-----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, AWrNs8152jYhznBd9YlG1KsywnHlgJOzxnEN9kPYYH+lmjMu99BD+Wwue762ME49 m2y/W1BZC6HWJWXGRsVW4g== 0000950124-98-003220.txt : 19980604 0000950124-98-003220.hdr.sgml : 19980604 ACCESSION NUMBER: 0000950124-98-003220 CONFORMED SUBMISSION TYPE: S-4/A PUBLIC DOCUMENT COUNT: 24 FILED AS OF DATE: 19980603 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: WALBRO CORP CENTRAL INDEX KEY: 0000104174 STANDARD INDUSTRIAL CLASSIFICATION: MOTOR VEHICLE PARTS & ACCESSORIES [3714] IRS NUMBER: 381358966 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: SEC FILE NUMBER: 333-45693 FILM NUMBER: 98641585 BUSINESS ADDRESS: STREET 1: 6242 GARFIELD ST CITY: CASS CITY STATE: MI ZIP: 48726 BUSINESS PHONE: 5178722131 MAIL ADDRESS: STREET 1: 6432 GARFIELD ST CITY: CASS CITY STATE: MI ZIP: 48726 S-4/A 1 AMD #1 TO FORM S-4 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 3, 1998 REGISTRATION NO. 333-45693 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 AMENDMENT NO. 1 TO FORM S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 WALBRO CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE (STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) 3714 (PRIMARY STANDARD INDUSTRIAL CLASSIFICATION CODE NUMBER) 38-1358966 (I.R.S. EMPLOYER IDENTIFICATION NO.) 6242 GARFIELD STREET, CASS CITY, MICHIGAN 48726, (517) 872-2131 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) FRANK E. BAUCHIERO CHIEF EXECUTIVE OFFICER AND PRESIDENT WALBRO CORPORATION 6242 GARFIELD STREET CASS CITY, MICHIGAN 48726, (517) 872-2131 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) COPIES TO: HOWARD S. LANZNAR, ESQ. KATTEN MUCHIN & ZAVIS 525 WEST MONROE STREET, SUITE 1600 CHICAGO, ILLINOIS 60661 (312) 902-5200 Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement. If the securities being registered on this form are to be offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. [ ] If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: [ ] THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY DETERMINE. ================================================================================ 2 PROSPECTUS WALBRO CORPORATION OFFER TO EXCHANGE 10 1/8% SENIOR NOTES DUE 2007, SERIES B FOR ALL OUTSTANDING 10 1/8% SENIOR NOTES DUE 2007, SERIES A WALBRO LOGO THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON JUNE 30, 1998, UNLESS EXTENDED. Walbro Corporation (the "Company") hereby offers, upon the terms and subject to conditions set forth in this Prospectus (the "Prospectus") and the accompanying Letter of Transmittal (the "Letter of Transmittal"; together with the Prospectus, the "Exchange Offer"), to exchange up to an aggregate principal amount of $100,000,000 of its 10 1/8% Senior Notes Due 2007, Series B (the "Exchange Notes") for up to an aggregate principal amount of $100,000,000 of its outstanding 10 1/8% Senior Notes Due 2007, Series A (the "Old Notes"). The terms of the Exchange Notes are identical in all material respects to those of the Old Notes, except for certain transfer restrictions and registration rights relating to the Old Notes. The Exchange Notes will be issued pursuant to, and entitled to the benefits of, the Indenture (as defined herein) governing the Old Notes. The Exchange Notes and the Old Notes are sometimes referred to collectively as the "Notes". The Company will accept for exchange any and all Old Notes which are properly tendered in the Exchange Offer prior to 5:00 p.m., New York City time, on June 30, 1998, unless extended by the Company in its sole discretion (the "Expiration Date"). The Expiration Date will not in any event be extended to a date later than December 27, 1998 (180 days after the initial Expiration Date). Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration Date. In the event the Company terminates the Exchange Offer and does not accept for exchange any Old Notes with respect to the Exchange Offer, the Company will promptly return the Old Notes to the holders thereof. The Exchange Offer is not conditioned upon any minimum principal amount of Old Notes being tendered for exchange, but is otherwise subject to certain customary conditions. The Old Notes may be tendered only in integral multiples of $1,000. The Old Notes were sold by the Company on December 16, 1997 to Salomon Brothers Inc (the "Initial Purchaser") in a transaction not registered under the Securities Act of 1933, as amended (the "Securities Act"), in reliance upon an exemption under the Securities Act (the "Initial Offering"). The Initial Purchaser subsequently placed the Old Notes with qualified institutional buyers in reliance upon Rule 144A under the Securities Act. Accordingly, the Old Notes may not be reoffered, resold or otherwise transferred in the United States unless registered under the Securities Act or unless an applicable exemption from the registration requirements of the Securities Act is available. The Exchange Notes are being offered hereunder in order to satisfy the obligations of the Company and the Guarantors (as defined below) under the Registration Rights Agreement dated December 11, 1997 by and among the Company, the Guarantors and the Initial Purchaser in connection with the Initial Offering (the "Registration Rights Agreement"). See "The Exchange Offer." The Exchange Notes will be senior unsecured obligations of the Company ranking pari passu in right of payment with all existing and future senior unsecured obligations of the Company. The Exchange Notes will be guaranteed (the "Guarantees") on a senior unsecured basis, jointly and severally, by each of the Company's principal wholly-owned domestic operating subsidiaries (the "Guarantors"). The Exchange Notes and Guarantees will be effectively subordinated in right of payment to all existing and future secured indebtedness of the Company and its subsidiaries. The Exchange Notes will rank pari passu in right of payment with the Old Notes. As of March 31, 1998, the Company and its subsidiaries had approximately $80.4 million of secured indebtedness outstanding. Giving effect to the Refinancing (as defined herein), as of March 31, 1998, the Company and its subsidiaries would have had approximately $88.4 million of secured indebtedness outstanding. In addition, the Exchange Notes will be effectively subordinated in right of payment to all existing and future liabilities, including trade payables, of the Company's subsidiaries which are not Guarantors, which, as of March 31, 1998, totalled approximately $186.7 million (excluding intercompany liabilities). (Cover continued on next page) ------------------------ SEE "RISK FACTORS" BEGINNING ON PAGE 15 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PARTICIPANTS IN THE EXCHANGE OFFER. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE DATE OF THIS PROSPECTUS IS JUNE 3, 1998. 3 (Continued from Cover) Interest on the Old Notes accrued, and interest on the Exchange Notes will accrue, from the date of issuance and will be payable semi-annually on June 15 and December 15 of each year, commencing June 15, 1998. Holders of the Exchange Notes will receive interest on December 15, 1998 from the date of initial issuance of the Exchange Notes, plus an amount equal to the accrued interest on the Old Notes from the most recent date to which interest has been paid to the date of exchange. Interest on the Old Notes accepted for exchange will cease to accrue upon issuance of the Exchange Notes. The Exchange Notes are subject to redemption on or after December 15, 2002 at the option of the Company, in whole or in part, at the redemption prices set forth herein, plus accrued interest to the date of redemption. In addition, prior to December 15, 2000, the Company may, at its option, redeem up to an aggregate of 30% of the principal amount of the Exchange Notes issued with the net proceeds from one or more Public Equity Offerings (as defined herein) at the redemption price set forth herein plus accrued interest to the date of redemption. In the event of a Change of Control (as defined herein), the Company will be obligated to make an offer to purchase all of the outstanding Exchange Notes at a redemption price equal to 101% of the principal amount thereof plus accrued interest to the date of repurchase. In addition, the Company will be obligated to make an offer to repurchase the Exchange Notes in the event of certain asset sales. See "Description of the Exchange Notes." Based on interpretations by the staff of the Securities and Exchange Commission (the "Commission"), the Exchange Notes issued pursuant to the Exchange Offer in exchange for the Old Notes may be offered for resale, resold and otherwise transferred by respective holders thereof (other than any such holder which is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act) without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that the Exchange Notes are acquired in the ordinary course of such holder's business and such holder has no arrangement with any person to participate in the distribution of the Exchange Notes and is not engaged in and does not intend to engage in a distribution of the Exchange Notes. Notwithstanding the foregoing, each broker-dealer that receives the Exchange Notes in exchange for the Old Notes acquired for its own account as a result of market-making activities or other trading activities must acknowledge that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of the Exchange Notes. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer to satisfy the prospectus delivery requirements in connection with resales of the Exchange Notes. The Company has agreed that, for a period of 180 days after the Registration Statement (as defined herein) is declared effective by the Commission, it will make this Prospectus available to any broker-dealer for use in connection with any such resale. See "Plan of Distribution." Prior to the Exchange Offer, there has been no public market for the Exchange Notes. Although the Company has agreed pursuant to the Registration Rights Agreement to use its best efforts to cause the Exchange Notes to be listed on the New York Stock Exchange, there can be no assurance as to the liquidity of any markets that may develop for the Exchange Notes, the ability of holders to sell the Exchange Notes, or the price at which holders would be able to sell the Exchange Notes. Future trading prices of the Exchange Notes will depend on many factors, including, among other things, prevailing interest rates, the Company's operating results and the market for similar securities. Historically, the market for securities similar to the Exchange Notes, including non-investment grade debt, has been subject to disruptions that have caused substantial volatility in the prices of such securities. There can be no assurance that any market for the Exchange Notes, if such market develops, will not be subject to similar disruptions. The Initial Purchaser has advised the Company that it currently intends to make a market in the Exchange Notes offered. However, the Initial Purchaser is not obligated to do so and any market making may be discontinued at any time without notice. The Company will not receive any proceeds from the Exchange Offer. The Company has agreed to pay the expenses incident to the Exchange Offer. No underwriter is being used in connection with the Exchange Offer. Holders of the Old Notes not tendered and accepted in the Exchange Offer will continue to hold the Old Notes and will be entitled to all the rights and benefits and will be subject to the limitations applicable thereto under the Indenture and with respect to transfer under the Securities Act. See "The Exchange Offer -- Consequences of Failure to Exchange." 2 4 THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT SURRENDERS FOR EXCHANGE FROM, HOLDERS OF THE OLD NOTES IN ANY JURISDICTION IN WHICH THE EXCHANGE OFFER OR ITS ACCEPTANCE WOULD NOT BE IN COMPLIANCE WITH THE SECURITIES OR BLUE SKY LAWS OF THAT JURISDICTION. NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING HEREBY TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS OR THE ACCOMPANYING LETTER OF TRANSMITTAL, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE GUARANTORS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR THE ACCOMPANYING LETTER OF TRANSMITTAL, NOR ANY EXCHANGE MADE HEREUNDER, SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF. THE EXCHANGE NOTES WILL BE AVAILABLE INITIALLY ONLY IN BOOK-ENTRY FORM. EXCEPT AS DESCRIBED UNDER "BOOK-ENTRY; DELIVERY AND FORM," THE COMPANY EXPECTS THAT THE EXCHANGE NOTES ISSUED PURSUANT TO THE EXCHANGE OFFER WILL BE REPRESENTED BY A GLOBAL NOTE (AS DEFINED HEREIN), WHICH WILL BE DEPOSITED WITH, OR ON BEHALF OF, THE DEPOSITORY TRUST COMPANY ("DTC") AND REGISTERED IN ITS NAME OR IN THE NAME OF CEDE & CO., ITS NOMINEE. BENEFICIAL INTEREST IN THE GLOBAL NOTE REPRESENTING THE EXCHANGE NOTES WILL BE SHOWN ON, AND TRANSFER THEREOF WILL BE EFFECTED THROUGH, RECORDS MAINTAINED BY DTC AND ITS PARTICIPANTS. AFTER THE INITIAL ISSUANCE OF THE GLOBAL NOTE, NOTES IN CERTIFICATED FORM WILL BE ISSUED IN EXCHANGE FOR THE GLOBAL NOTE ONLY UNDER LIMITED CIRCUMSTANCES AS SET FORTH IN THE INDENTURE. SEE "BOOK-ENTRY; DELIVERY AND FORM." PROSPECTIVE INVESTORS IN THE EXCHANGE NOTES ARE NOT TO CONSTRUE THE CONTENTS OF THIS PROSPECTUS AS INVESTMENT, LEGAL OR TAX ADVICE. EACH INVESTOR SHOULD CONSULT ITS OWN COUNSEL, ACCOUNTANT AND OTHER ADVISORS AS TO LEGAL, TAX, BUSINESS, FINANCIAL AND RELATED ASPECTS OF THE EXCHANGE NOTES. NEITHER THE COMPANY NOR ANY OF THE GUARANTORS IS MAKING ANY REPRESENTATION TO ANY PROSPECTIVE INVESTOR IN THE EXCHANGE NOTES REGARDING THE LEGALITY OF AN INVESTMENT THEREIN BY SUCH PERSON UNDER APPROPRIATE LEGAL INVESTMENT OR SIMILAR LAWS. 3 5 AVAILABLE INFORMATION The Company and the Guarantors have filed with the Commission a Registration Statement on Form S-4 (together with all amendments, exhibits, annexes and schedules thereto, the "Registration Statement") pursuant to the Securities Act, and the rules and regulations promulgated thereunder, covering the Exchange Notes being offered. This Prospectus does not contain all the information set forth in the Registration Statement, certain parts of which are omitted in accordance with the rules and regulations of the Commission. Statements made in this Prospectus as to the contents of any contract, agreement or other document referred to in the Registration Statement are not necessarily complete. With respect to each such contract, agreement or other document filed as an exhibit to the Registration Statement, reference is made to the exhibit for a more complete description of the matter involved, and each such statement shall be deemed qualified in its entirety by such reference. The Company is currently subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files reports and other information with the Commission. Reports and other information filed by the Company with the Commission can be inspected and copied at the public reference facilities maintained by the Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, as well as the regional offices of the Commission at the Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, 13th Floor, New York, New York 10048. Copies of such material may also be obtained from the Public Reference Section of the Commission in its Washington, D.C office at prescribed rates. The Commission maintains a World Wide Web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission. The internet address of the site is http://www.sec.gov. The Company has agreed to file with the Commission, to the extent permitted, and distribute to holders of the Notes reports, information and documents specified in Sections 13 and 15(d) of the Exchange Act so long as the Notes are outstanding, whether or not the Company is subject to such informational requirements of the Exchange Act. While any Notes remain outstanding, the Company will make available, upon request, to any holder of the Notes, the information required pursuant to Rule 144A(d)(4) under the Securities Act during any period in which the Company is not subject to Section 13 or 15(d) of the Exchange Act. Any such request should be directed to the Secretary of the Company at 6242 Garfield Street, Cass City, Michigan 48726 (telephone number (517) 872-2131). DOCUMENTS INCORPORATED BY REFERENCE The following documents previously filed by the Company with the Commission pursuant to the Exchange Act are incorporated herein by reference and made a part of this Prospectus. (1) The Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997; and (2) The Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998. All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus and prior to the Expiration Date shall be deemed to be incorporated in this Prospectus by reference and to be a part hereof from the date of filing of each such document. Any statement contained in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein or in any other subsequently filed document which also is, or is deemed to be, incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. The Company will provide, without charge, to each person to whom a copy of this Prospectus has been delivered, on the written or oral request of such person, a copy of any or all of the documents incorporated herein by reference (other than exhibits to such documents, unless such exhibits are specifically incorporated by reference into the information that this Prospectus incorporates). Requests for such copies should be directed to the Secretary of the Company at 6242 Garfield Street, Cass City, Michigan 48726 (telephone (517) 872-2131). 4 6 FORWARD-LOOKING STATEMENTS The statements contained in this Prospectus that are not historical facts are forward-looking statements subject to the safe harbor created by the Securities Litigation Reform Act of 1995. Whenever possible, the Company has identified these forward-looking statements by words such as "anticipating," "believes," "estimates," "expects," and similar expressions. The Company cautions readers of this discussion that a number of important factors could cause the Company's actual consolidated results for 1998 and beyond to differ materially from those expressed in any forward-looking statements made by, or on behalf of, the Company. These important factors include, without limitation, changes in demand for automobiles and light trucks, relationships with significant customers, price pressures, the timing and structure of future acquisitions or dispositions including the restructuring program announced during the fourth quarter of 1997, impact of environmental regulations, the year 2000 issue, continued availability of adequate funding sources, currency and other risks inherent in international sales, and general economic and business conditions. See "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." Investors are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to release publicly any revisions to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. 5 7 PROSPECTUS SUMMARY The following summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information and consolidated financial statements of the Company and notes thereto appearing elsewhere in this Prospectus. Unless the context otherwise requires, all references in this Prospectus to the Company or Walbro refer to Walbro Corporation and its consolidated subsidiaries. THE COMPANY Walbro is a global leader in the design, development and manufacture of precision fuel storage and delivery systems and products for automotive and small engine markets worldwide. The Company manufactures plastic fuel tanks, fuel pumps, fuel modules, plastic fuel rails and fuel level sensors for sale to automotive original equipment manufacturers ("OEMs"). Products manufactured for the small engine market include carburetors and ignitions for chain saws, outboard marine engines, two-wheeled vehicles, industrial engines and lawn and garden equipment, such as lawn mowers and weed trimmers. From 1992 to 1997, the Company increased net sales at the compound rate of approximately 21% per year. This growth was primarily due to the introduction of new automotive products, penetration of additional automotive platforms, the Dyno (as defined below) acquisition and a recovery in the small engine industry from depressed levels in the late 1980s. The Company had net sales of $619.9 million and $585.4 million in 1997 and 1996, respectively; and net sales of $169.3 million for the three months ended March 31, 1998. WALBRO AUTOMOTIVE Approximately 74% of the Company's net sales for 1997 were generated by Walbro Automotive. Through Walbro Automotive, the Company designs, develops and manufactures fuel storage and delivery systems and components for a broad range of U.S. and foreign manufacturers of passenger automobiles and light trucks (including minivans). The Company and its joint ventures hold a strong market position in North America, Europe and South America and a growing market presence in Asia. In July 1995, the Company substantially expanded its European automotive business by acquiring the fuel systems business of Dyno Industrier A.S ("Dyno") of Oslo, Norway (the "Dyno Acquisition"). In 1997, management estimates that the Company supplied Chrysler with approximately 79% of its fuel pump and fuel module requirements, including all requirements for Chrysler's passenger cars and minivans and approximately 48% of the requirements for Chrysler's light trucks. Management believes that the Company manufactures substantially all of the fuel tank systems for Saab and Volvo light vehicles and all of the fuel tanks for the Mercedes-Benz C Class, Volkswagen Polo and Renault Twingo. Other automotive customers of the Company and its joint ventures include Audi, Daewoo, Fiat, Ford, General Motors, Hyundai, Kia, Nedcar, Peugeot and Rover. The Company's growth strategy is to position itself as a global supplier to the automotive industry through the design, development and manufacture of technologically advanced fuel systems and components which are delivered worldwide. Due to the increasing demand by OEMs for the supply of integrated automotive systems, Walbro is supplying OEMs with an increasing number of fuel storage and delivery components with the ultimate goal of being responsible for the complete fuel storage and delivery systems ("FSDS") which would integrate all of the components necessary for fuel delivery. By assuming responsibility for the development of complete systems, the Company allows its OEM customers to reduce their internal engineering costs, use fewer suppliers and assemble systems rather than components. Once an OEM designates the Company to supply FSDS components for a new vehicle program, the OEM usually will continue to purchase those components from the Company for the life of the program. The Company and its joint ventures in Europe, South America and Asia design, develop, manufacture and distribute fuel delivery components and systems worldwide to support OEMs as they produce vehicles for the global automotive market. The Company's product development efforts focus on the regulatory and competitive challenges facing its customers worldwide. For example, the Company has used its technical skills to develop multi-layer plastic fuel tanks and onboard running and vapor recovery ("ORVR") devices, which are designed, in part, to assist OEMs in complying with increasingly strict emission regulations. 6 8 WALBRO ENGINE MANAGEMENT Approximately 20% of the Company's net sales for 1997 were generated by Walbro Engine Management. Through Walbro Engine Management, the Company designs, develops and manufactures diaphragm carburetors for portable engines (such as those used in chain saws and weed trimmers), float feed carburetors for ground supported engines (such as those used in lawn mowers and marine engines) and ignition systems and other components for a variety of small engine products. The Company believes that it is the world's largest independent manufacturer of small engine carburetors, with an approximate 72% share of the global diaphragm carburetor market including sales to such leading chain saw and weed trimmer manufacturers as Poulan/Weedeater, Deere and Company (Homelite), Stihl Incorporated, McCulloch Corporation, Ryobi Ltd. and Kioritz (Echo) Corporation. The Company believes it has an approximate 10% share of the global float feed carburetor market, including sales to Briggs & Stratton Corporation, the world's largest small engine manufacturer, Kohler Company, Tecumseh Products Co., and Mercury Marine, a major manufacturer of outboard marine engines. The Company also produces substantial volumes of float feed carburetors for the Chinese two-wheeled vehicle market. The Company's strategy in the small engine sector is to enhance its presence as a leading supplier of small engine carburetors, ignition systems and other small engine products through the development of system technologies which assist customers in complying with new emission standards. The Company's strategy also includes increasing its global presence, particularly in developing countries such as the People's Republic of China and India, to profit from the growing market for carburetors for two-wheeled vehicles, gasoline-powered portable tools used for infrastructure development and other small engine applications. AFTERMARKET The remaining 6% of the Company's net sales for 1997 were primarily related to replacement products for both the automotive and small engine aftermarkets. The Company has recently begun pursuing initiatives to expand its aftermarket customer base and product lines in an effort to grow this segment of its business. RECENT EVENTS On May 29, 1998, the Company entered into a $150 million line of credit from NationsBank, N.A. consisting of a $125 million revolving line of credit (the "Revolving Credit Facility") and a $25 million capital expenditure facility (the "Capital Expenditure Facility")(the Revolving Credit Facility and the Capital Expenditure Facility are collectively referred to as the "New Credit Facility"). On May 29, 1998, proceeds of the Revolving Credit Facility were used to repay the indebtedness outstanding under the Company's Comerica Bank credit facility (the "Credit Facility") (including the repayment of a $6.3 million industrial revenue bond issued by the City of Ligonier, Indiana for construction of the facility at Sharon Manufacturing Company) and the purchase money facility issued by the same bank group that issued the Credit Facility (the "Purchase Money Facility"), as well as to repay the $45 million aggregate principal amount of the Company's 7.68% Senior Notes due 2004 (the "2004 Notes") including an early retirement premium of $2.0 million. These actions taken by the Company on May 29, 1998 are collectively referred to as the "Refinancing." The proceeds of the New Credit Facility will also be used for capital expenditures and for general working capital purposes. As a part of the restructuring program announced during the fourth quarter of 1997, on June 1, 1998, the Company sold substantially all of the assets of Sharon Manufacturing Company, one of the Guarantors, for a purchase price of $4.6 million. The sale of these assets was permitted by, and the Company intends to apply the proceeds of the sale in compliance with, the Indenture, as applicable. 7 9 THE EXCHANGE OFFER THE EXCHANGE NOTES............ The forms and terms of the Exchange Notes are identical in all material respects to the terms of the Old Notes for which they may be exchanged pursuant to the Exchange Offer, except for certain transfer restrictions and registration rights relating to the Old Notes and except for certain interest provisions relating to the Old Notes described below under "-- Terms of the Exchange Notes." THE EXCHANGE OFFER............ The Company is offering to exchange up to $100,000,000 aggregate principal amount of 10 1/8% Senior Notes due 2007, Series B (the "Exchange Notes") for up to $100,000,000 aggregate principal amount of its outstanding 10 1/8% Senior Notes due 2007, Series A (the "Old Notes"). Old Notes may be exchanged only in integral multiples of $1,000. EXPIRATION DATE; WITHDRAWAL OF TENDER........................ The Exchange Offer will expire at 5:00 p.m., New York City time, on June 30, 1998, or such later date and time to which it is extended by the Company. The tender of Old Notes pursuant to the Exchange Offer may be withdrawn at any time prior to the Expiration Date. Any Old Notes not accepted for exchange for any reason will be returned without expense to the tendering holder thereof as promptly as practicable after the expiration or termination of the Exchange Offer. CERTAIN CONDITIONS TO THE EXCHANGE OFFER................ The Exchange Offer is subject to certain customary conditions, which may be waived by the Company. See "The Exchange Offer -- Certain Conditions to the Exchange Offer." PROCEDURES FOR TENDERING OLD NOTES......................... Each holder of the Old Notes wishing to accept the Exchange Offer must complete, sign and date the Letter of Transmittal (or facsimile thereof) in accordance with the instructions contained herein and therein, and mail or otherwise deliver the Letter of Transmittal (or the facsimile), or (in the case of a book-entry transfer) an Agent's Message (as defined herein) in lieu of the Letter of Transmittal, and any other required documentation to the Exchange Agent (as defined herein) at one of the addresses set forth herein prior to the Expiration Date. In addition, prior to the Expiration Date, either (a) certificates for tendered Old Notes must be received by the Exchange Agent at such address, or (b) the Old Notes must be transferred pursuant to the procedures for book-entry transfer described below (and a confirmation of the tender received by the Exchange Agent, including an Agent's Message if the tendering holder has not delivered a Letter of Transmittal). By executing the Letter of Transmittal (or transmitting an Agent's Message), each holder will represent to the Company that, among other things, (i) any Exchange Notes to be received by it will be acquired in the ordinary course of its business, (ii) it has no arrangement with any person to participate in the distribution of the Exchange Notes, and (iii) it is not an "affiliate," as defined in Rule 405 of the Securities Act, of the Company or, if it is an affiliate, it will comply with the registration and prospectus delivery requirements of the Securities Act to the extent 8 10 applicable. See "The Exchange Offer -- Procedures for Tendering; -- Resale of the Exchange Notes." INTEREST ON THE EXCHANGE NOTES......................... The Notes bear interest at the rate of 10 1/8% per annum, payable semi-annually on June 15 and December 15, commencing June 15, 1998. Holders of the Exchange Notes will receive interest on December 15, 1998 from the date of initial issuance of the Exchange Notes, plus an amount equal to the accrued interest on the Old Notes from the most recent date to which interest has been paid to the date of exchange. Interest on the Old Notes accepted for exchange will cease to accrue upon issuance of the Exchange Notes. SPECIAL PROCEDURES FOR BENEFICIAL OWNERS............. Any beneficial owner whose Old Notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and who wishes to tender the Old Notes in the Exchange Offer should contact the registered holder promptly and instruct the registered holder to tender on the beneficial owner's behalf. If the beneficial owner wishes to tender on the owner's own behalf, such owner must, prior to completing and executing the Letter of Transmittal and delivering the Old Notes, either make appropriate arrangements to register ownership of the Old Notes in the owner's name or obtain a properly completed bond power from the registered holder. The transfer of registered ownership may take considerable time and may not be able to be completed prior to the Expiration Date. GUARANTEED DELIVERY PROCEDURES.................... Holders of the Old Notes who wish to tender their Old Notes and whose Old Notes are not immediately available or who cannot deliver their Old Notes, the Letter of Transmittal or any other documents required by the Letter of Transmittal to the Exchange Agent, or who cannot complete the procedure for book-entry transfer on a timely basis and deliver an Agent's Message in lieu of the Letter of Transmittal, prior to the Expiration Date, must tender their Old Notes according to the guaranteed delivery procedures set forth in "The Exchange Offer -- Guaranteed Delivery Procedures." REGISTRATION REQUIREMENTS..... The Company has agreed to use its best efforts to consummate by July 1, 1998 the registered Exchange Offer pursuant to which holders of the Old Notes will be offered an opportunity to exchange their Old Notes for the Exchange Notes which will be issued without legends restricting transfer. In the event that applicable interpretations of the staff of the Commission do not permit the Company to effect the Exchange Offer or in certain other circumstances, the Company has agreed to file a shelf registration statement covering resales of the Old Notes (the "Shelf Registration Statement") and to use its best efforts to cause the Shelf Registration Statement to be declared effective under the Securities Act and, subject to certain exceptions, keep the Shelf Registration Statement effective until two years after its effective date. 9 11 CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS............ For a discussion of certain federal income tax considerations relating to the exchange of the Exchange Notes for the Old Notes, see "Certain U.S. Federal Income Tax Consequences." USE OF PROCEEDS............... There will be no proceeds to the Company from the exchange of the Old Notes pursuant to the Exchange Offer. EXCHANGE AGENT................ Bankers Trust Company is the Exchange Agent. The address and telephone number of the Exchange Agent are set forth in "The Exchange Offer -- Exchange Agent." 10 12 TERMS OF THE EXCHANGE NOTES The form and terms of the Exchange Notes are the same as the form and terms of the Old Notes except that the Exchange Notes are registered under the Securities Act and, therefore, will not bear legends restricting transfer. See "Description of the Exchange Notes." EXCHANGE NOTES................ $100 million aggregate principal amount of 10 1/8% Senior Notes due 2007, Series B of the Company. MATURITY DATE................. December 15, 2007. INTEREST PAYMENT DATES........ June 15 and December 15, commencing December 15, 1998. RANKING....................... The Exchange Notes will be senior unsecured obligations of the Company ranking pari passu in right of payment with all existing and future senior unsecured obligations of the Company, including the Company's $110 million aggregate principle amount of 9.875% Senior Notes due 2005 (the "2005 Notes"), and will be effectively subordinated in right of payment to all existing and future secured indebtedness of the Company and its subsidiaries. As of March 31, 1998, the Company and its subsidiaries had approximately $80.4 million of secured indebtedness outstanding, including $23.0 million of aggregate indebtedness under the Credit Facility, which amount included $2.9 million outstanding under the Purchase Money Facility, and the $45 million aggregate principal amount of the 2004 Notes. After giving effect to the Refinancing, as of March 31, 1998, the Company and its subsidiaries would have had approximately $88.4 million of secured indebtedness outstanding, including $78.0 million of aggregate indebtedness under the Revolving Credit Facility and no indebtedness outstanding under the Capital Expenditure Facility. All of such indebtedness was and is secured by the inventory, accounts receivable and certain intangibles of the Company and its domestic subsidiaries and by a pledge of 100% of the capital stock of the Company's wholly-owned domestic subsidiaries and of up to 65% of the capital stock of certain of the Company's wholly-owned foreign subsidiaries. In addition, the Purchase Money Facility was and the Capital Expenditure Facility is secured by certain equipment purchased with borrowings thereunder. The Credit Facility and the Purchase Money Facility are referred to as the "Credit Facilities." In addition, the Exchange Notes will be effectively subordinated in right of payment to all existing and future liabilities, including trade payables, of the Company's subsidiaries which are not Guarantors, which, as of March 31, 1998, totalled approximately $186.7 million (excluding intercompany liabilities). GUARANTEES.................... The Exchange Notes will be guaranteed on a senior unsecured basis, jointly and severally, by the Company's principal wholly-owned domestic operating subsidiaries, including Walbro Automotive Corporation and Walbro Engine Management Corporation. See "Description of the Exchange Notes -- The Guarantees" and Note 2 of the Supplemental Notes to the Company's Consolidated Financial Statements for the year ended December 31, 1997 and Note 4 of the Notes to the Company's (unaudited) Consolidated 11 13 Financial Statements for the three months ended March 31, 1998, both as contained elsewhere herein. OPTIONAL REDEMPTION........... Except as provided below, the Exchange Notes are not redeemable at the Company's option prior to December 15, 2002. Thereafter, the Exchange Notes will be redeemable, in whole or in part, at the option of the Company, at the redemption prices set forth herein plus accrued interest to the date of redemption. In addition, prior to December 15, 2000, the Company may, at its option, redeem up to an aggregate of 30% of the principal amount of the Exchange Notes originally issued with the net proceeds from one or more Public Equity Offerings at the redemption price set forth herein plus accrued interest to the date of redemption. See "Description of the Exchange Notes -- Redemption -- Optional Redemption." CHANGE OF CONTROL............. In the event of a Change of Control, the Company will be obligated to make an offer to purchase all of the outstanding Exchange Notes at a redemption price of 101% of the principal amount thereof plus accrued interest to the date of repurchase. See "Description of the Exchange Notes -- Certain Covenants -- Change of Control." OFFER TO REPURCHASE........... The Company will be required in certain circumstances to make an offer to repurchase the Exchange Notes at a price equal to 100% of the principal amount thereof, plus accrued interest to the date of repurchase, with the net cash proceeds of certain asset sales. See "Description of the Exchange Notes -- Certain Covenants -- Disposition of Proceeds of Asset Sales." CERTAIN COVENANTS............. The indenture under which the Old Notes were issued and the Exchange Notes will be issued (the "Indenture") contains covenants including, but not limited to, covenants with respect to limitations on the following matters: (i) the incurrence of additional indebtedness, (ii) the issuance of preferred stock by subsidiaries, (iii) the creation of liens, (iv) sale and leaseback transactions, (v) restricted payments, (vi) the sales of assets and subsidiary stock, (vii) mergers and consolidations, (viii) payment restrictions affecting subsidiaries, and (ix) transactions with affiliates. See "Description of the Exchange Notes -- Certain Covenants." For additional information regarding the Exchange Notes, see "Description of the Exchange Notes." RISK FACTORS See "Risk Factors" for a discussion of certain considerations that should be considered before tendering the Old Notes in exchange for the Exchange Notes. 12 14 SUMMARY HISTORICAL FINANCIAL AND OPERATING DATA (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) The following table sets forth summary historical financial data of the Company. The summary historical financial data of the Company for each of the five years ended December 31 was derived from the audited consolidated financial statements of the Company. The summary historical financial data of the Company for both of the three-month periods ended March 31 was derived from the unaudited consolidated financial statements of the Company which, in the opinion of the Company's management, reflect all adjustments necessary for a fair presentation of the financial position and results of operations for the periods. The information contained in this table reflects the results of Dyno subsequent to its acquisition in July 1995 and should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements of the Company including the notes thereto, contained elsewhere herein.
