reduction commenced and will terminate. (c) Each Bid Borrowing shall be in an aggregate principal amount of not less than $5,000,000 with increments of $1,000,000 and, following the making of each Bid Borrowing, the Borrower requesting a Bid Advance and each Lender shall be in compliance with the limitations set forth in the proviso to the first sentence of subsection (a) above. (d) Within the limits and on the conditions set forth in this Section 2.03, each Borrower may from time to time borrow under this Section 2.03, repay or prepay pursuant to subsection (e) below, and reborrow under this Section 2.03, provided that a Notice of Bid Borrowing shall not be given within seven Business Days of the date of any other Notice of Bid Borrowing. (e) The Borrowers shall repay to the Agent for the account of each Lender which has made, or holds the right to repayment of, a Bid Advance to such Borrower on the maturity date of each Bid Advance (such maturity date being 31 37 that specified by the Borrower for repayment of such Bid Advance in the related Notice of Bid Borrowing delivered pursuant to subsection (a)(i) above) the then unpaid principal amount of such Bid Advance. No Borrower shall have the right to prepay any principal amount of any Bid Advance unless, and then only on the terms, specified by such Borrower for such Bid Advance in the related Notice of Bid Borrowing delivered pursuant to subsection (a)(i) above. (f) Subject to Section 2.08(c), the Borrowers shall pay interest on the unpaid principal amount of each Bid Advance from the date of such Bid Advance to the date the principal amount of such Bid Advance is repaid in full, at the rate of interest for such Bid Advance specified by the Lender making such Bid Advance in its notice with respect thereto delivered pursuant to subsection (a)(ii) above, payable on the interest payment date or dates specified by the applicable Borrower for such Bid Advance in the related Notice of Bid Borrowing delivered pursuant to subsection (a)(i) above. SECTION 2.04. FEES. (A) FACILITY FEE. The Company agrees to pay to the Agent for the account of each Lender (other than the Designated Bidders) a facility fee on such Lender's daily average Commitment, whether used or unused and without giving effect to any Bid Reduction, from the Closing Date in the case of each Financial Institution and from (A) the effective date specified in the Assignment and Acceptance or (B) the Increase Date specified in the New Commitment Acceptance, pursuant to which it became a Lender in the case of each such other Lender until the Termination Date, payable quarterly, in arrears, on the first day of each January, April, July and October during the term of such Lender's Commitment, commencing January 1, 1996, and on the Termination Date, in an amount equal to the product of (i) such Lender's daily average Commitment, whether used or unused and without giving effect to any Bid Reduction, in effect during the period for which such payment that is to be made and (ii) the Daily Weighted Average Rate. The "Daily Weighted Average Rate" for any period is a per annum rate determined by (I) multiplying the following rates by the number of days during such period for which such rate was applicable: (a) a rate of 0.110% per annum with respect to each day during such period that Level 1 was applicable, (b) a rate of 0.125% per annum with respect to each day during such period that Level 2 was applicable, (c) a rate of 0.150% per annum with respect to each day during such period that Level 3 was applicable, (d) a rate of 0.175% per annum with respect to each day during such period that Level 4 was applicable and (e) a rate of 0.250% per annum with respect to each day during such period that Level 5 was 32 38 applicable, (II) summing the results of item (I), and dividing such sum by the number of days in such period. If any change in the rating established by S&P or Moody's with respect to Long-Term Debt shall result in a change in the Level, the change in the Applicable Margin shall be effective as of the date on which such rating change is publicly announced, and if any change in the Company's Leverage shall result in a change in the Level, the change in the facility fee rate shall be effective as of the last date of the period covered by the financial statements delivered by the Company pursuant to Section 5.01(a) hereof reflecting such change in Leverage. (B) BID ADVANCE ADMINISTRATION FEE. The Company agrees to pay the Agent for its own account a handling fee as set forth in that certain fee letter dated December 1, 1995 between the Agent and the Company in connection with each request for a Bid Advance pursuant to Section 2.03. (C) AGENT'S FEE. The Company agrees to pay the Agent, for its own account, an Agent's Fee as set forth in that certain fee letter dated December 1, 1995 between the Agent and the Company. SECTION 2.05. OPTIONAL INCREASE OF THE COMMITMENTS. (a) Not more than once in any calendar year, the Company may propose to increase the aggregate Commitments by an aggregate amount of not less than $10,000,000 or an integral multiple of $10,000,000 in excess thereof (the "Proposed Aggregate Commitment Increase") in the manner set forth below; provided that the then current aggregate Commitments plus the Proposed Aggregate Commitment Increase shall not be greater than the Maximum Permitted Aggregate Commitment; provided further that immediately prior to and after giving effect to the Proposed Aggregate Commitment Increase no event has occurred and is continuing that constitutes an Event of Default or that would constitute a Potential Event of Default; provided, still further, that on the date the aggregate Commitments would be increased by the Proposed Aggregate Commitment Increase (the "Increase Date"), if any Eurocurrency Rate Advances are then outstanding, any payments which would be payable under Section 9.04(b) in connection with a prepayment of such Eurocurrency Rate Advances on such date shall be paid if the reallocation of Commitments on the Increase Date requires payments among the Lenders as provided for in Section 9.08(j). (b) The Company may request the Proposed Aggregate Commitment Increase by delivering to the Agent, not later than 10:00 A.M. (New York City time) at least thirty days prior to the proposed Increase Date, a notice specifying (i) the Proposed Aggregate Commitment Increase, 33 39 (ii) the proposed Increase Date and (iii) any banks, financial institutions or other entities, that are not Lenders (the "Third Parties"), to whom, in addition to the existing Lenders, the Company desires to offer the opportunity to commit to all or a portion of the Proposed Aggregate Commitment Increase. The Agent shall in turn promptly notify each Lender by sending each Lender a copy of such notice. (c) Each Lender, in its sole discretion, may irrevocably offer to commit to all or a portion of the Proposed Aggregate Commitment Increase in increments of $1,000,000 (the "Proposed Increased Commitment") by notifying the Agent (which shall give prompt notice thereof to the Company) before 11:00 A.M. (New York City time) five Business Days before the Increase Date; provided that if the amount of Proposed Increased Commitments exceeds the Proposed Aggregate Commitment Increase, such Proposed Increased Commitments shall be allocated on a pro rata basis based on the ratio of each Lender's Proposed Increased Commitment, if any, to the aggregate of all Proposed Increased Commitments; provided further that each Lender that submits a Proposed Increased Commitment shall execute and deliver to the Agent (for its acceptance and recording in the Register upon an increase in the aggregate Commitments on any related Increase Date) an Increased Commitment Acceptance in accordance with the provisions of Section 9.08 hereof. (d) Four Business Days before the Increase Date the Agent shall notify each Third Party acceptable to the Majority Lenders (determined without giving effect to any increase in Commitments then being proposed) (which acceptance shall not be unreasonably withheld) (each an "Accepted Lender") of the opportunity to commit to that portion of the Proposed Aggregate Commitment Increase not committed to by Lenders pursuant to subsection (b) (the "Increase Remainder"). (e) Each Accepted Lender may irrevocably commit to all or a portion of the Increase Remainder (a "Proposed New Commitment") by notifying the Agent (which shall give prompt notice thereof to the Company) before 11:00 A.M. (New York City time) one Business Day before the Increase Date; provided that the minimum Proposed New Commitment of each Accepted Lender shall be in an aggregate amount of not less than $5,000,000; provided further that each Accepted Lender that submits a Proposed New Commitment shall execute and deliver to the Agent (for its acceptance and recording in the Register upon an increase in the Aggregate Commitment on any related Increase Date) a New Commitment Acceptance in accordance with the provisions of Section 9.08 hereof. 34 40 (f) In the event the aggregate amount of Proposed Increased Commitments and Proposed New Commitments, if any, equal the Proposed Aggregate Commitment Increase and the Agent shall have received on or before the Increase Date certified copies of the resolutions of the Executive Committee of the Board of Directors of the Company approving such increase of the Commitments, and of all documents evidencing other necessary corporate action, if any, with respect to such increase, then on the Increase Date, the Current Aggregate Commitment shall be increased by the Proposed Aggregate Commitment Increase. (g) In the event the aggregate amount of Proposed Increased Commitments and Proposed New Commitments, if any, is less than the Proposed Aggregate Commitment Increase, then the then current aggregate Commitments shall remain unchanged; provided, however, that, unless the aggregate amount of Proposed Increased Commitments and Proposed New Commitments is zero, the Company may within the same calendar year again propose to increase the aggregate Commitments pursuant to the terms of this Section 2.05. SECTION 2.06. REDUCTION OF THE COMMITMENTS. The Company shall have the right, upon at least two Business Days' notice to the Agent, to terminate in whole or reduce ratably in part the unused portions of the respective Commitments of the Lenders; provided, however, that (i) each partial reduction shall be in the aggregate amount of $1,000,000 or an integral multiple of $500,000 in excess thereof, (ii) the aggregate of the Commitments of the Lenders shall not be reduced to an amount which is less than the Total Utilization of Commitments. Once so reduced or terminated pursuant to this Section 2.06, Commitments of the Lenders shall not be reinstated. SECTION 2.07. REPAYMENT OF THE COMMITTED ADVANCES. Each Borrower shall repay the principal amount of each Committed Advance made by each Lender to such Borrower on the Termination Date. SECTION 2.08. INTEREST ON THE COMMITTED ADVANCES. Each Borrower shall pay to each Lender interest on the unpaid principal amount of each Committed Advance made by such Lender to such Borrower from the date of such Committed Advance until such principal amount shall be paid in full, at the following rates per annum: 35 41 (A) BASE RATE ADVANCES. Subject to Section 2.08(c), if such Committed Advance is a Base Rate Advance, a rate per annum equal at all times to the Base Rate in effect from time to time payable quarterly, in arrears, on the first day of each January, April, July and October during such periods and on the Termination Date. (B) EUROCURRENCY ADVANCES. Subject to Section 2.08(c), if such Committed Advance is a Eurocurrency Advance, a rate per annum equal at all times during the Eurocurrency Interest Period for such Committed Advance to the sum of the Eurocurrency Rate for such Eurocurrency Interest Period plus the Applicable Margin payable on the last day of such Eurocurrency Interest Period and, if such Eurocurrency Interest Period has a duration of more than three months, on each day which occurs during such Interest Period every three months from the first day of such Eurocurrency Interest Period. (C) DEFAULT RATE. Notwithstanding any provisions contained in Section 2.08(a) or (b) or Section 2.03, following the occurrence and during the continuance of an Event of Default described in Section 6.01(a), Section 6.01(e), Section 6.01(f) or Section 6.01(c) with respect to the reference therein to Sections 5.02(a), (b), (c), (d), (e), (f), (g), (h), (i), (j), (k), (l), (m) or (n), to the extent permitted by applicable law, the Advances and other Obligations shall bear interest until paid in full at a rate per annum that is (x) 2.0% above the rate otherwise payable on such Advances and (y) 2.0% above the Base Rate, in effect from time to time, in the case of such other Obligations due and unpaid; provided that, in the case of Eurocurrency Advances, upon the expiration of the Eurocurrency Interest Period in effect at the time any such increase in interest rate is effective, such Eurocurrency Advances shall thereupon become Base Rate Advances and shall thereafter bear interest payable upon demand at a rate which is 2.0% per annum in excess of the interest rate otherwise payable under this Agreement for Base Rate Advances. SECTION 2.09. INTEREST RATE DETERMINATION. The Eurocurrency Reference Banks each agree to furnish to the Agent timely information for the purpose of determining each Eurocurrency Rate. The Agent shall give prompt notice to the applicable Borrower and the Lenders of the applicable interest rate determined by the Agent for purposes of Section 2.08(a) or Section 2.08(b) and the applicable rate, if any, furnished by the Eurocurrency Reference Banks for the purpose of determining the applicable interest rate under Section 2.03(a) or Section 2.08(b). 36 42 SECTION 2.10. VOLUNTARY CONVERSION OR CONTINUATION OF COMMITTED ADVANCES. (a) Each Borrower may on any Business Day, upon notice given to the Agent not later than 1:00 P.M. (New York City time) on the third Business Day prior to the date of the proposed Conversion or continuance and subject to the provisions of Sections 2.02 and 2.11, (1) Convert all Committed Advances of one Type (other than Eurocurrency Advances in a Major Currency (other than Dollars) or an Alternative Currency) comprising the same Committed Borrowing made to such Borrower into Advances of another Type denominated in Dollars and (2) upon the expiration of any Eurocurrency Interest Period applicable to Committed Advances which are Eurocurrency Advances, continue all such Advances as Eurocurrency Advances and the succeeding Eurocurrency Interest Period(s) of such continued Advance shall commence on the last day of the Eurocurrency Interest Period of the Advance to be continued; provided, however, that any Conversion of any Eurocurrency Advances into Base Rate Advances shall be made on, and only on, the last day of a Eurocurrency Interest Period for such Eurocurrency Advances. Each such notice of a continuation or Conversion shall, within the restrictions specified above, specify (i) the date of such continuation or Conversion, (ii) the Committed Advances to be continued or Converted, (iii) if such continuation is of, or such Conversion is into Eurocurrency Rate Advances, the duration of the Eurocurrency Interest Period for such Committed Advance and (iv) that no Event of Default has occurred and is continuing. (b) Subject to Section 2.11(c), if upon the expiration of the then existing Eurocurrency Interest Period applicable to any Committed Advance which is a Eurocurrency Advance, the Borrower that received such Advance shall not have delivered a notice of continuation or Conversion in accordance with this Section 2.10, then such Advance shall upon such expiration automatically be Converted to a Base Rate Advance; provided, however, that if such Advance is a Eurocurrency Advance in a Major Currency (other than Dollars) or an Alternative Currency and no Potential Event of Default shall have occurred and be continuing, then, such Advance shall upon such expiration automatically continue as a Eurocurrency Advance in such Major Currency or Alternative Currency with a Eurocurrency Interest Period ending one month after such expiration, or if earlier, ending on the Termination Date. (c) After the occurrence of and during the continuance of a Potential Event of Default or an Event of Default, a Borrower that received an Advance may not elect to have such Advance be made or continued as, or Converted to, a Eurocurrency Advance, in each case after the 37 43 expiration of any Eurocurrency Interest Period then in effect for that Advance. SECTION 2.11. PREPAYMENTS. (a) Any Borrower may, upon notice to the Agent given not later than 11:00 A.M. (New York time) (i) on the date of prepayment in the case of Base Rate Advances, (ii) at least two Business Days' prior to the date of prepayment in the case of Eurocurrency Advances in Dollars and (iii) at least three Business Days' prior to the date of prepayment in the case of Eurocurrency Advances in a Major Currency (other than Dollars) or an Alternative Currency, stating the proposed date and aggregate principal amount of the prepayment, and if such notice is given such Borrower shall, prepay the outstanding principal amounts of the Advances described in such notice together with accrued interest to the date of such prepayment on the principal amount prepaid and pay any amounts pursuant to Section 9.04(b); provided, however, that each partial prepayment shall be in an aggregate principal amount not less than $1,000,000 (or the equivalent thereof in any Major Currency or Alternative Currency) in the case of prepayments of Eurocurrency Advances and $500,000 in the case of prepayments of Base Rate Advances and in increments of $500,000 in excess thereof. No Borrower shall have any right to prepay Bid Advances except as specified in the Notice of Bid Borrowing relating thereto. (b) If on any day the aggregate principal amount of all Advances then outstanding together with the Letter of Credit Usage exceeds the total of the Commitments, the Borrowers shall on such day prepay an aggregate principal amount of Advances ratably to the Lenders in an amount at least equal to such excess, with accrued interest to the date of such prepayment on the principal amount prepaid. (c) If on any date the Agent shall have determined that the dollar equivalent value (as determined in accordance with Section 2.17) of the Total Utilization of Commitments exceeds 103% of the Maximum Permitted Aggregate Commitment due to a change in applicable rates of exchange between Dollars and Major Currencies (other than Dollars) or Alternative Currencies, then the Agent shall give notice to the Borrowers that a prepayment is required under this Section, and the Borrowers agree thereupon to make prepayments of Committed Borrowings such that, after giving effect to such prepayment the dollar equivalent value of the Total Utilization of Commitments does not exceed the Maximum Permitted Aggregate Commitment; provided that with respect to any Committed Borrowing relating to a Eurocurrency Advance, the Borrowers may make any such required 38 44 prepayments at the end of the applicable Eurocurrency Interest Period. SECTION 2.12. INCREASED COSTS, ETC. (a) If, due to either (i) the introduction of or any change (other than any change by way of imposition or increase of reserve requirements, in the case of Eurocurrency Advances, included in the Eurocurrency Reserve Percentage) in or in the interpretation of any law or regulation (other than any law or regulation imposing a tax on or measured by net income that is imposed by the country (or any political subdivision thereof) in which the Lender suffering the increased cost described below is organized, has its principal executive office or has its Applicable Lending Office, and any withholding tax with respect to such a tax) or (ii) the compliance with any future guideline or request from any central bank or other governmental authority (whether or not having the force of law), there shall be any increase in the cost to any Lender of agreeing to make or making, funding or maintaining Eurocurrency Advances (which increase in cost shall be determined by such Lender's reasonable allocation of the aggregate of such cost increases resulting from such event), then the Borrower that received such Advance shall from time to time, within 10 days after demand by such Lender (with a copy of such demand to the Agent), pay to the Agent for the account of such Lender additional amounts sufficient to compensate such Lender for such increased cost; provided that, before making any such demand, each Lender agrees to use reasonable efforts (consistent with its internal policy and legal and regulatory restrictions) to designate a different Applicable Lending Office if the making of such a designation would avoid the need for, or reduce the amount of, such additional cost and would not, in the reasonable judgment of such Lender, be otherwise disadvantageous to such Lender. (b) If any Lender (other than the Designated Bidders) reasonably determines that, after the date hereof, the adoption or compliance with any law or regulation or any guideline or request from any central bank or other governmental authority (whether or not having the force of law) affects or would affect the amount of capital required or expected to be maintained by such Lender or any corporation controlling such Lender and that the amount of such capital is increased by or based upon the existence of such Lender's commitment to lend hereunder and other commitments of this type or the issuance or continuation of the Letters of Credit hereunder, and such Lender reasonably determines that the rate of return on its or such controlling corporation's capital as a consequence of Advances made by such Lender is reduced to a level below that which such Lender or such controlling corporation would 39 45 have achieved but for the occurrence of such circumstances, then, within 10 days after demand by such Lender (with a copy of such demand to the Agent), the Borrower that received such Advance shall pay to the Agent for the account of such Lender, from time to time as specified by such Lender, additional amounts sufficient to compensate such Lender or such corporation for such reduction in rate of return, to the extent that such Lender reasonably determines such increase in capital to be allocable to the existence of such Lender's commitment to lend hereunder or to issue or continue the Letters of Credit hereunder. (c) If any change in any law or regulation or in the interpretation thereof by any court or administrative or governmental authority charged with the administration thereof shall either (i) impose, modify or deem applicable any reserve, special deposit or similar requirement against letters of credit or similar instruments issued by, or assets held by, or deposits in or for the account of, any Issuing Bank or (ii) impose on any Issuing Bank any other condition regarding this Agreement as it pertains to the Letters of Credit, and the result of any event referred to in the preceding clause (i) or (ii) shall be to increase the cost to any Issuing Bank of issuing or maintaining any Letter of Credit or any participation therein (which increase in cost shall be determined by Agent's reasonable allocation of the aggregate of such cost increases resulting from such event), then, within 10 days after demand by an Issuing Bank, the applicable Borrower shall pay to such Issuing Bank, from time to time as specified by such Issuing Bank, additional amounts that shall be sufficient to compensate the Issuing Bank for such increased cost. (d) If any Issuing Bank reasonably determines that compliance with any future guideline or request from any central bank or other governmental authority (whether or not having the force of law) affects or would affect the amount of capital required to be maintained by such Issuing Bank or any corporation controlling such Issuing Bank, and such Issuing Bank reasonably determines that the amount of such capital is increased by or based upon the existence of the commitment of the Issuing Bank to issue or join in or cause the issuance or acceptance of Letters of Credit hereunder and other commitments of the same type and such Issuing Bank reasonably determines that the rate of return on its or such controlling corporation's capital as a consequence of such Letters of Credit issued by such Issuing Bank is reduced to a level below that which such Issuing Bank or such controlling corporation would have achieved but for the occurrence of such circumstances, then, within 10 days after demand by such Issuing Bank (with a copy to the Agent), the applicable Borrower shall pay to such Issuing Bank from time to time such additional amounts as may be 40 46 specified by such Issuing Bank as sufficient to compensate it for such reduction in the rate of return, to the extent that such Issuing Bank reasonably determines such increase in capital to be allocable to the existence of any such commitment of such Issuing Bank hereunder or to the issuance or maintenance of any Letters of Credit hereunder. (e) Each Lender and Issuing Bank will notify the applicable Borrower and the Agent of any event occurring after the date of this Agreement which will entitle such Lender or Issuing Bank to compensation pursuant to this Section 2.12 as promptly as practicable after it obtains knowledge thereof specifying the event giving rise to such claim and setting out in reasonable detail an estimate (without prejudice) of the basis and computation of such claim. Upon receipt of such notice and of such further notice as may be required pursuant to the final sentence of this subsection (e), the applicable Borrower shall compensate such Lender or Issuing Bank in accordance with this Section 2.12 from the date such costs are incurred (including, without limitation, where such costs are retroactively applied); provided that the applicable Borrower shall not be required to compensate a Lender or Issuing Bank for costs incurred earlier than 180 days prior to the date of the notice required to be delivered to the applicable Borrower pursuant to this subsection (e). As soon as practicable after the delivery of the initial notice pursuant to this subsection (e), such requesting Lender or the Issuing Bank shall furnish the applicable Borrower with a certificate setting forth in reasonable detail the basis and amount of each request by it for compensation under this Section 2.12, and such amount shall promptly be paid by the applicable Borrower. (f) If any Lender or Issuing Bank requests compensation from a Borrower under this Section 2.12, such Borrower shall have the right, with the assistance of the Agent, to seek one or more substitute banks or financial institutions (which may be one or more of the Lenders) to purchase the Advances and Letters of Credit and assume the Commitments of such Lender or Issuing Bank. If (i) such substitute banks or financial institutions are acceptable to the Agent and the Company and (ii) no Event of Default or Potential Event of Default shall have occurred and be continuing and (iii) all amounts due and owing such Lender or Issuing Bank, as the case may be, in respect of the Obligations shall have been paid, then the Borrowers, the Agent, such Lender, such Issuing Bank and such substitute banks or financial institutions shall execute and deliver an appropriately completed Assignment and Acceptance pursuant to Section 9.08(b) hereof to effect the assignment of rights to and the assumption of obligations by such substitute banks or financial institutions; provided that if such 41 47 substitute bank or financial institution is not a Lender, the Company shall pay to the Agent an administrative fee as reasonably determined by the Agent, but in no event in excess of $3,000. Upon such purchase and assumption by such substituted banks or financial institutions, the obligations of such requesting Lender or Issuing Bank shall be discharged; provided that such requesting Lender or Issuing Bank shall be entitled to compensation under this Section 2.12 for any costs incurred by it prior to its replacement. SECTION 2.13. PAYMENTS AND COMPUTATIONS. (a) Each Borrower shall make each payment hereunder, except with respect to principal of, interest on, and other amounts relating to, Advances denominated in a Major Currency (other than Dollars) or an Alternative Currency, not later than 1:00 P.M. (New York City time) on the day when due in Dollars to the Agent in same day funds by deposit of such funds to the Agent's account maintained at the Payment Office for Dollars. Each Borrower shall make each payment hereunder with respect to principal of, interest on, and other amounts relating to Advances denominated in a Major Currency (other than Dollars) or an Alternative Currency not later than 1:00 P.M. (at the Payment Office for such Major Currency or Alternative Currency) on the day when due in such Major Currency or Alternative Currency to the Agent in same day funds by deposit of such funds to the Agent's account maintained at such Payment Office. The Agent will promptly thereafter cause to be distributed like funds relating to the payment of principal or interest or fees ratably (other than amounts payable in respect of interest on Advances made by Agent for the account of another Lender pursuant to Section 2.02 or pursuant to Section 2.03, 2.12 or 2.14, which amounts will be distributed to the Lenders in accordance with their respective interests) to the Lenders for the account of their respective Applicable Lending Offices, and like funds relating to the payment of any other amount payable to any Lender to such Lender for the account of its Applicable Lending Office in respect of an Advance made by the Agent for the account of another Lender pursuant to Section 2.02(a) equal to the Eurocurrency Rate plus one-eighth of the amount of interest payable in excess of the Eurocurrency Rate to Agent for the account of its Applicable Lending Office and the remaining seven-eighths of the amount of interest payable in excess of the Eurocurrency Rate to such other Lender for the account of its Applicable Lending Office, in each case to be applied in accordance with the terms of this Agreement; provided that payments with respect to reimbursement obligations under Letters of Credit shall be apportioned among the parties which have a pro rata share; provided further that all principal and interest payments in respect of any Bid Advances shall be apportioned 42 48 ratably among the Lenders making such Advances in accordance with their respective outstanding principal amount of such Advances. Upon its acceptance of an Assignment and Acceptance, Increased Commitment Acceptance or New Commitment Acceptance and recording of the information contained therein in the Register pursuant to Section 9.08, from and after the effective date specified in such document, the Agent shall make all payments hereunder in respect of the interest assigned thereby to the Lender assignee thereunder, Lender or Accepted Lender thereunder and the parties to such Assignment and Acceptance shall make all appropriate adjustments in such payments for periods prior to such effective date directly between themselves. (b) Each Borrower hereby authorizes each Lender, if and to the extent payment owed to such Lender is not made by such Borrower to the Agent when due hereunder, to charge from time to time against any or all of such Borrower's accounts with such Lender any amount so due. (c) All computations of interest based on the Base Rate shall be made by the Agent on the basis of a year of 365 or 366 days, as the case may be, and all computations of interest based on the Eurocurrency Rate, the Federal Funds Rate or the Fixed Rate and of commitment fees shall be made by the Agent on the basis of a year of 360 days, in each case for the actual number of days (including the first day but excluding the last day) occurring in the period for which such interest or commitment fees are payable. Each determination by the Agent of an interest rate hereunder shall be conclusive and binding for all purposes, absent manifest error. (d) Except as otherwise provided in Section 2.02(a), each Notice of Committed Borrowing and each acceptance of a Bid Borrowing shall be irrevocable and binding on the Borrower requesting such proposed Borrowing. In the case of any Committed Borrowing and any Bid Borrowing which is comprised of Eurocurrency Advances or Fixed Rate Advances, the Borrower requesting such proposed Borrowing shall indemnify each Lender against any loss, cost or expense incurred by such Lender as a result of any failure to fulfill on or before the date specified in such Notice of Committed Borrowing or acceptance of a Bid Borrowing the applicable conditions set forth in Article III, including, without limitation, any loss, cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Lender to fund the Advance to be made by such Lender as part of such Committed Borrowing or Bid Borrowing when such Advance, as a result of such failure, is not made on such date. 43 49 (e) Except as otherwise provided in Section 2.02(a), unless the Agent shall have received notice from a Lender prior to the date of any Borrowing that such Lender will not make available to the Agent the amount required to be made available by such Lender as part of such Borrowing, the Agent may assume that such Lender has made such amount available to the Agent on the date of such Borrowing in accordance with Section 2.02(a) or 2.03(b), as the case may be, and the Agent may, in reliance upon such assumption, make available to the Borrower requesting the proposed Borrowing on such date a corresponding amount. If and to the extent that such Lender shall not have so made such amount available to the Agent, such Lender and the Borrower requesting the proposed Borrowing severally agree to repay to the Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to such Borrower until the date such amount is repaid to the Agent, at (i) in the case of such Borrower, the interest rate or rates applicable to such amount and (ii) in the case of such Lender, the Federal Funds Rate. If such Lender shall repay to the Agent such corresponding amount, such amount so repaid shall constitute such Lender's Advance or Advances as part of such Borrowing for purposes of this Agreement. (f) In determining the duration of Eurocurrency Interest Periods under this Agreement, (i) Eurocurrency Interest Periods commencing on the same date for Advances comprising part of the same Borrowing shall be of the same duration, (ii) whenever the last day of any Eurocurrency Interest Period would otherwise occur on a day other than a Business Day, the last day of such Eurocurrency Interest Period shall occur on the next succeeding Business Day, provided, that if such extension of time would cause the last day of any Eurocurrency Interest Period to occur in the next following calendar month, such last day shall occur on the next preceding Business Day, and (iii) any Eurocurrency Interest Period which would otherwise end after the Termination Date shall end on the Termination Date. (g) Whenever any payment hereunder shall be stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of payment of interest or commitment fee, as the case may be, provided, that, if such extension would cause payment of interest on or principal of Eurocurrency Advances to be made in the next following calendar month, such payment shall be made on the next preceding Business Day. (h) Unless the Agent shall have received notice from a Borrower prior to the date on which any payment is 44 50 due to the Lenders hereunder that such Borrower will not make such payment in full, the Agent may assume that such Borrower has made such payment in full on such date and the Agent may, in reliance upon such assumption, cause to be distributed to each Lender on such due date an amount equal to the amount then due such Lender. If and to the extent that a Borrower shall not have so made such payment in full to the Agent, each Lender shall repay to the Agent forthwith on demand such amount distributed to such Lender together with interest thereon, for each day from the date such amount is distributed to such Lender until the date such Lender repays such amount to the Agent, at the Federal Funds Rate. (i) All payments received by the Agent shall be applied to the payment of interest before application to principal. The amount of each payment shall be applied (i) first, to outstanding Committed Advances due to the full extent thereof, (ii) second, to amounts due under Section 2.18 pro rata to the full extent thereof, (iii) third, to outstanding Bid Advances due to the full extent thereof, and (iv) fourth, to any other amounts due under this Agreement. SECTION 2.14. TAXES. (a) Any and all payments by any Borrower or the Agent hereunder shall be made, in accordance with Section 2.13, free and clear of and without deduction for any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding, (i) in the case of each Lender, the Agent and the Co-Agent, taxes imposed on its income, and franchise taxes imposed on it, by the jurisdiction under the laws of which such Lender, the Agent or the Co-Agent (as the case may be) is organized or any political subdivision thereof and, in the case of each Lender, taxes imposed on its income, and franchise taxes imposed on it, by the jurisdiction of such Lender's Applicable Lending Office or any political subdivision thereof and (ii) in the case of any assignment by a Lender to an Eligible Assignee pursuant to Section 9.08, or any change by a Lender of an Applicable Lending Office in one jurisdiction to an Applicable Lending Office in another jurisdiction, any excess in the withholding tax applicable to such Eligible Assignee, or such new Applicable Lending Office, over the withholding tax (other than any withholding tax excluded from the definition of Taxes under clause (i) or this clause (ii) of Section 2.14(a)) applicable to the former Lender, or the former Applicable Lending Office, in 45 51 each case as determined under laws (including, without limitation, any treaty, law, rule, regulation or determination) applicable to the former Lender and such Eligible Assignee, or the former Applicable Lending Office and such new Applicable Lending Office, and in effect on the date of such assignment, or such change in Applicable Lending Office, but not including any increase in withholding tax resulting from any subsequent change in such laws (all such non-excluded taxes, levies, imposts, deductions, charges, withholdings and liabilities being hereinafter referred to as "Taxes"). If a Borrower or the Agent shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder to any Lender or the Agent, (i) the sum payable by such Borrower shall be increased as may be necessary so that after such Borrower or the Agent has made all required deductions (including deductions applicable to additional sums payable under this Section 2.14) such Lender or the Agent (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) such Borrower or the Agent shall make such deductions and (iii) such Borrower or the Agent shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law. (b) In addition, each Borrower agrees to pay any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies imposed by any taxing authority of the United States or any political subdivision thereof which arise from any payment made by such Borrower or by the Agent hereunder or from the execution, delivery or registration of, or otherwise with respect to, this Agreement (hereinafter referred to as "Other Taxes"). (c) Each Borrower will indemnify each Lender and the Agent for the full amount of Taxes or Other Taxes (to the extent specifically attributable to Borrowings made by such Borrower) (including, without limitation, any Taxes or Other Taxes (to the extent specifically attributable to Borrowings made by such Borrower) imposed by any jurisdiction on amounts payable under this Section 2.14) paid by such Lender or the Agent (as the case may be) and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto, whether or not such Taxes or Other Taxes were correctly or legally asserted. This indemnification shall be made within 30 days from the date such Lender or the Agent (as the case may be) makes written demand therefor. 46 52 (d) Within 30 days after the date of any payment by a Borrower of Taxes, such Borrowers will furnish to the Agent, at its address referred to in Section 9.02, the original or a certified copy of a receipt evidencing payment thereof. (e) Each Lender organized under the laws of a jurisdiction outside the United States, on or prior to the date of its execution and delivery of this Agreement in the case of each initial Lender and on the date of the Assignment and Acceptance or New Commitment Acceptance pursuant to which it becomes a Lender in the case of each other Lender, and from time to time thereafter if requested in writing by a Borrower (but only so long as such Lender remains lawfully able to do so), shall provide such Borrower with Internal Revenue Service form 1001 or 4224, as appropriate, or any successor form prescribed by the Internal Revenue Service, certifying that such Lender is entitled to benefits under an income tax treaty to which the United States is a party which reduces the rate of withholding tax on payments of interest or certifying that the income receivable pursuant to this Agreement is effectively connected with the conduct of a trade or business in the United States. If the form provided by a Lender at the time such Lender first becomes a party to this Agreement indicates a United States interest withholding tax rate in excess of zero, withholding tax at such rate shall be considered excluded from "Taxes" as defined in Section 2.14(a). (f) For any period with respect to which a Lender has failed to provide a Borrower with the appropriate form described in Section 2.14(e) (other than if such failure is due to a change in law occurring subsequent to the date on which a form originally was required to be provided, or if such form otherwise is not required under the first sentence of subsection (e) above), such Lender shall not be entitled to indemnification under Section 2.14(a) with respect to Taxes imposed by the United States; provided, however, that should a Lender become subject to Taxes because of its failure to deliver a form required hereunder, such Borrower shall take such steps as the Lender shall reasonably request to assist the Lender to recover such Taxes. (g) Notwithstanding any contrary provisions of this Agreement, in the event that a Lender that originally provided such form as may be required under Section 2.14(e) thereafter ceases to qualify for complete exemption from United States withholding tax, such Lender may assign its interest under this Agreement to any assignee (with the prior approval of the Company which shall not be unreasonably withheld) and such assignee shall be entitled to the same benefits under this Section 2.14 as the assignor 47 53 provided that the rate of United States withholding tax applicable to such assignee shall not exceed the rate then applicable to the assignor. (h) Without prejudice to the survival of any other agreement of the Borrowers hereunder, the agreements and obligations of the Borrowers contained in this Section 2.14 shall survive the payment in full of principal and interest hereunder. (i) Each Lender will designate a different Lending Office if such designation will avoid the need for payment of, or will reduce the amount of, Taxes under this Section 2.14 and will not, in the reasonable judgment of such Lender, be otherwise disadvantageous to such Lender. If any Lender shall have become entitled to receive any further payments of additional amounts pursuant to this Section 2.14 and shall not, after notice from the applicable Borrower, have designated a different Lending Office so as to avoid the need for such payments to such Lender, the Company shall have the right, with the assistance of the Agent, to seek one or more substitute banks or financial institutions (which may be one or more of the Lenders) reasonably satisfactory to the Agent and the Company to purchase the Advances and Letters of Credit and assume the Commitments of such Lender, and the Borrowers, the Agent, such Lender and such substitute banks or financial institutions shall execute and deliver an appropriately completed Assignment and Acceptance pursuant to Section 9.08(b) hereof to effect the assignment of rights to and the assumption of obligations by such substitute banks or financial institutions. Upon such purchase and assumption by such substituted banks or financial institutions, the obligations of such requesting Lender shall be discharged; provided that such requesting Lender shall be entitled to compensation under this Section 2.14 for all amounts owed to it pursuant to this Section prior to its replacement. SECTION 2.15. SHARING OF PAYMENTS, ETC. If any Lender shall obtain any payment (whether voluntary, involuntary, through the exercise of any right of setoff, or otherwise) on account of the Committed Advances or Letters of Credit made by it (other than pursuant to Section 2.12 or 2.14) in excess of its ratable share of payments on account of the Committed Advances or Letters of Credit obtained by all the Lenders, as the case may be, such Lender shall forthwith purchase from the other Lenders, as the case may be, such participations in the Committed Advances or Letters of Credit made by them as shall be necessary to cause such purchasing Lender to share the excess payment ratably with each of them, provided, however, that if all or any portion of such excess payment is thereafter recovered from such purchasing Lender, such purchase from each Lender shall be 48 54 rescinded and such Lender shall repay to the purchasing Lender the purchase price to the extent of such recovery together with an amount equal to such Lender's ratable share (according to the proportion of (a) the amount of such Lender's required repayment to (b) the total amount so recovered from the purchasing Lender) of any interest or other amount paid or payable by the purchasing Lender in respect of the total amount so recovered. Each Borrower agrees that any Lender so purchasing a participation from another Lender pursuant to this Section 2.15 may, to the fullest extent permitted by law, exercise all its rights of payment (including the right of setoff) with respect to such participation as fully as if such Lender were the direct creditor of such Borrower in the amount of such participation. SECTION 2.16. EVIDENCE OF DEBT. (a) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of each Borrower to such Lender resulting from each Advance and Letter of Credit owing to such Lender from time to time, including the amounts of principal and interest payable and paid to such Lender from time to time hereunder. (b) The Register maintained by the Agent pursuant to Section 9.08(j) shall include a control account, and a subsidiary account for each Lender, in which accounts (taken together) shall be recorded (i) the date, amount and tenor, as applicable, of each Borrowing and Letter of Credit made hereunder, the Type of Advances comprising such Borrowing and the Eurocurrency Interest Period applicable thereto and, if such Advances are Eurocurrency Advances, the currency in which such Advances are made and with respect to Letters of Credit the tenor of such obligations, (ii) the terms of each Assignment and Acceptance, Increased Commitment Acceptance and New Commitment Acceptance delivered to and accepted by it, (iii) the amount of any principal or interest due and payable or to become due and payable from the Borrowers to each Lender hereunder, and (iv) the amount of any sum received by the Agent from the Borrowers hereunder and each Lender's share thereof. (c) The entries made in the Register shall be conclusive and binding for all purposes, absent manifest error. (d) If, in the opinion of any Lender, a promissory note or other evidence of debt is required, appropriate or desirable to reflect or enforce the indebtedness of a Borrower resulting from the Committed Advances or Bid Advances made, or to be made, by such Lender 49 55 to such Borrower, then, upon request of such Lender, such Borrower shall promptly execute and deliver to such Lender a promissory note substantially in the form of EXHIBIT F-1 in the case of Committed Advances and EXHIBIT F-2 in the case of Bid Advances, payable to the order of such Lender in an amount up to the maximum amount of Committed Advances or Bid Advances, as the case may be, payable or to be payable by such Borrower to such Lender from time to time hereunder. SECTION 2.17. CURRENCY EQUIVALENTS. For purposes of the provisions of this Article II, (a) the equivalent in Dollars of any Major Currency (other than Dollars) or Alternative Currency shall be determined by using the quoted spot rate at which Citibank's principal office in London offers to exchange Dollars for such Major Currency or Alternative Currency in London at 11:00 A.M. (London time) two Business Days prior to the date on which such equivalent is to be determined, (b) the equivalent in any Major Currency or Alternative Currency of any other Major Currency or Alternative Currency shall be determined by using the quoted spot rate at which Citibank's principal office in London offers to exchange such Major Currency or Alternative Currency for the equivalent in Dollars of such other Major Currency or Alternative Currency in London at 11:00 A.M. (London time) two Business Days prior to the date on which such equivalent is to be determined, and (c) the equivalent in any Major Currency (other than Dollars) or Alternative Currency of Dollars shall be determined by using the quoted spot rate at which Citibank's principal office in London offers to exchange such Major Currency or Alternative Currency for Dollars in London at 11:00 A.M. (London time) two Business Days prior to the date on which such equivalent is to be determined. SECTION 2.18. LETTERS OF CREDIT. (a) LETTERS OF CREDIT. Any Borrower may request, in accordance with the provisions of this Section 2.18(a), that on and after the Closing Date, until the date which occurs 30 days before the Termination Date, the Issuing Banks issue Letters of Credit for the account of such Borrower in an aggregate face amount (including, without limitation, the face amount of any Existing Letters of Credit) not to exceed $50,000,000 outstanding at any one time, each such Letter of Credit to expire on or before (i) in the case of Standby Letters of Credit, the five year anniversary of its issuance and (ii) in the case of Commercial Letters of Credit, 360 days after the date of its issuance; provided that no Borrower shall request that the Issuing Banks issue any Letter of Credit if after giving effect to the issuance of such Letter of Credit, either (I) the Letter of Credit Usage shall exceed $50,000,000 outstanding or (II) the Total Utilization of Commitments 50 56 shall exceed the aggregate Commitments then in effect; provided further, that a Syndicated Letter of Credit shall not be denominated in a currency other than Dollars; provided further, that for any Non-Syndicated Letter of Credit, the Issuing Bank shall be Citibank (or its Designated Issuer), and the provisions of Section 2.18(c) shall apply to such Letter of Credit. The issuance of any Letter of Credit in accordance with the provisions of this Section 2.18 shall be given effect in the calculation of the Total Utilization of Commitments and the issuance of any Letter of Credit in accordance with the provisions of this Section 2.18 shall require the satisfaction of each condition set forth in Section 3.03. The obligation of the Lenders and their Designated Issuers to issue each Syndicated Letter of Credit shall be several and not joint and the failure by any Lender or its Designated Issuer to issue such Letter of Credit shall not relieve the other Lenders and their Designated Issuers from their obligations to issue such Letters of Credit. In order to facilitate the prompt issuance of all Letters of Credit, each Issuing Bank shall appoint the Agent and its Designated Issuer its Attorney-in-Fact with power to execute Letters of Credit on its behalf in accordance with this Agreement. (b) NOTICE OF ISSUANCE. Whenever a Borrower desires the issuance of a Letter of Credit, it shall deliver to the Agent an executed request for such Letter of Credit in the form attached hereto as EXHIBIT G, by 2:00 P.M. (New York time) at least two Business Days in advance of the proposed date of issuance and the Agent shall give a copy thereof to each Issuing Bank, by 5:00 P.M. (New York time) at least two Business Days or such shorter period as may be agreed to by the Agent in any particular instance, in advance of the proposed date of issuance, specifying (i) the proposed date of issuance (which shall be a business day under the laws of the principal executive office of each of the applicable Issuing Bank(s)), (ii) the face amount of the Letter of Credit, (iii) the expiration date of the Letter of Credit, (iv) the name and address of the beneficiary, (v) whether the Letter of Credit requested is a Financial Standby Letter of Credit, a Performance Standby Letter of Credit or a Commercial Letter of Credit, (vi) whether the Letter of Credit requested is a Syndicated Letter of Credit or a Non-Syndicated Letter of Credit and (vii) the purpose for which such Letter of Credit is to be issued. Each request for a Letter of Credit shall be irrevocable when given. Such written request shall certify that (i) after giving effect to the issuance of the Letter of Credit, the 51 57 Letter of Credit Usage will not exceed $50,000,000 and (ii) the Letter of Credit requested to be issued, when added to the then Total Utilization of Commitments, will not exceed the aggregate Commitments then available, as the amount available under the Commitments may be reduced from time to time pursuant to Section 2.06 or limited from time to time pursuant to Section 2.01 and (iii) Section 3.03 is satisfied on and as of the date of delivery of such notice, and shall specify a precise description of the documents and the verbatim text of any certificate to be presented by the beneficiary which, if presented by the beneficiary prior to the expiration date of the Letter of Credit, would require the applicable Issuing Bank(s) to make payment under the Letter of Credit; provided that such Letter of Credit shall be in the form of EXHIBIT H; and provided further that the applicable Issuing Bank(s), in their reasonable judgment (with the consent of the applicable Borrower which will not be unreasonably withheld), may require changes in any such documents and certificates and the Letter of Credit. Upon receipt by the Agent of such notice and such other documents from the Borrower requesting the issuance of a Letter of Credit, if the request for the Letter of Credit satisfies the requirements set forth above, the Agent shall authorize the applicable Issuing Bank(s) to issue the Letters of Credit. If any of the applicable Issuing Bank(s), in its sole discretion, elects not to issue such Letter of Credit because issuance of such Letter of Credit may violate any applicable laws or any of the standard practices or policies of the Issuing Bank or any Lender relating to the issuance of letters of credit, such Issuing Bank shall promptly, and in any event within one Business Day of its receipt of the request for a Letter of Credit, so notify the Borrower and the Agent and no Letter of Credit will be issued; provided that, if (x) Citibank, as an Issuing Bank, did not so notify the Company of its election not to issue the Letter of Credit and (y) the Letter of Credit was requested to be a Syndicated Letter of Credit, then, at the request of the Company, the Agent or its Designated Issuer shall promptly prepare the requested Letter of Credit, and subject to the terms and conditions of this Section 2.18 and the applicable conditions of Article III, the requested Letter of Credit shall be executed by the Agent or its Designated Issuer on behalf of Citibank, as the Issuing Bank, and shall be delivered to the Company (or its designee) by the Agent or its Designated Issuer on the date of issuance specified by the Company, and such Letter of Credit shall be a Non-Syndicated Letter of Credit and subject to the provisions of Section 2.18(c). If no Issuing Bank notifies the Agent of its inability to issue the Letter of Credit, the Agent or its Designated Issuer shall promptly prepare the requested Letter of Credit with signature pages prepared for the Agent or its Designated Issuer to execute 52 58 the Letter of Credit as Attorney-in-Fact for each Issuing Bank. Following such authorization, but subject in any event to the terms and conditions of this Section 2.18 and the applicable conditions of Article III the requested Letter of Credit shall be executed by the Agent or its Designated Issuer on behalf of the Issuing Banks and shall be delivered to the Borrower (or its designee) by the Agent or its Designated Issuer on the date of issuance specified by the Borrower, which Letter of Credit shall have been issued by each Issuing Bank, severally and ratably, in accordance with its pro rata share of the Commitments then in effect. (c) PARTICIPATION IN LETTERS OF CREDIT. The provisions of this Section 2.18(c) shall apply to Non-Syndicated Letters of Credit. (i) The Issuing Bank shall be deemed to have sold and transferred irrevocably and unconditionally to each Lender, without recourse or warranty, and each Lender shall be deemed to have purchased and received irrevocably and unconditionally, an undivided interest and participation to the extent of such Lender's pro rata share of the aggregate Commitments then in effect in each Letter of Credit and the Letter of Credit Usage in respect of such Letter of Credit, and any collateral therefor, automatically as and when the Letter of Credit is issued. In the event any reimbursement obligation in respect of a Letter of Credit is not paid to the Issuing Bank when due, the Issuing Bank shall promptly notify the Agent to that effect, and the Agent shall promptly notify the Lenders of the amount of such reimbursement obligation and each Lender shall promptly pay to the Issuing Bank, in same day funds, an amount equal to such Lender's pro rata share of the aggregate Commitments then in effect of the amount of such unpaid reimbursement obligation. Nothing in this Section 2.18(c) shall be deemed to prejudice the right of any Lender to recover from the Issuing Bank any amounts made available by such Lender to the Issuing Bank pursuant to this Section 2.18(c) if the payment with respect to a Letter of Credit by the Issuing Bank in respect of which payment was made by such Lender constituted gross negligence or willful misconduct on the part of the Issuing Bank. (ii) In the event that each Lender has paid all amounts payable by it under subsection (i) with respect to any reimbursement obligation in respect of any Letter of Credit, promptly after the Issuing Bank receives a payment from the applicable Borrower on account of a reimbursement obligation in respect of such Letter of Credit, the Issuing Bank shall promptly pay to the Agent, and the Agent shall promptly pay to each Lender, in same day funds, an amount equal to each Lender's pro rata share thereof. 