-----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, L6B7gK41JL0P8hVDX0ou9gSEuMUpIRH9qF1lTVN1+PDh+xAG9T9Up7cKBSaCeUO2 Ai05Wj2Ee09GNitmgwIzJg== 0001019056-98-000147.txt : 19980326 0001019056-98-000147.hdr.sgml : 19980326 ACCESSION NUMBER: 0001019056-98-000147 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980325 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: GENLYTE GROUP INC CENTRAL INDEX KEY: 0000833076 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC LIGHTING & WIRING EQUIPMENT [3640] IRS NUMBER: 222584333 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-16960 FILM NUMBER: 98573013 BUSINESS ADDRESS: STREET 1: 2345 VAUXHALL RD CITY: UNION STATE: NJ ZIP: 07083 BUSINESS PHONE: 9088104519 MAIL ADDRESS: STREET 1: 2345 VAUXHALL RD CITY: UNION STATE: NJ ZIP: 07083 10-K 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Fiscal Year Ended December 31, 1997 Commission file number: 0-16960 ---------------- THE GENLYTE GROUP INCORPORATED 2345 Vauxhall Road Union, N.J. 07083-1948 (908) 964-7000 INCORPORATED IN DELAWARE I.R.S. EMPLOYER IDENTIFICATION NO. 22-2584333 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE Act: NONE NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED - -------------------------------------------------------------------------------- Common Stock, par value NASDAQ National Market System $.0l per share Number of shares of Common Stock (par value $.0l per share) outstanding as of March 2, 1998: 13,410,923. Aggregate market value of Common Stock (par value $.01 per share) held by non-affiliates on March 2, 1998: $258,998,450. 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. [ X ] Documents Incorporated by Reference: DOCUMENT PART OF FORM 10-K Annual report to stockholders for the fiscal year Parts I, II, and IV ended December 31, 1997 Proxy Statement for the Annual Meeting of Stockholders Part III to be held April 23, 1998 PART I ITEM 1. BUSINESS The Genlyte Group Incorporated (the "Company" or "Genlyte") designs, manufactures and sells lighting fixtures for a wide variety of applications in the commercial, industrial, and residential markets. The Company operates in one industry segment (lighting fixtures and controls) through the following divisions: Lightolier, Controls, Wide-Lite, Hadco, Diamond F, and Supply (Crescent, ExceLine, and Stonco product lines) in the United States and Mexico, and Canlyte in Canada. The Company markets its products under the following brand names: In the U.S. -- Bronzelite, Crescent, Diamond F, ExceLine, Forecast, Lightolier Controls, Hadco, Lightolier, Stonco, and Wide-Lite In Canada -- Keene-Widelite, Lightolier, Prodel, Stonco, and CFI (Canadian Fluorescent Industries) In Mexico -- Lightolier, Forecast, Wide-Lite, Bronzelite, and Hadco Genlyte's products primarily utilize incandescent, fluorescent, and high-intensity discharge (HID) light sources and are marketed primarily to distributors who resell the products for use in new residential, commercial, and industrial construction as well as in remodeling existing structures. Because Genlyte does not principally sell directly to the end-user of its products, the Company cannot determine precisely the percentage of its revenues derived from the sale of products installed in each type of building or the percentage of its products sold for new construction versus remodeling. Genlyte's sales, like those of the lighting fixture industry in general, are partly dependent on the level of activity in new construction and remodeling. 1 PRODUCTS AND DISTRIBUTION Genlyte designs, manufactures, and markets the following types of products: Indoor Fixtures -- Incandescent, fluorescent, and HID lighting fixtures and lighting controls for commercial, industrial, institutional, medical, sports, and residential markets, and task lighting for all markets. Outdoor Fixtures -- HID and incandescent lighting fixtures and accessories for commercial, industrial, institutional, sports, and residential markets. Genlyte's products are marketed by independent sales representatives and Company direct sales personnel who sell to distributors, electrical wholesalers, mass merchandisers, and national accounts. In addition, the Company's products are promoted through architects, engineers, contractors, and building owners. The fixtures are principally sold throughout the United States, Canada, and Mexico. RAW MATERIALS SOURCES & AVAILABILITY Genlyte purchases large quantities of raw materials and components -- mainly steel, aluminum, ballasts, sockets, wire, plastic, lenses, and glass -- from multiple sources. No significant supply problems have been encountered in recent years. Relationships with vendors have been satisfactory. PATENTS AND TRADEMARKS Genlyte has a number of United States and foreign mechanical patents, design patents, and registered trademarks. Genlyte maintains such protections by periodic renewal of trademarks and payments of maintenance fees for issued patents. Genlyte vigorously enforces its intellectual property rights. Genlyte does not believe that a loss of any presently held patent or trademark is likely to have a material adverse impact on its business. 2 SEASONAL EFFECT ON BUSINESS There are no predictable significant seasonal effects on Genlyte's results of its operations. WORKING CAPITAL There are no unusual significant business practices at Genlyte that affect working capital. Genlyte's terms of sale vary by division but are generally consistent with general practices within the lighting industry. The Company attempts to keep inventory levels at the minimum required to satisfy customer requirements. BACKLOG Backlog was $54,205,693 as of December 31, 1997, $42,247,005 as of December 31, 1996, and $51,093,000 as of December 31, 1995. Substantially all of the backlog at December 31, 1997 is expected to be shipped in 1998. COMPETITION Genlyte's products are sold in competitive markets where there are numerous producers of each type of fixture. The principal measures of competition in indoor and outdoor fixtures for the commercial, residential, and industrial markets are price, service, design, and product performance. RESEARCH AND DEVELOPMENT Genlyte is constantly monitoring new light sources for incorporation into new product development. Costs incurred for research and development activities, as determined in accordance with generally accepted accounting principles, were $5,195,000, $4,148,000, and $2,551,000, during 1997, 1996, 1995 respectively. 3 EMPLOYEES At December 31, 1997, Genlyte employed approximately 1,900 unionized and non-unionized production workers and 875 engineering, administrative, and sales personnel. Relationships with unions have been satisfactory. INTERNATIONAL OPERATIONS The Company has international operations in Canada and Mexico. Information on the Company's operations by geographical area for the last three fiscal years is set forth in the "Notes to the Consolidated Financial Statements" section of Genlyte's 1997 Annual Report to Stockholders, which is incorporated herein by reference. ITEM 2. PROPERTIES The Company has the following owned and leased property locations as of December 31, 1997:
Own/ Mfg. Office Whse. Other Lease Space Space Space Space ------------------------------------------------------------ Location - -------- Lightolier: Atlanta, GA Lease x Camargo, Mexico Lease x x Chesterfield, MO Lease x Columbia, MD Lease x Compton, CA Lease x x Dallas, TX Lease x Denver, CO Lease x Edison, NJ Lease x x x Emeryville, CA Lease x Fall River, MA Own x x Ferrel Drive, TX Lease x Fontana, CA Own x x x Louisville, KY Lease x Miami, FL Lease x New York, NY Lease x Norwich, CT Own x x Phoenix, AZ Lease x Pittsburgh, PA Lease x Portland, OR Lease x San Diego, CA Lease x Seattle, WA Lease x Schiller Park, IL Lease x Wilmington, MA Own x x x Winter Park, FL Lease x
4
Own/ Mfg. Office Whse. Other Lease Space Space Space Space ----------------------------------------------------------- Location - -------- Hadco: San Marcos, TX Own x x x Littlestown, PA Own x x x Supply: Stonco - Union, NJ * Own x x x Crescent - Barrington, NJ Own x x x Wide-Lite: San Marcos, TX Own x x x Controls: Garland, TX Own x x x x Diamond F: Elgin, IL Own x x x Canlyte: Cambridge, Ontario (KWL) Own x x Montreal, Quebec (Lachine-LOL/CHQ) Own x x x x Toronto (LOL/KWL) Lease x Vancouver (LOL) Lease x Cornwall, Ontario (CFI) Own x x
* Includes Genlyte headquarters. The Genlyte facility located in Garland, Texas is subject to a $237,000 mortgage due May 1, 2002. Genlyte believes its facilities are suitable and adequate for current and presently projected needs. 5 ITEM 3. LEGAL PROCEEDINGS Genlyte has been named as one of a number of corporate and individual defendants in an adversary proceeding filed on June 8, 1995, arising out of the Chapter 11 bankruptcy filing of Keene Corporation ("Keene"). Except for the last count, as discussed below, the claims and causes of action are substantially the same as were brought against Genlyte in the U.S. District Court in New York in August 1993, which have been permanently enjoined from proceeding as a result of Keene's reorganization plan. The new complaint is being prosecuted by the Creditors' Trust created for the benefit of Keene's creditors (the "Trust"), seeking from the defendants, collectively, damages in excess of $700 million, rescission of certain asset sale and stock transactions, and other relief. With respect to Genlyte, the complaint principally maintains that certain lighting assets of Keene were sold to a predecessor of Genlyte in 1984 at less than fair value, while both Keene and Genlyte were wholly-owned subsidiaries of Bairnco Corporation. The complaint also challenges Bairnco's spin-off of Genlyte in August 1988. Other allegations are that Genlyte, as well as the other corporate defendants, are liable as corporate successors to Keene. The complaint fails to specify the amount of damages sought against Genlyte. The complaint also alleges a violation of the Racketeer Influenced and Corrupt Organizations Act. Following confirmation of the Keene reorganization plan, the parties moved to withdraw the case from bankruptcy court to the Southern District of New York Federal District Court. The case is now pending before the Federal District Court. Genlyte and other defendants filed motions to dismiss the complaint and motions for summary judgment on statute of limitations grounds on September 15, 1997, which were fully briefed and presented to the Court on December 15, 1997. Oral argument was conducted on the summary judgment motion on February 13, 1998 and Genlyte is awaiting decisions of the Court on the other motions. Discovery has been stayed until March 27, 1998. Genlyte believes that it has meritorious defenses to the adversary proceeding and will defend said action vigorously. Additionally, the Company is a defendant and/or potentially responsible party, with other companies, in actions and proceedings under state and Federal environment laws including the Federal Comprehensive Environmental Response Compensation and Liability Act, as amended ("Superfund"). Such actions include, but are not limited to, the Keystone Sanitation Landfill site located in Pennsylvania, in which the United States Environmental Protection Agency has sought remedial action and reimbursement for past costs. Management does not believe that the disposition of the lawsuits and/or proceedings will have a material effect on the Company's financial condition or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Amendment to the Genlyte 1988 Stock Option Plan included in the Proxy Statement for the 1998 Annual Meeting of Stockholders of Genlyte which has been filed with the Securities and Exchange Commission and is incorporated herein by reference. 6 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY & RELATED STOCKHOLDER MATTERS a. and c. Data regarding market price of Genlyte's common stock is included in the "Quarterly Results of Operations" section of Genlyte's 1997 Annual Report to Stockholders, which is incorporated herein by reference. Genlyte's common stock is traded on the NASDAQ National Market System under the symbol "GLYT". Information concerning dividends and restrictions thereon and Preferred Stock Purchase Rights are included in the "Notes to the Consolidated Financial Statements" section of Genlyte's 1997 Annual Report to Stockholders, which is incorporated herein by reference. b. The approximate number of common equity security holders is as follows: Approximate Number of Holders of Record as of Title of Class Year-end 1997 -------------------------------------------------------------------- Common Stock, par value $.0l per share 1,567 ITEM 6. SELECTED FINANCIAL DATA The information required for this item is included in Genlyte's 1997 Annual Report to Stockholders, which is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Reference is made to the "Management's Discussion and Analysis" section of Genlyte's 1997 Annual Report to Stockholders, which is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Reference is made to the "Consolidated Financial Statements" and "Quarterly Results of Operations" sections of Genlyte's 1997 Annual Report to Stockholders, which is incorporated herein by reference. Financial statement schedules are included in Part IV of this filing. ITEM 9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 7 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required with respect to the Directors of Genlyte is included in the "Election of Directors" section of the Proxy Statement for the 1998 Annual Meeting of the Stockholders of Genlyte which has been filed with the Securities and Exchange Commission and is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION The information with respect to executive compensation is included in the "Compensation of Directors and Executive Compensation" section of the Proxy Statement for the 1998 Annual Meeting of Stockholders of Genlyte which has been filed with the Securities and Exchange Commission and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required with respect to security ownership is included in the "Voting Securities and Principal Holders Thereof" section of the Proxy Statement for the 1998 Annual Meeting of Stockholders of Genlyte which has been filed with the Securities and Exchange Commission and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required with respect to relationships is included in the "Compensation Committee Interlocks and Insider Participation" and "Voting Securities and Principal Holders Thereof" section of the Proxy Statement for the 1998 Annual Meeting of Stockholders of Genlyte which has been filed with the Securities and Exchange Commission and is incorporated herein by reference. 8 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K a) 1) FINANCIAL STATEMENTS The following information is incorporated herein by reference to Genlyte's 1997 Annual Report to Stockholders: Report of Independent Public Accountants Consolidated Statements of Income for the years ended December 31, 1997, 1996, and 1995 Consolidated Balance Sheets as of December 31, 1997 and 1996 Consolidated Statements of Cash Flows for the years ended December 31, 1997, 1996, and 1995 Consolidated Statements of Stockholders' Investment for the years ended December 31, 1997, 1996, and 1995 Notes to Consolidated Financial Statements 2) FINANCIAL STATEMENT SCHEDULE Report of Independent Public Accountants on Financial Statement Schedule: Schedule II -- Valuation and Qualifying Accounts Other schedules are omitted because of the absence of conditions under which they are required or because the required information is included in the consolidated financial statements or notes thereto. b) There were no filings on Form 8-K during the fourth quarter of 1997. 9 c) Exhibits -------- Incorporated by Description Reference to - ----------- ------------ - - Amended and Restated Certificate Exhibit 3(b) to Genlyte's of Incorporation of the Registration Statement on Form 8 Registrant, dated August 2, 1988 as filed with the Securities and Exchange Commission on August 3, 1988 - - Amended and Restated Certificate Exhibit 3(a) to Genlyte's Form of Incorporation of the 10-K filed with the Securities and Registrant, dated May 9, 1990 Exchange Commission in March 1993 - - Amended and Restated By-Laws of Exhibit 3(c) to Genlyte's the Registrant, as adopted on May Registration Statement on Form 8 16, 1988 as filed with the Securities and Exchange Commission on August 3, 1988 - - Form of Stock Certificate for Exhibit 4(a) to Genlyte's Genlyte Common Stock Registration Statement on Form 8 as filed with the Securities and Exchange Commission on August 3, 1988 - - Stock Purchase Agreement between Exhibit 10(a) to Genlyte's the Registrant and purchasers of Registration Statement on Form 8 Class B Stock of the Registrant, as filed with the Securities and dated as of June 17, 1988 Exchange Commission on August 3, 1988 10 Incorporated by Description Reference to - ----------- ------------ - - Loan Agreement between The Genlyte Exhibit 10(b) to Genlyte's Form Group Incorporated and the New 10-K filed with the Securities and Jersey Economic Development Exchange Commission in March 1991 Authority dated April 1, 1990, replacing the First Mortgage and Security Agreement between the New Jersey Economic Development Authority and KCS Lighting, Inc., dated December 20, 1984 (assigned to and assumed by the Registrant effective December 31, 1986) - - Loan Agreement between The Genlyte Exhibit 10(c) to Genlyte's Form Group Incorporated and the New 10-K filed with the Securities and Jersey Economic Development Exchange Commission in March 1991 Authority dated June 1, 1990, replacing the Loan Agreement between KCS Lighting, Inc. and the New Jersey Economic Development Authority, dated December 20, 1984 (assigned to and assumed by the Registrant effective December 31, 1986) - - Management Incentive Compensation Exhibit 10(i) to Genlyte's Plan Registration Statement on Form 8 as filed with the Securities and Exchange Commission on August 3, 1988 - - Genlyte 1988 Stock Option Plan Exhibit 10(j) to Genlyte's Registration Statement on Form 8 as filed with the Securities and Exchange Commission on August 3, 1988 11 Incorporated by Description Reference to - ----------- ------------ - - Tax Sharing Agreement between Exhibit 10(k) to Genlyte's Genlyte and Bairnco Corporation, Registration Statement on Form 8 dated July 15, 1988 as filed with the Securities and Exchange Commission on August 3, 1988 - - Merger and Assumption Agreement, Exhibit 10(d) to Genlyte's Form dated as of December 28, 1990, by 10-K filed with the Securities and and between Genlyte and Lightolier Exchange Commission in March 1991 - - Form of Employment Protection Exhibit to Genlyte's Form 10-Q Agreement entered into between filed with the Securities and Genlyte and certain key executives Exchange Commission in August 1990 - - Loan Agreement between The Genlyte Exhibit 4(c) to Genlyte's Form Group Incorporated and Jobs for 10-K filed with the Securities and Fall River, Inc., dated as of July Exchange Commission in March 1995 13, 1994 Other Exhibits included herein: (4a) Amended and Restated Credit Agreement between The Genlyte Group Incorporated and the applicable banks named therein, dated April 30, 1997 (11) Calculation of Basic and Diluted Earnings per Share (13) Annual Report to Stockholders (21) Subsidiaries of the Registrant (23) Consent of Independent Public Accountants (27) Financial Data Schedule 12 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, Genlyte has duly caused this Annual Report to be signed on its behalf by the undersigned thereunto duly authorized. THE GENLYTE GROUP INCORPORATED Registrant Date: March 25, 1998 By /s/ Neil M. Bardach ----------------- ------------------- March 25, 1998 Neil M. Bardach V.P. Finance - CFO & Treasurer Pursuant to the requirements of the Securities Exchange Act of 1934, this report is signed below by the following persons on behalf of Genlyte and in the capacities and on the date indicated. /s/ Avrum I. Drazin 3/25/98 - ------------------------------------------- ------------------- Avrum I. Drazin - Chairman of the Board /s/ Larry Powers 3/25/98 - ------------------------------------------- ------------------- Larry Powers, President and Chief Executive Officer (Principal Executive Officer) /s/ Glenn W. Bailey 3/25/98 - ------------------------------------------- ------------------- Glenn W. Bailey - Director /s/ Robert B. Cadwallader 3/25/98 - ------------------------------------------- ------------------- Robert B. Cadwallader - Director /s/ David M. Engelman 3/25/98 - ------------------------------------------- ------------------- David M. Engelman - Director /s/ Fred Heller 3/25/98 - ------------------------------------------- ------------------- Fred Heller - Director /s/ Frank Metzger 3/25/98 - ------------------------------------------- ------------------- Frank Metzger - Director 13 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE TO THE GENLYTE GROUP INCORPORATED: We have audited in accordance with generally accepted auditing standards, the consolidated financial statements included in The Genlyte Group Incorporated Annual Report to Stockholders for the year ended December 31, 1997, incorporated by reference in this Form 10-K, and have issued our report thereon dated January 21, 1998. Our audits were made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed in Item 14a(2) is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic consolidated financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic consolidated financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole. ARTHUR ANDERSEN LLP New York, New York January 21, 1998 14
THE GENLYTE GROUP INCORPORATED AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS ($ in thousands) Additions Balance at Charged to Balance Beginning Costs and at End of Year Expenses Deductions of Year ----------------- ----------------- ----------------- ----------------- YEAR-ENDED DECEMBER 31, 1997 Allowance for Doubtful Accounts $ 8,222 $ 2,100 $ (3,458) $ 6,864 YEAR-ENDED DECEMBER 31, 1996 Allowance for Doubtful Accounts $ 5,302 $ 3,452 $ (532) $ 8,222 YEAR-ENDED DECEMBER 31, 1995 Allowance for Doubtful Accounts $ 3,551 $ 3,315 $ (1,564) $ 5,302
15 EX-4.A 2 EXHIBIT 4(A) [EXECUTION COPY] SECOND AMENDED AND RESTATED CREDIT AGREEMENT Dated as of April 30, 1997 among THE GENLYTE GROUP INCORPORATED and THE BANKS NAMED HEREIN and THE BANK OF NEW YORK and SUN TRUST BANK, ATLANTA, AS CO-AGENTS AND BANK OF AMERICA ILLINOIS, as a Bank and Letter of Credit Issuer, BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, As Agent SECTION TABLE OF CONTENTS PAGE 1. COMMITMENT A. Amount....................................................... 1 B. Reborrowings................................................. 2 C. Banks' Obligations Several and Not Joint..................... 2 D. Reduction or Termination of Commitments...................... 2 2. TERMS OF CREDIT A. The Notes.................................................... 4 B. Interest Rate................................................ 4 C. Prepayment................................................... 8 D. Fees ........................................................ 8 E. Letters of Credit............................................ 10 1. Requests............................................ 10 2. Other Banks' Participation.......................... 11 3. Disbursements....................................... 11 4. Reimbursement....................................... 11 5. Deemed Disbursements................................ 12 6. Nature of Reimbursement Obligations................. 12 F. Pro Rata Treatment........................................... 13 G. Reserve Requirements; Change in Circumstances................ 14 H. Change in Legality........................................... 16 I. Reimbursement of Banks....................................... 16 J. Indemnity.................................................... 17 K. Payments..................................................... 17 L. Use of Proceeds.............................................. 17 M. Taxes........................................................ 18 N. Security..................................................... 18 3. REPRESENTATIONS AND WARRANTIES A. Organization and Good Standing............................... 19 B. Corporate Authority.......................................... 19 C. Binding Agreement............................................ 19 D. No Conflicting Agreements.................................... 19 E. Litigation................................................... 19 F. Tax Returns and Payments..................................... 20 G. Financial Statements......................................... 20 H. Compliance with Government Regulations....................... 20 I. Employee Benefit Plans....................................... 21 J. Ownership of Property; Liens................................. 21 -i- SECTION PAGE 4. CONDITIONS PRECEDENT A. Effectiveness................................................ 22 1. Execution in Counterparts........................... 22 2. Resolutions, etc.................................... 22 3. Compliance Certificate.............................. 22 4. Opinions of Counsel................................. 23 5. Confirmation........................................ 23 6. Security Agreement.................................. 23 7. Payment of Fees..................................... 24 8. Payment under Existing Credit Agreement............. 24 B. All Credit Extensions........................................ 24 1. Notice.............................................. 24 2. Compliance Certificate.............................. 24 C. Legal Matters Satisfactory to Counsel........................ 24 5. AFFIRMATIVE COVENANTS A. Payment of Principal and Interest on the Notes, Letter of Credit Outstandings and Fees Hereunder.......... 25 B. Maintenance of Office........................................ 25 C. Books and Accounts........................................... 25 D. Financial Statements......................................... 25 E. Taxes........................................................ 26 F. Insurance.................................................... 27 G. Corporate Existence.......................................... 27 H. Notice of Default............................................ 27 I. Notice of Material Adverse Change............................ 27 J. ERISA Reports................................................ 27 K. Regulation U................................................. 28 L. Future Subsidiaries.......................................... 28 6. NEGATIVE COVENANTS A. Borrowings................................................... 29 B. Mortgages, etc............................................... 31 C. Consolidation, Merger or Sale of Assets...................... 33 D. Loans, Advances and Contingent Liabilities................... 33 E. Investments.................................................. 34 F. Payments on Stock; Restricted Investment..................... 36 G. Sale and Leaseback........................................... 37 H. Obligations as Lessee........................................ 37 I. Negative Pledges, Restrictive Agreements, etc................ 37 J. Financial Covenants.......................................... 38 -ii- SECTION PAGE 7. EVENTS OF DEFAULT A. Nature of Events............................................. 39 1. Default in Payment of Obligations................... 39 2. Incorrect Representation............................ 39 3. Default Under Certain Covenants..................... 39 4. Default Under Other Provisions...................... 39 5. Cross Default....................................... 39 6. Bankruptcy, etc..................................... 40 7. Unpaid Judgment..................................... 40 8. Material Reportable Events.......................... 40 9. Control of the Borrower............................. 41 10. Impairment of Security, etc........................ 41 B. Banks' Rights of Set-off..................................... 41 8. THE AGENT AND COLLATERAL AGENT A. Authorization by Banks....................................... 43 B. Duties of Agent and Collateral Agent......................... 43 C. Limitation of Liability...................................... 44 D. Expenses..................................................... 45 E. Resignation of Agent......................................... 45 F. Acceptance of Appointment.................................... 45 G. Co-Agents.................................................... 46 9. DEFINITIONS 10. AMENDMENTS AND WAIVERS 11. MISCELLANEOUS A. Costs and Expenses........................................... 61 B. Indemnity.................................................... 61 C. Notices...................................................... 62 D. Survival of Representations and Warranties................... 62 E. Construction................................................. 62 F. Jurisdiction................................................. 62 G. Headings..................................................... 63 H. Successors and Assigns....................................... 63 I. Counterparts................................................. 63 J. Waiver of Jury Trial......................................... 63 K. Cross-References............................................. 