THREE MONTHS ENDED MARCH 31, YEAR ENDED DECEMBER 31, --------------------- --------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- ---- ---- STATEMENT OF INCOME DATA: Net sales....................... $ 169,292 $ 154,019 $ 619,905 $ 585,389 $ 459,272 $ 325,205 $ 273,463 Cost of sales................... 144,058 129,821 538,751 488,134 377,755 261,501 216,804 Gross profit.................... 25,234 24,198 81,154 97,255 81,517 63,704 56,659 Selling, administrative and other expenses................ 16,958 15,718 78,075 69,869 57,495 39,318 33,043 Reorganization and restructuring charges....................... -- -- 27,000 -- -- -- 1,760 Operating income................ 8,276 8,480 (23,921) 27,386 24,022 24,386 21,856 Interest expense, net........... 7,503 5,892 24,736 17,117 11,111 3,771 2,559 Equity in (income) loss of joint ventures...................... (474) (801) (3,113) (4,187) (3,877) (2,609) 89 Net income(1)................... 572 2,362 (36,627) 11,229 13,830 14,595 9,667 Net income per share(2)......... 0.07 0.27 (4.23) 1.30 1.61 1.70 1.13 Weighted average shares outstanding................... 8,682,602 8,652,737 8,668,096 8,649,380 8,609,431 8,602,077 8,537,375 OTHER DATA: Depreciation and amortization... $ 9,718 $ 8,180 $ 31,417 $ 29,736 $ 22,451 $ 14,672 $ 11,339 Capital expenditures............ 11,826 14,232 62,019 99,147 46,240 18,844 20,260 EBITDA(3)....................... 19,462 17,749 7,439 57,255 45,245 36,345 31,128 Ratio of EBITDA to interest expense, net(3)............... 2.6x 3.0x 0.3x 3.3x 4.1x 9.6x 12.2x Ratio of earnings to fixed charges....................... 1.1x 2.5x (0.5x) 1.3x 1.8x 4.5x 6.2x BALANCE SHEET DATA: (at end of period) Total assets.................... $ 629,506 $ 612,101 $ 610,593 $ 589,649 $ 493,473 $ 257,366 $ 215,295 Total long-term debt, less current portion............... 293,804 261,359 291,393 291,723 233,389 66,136 52,392 Total debt...................... 331,682 284,212 331,557 314,884 249,396 81,548 58,175 Company-Obligated Mandatorily Redeemable Convertible Preferred Securities of Walbro Capital Trust holding solely Convertible Debentures........ 69,000 69,000 69,000 -- -- -- -- Total stockholders' equity(4)(5).................. 67,187 130,982 69,866 137,733 135,427 127,915 114,146
(footnotes on following page) 13 15 - ------------------------- (1) The Company adopted SFAS 106 as of January 1, 1993. As a result, the Company recorded a one-time after tax charge of $2,900 for the cumulative effect of this accounting change in the year ended December 31, 1993. (2) Basic and diluted income per share were the same in all periods presented. (3) "EBITDA" represents, for any period, the sum of operating income (minus foreign currency exchange losses and other expenses, net) and depreciation and amortization. EBITDA is not intended to be a performance measure that should be regarded as an alternative either to operating income or net income as an indicator of operating performance or to cash flow as a measure of liquidity. The Company has included information concerning EBITDA because it is a widely accepted financial indicator of a Company's ability to service and/or incur indebtedness. EBITDA (subject to certain adjustments) will be used to determine compliance with certain covenants contained in the Indenture. (4) Reflects cash dividends declared for Common Stock of $0, $865, $3,474, $3,446, $3,429, $3,426 and $3,403 in the three months ended March 31, 1998 and 1997 and the years ended December 31, 1997, 1996, 1995, 1994 and 1993, respectively. (5) The Company adopted SFAS 115 as of January 1, 1994. As a result, the Company recorded an increase to stockholders' equity of $2,096 (net of income taxes) as of January 1, 1994. 14 16 RISK FACTORS In addition to other information contained in this Prospectus, investors should consider carefully the following risk factors before tendering the Old Notes in exchange for the Exchange Notes. SUBSTANTIAL LEVERAGE After the Initial Offering, the Company has consolidated indebtedness that is substantial in relation to its stockholders' equity. As of March 31, 1998, the Company had $331.7 million of total debt, $69.0 million of Convertible Trust Preferred Securities and $67.2 million of stockholders' equity. After giving effect to the Refinancing, as of March 31, 1998, the Company would have had $333.4 million of total debt and $67.0 million of stockholders' equity. Additionally, as of March 31, 1998, the Company and its subsidiaries had approximately $80.4 million of secured indebtedness outstanding, including approximately $23.0 million of borrowings under the Credit Facility and $45.0 million aggregate principal amount of the 2004 Notes. After giving effect to the Refinancing, as of March 31, 1998, the Company and its subsidiaries would have had approximately $88.4 million of secured indebtedness outstanding, including approximately $78.0 million of borrowings under the New Credit Facility. Such secured indebtedness has a lien on specified assets of the Company or its subsidiaries, as the case may be. As a result, in an insolvency proceeding, holders of secured indebtedness would have claims against the assets of the Company or its subsidiaries, as the case may be, securing their indebtedness to satisfy their claims, and such assets would be applied to the payment of such claims before claims of holders of unsecured senior indebtedness, such as the Notes, would be satisfied. Because the domestic inventory, accounts receivable and certain intangibles and equipment of the Company and its domestic subsidiaries have been pledged to the banks under the New Credit Facility to secure the Company's borrowings thereunder, in the event of an insolvency of the Company, such banks would have a claim to such assets, while the holders of the Notes would have no claim over specific assets of the Company and its domestic subsidiaries. The Company's indebtedness will have several important consequences for the holders of the Notes, including but not limited to the following: (i) a substantial portion of the Company's cash flow from operations must be dedicated to debt service requirements (principal and interest) on its indebtedness and will not be available for other purposes; (ii) the Company's ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions, or to refinance the Notes or for general corporate purposes may be impaired; (iii) the Company's leverage may increase its vulnerability to economic downturns and limit its ability to withstand competitive pressures; and (iv) the Company's ability to capitalize on significant business opportunities may be limited. The Company's ability to make payments with respect to the Notes and to satisfy its other debt obligations will depend on its future operating performance, which will be affected by prevailing economic conditions and financial, business and other factors, certain of which are beyond the Company's control. The Company believes, based on current circumstances, that the Company's cash flow, together with available borrowings under the New Credit Facility, will be sufficient to permit the Company to meet its operating expenses and to service its debt requirements as they become due. Significant assumptions underlie this belief, including, among other things, that the Company will succeed in implementing its business strategy and there will be no material adverse developments in the business, liquidity or capital requirements of the Company. If the Company is unable to service its indebtedness, it will be forced to adopt an alternative strategy that may include actions such as reducing or delaying capital expenditures, selling assets, restructuring or refinancing its indebtedness or seeking additional equity capital. There can be no assurance that any of these strategies could be effected on satisfactory terms, if at all. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." The Indenture, among other things, limits the incurrence of additional indebtedness by the Company and its subsidiaries. However, this limitation is subject to a number of important qualifications. 15 17 RESTRICTIONS IMPOSED BY TERMS OF INDEBTEDNESS The indenture relating to the 2005 Notes (the "2005 Notes Indenture") and the Indenture restrict the ability of the Company and its subsidiaries to, among other things, incur additional indebtedness, pay dividends or make certain other restricted payments or investments, consummate certain asset sales, enter into certain transactions with affiliates, incur liens, or merge or consolidate with any other person or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of their assets. The 2005 Notes Indenture and the Indenture impose limitations on the Company's ability to restrict the ability of its subsidiaries to pay dividends or make certain payments to the Company or any of its subsidiaries. In addition, the New Credit Facility contains other and more restrictive covenants. The New Credit Facility requires the Company to maintain specified financial ratios and satisfy certain financial tests. The Company's ability to meet such financial ratios and tests may be affected by events beyond its control, and there can be no assurance that the Company will meet such tests. A breach of any of these covenants could result in an event of default under the New Credit Facility. In an event of default under the New Credit Facility, the lenders thereunder could elect to declare all amounts borrowed, together with accrued interest, to be immediately due and payable and the lenders under the New Credit Facility could terminate all commitments thereunder. Such event would constitute an event of default under the 2005 Notes Indenture entitling the holders of the 2005 Notes to declare the principal and interest on the 2005 Notes due and payable. If any such indebtedness were to be accelerated, there can be no assurance that the assets of the Company would be sufficient to repay in full such indebtedness and the other indebtedness of the Company. See "Description of Other Indebtedness" and "Description of the Exchange Notes -- Certain Covenants." FRAUDULENT CONVEYANCE CONSIDERATIONS Under applicable provisions of the federal bankruptcy law or comparable provisions of state fraudulent transfer laws, if any Guarantor, at the time it incurs a Guarantee, (a)(i) was or is insolvent or rendered insolvent by reason of such incurrence, (ii) was or is engaged in a business or transaction for which the assets remaining with such Guarantor constituted unreasonably small capital or (iii) intended or intends to incur, or believed or believes that it would incur, debt beyond its ability to pay such debts as they mature and (b) received or receives less than reasonably equivalent value or fair consideration, the obligations of such Guarantor under its Guarantee could be avoided, or claims in respect of such Guarantee could be subordinated to all other debts of such Guarantor. Among other things, a legal challenge of a Guarantee on fraudulent conveyance grounds may focus on the benefits, if any, realized by such Guarantor as a result of the issuance by the Company of the Notes. To the extent that any Guarantee was a fraudulent conveyance or held unenforceable for any other reason, the holders of the Notes would cease to have any claim in respect of a Guarantor and would be solely creditors of the Company and any other Guarantors whose Guarantees were not avoided or held unenforceable. In such event, the claims of the holders of the Notes would be subject to the prior payment of all liabilities of the Guarantor whose Guarantee was avoided. There can be no assurance that, after providing for all prior claims, there would be sufficient assets to satisfy the claims of the holders of the Notes relating to any avoided portion of a Guarantee. Each Guarantor agreed, jointly and severally with the other Guarantors, to contribute to the obligations of any Guarantor under a Guarantee of the Notes. Further, the Guarantee of each Guarantor provides that it is limited to an amount that would not render the Guarantor thereunder insolvent. The Company believes that the Guarantors received equivalent value at the time the indebtedness was incurred under the Guarantees. In addition, the Company believes that none of the Guarantors were, at the time of or as a result of the issuance of the Guarantees, insolvent, that none of the Guarantors was or is engaged in a business or transaction for which its remaining assets constitute unreasonably small capital and that none of the Guarantors intended or intends to incur debts beyond its ability to pay such debts as they mature. Since each of the components of the question of whether a Guarantee is a fraudulent conveyance is inherently fact based and fact specific, there can be no assurance that a court passing on such questions would agree with the Company. As a result, in rendering their opinions on the validity of the Notes, Katten Muchin & Zavis, counsel for the Company and Cahill Gordon & Reindel, counsel for the Initial Purchaser, will express no opinion as to federal or state laws relating to fraudulent transfers. 16 18 HOLDING COMPANY STRUCTURE The Company derives substantially all of its operating income and cash flow from its subsidiaries. The Company must rely upon cash distributions from its subsidiaries to generate the funds necessary to meet its obligations, including the payment of principal and interest on the Notes. Any right of the holders of the Notes to participate in the assets of a non-Guarantor subsidiary of the Company upon any liquidation or reorganization of such subsidiary will be subject to the prior claims of such subsidiary's creditors, including the lenders under the New Credit Facility and trade creditors. Accordingly, the Notes will be structurally subordinated to all liabilities, including trade payables, of the non-Guarantor subsidiaries of the Company. As of March 31, 1998, the non-guarantor subsidiaries had outstanding indebtedness of approximately $186.7 million, which includes trade payables and accrued expenses of approximately $74.8 million (excluding intercompany liabilities). In addition, 100% of the capital stock of the Company's wholly-owned domestic subsidiaries and up to 65% of the capital stock of its wholly-owned foreign subsidiaries are pledged as collateral to the lenders under the New Credit Facility. Accordingly, upon any liquidation or reorganization of the Company, the holders of the Notes will have no claim against such capital stock until the lenders under the New Credit Facility are paid in full. DEPENDENCE ON CUSTOMER RELATIONSHIPS Sales to Chrysler, the Company's largest customer, accounted for 19%, 20% and, 19% of the Company's consolidated net sales for the years ended 1997, 1996 and 1995, respectively. Although the Company has ongoing supply relationships with Chrysler and certain of its other OEM customers, there can be no assurance that sales to these customers will continue at current levels. Further, continuation of the Company's customer relationships is dependent upon the customers' satisfaction with the price, quality and delivery of the Company's products and the Company's ability to execute new product launches successfully, none of which can be assured. While management believes its relationships with its customers are mutually satisfactory, if Chrysler or any of the Company's other significant customers were to reduce substantially or discontinue its purchases, the Company would be adversely affected. See "Business -- Walbro Automotive -- Automotive Markets and Customer Base." COMPETITION The automotive fuel system and small engine industries in which the Company operates are highly competitive. There can be no assurance that the Company's products will continue to compete successfully with the products of other companies, including the automotive OEMs themselves, many of whom are significantly larger and have greater financial and other resources available to them. In addition, the Company is under constant pressure from its major customers to reduce product costs. Management believes that the Company's experience in engineering and implementing cost reduction programs and its ability to develop proprietary new products and to control manufacturing and development costs should allow the Company's product prices to remain competitive. However, there can be no assurance that the Company will be able to improve or maintain its profit margins on sales to vehicle manufacturers and small engine producers. CYCLICAL NATURE OF AUTOMOTIVE AND SMALL ENGINE INDUSTRIES The Company's principal operations are related directly to domestic and foreign automotive vehicle and small engine consumer product sales. Sales and production of automobiles and small engine products are cyclical and can be affected by the strength of a country's general economy, prevailing interest rates and by other factors which may have an adverse effect on the level of the Company's sales to automobile and small engine product manufacturers. IMPACT OF ENVIRONMENTAL REGULATIONS In 1992, the California Air Resources Board promulgated comprehensive air quality regulations limiting small engine emissions, which became effective in August 1995. A more stringent phase is currently expected to become effective in 1999. In addition, the U.S. Environmental Protection Agency ("EPA") has imposed 17 19 similar regulations which became effective in August 1996, with the more stringent phase expected to become effective during the 2002 to 2005 period. The implementation of the 1999 California air quality regulations and proposed EPA regulations could significantly reduce the number of units the Company sells of its current carburetor models, especially diaphragm carburetors, and the Company's resulting sales. Hand-held power equipment is most vulnerable to a decrease in demand because the cost of compliance with these emission standards could force manufacturers to replace gasoline-powered lawn and garden equipment with electrically powered equipment. There can be no assurance that the Company will develop cost effective products to meet all of these regulations or that the ultimate customer might not select electric power equipment instead. See "Business -- Walbro Engine Management -- Small Engine Industry Overview." WARRANTY EXPOSURE AND RECALLS The Company warrants to its OEM customers that its products are free from defect and that they meet certain OEM designated specifications. The OEMs in turn offer product warranties to their retail customers. In some instances of common complaint, the automobile manufacturer will institute a voluntary recall or will be required by a governmental agency to conduct a recall. As a result, from time to time, the Company has received claims against it and requests for payment from its OEM customers to remedy complaints made by the ultimate consumers. The Company took a non-recurring charge in the fourth quarter of 1997 of approximately $5 million (pre-tax) as a warranty reserve related to certain product claims which became known to the Company in the fourth quarter of 1997. There can be no assurance that the Company will not incur substantial warranty or recall expense in the future. Such complaints and the related expenses may have a material adverse effect on the Company's relationship with its OEM customers, its financial condition and results of operations. See "Business -- Walbro Automotive -- Automotive Warranty and Other Product Exposure." RISKS ASSOCIATED WITH FOREIGN OPERATIONS The Company has significant international operations, specifically in Europe, South America and Asia and therefore the Company is subject to various political, economic and other uncertainties. Among others, the Company's operations are subject to the risks of taxation policies, foreign exchange restrictions, changing political conditions and governmental regulations. Accordingly, no assurance can be given that any of the Company's strategies will prove to be effective or that management's goals will be achieved. In addition, the Company receives a substantial portion of its net sales in currencies other than U.S. Dollars. Fluctuations in the exchange rates of these currencies with respect to the U.S. Dollar could have an adverse effect on the Company's financial results. From time to time the Company engages in hedging programs intended to reduce the Company's exposure to currency fluctuations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Foreign Currency Transactions." CONSEQUENCES OF FAILURE TO EXCHANGE; POSSIBLE ADVERSE EFFECT ON TRADING MARKET FOR THE OLD NOTES Holders of the Old Notes who do not exchange their Old Notes for the Exchange Notes pursuant to the Exchange Offer will continue to be subject to the restrictions on transfer of the Old Notes as set forth in the legend thereon as a consequence of the issuance of the Old Notes pursuant to exemptions from, or in transactions not subject to, the registration requirements of the Securities Act and applicable state securities laws. In general, the Old Notes may not be offered or sold unless registered under the Securities Act and applicable state laws, or pursuant to an exemption therefrom. Subject to the obligation by the Company to file the Shelf Registration Statement in certain circumstances, the Company does not intend to register the Old Notes under the Securities Act and, after consummation of the Exchange Offer, will not be obligated to do so. In addition, any holder of the Old Notes who tenders in the Exchange Offer for the purpose of participating in a distribution of the Exchange Notes may be deemed to have received restricted securities and, if so, will be required to comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction. Additionally, as a result of the Exchange Offer, it is expected that a substantial decrease in the aggregate principal amount of the Old Notes outstanding will occur. As a result, it is unlikely that a liquid trading market will exist for the Old Notes at any time. This lack of liquidity will make 18 20 transactions more difficult and may reduce the trading price of the Old Notes. See "The Exchange Offer" and "Registration Rights of the Old Notes." ABSENCE OF PUBLIC MARKET There has not previously been any public market for the Exchange Notes. Although the Company has agreed pursuant to the Registration Rights Agreement to use its best efforts to cause the Exchange Notes to be listed on the New York Stock Exchange, there can be no assurance as to the liquidity of any markets that may develop for the Exchange Notes, the ability of holders to sell the Exchange Notes, or the price at which holders would be able to sell the Exchange Notes. Future trading prices of the Exchange Notes will depend on many factors, including, among other things, prevailing interest rates, the Company's operating results and the market for similar securities. Historically, the market for securities similar to the Exchange Notes, including non-investment grade debt, has been subject to disruptions that have caused substantial volatility in the prices of such securities. There can be no assurance that any market for the Exchange Notes, if such market develops, will not be subject to similar disruptions. The Initial Purchaser has advised the Company that it currently intends to make a market in the Exchange Notes offered. However, the Initial Purchaser is not obligated to do so and any market making may be discontinued at any time without notice. 19 21 USE OF PROCEEDS This Exchange Offer is intended to satisfy certain obligations of the Company under the Registration Rights Agreement. The Company will not receive any proceeds from the issuance of the Exchange Notes offered. In consideration for issuing the Exchange Notes as contemplated in this Prospectus, the Company will receive, in exchange, Old Notes in like principal amount. The form and terms of the Exchange Notes are identical in all material respects to the form and terms of the Old Notes, except as otherwise described under "The Exchange Offer -- Terms of the Exchange Offer." The Old Notes surrendered in exchange for the Exchange Notes will be retired and cancelled and cannot be reissued. Accordingly, issuance of the Exchange Notes will not result in any increase in the outstanding debt of the Company. As such, no effect has been given to the Exchange Offer in the capitalization table. The Company applied the net proceeds (net of commissions and estimated expenses) from the Initial Offering to repay a portion of the borrowings under the Credit Facility. CAPITALIZATION The following table sets forth the actual capitalization of the Company as of March 31, 1998 and as adjusted to give effect to the Refinancing and $3.7 million in additional borrowings under the Revolving Credit Facility as of May 29, 1998. This table should be read in conjunction with "Selected Financial and Operating Data" and the consolidated financial statements of the Company and related notes thereto included elsewhere in this Prospectus.
AS OF MARCH 31, 1998 ----------------------- ACTUAL AS ADJUSTED ------ ----------- (IN THOUSANDS) Total short-term debt, including current portion of long-term debt(1)......................................... $ 37,878 $ 31,428 Long-term debt, less current portion: New Credit Facility(2).................................... -- 77,952 Credit Facilities(2)...................................... 22,952 -- 7.680% Senior Notes Due 2004(3)........................... 38,550 -- 9.875% Senior Notes Due 2005.............................. 109,718 109,718 10.125% Senior Notes Due 2007............................. 100,000 100,000 Other long-term debt, net of current portion(1)........... 22,584 16,284 -------- -------- Total long-term debt, net of current portion................ 293,804 303,954 Company-Obligated Mandatorily Redeemable Convertible Preferred Securities of Walbro Capital Trust holding solely Convertible Debentures............................. 69,000 69,000 Total stockholders' equity.................................. 67,187 67,187 -------- -------- Total capitalization........................................ $467,869 $471,569 ======== ========
- ------------------------- (1) Of these amounts, approximately $12.3 million are secured by certain assets of the Company or its subsidiaries. (2) As of March 31, 1998, the Credit Facility had a maximum availability of $30 million which was, and as of May 29, 1998 the New Credit Facility had a maximum availability of $125 million which is, secured by the accounts receivable, inventory and certain intangibles, and by a pledge of 100% of the capital stock of the Company's wholly-owned domestic subsidiaries and up to 65% of the capital stock of wholly-owned foreign subsidiaries. In addition, the Purchase Money Facility was and the Capital Expenditure Facility is secured by equipment purchased with borrowings thereunder. At March 31, 1998, the Company had $23.0 million outstanding under the Credit Facilities, and at May 29, 1998, the Company had $78.0 million outstanding under the New Credit Facility. (3) The 2004 Notes were equally and ratably secured with the collateral securing the Credit Facility. 20 22 PRO FORMA UNAUDITED CONDENSED CONSOLIDATED FINANCIAL DATA The following Pro Forma Unaudited Condensed Consolidated Statements of Operations for the three months ended March 31, 1998 and the year ended December 31, 1997 present pro forma operating results as if the Refinancing had occurred as of January 1, 1997. The Pro Forma Condensed Consolidated Balance Sheet as of March 31, 1998 gives effect to the Refinancing as if it has occurred on that date. The pro forma adjustments are described in the notes thereto. The Pro Forma Unaudited Condensed Consolidated Financial Data should be read in conjunction with the Company's historical financial statements and related notes thereto included elsewhere in the Prospectus. The Pro Forma Unaudited Condensed Consolidated Financial Data do not purport to represent either future results or the results that would have occurred if the Refinancing had occurred on the dates indicated, nor do they give effect to any matters other than those described in the notes thereto. Non-recurring charges for the early retirement of debt have not been reflected in the pro forma statements of operations presented below. PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 ------------------------------------------- COMPANY REFINANCING HISTORICAL ADJUSTMENTS PRO FORMA ---------- ----------- --------- (UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) Net sales................................................... $ 169,292 $ -- $ 169,292 Cost of sales............................................... 144,058 -- 144,058 ---------- ----- ---------- Gross margin................................................ 25,234 -- 25,234 ---------- ----- ---------- Selling and administrative expenses......................... 16,958 -- 16,958 ---------- ----- ---------- Operating income............................................ 8,276 -- 8,276 ---------- ----- ---------- Interest expense, net....................................... 7,503 199(1) 7,702 Other expense (income), net................................. (1,468) -- (1,468) ---------- ----- ---------- Income before taxes and other............................... 2,241 (199) 2,042 ---------- ----- ---------- Provision for income taxes.................................. (752) 70(2) (682) Minority interest........................................... (1,391) -- (1,391) Equity in income of joint ventures.......................... 474 -- 474 ---------- ----- ---------- Net income (loss) before extraordinary charges.............. $ 572 $(129) $ 443 ========== ===== ========== Net income per share before extraordinary charges........... $ 0.07 $ 0.05 ========== ========== Basic Weighted Average Shares Outstanding................... 8,682,602 8,682,602
YEAR ENDED DECEMBER 31, 1997 ------------------------------------------- COMPANY REFINANCING HISTORICAL ADJUSTMENTS PRO FORMA ---------- ----------- --------- (UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) Net sales................................................... $ 619,905 $ -- $ 619,905 Cost of sales............................................... 538,751 -- 538,751 ---------- ----- ---------- Gross margin................................................ 81,154 -- 81,154 ---------- ----- ---------- Selling and administrative expenses......................... 78,075 -- 78,075 Restructuring & impairment charges.......................... 27,000 -- 27,000 ---------- ----- ---------- Operating income............................................ (23,921) -- (23,921) ---------- ----- ---------- Interest expense, net....................................... 25,410 341(1) 25,751 Other expense (income), net................................. (4,495) -- (4,495) ---------- ----- ---------- Income before taxes and other............................... (44,836) (341) (45,177) ---------- ----- ---------- Provision for income taxes.................................. 10,131 119(2) 10,250 Minority interest........................................... (5,035) -- (5,035) Equity in income of joint ventures.......................... 3,113 -- 3,113 ---------- ----- ---------- Net income (loss) before extraordinary charges.............. $ (36,627) $(222)(3) $ (36,849)(3) ========== ===== ========== Net income (loss) per share................................. $ (4.23) $ (4.25) ========== ========== Basic Weighted Average Shares Outstanding................... 8,661,432 8,661,432
21 23 NOTES TO PRO FORMA UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS) (1) Reflects interest expense changes resulting from the Refinancing as if the Refinancing had taken place as of January 1, 1997. Amortization of deferred financing fees was calculated based on a five year amortization period for fees related to the New Credit Facility. In addition, the actual deferred financing fees amortized during each period under the Credit Facility and $45 million Senior Notes have been eliminated assuming the Refinancing had taken place as of January 1, 1997.
THREE MONTHS ENDED YEAR ENDED MARCH 31, 1998 DECEMBER 31, 1997 ------------------ ----------------- Interest expense under New Credit Facility, assuming an interest rate of 8%.................. $1,499 $ 6,080 Elimination of interest expense under Credit Facility......................................... (454) (1,840) Elimination of interest expense under $45 million Senior Notes due 2004............................ (852) (3,456) Elimination of interest expense under $6.3 million industrial revenue bond.......................... (70) (284) Fee amortization under New Credit Facility......... 84 340 Eliminate fee amortization under Credit Facility and $45 million Senior Notes..................... (8) (499) ------ ------- $ 199 $ 341 ====== =======
(2) Reflects estimated income tax adjustments resulting from the pro forma adjustments at 35%. (3) Excludes extraordinary charge of approximately $2.0 million for the early extinguishment of debt under the $45 million Senior Notes due 2004. This charge has been excluded from the pro forma presentation as it will not be a recurring charge. The Company will record this charge during the second quarter of 1998 as an extraordinary item, net of tax. 22 24 PRO FORMA UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1998 --------------------------------------------- COMPANY REFINANCING HISTORICAL ADJUSTMENTS PRO FORMA ---------- ----------- --------- (UNAUDITED DOLLARS IN THOUSANDS) ASSETS Cash.................................................. $ 17,090 $ -- $ 17,090 Accounts receivable, net.............................. 160,761 -- 160,761 Inventories........................................... 58,504 -- 58,504 Other current assets.................................. 26,903 -- 26,903 --------- ------- --------- Total current assets................................ 263,258 -- 263,258 --------- ------- --------- Property, plant and equipment......................... 394,761 -- 394,761 Accumulated depreciation.............................. (123,962) -- (123,962) --------- ------- --------- Net property, plant and equipment..................... 270,799 -- 270,799 --------- ------- --------- Goodwill, net......................................... 32,668 -- 32,668 Other assets.......................................... 62,781 1,494(1) 64,275 --------- ------- --------- Total other assets.................................. 95,449 1,494 96,943 --------- ------- --------- Total assets..................................... $ 629,506 1,494 631,000 ========= ======= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Short-term debt....................................... $ 37,878 (6,450)(2) $ 31,428 Other current liabilities............................. 146,065 (772)(3) 145,293 --------- ------- --------- Total current liabilities........................... 183,943 (7,222) 176,721 --------- ------- --------- Total long-term debt, less current portion............ 293,804 10,150(4) 303,954 Other long-term liabilities........................... 15,572 -- 15,572 --------- ------- --------- Total long-term liabilities......................... 309,376 10,150 319,526 --------- ------- --------- Convertible Trust Preferred Securities................ 69,000 -- 69,000 Total stockholders' equity............................ 67,187 (1,434)(3) 65,753 --------- ------- --------- Total liabilities and stockholders' equity.......... $ 629,506 1,494 $ 631,000 ========= ======= =========
23 25 NOTES TO PRO FORMA UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET (IN THOUSANDS) (1) Reflects the change in deferred financing fees as a results of the Refinancing as follows: $ 1,700 Deferred financing fees under the New Credit Facility....... (206) Write-off of remaining deferred financing fees under $45 million Senior Notes due 2004............................... -------- $ 1,494 ======== (2) Reflects repayment of the $6.45 million current portion of $45 million Senior Notes due 2004 under the Refinancing. There will be no current portion under the New Credit Facility until such time as the Company borrows under the Capital Expenditure Facility. (3) Reflects the write-off of remaining deferred financing fees under the $45 million Senior Notes due 2004 of $206, net of tax effect of $72, and the recording of an early retirement premium expense of $2.0 million under the $45 million Senior Notes due 2004, net of tax effect of $700. (4) Reflects the effects of the Refinancing as follows: $ 78,000 Borrowings under the New Credit Facility at closing......... (38,550) Repayment of long-term portion of $45 million Senior Notes due 2004.................................................... (23,000) Repayment of Credit Facility, based on balance outstanding at 3/31/98.................................................. (6,300) Repayment of $6.3 million industrial revenue bond........... -------- $ 10,150 Net increase in long-term debt.............................. ========
24 26 THE EXCHANGE OFFER PURPOSE AND EFFECT OF THE EXCHANGE OFFER The Old Notes were sold by the Company on December 16, 1997 to the Initial Purchaser. The Initial Purchaser placed the Old Notes with a limited number of qualified institutional buyers in reliance on Rule 144A under the Securities Act. Pursuant to the Registration Rights Agreement by and among the Company, the Guarantors and the Initial Purchaser, the Company agreed (i) to file a registration statement with respect to an offer to exchange the Old Notes for senior debt securities of the Company with terms substantially identical to the Old Notes (except that the Exchange Notes do not contain terms with respect to transfer restrictions) within 60 days after the date of original issuance of the Old Notes, and (ii) to use its best efforts to cause the registration statement to become effective under the Securities Act within 180 days after the issue date. In the event that applicable law or interpretations of the staff of the Commission do not permit the Company to file the registration statement containing this Prospectus or to effect the Exchange Offer, or if certain holders of the Old Notes notify the Company that they are not permitted to participate in, or would not receive freely tradeable Exchange Notes pursuant to, the Exchange Offer, the Company will use its best efforts to cause to become effective the Shelf Registration Statement with respect to the resale of the Old Notes and to keep the Shelf Registration Statement effective until two years after the effective date thereof. Upon consummation of the Exchange Offer, holders of the Old Notes not tendered and accepted in the Exchange Offer who did not notify the Company that they are not permitted to participate in, or would not receive freely tradeable Exchange Notes pursuant to, the Exchange Offer may no longer have any registration rights under the Registration Rights Agreement. The interest rate on the Old Notes is subject to increase under certain circumstances if the Company is not in compliance with its obligations under the Registration Rights Agreement. See "Registration Rights of the Old Notes." Pursuant to the Registration Rights Agreement, the Company has agreed to use its best efforts to cause the Exchange Notes to be listed on the New York Stock Exchange. Each holder of the Old Notes who wishes to exchange the Old Notes for the Exchange Notes in the Exchange Offer will be required to make certain representations, including representations that (i) any Exchange Notes to be received by it will be acquired in the ordinary course of its business, (ii) it has no arrangement with any person to participate in the distribution of the Exchange Notes, and (iii) it is not an "affiliate," as defined in Rule 405 of the Securities Act, of the Company, or, if it is an affiliate, it will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable. See "Registration Rights of the Old Notes." RESALE OF THE EXCHANGE NOTES Based on interpretations by the staff of the Commission set forth in no-action letters issued to third-parties, the Company believes that, except as described below, the Exchange Notes issued pursuant to the Exchange Offer in exchange for the Old Notes may be offered for resale, resold and otherwise transferred by any holder thereof (other than a holder which is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act) without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that the Exchange Notes are acquired in the ordinary course of the holder's business and the holder does not intend to participate and has no arrangement or understanding with any person to participate in the distribution of the Exchange Notes. Any holder who tenders in the Exchange Offer with the intention or for the purpose of participating in a distribution of the Exchange Notes cannot rely on this interpretation by the staff of the Commission and must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a secondary resale transaction, unless an exemption from registration is otherwise available. Each broker-dealer that receives the Exchange Notes in exchange for the Old Notes acquired for its own account as a result of market-making activities or other trading activities (a "Participating Broker-Dealer") must acknowledge that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of the Exchange Notes. The Letter of Transmittal states that a broker-dealer will not, by so acknowledging and by delivering a prospectus, be deemed to admit that it is an "underwriter" within 25 27 the meaning of the Securities Act. This Prospectus, as it may be amended or supplemented from time to time, may be used by a Participating Broker-Dealer in connection with resales of the Exchange Notes. The Company has agreed that, for a period of 180 days after the Registration Statement is declared effective by the Commission, it will make this Prospectus available to any Participating Broker-Dealer for use in connection with any such resale. See "Plan of Distribution." As contemplated by these no-action letters and the Registration Rights Agreement, each holder accepting the Exchange Offer is required to represent to the Company in the Letter of Transmittal that (i) the Exchange Notes are to be acquired by the holder and any beneficial owner(s) of the tendered Old Notes (the "Beneficial Owner(s)") in the ordinary course of business, (ii) the holder and any Beneficial Owner(s) (other than a broker-dealer referred to in the next sentence) are not engaging and do not intend to engage, in the distribution of the Exchange Notes, (iii) the holder and any Beneficial Owner(s) have no arrangement or understanding with any person to participate in the distribution of the Exchange Notes, (iv) neither the holder nor any Beneficial Owner is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act, and (v) the holder and any Beneficial Owner(s) acknowledge that if the holder or Beneficial Owner(s) participates in the Exchange Offer for the purpose of distributing the Exchange Notes they must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale of the Exchange Notes and cannot rely on these no-action letters. As indicated above, each Participating Broker-Dealer must acknowledge that it will deliver a prospectus in connection with any resale of the Exchange Notes. See "Plan of Distribution." TERMS OF THE EXCHANGE OFFER Upon the terms and subject to the conditions set forth in this Prospectus and in the Letter of Transmittal, the Company will accept for exchange any and all Old Notes properly tendered and not withdrawn prior to 5:00 p.m., New York City time, on the Expiration Date. The Company will issue $1,000 in principal amount of the Exchange Notes in exchange for each $1,000 in principal amount of outstanding Old Notes surrendered pursuant to the Exchange Offer. The Old Notes may be tendered only in integral multiples of $1,000. The form and terms of the Exchange Notes will be the same as the form and terms of the Old Notes except the Exchange Notes will be registered under the Securities Act and hence will not bear legends restricting transfer. The Exchange Notes will evidence the same debt as the Old Notes. The Exchange Notes will be issued under and entitled to the benefits of the Indenture, which also authorized the issuance of the Old Notes, such that both series will be treated as a single class of debt securities under the Indenture. The Exchange Offer is not conditioned upon any minimum aggregate principal amount of the Old Notes being tendered for exchange. As of the date of this Prospectus, $100,000,000 in aggregate principal amount of the Old Notes is outstanding. This Prospectus, together with the Letter of Transmittal, is being sent to all registered holders of the Old Notes. There will be no fixed record date for determining registered holders of the Old Notes entitled to participate in the Exchange Offer. The Company intends to conduct the Exchange Offer in accordance with the provisions of the Registration Rights Agreement and the applicable requirements of the Exchange Act, and the rules and regulations of the Commission thereunder. The Old Notes which are not tendered for exchange in the Exchange Offer will remain outstanding and continue to accrue interest and will be entitled to the rights and benefits such holders have under the Indenture. The Company shall be deemed to have accepted for exchange properly tendered Old Notes when, as and if the Company shall have given oral or written notice thereof to the Exchange Agent and complied with the provisions of Section 2 of the Registration Rights Agreement. The Exchange Agent will act as agent for the tendering holders for the purpose of receiving the Exchange Notes from the Company. The Company expressly reserves the right to amend or terminate the Exchange Offer, and not to accept for exchange any Old Notes not previously accepted for exchange, upon the occurrence of any of the conditions specified below under "-- Certain Conditions to the Exchange Offer." 