53 59 (iii) Upon the request of any Lender, the Issuing Bank shall furnish to such Lender copies of any Letter of Credit and any other documents related thereto as may be reasonably requested by such Lender. (iv) If any payment received on account of any reimbursement obligation in respect of a Letter of Credit and distributed to a Lender as a participant under this Section 2.18(c) is thereafter set aside, avoided or recovered from the Issuing Bank in connection with any receivership, liquidation, reorganization or bankruptcy proceeding relating to any Borrower, each Lender which received such distribution shall, upon demand by the Agent, pay to the Issuing Bank such Lender's pro rata share of the aggregate Commitment then in effect of the amount so set aside, avoided or recovered. (v) No Lender shall have any right to look to or rely upon the Agent or the Issuing Bank or any other Lender for any determination or verification as to whether any condition set forth in this Section 2.18 or Sections 3.01 or 3.03 has been met. (d) PAYMENT OF AMOUNTS DRAWN UNDER LETTERS OF CREDIT. In the event of any request for drawing under any Letter of Credit by the beneficiary thereof, the Agent shall immediately notify the applicable Borrower and the Issuing Banks, and such Borrower shall pay to the Agent for account of the Issuing Banks, an amount equal to the amount necessary to reimburse the Issuing Banks on the day on which such drawing is honored in an amount in same day funds equal to the amount which the Issuing Banks paid as a result of such drawing. If the amount in such Borrower's account with such Agent is insufficient to reimburse the Issuing Banks or such Borrower shall fail to reimburse the Issuing Banks on the date of any drawing under a Letter of Credit in an amount equal to the amount of such drawing paid by the Issuing Banks, (i) such Borrower shall be deemed to have given a Notice of Borrowing to the Agent requesting the Lenders to make Committed Advances that are Base Rate Advances on the date on which such drawing is honored in an amount equal to the amount of such drawing, and (ii) subject to satisfaction or waiver of the conditions specified in Article III, the Lenders shall, on the Business Day of such drawing, make Committed Advances that are Base Rate Advances in the amount of such drawing together with accrued interest thereon at the rate for Base Rate Advances from the date of drawing to the date of such Advances, the proceeds of which shall be applied directly by the Agent to reimburse the Issuing Banks for the amount of such drawing together with such accrued interest thereon; provided, that, if for any reason (other than the wrongful failure of the Lenders to make Advances) proceeds of Advances are not received by any Issuing Bank on such date in an amount equal to the amount 54 60 of such drawing paid by such Issuing Bank, together with accrued interest thereon, such Borrower shall reimburse the Issuing Bank, within three Business Days of the date of such drawing, in an amount in same day funds equal to the excess of the amount of such drawing over the amount of such Advances, if any, that are so received, plus accrued interest thereon. Interest on all amounts not reimbursed to the Issuing Banks on the date of such drawing shall accrue at the rates set forth in Section 2.08(c). (e) CONTINUANCE OF EXISTING LETTERS OF CREDIT AS LETTERS OF CREDIT. Notwithstanding anything to the contrary in this Agreement, subject to the terms and conditions of this Agreement and in reliance on the representations and warranties of the Borrowers set forth herein, as of the Closing Date all Existing Letters of Credit shall be continued as Letters of Credit under this Agreement and shall be deemed for all purposes (other than as described below) to have been issued under and pursuant to the terms of this Agreement; provided that solely with respect to the Existing Letters of Credit, the provisions contained in Section 2.18 of the Existing Credit Agreement (other than with respect to fees) and the Fourth Amendment to the Existing Credit Agreement, dated as of February 17, 1995, and each other provision or definition contained in the Existing Credit Agreement necessary to allow each party to realize the full benefits of such Section 2.18 of the Existing Credit Agreement, are hereby incorporated by reference into this Agreement as if set forth herein in full; provided further that Bank of America Illinois (formerly known as Continental Bank N.A.) shall execute this Agreement and become a party hereto (and have all rights and benefits in relation hereto) with respect to this Section 2.18(e) and the Existing Letters of Credit which it has issued and shall be deemed to be an Issuing Bank with respect to such Letters of Credit. With respect to Existing Letters of Credit each Lender shall be deemed to and hereby agrees to, have irrevocably purchased from each Issuing Bank (other then itself) which issued such Existing Letter of Credit a participation in such Existing Letter of Credit and drawings thereunder in an amount equal to such Lender's pro rata share (with respect to the Commitments) of the maximum amount that is or at any time may become available to be drawn thereunder. On a monthly basis, the Agent shall notify each Lender of the amount of each such Lender's respective participations in the Existing Letters of Credit determined in accordance with this Section 2.18(e). If a Borrower shall fail to reimburse any Issuing Bank as provided in Section 2.18(c) in an amount equal to the amount of any drawing honored by an Issuing Bank under an Existing Letter of Credit issued by it together with 55 61 accrued interest thereon, the Issuing Bank shall promptly give notice thereof to the Agent, which shall promptly notify each Lender of the unreimbursed amount of such drawing together with accrued interest thereon and of such Lender's respective participation in the unreimbursed amount therein based on such Lender's pro rata share of the Commitments. Each Lender shall make available to the Agent for the account of the Issuing Bank an amount equal to its respective participation in the unreimbursed amount, in same day funds, at the office of the Issuing Bank specified in such notice, not later than 12:00 Noon (New York City time) on the Business Day next following the date notified by the Issuing Bank. The day of payment by each Lender to the Issuing Bank and the day of notice by the Issuing Bank to each Lender shall be both a Business Day and a business day under the laws of the jurisdiction of each such Lender. If any Lender fails to make available to the Issuing Bank the amount of such Lender's participation in such Existing Letter of Credit as provided in this Section 2.18(e), the Issuing Bank shall be entitled to recover such amount on demand from such Lender, together with interest (to the extent such interest is not received from the applicable Borrower) until such amount is recovered at the Federal Funds Rate. Nothing in this Section 2.18(e) shall be deemed to prejudice the right of any Lender to recover from the Issuing Bank any amounts made available by such Lender to the Issuing Bank pursuant to this Section 2.18(e) if the payment with respect to an Existing Letter of Credit by the Issuing Bank in respect of which payment was made by such Lender constituted gross negligence or willful misconduct on the part of the Issuing Bank. Each Issuing Bank shall distribute to each other Lender which has paid all amounts payable by it under this Section 2.18 with respect to any Existing Letter of Credit issued by the Issuing Bank such other Lender's pro rata share (with respect to the Commitments) of all payments received by the Issuing Bank from the applicable Borrower or any of its Subsidiaries in reimbursement of drawings honored by the Issuing Bank under such Existing Letter of Credit when such payments are received. Each Borrower shall be liable to the Lenders for all of the principal and interest made available by the Lenders to the Issuing Bank for such Borrower's account pursuant to this Section and interest on all amounts made available by Lenders to the Issuing Bank shall accrue at the rates set forth in Section 2.08(c). All such principal and interest amounts shall be part of the Obligations. (f) COMPENSATION. Each Borrower agrees to pay to the Agent for the account of the Lenders (or if specified in writing to the Agent by any Lender its Designated Issuer), ratably, according to their respective pro rata share of the Commitments, with respect to each Letter of Credit issued (provided that the fees described in clauses (iv) and (v) 56 62 below shall be paid solely to Citibank or the Agent, as applicable Designated Issuer for its own account): (i) if a Commercial Letter of Credit, a Commercial Letter of Credit issuance fee equal to 0.20% of the maximum amount available to be drawn under such Commercial Letter of Credit, payable on the issuance date; (ii) if a Standby Letter of Credit, a Standby Letter of Credit fee (x) in the case of any Financial Standby Letter of Credit, equal to the Standby L/C Rate and (y) in the case of any Performance Standby Letter of Credit, equal to the Standby L/C Rate minus 0.10% per annum, in each case of the maximum amount available to be drawn under such Standby Letter of Credit on the basis of the actual number of days elapsed in a (360-day) year, payable quarterly in arrears; notwithstanding any provisions contained in this Section 2.18(f)(ii), following the occurrence and during the continuance of an Event of Default described in Section 6.01(a), Section 6.01(e), Section 6.01(f) or Section 6.01(c) with respect to the reference therein to Sections 5.02(a), (b), (c), (d), (e), (f), (g), (h), (i), (j), (k), (l), (m) or (n),to the extent permitted by applicable law, the Standby Letter of Credit fees shall be in an amount until paid in full at a rate per annum that is 2% above the fees otherwise payable pursuant to this Section 2.18(f)(ii); (iii) with respect to drawings made under any Letter of Credit, interest, payable on demand, on the amount paid by the Issuing Bank in respect of each such drawing from the date of the drawing through the date such amount is reimbursed by the Borrower (including any such reimbursement out of the proceeds of Base Rate Advances pursuant to Section 2.18(c)) at a rate equal to the Base Rate in effect from time to time; provided, however, that after the occurrence and during the continuance of an Event of Default described in Section 6.01(a) or Section 6.01(c) with respect to the reference therein to Section 5.02(a), (b), (c), (d), (e), (f), (g), (h), (i), (j), (k), (l), (m) or (n), such unreimbursed drawing shall bear interest, from the date on which such Event of Default shall have occurred until such amount is paid in full, payable on demand, at a rate per annum equal at all times to 2.0% per annum over the Base Rate in effect from time to time; (iv) if a Standby Letter of Credit issued by Citibank, as the Issuing Bank, a fronting fee equal to 0.10% per annum of the maximum amount available to be drawn under such Standby Letter of Credit on the basis 57 63 of the actual number of days elapsed in a (360-day) year, payable quarterly in arrears; and (v) negotiation, amendment, presentation, administrative, documentary, transfer, cancellation and processing charges and other charges in accordance with the Agent's Designated Issuer's standard schedule for such charges from time to time in effect. Promptly upon receipt by the Agent or its Designated Issuer of any amount described above, the Agent or its Designated Issuer shall distribute (a) with respect to amounts in clauses (i), (ii) or (iii), to each Lender (or its Designated Issuer) its pro rata share (with respect to the Commitments) of such amount, (b) with respect to amounts in clause (iv) to Citibank, as the Issuing Bank and (c) with respect to amounts in clause (v), to the Agent. All amounts provided for by this Section 2.18(f) are payable notwithstanding any cancellation or prepayment of any Letter of Credit issued hereunder. (g) OBLIGATIONS ABSOLUTE. The obligation of each Borrower to reimburse each Issuing Bank for drawings made under the Letters of Credit issued by it at the request of such Borrower and the obligations of the Lenders under Section 2.18(d) shall be unconditional and irrevocable and shall be paid strictly in accordance with the terms of this Agreement under all circumstances, including, without limitation, the following circumstances: (i) any lack of validity or enforceability of any Letter of Credit or any other agreement or instrument relating thereto; (ii) the existence of any claim, setoff, recoupment, defense or other right that any Borrower, any of its Subsidiaries or any Issuing Bank may have at any time against any beneficiary or any transferee of any Letter of Credit (or any persons or entities for whom any such transferee may be acting), any Issuing Bank (other than in respect of the gross negligence or wilful misconduct of such Issuing Bank) or any other Person, whether in connection with this Agreement, the transactions contemplated herein or any unrelated transaction (including any underlying transaction between any Borrower or one of its Subsidiaries and the beneficiary for which the Letter of Credit was procured); (iii) any draft, demand, certificate or any other document presented under any Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; 58 64 (iv) payment by the Agent or any Issuing Bank under any Letter of Credit against presentation of a demand, draft or certificate or other document that does not comply with the terms of such Letter of Credit; provided that such payment does not constitute gross negligence or willful misconduct of the Issuing Bank; (v) the occurrence of any Material Adverse Effect; (vi) any breach by any Borrower, any of its Subsidiaries, the Agent or any Issuing Bank of this Agreement or any other documents executed pursuant to this Agreement; (vii) the fact that an Event of Default or a Potential Event of Default shall have occurred and be continuing; or (viii) any other circumstance or happening whatsoever that is similar to any of the foregoing. (h) INDEMNIFICATION; NATURE OF ISSUING BANK'S DUTIES. In addition to amounts payable as elsewhere provided in this Section 2.18, each Borrower hereby agrees to protect, indemnify, pay and hold the Agent, the Lenders and the Issuing Banks harmless from and against any and all claims, demands, liabilities, damages, losses, costs, charges and expenses (including reasonable attorneys' fees and allocated costs of internal counsel) that the Agent, the Lenders or the Issuing Banks may incur or be subject to as a consequence, direct or indirect, of (i) the issuance of any Letter of Credit, or (ii) the failure of any Issuing Bank to honor a drawing under any Letter of Credit as a result of any act or omission, whether rightful or wrongful, of any present or future de jure or de facto government or governmental authority (all such acts or omissions are herein called "Government Acts"). As among the Borrowers, the Agent, the Lenders and the Issuing Banks, the Borrowers assume all risks of the acts and omissions of, or misuse of the Letters of Credit issued by the Agent or the Issuing Banks by, the respective beneficiaries of such Letters of Credit. In furtherance and not in limitation of the foregoing, subject to the last paragraph of this Section 2.18(h), the Agent and the Issuing Banks shall not be responsible: (i) for the form, validity, sufficiency, accuracy, genuineness or legal effect of any document submitted by any party in connection with the application for and issuance of such Letters of Credit, even if it should in fact prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent or forged; (ii) for the validity or sufficiency of any instrument 59 65 transferring or assigning or purporting to transfer or assign any such Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason or for the identity of any purported transferee or assignee of any beneficiary thereof; (iii) for failure of the beneficiary of any such Letter of Credit to comply fully with immaterial conditions required in order to draw upon such Letter of Credit; (iv) for errors, omissions, interruptions or delays in transmission or delivery of any messages, by mail, cable, telegraph, telex or otherwise, whether or not they be in cipher; (v) for errors in interpretation of technical terms; (vi) for any loss or delay in the transmission or otherwise of any document required in order to make a drawing under any such Letter of Credit or of the proceeds thereof; (vii) for the misapplication by the beneficiary of any such Letter of Credit of the proceeds of any drawing under such Letter of Credit; and (viii) for any consequences arising from causes beyond the control of the Agent or the Issuing Banks, including, without limitation, any Government Acts. None of the above shall affect, impair, or prevent the vesting of any of the Agents or any Issuing Bank's rights or powers hereunder. In furtherance and extension and not in limitation of the specific provisions hereinabove set forth, any action taken or omitted to be taken by the Agent or any Issuing Bank under or in connection with the Letters of Credit issued by it or the related certificates, if taken or omitted in good faith, and to the extent not with gross negligence or willful misconduct, shall not put the Agent or any Issuing Bank under any resulting liability to the Borrowers or any of their Subsidiaries. Notwithstanding anything to the contrary contained in this Section 2.18(h), no Borrower shall have any obligation to indemnify the Agent, the Lenders or any Issuing Bank in respect of any liability incurred by Agent, the Lenders or any Issuing Bank arising solely out of the gross negligence or willful misconduct of such entity. (i) AGENT AND ITS DESIGNATED ISSUER. The Agent or its Designated Issuer, on behalf of the Issuing Banks shall be responsible only to determine that the documents and certificates required to be delivered under each Letter of Credit have been delivered and that they comply on their face with the requirements of that Letter of Credit. The Agent's Designated Issuer shall be fully protected for its actions hereunder and have all of the benefits and immunities provided to the Agent hereunder and in Article VII with respect to any acts taken or omissions suffered in connection with this Section 2.18 and for such purposes the Designated Issuer shall be deemed to be the "Agent" in Article VII. 60 66 (j) COMPUTATION OF INTEREST. Interest payable pursuant to this Section 2.18 shall be computed on the basis of a 360-day year and the actual number of days elapsed in the period during which it accrues. (k) REPORTS. The Agent shall furnish to each Issuing Bank, on or before the fifth Business Day of each month, a written report setting forth the average daily aggregate maximum amount available to be drawn (assuming compliance with all conditions to drawing) during the preceding month under all Letters of Credit. (l) TERMINATION. On or before the Termination Date, the Borrowers shall pay to Agent an amount equal to the maximum amount that may at any time be drawn under all Letters of Credit outstanding on the Termination Date as set forth in Section 6.02. SECTION 2.19. USE OF PROCEEDS. (a) BORROWINGS AND LETTERS OF CREDIT. The proceeds of the Borrowings may be used by the Borrower to refinance the Existing Credit Agreement and for general corporate purposes including Non-Hostile Acquisitions otherwise permitted under this Agreement. Letters of Credit may be for general corporate purposes, including, without limitation, to support the issuance of bid, performance and advance payment bonds subject to the limitations set forth in Section 2.18. (b) MARGIN REGULATIONS. No portion of the proceeds of any Borrowings or Letters of Credit under this Agreement shall be used by any Borrower or any of the Borrower's Subsidiaries in any manner which might cause the borrowing or the application of such proceeds to violate, or require any Lender to make any filing or take any other action under, Regulation G, Regulation U, Regulation T, or Regulation X of the Board of Governors of the Federal Reserve System or any other regulation of such Board or to violate the Securities Exchange Act of 1934, in each case as in effect on the date or dates of such borrowing and such use of proceeds. ARTICLE III CONDITIONS OF LENDING SECTION 3.01. CONDITIONS PRECEDENT TO INITIAL ADVANCES. (A) INITIAL ADVANCES TO THE COMPANY. The obligation of each Lender (other than the Designated Bidders) to make its initial Advance to the Company is subject to the following conditions precedent: (a) The Agent shall have received on or before the day of the initial Borrowing the following, each dated 61 67 such day, in form and substance satisfactory to the Agent and in sufficient copies for each Lender: (i) Certified copies of the resolutions of the Executive Committee of the Board of Directors of the Company approving this Agreement, and of all documents evidencing other necessary corporate action and governmental approvals, if any, with respect to this Agreement; (ii) A certificate of the Secretary or an Assistant Secretary of the Company certifying the names and true signatures of the officers of the Company authorized to sign this Agreement and the other documents to be delivered hereunder; (iii) Certified copies of Company's Certificate of Incorporation, together with good standing certificates from the state of its incorporation and its principal place of business, each to be dated a recent date prior to the Closing Date; (iv) Copies of the Company's Bylaws, certified as of the Closing Date by its Secretary or an Assistant Secretary; (v) Executed originals of this Agreement and the other documents required to be delivered hereunder on or before the effective date hereof and to which the Company is a party; (vi) A favorable opinion of Debevoise & Plimpton, substantially in the form of EXHIBIT I hereto and Senior Counsel for the Company, substantially in the form of EXHIBIT J hereto; (vii) A favorable opinion of O'Melveny & Myers, counsel for the Agent, substantially in the form of EXHIBIT K hereto; (viii) Evidence of endorsements concerning each insurance policy of the Company and its Subsidiaries which shall be in form and substance satisfactory to Agent; (ix) An executed original of a Subsidiary Guaranty, substantially in the form of EXHIBIT L annexed hereto, from each Subsidiary of the Company that is required to enter into a Subsidiary Guaranty pursuant to Section 5.01(b); (x) Certified copies of the resolutions of the Board of Directors of each Subsidiary of the Company referenced in clause (ix) above approving its 62 68 Subsidiary Guaranty, and of all documents evidencing other necessary corporate action and governmental approvals, if any, with respect to its Subsidiary Guaranty; (xi) A certificate of the Secretary or an Assistant Secretary of each Subsidiary of the Company referenced in clause (ix) above (or, in the case of a foreign Subsidiary, a similar officer for companies in such foreign country) certifying the names and true signatures of the officers of the Company authorized to sign its Subsidiary Guaranty and the other documents to be delivered hereunder; (xii) Certified copies of the Certificate of Incorporation of each Subsidiary of the Company referenced in clause (ix) above, together with good standing certificates from the state of its incorporation and its principal place of business, each to be dated a recent date prior to the Closing Date (or, with respect to foreign Subsidiaries, such appropriate similar documents for companies in such foreign country); (xiii) Copies of the Bylaws of each Subsidiary of the Company referenced in clause (ix) above (or, with respect to foreign Subsidiaries, such appropriate similar documents for companies in such foreign country), certified as of the Closing Date by its Secretary or an Assistant Secretary (or, in the case of a foreign Subsidiary, a similar officer for companies in such foreign country); and (xiv) Such other instruments, information or documents as the Agent may reasonably request. (b) The Company shall have paid to the Agent, for distribution (as appropriate) to the Agent and the Lenders, the fees and expenses payable on the Closing Date. (c) The Company shall have delivered to the Agent an officers' certificate, in form and substance satisfactory to the Agent, to the effect that the representations and warranties in Article IV hereof are true, correct and complete in all material respects on and as of the Closing Date to the same extent as though made on and as of that date. (d) All "Commitments" (as defined in the Existing Credit Agreement) shall have been terminated and all Obligations thereunder shall have been paid in full, except for the Existing Letters of Credit that are continued under this Agreement. 63 69 (b) INITIAL ADVANCE TO A DESIGNATED SUBSIDIARY. The obligation of each Lender to make an initial Advance to a Designated Subsidiary is subject to the condition precedent that the Agent shall have received on or before the day of such Borrowing the following, each dated such day (unless otherwise stated), in form and substance satisfactory to the Agent and in sufficient copies for each Lender: (i) Certified copies of the resolutions of the Board of Directors of the Designated Subsidiary approving this Agreement, and of all documents evidencing other necessary corporate action and governmental approvals, if any, with respect to this Agreement; (ii) A certificate of the Secretary or an Assistant Secretary of the Designated Subsidiary (or, in the case of a foreign Subsidiary, a similar officer for companies in such foreign country) certifying the names and true signatures of the officers of the Designated Subsidiary authorized to sign this Agreement and the other documents to be delivered hereunder; (iii) Certified copies of the Designated Subsidiary's Certificate of Incorporation, together with good standing certificates from the state of its incorporation and its principal place of business (if applicable), each to be dated a recent date prior to the date of the initial Advance to such Designated Subsidiary (or, with respect to foreign Subsidiaries, such appropriate similar documents for companies in such foreign country); (iv) Copies of the Designated Subsidiary's Bylaws (or, with respect to foreign Subsidiaries, such appropriate similar documents for companies in such foreign country), certified as of the date of the initial Advance to such Designated Subsidiary by its Secretary or an Assistant Secretary (or, in the case of a foreign Subsidiary, a similar officer for companies in such foreign country) ; (v) Executed originals of this Agreement, the Borrower Designation and Acceptance, a Subsidiary Guaranty and the other documents to which the Designated Subsidiary is a party; and (vi) The Agent shall have received such other opinions of counsel, instruments, information or documents as the Agent or the Majority Lenders may reasonably request. 64 70 SECTION 3.02. CONDITIONS PRECEDENT TO EACH COMMITTED BORROWING. The obligation of each Lender to make an Advance on the occasion of each Borrowing (including the initial Committed Borrowing) shall be subject to the further conditions precedent that on the date of such Borrowing (a) the following statements shall be true (and each of the giving of the applicable Notice of Borrowing and acceptance by the Borrower requesting such Borrowing of the proceeds of such Borrowing shall constitute a representation and warranty by such Borrower that on the date of such Borrowing such statements are true): (i) The representations and warranties contained in Article IV are correct on and as of the date of such Borrowing (except (x) to the extent that such representations and warranties expressly relate solely to an earlier date and then shall be correct as of such date and (y) that the representation and warranty set forth in Section 4.03 as to lack of material adverse change is made since the date of the then most recent financial statement delivered pursuant to Section 5.01 (a)(ii)), before and after giving effect to such Borrowing and to the application of the proceeds therefrom, as though made on and as of such date; and (ii) No event has occurred and is continuing, or would result from such Borrowing or from the application of the proceeds therefrom, which constitutes an Event of Default or a Potential Event of Default. SECTION 3.03. CONDITIONS TO ALL LETTERS OF CREDIT. The obligation of the Issuing Banks to issue any Letter of Credit hereunder and the issuance of any Letter of Credit by the Issuing Banks hereunder are subject to prior or concurrent satisfaction of all of the following conditions: (a) INITIAL ADVANCE CONDITIONS. On or before the date of issuance of the initial Letter of Credit pursuant to this Agreement, each of the conditions set forth in Section 3.01 shall have been satisfied. (b) NOTICE REQUESTING ISSUANCE. On or before the date of issuance of each Letter of Credit, Agent shall have received, in accordance with the provisions of Section 2.18, a notice requesting the issuance of such Letter of Credit, all other information specified in Section 2.18 and such other documents and information as the Issuing Banks may reasonably require in connection with the issuance of such Letter of Credit. (c) GENERAL ADVANCE CONDITIONS. On the date of issuance of each Letter of Credit, all conditions precedent 65 71 described in Section 3.02 shall be satisfied to the same extent as though the issuance of such Letter of Credit were the making of a Borrowing and the date of issuance of such Letter of Credit were a date of the funding of such Borrowing. SECTION 3.04. CONDITIONS PRECEDENT TO EACH BID BORROWING. The obligation of each Lender which is to make a Bid Advance on the occasion of a Bid Borrowing (including the initial Bid Borrowing) to make such Bid Advance as part of such Bid Borrowing is subject to the conditions precedent that (a) on or before the date of such Bid Borrowing pursuant to this Agreement, each of the conditions set forth in Sections 3.01 and 3.02 shall have been satisfied and (b) the Agent shall have received, by telecopier, telex or cable, the written Notice of Bid Borrowing with respect thereto. ARTICLE IV REPRESENTATIONS AND WARRANTIES SECTION 4.01. DUE INCORPORATION, ETC. Each of the Company and the Subsidiary Guarantors is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction indicated next to such corporation's name on SCHEDULE 4.01 as supplemented and has all requisite corporate power and authority to own or lease and operate its properties and to carry on its business as now conducted, and to execute and deliver, and to perform all of its obligations under, any Loan Document to which it is a party, and the transactions and documents contemplated hereby to which it is a party. Each of the Company and its Subsidiaries is duly qualified or licensed to do business as a foreign corporation in good standing in all jurisdictions in which it owns or leases assets and property or in which the conduct of its business requires it to so qualify or be licensed, except where the failure to so qualify or be licensed would not have a Material Adverse Effect. Each Subsidiary of the Company on the date hereof is set forth on SCHEDULE 4.01. SECTION 4.02. AUTHORIZATION OF BORROWING, ETC. (a) AUTHORIZATION OF BORROWING, NO CONFLICT. The execution, delivery and performance by the Company and each Subsidiary of the Company that is a party to a Loan Document of the Loan Documents, the payment and performance of all Obligations, and the issuance, delivery and payment of the Letters of Credit and the consummation of the transactions contemplated hereby are within each such entity's corporate powers, have been duly authorized by all necessary corporate action by Company and each Subsidiary of Company which is a party to a Loan Document, do not contravene (i) the 66 72 Company's and such Subsidiary's certificate of incorporation or by-laws, or (ii) any law, rule, regulation (including, without limitation, Regulation G, U or X of the Board of Governors of the Federal Reserve System), order, writ, judgment, injunction, decree, determination or award or any contractual restriction binding on or affecting the Company or such Subsidiary or any of its properties, and do not result in or require the creation of any lien, security interest or other charge or encumbrance upon or with respect to any of its properties; neither the Company nor any of its Subsidiaries is in default under any such law, rule, regulation, order, writ, judgment, injunction, decree, determination, award or restriction, in any respect which is likely to have a Material Adverse Effect. (b) GOVERNMENTAL CONSENTS. No authorization, consent, approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is currently or is reasonably expected to be required on the part of the Company or any Subsidiary of the Company that is a party to a Loan Document for the due execution, delivery or performance by the Company or any of its Subsidiaries of any Loan Document, the payment and performance of the Obligations by the Company or any of its Subsidiaries, and the issuance, delivery and payment of the Letters of Credit and the consummation of the transactions contemplated hereby, except such authorizations, consents, approvals, other actions, notices or filings which, if not obtained, either (i) would not adversely affect the ability of the Company and each of its Subsidiaries that is a party to a Loan Document to perform the transactions contemplated by the Loan Documents, or (ii) would not have a Material Adverse Effect. (c) DUE EXECUTION AND DELIVERY; BINDING OBLIGATIONS. This Agreement and each other Loan Document, if any, have been, or will be, duly executed and delivered by the Company and each of its Subsidiaries which is a party thereto. This Agreement and each other Loan Document, if any, and the Obligations are, or will be, legally valid and binding obligations of the Company and each of its Subsidiaries which is a party thereto, enforceable against the Company or such Subsidiary in accordance with their respective terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable principles relating to or limiting creditors' rights generally or by equitable principles relating to enforceability. SECTION 4.03. FINANCIAL CONDITION. The consolidated balance sheets of the Company and its Subsidiaries at September 30, 1995 and the related consolidated statements of income and cash flows, copies of which have been furnished to each Lender, were prepared in 67 73 conformity with GAAP. All such financial statements do and all financial statements delivered to Lenders pursuant to Section 5.01 hereof after the Closing Date will fairly present the consolidated financial position of the Company and its Subsidiaries as at the respective dates thereof and the consolidated results of operations and cash flows of the Company and its Subsidiaries for each of the periods covered thereby, subject, in the case of any unaudited interim financial statements, to changes resulting from normal year-end adjustments. Since December 31, 1994 there has been no material adverse change in the business, condition (financial or otherwise), operations or properties of Company or the Company and its Subsidiaries taken as a whole. SECTION 4.04. ABSENCE OF LITIGATION; LITIGATION DESCRIPTION. No actions, suits, investigations, litigation or proceedings are pending or, to the knowledge of the Company, threatened against or affecting the Company or any of its Subsidiaries or the properties of the Company or any such Subsidiary before any court, arbitrator or governmental agency, department, commission, board, bureau or instrumentality, domestic or foreign, (a) that would have a Material Adverse Effect, or (b) which purports to affect the legality, validity or enforceability of this Agreement and any other Loan Document. SECTION 4.05. PAYMENT OF TAXES. The Company and each of its Subsidiaries have filed or caused to be filed all tax returns (Federal, state, local and foreign) required to be filed and paid all amounts of taxes shown thereon to be due, including interest and penalties, except for (a) such taxes as are being contested in good faith and by proper proceedings and with respect to which appropriate reserves are being maintained by the Company or any such Subsidiary, as the case may be or (b) those the failure to pay which would not have a Material Adverse Effect. SECTION 4.06. GOVERNMENTAL REGULATION. The Company is not subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act, the Interstate Commerce Act or the Investment Company Act of 1940, each as amended, or to any Federal or state statute or regulation limiting its ability to incur indebtedness for money borrowed. No Subsidiary is subject to any regulation that would limit the ability of the Company to enter into or perform its obligations under this Agreement. SECTION 4.07. NOT A PURPOSE CREDIT. The Company and its Subsidiaries are not engaged in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulation G, U or X issued by the Board of Governors of the Federal Reserve System), and no proceeds of any Advance or Letter of Credit, 68 74 will be used to purchase or carry any margin stock or to extend credit to others for the purpose of purchasing or carrying any margin stock. SECTION 4.08. ERISA. (a) No ERISA Event which might result in liability to PBGC (other than for premiums payable under Title IV of ERISA) has occurred or is reasonably expected to occur with respect to any Pension Plan. (b) Schedule B (Actuarial Information) to the December 31, 1994 annual report (Form 5500 Series) for each Pension Plan, copies of which have been filed with the Internal Revenue Service and furnished to the Agent, is complete and accurate and fairly presents the funding status of such Pension Plan, and since the date of such Schedule B there has been no material adverse change in such funding status. (c) Neither the Company nor any ERISA Affiliate has incurred, or is reasonably expected to incur, any Withdrawal Liability to any Multiemployer Plan. (d) Neither the Company nor any ERISA Affiliate has been notified by the sponsor of a Multiemployer Plan that such Multiemployer Plan is in reorganization or has been terminated, within the meaning of Title IV of ERISA, and no Multiemployer Plan is reasonably expected to be in reorganization or to be terminated within the meaning of Title IV of ERISA. SECTION 4.09. DISCLOSURE. No representation or warranty of the Company or any Subsidiary of the Company contained in any Loan Document (including any Schedule furnished in connection herewith) or any other document, certificate or written statement furnished to the Agent, the Co-Agent or any Lender by or on behalf of the Company for use in connection with the transactions contemplated by this Agreement contains any untrue statement of a material fact or omits to state a material fact (known to the Company in the case of any documents not furnished by it) necessary in order to make the statements contained herein or therein not misleading in light of the circumstances under which the same were made. The projections and pro forma financial information contained in such materials are based upon good faith estimates and assumptions believed by the Persons responsible for preparing such projections and pro forma financial information to be reasonable at the time made, it being recognized by the Lenders that such projections as to future events are not to be viewed as facts and that actual results during the period or periods covered by any such projections may differ from the projected results. There are no facts known to the Company (other than matters of a 69 75 general economic nature) that have had or could reasonably be expected to have a Material Adverse Effect that have not been disclosed herein or in the other documents, certificates and written statements referred to in this Section 4.09. SECTION 4.10. INSURANCE. The Company and its Subsidiaries have in full force insurance coverage of their respective properties, assets and business (including casualty, general liability, products liability and business interruption insurance) that is (i) no less protective in any material respect than the insurance the Company and its Subsidiaries have carried in accordance with their past practices or (ii) prudent given the nature of the business of the Company and its Subsidiaries and the prevailing practice among companies similarly situated. SECTION 4.11. ENVIRONMENTAL MATTERS. (a) The Company and each of its Subsidiaries is in compliance in all material respects with all Environmental Laws the non-compliance with which can reasonably be expected to have a Material Adverse Effect and (b) there has been no "release or threatened release of a hazardous substance" (as defined by the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. ss. 9601 et seq.) or any other release, emission or discharge into the environment of any hazardous or toxic substance, pollutant or other materials from the Company's or its Subsidiaries' property other than as permitted under applicable Environmental Law and other than those which would not have a Material Adverse Effect. Other than disposals for which the Company has been indemnified in full or disposals prior to the Closing Date which would not have a Material Adverse Effect, all "hazardous waste" (as defined by the Resource Conservation and Recovery Act, 42 U.S.C. ss.6901 et seq. (1976) and the regulations thereunder, 40 CFR Part 261 ("RCRA")) generated at the Company's or any Subsidiaries' properties and removed for disposal have in the past been and shall continue to be disposed of at sites which maintain valid permits under RCRA and any applicable state or local Environmental Law. SECTION 4.12. PERFORMANCE OF AGREEMENTS. Neither the Company nor any of its Subsidiaries is in default in the performance, observance or fulfillment of any of the obligations, covenants, or conditions contained in any contractual obligation of the Company or of such Subsidiary, except where the consequences, direct or indirect, of such default or defaults, if any, has not had and could not reasonably be expected to have a Material Adverse Effect and no condition exists that, with the giving of due notice or the lapse of time or both, would constitute such a default, except where the consequences, direct or indirect, of such 70 76 default, if any, has not had and could not reasonably be expected to have a Material Adverse Effect. ARTICLE V COVENANTS OF THE COMPANY SECTION 5.01. AFFIRMATIVE COVENANTS. So long as any Advance shall remain unpaid or any Lender shall have any Commitment hereunder and until the expiration, the cancellation and the payment in full or cash collateralization of all Letters of Credit, the Company will, unless the Majority Lenders shall otherwise consent in writing: (A) REPORTING REQUIREMENTS. Furnish to the Lenders: (i) as soon as available and in any event within 50 days after the end of each of the first three quarters of each fiscal year of the Company, consolidated balance sheets of the Company and its Subsidiaries as of the end of such quarter and consolidated statements of income and cash flows of the Company and its Subsidiaries for the period commencing at the end of the previous fiscal year and ending with the end of such quarter, certified by the chief accounting officer of the Company as fairly presenting the financial condition of Company and its Subsidiaries as at the dates indicated and the results of their operations for the periods indicated, subject to changes resulting from audit and normal year-end adjustment; (ii) as soon as available and in any event within 100 days after the end of each fiscal year of the Company, a copy of the annual audit report for such year for the Company and its Subsidiaries, containing financial statements (including a consolidated balance sheet, consolidated statements of income and shareholders' equity and cash flows of Company and its Subsidiaries) for such year certified by Price Waterhouse LLP or other nationally recognized independent public accountants acceptable to the Majority Lenders. The certification shall be unqualified (as to going concern, scope of audit and disagreements over the accounting or other treatment of offsets) and shall state that such consolidated financial statements present fairly the financial position of Company and its Subsidiaries as at the dates indicated and the results of their operations and cash flow for the periods indicated in conformity with GAAP applied on a basis consistent with prior years (except as otherwise stated therein) and that the 71 77 examination by such accountants in connection with such consolidated financial statements has been made in accordance with generally accepted auditing standards; (iii) together with each delivery of the reports of Company and its Subsidiaries pursuant to subsections (i) and (ii) above, a compliance certificate for the quarter or year, as applicable, executed by the chief accounting officer of the Company (A) stating that the signer has reviewed the terms of this Agreement and has made, or caused to be made under his or her supervision, a review in reasonable detail of the transactions and condition of Company and its Subsidiaries during the accounting period covered by such financial statements and that such review has not disclosed the existence during or at the end of such accounting period, and that the signer does not have knowledge of the existence as at the date of the compliance certificate, of any condition or event that constitutes an Event of Default or Potential Event of Default or, if any such condition or event existed or exists, specifying the nature and period of existence thereof and what action Company has taken, is taking and proposes to take the respect thereto, and (B) demonstrating in reasonable detail compliance during (as required thereunder) and at the end of such accounting periods with certain of the restrictions contained in Section 5.02(a), (c), (d) and (f); (iv) together with each delivery of Company's annual report pursuant to subsection (ii) above, a written statement by the independent public accountants giving the report thereon (A) stating that their audit examination has included a review of the terms of the Agreement as they relate to accounting matters and (B) stating whether, in connection with their audit examination, any condition or event that constitutes an Event of Default or Potential Event of Default has come to their attention, and if such a condition or event has come to their attention, specifying the nature and period of existence thereof; provided, that such accountants shall not be liable by reason of any failure to obtain knowledge of any such Event of Default or Potential Event of Default that would not be disclosed in the course of a reasonable audit examination; (v) as soon as available and in any event within 60 days after the beginning of each fiscal year, a copy of the annual business and financial plan (including forecasts) of the Company and its consolidated Subsidiaries, for such fiscal year and for the next two fiscal years on an annual basis, in form and substance reasonably satisfactory to the Agent; 72 78 (vi) as soon as possible and in any event within five days after any Responsible Officer of the Company becoming aware of the occurrence of any Change of Control and of each Event of Default and of each Potential Event of Default continuing on the date of such statement, a statement of the chief accounting officer of the Company setting forth details of such Event of Default or event and the action which the Company has taken and proposes to take with respect thereto; (vii) promptly after any significant change in accounting policies or reporting practices, notice and a description in reasonable detail of such change; (viii) promptly and in any event within 30 days after the Company or any ERISA Affiliate becomes aware that any ERISA Event referred to in clause (i) of the definition of ERISA Event with respect to any Pension Plan has occurred which might result in liability to the PBGC a statement of the chief accounting officer of the Company describing such ERISA Event and the action, if any, that the Company or such ERISA Affiliate has taken or proposes to take with respect thereto; (ix) promptly and in any event within 10 days after the Company or any ERISA Affiliate becomes aware that any ERISA Event (other than an ERISA Event referred to in (viii) above) with respect to any Pension Plan has occurred which might result in liability to the PBGC, a statement of the chief accounting officer of the Company describing such ERISA Event and the action, if any, that the Company or such ERISA Affiliate has taken or proposes to take with respect thereto; (x) promptly and in any event within five Business Days after receipt thereof by the Company or any ERISA Affiliate from the PBGC, copies of each notice from the PBGC of its intention to terminate any Pension Plan or to have a trustee appointed to administer any Pension Plan; (xi) promptly and in any event within seven Business Days after receipt thereof by the Company or any ERISA Affiliate from the sponsor of a Multiemployer Plan, a copy of each notice received by the Company or any ERISA Affiliate concerning (w) the imposition of Withdrawal Liability by a Multiemployer Plan, (x) the determination that a Multiemployer Plan is, or is expected to be, in reorganization within the meaning of Title IV of ERISA, (y) the termination of a Multiemployer Plan within the meaning of Title IV of ERISA or (z) the amount of liability incurred, or 73 79 expected to be incurred, by the Company or any ERISA Affiliate in connection with any event described in clause (w), (x) or (y) above; (xii) promptly after the commencement thereof, notice of all material actions, suits and proceedings before any court or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, affecting the Company or any of its Subsidiaries, of the type described in Section 4.04; (xiii) promptly after the sending or filing thereof, copies of all proxy statements, financial statements and reports that Holding, the Company or any of its Subsidiaries sends to its stockholders generally, and copies of all regular, periodic and special reports, and all registration statements, that Holding, the Company or any of its Subsidiaries files with the Securities and Exchange Commission or any governmental authority that may be substituted therefor, or with any national securities exchange; (xiv) promptly after the furnishing thereof, copies of any material correspondence, statement or report furnished to any other holder of the securities of Holding, Company or any of its Subsidiaries pursuant to the terms of any indenture, loan or credit or similar agreement and not otherwise required to be furnished to the Lenders pursuant to any other clause of this Section 5.01; (xv) promptly after the occurrence thereof, notice of the receipt by the Company or any of its Subsidiaries of any notice, order, directive or other communication from a governmental authority alleging violations of or noncompliance with any Environmental Law which could reasonably be expected to have a Material Adverse Effect; and (xvi) such other information respecting the condition or operations, financial or otherwise, of the Company or any of its Subsidiaries as any Lender through the Agent may from time to time reasonably request. (b) GUARANTIES. The Company will cause each of its Subsidiaries promptly to execute and deliver a Subsidiary Guaranty, substantially in the form of EXHIBIT L annexed hereto, in favor of the Agent for the benefit of the Lenders, together with such other documents and agreements including, without limitation, legal opinions and resolutions as the Agent or the Majority Lenders may reasonably request, in the event (i) the Consolidated Total 74 80 Assets of such Subsidiary accounts for greater than 10% of the Consolidated Total Assets of the Company and its Subsidiaries, or (ii) the Company, directly or indirectly (including, without limitation, by guaranteeing Debt of a Subsidiary), advances, lends or contributes to such Subsidiary an aggregate amount in excess of $5,000,000, or (iii) the proceeds of any Advances or the issuance of any Letters of Credit are used to, directly or indirectly, to benefit such Subsidiary in an aggregate amount in excess of $5,000,000, or (iv) such Subsidiary is a Designated Subsidiary. (c) CORPORATE EXISTENCE, ETC. Company will, and will cause each of its Subsidiaries to, at all times maintain its fundamental business and preserve and keep in full force and effect its corporate existence (except as permitted under Section 5.02(e) hereof) and all rights, franchises and licenses necessary or desirable in the normal conduct of its business; provided, however, that the Company shall not be required to maintain any such rights, franchises or licenses or the corporate existence of any Subsidiary (other than any Subsidiary Guarantor) if the failure to do so could not reasonably be expected to have a Material Adverse Effect. (d) ACCESS AND VISITATION RIGHTS. The Company will and will cause each of its Subsidiaries to, upon reasonable notice and at any reasonable time during normal business hours and from time to time, permit the Agent or any of the Lenders or any agents or representatives thereof to examine and make copies of and abstracts from the records and books of account of, and visit the properties of, the Company and any of its Subsidiaries, and to discuss the affairs, finances and accounts of the Company and any of its Subsidiaries with any of their officers or directors and independent public accountants (and by this provision the Company authorizes said accountants to discuss with the Lenders the finances and affairs of the Company and its Subsidiaries), provided that the Company shall have the right to have a representative of the Company present at any such discussion with such officers, directors and independent public accountants. (e) PAYMENT OF TAXES, ETC. (i) The Company will and will cause each of its Subsidiaries to pay and discharge, before the same shall become delinquent, (x) all taxes, assessments and governmental charges or levies imposed upon it or upon its property and (y) all lawful claims that, if unpaid, might by law become a lien upon their property, provided, however, that neither the Company nor any such Subsidiary shall be required to pay or discharge any such tax, assessment, charge or claim (A) that is 75 81 being contested in good faith and by proper proceedings and for which appropriate reserves are being maintained, or (B) the failure to pay or discharge which would not have a Material Adverse Effect. (ii) The Company will not, nor will it permit any of its Subsidiaries to, file or consent to the filing of a consolidated or combined income tax return with any Person (other than the Company or any of its Subsidiaries or Holding; provided that if the Company and its Subsidiaries file a consolidated income tax return with Holding, the Company and its Subsidiaries shall not be required to pay a greater amount than they would have had to pay if they had not filed with Holding). (f) MAINTENANCE OF PROPERTIES, ETC. The Company will and will cause each of its Subsidiaries to maintain and preserve, all of its properties with respect to which failure to so maintain and preserve would have a Material Adverse Effect. (g) COMPLIANCE WITH LAWS, ETC. The Company will, and will cause each of its Subsidiaries to, perform and promptly comply with the requirements of all applicable laws, rules, regulations and orders of any governmental authority (including, without limitation, all Environmental Laws and ERISA) other than those with which the failure to comply would not have a Material Adverse Effect. (h) MAINTENANCE OF INSURANCE. The Company will and will cause each of its Subsidiaries to maintain insurance with responsible and reputable insurance companies or associations in such amounts and covering such risks (i) as are usually insured by companies engaged in similar businesses and owning similar properties in the same general areas in which the Company or such Subsidiary operates, (ii) with responsible and reputable insurance companies or associations reasonably satisfactory to Lenders and (iii) subject to market availability and reasonable price, in amounts no less protective than past practices. (i) EMPLOYMENT OF TECHNOLOGY, DISPOSAL OF HAZARDOUS WASTE, ETC. The Company will and will cause each of its Subsidiaries to (i) employ in connection with its use of its property appropriate technology (including, without limitation, appropriate secondary containment) to maintain compliance with any applicable Environmental Law, (ii) take all actions identified as necessary to comply with Environmental Law, (iii) dispose of any and all "hazardous waste" generated at any of its properties only at facilities and with carriers maintaining valid permits under RCRA and any applicable state and local Environmental Law, and (iv) use best efforts to obtain certificates of disposal 76 82 from all contractors employed by the Company in connection with the transport or disposal of any "hazardous waste" generated at any of its properties except, with respect to each of the foregoing clauses (i) through (iv) where the failure to perform or comply with any of the foregoing would not have a Material Adverse Effect. (j) KEEPING OF BOOKS, ETC. The Company will, and will cause each of its Subsidiaries to, keep proper books of record and accounts, in which full and correct entries shall be made of all financial transactions and the assets and business of the Company and each of its Subsidiaries in accordance with GAAP consistently applied and consistent with prudent business practices. (k) FURTHER ASSURANCES. The Company will and will cause each of its Subsidiaries to promptly, upon request by the Agent or any Lender through the Agent, correct, any defect or error that may be discovered in any Loan Document or in the execution, acknowledgment or recordation thereof. Promptly upon request by the Agent or any Lender through the Agent, the Company also will, and will cause each Subsidiary to, do, execute, acknowledge, deliver, record, and will cause any such Subsidiary to promptly do, execute, acknowledge, deliver, record, rerecord any and all such further acts, termination statements, certificates, assurances and other instruments as the Agent or any Lender through the Agent may reasonably require from time to time in order (i) to carry out more effectively the purposes of this Agreement or any other Loan Document, and (ii) to better assure, convey, grant, assign, transfer, preserve, protect and confirm unto the Agent and the Lenders the rights granted or now or hereafter intended to be granted to the Agent and/or the Lenders under any Loan Document or under any other instrument executed in connection with any Loan Document to which the Company is or may become a party. SECTION 5.02. NEGATIVE COVENANTS. So long as any Advance shall remain unpaid or any Lender shall have any Commitment hereunder and until the expiration, cancellation and payment in full or cash collateralization of all Letters of Credit, without the written consent of the Majority Lenders: (a) DEBT. The Company will not, and will not permit any of its Subsidiaries to, directly or indirectly, create, incur, assume, or otherwise become or remain directly or indirectly liable with respect to, any Debt, except: (i) Debt incurred pursuant to this Agreement; (ii) any Subsidiary Guaranty; 77 83 (iii) Debt in respect of Capital Lease Obligations; (iv) Contingent Obligations permitted by Section 5.02(d); (v) the Company and its Subsidiaries may remain liable with respect to the existing Debt of the Company and its Subsidiaries described in SCHEDULE 5.02(A) and refinancing thereof; provided that such refinanced Debt shall be on terms no less favorable to the Company (other than in respect to market interest rate changes) and its Subsidiaries than the Debt being replaced and after giving effect thereto would not result in a Potential Event of Default or Event of Default; (vi) the Company and its Subsidiaries may become and remain liable with respect to intercompany Debt; provided that all of the intercompany Debt of the Company to any Subsidiary of the Company shall be subordinated to the Obligations in accordance with the terms set forth in EXHIBIT O; (vii) Debt of any Person which becomes a Subsidiary of the Company or is merged into the Company or any Subsidiary of the Company in an amount permitted under Section 5.02(c)(iii); and provided such Debt existed at the time such Person became a Subsidiary of the Company or was so merged and was not created in contemplation of such event and before and immediately after giving effect to such event no Event of Default shall exist and the Company shall be in compliance with Section 5.02(f); provided further that any Debt of a Person that is merged into the Company, is only permitted to the extent it is unsecured unless after giving effect to such merger the