64 -iii- EXHIBITS Exhibit A-2 List of Banks Exhibit B Form of Note Exhibit C Form of Leverage Ratio Certificate Exhibit D Form of Compliance Certificate Exhibit E Form of Subordination Provisions Exhibit F Addresses of the Agent and the Banks -iv- SECOND AMENDED AND RESTATED CREDIT AGREEMENT SECOND AMENDED AND RESTATED CREDIT AGREEMENT dated as of April 30, 1997 among THE GENLYTE GROUP INCORPORATED, a Delaware corporation (the "BORROWER"), each of the banks named in EXHIBIT A-2 (individually, a "BANK" and collectively, the "BANKS"), BANK OF AMERICA ILLINOIS (formerly known as "CONTINENTAL BANK, N.A."), as a Bank and as Issuer (the "ISSUER"), THE BANK OF NEW YORK and SUN TRUST BANK, ATLANTA (collectively, the "CO-AGENTS") and BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Agent for the Banks (the "AGENT") (this "AGREEMENT"). R E C I T A L S: WHEREAS, the Borrower, the Existing Banks and Bank of America Illinois entered into an Amended and Restated Credit Agreement dated November 15, 1995 (the "EXISTING CREDIT AGREEMENT"); and WHEREAS, the Borrower, the Banks, the Issuer and the Agent desire to amend and restate the provisions of the Existing Credit Agreement as herein provided for the purposes of (i) modifying certain provisions; and (ii) releasing certain Existing Banks party to the Existing Credit Agreement; NOW THEREFORE, in consideration of the agreements herein contained, the parties hereby agree that , as of the Effective Date, the Existing Credit 1. COMMITMENT. a. AMOUNT. Subject to the terms and conditions hereof, i. each Bank agrees to make Loans (individually a "LOAN" and collectively the "LOANS") to the Borrower, at any time and from time to time on or after the date hereof and prior to the Final Maturity Date or until such earlier time as such Bank's Commitment set forth on EXHIBIT A-2, as such Commitment may be permanently reduced or terminated pursuant to SUBPARAGRAPH 1(d) hereof, shall have terminated in accordance with the terms hereof, PROVIDED that at no time shall the aggregate outstanding principal amount of any Bank's Loans, together with an amount equal to such Bank's Percentage multiplied by the then -1- aggregate amount of Letter of Credit Outstandings, exceed the Commitment of such Bank; and ii. the Issuer agrees to issue, for the account of the Borrower and in Stated Amounts requested by the Borrower, one or more Letters of Credit, at any time and from time to time on or after the date hereof and prior to the Final Maturity Date or such earlier time as the Commitment shall have been permanently reduced to zero or terminated; PROVIDED that at no time shall the aggregate amount of Letter of Credit Outstandings exceed $25,000,000. b. REBORROWINGS. Subject to the terms and conditions hereof, the Borrower may borrow, prepay, repay and reborrow Loans from each Bank at any time and from time to time on or after the date hereof and prior to the Final Maturity Date, PROVIDED that the aggregate outstanding principal amount of such Bank's Loans, together with an amount equal to such Bank's Percentage multiplied by the then aggregate amount of Letter of Credit Outstandings, does not exceed the amount of such Bank's Commitment, and PROVIDED, FURTHER, that any such prepayment or repayment shall be pro-rata among all the Banks. c. BANKS' OBLIGATIONS SEVERAL AND NOT JOINT. i. The respective obligations of the Banks hereunder are several and not joint. The failure of any Bank to make any Credit Extension hereunder shall not relieve any other Bank from its obligation to make a Credit Extension hereunder and no Bank shall be obligated to make up the amount of any Credit Extension that a Bank has failed to make available hereunder. ii. Promptly on the date specified in the notice of a Loan required under SUBDIVISION 4(b)(1), each Bank shall make available to the Agent Federal or other immediately available funds in the amount of such Bank's Loan. d. REDUCTION OR TERMINATION OF COMMITMENTS. i. The Borrower may at any time permanently reduce in part in the aggregate principal amount of $5,000,000 and integral multiples of $1,000,000 in excess thereof, or terminate in whole the Commitment of each Bank (on a pro-rata basis) and the Borrower's obligation to pay a commitment fee in respect -2- thereof upon three (3) Business Days' prior written notice of such reduction or termination to the Agent, without penalty, PROVIDED that (a) on or before the effective date of any such partial reduction, the portion of the outstanding principal amount of the Loans of each Bank which, together with an amount equal to such Bank's Percentage multiplied by the then aggregate amount of Letter of Credit Outstandings, exceeds the Commitment of such Bank, as so reduced, shall be paid as a mandatory prepayment and (b) on or before the effective date of any such termination in whole, the entire outstanding principal amount of the Loans of each Bank shall be paid as a mandatory prepayment and all the Letters of Credit shall have been terminated in full or the Borrower shall have paid or cash collateralized in full the related Reimbursement Obligations. Voluntary partial reductions of the Commitment, made pursuant to this SUBDIVISION 1(d)(1), shall be credited to the mandatory quarterly reductions required pursuant to SUBDIVISION 1(d)(2) below, in the order of the next occurring quarterly reductions. ii. Subject to any credits for any voluntary partial reductions of the Commitment set forth in SUBDIVISION 1(d)(1) above, the aggregate Commitment of all the Banks shall, automatically and without any further action or notice to any Person, be reduced by $2,500,000 on March 31, 1998, June 30, 1998, September 30, 1998 and December 31, 1998. iii. The aggregate Commitment of all the Banks shall be reduced by the amount of any prepayment resulting from a Sale and Leaseback permitted in SUBPARAGRAPH 6(g). Mandatory Commitment reductions required by SUBDIVISIONS 1(d)(2) and (3) shall be subject to the prepayment provisions set forth in SUBDIVISION 1(d)(1) above except that the principal amount limitations for reductions in Commitments set forth in 1(d)(1) above shall not apply. iv. Notwithstanding SUBPARAGRAPH 1(b) and SUBDIVISION 1(d)(1), in the event that any Bank shall give any notification to the Borrower pursuant to SUBDIVISION 2(g)(5), the Borrower shall have the right to terminate immediately the unused portion of the Commitment of such Bank by giving notice of such termination to such Bank and to the Agent, in which event such Bank shall have no further Commitment under this Agreement except in the amount of Loans made by such Bank at the time -3- outstanding and its Percentage of the then outstanding amount of Letter of Credit Outstandings, and when all such Loans made by such Bank have been paid or prepaid and all Letters of Credit in which it has purchased a participation have been terminated in full or the Borrower has paid or cash collateralized in full the related Reimbursement Obligations, such Bank shall have no further Commitment under this Agreement. In the event that the Borrower terminates the Commitment of any Bank pursuant to the provisions of this SUBDIVISION (d)(4), the respective Commitments of the other Banks shall be unaffected in any manner whatsoever, PROVIDED that each remaining Bank's Percentage shall, automatically and without any further action, be adjusted accordingly. -4- 2. TERMS OF CREDIT. a. THE NOTES. (1) The obligation of the Borrower to repay the Loans shall be evidenced by Notes of the Borrower, payable to the order of each Bank, in substantially the form of EXHIBIT B, with blanks appropriately filled, signed and dated their date of issuance. The Loans and Notes shall be payable on the Final Maturity Date. The Loans made to the Borrower by any Bank and all payments and prepayments on account of the principal of such Loans shall be recorded and endorsed by such Bank on the Schedule of Loans and Payments of Principal on the reverse side of the Note issued to it, which recordation and endorsement shall be PRIMA FACIE evidence of Loans by and payment to such Bank; PROVIDED that the failure of such Bank to set forth such principal payments, prepayments and other information on such Schedule shall not in any manner affect the obligation of the Borrower to repay the Loans made by such Bank in accordance with the terms of such Note. Each Bank agrees to deliver to the Borrower from time to time a true copy of the Note (including such Schedule) issued to such Bank upon the written request of the Borrower. (2) The Notes shall bear interest from the date thereof until maturity or earlier payment by the Borrower pursuant to SUBPARAGRAPHS 1(d) or 2(c) or PARAGRAPH 7, at the rate calculated as set forth in SUBPARAGRAPH 2(b) below, except as otherwise provided in this SUBDIVISION 2(a)(2). Except as otherwise provided in this Agreement, such interest shall be payable on each Interest Payment Date and at the Final Maturity Date on the unpaid principal amount of Notes from time to time outstanding. After the stated maturity or such earlier date on which the principal of any Note may become or may be declared due and payable pursuant to PARAGRAPH 7, such Note shall bear interest (and after the date of any required prepayment pursuant to SUBDIVISION 2(c)(1), the principal amount of such Note required to be prepaid shall bear interest) at the rate per annum of 2% over the Base Rate, payable on each Interest Payment Date or, at the option of the holder thereof, upon demand. b. INTEREST RATE. i. The Notes shall bear interest at a rate which, at the election of the Borrower, shall be either the Base Rate or the Eurodollar Rate. The Borrower shall elect the applicable rate of interest as follows: -5- (1) Not later than 12:00 noon, New York time, on the Business Day on which Loans at the Base Rate are to be made, the Borrower shall give the Agent telephonic notice specifying the aggregate principal amount of such Loans, and the date such Loans are to be made. At least three (3) Business Days prior to the making of each Loan at the Eurodollar Rate, the Borrower shall give the Agent either (1) written notice, or (2) telephone notice before 12:00 noon, New York time, on the third Business Day prior to the date specified for the making of such Loan, in either case, specifying the aggregate principal amount of such Loan, the date on which such Loan is to be made and the applicable Interest Period, PROVIDED, that any such notice shall be irrevocable when given. The telephonic notices provided for herein shall be confirmed by the Agent to the Borrower in a writing which shall be sent or mailed by the Agent prior to the end of the second Business Day following the Business Day on which such telephonic notice was given. As to any Bank, if the Borrower fails in a timely fashion as set forth above to make such election or to specify the applicable Interest Period, the Base Rate shall apply to such Bank's Loan or applicable portion thereof. (2) The Base Rate or the Eurodollar Rate shall (subject to the provisions of this SUBDIVISION 2(b)(1)(b) and subdivision 2(B)(4) and SUBPARAGRAPH 2(g)) apply to that portion of each Loan specified in the notice. The Borrower may from time to time by notice to the Agent change its election as between the Base Rate and the Eurodollar Rate, including the Interest Period to be applied to any portion of the outstanding amount of any Loan calculated at the Eurodollar Rate, PROVIDED that (i) notice of any such change in election to the Eurodollar Rate or an applicable Interest Period for the Eurodollar Rate shall be irrevocable when given and shall be given telephonically or in writing to the Agent before 12:00 noon, New York time, on the third Business Day prior to the date desired for such change, and shall become effective on the date (which shall be at least two (2) Business Days subsequent to the date of such notice) specified therein; (ii) any election to change from the Eurodollar Rate to the Base Rate, or to change the applicable Interest Period, with respect to the next -6- applicable Interest Period, shall not become effective prior to the end of the then current applicable Interest Period; (iii) at any given time, the maximum number of Loans at the Eurodollar Rate made by any Bank shall not exceed ten; and (iv) the minimum aggregate principal amount of Loans at the Eurodollar Rate made by all Banks for any one Interest Period shall be not less than $5,000,000. The telephonic notices provided for herein shall be confirmed by the Agent to the Borrower in writing which shall be sent or mailed to the Borrower prior to the end of the second Business Day following the Business Day on which such telephonic notice was given. As to any Bank, if the Borrower fails in a timely fashion as set forth above to make such election or to specify the applicable Interest Period, the Base Rate shall apply to such Bank's Loan or applicable portion thereof. ii. With respect to the Base Rate, interest shall be computed on the actual number of days elapsed over a year comprised of 365/366 days. Each change in the interest rate as a consequence of a change in the Base Rate shall take effect as of the opening of business on the date announced for the effectiveness of such change. Interest at the Eurodollar Rate shall be computed on the basis of the actual number of days elapsed over a year comprised of 360 days. The Eurodollar Rate shall be determined by the Agent which determination shall be conclusive absent manifest error. iii. Notwithstanding anything herein or in the Notes to the contrary, if the Agent in its sole discretion determines that on any date on which a Eurodollar Rate is to be determined for the next Interest Period elected by the Borrower, U.S. dollar deposits are not generally available in the London interbank market for such Interest Period in the amount of the Loan or portion thereof for which the Eurodollar Rate has been elected to be outstanding during such Interest Period, or that reasonable means do not exist for ascertaining the Eurodollar Rate, the Agent shall promptly so notify the Borrower, and (unless the Borrower elects a different Interest Period pursuant to SUBDIVISION 2(b)(1)) the Base Rate shall automatically be applicable to such Loan or portion thereof. After such notice shall have been given and until the circumstances giving rise to such notice no longer exist, each election for the Eurodollar Rate shall be deemed to be an election for the Base Rate. Each -7- determination by the Agent hereunder shall be conclusive absent manifest error. iv. For purposes of this Agreement, the Applicable Margin shall be in effect as set forth below: (1) for the period commencing on the Effective Date and ending on the day immediately preceding the next to occur Adjustment Date: APPLICABLE MARGIN Base Rate 0% Eurodollar Rate 0.450% (2) from and after the period specified in SUBDIVISION 2(b)(4)(a), for each three-month period commencing on an Adjustment Date and ending on the day immediately preceding the next succeeding Adjustment Date, the rate per annum for the relevant type of Loan set forth below opposite the Consolidated Leverage Ratio determined as at the end of the last fiscal quarter ended prior to the first day of such period: APPLICABLE MARGIN EURODOLLAR RATE BASE RATE Consolidated Leverage Ratio is less than or equal to .30 to 1.0 ("LEVEL I") 0.350% 0% Consolidated Leverage Ratio is less than or equal to .40 to 1.0 but greater than .30 to 1.0 ("LEVEL II") 0.450% 0% Consolidated Leverage Ratio is less than or equal to .45 to 1.0 but greater than .40 to 1.0 ("LEVEL III") 0.625% 0% -8- Consolidated Leverage Ratio is less than or equal to .50 to 1.0 but greater than .45 to 1.0 ("LEVEL IV") 0.750% 0% Consolidated Leverage Ratio is less than or equal to .55 to 1.0 but greater than .50 to 1.0 ("LEVEL V") 0.875% 0% Consolidated Leverage Ratio is greater than .55 to 1.0 ("LEVEL VI" 1.250% 0.375% (3) If by any Adjustment Date, the Borrower has failed to deliver a Leverage Ratio Certificate as at the end of the fiscal quarter ended immediately prior to such Adjustment Date interest for the next succeeding three-month period shall be computed as if the Consolidated Leverage Ratio were at Level VI. (4) For any period for which the Applicable Margin is calculated based on a Leverage Ratio Certificate which has been prepared using unaudited fiscal year-end financial statements of the Borrower, Borrower shall submit a revised Leverage Ratio Certificate, as soon as available, prepared using the audited financial statements for such period. In the event the Applicable Margin changes as a result of the revised Leverage Ratio Certificate, an adjustment shall be made at the next Interest Payment Date, which shall be either (i) a credit in the amount of interest which has been overpaid or (ii) payment of additional interest in the amount of any deficiency, such credit or deficiency to be determined by the Agent. c. PREPAYMENT. i. Upon termination or permanent reduction of the Commitment, the Borrower shall make mandatory prepayments required by SUBPARAGRAPHS 1(d) or 6(g), together with all accrued but unpaid interest to the date of prepayment on the principal -9- amount of the Loans so prepaid. Subject to SUBPARAGRAPH 2(i), any such prepayment shall be without premium or penalty. ii. The Borrower shall have the right, at any time or from time to time, to prepay the outstanding principal amounts of the Notes in whole or in part, in the aggregate principal amount of $5,000,000 and integral multiples of $1,000,000 in excess thereof, upon not less than three (3) Business Days' written or telecopier notice to the Agent, PROVIDED that to the extent that the Borrower has elected to use the Eurodollar Rate for any Loan, a prepayment may be made only on the last day of the Interest Period applicable thereto. At the time of each such payment the Borrower shall pay all accrued but unpaid interest to the date of prepayment on the principal amount so prepaid. Subject to SUBPARAGRAPH 2(i), any such prepayment shall be without premium or penalty. d. FEES. i. The Borrower shall pay all fees, required to be paid, in the amounts and at the times set forth in (i) with respect to the Agent, BAI and BancAmerica Securities, the Fee Letter and, (ii) with respect to each Bank in accordance with the Memorandum. ii. The Borrower shall pay to the Agent for the account of each Bank a commitment fee on the average daily unused portion of the Commitment, being the amount by which the Commitment of the Banks exceeds the sum of (x) the aggregate principal amount of all outstanding Loans and (y) the aggregate amount of all Letter of Credit Outstandings. Such fee shall be computed on a quarterly basis in arrears on the last Business Day of each calendar quarter based upon the daily utilization for that quarter, assuming a year comprised of 360 days, as calculated by the Agent, equal to (A) for the period from the Effective Date and ending on the day immediately preceding the next to occur Adjustment Date, 0.15% per annum and (B) from and after the period specified in SUBDIVISION 2(b)(4)(a), for each three-month period commencing on an Adjustment Date and ending on the day immediately preceding the next succeeding Adjustment Date, the rate per annum set forth below opposite the relevant level of Consolidated Leverage Ratio determined as at the end of the last fiscal quarter ended prior to the first day of such period: -10- CONSOLIDATED LEVERAGE RATIO Level I 0.125% Level II 0.15% Level III 0.20% Level IV 0.25% Level V 0.30% Level VI 0.375%; PROVIDED, HOWEVER, that if by any Adjustment Date the Borrower has failed to deliver a Leverage Ratio Certificate at the end of the fiscal quarter ended immediately prior to such Adjustment Date, the commitment fee for the next succeeding three-month period beginning on such Adjustment Date and ending on the next succeeding Adjustment Date shall be computed at the Level VI rate. iii. The Borrower shall pay to the Agent for the account of each Bank a letter of credit fee with respect to the Letters of Credit computed on the average daily maximum amount available to be drawn of outstanding Letters of Credit, on a quarterly basis in arrears on the last Business Day of each calendar quarter based upon Letters of Credit outstanding for that quarter. The rate applicable to the Letter of Credit fee shall be equal to (i) for the period from the Effective Date and ending on the day immediately preceding the next to occur Adjustment Date, with respect to each standby Letter of Credit 0.35% per annum and with respect to each documentary Letter of Credit 0.15% per annum and from and after the period specified in SUBDIVISION 2(b)(4)(a), for each three-month period commencing on an Adjustment Date and ending on the day immediately preceding the next succeeding Adjustment Date, the rate per annum set forth below opposite the relevant level of Consolidated Leverage Ratio determined as at the end of the last fiscal quarter ended prior to the first day of such period: CONSOLIDATED LEVERAGE RATIO Standby Documentary Letters of Credit Letters of Credit ----------------- ----------------- Level I 0.250% .125% Level II 0.350% .15% -11- Standby Documentary Letters of Credit Letters of Credit ----------------- ----------------- Level III 0.525% .20% Level IV 0.650% .25% Level V 0.775% .30% Level VI 1.150% .375%; PROVIDED, HOWEVER, that if by any Adjustment Date the Borrower has failed to deliver a Leverage Ratio Certificate at the end of the fiscal quarter ended immediately prior to such Adjustment Date, the letter of credit fee for the next succeeding three-month period beginning on such Adjustment Date and ending on the next succeeding Adjustment Date shall be computed at the Level VI rate for each standby Letter of Credit and documentary Letter of Credit. Such letter of credit fee shall be due and payable quarterly in arrears on the last Business Day of each calendar quarter during which each Letter of Credit is outstanding, commencing on the first such quarterly date to occur after the Effective Date, through the Stated Expiry Date, with the final payment to be made on the Stated Expiry Date. iv. The Borrower shall pay to the Issuer a letter of credit fronting fee for each standby Letter of Credit issued by the Issuer equal to 1/10% of the face amount of such Letter of Credit. Such Letter of Credit fronting fee shall be due and payable quarterly in arrears on the last Business Day of each calendar quarter. v. The Borrower shall pay to the Issuer from time to time on demand the normal issuance, presentment, amendment and other processing fees, and other standard costs and charges, of the Issuer relating to each Letter of Credit as from time to time in effect. e. LETTERS OF CREDIT. i. REQUESTS. By delivering to the Agent a written notice on or before 11:00 a.m., New York time, on a Business Day on or prior to the Final Maturity Date, specifying the Stated Amount of the Letter of Credit, the date on which such Letter of Credit is to be issued, the name and address of the beneficiary, the obligation such Letter of Credit supports and the Stated Expiry Date of such Letter of Credit, the Borrower may, from time to time, irrevocably request, on not less than three (3) nor more than ten (10) Business Days' notice, in the -12- case of an initial issuance of a Letter of Credit, and not less than ten (10) days' prior notice, in the case of a request for the extension of the Stated Expiry Date of a Letter of Credit, that the Issuer issue, or extend the Stated Expiry Date of, as the case may be, an irrevocable letter of credit in such form as may be requested by the Borrower and approved by the Issuer, solely for the purposes described in SUBPARAGRAPH 2(l); PROVIDED, HOWEVER, that with respect to any request to extend the Stated Expiry Date of any outstanding Letter of Credit the Borrower may make such request on any Business Day on or prior to the Final Maturity Date on the terms set forth in this sentence. Upon receipt of such written notice, the Agent shall promptly notify the Issuer and each Bank thereof. Each Letter of Credit shall by its terms be stated to expire on its Stated Expiry Date. The Issuer will issue such Letter of Credit and make available to the beneficiary thereof the original of each Letter of Credit which it issues hereunder. ii. OTHER BANKS' PARTICIPATION. Automatically, and without further action, upon the issuance of each Letter of Credit, each Bank (other than the Issuer) shall be deemed to have irrevocably purchased from the Issuer, to the extent of such Bank's Percentage, a participation interest in such Letter of Credit (including any Reimbursement Obligation and any other contingent liability with respect thereto), and such Bank shall, to the extent of its Percentage, be responsible for reimbursing promptly (and in any event within one (1) Business Day after receipt of demand for payment from the Issuer, together with accrued interest from the day following such demand at the Federal Funds Rate) the Issuer for any Reimbursement Obligation which has not been reimbursed by the Borrower in accordance with SUBDIVISION 2(e)(3). In addition, such Bank shall, to the extent of its Percentage, be entitled to receive a ratable portion of the Letter of Credit participation fee payable pursuant to SUBPARAGRAPH 2(d) with respect to each Letter of -13- Credit and a ratable portion of the interest payable pursuant to subparagraph 2(a). iii. DISBURSEMENTS. Subject to the terms and provisions of such Letter of Credit and this Agreement, upon presentment of any Letter of Credit to the Issuer for payment, such Issuer shall make such payment to the beneficiary (or its designee) of such Letter of Credit on the Disbursement Date. The Issuer of a Letter of Credit will notify the Borrower and each of the Banks promptly of the presentment for payment of any such Letter of Credit, together with notice of the Disbursement Date therefor. Prior to 11:00 a.m., New York time, on the next Business Day following the Disbursement Date, the Borrower shall reimburse the Agent, for the account of the Issuer, for all amounts disbursed under such Letter of Credit, together with all interest accrued thereon since the Disbursement Date, at the then applicable rate of interest for Base Rate Loans. iv. REIMBURSEMENT. The Reimbursement Obligation and, upon the failure of the Borrower to reimburse the Issuer, each Bank's obligation under SUBDIVISION 2(e)(2) to reimburse the Issuer, shall each be absolute and unconditional under any and all circumstances and irrespective of any setoff, counterclaim or defense to payment which the Borrower or such Bank, as the case may be, may have or have had, including any defense based upon the failure of any Disbursement to conform to the terms of the applicable Letter of Credit (if, in the Issuer's good faith opinion, such Disbursement is determined to be appropriate) or any non- application or misapplication by the beneficiary of the proceeds of such Letter of Credit; PROVIDED, HOWEVER, that after paying in full its Reimbursement Obligation hereunder, nothing herein shall adversely affect the right of the Borrower or such Bank, as the case may be, to commence any proceeding against the Issuer for any wrongful Disbursement made by the Issuer under a Letter of Credit as a result of acts or -14- omissions constituting gross negligence or willful misconduct on the part of such Issuer. v. DEEMED DISBURSEMENTS. Upon the occurrence and during the continuation of any event which, after the giving of notice or lapse of time or both, would constitute an event of default under SUBDIVISION 7(a)(6) or, with notice from the Agent, upon the occurrence and during the continuation of any event of default (1) an amount equal to that portion of all Letter of Credit Outstandings attributable to the then aggregate amount which is undrawn and available under all issued and outstanding Letters of Credit shall, without demand upon or notice to the Borrower, be deemed to have been paid out or disbursed by the Issuer under such Letters of Credit (notwithstanding that such amount may not in fact have been so paid out or disbursed); and (2) the Borrower shall be immediately obligated to reimburse the Issuer for the amount deemed to have been so paid or disbursed by such Issuer. Any amounts so payable by the Borrower pursuant to this SUBDIVISION 2(e)(5) shall be deposited in cash in an account designated by the Agent and held as collateral for application to the payment of any Obligations. At such time when such event or such event of default shall have been cured or waived (and provided no other default has occurred and is continuing and the Loans have not been accelerated pursuant to PARAGRAPH 7), the Agent shall return to the Borrower all amounts then on deposit with the Agent pursuant to this SUBDIVISION 2(e)(5), net of any amounts applied to the payment of any Obligations. vi. NATURE OF REIMBURSEMENT OBLIGATIONS. The Borrower shall assume all risks of the acts, omissions or misuse of any Letter of Credit by the beneficiary thereof. The Issuer (except to the extent of its own gross negligence or willful misconduct) shall not be responsible for: (1) the form, validity, sufficiency, accuracy, genuineness or legal effect of any Letter of Credit or any document -15- submitted by any party in connection with the application for and issuance of a Letter of Credit, even if it should in fact prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent or forged; (2) the form, validity, sufficiency, accuracy, genuineness or legal effect of any instrument transferring or assigning or purporting to transfer or assign a Letter of Credit or the rights or benefits thereunder or the proceeds thereof in whole or in part, which may prove to be invalid or ineffective for any reason; (3) failure of the beneficiary to comply fully with conditions required in order to demand payment under a Letter of Credit; (4) errors, omissions, interruptions or delays in transmission or delivery of any messages, by mail, telecopier, telex or otherwise; or (5) any loss or delay in the transmission or otherwise of any document or draft required in order to make a Disbursement under a Letter of Credit. None of the foregoing shall affect, impair or prevent the vesting of any of the rights or powers granted to the Issuer or any Bank hereunder. In furtherance and extension and not in limitation or derogation of any of the foregoing, any action taken or omitted to be taken by an Issuer in good faith (and not constituting gross negligence or willful misconduct) shall be binding upon the Borrower and each such Bank, and shall not put such Issuer under any resulting liability to the Borrower or any such Bank, as the case may be. f. PRO RATA TREATMENT. Each Credit Extension hereunder, each reduction of the Commitment (except as provided in SUBDIVISION 1(d)(3)), each election of the Base Rate or the Eurodollar Rate (except as otherwise provided in SUBPARAGRAPH 2(h)), each payment or prepayment of principal or interest (except as provided in SUBPARAGRAPH 2(g) below) on the Notes, each payment obligation with respect to the Letter of Credit Outstandings and each payment of the fees set forth in SUBPARAGRAPH 2(d) shall be made or applied among the Banks PRO RATA in accordance with their respective Percentage, -16- PROVIDED that, if the proportion of the aggregate principal amount of the outstanding Notes held by the Banks shall vary from such original or revised Percentages, then each payment or prepayment of principal or interest on the Notes and payments on the Letters of Credit shall be made or applied among the Banks PRO RATA in accordance with the outstanding principal amount of the Notes. G. RESERVE REQUIREMENTS; CHANGE IN CIRCUMSTANCES. i. It is understood that the cost to the Banks of making or maintaining Eurodollar Loans may fluctuate as a result of the applicability of, or changes in, reserve requirements imposed by the Board of Governors of the Federal Reserve System of the United States, including, but not limited to, reserve requirements under Regulation D of such Board of Governors ("REGULATION D") at the ratios provided for in Regulation D from time to time. The Borrower agrees to pay to each Bank from time to time, as provided in SUBDIVISION (g)(3) below, such amounts as shall be necessary to compensate such Bank for the portion of the cost of making or maintaining any Eurodollar Loans made by it resulting from any such reserve requirements, it being understood that the rates of interest applicable to Eurodollar Loans hereunder have been determined on the hypothetical assumption that no such reserve requirements exist or will exist and that such rates do not reflect costs imposed on the Banks in connection with such reserve requirements. It is agreed that for purposes of this SUBDIVISION (g)(1) the Eurodollar Loans made hereunder shall be deemed to constitute Eurocurrency liabilities as defined in Regulation D and to be subject to the reserve requirements of Regulation D without benefit or credit of proration, exemptions or offsets which might otherwise be available to any Bank from time to time under Regulation D. ii. In the event that after the date hereof any change in conditions or in applicable law or regulations or in the interpretation or administration thereof (including, without limitation, any request, guideline or policy not having the force of law) by any authority charged with the administration or interpretation thereof shall occur which shall: (1) subject any Bank to any tax with respect to any Loan at the Eurodollar Rate (other than any tax on the overall net -17- income of such Bank imposed by the United States of America or by the jurisdiction in which such Bank has its principal office or any political subdivision or taxing authority therein); or (2) change the basis of taxation of any payment to any Bank of principal of or interest on or other fees and amounts payable on any Loan at the Eurodollar Rate; or (3) impose, modify or deem applicable any reserve, deposit or similar requirement against any assets held by, deposits with or for the account of or loans or commitments by an office of any Bank; or (4) impose upon any Bank or the interbank eurodollar market any other condition with respect to Loans at the Eurodollar Rate or this Agreement; and the result of any of the foregoing shall be to increase the actual cost to such Bank of making or maintaining any Loan at the Eurodollar Rate or to reduce the amount of any payment (whether of principal, interest or otherwise) received or receivable by such Bank, or to require such Bank to make any payment in connection with any Loan at the Eurodollar Rate, in each case by or in an amount which such Bank in its sole judgment shall deem material, then and in each such case the Borrower shall pay to such Bank, as provided in SUBDIVISION (g)(3) below, such amounts as shall be necessary to compensate such Bank for such cost, reduction or payment. iii. Each Bank shall deliver to the Borrower from time to time one or more certificates setting