26 28 Holders who tender the Old Notes in the Exchange Offer will not be required to pay brokerage commissions or fees or, subject to the instructions in the Letter of Transmittal, transfer taxes with respect to the exchange of the Old Notes pursuant to the Exchange Offer. The Company will pay all charges and expenses, other than certain applicable taxes described below, in connection with the Exchange Offer. See "-- Fees and Expenses." EXPIRATION DATE; EXTENSIONS; AMENDMENTS The term "Expiration Date" shall mean 5:00 p.m., New York City time on June 30, 1998, unless the Company, in its sole discretion, extends the Exchange Offer, in which case the term "Expiration Date" shall mean the latest date and time to which the Exchange Offer is extended. The Expiration Date shall not in any event be extended to a date later than December 27, 1998 (180 days after the initial Expiration Date). In order to extend the Exchange Offer, the Company will notify the Exchange Agent of any extension by oral or written notice and will notify the holders of Old Notes of any extension by press release, each prior to 9:00 a.m., New York City time, on the next business day after the previously scheduled Expiration Date. The Company reserves the right, in its sole discretion, (i) to delay accepting for exchange any Old Notes, to extend the Exchange Offer or to terminate the Exchange Offer if any of the conditions set forth below under "-- Certain Conditions to the Exchange Offer" shall not have been satisfied, by giving oral or written notice of such delay, extension or termination to the Exchange Agent, or (ii) to amend the terms of the Exchange Offer in any manner. Any such delay in acceptance, extension, termination or amendment will be followed as promptly as practicable by oral or written notice thereof to the registered holders of the Old Notes. If the Exchange Offer is amended in a manner determined by the Company to constitute a material change, the Company will promptly disclose such amendment by means of a prospectus supplement that will be distributed to the registered holders, and the Company will extend the Exchange Offer, depending upon the significance of the amendment and the manner of disclosure to the registered holders, if the Exchange Offer would otherwise expire during such period. INTEREST ON THE EXCHANGE NOTES The Notes bear interest at a rate of 10 1/8% per annum, payable semi-annually, on each June 15 and December 15, commencing June 15, 1998. Holders of the Exchange Notes will receive interest on December 15, 1998 from the date of initial issuance of the Exchange Notes, plus an amount equal to the accrued interest on the Old Notes from the most recent date to which interest has been paid to the date of exchange thereof for the Exchange Notes. Interest on the Old Notes accepted for exchange will cease to accrue upon issuance of the Exchange Notes. CERTAIN CONDITIONS TO THE EXCHANGE OFFER Notwithstanding any other term of the Exchange Offer, the Company will not be required to accept for exchange, or exchange any Exchange Notes for, any Old Notes, and may terminate or amend the Exchange Offer as provided herein before the acceptance of any Old Notes for exchange, if: (a) any action or proceeding is instituted or threatened in any court or by or before any governmental agency with respect to the Exchange Offer which, in the Company's sole judgment, might materially impair the ability of the Company to proceed with the Exchange Offer; or (b) any law, statute, rule or regulation is proposed, adopted or enacted, or any existing law, statute, rule or regulation is interpreted by the staff of the Commission, which, in the Company's sole judgment, might materially impair the ability of the Company to proceed with the Exchange Offer; or (c) any governmental approval has not been obtained, which approval the Company shall, in its sole discretion, deem necessary for the consummation of the Exchange Offer as contemplated hereby. If the Company determines in its sole discretion that any of the conditions are not satisfied, the Company may (i) refuse to accept any Old Notes and return all tendered Old Notes to the tendering holders, (ii) extend 27 29 the Exchange Offer and retain all Old Notes tendered prior to the expiration of the Exchange Offer, subject, however, to the rights of holders to withdraw such Old Notes (see "-- Withdrawal of Tenders"), or (iii) waive the unsatisfied conditions with respect to the Exchange Offer and accept all properly tendered Old Notes which have not been withdrawn. Any Old Notes not accepted for exchange for any reason will be returned without expense to the tendering holder thereof as promptly as practicable after the expiration or termination of the Exchange Offer. The foregoing conditions are for the sole benefit of the Company and may be asserted by the Company regardless of the circumstances giving rise to any such condition or may be waived by the Company in whole or in part at any time and from time to time in its sole discretion. The failure by the Company at any time to exercise any of the foregoing rights shall not be deemed a waiver of the right and each right shall be deemed an ongoing right which may be asserted at any time and from time to time. In addition, the Company will not accept for exchange any Old Notes tendered, and no Exchange Notes will be issued in exchange for the Old Notes, if at such time any stop order shall be threatened or in effect with respect to the Registration Statement of which this Prospectus constitutes a part or the qualification of the Indenture under the Trust Indenture Act of 1939 (the "TIA"). PROCEDURES FOR TENDERING Only a holder of the Old Notes may tender the Old Notes in the Exchange Offer. For a holder to validly tender the Old Notes pursuant to the Exchange Offer, a properly completed and duly executed Letter of Transmittal (or facsimile thereof), with any required signature guarantee, or (in the case of a book-entry transfer) an Agent's Message (as defined below) in lieu of the Letter of Transmittal, and any other required documents must be received by the Exchange Agent at one of the addresses set forth under "-- Exchange Agent" prior to the Expiration Date. In addition, prior to the Expiration Date, either (a) certificates for tendered Old Notes must be received by the Exchange Agent at such address, or (b) the Old Notes must be transferred pursuant to the procedures for book-entry transfer described below (and a confirmation of the tender received by the Exchange Agent, including an Agent's Message if the tendering holder has not delivered a Letter of Transmittal). The term "Agent's Message" means a message, transmitted by the book-entry transfer facility, The Depository Trust Company (the "Book-Entry Transfer Facility"), to and received by the Exchange Agent and forming a part of a book-entry confirmation, which states that the Book-Entry Transfer Facility has received an express acknowledgment from the tendering participant that the participant has received and agrees to be bound by the Letter of Transmittal and that the Company may enforce the Letter of Transmittal against the participant. By executing the Letter of Transmittal (or transmitting an Agent's Message in lieu thereof), each holder will make to the Company the representations set forth above in the third paragraph under the heading "-- Resale of the Exchange Notes." The tender by a holder which is not withdrawn prior to the Expiration Date will constitute an agreement between the holder and the Company in accordance with the terms and subject to the conditions set forth herein and in the Letter of Transmittal. THE METHOD OF DELIVERY OF THE OLD NOTES, THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR THE OLD NOTES SHOULD BE SENT TO THE COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR OTHER NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS. Any beneficial owner whose Old Notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and who wishes to tender should contact the registered holder promptly and 28 30 instruct the registered holder of the Old Notes to tender on the beneficial owner's behalf. If the beneficial owner wishes to tender on the owner's own behalf, such owner must, prior to completing and executing the Letter of Transmittal and delivering such owner's Old Notes, either make appropriate arrangements to register ownership of the Old Notes in such owner's name or obtain a properly completed bond power from the registered holder of the Old Notes. The transfer of registered ownership may take considerable time and may not be able to be completed prior to the Expiration Date. Signatures on a Letter of Transmittal or a notice of withdrawal described below, as the case be, must be guaranteed by an Eligible Institution (as defined below) unless the Old Notes tendered pursuant thereto are tendered (i) by a registered holder who has not completed the box entitled "Special Delivery Instructions" on the Letter of Transmittal, or (ii) for the account of an Eligible Institution. In the event that signatures on a Letter Transmittal or a notice of withdrawal, as the case may be, are required to be guaranteed, such guarantor must be a member firm of a registered national securities exchange or of the National Association of Securities Dealers, Inc., a commercial bank or trust company having an office or correspondent in the United States or an "eligible guarantor institution" within the meaning of Rule 17Ad-15 under the Exchange Act which is a member of one of the recognized signature guarantee programs identified in the Letter of Transmittal (an "Eligible Institution"). If the Letter of Transmittal is signed by a person other than the registered holder of any Old Notes listed therein, the Old Notes must be endorsed or accompanied by a properly completed bond power, signed by the registered holder as the registered holder's name appears on the Old Notes with the signature thereon guaranteed by an Eligible Institution. If the Letter of Transmittal is signed by a participant in the Depository Trust Company ("DTC"), the signature must correspond with the name as it appears on the security position listing as the holder of the Old Notes and must be guaranteed by an Eligible Institution. If the Letter of Transmittal or any Old Notes or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and unless waived by the Company, evidence satisfactory to the Company of their authority to so act must be submitted with the Letter of Transmittal. All questions as to the validity, form, eligibility (including time of receipt), acceptance of tendered Old Notes and withdrawal of tendered Old Notes will be determined by the Company in its sole discretion, which determination will be final and binding. The Company reserves the absolute right to reject any and all Old Notes not properly tendered or any Old Notes the Company's acceptance of which would, in the opinion of the Company or its counsel, be unlawful. The Company also reserves the right to waive any defects, irregularities or conditions of tender as to particular Old Notes. The Company's interpretation of the terms and conditions of the Exchange Offer (including the instructions in the Letter of Transmittal) will be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of the Old Notes must be cured within such time as the Company shall determine. Although the Company intends to notify holders of defects or irregularities with respect to tenders of the Old Notes, neither the Company, the Exchange Agent nor any other person is under a duty to do so or shall incur any liability for failure to give notification. Tenders of the Old Notes will not be deemed to have been made until any defects or irregularities are cured or waived. Any Old Notes received by the Exchange Agent that are not properly tendered and as to which the defects or irregularities have not been cured or waived will be returned by the Exchange Act to the tendering holders, unless otherwise provided in the Letter of Transmittal, as soon as practicable following the Expiration Date. In all cases, issuance of the Exchange Notes for the Old Notes that are accepted for exchange pursuant to the Exchange Offer will be made only after timely receipt by the Exchange Agent of the Old Notes or a timely book-entry confirmation of transfer of the Old Notes into the Exchange Agent's account at the Book-Entry Transfer Facility, a properly completed and duly executed Letter of Transmittal (or, in the case of book-entry transfers, an Agent's Message in lieu thereof) and all other required documents. If any tendered Old Notes are not accepted for exchange for any reason set forth in the terms and conditions of the Exchange Offer or if the Old Notes are submitted for a greater principal amount than the holder desires to exchange, the unaccepted or non-exchanged Old Notes will be returned without expense to the tendering holder (or, in the case of any Old 29 31 Notes tendered by book-entry transfer into the Exchange Agent's account at the Book-Entry Transfer Facility pursuant to the book-entry transfer procedures described below, such non-exchanged Old Notes will be credited to an account maintained with the Book-Entry Transfer Facility) as promptly as practicable after the expiration or termination of the Exchange Offer. BOOK-ENTRY TRANSFER The Exchange Agent will make a request to establish an account with respect to the Old Notes at the Book-Entry Transfer Facility for purposes of the Exchange Offer within two business days after the date of this Prospectus, and any financial institution that is a participant in the Book-Entry Transfer Facility's system may make book-entry delivery of the Old Notes by causing the Book-Entry Transfer Facility to transfer the Old Notes into the Exchange Agent's account at the Book-Entry Transfer Facility in accordance with the Book-Entry Transfer Facility's procedures for transfer. However, although delivery of the Old Notes may be effected through book-entry transfer at the Book-Entry Transfer Facility, the Letter of Transmittal (or facsimile thereof), with any required signature guarantee, or (in the case of a book-entry transfer) an Agent's Message in lieu of the Letter of Transmittal, and any other required documents, must be received by the Exchange Agent at one of the addresses set forth below under "-- Exchange Agent" on or prior to the Expiration Date or, if the guaranteed delivery procedures described below are to be complied with, within the time period provided under such procedures. Delivery of documents to the Book-Entry Transfer Facility does not constitute delivery to the Exchange Agent. GUARANTEED DELIVERY PROCEDURES Holders who wish to tender their Old Notes and (i) whose Old Notes are not immediately available, or (ii) who cannot deliver their Old Notes, the Letter of Transmittal or any other required documents to the Exchange Agent prior to the Expiration Date, may effect a tender if: (a) The tender is made through an Eligible Institution; (b) Prior to the Expiration Date, the Exchange Agent receives from the Eligible Institution (i) an Agent's Message with respect to guaranteed delivery that is accepted by the Company, or (ii) a properly completed and duly executed Notice of Guaranteed Delivery (by facsimile transmission, mail or hand delivery) setting forth the name and address of the holder, the registered number(s) of the Old Notes and the principal amount of the Old Notes tendered, stating that the tender is being made thereby and guaranteeing that, within three (3) New York Stock Exchange trading days after the Expiration Date, the Letter of Transmittal (or facsimile thereof) together with the Old Notes or a book-entry confirmation of transfer of the Old Notes into the Exchange Agent's account at the Book-Entry Transfer Facility (a "Book-Entry Confirmation"), as the case may be, and any other documents required by the Letter of Transmittal will be deposited by the Eligible Institution with the Exchange Agent; and (c) Such properly completed and executed Letter of Transmittal (or facsimile thereof), with any required signature guarantee, or (in the case of a book-entry transfer) an Agent's Message in lieu of the Letter of Transmittal, as well as all tendered Old Notes in proper form for transfer or a Book-Entry Confirmation, as the case may be, and all other documents required by the Letter of Transmittal, are received by the Exchange Agent within three (3) New York Stock Exchange trading days after the Expiration Date. Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be sent to holders who wish to tender their Old Notes according to the guaranteed delivery procedures set forth above. WITHDRAWAL OF TENDERS Except as otherwise provided herein, tenders of the Old Notes may be withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration Date. For a withdrawal to be effective, a written notice of withdrawal must be received by the Exchange Agent at one of the addresses set forth below under "-- Exchange Agent." Any notice of withdrawal must specify the 30 32 name of the person having tendered the Old Notes to be withdrawn, identify the Old Notes to be withdrawn (including the principal amount of the Old Notes), and (where certificates for the Old Notes have been transmitted) specify the name in which the Old Notes were registered, if different from that of the withdrawing holder. If certificates for the Old Notes have been delivered or otherwise identified to the Exchange Agent, then, prior to the release of the certificates, the withdrawing holder must also submit the serial numbers of the particular certificates to be withdrawn and a signed notice of withdrawal with signatures guaranteed by an Eligible Institution unless the holder is an Eligible Institution. If the Old Notes have been tendered pursuant to the procedure for book-entry transfer described above, any notice of withdrawal must specify the name and number of the account at the Book-Entry Transfer Facility to be credited with the withdrawn Old Notes and otherwise comply with the procedures of the Book- Entry Transfer Facility. All questions as to the validity, form and eligibility (including time of receipt) of such notices will be determined by the Company, whose determination shall be final and binding on all parties. Any Old Notes withdrawn will be deemed not to have been validly tendered for exchange for purposes of the Exchange Offer. Any Old Notes which were tendered for exchange but which are not exchanged for any reason will be returned to the holder without cost to the holder, or (in the case of the Old Notes tendered by book-entry transfer into the Exchange Agent's account at the Book-Entry Transfer Facility pursuant to the book-entry transfer procedures described above) the Old Notes will be credited to an account maintained with the Book-Entry Transfer Facility for the Old Notes, as soon as practicable after withdrawal, rejection of tender or termination of the Exchange Offer. Properly withdrawn Old Notes may be retendered by following one of the procedures described under "-- Procedures for Tendering" at any time on or prior to the Expiration Date. EXCHANGE AGENT Bankers Trust Company has been appointed as the Exchange Agent of the Exchange Offer. Questions and requests for assistance, requests for additional copies of this Prospectus or of the Letter of Transmittal and requests for a Notice of Guaranteed Delivery should be directed to the Exchange Agent addressed as follows: By Mail: By Overnight or Courier: BT Services Tennessee, Inc. BT Services Tennessee, Inc. Reorganization Unit Corporate Trust & Agency Group P.O. Box 292737 Reorganization Unit Nashville, Tennessee 37229-2737 648 Grassmere Park Road Nashville, Tennessee 37211 Facsimile Transmission Number: (615) 835-3701 Confirm by Telephone: (615) 835-3572 By Hand: Bankers Trust Company Corporate Trust & Agency Group Attn: Reorganization Department Receipt & Delivery Window 123 Washington Street, 1st Floor New York, New York 10006 Information: (800) 735-7777 FEES AND EXPENSES The expenses of soliciting tenders will be borne by the Company. The principal solicitation is being made by mail; however, additional solicitation may be made by telegraph, telephone or in person by officers and regular employees of the Company and its affiliates. The Company has not retained any dealer-manager in connection with the Exchange Offer and will not make any payments to broker-dealers or others soliciting acceptances of the Exchange Offer. The Company, however, will pay the Exchange Agent reasonable and customary fees for its services and will reimburse it for its reasonable out-of-pocket expenses in connection therewith. The cash expenses to be incurred in connection with the Exchange Offer will be paid by the Company and are estimated in the aggregate to be approximately $500,000. These expenses include registration fees, fees and expenses of the Exchange Agent and Trustee, accounting and legal fees and printing costs, and related fees and expenses. The Company will pay all transfer taxes, if any, applicable to the exchange of the Old Notes pursuant to the Exchange Offer. If, however, certificates representing the Old Notes for principal amounts not tendered or 31 33 accepted for exchange are to be delivered to, or are to be issued in the name of, any person other than the registered holder of the Old Notes tendered, or if tendered Old Notes are registered in the name of any person other than the person signing the Letter of Transmittal, or if a transfer tax is imposed for any reason other than the exchange of the Old Notes pursuant to the Exchange Offer, then the amount of any such transfer taxes (whether imposed on the registered holder or any other persons) will be payable by the tendering holder. If satisfactory evidence of payment of such taxes or exemption therefrom is not submitted with the Letter of Transmittal, the amount of such transfer taxes will be billed directly to the tendering holder. TRANSFER TAXES Holders who tender their Old Notes for exchange will not be obligated to pay any transfer taxes in connection therewith, except that holders who instruct the Company to register the Exchange Notes in the name of, or request that the Old Notes not tendered or not accepted in the Exchange Offer be returned to, a person other than the registered tendering holder will be responsible for the payment of any applicable transfer tax. CONSEQUENCES OF FAILURE TO EXCHANGE Holders of the Old Notes who do not exchange their Old Notes for the Exchange Notes pursuant to the Exchange Offer will continue to be subject to the restrictions on transfer of the Old Notes, as set forth in the legend thereon, as a consequence of the issuance of the Old Notes pursuant to the exemptions from, or in transactions not subject to, the registration requirements of the Securities Act and applicable state securities laws. In general, the Old Notes may not be offered or sold, unless registered under the Securities Act, except pursuant to an exemption from, or in a transaction not subject to, the Securities Act and applicable state securities laws. Accordingly, the Old Notes may only be resold (i) to the Company (upon redemption or otherwise), (ii) to a "qualified institutional buyer" within the meaning of Rule 144A of the Securities Act pursuant to Rule 144A, (iii) to an institutional "accredited investor" within the meaning of Rule 501(a)(1), (2), (3) or (7) of the Securities Act, (iv) outside the United States to non-U.S. persons in compliance with Regulation S under the Securities Act, (v) pursuant to an effective registration statement, or (vi) pursuant to any other available exemption from the registration requirements of the Securities Act (and based upon an opinion of counsel reasonably acceptable to the Company), in each case in accordance with any applicable state securities laws. The Company does not currently anticipate that it will register the Old Notes under the Securities Act. 32 34 SELECTED FINANCIAL AND OPERATING DATA (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) The following table sets forth selected historical financial and operating data of the Company. The selected historical financial data as of and for each of the five years ended December 31 was derived from the audited consolidated financial statements of the Company. The selected historical financial data as of and for the three months ended March 31 was derived from the unaudited consolidated financial statements of the Company which, in the opinion of management, include all adjustments necessary for a fair presentation of the financial position and results of operations for such periods. The information set forth below reflects the results of Dyno subsequent to its acquisition in July 1995 and should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements of the Company, including the notes thereto, contained elsewhere herein.
THREE MONTHS ENDED MARCH 31, YEAR ENDED DECEMBER 31, ---------------------- ------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- ---- ---- STATEMENT OF INCOME DATA: Net sales.................. $ 169,292 $ 154,019 $ 619,905 $ 585,389 $ 459,272 $ 325,205 $ 273,463 Cost of sales.............. 144,058 129,821 538,751 488,134 377,755 261,501 216,804 Gross profit............... 25,234 24,198 81,154 97,255 81,517 63,704 56,659 Selling, administrative and other expenses........... 16,958 15,718 78,075 69,869 57,495 39,318 33,043 Reorganization and restructuring charges.... -- -- 27,000 -- -- -- 1,760 Operating income........... 8,276 8,480 (23,921) 27,386 24,022 24,386 21,856 Interest expense, net...... 7,503 5,892 24,736 17,117 11,111 3,771 2,559 Equity in (income) loss of joint ventures........... (474) (801) (3,113) (4,187) (3,877) (2,609) 89 Net income(1).............. 572 2,362 (36,627) 11,229 13,830 14,595 9,667 Net income per share (2)... 0.07 0.27 (4.23) 1.30 1.61 1.70 1.13 Weighted average shares outstanding.............. 8,682,602 8,652,737 8,668,096 8,649,380 8,609,431 8,602,077 8,537,375 OTHER DATA: Depreciation and amortization............. $ 9,718 $ 8,180 $ 31,417 $ 29,736 $ 22,451 $ 14,672 $ 11,339 Capital expenditures....... 11,826 14,232 62,019 99,147 46,240 18,844 20,260 EBITDA(3).................. 19,462 17,749 7,439 57,255 45,245 36,345 31,128 Ratio of EBITDA to interest expense, net(3).......... 2.6x 3.0x 0.3x 3.3x 4.1x 9.6x 12.2x Ratio of earnings to fixed charges.................. 1.1x 2.5x (0.5x) 1.3x 1.8x 4.5x 6.2x BALANCE SHEET DATA: (at end of period) Total assets............... $ 629,506 $ 612,101 $ 610,593 $ 589,649 $ 493,473 $ 257,366 $ 215,295 Total long-term debt, less current portion.......... 293,804 261,359 291,393 291,723 233,389 66,136 52,392 Total debt................. 331,682 284,212 331,557 314,884 249,396 81,548 58,175 Company-Obligated Mandatorily Redeemable Convertible Preferred Securities of Walbro Capital Trust holding solely Convertible Debentures............... 69,000 69,000 69,000 -- -- -- -- Total stockholders' equity(4)(5)............. 67,187 130,982 69,866 137,733 135,427 127,915 114,146
(footnotes on following page) 33 35 - ------------------------- (1) The Company adopted SFAS 106 as of January 1, 1993. As a result, the Company recorded a one-time after tax charge of $2,900 for the cumulative effect of this accounting change in the year ended December 31, 1993. (2) Basic and diluted income per share were the same in all periods presented. (3) "EBITDA" represents, for any period, the sum of operating income (minus foreign currency exchange losses and other expenses, net) plus depreciation and amortization. EBITDA is not intended to be a performance measure that should be regarded as an alternative either to operating income or net income as an indicator of operating performance or to cash flow as a measure of liquidity. The Company has included information regarding EBITDA because it is a widely accepted financial indicator of a company's ability to service and/or incur indebtedness. EBITDA (subject to certain adjustments) will be used to determine compliance with certain covenants contained in the Indenture. (4) Reflects cash dividends declared for common stock of, $0, $865, $3,474, $3,446, $3,429, $3,426 and $3,403 in the three months ended March 31, 1998 and 1997 and the years ended December 31, 1997, 1996, 1995, 1994 and 1993, respectively. (5) The Company adopted SFAS 115 as of January 1, 1994. As a result, the Company recorded an increase to stockholders' equity of $2,096 (net of income taxes) as of January 1, 1994. 34 36 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Company's products can be classified into three segments: automotive, small engine and after-market and other. Selected financial information about the Company's continuing operations by market is set forth below:
THREE MONTHS ENDED MARCH 31, YEAR ENDED DECEMBER 31, ----------------------- ---------------------------------- 1998 1997 1997 1996 1995 ---- ---- ---- ---- ---- (IN THOUSANDS) Net Sales: Automotive.......................... $126,249 $331,569 $458,074 $438,597 $318,143 Small Engine........................ 33,323 95,867 125,934 117,100 112,567 Aftermarket and Other............... 9,720 26,948 35,897 29,692 28,562 -------- -------- -------- -------- -------- Total............................ 169,292 $454,384 $619,905 $585,389 $459,272 ======== ======== ======== ======== ======== Cost of Sales: Automotive.......................... $109,671 $286,588 $473,179 $368,142 $264,906 Small Engine........................ 27,320 80,510 123,789 97,665 91,440 Aftermarket and Other............... 7,067 20,071 46,858 22,327 21,409 -------- -------- -------- -------- -------- Total............................ $144,058 $387,169 $643,826 $488,134 $377,755 ======== ======== ======== ======== ======== Gross Margin: Automotive.......................... $ 16,578 $ 44,981 $(15,105) $ 70,455 $ 53,237 Small Engine........................ 6,003 15,357 2,145 19,435 21,127 Aftermarket and Other............... 2,653 6,877 (10,961) 7,365 7,153 -------- -------- -------- -------- -------- Total............................ $ 25,234 $ 67,215 $(23,921) $ 97,255 $ 81,517 ======== ======== ======== ======== ========
RESULTS OF OPERATIONS Three Months Ended March 31, 1998 Compared to Three Months Ended March 31, 1997 Net sales in the first quarter of 1998 increased 9.9% to $169.3 million compared to $154.0 million for the same period of 1997. Sales of automotive products increased 11.1% to $126.3 million for the first quarter of 1998 compared to $113.7 million for the same period of 1997. Sales of small engine products increased 5.7% to $33.3 million for the first quarter of 1998 compared to $31.5 million for the same period of 1997. Sales of aftermarket products increased 14.7% to $7.8 million for the first quarter of 1998 compared to $6.8 million for the first quarter of 1997. Sales of automotive products increased in the first quarter of 1998 primarily because of higher plastic fuel tank sales in the U.S., which were up by $18.3 million. U.S. automotive product sales in the 1998 quarter also included $5.0 million (compared to $7.0 million in the 1997 quarter) from the Company's steel fuel rail plant in Ligonier, Indiana which is being divested. Sales of plastic fuel tanks in Europe for the first quarter of 1998 decreased by 6.3% because of foreign currency exchange rates. Without the stronger dollar currency effect European sales would have increased by approximately 3%. Sales of small engine products increased as a result of higher sales of all products except float feed carburetors in the U.S. The largest increases in sales came from ignition system sales of 49.3% and increased sales of carburetors in the People's Republic of China by 25.8%. Sales of small engine products in Japan increased by 18.5% in spite of the lower yen/dollar exchange rate. Without the currency effect Japan sales would have increased by approximately 24%. Sales to the aftermarket increased 14.7% to $7.8 million for the first quarter of 1998 compared to $6.8 million for the same period of 1997. Sales of both automotive products and small engine products increased to aftermarket customers during the first quarter of 1998. 35 37 Cost of sales for the first quarter of 1998 increased 11.0% to $144.1 million compared to $129.8 million for the same period of 1997. Cost of sales as a percent of net sales was 85.1% for the first quarter of 1998 compared to 84.3% for the same 1997 period resulting in a gross margin decline of 0.8 percentage points from 15.7% in 1997 to 14.9% in 1998. The automotive products gross margin decline resulted from slightly lower volume of fuel pumps and fuel modules in the U.S., new plant start-up costs in South Korea and the significant new volume of plastic fuel tank systems in the U.S. which carry lower margins due to purchased components. Gross margin in Europe increased by 1.3 percentage points to 12.2% as the result of cost saving initiatives and improved efficiency. The small engine products gross margin decline of 0.4 percentage points resulted from lower volume of float feed carburetors in the U.S. Selling and administrative ("S & A") expenses increased 6.9% for the first quarter of 1998 compared to the first quarter of 1997. S & A expenses increased due to increased staff at corporate headquarters and the Asia Pacific region including staff at the new plant in South Korea. S & A expenses as a percent of net sales were 7.7% for the first quarter of 1998 compared to 7.9% for the same period of 1997. Research and development ("R & D") expenses increased 19.6%. The increase was due to the new European systems center that is nearing completion in Germany. Interest expense increased 27.3% for the first quarter of 1998 compared to the same period in 1997 because of higher borrowings for additional working capital and for capital expenditures and because of the higher interest rate on the new $100 million of Senior Notes due 2007 that were issued in December 1997 to refinance bank borrowings. Other income was $1.5 million for the first quarter of 1998 compared to $1.1 million for the first quarter of 1997. The increase was due to higher income from the gain on the sale of fixed assets. Provision for income taxes was lower for the first quarter of 1998 compared to the same period of 1997 primarily due to lower taxable income. Minority Interest increased by $0.5 million in the first quarter of 1998 compared to the same period of 1997 because of the preferred dividends due on the Convertible Preferred Securities of Walbro Capital Trust issued in February 1997 were paid for the full quarter in 1998 and were paid for a partial quarter in 1997. The equity in income from joint ventures in the first quarter of 1998 was $0.5 million versus the comparable period income of $0.8 million in 1997, because of lower profitability at the joint ventures due to weaker foreign economies; the stronger U.S. dollar; and start-up costs of the Company's new VITEC joint venture in Detroit, Michigan. Net income for the first quarter of 1998 was $0.6 million compared to $2.4 million for the same period last year, as a result of the reasons described above. Net income per share for the first quarter or 1998 was $.07 compared with $.27 for the same 1997 period. Year Ended December 31, 1997 Compared to 1996, 1996 Compared to 1995 Sales -- The Company reported sales in 1997 of $619.9 million, an increase of 5.9% from $585.4 million. The 1997 sales increase was generated by additional sales to the automotive market in North and South America and additional sales to the small engine market partially offset by lower sales to the Europe automotive market due to lower foreign currency exchange rates. Sales in 1996 were $585.4 million compared to sales of $459.3 million in 1995, an increase of 27.5% mostly because of the Dyno acquisition. On a percentage basis, sales to the automotive market increased 4.4% in 1997 compared to a 37.9% increase in 1996. Sales to the small engine market increased 7.5% in 1997 compared to a 4.0% increase in 1996. Aftermarket sales increased 17.5% in 1997 compared to flat sales in 1996 compared to 1995. Sales of the Company's original equipment automotive products were $458.0 million in 1997 compared to $438.6 million in 1996 and $318.1 million in 1995. The 1997 increase in automotive product sales resulted from increased sales of plastic fuel tank systems to both North American and South American OEM customers partially offset by lower sales of steel fuel rails in the U.S. and lower plastic fuel tank sales to European OEM customers. The entire European sales decline was due to foreign currency exchange rates 36 38 which were off 16% compared to the U.S. dollar causing a $37 million decrease in sales. The increased sales of plastic fuel tank systems resulted from the launch of four new programs in the U.S. during 1997 and one new program launched in late 1996 in Brazil. The sales growth was lower in 1997 due to (i) insourcing of fuel pumps and fuel modules by one of the Company's largest customers which was completed during the first half of 1997; (ii) lower shipments to Chrysler in the second quarter because of a strike at Chrysler's Mound Road Engine Plant; and (iii) lower production of passenger cars in the U.S. In addition, 1997 sales were lower due to the delay of one new plastic tank program and the cancellation of another new plastic tank program by a customer who decided to delay the conversion from a steel to plastic fuel tank. In 1996, all of the automotive product sales increase was generated by sales in Europe, as U.S. based automotive product sales declined by 2.4%. The increase was primarily the result of including a full year of Walbro Europe sales in 1996, $214.4 million, versus including only five months of Walbro Europe sales in 1995 of $88.5 million. U.S. based automotive product sales were lower in 1996 because of insourcing of fuel pumps and fuel modules by one of the Company's largest customers. The decline in U.S. based automotive product sales was substantially offset by increased sales of fuel modules to the Company's largest customer and sales of the Company's new plastic fuel rails. Sales of the Company's small engine products were $125.9 million in 1997, up from $117.1 million in 1996 and $112.6 million in 1995. During 1997, ignition system sales had the largest increase of 25.9% followed by float feed carburetor sales in The People's Republic of China ("PRC") with a 6.4% increase. Diaphragm carburetor sales increased 5.3% and float feed carburetor sales in the U.S. increased by 4.1%. Most of the diaphragm carburetor sales increase was in Japan which increased by 15.7% in spite of a 10% decline in the yen-dollar exchange rate. The 6.4% increase in PRC sales was less than expected because sales suffered in the second half of 1997 from a significant reduction in orders as customers were forced to reduce excess motorcycle inventories. In 1996, much of the increase in small engine product sales came from increased sales of ignition systems (up $6.4 million or 81.0%) and to a lesser extent float feed carburetors in the U.S. (up $1.7 million or 5.8%) and float feed carburetors in the PRC (up $1.1 million or 23.9%). These increases were partially offset by a decline in diaphragm carburetors of $4.6 million or 6.3% due to reduced demand for handheld power equipment caused by drought in the Southeast and Southwest U.S. and cold, wet spring conditions in other parts of the U.S. Sales declined in Japan because of lower demand and the lower yen-dollar exchange rate. Sales of small engine ignition systems were $18.0 million in 1997 compared to $14.3 million in 1996 and $7.9 million in 1995 as customer demand has grown for this expanding family of products. Management believes that ignition systems will play a more significant role in the future as small engines become subject to more stringent emissions regulations. In 1992, the California Air Resources Board promulgated comprehensive air quality regulations limiting small engine emissions, which became effective in August 1995. A more stringent phase is scheduled to become effective in 1999. In addition, the Environmental Protection Agency ("EPA") has imposed similar regulations which became effective in August 1996, with a more stringent phase expected to become effective during the 2002 to 2005 period. The more stringent regulations could significantly reduce the number of units currently sold, especially diaphragm carburetors, as these regulations could force manufacturers to replace low cost gasoline-powered lawn and garden equipment with electric-powered equipment. In response to the more stringent regulations, the Company is integrating its carburetor and ignition technology to develop an engine management system which will electronically control both fuel delivery and ignition functions to limit exhaust emissions. The Company has successfully refined existing carburetors to meet the first set of standards and company engineers are developing new technology to meet the subsequent requirements. The Company's aftermarket business includes both automotive and small engine products. Aftermarket sales were $29.5 million in 1997 compared to $25.1 million in 1996 and $25.2 million in 1995. The increase in 1997 sales was due to adding new customers during the year and the addition of several new products offered 37 39 to aftermarket customers. Aftermarket sales declined slightly in 1996 because of increased in-house production by one of the Company's larger aftermarket customers. Cost of Sales -- Cost of sales was $538.8 million in 1997 compared to $488.1 million in 1996 and $377.8 million in 1995. Cost of sales as a percent of sales was 86.9% in 1997 compared to 83.4% in 1996 and 82.3% in 1995 and consequently gross margin was 13.1% in 1997 compared to 16.6% in 1996 and 17.7% in 1995. Gross margin declined in 1997 because of lower margins in both automotive and small engine products. The lower automotive gross margin was due to a change in the mix of products sold in the U.S.; the launch costs of four new multi-layer plastic fuel tank programs; start-up costs for new plants in Argentina and South Korea; relocation of two plants in Europe; and increased warranty costs. The change in mix of products sold involved lower steel fuel rail volume; lower volume of fuel pumps and fuel modules from customer insourcing; the Chrysler Mound Road facility strike; and lower production of U.S. passenger cars. At the same time, volume increased for new plastic fuel tank systems which carry lower gross margins because they include a high level of purchased components. Increased warranty costs in 1997 included $5.7 million for four product warranty issues. The warranty issues included a steel fuel rail, two plastic fuel tanks in Europe and an ignition module for the small engine market. Management believes that the technical issues have been resolved and does not expect additional charges related to these warranty claims. The lower gross margin in 1997 for small engine products was related primarily to lower volume in the two facilities in the PRC; the warranty cost for an ignition module previously discussed and one-time costs of moving two plants. The Mexico carburetor plant and the Mexico ignition system plant were relocated to a new larger facility in Mexico that supports both operations with lower overhead costs. Gross margin declined in 1996 because of lower margins in both automotive and small engine products. Lower margins in automotive products resulted from lower volumes at all of the North American facilities, new plant start-up costs in Brazil and from an increased share of European plastic fuel tank volume which carry lower margins than the Company's other automotive products. During 1996, Walbro Europe gross margins were 11.7% compared to 13.1% in 1995 and were lower primarily because of the new plant start-up costs in Belgium, lower volume at the United Kingdom plant and the Norway plant. Lower margins in small engine products resulted primarily from lower volumes of diaphragm carburetors, the new plant start-up costs in Tianjin, PRC and the weaker yen-dollar exchange rate. Selling and Administrative Expenses -- Selling and administrative ("S&A") expenses were $60.8 million in 1997, an increase of 16.5% compared to $52.2 million in 1996. The 1997 increase in S&A was due to new plants in South Korea and the PRC and due to higher professional fees. The increased professional fees included financing fees for modifications to bank loan agreements, legal fees, settlement of legal claims and other one-time charges. In 1996, S&A expenses increased by 28.6% (12.7% without Europe) compared to $40.6 million in 1995. The full year of Walbro Europe S&A expenses in 1996 compared to only five months in 1995 caused a large portion of the increase and the remainder of the 1996 S&A increase came primarily from new plants in Brazil, the PRC and the new Tucson Precision Products plant. As a percent of sales, S&A expenses were 9.8% in 1997, 8.9% in 1996 and 8.9% in 1995. Research and Development Expenses -- Research and development ("R&D") expenses were $17.3 million in 1997, a decrease of 6.0% compared to $18.4 million in 1996. In 1997, R&D resources to support small engine product development were increased because of emission regulations but overall expenses declined because automotive R&D resources were used to support many new production launches of plastic fuel tank programs and their expenses were charged to Cost of Sales. In 1996, Walbro Europe R&D expenses accounted for all of the 10.2% increase as R&D expenses excluding Europe decreased by 1.0%. Restructuring and Impairment Charges -- During the fourth quarter of 1997, the Company recorded a $27 million pretax charge for restructuring its operations and other actions. The charge was comprised of a $17 million charge for restructuring and a $10 million charge associated with asset impairments. The restructuring actions include divestiture of the Company's Ligonier, Indiana steel fuel rail manufacturing facility and disposition of its interest in U.S. Coexcell Inc., a manufacturer of blow-molded plastic drums in 38 40 Maumee, Ohio. In addition, the Company will consolidate its small engine operations in the Asia-Pacific region and restructure its European automotive fuel tank operations. The asset impairment charge included the write off of obsolete equipment and tooling, write off of its interest in Saginaw Plastics, an injection molder in Saginaw, Michigan and charges related to its Korean automotive activities. Lastly, the restructuring charge included a corporate-wide headcount reduction of approximately 10 percent including reductions related to the divestitures and restructuring. See Note 5 of the Notes to the Consolidated Financial Statements. Loss on Foreign Exchange Transactions -- The Company entered into forward foreign exchange contracts to hedge the Company's foreign currency exposure related to a sales commitment to a foreign customer. The loss on these contracts was treated as a hedge for accounting purposes and recorded as a deferred asset, which was amortized as foreign currency exchange loss in 1995 and 1996. The foreign currency exchange result was a $1.5 million loss in 1995 compared to a small gain in 1996 and 1997. See Note 12 of the Notes to the Consolidated Financial Statements. Net Interest Expense -- Net interest expense was $25.4 million in 1997 compared to $20.5 million in 1996 and $12.4 million in 1995. To finance the Dyno acquisition in July 1995, the Company sold $110 million in aggregate principal amount of its 9.875% senior notes and obtained a new $135 million secured Credit Facility. In December 1997, the Company sold $100 million of its 10.125% senior notes and used the proceeds to repay a significant part of the secured credit facility. Borrowing levels were higher in both 1997 and 1996 to support capital expenditures for facility expansions and for additional equipment and tooling. The additional borrowings and the shift to a higher percentage of long-term fixed rate debt raised the average cost of capital and caused the higher interest expense. The average cost of borrowing was 8.8% in 1997, 8.1% in 1996 and 7.4% in 1995. See Note 6 of the Notes to Consolidated Financial Statements for details of the borrowings. Income Taxes -- The provision for income taxes was a credit of $10.1 million in 1997 compared to expense of $3.1 million in 1996 and $1.3 million in 1995. The 1997 provision was a credit because of negative taxable income related to the restructuring charge and other actions with an effective tax rate of 22.6%. The provision was higher in 1996 compared to 1995 because of a lower research and development (R&D) tax credit recorded in 1996 of $1.1 million compared to $3.0 million recorded in 1995. These R&D tax credits resulted from a change by the Internal Revenue Service in defining the R&D activities which qualify for the tax credit. The $3.0 million credit in 1995 and lower taxable income caused the lower provision for income taxes in 1995. The R&D tax credits resulted in an effective tax rate of 29.6% for 1996 compared to 10.8% for 1995. Joint Venture Income -- The Company's equity in income of joint ventures was $3.1 million in 1997 compared to $4.2 million in 1996 and $3.9 million in 1995. The decrease in 1997 resulted from lower income at Marwal Systems (France) due to payment of royalties to the Company, start-up costs for Marwal Argentina and losses at Korea Automotive Fuel Systems. The increase in 1996 compared to 1995 resulted from increased income at Marwal Systems partially offset by losses at Korea Automotive Fuel Systems. Minority Interest -- Minority interest was $5.0 million in 1997 compared to $0.3 million in 1996 and $0.5 million in 1995. The 1997 increase was due to the sale of $69 million of Convertible Preferred Securities of Walbro Capital Trust in February 1997. The preferred dividends are included as minority interest. Net Income (Loss) and Income (Loss) Per Share -- Net loss for 1997 was $36.6 million compared to net income of $11.2 million in 1996 and $13.8 million in 1995. Net loss per share was $4.23 for 1997 compared with net income per share of $1.30 for 1996 and $1.61 for 1995. The net loss for 1997 was the result of the reasons stated above including the restructuring charge and warranty reserve. Inflation -- Inflation potentially affects the Company in two principal ways. First, a portion of the Company's debt is tied to prevailing short-term interest rates which may change as a result of inflation rates, translating into changes in interest expense. Second, general inflation can impact material purchases, labor and other costs. In many cases, the Company has limited ability to pass through inflation-related cost increases due to the competitive nature of the markets that the Company serves. In the past three years, however, inflation has not been a significant factor for the Company. 