Company is in compliance with Section 5.02(b); (viii) without duplication of clauses (iii), (v) and (vii) of this Section 5.02(a), the Company and its Subsidiaries may become and remain liable with respect to purchase money Debt in an aggregate principal amount outstanding at any time not in excess of 15% of Consolidated Tangible Net Worth of the Company and its Subsidiaries (as shown on the most recent financial statements delivered pursuant to Section 5.01(a)(i) or (ii)); provided that such Debt is secured only by the property purchased with such Debt; provided further that the loan-to-value ratio of such Debt does not exceed 100% with respect to personal property and 80% with respect to real property, in each case, at the time of incurrence of any such Debt; 78 84 (ix) the Subsidiaries of the Company may become and remain liable with respect to Debt if such Debt is permitted by the last proviso of this Section 5.02(a); (x) the Company and its Subsidiaries may become and remain liable in respect of industrial revenue bonds issued on behalf of the Company or its Subsidiaries; (xi) Debt permitted by Section 5.02(n); and (xii) without duplication of any of the foregoing clauses, the Company may create, incur, assume or suffer to exist Debt; provided that such Debt is not secured by any assets of the Company or any of its Subsidiaries other than as permitted by Section 5.02(b); provided that, notwithstanding clauses (i) through (xii) of this Section 5.02(a), the Subsidiaries of the Company may not create, incur, assume or suffer to exist any Restricted Subsidiary Debt in an aggregate principal amount outstanding at any time exceeding 20% of Consolidated Tangible Net Worth of the Company and its Subsidiaries (as shown on the most recent financial statements delivered pursuant to Section 5.01(a)(i) or (ii)); provided further that, transactions of the type permitted by Section 5.02(n) shall not count against any of the quantitative baskets set forth in this Section 5.02(a). (b) LIENS AND RELATED MATTERS. (i) The Company will not, and will not permit any of its Subsidiaries to, directly or indirectly, create, incur, assume or permit to exist any Lien, or file or execute or agree to the execution of any financing statement, on or with respect to, the assets of Company or any Subsidiary (including any document or instrument in respect of goods or accounts receivable), whether now owned or hereafter acquired, or any income or profits therefrom, except: (A) Liens for taxes, assessments or other governmental charges or levies not yet due and payable, and not required to be paid by the Company or any of its Subsidiaries under Section 5.01(e); (B) statutory Liens of landlords and Liens of carriers, warehousemen, mechanics, workmen, employees, materialmen and other Liens imposed by law and not required to be paid by the Company or any of its Subsidiaries under Section 5.01(e); 79 85 (C) Liens (other than any Lien imposed by ERISA) incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security, or to secure the performance of tenders, statutory obligations, surety and appeal bonds, bids, leases, government contracts, performance and return-of-money bonds and other similar obligations (exclusive of obligations for the payment of borrowed money); (D) minor Liens on the property or assets of the Company or any of its Subsidiaries which do not in the aggregate materially detract from the value of such property or assets or materially impair their use in the operation of the business of the Company or such Subsidiary, as the case may be; (E) the rights of set-off and banker's liens granted or confirmed to the Lenders under this Agreement or any other Loan Document and rights of set-off and banker's liens granted or confirmed to the holders of other Debt permitted under this Agreement or any other Loan Document; (F) any Liens in existence on property of any Person at the time such Person becomes a Subsidiary of the Company or is merged into any Subsidiary of the Company and not created in contemplation of such event; (G) attachment, judgment and other similar Liens arising in connection with legal proceedings, provided that the execution or other enforcement of such Liens is effectively stayed and the claims secured thereby are being contested in good faith by appropriate proceedings; and provided that any such judgment does not constitute an Event of Default; (H) Liens created by (x) any Subsidiary of the Company in favor of the Company or (y) any Subsidiary of the Company in favor of another Subsidiary of the Company, securing obligations of such Subsidiary owing to the Company or another Subsidiary of the Company (which Liens by their terms may not be transferred except to the Company or another Subsidiary of the Company); (I) Liens created hereunder or under any other Loan Document; 80 86 (J) Easements, rights-of-way, zoning and similar restrictions and other similar charges or encumbrances now or hereafter existing not interfering with the ordinary conduct of business of the Company or any of its Subsidiaries; (K) Liens and security interests securing purchase money Debt permitted under subsection 5.02(a)(viii) and Liens and security interests which are Capital Lease Obligations; provided, however, that no Lien or security interest referred to in this clause (K) shall extend to or cover any property other than the related property being acquired or leased (as the case may be); (L) Liens on real or personal property required in connection with the issuance of industrial revenue bonds on behalf of the Company or its Subsidiaries; (M) Liens existing on the Closing Date securing Debt listed on SCHEDULE 5.02(A) and any refinancings thereof permitted pursuant to Section 5.02(a)(v); (N) Liens created or incurred in connection with transactions permitted by Section 5.02(n); and (O) without duplication of any of the foregoing clauses, other Liens securing obligations of the Company or its Subsidiaries in an aggregate outstanding principal amount not exceeding $5,000,000 at any time. (ii) The Company will not, and will not permit any of its Subsidiaries to, directly or indirectly, enter into or remain a party to any agreement prohibiting the creation, incurrence or assumption of any Lien on or with respect to any assets of the Company, or any Subsidiary, whether now owned or hereafter acquired, or any income or profits therefrom, except for such prohibitions contained in (A) this Agreement and (B) instruments governing any Debt permitted under Section 5.02(a). (iii) The Company will not, and will not permit any of its Subsidiaries to, directly or indirectly, create or permit to exist or become effective any restriction of any kind on the ability of any Subsidiary to (A) pay dividends or make any other distribution on or with respect to any of its stock or other ownership interests owned by the Company or any Subsidiary of Borrower, (B) pay any Debt owed to the Company or any 81 87 Subsidiary of the Company, (C) make loans or advances to Borrower or any other Subsidiary of the Company, or (D) transfer any of its assets to the Company or any Subsidiary of the Company, except for such prohibitions contained in this Agreement and for such prohibitions contained in the Senior Debt Documents, and with respect to clause (D) only, such prohibitions contained in the Dutch Facility. (c) INVESTMENTS AND ACQUISITIONS. The Company will not, and will not permit any of its Subsidiaries to, directly or indirectly, make or own any Investment in any Person or make, or commit to make any acquisition (whether by purchase of capital stock or assets, merger or otherwise), except: (i) (A) cash, (B) Securities with maturities of one year or less from the date of acquisition issued or fully guaranteed or insured by the United States Government or any agency thereof or Securities of comparable credit quality issued by foreign governments, (C) bank instruments, each with maturities of one year or less from the date of acquisition of any Lender or any other commercial bank having capital and surplus in excess of $300,000,000 and having a rating on commercial paper issued by such commercial bank of at least A-2 by S&P or P-2 by Moody's (or if at such time neither is issuing ratings, then a comparable rating of such other nationally recognized rating agency as shall be approved by Majority Lenders) or a comparable credit in a foreign country, (D) commercial paper of an issuer rated at least A-2 by S&P or P-2 by Moody's (or if at such time neither is issuing ratings, then a comparable rating of such other nationally recognized rating agency as shall be approved by Majority Lenders), (E) repurchase agreements fully collateralized by any obligation referred to above obligating any Lender or any other commercial bank having capital and surplus in excess of $300,000,000 and having a rating on commercial paper issued by such commercial bank of at least A-2 by S&P or P-2 by Moody's (or if at such time neither is issuing ratings, then a comparable rating of such other nationally recognized rating agency as shall be approved by Majority Lenders) or a comparable credit in a foreign country to repurchase such obligation not later than 90 days after the purchase of such obligation, (F) Securities of the Company and its Subsidiaries held in their respective treasuries, (G) preferred stock commonly known as Dutch Auction Preferred Stock, Capital Market Preferred Stock, Remarketable Preferred Stock, Variable Rate Preferred Stock or other similar terms; provided that in each case such preferred stock has the highest rating given by S&P or Moody's (or if 82 88 at such time neither is issuing ratings, then the highest rating of such other nationally recognized rating agency as shall be approved by Majority Lenders), and (H) money market programs of investment companies regulated under the Investment Company Act of 1940, as amended, which, at the time of acquisition by the Company or a Subsidiary, if rated, are (or if such money market programs are not rated the underlying investments of which are) rated A-1 by S&P or P-1 by Moody's (or if at such time neither is issuing ratings, then a comparable rating of such other nationally recognized rating agency as shall be approved by Majority Lenders); provided that such money market programs invest only in investments of the type described in this clause (i); (ii) Investments that constitute intercompany Debt and are otherwise permitted by Section 5.02(a); provided that all of the Debt of the Company to any Subsidiary of the Company shall be expressly subordinated to the Obligations in accordance with the terms set forth in EXHIBIT O; (iii) Non-Hostile Acquisitions by the Company or any of its Subsidiaries of assets constituting a business unit or the capital stock of any Person provided that (a) the Company is the surviving entity following such acquisition of assets or capital stock, (b) the Company continues in the same type of business currently conducted without material changes in the nature of its business and (c) the Company is capable of incurring additional Debt in connection with such acquisition of assets or capital stock without violating any debt or covenant restrictions and without creating an Event of Default; (iv) the Company and its Subsidiaries may make and maintain Investments in Subsidiaries; (v) Investments in Joint Ventures existing on the Closing Date and set forth on SCHEDULE 5.02(C)(V), and after the Closing Date Investments in Joint Ventures not listed on SCHEDULE 5.02(C)(V) ("Additional Joint Ventures"); provided that (A) any such Joint Venture is in and continues in the same type of business as is conducted by the Company on the Closing Date, (B) none of the Company or any Subsidiary Guarantor is a general partner (or would be liable to the extent of a general partner) of any such Joint Venture and (C) at the time of any Investment in an Additional Joint Venture the aggregate Investments made by the Company and its Subsidiaries in Additional Joint Ventures (after giving effect to the Investment to be made) shall not exceed 83 89 30% of the Consolidated Tangible Net Worth of the Company and its Subsidiaries; (vi) Investments in connection with transactions permitted by Section 5.02(n); and (vii) without duplication of any of the foregoing clauses, other Investments in an aggregate principal amount not exceeding $5,000,000 in any fiscal year; provided that any acquisition must be a Non-Hostile Acquisition. (d) CONTINGENT OBLIGATIONS. The Company will not, and will not permit any of its Subsidiaries to, directly or indirectly, create or become or be liable with respect to any Contingent Obligation, except: (i) the Company and its Subsidiaries may become and remain liable with respect to guaranties resulting from endorsement of negotiable instruments for collection or deposit in the ordinary course of business; (ii) any Subsidiary of the Company may create and become liable with respect to its respective Subsidiary Guaranty; (iii) the Borrowers may become and remain liable with respect to reimbursement obligations under the Letters of Credit and the Company may become and remain liable with respect to any other Contingent Obligation created hereunder or under any other Loan Document; (iv) the Company and its Subsidiaries may become and remain liable with respect to any swap agreement, cap agreement, collar agreement or other similar agreement or arrangement designed to protect the Company or any of its Subsidiaries against fluctuations in interest rates or commodity prices; (v) the Company may become and remain liable with respect to guaranties relating to (x) any Debt of its Subsidiaries set forth on SCHEDULE 5.02(A) and any refinancings thereof permitted pursuant to Section 5.02(a)(v) and (y) without duplication, Debt of its Subsidiaries in an aggregate outstanding amount not to exceed at any time 20% of Consolidated Tangible Net Worth (as shown on the most recent financial statements delivered pursuant to Section 5.01(a)(i) or (ii)); (vi) the Company and its Subsidiaries may become and remain liable with respect to Contingent Obligations relating to advance payment guaranties, 84 90 rent guaranties with respect to leases and performance guaranties; (vii) the Company and its Subsidiaries may become and remain liable with respect to reimbursement obligations under letters of credit other than Letters of Credit issued hereunder; (viii) the Subsidiaries of the Company may become and remain liable with respect to Contingent Obligations of the type described in clause (v) of the definition of "Debt" in respect of Debt of the Company or a Subsidiary of the Company if such Contingent Obligation is permitted by the last sentence of this Section 5.02(d); (ix) Contingent Obligations created in connection with transactions permitted by Section 5.02(n); and (x) the Company and its Subsidiaries may create, incur, assume or suffer to exist any obligations, contingent or otherwise (including, without limitation, obligations as account party under any unsecured letters of credit other than the Letters of Credit), solely in respect of surety and performance bonds and similar obligations; provided that the aggregate amount of all such obligations (including those outstanding on the date hereof) does not exceed $75,000,000 for the Company and its Subsidiaries; provided further that such obligations are incurred in the ordinary course of the business of the Company and its Subsidiaries. The surety and performance bonds in effect on the date hereof are set forth on SCHEDULE 5.02(D)(X); provided that, notwithstanding clauses (i) through (x) of this Section 5.02(d), the Subsidiaries of the Company may not create, incur, assume or suffer to exist any Restricted Subsidiary Debt in an aggregate principal amount outstanding at any time exceeding 20% of Consolidated Tangible Net Worth of the Company and its Subsidiaries (as shown on the most recent financial statements delivered pursuant to Section 5.01(a)(i) or (ii)); provided further that, transactions of the type permitted by Section 5.02(n) shall not count against any of the quantitative baskets set forth in this Section 5.02(d). (e) RESTRICTIONS ON FUNDAMENTAL CHANGES. The Company will not, and will not permit any of its Subsidiaries to merge or consolidate with or into, or convey, transfer, lease or otherwise dispose of (whether in one transaction or in a series of transactions) all or any portion of its assets or the assets of any division (whether now owned or hereafter acquired) to any Person, except if no 85 91 Event of Default or Potential Event of Default has occurred and is continuing or would result from the following: (i) the Company or any Subsidiary of the Company may merge or consolidate with or into another entity (including any Subsidiary of the Company); provided that with respect to any merger with the Company, the Company shall be the continuing or surviving corporation and with respect to all other mergers, the continuing or surviving corporation shall be a Subsidiary of the Company; (ii) the Company and its Subsidiaries may sell or otherwise dispose of inventory in the ordinary course of business; (iii) the Company and its Subsidiaries may dispose of used, obsolete, worn out or surplus property in the ordinary course of business; (iv) without duplication of any of the foregoing clauses, the Company or any of its Subsidiaries may dispose of up to 15% of its Consolidated Total Assets during any twelve (12) month period or up to 30% of its Consolidated Total Assets from September 30, 1995 until the date of such disposition, and, if the net proceeds from any such disposition are in excess of the lesser of those limitations, such excess shall either be: (i) reinvested in the business of the Company or such Subsidiary within 12 months from the date of the receipt of the proceeds from such disposition, or (ii) (A) applied first to repay outstanding Committed Advances, and second to repay outstanding Bid Advances and (B) the Commitments shall be permanently reduced on a pro rata basis in an amount equal to the amount of such net proceeds; (v) any Wholly-Owned Subsidiary may transfer any assets to the Company or to another Wholly-Owned Subsidiary and any other Subsidiary may transfer any assets to the Company or to another Wholly-Owned Subsidiary; (vi) the Company and its Subsidiaries may sell or dispose of assets permitted by Section 5.02(n); and (vii) the Company may transfer certain of its assets to Wholly-Owned Subsidiaries of the Company in the manner and subject to the terms and conditions set forth in Section 5.02(o); provided that, transactions of the type permitted by Section 5.02(n) shall not count against any of the quantitative baskets set forth in this Section 5.02(e). 86 92 (f) FINANCIAL COVENANTS. (i) Minimum Consolidated Tangible Net Worth. The Company will not permit Consolidated Tangible Net Worth at the end of any fiscal quarter to be less than (i) $88,000,000 plus (ii) 50% of the sum of Consolidated Net Income for each fiscal quarter beginning with the fourth fiscal quarter of fiscal year 1995 (without reduction for losses) plus (iii) 50% of Equity Proceeds received by the Company after September 30, 1995. (ii) Adjusted Consolidated Total Debt to Consolidated Total Capitalization. The Company will not permit the ratio of Adjusted Consolidated Total Debt to Consolidated Total Capitalization to exceed at any time 0.55:1.00. (iii) Minimum Fixed Charge Coverage Ratio. The Company will not permit the ratio of Consolidated Gross Cash Flow to Consolidated Fixed Charges for the four consecutive fiscal quarters ending on the last day of each fiscal quarter to be less than 2.50:1.00. (g) DIVIDENDS, ETC. The Company will not, and will not permit any of its Subsidiaries to, declare or pay any dividends, purchase, redeem, retire or otherwise acquire for value any of its capital stock now or hereafter outstanding, or any warrants or other rights to acquire such stock, return any capital to its stockholders as such, or make any distribution of assets to its stockholders as such, or permit any of its Subsidiaries to purchase, redeem, retire or otherwise acquire for value any stock of the Company or any warrants or other rights to acquire such stock, except that: (i) the Company may declare and deliver dividends and distributions payable in common stock of the Company; (ii) Subsidiaries wholly-owned by the Company except for directors' qualifying shares or foreign qualifying shares (each a "Wholly-Owned Subsidiary") may declare, pay and deliver dividends and distributions payable in cash, common stock or other assets to the Company or any other Subsidiary of the Company; and (iii) so long as no Event of Default or Potential Event of Default has occurred and is continuing or would be caused thereby, the Company or any Subsidiary of the Company may purchase, redeem, retire or otherwise acquire for value its capital stock and may 87 93 declare and pay dividends payable in cash on its capital stock. (h) CHANGE IN BUSINESS. Subject to Section 5.02(e), the Company will not and will not permit any division or Subsidiary to make, any material change in the nature or conduct of their respective businesses as carried on at the date hereof, except as a result of any sales of assets permitted under this Agreement. (i) ACCOUNTING CHANGES. The Company will not and will not permit any division or Subsidiary to make or permit, any significant change in accounting policies or reporting practices, except for any such change required or permitted by GAAP. (j) PLAN TERMINATIONS. The Company will not and will not permit any ERISA Affiliate to terminate, any Pension Plan so as to result in liability of the Company or any ERISA Affiliate to the PBGC in excess of $5,000,000, or permit to exist any event or condition which reasonably presents a material risk of a termination by the PBGC of any Pension Plan with respect to which the Company or any ERISA Affiliate would, in the event of such termination, incur liability to the PBGC in excess of $5,000,000. (k) EMPLOYEE BENEFIT COSTS AND LIABILITIES. The Company will not and will not permit any ERISA Affiliate to create or suffer to exist, (i) any Insufficiency with respect to a Pension Plan or any Withdrawal Liability with respect to a Multiemployer Plan if, immediately after giving effect to such Insufficiency or Withdrawal Liability, the aggregate amount of Insufficiencies and Withdrawal Liabilities of all Pension Plans and Multiemployer Plans, respectively, of the Company and its ERISA Affiliates exceeds $10,000,000 or (ii) any liability with respect to welfare plans (as defined in Section 3(1) of ERISA) if, immediately after giving effect to such liability, the aggregate annualized costs (including, without limitation, the cost of insurance premiums) with respect to such plans of the Company and its ERISA Affiliates in any fiscal year of the Company would exceed $10,000,000. (l) CHARTER AND BYLAWS. The Company will not and will not permit any Subsidiary Guarantor to amend, modify or change in any manner, the Certificate of Incorporation or the Bylaws of the Company or any such Subsidiary other than an amendment to the Certificate of Incorporation or Bylaws which would not materially impair the interests or the rights of the Lenders under any Loan Document. 88 94 (m) TRANSACTIONS WITH SHAREHOLDERS AND AFFILIATES. The Company will not, and will not permit any of its Subsidiaries to, directly or indirectly, enter into or permit to exist any transaction (including, without limitation, the purchase, sale, lease or exchange of any property or the rendering of any service) with any direct or indirect holder of 5% or more of any class of equity Securities of the Company or any Subsidiary, on terms that are less favorable to the Company or that Subsidiary, as the case may be, then those that might be obtained at the time from Persons who are not such a holder or affiliate; provided that the foregoing restriction shall not apply to (i) any transaction between the Company and any Wholly-Owned Subsidiary or between any of its Wholly-Owned Subsidiaries or (ii) reasonable and customary fees paid to members of the Boards of Directors, officers, employees or consultants of the Company and its Subsidiaries for services rendered to the Company or any such Subsidiary in the ordinary course of business, together with customary indemnities in connection therewith and in accordance with applicable law, (iii) amounts payable under the contractual agreements listed in SCHEDULE 5.02(M), (iv) contributions to employee benefit plans of the Company or its Subsidiaries, and (v) dividends and distributions permitted under Section 5.02(g). (n) SALES OF ACCOUNTS RECEIVABLE. The Company may, and may permit its Subsidiaries to: (i) in any calendar year, sell, without recourse, accounts receivable arising in the ordinary course of business in an aggregate face amount not exceeding $25,000,000, (ii) in any calendar year, sell, with recourse, accounts receivable arising in the ordinary course of business in an amount not exceeding 10% of Consolidated Tangible Net Worth as at the beginning of such calendar year and (iii) enter into one or more transactions or programs (each such transaction or program being referred to herein as a "RECEIVABLES PROGRAM") involving (x) the sale or other financing by the Company or any of its Subsidiaries, without recourse based solely upon a default by one or more account debtors in the payment of any accounts receivable included in the applicable Receivables Program, of accounts receivable arising in the ordinary course of business of Company or any of its Subsidiaries or (y) the incurrence by Company or any of its Subsidiaries of Non-Recourse Debt secured by Liens on accounts receivable arising in the ordinary course of business of Company or any of its Subsidiaries if the Company shall have delivered to each Lender, at least 15 Business Days prior to the consummation of any Receivables Program, a copy of the proposed terms and conditions of such Receivables Program and, if within the 15 Business Day period the Majority Lenders shall not have objected; provided that in the case of clauses (i) and (ii) above, such sale of accounts receivable shall be for a net cash sales price of no less than 70% of the face amount thereof; and provided further 89 95 that, the Company and its Subsidiaries shall not sell or otherwise finance any accounts receivable pursuant to a Receivables Program if the aggregate amount of the Receivables Programs at the time of any such sale or financing would exceed 50% of the aggregate amount of the accounts receivable of the Company and its Subsidiaries at such time (after giving effect to any sales permitted by clauses (i) and (ii) but without giving effect to sales made under such Receivables Programs). (o) TRANSFERS OF ASSETS TO WHOLLY-OWNED SUBSIDIARIES. (i) The Company and its Subsidiaries may transfer the assets, businesses and operations described below to the respective Wholly-Owned Subsidiaries of the Company described below, subject to the terms and conditions contained herein: (A) the Company and its Subsidiaries may transfer to a Wholly-Owned Subsidiary of the Company incorporated in the State of California (the "Intellectual Property Subsidiary") assets consisting of intellectual property, such as patents, trademarks and rights under licensing agreements (the "Intellectual Property"); (B) the Company and its Subsidiaries may transfer to a Wholly-Owned Subsidiary of the Company incorporated in the State of Delaware (the "Seal Subsidiary") all or substantially all of the assets, business and operations (other than the Intellectual Property) comprising the Company's Seal Division within the United States, including a manufacturing plant in Temecula, California, and service centers located throughout the United States; provided that no assets, business or operations comprising a part of the Company's Pump Division shall be transferred to the Seal Subsidiary; (C) the Company and its Subsidiaries may transfer to a Wholly-Owned Subsidiary of the Company incorporated in the State of Pennsylvania or Delaware (the "Pennsylvania Subsidiary") the service centers and sales offices (and the business and operations associated therewith) located in Pennsylvania; (D) the Company and its Subsidiaries may transfer to a Wholly-Owned Subsidiary of the Company incorporated in the State of Oklahoma or Delaware (the "Oklahoma Subsidiary") the service centers and sales offices (and the business and operations 90 96 associated therewith) located in Oklahoma together with the Pump Division's manufacturing plant located in Tulsa, Oklahoma; and (E) the Company and its Subsidiaries may transfer the service centers and sales offices (and the business and operations associated therewith) located in Texas to a Texas limited partnership (the "Texas Partnership"), the sole general partner of which is a Wholly-Owned Subsidiary of the Company incorporated in the State of California (the "Texas General Partner") and the sole limited partner of which is the Company. (ii) At the time of each transfer described above, the Subsidiary of the Company receiving such assets shall execute and deliver to the Agent a Subsidiary Guaranty, substantially in the form of Exhibit L annexed hereto, in favor of the Agent for the benefit of the Lenders, together with such other documents and agreements, including without limitation, charter documents, incumbency certificates, resolutions and legal opinions, as the Agent or the Majority Lenders may reasonably request. (iii) Notwithstanding anything to the contrary contained in Section 5.02(a), the Company will not permit any of the Seal Subsidiary, the Intellectual Property Subsidiary, the Pennsylvania Subsidiary, the Oklahoma Subsidiary, the Texas Partnership or the Texas General Partner to, directly or indirectly, create, incur, assume or otherwise become or remain directly or indirectly liable with respect to, any Debt except: (A) Debt incurred pursuant to this Agreement; (B) any Subsidiary Guaranty; (C) in the case of each of the foregoing Subsidiaries except the Intellectual Property Subsidiary, Debt in respect of Capital Lease Obligations; (D) Contingent obligations permitted by Subsections 5.02(d)(i), (ii), (iii) and (vi) and obligations, contingent or otherwise, solely in respect of surety and performance bonds; (E) intercompany Debt owing to the Company; (F) in the case of each of the foregoing Subsidiaries except the Intellectual Property Subsidiary, purchase money Debt, subject to the restrictions contained in Section 5.02(a)(viii); 91 97 (G) in the case of each of the foregoing Subsidiaries except the Intellectual Property Subsidiary, Debt in connection with industrial revenue bonds issued on behalf of such Subsidiary; and (H) in the case of each of the foregoing Subsidiaries except the Intellectual Property Subsidiary, Debt permitted by Section 5.02(n). ARTICLE VI EVENTS OF DEFAULT SECTION 6.01. EVENTS OF DEFAULT. If any of the following events ("Events of Default") shall occur and be continuing: (a) FAILURE TO MAKE PAYMENTS WHEN DUE. Any Borrower shall fail to pay any principal of any Advance when the same becomes due and payable, whether at stated maturity, by acceleration, by notice of prepayment or otherwise; failure to pay when due any amount payable to an Issuing Bank in reimbursement of any drawing under any Letter of Credit; or failure to pay any interest on any Advance or any other fees or other Obligations due under this Agreement within three Business Days of the date due; or (b) BREACH OF WARRANTY. Any representation or warranty made by a Borrower herein or by a Borrower (or any of its officers) in connection with this Agreement shall prove to have been incorrect in any material respect when made or deemed made; or (c) BREACH OF CERTAIN COVENANTS. (i) A Borrower shall fail to perform or observe any term, covenant or agreement contained in Sections 5.01(c), 5.02(a), (b), (c), (d), (e), (g), (h), (i), (j), (k), (m) or (n) hereof, or (ii) a Borrower shall fail to perform or observe any term, covenant or agreement contained in Sections 5.01(a)(v), (g), (h), (i), or 5.02(f) or (l) if such failure shall remain unremedied for 10 days after the earlier of (i) the day on which a Responsible Officer of a Borrower first obtains knowledge of such failure, or (ii) the day on which written notice thereof shall have been given to any Borrower by the Agent or any Lender, or (iii) a Borrower or any of its Subsidiaries shall fail to perform or observe any other term, covenant or agreement contained in this Agreement or in any other Loan Document, on its part to be performed or observed if such failure shall remain unremedied for 30 days after the earlier of (i) the day on which a Responsible Officer of a Borrower first obtains knowledge of such failure, or (ii) the day on which written notice thereof 92 98 shall have been given to any Borrower by the Agent or any Lender; or (d) DEFAULT IN OTHER AGREEMENTS. A Borrower or any of its Subsidiaries shall fail to pay any principal of or premium or interest on any Debt which is outstanding in a principal amount of at least $5,000,000 (or its equivalent in any Major Currency or Alternative Currency) in the aggregate (but excluding Debt arising under this Agreement) of such Borrower or such Subsidiary (as the case may be), when the same becomes due and payable (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise), and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to such Debt; or any other event shall occur or condition shall exist under any agreement or instrument relating to any such Debt and shall continue after the applicable grace period, if any, specified in such agreement or instrument, if the effect of such event or condition is to accelerate, or to permit the acceleration of, the maturity of such Debt; or any such Debt shall be declared to be due and payable, or required to be prepaid (other than by a regularly scheduled required prepayment), redeemed, purchased or defeased, or an offer to prepay, redeem, purchase or defease such Debt shall be required to be made, in each case prior to the stated maturity thereof; or (e) BANKRUPTCY; ETC. Any Borrower or any of Material Subsidiaries shall generally not pay its debts as such debts become due, or shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors; or any proceeding shall be instituted by or against a Borrower or any of its Material Subsidiaries seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, custodian or other similar official for it or for any substantial part of its property and, in the case of any such proceeding instituted against it (but not instituted by it), either such proceeding shall remain undismissed or unstayed for a period of 30 days, or any of the actions sought in such proceeding (including, without limitation, the entry of an order for relief against, or the appointment of a receiver, trustee, custodian or other similar official for, it or for any substantial part of its property) shall occur; or a Borrower or any Material Subsidiaries of the Company shall take any corporate action to authorize any of the actions set forth above in this subsection (e); or 93 99 (f) JUDGMENTS AND ATTACHMENTS. Any judgment or order for the payment of money in excess of $5,000,000 (or its equivalent in any Major Currency or Alternative Currency) shall be rendered against any Borrower or any of its Subsidiaries, such judgment or order shall remain unsatisfied for a period of at least 30 days and either (i) enforcement proceedings shall have been commenced by any creditor upon such judgment or order or (ii) there shall be any period of 10 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect. Any non-monetary judgment or order shall be rendered against any Borrower or any or its Subsidiaries that is materially adverse to the Company and its Subsidiaries taken as a whole, such judgment or order shall remain unsatisfied for a period of at least 30 days and either (i) enforcement proceedings shall have been commenced by any Person upon such judgment or order or (ii) there shall be any period of 10 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; or (g) GUARANTIES. Any provision of any Subsidiary Guaranty after delivery thereof or otherwise shall for any reason cease to be valid and binding on any Subsidiary of the Company executing such Subsidiary Guaranty or such Subsidiary shall so state in writing; or (h) ERISA. (i) Any ERISA Event with respect to a Pension Plan shall have occurred and, 30 days after notice thereof shall have been given to the Company by the Agent, (x) such ERISA Event shall still exist and (y) the sum (determined as of the date of occurrence of such ERISA Event) of the Insufficiency of such Pension Plan and the Insufficiency of any and all other Pension Plans with respect to which an ERISA Event shall have occurred and then exist (or in the case of a Pension Plan with respect to which an ERISA Event described in clause (iii) through (vi) of the definition of ERISA Event shall have occurred and then exist, the liability related thereto) is equal to or greater than $5,000,000; or (ii) The Company or any ERISA Affiliate shall have been notified by the sponsor of a Multiemployer Plan that it has incurred Withdrawal Liability to such Multiemployer Plan in an amount that, when aggregated with all other amounts required to be paid to Multiemployer Plans by the Company and its ERISA Affiliates as Withdrawal Liability (determined as of the date of such notification), exceeds $5,000,000; or 94 100 (iii) The Company or any ERISA Affiliate shall have been notified by the sponsor of a Multiemployer Plan that such Multiemployer Plan is in reorganization or is being terminated, within the meaning of Title IV of ERISA, if as a result of such reorganization or termination the aggregate annual contributions of the Company and its ERISA Affiliates to all Multiemployer Plans that are then in reorganization or being terminated have been or will be increased over the amounts contributed to such Multiemployer Plans for the plan year of such Multiemployer Plan immediately preceding the plan year in which the reorganization or termination occurs by an amount exceeding $2,000,000; then, and in any such event, the Agent (i) shall at the request, or may with the consent, of Lenders owed 51% or more of the aggregate unpaid principal amount of the Committed Advances then outstanding or, if no Committed Advances are then outstanding, Lenders having 51% or more of the Commitments, by notice to the Borrowers, declare the obligation of each Lender to make Advances and issue Letters of Credit to be terminated, whereupon the same shall forthwith terminate, and (ii) shall at the request, or may with the consent, of Lenders owed 51% or more of the aggregate unpaid principal amount of the Committed Advances then outstanding or, if no Committed Advances are then outstanding, Lenders having 51% or more of the Commitments, by notice to the Borrowers, declare all the Advances then outstanding, an amount equal to the maximum amount which may at any time be drawn under all Letters of Credit then outstanding, all interest thereon and all other Obligations payable under this Agreement to be forthwith due and payable, whereupon the Advances then outstanding, an amount equal to the maximum amount which may at any time be drawn under all Letters of Credit then outstanding, all such interest and all such other Obligations shall become and be forthwith due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by each Borrower; provided, however, that in the event of an actual or deemed entry of an order for relief with respect to any Borrower or any Material Subsidiaries of the Company under the Bankruptcy Code or similar law, (A) the obligation of each Lender to make Advances and issue Letters of Credit shall automatically be terminated and (B) the Advances then outstanding, an amount equal to the maximum amount which may at any time be drawn under all Letters of Credit then outstanding, all such interest and all such other Obligations shall automatically become and be due and payable, without presentment, demand, protest or any notice of any kind, all of which are hereby expressly waived by the each Borrower; provided that notwithstanding the foregoing so long as any Letter of Credit remains outstanding, all amounts received with 95 101 respect to Letters of Credit shall be held by Agent as cash collateral pursuant to the terms of Section 6.02. SECTION 6.02. ACTIONS IN RESPECT OF LETTERS OF CREDIT. (a) If, at any time and from time to time, any Letters of Credit shall have been issued by an Issuing Bank or a Lender hereunder and either an Event of Default shall have occurred and be continuing or the Termination Date shall have occurred, then, upon the occurrence of any of such events, the Agent may, and upon the request of the Issuing Banks or of the Majority Lenders shall, whether in addition to the taking by the Agent of any of the actions described in Section 6.01 or otherwise, make demand upon the Borrowers to, and forthwith upon such demand the Borrowers will, pay to the Agent for its benefit and the ratable benefit of the Lenders in same day funds at the Agent's office designated in such demand, for deposit in a special cash collateral account, which shall be an interest bearing account (the "Letter of Credit Collateral Account") to be maintained for the benefit of the Agent and the ratable benefit of the Lenders at such place as shall be designated by the Agent, an amount in cash equal to the maximum amount that may at any time be drawn under all Letters of Credit outstanding on such Date (whether or not any beneficiary shall have presented, or shall be entitled at such time to present the drafts and other documents required to draw under such Letter of Credit) (the "Letter of Credit Obligations"). (b) The Borrowers hereby pledge and assign to the Agent for its benefit and the ratable benefit of the Lenders, and grants to the Agent for its benefit and the ratable benefit of the Lenders, a lien on and a security interest in the following collateral (the "Letter of Credit Collateral"): (i) the Letter of Credit Collateral Account, all cash deposited therein, and all certificates and instruments, if any, from time to time representing or evidencing the Letter of Credit Collateral Account; (ii) all notes, certificates of deposit and other instruments from time to time hereafter delivered to or otherwise possessed by the Agent for or on behalf of any Borrower in substitution for or in respect of any or all of the then existing Letter of Credit Collateral; (iii) all interest, dividends, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in 96 102 exchange for any or all of the then existing Letter of Credit Collateral; and (iv) to the extent not covered by clauses (i) through (iii) above, all proceeds of any or all of the foregoing Letter of Credit Collateral. The lien and security interest granted hereby secures the payment of all obligations of the Borrowers and its Subsidiaries now or hereafter existing hereunder and under any other Loan Document. (c) Each Borrower agrees that it will not (i) sell or otherwise dispose of any interest in the Letter of Credit Collateral or (ii) create or permit to exist any lien, security interest or other charge or encumbrance upon or with respect to any of the Letter of Credit Collateral, except for the security interest created by this Section 6.02. (d) The Agent may, in it sole discretion, without notice to any Borrower except as required by law and at any time from time to time, charge, set off and otherwise apply all or any part of, first, the Letter of Credit Obligations relating to Letters of Credit, and second, the Obligations of any Borrower or any of its Subsidiaries now or hereafter existing under any of the Loan Documents, against the Letter of Credit Collateral Account or any part thereof, in such order as the Agent shall elect. The Agent agrees promptly to notify such Borrower after any such setoff and application made by the Agent, provided that the failure to give such notice shall not affect the validity of such setoff and application. The rights of the Agent under this Section 6.02(d) are in addition to other rights and remedies (including, without limitation, other rights of setoff) which the Agent may have. (e) On a quarterly basis, so long as no Event of Default exists, the Agent shall pay over any funds in the Letter of Credit Collateral Account which are in excess of the Letter of Credit Obligations to the Company (or to whomsoever may be lawfully entitled to receive such funds). ARTICLE VII THE AGENT AND THE CO-AGENT SECTION 7.01. AUTHORIZATION AND ACTION. Each Lender hereby appoints and authorizes the Agent and the Co- Agent to take such action as agent on its behalf and to exercise such powers under this Agreement as are delegated to the Agent or the Co-Agent, as the case may be, by the terms hereof, together with such powers as are reasonably incidental thereto. As to any matters not expressly 97 103 provided for by this Agreement (including, without limitation, enforcement or collection of the Debt resulting from the Advances), neither the Agent nor the Co-Agent shall be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of Lenders owed 51% or more of the aggregate unpaid principal amount of the Committed Advances then outstanding (or if no Committed Advances are at the time outstanding, upon the instructions of Lenders having 51% or more of the Commitments), and such instructions shall be binding upon all Lenders; provided, however, that neither the Agent nor the Co-Agent shall be required to take any action which exposes the Agent or the Co-Agent, as the case may be, to personal liability or which is contrary to this Agreement or applicable law. The Agent agrees to give to each Lender prompt notice of each notice given to it by a Borrower pursuant to the terms of this Agreement. SECTION 7.02. AGENT'S AND CO-AGENT'S RELIANCE, ETC. Neither the Agent nor the Co-Agent nor any of their respective directors, officers, agents or employees shall be liable for any action taken or omitted to be taken by it or them under or in connection with this Agreement, except for its or their own gross negligence or willful misconduct. Without limitation of the generality of the foregoing, the Agent and the Co-Agent: (a) may treat the Lender that made any Advance as the holder of the Debt resulting therefrom until the Agent receives and accepts an Assignment and Acceptance entered into by such Lender, as assignor, and an Eligible Assignee, as assignee, as provided in Section 9.08; (b) may consult with legal counsel (including counsel for the Borrowers), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts; (c) makes no warranty or representation to any Lender and shall not be responsible to any Lender for any statements, warranties or representations (whether written or oral) made in or in connection with this Agreement; (d) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of this Agreement on the part of the Borrowers or to inspect the property (including the books and records) of the Borrowers; (e) shall not be responsible to any Lender for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any other instrument or document furnished pursuant hereto; and (f) shall incur no liability under or in respect of this Agreement by acting upon any notice, consent, certificate or other instrument or writing (which may be by telecopier, telegram, cable or telex) believed by it to be genuine and signed or sent by the proper party or parties. 98 104 SECTION 7.03. CUSA, ABN AMRO AND AFFILIATES. With respect to any Commitment of, or any Advances made by, CUSA, ABN AMRO or any of their respective affiliates, CUSA, ABN AMRO and each such affiliate shall have the same rights and powers under this Agreement as any other Lender and may exercise the same as though it were not the Agent, the Co- Agent or an affiliate thereof; and the term "Lender" or "Lenders" shall, unless otherwise expressly indicated, include CUSA, ABN AMRO and each such affiliate in its individual capacity. CUSA, ABN AMRO 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, any of its subsidiaries and any Person who may do business with or own securities of the Borrowers or any such subsidiary, all as if CUSA or ABN AMRO were not the Agent or the Co-Agent and without any duty to account therefor to the Lenders. SECTION 7.04. LENDER CREDIT DECISION. Each Lender acknowledges that it has, independently and without reliance upon the Agent, the Co-Agent or any other Lender and based on the financial statements referred to in Section 4.03 and such other documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges that it will, independently and without reliance upon the Agent, the Co-Agent or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement. SECTION 7.05. INDEMNIFICATION. The Lenders (other than the Designated Bidders) agree to indemnify the Agent and the Co-Agent (to the extent not reimbursed by the Borrowers), ratably according to the respective aggregate principal amount of Committed Advances then owing to each of them (or if no such Advances are at the time outstanding or if any such Advances are then owing to Persons which are not Lenders, ratably according to the respective amounts of their Commitments), from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against the Agent or the Co-Agent, as the case may be, in any way relating to or arising out of this Agreement or any action taken or omitted by the Agent or the Co-Agent, as the case may be, under this Agreement, provided that no Lender 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 or the Co-Agent's, as the case may be, gross negligence or willful misconduct. Without limitation of the foregoing, each Lender (other than the 99 105 Designated Bidders) agrees to reimburse the Agent and the Co-Agent promptly upon demand for its ratable share of any out-of-pocket expenses (including counsel fees) incurred by the Agent or the Co-Agent, as the case may be, in connection with the preparation, execution, delivery, administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement, to the extent that the Agent or the Co-Agent, as the case may be, is not reimbursed for such expenses by the Borrowers. SECTION 7.06. SUCCESSOR AGENT. The Agent may resign at any time by giving written notice thereof to the Lenders and the Company and may be removed at any time with or without cause by the Majority Lenders, such resignation or removal to be effective upon acceptance of appointment by a successor Agent as provided herein. Upon any such resignation or removal, the Majority Lenders shall have the right to appoint a successor Agent. If no successor Agent shall have been so appointed by the Majority Lenders, and shall have accepted such appointment, within 30 days after the retiring Agent's giving of notice of resignation or the Majority Lenders' removal of the retiring Agent, then the retiring Agent may, on behalf of the Lenders, appoint a successor Agent, which shall be a bank recognized as a bank under the laws of the United States and having a combined capital and surplus of at least $100,000,000. The Borrower shall have the right to consent to the appointment of the successor Agent, which consent shall not be unreasonably withheld. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations under this Agreement. After any retiring Agent's resignation or removal hereunder as Agent, the provisions of this Article VII shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement. The Co-Agent may resign at any time by giving written notice thereof to the Lenders, the Agent and the Borrower, and may be removed at any time with or without cause by the Majority Lenders. ARTICLE VIII THE PARENT GUARANTY SECTION 8.01. GUARANTY OF THE GUARANTIED OBLIGATIONS. The Company hereby irrevocably and unconditionally guaranties, as primary obligor and not merely as surety, the due and punctual payment in full of all Guarantied Obligations when and as the same shall become due, whether at stated maturity, by required prepayment or 100 106 declaration of (or in certain circumstances automatic) acceleration (including amounts that would become due but for the operation of the automatic stay under Section 362(a) of the Bankruptcy Code, 11 U.S.C. ss. 362(a)). The term "Guarantied Obligations" is used herein in its most comprehensive sense and includes: (a) any and all obligations of the Borrowers in respect of notes, advances, borrowings, loans, debts, interest, fees, costs, expenses (including, without limitation, legal fees and expenses of counsel), indemnities and liabilities of whatsoever nature now or hereafter made, incurred or created, whether absolute or contingent, liquidated or unliquidated, whether due or not due, arising under or in connection with this Agreement, including those arising under successive borrowing transactions under this Agreement which shall either continue such obligations of the Borrowers or from time to time renew them after they have been satisfied; and (b) those expenses set forth in Section 8.07 hereof. This Article VIII, as it may be amended, amended and restated, supplemented or otherwise modified from time to time, is sometimes referred to herein as the "Parent Guaranty" or this "Parent Guaranty". SECTION 8.02. LIABILITY OF THE COMPANY. The Company agrees that its obligations hereunder are irrevocable, absolute, independent and unconditional and shall not be affected by any circumstance which constitutes a legal or equitable discharge of a guarantor or surety other than indefeasible payment in full of the Guarantied Obligations. In furtherance of the foregoing and without limiting the generality thereof, the Company agrees as follows: (a) This Parent Guaranty is a guaranty of payment when due and not of collectibility. (b) The obligations of the Company hereunder are independent of the obligations of the Borrowers hereunder and the obligations of any other guarantor of the obligations of the Borrowers hereunder, and a separate action or actions may be brought and prosecuted against the Company whether or not any action is brought against the Borrowers or any of such other guarantors and whether or not the Borrowers are joined in any such action or actions. (c) The Company's payment of a portion, but not all, of the Guarantied Obligations shall in no way 101 107 limit, affect, modify or abridge the Company's liability for any portion of the Guarantied Obligations which has not been paid. Without limiting the generality of the foregoing, if the Agent is awarded a judgment in any suit brought to enforce the Company's covenant to pay a portion of the Guarantied Obligations, such judgment shall not be deemed to release the Company from its covenant to pay the portion of the Guarantied Obligations that is not the subject of such suit. (d) The Agent, any Issuing Bank, any Designated Issuer or any Lender, upon such terms as it deems appropriate, without notice or demand and without affecting the validity or enforceability of this Parent Guaranty or giving rise to any reduction, limitation, impairment, discharge or termination of the Company's liability hereunder, from time to time may (i) renew, extend (whether pursuant to Section 2.19 or otherwise), accelerate (in accordance with the terms of this Agreement), increase (in accordance with the terms of this Agreement) the rate of interest on, or otherwise change the time, place, manner or terms of payment of the Guarantied Obligations with the agreement of the applicable Borrower obligated therefor, (ii) settle, compromise, release or discharge, or accept or refuse any offer of performance with respect to, or substitutions for, the Guarantied Obligations or any agreement relating thereto and/or subordinate the payment of the same to the payment of any other obligations; (iii) request and accept other guaranties of the Guarantied Obligations and take and hold security for the payment of this Parent Guaranty or the Guarantied Obligations; (iv) release, surrender, exchange, substitute, compromise, settle, rescind, waive, alter, subordinate or modify, with or without consideration, any security for payment of the Guarantied Obligations, any other guaranties of the Guarantied Obligations, or any other obligation of any Person with respect to the Guarantied Obligations; (v) enforce and apply any security now or hereafter held by or for the benefit of the Agent, any Issuing Bank, any Designated Issuer or any Lender in respect of this Parent Guaranty or the Guarantied Obligations and direct the order or manner of sale thereof, or exercise any other right or remedy that Agent, Issuing Banks, Designated Issuers or Lenders, or any of them, may have against any such security, as Agent in its discretion may determine consistent with this Agreement and any applicable security agreement, including foreclosure on any such security pursuant to one or more judicial or nonjudicial sales, whether or not every aspect of any such sale is commercially reasonable, and even though such action operates to impair or extinguish any right 102 108 of reimbursement or subrogation or other right or remedy of the Company against the Borrowers or any security for the Guarantied Obligations; and (vi) exercise any other rights available to it hereunder. (e) This Parent Guaranty and the obligations of the Company hereunder shall be valid and enforceable and shall not be subject to any reduction, limitation, impairment, discharge or termination for any reason (other than indefeasible payment in full of the Guarantied Obligations), including without limitation the occurrence of any of the following, whether or not the Company shall have had notice or knowledge of any of them: (i) any failure or omission to assert or enforce or agreement or election not to assert or enforce, or the stay or enjoining, by order of court, by operation of law or otherwise, of the exercise or enforcement of, any claim or demand or any right, power or remedy (whether arising hereunder, at law, in equity or otherwise) with respect to the Guarantied Obligations or any agreement relating thereto, or with respect to any other guaranty of or security for the payment of the Guarantied Obligations; (ii) any rescission, waiver, amendment or modification of, or any consent to departure from, any of the terms or provisions (including without limitation provisions relating to events of default) of this Agreement, or any agreement or instrument executed pursuant thereto, or of any other guaranty or security for the Guarantied Obligations, in each case whether or not in accordance with the terms of this Agreement or any agreement relating to such other guaranty or security; (iii) the Guarantied Obligations, or any agreement relating thereto, at any time being found to be illegal, invalid or unenforceable in any respect; (iv) the application of payments received from any source (other than payments received from the proceeds of any security for the Guarantied Obligations, except to the extent such security also serves as collateral for indebtedness other than the Guarantied Obligations) to the payment of indebtedness other than the Guarantied Obligations, even though the Agent, the Issuing Banks, the Designated Issuers or the Lenders, or any of them, might have elected to apply such payment to any part or all of the Guarantied Obligations; (v) any Lender's, Issuing Bank's, Designated Issuer's or Agent's consent to the change, reorganization or termination of the corporate or partnership structure or existence of the Borrowers or any of its Subsidiaries and to any corresponding restructuring of the Guarantied Obligations; (vi) any failure to perfect or continue perfection of a security interest in any collateral which secures any of the Guarantied Obligations; 103 109 (vii) any defenses which the Borrowers may allege or assert against the Agent, any Issuing Bank, any Designated Issuer or any Lender in respect of the Guarantied Obligations, including but not limited to statute of frauds, statute of limitations, and usury; and (viii) any other act or thing or omission, or delay to do any other act or thing, which may or might in any manner or to any extent vary the risk of the Company as an obligor in respect of the Guarantied Obligations. SECTION 8.03. WAIVERS BY THE COMPANY. The Company hereby waives, for the benefit of the Lenders, the Issuing Banks, the