forth the amounts due to such Bank under SUBDIVISIONS 2 (g)(1) and 2(g)(2) and the changes as a result of which such amounts are due. Each such certificate shall be conclusive in the absence of manifest error. The Borrower shall pay to each Bank the amounts shown as due on any such certificate within ten days after its receipt of the same. No failure on the part of any Bank to demand compensation under SUBDIVISION 2(g)(1) on any one occasion shall constitute a waiver of its right to demand such compensation on any other occasion; provided that any demand for compensation pursuant to this SUBPARAGRAPH 2(g) relating to any Interest Period for a Loan at the Eurodollar Rate shall be made not later than the expiration of one year after the last day -18- of such Interest Period. The protection of this SUBPARAGRAPH 2(g) shall be available to each Bank regardless of any possible contention of the invalidity or inapplicability of any law, regulation or other condition which shall give rise to any demand by such Bank for compensation hereunder. iv. Notwithstanding any other provision of this Agreement, the Borrower shall not have any liability under this SUBPARAGRAPH 2(g) as a result of any change in a Bank's lending office, or an assignment or participation of a Bank's rights or obligations under this Agreement if such change, assignment or participation would, but for the application of this sentence, impose any liability on the Borrower under this SUBPARAGRAPH 2(g) by reason of legal, regulatory or other requirements in effect or pending at the time of such change, assignment or participation. v. In the event that any Bank shall have determined that the adoption of any law, rule or regulation regarding capital adequacy, affecting the banking industry generally, or any change therein or in the interpretation or application thereof or compliance by any Bank with any request or directive affecting the banking industry generally regarding capital adequacy (whether or not having the force of law) from any central bank or governmental authority, does or shall have the effect of reducing the rate of return on such Bank's capital as a consequence of its obligations hereunder (including the Commitment of, and Credit Extensions made by, such Bank) to a level below that which such Bank could have achieved but for such adoption, change or compliance (taking into consideration such Bank's policies with respect to capital adequacy) by an amount deemed by such Bank to be material, then from time to time, after submission by such Bank to the Borrower (with a copy to the Agent) of a written notice of such reduction and as soon as practicable thereafter, supporting documentation with respect thereto, the Borrower shall pay to such Bank such additional amount or amounts as will compensate such Bank for such reduction, PROVIDED that the Borrower shall not be required to make any such payments with respect to any periods prior to receipt of written notice of such reduction and PROVIDED FURTHER that no such payment shall be due until the Borrower has received supporting documentation with respect thereto which supporting documentation shall be deemed to be conclusive absent manifest error. Notwithstanding the foregoing, to the -19- extent that the adoption of any such industry-wide law, rule, regulation, request or directive regarding capital adequacy is reflected in the rate of interest paid by the Borrower on any Loan, the Borrower shall not be obligated to make any such compensatory payments to the Bank. h. CHANGE IN LEGALITY. Notwithstanding any other provision herein, in the event that any change after the date hereof in applicable law or regulation or the interpretation thereof by any governmental authority charged with the administration or interpretation thereof, shall at any time make it unlawful for any Bank to make or maintain a Loan as to which the Borrower has elected the Eurodollar Rate, then upon the happening of such event, such Bank may, by written notice to the Borrower, i. declare that Loans bearing the Eurodollar Rate shall not thereafter be made by such Bank hereunder, whereupon the Borrower shall be prohibited from requesting the Eurodollar Rate from such Bank hereunder, unless such declaration is subsequently withdrawn, and ii. require that, at the end of the then current Interest Period (or earlier if required by law), the outstanding balance of such Loan be converted to a Loan which shall bear interest at the Base Rate. i. REIMBURSEMENT OF BANKS. The Borrower shall reimburse each Bank on demand for any loss incurred or to be incurred by it in the reemployment of the funds released by any prepayment, acceleration or conversion of any Loan for which the Eurodollar Rate has been elected under any other provision of this Agreement or otherwise if such Loan is prepaid or converted other than on the last day of an Interest Period for such Loan. Such loss shall be the difference as reasonably determined (which determination shall be conclusive and binding on the Borrower absent manifest error) by such Bank between its cost of obtaining the funds for the Loan being prepaid or converted (based upon the Eurodollar Rate applicable thereto) and any lesser amount that would be realized by such Bank in reemploying the funds received in prepayment (or realized from the Loan so converted) during the period from the date of prepayment, acceleration or conversion to the end of the Interest Period of the Loan being prepaid or converted at the Eurodollar Rate that would apply to an Interest Period of such -20- duration. These covenants shall survive the termination of this Agreement and payment of the outstanding Notes. j. INDEMNITY. Without duplication of indemnity payments made pursuant to other provisions of this Agreement, the Borrower will indemnify each Bank against any actual loss or expense which such Bank may sustain or incur as a consequence of any default in payment or prepayment of the principal amount of any Loan or any part thereof or interest accrued thereon, as and when due and payable (at the due date thereof, by notice of prepayment or otherwise), or the occurrence of any Event of Default, including but not limited to any such loss or expense sustained or incurred in liquidating or employing deposits from third parties acquired to effect or maintain such Loan or any part thereof. Each Bank shall provide to the Borrower a statement, signed by an officer of such Bank and supported where applicable by documentary evidence, explaining the amount of any such actual loss or expense, which statement shall, in the absence of manifest error, be conclusive with respect to the parties hereto. These covenants shall survive the termination of this Agreement and payment of the outstanding Notes. k. PAYMENTS. All payments by the Borrower hereunder and under the Notes shall be made in U.S. dollars in immediately available funds at the office of the Agent by 12:00 noon, New York time, on the date on which such payment shall be due. Should the principal of, or any installment of the principal of, or interest on, any of the Notes or any commitment fee payable hereunder become due and payable on other than a Business Day, the due date thereof shall be extended to the next succeeding Business Day and, in the case of principal or installment of principal, interest shall be payable thereon at the rate herein specified during any such extension; PROVIDED that with respect only to any such payment of principal of or interest on any such Note evidencing a Loan for which the Eurodollar Rate has been elected, if such next succeeding Business Day would fall in the next calendar month, the due date of such payment shall be shortened to the next preceding Business Day. l. USE OF PROCEEDS. The Borrower will (1) use the net proceeds of the Loans for working capital and general corporate purposes (excluding any acquisition of an Acquired Company), and (2) use the Letters of Credit for working capital and general corporate purposes (excluding any acquisition of an Acquired Company). -21- m. TAXES. i. Each Bank shall timely provide the Borrower with all forms, certificates and other documents necessary for the Borrower to conclude that payments relating to the loans and other amounts due hereunder are not subject to, or are subject to a reduced rate of, withholding under Sections 1441 and 1442 of the Code (or under any successors to such sections). ii. In the event the Borrower withholds taxes of any Bank pursuant to Section 1441 or 1442 of the Code (or any successor sections), the Agent shall make payments to such Bank net of such withholding, in accordance with the instructions furnished to the Agent by the Borrower. iii. The Agent shall act as United States withholding agent for all purposes of the Code and the regulations thereunder with respect to all amounts payable under this Agreement. iv. In the event any Bank makes an assignment of its interest in the loans or commitments or changes its lending installation with respect to the loans or commitments, such Bank shall promptly inform the Borrower that such assignment or change has occurred and shall promptly provide the Borrower with such details of the assignment or change as the Borrower may reasonably request in order to comply with its tax reporting requirements, if any. n. SECURITY. All the Obligations, whether now or hereafter existing, are secured by certain assets of the Borrower pursuant to and in accordance with the terms of the Pledge Agreement and the Security Agreement. -22- 3. REPRESENTATIONS AND WARRANTIES. The Borrower represents and warrants to the Banks as follows: a. ORGANIZATION AND GOOD STANDING. Each of the Borrower and its Subsidiaries is a corporation duly organized, validly existing and in good standing, under the laws of the state of its incorporation, and has the corporate power to own its properties and to carry on its business as now being conducted. As of the Effective Date the Borrower has no Subsidiaries other than those identified in Attachment 1 to the Pledge Agreement. b. CORPORATE AUTHORITY. The Borrower has full power and authority to enter into this Agreement and the other Loan Documents, to request the Credit Extensions hereunder, to execute and deliver the Notes and to incur the obligations provided for herein, all of which have been duly authorized by all proper and necessary corporate action. No consent or approval of shareholders is required as a condition to the validity of this Agreement, the Notes or any of the other Loan Documents. c. BINDING AGREEMENT. This Agreement constitutes, and the Notes and each other Loan Document when executed and delivered pursuant hereto for value received will constitute, the valid and legally binding obligations of the Borrower enforceable in accordance with their respective terms except as may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights generally and by the availability of equitable remedies or the application of equitable principles. d. NO CONFLICTING AGREEMENTS. The execution, delivery and performance of this Agreement, the Notes and the other Loan Documents and the making of the Credit Extensions hereunder will not violate, conflict with, constitute a default under, or result in the creation of any lien or security interest on any property or assets of the Borrower or any Restricted Subsidiary pursuant to the provisions of any charter, by-law or preference stock provision of the Borrower or any of its Restricted Subsidiaries or any provision of any existing mortgage, indenture, contract or agreement binding on the Borrower or any of its Restricted Subsidiaries, or affecting their respective properties other than any such mortgage, indenture, contract or -23- other agreement which is not material to the Borrower and any of its Restricted Securities, taken as a whole. e. LITIGATION. There are no suits or administrative or other proceedings or investigations pending, or to the knowledge of the Borrower threatened, against or affecting the Borrower or its Restricted Subsidiaries, if any, (1) with respect to this Agreement, the Notes or the other Loan Documents or the transactions contemplated hereby or thereby or (2) which could reasonably be expected to have a material adverse effect on the financial condition of the Borrower and its Restricted Subsidiaries, if any, taken as a whole. Borrower has disclosed the existence of the Keene Corporation Litigation to Agent and the Banks as described in the Opinion of Counsel required under the Existing Credit Agreement. f. TAX RETURNS AND PAYMENTS. All tax returns and reports of the Borrower and its Restricted Subsidiaries, if any, required by law to be filed with the government of the United States and the government of any state or any foreign jurisdiction, or with any taxing authority thereof or therein, in which the Borrower or any of its Restricted Subsidiaries is or is required to be licensed or qualified to do business have been duly filed; and all taxes, assessments, fees and other governmental charges (other than those presently payable without penalty and those currently being contested in good faith and for which a reserve or other appropriate provision, if any, as shall be required by generally accepted accounting principles shall have been made) shown on such returns or levied or imposed upon or in respect of the interests, assets, operations or income of the Borrower or any of its Restricted Subsidiaries have been paid, other than the filing of such tax returns or reports the failure of which to file, and the payment of such taxes, assessments, fees and other governmental charges, the non-payment of which would not, either in any case or in the aggregate, have a material adverse effect on the financial condition of the Borrower and its Restricted Subsidiaries, if any, taken as a whole. g. FINANCIAL STATEMENTS. The Borrower has furnished the Banks with a consolidated balance sheet of the Borrower as of December 31, 1996 and statements of income, cash flow and changes in stockholders' equity for the period then ended, accompanied by the report thereon of the Borrower's independent public accountants. Such financial statements, -24- including the related schedules and notes thereto, if any, have been prepared in accordance with generally accepted accounting principles and present fairly the financial position of the Borrower and the results of its operations as of the dates and for the periods stated therein (subject to year-end footnotes and audit adjustments). Since December 31, 1996, there has been no change in the financial condition or the operations of the Borrower and its Restricted Subsidiaries, if any, other than changes which have not been, either in any case or in the aggregate, materially adverse to the financial condition of the Borrower and its Restricted Subsidiaries taken as a whole. Neither the Borrower nor any of its consolidated subsidiaries had, at the date of the most recent balance sheet referred to above, any material contingent obligation, contingent liabilities or liability for taxes, long-term lease or unusual forward or long-term commitments, which is material to the financial condition of the Borrower and its consolidated subsidiaries taken as a whole and is not reflected in the foregoing statements or in the notes thereto. h. COMPLIANCE WITH GOVERNMENT REGULATIONS. Except for actions taken or filings made as described in Section 3.1.5 of the Security Agreement and Section 3.1.2 of the Pledge Agreement, no action of, or filing with, any governmental or public body is required on the part of the Borrower as a condition to the valid execution, delivery or performance of this Agreement, the Notes or the other Loan Documents and the making of the Credit Extensions hereunder. The execution, delivery and performance of this Agreement, the Notes and the other Loan Documents do not violate any provision of any Federal, state or municipal law, rule or regulation (including, without limitation, Regulation U or X of the Board of Governors of the Federal Reserve System), or any judgment, order or decree binding on the Borrower. i. EMPLOYEE BENEFIT PLANS. Based upon ERISA and the regulations and published interpretations thereunder, the Borrower and its Subsidiaries, if any, are, to the best of the Borrower's knowledge, in compliance or in the process of complying in all material respects with the applicable provisions of ERISA, subject to the provisions of Section 401(b) of the Internal Revenue Code. No Reportable Event has occurred with respect to any Plan or any Multiemployer Plan. -25- j. OWNERSHIP OF PROPERTY; LIENS. Each of the Borrower and its Restricted Subsidiaries has good record and marketable title in fee simple to or valid leasehold interests in all its real property, and good title to all its other property, in each case to the extent such property is material to the business and financial condition of the Borrower and its subsidiaries taken as a whole, and none of such property is subject to any material Lien, except as permitted in SUBPARAGRAPH 6(b). -26- 4. CONDITIONS PRECEDENT. a. EFFECTIVENESS. Notwithstanding any other provisions of this Agreement, this Agreement shall not become effective until the date on which each of the following conditions set forth in this SUBPARAGRAPH 4(a) has been satisfied. i. EXECUTION IN COUNTERPARTS. The Agent shall have received counterparts of this Second Amended and Restated Credit Agreement duly executed by the parties thereto. ii. RESOLUTIONS, ETC. The Agent shall have received (1) from the Borrower a certificate, dated the Effective Date, of its Secretary as to: (a) resolutions of its Board of Directors, then in full force and effect, authorizing the execution, delivery and performance of this Second Amended and Restated Credit Agreement and (b) the incumbency and signatures of those of its officers authorized to act with respect to this Second Amended and Restated Credit Agreement, upon which certificate the Agent and each Bank may conclusively rely until the Agent shall have received a further certificate of the Secretary of the Borrower canceling or amending such prior certificate; and (2) such other documents (certified if requested) as the Agent or the Required Banks may reasonably request with respect to the transactions contemplated hereby. iii. COMPLIANCE CERTIFICATE. The Agent shall have received for each Bank a certificate executed by the President, any Vice President or the Treasurer of the Borrower, dated the Effective Date, to the effect that the Borrower is then in compliance with all the terms, covenants and conditions of this Agreement which are binding upon it; there shall exist no event of default as designated in PARAGRAPH 7 and no event which, with the giving of notice or the lapse of time or both, would -27- constitute such an event of default; and the representations and warranties contained in PARAGRAPH 3 hereof, Article III of the Security Agreement, Article III of the Pledge Agreement and Section 9 of the Letter of Credit Agreement shall be true with the same effect as though such representations and warranties had been made on the Effective Date. iv. OPINIONS OF COUNSEL. The Agent and each of the Banks shall have received a favorable written opinion of Richard Bindelglass, Esq., General Counsel of the Borrower, dated the Effective Date and satisfactory in form and substance to the Agent and its counsel, as to the matters referred to in (i) SUBPARAGRAPH 3(d) (to the extent of his knowledge after due investigation in the case of mortgages, indentures, contracts and agreements referred to therein) and (ii) SUBPARAGRAPH 3(e) (other than the Keene Corporation Litigation). v. CONFIRMATION. The Agent and the Banks shall have received a confirmation from the Borrower that the Notes, the Letter of Credit Agreement, the Security Agreement, the Pledge Agreement and all Interest Rate Protection Agreements between the Borrower and any Bank or affiliates of any Bank are still in full force and effect. vi. SECURITY AGREEMENT. The Agent shall have received a list from the Borrower of any additional locations where collateral is located, dated as of the Effective Date, together with (1) acknowledgment copies of properly filed Uniform Commercial Code financing statements (Forms UCC-1, 2, or 3 as appropriate), dated a date reasonably near to the Effective Date, or such other evidence of filing as may be acceptable to the Agent, naming the Borrower as the debtor and the Collateral Agent as the secured party, or other similar instruments or documents, filed under the Uniform Commercial Code of all jurisdictions as may be necessary or, in the opinion of the Agent, desirable to perfect or continue the perfection of the security interest -28- of the Collateral Agent at such locations pursuant to the Security Agreement; (2) certified copies of Uniform Commercial Code Requests for Information or Copies (Form UCC-11), or a similar search report certified by a party acceptable to the Agent, dated a date reasonably near to the Effective Date (or such later date as to which the Agent may otherwise consent in writing), listing all effective financing statements which name the Borrower (under its present name and any previous names) as the debtor and which are filed in the jurisdictions in which filings were made pursuant to SUBDIVISION (a) above, together with copies of such financing statements (none of which (other than those described in SUBDIVISION (a), if such Form UCC-11 or search report, as the case may be, is current enough to list such financing statements described in SUBDIVISION (a))) shall cover any collateral described in the Security Agreement). vii. PAYMENT OF FEES. The Borrower shall have paid, in immediately available funds, all fees required to be paid hereunder and under the Fee Letter, including Attorney's Costs. The Borrower shall have paid to the Agent on behalf of each Bank all fees required to be paid under the Memorandum. viii. PAYMENT UNDER EXISTING CREDIT AGREEMENT. All obligations due and payable under the Existing Credit Agreement shall have been paid in full. b. ALL CREDIT EXTENSIONS. Notwithstanding any other provisions of this Agreement, the obligation of each Bank and each Issuer to make any Credit Extensions (including the initial Credit Extension in the case of SUBDIVISION (1) below) shall be subject to the following conditions: i. NOTICE. The Borrower shall give the applicable notice described in SUBDIVISION 2(b)(1)(a) or 2(e)(1) hereof, as the case may be, to the Agent and to the Banks as may be required by said SUBDIVISIONS. With respect to Loans as to which the Borrower has elected the Base Rate, the Agent shall notify each Bank of the principal amount of its Loan. -29- ii. COMPLIANCE CERTIFICATE. At the time of each Credit Extension (other than in connection with a change of the rate of interest of a Loan (including a change in the applicable rate of interest as between the Base Rate and the Eurodollar Rate) without an increase in the outstanding principal amount of the Loans hereunder) the Borrower shall then be in compliance with all the terms, covenants and conditions of this Agreement which are binding upon it; there shall exist no event of default as designated in PARAGRAPH 7 and no event which, with the giving of notice or the lapse of time or both, would constitute such an event of default; the representations and warranties contained in PARAGRAPH 3 hereof, Article III of the Security Agreement and Article III of the Pledge Agreement shall be true with the same effect as though such representations and warranties had been made at the time of the making of such Credit Extension (except for such changes thereto as are expressly contemplated by the terms of the Security Agreement or the Pledge Agreement); and the Agent shall have received (except in the case of the initial Credit Extension) a certificate substantially in the form of EXHIBIT D, dated the date of the making of such Credit Extension and signed by the President, a Vice President or the Treasurer of the Borrower. c. LEGAL MATTERS SATISFACTORY TO COUNSEL. All legal matters incident to each Credit Extension (including the initial Credit Extension) and the issuance of each Note and Letter of Credit shall be satisfactory to counsel for the Agent. -30- 5. AFFIRMATIVE COVENANTS. So long as any Commitment shall remain available hereunder or any monetary Obligations have not been paid in full: a. PAYMENT OF PRINCIPAL AND INTEREST ON THE NOTES, LETTER OF CREDIT OUTSTANDINGS AND FEES HEREUNDER. The Borrower will pay or cause to be paid the principal of and interest on the Notes, Letter of Credit Outstandings and the fees and all other amounts due under this Agreement, in each case as the same becomes due and payable. b. MAINTENANCE OF OFFICE. The Borrower will maintain an office or agency in Union, New Jersey (or such other place in the United States of America as the Borrower may designate in writing to the Agent), where notices, presentations and demands to or upon the Borrower may be given or made. c. BOOKS AND ACCOUNTS. The Borrower will keep, and cause each of its Restricted Subsidiaries to keep, proper books of record and account in which proper entries will be made of transactions in accordance with generally accepted accounting principles; and will provide each Bank with access at reasonable times to such books and accounts and to financial and other information prepared by the Borrower in the ordinary course of its business. In addition, the Borrower will permit each Bank to discuss the financial affairs of the Borrower with the officers and independent public accountants of the Borrower. d. FINANCIAL STATEMENTS. The Borrower will furnish to each of the Banks (1) as soon as available but in no event later than 45 days after the end of each of the first three quarters of each fiscal year of the Borrower, consolidated balance sheets of the Borrower and its Restricted Subsidiaries as of the close of such quarter, consolidated statements of income and a consolidated statement of changes in stockholders' equity of the Borrower and its Restricted Subsidiaries for such quarter (subject to year- end footnotes and adjustments) and a consolidated statement of cash flows of the Borrower and its Restricted Subsidiaries for such quarter, certified by the chief financial officer, or Treasurer of the Borrower and accompanied by a certificate of such officer stating whether any event has occurred which constitutes an event of default as designated in PARAGRAPH 7 or any event has occurred which, with the giving of notice or the lapse of time or -31- both, would constitute such an event of default and, if there has been any such event of default or other event, stating the facts and the action which the Borrower has taken or plans to take with respect thereto, and demonstrating in reasonable detail compliance at the end of such quarter with the restrictions contained in SUBPARAGRAPHS 6(f) and 6(j) and SUBDIVISIONS 6(e)(9) and 6(e)(10); (2) as soon as available but in no event later than 120 days after the close of each fiscal year of the Borrower, a consolidated balance sheet of the Borrower and its Restricted Subsidiaries as of the close of such fiscal year, and consolidated statements of income, cash flow and changes in stockholders' equity of the Borrower and its Restricted Subsidiaries for such fiscal year, audited by Arthur Andersen & Co. (or one of the following five firms of independent public accountants which has offices throughout the United States: Ernst & Young, Coopers & Lybrand, Deloitte & Touche, KPMG Peat Marwick or Price Waterhouse & Co.); (3) as soon as available but in no event later than 120 days after the close of each fiscal year of the Borrower, a report of the accounting firm which audited the financial statements of the Borrower for such fiscal year, stating whether anything in such accounting firm's examination revealed the occurrence of an event (insofar as such event pertains to accounting matters) which constitutes an event of default under PARAGRAPH 7 or of an event which, with the giving of notice or the lapse of time or both, would constitute such an event of default or other event, and, if there has been any such event of default or other event, stating the facts with respect thereto (it being understood that such accounting firm shall not be liable, directly or indirectly, for any failure to obtain knowledge of any such event unless such accounting firm should have obtained knowledge thereof in making an audit in accordance with generally accepted auditing standards); (4) for purposes of calculating the Leverage Ratio Certificate, as soon as available, but in any event within 45 days after the close of any fiscal year of the Borrower, an unaudited consolidated balance sheet of the Borrower and its Restricted Subsidiaries as of the close of such fiscal year and unaudited consolidated statements of income, for such fiscal year, certified by the chief financial officer, or Treasurer of the Borrower; (5) together with the annual financial statements the Borrower furnishes pursuant to SUBDIVISION 5(d)(2), a certificate containing the information described in SUBDIVISION 5(d)(1) and also demonstrating in reasonable detail compliance at the end of such fiscal year with the restrictions contained in SUBPARAGRAPH -32- 6(j); (6) all current, quarterly or annual reports filed by the Borrower with the SEC and all quarterly and annual reports to the Borrower's shareholders; and (7) such additional information, reports or statements as the Agent or any Bank may from time to time reasonably request. e. TAXES. The Borrower will pay and discharge, and cause each of its Restricted Subsidiaries, if any, to pay and discharge, all taxes, assessments and governmental charges levied or imposed upon or in respect of the interests, income and properties of the Borrower and each such Restricted Subsidiary prior to the date on which penalties attach for the nonpayment thereof, except such taxes, assessments and governmental charges as are being contested in good faith and by appropriate proceedings by the Borrower or such Restricted Subsidiary and for which such reserve or other appropriate provision, if any, as shall be required by generally accepted accounting principles shall have been made and except such taxes, assessments and governmental charges the nonpayment of which would not, in any case or in the aggregate, have a material adverse effect on the financial condition of the Borrower and its Restricted Subsidiaries, if any, taken as a whole. f. INSURANCE. The Borrower will maintain, and cause each of its Restricted Subsidiaries, if any, to maintain, insurance with responsible insurance companies, in such amounts and against such risks as is customarily maintained by similar businesses operating in the same vicinity, provided that the Borrower and its Restricted Subsidiaries, if any, may self-insure against such risks and in such amounts as they may reasonably deem appropriate in light of the availability and cost of insurance for such risks, their experience and such reserves, if any, as they may have established in respect thereof. The Borrower will, if reasonably possible, give the Agent, for the benefit of the Banks not less than 30 days' prior notice of any self-insurance not previously notified to the Banks or the Agent pursuant to this SUBPARAGRAPH 5(f). Upon the request of the Agent or any Bank, the Borrower will file with the Agent a detailed list of the insurance as then in effect maintained by the Borrower and its Restricted Subsidiaries, if any, stating the names of the insurance companies, the amounts and rates of the insurance, dates of the expiration thereof and the risks covered thereby and indicating any self-insurance by the Borrower and its Restricted Subsidiaries, if any. Within 30 days after notice in -33- writing from the Agent, the Borrower shall obtain and cause its Restricted Subsidiaries, if any, to obtain such additional insurance as the Agent may reasonably request and which the Borrower or any such Restricted Subsidiary, as the case may be, may reasonably obtain. g. CORPORATE EXISTENCE. Subject to the provisions of SUBPARAGRAPH 6(c), the Borrower will maintain, and cause each of its Restricted Subsidiaries, if any, to