39 41 FOREIGN CURRENCY TRANSACTIONS Approximately 48% of the Company's sales during the first three months of 1998, and approximately 50% during 1997, were derived from international manufacturing operations in Europe, Asia, South America and Mexico. The financial position and the results of operations of the Company's subsidiaries in Europe (30% of sales), Japan (5% of sales), South America (2% of sales) and China (1% of sales) were measured in local currency of the countries in which they operated and translated into U.S. dollars. The effects of foreign currency fluctuations in Europe, South America, Japan and China are somewhat mitigated by the fact that expenses are generally incurred in the same currencies in which sales are generated and the reported income of these subsidiaries will be higher or lower depending on a weakening or strengthening of the U.S. dollar. For the Company's subsidiary in Singapore (2% of sales) the expenses are generally incurred in the local currency, but sales are generated in U.S. dollars; therefore, results of operations are more directly influenced by a weakening or strengthening of the local currency. The Company's subsidiary in Mexico (8% of sales) operates as a maquiladora, or contract manufacturer, where certain direct manufacturing expenses are incurred in the local currency and sales are generated in U.S. dollars. Thus, results of operations of the Company's subsidiary in Mexico are also more directly influenced by a weakening or strengthening of the local currency. Approximately 48% of the Company's assets at March 31, 1998, and approximately 49% at December 31, 1997, were based in its foreign operations and these assets are translated into U.S. dollars at foreign currency exchange rates in effect as of the end of each period. Accordingly, the Company's consolidated stockholders' equity will fluctuate depending upon the weakening or strengthening of the U.S. dollar. In addition, the Company has equity investments in unconsolidated joint ventures in Argentina, Brazil, France, Japan, Korea and Mexico. The Company's reported income from these joint ventures will be higher or lower depending upon a weakening or strengthening of the U.S. dollar. The Company's strategy for management of currency risk relies primarily upon the use of forward currency exchange contracts or option contracts to manage its exposure to foreign currency fluctuations. THE YEAR 2000 ISSUE The year 2000 issue is the result of computer programs that were written using two digits (rather than four) to define the applicable year. Any of the Company's computer programs that have time-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000, which could result in miscalculations or system failures. The Company is working to resolve the potential impact of the year 2000 on the processing of date-sensitive information and is in the process of conducting an evaluation of the impact of the issue at all locations. The evaluation includes computer programs used for management information systems and computer programs used to electronically control manufacturing equipment and other devices. The evaluation has not progressed enough to allow management to assess whether the cost of addressing this issue will have a material impact on the Company's financial position, results of operations or cash flows in future periods. Management expects this evaluation to be completed during 1998. LIQUIDITY AND CAPITAL RESOURCES As of March 31, 1998, the Company had outstanding $37.9 million in short-term debt, including current portion of long-term debt, and $293.8 million in long-term debt. The approximate minimum principal payments required on the Company's long-term debt in each of the five fiscal years subsequent to December 31, 1997 are $14.0 million in 1998, $7.4 million in 1999, $30.0 million in 2000, $7.5 million in 2001, $6.8 million in 2002 and $239.6 million thereafter. As of December 31, 1997, the Company had $40.2 million outstanding in short-term debt, including current portion of long-term debt, and $291.4 million in long-term debt. The approximate minimum principal payments required on the Company's long-term debt in each of the five fiscal years subsequent to 40 42 December 31, 1997 are $14.0 million in 1998, $7.4 million in 1999, $30.0 million in 2000, $7.5 million in 2001, $6.8 million in 2002 and $239.6 million thereafter. In February 1997, the Company completed an offering of 2,760,000 shares or $69 million of Convertible Preferred Securities of Walbro Capital Trust and the proceeds were used to pay down borrowings on the $135 million secured bank credit facility (the "Credit Facility"). In December 1997, the Company issued $100 million of its 10.125% Senior Notes due 2007 and the proceeds were used to pay down borrowings on the Credit Facility. With the issuance of the 2007 Senior Notes the amount currently available under the Credit Facility was reduced to $30 million. At February 1, 1998, the Company had approximately $11 million of funds available to it under the Credit Facility. In April 1998, the Company received a commitment for a $150 million line of credit (the "New Credit Facility") consisting of a $125 million revolving line of credit and a $25 million capital expenditure facility. The New Credit Facility will be available for five years after closing. Proceeds of the New Credit Facility will be used to pay off $30 million under the Credit Facility, the Purchase Money Loan Agreement, and the 2004 Notes (described below) including an early retirement premium of approximately $2.0 million, to finance capital expenditures, and to meet working capital needs. Closing of the New Credit Facility is subject to customary conditions and is expected to occur by May 31, 1998. Failure to close the New Credit Facility would have a material adverse effect on the Company's liquidity. See Notes 6 and 21 of the Notes to Consolidated Financial Statements for the year ended December 31, 1997 for further discussion. The Company is a party to an Intercreditor Agreement (the "Intercreditor Agreement") dated as of July 26, 1995 and executed by and among the Company, the holders (the "2004 Noteholders") of the Senior Notes due October 1, 2004 (the "2004 Notes") and the banks which are a party to the Credit Facility (the "Banks"). The Company and the Banks and the 2004 Noteholders disagree with the interpretation of certain provisions of the Intercreditor Agreement. As a result, the Company has agreed to use its best efforts to retire the 2004 Notes by no later the May 31, 1998 and the 2004 Noteholders have agreed that, until May 31, 1998, they will forbear from taking any action under the 2004 Notes. The Company will use the New Credit Facility to provide the financing to retire the 2004 Notes. As of March 31, 1998, accounts receivable amounted to $160.8 million, an increase of $12.4 million, compared to March 31, 1997. The average collection period at March 31, 1998 was 82.3 days compared to 80.7 days at March 31, 1997. The increase in accounts receivable was due to higher sales, larger amounts of accounts receivable for customer tooling and the addition of foreign customers with longer payment terms. As of December 31, 1997, accounts receivable amounted to $145.0 million, an increase of $18.5 million, compared to $126.5 million at December 31, 1996. The average collection period at December 31, 1997 was 85.3 days compared to 81.3 days at December 31, 1996. The increase in accounts receivable was due to higher sales, larger amounts of accounts receivable for customer tooling and the addition of foreign customers with longer payment terms. The Company's plans for 1998 capital expenditures for facilities, equipment and tooling total approximately $50 million. The 1998 capital expenditure plan includes new processing equipment and tooling. The Company intends to finance the capital expenditures with borrowings under the New Credit Facility, potential lease financing, access to capital markets and cash from operations. Management believes that the Company's long-term cash needs will continue to be provided principally by operating activities supplemented, to the extent required, by borrowing under the Company's existing and future credit facilities and by access to the capital markets. Management expects to replace these credit facilities as they expire with comparable facilities. RECENT EVENTS On May 29, 1998, the Refinancing occurred in which the Company entered into the New Credit Facility consisting of the Revolving Credit Facility and the Capital Expenditure Facility and in which proceeds of the Revolving Credit Facility were used to repay the indebtedness outstanding under the Credit Facility (including the repayment of a $6.3 million industrial revenue bond issued by the City of Ligonier, Indiana for 41 43 construction of the facility at Sharon Manufacturing Company) and the Purchase Money Facility, as well as to repay the 2004 Notes including an early retirement premium of $2.0 million. The proceeds of the New Credit Facility will also be used for capital expenditures and for general working capital purposes. As a part of the restructuring program announced during the fourth quarter of 1997, on June 1, 1998, the Company sold substantially all of the assets of Sharon Manufacturing Company, one of the Guarantors, for a purchase price of $4.6 million. The sale of these assets was permitted by, and the Company intends to apply the proceeds of the sale in compliance with, the Indenture, as applicable. 42 44 BUSINESS GENERAL Walbro Corporation is a global leader in the design, development and manufacture of precision fuel storage and delivery systems and products for automotive and small engine markets worldwide. The Company manufactures plastic fuel tanks, fuel pumps, fuel modules, plastic fuel rails and fuel level sensors for sale to automotive OEMs. Products manufactured for the small engine market include carburetors and ignitions for chain saws, outboard marine engines, two-wheeled vehicles, industrial engines and lawn and garden equipment, such as lawn mowers and weed trimmers. From 1992 to 1997, the Company increased net sales at the compound rate of approximately 21% per year. This growth was primarily due to the introduction of new automotive products, penetration of additional automotive platforms and a recovery in the small engine industry from depressed levels in the late 1980s. The Company had net sales of $619.9 million and $585.4 million in 1997 and 1996. Approximately 74% of the Company's net sales for 1997 were generated by Walbro Automotive. Through Walbro Automotive, the Company designs, develops and manufactures fuel storage and delivery systems and components for a broad range of U.S. and foreign manufacturers of passenger automobiles and light trucks (including minivans). The Company and its joint ventures hold a strong market position in North America, Europe and South America and a growing market presence in Asia. In July 1995, the Company substantially expanded its European automotive business by acquiring the fuel systems business of Dyno Industrier A.S. ("Dyno"). In 1997, management estimates that the Company supplied Chrysler with approximately 79% of its fuel pump and fuel module requirements, including all requirements for Chrysler's passenger cars and minivans and approximately 48% of the requirements for Chrysler's light trucks. Management believes that the Company manufactures substantially all of the fuel tank systems for Saab and Volvo light vehicles and all of the fuel tanks for the Mercedes-Benz C Class, Volkswagen Polo and Renault Twingo. Other automotive customers of the Company and its joint ventures include Audi, Daewoo, Fiat, Ford, General Motors, Hyundai, Kia, Nedcar, Peugeot and Rover. Approximately 20% of the Company's net sales for 1997 were generated by Walbro Engine Management. Through Walbro Engine Management, the Company designs, develops and manufactures diaphragm carburetors for portable engines (such as those used in chain saws and weed trimmers), float feed carburetors for ground supported engines (such as those used in lawn mowers and marine engines) and ignition systems and other components for a variety of small engine products. The Company believes that it is the world's largest independent manufacturer of small engine carburetors, with an approximate 72% share of the global diaphragm carburetor market including sales to such leading chain saw and weed trimmer manufacturers as Poulan/Weedeater, Deere and Company (Homelite), Stihl Incorporated, McCulloch Corporation, Ryobi Ltd. and Kioritz (Echo) Corporation. The Company believes it has an approximate 10% share of the global float feed carburetor market, including sales to Briggs & Stratton Corporation, the world's largest small engine manufacturer, Kohler Company, Tecumseh Products Co., and Mercury Marine, a major manufacturer of outboard marine engines. The Company produces substantial volumes of float feed carburetors for the Chinese two-wheeled vehicle market. The remaining 6% of the Company's net sales for 1997 were primarily related to replacement products for both the automotive and small engine aftermarkets. The Company has recently begun pursuing initiatives to expand its aftermarket customer base and product lines in an effort to grow this segment of its business. The Company was incorporated in Michigan in 1950 and reincorporated in Delaware in 1972. The Company's principal executive offices are located at 6242 Garfield Street, Cass City, Michigan 48726-1325, and its telephone number is (517) 872-2131. 43 45 WALBRO AUTOMOTIVE AUTOMOTIVE INDUSTRY OVERVIEW A number of trends within the global automotive market have had and will continue to have a fundamental impact on the Company's future profitability and growth prospects, including: the shift by OEMs to the purchase of "systems" rather than individual components, the globalization of the OEM supplier base, the expansion of OEM supplier responsibilities and increased emissions regulation. These trends have contributed to a consolidation of OEM suppliers which the Company expects will continue. Purchase of Integrated Systems. Automotive OEMs are relying increasingly on suppliers who can provide entire systems rather than a number of different parts. OEMs can reduce their own internal engineering efforts and the number of suppliers by purchasing systems rather than components. Management believes the engineering and technological challenges facing systems suppliers will continue to grow as these systems become more complex. To strengthen the Company's position as a major supplier of automotive fuel systems, the Company is investing in its engineering and testing capabilities and actively pursuing its systems philosophy. The Company believes that the systems approach is being adopted outside North America and that the Company will be able to provide systems to the European market in the future. Globalization of the OEM Supplier Base. Several OEMs, including Ford, General Motors and Volkswagen, are introducing automobile models which are designed for the world automotive market ("World Cars"). This departure from the historical practice of designing separate models for each regional market is requiring suppliers to establish international development and manufacturing facilities capable of providing system components with consistent quality on a worldwide basis. The Company believes it is well positioned as a major supplier of fuel storage and delivery systems ("FSDS") to the world automotive markets. Expansion of OEM Supplier Responsibilities. Since the 1980s, Ford, Chrysler and General Motors have been actively reducing their respective supplier bases to those who accept significant responsibility for product management and meet increasingly strict standards for product quality, on time delivery and manufacturing costs. These suppliers are expected to control all aspects of production of system components, including design, development, component sourcing, manufacturing, quality assurance, testing and delivery to the customer's assembly plant. The Company believes that many suppliers do not have the resources to meet these OEM requirements and that the automotive OEM supplier market will be divided among a smaller group of key suppliers. The Company has received a number of quality awards from its OEM customers, including the Ford Q1 Award, Chrysler QE Award and General Motors Supplier of the Year Award, and believes that this supplier consolidation provides an opportunity for the Company's increased penetration of the OEM market. Increasing Emissions Regulation. Beginning in the late 1970s, U.S. environmental regulations, including fuel economy regulations and the Clean Air Act and its Amendments, have had a significant impact on fuel systems and the controls placed on mobile source emissions. As a result, U.S. automotive fuel systems have evolved from mechanically controlled carbureted systems to more sophisticated, electronically controlled fuel injection systems. Governmental action in many other parts of the world is forcing a similar transition to engine management systems which produce less emissions. For example, the European Economic Community, which previously had less stringent automotive exhaust regulations, adopted exhaust standards effective January 1, 1993 which are comparable to 1983 U.S. requirements. Compliance with these regulations has resulted in efforts to reduce evaporative emissions and the development of new "flexible" fuels such as ethanol and methanol blends. In response to these changes, the Company has developed a number of products including electric pumps designed for electronic fuel injection systems, onboard running and vapor recovery ("ORVR") systems and plastic fuel tanks which reduce hydrocarbon permeation and are corrosion resistant to flexible fuels. 44 46 AUTOMOTIVE BUSINESS STRATEGY The Company intends to capitalize on trends in the automotive industry through the development of its fuel systems technology and expansion of its product line and customer base. The key elements of the Company's strategy include: Systems Approach to Product Development. The Company is utilizing its expertise to develop integrated FSDS which reduce evaporative emissions, are compatible with the corrosive nature of flexible fuels and provide customers with the cost savings and convenience of purchasing complete systems rather than numerous individual components. The Company's "systems" approach to product development is designed to allow the Company to increase product content on each vehicle in which its products are installed while providing customers with substantial performance and cost benefits. This systems approach has made possible an increase in the dollar value of the Company's products per vehicle. For example, the new Dodge Durango, which began volume production in the third quarter of 1997, is equipped with the Company's fuel storage and delivery system. These products have a selling price of greater than $150, compared to a typical 1987 vehicle equipped with only $15 of the Company's products. The Company's ability to assume responsibility for the development of FSDS allows OEMs to reduce internal engineering efforts and use fewer suppliers through the purchase of systems rather than components. Global Capabilities. The Company's international manufacturing and market presence allows the Company to offer its current and future FSDS technology to the global automotive market. The Company's presence in Europe provides it with additional resources and marketing contacts to supply integrated fuel systems to both European and North American OEMs assembling vehicles in Europe and European OEMs assembling vehicles in the United States. The Company's international sales for 1997 were 50% of the Company's net sales (excluding joint ventures) compared to 52% in 1996. The Company's plastic tank manufacturing capability allows it to pursue its systems strategy in Europe and serve OEM customers as they confront new environmental and regulatory challenges worldwide and introduce World Cars designed for sale to the global automotive market. In addition, the Company has a market presence in Brazil, South Korea and Japan and it has entered into joint ventures with manufacturers in Brazil, France, Japan, Mexico, Argentina and South Korea which enable the Company to access those foreign markets. Technical and Product Development Capabilities. The Company's engineers focus their research and development efforts to respond to the technical challenges facing their customers. The Company has designed its current line of FSDS products in response to U.S. fuel economy and emission regulations and changing consumer demands over the past two decades. Management believes that the Company is well positioned to capitalize on the emergence of more stringent global emission regulations through the development of a new generation of products and systems with greater fuel efficiency, reduced component weight, improved durability, fuel vapor control and flexible fuel compatibility. An example of these products is the ORVR system which captures fuel vapors from the fuel system and routes them to a carbon canister for storage and reuse. The Company has made substantial investments in fuel systems technology, product design and test capability and technical personnel to advance FSDS technology and respond to customer needs. A state-of-the-art systems center in Auburn Hills, Michigan provides the Company with the full-service product management capability which OEMs require of key suppliers and provides the Company with a competitive advantage in the development of proprietary fuel systems technology. Similarly, the Company has begun construction of a new systems center in Europe to provide product design and test capabilities. AUTOMOTIVE PRODUCTS The Company's product development engineers design fuel storage and delivery systems in response to customer needs and in anticipation of evolving trends in the market. Today's electronic fuel injected engines demand an uninterrupted supply of fuel under pressure and some vehicles require complex fuel tank configurations. The Company specializes in technology employed in the FSDS and currently manufactures and sells fuel pumps, fuel modules, fuel level sensors, plastic fuel tanks, bracket assemblies and plastic fuel rails. 45 47 In response to the environmental and fuel efficiency demands on today's automobiles, the Company has developed, and is continually taking steps to improve, an electric pump designed to deliver fuel under pressure to electronic fuel injection equipped engines. The pump is fastened to a bracket and flange assembly, which allows the pump to be mounted in the fuel tank. The assembly has been increasingly replaced with a single integrated unit, called a fuel module, which performs all of the functions of the assembly described above. The fuel module is a complete, value-added package for specific applications composed of a fuel pump, plastic reservoir, fuel level sensor and related parts. These injection-molded plastic units fit inside the fuel tank, ensuring continuous fuel delivery under low fuel conditions, maximum vehicle driving range and enhanced fuel delivery under high temperature conditions, all at a reduced noise level. Although vehicles were not equipped with fuel modules until 1988, approximately 75% of cars and light trucks sold by General Motors, Ford and Chrysler in North America in 1997 used fuel modules. In 1997, the Company supplied approximately 20% of all of the fuel modules purchased in North America, principally to Ford and Chrysler. Approximately 25% of North American vehicles and 72% of European vehicles produced in 1997 contained plastic fuel tanks. Plastic fuel tanks offer several advantages over conventional steel tanks, including lighter weight, greater corrosion resistance to new, cleaner-burning fuels like methanol and the ability to be produced in unusual shapes to better use available space. In anticipation of customer demand in North America for more sophisticated fuel tanks, the Company built a new facility in Ossian, Indiana in 1993 to produce plastic multi-layer fuel tanks. The Company produced three-layer plastic fuel tanks during the fourth quarter of 1994, and during 1995 and 1996 for the Ford Windstar. The multi-layer construction of the Company's new, six-layer plastic tank substantially eliminates fuel permeation, making this one of the first plastic tanks which complies with the EPA permeability requirements which became effective beginning in model year 1996. The first production run of six-layer tanks began in 1996 for the GM T600 and was followed in 1997 by production of fuel tanks for the 1998 Saturn, the 1998 GM Yukon/Tahoe and the 1998 Chassis Cab. In addition a new facility in Meriden, Connecticut began production of the fuel tanks for the 1998 Dodge Durango in September, 1997. The Company is currently producing mono-layer plastic fuel tanks, which include coatings and permeation barriers that meet European emission requirements, for Audi, Mercedes-Benz, Nedcar, Peugeot, Renault, Rover, Saab, Volkswagen and Volvo. As these customers require more sophisticated fuel tanks, the Company will likely supplement a portion of its mono-layer blow molding machines with multi-layer blow molding machines to provide the Company's OEM customers in Europe with advanced, plastic fuel tank technology. The Company also produces plastic fuel rails suitable for a variety of engine applications. An extension of the FSDS concept, these under-hood components, located on the engine, deliver fuel to the individual fuel injectors used in electronic multi-point fuel injection systems. The Company has designed a plastic fuel rail which is superior to metal fuel rails in cost, weight and handling of more corrosive flexible fuels. In 1994, Ford began to install this new rail on the 3.0 liter engine in the Windstar. In 1997 Ford began to install this new fuel rail on 3.0 liter 2-valve engines for Taurus and Sable vehicles, as well as the 3.0 liter engines in the Windstar vans. An important advantage of the Company's systems approach is that it assists customers in responding to developments in safety and environmental standards. For example, current environmental regulations call for a FSDS that minimizes or eliminates the escape of fuel vapors during refueling, storage and operation. In January 1994, the EPA announced regulations governing ORVR systems as mandated by the 1990 Clean Air Act. The regulations require installation of devices which trap hydrocarbon vapors on a phase-in basis for passenger cars beginning in model year 1998 and for light trucks in model year 2001. In anticipation of these regulations, the Company has developed a variety of ORVR devices which help prevent fuel vapor loss from fuel delivery systems. The first of these devices entered production during 1997. 46 48 AUTOMOTIVE MARKETS AND CUSTOMER BASE The Company currently provides a wide variety of products to a diverse customer base in a number of geographic areas. The following table depicts a summary of the various customers and platforms for which the Company supplied products during 1997:
CUSTOMER PLATFORM PRODUCT -------- -------- ------- Chrysler Cirrus/Stratus, Dodge Dakota, Fuel Pump/Module Assembly Dodge Durango, Dodge B-Van, Service Pump/Module Dodge Ram Truck K-Base Passenger Car, LH (Intrepid Vision, Concord, New Yorker and LHS), Minivan (Caravan, Voyager and Town & Country), Neon, Viper, Prowler Dodge Durango Plastic Fuel Tank Assembly Ford Mustang, Ranger Oil Separator Sable, Taurus Plastic Fuel Rail F-Series, E-Series Light Trucks Fuel Pump All North American Light Service Fuel Pump Vehicle Platforms F-100(1), BE-6(1), CE-14(1) Fuel Module General Motors T600 Truck, Saturn, Plastic Fuel Tank Yukon/Tahoe, Blazer/Jimmy, Chassis Cab Corvette Fuel Module Fiat Tempra(1), Uno(1), 178(1) Fuel Module Dedra(2), Fuel Pump, Bracket Miero(2), Panda(2), Punto(2), Assembly Tempra(2), Tipo(2), Uno(2) and Level Sensor Land Rover/Rover Discovery, Defender Plastic Fuel Tank, Fill Pipe and various blow-molded parts Rover, R-8(2), 200(2), 400(2) Fuel Pump and Bracket Assembly Mercedes-Benz C Class, Truck Glendewagen, Plastic Fuel Tank, Fill Pipe, Light Truck Expansion Tank Nedcar S-40 Plastic Fuel Tank 300(2), 400(2) Fuel Module, Fuel Pump, Bracket Assembly and Sensor Peugeot 306, 309, 405, 505 Plastic Fuel Tank, Fill Pipe and Air Ducts 106(2), 205(2), 306(2), 405(2), Fuel Pump, Bracket 504(2), 505(2), 605(2) Assembly and Level Sensor Renault Twingo, Safrane, Espace, Spider Plastic Fuel Tank R-19(1), CL10(1) Fuel Module R-5(2), R-9/11(2), Twingo(2), Fuel Pump/Module X-S4(2), X-06(2)
47 49
CUSTOMER PLATFORM PRODUCT -------- -------- ------- Saab 900, 9000, 640, 9-5 Plastic Fuel Tank, Air Hose, Air Duct and Coolant Reservoir 900(2), 9000(2), I16(2) Fuel Pump Volkswagen/Audi Polo, Golf, Audi 100 Diesel, Plastic Fuel Tank Audi V8, Van, GOL Golf (1), Santana(1) Fuel Sending Unit Volvo 850, 1150, 940, 960, P80, S-40, Plastic Fuel Tanks, P-2X various other blow-molded parts and Coolant Reservoir Heavy Truck Coolant Reservoir Daewoo J-Car(3), T-Car(3), V-Car(3) Fuel Module Honda AWD Fuel Module and Air Ducts KIA Various Platforms Fuel Pump S-2 ORVR Ssangyong FJ(3), KJ(3) Fuel Module Toyota Carina, Corolla Plastic Fuel Tank Carina Air Duct
- ------------------------- (1) South American customers supplied by Marwal do Brasil, Ltda. (2) European customers supplied by Marwal Systems, S.N.C. (3) Korean customers supplied through Korean Automotive Fuel Systems, Ltd. In addition to the customers described above, the Company also supplies a variety of its products to a number of other customers including, but not limited to, the following: IBC, Iveco, J.I. Case, Lister Petter, New Holland, Scandia, VME and Steyr-Puch. North America. Net sales to Chrysler, General Motors and Ford for 1997 accounted for 19%, 5% and 5% of the Company's consolidated net sales, respectively. These customers have ongoing supply relationships with the Company which are subject to continued satisfactory price, quality and delivery. The Company is the primary outside supplier of fuel pumps, the core of the FSDS, to Chrysler. In the past, the Company has capitalized on its fuel system components penetration to supply additional fuel system products, such as fuel modules and fuel rails, to Chrysler and Ford, and to assume a key role in the development of new fuel system products, such as ORVR devices. General Motors historically developed and produced substantially all of its fuel storage and delivery systems internally but recently has sourced a significant portion of plastic fuel tank programs to outside suppliers, including the Company. The Company has formed a joint venture with two minority business owners to produce automotive components in Detroit's Empowerment Zone ("VITEC"). VITEC is expected to manufacture FSDS products (including blow-molded plastic fuel tanks). General Motors has awarded $450 million of new business to the joint venture over a five-year period commencing in 1998. Chrysler has also awarded new business to the joint venture. In September 1996, the Company received a tax credit worth an estimated $13.6 million from the Michigan Economic Growth Authority for this new facility. Europe. In 1991, the Company began operations in Europe with the establishment of its Marwal Systems joint venture in France with Magneti Marelli S.p.A. of Italy to serve customers that include Fiat, Nissan, Peugeot, Renault, Rover, Saab and Volvo. The Company is the only integrated FSDS supplier in Europe, which has provided the Company with the immediate opportunity to increase its participation in the European automotive market. In addition, the Company is using its relationships in the U.S. to increase its sales to North American manufacturers in Europe. Similarly, the Company is leveraging its relationships with Mercedes-Benz, Peugeot, Renault, Saab, Volkswagen, Volvo and other European manufacturers to enhance the Company's marketing efforts with these European manufacturers around the world. Approximately 72% of 48 50 the European light duty vehicles and 25% of the North American light duty vehicles are equipped with plastic fuel tanks. Management estimates that operations in Europe produced plastic fuel tanks accounting for approximately 19% of the European plastic fuel tank market in 1997. South America. In January 1993, operations began at the Company's Marwal do Brasil joint venture, which targets the South American automotive market of approximately two million units per year. In September 1995, the Company established Walbro Automotive do Brasil to manufacture plastic fuel tanks for the Brazilian automotive market. It began production of plastic fuel tanks for Volkswagen in November 1996. In 1996, the Company received an order from Ford for a supply of plastic fuel tanks for Ranger trucks to be produced in Argentina. Asia. In December 1986, the Company entered into a joint venture in Japan known as Mitsuba-Walbro, Inc. with Mitsuba Electric Manufacturing Company to manufacture fuel pump components. In November 1994, the Company established Korea Automotive Fuel Systems Ltd., a joint venture with Daewoo Precision Industries Ltd. in South Korea, to manufacture and market fuel modules for the domestic Korean automotive market and additional export markets established by Korean OEMs. As part of the Restructuring, management is currently reviewing alternatives to reduce the Company's investment in this joint venture. AUTOMOTIVE COMPETITION The Company competes with several other manufacturers, including the OEMs themselves, many of which have greater sales and financial resources than the Company. In the fuel pump market, the Company's major competitors include Robert Bosch GmbH, Denso Corp., Ltd., VDO (a division of Mannesmann), Visteon (Ford's component group) and Delphi Automotive Systems (GM's component group). In the fuel rail market, the Company's major competitors include Delphi, Visteon, Echlin Inc. and Siemens A.G. The Company has competition in the fuel module market from Delphi, Robert Bosch GmbH, Denso Corp., VDO and Visteon. The Company's largest competitors in the plastic fuel tank market include Kautex Werke Reinold Hagen A.G. (which was acquired by Textron Inc. in January 1997), Solvay S.A., Plastic Omnium Industries, Inc. and Visteon. Steel tanks, manufactured primarily by the OEMs, also compete with the Company's plastic fuel tanks. The Company competes for new business both at the beginning of the development of new models and upon the redesign of existing models. New model development generally begins two to three years prior to a product introduction. Once a producer has been designated to supply parts for a new program, an OEM usually will continue to purchase those parts from the designated producer for the life of the program, although not necessarily for a redesign. Competitive factors in the market for fuel storage and delivery products include product quality and reliability, cost and timely delivery, technical expertise and development capability and new product innovation. AUTOMOTIVE SALES AND ENGINEERING SUPPORT Sales of the Company's FSDS products to automotive OEMs are made directly by the Company's sales/ engineering force, who not only sell the products but assist customers with related engineering matters. Because of the automobile design process, the Company is generally able to determine a few years in advance the models for which it will supply products. The Company's sales force works closely with the Company's engineering departments and systems center in Auburn Hills in the research, design, development and improvement of its products. When the Company's systems center in Europe is completed in 1998, the Company will also have additional design and research capabilities to provide OEMs in Europe with full-service product management. Because the Company has the capability to provide comprehensive engineering resources with respect to its product line and assume increasing responsibility for the development of FSDS products, the Company has been successful in responding to the decisions by OEMs to consolidate suppliers and reduce internal engineering resources. 49 51 AUTOMOTIVE WARRANTY AND OTHER PRODUCT EXPOSURE The design and manufacture of fuel systems entails an inherent risk that a governmental authority or a customer may require the recall of one of the Company's products or a product in which one of the Company's products has been installed. The Company has taken and intends to continue to take all reasonable precautions to avoid the risk of exposure to an expensive recall campaign which could have a material adverse effect on the business and financial condition of the Company. WALBRO ENGINE MANAGEMENT SMALL ENGINE INDUSTRY OVERVIEW The small engine industry is facing a number of environmentally-driven changes which will require an increased emphasis on fuel systems technology and the development of new fuel systems products. Growth opportunities outside of the U.S. are expected to be driven by growth in the use of two-wheeled vehicles and the increased use of gasoline-powered portable equipment in developing countries. Emphasis on Engine Management Systems and New Product Development. Historically, exhaust emissions of gasoline-powered small engines were unregulated. In 1992, the California Air Resources Board promulgated comprehensive air quality regulations limiting small engine emissions, which regulations became effective in August 1995. A more stringent phase is scheduled to become effective in 1999. In addition, the EPA has implemented similar regulations that became effective in August 1996, with a more stringent phase expected to be phased in beginning 2002. The products designed to meet these new emission standards in the small engine market will require more sophisticated product research and new production capabilities. The increased technological content and sophistication required to meet emission regulations is expected to result in lower unit sales with greater value added per product and higher unit prices. Growing Demand in Developing Countries. The Company expects significant growth in the demand for float feed carburetors in developing countries as per capita income increases and two-wheeled vehicles become more affordable. Production of two-wheeled vehicles in the People's Republic of China, for example, increased from approximately 49,000 units in 1980 to approximately 3.4 million in 1993, 5.2 million in 1994, 7.8 million in 1995, 9.3 million in 1996 and 10.0 million in 1997. In addition, management believes demand for diaphragm carburetors used in gasoline-powered portable tools will grow in these developing countries. The inaccessibility of electrical power distribution and geographic isolation of many projects, such as the clearing of land and highway construction, hinder the use of electric-powered equipment. SMALL ENGINE BUSINESS STRATEGY To respond to the promulgation of increasingly strict emission regulations in the small engine industry, the Company is working to develop a small engine management system which will comply with new emission standards. As the leading developer of fuel systems technology for portable engines, the Company is well positioned to draw upon its expertise in carburetor and ignition system design and development, as well as its experience in responding to emissions-driven challenges in the automotive sector. The Company's advanced product design and development facilities in Michigan and Japan, which are equipped with sophisticated emission measurement instruments, provide the Company with the facilities necessary to develop more sophisticated small engine management systems. In addition to developing new technologies, the Company intends to grow its small engine business through expansion into foreign markets. The Company's presence in developing countries such as the People's Republic of China will allow it to benefit from the growing market for carburetors for two-wheeled vehicles and from infrastructure development which requires portable power tools. SMALL ENGINE PRODUCTS The Company was founded as a manufacturer of carburetors for small engine products such as lawn mowers and marine engines, and later expanded its customer base to include manufacturers of chain saws, weed trimmers, snow blowers and two-wheeled vehicles. The Company's carburetor technology has continually 50 52 evolved, with the Company now manufacturing diaphragm and float feed carburetors, ignition systems and other components for small engine products and aftermarket applications. The Company's diaphragm carburetor, float feed carburetor and ignition system sales accounted for 57%, 29% and 14%, respectively, of the Company's 1997 small engine net sales. The diaphragm carburetor uses a diaphragm and a series of interconnected passages to draw and regulate the amount of fuel delivered to the engine from the fuel tank. The Company manufactures several basic models of diaphragm carburetors from which are derived numerous variations. Diaphragm carburetors are used on chain saw and weed trimmer engines because they will operate in any position and minimize vapor lock. The Company believes that it is the world's largest manufacturer of small engine diaphragm carburetors. The float feed carburetor uses a float in a reservoir of fuel to regulate the amount of fuel delivered to the engine. In contrast to the diaphragm carburetor, which operates in all positions, the float feed carburetor operates only in an upright position. The Company manufactures several basic models of float feed carburetors from which are derived numerous variations. The Company's float feed carburetors are used on engines for lawn mowers, garden tractors, two-wheeled vehicles, marine outboard engines, generators and industrial engines. The ignition system uses rotating magnets in a flywheel, which induce an electrical charge in the ignition module. The ignition module releases this charge to the spark plug. The Company's ignition systems are used predominantly in chain saw and weed trimmer applications. In response to California and proposed EPA air quality regulations, the Company is integrating its carburetor and ignition technology to develop an engine management system which will electronically control both fuel delivery and ignition functions to limit exhaust emissions. The Company has successfully refined existing carburetors through the incorporation of extremely close tolerances which provide more accurate control of the fuel/air mixture to meet the first set of standards that became effective in California in 1995 and nationwide in 1996. Company engineers are developing new technology to meet the subsequent requirements which will become effective in California in 1999 and nationwide during the period 2002 to 2005. This development effort focuses on complete engine management systems that control air flow, fuel delivery and ignition timing to enhance fuel efficiency and reduce pollution. SMALL ENGINE MARKETS AND CUSTOMER BASE The Company sells its small engine products in a global market. Carburetors and small engine ignitions are sold by the Company's sales and engineering staff directly to engine manufacturers. The Company sells a major portion of its diaphragm carburetors to most of the leading chain saw and weed trimmer manufacturers, including Poulan/Weedeater, Deere and Company (Homelite), Stihl Incorporated, McCulloch Corporation, Ryobi Ltd. and Kioritz (Echo) Corporation. The Company sells float feed carburetors to several of the leading manufacturers of small engines, including Briggs & Stratton Corporation, the world's largest small engine manufacturer. Mercury Marine, a major outboard engine manufacturer, buys approximately 73% of its outboard engine carburetors from the Company. One of the Company's opportunities for growth in the small engine industry is the Chinese market. In January 1994, the Company acquired a 60% interest, increased to 70% in 1995, in Fujian Hualong Carburetor Co., Ltd. (Fujian) which manufactures and markets carburetors for two-wheeled vehicles in the People's Republic of China. In addition, the Company has built a new manufacturing facility in Tianjin to provide additional capacity to take advantage of growth in the two-wheeled vehicle market. This new facility began production in October 1996. SMALL ENGINE COMPETITION The Company has several competitors that manufacture diaphragm carburetors for the global small engine market, including Zama Industries, Ltd., Tillotson Commercial Motors Ltd. and Dell' Orto, some of which are divisions of large diversified organizations which have total sales and financial resources exceeding those of the Company. In the market for float feed carburetors, the Company has several competitors, 51 53 including Briggs & Stratton and Tecumseh Products, both of which have greater sales and financial resources than the Company. The Company's major competitors in the ignition systems market are R.E. Phelon Company Inc. in the U.S.; Ikeda Denki, Oppama Kougyou, Iida Denki, Kokusan Denki in Japan; and other internal suppliers to engine manufacturers AFTERMARKET PRODUCTS The Company sells automotive aftermarket products for both carbureted vehicle applications and electronic fuel injection vehicle applications through independent distributors, such