Designated Issuers and the Agent: (a) any right to require the Agent, the Issuing Banks, the Designated Issuers or the Lenders, as a condition of payment or performance by the Company, to (i) proceed against the Borrowers, any other guarantor of the Guarantied Obligations or any other Person, (ii) proceed against or exhaust any security held from the Borrowers, any other guarantor of the Guarantied Obligations or any other Person, (iii) proceed against or have resort to any balance of any deposit account or credit on the books of the Agent, any Issuing Bank, any Designated Issuer or any Lender in favor of the Borrowers or any other Person, or (iv) pursue any other remedy in the power of the Agent, any Issuing Bank, any Designated Issuer or any Lender whatsoever; (b) any defense arising by reason of the incapacity, lack of authority or any disability or other defense of the Borrowers including, without limitation, any defense based on or arising out of the lack of validity or the unenforceability of the Guarantied Obligations or any agreement or instrument relating thereto or by reason of the cessation of the liability of the Borrowers from any cause other than indefeasible payment in full of the Guarantied Obligations; (c) any defense based upon any statute or rule of law which provides that the obligation of a surety must be neither larger in amount nor in other respects more burdensome than that of the principal; (d) (i) any principles or provisions of law, statutory or otherwise, which are or might be in conflict with the terms of this Parent Guaranty and any legal or equitable discharge of the Company's obligations hereunder, (ii) the benefit of any statute of limitations affecting the Company's liability hereunder or the enforcement hereof, and (iii) promptness, diligence and any requirement that the Agent, any Issuing Bank, any Designated Issuer or 104 110 any Lender protect, secure, perfect or insure any security interest or lien or any property subject thereto; (e) notices, demands, presentments, protests, notices of protest, notices of dishonor and notices of any action or inaction, including acceptance of this Parent Guaranty, notices of default hereunder or any agreement or instrument related thereto, notices of any renewal, extension or modification of the Guarantied Obligations or any agreement related thereto, notices of any extension of credit to the Borrowers and notices of any of the matters referred to in Section 8.02 and any right to consent to any thereof; and (f) any defenses or benefits that may be derived from or afforded by law which limit the liability of or exonerate guarantors or sureties, or which may conflict with the terms of this Parent Guaranty. SECTION 8.04. PAYMENT BY THE COMPANY. The Company hereby agrees, in furtherance of the foregoing and not in limitation of any other right which the Agent or any other Person may have at law or in equity against the Company by virtue hereof, upon the failure of the Borrowers to pay any of the Guarantied Obligations when and as the same shall become due, whether at stated maturity, by required prepayment or declaration of (or, in certain circumstances, automatic) acceleration, (including amounts that would become due but for the operation of the automatic stay under Section 362(a) of the Bankruptcy Code, 11 U.S.C. ss. 362(a)), the Company will forthwith pay, or cause to be paid, in cash, to the Agent for the benefit of Lenders, the Issuing Banks and the Designated Issuers, an amount equal to the sum of the unpaid principal amount of all Guarantied Obligations then due as aforesaid, accrued and unpaid interest on such Guarantied Obligations (including, without limitation, interest which, but for the filing of a petition in bankruptcy with respect to the Borrowers, would have accrued on such Guarantied Obligations, whether or not a claim is allowed against the Borrowers for such interest in any such bankruptcy proceeding) and all other Guarantied Obligations then owed to the Agent and/or the Lenders, the Issuing Banks or the Designated Issuers as aforesaid. SECTION 8.05. SUBROGATION. Until the Guarantied Obligations shall have been indefeasibly paid in full, the Company shall withhold exercise of (a) any right of subrogation, (b) any right of contribution the Company may have against any other guarantor of the Guarantied Obligations, (c) any right to enforce any remedy which the Agent, any Issuing Bank, any Designated Issuer or any Lender now has or may hereafter have against the Borrowers or (d) any benefit of, and any right to participate in, any 105 111 security now or hereafter held by the Agent , any Issuing Bank, any Designated Issuer or any Lender. The Company further agrees that, to the extent that its agreement to defer exercising any of its rights of subrogation and contribution as set forth herein is found by a court of competent jurisdiction to be void or voidable for any reason, any rights of subrogation the Company may have against the Borrowers or against any collateral or security, and any rights of contribution the Company may have against any other guarantor, shall be junior and subordinate to any rights the Agent, the Issuing Banks, the Designated Issuers or the Lenders may have against the Borrowers, to all right, title and interest the Agent, the Issuing Banks, the Designated Issuers or the Lenders may have in any such collateral or security, and to any right the Agent, the Issuing Banks, the Designated Issuers or the Lenders may have against such other guarantor. The Agent, on behalf of the Lenders, the Issuing Banks and the Designated Issuers, may use, sell or dispose of any item of collateral or security as it sees fit without regard to any subrogation rights the Company may have, and upon any such disposition or sale any rights of subrogation the Company may have shall terminate. If any amount shall be paid to the Company on account of such subrogation rights at any time when all Guarantied Obligations shall not have been paid in full, such amount shall be held in trust for the Agent on behalf of Lenders, the Issuing Banks and the Designated Issuers and shall forthwith be paid over to the Agent for the benefit of the Lenders, the Issuing Banks and the Designated Issuers to be credited and applied against the Guarantied Obligations in accordance with the terms of this Agreement or any applicable security agreement. SECTION 8.06. SUBORDINATION OF OTHER OBLIGATIONS. Any indebtedness of the Borrowers or any Subsidiary of the Borrowers now or hereafter held by the Company is hereby subordinated in right of payment to the Guarantied Obligations, and any such indebtedness of the Borrowers or any Subsidiary of the Borrowers to the Company collected or received by the Company after an Event of Default resulting from a payment default has occurred and is continuing or after an acceleration of the Guarantied Obligations shall be held in trust for the Agent on behalf of the Lenders, the Issuing Banks and the Designated Issuers and shall forthwith be paid over to the Agent for the benefit of the Lenders, the Issuing Banks and the Designated Issuers to be credited and applied against the Guarantied Obligations but without affecting, impairing or limiting in any manner the liability of the Company under any other provision of this Parent Guaranty. SECTION 8.07. EXPENSES. The Company agrees to pay, or cause to be paid, and to save the Agent, the Issuing Banks, the Designated Issuers and the Lenders harmless 106 112 against liability for, any and all reasonable costs and out-of-pocket expenses (including fees and disbursements of counsel) incurred or expended by the Agent, any Issuing Bank, any Designated Issuer or any Lender in connection with the enforcement of or preservation of any rights under this Parent Guaranty. SECTION 8.08. CONTINUING GUARANTY; TERMINATION OF PARENT GUARANTY. This Parent Guaranty is a continuing guaranty and shall remain in effect until all of the Guarantied Obligations shall have been indefeasibly paid in full, the Commitments of all of the Lenders shall have terminated, and the obligations of the Issuing Banks to issue Letters of Credit shall have terminated. SECTION 8.09. AUTHORITY OF THE COMPANY OR THE BORROWERS. It is not necessary for the Lenders, the Issuing Banks, the Designated Issuers or the Agent to inquire into the capacity or powers of the Company or the Borrowers or the officers, directors or any agents acting or purporting to act on behalf of any of them. SECTION 8.10. FINANCIAL CONDITION OF THE BORROWERS. Any Advances may be granted to the Borrowers or continued from time to time without notice to or authorization from the Company regardless of the financial or other condition of the Borrowers at the time of any such grant or continuation. The Lenders, the Issuing Banks, the Designated Issuers and the Agent shall have no obligation to disclose or discuss with the Company their assessment, or the Company's assessment, of the financial condition of the Borrowers. The Company has adequate means to obtain information from the Borrowers on a continuing basis concerning the financial condition of the Borrowers and its ability to perform its obligations hereunder, and the Company assumes the responsibility for being and keeping informed of the financial condition of the Borrowers and of all circumstances bearing upon the risk of nonpayment of the Guarantied Obligations. The Company hereby waives and relinquishes any duty on the part of the Agent, any Issuing Bank, any Designated Issuer or any Lender to disclose any matter, fact or thing relating to the business, operations or conditions of the Borrowers now known or hereafter known by the Agent, any Issuing Bank, any Designated Issuer or any Lender. SECTION 8.11. RIGHTS CUMULATIVE. The rights, powers and remedies given to the Lenders, the Issuing Banks, the Designated Issuers and the Agent by this Parent Guaranty are cumulative and shall be in addition to and independent of all rights, powers and remedies given to the Lenders, the Issuing Banks, the Designated Issuers and the Agent by virtue of any statute or rule of law or under this Agreement or any agreement between the Company and the Lenders, the 107 113 Issuing Banks, the Designated Issuers and/or the Agent or between the Borrowers and the Lenders, the Issuing Banks, the Designated issuers and/or the Agent. Any forbearance or failure to exercise, and any delay by any Lender, any Issuing Bank, any Designated Issuer or the Agent in exercising, any right, power or remedy hereunder shall not impair any such right, power or remedy or be construed to be a waiver thereof, nor shall it preclude the further exercise of any such right, power or remedy. SECTION 8.12. BANKRUPTCY; POST-PETITION INTEREST; REINSTATEMENT OF THE PARENT GUARANTY. (a) The obligations of the Company under this Parent Guaranty shall not be reduced, limited, impaired, discharged, deferred, suspended or terminated by any proceeding, voluntary or involuntary, involving the bankruptcy, insolvency, receivership, reorganization, liquidation or arrangement of the Borrowers or by any defense which the Borrowers may have by reason of the order, decree or decision of any court or administrative body resulting from any such proceeding. (b) The Company acknowledges and agrees that any interest on any portion of the Guarantied Obligations which accrues after the commencement of any proceeding referred to in clause (a) above (or, if interest on any portion of the Guarantied Obligations ceases to accrue by operation of law by reason of the commencement of said proceeding, such interest as would have accrued on such portion of the Guarantied Obligations if said proceedings had not been commenced) shall be included in the Guarantied Obligations because it is the intention of the Company and the Agent that the Guarantied Obligations which are guarantied by the Company pursuant to this Parent Guaranty should be determined without regard to any rule of bankruptcy or other similar laws or which may relieve the Borrowers of any portion of such Guarantied Obligations. The Company will permit any trustee in bankruptcy, receiver, debtor in possession, assignee for the benefit of creditors or similar person to pay the Agent, or allow the claim of the Agent in respect of, any such interest accruing after the date on which such proceeding is commenced. (c) In the event that all or any portion of the Guarantied Obligations are paid by the Borrowers, the obligations of the Company hereunder shall continue and remain in full force and effect or be reinstated, as the case may be, in the event that all or any part of such payment(s) are rescinded or recovered directly or indirectly from the Agent, any Issuing Bank, any Designated Issuer or any Lender as a preference, fraudulent transfer or otherwise, and any such payments which are so rescinded or recovered shall constitute Guarantied Obligations for all purposes under this Parent Guaranty. 108 114 SECTION 8.13. SET OFF. Upon (a) the occurrence and during the continuance of any Event of Default and (b) the making of the request or the granting of the consent specified by Section 6.01 to authorize the Agent to declare the Advances due and payable pursuant to the provisions of Section 6.01, each Lender, each Issuing Bank, each Designated Issuer and the Agent is authorized at any time or from time to time, without notice (any such notice being hereby expressly waived), to set off and to appropriate and to apply any and all deposits (including but not limited to indebtedness evidenced by certificates of deposit, whether matured or unmatured, time or demand deposits, provisional or final deposits, or general deposits but not special deposits) and any other indebtedness of any Lender, any Issuing Bank, any Designated Issuer or the Agent owing to the Company and any other property of the Company held by any Lender, any Issuing Bank, any Designated Issuer or the Agent to or for the credit or the account of the Company against and on account of the Guarantied Obligations and liabilities of the Company to any Lender, any Issuing Bank, any Designated Issuer or the Agent under this Parent Guaranty. SECTION 8.14. SUCCESSORS AND ASSIGNS. This Parent Guaranty is a continuing guaranty and shall be binding upon the Company and its successors and assigns. This Parent Guaranty shall inure to the benefit of the Lenders, the Issuing Banks, the Designated Issuers, the Agent and their respective successors and assigns. The Company shall not assign this Parent Guaranty or any of the rights or obligations of the Company hereunder without the prior written consent of all Lenders. To the extent the Guarantied Obligations are assigned in accordance with this Agreement, any Lender or Issuing Bank may, without notice or consent, assign its interest in this Parent Guaranty in whole or in part. The terms and provisions of this Parent Guaranty shall inure to the benefit of any permitted assignee or transferee of any rights and obligations under this Agreement, and in the event of such transfer or assignment the rights and privileges herein conferred upon the Lenders, the Issuing Banks, the Designated Issuers and the Agent shall automatically extend to and be vested in such transferee or assignee, all subject to the terms and conditions hereof. SECTION 8.15. FURTHER ASSURANCES. At any time or from time to time, upon the request of the Agent or Majority Lenders, the Company shall execute and deliver such further documents and do such other acts and things as the Agent or Majority Lenders may reasonably request in order to effect fully the purposes of this Parent Guaranty. 109 115 ARTICLE IX MISCELLANEOUS SECTION 9.01. AMENDMENTS, ETC. No amendment or waiver of any provision of this Agreement, nor consent to any departure by the Borrowers therefrom, shall in any event be effective unless the same shall be in writing and signed by the Majority Lenders, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided that any amendment, modification, termination or waiver of the principal amount of a Bid Advance or payments or prepayments by a Borrower in respect thereof, the scheduled maturity dates of a Bid Advance, the dates on which interest is payable and decreases in interest rates borne by the Bid Advances shall not be effective without the written concurrence of the Lender which has funded such Bid Advance; provided, further, that no amendment, waiver or consent shall, unless in writing and signed by all the Lenders (other than the Designated Bidders), do any of the following: (a) waive any of the conditions specified in Section 3.01, 3.02, or 3.03, (b) increase the Commitments of such Lenders or subject such Lenders to any additional obligations, (c) reduce the principal of, or interest on, the Committed Advances or Letters of Credit or any fees or other amounts payable hereunder, (d) postpone any date fixed for any payment of principal of, or interest on, the Committed Advances or Letters of Credit or any fees or other amounts payable hereunder, (e) change the percentage of the Commitments or of the aggregate unpaid principal amount of the Committed Advances, or the number of Lenders, which shall be required for the Lenders or any of them to take any action hereunder, (f) amend Section 6.01(a) or (e) or this Section 9.01, or (g) release the Parent Guaranty; provided, still further, that no amendment, waiver or consent shall, unless in writing and signed by all the Lenders, waive any of the conditions specified in Section 3.04; and provided, still further, that no amendment, waiver or consent shall, unless in writing and signed by the Agent in addition to the Lenders required above to take such action, affect the rights or duties of the Agent under this Agreement. SECTION 9.02. NOTICES, ETC. All notices and other communications provided for hereunder shall be in writing (including telecopier, telegraphic, telex or cable communication) and mailed, telecopied, telegraphed, telexed, cabled or delivered, if to a Borrower, at the Company's address at 200 Oceangate Boulevard, Suite 900, Long Beach, California 90802, Attention: Mr. Zohar Ziv; if to any Financial Institution, at its Domestic Lending Office specified opposite its name on SCHEDULE 1.01(A) HERETO; if to any other Lender, at its Domestic Lending Office specified in the Assignment and Acceptance, New Commitment Acceptance or Designation Agreement pursuant to which it 110 116 became a Lender; and if to the Agent, at its address at 725 South Figueroa Street, Los Angeles, California 90017, Attention: Ms. Catherine Hudnall, Vice President, Corporate Capital Division; or, as to the Borrowers or the Agent, at such other address as shall be designated by such party in a written notice to the other parties and, as to each other party, at such other address as shall be designated by such party in a written notice to the Borrower and the Agent. All such notices and communications shall, when mailed, telecopied, telegraphed, telexed or cabled, be effective when deposited in the mails, telecopied, delivered to the telegraph company, confirmed by telex answerback or delivered to the cable company, respectively, except that notices and communications to the Agent pursuant to Article II or VII shall not be effective until received by the Agent. SECTION 9.03. NO WAIVER; REMEDIES. No failure on the part of any Lender or the Agent to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any such right preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. SECTION 9.04. COSTS, EXPENSES AND TAXES. (a) The Borrower agrees to pay to the Agent, the Co-Agent and the Arranger on demand all costs and expenses in connection with the preparation, negotiation, execution, delivery, syndication, administration, modification and amendment of this Agreement and the other documents to be delivered hereunder, including, without limitation, all out-of-pocket expenses and the reasonable fees and expenses of counsel for the Agent with respect thereto and with respect to advising the Agent as to its rights and responsibilities under this Agreement. The Borrower further agrees to pay on demand all costs and expenses of the Agent, the Co-Agent, the Arranger and the Lenders, if any (including, without limitation, all out-of-pocket expenses and reasonable counsel fees and expenses and, without duplication, the allocated cost of in-house counsel), in connection with the enforcement (whether through negotiations, legal proceedings or otherwise) of this Agreement and the other documents to be delivered hereunder, including, without limitation, reasonable counsel fees and expenses in connection with the enforcement of rights under this Section 9.04(a). Any amounts owing to the Agent, the Co-Agent, the Arranger or any Lender under this Section 9.04(a) shall be paid by the Borrower upon presentation of a statement of account. (b) If any payment of principal of any Eurocurrency Advance or Fixed Rate Advance is made by a 111 117 Borrower to or for the account of a Lender other than on the last day of the Eurocurrency Interest Period for such Advance or the maturity date for such Advance as specified in accordance with Section 2.03(f), as a result of a payment pursuant to Section 2.02(b)(i), acceleration of the maturity of the Advances pursuant to Section 6.01 or for any other reason, such Borrower shall, upon demand by any Lender (with a copy of such demand to the Agent), pay to the Agent for the account of such Lender any amounts required to compensate such Lender for any additional losses, costs or expenses which it may reasonably incur as a result of such payment, including, without limitation, any loss (including loss of anticipated profits), cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by any Lender to fund or maintain such Advance. SECTION 9.05. RIGHT OF SETOFF. Upon (a) the occurrence and during the continuance of any Event of Default and (b) the making of the request or the granting of the consent specified by Section 6.01 to authorize the Agent to declare the Advances due and payable pursuant to the provisions of Section 6.01, each Lender is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Lender to or for the credit or the account of a Borrower against any and all of the obligations of such Borrower now or hereafter existing under this Agreement, whether or not such Lender shall have made any demand under this Agreement and although such obligations may be unmatured. Each Lender agrees promptly to notify such Borrower after any such setoff and application made by such Lender, provided that the failure to give such notice shall not affect the validity of such setoff and application. The rights of each Lender under this Section are in addition to other rights and remedies (including, without limitation, other rights of setoff) which such Lender may have. SECTION 9.06. JUDGMENT. (a) If for the purposes of obtaining judgment in any court it is necessary to convert a sum due hereunder or under any other Loan Document in any currency (the "Original Currency") into another currency (the "Other Currency") the parties hereto agree, to the fullest extent that they may effectively do so, that the rate of exchange used shall be that at which in accordance with normal banking procedures the Agent could purchase the Original Currency with the Other Currency at London, England on the second Business Day preceding that on which final judgment is given. 112 118 (b) The obligation of a Borrower in respect of any sum due in the Original Currency from it to any Lender or the Agent hereunder shall, notwithstanding any judgment in any Other Currency, be discharged only to the extent that on the Business Day following receipt by such Lender or the Agent (as the case may be) of any sum adjudged to be so due in such Other Currency such Lender or the Agent (as the case may be) may in accordance with normal banking procedures purchase the Original Currency with such Other Currency; if the amount of the Original Currency so purchased is less than the sum originally due to such Lender or the Agent (as the case may be) in the Original Currency, such Borrower agrees, as a separate obligation and notwithstanding any such judgment, to indemnify such Lender or the Agent (as the case may be) against such loss, and if the amount of the Original Currency so purchased exceeds the sum originally due to any Lender or the Agent (as the case may be) in the Original Currency, such Lender or the Agent (as the case may be) agrees to remit to such Borrower such excess. SECTION 9.07. BINDING EFFECT. This Agreement shall become effective when it shall have been executed by the Borrower and the Agent and when the Agent shall have been notified by each Financial Institution that such Financial Institution has executed it and thereafter shall be binding upon and inure to the benefit of the Borrowers, the Agent and each Lender and their respective successors and assigns, except that the Borrowers shall not have the right to assign its rights hereunder or any interest herein without the prior written consent of the Lenders. SECTION 9.08. ASSIGNMENTS, DESIGNATIONS AND PARTICIPATIONS. (a) Each Lender (other than the Designated Bidders) may assign to one or more banks or other entities all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Commitment and the Advances owing to it); provided, however, that, except in the case of assignments by a Lender to an affiliate of such Lender, (i) each such assignment shall be of a constant, and not a varying, percentage of all of the assigning Lender's rights and obligations under this Agreement (other than any right to make Bid Advances or Bid Advances owing to it), (ii) the amount of the Commitment of the assigning Lender being assigned pursuant to each such assignment (determined as of the date of the Assignment and Acceptance with respect to such assignment) shall in no event be less than $10,000,000 and shall be an integral multiple of $1,000,000 in excess thereof, (iii) each such assignment shall be to an Eligible Assignee, (iv) the Borrower shall consent to the assignee (which consent shall not be unreasonably withheld), (v) the Agent shall consent to such assignee (which consent shall not be unreasonably 113 119 withheld) and (vi) the parties to each such assignment shall execute and deliver to the Agent, for its acceptance and recording in the Register, an Assignment and Acceptance, together with a processing and recordation fee of $3000 (such fee shall not be paid by the Borrowers). Upon such execution, delivery, acceptance and recording, from and after the effective date specified in each Assignment and Acceptance (x) the assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment and Acceptance, have the rights and obligations of a Lender hereunder and (y) the Lender assignor thereunder shall, to the extent that rights and obligations hereunder have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights and be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all or the remaining portion of an assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto). If a Lender assigning all or a portion of its rights and obligations under this Agreement pursuant to this Section 9.08(a) (or its Designated Issuer) shall have issued a Syndicated Letter of Credit that remains outstanding at the time of such assignment, such Lender (or its Designated Issuer) shall be deemed to have sold and transferred irrevocably and unconditionally to the assignee, and such assignee shall be deemed to have purchased and received irrevocably and unconditionally, an undivided interest and participation to the extent of the interest being transferred to such assignee in such Letter of Credit, and the assignee's Commitment shall be deemed used by the amount of such participation for so long as such Letter of Credit remains outstanding and the assignor's remaining Commitment, if any, shall not be deemed used by the amount of such participation. In the event any reimbursement obligation in respect of such Letter of credit is not paid to such assigning Lender (or Designated Issuer) when due, the Lender shall promptly notify the assignee of the amount of such reimbursement obligation and such assignee shall promptly pay to the assigning Lender, in same day funds, an amount equal to such assignee's participation interest of the amount of such unpaid reimbursement obligation. (b) By executing and delivering an Assignment and Acceptance, the Lender assignor thereunder and the assignee thereunder confirm to and agree with each other and the other parties hereto as follows: (i) other than as provided in such Assignment and Acceptance, such assigning Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any other instrument or document furnished pursuant hereto; 114 120 (ii) such assigning Lender makes no representation or warranty and assumes no responsibility with respect to the financial condition of any Borrower or the performance or observance by any Borrower of any of its obligations under this Agreement or any other instrument or document furnished pursuant hereto; (iii) such assignee confirms that it has received a copy of this Agreement, together with copies of the financial statements referred to in Section 4.03 and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (iv) such assignee will, independently and without reliance upon the Agent, such assigning Lender or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement; (v) such assignee confirms that it is an Eligible Assignee; (vi) such assignee appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under this Agreement as are delegated to the Agent by the terms hereof, together with such powers as are reasonably incidental thereto; and (vii) such assignee agrees that it will perform in accordance with their terms all of the obligations which by the terms of this Agreement are required to be performed by it as a Lender. (c) Upon its receipt of an Assignment and Acceptance executed by an assigning Lender and an assignee representing that it is an Eligible Assignee, the Agent shall, if such Assignment and Acceptance has been completed and is in substantially the form of EXHIBIT A hereto, (i) accept such Assignment and Acceptance, (ii) record the information contained therein in the Register and (iii) give prompt notice thereof to the Borrower. (d) Each Lender (other than the Designated Bidders) may designate one or more banks or other entities to have a right to make Bid Advances as a Lender pursuant to Section 2.03; provided, however, that (i) no such Lender shall be entitled to make more than two such designations, (ii) each such Lender making one or more of such designations shall retain the right to make Bid Advances as a Lender pursuant to Section 2.03, (iii) each such designation shall be to a Designated Bidder and (iv) the parties to each such designation shall execute and deliver to the Agent, for its acceptance and recording in the Register, a Designation Agreement. Upon such execution, delivery, acceptance and recording, from and after the effective date specified in each Designation Agreement, the designee thereunder shall be a party hereto with a right to make Bid Advances as a Lender pursuant to Section 2.03 and the obligations related thereto. 115 121 (e) By executing and delivering a Designation Agreement, the Lender making the designation thereunder and its designee thereunder confirm and agree with each other and the other parties hereto as follows: (i) such Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any other instrument or document furnished pursuant hereto; (ii) such Lender makes no representation or warranty and assumes no responsibility with respect to the financial condition of any Borrower or the performance or observance by any Borrower or any of its obligations under this Agreement or any other instrument or document furnished pursuant hereto; (iii) such designee confirms that it has received a copy of this Agreement, together with copies of the financial statements referred to in Section 4.03 and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into the Designation Agreement; (iv) such designee will, independently and without reliance upon the Agent, such designating Lender or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement; (v) such designee confirms that it is a Designated Bidder; (vi) such designee appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under this Agreement as are delegated to the Agent by the terms hereof, together with such powers as are reasonably incidental thereto; and (vii) such designee agrees that it will perform in accordance with their terms all of the obligations which by the terms of this Agreement are required to be performed by it as a Lender. (f) Upon its receipt of a Designation Agreement executed by a designating Lender and a designee representing that it is a Designated Bidder, the Agent shall, if such Designation Agreement has been completed and is substantially in the form of EXHIBIT E hereto, (i) accept such Designation Agreement, (ii) record the information contained therein in the Register and (iii) give prompt notice thereof to the Borrower. (g) Each Accepted Lender may submit a New Commitment Acceptance pursuant to the provisions of Section 2.05 hereof. Upon the execution, delivery, acceptance and recording of a New Commitment Acceptance, and the payment by the Accepted Lender to the Agent of a processing and recordation fee of $3,000, from and after the Increase Date related to such New Commitment Acceptance, the Accepted Lender shall be a party hereto and have the rights and obligations of a Lender hereunder. 116 122 (h) By executing and delivering an Increased Commitment Acceptance, the Lender thereunder agrees to make Committed Advances to the Borrowers pursuant to the terms of Section 2.01(a) in an aggregate amount not to exceed at any time outstanding the sum of (y) the amount set forth opposite such Lender's name on the signature pages hereof under the caption "Commitments" plus (z) the aggregate amount of Proposed Increased Commitments set forth in such Increased Commitment Acceptance and each Increased Commitment Acceptance previously submitted by such Lender, if any. By executing and delivering a New Commitment Acceptance, the Accepted Lender confirms with the other parties hereto as follows: (i) such Accepted Lender confirms that it has received a copy of this Agreement, together with copies of the financial statements referred to in Section 4.03 and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such New Commitment Acceptance; (ii) such Accepted Lender will, independently and without reliance upon the Agent or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement; (iii) such Accepted Lender confirms that it is an Eligible Assignee; (iv) such Accepted Lender appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under this Agreement as are delegated to the Agent by the terms hereof, together with such powers as are reasonably incidental thereto; and (v) such Accepted Lender agrees that it will perform in accordance with their terms all of the obligations which by the terms of this Agreement are required to be performed by it as a Lender. (i) Upon its receipt of a completed Increased Commitment Acceptance executed by a Lender, the Agent shall (i) accept such Increased Commitment Acceptance, (ii) record the information contained therein in the Register and (iii) give prompt notice thereof to the Company provided, however, that if any reallocation of the Proposed Increased Commitment set forth in such Increased Commitment Acceptance is required pursuant to Sections 2.05 or 9.08(g), the Agent shall not accept such Increased Commitment Acceptance and such Lender shall resubmit to the Agent, within 5 Business Days of the Increase Date related to such Increased Commitment Acceptance, an Increased Commitment Acceptance setting forth such reallocated amount of the Proposed Increased Commitment. Upon its receipt of a completed New Commitment Acceptance executed by an Accepted Lender representing that it is an Eligible Assignee, the Agent shall (i) accept such New Commitment Acceptance, (ii) record the information 117 123 contained therein in the Register and (iii) give prompt notice thereof to the Borrower; provided, however, that if any reallocation of the Proposed New Commitment set forth in such New Commitment Acceptance is required pursuant to Sections 2.05 or 9.08(g), the Agent shall not accept such New Commitment Acceptance and such Lender shall resubmit to the Agent, within 5 Business Days of the Increase Date related to such New Commitment Acceptance, a New Commitment Acceptance setting forth such reallocated amount of the Proposed New Commitment. (j) The Agent shall maintain at its address referred to in Section 9.02 a copy of each Assignment and Acceptance, each Increased Commitment Acceptance, each New Commitment Acceptance and each Designation Agreement delivered to and accepted by it and a register for the recordation of the names and addresses of each of the Lenders and, with respect to Lenders other than Designated Bidders, the Commitment of, and principal amount of the Advances owing to, each such Lender from time to time (the "Register"). The entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and the Borrowers, the Agent and the Lenders may treat each Person whose name is recorded in the Register as a Lender hereunder for the purposes of this Agreement. The Register shall be available for inspection by the Borrowers or any Lender at any reasonable time and from time to time upon reasonable prior notice. On each Increase Date, the Agent will calculate the appropriate adjustments to the Register to reflect the reallocation of outstanding Advances and Letters of Credit in accordance with the pro rata share of the then current aggregate Commitments of the Lenders set forth in the Register, and will (i) prior to 10:00 A.M. (New York City time) on such date (A) notify each Lender and the Borrower of the amounts of such reallocation of Advances and (B) notify each Lender of the amount, representing the portion of principal amount of outstanding Advances, which such Lender will either advance or receive as a result of such reallocation, and (ii) prior to the close of business in New York City on such date notify each Lender and the Borrower of the amounts of such reallocation of the Letter of Credit Usage. Immediately upon receipt of the notice from the Agent set forth in clause (i) above, but no later than 12:00 noon (New York City time) on such date, each Lender which is to make an Advance as described above shall make such amount available to the Agent in funds immediately available to the Agent. Promptly upon receipt of funds from a Lender making an Advance as set forth above, the Agent shall remit such amount to the Lender or Lenders entitled to receive such amount, pro-rata in proportion to the amounts to be received by them as determined above. The making of an Advance by a Lender as set forth above shall be deemed to 118 124 be the making of an Advance to the Borrower on the date such funds are transmitted to the Agent. The receipt by a Lender of funds as set forth above shall be deemed to be a payment of Advances by the Borrower on the date such payment is received. (k) Each Lender may sell participations to one or more banks or other entities in or to all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Commitment and the Advances owing to it); provided, however, that (i) such Lender's obligations under this Agreement (including, without limitation, its Commitment to the Borrowers hereunder) shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) the Borrowers, the Agent and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement (iv) no Lender shall grant any participation under which the participant shall have rights to require such Lender to take or omit to take any action hereunder or under the other Loan Documents or approve any amendment to or waiver of this Agreement or the other Loan Documents, except to the extent such amendment or waiver would: (A) extend the Termination Date of such Lender; or (B) reduce the interest rate or the amount of principal or fees applicable to Advances or the Commitment in which such participant is participating or change the date on which interest, principal or fees applicable to Advances or the Commitment in which such participant is participating are payable and (v) the Borrower shall not be required to pay any amount hereunder that is greater than the amount which it would have been required to pay had no such participation been sold. (l) Any Lender may, in connection with any assignment or participation or proposed assignment, designation or participation pursuant to this Section 9.08, disclose to the assignee or participant or proposed assignee or participant, any information relating to the Borrowers furnished to such Lender by or on behalf of the Borrowers; provided that, prior to any such disclosure, the assignee or participant or proposed assignee or participant shall agree to preserve the confidentiality of any confidential information relating to the Borrowers received by it from such Lender. (m) Notwithstanding any other provision set forth in this Agreement, any Lender may at any time create a security interest in all or any portion of its rights under this Agreement (including, without limitation, the Advances owing to it and any promissory note or notes executed and delivered by a Borrower hereunder and held by such Lender) in favor of any Federal Reserve Bank in accordance with 119 125 Regulation A of the Board of Governors of the Federal Reserve System. SECTION 9.09. CONSENT TO JURISDICTION. (a) Each Borrower hereby irrevocably submits to the jurisdiction of any New York State or Federal court sitting in New York City and any appellate court from any thereof in any action or proceeding arising out of or relating to this Agreement, and each Borrower hereby irrevocably agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York State or in such Federal court. Each Borrower hereby irrevocably waives, to the fullest extent that it may effectively do so, the defense of an inconvenient forum to the maintenance of any such action or proceeding. Each Borrower hereby irrevocably appoints CT Corporation System (the "Process Agent"), with an office on the date hereof at 1633 Broadway, New York, New York 10019, United States, as its agent to receive on behalf of each Borrower and its property service of copies of the summons and complaint and any other process which may be served in any such action or proceeding. Such service may be made by mailing or delivering a copy of such process to each Borrower in care of the Process Agent at the Process Agent's above address with a copy to the Borrower at 200 Oceangate Boulevard, Suite 900, Long Beach, California 90802, Attention: Mr. Zohar Ziv and each Borrower hereby irrevocably authorizes and directs the Process Agent to accept such service on its behalf. As an alternative method of service, each Borrower also irrevocably consents to the service of any and all process in any such action or proceeding by the mailing of copies of such process to the Borrower at its address specified in Section 9.02, in accordance with the procedures for service by mail under New York law. Each Borrower agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. (b) Nothing in this Section 9.09 shall affect the right of the Agent or any Lender to serve legal process in any other manner permitted by law or affect the right of the Agent or any Lender to bring any action or proceeding against a Borrower or its property in the courts of any other jurisdictions including the Federal and State courts sitting in the State of California. SECTION 9.10. WAIVER OF JURY TRIAL. EACH BORROWER, THE AGENT, THE CO-AGENT, THE DESIGNATED ISSUERS AND THE LENDERS HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT THE ADVANCES, LETTERS OF CREDIT, OR ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT 120 126 MATTER OF THIS AGREEMENT AND THE LENDER/BORROWER RELATIONSHIP THAT IS BEING ESTABLISHED. 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 Borrower, the Co-Agent, the Agent, the Designated Issuers and the Lenders each acknowledge that this waiver is a material inducement to enter into a business relationship, 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 Borrower, the Agent, the Co-Agent, the Designated Issuers and the Lenders further warrant and represent 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, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE ADVANCES AND LETTERS OF CREDIT. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT. SECTION 9.11. GOVERNING LAW. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York. SECTION 9.12. EXECUTION IN COUNTERPARTS. This Agreement and any amendments, waivers, consents or supplements may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. SECTION 9.13. INDEMNIFICATION. The Borrower agrees to pay, and on demand to indemnify and hold harmless the Agent, the Co-Agent and each Lender and each Issuing Bank and their respective affiliates, and each of their respective successors, assigns, directors, officers, employees, servants, attorneys and agents (collectively, the "Indemnitees") from and against any and all claims, including claims based on strict liability in tort, damages, losses, liabilities, demands, suits, penalties, judgments, causes of action and all legal proceedings, whether civil, criminal, administrative or in arbitration, whether or not such Indemnitee is a party thereto, penalties, fines and other sanctions and expenses, including, without limitation fees and disbursements of counsel, which may be imposed on, incurred by or asserted against any Indemnitee: 121 127 (a) by reason of or in connection with the execution, delivery, performance, administration or enforcement of this Agreement or any proposal, fee, or commitment letter relating thereto, or any transaction contemplated by this Agreement; or (b) arising under or pursuant to activities of a Borrower that violate Environmental Laws; or (c) arising out of or relating to the use of proceeds of the Advances or the Letters of Credit; provided, however, that the Borrower shall not be liable to any Indemnitee for any portion of such claims, damages, liabilities and expenses that a court of competent jurisdiction shall have determined to have directly resulted from such Indemnitee's gross negligence or willful misconduct. To the extent that the undertaking to indemnify, pay and hold harmless set forth in the immediately preceding sentence may be unenforceable because it is violative of any law or public policy, the Borrower shall contribute the maximum portion which it is permitted to pay and satisfy under applicable law to the payment and satisfaction of all indemnified liabilities incurred by the Indemnitees or any of them. SECTION 9.14. CONFIDENTIALITY. Each Lender agrees, insofar as is legally possible, to use its best efforts to keep in confidence all financial data and other information relative to the affairs of the Company and its Subsidiaries heretofore furnished or which may hereafter be furnished to it pursuant to the provisions of this Agreement; provided, however, that this Section 9.14 shall not be applicable to information otherwise disseminated to the public by the Company or its Subsidiaries; and provided further that such obligation of each Lender shall be subject to each Lender's (a) obligation to disclose such information pursuant to a request or order under applicable laws and regulations or pursuant to a subpoena or other legal process, (b) right to disclose any such information to bank examiners, its affiliates (including, without limitation, in the case of CUSA, Citicorp Securities, Inc., and in the case of ABN AMRO Bank N.V., ABN AMRO Securities (USA) Inc.) for use in connection with the review or supervision of this Agreement, banks, auditors, accountants and its counsel and other Lenders, and (c) right to disclose any such information, (i) in connection with the transactions set forth herein including assignments and sales of participation interests pursuant to Section 9.08 hereof or (ii) in or in connection with any litigation or dispute involving the Lenders and the Borrowers or any transfer or other disposition by such Lender of any of its Advances or other extensions of credit by such Lender to the Borrowers or any of their Subsidiaries, provided that information 122 128 disclosed pursuant to this proviso shall be so disclosed subject to such procedures as are reasonably calculated to maintain the confidentiality thereof. SECTION 9.15. INDEPENDENCE OF COVENANTS. All covenants hereunder shall be given independent effect so that if a particular action or condition is not permitted by any of such covenants, the fact that it would be permitted by an exception to, or be otherwise within the limitations of, another covenant shall not avoid the occurrence of an Event of Default or Potential Event of Default if such action is taken or condition exists. SECTION 9.16. SURVIVAL OF WARRANTIES AND CERTAIN AGREEMENTS. (a) All agreements, representations and warranties made herein shall survive the execution and delivery of this Agreement, the making of the Advances hereunder, and the issuance of the Letters of Credit. (b) Notwithstanding anything in this Agreement or implied by law to the contrary, the agreements of the Borrowers set forth in Sections 2.02(b), 2.12, 2.14, 9.04 and 9.13 and the agreements of Lenders set forth in Sections 7.05 and 9.05 shall survive the payment of the Advances, the cancellation or expiration of the Letters of Credit and the termination of this Agreement. SECTION 9.17. SEVERABILITY. In case any provision in or obligation under this Agreement shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby. SECTION 9.18. HEADINGS. Section and subsection headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose or be given any substantive effect. 123 129 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. BW/IP INTERNATIONAL, INC. as a Borrower and Parent Guarantor By /s/ ZOHAR ZIV ------------------------------- Title: Treasurer Financial Institutions Commitment $26,000,000 CITICORP USA, INC. individually and as Agent By /s/ JOHN CLARK ------------------------------- Title: Vice President and Senior Credit Officer S-1 130 $26,000,000 ABN AMRO BANK N.V., individually and as Co-Agent By /s/ JOHN A. MILLER ------------------------------- Title: Vice President By /s/ ELLEN M. COLEMAN ------------------------------- Title: Assistant Vice President S-2 131 $24,000,000 BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION By /s/ GINA M. WEST ------------------------------- Title: Vice President S-3 132 $24,000,000 NATIONSBANK OF TEXAS, N.A. By /s/ JANET E. SOCKWELL ------------------------------- Title: Vice President S-4 133 Designated Issuers CITIBANK, N.A., as Designated Issuer for Citicorp USA, Inc. By /s/ MARJORIE FUTORNICK ------------------------------- Title: Vice President S-5 134 For Purposes of Section 2.18 BANK OF AMERICA ILLINOIS (FORMERLY KNOWN AS CONTINENTAL BANK N.A.), not as a Lender but solely with respect to Section 2.18(e) By /s/ GINA M. WEST ------------------------------- Title: Vice President S-6 EX-10.M 3 AMENDMENT #6 TO RETIREMENT PLAN 1 EXHIBIT 10.M AMENDMENT NUMBER SIX TO THE BW/IP INTERNATIONAL, INC. RETIREMENT PLAN (AS AMENDED AND RESTATED AS OF JANUARY 1, 1993) The BW/IP International, Inc. Retirement Plan, as amended and restated as of January 1, 1993 (the "Plan"), is hereby further amended as follows: 1. Determination of Small Benefit ------------------------------ Section 6.12 of the Plan is amended by deleting the second sentence thereof any by inserting the following in lieu thereof: "The Actuarial Value of the lump sum payment shall be determined using an interest rate equal to the interest rate on 30-year Treasury securities as specified by the Commissioner of Internal Revenue under Code Section 417(e) for the month of November of the year preceding the year in which the date of distribution shall occur and using the prevailing mortality table of the Commissioner of Internal Revenue used to determine reserves for group annuity contracts under Code Section 807(d)(5) as required under Code Section 417(e)." 2. Ratification and Reaffirmation ------------------------------ Except as specifically amended hereby, the Plan shall remain in full force and effect in accordance with its terms. 3. Effective Date -------------- This Amendment Number Six to the Plan as restated shall be effective as of November 1, 1995; provided, however, that such amendment shall not be effective for any Participant in the Plan whose date of distribution is prior to January 1, 1996 if the effect of such Amendment would be to reduce the present value of 1 2 the Participant's benefit from that which it would have been had such Amendment not been adopted. IN WITNESS WHEREOF, the Company maintaining the Plan has caused this Amendment Number Six to be executed as of the 19th day of October 1995. BW/IP International, Inc. By /s/ D.G. Taylor -------------------------- 2 EX-10.N 4 AMENDMENT #7 TO RETIREMENT PLAN 1 EXHIBIT 10.N AMENDMENT NUMBER SEVEN TO THE BW/IP INTERNATIONAL, INC. RETIREMENT PLAN (AS AMENDED AND RESTATED AS OF JANUARY 1, 1993) The BW/IP International, Inc. Retirement Plan, as amended and restated as of January 1, 1993 (the "Plan"), is hereby further amended as follows: 1. Definition of Earnings. ----------------------- The definition of "Earnings" contained in Section 2 of the Plan is amended by deleting the phrase "and any amounts paid in a form other than cash" at the end of the second sentence thereof. 2. Optional Lump Sum Distribution of Smaller Benefits. --------------------------------------------------- Section 6.07 of the Plan is amended by adding the following subsection (e) thereto: "(e) A distribution in a single lump sum of the entirety of the Participant's accrued benefit in the event that the Actuarial Value of the Participant's accrued benefit under this Plan, determined at the time and in accordance with Section 6.12 of this Plan (notwithstanding the above provisions of this Section 6.07), is not in excess of $7,500 and was not distributed under Section 6.12, to be paid to the Participant or former Participant or his beneficiary at the earliest date the Participant, former Participant or beneficiary would have otherwise been entitled to commence receiving benefits hereunder." Section 6.12 of the Plan is amended by redesignating the existing provisions thereof as subsection (a) and Section 2 6.12 is further amended by adding the following the following subsection (b) thereto: "(b) Notwithstanding any other terms of this Plan to the contrary, a Participant who has Separated from Service shall from and after the date of such Separation from Service be entitled to make a written election, if at the time of his election the Actuarial Value of such former Participant's accrued benefit under this Plan determined in accordance with Section 6.12 of this Plan is not in excess of $7,500 and was not distributed under Section 6.12, (1) to immediately commence to receive his benefit as provided in Section 6.10 and subject to Section 6.11 (A) in the form of an immediate 50% joint and contingent annuitant option as described in Subsection 6.07(a) under which such spouse will be deemed to be the Contingent Annuitant if the former Participant has a spouse to whom he has been married throughout the one-year period ending on his Pension commencement date, or (B) in the form of an immediate Life Annuity to such former Participant as provided under Section 6.01 of the Plan if such former Participaqnt is not so married, of (2) subject to the provisions of Section 6.06 of the Plan, to elect against such form of benefit and to immediately receive his benefit in the form of a single lump sum payment in the amount of such Actuaarial Value as so determined. Nothing in this Section 6.12(b) shall be construed as requiring a Participant to commence receipt of his benefit or as preventing such Participant from receiving his benefit as a Vested Deferred Benefit or from exercising the options otherwise available to him under Section Six of this Plan." 3. Ratification and Reaffirmation ------------------------------ Except as specifically amended hereby, the Plan shall remain in full force and effect in accordance with its terms. -2- 3 4. Effective Date -------------- This Amendment Number Seven to the Plan as restated shall be effective as of January 1, 1995, subject to receipt by the Plan of a favorable determination letter from the Internal Revenue Service with respect to this Amendment. IN WITNESS WHEREOF, the Company maintaining the Plan has caused this Amendment Number Seven to be executed as of the 15th day of December 1995. BW/IP International, Inc. By /s/ John D. Hannesson ---------------------------- -3- EX-10.X 5 AMENDMENT TO RETIREE HEALTH CARE PLAN 1 EXHIBIT 10.X AMENDMENT TO THE BW/IP INTERNATIONAL, INC. RETIREE HEALTH CARE PLAN (as restated as of July 1, 1993) The BW/IP International, Inc. Retiree Health Care Plan (the "Plan"), which is maintained by BW/IP International, Inc. (the "Company"), is hereby amended in the following respects: 1. Employer -------- The Plan is amended by modifying the definition of "Employer" thereunder as follows: For purposes of this Plan, the term "Employer" shall mean BW/IP International, Inc. (the "Company") and the divisions, subsidiaries and affiliates of the Company which are participating in the Plan. Divisions of the Company shall participate in the Plan as determined from time to time by the Committee. Subsidiaries and affiliates of the Company shall participate in the Plan by taking appropriate corporate action with the Company's consent. 2. Ratification and Reaffirmation ------------------------------ Except as specifically amended gereby and as heretofore amended by Board of Directors of the Company or the Compensation and Benefits Committee of the Company, the Plan shall remain in full force and effect in accordance with its terms. 3. Effective Date -------------- This Amendment to the Plan as restated shall be effective as of January 1, 1996. 2 IN WITNESS WHEREOF, the Company maintaining the Plan has caused this Amendment to be executed as of the 15th day of December, 1995. BW/IP International, Inc. By /s/ John D. Hannesson ------------------------- 2 EX-10.Z 6 AMENDMENT TO SUPPLEMENTAL EXECUTIVE RETIREMENT PLA 1 EXHIBIT 10.Z AMENDMENT TO THE BW/IP INTERNATIONAL, INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN (as amended and restated as of April 1, 1992) The BW/IP International, Inc. Supplemental Executive Retirement Plan, as amended and restated as of April 1, 1992, (the "Plan"), which is maintained by BW/IP International, Inc. (the "Company"), is hereby amended in the following respects: 1. Employer -------- The Plan is amended by modifying the definition of "Employer" thereunder as follows: For purposes of this Plan, the term "Employer" shall mean BW/IP International, Inc. (the "Company") and the divisions, subsidiaries and affiliates of the Company which are participating in the Plan. Divisions of the Company shall participate in the Plan as determined from time to time by the Committee. Subsidiaries and affiliates of the Company shall participate in the Plan by taking appropriate corporate action with the Company's consent. 2. Ratification and Reaffirmation ------------------------------ Except as specifically amended hereby and as heretofore amended by Board of Directors of the Compaqny or the Compensation and Benefits Committee of the Company, the Plan shall remain in full force and effect in accordance with its terms. 3. Effective Date -------------- This Amendment to the Plan as restated shall be effective as of January 1, 1996. 