maintain, its corporate existence in good standing in the jurisdiction of its incorporation. h. NOTICE OF DEFAULT. The Borrower will promptly notify the Agent and each Bank in writing of the occurrence of any event of default as that term is designated in PARAGRAPH 7 or event which, after the giving of notice or the lapse of time or both, would constitute such an event of default, stating the facts and the actions which the Borrower plans to take with respect thereto. i. NOTICE OF MATERIAL ADVERSE CHANGE. The Borrower will promptly give notice to the Agent and each Bank in writing of a material adverse change in the business, operations, property or financial or other condition of the Borrower and its Subsidiaries taken as a whole. j. ERISA REPORTS. The Borrower will furnish to each of the Banks (1) as soon as possible, and in any event within 30 days after the Plan administrator of any Plan of the Borrower or any of its Subsidiaries knows or has reason to know that any Reportable Event with respect to such Plan has occurred, a statement of the chief financial officer, Controller or Treasurer of the Borrower setting forth details as to such Reportable Event and the action, if any, which is proposed to be taken with respect thereto, together with a copy of any notice of such Reportable Event given by the Borrower or any Subsidiary to the Pension Benefit Guaranty Corporation and (2) within 30 days after receipt thereof, a copy of any notice the Borrower or any of its Subsidiaries may receive from the Pension Benefit Guaranty Corporation relating to the intention of such Corporation to terminate any Plan or to appoint a trustee to administer any Plan. The Borrower will promptly file with the United States Secretary of Labor or the Pension Benefit -34- Guaranty Corporation all annual and other reports required to be filed by it with respect to each Plan. k. REGULATION U. The Borrower will, at all times, comply with all applicable provisions of Regulation U of the Board of Governors of the Federal Reserve System. l. FUTURE SUBSIDIARIES. Upon any Person becoming, after the Effective Date, a Subsidiary of the Borrower, or upon the Borrower acquiring additional capital stock of any existing Subsidiary having voting rights or contingent voting rights, the Borrower shall notify the Agent of such acquisition, and, unless otherwise agreed to between the Borrower and the Required Banks, the Borrower shall, pursuant to a pledge agreement substantially in the form of the Pledge Agreement, pledge to the Collateral Agent, for its benefit and that of the Banks and BAI (pursuant to the BAI Letters of Credit), all (or in the case of a Subsidiary that is a "controlled foreign corporation" within the meaning of Section 957 of the Internal Revenue Code of 1986, as amended, or any successor provision, 65%) of the outstanding shares of such capital stock of such Subsidiary owned or held by the Borrower, along with undated stock powers for such certificates, executed in blank (or, if any such shares of capital stock are uncertificated, confirmation and evidence satisfactory to the Collateral Agent and the Agent that the security interest in such uncertificated securities has been transferred to and perfected by the Collateral Agent, for its benefit and that of the Banks and BAI (pursuant to the BAI Letters of Credit), in accordance with Section 8-313 and Section 8-321 of the Uniform Commercial Code, as in effect in the State of New York, or any similar law which may be applicable), together with such opinions of legal counsel, in form and substance reasonably satisfactory to the Agent and the Banks, as the Agent may reasonably require. -35- 6. NEGATIVE COVENANTS. So long as any Commitment shall remain available hereunder or any monetary Obligations have not been paid in full the Borrower agrees that, without the prior written consent of the Banks as provided in PARAGRAPH 10: a. BORROWINGS. The Borrower will not, and will not permit any of its Restricted Subsidiaries to, create, incur or assume any liability in respect of Funded Debt or Short-Term Borrowings except: i. with respect to the Borrower: (1) the Notes and the Letters of Credit; (2) the BAI Letters of Credit; (3) Funded Debt created, incurred or assumed (by Guarantee or otherwise) in connection with any IRB Financing or secured by mortgages, liens or other security interest permitted by SUBPARAGRAPH 6(b); and (4) other Subordinated Funded Debt approved in writing by the Required Banks. ii. with respect to any Restricted Subsidiaries: (1) Funded Debt (a) secured by any mortgage, pledge, lien, security interest or other encumbrance of any kind (1) to secure or provide for the payment or financing of any part of the purchase price of property acquired after the date hereof (other than through the acquisition of an Acquired Company) and granted at the time of or within 90 days after the acquisition of such property or existing on such property at the time of acquisition thereof, whether or not assumed, or (2) in property of any Acquired Company existing at the time of the acquisition thereof, PROVIDED that the aggregate principal amount of all such secured Funded Debt secured by any such property of an Acquired Company shall not exceed 15% of Stockholders' Equity; or -36- (b) created, incurred or assumed (by Guarantee or otherwise) in connection with any IRB Financing; PROVIDED that, immediately after giving effect to the creation, incurrence or assumption thereof, the aggregate principal amount of all such Funded Debt shall not exceed 15% of Stockholders' Equity. Notwithstanding the foregoing provisions of SUBDIVISIONS (i) and (ii), the sum of the aggregate principal amount of all Funded Debt secured by property of any Acquired Company existing at the time of the acquisition thereof plus the aggregate principal amount of all Funded Debt created, incurred or assumed (by Guarantee or otherwise) in connection with any IRB Financing immediately after giving effect thereto shall not exceed 25% of Stockholders' Equity. iii. with respect to the Borrower and any Restricted Subsidiary: (1) unsecured Short-Term Borrowings of the Borrower or its Restricted Subsidiaries incurred in the ordinary course of business, PROVIDED that (i) immediately after giving effect to the creation, incurrence or assumption thereof, the aggregate principal amount of such unsecured Short-Term Borrowings shall not exceed $10,000,000, and (ii) no such Short-Term Borrowings shall be outstanding on any day unless for a period of at least 30 consecutive days during the 12-month period immediately preceding such day either (1) there shall have been outstanding no such Short-Term Borrowings or (2) there shall have been available during such 30-day period an unused Commitment pursuant to this Agreement in an amount which at least equals such Short-Term Borrowings; For the purpose of calculating the maximum amount set forth in (3)(a)(i) above, the Short-Term Borrowings set forth in EXHIBIT E to the Existing Credit Agreement as items (i) and (ii) shall be excluded. (2) Funded Debt and Short-Term Borrowings included on EXHIBIT E to the Existing Credit Agreement, and any renewals, extensions, draw-downs or refundings thereof; and -37- (3) Funded Debt or Short-Term Borrowings constituting (a) loans or advances by the Borrower to any of its Restricted Subsidiaries or any Person which simultaneously therewith becomes an Acquired Company; (b) loans or advances by any Restricted Subsidiary to the Borrower or to another Restricted Subsidiary of the Borrower; or (c) Investments by the Borrower in any Restricted Subsidiary of the Borrower or any Person which simultaneously therewith becomes an Acquired Company or by any Restricted Subsidiary of the Borrower in the Borrower or another Restricted Subsidiary of the Borrower or in any Person which simultaneously therewith becomes an Acquired Company. (4) Indebtedness arising under Interest Rate Protection Agreements entered into with any Bank. b. MORTGAGES, ETC. The Borrower will not, and will not permit any of its Restricted Subsidiaries to, create, incur, assume or suffer to exist any mortgage, pledge, lien, security interest or other encumbrance of any kind (including the charges upon property purchased under conditional sales or other title retention agreements) upon or in, any of its property or assets, whether now owned or hereafter acquired, except: i. liens securing payment of the Credit Extensions and the BAI Letters of Credit pursuant to the Pledge Agreement and the Security Agreement; ii. liens for taxes or other governmental charges the payment of which is not at the time required by SUBPARAGRAPH 5(e); iii. liens in connection with workers' compensation, unemployment insurance or other social security obligations; -38- iv. deposits or pledges to secure bids, tenders, contracts (other than contracts for the payment of money), leases, statutory obligations, surety and appeal bonds and other obligations of like nature arising in the ordinary course of business v. mechanics', workers', materialmen's, landlords', carriers', or other like liens arising in the ordinary course of business with respect to obligations which are not due or which are being contested in good faith by appropriate proceedings if such reserve or other appropriate provision, if any, as shall be required by generally accepted accounting principles shall have been made therefor; vi. the mortgages, pledges and liens, security interests and other encumbrances included on EXHIBIT E to the Existing Credit Agreement, including any renewal, extension or refunding thereof, PROVIDED the Indebtedness relating to such renewal, extension or refunding shall not exceed 80% of the fair market value of the property covered thereby as determined by an independent appraiser of recognized standing reasonably acceptable to the Agent; vii. any mortgage, pledge, lien, security interest or other encumbrance of any kind (a) to secure or provide for the payment or financing of any part of the purchase price of property acquired after the date hereof by the Borrower or any of its Restricted Subsidiaries (other than through the acquisition of an Acquired Company) and granted at the time of or within 90 days after the acquisition of such property or existing on such property at the time of acquisition thereof, whether or not assumed, or (b) secured by property of any Acquired Company existing at the time of the acquisition of such Acquired Company, or (c) created, incurred, assumed, established, renewed or suffered to exist in connection with any IRB Financing permitted by SUBPARAGRAPH 6(a); PROVIDED that: (1) the principal amount of any Indebtedness referred to in SUBDIVISION 6(b)(7)(a) shall not exceed 80% of the greater of (x) the cost of the newly acquired property or improvements covered thereby to the Borrower or any of its Restricted Subsidiaries acquiring the same or (y) the fair market value of such property or improvements, as determined by an independent appraiser of recognized standing reasonably acceptable to the Agent; and -39- (2) each such mortgage, pledge, lien, security interest or other encumbrance shall be confined only to the property referred to in SUBDIVISION 6(b)(7)(a) or (b) or financed by the IRB Financing referred to in SUBDIVISION 6(b)(7)(c), as the case may be, and, if required by the terms of the instrument originally creating such mortgage, lien, security interest or other encumbrance, other property which is an improvement to, or which is acquired for specific use in connection with, or which is real property being improved by, such property; viii. any mortgage, pledge, lien, security interest or other encumbrance of any kind on, or in, any "margin stock", as at the time defined in Regulation U of the Board of Governors of the Federal Reserve System; ix. any mortgage, pledge, lien, security interest or other encumbrance of any kind in connection with import letters of credit incurred by the Borrower in the ordinary course of its business; and x. other mortgages, pledges, liens, security interests or other encumbrances of any kind upon or in any properties or assets of the Borrower if, immediately after giving effect thereto, the aggregate principal amount of all Indebtedness of the Borrower secured by all such mortgages, pledges, liens or other encumbrances or security interests does not exceed 5% of Stockholders' Equity. c. CONSOLIDATION, MERGER OR SALE OF ASSETS. The Borrower will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly: i. consolidate with or merge into any other Person, PROVIDED that the foregoing shall not prevent (a) consolidations or mergers of a Restricted Subsidiary of the Borrower with or into the Borrower or with or into another Restricted Subsidiary of the Borrower or with or into a Person which simultaneously therewith becomes a Restricted Subsidiary of the Borrower, or (b) consolidations or mergers in which the continuing or surviving corporation is the Borrower or a Restricted Subsidiary of the Borrower, or a Person which simultaneously therewith becomes a Restricted Subsidiary of the Borrower, or (c) the -40- consolidation of the Borrower with or the merger of the Borrower into any other corporation if (i) the continuing or surviving corporation expressly assumes in writing the obligations of the Borrower under this Agreement and (ii) immediately after giving effect thereto, such corporation could incur at least $1 of additional Funded Debt under SUBDIVISION 6(a)(1) and no event of default under SUBPARAGRAPH 7(a) shall exist and no event which, after the giving of notice or the lapse of time or both, would constitute such an event of default shall exist; or ii. sell or otherwise dispose of all or any part of the assets of the Borrower and its Restricted Subsidiaries other than (a) in the ordinary course of business, or (b) to the Borrower or another Restricted Subsidiary, so long as, after giving effect thereto, no event of default under SUBPARAGRAPH 7(a) shall exist and no event which, after the giving of notice or lapse of time or both, would constitute an event of default shall exist, or (c) the sale or other disposition of the assets of any of its Restricted Subsidiaries which is not a Significant Restricted Subsidiary of the Borrower, so long as, after giving effect thereto, no event of default under SUBPARAGRAPH 7(a) shall exist and no event which, after the giving of notice or lapse of time or both, would constitute an event of default shall exist, or (d) the sale or other disposition of any "margin stock", as at the time defined in Regulation U of the Board of Governors of the Federal Reserve System, or (e) the sale or other disposition of all or substantially all of the assets of the Borrower to any corporation into which the Borrower could be merged under SUBDIVISION 6(c)(l)(c), PROVIDED that each of the conditions of such subdivision shall have been fulfilled with the same effect as though such sale of assets were a merger of the Borrower into the acquiring corporation, or (f) any sale for cash in which such cash, when taken together with the cash proceeds of all other asset sales (other than asset sales otherwise permitted by this SUBDIVISION (2)) since the Effective Date, does not exceed $5,000,000. d. LOANS, ADVANCES AND CONTINGENT LIABILITIES. The Borrower will not, and will not permit any of its Restricted Subsidiaries, if any, to make loans or advances to any other Person or give a Guarantee of, assume, endorse, or otherwise become contingently liable upon the obligation of any other Person, in excess in the aggregate in respect of all such loans, advances, -41- Guarantees, assumptions, endorsements and contingent liabilities of 7% of Stockholders' Equity except: i. loans or advances by the Borrower to any of its Restricted Subsidiaries or to any Person which simultaneously therewith becomes an Acquired Company; ii. loans or advances by any Restricted Subsidiary to the Borrower or to another Restricted Subsidiary of the Borrower; iii. Guarantees by the Borrower or by any of its Restricted Subsidiaries of obligations or liabilities (other than for the payment of borrowed money) incurred in the ordinary course of business by the Borrower or of any of its Restricted Subsidiaries or by any Person which simultaneously therewith becomes an Acquired Company; iv. assumptions by the Borrower or any of its Restricted Subsidiaries of obligations or liabilities of any Acquired Company in connection with the acquisition thereof; v. the endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business; vi. Guarantees in connection with IRB Financings permitted by SUBPARAGRAPH 6(a) or listed on EXHIBIT E to the Existing Credit Agreement; vii. contingent liabilities arising in connection with the Letters of Credit or the BAI Letters of Credit; or viii. other loans, advances, Guarantees, assumptions, endorsements and contingent liabilities, PROVIDED that, immediately after giving effect to the creation, incurrence or assumption thereof, the aggregate principal amount of such loans, advances, Guarantees, assumptions, endorsements and contingent liabilities shall not exceed $5,000,000. e. INVESTMENTS. The Borrower will not, and will not permit any of its Restricted Subsidiaries to make, incur, assume,or suffer to exist any Investment in any other Person except: -42- i. Investments in marketable direct obligations issued or unconditionally guaranteed by the United States of America or any agency thereof maturing within one year from the date of acquisition thereof; ii. Investments in marketable direct obligations issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof maturing within one year from the date of acquisition thereof and currently having at least an A Rating from either Standard & Poor's Corporation or Moody's Investors Service, Inc.; iii. Investments in commercial paper currently having at least an A rating from either Standard & Poor's Corporation or Moody's Investors Service, Inc., maturing not more than 270 days from the date of the creation thereof and not directly or indirectly renewable or extendable at the option of the debtor by its terms or by the terms of any instrument or agreement relating thereto to a date more than 270 days from the date of creation thereof; iv. Investments in certificates of deposit issued by any bank incorporated under the laws of the United States or any state thereof or the District of Columbia and having a combined capital and surplus of not less than $50,000,000; v. Investments in bankers' acceptances eligible for rediscount under requirements of The Board of Governors of the Federal Reserve System and accepted by a bank of the type described in SUBDIVISION 6(e)(4); vi. Investments in obligations of the type described in SUBDIVISIONS 6(e)(1) through 6(e)(4) purchased from a bank of the type described in SUBDIVISION 6(e)(4) pursuant to repurchase agreements obligating such bank to repurchase such obligations not later than 90 days after the purchase thereof; vii. Investments by the Borrower in any Restricted Subsidiary of the Borrower or any Person which simultaneously therewith becomes an Acquired Company or by any Restricted Subsidiary of the Borrower in the Borrower or another Restricted Subsidiary of the Borrower or in any Person which simultaneously therewith becomes an Acquired Company; -43- viii. Investments in any Person pursuant to a plan for the acquisition of a majority of the Voting Stock of such Person, PROVIDED that either (a) the Borrower and its Restricted Subsidiaries shall acquire a majority of such Voting Stock issued and outstanding within nine months of the date of the first acquisition of any such Voting Stock under such plan, or (b) if such acquisition of a majority of Voting Stock shall not have been completed within nine months after the initial Investment in such Person all Investments in such Person theretofore acquired shall be treated as assets other than current assets for the purpose of this Agreement; ix. Investments in settlement of Indebtedness created in the ordinary course of business owing to the Borrower or any of its Subsidiaries, PROVIDED that the amount of Indebtedness settled by the receipt of such Investments during any calendar year shall not exceed 1% of the consolidated revenues of the Borrower and its Restricted Subsidiaries during such year; x. Investments in any Person (other than Investments permitted by the preceding subdivisions of this SUBPARAGRAPH 6(e)), PROVIDED that the aggregate value of all such Investments on the books of the Borrower and its Restricted Subsidiaries immediately after giving effect to any such Investment in any such Person shall not exceed 7% of Stockholders' Equity; and xi. Restricted Investment. f. PAYMENTS ON STOCK; RESTRICTED INVESTMENT. i. Except as provided hereinafter in this SUBPARAGRAPH 6(f), the Borrower will not make, and will not permit any of its Restricted Subsidiaries to make, any Payment on Stock or Restricted Investment, other than a Permitted Buyback, unless, immediately after giving effect to the proposed Payment on Stock or Restricted Investment, the sum of the aggregate amount of all Payments on Stock (other than Permitted Buybacks) subsequent to the Effective Date to and including the date of such proposed Payment on Stock or Restricted Investment, plus the aggregate amount of all Restricted Investments made by the Borrower or any Restricted Subsidiary during such period (but disregarding any Investment which was a Restricted Investment when made, but which on the date of determination could have been made pursuant to one of the -44- subdivisions of SUBPARAGRAPH 6(e) other than SUBDIVISION 6(e)(10) and (11)), shall not exceed the sum of (a) $5,000,000, plus (b) 40% of Net Income subsequent to January 1, 1997 (taken as a single accounting period). Notwithstanding the foregoing, (x) no Payment on Stock (other than Permitted Buybacks) or Restricted Investment may be declared or made until on or after the first date on which, after giving effect thereto, Aggregate Senior Funded Debt would be equal to or less than 100% of Stockholders' Equity and (y) any dividend which could be paid in compliance with this PARAGRAPH 6(f) at the date of its declaration may continue to be paid notwithstanding any subsequent change, which change was unforeseen at the time of the declaration of such dividend. ii. Notwithstanding the terms of the foregoing SUBDIVISION (1), the Borrower may purchase or otherwise acquire shares of its capital stock in an aggregate amount not to exceed $500,000 during the term of this Agreement for the purpose of awarding such stock to its employees, agents, representatives or other persons transacting business with the Borrower; PROVIDED, however, that any such Payments on Stock shall be included in determining whether the Borrower satisfies the requirements of the first sentence of SUBDIVISION (1). iii. The Borrower may make Permitted Buybacks at any time. g. SALE AND LEASEBACK. The Borrower will not, and will not permit any Restricted Subsidiary to, enter into any arrangement whereby the Borrower or such Restricted Subsidiary shall sell or transfer, directly or indirectly, all or any substantial part of its fixed assets in anticipation of the leaseback of such assets within one year PROVIDED, HOWEVER, Sale and Leasebacks shall be permitted provided (i) the proceeds of any Sale and Leaseback shall be used to make a prepayment on the principal amount of Loans pursuant to SUBDIVISION 2(c)(1) and (ii) that the amount thereof be deemed a reduction in the Commitment, in the same amount as the prepayment, pursuant to SUBPARAGRAPH (1)(d). h. OBLIGATIONS AS LESSEE. The Borrower will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, enter into any lease of real or personal properties or assets, unless after giving effect to payments under any such proposed lease, aggregate payments due in any one fiscal year under all -45- such leases shall not exceed the greater of $10,000,000 or 10% of Stockholders' Equity. Leases covered by this SUBPARAGRAPH 6(h) shall be only those which are not capitalized under generally accepted accounting principles. i. NEGATIVE PLEDGES, RESTRICTIVE AGREEMENTS, ETC. The Borrower will not, and will not permit any of its Subsidiaries to, enter into any agreement (excluding this Agreement, any other Loan Document, any agreement governing indebtedness which is both permitted to be incurred pursuant to SUBPARAGRAPH 6(a) and secured by mortgages, liens or other security interests permitted by SUBPARAGRAPH 6(b) or, with respect to SUBDIVISION (1) below, the agreements disclosed in EXHIBIT E) prohibiting: i. the creation or assumption of any lien upon its properties, revenues or assets, whether now owned or hereafter acquired, or the ability of the Borrower or any other Person to amend or otherwise modify this Agreement or any other Loan Document; or ii. the ability of any Subsidiary to make any payments, directly or indirectly, to the Borrower by way of dividends, advances, repayments of loans or advances, reimbursements of management and other intercompany charges, expenses and accruals or other returns on investments, or any other agreement or arrangement which restricts the ability of any such Subsidiary to make any payment, directly or indirectly, to the Borrower. j. FINANCIAL COVENANTS. Borrower will not: i. permit its Net Worth after January 1, 1997 to be less than $70,000,000 plus 60% of Net Income (without a reduction for net losses, as determined in accordance with Generally Accepted Accounting Principles) from and after such date. -46- ii. permit its Interest Coverage Ratio as determined for any Measurement Period to be less than 3.00 to 1.0. iii. permit its Consolidated Leverage Ratio to be greater than .60 to 1.0. -47- 7. EVENTS OF DEFAULT. a. NATURE OF EVENTS. If one or more of the following events of default shall occur: i. DEFAULT IN PAYMENT OF OBLIGATIONS. The Borrower shall fail to make payment of any part of the principal of or interest upon any Note, any Reimbursement Obligation or Letter of Credit or any deposit of cash for collateral purposes pursuant to SUBDIVISION 2(e)(3) or 2(e)(5), or any fees or other payments owing pursuant to PARAGRAPH 2 when due and payable, whether at stated maturity or by acceleration, or otherwise; or ii. INCORRECT REPRESENTATION. Without limiting SUBPARAGRAPH 7(a)(10)(iii), any representation or warranty made by the Borrower herein or any statement or representation made in any certificate, report, or other document delivered pursuant hereto shall prove to have been incorrect in any material respect when made or deemed made; or iii. DEFAULT UNDER CERTAIN COVENANTS. The Borrower shall fail to observe or perform any term, covenant or agreement contained in PARAGRAPH 6; iv. DEFAULT UNDER OTHER PROVISIONS. The Borrower shall fail to observe or perform any other term, covenant or agreement contained in this Agreement and such failure shall continue for 30 days after written notice thereof shall have been given to the Borrower by the Agent or any of the Banks; or v. CROSS DEFAULT. Any Funded Debt or Short-Term Borrowings of the Borrower or any Restricted Subsidiary (other than the Notes) in excess of $400,000 becomes or is declared to be due and payable prior to the stated maturity thereof or the Borrower or any of its Restricted Subsidiaries defaults in the performance of or compliance with any term of any agreement evidencing or securing such Funded Debt or Short-Term Borrowings and the effect of such default would be to permit or -48- shall have caused the acceleration of the payment of such Funded Debt or Short-Term Borrowings and such default shall continue for more than the period of grace, if any, specified in such agreement and shall not have been cured or waived by the holders of such Funded Debt or Short-Term Borrowings; or the Borrower shall fail to make payment, when due and payable, of any amounts owing under the BAI Letters of Credit; or any other event shall have occurred which shall constitute an Event of Default under Section 13 of the Letter of Credit Agreement; or vi. BANKRUPTCY, ETC. The Borrower or any Restricted Subsidiary shall (i) be generally not paying its debts as they become due, (ii) file, or consent by answer or otherwise to the filing against it of, a petition for relief or reorganization or arrangement or any other petition in bankruptcy, for liquidation or to take advantage of any bankruptcy or insolvency law of any jurisdiction, (iii) make an assignment for the benefit of its creditors, (iv) consent to the appointment of a custodian, receiver, trustee or other officer with similar powers of itself or of any substantial part of its property, (v) be adjudicated insolvent or be liquidated or (vi) take corporate action for the purpose of any of the foregoing, or (vii) if a court or governmental authority of competent jurisdiction shall enter an order appointing, without consent by the Borrower or any Restricted Subsidiary, a custodian, receiver, trustee or other officer with similar powers with respect to it or with respect to any substantial part of its property, or (viii) if an order for relief shall be entered in any case or proceeding for liquidation or reorganization or otherwise to take advantage of any bankruptcy or insolvency law of any jurisdiction, or ordering the dissolution, winding-up or liquidation of the Borrower or any Restricted Subsidiary, or (ix) if any petition for any such relief shall be filed against the Borrower or a Restricted Subsidiary and such petition shall not be dismissed within 60 days; or -49- vii. UNPAID JUDGMENT. A final judgment for the payment of money in excess of $400,000 shall be rendered against the Borrower or any of its Restricted Subsidiaries and within 60 days after entry thereof such judgment shall not have been discharged or execution thereof stayed pending appeal or within 30 days after the expiration of any such stay such judgment shall not have been discharged; or viii. MATERIAL REPORTABLE EVENTS. A Reportable Event shall have occurred with respect to any Plan and shall be continuing for 30 days after the Agent shall have notified the Borrower in writing that the Required Banks have made a determination that, on the basis of such Reportable Event, (a) in the case of a Plan other than a Multi-employer Plan, there are reasonable grounds for the termination of such Plan by the Pension Benefit Guaranty Corporation or for the appointment by the appropriate United States District Court of a trustee to administer such Plan and the liabilities of the Borrower or any of its Restricted Subsidiaries arising as a result of such termination or appointment would decrease Stockholders' Equity by 10% or more, or (b) in the case of a Multi-employer Plan, there are reasonable grounds for the reorganization within the meaning of ERISA of such Multi-employer Plan and the liabilities of the Borrower and its Restricted Subsidiaries arising as a result of such reorganization would decrease Stockholders' Equity by 10% or more, unless the Borrower and its Restricted Subsidiaries have satisfied such liabilities or have made such reserves as are required by generally accepted accounting principles against such liabilities, and after giving effect to such satisfaction or reserves, the Borrower is not in violation of any covenant in PARAGRAPH 6 in which event such holders (or such Banks) shall not have the right to make such determination (which would otherwise give rise to an event of default); or there is a complete or partial withdrawal by the Borrower or any of its Subsidiaries from a Multi-employer Plan and the liabilities of the Borrower and its -50- Restricted Subsidiaries arising as a result of such withdrawal decrease Stockholders' Equity by 10% or more; or ix. CONTROL OF THE BORROWER. Any Change in Control shall occur; or x. IMPAIRMENT OF SECURITY, ETC. (i) Any security interest or lien granted pursuant to the Security Agreement or the Pledge Agreement shall (except in accordance with its terms), in whole or in part, terminate, cease to be effective or cease to be the legally valid, binding and enforceable obligation of the Borrower or other obligor party thereto; (ii) the Borrower or any other Person shall, directly or indirectly, contest in any manner such