as Federal-Mogul Corporation and Standard Motor Products, Inc., and jobbers and dealers worldwide. Some automotive products are also sold to national manufacturing and distribution organizations for sale under private brand names or to industrial customers for use in special applications. The Company has recently begun pursuing initiatives to expand its aftermarket customer base and product lines in an effort to grow this segment of its business. Such initiatives include entry into components for performance vehicles and recreational vehicles, as well as broader coverage of fuel pumps and fuel modules. The Company sells automotive aftermarket products to support its OEM customers and to benefit from higher margins on aftermarket sales. Management believes that the overall market size for automotive electronic fuel injection systems components sold to the aftermarket will continue to grow as the population of vehicles equipped with electronic fuel injection systems ages. The Company sells its own brand name small engine aftermarket products through independent distributors, jobbers and dealers worldwide. Some of these products are also sold to national manufacturing and distribution organizations for sale under private brand names or to industrial customers for use in special applications. ACQUISITION AND JOINT VENTURE STRATEGY As part of a long-term strategy for growth and expansion into new geographic and product markets, the Company may undertake select acquisitions and strategic alliances in the form of joint ventures. The Company may make select acquisitions of companies which can enhance the Company's traditional products and technologies and can provide additional growth opportunities. These acquisitions would contribute new product technology and open new markets to the Company. In evaluating these acquisitions, the Company seeks high quality operations which fit with the Company's expertise in markets where it has an established customer base and a clear vision of opportunities, thus decreasing transition costs and other financial risks associated with corporate acquisitions. Similarly, each of the Company's joint ventures provides the Company with the opportunity to benefit from established customer relationships or a unique technological advancement which the Company could not develop on its own without the risk and expense of establishing marketing and manufacturing organizations alone. In management's opinion, the Company's joint ventures ultimately reduce the cost of penetrating new markets and limit the Company's financial exposure with respect to these operations. At the present time the Company has no specific agreements with respect to any new acquisitions or joint ventures. MANUFACTURING AND FACILITIES The Company conducts operations in approximately 2.3 million square feet of space in 28 locations. Six additional sites are operated as joint venture operations. The Company believes that substantially all of its property and equipment are in good condition. The Company has not experienced significant limitations on its ability to transfer products between, or sell products in, various countries. Each of the Company's manufacturing facilities practices advanced inventory control procedures and has installed statistical process controls to insure high levels of quality. In that regard, some of the Company's factories have received the Ford Q1 Award and the Chrysler QE Award. In connection with its sales to Saab, which is partially owned by General Motors, the Company's Norway facility has been named a General Motors supplier of the year five years in a row beginning in 1991. In 1995, Walbro Automotive was named 52 54 Supplier of the Year by General Motors. Various other Company factories have been recognized by customers such as Mercury Marine, Stihl and Federal-Mogul Corporation for excellence in product quality and delivery. In addition, the Company's domestic automotive customers have cooperated in the development of a broad based quality procedure for which their suppliers are required to be certified. The procedure, known as QS 9000, has been derived from the International Standards Organization's ISO 9000 procedure. Approximately half of the Company's manufacturing locations around the world have been certified. When justified by volume, the Company has invested in labor-saving automated machining, assembly and testing equipment. For example, the operation in Meriden, Connecticut employs computer controlled molding machines to form the Company's plastic in-tank reservoirs. These machines are individually programmable so that variations can be reduced and refined as part of the continuous control process. Another example is the Caro, Michigan manufacturing facility's automated fuel pump assembly line, which is capable of producing 1,000 pumps per hour using only six persons. Over the past several years, the Company has reduced the cost to manufacture its fuel pumps at this facility by reducing both labor and material costs. In Ettlingen, Germany, the Company uses a fully automated assembly line for production of plastic fuel tanks for the Mercedes-Benz C Class. In addition to these examples of purchased automation, the Company designs and builds major portions of its own machining and assembly equipment. This in-house capability permits close control over the manufacturing process and helps the Company stay competitive in both cost and quality. PATENTS, RESEARCH AND PRODUCT DEVELOPMENT The Company owns approximately 165 U.S. patents and 600 international patents in the fuel systems field and has a number of applications pending. These patents include proprietary ownership of designs for control devices for engines and engine systems, fuel pumps, fuel rails, fuel regulators, fuel level sensors, fuel reservoirs and fuel system vapor control devices, carburetors and throttle bodies, as well as ancillary devices for engine and vehicle applications. Although these patents are significant to the Company, management believes that in many cases the adaptation and use of the technology involved and the proprietary process technology employed to manufacture these products are more important. The Company maintains a systems center in Michigan for the research, design and development of new products. The Company began construction of its new European engineering center in June 1997. The Company's engineering departments also engage in design, development and testing. In 1997, 1996, and 1995, the Company spent approximately $17.3 million, $18.4 million and $16.7 million, respectively, for engineering and research and product development. COMPONENTS, MATERIALS AND INVENTORY The Company has a number of sources for the components used in manufacturing its products. The suppliers who manufacture components often use tools and dies owned by the Company. If a supplier were to discontinue supplying any component, it could take the Company some time to replace the supplier; however, the Company believes its operations would not be materially adversely affected. The Company's principal customers provide it with estimates of their annual needs and make monthly purchase commitments. As a result, the Company does not experience material backlog. Consequently, the Company manages its manufacturing facilities on a just-in-time production basis. EMPLOYEES As of December 31, 1997, the Company had approximately 5,028 employees. The Company believes that its relations with its employees are satisfactory. All of the Company's approximately 600 European plant employees are unionized under their traditional national organizations. All of the Company's United States plant employees are non-unionized except approximately 400 employees at both of its Michigan manufacturing locations. The Company's three-year contract with the bargaining unit for these Michigan plants expires in November 1998. 53 55 REGULATION The Company's operations are subject to increasingly stringent environmental laws and regulations governing air emissions, waste water discharges, the generation, treatment, storage, disposal and remediation of hazardous substances and wastes, and employee health and safety. Certain of these laws can impose joint and several liability for releases or threatened releases of material upon certain statutorily defined parties, including the Company, regardless of fault or the lawfulness of the original activity or disposal. The Company believes it is currently in material compliance with applicable environmental laws and regulations. The Company's compliance with environmental laws and regulations has not materially affected the results of its operations or the conduct of its business; however, the Company cannot predict the future effects of such laws and regulations. LEGAL PROCEEDINGS Other than as set forth below, the Company is not currently a party to any litigation which in the opinion of management is likely to have a material adverse effect on the Company's business, results of operations or financial condition. International Container Services, Inc. v. Walbro Corporation, Walbro Automotive Corporation, and U.S. Coexcell. This case was filed in June 1997 in Michigan state court. John Hobstetter, a former Walbro employee, founded International Container Services, Inc. ("ICS") in December 1996. Hobstetter is one of the principals of ICS. ICS' Complaint alleges breach of contract, promissory estoppel, tortious interference with prospective business relationships, conversion and misappropriation of proprietary information, and requests an accounting. ICS claims its damages "exceed $10,000,000." Walbro, Walbro Automotive and U.S. Coexcell vigorously deny the allegations. Walbro, Walbro Automotive and U.S. Coexcell filed an Answer to ICS' Complaint on August 22, 1997. In addition to affirmatively denying all substantive allegations, Walbro, Walbro Automotive and U.S. Coexcell asserted several affirmation defenses and filed a Counterclaim against ICS. The Counterclaim against ICS alleges tortious interference with prospective business relations, conversion and misappropriation of confidential information and trade secrets, and unjust enrichment. The Counterclaim seeks damages in an amount to be determined at trial. Walbro, Walbro Automotive and U.S. Coexcell also filed a Third-Party Complaint against John Hobstetter and The Lovat Group, Inc. The Lovat Group has a contractual relationship with ICS. The principals of The Lovat Group own or will own an equity interest in ICS. The Third-Party Complaint alleges that Hobstetter breached confidentiality and trade secret and stock purchase agreements, breached his fiduciary duty, tortiously interfered with prospective business relations and was unjustly enriched. The Third-Party Complaint also alleges that The Lovat Group was unjustly enriched. Hobstetter and The Lovat Group have answered the Third-Party Complaint, and they have denied the substantive allegations therein and asserted affirmative defenses. In addition, The Lovat Group filed a Third-Party Counterclaim against Walbro, Walbro Automotive and U.S. Coexcell alleging claims virtually identical to those alleged by ICS. Walbro, Walbro Automotive and U.S. Coexcell have answered that complaint and denied all substantive allegations. Discovery is ongoing, and is expected to continue during at least a substantial portion of 1998. No trial date has been set. 54 56 MANAGEMENT EXECUTIVE OFFICERS AND DIRECTORS The directors and principal executive officers of the Company as of May 21, 1998 are as follows:
NAME AGE POSITION WITH THE COMPANY ---- --- ------------------------- Frank E. Bauchiero........... 62 President, Chief Executive Officer and Director Vice President and a Director; President, Asia Robert H. Walpole............ 57 Region Lawrence C. Ward............. 45 President, North America Region Richard H. Whitehead, III.... 52 President, Europe and South America Region Daniel L. Hittler............ 62 Chief Administrative Officer and Secretary Michael A. Shope............. 53 Chief Financial Officer and Treasurer William T. Bacon, Jr......... 73 Director J. Dwane Baumgardner......... 56 Director Vernon E. Oechsle............ 55 Director Robert D. Tuttle............. 72 Director John E. Utley................ 56 Director
The Company's Board of Directors consists of three classes of directors serving three-year terms with one class standing for election at each annual meeting of stockholders. Messrs. Bacon, Bauchiero and Oechsle have been elected to serve for a term expiring in 1999. Messrs. Baumgardner, Tuttle and Walpole have been elected to serve a term expiring in 2000. Mr. Utley has been elected to serve for a term expiring in 2001. Frank E. Bauchiero became Chief Executive Officer on April 15, 1998 and has been President since August 1996. He was Chief Operating Officer from August 1996 to April 1998. He became a Director of the Company in 1990. Mr. Bauchiero served as President-Industrial, North American Operations, Dana Corporation from December 1990 until July 1996. Mr. Bauchiero was a Dana Group Vice President from 1987 to 1990. Dana Corporation manufactures automotive product systems, mobile off-highway equipment and industrial equipment. Mr. Bauchiero also serves as a director of Regal Beloit Corp., a manufacturer of power transmissions, gears and gear reducers and cutting tools. Robert H. Walpole has been a Vice President of the Company since 1983, President of Walbro Engine Management Corporation between 1991 and 1996, and President, Asia Region since January 1997. Mr. Walpole joined the Company in 1970 and has served as a Director since 1983. Mr. Walpole is the brother-in-law of Lambert E. Althaver, former Chief Executive Officer of the Company. Lawrence C. Ward has been President, North America Region since February 1998. From 1996 to 1998, Mr. Ward was Vice President -- Global Operations for Allied Signal Safety Restraints, a Division of Allied Signal Automotive (Allied Signal's Safety Restraint division was acquired by Breed Technologies Inc. in November 1997). Allied Signal Safety Restraints is a global manufacturer of automotive air-bag systems and related safety components. Mr. Ward was Vice President, Manufacturing and Services of Exabyte Corporation from 1993 to 1996 and Director, Worldwide Manufacturing and Operations of Quantum Corporation from 1992 to 1993. Richard H. Whitehead, III became President, Europe and South America Region in January 1997 and was a Vice President of the Company from 1988 to 1996. From 1988 to 1990, Mr. Whitehead served as the Vice President/General Manager of the Company's Automotive Division -- Whitehead in Meriden, Connecticut. Mr. Whitehead was the President of Whitehead Engineered Products, Inc. from 1980 to 1988, prior to its acquisition by the Company. Daniel L. Hittler has served as Chief Administrative Officer since 1994 and Secretary of the Company since 1993. He was Director of Administration from 1992 to 1993. He was the Director of Technical Planning from 1989 to 1992. 55 57 Michael A. Shope has served as Chief Financial Officer of the Company since December 1993 and as Treasurer since April 1994. From 1986 to 1993 he was the Treasurer of Libbey-Owens-Ford Co., a manufacturer of glass for automotive and industrial applications. William T. Bacon, Jr. has served as a Director of the Company since 1972. Mr. Bacon has been associated with ABN AMRO since 1994. ABN AMRO is a banking services corporation with its headquarters in the Netherlands. Mr. Bacon also served as an Honorary Director of Stifel Financial Corp. from 1984 to 1994. Stifel Financial Corp. is an investment banking services corporation. Prior to 1994, he was a Managing Partner of Bacon Whipple & Co., Inc. Bacon Whipple & Co., Inc. was an investment banking services corporation which merged with Stifel Financial Corp. J. Dwane Baumgardner, PhD since 1996 has been Chairman, Chief Executive Officer and President of Donnelly Corporation, a manufacturer of automotive vision systems, modular window systems and coated glass products. From 1982 to 1986, he was Chief Executive Officer, President and Chief Operating Officer of Donnelley Corporation and prior to 1982 was Vice President of Technology of Donnelley Corporation. Dr. Baumgardner joined the Company's Board of Directors in October 1997, joined Donnelly in 1969 and is also a Director of SL Industries, Inc., which produces glass products for the automotive industry. Vernon E. Oechsle became a Director of the Company in October 1994. He has been the President, Chief Executive Officer and a Director of Quanex Corporation, a manufacturer of specialty steel and aluminum products, since 1996. He served as the Chief Operating Officer of Quanex Corporation from 1993 to 1995. From 1990 to 1992, he was Chief Executive Officer of Allied Signal Automotive. Before that he was Group Executive of Automotive and Truck for Dana Corporation and President of Hayes-Dana, Dana's Canadian subsidiary. Mr. Oechsle also has served as a director of Precision Castparts Corporation, a manufacturer of investment castings for aerospace and power generation customers, as well as for industrial, automotive, medical and other commercial applications since 1996. Robert D. Tuttle became a Director of the Company in 1981. Mr. Tuttle is also a Director of Woodhead Industries, Inc. From 1980 to 1991, Mr. Tuttle was Chairman, Chief Executive Officer and a Director of SPX Corporation, which produces specialty tools and equipment and distributes automotive components. John E. Utley became a Director of the Company in 1993. He is Senior Vice President of LucasVarity, PLC, a supplier of automotive braking systems, electrical systems and diesel systems, a position he has held since 1996. From 1994 until September 1996 he was Senior Vice President of Varity Corporation. Mr. Utley was the Chairman of the Board of Kelsey-Hayes Company from 1992 to September 1996 and was Vice Chairman and Vice President from 1989 to 1992. During the first quarter of 1997, the Company modified its management structure to reflect a matrix organization. In this regard, the Company appointed three regional presidents who have operating responsibilities for the North America, Europe/South America and Asia regions. In addition, global responsibility for automotive products, small engine products and the Company's strategic development activities were allocated to one of each of these three regional presidents. The Company believes that the benefits of this matrix organizational structure include (i) improved focus on the Company's customers in their local markets, (ii) better global coordination of the Company's product lines and development activities, (iii) reduced overhead expenses, (iv) avoidance of duplication of costs between the Company's product lines and (v) improved utilization of management expertise and technical facilities. LIMITATION OF LIABILITY AND INDEMNIFICATION Pursuant to the provisions of the Delaware General Corporation Law ("DGCL"), the Company has adopted provisions in its Certificate of Incorporation which eliminate the personal liability of its directors to the Company or its stockholders for monetary damages for breach of their duty of due care to the fullest extent permitted by the DGCL, and which require the Company to indemnify its directors and permit the Company to indemnify its officers or employees to the fullest extent permitted by DGCL, including those circumstances in which indemnification would otherwise be discretionary, except that the Company shall not be obligated to indemnify any such person (i) with respect to proceedings, claims or actions initiated or brought voluntarily by 56 58 any such person and not by way of defense, or (ii) for any amounts paid in settlement of an action indemnified against by the Company without the prior written consent of the Company. The Company has a directors' and officers' liability insurance policy. EXECUTIVE COMPENSATION The table below provides information concerning the annual and long-term compensation for services in all capacities to the Company for the fiscal years ended December 31, 1997, 1996 and 1995 of the persons who were at December 31, 1997 (i) the Chief Executive Officer and (ii) the four other most highly compensated (based upon combined salary and bonus) executive officers of the Company (collectively, the "Named Officers"). SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION AWARDS --------------------------------------- ANNUAL COMPENSATION AWARDS --------------------------- ------------------------- PAYOUTS OTHER RESTRICTED SECURITIES ----------- ANNUAL STOCK UNDERLYING LTIP ALL OTHER NAME AND SALARY BONUS COMPENSATION AWARDS OPTIONS/SARS PAYOUTS COMPENSATION PRINCIPAL POSITION YEAR ($) ($) ($) (#) (#) ($) ($)(1) ------------------ ---- ------ ----- ------------ ---------- ------------ ------- ------------ Lambert E. Althaver, (2).... 1997 450,000 0 0 0 0 1,862 9,000 Chairman and Former 1996 450,000 0 0 0 17,647 204,379 8,870 Chief Executive Officer 1995 375,000 0 0 0 15,625 0 9,100 Frank E. Bauchiero, (3)..... 1997 375,000 0 0 0 0 0 4,500 Chief Executive Officer 1996 141,173(4) 0 0 30,000 19,607 0 0 and President Robert H. Walpole,.......... 1997 265,000 386,338(5) 0 0 0 0 9,000 Vice President 1996 265,000 283,070(5) 0 0 0 0 9,717 1995 254,000 0 0 0 0 0 8,550 Richard H. Whitehead, III,.. 1997 200,000 0 42,929(6) 0 0 0 10,500 Vice President 1996 200,000 0 42,000(6) 0 7,843 0 10,460 1995 180,000 0 42,000(6) 0 10,000 0 6,040 Michael A. Shope,........... 1997 165,000 22,500 0 0 0 0 9,090 Treasurer and 1996 150,000 27,000 0 0 3,529 0 10,035 Chief Financial Officer 1995 135,000 18,750 0 0 4,500 0 2,025
- ------------------------- (1) These amounts represent matching and retirement contributions made by the Company pursuant to its salary savings plan, entitled the "Advantage Plan." (2) Mr. Althaver retired as Chief Executive Officer of the Company effective April 15, 1998. (3) At December 31, 1997, Mr. Bauchiero was the President and Chief Operating Officer of the Company. Effective April 17, 1998, Mr. Bauchiero was appointed to the additional position of Chief Executive Officer of the Company. (4) Salary for the period August 16, 1996 to December 31, 1996; executive began employment on August 16, 1996. (5) First and second of four cash bonus payments earned under the Company's Engine Management Incentive Compensation Plan covering the period July 1, 1991 to June 30, 1996. (6) 42,000 was paid in each of 1997, 1996 and 1995, to adjust for cost of living and expatriate status. In 1997, $929 was compensation for personal use of a corporate automobile. INCENTIVE COMPENSATION Beginning with fiscal year 1997, the executive officers became eligible for a restructured incentive compensation program. The program is comprised of both a short term and a long term incentive component. Short term incentive awards are based solely on the financial performance of the Company for each fiscal year. 57 59 Long term incentive awards are based in part on corporate financial performance. Accordingly, audited financials must be used to determine these awards. Since audited financials are not available until February following the close of any fiscal year, the annual award cycle has been moved from December of the fiscal year to the following February, and therefore there were no grants to the executive officer of the Company of stock options nor any awards under the Company's long term incentive plan in 1997. The following table provides information for the Named Officers' unexercised options at December 31, 1997. These options were granted under the Company's Equity Based Long Term Incentive Plan (the "Equity Plan"). AGGREGATED OPTION EXERCISES IN 1997 AND YEAR-END 1997 OPTION VALUES
NUMBER OF SECURITIES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT DECEMBER 31, 1997 (#) DECEMBER 31, 1997 ($)(1) --------------------------- --------------------------- EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE ----------- ------------- ----------- ------------- Lambert E. Althaver............................. 88,621 0 $38,420 0 Frank E. Bauchiero.............................. 32,514 0 0 0 Robert H. Walpole............................... 0 0 0 0 Richard H. Whitehead, III....................... 31,426 0 0 0 Michael A. Shope................................ 11,338 0 0 0
- ------------------------- (1) Based upon the difference between the exercise prices and the $13 7/16 closing price of the Company's Common Stock on the Nasdaq National Market on December 31, 1997. EMPLOYMENT AND SEVERANCE AGREEMENTS The Company entered into employment agreements with Messrs. Hittler, Shope, Whitehead and Walpole which have terms expiring on August 16, 1998 and provides them minimum base salaries of $150,000, $150,000, $200,000 and $265,000, respectively, subject to review and increase by the Board of Directors Compensation Committee (the "Compensation Committee"). Each employment agreement is renewable automatically for twelve months, subject to cancellation by the Company prior to the anniversary date. The Company entered into employment agreements with Messrs. Bauchiero and Lawrence C. Ward which have terms expiring on October 3, 1998 and February 2, 1999, respectively, and provide them a base salary of $375,000 and $260,000, respectively, subject to review and increase by the Compensation Committee. In addition, each is entitled to participate in the Equity Plan. The Company also entered into an employment agreement with Mr. Althaver with a term expiring on August 16, 1998 which provided a minimum base salary of $450,000 and which was renewable automatically for twelve months, subject to cancellation by the Company prior to the anniversary date. However, Mr. Althaver's employment agreement was terminated by a Separation Agreement and General Release dated May 20, 1998 between the Company and Mr. Althaver in connection with Mr. Althaver's retirement from the position of Chief Executive Officer effective April 15, 1998. For each of the executive officers, an employment agreement is linked to a Termination and Change of Control Agreement ("COC Agreements"). In combination, these agreements provide a severance provision under the terms of which the employee is entitled to severance pay if during the initial term of the agreement or a renewal term, his employment (i) is terminated (including nonrenewal of his employment agreement) by the Company other than for cause or (ii) is terminated voluntarily by him for good reason. The severance pay payable under the agreements is an amount equal to the annual base compensation being paid to the Named Officer at the date of termination. The employment agreements and the COC Agreements were the result of a determination by the Board of Directors that it was important to, and in the best interests of the Company and its stockholders, to ensure 58 60 that in the event of a possible change in control of the Company, the stability and continuity of management will continue unimpaired, free of distraction incident to any such change in control. The COC Agreements provide that if during a three-year period following a Change in Control (as defined below) of the Company, an employee's employment is terminated by the Company for cause or if the employee terminates employment for good reason, the employee will receive (1) a single sum payment equal to three times the employee's average compensation of the prior three calendar years (including incentive bonus), (2) 36 months of additional medical, dental, life, disability and accident insurance, (3) an amount equal to the actuarial equivalent of the benefit under a SERP which the employee would receive if employment would have continued for three years, (4) acceleration of any performance awards granted prior to the extension date equal to the cash amount payable plus the value of any shares of Common Stock payable upon achievement of maximum performance, (5) a cash amount equal to the value of any phantom shares of Common Stock credited to the employee's deferral account, (6) exercisable stock options and restricted stock will be vested, (7) outplacement services at the sole discretion of employee, and (8) other perquisites substantially similar to those in effect for the employee at the time of the Change in Control of the Company. In the event the present value of these payments and benefits exceed an amount which would render them "parachute payments" under Section 280G of the Internal Revenue Code of 1986, as amended, the Company will pay a gross up amount to the employee to compensate him for the additional excise tax assessed thereon. Each employee agrees that following his termination of employment with the Company, he will cooperate with the Company in any litigation involving the Company, will not disclose Company trade secrets, and for a one-year period following the date of such employee's termination, will not compete with the Company. "Change in Control" of the Company is defined to include certain reorganizations, consolidations or mergers of the Company, certain sales or transfers of substantially all the assets of the Company, approval by the stockholders of the Company of its liquidation or dissolution, a change in the composition of the Company's Board of Directors such that it is comprised of directors, a majority of whom are not "Continuing Directors" as defined in the COC Agreements, or the acquisition by certain persons of twenty percent or more of the combined voting power of the Company's outstanding securities. 59 61 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth as of April 30, 1998 the total number of shares of Common Stock of the Company beneficially owned, and the percentage so owned, by (i) each director of the Company, (ii) each person known to the Company to be the beneficial owner of more than five percent of the outstanding Common Stock of the Company, (iii) each of the Company's executive officers, and (iv) all directors and executive officers as a group. The number of shares owned are those "beneficially owned," as determined under the rules of the Commission, and such information is not necessarily indicative of beneficial ownership for any other purpose.
AMOUNT AND NATURE OF BENEFICIAL PERCENTAGE NAME OWNERSHIP(1) OF CLASS ---- ------------ ---------- Franklin Resources, Inc. ................................... 1,200,500(2) 13.8% Caisse de depot et placement du Quebec...................... 713,900(3) 8.2% David L. Babson & Co., Inc. ................................ 651,900(4) 7.5% Princeton Services, Inc. ................................... 466,900(5) 5.4% Lambert E. Althaver......................................... 258,444(6) 2.9% William T. Bacon, Jr. ...................................... 67,775(7) * Frank E. Bauchiero.......................................... 74,783(8) * J. Dwane Baumgardner........................................ 0 * Vernon E. Oechsle........................................... 15,420(9) * Michael A. Shope............................................ 13,438(10) * Robert D. Tuttle............................................ 20,000(11) * John E. Utley............................................... 17,383(12) * Robert H. Walpole........................................... 195,828(13) 2.3% Richard H. Whitehead, III................................... 134,586(14) 1.5% All Directors and Executive Officers as a Group (12 persons).................................................. 830,241(15) 9.3%
- ------------------------- * Indicates that the percentage beneficially owned does not exceed one percent. (1) The named stockholders have sole voting and dispositive power over all shares except as otherwise noted and except as to those shares over which beneficial ownership is disclaimed. (2) As reported on a Schedule 13G dated February 11, 1998 filed with the Commission by Franklin Resources, Inc., Rupert H. Johnson, Jr., Charles B. Johnson and Templeton Investment Counsel, Inc., the securities reported therein are beneficially owned by one or more open or closed-end investment companies or other managed accounts which are advised by direct and indirect investment advisory subsidiaries of Franklin Resources, Inc. ("FRI"). According to such Schedule 13G, neither FRI, Charles B. Johnson nor Rupert H. Johnson, Jr. have any power to dispose or to direct the disposition of any of the 1,200,500 shares; Templeton Investment Counsel, Inc. has sole voting and dispositive power with respect to 518,100 shares; Templeton Management Limited has sole voting and dispositive power with respect to 302,100 shares; Templeton Global Advisors Limited has sole voting power with respect to 277,900 shares and sole dispositive power with respect to 306,300 shares; and Templeton Investment Management Limited has sole voting and dispositive power with respect to 74,000 shares. The address of FRI is 777 Mariners Island Boulevard, San Mateo, California 94404 and the address of Templeton Investment Counsel, Inc. is 500 East Broward Boulevard, Suite 2100, Ft. Lauderdale, Florida 33394. (3) As reported on a Schedule 13G dated November 28, 1997 filed with the Commission by Caisse de depot et placement du Quebec ("Caisse"), Caisse has sole voting power with respect to 713,900 shares. The address of Caisse is 1981 Avenue McGill College, Montreal, Quebec H3A 3C7. (4) As reported on a Schedule 13G dated January 20, 1998 filed with the Commission by David L. Babson & Co., Inc., David L. Babson & Co., Inc. has sole voting power and sole dispositive power with respect to all 651,900 of these shares. The address of this stockholder is One Memorial Drive, Cambridge, Massachusetts 02142-1300. 60 62 (5) As reported on a Schedule 13G dated February 2, 1998 filed with the Commission by Princeton Services, Inc. ("Princeton"), Fund Asset Management, L.P. (d/b/a Fund Asset Management, "FAM") and Merrill Lynch Special Value Fund, Inc. (the "Fund"), Princeton reports beneficial ownership with respect to 466,900 shares (all of which Princeton disclaims beneficial ownership of), while FAM and the Fund both report beneficial ownership with respect to 434,800 of those 466,900 shares. FAM and Merrill Lynch Asset Management, L.P. d/b/a Merrill Lynch Asset Management ("MLAM") are investment advisers registered under the Investment Advisers Act of 1940 and are wholly-owned subsidiaries of Merrill Lynch & Co, Inc. ("ML&Co."). As a result of such affiliation, ML&Co. may be deemed to share with FAM and MLAM investment discretion and voting authority. FAM and MLAM act as investment advisers for certain investment companies registered under the Investment Company Act of 1940 and for private accounts. One such investment company managed by FAM is the Fund which holds 434,800 shares. On an aggregate basis FAM and MLAM hold 466,900 shares. Princeton is a parent holding company. The address of Princeton, FAM and the Fund is 800 Scudders Mill Road, Plainsboro, New Jersey 08536. (6) Includes 74,643 shares owned by Mr. Althaver's wife. Mr. Althaver disclaims beneficial ownership of these shares. Also includes 88,621 shares which are covered by presently exercisable options granted under the Equity Plan and 18,224 shares held for the account of Mr. Althaver by the trustee of the Advantage Plan. (7) Includes 3,300 shares owned by Mr. Bacon's wife and 5,025 shares owned by Mr. Bacon's son. Mr. Bacon disclaims beneficial ownership of these shares. Also includes 10,000 shares over which Mr. Bacon shares voting power as co-trustee of two trusts for the benefit of the beneficiaries of the estate of his deceased mother. Includes 10,000 shares which are covered by presently exercisable options granted under the Equity Plan. (8) Includes 32,514 shares which are covered by presently exercisable options granted under the Equity Plan and 9,976 shares which represent shares convertible from the Convertible Trust Preferred Securities. Also includes 30,000 shares restricted per terms of an agreement dated October 3, 1996. (9) Includes 14,420 shares which are covered by presently exercisable options granted under the Equity Plan. (10) Includes 11,338 shares which are covered by presently exercisable options granted under the Equity Plan. (11) Includes 10,000 shares over which Mr. Tuttle shares voting power as co-trustee with his wife. Includes 10,000 shares which are covered by presently exercisable options granted under the Equity Plan. (12) Includes 500 shares over which Mr. Utley has voting power as trustee of a trust and 15,883 shares which are covered by presently exercisable options granted under the Equity Plan. (13) Includes 79,385 shares over which Mr. Walpole shares voting power as co-trustee of a trust for the benefit of the beneficiaries of the estate of his deceased father. Includes 13,325 shares owned by Mr. Walpole's wife. Mr. Walpole disclaims beneficial ownership of these shares. Also includes 2,093 shares held for the account of Mr. Walpole by the trustee of the Advantage Plan. (14) Includes 31,426 shares which are covered by presently exercisable options granted under the Equity Plan. Also includes 3,160 shares held for the account of Mr. Whitehead by the trustee of the Advantage Plan. (15) Includes 240,753 shares which are covered by presently exercisable options granted under the Equity Plan, as well as 11,618 shares which represent shares convertible from the Convertible Trust Preferred Securities. Also includes 23,477 shares held for the account of three officers of the Company by the trustee of the Advantage Plan and includes 1,238 shares held for one officer of the Company by the trustee of the Company's Employee Stock Ownership Plan. 61 63 INDEBTEDNESS OF MANAGEMENT Lambert E. Althaver, the Company's former Chief Executive Officer, as of April 2, 1998 owed $100,000 to the Company which is the maximum amount of indebtedness Mr. Althaver has had to the Company since January 1, 1997. The indebtedness relates to loans made by the Company to Mr. Althaver and to approximately 24 other employees (collectively the "Borrowers") to permit them to repay individual bank loans that came due. The bank loans originated approximately eight years ago to enable the Borrowers collectively to acquire approximately 84,500 shares of the Common Stock from UIS, Inc. which had acquired the shares in 1987 as part of an unsuccessful tender offer strategy. The loans carry interest at prime. DESCRIPTION OF OTHER INDEBTEDNESS NEW CREDIT FACILITY The Company entered into the New Credit Facility on May 29, 1998. For the first year of the New Credit Facility, the Revolving Credit Facility bears interest at either the London Interbank Offered Rate ("LIBOR"), plus 2.25% or at the Prime Rate, plus 0.25%. Availability under the Revolving Credit Facility is subject to a borrowing base, consisting of 85% of the eligible accounts receivable of the Company and certain of its subsidiaries, 60% of certain raw materials and finished goods inventory and 70% of commodity raw material resin inventory, less customary reserves. In addition, the Revolving Credit Facility provides for a $25 million sub-facility for the issuance of letters of credit. The Capital Expenditure Facility initially bears interest at the Prime Rate, plus 0.50% or LIBOR, plus 2.50%. Amounts drawn under the Capital Expenditure Facility are repayable in 20 equal quarterly principal installments, beginning one quarter after such draw. The New Credit Facility is available for a period of five years. If the Revolving Credit Facility is terminated by the Company during the first three years, certain pre-payment fees may be applicable. The New Credit Facility contains numerous covenants, including financial covenants such as a fixed charge ratio and a senior secured funded indebtedness to EBITDA (earnings before interest, taxes depreciation and amortization) ratio, and restrictions on additional indebtedness, liens, capital expenditures, mergers and sales of assets and events of default. Obligations outstanding under the Revolving Credit Facility are secured by accounts receivable, inventory and general intangibles of the Company and certain of its subsidiaries, and also are secured by a pledge of the stock of certain of the material domestic subsidiaries of the Company and 65% of the stock of the material foreign subsidiaries of the Company. Each advance under the Capital Expenditure Facility will be secured by the item of equipment purchased with the proceeds of such advance. The collateral for the Capital Expenditure Facility will not constitute collateral for the Revolving Credit Facility. In addition, certain of the subsidiaries of the Company provide guarantees of the obligations under the New Credit Facility. On May 29, 1998, the Refinancing occurred in which the proceeds of the New Credit Facility were used to repay the indebtedness outstanding under the Credit Facility (including the repayment of a $6.3 million industrial revenue bond issued by the City of Ligonier, Indiana for construction of the facility at Sharon Manufacturing Company) and the Purchase Money Facility, as well as to repay the 2004 Notes including an early retirement premium of $2.0 million. The proceeds of the New Credit Facility will also be used for capital expenditures and for general working capital purposes. As of May 29, 1998, $78.0 million was outstanding under the New Credit Facility. The occurrence of a change of control may result in the lenders under the New Credit Facility having the right to require the Company to repay all indebtedness outstanding under the New Credit Facility. CREDIT FACILITIES The Credit Facility consisted of a multicurrency revolving loan facility for the Company and certain of its wholly-owned domestic and foreign subsidiaries. The Company also had the Purchase Money Facility, which 62 64 was issued by the same bank group as the Credit Facility. Amounts outstanding under the Purchase Money Facility reduced availability under the Credit Facility on a dollar-for-dollar basis. The maximum amount of availability under the Credit Facility at March 31, 1998 was $30 million which was reduced from $135 million pursuant to amendment on August 27, 1997, was reduced to $35 million in conjunction with the issuance of a consent and waiver on November 13, 1997, and was reduced to $30 million in connection with an additional consent and waiver on December 12, 1997. As of March 31, 1998, there was outstanding under the Credit Facility $23.0 million in debt and $7.0 million in letters of credit. Borrowings under the Credit Facilities bore interest at a per annum rate equal to the agent's base rate plus 1% or the prevailing interbank offered rate in the applicable offshore currency market, plus an additional margin ranging from 0.5% to 1.75% based on certain financial ratios of the Company. The Company was also required to pay a quarterly facility fee under the Credit Facility. The Credit Facility was secured by first liens on the inventory, accounts receivable and certain intangibles (excluding intellectual property) of the Company and its wholly-owned domestic subsidiaries and by a pledge of 100% of the stock of wholly-owned domestic subsidiaries, and up to 65% of the stock of wholly-owned foreign subsidiaries. Collateral for the Credit Facility secured the 2004 Notes on an equal and ratable basis. In addition, the $2.9 million outstanding as of March 31, 1998 under the Purchase Money Facility was secured by the equipment purchased with the borrowings thereunder. The Company and its wholly-owned domestic subsidiaries guaranteed payment of domestic borrowings under the Credit Facilities. The Credit Facilities contained customary representations and warranties and events of default and required compliance with certain covenants by the Company and its subsidiaries, including, among other things: (i) maintenance of certain financial ratios and compliance with certain financial tests and limitations; (ii) limitations on the payment of dividends, incurrence of additional indebtedness and granting of certain liens; and (iii) restrictions on mergers, acquisitions, asset sales, capital expenditures and investments. A portion of the proceeds of the New Credit Facility was utilized to repay the Credit Facilities (including the repayment of a $6.3 million industrial revenue bond issued by the City of Ligonier, Indiana for construction of the facility at Sharon Manufacturing Company) in full. SENIOR NOTES DUE 2005 In July 1995, the Company sold $110 million in aggregate principal amount of 9.875% senior notes due 2005. The 2005 Notes are general unsecured obligations of the Company with interest payable semi-annually. The 2005 Notes are guaranteed on a senior unsecured basis, jointly and severally, by each of the Company's principal wholly-owned domestic operating subsidiaries and certain of its indirect wholly-owned subsidiaries. Except as noted below, the 2005 Notes are not redeemable at the Company's option prior to July 15, 2000. Thereafter, the 2005 Notes will be redeemable, in whole or in part, at the option of the Company at various redemption prices as set forth in the 2005 Notes Indenture, plus accrued and unpaid interest thereon to the redemption date. In addition, prior to July 15, 1998, the Company may, at its option, redeem up to an aggregate of 30% of the principal amount of the 2005 Notes originally issued with the net proceeds from one or more public equity offerings at the redemption price specified of 110% plus accrued interest to the date of redemption. Also, in the event of a change in control, the Company will be obligated to make an offer to purchase all of the outstanding 2005 Notes at a redemption price of 101% of the principal amount thereof plus accrued interest to the date of repurchase. Further, in certain circumstances, the Company will be required to make an offer to repurchase the 2005 Notes at a price equal to 100% of the principal amount thereof, plus accrued interest to the date of repurchase, with the net cash proceeds of certain asset sales. The 2005 Notes Indenture contains customary events of default and covenants which limit (i) the incurrence of additional indebtedness; (ii) the issuance of preferred stock by subsidiaries; (iii) the creation of liens; (iv) sales of assets and subsidiary stock; (v) mergers and consolidations; (vi) payments to subsidiaries; and (vii) transactions with affiliates. 63 65 SENIOR NOTES DUE 2004 In October 1994, the Company sold $45 million in principal amount of 7.68% senior notes due 2004. The 2004 Notes required quarterly interest payments due January 1, April 1, July 1 and October 1. The agreement required the Company to maintain consolidated adjusted net worth (as defined in the 2004 Note Agreement referred to below) of $85 million, plus 25% of cumulative net income for each year beginning in 1995, and a funded debt to total capital ratio not greater than .65 to 1. The agreement also prohibited the Company from consolidating or merging with another corporation except under certain circumstances and from disposing of substantially all of its assets. The agreement under which the 2004 Notes were issued (the "2004 Note Agreement") gave the holders of the 2004 Notes the option of having their 2004 Notes repurchased at the principal amount thereof in the event of a Change of Control (as defined in the 2004 Note Agreement). In addition, the 2004 Note Agreement contained events of default including (i) a default in the payment of interest, (ii) a default in the payment of any principal or required prepayment premium, (iii) defaults under certain other debt instruments, and (iv) certain events of insolvency or bankruptcy of the Company or its subsidiaries. The 2004 Notes were secured equally and ratably with the Credit Facility by the Company's and its domestic subsidiaries' inventory, accounts receivable and certain intangibles and by a pledge of 100% of the capital stock of wholly-owned domestic subsidiaries and up to 65% of the capital stock of wholly-owned foreign subsidiaries. A portion of the proceeds of the New Credit Facility was utilized to repay the 2004 Notes, plus an early retirement premium of $2.0 million, in full. 64 66 DESCRIPTION OF THE EXCHANGE NOTES The Exchange Notes will be, and the Old Notes were, issued under an indenture dated as of December 15, 1997 (the "Indenture") among Walbro Corporation (the "Company"), the Guarantors and Bankers Trust Company, as trustee (the "Trustee"). References to the Notes include the Old Notes and the Exchange Notes unless the context otherwise requires. The following summary of the material provisions of the Indenture does not purport to be complete and is subject to, and qualified in its entirety by reference to, the provisions of the Indenture (a copy of which is filed as an exhibit to the Registration Statement of which this Prospectus is a part), including the definitions of certain terms contained therein and those terms made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended, as in effect on the date of the Indenture. The definitions of certain capitalized terms used in the following summary are set forth below under "-- Certain Definitions." GENERAL The Old Notes are and the Exchange Notes will be general unsecured obligations of the Company. The maximum aggregate principal amount of Notes to be issued under the Indenture will be $100,000,000. The Notes will be guaranteed by each of the Guarantors pursuant to the guarantees (the "Guarantees") described below. The indebtedness represented by the Notes will rank pari passu in right of payment with all existing and future senior unsecured obligations of the Company. Each Guarantee will be a general unsecured obligation of the applicable Guarantor and will rank pari passu in right of payment with all existing and future senior unsecured obligations of such Guarantor. The Old Notes are and the Exchange Notes will be effectively subordinate in right of payment to all existing and future liabilities, including trade payables, of the Company's Subsidiaries which are not Guarantors. In addition, the Notes and the Guarantees will be effectively subordinate in right of payment to all existing and future secured Indebtedness of the Company and its Subsidiaries. Substantially all of the operations of the Company are conducted by Subsidiaries of the Company. As result, the Company is dependent upon the earnings and cash flow of its Subsidiaries to meet its obligations, with respect to the Notes. The Subsidiaries of the Company which are not Wholly-Owned Restricted Subsidiaries and the Subsidiaries of the Company which are not incorporated in the United States, any state therein or the District of Columbia will not guarantee the Notes. Therefore, the Indebtedness represented by the Notes will be structurally subordinated to all obligations of such Subsidiaries. See "Risk Factors -- Holding Company Structure." The Old Notes were and the Exchange Notes will be issued only in registered form without coupons, in denominations of $1,000 and integral multiples thereof. Principal of, premium, if any, and interest on the Notes will be payable, and the Notes will be transferable, at the office of the Company's agent in the City of New York located at the corporate trust office of the Trustee. In addition, interest may be paid, at the option of the Company, by check mailed to the person entitled thereto as shown on the register for the Notes. No service charge will be made for any transfer, exchange or redemption of the Notes, except in certain circumstances for any tax or other governmental charge that may be imposed in connection therewith. Any Notes that remain outstanding after the completion of the Exchange Offer, together with the Exchange Notes issued in connection with the Exchange Offer, will be treated as a single class of securities under the Indenture. MATURITY, INTEREST AND PRINCIPAL The Notes will mature on December 15, 2007. Interest on the Notes will accrue at the rate of 10 1/8% per annum and will be payable semi-annually on each June 15 and December 15, commencing June 15, 1998, to the holders of record of Notes at the close of business on the June 1 and December 1 immediately preceding such interest payment date. Interest on the Notes will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the original date of issuance (the "Issue Date"). Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months. 65 67 The Notes will not be entitled to the benefit of any mandatory sinking fund. REDEMPTION Optional Redemption. The Notes will be redeemable at the option of the Company, in whole or in part, at any time on or after December 15, 2002. The Notes may be so redeemed on not less than 30 nor more than 60 days' prior notice, at the redemption prices (expressed as percentages of principal amount) set forth below, plus accrued and unpaid interest, if any, to the redemption date, if redeemed during the 12-month period beginning December 15 of the years indicated below:
REDEMPTION YEAR PRICE ---- ---------- 2002................................................ 105.063% 2003................................................ 103.375% 2004................................................ 101.688% 2005 and thereafter................................. 100.000%
Optional Redemption upon Public Equity Offerings. At any time, or from time to time, on or prior to December 15, 2000, the Company may, at its option, use the net cash proceeds of one or more Public Equity Offerings (as defined) to redeem up to an aggregate of 30% of the principal amount of Notes originally issued, at a redemption price equal to 110.125% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of redemption. In order to effect the foregoing redemption with the proceeds of a Public Equity Offering, the Company shall send the redemption notice not later than 60 days after the consummation of such Public Equity Offering. As used in the preceding paragraph, "Public Equity Offering" means an underwritten public offering of Capital Stock (other than Redeemable Capital Stock) of the Company pursuant to a registration statement filed with and declared effective by the Securities and Exchange Commission in accordance with the Securities Act. Mandatory Redemption upon a Change of Control and Certain Asset Sales. In addition, as described below, the Company is obligated (a) upon the occurrence of a Change of Control, to make an offer to purchase all outstanding Notes at a purchase price of 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of purchase, and (b) to make an offer to purchase Notes with a portion of the net cash proceeds of certain sales or other dispositions of assets at a purchase price of 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of purchase. See "-- Certain Covenants -- Change of Control" and "-- Disposition of Proceeds of Asset Sales." Selection and Notice. In the event that less than all of the Notes are to be redeemed at any time, selection of such Notes for redemption will be made by the Trustee in compliance with the requirements of the principal national securities exchange, if any, on which the Notes are listed or, if the Notes are not then listed on a national securities exchange by lot or by such method as the Trustee shall deem fair and appropriate; provided, however, that no Notes of a principal amount of $1,000 or less shall be redeemed in part. Notice of redemption shall be mailed by first-class mail at least 30 but not more than 60 days before the redemption date to each holder of Notes to be redeemed at its registered address. If any Note is to be redeemed in part only, the notice of redemption that relates to such Note shall state the portion of the principal amount thereof to be redeemed. A new Note in a principal amount equal to the unredeemed portion thereof will be issued in the name of the holder thereof upon surrender for cancellation of the original Note. On and after the redemption date, interest will cease to accrue on Notes or portions thereof called for redemption, unless the Company defaults in the payment of the redemption price therefor. THE GUARANTEES Each of the Guarantors will (so long as they remain Subsidiaries of the Company) unconditionally guarantee on a joint and several basis all of the Company's obligations under the Notes, including its obligations to pay principal, premium, if any, and interest with respect to the Notes. Except as provided in 66 68 "-- Certain Covenants" below, the Company is not restricted from selling or otherwise disposing of any of the Guarantors. The Indenture provides that each Wholly-Owned Restricted Subsidiary other than any Accounts Receivable Subsidiary incorporated in the United States, any state therein or the District of Columbia which incurs (as defined below) Indebtedness (other than to the Company or a Wholly-Owned Restricted Subsidiary) in an aggregate principal amount in excess of $5,000,000 will be a Guarantor for so long as such Wholly-Owned Restricted Subsidiary has Indebtedness outstanding in excess of $5,000,000. At the Company's discretion, any other Subsidiary may be a Guarantor. The Indenture provides that if all of the assets of any Guarantor or all of the Capital Stock of any Guarantor is sold (including by issuance or otherwise) by the Company or any of its Subsidiaries in a transaction constituting an Asset Sale, and if the Net Cash Proceeds from such Asset Sale are used in accordance with the covenant "Disposition of Proceeds of Asset Sales," then such Guarantor (in the event of a sale or other disposition of all of the Capital Stock of such Guarantor) or the corporation or other entity acquiring such assets (in the event of a sale or other disposition of all or substantially all of the assets of such Guarantor) shall be released and discharged of its Guarantee obligations. CERTAIN COVENANTS The Indenture contains the following covenants, among others: Limitation on Indebtedness. The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or in any manner become directly or indirectly liable, contingently or otherwise, for the payment of (in each case, to "incur") any Indebtedness (including, without limitation, any Acquired Indebtedness), provided, however, that the Company or any Guarantor will be permitted to incur Indebtedness (including, without limitation, Acquired Indebtedness) if, at the time of such incurrence, and after giving pro forma effect thereto, the Consolidated Fixed Charge Coverage Ratio of the Company is at least equal to 2:1. Notwithstanding the foregoing, the Company and its Restricted Subsidiaries may, to the extent specifically set forth below, incur each and all of the following: (a) Indebtedness of the Company evidenced by the Notes and Indebtedness of any Guarantor evidenced by its Guarantee; (b) Indebtedness of the Company and its Subsidiaries outstanding on the Issue Date (including Indebtedness represented by the 2005 Notes and the 2005 Notes Guarantees); (c) Indebtedness of the Company and any Guarantor under the Credit Facility and Indebtedness of any Accounts Receivable Subsidiary in connection with any Accounts Receivable Transaction in an aggregate principal amount at any one time outstanding not to exceed the greater of (x) the sum of (A) 80% of the accounts receivable of the Company and its Restricted Subsidiaries on a consolidated basis and (B) 60% of the inventory of the Company and its Restricted Subsidiaries on a consolidated basis, and (y) $135,000,000; (d) (i) Interest Rate Protection Obligations of the Company covering Indebtedness of the Company or a Restricted Subsidiary of the Company and (ii) Interest Rate Protection Obligations of any Restricted Subsidiary of the Company covering Indebtedness of such Restricted Subsidiary; provided, however, that, in the case of either clause (i) or (ii), (x) any Indebtedness to which any such Interest Rate Protection Obligations relate is otherwise permitted to be incurred under this covenant and (y) the notional principal amount of any such Interest Rate Protection Obligations does not exceed the principal amount of the Indebtedness to which such Interest Rate Protection Obligations relate; (e) Indebtedness of a Wholly-Owned Restricted Subsidiary owed to and held by the Company or another Wholly-Owned Restricted Subsidiary, in each case which is not subordinated in right of payment to any Indebtedness of such Wholly-Owned Restricted Subsidiary, except that (i) any transfer of such Indebtedness by the Company or a Wholly-Owned Restricted Subsidiary (other than to the Company or 67 69 to a Wholly-Owned Restricted Subsidiary) and (ii) the sale, transfer or other disposition by the Company or any Wholly-Owned Restricted Subsidiary of Capital Stock of a Wholly-Owned Restricted Subsidiary which is owed Indebtedness of another Wholly-Owned Restricted Subsidiary such that it ceases to be a Wholly-Owned Restricted Subsidiary shall, in each case, be an incurrence of Indebtedness by such Wholly-Owned Restricted Subsidiary, subject to the other provisions of this covenant; (f) Indebtedness of the Company owed to and held by a Wholly-Owned Restricted Subsidiary which is unsecured and subordinated in right of payment to the payment and performance of the Company's obligations under the Indenture and the Notes except that (i) any transfer of such Indebtedness by a Wholly-Owned Restricted Subsidiary (other than to another Wholly-Owned Restricted Subsidiary) and (ii) the sale, transfer or other disposition by the Company or any Wholly-Owned Restricted Subsidiary of Capital Stock of a Wholly-Owned Restricted Subsidiary which holds Indebtedness of the Company such that it ceases to be a Wholly-Owned Restricted Subsidiary shall, in each case, be an incurrence of Indebtedness by the Company, subject to the other provisions of this covenant; (g) Indebtedness under Currency Agreements; provided that in the case of Currency Agreements which relate to Indebtedness, such Currency Agreements do not increase the Indebtedness of the Company and its Restricted Subsidiaries outstanding other than as a result of fluctuations in foreign currency exchange rates or by reason of fees, indemnities and compensation payable thereunder; (h) Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument inadvertently (except in the case of daylight overdrafts) drawn against insufficient funds in the ordinary course of business; provided, however, that such Indebtedness is extinguished within two business days of incurrence; (i) Indebtedness of the Company or any of its Restricted Subsidiaries represented by letters of credit for the account of the Company or such Restricted Subsidiary, as the case may be, in order to provide security for workers' compensation claims, payment obligations in connection with self-insurance or similar requirements in the ordinary course of business; (j) Indebtedness of Restricted Subsidiaries of the Company which are not Guarantors not to exceed the sum of (x) 90% of the accounts receivable of any such Restricted Subsidiary, (y) 70% of the inventory of any Restricted Subsidiary and (z) 10% of the Net Worth of any such Restricted Subsidiary; provided that if any such Subsidiary shall sell or otherwise transfer any of its accounts receivable, the Net Cash Proceeds from any such sale or transfer shall be used to repay any Indebtedness of such Subsidiary incurred pursuant to this clause (j); (k) Indebtedness incurred by the Company or any of its Restricted Subsidiaries during any period of time when the Notes are rated Investment Grade by S&P and Moody's (or if either S&P or Moody's does not make a rating of the Notes publicly available, by either S&P or Moody's and an equivalent rating by another Rating Agency) and no Default or Event of Default shall have occurred and be continuing; (l) Indebtedness of the Company or any Guarantor in addition to that described in clauses (a) through (k) above, in an aggregate principal amount outstanding at any time not exceeding $20,000,000; and (m) (i) Indebtedness of the Company the proceeds of which are used solely to refinance (whether by amendment, renewal, extension or refunding) Indebtedness of the Company or any of its Restricted Subsidiaries and (ii) Indebtedness of any Restricted Subsidiary of the Company the proceeds of which are used solely to refinance (whether by amendment, renewal, extension or refunding) Indebtedness of such Restricted Subsidiary, in each case other than Indebtedness incurred under clause (c), (d), (e), (f), (g), (h), (i), (j) or (l) of this covenant; provided, however, that (x) the principal amount of Indebtedness incurred pursuant to this clause (m) (or, if such Indebtedness provides for an amount less than the principal amount thereof to be due and payable upon a declaration of acceleration of the maturity thereof, the original issue price of such Indebtedness) shall not exceed the sum of the principal amount of Indebtedness so refinanced, plus the amount of any premium required to be paid in connection 68 70 with such refinancing pursuant to the terms of such Indebtedness or the amount of any premium reasonably determined by the Board of Directors of the Company as necessary to accomplish such refinancing by means of a tender offer or privately negotiated purchase, plus the amount of reasonable expenses in connection therewith, and (y) in the case of Indebtedness incurred by the Company or any Guarantor pursuant to this clause (m), such Indebtedness (A) has no scheduled principal payment prior to the earlier of (1) the final maturity of the Indebtedness refinanced or (2) the 91st day after the Final Maturity Date and (B) has an Average Life to Stated Maturity greater than either (1) the Average Life to Stated Maturity of the Indebtedness refinanced or (2) the remaining Average Life to Stated Maturity of the Notes. The Company will not, directly or indirectly, in any event incur any Indebtedness which by its terms (or by the terms of any agreement governing such Indebtedness) is subordinated in right of payment to any other Indebtedness of the Company unless such Indebtedness is also by its terms (or by the terms of any agreement governing such Indebtedness) made expressly subordinate in right of payment to the Notes pursuant to subordination provisions that are substantively identical to the subordination provisions of such Indebtedness (or such agreement) that are most favorable to the holders of any other Indebtedness of the Company. Limitation on Restricted Payments. The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly: (a) declare or pay any dividend or make any other distribution or payment on or in respect of Capital Stock of the Company or any of its Restricted Subsidiaries or any payment made to the direct or indirect holders (in their capacities as such) of Capital Stock of the Company or any of its Restricted Subsidiaries (other than (x) dividends or distributions payable solely in Capital Stock of the Company (other than Redeemable Capital Stock) or in options, warrants or other rights to purchase Capital Stock of the Company (other than Redeemable Capital Stock), (y) the declaration or payment of dividends or other distributions to the extent declared or paid to the Company or any Restricted Subsidiary of the Company and (z) the declaration or payment of dividends or other distributions by any Restricted Subsidiary of the Company to all holders of Common Stock of such Restricted Subsidiary on a pro rata basis), (b) purchase, redeem, defease or otherwise acquire or retire for value any Capital Stock of the Company or any of its Restricted Subsidiaries (other than any such Capital Stock owned by a Wholly-Owned Restricted Subsidiary), (c) make any principal payment on, or purchase, defease, repurchase, redeem or otherwise acquire or retire for value, prior to any scheduled maturity, scheduled repayment, scheduled sinking fund payment or other Stated Maturity, any Subordinated Indebtedness (other than any such Indebtedness owned by the Company or a Wholly-Owned Restricted Subsidiary), or (d) make any Investment (other than any Permitted Investment) in any person (such payments or Investments described in the preceding clauses (a), (b), (c) and (d) are collectively referred to as "Restricted Payments"), unless, at the time of and after giving effect to the proposed Restricted Payment (the amount of any such Restricted Payment, if other than cash, shall be the Fair Market Value on the date of such Restricted Payment of the asset(s) proposed to be transferred by the Company or such Restricted Subsidiary, as the case may be, pursuant to such Restricted Payment), (A) no Default or Event of Default shall have occurred and be continuing, (B) immediately prior to and after giving effect to such Restricted Payment, the Company would be able to incur $1.00 of additional Indebtedness pursuant to the first paragraph of the covenant described under "-- Limitation on Indebtedness" above (assuming a market rate of interest with respect to such additional Indebtedness) and (C) the aggregate amount of all Restricted Payments declared or made from and after the 2005 Notes Issue Date would not exceed the sum of (1) 50% of the aggregate Consolidated Net Income of the Company accrued on a cumulative basis during the period beginning on the first day of the fiscal quarter of the Company during which the 2005 Notes Issue Date occurred and ending on the last day of the fiscal quarter of the Company immediately preceding the date of such proposed Restricted Payment, which period shall be treated as a single accounting period (or, if such aggregate cumulative Consolidated Net Income of the Company for such period shall be a deficit, minus 100% 69 71 of such deficit), plus (2) the aggregate net proceeds (the amount of such proceeds, if other than cash, shall be the Fair Market Value on the date such proceeds are received by the Company of the asset(s) comprising such proceeds) received by the Company either (x) as capital contributions to the Company after the 2005 Notes Issue Date from any person (other than a Subsidiary of the Company) or (y) from the issuance or sale of Capital Stock (excluding Redeemable Capital Stock, but including Capital Stock issued upon the conversion of convertible Indebtedness or from the exercise of options, warrants or rights to purchase Capital Stock (other than Redeemable Capital Stock)) of the Company to any person (other than to a Subsidiary of the Company) after the 2005 Notes Issue Date plus (3) in the case of the disposition or repayment of any Investment constituting a Restricted Payment made after the 2005 Notes Issue Date (excluding any Investment described in clause (v) of the following paragraph), an amount equal to the lesser of the return of capital with respect to such Investment and the initial amount of such Investment, in either case, less the cost of the disposition of such Investment. For purposes of the preceding clause (C)(2), the value of the aggregate net proceeds received by the Company upon the issuance of Capital Stock upon the conversion of convertible Indebtedness or upon the exercise of options, warrants or rights will be the net proceeds received upon the issuance of such Indebtedness, options, warrants or rights plus the incremental proceeds received by the Company upon the conversion or exercise thereof. None of the foregoing provisions will prohibit (i) the payment of any dividend within 60 days after the date of its declaration, if at the date of declaration such payment would be permitted by the foregoing paragraph; (ii) so long as no Default or Event of Default shall have occurred and be continuing, the redemption, repurchase or other acquisition or retirement of any shares of any class of Capital Stock of the Company or any Restricted Subsidiary of the Company in exchange for, or out of the net proceeds of, a substantially concurrent (x) capital contribution to the Company from any person (other than a Subsidiary of the Company) or (y) issue and sale of other shares of Capital Stock (other than Redeemable Capital Stock) of the Company to any person (other than to a Subsidiary of the Company); provided, however, that the amount of any such net proceeds that are utilized for any such redemption, repurchase or other acquisition or retirement shall be excluded from clause (C)(2) of the preceding paragraph; (iii) so long as no Default or Event of Default shall have occurred and be continuing, any redemption, repurchase or other acquisition or retirement of Subordinated Indebtedness in exchange for, or out of the net proceeds of, a substantially concurrent (x) capital contribution to the Company from any person (other than a Subsidiary of the Company) or (y) issue and sale of (1) Capital Stock (other than Redeemable Capital Stock) of the Company to any person (other than to a Subsidiary of the Company); provided, however, that the amount of any such net proceeds that are utilized for any such redemption, repurchase or other acquisition or retirement shall be excluded from clause (C)(2) of the preceding paragraph; or (2) Indebtedness of the Company issued to any person (other than a Subsidiary of the Company), so long as such Indebtedness is Subordinated Indebtedness which (x) has no Stated Maturity earlier than the 91st day after the Final Maturity Date, (y) has an Average Life to Stated Maturity equal to or greater than the remaining Average Life to Stated Maturity of the Notes and (z) is subordinated to the Notes in the same manner and at least to the same extent as the Subordinated Indebtedness so purchased, exchanged, redeemed, acquired or retired; (iv) so long as no Default or Event of Default shall have occurred and be continuing, the making of any Restricted Payment by the Company or any Restricted Subsidiary of the Company during any period of time when the Notes are rated Investment Grade by S&P and Moody's (or if either S&P or Moody's does not make a rating of the Notes publicly available, by either S&P or Moody's and an equivalent rating by another Rating Agency); (v) Investments constituting Restricted Payments made as a result of the receipt of non-cash consideration from any Asset Sale made pursuant to and in compliance with the covenant described under "-- Disposition of Proceeds of Asset Sales" below; (vi) so long as no Default or Event of Default has occurred and is continuing, repurchases by the Company of Common Stock of the Company from employees of the Company or any of its Subsidiaries or their authorized representatives upon the death, disability or termination of employment of such employees, in an aggregate amount not exceeding $1,000,000 in any calendar year; and (vii) so long as no Default or Event of Default has occurred and is continuing, other Restricted Payments in an aggregate amount not exceeding $5,000,000 from the 2005 Notes Issue Date. In computing the amount of Restricted Payments previously made for purposes of clause (C) of the preceding paragraph, Restricted 70 72 Payments made under the preceding clauses (i), (iv), (vi) and (vii) shall be included and clauses (ii), (iii) and (v) shall not be so included. Limitation on Liens. The Company will not, and will not permit any of its Restricted Subsidiaries to, create, incur, assume or suffer to exist any Liens of any kind against or upon any of its property or assets, or any proceeds therefrom, unless (x) in the case of Liens securing Subordinated Indebtedness, the Notes are secured by a Lien on such property, assets or proceeds that is senior in priority to such Liens and (y) in all other cases, the Notes are equally and ratably secured, except for (a) Liens existing as of the Issue Date and Liens under and as contemplated by agreements existing as of the Issue Date, including Liens on Capital Stock of Subsidiaries of the Company and accounts receivable, inventory and intangibles of the Company and its Restricted Subsidiaries securing Indebtedness (including any guarantees) under the Credit Facility and the 2004 Note Agreement; (b) Liens securing the Notes or any Guarantee; (c) Liens securing the 2005 Notes and the 1995 Guarantees pursuant to the terms of the 2005 Notes Indenture; (d) Liens in favor of the Company; (e) Liens securing Indebtedness which is incurred to refinance Indebtedness which has been secured by a Lien permitted under the Indenture and which has been incurred in accordance with the provisions of the Indenture; provided, however, that such Liens do not extend to or cover any property or assets of the Company or any of its Restricted Subsidiaries not securing the Indebtedness so refinanced; and (f) Permitted Liens. Change of Control. Upon the occurrence of a Change of Control, the Company shall be obligated to make an offer to purchase (a "Change of Control Offer"), and shall purchase, on a business day (the "Change of Control Purchase Date") not more than 60 nor less than 30 days following the occurrence of the Change of Control, all of the then outstanding Notes at a purchase price equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the Change of Control Purchase Date. The Company shall be required to purchase all Notes properly tendered into the Change of Control Offer and not withdrawn. The Change of Control Offer is required to remain open for at least 20 business days and until the close of business on the Change of Control Purchase Date. In order to effect such Change of Control Offer, the Company shall, not later than the 30th day after the occurrence of the Change of Control, mail to each holder of Notes notice of the Change of Control Offer, which notice shall govern the terms of the Change of Control Offer and shall state, among other things, the procedures that holders of Notes must follow to accept the Change of Control Offer. The occurrence of a Change of Control will require the Company to offer to purchase all of the outstanding 2005 Notes at a purchase price equal to 101% of the principal amount thereof, plus accrued and unpaid interest, and could have resulted in the lenders under the 2004 Note Agreement and the Credit Facilities having the right to require the Company to repay all Indebtedness outstanding under the 2004 Note Agreement and the Credit Facilities, respectively. The occurrence of a Change of Control may result in the lenders under the New Credit Facility having the right to require the Company to repay all indebtedness outstanding under the New Credit Facility. There can be no assurance that the Company will have adequate resources to repay or refinance all Indebtedness owing under the 2005 Notes and the New Credit Facility or to fund the purchase of the Notes upon a Change of Control. The Company shall not be required to make a Change of Control Offer upon a Change of Control if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements applicable to a Change of Control Offer made by the Company and purchases all Notes validly tendered and not withdrawn under such Change of Control Offer. The Company will comply with Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable, in the event that a Change of Control occurs and the Company is required to purchase Notes as described above. Disposition of Proceeds of Asset Sales. The Company will not, and will not permit any of its Restricted Subsidiaries to, make any Asset Sale during any period when the Notes are not rated Investment Grade by S&P and Moody's (or if either S&P or Moody's does not make a rating of the Notes publicly available, by either S&P or Moody's and an equivalent rating by another Rating Agency (such period, the 71 73 "Non-Investment Grade Period")) unless (a) the Company or such Restricted Subsidiary, as the case may be, receives consideration at the time of such Asset Sale at least equal to the Fair Market Value of the shares or assets sold or otherwise disposed of and (b) at least 75% of such consideration consists of cash or Cash Equivalents. To the extent the Net Cash Proceeds of any Asset Sale consummated during the Non-Investment Grade Period are not required (a) to repay any Indebtedness secured by the assets subject to such Asset Sale pursuant to Liens permitted under the Indenture, (b) to repay Indebtedness incurred pursuant to clause (j) under "-- Limitation on Indebtedness," (c) to be applied to repay, and permanently reduce the commitments under, the New Credit Facility (as required by the terms thereof) or (d) repay Indebtedness under the 2005 Notes, or, in each case, are not so applied, the Company or such Restricted Subsidiary, as the case may be, may, within 365 days of such Asset Sale, apply such Net Cash Proceeds to an investment in properties and assets that replace the properties and assets that were the subject of such Asset Sale or in properties and assets that will be used in the businesses of the Company and its Restricted Subsidiaries existing on the Issue Date or in businesses reasonably related thereto ("Replacement Assets"). Any Net Cash Proceeds from any Asset Sale consummated during the Non-Investment Grade Period that are neither used to repay Indebtedness, as specified in the immediately preceding sentence, nor invested in Replacement Assets within the 365-day period described above constitute "Excess Proceeds," subject to disposition as provided below. When the aggregate amount of Excess Proceeds equals or exceeds $10,000,000, the Company shall make an offer to purchase (an "Asset Sale Offer"), from all holders of the Notes, not more than 40 business days thereafter, an aggregate principal amount of Notes equal to such Excess Proceeds, at a price in cash equal to 100% of the outstanding principal amount thereof plus accrued and unpaid interest, if any, to the purchase date. To the extent that the aggregate principal amount of Notes tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, the Company may use such deficiency for general corporate purposes. If the aggregate principal amount of Notes validly tendered and not withdrawn by holders thereof exceeds the Excess Proceeds, Notes to be purchased will be selected on a pro rata basis. Upon completion of such Asset Sale Offer, the amount of Excess Proceeds shall be reset to zero. The Company will comply with Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable, in the event that an Asset Sale occurs and the Company is required to purchase Notes as described above. Limitation on Issuances and Sale of Preferred Stock by Restricted Subsidiaries. The Company (a) will not permit any of its Restricted Subsidiaries to issue any Preferred Stock (other than to the Company or a Wholly-Owned Restricted Subsidiary) and (b) will not permit any person (other than the Company or a Wholly-Owned Restricted Subsidiary) to own any Preferred Stock of any Restricted Subsidiary of the Company; provided, however, that this covenant shall not prohibit the issuance and sale of (x) all, but not less than all, of the issued and outstanding Capital Stock of any Restricted Subsidiary of the Company owned by the Company or any of its Restricted Subsidiaries in compliance with the other provisions of the Indenture or (y) the issuance or sale of any Preferred Stock of a Restricted Subsidiary during any period of time when the Notes are rated Investment Grade by S&P and Moody's (or if either S&P or Moody's does not make a rating of the Notes publicly available, by either S&P or Moody's and an equivalent rating by another Rating Agency), so long as no Default or Event of Default shall have occurred and be continuing. Limitation on Transactions with Interested Persons. The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, enter into or suffer to exist any transaction or series of related transactions (including, without limitation, the sale, transfer, disposition, purchase, exchange or lease of assets, property or services) with, or for the benefit of, any Affiliate of the Company, unless (a) such transaction or series of related transactions is on terms that are no less favorable to the Company or such Restricted Subsidiary, as the case may be, than those which could have been obtained in a comparable transaction at such time from persons who are not Affiliates of the Company, (b) with respect to a transaction or series of transactions involving aggregate payments or value equal to or greater than $5,000,000, the Company has obtained a written opinion from an Independent Financial Advisor stating that the terms of such transaction or series of transactions are fair to the Company or such Restricted Subsidiary, as the case may be, from a financial point of view and (c) with respect to a transaction or series of transactions involving aggregate 72 74 payments or value equal to or greater than $2,500,000, the Company shall have delivered an officers' certificate to the Trustee certifying that such transaction or series of transactions complies with the preceding clause (a) and, if applicable, certifying that the opinion referred to in the preceding clause (b) has been delivered and that such transaction or series of transactions has been approved by a majority of the Board of Directors of the Company; provided, however, that this covenant will not restrict the Company from (i) paying dividends in respect of its Capital Stock or making Investments permitted under the covenant described under "-- Limitation on Restricted Payments" above, (ii) paying reasonable and customary fees to directors of the Company who are not employees of the Company or (iii) making loans or advances to officers, employees or consultants of the Company and its Restricted Subsidiaries (including travel and moving expenses) in the ordinary course of business for bona fide business purposes of the Company or such Restricted Subsidiary not in excess of $5,000,000 in the aggregate at any one time outstanding. Limitation on Dividends and Other Payment Restrictions Affecting Restricted Subsidiaries. The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction on the ability of any Restricted Subsidiary of the Company to (a) pay dividends, in cash or otherwise, or make any other distributions on or in respect of its Capital Stock or any other interest or participation in, or measured by, its profits, (b) pay any Indebtedness owed to the Company or any other Restricted Subsidiary of the Company, (c) make loans or advances to, or any investment in, the Company or any other Restricted Subsidiary of the Company, (d) transfer any of its properties or assets to the Company or any other Restricted Subsidiary of the Company or (e) guarantee any Indebtedness of the Company or any other Restricted Subsidiary of the Company, except for such encumbrances or restrictions existing under or by reason of (i) applicable law, (ii) customary non-assignment provisions of any contract or any lease governing a leasehold interest of the Company or any Restricted Subsidiary of the Company, (iii) customary restrictions on transfers of property subject to a Lien permitted under the Indenture which could not materially adversely affect the Company's ability to satisfy its obligations under the Indenture and the Notes, (iv) any agreement or other instrument of a person acquired by the Company or any Restricted Subsidiary of the Company (or a Restricted Subsidiary of such person) in existence at the time of such acquisition (but not created in contemplation thereof), which encumbrance or restriction is not applicable to any person, or the properties or assets of any person, other than the person, or the properties or assets of the person, so acquired, (v) provisions contained in agreements or instruments relating to Indebtedness which prohibit the transfer of all or substantially all of the assets of the obligor thereunder unless the transferee shall assume the obligations of the obligor under such agreement or instrument, (vi) encumbrances and restrictions under and as contemplated by agreements governing Indebtedness in effect on the Issue Date and encumbrances and restrictions in permitted refinancings or replacements thereof which are no less favorable to the holders of the Notes than those contained in the Indebtedness so refinanced or replaced, and (vii) any Accounts Receivable Subsidiary in connection with any Accounts Receivable Transaction. Limitation on Sale-Leaseback Transactions. The Company will not, and will not permit any of its Restricted Subsidiaries to, enter into any Sale-Leaseback Transaction with respect to any property of the Company or any of its Restricted Subsidiaries. Notwithstanding the foregoing, the Company and its Restricted Subsidiaries may enter into Sale-Leaseback Transactions with respect to property acquired or constructed after the Issue Date; provided that (a) the Attributable Value of such Sale-Leaseback Transaction shall be deemed to be Indebtedness of the Company or such Restricted Subsidiary, as the case may be, and (b) after giving pro forma effect to any such Sale-Leaseback Transaction and the foregoing clause (a), the Company would be able to incur $1.00 of additional Indebtedness pursuant to the first paragraph of the covenant described under "-- Limitation on Indebtedness" above (assuming a market rate of interest with respect to such additional Indebtedness). Reporting Requirements. The Company will file with the Commission the annual reports, quarterly reports and other documents required to be filed with the Commission pursuant to Sections 13 and 15 of the Exchange Act, whether or not the Company has a class of securities registered under the Exchange Act. The Company will be required to file with the Trustee and provide to each holder of Notes within 15 days after it 73 75 files them with the Commission (or if any such filing is not permitted under the Exchange Act, 15 days after the Company would have been required to make such filing) copies of such reports and documents. MERGER, SALE OF ASSETS, ETC. Neither the Company nor any Guarantor will, in any transaction or series of transactions, merge or consolidate with or into, or sell, assign, convey, transfer, lease or otherwise dispose of all or substantially all of its properties and assets as an entirety to, any person or persons, and the Company will not permit any of its Restricted Subsidiaries to enter into any such transaction or series of transactions if such transaction or series of transactions, in the aggregate, would result in a sale, assignment, conveyance, transfer, lease or other disposition of all or substantially all of the properties and assets of the Company or the Company and its Restricted Subsidiaries, taken as a whole, to any other person or persons, unless at the time of and after giving effect thereto (a) either (i) if the transaction or series of transactions is a merger or consolidation, the Company, the applicable Guarantor or applicable Restricted Subsidiary shall be the surviving person of such merger or consolidation, or (ii) the person formed by such consolidation or into which the Company, such Guarantor or such Restricted Subsidiary is merged or to which the properties and assets of the Company, such Guarantor or such Restricted Subsidiary, as the case may be, are transferred (any such surviving person or transferee person being the "Surviving Entity") shall be a corporation organized and existing under the laws of the United States of America, any state thereof or the District of Columbia and shall expressly assume by a supplemental indenture executed and delivered to the Trustee, in form reasonably satisfactory to the Trustee, all the obligations of the Company or such Guarantor, as the case may be, under the Notes or such Guarantor's Guarantee, as the case may be, and the Indenture, and in each case, the Indenture shall remain in full force and effect; (b) immediately before and immediately after giving effect to such transaction or series of transactions on a pro forma basis (including, without limitation, any Indebtedness incurred or anticipated to be incurred in connection with or in respect of such transaction or series of transactions), no Default or Event of Default shall have occurred and be continuing and the Company or the Surviving Entity, as the case may be, after giving effect to such transaction or series of transactions on a pro forma basis (including, without limitation, any Indebtedness incurred or anticipated to be incurred in connection with or in respect of such transaction or series of transactions), could incur $1.00 of additional Indebtedness pursuant to the first paragraph of the covenant described under "-- Certain Covenants -- Limitation on Indebtedness" above (assuming a market rate of interest with respect to such additional Indebtedness); and (c) immediately after giving effect to such transaction or series of transactions on a pro forma basis (including, without limitation, any Indebtedness incurred or anticipated to be incurred in connection with or in respect of such transaction or series of transactions), the Consolidated Net Worth of the Company or the Surviving Entity, as the case may be, is at least equal to the Consolidated Net Worth of the Company immediately before such transaction or series of transactions. The foregoing provisions shall not apply to a transaction involving the consolidation or merger of a Guarantor with or into another person, or the sale, lease, conveyance or disposition of all or substantially all of the assets of such Guarantor that results in such Guarantor being released from its Guarantee as provided in "-- The Guarantees". In connection with any consolidation, merger, transfer, lease, assignment or other disposition contemplated hereby, the Company shall deliver, or cause to be delivered, to the Trustee, in form and substance reasonably satisfactory to the Trustee, an officers' certificate and an opinion of counsel, each stating that such consolidation, merger, transfer, lease, assignment or other disposition and the supplemental indenture in respect thereof comply with the requirements under the Indenture. Upon any consolidation or merger or any transfer of all or substantially all of the assets of the Company in accordance with the foregoing in which the Company is not the continuing corporation, the successor corporation formed by such a consolidation or into which the Company is merged or to which such transfer is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under the Indenture with the same effect as if such successor corporation had been named as the Company therein; provided that solely for purposes of computing amounts described in subclause (C) of the covenant described under "-- Limitation on Restricted Payments" above, any such successor person shall only be deemed to have 74 76 succeeded to and be substituted for the Company with respect to periods subsequent to the effective time of such merger, consolidation or transfer of assets. EVENTS OF DEFAULT The following are "Events of Default" under the Indenture: (i) default in the payment of the principal of or premium, if any, on any Note when the same becomes due and payable (upon Stated Maturity, acceleration, optional redemption, required purchase, scheduled principal payment or otherwise); or (ii) default in the payment of an installment