2 IN WITNESS WHEREOF, the Company maintaining the Plan has caused this Amendment to be executed as of the 15th day of December, 1995. BW/IP International, Inc. By /s/ John D. Hannesson ---------------------------- 2 EX-10.AA 7 FORM OF EMPLOYMENT CONTINUATION AGREEMENT 1 EXHIBIT 10.aa EMPLOYMENT CONTINUATION AGREEMENT THIS AGREEMENT between BW/IP, Inc., a Delaware corporation (the "Company"), and <> <> (the "Executive") dated as of this 2nd day of January 1996. W I T N E S E T H : WHEREAS, the Company has employed the Executive in an officer position and has determined that the Executive holds an important position with the Company; WHEREAS, the Company believes that, in the event it is confronted with a situation that could result in a change in ownership or control of the Company, continuity of management will be essential to its ability to evaluate and respond to such situation in the best interests of shareholders; WHEREAS, the Company understands that any such situation will present significant concerns for the Executive with respect to his financial and job security; WHEREAS, the Company desires to assure itself of the Executive's services during the period in which it is confronting such a situation and to provide the Executive certain financial assurances to enable the Executive to perform the responsibilities of his position without undue distraction and to exercise his judgment without bias due to his personal circumstances; WHEREAS, to achieve these objectives, the Company and the Executive desire to enter into an agreement providing the Company and the Executive with certain rights and obligations upon the occurrence of a Change of Control or Potential Change of Control (as defined in Section 2); NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, it is hereby agreed by and between the Company and the Executive as follows: 1. Operation of Agreement. (a) Effective Date. The effective date of this Agreement shall be the date on which a Change of Control occurs (the "Effective Date"), provided that, except as provided in Section 1(b), if the Executive is not employed by the Company on the Effective Date, this Agreement shall be void and without effect. 1 2 (b) Termination of Employment Following a Potential Change of Control. Notwithstanding Section 1(a), if (i) the Executive's employment is terminated by the Company Without Cause (as defined in Section 6(c)) after the occurrence of a Potential Change of Control and prior to the occurrence of a Change of Control and (ii) a Change of Control occurs within one year of such termination, the Executive shall be deemed, solely for purposes of determining his rights under this Agreement, to have remained employed until the date such Change of Control occurs and to have been terminated by the Company Without Cause immediately after this Agreement becomes effective. 2. Definitions. (a) Change of Control. For the purposes of this Agreement, a "Change of Control" shall be deemed to have occurred if: (i) any Person (as defined below) has acquired "beneficial ownership" (within the meaning of Rule 13d-3, as promulgated under Section 13(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) of securities of the Company representing 30% or more of the combined Voting Power (as defined below) of the Company's securities; (ii) within any 24 month period, the persons who were directors of the Company immediately before the beginning of such period (the "Incumbent Directors") shall cease (for any reason other than death) to constitute at least a majority of the Board or the board of directors of any successor to the Company, provided that any director who was not a director at the beginning of such period shall be deemed to be an Incumbent Director if such director (A) was elected to the Board by, or on the recommendation of or with the approval of, at least two-thirds of the directors who then qualified as Incumbent Directors either actually or by prior operation of this Section 2(a)(ii) and (B) was not designated by a person who has entered into an agreement with the Company to effect a Corporate Event, as described in Section 2(a)(iii); or (iii) the stockholders of the Company approve a merger, consolidation, share exchange, division, sale or other disposition of all or substantially all of the assets of the Company (a "Corporate Event"), as a result of which the shareholders of the Company immediately prior to such Corporate Event shall not hold, directly or indirectly, immediately following such Corporate Event a majority of the Voting Power of (x) in the case of a merger or consolidation, the surviving or resulting corporation, (y) in the case of a share exchange, the acquiring corporation or (z) in the case of a division or a sale or other disposition of assets, each surviving, resulting or acquiring corporation which, immediately following the relevant Corporate Event, holds more than 10% of the consolidated assets of the Company immediately prior to such Event. 2 3 (b) Potential Change of Control. For the purposes of this Agreement, a Potential Change of Control shall be deemed to have occurred if: (i) a Person commences a tender offer (with reasonably adequate financing) for securities representing at least 20% of the Voting Power of the Company's securities; (ii) the Company enters into an agreement the consummation of which would constitute a Change of Control; (iii) proxies for the election of directors of the Company are solicited by anyone other than the Company; or (iv) any other event occurs which is deemed to be a Potential Change of Control by the Board. (c) Person Defined. For purposes of this Section 2, "Person" shall have the meaning ascribed to such term in Section 3(a)(9) of the Exchange Act, as supplemented by Section 13(d)(3) of the Exchange Act; provided, however, that Person shall not include (i) the Company or any subsidiary of the Company or (ii) any employee benefit plan sponsored by the Company or any subsidiary of the Company. (d) Voting Power Defined. A specified percentage of "Voting Power" of a company shall mean such number of the Voting Securities as shall enable the holders thereof to cast such percentage of all the votes which could be cast in an annual election of directors (without consideration of the rights of any class of stock other than the common stock of the company to elect directors by a separate class vote); and "Voting Securities" shall mean all securities of a company entitling the holders thereof to vote in an annual election of directors (without consideration of the rights of any class of stock other than the common stock of the company to elect directors by a separate class vote). 3. Employment Period. Subject to Section 6 of this Agreement, the Company agrees to continue the Executive in its employ, and the Executive agrees to remain in the employ of the Company, for the period (the "Employment Period") commencing on the Effective Date and ending on the second anniversary of the Effective Date. Notwithstanding the foregoing, if, prior to the Effective Date, the Executive is demoted to a lower position than the position held on the date first set forth above, the Board may declare that this Agreement shall be without force and effect by written notice delivered to the Executive (i) within 30 days following such demotion and (ii) prior to the occurrence of a Potential Change of Control or a Change of Control. 3 4 4. Position and Duties. (a) No Reduction in Position. During the Employment Period, the Executive's position (including titles), authority and responsibilities shall be at least commensurate with those held, exercised and assigned immediately prior to the Effective Date. It is understood that, for purposes of this Agreement, such position, authority and responsibilities shall not be regarded as not commensurate merely by virtue of the fact that a successor shall have acquired all or substantially all of the business and/or assets of the Company as contemplated by Section 12(b) of this Agreement. The Executive's services shall be performed at the location where the Executive was employed immediately preceding the Effective Date. (b) Business Time. From and after the Effective Date, the Executive agrees to devote substantially all of his attention during normal business hours to the business and affairs of the Company, to the extent necessary to discharge his responsibilities hereunder, except for (i) time spent in managing his personal, financial and legal affairs, serving on corporate, civic or charitable boards or committees or working for any charitable or civic organization, in each case only if and to the extent not materially interfering with the performance of such responsibilities, and (ii) periods of vacation and sick leave to which he is entitled. It is expressly understood and agreed that the Executive's continuing to serve on any boards and committees on which he is serving or with which he is otherwise associated immediately preceding the Effective Date shall be deemed not to interfere with the performance of the Executive's services to the Company. 5. Compensation. (a) Base Salary. During the Employment Period, the Executive shall receive a base salary at a monthly rate at least equal to the monthly salary paid to the Executive by the Company and any of its affiliated companies immediately prior to the Effective Date. The base salary shall be reviewed at least once each year after the Effective Date, and may be increased (but not decreased) at any time and from time to time by action of the Board or any committee thereof or by any individual having authority to take such action in accordance with the Company's regular practices. The Executive's base salary, as it may be increased from time to time, shall hereafter be referred to as "Base Salary". Neither the Base Salary nor any increase in Base Salary after the Effective Date shall serve to limit or reduce any other obligation of the Company hereunder. (b) Annual Bonus. During the Employment Period, in addition to the Base Salary, for each fiscal year of the Company ending during the Employment Period, the Executive shall be afforded the opportunity to receive an annual bonus on terms and conditions no less favorable to the Executive (taking into account reasonable changes in the Company's goals and objectives) than the annual bonus opportunity that had been made available to the Executive for the fiscal year ended immediately prior to the Effective Date (the "Annual Bonus Opportunity"). Any amount payable in respect of the Annual Bonus Opportunity 4 5 shall be paid as soon as practicable following the year for which the amount (or prorated portion) is earned or awarded, but not later than 90 days after the close of the calendar year for which the bonus is payable, unless electively deferred by the Executive pursuant to any deferral programs or arrangements that the Company may make available to the Executive. (c) Long-term Incentive Compensation Programs. During the Employment Period, the Executive shall participate in all long-term incentive compensation programs for key executives at a level that is commensurate with the Executive's participation in such plans immediately prior to the Effective Date, or, if more favorable to the Executive, at the level made available to the Executive or other similarly situated officers at any time thereafter. (d) Benefit Plans. During the Employment Period, the Executive (and, to the extent applicable, his dependents) shall be entitled to participate in or be covered under all pension, retirement, deferred compensation, savings, medical, dental, health, disability, group life, accidental death and travel accident insurance plans and programs of the Company and its affiliated companies at a level that is commensurate with the Executive's participation in such plans immediately prior to the Effective Date, or, if more favorable to the Executive, at the level made available to the Executive or other similarly situated officers at any time thereafter. (e) Expenses. During the Employment Period, the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in accordance with the policies and procedures of the Company as in effect immediately prior to the Effective Date. Notwithstanding the foregoing, the Company may apply the policies and procedures in effect after the Effective Date to the Executive, if such policies and procedures are more favorable to the Executive than those in effect immediately prior to the Effective Date. (f) Vacation, Perquisites and Fringe Benefits. During the Employment Period, the Executive shall be entitled to paid vacation, perquisites and fringe benefits at a level that is commensurate with the paid vacation, perquisites and fringe benefits available to the Executive immediately prior to the Effective Date, or, if more favorable to the Executive, at the level made available from time to time to the Executive or other similarly situated officers at any time thereafter. (g) Indemnification. During and after the Employment Period, the Company shall indemnify the Executive and hold the Executive harmless from and against any claim, loss or cause of action arising from or out of the Executive's performance as an officer, director or employee of the Company or any of its Subsidiaries or in any other capacity, including any fiduciary capacity, in which the Executive serves at the request of the Company to the maximum 5 6 extent permitted by applicable law and the Company's Certificate of Incorporation and By-Laws (the "Governing Documents"), provided that in no event shall the protection afforded to the Executive hereunder be less than that afforded under the Governing Documents as in effect immediately prior to the Effective Date. (h) Office and Support Staff. The Executive shall be entitled to an office with furnishings and other appointments, and to secretarial and other assistance, at a level that is at least commensurate with that provided to other similarly situated officers. 6. Termination. (a) Death, Disability or Retirement. Subject to the provisions of Section 1 hereof, this Agreement shall terminate automatically upon the Executive's death, termination due to "Disability" (as defined below) or voluntary retirement under any of the Company's retirement plans as in effect from time to time. For purposes of this Agreement, Disability shall mean the Executive's inability to perform the duties of his position, as determined in accordance with the policies and procedures applicable with respect to the Company's long-term disability plan, as in effect immediately prior to the Effective Date. (b) Voluntary Termination. Notwithstanding anything in this Agreement to the contrary, following a Change of Control the Executive may, upon not less than 30 days' written notice to the Company, voluntarily terminate employment for any reason (including early retirement under the terms of any of the Company's retirement plans as in effect from time to time), provided that any termination by the Executive pursuant to Section 6(d) on account of Good Reason (as defined therein) shall not be treated as a voluntary termination under this Section 6(b). (c) Cause. The Company may terminate the Executive's employment for Cause. For purposes of this Agreement, "Cause" means (i) the Executive's conviction of a felony or the entering by the Executive of a plea of nolo contendere to a felony charge, (ii) the Executive's gross neglect, willful malfeasance or willful gross misconduct in connection with his employment hereunder which has had a significant adverse effect on the business of the Company and its subsidiaries, unless the Executive reasonably believed in good faith that such act or nonact was in or not opposed to the best interests of the Company, or (iii) repeated material violations by the Executive of his obligations under Section 4 of this Agreement, which violations are demonstrably willful and deliberate on the Executive's part and which result in material damage to the Company's business or reputation. (d) Good Reason. Following the occurrence of a Change of Control, the Executive may terminate his employment for Good Reason. For purposes of this Agreement, "Good Reason" means the occurrence of any of the 6 7 following, without the express written consent of the Executive, after the occurrence of a Change of Control: (i) (A) the assignment to the Executive of any duties inconsistent in any material adverse respect with the Executive's position, authority or responsibilities as contemplated by Section 4 of this Agreement, or (B) any other material adverse change in such position, including titles, authority or responsibilities; (ii) any failure by the Company to comply with any of the provisions of Section 5 of this Agreement, other than an insubstantial or inadvertent failure remedied by the Company promptly after receipt of notice thereof given by the Executive; (iii) the Company's requiring the Executive to be based at any office or location more than 35 miles (or such other distance as shall be set forth in the Company's relocation policy as in effect at the Effective Time) from that location at which he performed his services specified under the provisions of Section 4 immediately prior to the Change of Control, except for travel reasonably required in the performance of the Executive's responsibilities; (iv) any other material breach of this Agreement by the Company; or (v) any failure by the Company to obtain the assumption and agreement to perform this Agreement by a successor as contemplated by Section 12(b). In no event shall the mere occurrence of a Change of Control, absent any further impact on the Executive, be deemed to constitute Good Reason. (e) Notice of Termination. Any termination by the Company for Cause or by the Executive for Good Reason shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 13(e). For purposes of this Agreement, a "Notice of Termination" means a written notice given, in the case of a termination for Cause, within 10 business days of the Company's having actual knowledge of the events giving rise to such termination, and in the case of a termination for Good Reason, within 180 days of the Executive's having actual knowledge of the events giving rise to such termination, and which (i) indicates the specific termination provision in this Agreement relied upon, (ii) sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated, and (iii) if the termination date is other than the date of receipt of such notice, specifies the termination date of the Executive's employment (which date shall be not more than 15 days after the giving of such notice). The failure 7 8 by the Executive to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason shall not waive any right of the Executive hereunder or preclude the Executive from asserting such fact or circumstance in enforcing his rights hereunder. (f) Date of Termination. For the purpose of this Agreement, the term "Date of Termination" means (i) in the case of a termination for which a Notice of Termination is required, the date of receipt of such Notice of Termination or, if later, the date specified therein, as the case may be, and (ii) in all other cases, the actual date on which the Executive's employment terminates during the Employment Period. 7. Obligations of the Company upon Termination. (a) Death or Disability. If the Executive's employment is terminated during the Employment Period by reason of the Executive's death or Disability, this Agreement shall terminate without further obligations to the Executive or the Executive's legal representatives under this Agreement other than those obligations accrued hereunder at the Date of Termination, and the Company shall pay to the Executive (or his beneficiary or estate) (i) the Executive's full Base Salary through the Date of Termination (the "Earned Salary"), (ii) any vested amounts or vested benefits owing to the Executive under the Company's otherwise applicable employee benefit plans and programs, including any compensation previously deferred by the Executive (together with any accrued earnings thereon) and not yet paid by the Company and any accrued vacation pay not yet paid by the Company (the "Accrued Obligations"), and (iii) any other benefits payable due to the Executive's death or Disability under the Company's plans, policies or programs (the "Additional Benefits"). Any Earned Salary shall be paid in cash in a single lump sum as soon as practicable, but in no event more than 30 days (or at such earlier date required by law), following the Date of Termination. Accrued Obligations and Additional Benefits shall be paid in accordance with the terms of the applicable plan, program or arrangement. (b) Cause and Voluntary Termination. If, during the Employment Period, the Executive's employment shall be terminated for Cause or voluntarily terminated by the Executive (other than on account of Good Reason following a Change of Control), the Company shall pay the Executive (i) the Earned Salary in cash in a single lump sum as soon as practicable, but in no event more than 10 days, following the Date of Termination, and (ii) the Accrued Obligations in accordance with the terms of the applicable plan, program or arrangement. 8 9 (c) Termination by the Company other than for Cause and Termination by the Executive for Good Reason. (i) Lump Sum Payments. If, during the Employment Period, the Company terminates the Executive's employment other than for Cause or following a Change of Control the Executive terminates his employment for Good Reason, the Company shall pay to the Executive the following amounts: (A) the Executive's Earned Salary; (B) a cash amount (the "Severance Amount") equal to two and one fourth times the sum of (x) the Executive's annual Base Salary and (y) an amount equal to the greater of (1) the last annual bonus paid to the Executive and (2) the product of (i) the Executive's annual Base Salary and (ii) the average of the percentages of the Executive's then current Base Salary paid as an annual bonus with respect to each of the last three calendar years ended prior to the Change of Control; (C) the Accrued Obligations. The Earned Salary and Severance Amount shall be paid in cash in a single lump sum as soon as practicable, but in no event more than 30 days (or at such earlier date required by law), following the Date of Termination. Accrued Obligations shall be paid in accordance with the terms of the applicable plan, program or arrangement. (ii) Continuation of Benefits. If, during the Employment Period, the Company terminates the Executive's employment other than for Cause, or following a Change of Control the Executive terminates his employment for Good Reason, the Executive (and, to the extent applicable, his dependents) shall be entitled, after the Date of Termination until the earlier of (1) the second anniversary of the Date of Termination (the "End Date") and (2) the date the Executive becomes eligible for comparable benefits under a similar plan, policy or program of a subsequent employer, to continue participation in all of the Company's employee and executive welfare and fringe benefit plans (the "Benefit Plans"). To the extent any such benefits cannot be provided under the terms of the applicable plan, policy or program, the Company shall provide a comparable benefit under another plan or from the Company's general assets. The Executive's participation in the Benefit Plans will be on the same terms and conditions that would have applied had the Executive continued to be employed by the Company through the End Date. 9 10 (iii) Car Allowance and Outplacement Services. In addition to the benefits continuation described in Section 7(c)(ii), the Company shall also continue to provide the Executive with the same car allowance that was made available to the Executive immediately prior to the Change of Control (or the use of the same automobile, if the Company provided the Executive with such an automobile in lieu of a car allowance) until the earlier of (x) the time that the Executive obtains other employment or (y) the first anniversary of the Date of Termination. The Company shall also make available to the Executive at its expense the full services of a qualified independent outplacement firm to assist the Executive in obtaining other employment. (d) Discharge of the Company's Obligations. Except as expressly provided in the last sentence of this Section 7(d), the amounts payable to the Executive pursuant to this Section 7 (whether or not reduced pursuant to Section 7(e)) following termination of his employment shall be in full and complete satisfaction of the Executive's rights under this Agreement and any other claims he may have in respect of his employment by the Company or any of its Subsidiaries. Such amounts shall constitute liquidated damages with respect to any and all such rights and claims and, upon the Executive's receipt of such amounts, the Company shall be released and discharged from any and all liability to the Executive in connection with this Agreement or otherwise in connection with the Executive's employment with the Company and its Subsidiaries. Nothing in this Section 7(d) shall be construed to release the Company from its commitment to indemnify the Executive and hold the Executive harmless from and against any claim, loss or cause of action arising from or out of the Executive's performance as an officer, director or employee of the Company or any of its Subsidiaries or in any other capacity, including any fiduciary capacity, in which the Executive served at the request of the Company to the maximum extent permitted by applicable law and the Governing Documents. (e) Limit on Payments by the Company. (i) Application of Section 7(e). In the event that any amount or benefit paid or distributed to the Executive pursuant to this Agreement, taken together with any amounts or benefits otherwise paid or distributed to the Executive by the Company or any affiliated company (collectively, the "Covered Payments"), would be an "excess parachute payment" as defined in Section 280G of the Code and would thereby subject the Executive to the tax (the "Excise Tax") imposed under Section 4999 of the Code (or any similar tax that may hereafter be imposed), the provisions of this Section 7(e) shall apply to determine the amounts payable to Executive pursuant to this Agreement. 10 11 (ii) Calculation of Benefits. Immediately following delivery of any Notice of Termination, the Company shall notify the Executive of the aggregate present value of all termination benefits to which he would be entitled under this Agreement and any other plan, program or arrangement as of the projected Date of Termination, together with the projected maximum payments, determined as of such projected Date of Termination that could be paid without the Executive being subject to the Excise Tax. (iii) Imposition of Payment Cap. If the aggregate value of all compensation payments or benefits to be paid or provided to the Executive under this Agreement and any other plan, agreement or arrangement with the Company exceeds the amount which can be paid to the Executive without the Executive's incurring an Excise Tax, then the amounts payable to the Executive under this Section 7 shall be reduced (but not below zero) to the maximum amount which may be paid hereunder without the Executive's becoming subject to such an Excise Tax (such reduced payments to be referred to as the "Payment Cap"). In the event that the Executive receives reduced payments and benefits hereunder, the Executive shall have the right to designate which of the payments and benefits otherwise provided for in this Agreement that he will receive in connection with the application of the Payment Cap. (iv) Application of Section 280G. For purposes of determining whether any of the Covered Payments will be subject to the Excise Tax and the amount of such Excise Tax, (A) (x) whether Covered Payments are "parachute payments" within the meaning of Section 280G of the Code, and (y) whether there are "parachute payments" in excess of the "base amount" (as defined under Section 280G(b)(3) of the Code) shall be determined in good faith by the Company's independent certified public accountants appointed prior to the Effective Date (the "Accountants") or tax counsel selected by such Accountants, and (B) the value of any non-cash benefits or any deferred payment or benefit shall be determined by the Accountants in accordance with the principles of Section 280G of the Code. (v) Adjustments in Respect of the Payment Cap. If the Executive receives reduced payments and benefits under this Section 7(e) (or this Section 7(e) is determined not to be applicable to the Executive because the Accountants conclude that Executive is not subject to any Excise Tax) and it is established pursuant to a final determination of a court or an Internal Revenue Service proceeding (a "Final Determination") that, notwithstanding the good faith of the Executive and the Company in 11 12 applying the terms of this Agreement, the aggregate "parachute payments" within the meaning of Section 280G of the Code paid to the Executive or for his benefit are in an amount that would result in the Executive's being subject to an Excise Tax, then any amounts actually paid to or on behalf of the Executive which are treated as excess parachute payments shall be deemed for all purposes to be a loan to the Executive made on the date of receipt of such excess payments, which the Executive shall have an obligation to repay to the Company on demand, together with interest on such amount at the applicable Federal rate (as defined in Section 1274(d) of the Code) from the date of the payment hereunder to the date of repayment by the Executive. If the Executive receives reduced payments and benefits by reason of this Section 7(e) and it is established pursuant to a Final Determination that the Executive could have received a greater amount without exceeding the Payment Cap, then the Company shall promptly thereafter pay the Executive the aggregate additional amount which could have been paid without exceeding the Payment Cap, together with interest on such amount at the applicable Federal rate (as defined in Section 1274(d) of the Code) from the original payment due date to the date of actual payment by the Company. 8. Non-exclusivity of Rights. Except as expressly provided herein, nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any benefit, bonus, incentive or other plan or program provided by the Company or any of its affiliated companies and for which the Executive may qualify, nor shall anything herein limit or otherwise prejudice such rights as the Executive may have under any other agreements with the Company or any of its affiliated companies, including employment agreements or stock option agreements. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan or program of the Company or any of its affiliated companies at or subsequent to the Date of Termination shall be payable in accordance with such plan or program. 9. No Mitigation or Offset. The Executive shall have no obligation to seek other employment and, except as expressly provided in Sections 7(c)(iii) and 7(c)(iv), there shall be no offset against amounts due to Executive under this Agreement on account of any remuneration attributable to subsequent employment that he may obtain. The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any circumstances, including, without limitation, any set-off, counterclaim, recoupment, defense or other right which the Company may have against the Executive or others whether by reason of the subsequent employment of the Executive or otherwise. In the event that the Executive shall in good faith give a Notice of Termination for Good Reason and it shall thereafter be determined that Good Reason did not exist, the employment of the Executive shall, unless the Company and the Executive, shall otherwise mutually agree, be deemed to have terminated, at the date of giving such purported 12 13 Notice of Termination, by mutual consent of the Company and the Executive and the Executive shall be entitled to receive only his Earned Salary and the Accrued Obligations which he would have been entitled to receive upon a voluntary termination. 10. Legal Fees and Expenses. If the Executive asserts any claim in any contest (whether initiated by the Executive or by the Company) as to the validity, enforceability or interpretation of any provision of this Agreement, the Company shall pay the Executive's legal expenses (or cause such expenses to be paid) including, without limitation, his reasonable attorney's fees, on a quarterly basis, upon presentation of proof of such expenses in a form acceptable to the Company, provided that the Executive shall reimburse the Company for such amounts, plus simple interest thereon at the 90-day United States Treasury Bill rate as in effect from time to time, compounded annually, if the Executive shall not prevail, in whole or in part, as to any material issue as to the validity, enforceability or interpretation of any provision of this Agreement. 11. Confidential Information; Company Property. By and in consideration of the salary and benefits to be provided by the Company hereunder, including the severance arrangements set forth herein, the Executive agrees that: (a) Confidential Information. The Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its affiliated companies, and their respective businesses, (i) obtained by the Executive during his employment by the Company or any of its affiliated companies and (ii) not otherwise public knowledge (other than by reason of an unauthorized act by the Executive). After termination of the Executive's employment with the Company, the Executive shall not, without the prior written consent of the Company, unless compelled pursuant to an order of a court or other body having jurisdiction over such matter, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. (b) Company Property. Except as expressly provided herein, promptly following the Executive's termination of employment, the Executive shall return to the Company all property of the Company and all copies thereof in the Executive's possession or under his control, except that the Executive may retain his personal notes, diaries, Rolodexes, calendars and correspondence. (c) Injunctive Relief and Other Remedies with Respect to Covenants. The Executive acknowledges and agrees that the covenants and obligations of the Executive with respect to confidentiality and Company property relate to special, unique and extraordinary matters and that a violation of any of the terms of such covenants and obligations will cause the Company irreparable injury for which adequate remedies are not available at law. Therefore, the 13 14 Executive agrees that the Company shall be entitled to an injunction, restraining order or such other equitable relief (without the requirement to post bond) restraining Executive from committing any violation of the covenants and obligations contained in this Section 11. These remedies are cumulative and are in addition to any other rights and remedies the Company may have at law or in equity. In no event shall an asserted violation of the provisions of this Section 11 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. 12. Successors. (a) This Agreement is personal to the Executive and, without the prior written consent of the Company, shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors. The Company shall require any successor to all or substantially all of the business and/or assets of the Company, whether direct or indirect, by purchase, merger, consolidation, acquisition of stock or otherwise, by an agreement in form and substance satisfactory to the Executive, expressly to assume and agree to perform this Agreement in the same manner and to the same extent as the Company would be required to perform if no such succession had taken place. 13. Miscellaneous. (a) Applicable Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, applied without reference to principles of conflict of laws. (b) Arbitration. Except to the extent provided in Section 11(c), any dispute or controversy arising under or in connection with this Agreement shall be resolved by binding arbitration. The arbitration shall be held in Los Angeles, California and, except to the extent inconsistent with this Agreement, shall be conducted in accordance with the Expedited Employment Arbitration Rules of the American Arbitration Association (or such other voluntary arbitration rules applicable to employment contract disputes) in effect at the time of the arbitration, supplemented, as necessary, by those principles which would be applied by a court of law or equity. The arbitrator shall be acceptable to both the Company and the Executive. If the parties cannot agree on an acceptable arbitrator, the dispute shall be heard by a panel of three arbitrators, one appointed by each of the parties and the third appointed by the other two arbitrators. (c) Amendments. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives. 14 15 (d) Entire Agreement. This Agreement constitutes the entire agreement between the parties hereto with respect to the matters referred to herein. No other agreement relating to the terms of the Executive's employment by the Company, oral or otherwise, shall be binding between the parties unless it is in writing and signed by the party against whom enforcement is sought. There are no promises, representations, inducements or statements between the parties other than those that are expressly contained herein. The Executive acknowledges that he is entering into this Agreement of his own free will and accord, and with no duress, that he has read this Agreement and that he understands it and its legal consequences. (e) Notices. All notices and other communications hereunder shall be in writing and shall be given by hand-delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: at the home address of the Executive noted on the records of the Company If to the Company: BW/IP INC. 200 Oceangate Boulevard Suite 900 Long Beach, CA 90802 Attn.: General Counsel with a copy to: Debevoise & Plimpton 875 Third Avenue New York, NY 10022 Attn.: Lawrence K. Cagney, Esq.
or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee. (f) Tax Withholding. The Company shall withhold from any amounts payable under this Agreement such Federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation. (g) Severability; Reformation. In the event that one or more of the provisions of this Agreement shall become invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not be affected thereby. In the event that any of the provisions of any of Section 11(a) are not enforceable in accordance with its terms, the Executive and the Company agree that such Section shall be reformed to make such Section enforceable in a manner which provides the Company the maximum rights permitted at law. 15 16 (h) Waiver. Waiver by any party hereto of any breach or default by the other party of any of the terms of this Agreement shall not operate as a waiver of any other breach or default, whether similar to or different from the breach or default waived. No waiver of any provision of this Agreement shall be implied from any course of dealing between the parties hereto or from any failure by either party hereto to assert its or his rights hereunder on any occasion or series of occasions. (i) Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. (j) Captions. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. IN WITNESS WHEREOF, the Executive has hereunto set his hand and the Company has caused this Agreement to be executed in its name on its behalf, and its corporate seal to be hereunto affixed and attested by its Secretary, all as of the day and year first above written. BW/IP INC. --------------------------- By: Peter C. Valli Title: Chairman EXECUTIVE: --------------------------- <> <> 16 EX-10.BB 8 EMPLOYMENT AGREEMENT DATED OCTOBER 19, 1995 1 EXHIBIT 10.bb EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT, dated as of October 19, 1995, by and between BW/IP, Inc., a Delaware corporation (the "Company"), and Bernard G. Rethore ("Executive"). W I T N E S E T H: WHEREAS, the Company desires to secure the services of Executive and to enter into an agreement embodying the terms of such employment (the "Agreement"); and WHEREAS, Executive desires to accept such employment and enter into such Agreement; NOW, THEREFORE, in consideration of the mutual covenants herein contained, the Company and Executive hereby agree as follows: 1. Employment. a. Agreement to Employ. Upon the terms and subject to the conditions of this Agreement, the Company hereby employs Executive and Executive hereby accepts employment by the Company. Executive's duties shall be primarily performed at the Company's headquarters in Long Beach, California. Executive shall relocate his principal residence to the Long Beach, California vicinity on or before November 1, 1997. In connection with Executive's relocation, Executive shall be entitled to benefits in accordance with the generally applicable relocation policies and procedures of the Company. b. Term of Employment. Except as provided in Paragraph 7, the Company shall employ Executive for the period commencing on October 19, 1995 (the "Commencement Date") and ending on the fifth anniversary of the Commencement Date. The term of Executive's employment hereunder shall thereafter be automatically extended, upon the same terms and conditions, for successive periods of one year each, unless either party, at least 90 days prior to the expiration of the original term or any extended term, shall give written notice to the other of its intention not to renew such employment. The period during which Executive is employed pursuant to this Agreement shall be referred to as the "Employment Period". 1 2 2. Position and Duties. During the Employment Period, Executive shall serve as President and Chief Executive Officer of the Company, reporting directly to the Board of Directors of the Company (the "Board"), and in such other position or positions with the Company as the Board and Executive shall agree upon from time to time. During the Employment Period, the Company shall use its best efforts to have Executive elected and continued as a member of (i) the Board and (ii) the Executive Committee of the Board. During the Employment Period, Executive shall have responsibility for the general management and operation of the Company and shall have the duties, responsibilities and obligations customarily assigned to individuals serving in the position or positions in which Executive serves hereunder and such other duties, responsibilities and obligations as the Board and Executive shall agree upon from time to time. Executive shall devote substantially all of his time to the services required of him hereunder, provided that nothing contained herein shall preclude Executive from (i) serving on the board of directors of any business corporation with the consent of the Board and the Board hereby grants its consent to Executive's service on the board of Maytag Corporation, (ii) serving on the board of, or working for, any charitable or community organization or (iii) pursuing his personal financial and legal affairs, so long as such activities, individually or collectively, do not materially interfere with the performance of Executive's duties hereunder. Executive represents that his employment hereunder and compliance by him with the terms and conditions of this Agreement will not conflict with or result in the breach of any agreement to which he is a party or by which he may be bound. The Company represents that this Agreement has been authorized by due corporate action and that the terms and conditions of this Agreement will not conflict with or result in the breach of any agreement to which it is a party or by which it may be bound. 3. Compensation. a. Base Salary. During the Employment Period, the Company shall pay Executive a base salary at the annual rate of $400,000. The annual base salary payable under this paragraph shall be reduced, however, to the extent Executive elects to defer such salary under the terms of any deferred 2 3 compensation or savings plan or arrangement maintained or established by the Company. The Board shall annually review Executive's base salary in light of the base salaries paid to other executive officers of the Company and the performance of Executive and the Board may, in its discretion, increase such base salary by an amount it determines to be appropriate, but in no event shall any increase in such salary take effect prior to January 1, 1997. Any such increase shall not reduce or limit any other obligation of the Company hereunder. Executive's annual base salary payable hereunder, as it may be increased from time to time and without reduction for any amounts deferred as described above, is referred to herein as "Base Salary". The Company shall pay Executive the portion of his Base Salary not deferred in accordance with the Company's normal payroll practices. b. Incentive Compensation. Beginning with calendar year 1996, for each calendar year ending during the Employment Period, Executive shall have the opportunity to receive an annual bonus equal to up to 100% of his Base Salary for such year, with a target bonus opportunity of not less than 50% of such Base Salary. Such a bonus shall be based upon Executive's attainment of performance objectives established by the Board for such calendar year and shall be subject to the terms and conditions of the Company's then current incentive compensation programs, practices and policies, as the same may be amended by the Company from time to time. Subject to Executive's election to defer all or a portion of any bonus payable hereunder pursuant to the terms of any deferred compensation or savings plan or arrangement maintained or established by the Company, any bonus payable under this Paragraph 3(b) shall be paid to Executive at the same time as bonuses are paid to other executive officers of the Company, but in no event later than 90 days after the close of the calendar year for which the bonus is payable. c. Temporary Living Allowance. For the first year following the Commencement Date, the Company shall reimburse Executive, upon submission of expense statements or vouchers, for up to $3,000 monthly in respect of the expenses he will incur in obtaining temporary living quarters in Long Beach and to commute between Long Beach and his current permanent residence in Phoenix, Arizona. 3 4 4. Stock Option Grant. a. Grant. On the Commencement Date, Executive shall be awarded an option (the "Option") pursuant to the terms of the Company's 1992 Long Term Incentive Plan (the "LTIP") to purchase (i) 150,000 shares of the Company's common stock, par value $.01 per share (the "Common Stock"), at an exercise price per share equal to the fair market value of a share of such stock (as determined pursuant to the LTIP) on the date of grant and (ii) 100,000 shares of the Company's Common Stock at an exercise price of $25.00 per share of such stock. b. Terms of the Option. The Option shall have a term of ten years from the date of grant and shall become exercisable in full on the third anniversary of the Commencement Date. If Executive's employment with the Company terminates other than due to his death and prior to (x) the occurrence of a Change in Control (as defined in the LTIP) and (y) the third anniversary of the Commencement Date, all unvested Options will be forfeited on the date of such termination. If Executive's employment with the Company terminates due to his death or a Termination due to Disability (as defined below) or if there shall occur a Change in Control prior to the third anniversary of the Commencement Date, the Option shall vest and become exercisable under the terms of the LTIP. Except as otherwise provided in this Section 4, Executive's rights and obligations in respect of the Option shall be determined pursuant to the terms of an Option Agreement to be executed by Executive and the Company. c. Future Grants. Executive shall be eligible to participate in any equity plan or program maintained by the Company (including the LTIP or any successor thereto), at a level commensurate with his position as determined by the administrator of such program pursuant to the terms of such plan or program and the Company's usual compensation practices; provided that Executive shall not receive any stock option grants in addition to that described in Section 4(a) above until calendar year 1997. 5. Stock Ownership. a. Initial Stock Purchase. No later than December 31, 1996, Executive shall purchase that number of whole shares of Common Stock which have an aggregate fair market 4 5 value of at least $800,000, determined on the basis of the aggregate per share purchase prices of such shares (the "Base Shares"). Subject to any applicable margin limitations, the Company will assist Executive in obtaining financing in the amount the Executive requests (but no more than $800,000) from a commercial lending institution or a broker-dealer to effectuate the purchase of the Base Shares, and if necessary to obtain such financing at a commercially reasonable rate and for the full amount requested, the Company will guarantee payment of such financing. The Company shall not be required to register the Base Shares. b. Share Ownership Guidelines. No later than December 31, 1998 and at all times thereafter during the Executive's employment by the Company, Executive must own, directly or beneficially, as determined based on the pecuniary interest standard contained in Rule 16a-1 under the Securities Exchange Act of 1934, as amended, Common Stock with an aggregate fair market value equal to (i) three times his Base Salary or (ii) such greater or lesser amount as is required under the then current stock ownership guidelines, as shall be established by the Board (or a committee thereof) for the Company's chief executive officer, as the same may be amended from time to time; provided, however, that in no event shall Executive be required to own Common Stock having a value equal to more than five times his Base Salary. c. Premium Share Award. Effective as of the date on which Executive completes the purchase of the Base Shares in accordance with Section 5(a) (the "Stock Award Date"), Executive shall be granted an award of shares of restricted Common Stock (the "Premium Shares") equal to the greatest number of whole shares of Common Stock determined by dividing $160,000 by the closing price per share on the Stock Award Date. The Premium Shares will vest in five equal installments on each of the first five anniversaries of the Stock Award Date, so long as Executive remains in the continuous employ of the Company or a subsidiary through each such date. Notwithstanding the immediately preceding sentence, if Executive's employment terminates due to his death or pursuant to a Termination due to Disability (as defined in Section 7(d) below), all unvested Premium Shares shall become fully vested as of the date of such termination. If Executive's employment with the Company terminates prior to the fifth anniversary of the Stock Award Date for any other reason, all unvested Premium Shares shall 5 6 be forfeited upon the date of such termination, except that, in the event of a Termination Without Cause or a Termination for Good Reason (as each such term is defined in Paragraph 7(d)), Executive shall be deemed to have vested in that portion of the Premium Shares which would have vested as of the next anniversary of the Stock Award Date. 6. Benefits, Perquisites and Expenses. a. Benefits. During the Employment Period, Executive shall be eligible to participate in (i) each welfare benefit plan sponsored or maintained by the Company, including, without limitation, each group life, hospitalization, medical, dental, health, accident or disability insurance or similar plan or program of the Company, and (ii) each pension, profit sharing, retirement, deferred compensation or savings plan sponsored or maintained by the Company, including the Company's Supplemental Executive Retirement Plan, in each case, whether now existing or established hereafter, to the extent that Executive is eligible to participate in any such plan under the generally applicable provisions thereof. The Company may amend or terminate any such plan in its discretion. In addition, during any period where Executive will not be eligible to participate fully in any medical or dental plan maintained by the Company because of any required waiting period for eligibility or any exclusion with respect to any pre-existing conditions, the Company shall also reimburse Executive for the cost of paying for the COBRA continuation coverage available to him under his prior employer's medical and health plans. b. Perquisites. Executive shall receive those perquisites and other personal benefits made available to the Company's senior executives from time to time. Without limiting the generality of the foregoing, Executive shall be entitled to four weeks vacation each year. c. Country Club Membership. During the Employment Period, the Company shall pay or reimburse Executive for the initiation fee and periodic membership fees payable in respect of any country club of his choosing in the Long Beach, California vicinity. d. Financial Planning and Tax Preparation. During the Employment Period, the Company will reimburse Executive 6 7 for the cost of financial planning and tax preparation by persons or firms of his choosing of up to an aggregate amount of $10,000 per annum. e. Company Car. During the Employment Period, the Company shall provide Executive with the use of a leased automobile or an automobile allowance in accordance with the Company's automobile policy. f. Business Expenses. During the Employment Period, the Company shall pay or reimburse Executive for all reasonable expenses incurred or paid by Executive in the performance of Executive's duties hereunder, upon presentation of expense statements or vouchers and such other information as the Company may require and in accordance with the generally applicable policies and procedures of the Company. g. Indemnification. The Company agrees that if Executive is made a party, or is threatened to be made a party, to any action, suit or proceeding, whether civil, criminal, administrative or investigative (a "Proceeding"), by reason of the fact that he is or was a director, officer or employee of the Company, Executive shall be indemnified and held harmless by the Company to the fullest extent legally permitted or authorized by the Company's certificate of incorporation or bylaws or resolutions of the Board or, if greater, by the laws of the State of Delaware, against all cost, expense, liability and loss (including, without limitation, attorney's fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by Executive in connection therewith. The Company agrees to continue and maintain a directors' and officers' liability insurance policy covering Executive to the extent the Company provides such coverage for its other executive officers. h. Retirement Benefits. The Company shall pay Executive an additional monthly retirement benefit pursuant to the terms of this Agreement which shall be equal to the excess of (i) the monthly retirement benefit which would be payable to Executive under the terms of the Supplemental Retirement Plan of the Company (the "SERP") as in effect on the date hereof, assuming that, for this purpose, Executive were eligible to participate in the SERP and were credited with one additional year of service under such SERP for each of his actual years of service with the Company over (ii) the monthly retirement benefit which is actually payable to 7 8 Executive under the SERP. In determining the amount of any offset as provided in the preceding sentence, such amount shall be calculated assuming the same frequency of payment, the same form of annuity and the same commencement date of payment as the benefits to be paid under this Paragraph 6(h). The retirement benefit payable to or in respect of Executive pursuant to this Paragraph 6(h) shall be fully vested at all times, without regard to when or the manner in which Executive's employment with the Company terminates, and shall commence to be paid at the same time as Executive's retirement benefit would be payable under the SERP assuming that, at the date of his termination of employment, Executive met the minimum requirements to receive a benefit under the SERP. The retirement benefit payable to or in respect of Executive pursuant to this Paragraph 6(h) shall be paid in the form of a straight life annuity for his lifetime or in such other alternative form of benefit permitted under the terms of the SERP as currently in effect as Executive may elect in accordance with the election provisions applicable under the SERP. 7. Termination of Employment. a. Early Termination of the Employment Period. Notwithstanding Paragraph 1(b), the Employment Period shall end upon the earliest to occur of (i) a termination of Executive's employment on account of Executive's death, (ii) a Termination due to Disability, (iii) a Termination for Cause, (iv) a Termination Without Cause, (v) a Termination for Good Reason or (vi) a Voluntary Termination. b. Benefits Payable Upon Termination. Following the end of the Employment Period pursuant to Paragraph 7(a), Executive (or, in the event of his death, his surviving spouse, if any, or his estate) shall be paid the type or types of compensation determined to be payable in accordance with the following table at the times established pursuant to Paragraph 7(c): 8 9
Earned Vested Accrued Severance Salary Benefits Bonus Benefit ------ -------- ------- --------- Termination due to Not death Payable Payable Payable Payable Termination due to Not Disability Payable Payable Payable Payable Termination for Not Not Cause Payable Payable Payable Payable Termination Without Cause Payable Payable Payable Payable Termination for Good Reason Payable Payable Payable Payable Voluntary Not Not Termination Payable Payable Payable Payable