effectiveness, validity, binding nature or enforceability and, with respect to any such other Person, such contest shall have a reasonable likelihood of being material; or (iii) any representation or warranty made by the Borrower in Section 3.1.5 of the Security Agreement or Section 3.1.2 of the Pledge Agreement shall prove to be incorrect when made in any respect; then (i) upon the happening of any of the events of default specified in SUBDIVISION 7(a)(6) above (other than such an event of default described in CLAUSE (i) of SUBDIVISION 7(a)(6) or described in CLAUSE (vi) of SUBDIVISION 7(a)(6) by virtue of the reference in such CLAUSE (vi) to such CLAUSE (i)), then the Notes and all other Obligations hereunder shall automatically and immediately (without notice or other action by any Bank or the Agent) become due and payable and all Commitments to make Loans and issue Letters of Credit hereunder shall be terminated, and (ii) upon the happening of any other event of default specified above which shall be continuing, the Agent may, with the consent of the Required Banks, or shall, at the request of the Required Banks, by written notice to the Borrower, declare the Notes and all other Obligations hereunder to be due and payable, and all of the foregoing shall thereupon become and be immediately due and payable, and (in the event of any such declaration) the Agent shall terminate the Commitments. The Borrower expressly waives any presentment, demand, protest or other notice of any kind. b. BANKS' RIGHTS OF SET-OFF. Each Bank agrees that if it shall, through the exercise of a right of banker's lien, set-off or counterclaim against the Borrower, including, but not limited to, a secured claim under Section 506 of Title 11 of the United -51- States Code or other security or interest arising from, or in lieu of, such secured claim, received by such Bank under any applicable bankruptcy, insolvency or other similar law or otherwise, obtain payment in respect of any of its Credit Extensions as a result of which the unpaid portion of such Credit Extensions shall be proportionately less than the unpaid portion of the Credit Extensions of any other Bank (1) it shall simultaneously purchase at par from such other Bank a participation in the Credit Extensions of such other Bank, so that the aggregate unpaid principal amount of each Bank's Credit Extensions and its participation in the Credit Extensions of such other Bank shall be in the same proportion to the aggregate unpaid principal amount of all Credit Extensions then outstanding as the principal amount of its Credit Extensions prior to such exercise of banker's lien, set-off or counterclaim was to the principal amount of all Credit Extensions outstanding prior to such exercise of banker's lien, set-off or counterclaim and (2) such other adjustment shall be made from time to time as shall be equitable to ensure that each of the Banks share such payment pro rata. -52- 8. THE AGENT AND COLLATERAL AGENT. a. AUTHORIZATION BY BANKS. Each Bank authorizes Bank of America National Trust and Savings Association to act as Agent and Collateral Agent on its behalf to the extent provided in this Agreement, the Pledge Agreement and the Security Agreement, as the case may be. b. DUTIES OF AGENT AND COLLATERAL AGENT. The Agent shall: i. immediately after receiving notice from the Borrower of the amount of any Loan and the date upon which the same is to be made, notify each Bank of the amount of its Loan and arrange with each Bank to make Federal or other immediately available funds available at the office of the Agent as set forth on Exhibit F in the amount of such Loan on or before 12:00 noon, New York time, on the date of such Loan, and after receiving such funds, hold such funds hereunder; ii. at the time of making each Credit Extension, review, with the advice of counsel, the documents required by PARAGRAPH 4 to be delivered in connection with such Credit Extension; iii. pay to the Borrower the amounts received from the Banks if the Agent and its counsel determine that the conditions set forth in PARAGRAPH 4 have been satisfied, or promptly return to each Bank with interest the funds collected from such Bank if the Agent, with the advice of counsel, determines that such conditions have not been satisfied; iv. promptly after the making of the Initial Loans, deliver to each Bank the Note evidencing its interest in such Loans; v. remit promptly to each Bank its share of each payment made by the Borrower under the Notes or hereunder; vi. perform such duties with respect to the Letters of Credit in the manner, and at such times, as set forth in SUBPARAGRAPH 2(e); vii. promptly consult with the Banks concerning (a) all requests from the Borrower for the consent or waiver under the provisions of this Agreement and the other Loan Documents as -53- to any act or omission to act, and (b) concerning any event of default; and viii. promptly give any notice or declaration hereunder to the Borrower, and promptly send a copy of such notice or declaration to each Bank. The Collateral Agent agrees to perform its duties under the Pledge Agreement and Security Agreement as set forth therein. The duties and responsibilities of the Agent and the Collateral Agent shall be limited to those expressly set forth in this Agreement, the Pledge Agreement and the Security Agreement, as the case may be, and the Agent and the Collateral Agent shall not be obliged to recognize any other agreement between any or all of the parties hereto or thereto even though reference to any such agreement may be made herein or therein and whether or not the Agent or the Collateral Agent has knowledge of any such agreement nor shall the Agent or the Collateral Agent be bound by any waiver, supplement or modification hereof or thereto without its consent which affects its duties hereunder or thereunder. c. LIMITATION OF LIABILITY. i. In the performance of its duties under this Agreement, the Pledge Agreement or the Security Agreement, as the case may be, the Agent and the Collateral Agent shall exercise the same care that it exercises in connection with the making and administration of loans for its own account, but it makes no representation or warranty in connection with, and it assumes no responsibility for, the solvency, financial condition or statements of the Borrower, or the sufficiency or accuracy of the form, execution, validity or genuineness of this Agreement, the Notes, each other Loan Document or any other document relating to the Credit Extensions, or of any endorsement thereon, or for any lack of endorsement thereof, or for any description therein if taken or omitted by it in good faith or in the exercise of its own best judgment. The Agent and the Collateral Agent shall not be responsible or liable in any respect on account of the identity, authority or rights of the persons executing or delivering or purporting to execute or deliver this Agreement, the Notes, each other Loan Document, or any such other document. Each of the Banks represents and warrants to the Agent and the Collateral Agent that it has made its own independent judgment with respect to entering into this Agreement, the Notes and each other Loan Document and -54- undertaking its obligations hereunder and thereunder without reliance on the Agent, the Collateral Agent or any other Bank, and will, independently and without reliance on the Agent, the Collateral Agent or any other Bank, continue to make its own credit decisions in taking or not taking action under this Agreement, the Notes and each other Loan Document. ii. Neither the Agent, the Collateral Agent nor any of their directors, officers or employees shall be liable for any act taken or omitted under this Agreement, the Pledge Agreement or the Security Agreement, as the case may be, if taken or omitted by it in good faith or in the exercise of its own best judgment (except for its or such other person's own gross negligence or willful misconduct). The Agent and the Collateral Agent shall also be fully protected in relying upon any written notice, demand, certificate or document which the Agent or the Collateral Agent, as the case may be, in good faith believes to be genuine. The Agent and the Collateral Agent may consult with legal counsel of its own choice and shall be under no liability for any action taken or suffered in good faith by it in reliance upon the opinion of such counsel. d. EXPENSES. The Banks agree that they will on demand reimburse the Agent and the Collateral Agent, in its capacity as such, for any and all costs, expenses and disbursements which may be incurred or made by it in connection with the Credit Extensions for which it is not reimbursed at any time by or on behalf of the Borrower. Any such costs, expenses and disbursements shall be charged to each Bank PRO RATA in accordance with its respective Percentage, PROVIDED that no Bank shall be liable for the payment of any portion of any costs, expenses or disbursements resulting solely from the Agent's or Collateral Agent's gross negligence or willful misconduct. e. RESIGNATION OF AGENT. The Agent or the Collateral Agent may, at any time resign by giving at least thirty (30) days' advance written notice thereof to the Borrower and each Bank by hand delivery or certified mail. Upon receipt or delivery of such notice, the Banks shall promptly appoint one of the Banks to serve as the successor Agent or the Collateral Agent, as the case may be, and, upon such Bank's acceptance of said appointment as provided in SUBPARAGRAPH 8(f), the resignation of the predecessor Agent or the Collateral Agent, as the case may be, shall become effective. If no successor agent has -55- accepted appointment as Agent by the date which is 30 days following a retiring Agent's notice of resignation the retiring Agent's resignation shall nevertheless thereupon become effective and the Banks shall perform all of the duties of the Agent hereunder. A pro-rated refund of any fees paid by Borrower to Agent pursuant to SUBDIVISION 2(d)(1) of both the Existing Credit Agreement and this Agreement shall be paid to Borrower by the Agent upon the Agent's resignation. f. ACCEPTANCE OF APPOINTMENT. i. Any successor Agent or Collateral Agent appointed as provided in SUBPARAGRAPH 8(e) shall execute, acknowledge and deliver to the Borrower and to its predecessor Agent or Collateral Agent, as the case may be, an instrument accepting such appointment hereunder, and thereupon the resignation of the predecessor Agent or Collateral Agent, as the case may be, shall become effective and such successor Agent or Collateral Agent, as the case may be, without any further act, deed or conveyance, shall become vested with all the rights, powers, duties and obligations of its predecessor under this Agreement, the Pledge Agreement or the Security Agreement, as the case may be, with like effect as if originally named as Agent or Collateral Agent, as the case may be, herein or therein; but, nevertheless, on the written request of the Borrower or of the successor Agent or Collateral Agent, as the case may be, upon payment of its charges then unpaid, the Agent or Collateral Agent, as the case may be, ceasing to act shall execute and deliver an instrument transferring to such successor Agent or Collateral Agent, as the case may be, all the rights and powers of the Agent or Collateral Agent, as the case may be, so ceasing to act. Upon request of any such successor Agent or Collateral Agent, as the case may be, the Borrower shall execute any and all instruments in writing for more fully and certainly vesting in and confirming to such successor Agent or Collateral Agent, as the case may be, all such rights and powers. ii. Upon acceptance of appointment by a successor Agent or Collateral Agent, as the case may be, the Borrower shall mail a notice of the succession of such Agent or Collateral Agent, as the case may be, to all of the Banks at their respective addresses as shown on the then register of Notes maintained by the Borrower. If the Borrower fails to mail such notice within ten (10) days after acceptance of appointment by the successor -56- Agent or Collateral Agent, as the case may be, the successor Agent or Collateral Agent, as the case may be, shall cause such notice to be mailed at the expense of the Borrower. G. CO-AGENTS. The Co-Agents shall have no duties, liability or obligations in respect of their capacity as Co-Agents. -57- 9. DEFINITIONS. For all purposes of this Agreement, the following terms have the meanings specified, unless the context otherwise requires: "ACQUIRED COMPANY" shall mean (1) any Person 90% of the Voting Stock of which is acquired by the Borrower and one or more Restricted Subsidiaries and which is not irrevocably designated an Unrestricted Subsidiary in accordance with the provisions set forth in the definition of "Restricted Subsidiary", (2) any Person consolidated with or merged into, the Borrower or any of its Restricted Subsidiaries, or (3) any Person substantially all of the assets of which (or of a branch or division of which) are acquired by the Borrower or any of its Restricted Subsidiaries, PROVIDED that only the acquired branch or division shall be deemed an Acquired Company in the case of the acquisition of any branch or division. "ADJUSTMENT DATE" shall mean each date which is 45 days after the end of a fiscal quarter of the Borrower. "AGREEMENT" shall mean this Second Amended and Restated Credit Agreement dated as of April 30, 1997 among the Borrower, the Banks, the Issuer and the Agent. This Agreement amends and restates the Existing Agreement which itself amends and restates a First Amendment dated as of July 17, 1991, (as further amended by a First Amendment dated May 20, 1994 and a Second Amendment dated as of August 11, 1995) which itself amends and restates a Revolving Credit and Term Loan Agreement dated July 20, 1988. "AGGREGATE FUNDED DEBT" shall mean as of any date of determination, the total of Aggregate Senior Funded Debt and Aggregate Subordinated Funded Debt as of such date. "AGGREGATE SENIOR FUNDED DEBT" shall mean as of any date of determination, the aggregate principal amount of Senior Funded Debt of the Borrower and its Restricted Subsidiaries as of such date, determined in accordance with generally accepted accounting principles on a consolidated basis after eliminating all intercompany transactions, PROVIDED that Current Maturities shall not be included in Aggregate Senior Funded Debt. "AGGREGATE SUBORDINATED FUNDED DEBT" shall mean as of any date of determination, the aggregate principal amount of Subordinated Funded Debt of the Borrower and its Restricted Subsidiaries as of such date, determined in accordance with generally accepted accounting principles on a consolidated -58- basis after eliminating all intercompany transactions, PROVIDED that Current Maturities shall not be included in Aggregate Subordinated Funded Debt. "APPLICABLE MARGIN" shall mean the applicable percentage per annum with respect to the Base Rate or Eurodollar Rate, as the case may be, to be added in accordance with SUBDIVISION 2(b)(4). "ATTORNEYS COSTS" shall mean all fees and disbursements of any law firm or other external counsel and, without duplication, the allocated cost of internal legal services and all reasonable disbursements of internal counsel which in all respects, in the aggregate, shall be reasonable. "BAI" shall mean Bank of America Illinois in its individual capacity. "BAI LETTERS OF CREDIT" shall mean, collectively, the letters of credit issued from time to time by BAI for the account of the Borrower pursuant to the Letter of Credit Agreement. Anything in this Agreement to the contrary notwithstanding, the Letters of Credit and Letters of Credit Outstandings shall not include the BAI Letters of Credit, except that the Existing BAI Letters of Credit shall be included within the Letters of Credit and Letters of Credit Outstandings for all purposes other than SUBPARAGRAPH 1(a)(2). "BASE RATE" shall mean the sum of (a) the higher of (i) the rate of interest publicly announced from time to time by the Agent as its reference rate or (ii) the Federal Funds Rate plus 1/2% as in effect from time to time, and (b) the Applicable Margin. The Agent's reference rate is a rate set by the Agent based upon various factors including the Agent's costs and desired return, general economic conditions, and other factors, and is used as a reference point for pricing some loans; however, the Agent may price loans at, above or below such rate. Any change in such rate shall take effect on the day specified in the public announcement of such change. "BUSINESS DAY" shall mean any day not a Saturday, Sunday or legal holiday in the States of Illinois, New Jersey, New York, California, Michigan, Georgia, on which banks are open for business in New York City, Chicago, Los Angeles, San Francisco, Detroit and Atlanta, PROVIDED, HOWEVER, that when used in connection with a Loan at the Eurodollar Rate, the term "Business Day" shall also exclude any day on which banks are not open for dealings in dollar deposits in the London interbank market. "CHANGE IN CONTROl" shall mean the acquisition by any Person, or two or more Persons acting in concert, of beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission under the -59- Securities Exchange Act of 1934) of 20% or more of the outstanding shares of Voting Stock of the Borrower. "CODE" shall mean the Internal Revenue Code of 1986, as amended. "COLLATERAL AGENT" shall mean Bank of America National Trust and Savings Association in its capacity as collateral agent under the Pledge Agreement and Security Agreement, and includes each other Person as shall have subsequently been appointed collateral agent pursuant to the terms thereof. "COMMITMENT" shall mean each Bank's commitment set forth on EXHIBIT A-2, as such commitment may be permanently reduced or terminated pursuant to SUBPARAGRAPH 1(d) hereof. "CONSOLIDATED LEVERAGE RATIO" shall mean as at the end of any fiscal quarter of the Borrower, the ratio of: (a) Funded Debt to (b) the sum of: (i) Funded Debt PLUS (ii) Net Worth. "CREDIT EXTENSION" shall mean, as the context may require, (a) the making of a Loan by a Bank; or (b) the issuance of any Letter of Credit, or the extension of any Stated Expiry Date of any existing Letter of Credit, by an Issuer. "CURRENT MATURITIES" shall mean, as of any date of determination, that portion of Senior Funded Debt or Subordinated Funded Debt outstanding on such date which by its terms or by the terms of any instrument or agreement relating thereto matures on demand or within one year from such date (whether by way of sinking fund, other required prepayment or final payment at maturity) and is not directly or indirectly renewable, extendible or refundable, at the option of the debtor under any agreement or firm -60- commitment in effect on such date, to a date one year or more from such date. "DISBURSEMENT" shall mean any payment made under a Letter of Credit by the Issuer thereof to the Beneficiary (or its assignee or transferee) of such Letter of Credit. "DISBURSEMENT DATE" shall mean the date designated for payment upon presentment of any Letter of Credit to the applicable Issuer. "EBIT" shall mean, for any measurement period, the sum for such period of: (a) Net Income; (b) Net Interest Expense to the extent deducted in determining such Net Income; and (c) all taxes on or measured by income to the extent deducted in determining such Net Income; PROVIDED, HOWEVER, that for purposes of this definition, Net Income shall be computed without giving effect to extraordinary losses or extraordinary gains. "EFFECTIVE DATE" shall mean the date on which each of the conditions set forth in SUBPARAGRAPH 4(a) has been satisfied. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time. "EURODOLLAR RATE" shall mean an interest rate per annum (rounded upward, if necessary, to the nearest 1/16 of 1%) equal to the sum of: (a) the interest rate per annum at which deposits in United States dollars in an amount approximately equal to the principal amount of the Loan for which the determination is being made and with a maturity equal to the applicable Interest Period are offered to the London office of the Agent in immediately available funds in the London interbank market at approximately 11:00 am., London time, two (2) Business Days prior to the commencement of such Interest Period, plus -61- (b) the Applicable Margin. "EXISTING BAI LETTERS OF CREDIT" shall mean those letters of credit identified and listed on Schedule 1 of the Existing Credit Agreement. "EXISTING BANKS" shall mean Bank of America Illinois; Chemical Bank; NBD Bank; First Fidelity Bank, N.A.; Sun Trust Bank, Atlanta; The Bank of Tokyo Trust Company; The Bank of New York; Bank of Scotland; United Jersey Bank; NatWest Bank N.A.; and Bank of America National Trust and Savings Association, or their successors or assigns. "EXISTING CREDIT AGREEMENT" shall have the meaning set forth in the first recital. "EXCESS PURCHASE COSTS" shall mean, as of any date of determination, (1) the sum of the purchase prices paid for or attributed to the net assets of all Acquired Companies, minus (2) the sum of the amounts at which such net assets are reflected in the balance sheet of the Borrower as of such date, prepared in accordance with generally accepted accounting principles or in the consolidated balance sheet of the Borrower and its Restricted Subsidiaries as of such date, prepared in accordance with generally accepted accounting principles on a consolidated basis, after eliminating all intercompany items, as the case may be. "FEDERAL FUNDS RATE" shall mean, for any day, the rate set forth in the weekly statistical release designated as H.15(519), or any successor publication, published by the Federal Reserve Board (including any such successor, "H.15(519)") for such day opposite the caption "Federal Funds (Effective)." If on any relevant day the appropriate rate for such previous day is not yet published in H.15(519), the rate for such day will be the arithmetic mean of the rates for the last transaction in overnight Federal funds arranged prior to 9:00 a.m. (New York City time) on that day by each of three leading brokers of Federal funds transactions in New York City selected by the Agent. "FEE LETTER" shall mean the letter dated March 20, 1997 between the Borrower, BancAmerica Securities, Inc., the Agent and BAI. "FINAL MATURITY DATE" shall mean November 14, 2000. "FUNDED DEBT" shall mean, as of any date of determination, (i) all Indebtedness in respect of borrowed money and (ii) all Indebtedness with respect to Interest Rate Protection Agreements. Notwithstanding the foregoing, in no case will Funded Debt include any amounts representing -62- either deferred income taxes or lease or installment purchase obligations unless such lease or installment purchase obligations are required to be capitalized under generally accepted accounting principles. "GUARANTEE" shall mean any obligation, contingent or otherwise, of any Person guaranteeing or having the economic effect of guaranteeing any Indebtedness of any other Person in any manner, whether directly or indirectly, and including, without limitation, any obligation of such other Person, direct or indirect, contingent or otherwise, (1) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or to purchase (or to advance or supply funds for the purchase of) any direct or indirect security therefor, (2) to purchase property, securities, or services for the purpose of assuring the owner of such Indebtedness of the payment of such Indebtedness, (3) to maintain working capital, equity capital, or other financial statement condition of such other Person so as to enable such other Person to pay such Indebtedness or otherwise to protect the owner thereof against loss in respect thereof, or (4) entered into for the purpose of assuring in any manner the owner of such Indebtedness of the payment of such Indebtedness or to protect such owner against loss in respect thereof. "INDEBTEDNESS" as applied to any Person shall mean, as of any date of determination, all indebtedness, obligations and liabilities which in accordance with generally accepted accounting principles would be included in the liability side of a balance sheet of such Person as at such date, including, without limitation (1) all amounts for guarantees, endorsements (other than for collection or deposit in the ordinary course of business) and other contingent obligations in respect of, or to purchase or otherwise acquire or become liable upon, indebtedness, obligations or liabilities of other Persons, (2) all lease or installment purchase obligations of such Person which are required to be capitalized under generally accepted accounting principles and (3) all net obligations with respect to Interest Rate Protection Agreements. A renewal or extension of any Indebtedness shall be deemed to be an incurrence of liability in respect of such Indebtedness as so renewed or extended. "INITIAL LOANS" shall mean Loans evidenced by Notes signed and dated the Effective Date. "INTEREST COVERAGE RATIO" shall mean, for any Measurement Period, the ratio of: (a) EBIT -63- TO (b) Net Interest Expense. "INTEREST PAYMENT DATE" shall mean (1) as to any Loan at the Eurodollar Rate, the last day of an Interest Period, provided that, in the case of any Loan at the Eurodollar Rate with an Interest Period in excess of three months, each day within such Interest Period which would be the last day of an Interest Period commencing on the same date but having a duration of three months or any integral multiple of three months shall also be an Interest Payment Date, and (2) as to any Loan at the Base Rate, the first day of January, April, July and October, or, if such day is not a Business Day, the next succeeding Business Day. "INTEREST PERIOD" shall mean, as to any Loan at the Eurodollar Rate, the period commencing on the date of such Loan and ending on the numerically corresponding day (or if there is no corresponding day, the last day) in the calendar month that is 1, 2, 3, 6 or 12 months thereafter, as the Borrower may elect, and thereafter, each period commencing on the last day of the next preceding Interest Period for such Loan at the Eurodollar Rate and ending on the numerically corresponding day (or if there is no corresponding day, the last day) in the calendar month that is 1, 2, 3, 6 or 12 months thereafter, as the Borrower may elect, and PROVIDED that (a) if any Interest Period would end on a day which shall not be a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless such next succeeding Business Day would fall in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day, (b) no Interest Period with respect to a Loan shall end later than the Final Maturity Date. "INTEREST RATE PROTECTION AGREEMENTS" shall mean any interest rate swaps, caps, collars or similar arrangements entered into to hedge interest rate risk (and not for speculative purposes). "INVESTMENTS" shall mean to purchase or acquire the obligations or stock of, or any other interest in, any Person. "IRB FINANCING" shall mean any industrial development or pollution control financing made pursuant to Section 103 of the Internal Revenue Code of 1986, as amended, or any successor statute. "ISSUER" shall mean Bank of America Illinois in its capacity as issuer of the Letters of Credit. At the request of the Borrower, another Bank -64- acceptable to the Agent (which acceptance shall not be unreasonably withheld) shall issue one or more Letters of Credit hereunder. "KEENE CORPORATION LITIGATION" shall mean litigation regarding the purchase of certain assets from Keene Corporation at allegedly less than fair market value by a predecessor of the Borrower. "LETTER OF CREDIT" shall mean one or more documentary or standby letters of credit issued by Issuer pursuant to the terms hereof (each a "LETTER OF CREDIT" and collectively the "LETTERS OF CREDIT"). "LETTER OF CREDIT AGREEMENT" shall mean the Amended and Restated Letter of Credit Agreement, dated as of November 15, 1995, as further amended, supplemented, restated or otherwise modified from time to time. "LETTER OF CREDIT OUTSTANDINGS" shall mean, on any date, an amount equal to the sum (without duplication) of (a) the then aggregate amount which is undrawn and available under all Letters of Credit issued and outstanding PLUS (b) the then aggregate amount of all unpaid and outstanding Reimbursement Obligations. "LEVEL I" shall have the meaning specified in SUBDIVISION 2(b)(4). "LEVEL II" shall have the meaning specified in SUBDIVISION 2(b)(4). "LEVEL III" shall have the meaning specified in SUBDIVISION 2(b)(4). "LEVEL IV" shall have the meaning specified in SUBDIVISION 2(b)(4). "LEVEL V" shall have the meaning specified in SUBDIVISION 2(b)(4). "LEVEL VI" shall have the meaning specified in SUBDIVISION 2(e)(4). "LEVERAGE RATIO CERTIFICATE" shall mean a certificate duly executed by the president, or authorized responsible officer, vice president or their designee, of the Borrower, substantially in the form of EXHIBIT C (with such changes thereto as may be agreed upon from time to time by the Agent and the Borrower), and including therein, among other things, calculations supporting the information contained therein. -65- "LOAN" shall mean individually a loan, and collectively, the loans made to the Borrower under SUBDIVISION 1(a)(1) of this Agreement. "LOAN DOCUMENTS" shall mean, collectively, this Agreement, the Notes, the Letters of Credit, the Security Agreement, the Pledge Agreement, and all Interest Rate Protection Agreements between the Borrower and any Bank or affiliates of any Bank. "MEASUREMENT PERIOD" shall mean any period of four consecutive fiscal quarters of the Borrower and ending on the last day of a fiscal quarter of the Borrower taken as one accounting period. "MEMORANDUM" shall mean the memorandum, dated March 20, 1997, from BancAmerica Securities, Inc. to each of the Banks. "MULTIEMPLOYER PLAN" shall mean any multiemployer plan as defined in Section 3(37) of ERISA. "NET INCOME" for any Measurement Period shall mean the aggregate, without duplication, of (1) the net income of the Borrower and its Restricted Subsidiaries for such period, determined on a consolidated basis in accordance with generally accepted accounting principles, after eliminating all intercompany transactions, and after eliminating portions of earnings properly attributable to minority interests, if any, in capital stock of Restricted Subsidiaries, and (2) the net income for the period in question of any Acquired Company acquired after the beginning of such period, PROVIDED that the net income specified in SUBDIVISION (2) of this definition shall be determined on the same basis specified in SUBDIVISION (1). "NET INTEREST EXPENSE" shall mean, for any Measurement Period: (a) the aggregate amount of interest expense of the Borrower and its Subsidiaries for such period, as determined on a consolidated basis in accordance with GAAP LESS (b) the aggregate interest income of the Borrower and its Subsidiaries, as determined in accordance with GAAP. "NET WORTH" shall mean, at any time, all amounts which, in accordance with GAAP, would be included under shareholders' equity on a consolidated balance sheet of Borrower and its Subsidiaries (excluding foreign currency translation adjustments). -66- "NOTES" shall mean the promissory notes of the Borrower evidencing the obligation of the Borrower to repay the Loans. "OBLIGATIONS" shall mean all obligations (monetary or otherwise) of the Borrower arising under or in connection with this Agreement, the Notes and each other Loan Document. "PAYMENTS ON STOCK" shall mean the declaration or payment of dividends on capital stock of the Borrower, purchases, redemptions, retirements or other acquisitions of capital stock of the Borrower, or distributions to shareholders of the Borrower, excluding, however, any of the foregoing which are payable solely in capital stock of the Borrower. "PERCENTAGE" shall mean, relative to any Bank, the percentage set forth opposite such Bank's name on EXHIBIT A-2 hereto, as such percentage may be adjusted from time to time pursuant to SUBDIVISION 1(d)(4) or 11(h). "PERMITTED BUYBACK" shall mean a repurchase or redemption of the Borrower's Common