of interest on any of the Notes, when the same becomes due and payable, which default continues for a period of 30 days; or (iii) failure to perform or observe any other term, covenant or agreement contained in the Notes or the Indenture or any Guarantee (other than a default specified in clause (i) or (ii) above) and such default continues for a period of 30 days after written notice of such default requiring the Company to remedy the same shall have been given (x) to the Company by the Trustee or (y) to the Company and the Trustee by holders of 25% in aggregate principal amount of the Notes then outstanding; or (iv) default or defaults under one or more agreements, instruments, mortgages, bonds, debentures or other evidences of Indebtedness under which the Company or any Restricted Subsidiary of the Company then has outstanding Indebtedness in excess of $5,000,000, individually or in the aggregate, and either (a) such Indebtedness is already due and payable in full or (b) such default or defaults have resulted in the acceleration of the maturity of such Indebtedness; or (v) one or more judgments, orders or decrees of any court or regulatory or administrative agency of competent jurisdiction for the payment of money in excess of $5,000,000, either individually or in the aggregate, shall be entered against the Company or any Restricted Subsidiary of the Company or any of their respective properties and shall not be discharged or fully bonded and there shall have been a period of 60 days after the date on which any period for appeal has expired and during which a stay of enforcement of such judgment, order or decree shall not be in effect; or (vi) either (i) the collateral agent under the New Credit Facility or (ii) any holder of at least $5,000,000 in aggregate principal amount of Indebtedness of the Company or any of its Restricted Subsidiaries shall commence judicial proceedings to foreclose upon assets of the Company or any of its Restricted Subsidiaries having a Fair Market Value, individually or in the aggregate, in excess of $5,000,000 or shall have exercised any right under applicable law or applicable security documents to take ownership of any such assets in lieu of foreclosure; or (vii) any Guarantee ceases to be in full force and effect or is declared null and void, or any Guarantor denies that it has any further liability under any Guarantee or gives notice to such effect (other than by reason of the termination of the Indenture or the release of any such Guarantee in accordance with the Indenture) and such condition shall have continued for a period of 60 days after written notice of such failure (which notice shall specify the Default, demand that it be remedied and state that it is a "Notice of Default") requiring the Guarantor and the Company to remedy the same shall have been given (x) to the Company by the Trustee or (y) to the Company and the Trustee by holders of at least 25% in aggregate principal amount of the Notes then outstanding; or (viii) certain events of bankruptcy, insolvency or reorganization with respect to the Company or any Significant Subsidiary of the Company shall have occurred. If an Event of Default (other than as specified in clause (viii) above) shall occur and be continuing, the Trustee, by notice to the Company, or the holders of at least 25% in aggregate principal amount of the Notes then outstanding, by notice to the Trustee and the Company, may declare the principal of, premium, if any, and accrued and unpaid interest, if any, on all of the outstanding Notes due and payable immediately, upon which declaration, all amounts payable in respect of the Notes shall be immediately due and payable. If an Event of Default specified in clause (viii) above occurs and is continuing, then the principal of, premium, if 75 77 any, and accrued and unpaid interest, if any, on all of the outstanding Notes shall ipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee or any holder of Notes. After a declaration of acceleration under the Indenture, but before a judgment or decree for payment of the money due has been obtained by the Trustee, the holders of a majority in aggregate principal amount of the outstanding Notes, by written notice to the Company and the Trustee, may rescind such declaration if (a) the Company has paid or deposited with the Trustee a sum sufficient to pay (i) all sums paid or advanced by the Trustee under the Indenture and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, (ii) all overdue interest on all Notes, (iii) the principal of and premium, if any, on any Notes which have become due otherwise than by such declaration of acceleration and interest thereon at the rate borne by the Notes, and (iv) to the extent that payment of such interest is lawful, interest upon overdue interest and overdue principal at the rate borne by the Notes which has become due otherwise than by such declaration of acceleration; (b) the rescission would not conflict with any judgment or decree of a court of competent jurisdiction; and (c) all Events of Default, other than the non-payment of principal of, premium, if any, and interest on the Notes that have become due solely by such declaration of acceleration, have been cured or waived. The holders of not less than a majority in aggregate principal amount of the outstanding Notes may on behalf of the holders of all the Notes waive any past defaults under the Indenture, except a default in the payment of the principal of, premium, if any, or interest on any Note, or in respect of a covenant or provision which under the Indenture cannot be modified or amended without the consent of the holder of each Note outstanding. No holder of any of the Notes has any right to institute any proceeding with respect to the Indenture or the Notes or the Guarantees or any remedy thereunder, unless the holders of at least 25% in aggregate principal amount of the outstanding Notes have made written request, and offered reasonable indemnity, to the Trustee to institute such proceeding as Trustee under the Notes and the Indenture, the Trustee has failed to institute such proceeding within 30 days after receipt of such notice and the Trustee, within such 30-day period, has not received directions inconsistent with such written request by holders of a majority in aggregate principal amount of the outstanding Notes. Such limitations do not apply, however, to a suit instituted by a holder of a Note for the enforcement of the payment of the principal of, premium, if any, or interest on such Note on or after the respective due dates expressed in such Note. During the existence of an Event of Default, the Trustee is required to exercise such rights and powers vested in it under the Indenture and use the same degree of care and skill in its exercise thereof as a prudent person would exercise under the circumstances in the conduct of such person's own affairs. Subject to the provisions of the Indenture relating to the duties of the Trustee, whether or not an Event of Default shall occur and be continuing, the Trustee under the Indenture is not under any obligation to exercise any of its rights or powers under the Indenture at the request or direction of any of the holders unless such holders shall have offered to the Trustee reasonable security or indemnity. Subject to certain provisions concerning the rights of the Trustee, the holders of not less than a majority in aggregate principal amount of the outstanding Notes have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred on the Trustee under the Indenture. If a Default or an Event of Default occurs and is continuing and is known to the Trustee, the Trustee shall mail to each holder of the Notes notice of the Default or Event of Default within 30 days after obtaining knowledge thereof. Except in the case of a Default or an Event of Default in payment of principal of, premium, if any, or interest on any Notes, the Trustee may withhold the notice to the holders of such Notes if a committee of its trust officers in good faith determines that withholding the notice is in the interest of the holders of the Notes. The Company is required to furnish to the Trustee annual and quarterly statements as to the performance by the Company of its obligations under the Indenture and as to any default in such performance. The Company is also required to notify the Trustee within ten days of any event which is, or after notice or lapse of time or both would become, an Event of Default. 76 78 DEFEASANCE OR COVENANT DEFEASANCE OF INDENTURE The Company may, at its option and at any time, terminate the obligations of the Company and the Guarantors with respect to the outstanding Notes and Guarantees ("defeasance"). Such defeasance means that the Company shall be deemed to have paid and discharged the entire Indebtedness represented by the outstanding Notes, except for (i) the rights of holders of outstanding Notes to receive payment in respect of the principal of, premium, if any, and interest on such Notes when such payments are due, (ii) the Company's obligations to issue temporary Notes, register the transfer or exchange of any Notes, replace mutilated, destroyed, lost or stolen Notes and maintain an office or agency for payments in respect of the Notes, (iii) the rights, powers, trusts, duties and immunities of the Trustee, and (iv) the defeasance provisions of the Indenture. In addition, the Company may, at its option and at any time, elect to terminate the obligations of the Company and the Guarantors with respect to certain covenants that are set forth in the Indenture, some of which are described under "-- Certain Covenants" above (including the covenant described under "--Certain Covenants -- Change of Control" above) and any subsequent failure to comply with such obligations shall not constitute a Default or Event of Default with respect to the Notes ("covenant defeasance"). In order to exercise either defeasance or covenant defeasance, (i) the Company must irrevocably deposit with the Trustee, in trust, for the benefit of the holders of the Notes, cash in United States dollars, U.S. government obligations, or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of, premium, if any, and interest on the outstanding Notes to redemption or maturity (except lost, stolen or destroyed Notes which have been replaced or paid); (ii) the Company shall have delivered to the Trustee an opinion of counsel to the effect that the holders of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such defeasance or covenant defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such defeasance or covenant defeasance had not occurred (in the case of defeasance, such opinion must refer to and be based upon a ruling of the Internal Revenue Service or a change in applicable federal income tax laws); (iii) no Default or Event of Default shall have occurred and be continuing on the date of such deposit; (iv) such defeasance or covenant defeasance shall not cause the Trustee to have a conflicting interest with respect to any securities of the Company; (v) such defeasance or covenant defeasance shall not result in a breach or violation of, or constitute a default under, any material agreement or instrument to which the Company or any of its Subsidiaries is a party or by which it is bound; (vi) the Company shall have delivered to the Trustee an opinion of counsel to the effect that after the 91st day following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally; and (vii) the Company shall have delivered to the Trustee an officers' certificate and an opinion of counsel, each stating that all conditions precedent under the Indenture to either defeasance or covenant defeasance, as the case may be, have been complied with. SATISFACTION AND DISCHARGE The Indenture will be discharged and will cease to be of further effect (except as to surviving rights or registration of transfer or exchange of the Notes, as expressly provided for in the Indenture) as to all outstanding Notes when (i) either (a) all the Notes theretofore authenticated and delivered (except lost, stolen or destroyed Notes which have been replaced or repaid and Notes for whose payment money has theretofore been deposited in trust or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust) have been delivered to the Trustee for cancellation or (b) all Notes not theretofore delivered to the Trustee for cancellation (except lost, stolen or destroyed Notes which have been replaced or paid) have been called for redemption pursuant to the terms of the Notes or have otherwise become due and payable and the Company has irrevocably deposited or caused to be deposited with the Trustee funds in an amount sufficient to pay and discharge the entire Indebtedness on the Notes not theretofore delivered to the Trustee for cancellation, for principal of, premium, if any, and interest on the Notes to the date of deposit together with irrevocable instructions from the Company directing the Trustee to apply such funds to the payment thereof at maturity or redemption, as the case may be; (ii) the Company has paid all other sums payable under the Indenture by the Company; (iii) there exists no Default or Event of 77 79 Default under the Indenture; and (iv) the Company has delivered to the Trustee an officers' certificate and an opinion of counsel stating that all conditions precedent under the Indenture relating to the satisfaction and discharge of the Indenture have been complied with. AMENDMENTS AND WAIVERS From time to time, the Company and the Guarantors, when authorized by a resolution of their respective Boards of Directors, and the Trustee may, without the consent of the holders of any outstanding Notes, amend, waive or supplement the Indenture or the Notes or the Guarantees for certain specified purposes, including, among other things, curing ambiguities, defects or inconsistencies, qualifying, or maintaining the qualification of, the Indenture under the Trust Indenture Act of 1939, as amended, or making any other change that does not adversely affect the rights of any holder of Notes; provided, however, that the Company has delivered to the Trustee an opinion of counsel stating that such change does not adversely affect the rights of any holder of Notes. Other amendments and modifications of the Indenture or the Notes or the Guarantees may be made by the Company and the Trustee with the consent of the holders of not less than a majority of the aggregate principal amount of the outstanding Notes; provided, however, that no such modification or amendment may, without the consent of the holder of each outstanding Note affected thereby, (i) reduce the principal amount of, extend the fixed maturity of or alter the redemption provisions of the Notes, (ii) change the currency in which any Notes or any premium or the interest thereon is payable or make the principal of, premium, if any, or interest on any Note payable in money other than that stated in the Note, (iii) reduce the percentage in principal amount of outstanding Notes that must consent to an amendment, supplement or waiver or consent to take any action under the Indenture, any Guarantee or the Notes, (iv) impair the right to institute suit for the enforcement of any payment on or with respect to the Notes, (v) waive a default in payment with respect to the Notes, (v) amend, change or modify the obligations of the Company to make and consummate a Change of Control Offer in the event of a Change of Control or make and consummate the Asset Sale Offer with respect to any Asset Sale or modify any of the provisions or definitions with respect thereto, (vii) reduce or change the rate or time for payment of interest on the Notes, (viii) modify or change any provision of the Indenture affecting the ranking of the Notes or any Guarantee in a manner adverse to the holders of the Notes, or (ix) release any Guarantor from any of its obligations under its Guarantee or the Indenture other than in compliance with the Indenture. THE TRUSTEE The Indenture provides that, except during the continuance of an Event of Default, the Trustee thereunder will perform only such duties as are specifically set forth in the Indenture. If an Event of Default has occurred and is continuing, the Trustee will exercise such rights and powers vested in it under the Indenture and use the same degree of care and skill in its exercise as a prudent person would exercise under the circumstances in the conduct of such person's own affairs. The Indenture and provisions of the Trust Indenture Act of 1939, as amended, incorporated by reference therein contain limitations on the rights of the Trustee thereunder, should it become a creditor of the Company, to obtain payment of claims in certain cases or to realize on certain property received by it in respect of any such claims, as security or otherwise. The Trustee is permitted to engage in other transactions; provided, however, that if it acquires any conflicting interest (as defined in the Trust Indenture Act of 1939, as amended) it must eliminate such conflict or resign. GOVERNING LAW The Indenture, the Notes and the Guarantees are governed by the laws of the State of New York, without regard to the principles of conflicts of law. 78 80 CERTAIN DEFINITIONS "2004 Note Agreement" means the 2004 Note Agreement dated as of October 1, 1994 by and among the Company and the Purchasers named on Schedule I thereto, relating to the $45,000,000 aggregate principal amount of 7.68% Senior Notes due October 1, 2004 of the Company. "2005 Notes" means the $110,000,000 aggregate principal amount of 9.875% Senior Notes of the Company issued under the 2005 Notes Indenture. "2005 Notes Guarantees" means the guarantees of the 2005 Notes issued pursuant to the 2005 Notes Indenture. "2005 Notes Indenture" means the indenture dated as of July 27, 1995 among the Company, the guarantors named therein and Bankers Trust Company, as trustee. "2005 Notes Issue Date" means July 27, 1995. "Accounts Receivable Subsidiary" means any Restricted Subsidiary organized solely for the purpose of and engaged in purchasing, financing and collecting accounts receivable obligations of the Company and its Subsidiaries and activities incident thereto. "Accounts Receivable Transaction" means the purchasing, financing and collecting by an Accounts Receivable Subsidiary of accounts receivable obligations of the Company and its Subsidiaries and activities incident thereto. "Acquired Indebtedness" means Indebtedness of a person (a) assumed in connection with an Asset Acquisition from such person or (b) existing at the time such person becomes a Subsidiary of any other person. "Affiliate" means, with respect to any specified person, any other person directly or indirectly controlling or controlled by, or under direct or indirect common control with, such specified person. "Asset Acquisition" means (a) an Investment by the Company or any Restricted Subsidiary of the Company in any other person pursuant to which such person shall become a Restricted Subsidiary of the Company, or shall be merged with or into the Company or any Restricted Subsidiary of the Company, (b) the acquisition by the Company or any Restricted Subsidiary of the Company of the assets of any person (other than a Restricted Subsidiary of the Company) which constitute all or substantially all of the assets of such person or (c) the acquisition by the Company or any Restricted Subsidiary of the Company of any division or line of business of any person (other than a Restricted Subsidiary of the Company). "Asset Sale" means any direct or indirect sale, issuance, conveyance, transfer, lease or other disposition to any person other than the Company or a Wholly-Owned Restricted Subsidiary, in one or a series of related transactions, of (a) any Capital Stock of any Restricted Subsidiary of the Company (other than in respect of director's qualifying shares or investments by foreign nationals mandated by applicable law); (b) all or substantially all of the properties and assets of any division or line of business of the Company or any Restricted Subsidiary of the Company; or (c) any other properties or assets of the Company or any Restricted Subsidiary of the Company other than in the ordinary course of business. For the purposes of this definition, the term "Asset Sale" shall not include (i) any sale, transfer or other disposition of equipment, tools or other assets (excluding Capital Stock of any Restricted Subsidiary of the Company) by the Company or any of its Restricted Subsidiaries in one or a series of related transactions in respect of which the Company or such Restricted Subsidiary receives cash or property with an aggregate Fair Market Value of $5,000,000 or less; (ii) any sale, issuance, conveyance, transfer, lease or other disposition of properties or assets that is governed by the provisions described under "-- Merger, Sale of Assets, Etc." above; (iii) any sale, transfer or exchange of Capital Stock of any person other than a Restricted Subsidiary to the extent proceeds from which are Capital Stock of such person or its Affiliates; and (iv) any sale, conveyance or transfer of accounts receivable in the ordinary course of business to third parties which are not Affiliates of the Company or any of its Subsidiaries. 79 81 "Attributable Value" means, as to any particular lease under which any person is at the time liable other than a Capitalized Lease Obligation, and at any date as of which the amount thereof is to be determined, the total net amount of rent required to be paid by such person under such lease during the initial term thereof as determined in accordance with GAAP, discounted from the last date of such initial term to the date of determination at a rate per annum equal to the discount rate which would be applicable to a Capitalized Lease Obligation with a like term in accordance with GAAP. The net amount of rent required to be paid under any such lease for any such period shall be the aggregate amount of rent payable by the lessee with respect to such period after excluding amounts required to be paid on account of insurance, taxes, assessments, utility, operating and labor costs and similar charges. In the case of any lease which is terminable by the lessee upon the payment of a penalty, such net amount shall also include the amount of such penalty, but no rent shall be considered as required to be paid under such lease subsequent to the first date upon which it may be so terminated. "Attributable Value" means, as to a Capitalized Lease Obligation under which any person is at the time liable and at any date as of which the amount thereof is to be determined, the capitalized amount thereof that would appear on the face of a balance sheet of such person in accordance with GAAP. "Average Life to Stated Maturity" means, with respect to any Indebtedness, as at any date of determination, the quotient obtained by dividing (i) the sum of the products of (a) the number of years (or any fraction thereof) from such date to the date or dates of each successive scheduled principal payment (including, without limitation, any sinking fund requirements) of such Indebtedness multiplied by (b) the amount of each such principal payment by (ii) the sum of all such principal payments. "Capital Stock" means, with respect to any person, any and all shares, interests, participations, rights in or other equivalents (however designated) of such person's capital stock, and any rights (other than debt securities convertible into capital stock), warrants or options exchangeable for or convertible into such capital stock. "Capitalized Lease Obligation" means any obligation under a lease of (or other agreement conveying the right to use) any property (whether real, personal or mixed) that is required to be classified and accounted for as a capital lease obligation under GAAP, and, for the purpose of the Indenture, the amount of such obligation at any date shall be the capitalized amount thereof at such date, determined in accordance with GAAP. "Cash Equivalents" means, at any time, (i) any evidence of Indebtedness with a maturity of 180 days or less issued or directly and fully guaranteed or insured by the United States of America or any agency or instrumentality thereof (provided that the full faith and credit of the United States of America is pledged in support thereof); (ii) certificates of deposit or acceptances with a maturity of 180 days or less of any financial institution that is a member of the Federal Reserve System having combined capital and surplus and undivided profits of not less than $500,000,000; (iii) certificates of deposit with a maturity of 180 days or less of any financial institution that is organized under the laws of the United States, any state thereof or the District of Columbia that are rated at least A-1 by S&P or at least P-1 by Moody's or at least an equivalent rating category of another Rating Agency; and (iv) repurchase agreements and reverse repurchase agreements relating to marketable direct obligations issued or unconditionally guaranteed by the government of the United States of America or issued by any agency thereof and backed by the full faith and credit of the United States of America, in each case maturing within 180 days from the date of acquisition; provided that the terms of such agreements comply with the guidelines set forth in the Federal Financial Agreements of Depository Institutions With Securities Dealers and Others, as adopted by the Comptroller of the Currency on October 31, 1985. "Change of Control" means the occurrence of any of the following events: (a) any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act) other than a Permitted Holder or a group controlled by or comprised of Permitted Holders is or becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a person shall be deemed to have "beneficial ownership" of all securities that such person has the right to acquire, whether such right is exercisable immediately or only after the passage of time, upon the happening of an event or otherwise), directly or indirectly, of more than 50% of the total Voting Stock of the Company; (b) the Company consolidates with, or merges with or into, another person or sells, assigns, conveys, transfers, leases or otherwise disposes of all or 80 82 substantially all of its assets to any person, or any person consolidates with, or merges with or into, the Company, in any such event pursuant to a transaction in which the outstanding Voting Stock of the Company is converted into or exchanged for cash, securities or other property, other than any such transaction where (i) the outstanding Voting Stock of the Company is converted into or exchanged for (1) Voting Stock (other than Redeemable Capital Stock) of the surviving or transferee corporation or (2) cash, securities and other property in an amount which could then be paid by the Company as a Restricted Payment under the Indenture, or a combination thereof, and (ii) immediately after such transaction no "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act) other than a Permitted Holder or a group controlled by or comprised of Permitted Holders is the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a person shall be deemed to have "beneficial ownership" of all securities that such person has the right to acquire, whether such right is exercisable immediately or only after the passage of time, upon the happening of an event or otherwise), directly or indirectly, of more than 50% of the total Voting Stock of the surviving or transferee corporation; (c) at any time during any consecutive two-year period, individuals who at the beginning of such period constituted the Board of Directors of the Company (together with any new directors whose election by such Board of Directors or whose nomination for election by the stockholders of the Company was approved by a vote of a majority of the directors then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board of Directors of the Company then in office; or (d) the Company is liquidated or dissolved or adopts a plan of liquidation. "Common Stock" means, with respect to any person, any and all shares, interests or other participations in, and other equivalents (however designated and whether voting or nonvoting) of, such person's common stock, whether outstanding on the Issue Date or issued after the Issue Date, and includes, without limitation, all series and classes of such common stock. "Consolidated Cash Flow Available for Fixed Charges" means, with respect to any person for any period, (i) the sum of, without duplication, the amounts for such period, taken as a single accounting period, of (a) Consolidated Net Income, (b) Consolidated Non-cash Charges, (c) Consolidated Interest Expense and (d) Consolidated Income Tax Expense less (ii) any non-cash items increasing Consolidated Net Income for such period. "Consolidated Fixed Charge Coverage Ratio" means, with respect to any person, the ratio of the aggregate amount of Consolidated Cash Flow Available for Fixed Charges of such person for the four full fiscal quarters immediately preceding the date of the transaction (the "Transaction Date") giving rise to the need to calculate the Consolidated Fixed Charge Coverage Ratio (such four full fiscal quarter period being referred to herein as the "Four Quarter Period") to the aggregate amount of Consolidated Fixed Charges of such person for the Four Quarter Period. In addition to and without limitation of the foregoing, for purposes of this definition, "Consolidated Cash Flow Available for Fixed Charges" and "Consolidated Fixed Charges" shall be calculated after giving effect on a pro forma basis for the period of such calculation to, without duplication, (a) the incurrence of any Indebtedness (other than revolving credit Indebtedness) of such person or any of its Restricted Subsidiaries (and the application of the net proceeds thereof) during the period commencing on the first day of the Four Quarter Period to and including the Transaction Date (the "Reference Period"), including, without limitation, the incurrence of the Indebtedness giving rise to the need to make such calculation (and the application of the net proceeds thereof), as if such incurrence (and application) occurred on the first day of the Reference Period, and (b) any Asset Sales or Asset Acquisitions (including, without limitation, any Asset Acquisition giving rise to the need to make such calculation as a result of such person or one of its Restricted Subsidiaries (including any person who becomes a Restricted Subsidiary as a result of the Asset Acquisition) incurring, assuming or otherwise being liable for Acquired Indebtedness) occurring during the Reference Period, as if such Asset Sale or Asset Acquisition occurred on the first day of the Reference Period. Furthermore, in calculating "Consolidated Fixed Charges" for purposes of determining the denominator (but not the numerator) of this "Consolidated Fixed Charge Coverage Ratio," (i) interest on outstanding Indebtedness determined on a fluctuating basis as of the Transaction Date and which will continue to be so determined thereafter shall be deemed to have accrued at a fixed rate per annum equal to the rate of interest on such Indebtedness in effect on the Transaction Date; and (ii) if interest 81 83 on any Indebtedness actually incurred on the Transaction Date may optionally be determined at an interest rate based upon a factor of a prime or similar rate, a eurocurrency interbank offered rate, or other rates, then the interest rate in effect on the Transaction Date will be deemed to have been in effect during the Reference Period. If such person or any of its Restricted Subsidiaries directly or indirectly guarantees Indebtedness of a third person, the above clause shall give effect to the incurrence of such guaranteed Indebtedness as if such person or such Restricted Subsidiary had directly incurred or otherwise assumed such guaranteed Indebtedness. "Consolidated Fixed Charges" means, with respect to any person for any period, the sum of, without duplication, the amounts for such period of (i) Consolidated Interest Expense and (ii) the aggregate amount of dividends and other distributions paid or accrued during such period in respect of Preferred Stock and Redeemable Capital Stock of such person and its Restricted Subsidiaries on a consolidated basis, multiplied by a fraction, the numerator of which is one and the denominator of which is one minus the then current federal statutory income tax rate of such person. "Consolidated Income Tax Expense" means, with respect to any person for any period, the provision for federal, state, local and foreign income taxes of such person and its Restricted Subsidiaries for such period as determined on a consolidated basis in accordance with GAAP. "Consolidated Interest Expense" means, with respect to any person for any period, without duplication, the sum of (i) the interest expense (net of interest income) of such person and its Restricted Subsidiaries for such period as determined on a consolidated basis in accordance with GAAP, including, without limitation, (a) any amortization of debt discount, (b) the net cost under Interest Rate Protection Obligations, (c) the interest portion of any deferred payment obligation, (d) all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing and (e) all accrued interest and (ii) the interest component of Capitalized Lease Obligations paid, accrued and/or scheduled to be paid or accrued by such person and its Restricted Subsidiaries during such period as determined on a consolidated basis in accordance with GAAP. "Consolidated Net Income" means, with respect to any person, for any period, the consolidated net income (or loss) of such person and its Restricted Subsidiaries for such period as determined in accordance with GAAP, adjusted, to the extent included in calculating such net income, by excluding, without duplication, (i) all extraordinary gains or losses, (ii) the portion of net income (but not losses) of such person and its Restricted Subsidiaries allocable to minority interests in unconsolidated persons to the extent that cash dividends or distributions have not actually been received by such person or one of its Restricted Subsidiaries, (iii) net income (or loss) of any person combined with such person or one of its Restricted Subsidiaries on a "pooling of interests" basis attributable to any period prior to the date of combination, (iv) any gain or loss realized upon the termination of any employee pension benefit plan, on an after-tax basis, (v) gains in respect of any Asset Sales by such person or one of its Restricted Subsidiaries and (vi) the net income of any Restricted Subsidiary of such person to the extent that the declaration of dividends or similar distributions by that Restricted Subsidiary of that income is not at the time permitted, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Restricted Subsidiary or its stockholders. "Consolidated Net Worth" means, with respect to any person at any date, the consolidated stockholders' equity of such person less the amount of such stockholders' equity attributable to Redeemable Capital Stock of such person and its Restricted Subsidiaries, as determined in accordance with GAAP. "Consolidated Non-cash Charges" means, with respect to any person for any period, the aggregate depreciation, amortization and other non-cash expenses of such person and its Restricted Subsidiaries reducing Consolidated Net Income of such person and its Restricted Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP (excluding any such charges constituting an extraordinary item or loss or any such charge which required an accrual of or a reserve for cash charges for any future period). 82 84 "Credit Agreement" means the Credit Agreement dated as of the 2005 Notes Issue Date, among the Company, certain of its Subsidiaries, Comerica Bank, in its individual capacity and as agent, and the other banks which are or become parties from time to time thereto, and as it may have been or may be amended, restated, supplemented or otherwise modified from time to time, including all exhibits and schedules thereto, and any successor or replacement facility. "Currency Agreement" means any foreign exchange contract, currency swap agreement or other similar agreement or arrangement designed to protect any person or any of its Restricted Subsidiaries against fluctuations in currency values. "Default" means any event that is, or after notice or passage of time or both would be, an Event of Default. "Event of Default" has the meaning set forth under "-- Events of Default" herein. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Fair Market Value" means, with respect to any assets, the price, as determined by the Board of Directors of the Company, acting in good faith, which could be negotiated in an arm's-length free market transaction, for cash, between a willing seller and a willing buyer, neither of which is under pressure or compulsion to complete the transaction; provided, however, that, with respect to any transaction which involves an asset or assets in excess of $250,000, such determination shall be evidenced by a resolution of the Board of Directors of the Company delivered to the Trustee. "Final Maturity Date" means December 15, 2007. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant segment of the accounting profession of the United States of America, which are applicable from time to time and are consistently applied. "guarantee" means, as applied to any obligation, (i) a guarantee (other than by endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect, in any manner, of any part or all of such obligation and (ii) an agreement, direct or indirect, contingent or otherwise, the practical effect of which is to assure in any way the payment or performance (or payment of damages in the event of non-performance) of all or any part of such obligation, including, without limiting the foregoing, the payment of amounts drawn down by letters of credit. "Guarantor" means (i) each of Walbro Automotive Corporation, a Delaware corporation, Walbro Engine Management Corporation, a Delaware corporation, Sharon Manufacturing Co., a Michigan corporation, and Whitehead Engineered Products, Inc., a Delaware corporation, (ii) each Wholly-Owned Restricted Subsidiary of the Company other than any Accounts Receivable Subsidiary which is incorporated under the laws of the United States or any state therein or the District of Columbia which incurs Indebtedness (other than to the Company or a Wholly-Owned Restricted Subsidiary) in an aggregate principal amount in excess of $5,000,000 for so long as such Wholly-Owned Restricted Subsidiary has Indebtedness outstanding in excess of $5,000,000 and (iii) any other Subsidiary that guarantees the Notes. "Indebtedness" means, with respect to any person, without duplication, (a) all liabilities of such person for borrowed money or for the deferred purchase price of property or services, excluding any trade payables and other accrued current liabilities incurred in the ordinary course of business and which are not overdue by more than 180 days, but including, without limitation or duplication, all obligations, contingent or otherwise, of such person in connection with any letter of credit, banker's acceptance or other similar credit transaction, (b) all obligations of such person evidenced by bonds, notes, debentures or other similar instruments, (c) all indebtedness created or arising under any conditional sale or other title retention agreement with respect to property acquired by such person (even if the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), but excluding trade accounts payable arising in the ordinary course of business, (d) all net Capitalized Lease Obligations of such person, 83 85 (e) all Indebtedness referred to in the preceding clauses of other persons and all dividends of other persons, the payment of which is secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien upon property (including, without limitation, accounts and contract rights) owned by such person, even though such person has not assumed or become liable for the payment of such Indebtedness (the amount of such obligation being deemed to be the lesser of the value of such property or asset or the amount of the obligation so secured), (f) all guarantees of Indebtedness referred to in this definition by such person, (g) all Redeemable Capital Stock of such person valued at the greater of its voluntary or involuntary maximum fixed repurchase price plus accrued dividends, (h) all net obligations under or in respect of Currency Agreements and Interest Rate Protection Obligations of such person, and (i) any amendment, supplement, modification, deferral, renewal, extension or refunding of any liability of the types referred to in clauses (a) through (h) above. For purposes hereof, the "maximum fixed repurchase price" of any Redeemable Capital Stock which does not have a fixed repurchase price shall be calculated in accordance with the terms of such Redeemable Capital Stock as if such Redeemable Capital Stock were purchased on any date on which Indebtedness shall be required to be determined pursuant to the Indenture, and if such price is based upon, or measured by the Fair Market Value of such Redeemable Capital Stock, such Fair Market Value. "Independent Financial Advisor" means a firm (i) which does not, and whose directors, officers and employees or Affiliates do not, have a direct or indirect financial interest in the Company or any of its Subsidiaries and (ii) which, in the judgment of the Board of Directors of the Company, is otherwise independent and qualified to perform the task for which it is to be engaged. "Interest Rate Protection Agreement" means any arrangement with any other person whereby, directly or indirectly, such person is entitled to receive from time to time periodic payments calculated by applying either a floating or a fixed rate of interest on a stated notional amount in exchange for periodic payments made by such person calculated by applying a fixed or a floating rate of interest on the same notional amount and shall include, without limitation, interest rate swaps, caps, floors, collars and similar agreements. "Interest Rate Protection Obligations" means the obligations of any person pursuant to an Interest Rate Protection Agreement. "Investment" means, with respect to any person, any direct or indirect loan or other extension of credit or capital contribution to (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others), or any purchase or acquisition by such person of any Capital Stock, bonds, notes, debentures or other securities or evidences of Indebtedness issued by, any other person. In addition, the Fair Market Value of the assets of any Subsidiary of the Company at the time that such Subsidiary is designated as an Unrestricted Subsidiary shall be deemed to be an Investment made by the Company in such Unrestricted Subsidiary at such time. "Investments" shall exclude extensions of trade credit by the Company and its Restricted Subsidiaries in the ordinary course of business in accordance with normal trade practices of the Company or such Restricted Subsidiary, as the case may be. "Investment Grade" means, with respect to the Notes, (i) in the case of S&P, a rating of at least BBB-, (ii) in the case of Moody's, a rating of at least Baa3, and (iii) in the case of a Rating Agency other than S&P or Moody's, the equivalent rating, or in each case, any successor, replacement or equivalent definition as promulgated by S&P, Moody's or and other Rating Agency, as the case may be; provided that a rating of BBB-, with respect to S&P, Baa3, with respect to Moody's, or the equivalent rating of another Rating Agency other than S&P or Moody's (or any such successor, replacement or equivalent definition) shall not be Investment Grade if any such Rating Agency shall have then placed the Notes on credit watch with negative implications. "Lien" means any mortgage, charge, pledge, lien (statutory or other), security interest, hypothecation, assignment for security, claim or preference or priority or other encumbrance upon or with respect to any property of any kind. A person shall be deemed to own subject to a Lien any property which such person has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement. 