c. Timing of Payments. Earned Salary shall be paid in a single lump sum as soon as practicable, but in no event more than 30 days, following the end of the Employment Period. Accrued Bonus shall be payable at the same time as annual bonuses are paid to other officers of the Company generally for the calendar year in which Executive's employment terminates. Vested Benefits shall be payable in accordance with the terms of the plan, policy, practice, program, contract or agreement under which such benefits have accrued. The Severance Benefit shall be paid in a single lump sum payment as soon as practicable, but in no event later than 30 days after the date of Executive's termination. d. Change of Control. Upon the occurrence of a Change of Control as defined in an employment continuation agreement to be entered into between the Company and Executive as soon as practicable following the date of this Agreement with respect to his continued employment following such a change of control (the "ECA"), any provision of the ECA which is more favorable to Executive than the terms of this Agreement shall control and supersede any provisions hereof which conflict therewith or are otherwise inconsistent therewith; provided that nothing in this Section 7(d) shall be construed to permit Executive to receive any amounts hereunder following a 9 EX-10.CC 9 EMPLOYMENT CONTINUATION AGREEMENT-DECEMBER 14, 95 1 EXHIBIT 10.CC EMPLOYMENT CONTINUATION AGREEMENT THIS AGREEMENT between BW/IP Inc., a Delaware corporation (the "Company"), and BERNARD G. RETHORE (the "Executive"), dated as of this 14th day of December, 1995. W I T N E S E S T H : WHEREAS, the Company has employed the Executive in an officer position and has determined that the Executive holds an important position with the Company; WHEREAS, the Company believes that, in the event it is confronted with a situation that could result in a change in ownership or control of the Company, continuity of management will be essential to its ability to evaluate and respond to such situation in the best interests of shareholders; WHEREAS, the Company understands that any such situation will present significant concerns for the Executive with respect to his financial and job security; WHEREAS, the Company desires to assure itself of the Executive's services during the period in which it is confronting such a situation, and to provide the Executive certain financial assurances to enable the Executive to perform the responsibilities of his position without undue distraction and to exercise his judgment without bias due to his personal circumstances; WHEREAS, to achieve these objectives, the Company and the Executive desire to enter into an agreement providing the Company and the Executive with certain rights and obligations upon the occurrence of a Change of Control or Potential Change of Control (as defined in Section 2); NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, it is hereby agreed by and between the Company and the Executive as follows: 1 2 1. Operation of Agreement. (a) Effective Date. The effective date of this Agreement shall be the date on which a Change of Control occurs (the "Effective Date"), provided that, except as provided in Section 1(b), if the Executive is not employed by the Company on the Effective Date, this Agreement shall be void and without effect. (b) Termination of Employment Following a Potential Change of Control. Notwithstanding Section 1(a), if (i) the Executive's employment is terminated by the Company Without Cause (as defined in Section 6(c)) after the occurrence of a Potential Change of Control and prior to the occurrence of a Change of Control and (ii) a Change of Control occurs within one year of such termination, the Executive shall be deemed, solely for purposes of determining his rights under this Agreement, to have remained employed until the date such Change of Control occurs and to have been terminated by the Company Without Cause immediately after this Agreement becomes effective. 2. Definitions. (a) Change of Control. For the purposes of this Agreement, a "Change of Control" shall be deemed to have occurred if: (i) any Person (as defined below) has acquired, "beneficial ownership" (within the meaning of Rule 13d-3, as promulgated under Section 13(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) of securities of the Company representing 30% or more of the combined Voting Power (as defined below) of the Company's securities; (ii) within any 24 month period, the persons who were directors of the Company immediately before the beginning of such period (the "Incumbent Directors") shall cease (for any reason other than death) to constitute at least a majority of the Board or the board of directors of any successor to the Company, provided that any director who was not a director at the beginning of such period shall be deemed to be an Incumbent Director if such director (A) was elected to the Board by, or on the recommendation of or with the approval of, at least two-thirds of the directors who then qualified as Incumbent Directors either actually or by prior operation of this Section 2(a)(ii) and (B) was not designated by a person who has entered into an agreement with the Company to effect a Corporate Event, as described in Section 2(a)(iii); or (iii) the stockholders of the Company approve a merger, consolidation, share exchange, division, sale or other disposition of all or 2 3 substantially all of the assets of the Company (a "Corporate Event"), as a result of which the shareholders of the Company immediately prior to such Corporate Event shall not hold, directly or indirectly, immediately following such Corporate Event a majority of the Voting Power of (x) in the case of a merger or consolidation, the surviving or resulting corporation, (y) in the case of a share exchange, the acquiring corporation or (z) in the case of a division or a sale or other disposition of assets, each surviving, resulting or acquiring corporation which, immediately following the relevant Corporate Event, holds more than 10% of the consolidated assets of the Company immediately prior to such Event. (b) Potential Change of Control. For the purposes of this Agreement, a Potential Change of Control shall be deemed to have occurred if: (i) a Person commences a tender offer (with reasonably adequate financing) for securities representing at least 20% of the Voting Power of the Company's securities; (ii) the Company enters into an agreement the consummation of which would constitute a Change of Control; (iii) proxies for the election of directors of the Company are solicited by anyone other than the Company; or (iv) any other event occurs which is deemed to be a Potential Change of Control by the Board. (c) Person Defined. For purposes of this Section 2, "Person" shall have the meaning ascribed to such term in Section 3(a)(9) of the Exchange Act, as supplemented by Section 13(d)(3) of the Exchange Act; provided, however, that Person shall not include (i) the Company or any subsidiary of the Company or (ii) any employee benefit plan sponsored by the Company or any subsidiary of the Company. (d) Voting Power Defined. A specified percentage of "Voting Power" of a company shall mean such number of the Voting Securities as shall enable the holders thereof to cast such percentage of all the votes which could be cast in an annual election of directors (without consideration of the rights of any class of stock other than the common stock of the company to elect directors by a separate class vote); and "Voting Securities" shall mean all securities of a company entitling the holders thereof to vote in an annual election of directors 3 4 (without consideration of the rights of any class of stock other than the common stock of the company to elect directors by a separate class vote). 3. Employment Period. Subject to Section 6 of this Agreement, the Company agrees to continue the Executive in its employ, and the Executive agrees to remain in the employ of the Company, for the period (the "Employment Period") commencing on the Effective Date and ending on the second anniversary of the Effective Date. 4. Position and Duties. (a) No Reduction in Position. During the Employment Period, the Executive's position (including titles), authority and responsibilities shall be at least commensurate with those held, exercised and assigned immediately prior to the Effective Date. It is understood that, for purposes of this Agreement, such position, authority and responsibilities shall not be regarded as not commensurate merely by virtue of the fact that a successor shall have acquired all or substantially all of the business and/or assets of the Company as contemplated by Section 13(b) of this Agreement. The Executive's services shall be performed at the location where the Executive was employed immediately preceding the Effective Date. (b) Business Time. From and after the Effective Date, the Executive agrees to devote substantially all of his attention during normal business hours to the business and affairs of the Company, to the extent necessary to discharge his responsibilities hereunder, except for (i) time spent in managing his personal, financial and legal affairs, serving on corporate, civic or charitable boards or committees or working for any charitable or civic organization, in each case only if and to the extent not materially interfering with the performance of such responsibilities, and (ii) periods of vacation and sick leave to which he is entitled. It is expressly understood and agreed that the Executive's continuing to serve on any boards and committees on which he is serving or with which he is otherwise associated immediately preceding the Effective Date shall be deemed not to interfere with the performance of the Executive's services to the Company. 5. Compensation. (a) Base Salary. During the Employment Period, the Executive shall receive a base salary at a monthly rate at least equal to the monthly salary paid to the Executive by the Company and any of its affiliated companies immediately prior to the Effective Date. The base salary shall be reviewed at least once each year after the Effective Date, and may be increased (but not decreased) at any time and from time to time by action of the Board or any committee thereof or by any individual having authority to take 4 5 such action in accordance with the Company's regular practices. The Executive's base salary, as it may be increased from time to time, shall hereafter be referred to as "Base Salary". Neither the Base Salary nor any increase in Base Salary after the Effective Date shall serve to limit or reduce any other obligation of the Company hereunder. (b) Annual Bonus. During the Employment Period, in addition to the Base Salary, for each fiscal year of the Company ending during the Employment Period, the Executive shall be afforded the opportunity to receive an annual bonus on terms and conditions no less favorable to the Executive (taking into account reasonable changes in the Company's goals and objectives) than the annual bonus opportunity that had been made available to the Executive for the fiscal year ended immediately prior to the Effective Date (the "Annual Bonus Opportunity"). Any amount payable in respect of the Annual Bonus Opportunity shall be paid as soon as practicable following the year for which the amount (or prorated portion) is earned or awarded, but not later than 90 days after the close of the calendar year for which the bonus is payable, unless electively deferred by the Executive pursuant to any deferral programs or arrangements that the Company may make available to the Executive. (c) Long-term Incentive Compensation Programs. During the Employment Period, the Executive shall participate in all long-term incentive compensation programs for key executives at a level that is commensurate with the Executive's participation in such plans immediately prior to the Effective Date, or, if more favorable to the Executive, at the level made available to the Executive or other similarly situated officers at any time thereafter. (d) Benefit Plans. During the Employment Period, the Executive (and, to the extent applicable, his dependents) shall be entitled to participate in or be covered under all pension, retirement, deferred compensation, savings, medical, dental, health, disability, group life, accidental death and travel accident insurance plans and programs of the Company and its affiliated companies at a level that is commensurate with the Executive's participation in such plans immediately prior to the Effective Date, or, if more favorable to the Executive, at the level made available to the Executive or other similarly situated officers at any time thereafter. (e) Expenses. During the Employment Period, the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in accordance with the policies and procedures of the Company as in effect immediately prior to the Effective Date. Notwithstanding 5 6 the foregoing, the Company may apply the policies and procedures in effect after the Effective Date to the Executive, if such policies and procedures are more favorable to the Executive than those in effect immediately prior to the Effective Date. (f) Vacation, Perquisites and Fringe Benefits. During the Employment Period, the Executive shall be entitled to paid vacation, perquisites and fringe benefits at a level that is commensurate with the paid vacation, perquisites and fringe benefits available to the Executive immediately prior to the Effective Date, or, if more favorable to the Executive, at the level made available from time to time to the Executive or other similarly situated officers at any time thereafter. (g) Indemnification. The Company agrees that if the Executive is made a party, or is threatened to be made a party, to any action, suit or proceeding, whether civil, criminal, administrative or investigative (a "Proceeding"), by reason of the fact that he is or was a director, officer or employee of the Company, the Executive shall be indemnified and held harmless by the Company to the fullest extent legally permitted or authorized by the Company's certificate of incorporation or bylaws or resolutions of the Board or, if greater, by the laws of the State of Delaware, against all cost, expense, liability and loss (including, without limitation, attorney's fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by the Executive in connection therewith. The Company agrees to continue and maintain a directors' and officers' liability insurance policy covering the Executive to the extent the Company provides such coverage for its other executive officers. (h) Office and Support Staff. The Executive shall be entitled to an office with furnishings and other appointments, and to secretarial and other assistance, at a level that is at least commensurate with that provided to the Executive immediately prior to the Effective Date. 6. Termination. (a) Death, Disability or Retirement. Subject to the provisions of Section 1 hereof, this Agreement shall terminate automatically upon the Executive's death, termination due to "Disability" (as defined below) or voluntary retirement under any of the Company's retirement plans as in effect from time to time. For purposes of this Agreement, Disability shall mean the Executive has been incapable of substantially fulfilling the positions, duties, responsibilities and obligations set forth in this Agreement because of physical, mental or emotional incapacity resulting from injury, sickness or disease for a period of (i) at least five consecutive months or (ii) more than seven months in 6 7 any twelve month period. The Company and the Executive shall agree on the identity of a physician to resolve any question as to the Executive's disability. If the Company and the Executive cannot agree on the physician to make such determination, then the Company and the Executive shall each select a physician and those physicians shall jointly select a third physician, who shall make the determination. The determination of any such physician shall be final and conclusive for all purposes of this Agreement. The Executive or his legal representative or any adult member of his immediate family shall have the right to present to such physician such information and arguments as to the Executive's disability as he, she or they deem appropriate, including the opinion of the Executive's personal physician. (b) Voluntary Termination. Notwithstanding anything in this Agreement to the contrary, following a Change of Control the Executive may, upon not less than 30 days' written notice to the Company, voluntarily terminate employment for any reason (including early retirement under the terms of any of the Company's retirement plans as in effect from time to time), provided that any termination by the Executive pursuant to Section 6(d) on account of Good Reason (as defined therein) shall not be treated as a voluntary termination under this Section 6(b). (c) Cause. The Company may terminate the Executive's employment for Cause. For purposes of this Agreement, "Cause" means (i) the Executive's conviction of a felony or the entering by the Executive of a plea of nolo contendere to a felony charge, (ii) the Executive's gross neglect, willful malfeasance or willful gross misconduct in connection with his employment hereunder which has had a material adverse effect on the business of the Company and its subsidiaries, unless the Executive reasonably believed in good faith that such act or nonact was in or not opposed to the best interests of the Company, or (iii) repeated material violations by the Executive of his obligations under Section 4 of this Agreement, which violations are demonstrably willful and deliberate on the Executive's part and which result in material damage to the Company's business or reputation. (d) Good Reason. Following the occurrence of a Change of Control, the Executive may terminate his employment for Good Reason. For purposes of this Agreement, "Good Reason" means the occurrence of any of the following, without the express written consent of the Executive, after the occurrence of a Change of Control: 7 8 (i) (A) the assignment to the Executive of any duties inconsistent with the Executive's position, authority or responsibilities as contemplated by Section 4 of this Agreement, or (B) failure to continue the Executive as the Company's President and Chief Executive Officer or as a member of the Board, other than in connection with a Termination for Cause or a Termination due to Disability or any other material adverse change in such position, including titles, authority or responsibilities; (ii) any failure by the Company to comply with any of the provisions of Section 5 of this Agreement, other than an insubstantial or inadvertent failure remedied by the Company promptly after receipt of notice thereof given by the Executive; (iii) the Company's requiring the Executive to be based at any office or location more than 40 miles (or such other distance as shall be set forth in the Company's relocation policy as in effect at the Effective Time) from that location at which he performed his services specified under the provisions of Section 4 immediately prior to the Change of Control, except for travel reasonably required in the performance of the Executive's responsibilities; (iv) any other material breach of this Agreement by the Company; or (v) any failure by the Company to obtain the assumption and agreement to perform this Agreement by a successor as contemplated by Section 13(b). In no event shall the mere occurrence of a Change of Control, absent any further impact on the Executive, be deemed to constitute Good Reason. (e) Notice of Termination. Any termination by the Company for Cause or by the Executive for Good Reason shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 13(e). For purposes of this Agreement, a "Notice of Termination" means a written notice given, in the case of a termination for Cause, within 10 business days of the Company's having actual knowledge of the events giving rise to such termination, and in the case of a termination for Good Reason, within 180 days of the Executive's having actual knowledge of the events giving rise to such termination, and which (i) indicates the specific termination provision in this Agreement relied upon, (ii) sets forth in reasonable detail the facts and 8 9 circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated, and (iii) if the termination date is other than the date of receipt of such notice, specifies the termination date of the Executive's employment (which date shall be not more than 15 days after the giving of such notice). The failure by the Executive to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason shall not waive any right of the Executive hereunder or preclude the Executive from asserting such fact or circumstance in enforcing his rights hereunder. (f) Date of Termination. For the purpose of this Agreement, the term "Date of Termination" means (i) in the case of a termination for which a Notice of Termination is required, the date of receipt of such Notice of Termination or, if later, the date specified therein, as the case may be, and (ii) in all other cases, the actual date on which the Executive's employment terminates during the Employment Period. 7. Obligations of the Company upon Termination. (a) Death or Disability. If the Executive's employment is terminated during the Employment Period by reason of the Executive's death or Disability, this Agreement shall terminate without further obligations to the Executive or the Executive's legal representatives under this Agreement other than those obligations accrued hereunder at the Date of Termination, and the Company shall pay to the Executive (or his beneficiary or estate) (i) the Executive's full Base Salary through the Date of Termination (the "Earned Salary"), (ii) a pro-rata bonus for the year of termination equal to the product of (x) the annual incentive compensation the Executive would have been entitled to receive for the calendar year in which his active service for the Company terminates had he remained employed for the entire year and assuming that the performance requirements to receive a bonus at (but not above) target for such year had been met, multiplied by (y) a fraction, the numerator of which is equal to the number of days in such calendar year occurring on or prior to the termination of the Executive's active service for the Company and the denominator of which is 365 (the "Pro Rata Bonus"); (iii) any vested amounts or vested benefits owing to the Executive under the Company's otherwise applicable employee benefit plans and programs, including any compensation previously deferred by the Executive (together with any accrued earnings thereon) and not yet paid by the Company and any accrued vacation pay not yet paid by the Company (the "Accrued Obligations"), and (iv) any other benefits payable due to the Executive's death or Disability under the Company's plans, policies or programs (the "Additional Benefits"). 9 10 Any Earned Salary shall be paid in cash in a single lump sum as soon as practicable, but in no event more than 30 days (or at such earlier date required by law), following the Date of Termination. Accrued Obligations and Additional Benefits shall be paid in accordance with the terms of the applicable plan, program or arrangement. (b) Cause and Voluntary Termination. If the Executive's employment shall be terminated for Cause or voluntarily terminated by the Executive (other than on account of Good Reason following a Change of Control), the Company shall pay the Executive (i) the Earned Salary in cash in a single lump sum as soon as practicable, but in no event more than 10 days, following the Date of Termination, and (ii) the Accrued Obligations in accordance with the terms of the applicable plan, program or arrangement. (c) Termination by the Company other than for Cause and Termination by the Executive for Good Reason. (i) Lump Sum Payments. If, during the Employment Period, the Company terminates the Executive's employment other than for Cause, or following a Change of Control the Executive terminates his employment for Good Reason, the Company shall pay to the Executive the following amounts: (A) the Executive's Earned Salary; (B) the Pro Rata Bonus; (C) a cash amount (the "Severance Amount") equal to three times the sum of (x) the Executive's - annual Base Salary and (y) an amount equal to the greater of (1) the last annual bonus paid - - to the Executive (or if, at the Date of Termination, the Executive has not been eligible to receive an annual bonus for an entire calendar year, the annual bonus that would have been payable to the Executive at target performance for the year in which termination occurs) and (2) the product of (i) the Executive's annual Base Salary and (ii) the average of the percentages of the Executive's then current Base Salary paid as an annual bonus with respect to each of the last three calendar years ended prior to the Change of Control (or, if at the Date of Termination, 10 11 the Executive has been employed for less than three full calendar years, for the number of full calendar years during which the Executive was employed); (D) the Accrued Obligations. The Earned Salary and Severance Amount shall be paid in cash in a single lump sum as soon as practicable, but in no event more than 30 days (or at such earlier date required by law), following the Date of Termination. Accrued Obligations shall be paid in accordance with the terms of the applicable plan, program or arrangement. (ii) Premium Shares. If, during the Employment Period, the Company terminates the Executive's employment other than for Cause, or the Executive terminates his employment for Good Reason, any Premium Shares (as defined in Section 5(c) of the employment agreement dated as of October 19, 1995 between the Executive and the Company (the "Employment Agreement")) that have not previously vested in accordance with the terms of such Section 5(c) shall vest and become nonforfeitable upon the Executive's termination of employment. (iii) Continuation of Benefits. If, during the Employment Period, the Company terminates the Executive's employment other than for Cause, or following a Change of Control the Executive terminates his employment for Good Reason, the Executive (and, to the extent applicable, his dependents) shall be entitled, after the Date of Termination until the earlier of (1) the third anniversary of the Date of Termination (the "End Date") and (2) the date the Executive becomes eligible for comparable benefits under a similar plan, policy or program of a subsequent employer, to continue participation in all of the Company's employee and executive welfare and fringe benefit plans (the "Benefit Plans"). To the extent any such benefits cannot be provided under the terms of the applicable plan, policy or program, the Company shall provide a comparable benefit under another plan or from the Company's general assets. The Executive's participation in the Benefit Plans will be on the same terms and conditions that would have applied had the Executive continued to be employed by the Company through the End Date. (iv) Car Allowance and Outplacement Services. In addition to the benefits continuation described in Section 7(c)(iii), the Company shall also continue to provide the Executive with the same car allowance that 11 12 was made available to the Executive immediately prior to the Change of Control (or the use of the same automobile, if the Company provided the Executive with such an automobile in lieu of a car allowance) until the earlier of (x) the time that the Executive obtains other employment or (y) the third anniversary of the Date of Termination. The Company shall also make available to the Executive at its expense the full services of a qualified independent outplacement firm to assist the Executive in obtaining other employment. (d) Discharge of the Company's Obligations. Except as expressly provided in the last sentence of this Section 7(d), the amounts payable to the Executive pursuant to this Section 7 (whether or not reduced pursuant to Section 7(f)) following termination of his employment shall be in full and complete satisfaction of the Executive's rights under this Agreement and any other claims he may have in respect of his employment by the Company or any of its subsidiaries other than claims (i) for common law torts that arise other than in connection with his termination of employment or (ii) under other contracts between the Executive and the Company or its subsidiaries; provided that, in no event shall the exception set forth in subclause (ii) above be construed to permit the Executive to receive both the benefits payable under this Section 7 and the benefits payable under Paragraph 7 of the Employment Agreement. Such amounts shall constitute liquidated damages with respect to any and all such rights and claims and, upon the Executive's receipt of such amounts, the Company shall be released and discharged from any and all liability to the Executive in connection with this Agreement or otherwise in connection with the Executive's employment with the Company and its subsidiaries, except as otherwise provided in the preceding sentence. Nothing in this Section 7(d) shall be construed to release the Company from its commitment to indemnify the Executive and hold the Executive harmless from and against any claim, loss or cause of action arising from or out of the Executive's performance as an officer, director or employee of the Company or any of its subsidiaries or in any other capacity, including any fiduciary capacity, in which the Executive served at the request of the Company to the maximum extent permitted by applicable law. (e) Employment Agreement. Notwithstanding the occurrence of the Effective Date, the Employment Agreement shall remain in effect, provided that any provision of this Agreement which is more favorable to the Executive than a similar provision in the Employment Agreement shall control and supersede any provisions of the Employment Agreement which conflict with the provisions hereof or are otherwise inconsistent with the provisions hereof and provided further that the provisions of Section 7(f) shall be applicable in any event. 12 13 (f) Limit on Payments by the Company. (i) Application of Section 7(f). In the event that any amount or benefit paid or distributed to the Executive pursuant to this Agreement, taken together with any amounts or benefits otherwise paid or distributed to the Executive by the Company or any affiliated company (collectively, the "Covered Payments"), would be an "excess parachute payment" as defined in Section 280G of the Code and would thereby subject the Executive to the tax (the "Excise Tax") imposed under Section 4999 of the Code (or any similar tax that may hereafter be imposed), the provisions of this Section 7(f) shall apply to determine the amounts payable to the Executive pursuant to this Agreement. (ii) Calculation of Benefits. Immediately following delivery of any Notice of Termination, the Company shall notify the Executive of the aggregate present value of all termination benefits to which he would be entitled under this Agreement and any other plan, program or arrangement as of the projected Date of Termination, together with the projected maximum payments, determined as of such projected Date of Termination that could be paid without the Executive being subject to the Excise Tax. (iii) Imposition of Payment Cap. If the aggregate value of all compensation payments or benefits to be paid or provided to the Executive under this Agreement and any other plan, agreement or arrangement with the Company exceeds the amount which can be paid to the Executive without the Executive incurring an Excise Tax, then the amounts payable to the Executive under this Section 7 shall be reduced (but not below zero) to the maximum amount which may be paid hereunder without the Executive becoming subject to such an Excise Tax (such reduced payments to be referred to as the "Payment Cap"). In the event that the Executive receives reduced payments and benefits hereunder, the Executive shall have the right to designate which of the payments and benefits otherwise provided for in this Agreement that he will receive in connection with the application of the Payment Cap. (iv) Application of Section 280G. For purposes of determining whether any of the Covered Payments will be subject to the Excise Tax and the amount of such Excise Tax, 13 14 (A) (x) whether Covered Payments are "parachute payments" within the meaning of Section 280G of the Code, and (y) whether there are "parachute payments" in excess of the "base amount" (as defined under Section 280G(b)(3) of the Code) shall be determined in good faith by the Company's independent certified public accountants appointed prior to the Effective Date (the "Accountants") or tax counsel selected by such Accountants, and (B) the value of any non-cash benefits or any deferred payment or benefit shall be determined by the Accountants in accordance with the principles of Section 280G of the Code. (v) Adjustments in Respect of the Payment Cap. If the Executive receives reduced payments and benefits under this Section 7(f)(or this Section 7(f) is determined not to be applicable to the Executive because the Accountants conclude that Executive is not subject to any Excise Tax) and it is established pursuant to a final determination of a court or an Internal Revenue Service proceeding (a "Final Determination") that, notwithstanding the good faith of the Executive and the Company in applying the terms of this Agreement, the aggregate "parachute payments" within the meaning of Section 280G of the Code paid to the Executive or for his benefit are in an amount that would result in the Executive's being subject to an Excise Tax, then any amounts actually paid to or on behalf of the Executive which are treated as excess parachute payments shall be deemed for all purposes to be a loan to the Executive made on the date of receipt of such excess payments, which the Executive shall have an obligation to repay to the Company on demand, together with interest on such amount at the applicable Federal rate (as defined in Section 1274(d) of the Code) from the date of the payment hereunder to the date of repayment by the Executive. If the Executive receives reduced payments and benefits by reason of this Section 7(f) and it is established pursuant to a Final Determination that the Executive could have received a greater amount without exceeding the Payment Cap, then the Company shall promptly thereafter pay the Executive the aggregate additional amount which could have been paid without exceeding the Payment Cap, together with interest on such amount at the applicable Federal rate (as defined in Section 1274(d) of the Code) from the original payment due date to the date of actual payment by the Company. 14 15 8. Non-exclusivity of Rights. Except as expressly provided herein, nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any benefit, bonus, incentive or other plan or program provided by the Company or any of its affiliated companies and for which the Executive may qualify, nor shall anything herein limit or otherwise prejudice such rights as the Executive may have under any other agreements with the Company or any of its affiliated companies, including employment agreements or stock option agreements. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan or program of the Company or any of its affiliated companies at or subsequent to the Date of Termination shall be payable in accordance with such plan or program. 9. No Mitigation or Offset. The Executive shall have no obligation to seek other employment and, except as expressly provided in Sections 7(c)(iii) and 7(c)(iv), there shall be no offset against amounts due to the Executive under this Agreement on account of any remuneration attributable to subsequent employment that he may obtain. The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any circumstances, including, without limitation, any set-off, counterclaim, recoupment, defense or other right which the Company may have against the Executive or others. In the event that the Executive shall in good faith give a Notice of Termination for Good Reason and it shall thereafter be determined that Good Reason did not exist, the employment of the Executive shall, unless the Company and the Executive shall otherwise mutually agree, be deemed to have terminated, at the date of giving such purported Notice of Termination, by mutual consent of the Company and the Executive and the Executive shall be entitled to receive only his Earned Salary and the Accrued Obligations which he would have been entitled to receive upon a voluntary termination. 10. Legal Fees and Expenses. If the Executive asserts any claim in any contest (whether initiated by the Executive or by the Company) as to the validity, enforceability or interpretation of any provision of this Agreement, the Company shall pay the Executive's legal expenses (or cause such expenses to be paid) including, without limitation, his reasonable attorney's fees, on a quarterly basis, upon presentation of proof of such expenses in a form acceptable to the Company, provided that the Executive shall reimburse the Company for such amounts, plus simple interest thereon at the 90-day United States Treasury Bill rate as in effect from time to time, compounded annually, if the Executive shall not prevail, in whole or in part, as to any material issue as to the validity, enforceability or interpretation of any provision of this Agreement. 15 16 11. Confidential Information; Company Property. By and in consideration of the salary and benefits to be provided by the Company hereunder, including the severance arrangements set forth herein, the Executive agrees that: (a) Confidential Information. The Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its affiliated companies, and their respective businesses, (i) obtained by the Executive during his employment by the Company or any of its affiliated companies and (ii) not otherwise public knowledge (other than by reason of an unauthorized act by the Executive). After termination of the Executive's employment with the Company, the Executive shall not, without the prior written consent of the Company, unless compelled pursuant to an order of a court or other body having jurisdiction over such matter, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. (b) Company Property. Except as expressly provided herein, promptly following the Executive's termination of employment, the Executive shall return to the Company all property of the Company and all copies thereof in the Executive's possession or under his control, except that the Executive may retain his personal notes, diaries, Rolodexes, calendars and correspondence. (c) Injunctive Relief and Other Remedies with Respect to Covenants. The Executive acknowledges and agrees that the covenants and obligations of the Executive with respect to confidentiality and Company property relate to special, unique and extraordinary matters and that a violation of any of the terms of such covenants and obligations will cause the Company irreparable injury for which adequate remedies are not available at law. Therefore, the Executive agrees that the Company shall be entitled to an injunction, restraining order or such other equitable relief (without the requirement to post bond) restraining the Executive from committing any violation of the covenants and obligations contained in this Section 11. These remedies are cumulative and are in addition to any other rights and remedies the Company may have at law or in equity. In no event shall an asserted violation of the provisions of this Section 11 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. 16 17 12. Elimination of Stock Ownership Requirement. Upon the occurrence of a Change of Control, the share ownership guidelines set forth in Section 5(a) of the Employment Agreement shall cease to be applicable. 13. Successors. (a) This Agreement is personal to the Executive and, without the prior written consent of the Company, shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors. The Company shall require any successor to all or substantially all of the business and/or assets of the Company, whether direct or indirect, by purchase, merger, consolidation, acquisition of stock, or otherwise, by an agreement in form and substance satisfactory to the Executive, expressly to assume and agree to perform this Agreement in the same manner and to the same extent as the Company would be required to perform if no such succession had taken place. 14. Miscellaneous. (a) Applicable Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, applied without reference to principles of conflict of laws. (b) Arbitration. Except to the extent provided in Section 11(c), any dispute or controversy arising under or in connection with this Agreement shall be resolved by binding arbitration. The arbitration shall be held in the city of Los Angeles, California and except to the extent inconsistent with this Agreement, shall be conducted in accordance with the Expedited Employment Arbitration Rules of the American Arbitration Association (or such other voluntary arbitration rules applicable to employment contract disputes) in effect at the time of the arbitration, supplemented, as necessary, by those principles which would be applied by a court of law or equity. The arbitrator shall be acceptable to both the Company and the Executive. If the parties cannot agree on an acceptable arbitrator, the dispute shall be heard by a panel of three arbitrators, one appointed by each of the parties and the third appointed by the other two arbitrators. (c) Amendments. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives. 17 18 (d) Entire Agreement. This Agreement, together with the Employment Agreement, constitutes the entire agreement between the parties hereto with respect to the matters referred to herein. No other agreement relating to the terms of the Executive's employment by the Company, oral or otherwise, shall be binding between the parties unless it is in writing and signed by the party against whom enforcement is sought. There are no promises, representations, inducements or statements between the parties other than those that are expressly contained herein. The Executive acknowledges that he is entering into this Agreement of his own free will and accord, and with no duress, that he has read this Agreement and that he understands it and its legal consequences. (e) Notices. All notices and other communications hereunder shall be in writing and shall be given by hand-delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: at the home address of the Executive noted on the records of the Company If to the Company: BW/IP INC. 200 Oceangate Boulevard Suite 900 Long Beach, CA 90802 Attn.: Secretary with a copy to: Debevoise & Plimpton 875 Third Avenue New York, NY 10022 Attn.: Lawrence K. Cagney, Esq.
or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee. (f) Tax Withholding. The Company shall withhold from any amounts payable under this Agreement such Federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation. (g) Severability; Reformation. In the event that one or more of the provisions of this Agreement shall become invalid, illegal or unenforceable in 18 19 any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not be affected thereby. In the event that any of the provisions of any of Section 11(a) are not enforceable in accordance with its terms, the Executive and the Company agree that such Section shall be reformed to make such Section enforceable in a manner which provides the Company the maximum rights permitted at law. (h) Waiver. Waiver by any party hereto of any breach or default by the other party of any of the terms of this Agreement shall not operate as a waiver of any other breach or default, whether similar to or different from the breach or default waived. No waiver of any provision of this Agreement shall be implied from any course of dealing between the parties hereto or from any failure by either party hereto to assert its or his rights hereunder on any occasion or series of occasions. (i) Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. 19 20 (j) Captions. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. IN WITNESS WHEREOF, the Executive has hereunto set his hand and the Company has caused this Agreement to be executed in its name on its behalf, and its corporate seal to be hereunto affixed and attested by its Secretary, all as of the day and year first above written. BW/IP INC. /s/ P.C. Valli ----------------------- By: P. C. Valli Title: Chairman WITNESSED: /s/ John D. Hannesson - --------------------- John D. Hannesson BERNARD G. RETHORE: /s/ Bernard G. Rethore ------------------------- WITNESSED: /s/ John D. Hannesson - --------------------- John D. Hannesson 20 EX-10.DD 10 1995 STOCK OPTION AGREEMENTS 1 EXHIBIT 10.dd Employee Name: Bernard G. Rethore Number of Shares:150,000 Option Price: $18.25 1995 STOCK OPTION AGREEMENT This 1995 STOCK OPTION AGREEMENT (the "Agreement"), dated as of October 19, 1995, is between BW/IP International, Inc. a Delaware corporation (the "Company"), and Bernard G. Rethore. The 1992 Long Term Incentive Plan (the "Plan") is intended to provide incentives to executives and other key employees of the Company and its parent or subsidiaries by providing them with opportunities for stock ownership under the Plan. "Subsidiary" means any company of which the Company owns, directly or indirectly, the majority of the combined voting power of all classes of stock. Capitalized terms used in this Agreement and not defined herein shall have the meaning assigned to such terms in the Plan. The Company's Board of Directors (the "Board") has designated its Compensation and Benefits Committee as the committee to administer the Plan (the "Committee"). The Committee has granted to you an option under the Plan to purchase Common Stock, par value $.01 per share ("Common Shares"), of the Company on the terms set forth below. To evidence the option so granted, and to set forth its terms and conditions as provided in the Plan, you and the Company agree as follows: 1. Grant of Option; Option Price The Company hereby evidences and confirms its grant to you on October 19, 1995 of an option (the "Option") to purchase the number of Common Shares shown above at an option price of $18.25 per share which is the fair market value of the optioned shares (as defined in the Plan) on the day the Option was granted. The Option shall be subject to the provisions of the Plan. 2 2. Term for Exercise On October 19, 1998, the Option shall become exercisable, subject to the provision hereof, and shall remain exercisable over the remaining term of the Option. The Option may be exercised from time to time, in whole or in part, up to the number of shares with respect to which it is then exercisable. Except as an earlier expiration date is specified by this Agreement, the Option shall expire at 4:00 P.M., Long Beach, California time, on the tenth anniversary of the date of grant of this Option. Notwithstanding the foregoing, upon the occurrence of a Change in Control (as defined in the Plan), the Option shall become immediately and fully exercisable as to all shares to which the Option relates and shall remain exercisable until expiration or termination of the option. 3. Who May Exercise During your lifetime, the Option may be exercised only by you. If you die during your employment with the Company or a Subsidiary and prior to the expiration date specified in Section 2 hereof, the Option may be exercised to the extent you could have exercised it on the date of your death, by your estate, personal representative or beneficiary who acquired the right to exercise it by will or by the laws of descent and distribution, at any time prior to 4:00 P.M., Long Beach, California time, on the earlier of the expiration date specified in Section 2 or the first anniversary of your death. On the earlier of such expiration date or anniversary, the unexercised portion of the Option shall expire. 4. Exercise after Termination of Employment (a) Permissive Periods of Exercise. If you cease, other than by reason of death, disability or retirement as determined under the Plan, to be employed by the Company or a Subsidiary, the Option shall terminate at 4:00 P.M., Long Beach, California time, on the earlier of the expiration date specified in Section 2 hereof, or the date which is ninety (90) days after the day your employment by the Company or a Subsidiary ends. If you retire in accordance with the terms of the Plan, the Option shall terminate at 4:00 P.M., Long Beach, California time, on the earlier of the expiration date specified in Section 2 hereof, or the third anniversary of the date of your retirement. If you die while an employee, or if your employment terminates by reason of disability while an employee, all Options may, 2 3 unless earlier terminated in accordance with Section 2 hereof, be exercised by you, or by your estate or appropriate representative until the date which is one (1) year after your termination of employment. In the event of any such termination of employment or retirement, any installment not exercisable on the date thereof shall lapse and be thereafter unexercisable. Whether you have retired, and whether authorized leave of absence or absence or military of governmental service may constitute employment, shall be conclusively determined for the purposes of this Agreement by the Committee in its discretion. (b) Forfeiture of Option. Notwithstanding the foregoing, if, after your termination of employment, the Committee determines that, at any time during or after your employment with the Company, you engaged in conduct that (i) would have permitted the Company to terminate your employment for Cause, as defined in Paragraph 7(e) of the Employment Agreement between you and the Company, of even date herewith (the "Employment Agreement"), had you still been employed, or (ii) was in material violation of the covenants contained in Paragraph 8 of the Employment Agreement, or (iii) was intended to aid, assist or otherwise advance the efforts of any person, group or entity in any effort to effect a change of ownership in, or otherwise gain control of, the Company, whether through a stock purchase, merger, asset acquisition, proxy solicitation or any other means, the portion of the Option that is still outstanding at the time of such determination shall terminate and be canceled immediately upon such determination by the Committee. Upon such a determination by the Committee, the Company may disregard any attempted exercise of the Option by notice delivered prior to such determination, if, at such time, the Company had not completed the steps necessary to effect such exercise. In such case, the Company shall only be obligated to return to you any amounts or shares of Common Stock remitted in order to exercise such Option. 3 4 5. Restrictions on Exercise The Option may be exercised only with respect to full shares. No fractional shares shall be issued. The Option shall not be exercised in whole or part: A. if any requisite approval or consent of, or registration with, any governmental authority of any kind having jurisdiction over the exercise of options shall not have been secured; or B. unless the shares subject to the Option shall be effectively listed on each national securities exchange on which the Common Shares are then listed, which listing may be upon official notice of issuance thereof. The Company may, but need not, require as a condition to the exercise of the Option in whole or in part at any time that you represent to the Company in writing that you are acquiring the shares to be acquired upon such exercise for you own account for investment only and not with a view to the distribution thereof. 6. Manner of Exercise To the extent the Option shall be exercisable in accordance with the terms hereof, and subject to such administrative regulations as the Committee may have adopted, the Option may be exercised in whole or from time to time in part by notice in writing to the Committee, specifying the number of shares in respect of which the Option is being exercised and accompanied by, or providing for (if applicable), full payment of the option price (i) in United States dollars in cash or by certified check, bank draft, or postal or express money order, (ii) in Common Shares of the Company, represented by certificates duly endorsed to the Company or its nominee with any requisite transfer tax stamps attached, the fair market value of which shall be equal to the option price for the shares with respect to which the Option is being exercised, or (iii) in a combination of (i) and (ii) above. The fair market value of any Common Shares delivered pursuant to the immediately preceding sentence shall be determined on the basis of the mean of the high and low prices for a Common Share on the Consolidated Trading Tape on the day of the exercise or, if there was no such sale on the day of exercise, on the day next preceding the day of exercise on which there was such a sale. 4 5 In the event that the Option shall be exercised by a person other than you in accordance with the provisions of Section 3 hereof, such person shall furnish the Company with evidence satisfactory to it of his or her right to exercise the same and of payment or provision for the payment of any estate, transfer, inheritance or death taxes payable with respect to the Option or with respect to related shares or payment. The Company may require you or the other person exercising the Option to furnish or execute such documents as the Company shall deem necessary to evidence such exercise, to determine whether registration is then required under the Securities Act of 1933, or to comply with or satisfy the requirements of the Securities Act of 1933 or any other law. In the exercise of your option, with the consent of the Committee, you may elect to use a cashless exercise method through an established arrangement with a stock broker; you may select your own broker or use a special broker arrangement procedure set up by the Company. If you so elect, (i) your election and choice of broker should be included in your notice of exercise; (ii) whereupon, the Company shall deliver the shares with respect to which the option is exercised to the selected broker; (iii) which broker shall, in turn, sell a sufficient number of shares at then-current fair market value to cover (x) the aggregate exercise price of the options and (y) required Federal and state income tax withholding. All remaining shares would be returned to you or disposed of by the broker in accordance with your instructions. 7. Nonassignability The Option is not assignable or transferable except by will or by the laws of descent and distribution to the extent contemplated by Section 3 hereof. At your request, Common Shares purchased on exercise of the Option may be issued or transferred in your name and the name of another person jointly with the right of survivorship. 8. Rights as Shareholder You shall have no rights as a shareholder with respect to any shares covered by the Option until the issuance of a certificate or certificates to you for such shares. No adjustment shall be made for dividends or other rights for which the record date is prior to the issuance of such certificate or certificates. 5 6 9. Capital Adjustments Upon the occurrence of an event described in Section 8 of the Plan, the number and price of the Common Shares covered by the Option, as well as the Option itself, shall be proportionately adjusted in accordance with the terms of that Section. 10. Withholding Taxes The Company shall have the right to deduct withholding taxes from any payments made pursuant to this Agreement or to make such other provisions as it deems necessary or appropriate to satisfy its obligations to withhold Federal, state or local income or other taxes incurred by reason of payments or the issuance of Common Shares under this Agreement. Whenever under this Agreement Common Shares are to be delivered upon exercise of an Option, the Committee shall be entitled to require as a condition of delivery that you remit an amount sufficient to satisfy all Federal, state and other governmental withholding tax requirements related thereto. 11. Agreement Nothing contained in this Agreement and no action taken pursuant to this Agreement shall create or be construed to create a trust of any kind, or a fiduciary relationship, between the Company and you, your executor, administrator or other personal representative, or designated beneficiary or any other persons. Any reserves that may be established by the Company in connection with this Agreement shall continue to be part of the general funds of the Company and no individual or entity other than the Company shall have any interest in such funds until paid. If and to the extent that you or your executor, administrator or other personal representative, as the case may be, acquires a right to receive any payment from the Company pursuant to this Agreement, such right shall be no greater than the right of an unsecured general creditor of the Company. 12. Notices You shall be responsible for furnishing the Committee with the current and proper address for the mailing of notices and delivery of agreements, Common Shares and cash pursuant to this Agreement. Any notices required or permitted to be given shall be in writing and deemed given if directed to the person to whom addressed at such address 6 7 and mailed by regular United States mail, first-class and prepaid. If any item mailed to such address is returned as undeliverable to the addressee, mailing will be suspended until you furnish the proper address. Notice may also be given by telegram, telex or cable. Notice shall be effective upon receipt. This provision shall not be construed as requiring the mailing of any notice or notification if such notice is not required under the terms of this Agreement or any applicable law. Notice to the Committee shall be given as follows: BW/IP International, Inc. 200 Oceangate Boulevard, Suite 900 Long Beach, California 90802 Attention: General Counsel 13. Entire Agreement This Agreement embodies the entire agreement and understanding between the Company and you with respect to the subject matter hereof and may not be changed, modified or terminated orally but only by a written instrument executed by the Company and you. The Committee shall have complete discretionary authority to interpret this Agreement in accordance with the provisions of the Plan. 14. Governing Law This Agreement shall be construed and enforced in accordance with, and governed by, the laws of the State of California to the extent not pre-empted by Federal law, which shall otherwise control. 15. Severability of Provisions If any provision of this Agreement shall be held invalid or unenforceable, such invalidity or unenforceability shall not affect any other provisions hereof, and this Agreement shall be construed and enforced as if such provisions had not been included. 16. Payment to Minors etc. Any benefit payable to or for the benefit of a minor, an incompetent person or other person incapable of receipting therefor shall be deemed paid when paid to such person's guardian or to the party providing or reasonably appearing to provide for the care of such person, and such payment shall fully discharge the Committee, the Company and other parties with respect thereto. 7 8 17. Headings and Captions The headings and captions herein are provided for reference and convenience only, shall not be considered part of this Agreement and shall not be employed in the construction of this Agreement. 18. No Right of Employment No action by the Company, the Board or the Committee in establishing or administering this Agreement shall be construed as giving you the right to be retained in the employ of the Company or any Subsidiary. IN WITNESS WHEREOF, the Company and you have duly executed this Agreement. BW/IP INTERNATIONAL, INC. By: /s/P. C. Valli ----------------------- /s/Bernard G. Rethore -------------------------- Bernard G. Rethore 8 9 Employee Name: Bernard G. Rethore Number of Shares:100,000 Option Price: $25.00 1995 STOCK OPTION AGREEMENT This 1995 STOCK OPTION AGREEMENT (the "Agreement"), dated as of October 19, 1995, is between BW/IP International, Inc. a Delaware corporation (the "Company"), and Bernard G. Rethore. The 1992 Long Term Incentive Plan (the "Plan") is intended to provide incentives to executives and other key employees of the Company and its parent or subsidiaries by providing them with opportunities for stock ownership under the Plan. "Subsidiary" means any company of which the Company owns, directly or indirectly, the majority of the combined voting power of all classes of stock. Capitalized terms used in this Agreement and not defined herein shall have the meaning assigned to such terms in the Plan. The Company's Board of Directors (the "Board") has designated its Compensation and Benefits Committee as the committee to administer the Plan (the "Committee"). The Committee has granted to you an option under the Plan to purchase Common Stock, par value $.01 per share ("Common Shares"), of the Company on the terms set forth below. To evidence the option so granted, and to set forth its terms and conditions as provided in the Plan, you and the Company agree as follows: 1. Grant of Option; Option Price The Company hereby evidences and confirms its grant to you on October 19, 1995 of an option (the "Option") to purchase the number of Common Shares shown above at an option price of $25.00 per share which is the fair market value of the optioned shares (as defined in the Plan) on the day the Option was granted. The Option shall be subject to the provisions of the Plan. 10 2. Term for Exercise On October 19, 1998, the Option shall become exercisable, subject to the provision hereof, and shall remain exercisable over the remaining term of the Option. The Option may be exercised from time to time, in whole or in part, up to the number of shares with respect to which it is then exercisable. Except as an earlier expiration date is specified by this Agreement, the Option shall expire at 4:00 P.M., Long Beach, California time, on the tenth anniversary of the date of grant of this Option. Notwithstanding the foregoing, upon the occurrence of a Change in Control (as defined in the Plan), the Option shall become immediately and fully exercisable as to all shares to which the Option relates and shall remain exercisable until expiration or termination of the option. 3. Who May Exercise During your lifetime, the Option may be exercised only by you. If you die during your employment with the Company or a Subsidiary and prior to the expiration date specified in Section 2 hereof, the Option may be exercised to the extent you could have exercised it on the date of your death, by your estate, personal representative or beneficiary who acquired the right to exercise it by will or by the laws of descent and distribution, at any time prior to 4:00 P.M., Long Beach, California time, on the earlier of the expiration date specified in Section 2 or the first anniversary of your death. On the earlier of such expiration date or anniversary, the unexercised portion of the Option shall expire. 