Stock which (a) is pursuant to a Stock Purchase Agreement, (b) occurs when no event of default under SUBPARAGRAPH 7(a) hereof (or event which, after the giving of notice or lapse of time or both, would constitute an event of default) has occurred and is continuing or would result therefrom and (c) would not, when aggregated with all Permitted Buybacks during the preceding twelve months, exceed $1,000,000. "PERSON" shall mean any corporation, partnership, joint venture, government, association, natural person or other entity. "PLAN" shall mean an employee benefit plan or other plan maintained for employees of the Borrower or any of its Subsidiaries which is covered by Title IV of ERISA. "PLEDGE AGREEMENT" shall mean the Amended and Restated Pledge Agreement executed and delivered from time to time pursuant to SUBDIVISION 4(a)(4), dated as of November 15, 1995, as further amended, supplemented, amended and restated or otherwise modified from time to time. "REIMBURSEMENT OBLIGATION" shall mean the obligation of the Borrower under SUBDIVISION 2(e)(3) to reimburse the Issuer with respect to each Disbursement (including interest thereon). -67- "REPORTABLE EVENT" shall have the meaning assigned to that term in section 4043(b) of ERISA, but shall include only those events as to which the Pension Benefit Guaranty Corporation has not waived by regulation the 30-day notice requirement. "REQUIRED BANKS" shall mean the holders of at least 65% in principal amount of the sum of (a) the unutilized portion under all then existing Commitments, (b) the then aggregate outstanding principal amount of all Loans and Letter of Credit Outstandings and (c) the aggregate principal amount of the letters of credit authorized to be issued pursuant to the Letter of Credit Agreement. "RESTRICTED INVESTMENT" shall mean Investments in any Person other than Investments covered by (1) through (10) of SUBPARAGRAPH 6(e), if the Borrower would be permitted to make such Investment pursuant to and within the limitations specified in SUBPARAGRAPH 6(f). "RESTRICTED SUBSIDIARY" shall mean any Subsidiary of the Borrower at least 90% of the outstanding shares of Voting Stock of which are owned, directly or indirectly, by the Borrower or by one or more Restricted Subsidiaries of the Borrower or both, other than any such other Subsidiary of the Borrower which has been irrevocably designated as an Unrestricted Subsidiary by resolution of the Board of Directors of the Borrower (a certified copy of which shall promptly be delivered to the Agent), PROVIDED that no such designation shall be made unless (a) at the time of such designation such Subsidiary does not own any shares of Voting Stock or Indebtedness of any other Restricted Subsidiary of the Borrower which is not simultaneously being designated an Unrestricted Subsidiary of the Borrower or any shares of Voting Stock or Indebtedness of the Borrower, and (b) immediately after giving effect to such designation, no condition or event shall exist which constitutes an event of default under PARAGRAPH 7 or which after the giving of notice or the lapse of time or both would constitute such an event of default. "SALE AND LEASEBACK" shall mean any arrangement whereby the Borrower or any Restricted Subsidiary shall sell or transfer directly or indirectly, all or any substantial part of its fixed assets in anticipation of the leaseback of such assets within one year. "SCHEDULE OF LOANS AND PAYMENTS OF PRINCIPAL" shall mean the grid set forth on page 3 of EXHIBIT B. "SECURITY AGREEMENt" shall mean the Amended and Restated Security Agreement executed and delivered pursuant to SUBDIVISION 4(a)(5), dated as -68- of November 15, 1995, as further amended, supplemented, amended and restated or otherwise modified from time to time. "SENIOR FUNDED DEBT" shall mean Funded Debt other than Subordinated Funded Debt. "SHORT-TERM BORROWINGS" shall mean all Indebtedness in respect of borrowed money maturing on demand or within one year from the date of the creation thereof and not directly or indirectly renewable or extendable, at the option of the debtor, by its terms or by the terms of any instrument or agreement relating thereto, to a date one year or more from the date of the creation thereof. "SIGNIFICANT RESTRICTED SUBSIDIARY" shall mean any Restricted Subsidiary meeting any one of the following conditions: (1) the assets of such Restricted Subsidiary, or the investments in and advances to such Subsidiary by the Borrower and its other Restricted Subsidiaries, exceed 15% of the aggregate assets (excluding the assets of such Restricted Subsidiary) appearing on a consolidated balance sheet of the Borrower and its Restricted Subsidiaries, or (2) the net sales and service revenues of such Restricted Subsidiary for the fiscal year of the Borrower most recently ended exceed 15% of the net sales and service revenues (excluding those of such Restricted Subsidiary) shown on the statement of consolidated net income for such fiscal year, or (3) such Subsidiary has one or more Subsidiaries and together therewith would, if considered in the aggregate, constitute a Significant Restricted Subsidiary within the terms of SUBDIVISIONS (1) or (2) of this definition. "STATED AMOUNT" shall mean for any Letter of Credit on any day, the face amount of such Letter of Credit on such day. "STATED EXPIRY DATE" shall mean a date no later than the earlier of (a) the one year anniversary of the date of the issuance or extension of such Letter of Credit and (b) the Final Maturity Date. "STOCK PURCHASE AGREEMENT" shall mean each of the Stock Purchase Agreements, dated as of June 17, 1988, between the Borrower and certain of its employees. "STOCKHOLDERS' EQUITY" shall mean, as of any date of determination, the aggregate of the preferred and common stock (but excluding treasury stock and capital stock subscribed and unissued) and retained earnings and paid-in capital (including the balance of the current profit and loss account not transferred to retained earnings) of the Borrower and its Restricted -69- Subsidiaries as the same properly appears on a consolidated balance sheet of the Borrower and its Restricted Subsidiaries as of such date prepared in accordance with generally accepted accounting principles on a consolidated basis, after eliminating all intercompany transactions less Excess Purchase Costs associated with acquisitions made after the date hereof. "SUBORDINATED FUNDED DEBT" shall mean any unsecured Funded Debt which (a) is created under or evidenced by an instrument containing provisions for subordination of Funded Debt to the Notes substantially the same as those set forth in EXHIBIT E and (b) is otherwise in form and substance satisfactory to the Required Banks. "SUBSIDIARY" as applied to any Person (hereinafter called the parent) shall mean any other Person the majority of the Voting Stock or other ownership interests of which at the time is owned, directly or indirectly, by the parent or by one or more of its Subsidiaries or both. "UNRESTRICTED SUBSIDIARY" shall mean any Subsidiary of the Borrower which is not at the time a Restricted Subsidiary of the Borrower. "VOTING STOCK" shall mean, as to the shares of stock of a particular corporation, all shares of stock or corresponding securities of such corporation, at the time outstanding and having voting power for the election of directors or persons performing similar functions either at all times or so long as no senior class of securities has such voting power because of default in dividends or because of the existence of some other default, but shall not include any shares of stock or corresponding securities having voting power only upon the occurrence of some contingency. -70- 10. AMENDMENTS AND WAIVERS. a. No provision or term of this Agreement, any Note, any other Loan Document or the Letter of Credit Agreement may be changed, waived, discharged or terminated orally or in writing, except that any term of this Agreement, the Notes, the other Loan Documents and the Letter of Credit Agreement may be amended and the observance of any such term may be waived (either generally or in a particular instance and either retroactively or prospectively) with (but only with) the written consent of the Required Banks; PROVIDED that no such amendment or waiver shall, without the written consent of all of the Banks, (1) change the amount or time of any required payment or prepayment of any Note or any part thereof, or of interest thereon, (2) reduce any fees described in SUBPARAGRAPH 2(e), (3) increase the amount of the Commitments or change any Bank's participation in the Commitments, (4) change the definition of "Required Banks", (5) substitute, release, modify or exchange all or substantially all of the collateral (it being understood that no consent of the Banks is required in respect of any release of collateral in connection with any sale of assets pursuant to SUBPARAGRAPH 6(c)), (6) waive any of the conditions specified in SUBPARAGRAPH 4(a) or 4(a) or (7) modify the requirement in SUBPARAGRAPH 11(h) that the Borrower obtain the consent of all the Banks to assign or transfer any of its rights or obligations under this Agreement; PROVIDED, FURTHER, that no such amendment or waiver shall, without the written consent of the holders of at least 69.5% in principal amount of the sum of CLAUSES (a), (b) and (c) of the definition of Required Banks substitute, release, modify or exchange less than substantially all of the collateral (it being understood that no consent of the Banks is required in respect of any release of collateral in connection with any sale of assets pursuant to SUBPARAGRAPH 6(c)). b. No failure on the part of any Bank 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 by any Bank or the Agent of any right hereunder 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, and nothing in this Agreement shall be deemed any waiver, restriction or prohibition of any Bank's right of banker's lien or set-off; but on the contrary, the Borrower specifically agrees that each Bank shall have such right and that the same shall be exercisable whether or not the Notes, Letter of Credit Outstandings and other Obligations hereunder be then technically due, past due or delinquent. -71- 11. MISCELLANEOUS. a. COSTS AND EXPENSES. The Borrower shall, whether or not the transactions contemplated hereby shall be consummated: i. pay or reimburse on demand for all reasonable costs and expenses incurred by the Agent, in connection with the development, preparation, delivery, administration and execution of, and any amendment, supplement, waiver or modification to (in each case, whether or not consummated), this Agreement, any other Loan Documents and any other documents prepared in connection herewith or therewith, and the consummation of the transactions contemplated hereby and thereby, including the reasonable Attorney Costs incurred by the Agent with respect thereto; ii. pay or reimburse each Bank and the Agent on demand for all reasonable costs and expenses incurred by them in connection with the enforcement, attempted enforcement, or preservation of any rights or remedies (including in connection with any "workout" or restructuring regarding the Loans, and including in any insolvency proceeding) under this Agreement, any other Loan Documents, and any such other documents, including Attorney Costs or the cost of any consultants incurred by the Agent and any Bank; and iii. pay or reimburse the Agent on demand for all appraisals (including the allocated cost of internal appraisal services), audits, environmental inspections and reviews (including the allocated cost of such internal services), search and filing costs, fees and expenses, incurred or sustained by the Agent in connection with the matters referred to under PARAGRAPHS (a) and (b) of this SUBPARAGRAPH 11(a). b. INDEMNITY. Whether or not the transactions contemplated hereby shall be consummated, the Borrower shall pay, indemnify, and hold harmless each Bank, the Issuer, the Agent and each of their respective officers, directors, employees, counsel, agents and attorneys-in-fact (each, an "INDEMNIFIED PERSON") from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, charges, expenses or disbursements (including Attorney Costs) of any kind or nature whatsoever with respect to the execution, delivery, enforcement, performance and administration of this -72- Agreement and any other Loan Document, or the transactions contemplated hereby and thereby, and with respect to any investigation, litigation or proceeding (including any insolvency proceeding) related to this Agreement or the Loan Documents or the Loans or the Letters of Credit, or the use of the proceeds thereof, whether or not any indemnified person is a party thereto (all the foregoing, collectively, the "INDEMNIFIED LIABILITIES"); PROVIDED, HOWEVER, that the Borrower shall have no obligation hereunder to any Indemnified Person with respect to Indemnified Liabilities arising from the gross negligence or willful misconduct of such Indemnified Person as the same is determined by a final judgment of a court of competent jurisdiction. The obligations in this SUBPARAGRAPH (b) shall survive payment of all other Obligations. c. NOTICES. Except as otherwise provided in this Agreement, notices and other communications under this Agreement shall be in writing and shall be delivered, or mailed by first-class mail, postage prepaid, addressed, (1) if to any Bank, at the address set forth on EXHIBIT G, to the attention of the officer designated on such EXHIBIT G, or at such other address, or to the attention of such other officer, as shall have been furnished to the Borrower in writing, (2) if to the Borrower, at 2345 Vauxhall Road, P.O. Box 3148, Union, New Jersey 07083-1948, to the attention of Treasurer, or at such other address, or to the attention of such other officer, as the Borrower shall have furnished to each Bank in writing. d. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations and warranties of the Borrower made in SECTION 3 hereof shall survive the termination of this Agreement and the payment of the Credit Extensions and all other Obligations payable hereunder. e. CONSTRUCTION. This Agreement, the Notes and the other Loan Documents shall be deemed to be a contract made under the laws of the State of New York and shall be governed by and be construed in accordance with the laws of such State. f. JURISDICTION. The Borrower irrevocably agrees that any legal action or proceeding against it arising out of or in connection with this Agreement, the Notes and the other Loan Documents or for recognition or enforcement of any judgment rendered in any such action or proceeding may be brought in any Federal or -73- State Court sitting in the State and County of New York, and by execution and delivery of this Agreement, the Borrower hereby irrevocably accepts and submits to the jurisdiction of each of the aforesaid courts IN PERSONAM, generally and unconditionally with respect to any such action or proceedings for itself and in respect of its property, assets, and revenues. The Borrower hereby also irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have that such action or proceeding brought in such court has been brought in an inconvenient forum. The Borrower further irrevocably consents to service of process out of said courts by mailing a copy thereof, by registered or certified mail, postage prepaid, and irrevocably waives, to the fullest extent permitted by law, all claim of error by reason of such service, in any legal action or proceeding brought in accordance herewith. The Borrower irrevocably waives, in any legal action or proceeding in any jurisdiction (whether for any injunction, specific performance, damages, or otherwise), any right or claim of immunity of any kind with respect to itself or its assets, including without limitation from attachment or execution of judgment, and the Borrower irrevocably agrees that it and its assets are and shall be subject to legal action or proceeding, attachment, or execution in respect to its obligations under this Agreement, the Notes and the other Loan Documents. g. HEADINGS. Headings in this Agreement are for convenience of reference only, and shall not limit or otherwise affect the meaning hereof. h. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to the benefit of, the Borrower, the Banks and the Agent, and their respective successors and permitted assigns, and no other Person shall acquire or have any right under or by virtue of this Agreement. The Borrower may not assign or transfer any of its rights or obligations hereunder without the consent of all the Banks and, subject to the other terms of this SUBPARAGRAPH 11(h), no bank may assign or transfer its rights here under without the consent of the Borrower, PROVIDED that any Bank, without the consent of the Borrower, the Agent or any other Bank, may grant participations to one or more banks or other entities in, or to all of, any Loan or Loans, any Note or any Letter of Credit, and to the extent of any such participation (unless otherwise stated therein) the participant shall not have any rights, benefits or obligations -74- hereunder, any Note or any Letter of Credit other than, to the extent stated therein, the right to consent to any (a) changes in the scheduled payments on the Notes or Letters of Credit, (b) reductions in interest rates or fees, (c) changes in the collateral provided for hereunder or (d) changes in the definition of "REQUIRED BANKS"; PROVIDED, HOWEVER that notwithstanding any such grant of participation, the Agent and the Borrower shall, unless both the Agent and the Borrower agree otherwise, be entitled to deem and treat the original Banks parties hereto for all purposes of this Agreement, the Notes and the other Loan Documents as the owners of the Loans and participants in the Letter of Credit and all amounts payable hereunder shall be calculated as if such participation or participations had not been granted. Notwithstanding any of the other terms of this SUBPARAGRAPH 11(h), (i) any Bank may assign all (but not less than all) of its rights and obligations hereunder without the consent of the Borrower to a commercial banking institution organized under the laws of the United States (or State thereof) or a United States branch or agency of a commercial banking institution and having a combined capital and surplus of at least $500,000,000 and (ii) any Bank may pledge all or any part of its rights hereunder to a Federal Reserve Bank without the consent of the Borrower. i. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be an original and all of which together shall constitute one and the same instrument. j. WAIVER OF JURY TRIAL. THE AGENT, BANKS AND THE BORROWER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF THE AGENT, THE BANKS OR THE BORROWER. THE BORROWER ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS -75- PROVISION (AND EACH OTHER PROVISION OF EACH OTHER LOAN DOCUMENT TO WHICH IT IS A PARTY) AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE AGENT AND THE BANKS ENTERING INTO THIS AGREEMENT AND EACH SUCH OTHER LOAN DOCUMENT. k. CROSS-REFERENCES. Each reference in any Loan Document or financing statement to the Existing Credit Agreement is also deemed to be a reference to this Agreement. -76- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed, all as of the day and year first above written. THE GENLYTE GROUP INCORPORATED By: /s/ Neil Bardach ----------------- Neil Bardach Title: Vice President - CFO BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, AS AGENT By: /s/ Steve A. Aronowitz ----------------------- Steve A. Aronowitz Title: Managing Director BANK OF AMERICA ILLINOIS, AS A BANK AND ISSUER By: /s/ Steve A. Aronowitz ----------------------- Steve A. Aronowitz Title: Managing Director THE BANK OF NEW YORK, AS A BANK AND CO-AGENT By: /s/ Walter C. Parelli ---------------------- Walter C. Parelli Title: Assistant Vice President BANK OF TOKYO-MITSUBISHI TRUST COMPANY By: /s/ Michael C. Irwin --------------------- Michael C. Irwin Title: Vice President THE CHASE MANHATTAN BANK By: /s/ Peter C. Eckstein ---------------------- Peter C. Eckstein Title: Vice President FIRST UNION NATIONAL BANK By: /s/ John J. Wedemeyer ---------------------- /s/ John J. Wedemeyer Title: Vice President THE FIRST NATIONAL BANK OF CHICAGO By: /s/ Title: FLEET BANK By: /s/ Daniel D. Prevoznak ------------------------ Daniel D. Prevoznak Title: Vice President SUN TRUST BANK, ATLANTA, AS A BANK AND CO-AGENT By: /s/ Title: By: /s/ Title: SUMMIT BANK By: /s/ Bruce A. Gray ------------------ Bruce A. Gray Title: Vice President EXHIBIT A-2 LIST OF BANKS Commitment Percentage Amount Share ------------------- ------------------- Bank of America Illinois $ 15,000,000 15.000% Sun Trust Bank, Atlanta $ 12,500,000 12.500% The Bank of New York $ 12,500,000 12.500% The Chase Manhattan Bank $ 10,000,000 10.000% First Chicago NBD $ 10,000,000 10.000% First Union National Bank $ 10,000,000 10.000% Summit Bank $ 10,000,000 10.000% Bank of Tokyo-Mitsubishi Trust $ 10,000,000 10.000% Company Fleet Bank $ 10,000,000 10.000% --------------- ------ $ 100,000,000 100.00% =============== EXHIBIT B FORM OF NOTE , New Jersey [U.S.$ ] THE GENLYTE GROUP INCORPORATED, a Delaware corporation (the "BORROWER"), for value received, hereby promises to pay to the order of [ ] (the "BANK") at the office of BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Agent (the "AGENT"), the lesser of the principal sum of [$ ] or the aggregate unpaid principal amount of all Loans made by the Bank to the Borrower pursuant to the Amended and Restated Credit Agreement, dated as of November 15, 1995 (the "AGREEMENT"), among the Borrower, the Banks named therein and the Agent thereunder, such amount to be evidenced by endorsement thereof by the holder on the Schedule of Loans and Payments of Principal on the reverse side of this Note (subject to the proviso set forth below) and to be paid in immediately available funds on November 14, 2000 and as otherwise provided in the Agreement; and the Borrower hereby promises to pay interest on the unpaid principal amount of all Loans from time to time outstanding from the date hereof until stated maturity or earlier payment, in like funds, at such office, at a rate or rates per annum and at such times as are provided by the Agreement. Each Loan and each prepayment or payment made on account of the principal hereof shall be endorsed by the holder on the Schedule of Loans and Payments of Principal on the reverse side of this Note, PROVIDED, HOWEVER, that the failure of the Bank or the Agent to set forth such principal payments, prepayments and other payments on such schedule shall not in any manner affect the obligation of the Borrower to repay the Loans made by the Bank in accordance with the terms of this Note. This Note may be prepaid in whole or in part at the option of the Borrower and is subject to mandatory prepayment in accordance with the provisions of the Agreement. This Note is one of the Notes referred to in, and the holder hereof and the Borrower are entitled to the benefits of, the Agreement. Upon occurrence of an event of default specified in the Agreement, the principal hereof and accrued interest hereon may be declared to be or may become forthwith due and payable as provided in the Agreement. B-1 This Note shall be deemed to be a contract made under the laws of the State of New York and shall be governed by and construed in accordance with the laws of such State. THE GENLYTE GROUP INCORPORATED By: Title: B-2 SCHEDULE OF LOANS AND PAYMENTS OF PRINCIPAL Amount of Principal Unpaid Amount of Paid of Principal Certified Date Loan Prepaid Balance by EX-11 3 EXHIBIT 11
EXHIBIT 11 ---------- THE GENLYTE GROUP INCORPORATED AND SUBSIDIARIES Calculation of Basic and Diluted Earnings per Share For the Years Ended December 31, 1997, 1996 and 1995 ($ in thousands - except per share data) 1997 1996 1995 ------- ------- ------- (Restated)(Restated) BASIC EARNINGS PER SHARE Net Income $19,113 $12,997 $ 7,909 Average common shares outstanding 13,127 12,859 12,732 ------- ------- ------- Basic Earnings Per Share $ 1.46 $ 1.01 $ 0.62 ======= ======= ======= DILUTED EARNINGS PER SHARE * Net Income $19,113 $12,997 $ 7,909 Average common shares outstanding 13,127 12,859 12,732 Incremental common shares issuable: stock options 309 196 72 ------- ------- ------- Average common shares outstanding assuming dilution 13,436 13,055 12,804 ------- ------- ------- ======= ======= ======= Diluted Earnings Per Share $ 1.42 $ 1.00 $ 0.62 ======= ======= =======
* Diluted earnings per share include all average common shares outstanding adjusted for the incremental dilution of outstanding stock options. EX-13 4 EXHIBIT 13 1997 Lighting the Way Together Annual Report [Graphic Photo Omitted] On the Cover: The Getty Center, Los Angeles, California. Over 14 years under construction, costing approximately $1 billion, the recently opened Getty Center is one of the most significant architectural projects of the century. 1.5 million people are expected to visit in its first year. Genlyte lighting was specified by the project's lighting consultant, for both indoor and outdoor applications. [Graphic Photo Omitted] THE GENLYTE GROUP INCORPORATED IS A LEADING MANUFACTURER OF LIGHTING FIXTURES AND CONTROLS FOR THE COMMERCIAL, INDUSTRIAL AND RESIDENTIAL MARKETS. OUR PRODUCTS ARE SOLD UNDER THE BRAND NAMES OF BRONZELITE, CRESCENT, DIAMOND F, EXCELINE, FORECAST, LIGHTOLIER CONTROLS, HADCO, LIGHTOLIER, STONCO AND WIDE-LITE IN THE U.S. AND CFI FLUORESCENT, KEENE-WIDELITE, LIGHTOLIER, PRODEL AND STONCO IN CANADA. [Graphic Omitted] Net Sales '95 '96 '97 ------------------------- 445.7 456.9 488.0 FINANCIAL HIGHLIGHTS AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA 1997 1996 1995 - ----------------- OPERATING RESULTS - ----------------- Net Sales $487,961 $456,860 $445,660 Gross Profit Margin 34.7% 33.9% 31.0% Operating Profit $ 37,621 $ 28,448 $ 21,955 Net Income $ 19,113 $ 12,997 $ 7,909 Earnings Per Share: Basic $ 1.46 $ 1.01 $ 0.62 Diluted $ 1.42 $ 1.00 $ 0.62 - ------------------ BALANCE SHEET DATA - ------------------ Current Assets $174,106 $163,839 $151,058 Total Assets $254,028 $238,115 $231,034 Current Liabilities $ 92,145 $ 92,473 $ 75,339 Total Debt $ 32,785 $ 41,847 $ 67,132 Stockholders' Investment $103,729 $ 83,783 $ 69,900 Book Value Per Average Share $ 7.72 $ 6.42 $ 5.46 [THE FOLLOWING TABLES ARE REPRESENTATIVE OF GRAPHIC CHARTS.] OPERATING NET EARNINGS PROFIT INCOME PER SHARE '97 37.6 '97 19.1 '97 1.42 '96 28.4 '96 13.0 '96 1.00 '95 22.0 '95 7.9 '95 0.62 HIGHLIGHTS OF THE YEAR TO OUR STOCKHOLDERS: 1997 WAS ANOTHER RECORD YEAR FOR GENLYTE. WE INTRODUCED MANY EXCITING NEW PRODUCTS, ACHIEVED OUR BEST SALES GROWTH SINCE THE COMPANY BECAME PUBLIC, AND EARNED RECORD PROFITS. We are proud of our accomplishments, and are confident that we have positioned the company for continued growth and improved financial performance. We enjoyed focused growth in 1997: we grew with customers who appreciate the value of Genlyte's services with products we manufacture with distinction and sell with confidence. We want to discuss three specific activities in 1997 that have positioned Genlyte for future growth in sales and profitability. LYTENING(TM)/NEW PRODUCTS Lytening is one of the most exciting new products introduced in the lighting industry in many years, and the most successful product introduction in Genlyte history. Lytening was conceived, designed, manufactured and marketed as a complement to Lightolier's historic strength in high-performance quality downlighting. Our customers welcomed Lytening and recognized its value and the opportunity that this innovative product gave them to sell more downlighting and earn more profit in a mature market. This product was only sold to Lightolier's select distributors and gives them a distinct advantage in marketing an exciting new product that is not offered through alternate channels of distribution. We will continue to focus our product development, on which we spent more than $10 million in 1997, on those products that give our customers a competitive advantage. We introduce hundreds of new products each year, and Lytening typifies the care we take in directing product introductions to customers and markets we value. While Lytening was clearly the most significant new product that we introduced in 1997, we also introduced many other exciting and innovative products in outdoor, fluorescent, decorative and controls. All of these products will generate additional sales in 1998 and beyond. We began the development of our new emergency lighting line, which will be introduced in early 1999. Innovative products are very important to Genlyte, and we will continue our aggressive new product developments in 1998. CUSTOMER-FOCUSED TECHNOLOGY We invested a substantial amount of money in 1997 and will invest more in 1998 to install Oracle software in our operating divisions to manage customer orders, inventory, shipments and invoicing. When Oracle is in use throughout Genlyte, our customers will be able to place one order for products made for stock from all Genlyte divisions and have immediate access to timely information P A G E 2 ------------------ GENLYTE OUR BRANDS ------------------ LIGHTOLIER HIGH-QUALITY, INNOVATIVE RESIDENTIAL/COMMERCIAL LIGHTING: DOWNLIGHTING, TRACK LIGHTING, DECORATIVE, FLUORESCENT AND CONTROLS. FORECAST RESIDENTIAL DECORATIVE LIGHTING SOLD THROUGH LIGHTING SHOWROOMS. CONTROLS ELECTRONIC DIMMING AND ENERGY-SAVING CONTROLS FOR RESIDENTIAL/COMMERCIAL USE. STONCO, CRESCENT & EXCELINE STANDARD, HIGH- VOLUME, CONTRACTOR-FRIENDLY INDOOR/OUTDOOR LIGHTING DISTRIBUTED THROUGH ELECTRICAL WHOLESALERS AND SOLD PRIMARILY TO ELECTRICAL CONTRACTORS. WIDE-LITE ENERGY-EFFICIENT, HID INDOOR/OUTDOOR LIGHTING PRODUCTS AND CONTROLS FOR COMMERCIAL, INDUSTRIAL, RECREATIONAL USE. BRONZELITE HIGH-QUALITY, SPECIFICATION-GRADE COMMERCIAL LANDSCAPE LIGHTING. HADCO SPECIFICATION-GRADE EXTERIOR ARCHITECTURAL LIGHTING FOR MUNICIPAL, INDUSTRIAL, COMMERCIAL, LANDSCAPE USE. DIAMOND F DECORATIVE RESIDENTIAL LIGHTING SOLD THROUGH DO-IT-YOURSELF HOME CENTERS. CANLYTE SALE IN CANADA OF LIGHTOLIER, CFI, KEENE-WIDELITE, STONCO AND HADCO PRODUCT LINES. about their orders, including product availability. We have already successfully installed Oracle at one of our divisions, with additional divisions scheduled to follow closely behind. We have made the investments in hardware, software and skilled staff required to install Oracle for one reason: to better serve our customers at a lower cost for them and for ourselves. This technology will make it easier for all of us at Genlyte to reach our ultimate goal of providing our customers with the best overall service in the industry. GENLYTE DISTRIBUTION/SERVICE Our inability to provide customers with excellent service has been an obstacle to Genlyte's growth over the past several years. The installation of Oracle is only part of that solution. We have studied our distribution coverage carefully and concluded that we can improve our product delivery to our customers dramatically by consolidating our distribution into several regional distribution centers, strategically located throughout the United States. The first of these distribution centers is scheduled to open this fall, serving our customers on the East Coast. In addition to Oracle and our new distribution network, each division is developing a customer service campaign for 1998 with all employees participating to dramatically improve our service. Genlyte is noted for having outstanding products, and we are dedicated to improving our service to match our products. We have spent the last three years improving the financial condition of Genlyte. We have eliminated unprofitable product lines and reduced capacity at less-productive facilities, while strengthening our balance sheet and reducing our debt. At the same time we have made substantial investments in people, products and technology to position Genlyte for growth. We are truly committed to "Lighting the Way-Together," by providing excellent opportunities and services for our customers, employees, vendors and shareholders. We will earn your continued confidence and trust. We are confident