4. Exercise after Termination of Employment (a) Permissive Periods of Exercise. If you cease, other than by reason of death, disability or retirement as determined under the Plan, to be employed by the Company or a Subsidiary, the Option shall terminate at 4:00 P.M., Long Beach, California time, on the earlier of the expiration date specified in Section 2 hereof, or the date which is ninety (90) days after the day your employment by the Company or a Subsidiary ends. If you retire in accordance with the terms of the Plan, the Option shall terminate at 4:00 P.M., Long Beach, California time, on the earlier of the expiration date specified in Section 2 hereof, or the third anniversary of the date of your retirement. If you die while an employee, or if your employment terminates by reason of disability while an employee, all Options may, 2 11 unless earlier terminated in accordance with Section 2 hereof, be exercised by you, or by your estate or appropriate representative until the date which is one (1) year after your termination of employment. In the event of any such termination of employment or retirement, any installment not exercisable on the date thereof shall lapse and be thereafter unexercisable. Whether you have retired, and whether authorized leave of absence or absence or military of governmental service may constitute employment, shall be conclusively determined for the purposes of this Agreement by the Committee in its discretion. (b) Forfeiture of Option. Notwithstanding the foregoing, if, after your termination of employment, the Committee determines that, at any time during or after your employment with the Company, you engaged in conduct that (i) would have permitted the Company to terminate your employment for Cause, as defined in Paragraph 7(e) of the Employment Agreement between you and the Company, of even date herewith (the "Employment Agreement"), had you still been employed, or (ii) was in material violation of the covenants contained in Paragraph 8 of the Employment Agreement, or (iii) was intended to aid, assist or otherwise advance the efforts of any person, group or entity in any effort to effect a change of ownership in, or otherwise gain control of, the Company, whether through a stock purchase, merger, asset acquisition, proxy solicitation or any other means, the portion of the Option that is still outstanding at the time of such determination shall terminate and be canceled immediately upon such determination by the Committee. Upon such a determination by the Committee, the Company may disregard any attempted exercise of the Option by notice delivered prior to such determination, if, at such time, the Company had not completed the steps necessary to effect such exercise. In such case, the Company shall only be obligated to return to you any amounts or shares of Common Stock remitted in order to exercise such Option. 3 12 5. Restrictions on Exercise The Option may be exercised only with respect to full shares. No fractional shares shall be issued. The Option shall not be exercised in whole or part: A. if any requisite approval or consent of, or registration with, any governmental authority of any kind having jurisdiction over the exercise of options shall not have been secured; or B. unless the shares subject to the Option shall be effectively listed on each national securities exchange on which the Common Shares are then listed, which listing may be upon official notice of issuance thereof. The Company may, but need not, require as a condition to the exercise of the Option in whole or in part at any time that you represent to the Company in writing that you are acquiring the shares to be acquired upon such exercise for you own account for investment only and not with a view to the distribution thereof. 6. Manner of Exercise To the extent the Option shall be exercisable in accordance with the terms hereof, and subject to such administrative regulations as the Committee may have adopted, the Option may be exercised in whole or from time to time in part by notice in writing to the Committee, specifying the number of shares in respect of which the Option is being exercised and accompanied by, or providing for (if applicable), full payment of the option price (i) in United States dollars in cash or by certified check, bank draft, or postal or express money order, (ii) in Common Shares of the Company, represented by certificates duly endorsed to the Company or its nominee with any requisite transfer tax stamps attached, the fair market value of which shall be equal to the option price for the shares with respect to which the Option is being exercised, or (iii) in a combination of (i) and (ii) above. The fair market value of any Common Shares delivered pursuant to the immediately preceding sentence shall be determined on the basis of the mean of the high and low prices for a Common Share on the Consolidated Trading Tape on the day of the exercise or, if there was no such sale on the day of exercise, on the day next preceding the day of exercise on which there was such a sale. 4 13 In the event that the Option shall be exercised by a person other than you in accordance with the provisions of Section 3 hereof, such person shall furnish the Company with evidence satisfactory to it of his or her right to exercise the same and of payment or provision for the payment of any estate, transfer, inheritance or death taxes payable with respect to the Option or with respect to related shares or payment. The Company may require you or the other person exercising the Option to furnish or execute such documents as the Company shall deem necessary to evidence such exercise, to determine whether registration is then required under the Securities Act of 1933, or to comply with or satisfy the requirements of the Securities Act of 1933 or any other law. In the exercise of your option, with the consent of the Committee, you may elect to use a cashless exercise method through an established arrangement with a stock broker; you may select your own broker or use a special broker arrangement procedure set up by the Company. If you so elect, (i) your election and choice of broker should be included in your notice of exercise; (ii) whereupon, the Company shall deliver the shares with respect to which the option is exercised to the selected broker; (iii) which broker shall, in turn, sell a sufficient number of shares at then-current fair market value to cover (x) the aggregate exercise price of the options and (y) required Federal and state income tax withholding. All remaining shares would be returned to you or disposed of by the broker in accordance with your instructions. 7. Nonassignability The Option is not assignable or transferable except by will or by the laws of descent and distribution to the extent contemplated by Section 3 hereof. At your request, Common Shares purchased on exercise of the Option may be issued or transferred in your name and the name of another person jointly with the right of survivorship. 8. Rights as Shareholder You shall have no rights as a shareholder with respect to any shares covered by the Option until the issuance of a certificate or certificates to you for such shares. No adjustment shall be made for dividends or other rights for which the record date is prior to the issuance of such certificate or certificates. 5 14 9. Capital Adjustments Upon the occurrence of an event described in Section 8 of the Plan, the number and price of the Common Shares covered by the Option, as well as the Option itself, shall be proportionately adjusted in accordance with the terms of that Section. 10. Withholding Taxes The Company shall have the right to deduct withholding taxes from any payments made pursuant to this Agreement or to make such other provisions as it deems necessary or appropriate to satisfy its obligations to withhold Federal, state or local income or other taxes incurred by reason of payments or the issuance of Common Shares under this Agreement. Whenever under this Agreement Common Shares are to be delivered upon exercise of an Option, the Committee shall be entitled to require as a condition of delivery that you remit an amount sufficient to satisfy all Federal, state and other governmental withholding tax requirements related thereto. 11. Agreement Nothing contained in this Agreement and no action taken pursuant to this Agreement shall create or be construed to create a trust of any kind, or a fiduciary relationship, between the Company and you, your executor, administrator or other personal representative, or designated beneficiary or any other persons. Any reserves that may be established by the Company in connection with this Agreement shall continue to be part of the general funds of the Company and no individual or entity other than the Company shall have any interest in such funds until paid. If and to the extent that you or your executor, administrator or other personal representative, as the case may be, acquires a right to receive any payment from the Company pursuant to this Agreement, such right shall be no greater than the right of an unsecured general creditor of the Company. 12. Notices You shall be responsible for furnishing the Committee with the current and proper address for the mailing of notices and delivery of agreements, Common Shares and cash pursuant to this Agreement. Any notices required or permitted to be given shall be in writing and deemed given if directed to the person to whom addressed at such address 6 15 and mailed by regular United States mail, first-class and prepaid. If any item mailed to such address is returned as undeliverable to the addressee, mailing will be suspended until you furnish the proper address. Notice may also be given by telegram, telex or cable. Notice shall be effective upon receipt. This provision shall not be construed as requiring the mailing of any notice or notification if such notice is not required under the terms of this Agreement or any applicable law. Notice to the Committee shall be given as follows: BW/IP International, Inc. 200 Oceangate Boulevard, Suite 900 Long Beach, California 90802 Attention: General Counsel 13. Entire Agreement This Agreement embodies the entire agreement and understanding between the Company and you with respect to the subject matter hereof and may not be changed, modified or terminated orally but only by a written instrument executed by the Company and you. The Committee shall have complete discretionary authority to interpret this Agreement in accordance with the provisions of the Plan. 14. Governing Law This Agreement shall be construed and enforced in accordance with, and governed by, the laws of the State of California to the extent not pre-empted by Federal law, which shall otherwise control. 15. Severability of Provisions If any provision of this Agreement shall be held invalid or unenforceable, such invalidity or unenforceability shall not affect any other provisions hereof, and this Agreement shall be construed and enforced as if such provisions had not been included. 16. Payment to Minors etc. Any benefit payable to or for the benefit of a minor, an incompetent person or other person incapable of receipting therefor shall be deemed paid when paid to such person's guardian or to the party providing or reasonably appearing to provide for the care of such person, and such payment shall fully discharge the Committee, the Company and other parties with respect thereto. 7 16 17. Headings and Captions The headings and captions herein are provided for reference and convenience only, shall not be considered part of this Agreement and shall not be employed in the construction of this Agreement. 18. No Right of Employment No action by the Company, the Board or the Committee in establishing or administering this Agreement shall be construed as giving you the right to be retained in the employ of the Company or any Subsidiary. IN WITNESS WHEREOF, the Company and you have duly executed this Agreement. BW/IP INTERNATIONAL, INC. By: /s/P. C. Valli ------------------------ /s/Bernard G. Rethore --------------------------- Bernard G. Rethore 8 EX-10.EE 11 CONSULTING AGREEMENT DATED DECEMBER 14, 1995 1 EXHIBIT 10.ee CONSULTING AGREEMENT CONSULTING AGREEMENT, dated as of December 14, 1995, by and between BW/IP INC., a Delaware corporation, with its principal place of business at 200 Oceangate Blvd., Long Beach, California (the "Corporation"), and Peter C. Valli ("Consultant"). WHEREAS, Consultant is currently serving as the Chairman of the Board of Directors ("Chairman"), of the Corporation; WHEREAS, the Consultant retired from the offices of President and Chief Executive Officer on October 19, 1995, but is willing to continue as the Chairman and to provide services to the Corporation as an employee until December 31, 1995 and to the Corporation as a Consultant thereafter; NOW, THEREFORE, in consideration of their mutual promises, the Corporation and Consultant agree as follows: 1. Consulting Services. During the period beginning on January 1, 1996 and continuing until May 15, 1997 (the "Consulting Period"), Consultant shall provide to the Corporation consulting services commensurate with his status and experience with respect to such matters as shall be reasonably requested from time to time by the Board, including, without limitation, such assistance as the Board shall request. Consultant shall not, solely by virtue of the consulting services provided hereunder, be considered to be an officer or employee of the Corporation during the Consulting Period, and shall not have the power or authority to contract in the name of or bind the Corporation, except as may be expressly stated in a written delegation of such authority from the Board or as provided in the Corporation's By-laws. 2. Consulting Fees. (a) Cash Compensation. During the Consulting Period, the Corporation shall pay Consultant $200,000 annually, payable in approximately equal monthly installments in arrears, as compensation for the services to be rendered by Consultant hereunder. Such amount shall be in addition to any annual retainer or per meeting fees otherwise payable to the Corporation's non-employee directors, whether paid in cash or in property. (b) Expenses. The Corporation shall also reimburse Consultant for such reasonable travel, lodging and other appropriate expenses incurred 1 2 by Consultant in the course or on account of rendering any services requested of him hereunder by the Board upon submission of itemized reports consistent with good business practices. During the Consulting Period, Consultant shall have available to him in the performance of his duties hereunder the use of the Corporation's membership in the California Club. (c) Director Compensation. Except as otherwise provided above, Consultant shall not be eligible to participate in any compensatory plan or program for non-employee directors. 3. Employee Programs. (a) Benefits Generally. Effective as of December 31, 1995, Consultant's employment with the Corporation shall voluntarily terminate. Except as otherwise expressly provided below, Consultant's continued participation in, or rights to receive compensation or other benefits under, any of the Corporation's employee benefit plans, programs or arrangements (including those plans, programs or arrangements available solely for the benefit of senior officers) shall be governed by the terms and conditions of the applicable plan, program or arrangement. (b) Long-Term Incentive Plan Awards. Solely for purposes of determining Consultant's rights with respect to any grants made under the Company's 1992 Long-Term Incentive Plan (the "LTIP"), Consultant's services hereunder shall be deemed to be employment with the Corporation. Upon completion of the Consulting Period, the exercisability of all of Consultant's then outstanding options under the LTIP shall be fully and immediately exercisable regardless of the initial exercise schedule applicable thereto and Consultant shall be deemed to have retired for purposes of such LTIP. (c) Company Car. As of December 31, 1995, the Corporation shall transfer to Consultant title with respect to the automobile currently made available by the Corporation for his use, without any payment to the Company (other than to satisfy any tax withholding that may be required at law). 4. Confidential Information. Without the prior written consent of the Board, and except to the extent required by an order of a court having competent jurisdiction or under subpoena from an appropriate government agency, Consultant shall not disclose to any third person any trade secrets, customer lists, drawings, designs, product development, marketing plans, sales plans, management organization, operating policies and manuals, business plans, financial records, any information related to any of the foregoing or other financial, commercial, business or technical 2 3 information related to the Corporation or any of its subsidiaries unless such information has been previously disclosed to the public by the Corporation or has become public knowledge other than by Consultant's breach of this Agreement. 5. Noncompetitiion and Nonsolicitation. During the Consulting Period, Consultant shall not be engaged as an employee, director, partner, principal, investor, shareholder, consultant, advisor or independent contractor or in any similar capacity, in any other business activity or conduct, whether or not such business activity or conduct is pursued for gain, profit or other pecuniary advantage, which competes with the business of the Corporation or any of its subsidiaries; provided that nothing in this Paragraph 6(a) shall preclude Consultant from holding a less than 1% interest in the stock of any publicly traded corporation, trust or partnership. During the Consulting Period, Consultant will not solicit or otherwise induce any employee of the Corporation or any of its subsidiaries to leave the employ of the Corporation or any such subsidiary or to become associated, whether as an employee, officer, partner, director, consultant or otherwise, with any other business organization. 6. Indemnity. The Corporation shall indemnify Consultant for any claim arising out of or in connection with Consultant's service as a Consultant or as a member of the Board, as an officer of the Corporation, as an officer or director of any of the Corporation's subsidiaries or as a consultant pursuant to the terms of this Agreement in the same manner and to the same extent as the Corporation or such subsidiary, as the case may be, indemnifies its then current directors, officers or employees, as the case may be. 7. Death or Disability of Consultant. If Consultant dies prior to the end of the Consulting Period or is unable to perform the services requested of him hereunder due to physical or mental disabilities, as determined by a doctor mutually acceptable to the Corporation and Consultant, the Corporation shall have no further obligation to Consultant hereunder. 8. Remedies; Reformation. Consultant acknowledges that a material part of the inducement for the Corporation to enter into this Agreement is Consultant's covenant with respect to noncompetition, nonsolicitation and nondisclosure of confidential information. Consultant agrees that if Consultant shall breach that covenant, the Corporation shall be entitled to such legal and equitable relief as a court or arbitrator shall reasonably determine. If any provision of this Agreement is determined not to be enforceable in the manner set forth herein, the Corporation and Consultant agree that it is the intention of the parties that such provision 3 4 should be enforceable to the maximum extent possible under applicable law and that such provision should be reformed to make it enforceable in accordance with the intent of the parties. 9. Miscellaneous. This Agreement may only be amended by a written instrument signed by the Corporation and Consultant. This Agreement shall constitute the entire agreement between the Corporation and Consultant with respect to the subject matter hereof. The obligations of the Corporation to Consultant and the covenants of Consultant in favor of the Corporation shall survive the termination of Consultant's services hereunder. All cash payments to be made under this Agreement shall be made net of any and all applicable income and employment taxes required to be withheld from such payments. This Agreement may be executed incounterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. 10. Governing Law. This Agreement shall be governed by the laws of the State of Delaware, without reference to the principles of conflicts of law. IN WITNESS WHEREOF, the parties have executed this Agreement effective as of the day first written above. BW/IP INC. By: /s/ Bernard G. Rethore ------------------------- Title: President and Chief Executive Officer Witness: /s/ John D. Hannesson - ---------------------- John D. Hannesson /s/ Peter C. Valli --------------------------- Peter C. Valli Witness: /s/ John D. Hannesson - ---------------------- John D. Hannesson 4 EX-10.FF 12 1996 MANAGEMENT INCENTIVE PLAN 1 EXHIBIT 10.ff BW/IP INTERNATIONAL, INC. 1996 MANAGEMENT INCENTIVE PLAN PURPOSE - ------- The purpose of the BW/IP Management Incentive Plan is to provide key management and professional employees of the Company, its parent and certain subsidiaries, (collectively "BW/IP"). with additional incentive to improve individual and organization performance. The incentive compensation is based on the accomplishment of financial and non-financial goals established to support the Company's business objectives. PLAN SUMMARY - ------------ The BW/IP Management Incentive Plan has several levels of participation, the selection criteria and guidelines for participation at each level are included in the following sections of this plan description. Participation and participation level are generally determined by the position held. To be considered for inclusion the position must afford real opportunity for the individual to have a substantial impact on the performance of the organization. Participation in MIP is at the discretion of the Company. Eligibility, bonus opportunity, and performance criteria will generally be established by the participant's level of responsibility, job size and accountability, and reporting relationship to management and executive level positions but no guarantee of participation or retention at any level is intended by the guidelines outlined in this document. To be considered for inclusion at any level an employee must meet the eligibility requirements; be recommended by an Officer of the Company; and be approved by the President & CEO with further approval by the Compensation and Benefits Committee of the Board of Directors, as may be required. Participation in the Management Incentive Plan does not imply the right to be retained in the employ of BW/IP, nor does it entitle a participant to any right or payment under this plan unless the participant meets the eligibility requirements and appropriate levels of job performance. The Company reserves the right to modify, suspend or terminate the Management Incentive Plan in whole or in part at any time. MANAGEMENT INCENTIVE PLAN - ------------------------- MIP Tiers 1-5 is a cash bonus award plan for executive and key management personnel. Inclusion in these tiers is generally determined by the position but can also be influenced by other factors. Recommendation for participation and assignment of level of participants rests with the President & CEO and with approval of the Compensation and Benefits Committee of the Board as appropriate. 2 The general definition of the five MIP tiers are as follows: TIER 1 CHIEF EXECUTIVE Limited by the plan to the President & CEO. TIER 2 (VACANT) TIER 3 EXECUTIVE OR GENERAL MANAGEMENT This level of participation is for positions that are accountable for the operating results of free-standing businesses, or equivalent, that are not dependent on other units and have command of their resources. These positions and the incumbents have a major impact on overall corporate operating results and are subject only to broad policy and Chief Executive guidance. TIER 4 SELECTED SENIOR DIVISION EXECUTIVES/CORPORATE STAFF OFFICERS The positions in this level are accountable for operating results of several operations or large organization segments, or they have operational and conceptual integration or coordination of activities diverse in nature and objectives in an important management area with corporate-wide impact. These positions generally have international responsibilities with a significant impact on overall corporate operating results. They are subject to functional policies and goals with Chief Executive or General Management direction. TIER 5 KEY LINE MANAGERS/STAFF PROFESSIONALS This level of participation is for positions that are accountable for the operating results of units with manufacturing, sales/marketing or product development, but generally not all three. Typically these operations or functions have P&L responsibility but are not considered free-standing units. Positions in this tier may also have advisory support roles to executive or general management at a corporate or division level in key functional areas such as finance or technology. These positions have responsibility and authority to influence but not control major decisions impacting overall corporate or division operating results. An evaluation of these positions using the BW/IP job evaluation system will usually exceed 1180 Total Points. 2 3 MIP TIERS 6 ~ 7 is a cash bonus award plan for key line management and staff professionals for the operating units or corporate management. Participation in this plan is limited to employees who meet the general eligibility requirements and are not participants in any other BW/IP incentive compensation plan. MIP Tiers 6 & 7 has two levels of participation. Inclusion in these two tiers is generally determined by the position but can also be influenced by other factors. Recommendation for participation and assignment of level of participants rests with the President & CEO and with the approval of the Compensation and Benefits Committee of the Board as appropriate. The general definition of the two MIP tiers is as follows: TIER 6 OPERATIONS LINE MANAGEMENT/KEY DIVISION STAFF Participation at this level is for positions where the performance of the incumbent contributes to the operating results of the Division and Operation. These positions generally report to senior operating or operations management and are responsible for a department or function in an important operating area. An evaluation of these positions using the BW/IP job evaluation system will usually exceed 860 Total Points with at least 230 Accountability points. TIER 7 MID-MANAGERS-LINE/STAFF/PROFESSIONALS Participation at this level is for positions that have any impact on successful operating results of the division's operations. These positions usually report to the general or operations management as manufacturing, technical or administrative department heads. An evaluation of these positions using the BW/IP job evaluation system will exceed 670 Total Points with 175 Accountability points. BONUS POOL - ---------- In addition to the individual bonus limits as established by the Plan, there is an overall Company MIP bonus pool expressed as a percentage of the Company's division operating income (DOI). With the DOI budget generally set at target, the MIP target bonus pool is not to exceed 5% of the Company's DOI. Seventy five percent (75%) of the Company's DOI budget generally constitutes the Minimum performance level producing a bonus pool of approximately 0.6 times the target pool. One hundred twenty five percent (125%) of the Company's DOI budget generally constitutes the Maximum performance level producing a bonus pool of approximately 1.75 times the target pool. In 1996, Target is being set at 8% above 1995 actual for Company and Division's DOI and the pool set accordingly. 85% and 135% of 1995 actual DOI constitutes the minimum and maximum performance levels, respectively, with Bonus Pool set within the limits noted in the paragraph above. Other goals, e.g.: return on capital (ROC), economic value added (EVA), EBIT, cash flow, net earnings or earnings per share (EPS), will have minimums or maximums adjusted according to balance sheet calculations. For 1996, the Bonus Pool for 115% performance above 1995 Actual is set at approximately 15% above the target level pool. Non-Financial and non-DOI related goals may be measured on the traditional basis. If the aggregate guideline bonus calculation exceeds the bonus pool limit, guideline bonuses will be reduced to conform with the limitation. 3 4 BONUS POOL...(CON'T.) - --------------------- In the event the Company does not achieve the Minimum performance level, but an individual division does, a divisional pool may be created subject to approval of the Compensation and Benefits Committee of the Board. The divisional pool is based on historical division's DOI percentage at target. BONUS AWARD GUIDELINES, TARGETS, WEIGHTINGS - ------------------------------------------- For each participant, performance will be measured against financial and non-financial goals established before the beginning of the plan year. Specific targets will be established to support the accomplishment of long and short range goals consistent with the business objectives of the Company. TABLE ONE (attached) provides the anticipated bonus opportunity at selected overall performance levels for each level of participation. The overall performance of the participation will be measured as the weighted accomplishment of financial and non-financial goals of the individual and the operating units appropriate for the individual. Weightings will generally depend on the plan level of the participant following the general guideline that; financial objectives for line managers will generally not constitute less than 70% (for staff managers and professionals, not less than 50%) of the overall weight and individual, non-financial goals will not exceed 30% (50% for staff managers and professionals) of the total weight. TABLE TWO (attached) is a matrix of the weighting by organizational units for each level of participation. PLAN YEAR, BONUS PAYMENT AND PLAN ADMINISTRATION - ------------------------------------------------ The Management Incentive Plan will be administered by the BW/IP International, Inc. Vice President Human Resources. The Management Incentive Plan Year is the calendar year, January through December. Recommendation for participation and determination of goals should be completed before the start of the plan year. Participants who as a result of transfer or promotion become eligible for participation at a different plan level will receive pro-rated awards based on the amount of time spent at each level, provided that a reasonable period (usually three months) was spent in each level. The pro- rated award will be based on the base salary at each level. Employee participants must be on the payroll 31 December to be eligible for a bonus (to be paid by March of the following year). Newly hired employees who are otherwise eligible and recommended for participation will normally be employed prior to July 1st to be included. For each plan level an individual guideline bonus calculated as a percentage of year-ending base salary will be determined based on the participant's performance against established goals. 4 5 PLAN YEAR, BONUS PAYMENT AND PLAN ADMINISTRATION...(CON'T.) - ----------------------------------------------------------- Bonus payment for the plan year will be made no later than 15 March of the following year. The bonus award will be considered as ordinary income and subject to taxes as such. The payment will be included for U.S. pension calculations, but not for insurance or the Capital Accumulation Plan. Other country plans will be governed by local plan rules or local regulations. TERMINATION OF EMPLOYMENT - ------------------------- Termination of employment by resignation or for cause prior to the end of the plan year will result in the loss of eligibility for payment of the bonus award. Termination of employment as a result of retirement, lay-off, or permanent disability may not forfeit eligibility for a bonus award if the participant was eligible for an award for six months prior to the termination at plan year-end. Any exceptions to these requirements will be requested in writing to the Plan Administrator and if the exception is granted, it will be pro-rata payable no later than the normal payment date. 5 6 TABLE ONE - 1996 BONUS AWARD GUIDELINES TIERS 1 - 5 PAYMENT AS A % OF BASE SALARY
Minimum 1994 Target 115% of Maximum 135% Plan Level (*) 85% of '94 Actual DOI Actual DOI 108% of '94 DOI '94 Actual DOI of '94 Actual DOI -------------- --------------------- ---------- --------------- -------------- ----------------- Tier 1 25% 35% 58% 70% 82% Tier 2 22% 30% 50% 60% 72% Tier 3 20% 27% 45% 54% 65% Tier 4 18% 23% 38% 46% 56% Tier 5 13% 17% 28% 34% 40%
(*) For DOI and DOI related calculations. TABLE TWO - RESULTS WEIGHTING GUIDELINES TIERS 1 - 5 UNIT RESULTS AS A % OF OVERALL
BW/IP Total Area or (3) Oper. Individual or Plan Level (1) Div (2) Country (s) Unit (4) Non-Fin'l ---------- --- ------- ----------- -------- --------- Tier 1 70 -- -- -- 30 Tier 2 70 -- -- -- 30 Tier 3 20-70 0-60 -- -- 20-30 Tier 4 20-70 0-60 -- -- 20-30 Tier 5 10 /---------------- -----60(5)----- ---------------\ 30
(1) TOTAL COMPANY includes ROC, EVA, EPS, net earnings, EBIT, and cash flow. (2) TOTAL DIVISION is the results of all operations of the unit worldwide. (3) AREA OR COUNTRY(S) is the results of a geographically or functionally discreet segment of the unit. (4) OPERATING UNIT is the results of the individual manufacturing, sales, or technical operations of the unit, as appropriate. (5) For TIER 5 the 60% Weight will be allocated to the performance area appropriate for the participant's position. 6 7 TABLE ONE - 1996 BONUS AWARD GUIDELINES TIERS 6 & 7 PAYMENT AS A % OF BASE SALARY
Minimum 1994 Target 115% of Maximum 135% Plan Level (*) 85% of '94 Actual DOI Actual DOI 108% of '94 DOI '94 Actual DOI of '94 Actual DOI -------------- --------------------- ---------- --------------- -------------- ----------------- Tier 6 10% 13% 21% 26% 30% Tier 7 7% 9% 15% 18% 20%
(*) For DOI and DOI related calculations. TABLE TWO - RESULTS WEIGHTING GUIDELINES UNIT RESULTS AS A % OF OVERALL
Total Area or (2) Oper. Individual or Plan Level BW/IP (Div(1) Country(s) Unit(3) Non-Fin'l - ---------- ----- ------- ---------- ------- --------- TIER 6 10% /----------------50-70(4)-----------------\ 30-50 TIER 7 /-----------------50-70(4)------------------\ 30-50
NOTES (1) TOTAL DIVISION is the results of all operations of the unit worldwide. Substitute BW/IP for Corporate participants. (2) AREA OR COUNTRY(S) is the results of a geographically or functionally discreet segment of the unit. (3) OPERATING UNIT is the results of the individual manufacturing, sales, or technical operations of the unit, as appropriate. (4) For TIERS 6 & 7 the 50 - 70% Weight will be allocated to the performance area appropriate for the participant's position. Most line managers should have a 70% financial weighting. 7 8 ATTACHMENT SAMPLE CALCULATIONS (1996) - TO BE PREPARED - 8 9 FINANCIALS (CASH FLOW & DIV. OP) % OF TARGET (125%) 75 80 85 90 95 100 105 110 115 120 125 % OF TARGET (120%) 75 80 85 90 95 100 104 108 112 116 120 % OF TARGET (115%) 75 80 85 90 95 100 103 106 109 112 115 % OF SALARY (TIER 5) 13 16 19 21 23 25 30 35 40 45 50 % OF SALARY (TIER 6) 10 12 14 16 17.5 19 22 25 29 33 37 % OF SALARY (TIER 7) 7 9 10 11 12 13 15 17 19 21 23
================================================================================ NON-FINANCIALS
RATING CM C CP OM O OP DM D - -------------------------------------------------------------------------------- % OF SALARY (TIER 5) 13 16 19 22 25 33 41 50 % OF SALARY (TIER 6) 10 13 15 17 19 25 31 37 % OF SALARY (TIER 7) 7 8.5 10 11.5 13 16 19 23
9 10 ATTACHMENT 2 SAMPLE CALCULATIONS (1994) TIER 5 PARTICIPANT MIP
Factors, Weighting & Performance - --------------------------------- Financial Total = 70% Performance Cash Flow 30% 100% Operating Income 20% 95% EPS 20% 115% Non-Financial Total 30% Outstanding Plus "OP" TIER 5 MATRIX (FINANCIALS) - -------------------------- % Target 90 95 100 105 110 115 Salary Factor 25 21 23 25 30 35 40 Calculation - - ------------- Performance (%) (Salary Factor X Weiqht) = % Salary
Salary Perf. Factor Weight Salary --------------------------------------------------------------- Factor 1 Cash Flow 100 .25 X .30 = 7.5% Factor 2 Oper.Income 95 .23 X .20 = 4.6% Factor 3 EPS 115 .40 X .20 = 8.0% Factor 4 Non-Fin'l. 110 .33 X .30 = 9.9% --- TOTAL % SALARY 30.0%
NOTE: THESE ARE PROFORMA CALCULATIONS. Individual bonuses will be calculated on approved charts for their own unit. 10 11 ATTACHMENT 3 SAMPLE CALCULATIONS (1994) TIER 6 PARTICIPANT MIP
Factors, Weighting & Performance - --------------------------------- Financial Total = 70% Performance Total Div. Financials 20% 105% Unit Operating Income 20% 100% Unit Operating Cash Flow 20% 95% Unit Shipments 10% 85% Non-Financial Total 30% Outstanding Minus "OM" TIER 6 MATRIX (FINANCIALS) - -------------------------- % Target 90 95 100 105 110 Salary Factor 16 17.5 19 22 25 Calculation - - ------------- Performance (%) (Salary Factor X Weighting) = % Salary
Salary % Perf. Factor Weight Salary --------------------------------------------------------------- Factor 1 Div. Fin'ls 105 .22 X .20 = 4.4% Factor 2 Init Oper. Inc. 100 .19 X .20 = 3.8% Factor 3 Unit Op. Cash Flow 95 .07 X .20 = 1.4% Factor 4 Unit Shipments 85 .14 X .10 = 1.4% Factor 5 Non-Financials 95 .07 X .30 = 2.1% --- TOTAL % SALARY 13.1%
NOTE: THESE ARE PROFORMA CALCULATIONS. Individual bonuses will be calculated on approved charts for their own unit. 11 EX-13.A 13 1995 ANNUAL REPORT 1 MANAGEMENT'S DISCUSSION AND ANALYSIS OF EXHIBIT 13 FINANCIAL CONDITION AND RESULTS OF OPERATIONS - -------------------------------------------------------------------------------- RESULTS OF OPERATIONS The following discussion should be read in conjunction with the consolidated financial statements of the Company included elsewhere in this document. For additional financial information about the Company's operations by geographic location, see Note 10 to Consolidated Financial Statements. - -------------------------------------------------------------------------------- 1995 COMPARED TO 1994 NET SALES -- IN DOLLARS AND BY PRODUCT MIX
- ----------------------------------------------------------------- 1991 1992 1993 1994 1995 - ----------------------------------------------------------------- NET SALES in millions 392.1 399.3 427.2 448.7 451.2 - ----------------------------------------------------------------- ORIGINAL EQUIPMENT 37% 34% 43% 42% 38% - ----------------------------------------------------------------- AFTERMARKET 63% 66% 57% 58% 62% - -----------------------------------------------------------------
Net sales of $451.2 million for the year ended December 31, 1995, were essentially the same as 1994 net sales of $448.7 million. Net sales in 1995 were negatively impacted by lower sales of original equipment (OE) pumps caused by a continuation of the very competitive environment in the OE sector offset by sales from newly acquired entities of approximately $7 million and an increase in sales of approximately $5 million due to different currency exchange rates. With respect to the sales mix, aftermarket sales increased $22.2 million in 1995 as compared to 1994, offset by a decline in OE sales of $19.7 million over the same period. By geographic region, net sales were down in 1995 as compared to 1994 in Europe and Mexico, offset by increases in the United States, South America and the Pacific Rim. Operating income for the year ended December 31, 1995, was $45.8 million, a decrease of $3.4 million or 6.9% from the comparable period in 1994. Although gross margins improved, these gains were more than offset by higher selling, administrative and operating expenses. Gross profit as a percentage of sales in 1995 increased to 39.2% from 37.7% in 1994 primarily due to a change in mix to the more profitable aftermarket sales and cost reductions, partly as a result of restructuring efforts. Selling, administrative and operating expenses as a percentage of sales in 1995 increased to 29.1% from 26.7% in 1994 primarily due to lower-than-anticipated sales, lower royalty income received, costs associated with acquisitions, expansion in the Pacific Rim and certain sales and marketing initiatives outpacing sales growth. Expenses in 1995 also included a $1.3 million charge in the fourth quarter to further realign personnel in Europe and the United States. Despite higher debt levels, interest expense decreased by $0.2 million for the year ended December 31, 1995, as compared to the corresponding period in 1994. The Company's effective tax rate increased from 36.5% for the year ended December 31, 1994, to 39.0% in 1995. The increase in the effective tax rate resulted primarily from lower foreign tax credits in 1995 as compared to 1994. Order input for the year ended December 31, 1995, was $458.6 million compared with $464.5 million for the corresponding period in 1994. The decrease in input is primarily due to lower OE bookings in the United States and Mexico, offset in large measure by higher 14 2 bookings in Europe and the Pacific Rim. Backlog at December 31, 1995, was $148.2 million compared to $159.4 million at December 31, 1994, principally due to the lower bookings in the United States and Mexico. In October 1994, the Company completed the sale of its Fluid Controls segment. The real property, which was retained, was vacated by the Company's tenant at the end of 1995. The property is currently offered for sale and proceeds are expected to approximate the current carrying value of the property. - -------------------------------------------------------------------------------- 1994 COMPARED TO 1993 BOOKINGS AND BACKLOG -- IN DOLLARS
- ------------------------------------------------------- 1991 1992 1993 1994 1995 - ------------------------------------------------------- BOOKINGS 380.9 451.2 399.6 464.5 458.6 - ------------------------------------------------------- BACKLOG 170.6 199.6 165.1 159.4 148.2 - ------------------------------------------------------- in millions
BOOKINGS -- BY PRODUCT MIX
- ------------------------------------------------------- 1991 1992 1993 1994 1995 - ------------------------------------------------------- - ------------------------------------------------------- ORIGINAL EQUIPMENT 29% 45% 38% 40% 38% AFTER- MARKET 71% 55% 62% 60% 62% - -------------------------------------------------------
Net sales of $448.7 million for the year ended December 31, 1994, were $21.5 million, or 5.0% higher than the corresponding period in 1993. The increase in net sales is attributable to the incremental sales related to the Company's acquisition of Pacific Wietz GmbH & Co. KG (Pacific Wietz) and seal market share growth. The increase in net sales reflects an increase in both aftermarket and OE sales of $14.3 million and $7.2 million, respectively. By geographic region, net sales were down in 1994 as compared to 1993 in the United States, offset by increases in Europe and the Pacific Rim. Operating income for the year ended December 31, 1994, was $49.2 million, an increase of $15.9 million or 47.7% from the comparable period in 1993, however, operating income for 1993 was impacted by a one-time charge of $22.7 million for a restructuring program. Operating income for 1993 before the restructuring charge was $56.1 million, reflecting a decrease in comparable results between 1994 and 1993 of $6.8 million or 12.2%. Although aftermarket sales increased as a percentage of sales to 58% in 1994 from 57% in 1993, a shift in mix within aftermarket sales, and the continued competitive environment within the OE sector, resulted in a decrease in gross profit margin. In addition, gross profit for 1993 reflected favorable experience with respect to warranty costs and the reduction of certain other reserves no longer determined to be necessary. The Company's foreign operations had net sales of $215.7 million in 1994 and $173.2 million in 1993. The increase was due to the acquisition of Pacific Wietz in the first quarter of 1994 and increased sales in the Pacific Rim, Canada and Mexico. Offsetting this increase were lower sales in Europe excluding Pacific Wietz. Export sales from the United States represented 30.0% and 34.1% of domestic sales in 1994 and 1993, respectively. Foreign sales, by country of destination, accounted for approximately 62% and 60% of the Company's net sales in 1994 and 1993, respectively. Results from foreign operations and export sales were not significantly impacted by foreign currency exchange fluctuations during 1994. Selling, administrative and operating expenses increased as a percentage of sales from 26.2% in 1993 to 26.7% in 1994. The increase was primarily due to the first quarter acquisition of Pacific Wietz. Interest expense increased by $0.2 million for the year ended December 31, 1994, as compared to the corresponding period in 1993 because of higher debt levels throughout the year and rising interest rates. The Company's effective tax rate increased from 32.2% for the year ended December 31, 1993, to 36.5% for the corresponding period in 1994. The increase in the effective tax rate reflects lower utilization of foreign tax credits in 1994 as compared to 1993. 15 3 On October 31, 1994, the Company completed the sale of its Fluid Controls segment. Certain assets and liabilities of the segment, including real property and certain accrued employee benefits, were retained by the Company. During 1994, the Company recorded an additional loss from the disposition of $1.9 million, net of tax, or $.08 per share ($2.0 million and $.09 per share in the fourth quarter) primarily to reflect a reduction in the net realizable value of the real property and certain personnel termination costs. Revenues for the discontinued Fluid Controls segment were $23.4 million during fiscal year 1994 (through the date of sale) and $37.5 million during fiscal 1993. Order input for the year ended December 31, 1994, was $464.5 million compared with $399.6 million for the corresponding period in 1993. The increase in input is primarily due to higher bookings in the United States, Mexico, Argentina and from the acquisition of Pacific Wietz, offset by lower bookings in Europe. Pacific Wietz contributed approximately $27 million in bookings in 1994. Backlog at December 31, 1994, was $159.4 million compared to $165.1 million at December 31, 1993, primarily due to lower bookings in Europe. - -------------------------------------------------------------------------------- RESTRUCTURING PLAN The Company continued to implement its restructuring plan initiated in 1993. The restructuring plan was adopted because of continued overcapacity and increased price sensitivity of OE purchasers. The restructuring was designed to substantially reduce the Company's costs and permit the Company to selectively improve its competitive position and profit margins. Based upon these objectives, the plan was designed to create centers of manufacturing excellence by concentrating manufacturing of individual products and components at specialized facilities. In that regard, the Company's plan includes a redistribution of manufacturing operations whereby each factory becomes a specialized facility to design and/or manufacture a specified range of products or component parts. These plans include the opening of a new large-component facility and creation of specialized engineering, assembly and testing facilities. The plan requires personnel realignments, enhancements of manufacturing control systems and other changes that support the overall plan objectives. The plan contemplates a reduction in the Company's work force of approximately 320 employees. The following table summarizes the Company's restructuring reserve:
Machinery Relocation, Asset Disposal Personnel Installation, and and Organizational Costs Related Costs Realignment Costs Total - --------------------------------------------------------------------------------------------------- 1993 restructuring charge $ 10,231 $ 5,310 $ 7,187 $ 22,728 Cash expenditures (636) -- -- (636) - --------------------------------------------------------------------------------------------------- Balance at December 31, 1993 9,595 5,310 7,187 22,092 Cash expenditures (1,922) (591) (954) (3,467) Losses on asset disposals -- -- (739) (739) - --------------------------------------------------------------------------------------------------- Balance at December 31, 1994 7,673 4,719 5,494 17,886 Cash expenditures (3,608) (1,770) (2,959) (8,337) Losses on asset disposals -- -- (1,545) (1,545) - --------------------------------------------------------------------------------------------------- Balance at December 31, 1995 $ 4,065 $ 2,949 $ 990 $ 8,004 ===================================================================================================
16 4 Personnel costs include costs for realigning various employee groups to support the focused factory concept, including termination, relocation and training or retraining of employees. Machinery relocation, installation and related costs include costs for moving production equipment among the various facilities, as well as costs to install such equipment, bring such equipment into full production, and other related costs. Asset disposal and organizational realignment costs include estimated losses related to the disposal of property, plant and equipment, and the costs for realigning certain support functions. Based on information currently available, the Company estimates that the remaining balance of the restructuring reserve is sufficient to allow it to complete its restructuring plan. Future non-cash charges are not expected to be significant. Activities to date include cash expenditures related to benefits paid to terminated employees (275 to date), the shutdown of the Company's Fresno, California, plant, employee training or retraining and losses related to the disposal of property, plant and equipment. In addition, during 1995 the Company completed construction of its new large-component facility in Albuquerque, New Mexico. The new facility became operational in January 1996. It is currently estimated that the majority of the remaining cash expenditures will be incurred and noncash charges will be recognized during 1996. In addition to the above costs, the Company is also committed to an integrated plan of capital expenditures designed to support the goals of the restructuring. Expenditures were incurred primarily to support the development of the new large-component manufacturing facility, and the addition of new, more efficient state-of-the-art machine tools in this factory, as well as more modern manufacturing machinery and support systems in selected other facilities. These expenditures are expected to continue into 1996, and are incremental to ongoing capital expenditures. The benefits of the restructuring and capital expenditures are being realized as the contemplated changes are implemented. The ultimate savings generated by the restructuring will depend upon both current and future market conditions, many of which cannot be precisely quantified. Cost benefits relating to staff reductions are realized almost immediately, while the full benefits from new facilities, machinery and systems are realized over time as people move up the learning curve. Benefits arising from new facilities, machinery and systems started to be recognized during late 1995 and will continue in 1996 and beyond. - -------------------------------------------------------------------------------- LIQUIDITY AND CAPITAL RESOURCES Cash flow from operations, credit available under its credit agreements and customer progress payments are the Company's primary sources of short-term liquidity. During 1995, the Company generated $26.2 million of net funds from operating activities, a decrease of $6.3 million over the comparable period in 1994. During the year ended December 31, 1994, the Company generated $32.5 million of net funds from operating activities, an increase of $5.6 million from the comparable period in 1993. Cash flow in 1995 was impacted, and will continue to be impacted in 1996, by the restructuring program previously discussed. Capital expenditures in 1996, including those for restructuring, are expected to be at the $25 - 28 million level, decreasing to the $16 - 18 million level in 1997. 17 5 At December 31, 1995, the Company had outstanding under its domestic and Dutch credit facilities borrowings totaling $49.0 million and letters of credit totaling $14.2 million, and had $46.1 million available for borrowing thereunder. In addition, the Company has other uncommitted, unsecured revolving credit facilities totaling $45.6 million, under which $0.2 million was outstanding as of December 31, 1995. In December 1995, the Company extended the terms of its domestic credit facility to December 2000. As of December 31, 1995, the Company had outstanding $25.1 million of obligations relating to Dutch bank guarantees and domestic performance bonds. Interest on the Company's outstanding senior notes is fixed at 7.92%. However, all of the Company's borrowings under its other senior credit facilities are currently at floating interest rates. Interest costs are therefore subject to significant change depending upon the movement of short-term interest rates. During the year ended December 31, 1995, the Company spent $26.6 million on capital expenditures primarily to support the restructuring plan, equipment renewal and replacement and service center expansion. Capital expenditures totaled $12.1 million for 1994 and $16.4 million for 1993, primarily for service center expansion and renewal or replacement of existing equipment. The Company spent approximately $6.6 million on Company-sponsored research and development during 1995 and approximately $5.3 million in 1994. The Company believes that funds provided by operations together with existing or replacement credit facilities will be sufficient for the Company to meet its liquidity needs and support its dividend policy over the next three years, the period covered by the Company's planning cycle. - -------------------------------------------------------------------------------- INFLATION Inflation during the past three years has had little impact on the Company's financial performance. - -------------------------------------------------------------------------------- NEW ACCOUNTING PRONOUNCEMENT In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS No. 123). SFAS No. 123 must be adopted by the Company in 1996 and establishes a new optional method of accounting for stock-based compensation plans and for transactions in which an entity issues its equity instruments to acquire goods and services from nonemployees. However, SFAS No. 123 allows the Company to continue to account for its plans under its existing method. As such, the Company does not expect adoption of SFAS No. 123 to have a significant impact on the Company's consolidated results of operations or financial position. Pro forma disclosures of the differences between the new optional method and the Company's existing method will be included in the 1996 Notes to Consolidated Financial Statements. 18 6 FIVE-YEAR SELECTED FINANCIAL DATA
December 31 Amounts in thousands, except per share amounts, ----------------------------------------------------------------------- ratios and number of employees 1995 1994 1993 1992 1991 - ----------------------------------------------------------------------------------------------------------------------------------- OPERATIONS Net sales $ 451,191 $ 448,719 $ 427,192 $ 399,289 $ 392,101 Restructuring charge -- -- 22,728 -- -- Operating income 45,814 49,228 33,330 71,289 69,714 Interest expense, net 6,075 6,280 6,091 9,019 16,342 Income from continuing operations before income taxes, extraordinary items and cumulative effects of accounting changes 38,290 42,262 26,351 61,064 44,438 Income from continuing operations before extraordinary items and cumulative effects of accounting changes 23,349 26,836 17,854 40,807 28,834 Discontinued operations, net of tax -- (1,851) (13,509) 1,683 2,400 Net income 23,349 24,985 4,345 24,024 31,234 Bookings $ 458,620 $ 464,465 $ 399,562 $ 451,236 $ 380,850 Backlog 148,155 159,429 165,129 199,605 170,577 COMMON STOCK Shares outstanding - end of year 24,275 24,275 24,275 24,275 24,275 Average shares outstanding 24,275 24,275 24,275 24,275 22,694 Income per share: From continuing operations before extraordinary items and cumulative effects of accounting changes $ .96 $ 1.11 $ .74 $ 1.68 $ 1.27 Discontinued operations -- (.08) (.56) .07 .11 Net income per share .96 1.03 .18 .99 1.38 Dividends declared per share .43 .38 .30 .2175 .075 FINANCIAL DATA Working capital $ 116,774 $ 108,381 $ 122,881 $ 106,292 $ 109,650 Capital expenditures 26,611 12,143 16,368 13,705 14,469 Depreciation and amortization 13,754 13,050 11,518 10,603 9,787 Total assets 405,747 367,894 341,288 327,822 331,681 Total debt 83,011 65,074 64,082 67,476 101,518 Stockholders' equity 179,474 165,914 146,391 152,793 139,731 Total debt to total capital 31.6% 28.2% 30.4% 30.6% 42.1% Return on average equity(1) 13.5% 17.2% 11.9% 27.9% 33.5% Return on average capital(1) 9.5% 12.2% 8.3% 17.7% 13.3% Number of employees - end of year 3,002 2,967 3,105 3,155 3,084 ===================================================================================================================================
(1)Based on income from continuing operations. 19 7 CONSOLIDATED BALANCE SHEETS
December 31 ----------- Dollar amounts in thousands, except per share data 1995 1994 - ------------------------------------------------------------------------------------------------------------- ASSETS Current assets: Cash and cash equivalents $ 9,162 $ 9,152 Accounts and notes receivable, net 110,215 111,390 Inventories 85,381 70,927 Deferred income taxes 12,649 13,522 Other, including net assets held for disposition (Note 2) 9,813 8,552 - ------------------------------------------------------------------------------------------------------------- Total current assets 227,220 213,543 Property, plant and equipment, net 106,251 94,909 Goodwill (net of accumulated amortization at December 31, 1995 and 1994 of $6,556 and $4,952) 53,835 45,380 Other assets 18,441 14,062 - ------------------------------------------------------------------------------------------------------------- Total assets $ 405,747 $ 367,894 ============================================================================================================= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt $ 8,836 $ 12,101 Accounts payable 42,955 38,166 Accrued liabilities 54,292 54,445 Accrued and deferred income taxes 4,363 450 - ------------------------------------------------------------------------------------------------------------- Total current liabilities 110,446 105,162 Long-term debt 74,175 52,973 Other long-term liabilities 33,645 41,301 Deferred income taxes 8,007 2,544 Commitments and contingencies Stockholders' equity: Preferred stock, $.01 par value; 10,000,000 shares authorized and unissued -- -- Common stock, $.01 par value; 40,000,000 shares authorized; 24,450,000 shares issued and outstanding 245 245 Paid-in capital 85,763 85,763 Retained earnings 92,008 79,097 Cumulative translation adjustment 2,071 1,422 - ------------------------------------------------------------------------------------------------------------- 180,087 166,527 Less common stock in treasury; 175,000 shares, at cost (613) (613) - ------------------------------------------------------------------------------------------------------------- Total stockholders' equity 179,474 165,914 - ------------------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $ 405,747 $ 367,894 ============================================================================================================= See accompanying notes to consolidated financial statements.
20 8 CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
For the year ended December 31 ------------------------------ Dollar amounts in thousands, except per share data 1995 1994 1993 - ---------------------------------------------------------------------------------------------------------------- Net sales $ 451,191 $ 448,719 $ 427,192 Cost of sales 274,244 279,630 259,157 - ---------------------------------------------------------------------------------------------------------------- Gross profit 176,947 169,089 168,035 Selling, administrative and operating expenses 131,133 119,861 111,977 Restructuring charge (Note 3) -- -- 22,728 - ---------------------------------------------------------------------------------------------------------------- Operating income 45,814 49,228 33,330 Interest expense, net 6,075 6,280 6,091 Other expenses 1,449 686 888 - ---------------------------------------------------------------------------------------------------------------- Income from continuing operations before income taxes 38,290 42,262 26,351 Provision for income taxes 14,941 15,426 8,497 - ---------------------------------------------------------------------------------------------------------------- Income from continuing operations 23,349 26,836 17,854 Discontinued operations, net of tax (Note 2) -- (1,851) (13,509) - ---------------------------------------------------------------------------------------------------------------- Net income 23,349 24,985 4,345 Retained earnings at beginning of year 79,097 63,337 66,275 Dividends declared (10,438) (9,225) (7,283) - ---------------------------------------------------------------------------------------------------------------- Retained earnings at end of year $ 92,008 $ 79,097 $ 63,337 ================================================================================================================ Income per share: From continuing operations $ .96 $ 1.11 $ .74 Discontinued operations -- (.08) (.56) - ---------------------------------------------------------------------------------------------------------------- Net income per share (Note 6) $ .96 $ 1.03 $ .18 ================================================================================================================ Dividends declared per share (Note 5) $ .43 $ .38 $ .30 ================================================================================================================ Weighted average number of shares outstanding 24,275,000 24,275,000 24,275,000 ================================================================================================================ See accompanying notes to consolidated financial statements.
21 9 CONSOLIDATED STATEMENTS OF CASH FLOWS
For the year ended December 31 ------------------------------ Dollar amounts in thousands 1995 1994 1993 - -------------------------------------------------------------------------------------------------------------------------------- Cash flows from operating activities: Net income $ 23,349 $ 24,985 $ 4,345 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 13,754 14,207 12,859 Amortization of goodwill and debt issuance costs 1,604 1,534 1,066 Loss on disposition of segment -- 3,411 18,065 Deferred taxes (2,589) (3,886) 8,765 Other changes in assets and liabilities: Accounts and notes receivable 2,382 (9,731) (10,905) Inventories (14,543) 11,696 (18,357) Other current assets (332) (5,138) 3 Accounts payable and accrued liabilities 3,332 4,015 16,503 Other (761) (8,545) (5,383) - -------------------------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 26,196 32,548 26,961 - -------------------------------------------------------------------------------------------------------------------------------- Cash flows from investing activities: Capital expenditures (26,611) (12,143) (16,368) Acquisitions and disposition, net (9,306) (15,012) -- Other 1,618 4,311 (3,260) - -------------------------------------------------------------------------------------------------------------------------------- Net cash used in investing activities (34,299) (22,844) (19,628) - -------------------------------------------------------------------------------------------------------------------------------- Cash flows from financing activities: Net borrowings (payments) under credit agreements 30,000 8,000 (2,000) Payment of senior notes (8,333) (8,333) -- Dividends paid (10,196) (8,739) (6,797) Other (2,963) (443) (646) - -------------------------------------------------------------------------------------------------------------------------------- Net cash provided by (used in) financing activities 8,508 (9,515) (9,443) - -------------------------------------------------------------------------------------------------------------------------------- Effect of exchange rate changes on cash (395) 1,292 (433) - -------------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents 10 1,481 (2,543) Cash and cash equivalents at beginning of year 9,152 7,671 10,214 - -------------------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of year $ 9,162 $ 9,152 $ 7,671 ================================================================================================================================ Supplemental disclosure of cash flow information: Cash paid for: Interest $ 8,082 $ 7,158 $ 7,311 Income taxes 8,576 14,660 15,773 Non-cash financing activities: Dividends declared but not paid $ 2,670 $ 2,428 $ 1,942 ================================================================================================================================ See accompanying notes to consolidated financial statements.
22 10 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Dollar amounts in thousands, except per share data - -------------------------------------------------------------------------------- NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation BW/IP, Inc. (formerly known as BWIP Holding, Inc.) is the parent company of BW/IP International, Inc. (BW/IP). Unless the context otherwise requires, references herein to "the Company" are to BW/IP, Inc. and BW/IP International, Inc. and its consolidated subsidiaries. The Company and its affiliates manufacture and sell industrial pumps and seals on a global basis. The consolidated financial statements include the accounts of the Company and majority-owned subsidiaries. Investments in companies where ownership is 50% or less are accounted for on the equity method. All significant intercompany balances and transactions have been eliminated in consolidation. The preparation of financial statements requires management to make estimates and assumptions that significantly impact financial statement presentation and a number of the individual balances shown therein. Cash Equivalents For purposes of presenting the consolidated statements of cash flows, short-term investments, which have a maturity of 90 days or less at the time of purchase, are considered to be cash equivalents. The carrying amount of cash equivalents approximates fair value. Inventories Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out (FIFO) method. Property, Plant and Equipment Property, plant and equipment are stated at cost, net of accumulated depreciation and amortization. Expenditures for maintenance and repairs are charged to expense as incurred. Renewals or betterments of significant items are capitalized. When assets are sold or otherwise disposed of, the cost and related accumulated depreciation or amortization are removed from the respective accounts, and any resulting gain or loss is recognized. Depreciation and amortization of property, plant and equipment are provided for using the straight-line method over the estimated useful lives of the assets as follows: - ------------------------------------------------- Buildings and improvements 5 to 35 years Machinery and equipment 3 to 12 years Capital lease assets 5 to 25 years - -------------------------------------------------
Income Taxes The Company uses the liability method of accounting for income taxes. Deferred tax liabilities and assets are determined based on applying enacted tax rates to differences between the financial statement and tax bases of assets and liabilities. Provision is made for withholding taxes and income taxes, if appropriate, on the unremitted earnings of joint ventures and foreign subsidiaries which are not considered to be permanently reinvested. Tax credits are accounted for under the flow-through method. 23 11 Research and Development Expenditures for research and development are charged to expense in the year incurred. Such costs were $6.6 million in 1995, $5.3 million in 1994 and $4.2 million in 1993. Foreign Currency Translation The assets and liabilities of the Company's foreign operations are translated at the end-of-period exchange rates; revenues and expenses are translated at the average exchange rates prevailing during the period. The effects of unrealized exchange rate fluctuations on translating foreign currency assets and liabilities into U.S. dollars are accumulated in stockholders' equity. The cumulative translation adjustment increased $0.6 million in 1995 and $3.8 million in 1994 and decreased $3.5 million in 1993. Forward Contracts The Company is party to forward contracts in order to hedge certain transactions denominated in foreign currencies. Gains and losses on forward contracts qualifying as hedges are deferred and included in the measurement of the related foreign currency transaction. The Company is exposed to credit-related losses in the event of nonperformance by counterparties to financial instruments, but it expects all counterparties to meet their obligations given their high credit ratings. As of December 31, 1995, the Company had outstanding $14.2 million of foreign currency forward contracts, the majority of which were in Dutch Guilders, and which mature within sixteen months. Deferred gains and losses on hedging transactions were not significant at December 31, 1995. Contract Revenues and Costs Revenues and costs pertaining to contracts are recognized as units are shipped. Unbilled costs are included in inventory. Progress billings are shown as a reduction of inventory unless such billings are in excess of accumulated costs, in which case, such balances are included in accrued liabilities. Goodwill The excess of cost over the fair value of net assets of purchased subsidiaries is amortized on the straight-line basis over not more than 40 years. Permanent diminutions in value, if any, are recognized immediately. Concentrations of Credit Risk The Company places its temporary cash investments with financial institutions and, by policy, limits the amount of credit exposure to any one financial institution. A limited concentration of credit risk exists because much of the Company's business is with entities involved in the power and petroleum industries. Such risk, however, is limited due to the large number of customers comprising the Company's customer base and the dispersion of the Company's customers across many different geographic regions. As of December 31, 1995, the Company does not believe that it had significant concentrations of credit risk. 24 12 Reclassifications In 1995, the Company changed its method of presenting cash flows from the "direct" method to the "indirect" method as defined under Statement of Financial Accounting Standards No. 95, "Statement of Cash Flows." All prior years have been reclassified to reflect the change in presentation. In addition, certain reclassifications have been made to the 1994 and 1993 consolidated financial statements to conform to the 1995 presentation. - -------------------------------------------------------------------------------- NOTE 2 ACQUISITIONS AND DISPOSITION During 1995, the Company acquired certain product lines of Wilson-Snyder. In 1994, the Company acquired Pacific Wietz GmbH & Co. KG and Five Star Seal Corporation. These acquisitions are in keeping with the Company's goals for strategic long-term growth. The acquisitions were accounted for by the purchase method of accounting and the results of operations of the acquired companies are included in the Company's consolidated statements of income and retained earnings subsequent to the date of acquisition. The acquisitions did not have a significant impact on the Company's consolidated financial position or results of operations. In October 1994, the Company completed the sale of its Fluid Controls segment. Certain assets and liabilities of the segment, including real property and certain accrued employee benefits, were retained by the Company. During 1994, the Company recorded an additional loss from the disposition of $1.9 million, net of tax, or $.08 per share. When the decision to dispose of the segment was made in late 1993, the Company recorded an estimated loss on disposition of $15.2 million, net of tax, or $.63 per share. The estimated loss on disposition in 1993 was partially offset by income from the operations of the discontinued business of $1.7 million, net of tax, or $.07 per share. Losses recorded in 1994 related primarily to a reduction in the net realizable value of real property and certain personnel termination costs. The real property was vacated by the Company's tenant in 1995 and is currently offered for sale. Proceeds are expected to approximate the current carrying value of the property. Revenues for the discontinued Fluid Controls segment were $23.4 million during 1994 (through the date of sale) and $37.5 million during 1993. - -------------------------------------------------------------------------------- NOTE 3 RESTRUCTURING CHARGE The Company continued to implement its restructuring plan initiated in 1993. The restructuring plan was adopted because of continued overcapacity and increased price sensitivity of original equipment purchasers. The restructuring was designed to substantially reduce the Company's costs and permit the Company to selectively improve its competitive position and profit margins. Based upon these objectives, the plan was designed to create centers of manufacturing excellence by concentrating manufacturing of individual products and components at specialized facilities. In that regard, the Company's plan includes a redistribution of manufacturing operations whereby each factory becomes a specialized facility to design and/or manufacture a specified range of products or component parts. These plans include the opening of a new large-component facility and creation of specialized engineering, assembly and testing facilities. The plan requires personnel realignments, enhancements of manufacturing control systems and other changes that support the overall plan objectives. The plan contemplates a reduction in the Company's work force of approximately 320 employees. 25 13 The following table summarizes the Company's restructuring reserve:
Machinery Relocation, Asset Disposal Personnel Installation, and and Organizational Costs Related Costs Realignment Costs Total - ------------------------------------------------------------------------------------------------------------------ 1993 restructuring charge $ 10,231 $ 5,310 $ 7,187 $ 22,728 Cash expenditures (636) -- -- (636) - ------------------------------------------------------------------------------------------------------------------ Balance at December 31, 1993 9,595 5,310 7,187 22,092 Cash expenditures (1,922) (591) (954) (3,467) Losses on asset disposals -- -- (739) (739) - ------------------------------------------------------------------------------------------------------------------ Balance at December 31, 1994 7,673 4,719 5,494 17,886 Cash expenditures (3,608) (1,770) (2,959) (8,337) Losses on asset disposals -- -- (1,545) (1,545) - ------------------------------------------------------------------------------------------------------------------ Balance at December 31, 1995 $ 4,065 $ 2,949 $ 990 $ 8,004 ==================================================================================================================
Personnel costs include costs for realigning various employee groups to support the focused factory concept, including termination, relocation and training or retraining of employees. Machinery relocation, installation and related costs include costs for moving production equipment among the various facilities, as well as costs to install such equipment, bring such equipment into full production, and other related costs. Asset disposal and organizational realignment costs include estimated losses related to the disposal of property, plant and equipment, and the costs for realigning certain support functions. Based on information currently available, the Company estimates that the remaining balance of the restructuring reserve is sufficient to allow it to complete its restructuring plan. Future non-cash charges are not expected to be significant. Activities to date include cash expenditures related to benefits paid to terminated employees (275 to date), the shutdown of the Company's Fresno, California, plant, employee training or retraining and losses related to the disposal of property, plant and equipment. In addition, during 1995 the Company completed construction of its new large-component facility in Albuquerque, New Mexico. The new facility became operational in January 1996. - -------------------------------------------------------------------------------- NOTE 4 INCOME TAXES
For the year ended December 31 ------------------------------ 1995 1994 1993 - ------------------------------------------------------------------------------------------------------------- Income from continuing operations before income taxes was taxed within the following jurisdictions: Domestic $ 18,434 $ 19,348 $ 5,893 Foreign 19,856 22,914 20,458 - ------------------------------------------------------------------------------------------------------------- $ 38,290 $ 42,262 $ 26,351 ============================================================================================================= Taxes (benefits) on income from continuing operations were provided as follows: Current Federal $ 2,561 $ 893 $ 6,462 State 1,432 1,494 2,042 Foreign 7,508 8,044 8,813 - ------------------------------------------------------------------------------------------------------------- 11,501 10,431 17,317 - ------------------------------------------------------------------------------------------------------------- Deferred Federal 1,051 1,889 (6,960) State 527 651 (614) Foreign 1,862 2,455 (1,246) - ------------------------------------------------------------------------------------------------------------- 3,440 4,995 (8,820) - ------------------------------------------------------------------------------------------------------------- $ 14,941 $ 15,426 $ 8,497 =============================================================================================================
26 14
December 31 A summary of components of deferred tax assets ----------- and liabilities is as follows: 1995 1994 - ------------------------------------------------------------------------------------------------------------------ Deferred tax assets: Postretirement benefits $ 7,655 $ 7,721 Restructuring charge 3,164 7,249 Loss on disposition of segment 2,930 3,317 Inventories 2,515 1,803 Pension and other 3,909 1,185 Warranty and accrued liabilities 2,623 4,376 - ------------------------------------------------------------------------------------------------------------------ Total deferred tax assets 22,796 25,651 - ------------------------------------------------------------------------------------------------------------------ Deferred tax liabilities: Property, plant and equipment 7,367 8,388 Goodwill 5,193 2,800 Other 1,847 3,485 - ------------------------------------------------------------------------------------------------------------------ Total deferred tax liabilities 14,407 14,673 - ------------------------------------------------------------------------------------------------------------------ Net deferred tax asset $ 8,389 $ 10,978 ==================================================================================================================
For the year ended December 31 Reconciliation of the effective income tax rate ------------------------------ with the statutory federal income tax rate is as follows: 1995 1994 1993 - ------------------------------------------------------------------------------------------------------------------- Federal income tax rate 35.0% 35.0% 35.0% Foreign earnings taxed at different rates, including withholding taxes 4.9 5.3 5.3 State income taxes, net of federal income tax benefit 3.8 3.9 2.9 Utilization of tax credits (6.3) (7.8) (10.2) Other 1.6 0.1 (0.8) - ------------------------------------------------------------------------------------------------------------------- 39.0% 36.5% 32.2% ===================================================================================================================
No taxes have been provided relating to the possible distribution of certain undistributed earnings considered to be permanently reinvested, primarily in The Netherlands. The amount of such additional taxes that would be payable if such earnings were distributed is estimated to be approximately $16 million. - -------------------------------------------------------------------------------- NOTE 5 DEBT AND LEASE OBLIGATIONS
December 31 ----------- 1995 1994 - ------------------------------------------------------------------------------------------------------------------ Credit Agreements; average interest rate 7.1% in 1995 and 6.0% in 1994 $ 49,242 $ 21,530 7.92% Senior Notes; payable $8,333 in 1996 through 1999; interest payable semi-annually 33,333 41,667 Capital lease obligations 436 1,177 Other -- 700 - ------------------------------------------------------------------------------------------------------------------ 83,011 65,074 Less current maturities (8,836) (12,101) - ------------------------------------------------------------------------------------------------------------------ Total long-term debt $ 74,175 $ 52,973 ==================================================================================================================
Aggregate maturities of long-term debt are as follows: 1996 $ 8,836 1997 8,472 1998 8,369 1999 8,334 2000 49,000 - ------------------------------------------------------------------------------------------------------------------ $ 83,011 ==================================================================================================================
The carrying value of the Company's long-term debt approximates fair value. 27 15 Credit Agreements In December 1995, the Company renegotiated its domestic credit agreement. The new agreement is an unsecured $100 million, five-year facility extending through December 2000. Borrowings under the agreement are at various floating interest rates. The domestic credit agreement also provides for the issuance of letters of credit, which are deemed to be borrowings for purposes of determining available credit thereunder. In addition, at the discretion of the financial institutions, the Company has a $50 million, uncommitted option to increase the borrowings under the agreement. The Dutch credit agreement, available to the Company's Dutch subsidiary, is a 50 million Dutch Guilder ($31.1 million as of December 31, 1995) unsecured revolving credit facility of which 35 million Dutch Guilders ($21.8 million as of December 31, 1995) are restricted to the issuance of letters of credit and bank guarantees for the benefit of the Company's foreign subsidiaries. The Dutch credit agreement may be canceled, and all borrowings thereunder become due, at the option of the lender upon six-months' notice. Borrowings under this agreement are at variable interest rates and are guaranteed by the Company. At December 31, 1995, the Company had outstanding under its new domestic and Dutch credit agreements borrowings totaling $49.0 million and letters of credit totaling $14.2 million, and there was $46.1 million available for borrowing thereunder. In addition, the Company has other uncommitted, unsecured revolving credit facilities totaling $45.6 million, under which $0.2 million was outstanding as of December 31, 1995. As of December 31, 1995, the Company had outstanding $25.1 million of obligations relating to Dutch bank guarantees and domestic performance bonds. The provisions of the credit agreements require the Company to maintain specified financial covenants that are defined in the agreements. The agreements also contain limitations or restrictions relating to new indebtedness and liens, disposition of assets and payment of dividends or other distributions. Senior Notes In May 1992, the Company issued $50 million principal amount of senior notes to certain institutional investors, pursuant to separate but substantially identical note agreements. The senior notes bear interest at 7.92% per annum, payable each May 15 and November 15. Overdue payments accrue interest at the greater of 9.92% or two percentage points over the prevailing prime rate. The senior notes require annual payments of $8.3 million through May 15, 1999. The senior notes are also subject to optional prepayment by the Company, in whole or in part, on at least 30 days' notice, upon payment of a "make-whole" premium designed to compensate the holders of prepaid senior notes for any shortfall between the rate of interest borne by the senior notes and the reinvestment rate prevailing as of such prepayment (determined on the basis of securities with a weighted average life to maturity corresponding to the senior notes prepaid). Any such optional prepayment will be applied against the Company's obligation to make mandatory payments on the senior notes in inverse chronological order. Optional prepayments are required to be applied ratably among the senior notes, although the Company has the right to optionally prepay (with a make-whole premium) those holders of senior notes that fail to grant their consent to certain business transactions or covenant modifications or waivers. An amount equal to the make-whole premium is also payable in the event the senior notes are accelerated upon an event of default under the note agreements. 28 16 Leases The Company is obligated under various capital leases for office and manufacturing space and certain machinery and equipment. The Company also leases office and service center space, machinery, equipment and automobiles under non-cancelable operating leases. Rental expense relating to operating leases was $4.7 million in 1995, $5.2 million in 1994 and $6.8 million in 1993. The present value of future minimum capital lease payments and future minimum lease payments under non-cancelable operating leases as of December 31, 1995, are:
Capital Operating Leases Leases - ------------------------------------------------------------------------------------------------------------------ 1996 $ 280 $ 5,326 1997 148 4,892 1998 37 4,002 1999 -- 3,469 2000 -- 1,617 Later years -- 3,067 - ------------------------------------------------------------------------------------------------------------------ 465 $ 22,373 ================================================================================================================== Less amount representing interest at rates varying from 6% to 14% (29) - ------------------------------------------------------------------------------------------------------------------ Present value of minimum capital lease payments 436 Less current portion (261) - ------------------------------------------------------------------------------------------------------------------ Capital lease obligations -- non-current $ 175 ==================================================================================================================
Resrtiction of Net Assets of Subsidiary The Company's domestic credit agreement and senior notes restrict the payment of dividends by BW/IP to BW/IP, Inc. (and thereby limit BW/IP, Inc.'s ability to pay dividends on its common stock) except in certain specific circumstances or unless certain financial tests are met. As of December 31, 1995, after giving effect to dividends declared to date, approximately $37 million is available for the payment of dividends by BW/IP to BW/IP, Inc. pursuant to its most restrictive covenants. - -------------------------------------------------------------------------------- NOTE 6 STOCKHOLDERS' EQUITY Option Plans In 1992, the stockholders of the Company approved the BW/IP International, Inc. 1992 Long-Term Incentive Plan (the "LTI Plan"). Under the LTI Plan, the Company may grant incentive and non-qualified stock options and performance units to officers and other key employees with respect to a maximum of 1,000,000 shares of Company common stock. Stock options are granted at fair market value of the Company's common stock at the date of grant, become exercisable commencing on the third anniversary of the grant thereof, and expire in 10 years. Performance units are granted to cover a period of three or more full fiscal years of the Company, beginning in the year in which the units are granted. For each performance period, a contingent value is assigned to the units, the final realizable value being dependent upon the degree to which performance objectives are met. 29 17 Activity under the LTI Plan for the years ended December 31, 1995, 1994 and 1993, is as follows:
Number Number Unit of Options Option Price of Units Value - ------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1992 103,700 $ 27.31 9,320 $ 100 Options granted 121,000 26.50 -- -- Units awarded -- -- 10,600 100 - ------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1993 224,700 26.50-27.31 19,920 100 Options granted 175,300 19.50 -- -- Units awarded -- -- 10,120 100 Options/Units forfeited/expired (27,450) 19.50-27.31 (11,120) 100 - ------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1994 372,550 19.50-27.31 18,920 100 Options granted 573,200 15.88-25.00 -- -- Units awarded -- -- -- -- Options/Units forfeited/expired -- -- (17,360) 100 - ------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1995 945,750 $15.88-27.31 1,560 $ 100 =========================================================================================================================
There are no charges to income in connection with the issuance of options and provisions for performance units awarded were not significant in 1995, 1994 or 1993. For income per share purposes, the options are considered common stock equivalents; however, they are anti-dilutive and are therefore not included in the calculation of income per share. During 1993 , the stockholders approved the Non-Employee Directors' Stock Option Plan, which provides for the granting of up to 125,000 stock options. Options vest 50% on the first anniversary of the date of grant and the remaining 50% on the second anniversary of the date of grant and are exercisable for 10 years. Options granted in 1995, 1994 and 1993 totaled 15,000, 10,000 and 25,000, respectively, and were at fair market value. Purchase Rights Plan On July 27, 1993, the Company's Board of Directors adopted a Preferred Stock Purchase Rights Plan (the "Plan") and declared a dividend of one Preferred Stock Purchase Right (a "Right") on each share of the Company's common stock. The dividend distribution was made on August 10, 1993, to the stockholders of record on July 26, 1993. The Plan provides that if there is an announcement or notice to the Company that a person or group has acquired 15% or more of the Company's common stock (except pursuant to a tender offer for all such shares at a price and on terms determined to be fair and in the best interests of the Company and its stockholders by a majority of the directors who are not nominees of, or affiliated or associated with, the 15% holder), each holder of a Right, other than Rights beneficially owned by the 15% holder, will thereafter have the right to purchase for $85.00 a number of shares of the Company's common stock having a market value of $170.00 or twice the Right's exercise price. All Rights that were beneficially owned by the 15% holder will thereafter be void. Each Right will entitle the stockholder to buy one one-hundredth of a share of a new series of junior participating cumulative preferred stock at an exercise price of $85.00. The Rights will become exercisable after the earlier to occur of (i) 10 business days following a public 30 18 announcement or notice to the Company that a person or group has acquired 15% or more of the Company's common stock or (ii) 10 business days, or such later date as the directors determine, after a person commences a tender offer which, if accepted, would result in the person's owning 15% or more of the Company's common stock. The preferred stock is designed so that each one one-hundredth of a share approximates one share of the Company's common stock in all respects, except for a minimum annual preferential dividend of $.10 and a minimum liquidation payment of $.10 for each one one-hundredth of a share of preferred stock. Under the Rights agreement, the Company will not effect a merger or certain other kinds of business combination transactions after a public announcement or notice to the Company that a person or group has acquired 15% or more of the Company's common stock, unless provision has been made so that after the transaction a holder of a Right would be able to buy for $85.00 stock of the acquiring company having a market value of $170.00, or twice the exercise price of the Right. The Company's directors can redeem the Rights at $.01 per Right until 10 business days after a public announcement or notice to the Company that a person or group has acquired 15% or more of the Company's common stock. The redemption period can be extended by the directors before such an announcement or notice. If the Board of Directors redeems the Rights after such an announcement or notice, the redemption requires concurrence of a majority of the continuing directors who are not nominees of, or affiliated or associated with, the 15% stockholder. In addition, after a person or group acquires 15% or more (but less than 50%) of the Company's common stock, the Board of Directors may, with such a concurrence by the continuing directors, exchange one share of common stock for each outstanding Right, except for Rights held by the 15% holder, which will become void. The Rights, which expire in 10 years, have no voting power. - -------------------------------------------------------------------------------- NOTE 7 BENEFIT Pension Plans The Company has certain non-contributory, defined benefit pension plans covering substantially all domestic employees. The union hourly plans base benefits upon years of service, while the salaried/union-free plan uses both years of service and earnings to determine benefits. The Company also has a Supplemental Executive Retirement Plan. It is the Company's policy to fund an amount necessary to satisfy the minimum funding requirements of ERISA. The amount to be funded is subject to annual review by management and its consulting actuary. The actuarial method used to determine the plan liability is the unit credit method. The plans hold their assets as units in commingled funds consisting principally of high quality corporate equities and corporate and government bonds. 31 19 Net periodic pension expense for the Company's domestic and foreign non-contributory, defined benefit pension plans for the three years ended December 31, 1995, 1994 and 1993, is as follows:
1995 1994 1993 - -------------------------------------------------------------------------------------------------------- Service cost of current period $ 2,654 $ 3,515 $ 3,415 Interest cost on projected benefit obligation 8,210 8,071 7,436 Actual (return) loss on assets (20,656) 3,884 (14,580) Net amortization and deferral 11,792 (12,424) 6,804 - -------------------------------------------------------------------------------------------------------- Net periodic pension expense $ 2,000 $ 3,046 $ 3,075 ========================================================================================================
The following sets forth the plans' funded status reconciled with amounts reported in the consolidated balance sheets at:
December 31 ----------- 1995 1994 - ---------------------------------------------------------------------------------------------------- Present value of benefit obligation: Vested benefits $ 98,688 $ 88,632 Non-vested benefits 4,436 4,082 - ---------------------------------------------------------------------------------------------------- Accumulated benefit obligation 103,124 92,714 Value of future pay increases 16,998 9,846 - ---------------------------------------------------------------------------------------------------- Total projected benefit obligation 120,122 102,560 Plan assets at fair value 106,374 91,062 - ---------------------------------------------------------------------------------------------------- Excess of projected benefit obligation over plan assets (13,748) (11,498) Unrecognized prior service cost 2,639 3,135 Unrecognized net loss 4,755 2,306 Unrecognized net obligation 222 328 - ---------------------------------------------------------------------------------------------------- Accrued pension obligation $ (6,132) $ (5,729) ==================================================================================================== Discount rate 7.50% 8.75% Rate of increase in compensation levels 4.0-8.0% 4.0-8.0% Long-term rate of return on assets 10.0% 10.0% ====================================================================================================
The Company's Dutch employees are covered by a multi-employer defined benefit plan. Certain of the Company's other foreign employees are insured under irrevocable annuity contracts. Pension expense associated with these arrangements was $1.8 million in 1995, $1.5 million in 1994 and $1.1 million in 1993. The Company also is required to make benefit payments on behalf of certain employees in foreign countries based upon local laws. Amounts paid are based on a percentage of salary earned (defined contribution plans) and are not significant. Postretirement and Postemployee Benefits The Company's postretirement benefit program is made up of two plans, the Life Insurance Plan and the Health Care Plan. Both plans cover domestic employees only. Any permanent full-time employee is eligible upon retirement after age 55 and with 10 years of service with the Company. The Health Care Plan is a contributory plan. 32 20 Net periodic postretirement benefit expense for the three years ended December 31, 1995, 1994, and 1993, is as follows:
1995 1994 1993 - ----------------------------------------------------------------------------------- Service cost of current period $ 182 $ 288 $ 515 Interest cost on accumulated postretirement benefit obligation 1,024 1,000 1,203 Amortization of prior service benefit (872) (927) (661) - ----------------------------------------------------------------------------------- Net periodic postretirement benefit expense $ 334 $ 361 $ 1,057 ===================================================================================
The following sets forth the postretirement program's funded status reconciled with amounts reported in the consolidated balance sheets at:
December 31 ----------- 1995 1994 - ------------------------------------------------------------------------------------------------------------------------------ Accumulated postretirement benefit obligation: Retirees and dependents $ 9,021 $ 8,589 Fully eligible active plan participants 2,465 2,347 Other active plan participants 1,861 1,773 - ------------------------------------------------------------------------------------------------------------------------------ Total accumulated postretirement benefit obligation 13,347 12,709 Plan assets at fair value -- -- - ------------------------------------------------------------------------------------------------------------------------------ Excess of accumulated postretirement benefit obligation over plan assets (13,347) (12,709) Unrecognized prior service benefit, arising from July 1, 1993 plan amendment (6,230) (7,102) Unrecognized net loss 895 957 - ------------------------------------------------------------------------------------------------------------------------------ Accrued postretirement benefit obligation $(18,682) $(18,854) ============================================================================================================================== Discount rate 7.50% 8.75% Rate of increase in per capita cost of covered health care benefits 9.0% 10.0% ==============================================================================================================================
An increase in the assumed health care cost trend rate of 1% for each year would increase the accumulated postretirement benefit obligation by less than $0.1 million and the net service and interest cost components of the net periodic postretirement benefit expense for the year by less than $0.1 million. Capital Accumulation Plan The Company has a Capital Accumulation Plan (the "CAP Plan") qualified under section 401(k) of the Internal Revenue Code, which allows for participant contributions and for Company matching contributions. The Company intends to make all matching contributions in shares of its common stock. Employees immediately vest in all Company matching contributions. The Company expensed approximately $0.8 million in 1995, $1.4 million in 1994 and $0.8 million in 1993 under the CAP Plan. Fluid Controls Segment All foregoing financial disclosures related to the Company's benefit plans include employees of the Fluid Controls segment up to the date of sale and beyond, to the extent liability for such benefit plans remains with the Company (see Note 2). 33 21 - -------------------------------------------------------------------------------- NOTE 8 COMMITMENTS AND CONTINGENCIES The Company is involved in various claims and legal actions arising in the ordinary course of business. It is the opinion of management, upon the advice of legal counsel, that the ultimate disposition of these matters will not materially affect the Company's financial position. As the predecessor to the Company's business, Borg-Warner Corporation agreed to indemnify the Company for litigation and potential claims identified at May 20, 1987, to the extent such claims were not provided for at May 20, 1987. The Company is subject to pollution and hazardous waste disposal regulations in all jurisdictions in which it has operating facilities and periodically makes capital expenditures to meet environmental requirements. The Company believes that future expenditures will not have a material adverse effect on its financial position. In addition, under the requirements of the Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("Superfund"), the Company has been named a potentially responsible party ("PRP") at several Superfund sites being administered by the U.S. Environmental Protection Agency. Borg-Warner Corporation is obligated to indemnify the Company, in whole or in part, in the event it is held liable as a PRP at these identified sites. Final resolution of the above matters is not expected to be material to the Company's financial position. - -------------------------------------------------------------------------------- NOTE 9 DETAILS OF CERTAIN CONSOLIDATED BALANCE SHEET CAPTIONS
December 31 ----------- 1995 1994 - ------------------------------------------------------------------------------------------------ Accounts and notes receivable: Trade $ 100,336 $ 100,568 Progress billings 4,063 4,186 Other 9,591 9,603 - ------------------------------------------------------------------------------------------------ 113,990 114,357 Less allowance for doubtful accounts (3,775) (2,967) - ------------------------------------------------------------------------------------------------ $ 110,215 $ 111,390 ================================================================================================ Inventories: Finished parts $ 47,985 $ 40,558 Work in process 34,054 22,841 Raw materials and supplies 10,595 13,312 - ------------------------------------------------------------------------------------------------ 92,634 76,711 Less progress billings (7,253) (5,784) - ------------------------------------------------------------------------------------------------ $ 85,381 $ 70,927 ================================================================================================ Property, plant and equipment: Land $ 15,119 $ 14,307 Buildings and improvements 42,605 37,444 Machinery and equipment 112,549 98,574 Capital lease assets 4,075 3,976 Construction in progress 5,194 2,645 - ------------------------------------------------------------------------------------------------ 179,542 156,946 Less accumulated depreciation and amortization (73,291) (62,037) - ------------------------------------------------------------------------------------------------ $ 106,251 $ 94,909 ================================================================================================ Accrued liabilities: Accrued salaries, wages, taxes and benefits $ 28,065 $ 29,011 Accrued restructuring charge 8,004 10,381 Accrued dividends payable 2,670 2,428 Other 15,553 12,625 - ------------------------------------------------------------------------------------------------ $ 54,292 $ 54,445 ================================================================================================
34 22 - -------------------------------------------------------------------------------- NOTE 10 OPERATIONS INFORMATION BY GEOGRAPHIC LOCATION The Company currently operates in one business segment. A summary of information about the Company's operations by geographic location for the years ended December 31, 1995, 1994 and 1993, is as follows:
1995 1994 1993 - ------------------------------------------------------------------------------------------------------------ Net sales: United States $237,934 $232,989 $253,963 Western Europe 132,188 135,432 109,880 Other foreign 81,069 80,298 63,349 - ------------------------------------------------------------------------------------------------------------ $451,191 $448,719 $427,192 ============================================================================================================ Intersegment sales (not included above): United States $ 23,124 $ 16,540 $ 13,208 Western Europe 4,520 3,217 1,193 Other foreign 1,466 2,757 543 - ------------------------------------------------------------------------------------------------------------ $ 29,110 $ 22,514 $ 14,944 ============================================================================================================ Operating income: United States $ 22,249 $ 21,318 $ 11,572 Western Europe 12,201 14,126 11,391 Other foreign 11,364 13,784 10,367 - ------------------------------------------------------------------------------------------------------------ $ 45,814 $ 49,228 $ 33,330 ============================================================================================================ Identifiable assets: United States $223,303 $195,927 $217,883 Western Europe 126,226 119,944 100,659 Other foreign 56,218 52,023 22,746 - ------------------------------------------------------------------------------------------------------------ $405,747 $367,894 $341,288 ============================================================================================================
Net sales by geographic location exclude intercompany sales. Included in domestic sales are export sales of $68.7 million in 1995, $69.9 million in 1994 and $86.7 million in 1993. - -------------------------------------------------------------------------------- NOTE 11 QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) The following is a summary of the quarterly results of operations for the years ended December 31, 1995 and 1994 (dollar amounts in millions, except per share data):
Three Months Ended - ------------------------------------------------------------------------------------------------------------------------------ March 31 June 30 Sept. 30 Dec. 31 - ------------------------------------------------------------------------------------------------------------------------------ 1995 Net sales $ 107.0 $ 110.3 $ 110.1 $ 123.8 Operating income 10.8 12.5 12.5 10.0 Net income 5.5 6.5 6.3 5.0 Net income per share $ .23 $ .27 $ .26 $ .20 ============================================================================================================================== 1994 Net sales $ 96.7 $ 105.5 $ 118.0 $ 128.5 Operating income 10.0 11.4 13.0 14.8 Income from continuing operations 5.3 6.0 7.1 8.4 Discontinued operations, net of tax (0.1) 0.4 (0.1) (2.0) Net income 5.2 6.4 7.0 6.4 Income (loss) per share: From continuing operations $ .22 $ .25 $ .29 $ .35 Discontinued operations (.01) .02 -- (.09) Net income per share .21 .27 .29 .26 ==============================================================================================================================
35 23 REPORT OF INDEPENDENT ACCOUNTANTS PRICE WATERHOUSE LLP [LOGO] TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF BW/IP, INC. In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income and retained earnings and of cash flows present fairly, in all material respects, the financial position of BW/IP, Inc. and its subsidiaries at December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PRICE WATERHOUSE LLP Los Angeles, California February 15, 1996 36 24 COMMON STOCK PRICES AND DIVIDENDS The Company's common stock is quoted through the NASDAQ National Market System under the symbol "BWIP." The table at the left displays the high and low reported sale prices for the periods indicated and the cash dividend per share of common stock in each quarter. At March 8, 1996, the Company's common stock was held by approximately 4,200 stockholders of record or through nominee or street name accounts with brokers. While the Company expects to continue its policy of paying regular quarterly cash dividends, future dividends will be dependent on future earnings, the financial condition of the Company and capital requirements.
Market Price Dividends ------------ Period High Low Declared - ------------------------------------------------------------------------------- 1991: Second Quarter (from May 24, 1991) $15 $13 3/8 -- Third Quarter 22 3/4 14 $ .0375 Fourth Quarter 23 1/4 15 3/4 .0375 - ------------------------------------------------------------------------------- 1992: First Quarter $28 3/4 $19 3/4 $ .0375 Second Quarter 28 3/4 23 .06 Third Quarter 26 3/4 22 1/4 .06 Fourth Quarter 30 3/4 23 1/2 .06 - ------------------------------------------------------------------------------- 1993: First Quarter $30 1/4 $23 3/4 $ .06 Second Quarter 26 1/4 23 .08 Third Quarter 27 1/4 22 1/2 .08 Fourth Quarter 25 1/4 22 1/2 .08 - ------------------------------------------------------------------------------- 1994: First Quarter $25 3/4 $15 3/4 $ .08 Second Quarter 19 15 .10 Third Quarter 19 1/2 15 3/4 .10 Fourth Quarter 19 3/4 16 1/4 .10 - ------------------------------------------------------------------------------- 1995: First Quarter $17 1/4 $14 $ .10 Second Quarter 19 16 .11 Third Quarter 20 1/4 17 1/4 .11 Fourth Quarter 18 3/4 14 1/2 .11 ===============================================================================
37 EX-21.A 14 SUBSIDIARIES OF BW/IP 1 EXHIBIT 21.a BW/IP, INC. ----------- LIST OF SUBSIDIARIES --------------------
JURISDICTION WHERE PERCENTAGE NAME OF SUBSIDIARY INCORPORATED OWNED - ------------------ ------------------ ---------- BW/IP International, Inc. Delaware, U.S.A. 100% Byron Jackson Argentina Industrial Province of Mendoza, 51% and Commercial Sociedad Argentine Republic Anonima (I.S.C.A.) BW/IP International, Ltd. Canada 100% BW Mechanical Seals K.K. Japan 100% BW Mechanical Seals (S.E.S.) Pte Ltd. Singapore 100% Bryon Jackson K.K. Japan 100% Byron Jackson Co., S.A. de C.V. Mexico 100% BW/IP International GmbH Germany 100% BW/IP International Limited United Kingdom 100% BW/IP International S. A. Spain 100% BW/IP International S.A.R.L. France 100% BW/IP International S.r.l. Italy 100% BW/IP International B.V. The Netherlands 100% Ebara-Byron Jackson Co., Ltd. Japan 50% BW/IP de Venezuela S.A. Venezuela 75% BW Mechanical Seals (Malaysia) Sdn. Bhd. Malaysia 70% PT BW Mechanical Seals Indonesia Indonesia 75% BW/IP International S.A. Belgium 100% BW/IP Pacific Dichtungstechnik Austria 100% Gesellschaft m.b.H. BW/IP Pacific Dichtungstechnik AG Switzerland 100% BW/IP Pacific Wietz GmbH & Co. KG Germany 100% BW/IP Pacific Wietz Verwaltungs GmbH Germany 100%
2 BW/IP, INC. ----------- LIST OF SUBSIDIARIES (CONTINUED) --------------------------------
JURISDICTION WHERE PERCENTAGE NAME OF SUBSIDIARY INCORPORATED OWNED - ------------------ ------------------ ---------- BW/IP Services B.V The Netherlands 100% BW/Abahsain Seal Company Limited Saudi Arabia 60% BW/IP - New Mexico, Inc. Delaware, U.S.A. 100% BW/IP International (Barbados), Ltd. Barbados 100% BW/IP - Siam Co., Ltd. Thailand 60% BW/IP International IP, Inc. California, U.S.A. 100% BW/IP International (GP), Inc. California, U.S.A. 100% BW/IP International (LP), Inc. California, U.S.A. 100%
EX-23.A 15 CONSENT OF PRICE WATERHOUSE LLP 1 EXHIBIT 23.a CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 33-44806 and No. 33-64143) of BW/IP, Inc. of our report dated February 15, 1996 appearing on page 36 of the Annual Report to Stockholders which is incorporated in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report on the Financial Statement Schedules, which appears on page F-2 of this Form 10-K. PRICE WATERHOUSE LLP Los Angeles, California March 28, 1996 EX-24.A 16 POWERS OF ATTORNEY 1 Exhibit 24.a BW/IP, INC. POWER OF ATTORNEY The undersigned does hereby make, constitute and appoint John D. Hannesson, John M. Nanos and Mary Jane Young, and each of them, with full power in each to act without the other, his true and lawful attorney, in his name, place and stead to execute on his behalf, as director of BW/IP, Inc. (the "Company"), the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995, and any and all amendments or supplements thereto, to be filed with the Securities and Exchange Commission (the "SEC") pursuant to the provisions of the Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC promulgated thereunder, together with any other instruments that such attorneys or any one of them, shall deem necessary or advisable in connection therewith, giving and granting to each of such attorneys full power and authority to do and to perform every act necessary or advisable in furtherance of the purposes hereof as fully as he could do himself, with full power of substitution and revocation, hereby ratifying and confirming all that such attorneys or substitutes may or shall lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand on the date indicated below. /s/James J. Gavin, Jr. ---------------------- James J. Gavin, Jr. Dated: February 23, 1996 2 BW/IP, INC. POWER OF ATTORNEY The undersigned does hereby make, constitute and appoint John D. Hannesson, John M. Nanos and Mary Jane Young, and each of them, with full power in each to act without the other, his true and lawful attorney, in his name, place and stead to execute on his behalf, as director of BW/IP, Inc. (the "Company"), the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995, and any and all amendments or supplements thereto, to be filed with the Securities and Exchange Commission (the "SEC") pursuant to the provisions of the Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC promulgated thereunder, together with any other instruments that such attorneys or any one of them, shall deem necessary or advisable in connection therewith, giving and granting to each of such attorneys full power and authority to do and to perform every act necessary or advisable in furtherance of the purposes hereof as fully as he could do himself, with full power of substitution and revocation, hereby ratifying and confirming all that such attorneys or substitutes may or shall lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand on the date indicated below. /s/George D. Leal ----------------- George D. Leal Dated: February 23, 1996 3 BW/IP, INC. POWER OF ATTORNEY The undersigned does hereby make, constitute and appoint John D. Hannesson, John M. Nanos and Mary Jane Young, and each of them, with full power in each to act without the other, his true and lawful attorney, in his name, place and stead to execute on his behalf, as director of BW/IP, Inc. (the "Company"), the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995, and any and all amendments or supplements thereto, to be filed with the Securities and Exchange Commission (the "SEC") pursuant to the provisions of the Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC promulgated thereunder, together with any other instruments that such attorneys or any one of them, shall deem necessary or advisable in connection therewith, giving and granting to each of such attorneys full power and authority to do and to perform every act necessary or advisable in furtherance of the purposes hereof as fully as he could do himself, with full power of substitution and revocation, hereby ratifying and confirming all that such attorneys or substitutes may or shall lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand on the date indicated below. /s/ H. Jack Meany --------------------- H. Jack Meany Dated: February 22, 1996 4 BW/IP, INC. POWER OF ATTORNEY The undersigned does hereby make, constitute and appoint John D. Hannesson, John M. Nanos and Mary Jane Young, and each of them, with full power in each to act without the other, his true and lawful attorney, in his name, place and stead to execute on his behalf, as director of BW/IP, Inc. (the "Company"), the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995, and any and all amendments or supplements thereto, to be filed with the Securities and Exchange Commission (the "SEC") pursuant to the provisions of the Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC promulgated thereunder, together with any other instruments that such attorneys or any one of them, shall deem necessary or advisable in connection therewith, giving and granting to each of such attorneys full power and authority to do and to perform every act necessary or advisable in furtherance of the purposes hereof as fully as he could do himself, with full power of substitution and revocation, hereby ratifying and confirming all that such attorneys or substitutes may or shall lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand on the date indicated below. /s/James S. Pignatelli ---------------------- James S. Pignatelli Dated: February 23, 1996 5 BW/IP, INC. POWER OF ATTORNEY The undersigned does hereby make, constitute and appoint John D. Hannesson, John M. Nanos and Mary Jane Young, and each of them, with full power in each to act without the other, his true and lawful attorney, in his name, place and stead to execute on his behalf, as director of BW/IP, Inc. (the "Company"), the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995, and any and all amendments or supplements thereto, to be filed with the Securities and Exchange Commission (the "SEC") pursuant to the provisions of the Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC promulgated thereunder, together with any other instruments that such attorneys or any one of them, shall deem necessary or advisable in connection therewith, giving and granting to each of such attorneys full power and authority to do and to perform every act necessary or advisable in furtherance of the purposes hereof as fully as he could do himself, with full power of substitution and revocation, hereby ratifying and confirming all that such attorneys or substitutes may or shall lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand on the date indicated below. /s/James O. Rollans ------------------- James O. Rollans Dated: March 26, 1996 6 BW/IP, INC. POWER OF ATTORNEY The undersigned does hereby make, constitute and appoint John D. Hannesson, John M. Nanos and Mary Jane Young, and each of them, with full power in each to act without the other, his true and lawful attorney, in his name, place and stead to execute on his behalf, as director of BW/IP, Inc. (the "Company"), the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995, and any and all amendments or supplements thereto, to be filed with the Securities and Exchange Commission (the "SEC") pursuant to the provisions of the Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC promulgated thereunder, together with any other instruments that such attorneys or any one of them, shall deem necessary or advisable in connection therewith, giving and granting to each of such attorneys full power and authority to do and to perform every act necessary or advisable in furtherance of the purposes hereof as fully as he could do himself, with full power of substitution and revocation, hereby ratifying and confirming all that such attorneys or substitutes may or shall lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand on the date indicated below. /s/William C. Rusnack --------------------- William C. Rusnack Dated: February 23, 1996 7 BW/IP, INC. POWER OF ATTORNEY The undersigned does hereby make, constitute and appoint John D. Hannesson, John M. Nanos and Mary Jane Young, and each of them, with full power in each to act without the other, his true and lawful attorney, in his name, place and stead to execute on his behalf, as director of BW/IP, Inc. (the "Company"), the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995, and any and all amendments or supplements thereto, to be filed with the Securities and Exchange Commission (the "SEC") pursuant to the provisions of the Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC promulgated thereunder, together with any other instruments that such attorneys or any one of them, shall deem necessary or advisable in connection therewith, giving and granting to each of such attorneys full power and authority to do and to perform every act necessary or advisable in furtherance of the purposes hereof as fully as he could do himself, with full power of substitution and revocation, hereby ratifying and confirming all that such attorneys or substitutes may or shall lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand on the date indicated below. /s/Peter C. Valli ----------------- Peter C. Valli Dated: February 23, 1996 EX-27.A 17 FINANCIAL DATA SCHEDULE
5 1,000 YEAR DEC-31-1995 JAN-01-1995 DEC-31-1995 9,162 0 100,336 (3,775) 85,381 227,220 179,542 73,291 405,747 110,446 74,175 0 0 245 179,229 405,747 451,191 451,191 274,244 274,244 131,133 2,073 6,075 38,290 14,941 23,349 0 0 0 23,349 .96 .96
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