that 1998 will be another excellent year for Genlyte. Thank you for your ongoing support. [PHOTO] /s/ Larry K. Powers - ------------------- Larry K. Powers President and Chief Executive Officer [PHOTO OF LARRY K. POWERS] /s/ Avrum I. Drazin - ------------------- Avrum I. Drazin Chairman of the Board [PHOTO AVRUM I. DRAZIN] P A G E 4 -------------------- HIGHLIGHT OPERATIONS -------------------- GOING FOR GROWTH THE GROUNDWORK IS LAID. WE HAVE CONTINUED TO REDUCE EXCESS CAPACITY. SIGNIFICANTLY IMPROVED PRODUCTIVITY. LOWERED OUR COSTS. SEVERAL OF OUR COMPANIES HAVE RECEIVED ISO REGISTRATION, CERTIFYING THEM AS "WORLD CLASS" MANUFACTURERS, AND SEVERAL MORE ARE NEAR TO IT. GENLYTE IS POSITIONED FOR GROWTH. THE FOLLOWING PAGES SHOW HOW WE'RE GOING TO ACHIEVE THAT GROWTH. THROUGH INNOVATIVE PRODUCTS, LIKE LYTENING, WHICH HAS REVOLUTIONIZED DOWNLIGHT INSTALLATION AND OPENED NEW MARKETS, AS WELL AS THROUGH THE HUNDREDS OF NEW PRODUCTS THAT REFRESH AND UPDATE OUR LINES EACH YEAR, KEEPING GENLYTE ON THE INDUSTRY'S FOREFRONT. THROUGH A VARIETY OF MANUFACTURING INITIATIVES AIMED AT INCREASING OUR EFFICIENCY AND PRODUCTIVITY EVEN MORE, SO THAT WE CAN OFFER HIGH-QUALITY PRODUCTS AT A COMPETITIVE PRICE. AND MOST IMPORTANTLY, THROUGH OUR COMPANY-WIDE CUSTOMER SERVICE INITIATIVES, WHICH ARE FOCUSING EVERY RESOURCE -- TECHNOLOGY, WAREHOUSING, TRAINING, SALES --ON MAKING IT EASY FOR CUSTOMERS TO DO BUSINESS WITH GENLYTE. WE ARE DETERMINED TO MAKE GENLYTE THE LIGHTING COMPANY THAT NOT ONLY PROVIDES THE BEST LIGHTING SOLUTIONS BUT IS THE EASIEST DO BUSINESS WITH. THE FOLLOWING PAGES SHOW THAT OUR COMMITMENT TO GROWTH IS BUILT ON OUR COMMITMENT TO OUR CUSTOMER. [PHOTO] LYTECASTER The beauty of Lytening goes beyond the unprecedented ease of installation. Because the housing is designed to accommodate over 40 of Lightolier's existing Lytecaster reflector trims, Lytening is the most versatile choice for residential and light commercial downlighting. Lytening's various installation and lamping options offer hundreds of lighting effects, from general lighting to wall washing and accent lighting. To enhance its versatility even more, the Lytening housing is dual-rated for use in both insulated and non-insulated ceilings. For distributors, this extraordinary flexibility means reduced inventory requirements; for contractors, on-site logistics are greatly simplified. P A G E 6 - --------------------- HIGHLIGHT NEW PRODUCT - --------------------- LYTENING(TM) A REVOLUTION IN RECESSED DOWNLIGHTING In Genlyte's most significant product launch of the year, LIGHTOLIER introduced Lytening, a new downlight housing that vastly simplifies downlight installation while delivering superior performance at a very competitive price. The heart of the innovation lies in a unique mounting system, the SwiveLock(TM), which enables a contractor to wire the housinG from below the ceiling line, and then pivot it into position between the ceiling joists. This feature eliminates the awkward job of wiring the housing in the cramped space between the joists--resulting in huge time savings for contractors. For Lightolier, known for leadership in innovative commercial and residential lighting, Lytening marks an important expansion of its marketing strategy to include the electrical contractor. The product's innovative, patented design includes 10 "contractor friendly" installation and performance features--the result of two years of research and development, and hundreds of conversations with lighting contractors and distributors. Anything but a "me too" product, Lytening advances the state of the art in residential downlight installation. Lytening demonstrates that even in a mature market like recessed downlighting, dramatic innovations that truly respond to customers' needs will open new doors to growth. Already a huge success for Lightolier and Genlyte, the future of Lytening looks even brighter. TELLING KEY CUSTOMERS ABOUT "THE WORLD'S BEST ENGINEERED DOWNLIGHT" WAS THE THRUST OF A TWO-DAY LAUNCH EVENT HOSTED BY LIGHTOLIER. THE GUESTS, REPRESENTING MORE THAN 75% OF LIGHTOLIER'S DISTRIBUTOR CHANNEL BUSINESS, WERE INTRODUCED TO THE LYTENING PRODUCT IN A MULTI-MEDIA PRESENTATION AND A HANDS- ON INSTALLATION TRAINING SESSION. THE LAUNCH WAS MADE UNDER THE HEADING OF "THE THIRD WAVE," THE THIRD STAGE OF A MULTIYEAR PROGRAM THAT IS NOW FOCUSED ON ENHANCING CUSTOMER SERVICE. [PHOTO] P A G E 7 - ---------------------- HIGHLIGHT NEW PRODUCTS - ---------------------- Innovation is a tradition at Genlyte. From the development of track lighting to the first HID floodlight, to the first acrylic refractor globe for street lighting, Genlyte companies have consistently been at the forefront. On these pages you'll see a sampling of the year's new product highlights. These are just a few of the hundreds of new products introduced in 1997 by Genlyte companies. [PHOTO] NEW "SOFT" FLUORESCENTS The major trend in commercial fluorescent lighting is to bring together balanced brightness and soft lighting effects with an architectural statement. CFI FLUORESCENT of Canada--which has earned its reputation as a leader in fluorescent lighting--is on the front wave of this trend with the Alter family of soft lights. Alter Soft Lights are recessed indirect fluorescent luminaires that blend high luminous efficacy with aesthetically pleasing soft lighting. By eliminating shadows, glare and hot spots, Alter lights enhance the quality of the visual environment while adding a feeling of spaciousness. CFI developed the Alter product line in strategic alliance with Alter in France, demonstrating another way Genlyte is filling gaps in our product lines and expanding our markets. KALEIDOSCOPE(TM) LUMINAIRES FROM EXCELINE ARE PERFECTLY SUITED TO THE "TECHNO-STYLE" DECORS FOUND SO OFTEN TODAY IN RESTAURANTS AND SPECIALTY RETAIL SPACES. THESE COLORFUL FIXTURES OFFER THE RUGGED AND DEPENDABLE DESIGN OF THE WELL-KNOWN STONCO ROUGHLYTE(TM) VAPORTIGHT FIXTURE, BUT WITH A MORE REFINED LOOK. THIS YEAR THE LINE WAS BROADENED WITH KALEIDOSHADES(TM), INTRODUCING AN APPEALING NEW DESIGN FEATURE. P A G E 8 [PHOTO] LYTECOMMAND(TM) [PHOTO] Landscape lighting is no longer a matter of aesthetics alone--security and safety have also become important issues. With the introduction of the LyteCommand(TM) system, HADCO, a leader in outdoor street, area and landscape lighting, has added a new dimension tO residential security. Consisting of a command module, two motion sensors and two hand-held remote controls, the LyteCommand uses infra red light to sense motion and radio frequency to signal the command module that motion has been detected, triggering the lights. Among the system's many distinctive features is a "panic button" on the hand-held remote that overrides the control module to turn lights on instantly. In the public domain, where vandalism can be an issue, Hadco has responded with the new CL Bollards, which combine stylish design with vandal-proof durability. P A G E 9 --------- HIGHLIGHT --------- [GRAPHIC] IN THE HOME AUTOMATION MARKET, CONVENIENCE IS THE KEY, AND WITH GENLYTE'S NEW LIGHTING INTERFACE, GETTING THE HOUSE READY TO "GO TO SLEEP" IS EVEN MORE CONVENIENT. WITH A TOUCH OF A "GOOD NIGHT BUTTON" HOMEOWNERS CAN NOT ONLY ADJUST THE THERMOSTAT, ARM THE ALARM SYSTEM AND SHUT DOWN THE HOME THEATER, BUT NOW THEY CAN ALSO ADJUST THE LIGHTING SYSTEM TO THE DESIRED NIGHT SETTINGS. P A G E 10 - ---------------- NEW TECHNOLOGIES - ---------------- Electronic lighting controls are a fast-growing market for Genlyte as both commercial and residential users seek new ways to integrate multiple systems, increase energy efficiency and create flexible spaces with "multiple-scene" lighting systems. Genlyte leads the way with its own research and development for electronics--a commitment that is keeping us on the cutting edge of this fast-changing, high-tech area. New from LIGHTOLIER'S CONTROLS Division in 1997 is a computer interface that enables a homeowner or commercial user to control lighting from their central computer. With this RS-232/485 Interface, Lightolier's dimming systems and whole house control systems (MultiSet, Compli Lytemode and Brilliance) can be linked with security systems, HVAC control, audio visual, appliances, even sprinklers. Genlyte is also in the vanguard with the "smart fixture" concept-- wireless controls that use radio signals to adjust lighting at the individual fixture level. Imagine a future with precision light control, yet without hardwiring of controls! ------------------------------- HIGHLIGHT NEW DECORATIVE STYLES ------------------------------- [PHOTO] An architectural approach to lighting at the mirror, Alice is an elegant surface-mounted bath fixture designed to look "built-in" rather than added on. Featuring a choice of fluorescent or halogen sources, Alice provides glare-free, shadow-free illumination for both sides of the face. Decorative residential lighting is a fashion-driven business. For FORECAST, which sells through lighting showrooms, and DIAMOND F, which sells through do-it-yourself home centers, that means constantly refreshing and updating product lines with new releases that capture the spirit of the times. Strong in-house design and effective sourcing resulted in the introduction of a wide array of new, high-style products at extremely competitive pricing. One example--which capitalizes on the hot trend for weathered finishes--was the release of an exclusive "silver rust" finish that was well received across the country. Another trend is the rapid growth of energy-efficient decorative lighting, and Genlyte companies are responding by expanding these "EnergySmart" compact fluorescent lighting product lines. P A G E 11 - -------------------- HIGHLIGHT EFFICIENCY - -------------------- Genlyte's commitment to world-class manufacturing doesn't start and finish with ISO certification. Our companies are living the commitment through a variety of initiatives aimed at continuously improving our efficiency, productivity and quality. From "Kaizen Blitzes" to re-engineering older plants, from new facilities and advanced manufacturing equipment to innovative software, Genlyte is investing in working smarter to better serve our customers. KAIZEN IS A JAPANESE WORD THAT MEANS "CONTINUOUS IMPROVEMENT." THE KAIZEN BLITZ IS A THREE-DAY FOCUSED ATTACK ON A SPECIFIC AREA BY A CROSS-FUNCTIONAL TEAM DRAWN FROM BOTH INSIDE AND OUTSIDE THE CHOSEN WORK AREA. [PHOTO] KAIZEN BLITZ @ WIDE-LITE Wide-Lite, known for its innovative, high-performance floodlighting technologies, applied Kaizen Blitzes to several different product families with extraordinary results, particularly for the Effex Area Luminaire, the newest addition to Wide-Lite's Effex series of architectural lighting: assembly time was virtually cut in half, square footage need for assembly was decreased by 20%, and there was a 125% increase in daily output capability, boosting our ability to meet customer demand. Effex Area Luminaires, the latest addition to WIDE-LITE'S Effex Series of architectural lighting, offer more optical options than any other family of area luminaires. Output and customer service benefited from the Kaizen Blitz. P A G E 12 [PHOTO] KAIZEN BLITZ!@STONCO At Stonco, a Kaizen Blitz applied to the assembly process of the Multi-Bay product family increased plant efficiency by an astonishing 16-18%, reducing lead times and improving delivery to our customers. P A G E 13 --------- HIGHLIGHT --------- [PHOTO] CAMARGO, MEXICO Genlyte's commitment to world-class manufacturing is demonstrated in all of our companies, from older plants to our newest facility. At our newly expanded Camargo facility, pictured above, all of the latest manufacturing techniques, from cellular assembly to work teams, are in place. The banner displayed captures the spirit of this team's Kaizen: "A Way to be better!" At CRESCENT, a product representing 40% of the plant's volume was re-engineered to eliminate linear assembly, replacing it with a multiple workstation system that easily adapts to large runs or small. KEENE-WIDELITE POWERHOUSE P A G E 14 - ---------- EFFICIENCY - ---------- Speed, cost-effectiveness and flexibility are critical to satisfying customers and growing market share, and that's what drives CANLYTE'S commitment to flexible manufacturing. The focus on cost reduction begins while a product is still on the drawing board. With the help of a recently adopted technology called Design for Manufacturing and Assembly (DFMA), designers design products with manufacturing processes and assembly in mind, resulting in fewer parts, reduced cycle times and substantial cost savings. To take full advantage of DFMA, CFI Fluorescent has invested in advanced sheet metal fabrication technology that not only makes it possible to produce many kinds of parts on a cost-effective "just-in-time" basis but also reduces labor and facilitates the use of robotic assembly. For customers the benefit is clear: greater customization at a lower cost. These important advances are already being adopted in the U.S. by Lightolier. At Genlyte, strengths and innovations developed in one company are quickly shared. [GRAPHIC] DFMA was used to design the Radius Track head in an effort to design "the lowest cost track head possible in Canada." The results: parts were reduced from 43 to 21, assembly time was practically cut in half, making it possible to double daily output, and a 30% cost reduction was achieved! [GRAPHIC] CANADA ASSEMBLY AREA [GRAPHIC] A look at KEENE-WIDELITE'S Powerhouse Assembly area shows the space-consuming, physically demanding "spiderweb" of motion that existed pre-Kaizen. The diagram at left reveals the impact of the Kaizen blitz, including improved ergonomics, no bending, and minimal walking. The results: 73% decrease in travel, a 22% decrease in hours per unit, and an overall reduction of assembly space by 39%! P A G E 15 -------------------------- HIGHLIGHT CUSTOMER SERVICE -------------------------- VALUE-ADDED SERVICES Developing value-added services is another way Genlyte is strengthening relationships with customers and distributors. In some cases, this means putting new technologies to work. Lightolier's TECHEXPRESS is an advanced resource for the lighting community, including a CD-ROM Specifier(TM) with full-color product and application photos and a direct link to the Genesys(TM) workstation, which helps lighting professionals by providing sophisticated lighting calculation software to meet specification challenges for a wide range of applications. LYTELINK is a new business planning software developed by Canlyte for distributors. With LyteLink, distributors identify their objectives, and then select from a menu of distributor support marketing tools grouped to match specific objectives. This software clearly makes it easier for our distributor partners to benefit from the training, displays, contractor programs and end user programs created to support them. [GRAPHIC] SERVICE INITIATIVES In the summer of 1997, LIGHTOLIER kicked off an innovative program called "Yes We Can!" aimed at changing its internal attitude and approach to service. Initial presentations were made to all Lightolier employees, and meetings were held to generate ideas on how to improve service and establish a "yes we can" working environment. After the ideas were compiled and prioritized, task forces were formed to implement the best ones, and a new telephone greeting beginning with the words "yes we can" was introduced at all facilities. Just as Lightolier's success depends on every employee's participation, the success of Genlyte's customer service initiative depends on each of our companies' participation. To that end, every Genlyte company has developed its own service program: Hadco's Seven Points of Light, Wide-Lite's Passion for Performance, Canlyte's Journey to Excellence...Every program is reflective of the individual company but moving toward Genlyte's overall customer service goals. ORDER PROCESSING AND WAREHOUSING Genlyte is using technology to make it easier for customers to do business with us. The single most important development is the advent of our new ORACLE software system, our first unified order processing system. In the past, a customer who wanted to do business with several Genlyte companies had to place orders through several separate systems. With Oracle, the system is centralized and easy to use. Customers will experience a whole new level of service as they take advantage of unparalleled access to product order and inventory information. Eventually, Oracle will allow paperless transactions through electronic order entry. Oracle is also significant, because its implementation is a prerequisite to the totally revamped warehousing system Genlyte is developing. Customers will be able to place a single order through Oracle, and receive complete delivery from strategically located warehouses carrying multiple Genlyte company product lines. This will save time and money for our customers--making it easy indeed to do business with Genlyte. P A G E 16 GENLYTE HAS EMBARKED ON A MULTIFACETED PROGRAM DEDICATED TO NOTHING LESS THAN A COMPLETE OVERHAUL OF OUR APPROACH TO SERVICE. FUNDAMENTAL, COMPANY-WIDE CHANGES ARE UNDERWAY--FROM TANGIBLE AREAS LIKE ORDER PROCESSING AND WAREHOUSING SYSTEMS, TO THAT INTANGIBLE BUT VITAL ELEMENT CALLED ATTITUDE. OUR GOAL IS AMBITIOUS BUT REALIZABLE: TO MAKE SERVICE A REASON TO BUY FROM GENLYTE, AND TO SIGNIFICANTLY GROW OUR BUSINESS. [PHOTO] Listening to our customers and responding with products and value-added services was the driving force behind STONCO'S expansion of its over-the-counter product line. To help their electrical distributor customers compete more effectively against do-it-yourself stores for contractors' business, Stonco broadened its line of low-wattage quartz fixtures, motion sensors and dusk-to-dawn lights and created colorful merchandisable packaging geared for contractor "pick up" business. In a market where distributors are seeking to reduce their supplier base, this kind of responsiveness has served to strengthen Stonco's relationships with these valued customers. P A G E 17 - ----------------------- SELECTED FINANCIAL DATA - ----------------------- GENLYTE GROUP INCORPORATED & SUBSIDIARIES
AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA 1997 1996 1995 1994 1993 - --------------------- SUMMARY OF OPERATIONS - --------------------- Net sales $487,961 456,860 445,660 432,690 429,143 Gross profit $169,405 154,722 138,120 128,720 127,735 Operating profit $ 37,621 28,448 21,955 14,659 14,256 Interest expense, net $ 4,085 5,649 7,986 7,505 8,086 Income before income taxes $ 33,536 22,799 13,969 7,154 6,170 Income tax provision $ 14,423 9,802 6,060 2,937 2,697 Net income $ 19,113 12,997 7,909 4,217 3,473 Return on: Net sales 3.9% 2.8% 1.8% 1.0% 0.8% Average stockholders' investment 20.4% 16.9% 12.1% 7.1% 6.1% Average capital employed 14.6% 9.9% 5.5% 2.7% 2.1% - ----------------- YEAR END POSITION - ----------------- Working capital $ 81,961 71,366 75,719 86,714 83,039 Plant and equipment, net $ 59,618 60,380 64,149 68,895 73,633 Total assets $254,028 238,115 231,034 240,178 241,762 Capital employed: Total debt $ 32,785 41,847 67,132 90,047 100,419 Stockholders' investment $103,729 83,783 69,900 61,170 58,068 -------------------------------------------------------- Total capital employed $136,514 125,630 137,032 151,217 158,487 -------------------------------------------------------- - -------------- PER SHARE DATA - -------------- Net income: Basic $ 1.46 1.01 0.62 0.33 0.27 Diluted $ 1.42 1.00 0.62 0.33 0.27 Stockholders' investment per average share outstanding $ 7.72 6.42 5.46 4.77 4.53 Market range: High $ 21 3/8 14 8 5 1/2 7 Low $ 9 7/8 6 4 3 1/2 2 3/8 -------------------------------------------------------- - ---------- OTHER DATA - ---------- Orders on hand $ 54,206 42,247 51,093 50,379 43,246 Depreciation and amortization $ 12,156 14,550 15,657 16,886 16,308 Capital expenditures, net $ 11,597 10,405 10,232 11,884 10,261 Average shares outstanding(a) 13,436 13,055 12,804 12,834 12,807 -------------------------------------------------------- Current ratio 1.9 1.8 2.0 2.2 2.2 Interest coverage ratio 9.2 5.0 2.7 2.0 1.8 Debt to total capital employed 24.0% 33.3% 49.0% 59.5% 63.4% Number of stockholders 1,567 1,705 1,865 1,970 2,153 Average number of employees 2,767 2,581 2,657 2,838 2,999 Average sales per employee $176,350 177,009 167,731 152,463 143,095 --------------------------------------------------------
(a) Including incremental common shares issuable under stock option plans P A G E 18 - ------------------------------------ MANAGEMENT'S DISCUSSION AND ANALYSIS - ------------------------------------ GENLYTE GROUP INCORPORATED & SUBSIDIARIES - --------------------- RESULTS OF OPERATIONS - --------------------- NET SALES Net sales for 1997 were $488.0 million, a $31.1 million, or 6.8 percent increase from 1996, following an $11.2 million, or 2.5 percent increase from 1995 to 1996. For both years, new product introductions made significant contributions to growth; in 1997, the introduction of a patented product called Lytening(TM) was particularly important. Most of Genlyte's products are used in commercial and industrial applications, so the strength in those markets, as measured by the volume of new construction, aided the Company's growth. Domestic net sales have continued growing from $381.5 million in 1995 to $396.4 million in 1996 and to $423.2 million in 1997. After a decrease in net foreign sales, principally in Canada, from $64.2 million in 1995 to $60.4 million in 1996, net foreign sales rebounded to $64.8 million in 1997. The Canadian dollar has steadily declined since early 1996, causing a 2.5% decline in sales reported in U.S. dollars. GROSS PROFIT/COST OF SALES Gross profit increased to $169.4 million in 1997 from $154.7 million in 1996, a 9.5 percent increase following a $16.6 million, or 12.0 percent growth in gross profit from 1995 to 1996. Cost of sales continued to decrease from 69.0 percent of sales in 1995 to 66.1 percent in 1996 to 65.3 percent in 1997. These trends are a result of the elimination of excess capacity (two facilities were closed in each year), ongoing productivity improvements, and the elimination of low margin products. SELLING AND ADMINISTRATIVE Selling and administrative (S & A) expenses as a percentage of sales decreased to 27.0 percent in 1997 from 27.6 in 1996 after increasing from 26.1 percent in 1995. In 1996, Genlyte initiated a television campaign designed to increase brand recognition of the Lightolier product line; cost of this campaign contributed to the increase from 1995 to 1996. During both years, S & A expense declined as a percentage of sales for two reasons: (1) existing levels of fixed S & A costs were adequate to support increasing sales and (2) facility closings reduced some variable and fixed S & A costs. These declines were partially offset by increased research and development spending in an effort to develop a steady flow of innovative products. NET INTEREST EXPENSE Net interest expense amounted to $4.1 million, representing a decrease of $1.6 million, or 27.7 percent, from 1996. This follows a decrease in net interest expense of $2.3 million or 29.3% from 1995. These decreases were attributable to lower average borrowings, plus a steady decrease in the Company's average borrowing costs during both years. The favorable impact of a net pay down in debt since 1995 of approximately $34.3 million will continue into 1998. TAXES ON INCOME The effective rate was approximately 43.0% in 1997, 1996 and 1995. - ------------------- FINANCIAL CONDITION - ------------------- LIQUIDITY AND CAPITAL RESOURCES The Company's financial position continues to remain strong. Cash and cash equivalents totaled $1.7 million at December 31, 1997, compared to $2.9 million and $0.3 million at December 31, 1996 and 1995, respectively. The Company had working capital of $82.0 million at December 31, 1997. The primary source of cash in 1997 consisted of funds provided by operating activities of $18.6 million. The primary uses of cash in 1997 consisted of capital expenditures of $11.6 million, and repayment of debt of $9.1 million. The Company's ratio of total debt to total capitalization was 24.0 percent, 33.3 percent and 49.0 percent at December 31, 1997, 1996 and 1995, respectively, with total capitalization defined as total debt plus total stockholders' investment. The decrease in the Company's total debt is a direct result of generating significant internal funds. Management believes that currently available cash, borrowing facilities, and its ability to increase its credit line if needed, combined with internally generated funds should be sufficient to fund capital expenditures as well as any increase in working capital that would be required to accommodate a higher level of business activity. The Company is in the process of conducting a comprehensive review of its computer systems to identify those systems that may be unable to process data accurately beyond the year 1999. A plan has been implemented whereby identified systems will either be replaced or modified over the next eighteen months. Management believes the execution of this plan will not cause significant disruptions in the Company's operations and will principally involve costs which would have been incurred for hardware and software replacement in the ordinary course of business. The execution of this plan will not have a material effect on the Company's results of operations. P A G E 19 - --------------------------------- CONSOLIDATED STATEMENTS OF INCOME - --------------------------------- GENLYTE GROUP INCORPORATED & SUBSIDIARIES AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA -------- FOR THE YEAR ENED DECEMBER 31. 1997 1996 1995 - --------------------- SUMMARY OF OPERATIONS - --------------------- Net Sales $487,961 $456,860 $445,660 Cost of Sales 318,556 302,138 307,540 ------------------------------ Gross Profit 169,405 154,722 138,120 Selling and administative expenses 131,784 126,274 116,165 ------------------------------ Operating Profit 37,621 28,448 21,955 Interest expense, net 4,085 5,649 7,986 ------------------------------ Income Before Income Taxes 33,536 22,799 13,969 Income tax provision 14,423 9,802 6,060 ------------------------------ Net Income $ 19,113 $ 12,997 $ 7,909 ------------------------------ Earnings Per Share: Basic $ 1.46 $ 1.01 $ 0.62 Diluted $ 1.42 $ 1.00 $ 0.62 -------- The accompanying notes are an integral part of these consolidated finacial statements. - ------------------------------------------ QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) - ------------------------------------------ GENLYTE GROUP INCORPORATED & SUBSIDIARIES AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA
-------------------------------------------------------------------- Quarter 1997 1st 2nd 3rd 4th Full Year Net Sales $113,298 $120,700 $123,981 $129,982 $487,961 Operating Profit 7,104 9,386 9,718 11,413 37,621 Net Income 3,494 4,689 4,927 6,003 19,113 Earnings per Share: Basic 0.27 0.36 0.38 0.45 1.46 Diluted 0.26 0.35 0.37 0.44 1.42 Market Price: High 14 1/4 14 1/8 19 5/8 21 3/8 21 3/8 Low 9 7/8 10 1/8 12 5/8 15 1/2 9 7/8 -------------------------------------------------------------------- 1996 1st 2nd 3rd 4th Full Year Net Sales $108,662 $112,440 $116,036 $119,722 $456,860 Operating Profit 5,576 6,373 7,385 9,114 28,448 Net Income 2,293 2,751 3,436 4,517 12,997 Earnings per Share: Basic 0.18 0.21 0.26 0.36 1.01 Diluted 0.18 0.21 0.26 0.35 1.00 Market Price: High 8 1/4 8 9 7/8 14 14 Low 6 3/16 7 1/4 6 8 3/4 6
p A G E 20 - --------------------------- CONSOLIDATED BALANCE SHEETS - --------------------------- GENLYTE GROUP INCORPORATED & SUBSIDIARIES AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA
AS OF DECEMBER 31, 1997 1996 - ------ ASSETS - ------ CURRENT ASSETS: Cash and cash equivalents $ 1,654 $ 2,895 Accounts receivable (less allowances for doubtful accounts of $6,864 and $8,222, respectively) 73,220 65,036 Inventories: Raw materials and supplies 32,324 31,798 Work in progress 5,613 6,429 Finished goods 42,910 42,772 ------------------------ 80,847 80,999 Other current assets 18,385 14,909 ------------------------ Total current assets 174,106 163,839 Plant and Equipment: Land 4,286 4,969 Buildings and leasehold interests and improvements 55,570 54,205 Machinery and equipment 153,285 152,175 ------------------------ 213,141 211,349 Less: Accumulated depreciation and amortization 153,523 150,969 ------------------------ 59,618 60,380 Cost in Excess of Net Assets of Purchased Businesses 12,434 11,755 Other Assets 7,870 2,141 ------------------------ Total Assets $254,028 $238,115 ------------------------ - ---------------------------------------- LIABILITIES AND STOCKHOLDERS' INVESTMENT - ---------------------------------------- CURRENT LIABILITIES: Accounts payable $ 49,433 $ 44,440 Accrued expenses: Salaries and wages 9,933 8,863 Income taxes payable 866 6,963 Other accrued expenses 31,913 32,207 ------------------------ 42,712 48,033 ------------------------ Total current liabilities 92,145 92,473 Long-term Debt 32,785 41,847 Deferred Income Taxes 6,828 3,368 Other Liabilities 18,541 16,644 Stockholders' Investment Common stock ($.01 par value, 30,000,000 shares authorized; 13,502,090 and 13,092,900 shares issued, respectively; 13,389,313 and 12,990,782 shares outstanding, respectively) 135 131 Additional paid-in capital 9,828 8,999 Retained earnings 93,766 74,653 ------------------------ Total stockholders' investment 103,729 83,783 ------------------------ Total Liabilities and Stockholders' Investment $254,028 $238,115 ------------------------ The accompanying notes are an integral part of these consolidated financial statements. P A G E 21
- ------------------------------------ CONSOLIDATED STATEMENTS OF CASH FLOW - ------------------------------------ GENLYTE GROUP INCORPORATED & SUBSIDIARIES
AMOUNTS IN THOUSANDS FOR THE YEAR ENDED DECEMBER 31. 1997 1996 1995 - ------------------------------------ CASH FLOWS FROM OPERATING ACTIVITIES: $ 19,113 $ 12,997 $ 7,909 - ------------------------------------ Net Income Adjustments to reconcile net income to net cash flows provided by operating activities: Depreciation and amortization 12,156 14,550 15,657 (Loss) gain from disposal of plant and equipment (237) 41 (61) (Increase decrease in: Accounts receivable (8,184) (3,012) 3,462 Inventories 152 (4,778) 2,522 Other current assets (3,476) (2,359) (2,687) Other assets (6,408) 1,423 (2,500) Increase (decrease) in: Accounts payable and accrued expenses (328) 18,419 4,480 Deferred income tax liabilities 3,460 (1,294) (1,119) Other liabilities 1,897 1,357 1,630 All other, net 440 91 (291) -------------------------------- Net cash flows provided by operating activities 18,585 37,435 29,002 -------------------------------- - ------------------------------------ CASH FLOWS FROM INVESTING ACTIVITIES: - ------------------------------------ Purchase of plant and equiptment, net (11,597) (10,405) (10,232) -------------------------------- Net cash flows used in investing activities (11,597) (10,405) (10,232) -------------------------------- - ------------------------------------ CASH FLOWS FROM FINANCING ACTIVITIES: - ------------------------------------ Proceeds from issuance of common stock 1,770 994 255 Repayment of debt, net (9,062) (25,284) (22,866) -------------------------------- Net cash flows used in financial activities (7,292) (24,290) (22,611) -------------------------------- - ------------------------------- EFFECT OF EXCHANGE RATE CHANGES: (937) (108) 864 - ------------------------------- -------------------------------- Net (decrease) increase in cash and cash equivalents (1,241) 2,632 (2,977) Cash and cash equivalents at beginning of each year 2,895 263 3,240 -------------------------------- Cash and cash equivalents at end of year $ 1,654 $ 2,895 $ 263 -------------------------------- - ------------------------------------------------ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION - ------------------------------------------------ CASH PAID DURING THE YEAR FOR: Interest $ 3,256 $ 5,286 $ 7,355 -------------------------------- Income taxes $ 20,350 $ 9,853 $ 6,043 --------------------------------
The accompanying notes are an integral part of these consolidated financial statements. P A G E 22 - --------------------------------------------------- CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT - --------------------------------------------------- GENLYTE GROUP INCORPORATED & SUBSIDIARIES
AMOUNTS IN THOUSANDS Common Additional Retained Stock Paid-in Capital Earnings - -------------------------- BALANCE, DECEMBER 31, 1994 $128 $7,295 $53,747 - -------------------------- ----------------------------------- Net income - - 7,909 Foreign currency translation adjustments - 566 - Exercise of stock options 1 254 - - -------------------------- BALANCE, DECEMBER 31, 1995 $129 $8,115 $61,656 - -------------------------- ----------------------------------- Net income - - 12,997 Foreign currency translation adjustments - (108) - Exercise of stock options 2 992 - - -------------------------- BALANCE, DECEMBER 31, 1996 $131 $8,999 $74,653 - -------------------------- ----------------------------------- Net Income - - 19,113 Foreign currency translation adjustments - (937) - Exercise of stock options 4 1,766 - - -------------------------- BALANCE, DECEMBER 31, 1997 $135 $9,828 $93,766 - -------------------------- -----------------------------------
The accompanying notes are an integral part of these consolidated financial statements. - ---------------------------------------- REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS - ---------------------------------------- GENLYTE GROUP INCORPORATED & SUBSIDIARIES To the Stockholders of The Genlyte Group Incorporated: We have audited the accompanying consolidated balance sheets of The Genlyte Group Incorporated (a Delaware corporation) and subsidiaries as of December 31, 1997 and 1996, and the related consolidated statements of income, stockholders' investment and cash flows for each of the three years in the period ended December 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of The Genlyte Group Incorporated and subsidiaries as of December 31, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. /s/ Arthur Andersen LLP - ----------------------- Arthur Andersen LLP New York, New York, January 21, 1998 P A G E 23 - ------------------------------------------ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------ AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA - -------------------------- 1 DESCRIPTION OF BUSINESS - -------------------------- The Genlyte Group Incorporated ("Genlyte" or the "Company") is a United States based multinational corporation. Genlyte designs, manufactures and sells lighting fixtures and controls for a wide variety of applications in the commercial, industrial and residential markets. Genlyte's products are marketed primarily to distributors who resell the products for use in residential, commercial and industrial construction and remodeling. - --------------------------------------------- 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - --------------------------------------------- PRINCIPLES OF CONSOLIDATION: The accompanying consolidated financial statements include the accounts of Genlyte after elimination of all material intercompany accounts and transactions. USE OF ESTIMATES: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual amounts could differ from those estimates. CASH EQUIVALENTS: The Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. INVENTORIES: Inventories are stated at the lower of cost or market and include materials, labor and overhead. During the third quarter of 1996, the Company changed its method of accounting for certain inventories from the last-in, first-out ("LIFO") method of accounting to the first-in, first-out ("FIFO") method. This change, applied through the retroactive restatement of all prior period financial statements, was made for the following reasons: (1) to improve the measurement of operating results in light of reduced inflation rates; (2) to enhance the comparability of the Company's financial statements by changing to the predominant method utilized in the industry; and (3) to allow the Company to reduce the costs incurred in administering the existing LIFO system. Although this change in method did not affect net income in 1996, it decreased net income by $421, or 3 cents per share in 1995. PLANT AND EQUIPMENT: The Company provides for depreciation of plant and equipment principally on a straight line basis over the useful lives of the assets. Useful lives vary among the several classifications, as well as among the constituent items in each classification, but generally fall within the following ranges: Buildings and leasehold interests and improvements 10 - 40 years Machinery and Equipment 3 - 10 years When the Company sells or otherwise disposes of property, the asset cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the Consolidated Statement of Income. Leasehold interests and improvements are amortized over the terms of the respective leases, or over their estimated useful lives, whichever is shorter. Maintenance and repairs are expensed as incurred. Renewals and betterments are capitalized and depreciated or amortized over the remaining useful lives of the respective assets. Accelerated methods of depreciation are used for income tax purposes and appropriate provisions are made for the related deferred income taxes. COST IN EXCESS OF NET ASSETS OF PURCHASED BUSINESSES: Cost in excess of net assets of purchased businesses acquired prior to 1971 is not amortized since, in the opinion of management, there has been no diminution in value. For businesses acquired subsequent to 1970, the cost in excess of net assets, aggregating $10,516, is being amortized over periods ranging from 20 to 40 years. For the years ended december 31, 1997 and 1996, accumulated amortization was $3,262 and $2,969, respectively. The Company periodically evaluates its intangibles to assess recoverability from future operations using discounted cash flows. Impairment would be recognized in operating results if a permanent diminution in value occurred. RESEARCH AND DEVELOPMENT COSTS: Research and development costs are expensed as incurred. These expenses were $5,195 in 1997, $4,475 in 1996 and $2,551 in 1995. TRANSLATION OF FOREIGN CURRENCIES: Balance sheet accounts of foreign subsidiaries are translated at the rates of exchange in effect as of the balance sheet date. The cumulative effects of such adjustments were $3,063 and $2,126 at December 31, 1997 and 1996, respectively, and have been charged to the Additional Paid-in-Capital account in Stockholders' Investment. Income and expenses are translated at the average exchange rates prevailing during the year. Gains or losses resulting from foreign currency transactions are included in net income. FAIR VALUE OF FINANCIAL INSTRUMENTS: The carrying amount of cash equivalents, letters of credit, and long-term debt approximate fair value. - ---------------------------- 3 EARNINGS PER COMMON SHARE - ---------------------------- During the fourth quarter of 1997, the Company adopted Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS No. 128"). SFAS No. 128 requires the presentation of basic earnings per share and diluted earnings per share. "Basic earnings per share" represents net income divided by the weighted-average number of common shares outstanding during the period. "Diluted earnings per share" represents net income divided by the weighted-average number of common shares outstanding during the period adjusted for the incremental P A G E 24 dilution of outstanding stock options and is consistent with the Company's historical presentation. 1997 1996 1995 ------------------------------ Average common shares outstanding 13,127 12,859 12,732 Incremental common shares issuable: Stock option plans 309 196 72 ------------------------------ Average common shares outstanding assuming dilution 13,436 13,055 12,804 ------------------------------ - --------------- 4 INCOME TAXES - --------------- The components of income before income taxes and the provisions for income taxes are as follows: 1997 1996 1995 -------------------------------- Income Before Income Taxes: Domestic $ 29,771 $ 19,277 $ 10,992 Foreign 3,765 3,522 2,977 -------------------------------- $ 33,536 $ 22,799 $ 13,969 -------------------------------- Provision for Income Taxes: Domestic: Currently Payable $ 16,427 $ 11,332 $ 7,787 Deferred (3,411) (2,857) (2,982) Foreign: Currently Payable 1,538 1,475 1,230 Deferred (131) (148) 25 -------------------------------- $ 14,423 $ 9,802 $ 6,060 -------------------------------- Undistributed earnings of non-US subsidiaries included in consolidated retained earnings amounted to $17,261 at December 31, 1997. These earnings, which reflected full provision for non-US income taxes, are indefinitely reinvested in non-US operations or will be remitted substantially free of additional tax. Accordingly, no provision has been made for taxes that may be payable upon remittance of such earnings. The provision for income taxes includes a deferred component that arose from the recording of certain items in different periods for financial reporting and income tax purposes. The sources of the domestic differences and the related tax effect are as follows: 1997 1996 1995 ------------------------------- Depreciation $(1,308) $(1,083) $(1,344) Inventory Valuation (1,779) 410 (134) Facility Rationalization Reserve - - 386 Pension Accruals (293) (118) (2) Bad Debt Reserve 622 (1,259) (733) Other Accruals/Reserves (1,046) (850) (1,201) Intangibles Amortization 393 43 46 ------------------------------- Total Domestic Deferred Tax Benefit $(3,411) $(2,857) $(2,982) ------------------------------- In 1997, 1996 and 1995, the Company's effective tax rate was 43% of income before income taxes. An analysis of the differences between the actual provision for income taxes and the provision at the U.S. Federal statutory tax rate follows: 1997 1996 1995 ----------------------------- Statutory Federal Rate $11,738 $7,979 $4,890 State & Local Taxes, Net of Federal Tax Benefit 1,760 1,334 899 Other, Net 925 489 271 ----------------------------- Total Provision for Income Taxes $14,423 $9,802 $6,060 ----------------------------- The Company is currently being audited by the Internal Revenue Service and certain state and local authorities for tax years 1993, 1994 and 1995. While such audits have not been finalized, the Company believes it has adequately provided for any additional taxes that may result. - ----------------- 5 LONG-TERM DEBT - ----------------- Long-term debt consists of the following: 1997 1996 ----------------------------- Revolving Credit Notes $22,000 $31,000 Industrial Revenue Bonds 10,500 10,500 Other 343 398 ----------------------------- $32,843 $41,898 Less: Current Maturities 58 51 ----------------------------- Total $32,785 $41,847 ----------------------------- The Company maintains a revolving credit facility (the "Facility") of $110,000 which reduces to $70,000 by 2000. Total borrowings under the Facility as of December 31, 1997 and 1996 were $22,000 and $31,000, respectively. In addition, the Company has issued approximately $19,000 of letters of credit which reduce the amount available to borrow under the Facility. The interest rate on amounts borrowed under the Facility is a floating rate related to, at the option of the Company, either (1) a reference rate determined by the agent bank plus a fixed spread, or (2) the London Interbank Offered Rate (LIBOR) plus a fixed spread. The Company pays a commitment fee on the unused portion of the Facility. The amount outstanding under the Facility is secured by liens on domestic accounts receivable, inventories and machinery and equipment, as well as the investments in certain subsidiaries of the Company. The assets subject to lien at December 31, 1997 was $164,476. The terms of the Facility include various covenants that, among others, limit the amounts that can be expended for cash dividends and purchases of Company stock. No dividends were paid in 1997 or 1996. At December 31, 1997 and 1996 the Company was in compliance with all provisions of the Facility. The Company expects that funds generated from operations combined with amounts available under the Facility will fulfill anticipated cash requirements for the Company through 1998. The Company has $10,500 of variable rate demand Industrial Revenue Bonds comprised of three issues of $5,000, $4,500 and $1,000 payable in 2010, 2009 and 2009, respectively. During 1997, the average interest rate on these bonds was 4.00%. The bonds are backed by a bank's letter of credit for the lives of the bonds to guarantee payment of the bonds on the Company's behalf. The letter of P A G E 25 credit is subject to annual renewals by the bank. The bonds are also secured by liens on the related facilities and equipment. The Company has mortgages and other debt at interest rates of 4.8% to 9.1% due from 1998 through 2002. The annual maturities of long-term debt are summarized as follows: Year Ending December 31 - ------------------------------------------------------------------------------- 1999 $ 143 2000 22,054 2001 0 2002 88 Thereafter 10,500 - ------------------------------------------------------------------------------- Total Long-Term Debt $32,785 - ------------------------------------------------------------------------------- - ---------------- 6 STOCK OPTIONS - ---------------- The Genlyte 1988 Stock Option Plan (the "Plan") was established in 1988 for the benefit of key employees and directors of Genlyte. The Plan provides that an aggregate of 2,000,000 shares of Genlyte common stock may be granted as nonqualified stock options, provided that no options may be granted if the number of shares of Genlyte common stock that may be issued upon the exercise of outstanding options would exceed the greater of 1,000,000 shares of Genlyte common stock or 10% of the issued and outstanding shares of Genlyte common stock. The option exercise prices are established by the Board of Directors of Genlyte and cannot be less than the higher of the book value or the fair market value of a share of common stock on the date of the grant. Two types of options have been issued to key employees under the Plan: merit options which are exercisable at the rate of 50% per year commencing two years after the date of the grant and performance options which were granted as incentives to certain key employees for obtaining specific financial goals. Transactions under the Plan are summarized below: Option or Exercise Price per Share ---------------------------------- Weighted Shares Low High Average - -------------------------------------------------------------------- Outstanding, December 31, 1994 1,013,383 4.53 8.75 5.02 Granted 337,067 4.88 7.63 6.99 Exercised (52,985) 4.53 5.50 4.81 Canceled (218,750) 4.53 8.75 5.38 Outstanding, December 31, 1995 1,078,715 4.53 7.63 5.58 Granted 211,750 7.50 10.25 8.44 Exercised (208,741) 4.53 7.00 4.80 Canceled (59,751) 4.53 8.00 5.48 Outstanding, December 31, 1996 1,021,973 4.53 10.25 6.33 Granted 179,000 11.50 18.00 16.71 Exercised (396,031) 4.53 7.63 5.07 Canceled (93,992) 4.53 14.50 6.54 Outstanding, December 31, 1997 710,950 4.56 18.00 9.63 Exercisable, December 31, 1997 203,450 4.56 7.63 6.31 - -------------------------------------------------------------------- The weighted average fair values of options granted in 1997 and 1996 were $7.42 and $4.12, respectively. The options outstanding at December 31, 1997 have a weighted average remaining contractual life of 3.36 years. The Company accounts for this plan under APB Opinion No. 25, under which no compensation cost has been recognized. Had compensation cost for the plan been determined consistent with Statement of Financial Accounting Standard No. 123, "Accounting for Stock-Based Compensation" (SFAS No. 123), the Company's net income and earnings per share would have been reduced to the pro forma amounts as follows: 1997 1996 - ------------------------------------------------------------------------ Net Income As Reported $19,113 $12,997 Pro Forma $18,610 $12,658 EPS As Reported $ 1.42 $ 1.00 Pro Forma $ 1.38 $ 0.97 - ------------------------------------------------------------------------ Because the method of accounting in SFAS No. 123 has not been applied to options granted prior to January 1, 1995, the resulting pro forma compensation cost may not be representative of that to be expected in future years. The fair value of an option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions: weighted average risk-free interest rates of 5.89 and 6.34 percent in 1997 and 1996, respectively; no dividend payments; expected option lives of 5 years in 1997 and 1996; and expected volatility of 45.8 percent in 1997 and 1996 for the Company's common stock. - ---------------------------------- 7 PREFERRED STOCK PURCHASE RIGHTS - ---------------------------------- In August 1989, the Company declared a dividend of one preferred stock purchase right on each share of the Company's common stock. Under certain conditions, each right may be exercised to purchase one one-hundredth share of a new series of junior participating cumulative preferred stock at an exercise price of $75.00 per share. The right may only be exercised within ten (10) business days after a person or group of persons (the "Holder") acquire, or commence a tender offer to acquire, 20% or more of Genlyte's outstanding common stock, or upon declaration by the Board of Directors. Upon the acquisition by the Holder of 20% or more of the Company's outstanding common stock, each right would represent the right to purchase, for $75.00, shares of the Company's common stock with a market value of $150.00. The rights may be redeemed by the Company at a price of $.01 per right and can be amended by the Company's Directors during the 10 day period prior to the exercise date. These rights expire in 1999. The preferred stock purchased upon exercise of the rights will be entitled to a minimum annual preferential dividend of $1.00 and a minimum liquidation payment of $1.00 per one-hundredth share of preferred stock. If the Company were to enter into certain business combination or disposition transactions with the Holder, each right would also be entitled to purchase, for $75.00, shares of the Holder's common stock with a market value of $150.00. P A G E 26 - --------------- 8 PENSION PLAN - --------------- The Company has five pension plans, which cover the majority of its employees. The Genlyte Corporation Retirement Plan is the Company's principal retirement plan and covers most of the employees of the Company. Benefits under that plan are based on years of service and highest average compensation during any five consecutive years within the last ten years of employment. The Company's pension plan assets consist primarily of publicly traded equity or debt securities. Pension costs under the Company's retirement plans are actuarially computed. Annual contributions are made to the plans in amounts approximately equal to the pension cost expensed in the consolidated statements of income. The Company's pension cost for 1997, 1996 and 1995 consists of the following: 1997 1996 1995 ------------------------- Service cost benefits earned during the year $ 1,483 $1,278 $1,147 Interest cost on benefits earned in prior years 3,633 3,358 3,265 Actual return on plan assets (7,527) (3,991) (5,938) Deferred gain 4,631 1,329 3,585 Amortization of transition amounts 448 442 428 ------------------------- Net pension cost $ 2,668 $2,416 $2,487 ------------------------- At December 31, 1997, the Genlyte Corporation Retirement Plan had plan assets which exceeded accumulated benefit obligations while the remaining plans had accumulated benefit obligations which exceeded plan assets. At December 31, 1996, all of the Company's pension plans had accumulated benefit obligations that exceeded plan assets. The following tables summarize the funded status of the Company's pension plans and the related amounts that are recognized as liabilities in the consolidated balance sheet: Accumulated Benefits Exceed Assets ---------------------------------- 1997 1996 -------------------- Actuarial present value of benefit obligations: Vested benefit obligation $ 10,909 $ 42,061 Non-vested benefit obligation 845 552 -------------------- Accumulated benefit obligation 11,754 42,613 Effect of estimated future increases in compensation 137 4,048 -------------------- Projected benefit obligation 11,891 46,661 Plan assets at fair value 7,387 40,622 -------------------- Projected benefit obligation in excess of plan assets 4,504 6,039 Unrecognized net obligation at adoption (209) (737) Unrecognized net benefit since adoption 520 7,615 Unrecognized prior service cost (1,478) (2,109) -------------------- Accrued pension liability as of December 31 $ 3,337 $ 10,808 -------------------- Assets Exceed Accumulated Benefits ---------------------------------- 1997 -------- Actuarial present value of benefit obligations: Vested benefit obligation $ 35,399 Non-vested benefit obligation 1,120 -------- Accumulated benefit obligation 36,519 Effect of estimated future increases in compensation 4,109 -------- Projected benefit obligation 40,628 Plan assets at fair value 42,070 -------- Projected benefit obligation less plan assets (1,442) Unrecognized net obligation at adoption (350) Unrecognized net benefit since adoption 10,547 Unrecognized prior service cost (865) -------- Accrued pension liability as of December 31 $ 7,890 -------- The discount rates and rates of increase in future compensation levels used in determining the actuarial present value of the liabilities recognized on the consolidated balance sheet were 7.50% and 5.0%, respectively, at September 30, 1997 and 7.75% and 5.0%, respectively, at September 30, 1996. The expected long-term rate of return on plan assets was 8.5% at September 30, 1997 and 9.0% at September 30, 1996. The Company has a number of plans for hourly personnel, including union (single or multi-employer) pension plans, for which the Company's obligation is a defined contribution amount. The basis for the contribution includes union contract amounts, usually based on an amount per hour worked, and percentages of employee contributions. Expenses recorded under these plans were $211, $344 and $355 in 1997, 1996 and 1995, respectively. Genlyte also maintains four defined benefit plans covering substantially all of the employees of its Canadian subsidiary. Net pension costs for these plans included the following: 1997 1996 1995 ----------------------- Service cost benefits earned during the year $ 142 $ 145 $ 121 Interest cost on benefits earned in prior years 300 264 246 Actual return on plan assets (751) (706) (183) Deferred gain (loss) 387 394 (81) Amortization of transition amounts (6) (3) (3) ----------------------- Net Pension Cost $ 72 $ 94 $ 100 ----------------------- The funded status of these plans are as follows: 1997 1996 --------------- Actuarial present value of benefits obligations: Vested benefit obligation $3,322 $3,060 Non-vested benefit obligation 61 50 ---------------- Accumulated benefit obligation 3,383 3,110 Effect of estimated future increases in compensation3 367 449 ---------------- Projected benefit obligation 3,750 3,559 Plan assets at fair value 4,737 4,219 ---------------- Projected benefit obligation less plan assets (987) (660) Unrecognized net obligation at adoption 40 46 Unrecognized net benefit since adoption 474 227 ---------------- Prepaid pension cost as of December 31 $ (473) $ (387) ---------------- The discount rates and rate of increase in future compensation levels used in determining the actuarial present value of the projected benefit obligations were both 8%, at December 31, 1997 and 1996. The expected long-term rate of return on assets was 8% at both December 31, 1997 and 1996. P A G E 27 - -------------------- 9 LEASE COMMITMENTS - -------------------- The Company rents office space, equipment and computers under noncancellable operating leases. Rental expense during 1997, 1996 and 1995 amounted to $2,903, $2,446 and $4,127, respectively. Future required minimum rental payments as of December 31, 1997 were as follows: 1998 $ 3,542 1999 2,713 2000 1,936 2001 1,428 2002 648 Thereafter 1,354 - -------------------------------------------------------------------------------- Total $11,621 - -------------------------------------------------------------------------------- - ---------------- 10 CONTINGENCIES - ---------------- Genlyte has been named as one of a number of corporate and individual defendants in an adversary proceeding filed on June 8, 1995, arising out of the Chapter 11 bankruptcy filing of Keene Corporation ("Keene"). Except for the last count, as discussed below, the claims and causes of action are substantially the same as were brought against Genlyte in the U.S. District Court in New York in August 1993, which have been permanently enjoined from proceedings as a result of Keene's reorganization plan. The new complaint is being prosecuted by the Creditors Trust created for the benefit of Keene's creditors (the "Trust"), seeking from the defendants, collectively, damages in excess of $700 million, rescission of certain asset sale and stock transactions, and other relief. With respect to Genlyte, the complaint principally maintains that certain lighting assets of Keene were sold to a predecessor of Genlyte in 1984 at less than fair value, while both Keene and Genlyte were wholly-owned subsidiaries of Bairnco Corporation. The complaint also challenges Bairnco's spin-off of Genlyte in August 1988. Other allegations are that Genlyte, as well as other corporate defendants, are liable as corporate successors to Keene. The complaint fails to specify the amount of damages sought against Genlyte. The complaint also alleges a violation of the Racketeer Influenced and Corrupt Organizations Act. Following confirmation of the Keene reorganization plan, the parties moved to withdraw the case from bankruptcy court to the Southern District of New York Federal District Court. The case is now pending before the Federal District Court. Genlyte and other defendants filed motions to dismiss the complaint and motions for summary judgment on statute of limitations grounds on September 15, 1997, which were fully briefed and presented to the Court on December 15, 1997. Oral argument was conducted on the summary judgment motion on February 13, 1998 and Genlyte is awaiting decisions of the Court on the other motions. Discovery has been stayed until March 27, 1998. Genlyte believes that it has meritorious defenses to the adversary proceeding and will defend said action vigorously. Additionally, the Company is a defendant and/or potentially responsible party, with other companies, in actions and proceedings under state and Federal environment laws including the Federal Comprehensive Environmental Response Compensation and Liability Act, as amended ("Superfund"). Such actions include, but are not limited to, the Keystone Sanitation Landfill site located in Pennsylvania, in which the United States Environmental Protection Agency has sought remedial action and reimbursement for past costs. Management does not believe that the disposition of the lawsuits and/or proceedings will have a material effect on the Company's financial condition or results of operations. - --------------------------- 11 GEOGRAPHICAL INFORMATION - --------------------------- The Company has operations throughout North America. Information about the Company's operations by geographical area for the years ended December 31, 1997, 1996 and 1995, is as follows: Net Sales Operating Profit Assets ---------------------------------------- 1997 United States $423,185 $33,837 $224,969 Foreign 64,776 3,784 29,059 ---------------------------------------- Total $487,961 $37,621 $254,028 1996 United States $396,444 $25,139 $206,829 Foreign 60,416 3,309 31,286 ---------------------------------------- Total $456,860 $28,448 $238,115 1995 United States $381,489 $18,960 $199,849 Foreign 64,171 2,995 31,185 ---------------------------------------- Total $445,660 $21,955 $231,034 ---------------------------------------- - ----------------------- STOCKHOLDER INFORMATION - ----------------------- CORPORATE OFFICES 2345 Vauxhall Road, P.O. Box 3148, Union, NJ 07083-1948 INVESTOR RELATIONS Information and Form 10-K Please call or write the Investor Relations Department at (908) 810-4518 STOCK LISTING Genlyte common stock is traded on the NASDAQ National Market System under the symbol GLYT TRANSFER AGENT Bank of New York, 101 Barclay Street, New York, NY 10286 (800) 524-4458 e-mail: Shareowner-svcs@bankofny.com http://www.stock.bankofny.com INDEPENDENT PUBLIC ACCOUNTANTS Arthur Andersen LLP, 1345 Avenue of the Americas New York, NY 10105 ANNUAL MEETING The Annual Stockholders' Meeting will be held at 1345 Avenue of the Americas, 3rd floor, New York, NY on April 23, 1998 P A G E 28 - ------------------ BOARD OF DIRECTORS - ------------------ [PHOTO] GLENN W. BAILEY DIRECTOR [PHOTO] ROBERT B. CADWALLADER DIRECTOR [PHOTO] AVRUM I. DRAZIN* CHAIRMAN [PHOTO] DAVID M. ENGELMAN DIRECTOR [PHOTO] FRED HELLER DIRECTOR & CHAIRMAN EMERITUS [PHOTO] FRANK METZGER DIRECTOR [PHOTO] LARRY K. POWERS* PRESIDENT & CHIEF EXECUTIVE OFFICER - ------------------- EXECUTIVE COMMITTEE - ------------------- [PHOTO] NEIL M. BARDACH+ VICE PRESIDENT & CHIEF FINANCIAL OFFICER [PHOTO] STEVEN R. CARSON VICE PRESIDENT & GENERAL MANAGER CONTROLS [PHOTO] ZIA EFTEKHAR PRESIDENT, LIGHTOLIER [PHOTO] MICHAEL J. FARRELL PRESIDENT, KEENE-WIDELITE [PHOTO] HENRY M. GLOVER VICE PRESIDENT & GENERAL MANAGER WIDE-LITE [PHOTO] CHARLES M. HAVERS PRESIDENT, SUPPLY DIVISION [PHOTO] RENE MARINEAU EXECUTIVE VICE PRESIDENT, CANLYTE [PHOTO] DENNIS W. MUSSELMAN VICE PRESIDENT & GENERAL MANAGER HADCO/BRONZELITE [PHOTO] DONNA R. RATLIFF+ VICE PRESIDENT ADMINISTRATION & CORPORATE SECRETARY [PHOTO] JON SAYAH VICE PRESIDENT & GENERAL MANAGER DIAMOND F/DECORATIVE * Also an officer and member of the Executive Committee + Also an officer of the company Cover Photograph: (C) J. Paul Getty Trust. Photo: Scott Frances/Esto Inside Front Cover Photograph: (C) 1997 Todd Eberle Design: George/Gerard Design, NYC ================================================================================ GENLYTE Visit us online@ http://www.genlyte.com lightolier.com crescentlighting.com diamondf.com forecastlighting.com hadcolighting.com stoncolighting.com wide-lite.com canlyte.com Corporate Offices 2345 Vauxhall Road P.O. Box 3148 Union, NJ 07083-1948 ================================================================================ EX-21 5 EXHIBIT 21 EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT The Genlyte Group Incorporated does business under the names of Bronzelite, Crescent, Diamond F, ExceLine, Forecast, Genlyte Controls, Hadco, Lightolier, Stonco, and Wide-Lite. Genlyte has the following subsidiaries: 1. Canlyte, Inc., a Canadian Corporation. Canlyte does business under the names of Keene-Widelite, Lightolier, Prodel, Stonco and CFI (Canadian Fluorescent Industries). 2. Diaman-Mexo, S.A. de C.V., a Mexican Corporation. 3. Lightolier de Mexico, S.A. de C.V., a Mexican Corporation. EX-23 6 EXHIBIT 23 EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS TO THE GENLYTE GROUP INCORPORATED: As independent public accountants, we hereby consent to the incorporation of (a) our report dated January 21, 1998 included in The Genlyte Group Incorporated's (the "Company's") Annual Report to Shareholders for the year ended December 31, 1997 into the Company's Annual Report on Form 10-K for the year ended December 31, 1997 (the "Form 10-K") and (b) our reports dated January 21, 1998 included and incorporated into the Form 10-K, into the Company's previously filed Registration Statements on Form S-8 (Registration No.'s: 33-30722 and 33-27190). ARTHUR ANDERSEN LLP New York, New York March 25, 1998 EX-27 7 FDS --
5 (Replace this text with the legend) 0000833076 THE GENLYTE GROUP INCORPORATED 1,000 USD YEAR DEC-31-1997 JAN-01-1997 DEC-31-1997 1 1654 0 73220 6864 80847 174106 213141 153523 254028 92145 32785 0 0 135 103594 254028 487961 487961 318556 450340 0 0 4085 33536 14423 19113 0 0 0 19113 1.46 1.42
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