84 86 "Moody's" means Moody's Investors Service, Inc. and its successors. "Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds thereof in the form of cash or Cash Equivalents including payments in respect of deferred payment obligations when received in the form of cash or Cash Equivalents (except to the extent that such obligations are financed or sold with recourse to the Company or any Restricted Subsidiary of the Company) net of (i) brokerage commissions and other fees and expenses (including, without limitation, fees and expenses of legal counsel and investment bankers) related to such Asset Sale, (ii) provisions for all taxes payable as a result of such Asset Sale, (iii) amounts required to be paid to any person (other than the Company or any Restricted Subsidiary of the Company) owning a beneficial interest in the assets subject to the Asset Sale and (iv) appropriate amounts to be provided by the Company or any Restricted Subsidiary of the Company, as the case may be, as a reserve required in accordance with GAAP against any liabilities associated with such Asset Sale and retained by the Company or any Restricted Subsidiary of the Company, as the case may be, after such Asset Sale, including, without limitation, pension and other post-employment benefit liabilities, liabilities related to environmental matters and liabilities under any indemnification obligations associated with such Asset Sale, all as reflected in an officers' certificate delivered to the Trustee. "Net Worth" means, with respect to any person at any date, the stockholders' equity of such person less the amount of such stockholders' equity attributable to Redeemable Capital Stock of such person, as determined in accordance with GAAP. "Permitted Holder" means (i) each of Lambert E. Althaver, Robert H. Walpole, Gary L. Vollmar, Richard H. Whitehead, Michael A. Shope and Daniel L. Hittler; (ii) each spouse, lineal descendant and spouse of a lineal descendant of a person named in clause (i); and (iii) the estate or legal representative of a person named in clause (i) or (ii). "Permitted Investments" means any of the following: (i) Investments in any Wholly-Owned Restricted Subsidiary (including any person that pursuant to such Investment becomes a Wholly-Owned Restricted Subsidiary) and any person that is merged or consolidated with or into, or transfers or conveys all or substantially all of its assets to, the Company or any Wholly-Owned Restricted Subsidiary at the time such Investment is made; (ii) Investments in Cash Equivalents; (iii) Investments in deposits with respect to leases or utilities provided to third parties in the ordinary course of business; (iv) Investments in the Notes and the 2005 Notes; (v) Investments in Currency Agreements on commercially reasonable terms entered into by the Company or any of its Restricted Subsidiaries in the ordinary course of business in connection with the operations of the business of the Company or its Restricted Subsidiaries to hedge against fluctuations in foreign exchange rates; (vi) loans or advances to officers, employees or consultants of the Company and its Restricted Subsidiaries in the ordinary course of business for bona fide business purposes of the Company and its Restricted Subsidiaries (including travel and moving expenses) not in excess of $1,000,000 in the aggregate at any one time outstanding; (vii) Investments in evidences of Indebtedness, securities or other property received from another person by the Company or any of its Restricted Subsidiaries in connection with any bankruptcy proceeding or by reason of a composition or readjustment of debt or a reorganization of such person or as a result of foreclosure, perfection or enforcement of any Lien in exchange for evidences of Indebtedness, securities or other property of such person held by the Company or any of its Restricted Subsidiaries, or for other liabilities or obligations of such other person to the Company or any of its Restricted Subsidiaries that were created in accordance with the terms of the Indenture; (viii) Investments in Interest Rate Protection Agreements on commercially reasonably terms entered into by the Company or any of its Restricted Subsidiaries in the ordinary course of business in connection with the operations of the business of the Company or its Restricted Subsidiaries to hedge against fluctuations in interest rates; and (ix) other Investments made after the 2005 Notes Issue Date not to exceed $10,000,000 in the aggregate plus an amount equal to the lesser of the return of capital with respect to such Investment and the initial amount of such Investment, in either case, less the cost of the disposition of such Investment. "Permitted Liens" means the following types of Liens: (a) Liens for taxes, assessments or governmental charges or claims either (i) not delinquent or (ii) contested in good faith by appropriate proceedings and as to which the Company or any of its 85 87 Restricted Subsidiaries shall have set aside on its books such reserves as may be required pursuant to GAAP; (b) statutory Liens of landlords and Liens of carriers, warehousemen, mechanics, suppliers, materialmen, repairmen and other Liens imposed by law incurred in the ordinary course of business for sums not yet delinquent or being contested in good faith, if such reserve or other appropriate provision, if any, as shall be required by GAAP shall have been made in respect thereof; (c) Liens incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security, or to secure the performance of tenders, statutory obligations, surety and appeal bonds, bids, leases, governmental contracts, performance and return-of-money bonds and other similar obligations (exclusive of obligations for the payment of borrowed money); (d) judgment Liens not giving rise to an Event of Default so long as such Lien is adequately bonded and any appropriate legal proceedings which may have been duly initiated for the review of such judgment shall not have been finally terminated or the period within which such proceedings may be initiated shall not have expired; (e) easements, rights-of-way, zoning restrictions and other similar charges or encumbrances in respect of real property not interfering in any material respect with the ordinary conduct of the business of the Company or any of its Restricted Subsidiaries; (f) any interest or title of a lessor under any Capitalized Lease Obligation or operating lease; (g) purchase money Liens to finance the acquisition or construction of property or assets of the Company or any Restricted Subsidiary of the Company acquired in the ordinary course of business; provided, however, that (i) the related purchase money Indebtedness shall not be secured by any property or assets of the Company or any Restricted Subsidiary of the Company other than the property and assets so acquired or construction, (ii) the amount of Indebtedness secured by any such Lien shall not exceed the purchase price of the property or assets acquired or constructed and (iii) the Lien securing such Indebtedness either (x) exists at the time of such acquisition or construction or (y) shall be created within 90 days of such acquisition or construction; (h) other purchase money Liens to finance the acquisition or construction of property or assets of the Company or any Restricted Subsidiary of the Company acquired in the ordinary course of business securing Indebtedness of the Company and its Restricted Subsidiaries under industrial revenue bonds or other Indebtedness of the Company and its Restricted Subsidiaries for which a governmental entity or agency provides direct or indirect credit support not to exceed $20,000,000 in the aggregate at any one time outstanding; provided, however, that (i) the amount of Indebtedness secured by any such Lien shall not exceed 125% of the purchase price of the property or assets acquired or constructed and (ii) the Lien securing such Indebtedness either (x) exists at the time of such acquisition or construction or (y) shall be created within 90 days of such acquisition or construction; (i) other Liens; provided that at the time any such Lien is to be incurred, all such Liens incurred pursuant to this clause (i) secure obligations of the Company and its Restricted Subsidiaries not to exceed 10% of the Consolidated Net Worth of the Company after giving pro forma effect to the Lien that is to be incurred; (j) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods; and (k) Liens on the property and assets of any Accounts Receivable Subsidiary arising in connection with any Accounts Receivable Transaction. "person" means any individual, corporation, limited liability company, partnership, joint venture, association, joint-stock company, trust, charitable foundation, unincorporated organization, government or any agency or political subdivision thereof or any other entity. 86 88 "Preferred Stock" means, with respect to any person, any and all shares, interests, participations or other equivalents (however designated, whether voting or non-voting) of preferred or preference Capital Stock of such person. "Rating Agency" means a nationally recognized securities rating agency, selected by the Company and satisfactory to the Trustee. "Redeemable Capital Stock" means any shares of any class or series of Capital Stock that, either by the terms thereof, by the terms of any security into which it is convertible or exchangeable or by contract or otherwise, is or upon the happening of an event or passage of time would be required to be redeemed prior to the Stated Maturity with respect to the principal of any Note or is redeemable at the option of the holder thereof at any time prior to any such Stated Maturity, or is convertible into or exchangeable for debt securities at any time prior to any such Stated Maturity. "Restricted Subsidiary" means a Subsidiary of any person which is not an Unrestricted Subsidiary. "Sale-Leaseback Transaction" of any person means an arrangement with any lender or investor or to which such lender or investor is a party providing for the leasing by such person of any property or asset of such person which has been or is being sold or transferred by such person after the acquisition thereof or the completion of construction or commencement of operation thereof to such lender or investor or to any person to whom funds have been or are to be advanced by such lender or investor on the security of such property or asset. The stated maturity of such arrangement shall be the date of the last payment of rent or any other amount due under such arrangement prior to the first date on which such arrangement may be terminated by the lessee without payment of a penalty. "Securities Act" means the Securities Act of 1933, as amended. "Significant Subsidiary" shall have the same meaning as in Rule 1-02(w) of Regulation S-X under the Securities Act. "S&P" means Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc., and its successors. "Stated Maturity" means, when used with respect to any Note or any installment of interest thereon, the date specified in such Note as the fixed date on which the principal of such Note or such installment of interest is due and payable, and when used with respect to any other Indebtedness, means the date specified in the instrument governing such Indebtedness as the fixed date on which the principal of such Indebtedness, or any installment of interest thereon, is due and payable. "Subordinated Indebtedness" means Indebtedness of the Company or a Guarantor which is expressly subordinated in right of payment to the Notes or the Guarantee of such Guarantor, as the case may be. "Subsidiary" means, with respect to any person, (i) a corporation a majority of whose Voting Stock is at the time, directly or indirectly, owned by such person, by one or more Subsidiaries of such person or by such person and one or more Subsidiaries thereof and (ii) any other person (other than a corporation), including, without limitation, a joint venture, in which such person, one or more Subsidiaries thereof or such person and one or more Subsidiaries thereof, directly or indirectly, at the date of determination thereof, have at least majority ownership interest entitled to vote in the election of directors, managers or trustees thereof (or other person performing similar functions). For purposes of this definition, any directors' qualifying shares or investments by foreign nationals mandated by applicable law shall be disregarded in determining the ownership of a Subsidiary. "Unrestricted Subsidiary" means (a) Walbro Capital Trust and (b) a Subsidiary of the Company (i) none of whose properties or assets were owned by the Company or any of its Subsidiaries on or prior to the 2005 Notes Issue Date, other than any such assets as are transferred to such Unrestricted Subsidiary in accordance with the covenant described under "-- Certain Covenants -- Limitation on Restricted Payments", (ii) whose properties and assets, to the extent that they secure Indebtedness, secure only Non-Recourse Indebtedness and (iii) which has no Indebtedness other than Non-Recourse Indebtedness. As used above, 87 89 "Non-Recourse Indebtedness" means Indebtedness as to which (i) neither the Company nor any of its Restricted Subsidiaries (1) provides credit support (including any undertaking, agreement or instrument which would constitute Indebtedness), (2) guarantees or is otherwise directly or indirectly liable or (3) constitutes the lender (in each case, other than pursuant to and in compliance with the covenant described under "-- Certain Covenants -- Limitation on Restricted Payments") and (ii) no default with respect to such Indebtedness (including any rights which the holders thereof may have to take enforcement action against the relevant Unrestricted Subsidiary or its assets) would permit (upon notice, lapse of time or both) any holder of any other Indebtedness of the Company or its Restricted Subsidiaries to declare a default on such other Indebtedness or cause the payment thereof to be accelerated or payable prior to its stated maturity. The Company shall not be permitted to designate any Unrestricted Subsidiary as a Restricted Subsidiary unless, after giving pro forma effect to such designation, (i) the Company would be permitted to incur $1.00 of additional Indebtedness pursuant to the first paragraph of the covenant described under "-- Certain Covenants -- Limitation on Indebtedness" above (assuming a market rate of interest with respect to such Indebtedness) and (ii) all Indebtedness and Liens of such Unrestricted Subsidiary would be permitted to be incurred by a Restricted Subsidiary of the Company under the Indenture. An Unrestricted Subsidiary shall not be designated as a Restricted Subsidiary unless the Company shall have provided written notice to the Trustee as to compliance with the Indenture. A designation of an Unrestricted Subsidiary as a Restricted Subsidiary may not thereafter be rescinded. "Voting Stock" means any class or classes of Capital Stock pursuant to which the holders thereof have the general voting power under ordinary circumstances to elect at least a majority of the board of directors, managers or trustees of any person (irrespective of whether or not, at the time, Capital Stock of any other class or classes shall have, or might have, voting power by reason of the happening of any contingency). "Wholly-Owned Restricted Subsidiary" means any Restricted Subsidiary of the Company of which 100% of the outstanding Capital Stock is owned by the Company or one or more Wholly-Owned Restricted Subsidiaries or by the Company and one or more Wholly-Owned Restricted Subsidiaries. For purposes of this definition, any directors' qualifying shares or investments by foreign nationals mandated by applicable law shall be disregarded in determining the ownership of a Subsidiary. 88 90 CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES The following summary of the material anticipated federal income tax consequences of the issuance of the Exchange Notes and the Exchange Offer is based upon the provisions of the Internal Revenue Code of 1986, as amended, the final, temporary and proposed regulations promulgated thereunder, and administrative rulings and judicial decisions now in effect, all of which are subject to change (possibly with retroactive effect) or different interpretations. The following summary is not binding on the Internal Revenue Service ("IRS") and there can be no assurance that the IRS will take a similar view with respect to the tax consequences described below. No ruling has been or will be requested by the Company from the IRS on any tax matters relating to the Exchange Notes or the Exchange Offer. This discussion is for general information only and does not purport to address all of the possible federal income tax consequences or any state, local or foreign tax consequences of the acquisition, ownership and disposition of the Old Notes, the Exchange Notes or the Exchange Offer. It is limited to investors who will hold the Old Notes and the Exchange Notes as capital assets and does not address the federal income tax consequences that may be relevant to particular investors in light of their unique circumstances or to certain types of investors (such as dealers in securities; insurance companies; financial institutions; foreign corporations; partnerships; trusts; nonresident individuals; and tax-exempt entities) who may be subject to special treatment under federal income tax laws. INDEBTEDNESS The Old Notes and the Exchange Notes should be treated as indebtedness of the Company. In the unlikely event the Old Notes and the Exchange Notes were treated as equity, the amount treated as a distribution on any such Old Note or Exchange Note would first be taxable to the holder as dividend income to the extent of the Company's current and accumulated earnings and profits, and would next be treated as a return of capital to the extent of the holder's tax basis in the Old Notes or Exchange Notes, with any remaining amount treated as a gain from the sale of an Old Note or an Exchange Note. In addition, in the event of equity treatment, the Company could not deduct interest on such Old Notes or Exchange Notes. The remainder of this discussion assumes that the Old Notes and the Exchange Notes will constitute indebtedness. EXCHANGE OFFER The exchange of the Old Notes for the Exchange Notes pursuant to the Exchange Offer should not be treated as an "exchange" because the Exchange Notes should not be considered to differ materially in kind or extent from the Old Notes. Rather, the Exchange Notes received by a holder of the Old Notes should be treated as a continuation of the Old Notes in the hands of such holder. As a result, there should be no federal income tax consequences to holders exchanging the Old Notes for the Exchange Notes pursuant to the Exchange Offer. INTEREST A holder of an Old Note or an Exchange Note will be required to report stated interest on the Old Note and the Exchange Note as interest income in accordance with the holder's method of accounting pursuant to the de minimis exception to the "original issue discount" rules for tax purposes. Because the Old Notes were issued at par, there will be no original issue discount. TAX BASIS IN THE OLD NOTES AND THE EXCHANGE NOTES A holder's tax basis in an Old Note will be the holder's purchase price for the Old Note. If a holder of an Old Note exchanges the Old Note for an Exchange Note pursuant to the Exchange Offer, the tax basis of the Exchange Note immediately after such exchange should equal the holder's tax basis in the Old Note immediately prior to the exchange. DISPOSITION OF THE OLD NOTES OR THE EXCHANGE NOTES The sale, exchange, redemption or other disposition of an Old Note or an Exchange Note, except in the case of an exchange pursuant to the Exchange Offer (see the above discussion), generally will be a taxable 89 91 event. A holder generally will recognize gain or loss equal to the difference between (i) the amount of cash plus the fair market value of any property received upon such sale, exchange, redemption or other taxable disposition of the Old Note or the Exchange Note (except to the extent attributable to accrued interest) and (ii) the holder's adjusted tax basis in such debt instrument. Such gain or loss will be capital gain or loss, and will be long term if the Old Notes have been held for more than one year at the time of the sale or other disposition. PURCHASERS OF NOTES AT OTHER THAN ORIGINAL ISSUANCE PRICE OR DATE The foregoing does not discuss special rules which may affect the treatment of purchasers that acquire the Old Notes other than at par, including those provisions of the Internal Revenue Code relating to the treatment of "market discount," and "amortizable bond premium." Any such purchaser should consult its tax advisor as to the consequences to him of the acquisition, ownership, and disposition of the Old Notes. BACKUP WITHHOLDING Unless a holder provides its correct taxpayer identification number (employer identification number or social security number) to the Company and certifies that such number is correct, generally under the federal income tax backup withholding rules, 31% of (1) the interest paid on the Old Notes and the Exchange Notes, and (2) the issue price of the Exchange Notes, must be withheld and remitted to the United States Treasury. Therefore, each holder should complete and sign the Substitute Form W-9 included so as to provide the information and certification necessary to avoid backup withholding. However, certain holders (including, among others, certain foreign individuals) are not subject to these backup withholding and reporting requirements. For a foreign individual to qualify as an exempt foreign recipient, that exchanging holder must submit a statement, signed under penalties of perjury, attesting to that individual's exempt foreign status. Such statements can be obtained from the Company. For further information concerning backup withholding and instructions for completing the Substitute Form W-9 (including how to obtain a taxpayer identification number if you do not have one and how to complete the Substitute Form W-9 if the Notes are held in more than one name), contact the Secretary of the Company at 6242 Garfield Street, Cass City, Michigan 48726-1325 (telephone number (517) 872-2131). Backup withholding is not an additional federal income tax. Rather, the federal income tax liability of a person subject to withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained from the IRS. 90 92 REGISTRATION RIGHTS OF THE OLD NOTES Pursuant to the Registration Rights Agreement, the Company agreed to file with the Commission the Registration Statement under the Securities Act with respect to an offer to exchange the Old Notes for the Exchange Notes. Upon the effectiveness of the Registration Statement, the Company will offer to the holders of the Old Notes who are able to make certain representations the opportunity to exchange their Old Notes for the Exchange Notes. If (i) the Company is not permitted to file the Registration Statement or to consummate the Exchange Offer because the Exchange Offer is not permitted by applicable law or Commission policy; or (ii) any holder of the Old Notes notifies the Company within the specified time period that (A) due to a change in law or policy it is not entitled to participate in the Exchange Offer, (B) due to a change in law or policy it may not resell the Exchange Notes acquired by it in the Exchange Offer to the public without delivering a prospectus and the prospectus contained in the Registration Statement is not appropriate or available for such resales by such holder, or (C) it is a broker-dealer and owns the Old Notes acquired directly from the Company or an affiliate of the Company, the Company will file with the Commission the Shelf Registration Statement to cover resales of the Transfer Restricted Notes (as defined below) by the holders thereof. The Company will use reasonable efforts to cause the applicable registration statement to be declared effective as promptly as possible by the Commission. For purposes of the foregoing, "Transfer Restricted Notes" means each Old Note until (i) the date on which such Old Note has been exchanged by a person other than a broker-dealer for an Exchange Note in the Exchange Offer, (ii) following the exchange by a broker-dealer in the Exchange Offer of an Old Note for an Exchange Note, the date on which such Exchange Note is sold to a purchaser who receives from such broker-dealer on or prior to the date of such sale a copy of the prospectus contained in the Registration Statement, (iii) the date on which such Old Note has been effectively registered under the Securities Act and disposed of in accordance with the Shelf Registration Statement, or (iv) the date on which such Old Note is distributed to the public pursuant to Rule 144 under the Securities Act. Under existing Commission interpretations, the Exchange Notes would, in general, be freely transferable after the Exchange Offer without further registration under the Securities Act; provided that in the case of broker-dealers participating in the Exchange Offer, a prospectus meeting the requirements of the Securities Act will be delivered upon resale by such broker-dealer in connection with resales of the Exchange Notes. The Company has agreed, for a period of 180 days after the Registration Statement is declared effective by the Commission, to make available a prospectus meeting the requirements of the Securities Act to any such broker-dealer for use in connection with any resale of any Exchange Notes acquired in the Exchange Offer. A broker-dealer which delivers such a prospectus to purchasers in connection with such resales will be subject to certain of the civil liability provisions under the Securities Act and will be bound by the provisions of the Registration Rights Agreement (including certain indemnification rights and obligations). Each holder of the Old Notes who wishes to exchange such Old Notes for Exchange Notes in the Exchange Offer will be required to make certain representations, including representations that (i) any Exchange Notes to be received by it will be acquired in the ordinary course of its business, (ii) it has no arrangement with any person to participate in the distribution of the Exchange Notes, and (iii) it is not an "affiliate," as defined in Rule 405 of the Securities Act, of the Company or, if it is an affiliate, it will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable. If the holder is not a broker-dealer, it will be required to represent that it is not engaged in, and does not intend to engage in, the distribution of the Exchange Notes. If the holder is a broker-dealer that will receive Exchange Notes for its own account in exchange for the Old Notes that were acquired as a result of market-making activities or other trading activities, it will be required to acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. The Registration Rights Agreement provides that: (i) unless the Exchange Offer would not be permitted by applicable law or Commission policy, the Company will file the Registration Statement with the Commission on or prior to 60 days after the date of original issuance of the Old Notes (the "Closing Date"), (ii) unless the Exchange Offer would not be permitted by applicable law or Commission policy, the Company will use its best efforts to have the Registration Statement declared effective by the Commission on or prior to 91 93 180 days after the Closing Date, (iii) unless the Exchange Offer would not be permitted by applicable law or Commission policy, the Company will commence the Exchange Offer and use reasonable efforts to issue, on or prior to 20 business days after the date on which the Registration Statement was declared effective by the Commission, Exchange Notes in exchange for all Old Notes tendered prior thereto in the Exchange Offer and (iv) if obligated to file the Shelf Registration Statement, the Company will file prior to the later of (x) 60 days after the Closing Date or (y) 30 days after such filing obligation arises and use its best efforts to cause the Shelf Registration Statement to be declared effective by the Commission on or prior to the later of (A) 180 days after the Closing Date, and (B) 90 days after such obligation arises. The Company shall use its best efforts to keep such Shelf Registration Statement continuously effective, supplemented and amended until the second anniversary of the date on which the Shelf Registration Statement was initially declared effective or such shorter period that will terminate when all the Transfer Restricted Notes covered by the Shelf Registration Statement have been sold pursuant thereto. If (a) the Company fails to file any of the registration statements required by the Registration Rights Agreement on or before the date specified for such filing, (b) any of such registration statements are not declared effective by the Commission on or prior to the date specified for such effectiveness (the "Effectiveness Target Date"), (c) the Company fails to consummate the Exchange Offer within 20 business days of the Effectiveness Target Date with respect to the Registration Statement, or (d) the Shelf Registration Statement or the Registration Statement is declared effective but thereafter, subject to certain exceptions, ceases to be effective or usable in connection with the Exchange Offer or resales of Transfer Restricted Notes, as the case may be, during the periods specified in the Registration Rights Agreement (each such event referred to in clauses (a) through (d) above, a "Registration Default"), then the interest rate on Transfer Restricted Notes will increase ("Additional Interest"), with respect to the first 90-day period immediately following the occurrence of such Registration Default by 0.50% per annum and will increase by an additional 0.50% per annum with respect to each subsequent 90-day period until all Registration Defaults have been cured, up to a maximum amount of 2% per annum. Following the cure of all Registration Defaults, the accrual of Additional Interest will cease and the Interest Rate will revert to the original rate. This summary of certain provisions of the Registration Rights Agreement does not purport to be complete and is subject to, and is qualified in its entirety by reference to, all the provisions of the Registration Rights Agreement, a copy of which has been filed as an exhibit to the Registration Statement of which this Prospectus is a part. 92 94 BOOK ENTRY; DELIVERY AND FORM The Old Notes were and the Exchange Notes will be initially represented by a single, permanent global certificate in definitive, fully registered form (the "Global Note"). The Global Note will be deposited on the date of issuance with, or on behalf of, DTC and registered in the name of a nominee of DTC. THE GLOBAL NOTE The Company expects that pursuant to procedures established by DTC (i) upon the issuance of the Global Note, DTC or its custodian will credit, on its internal system, the principal amount of Notes of the individual beneficial interest represented by such Global Note to the respective accounts for persons who have accounts with DTC and (ii) ownership of beneficial interest in the Global Note will be shown on, and the transfer of such ownership will be effected only through, records maintained by DTC or its nominee (with respect to interests of participants) and the records of participants (with respect to interests of persons other than participants). Such accounts initially will be designated by or on behalf of the Initial Purchaser and ownership of beneficial interests in the Global Note will be limited to persons who have accounts with DTC ("participants") or persons who hold interest through participants. Qualified institutional buyers hold their interests in the Global Note directly through DTC, if they are participants in such system, or indirectly through organizations which are participants in such system. So long as DTC or its nominee is the registered owner or holder of the Notes, DTC or such nominee, as the case may be, will be considered the sole owner or holder of the Notes represented by such Global Note for all purposes under the Indenture. No beneficial owner of an interest in any Global Note will be able to transfer that interest except in accordance with DTC's procedures, in addition to those provided for under the Indenture. Payments of the principal of, premium, if any, and interest (including Additional Interest) on, the Global Note will be made to DTC or its nominee, as the case may be, as the registered owner thereof. None of the Company, the Trustee or any paying agent of the Trustee will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests in the Global Note or for maintaining, supervising or reviewing any records relating to such beneficial ownership interest. The Company expects that DTC or its nominee, upon receipt of any payment of principal, premium, if any, or interest (including Additional Interest) in respect of the Global Note, will credit participants' accounts with payments in amounts proportionate to their respective beneficial interests in the principal amount of the Global Note as shown on the records of DTC or its nominee. The Company also expects that payments by participants to owners of beneficial interest in the Global Note held through such participants will be governed by standing instructions and customary practice, as is now the case with securities held for the accounts of customers registered in the names of nominees for such customers. Such payments will be the responsibility of such participants. Transfers between participants in DTC will be effected in the ordinary way in accordance with DTC rules and will be settled in clearinghouse funds. If a holder requires physical delivery of a Certificated Security for any reason, including to sell Notes to persons in states which require physical delivery of the Certificated Securities, or to pledge such securities, such holder must transfer its interest in the Global Note in accordance with the normal procedures of DTC and with the procedures set forth in the Indenture. DTC has advised the Company that it will take any action permitted to be taken by a holder of Notes (including the presentation of the Old Notes for exchange as described herein) only at the direction of one or more participants to whose account the DTC interests in the Global Note are credited and only in respect of such portion of the aggregate principal amount of Notes as to which such participant or participants has or have given such direction. However, if there is an Event of Default under the Indenture, DTC will exchange the Global Note for Certificated Securities, which it will distribute to its participants. DTC has advised the Company as follows: DTC is a limited purpose trust company organized under laws of the State of New York, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the Uniform Commercial Code and a "clearing agency" registered pursuant to the provisions of 93 95 Section 17A of the Exchange Act. DTC was created to hold securities for its participants and facilitate the clearance and settlement of securities transactions between participants through electronic book entry changes in accounts of its participants, thereby eliminating the need for physical movement of certificates. Participants include securities brokers and dealers, banks, trust companies and clearing corporations and certain other organizations. Indirect access to the DTC system is available to others such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a participant, either directly or indirectly ("indirect participants"). Although DTC has agreed to the foregoing procedures in order to facilitate transfers of interests in the Global Note among participants of DTC, it is under no obligation to perform such procedures, and such procedures may be discontinued at any time. None of the Company, the Initial Purchaser or the Trustee will have any responsibility for the performance by DTC or its participants or indirect participants of their respective obligations under the rules and procedures governing their operations. CERTIFICATED SECURITIES If DTC is at any time unwilling or unable to continue as a depositary for the Global Note and a successor depositary is not appointed by the Company within 90 days, Certificated Securities will be issued in exchange for the Global Note. PLAN OF DISTRIBUTION Based on interpretations by the staff of the Commission set forth in no-action letters issued to third parties, the Company believes that the Exchange Notes issued pursuant to the Exchange Offer in exchange for the Old Notes may be offered for resale, resold and otherwise transferred by holders thereof (other than any holder which is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act) without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that the Exchange Notes are acquired in the ordinary course of the holders' business, and the holders are not engaged in, and do not intend to engage in, and have no arrangement or understanding with any person to participate in, a distribution of the Exchange Notes; and, provided further, that Participating Broker-Dealers will be subject to a prospectus delivery requirement with respect to resales of the Exchange Notes. To date, the staff of the Commission has taken the position that Participating Broker-Dealers may fulfill their prospectus delivery requirements with respect to transactions involving an exchange of securities such as the exchange pursuant to the Exchange Offer (other than a resale of an unsold allotment from the sale of the Old Notes to the Initial Purchaser) with the Prospectus contained in the Registration Statement. Pursuant to the Registration Rights Agreement, the Company agreed to permit Participating Broker-Dealers and other persons, if any, subject to similar prospectus delivery requirements to use this Prospectus in connection with the resale of the Exchange Notes. The Company agreed, for a period of 180 days after the Registration Statement is declared effective by the Commission, to make this Prospectus, as amended or supplemented, available to any Participating Broker-Dealer that requests such documents in the Letter of Transmittal. Each holder of the Old Notes who wishes to exchange its Old Notes for the Exchange Notes in the Exchange Offer will be required to make certain representations to the Company as set forth in "The Exchange Offer -- Resale of the Exchange Notes." In addition, each holder who is a Participating Broker- Dealer will be required to acknowledge that it will deliver a prospectus in connection with any resale by it of the Exchange Notes. The Company will not receive any proceeds from any sale of the Exchange Notes by Participating Broker-Dealers. The Exchange Notes received by Participating Broker-Dealers for their own account pursuant to the Exchange Offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the Exchange Notes or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or at negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer and/or the purchasers of any such Exchange Notes. Any Participating Broker-Dealer that 94 96 resells the Exchange Notes that were received by it for its own account pursuant to the Exchange Offer and any broker or dealer that participates in a distribution of such Exchange Notes may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit on any such resale of the Exchange Notes and any commissions or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The Letter of Transmittal states that by acknowledging that it will deliver and by delivering a prospectus, a Participating Broker-Dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. The Company agreed to pay all expenses incidental to the Exchange Offer other than commissions and concessions of any brokers or dealers and will indemnify holders of the Old Notes (including any broker-dealers) against certain liabilities, including liabilities under the Securities Act, as set forth in the Registration Rights Agreement. Pursuant to the Registration Rights Agreement, the Company agreed to use its best efforts to cause the Exchange Notes to be listed on the New York Stock Exchange. LEGAL MATTERS Certain legal matters regarding the validity of the Exchange Notes offered hereby will be passed upon for the Company by Katten Muchin & Zavis, a partnership including professional corporations, Chicago, Illinois. INDEPENDENT PUBLIC ACCOUNTANTS The audited consolidated financial statements of the Company at December 31, 1997 and 1996, and for each of the three years in the periods ended December 31, 1997, 1996 and 1995, included in this Prospectus have been audited by Arthur Andersen LLP, independent public accountants, as stated in their reports appearing herein. The audited financial statements of Marwal Systems S.N.C. at December 31, 1997, 1996 and 1995 and for each of the three years in the periods ended December 31, 1997, 1996 and 1995, included in this Prospectus have been audited by Ernst & Young Audit, independent public accountants, as stated in their reports appearing herein. 95 97 INDEX TO FINANCIAL STATEMENTS
PAGE ---- WALBRO CORPORATION As of December 31, 1997 and 1996 and for the years ended December 31, 1997, 1996 and 1995 Report of Independent Public Accountants.................. F-2 Consolidated Balance Sheets............................... F-3 Consolidated Statements of Income......................... F-4 Consolidated Statements of Stockholders' Equity........... F-5 Consolidated Statements of Cash Flows..................... F-6 Notes to Consolidated Financial Statements................ F-7 As of March 31, 1998 and December 31, 1997 and for the three months ended March 31, 1998 and 1997 Consolidated Balance Sheets (Unaudited)................... F-27 Consolidated Statements of Income (Unaudited)............. F-28 Consolidated Statements of Cash Flows (Unaudited)......... F-29 Notes to Consolidated Financial Statements (Unaudited).... F-30 MARWAL SYSTEMS S.N.C. FINANCIAL STATEMENTS Letter from Ernst & Young re: compliance with US generally accepted auditing standards............................ F-37 Statutory Auditor's General Report........................ F-38 Balance Sheet as of December 31, 1997..................... F-39 Income Statement for the year ended December 31, 1997..... F-40 Notes to the Financial Statements for 1997................ F-41 Statutory Auditor's General Report........................ F-48 Balance Sheet as of December 31, 1996..................... F-49 Income Statement for the year ended December 31, 1996..... F-50 Notes to the Financial Statements for 1996................ F-51 Statutory Auditor's General Report........................ F-58 Balance Sheet as of December 31, 1995..................... F-59 Income Statement for the year ended December 31, 1995..... F-60 Notes to the Financial Statements for 1995................ F-61 WALBRO CORPORATION -- SUPPLEMENTAL NOTES Report of Independent Public Accountants.................. S-1 Supplemental Notes to Consolidated Financial Statements of Walbro Corporation and Subsidiaries.................... S-2
F-1 98 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Stockholders of Walbro Corporation: We have audited the accompanying consolidated balance sheets of Walbro Corporation (a Delaware corporation) and subsidiaries as of December 31, 1997 and 1996 and the related consolidated statements of income, stockholders' equity 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 did not audit the financial statements of Marwal Systems, S.N.C. and Marwal do Brasil Ltda., the investments in which are reflected in the accompanying consolidated financial statements using the equity method of accounting. The investments in Marwal Systems, S.N.C. and Marwal do Brasil Ltda. together represent 3.7% and 4.1% of consolidated total assets in 1997 and 1996, respectively, and the equity in their net income represents income of $3,710,000, $4,560,000 and $3,570,000 in 1997, 1996 and 1995, respectively. Those statements were audited by other auditors whose report has been furnished to us and our opinion, insofar as it relates to the amounts included for those entities, is based solely on the report of the other auditors. 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 consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the reports of other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the reports of other auditors, the financial statements referred to above present fairly, in all material respects, the financial position of Walbro Corporation 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 Detroit, Michigan, February 11, 1998 (except with respect to the matters discussed in Notes 6 and 21, as to which the date is April 13, 1998). F-2 99 CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1997 AND 1996
1997 1996 ---- ---- (IN THOUSANDS, EXCEPT SHARE DATA) ASSETS Current Assets: Cash...................................................... $ 13,539 $ 18,213 Accounts receivable, net.................................. 144,985 126,509 Inventories............................................... 56,207 50,588 Prepaid expenses and other................................ 17,405 11,235 Deferred and refundable income taxes...................... 8,519 4,971 -------- -------- Total Current Assets................................... 240,655 211,516 -------- -------- Plant and Equipment, at cost: Land...................................................... 5,230 5,190 Buildings and improvements................................ 90,099 69,741 Machinery and equipment................................... 297,032 288,369 -------- -------- 392,361 363,300 Less -- Accumulated depreciation.......................... 116,991 83,413 -------- -------- Net Plant and Equipment................................ 275,370 279,887 -------- -------- Other Assets: Funds held for construction............................... -- 1,140 Joint ventures............................................ 26,681 28,955 Investments............................................... 3,261 5,727 Goodwill, net............................................. 32,803 35,998 Notes receivable.......................................... 126 1,268 Deferred and refundable income taxes...................... 8,179 5,414 Other..................................................... 23,518 19,744 -------- -------- Total Other Assets..................................... 94,568 98,246 -------- -------- Total Assets........................................... $610,593 $589,649 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Current portion of long-term debt......................... $ 13,960 $ 1,089 Bank and other borrowings................................. 26,204 22,072 Accounts payable.......................................... 84,209 77,939 Accrued liabilities....................................... 39,221 41,276 Dividends payable......................................... 1,788 865 -------- -------- Total Current Liabilities.............................. 165,382 143,241 -------- -------- Long-Term Liabilities: Long-term debt, less current portion...................... 291,393 291,723 Pension obligations and other............................. 11,823 10,718 Deferred income taxes..................................... 2,077 4,914 Minority interest......................................... 1,052 1,320 -------- -------- Total Long-Term Liabilities............................ 306,345 308,675 -------- -------- Company-obligated mandatorily redeemable convertible preferred securities of Walbro Capital Trust holding solely convertible debentures............................. 69,000 -- Stockholders' Equity: Common stock, $.50 par value; authorized 25,000,000; outstanding 8,682,595 in 1997 and 8,652,737 in 1996.... 4,341 4,326 Paid-in capital........................................... 66,151 65,674 Retained earnings......................................... 33,938 74,039 Deferred compensation..................................... (379) (967) Unrealized gain on securities available for sale.......... 68 688 Cumulative translation adjustments........................ (34,253) (6,027) -------- -------- Total Stockholders' Equity............................. 69,866 137,733 -------- -------- Total Liabilities and Stockholders' Equity............. $610,593 $589,649 ======== ========
The accompanying notes are an integral part of these statements. F-3 100 CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1997 1996 1995 -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Net Sales........................................... $619,905 $585,389 $459,272 Costs and Expenses: Cost of sales..................................... 538,751 488,134 377,755 Selling and administrative expenses............... 60,786 52,177 40,641 Research and development expenses................. 17,289 18,400 16,742 Restructuring and impairment charges.............. 27,000 -- -- -------- -------- -------- Operating Income (Loss)............................. (23,921) 26,678 24,134 Other Expense (Income): Interest expense, net of capitalized interest of $1,207 in 1997 and $3,683 in 1996.............. 25,410 20,535 12,420 Interest income................................... (674) (2,716) (960) Royalty income, net............................... (3,878) (1,410) (237) Foreign currency exchange (gain) loss............. (308) (70) 1,483 Other............................................. 365 (63) (255) -------- -------- -------- Income (Loss) Before (Provision) Credit for Income Taxes, Minority Interest and Equity in Income of Joint Ventures.................................... (44,836) 10,402 11,683 (Provision) Credit for Income Taxes................. 10,131 (3,075) (1,258) Minority Interest................................... (5,035) (285) (472) Equity in Income of Joint Ventures.................. 3,113 4,187 3,877 -------- -------- -------- Net Income (Loss)................................... $(36,627) $ 11,229 $ 13,830 ======== ======== ======== Basic Net Income (Loss) Per Share................... $ (4.23) $ 1.30 $ 1.61 ======== ======== ======== Diluted Net Income (Loss) Per Share................. $ (4.23) $ 1.30 $ 1.61 ======== ======== ========
The accompanying notes are an integral part of these statements. F-4 101 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
UNREALIZED GAIN ON MINIMUM SECURITIES CUMULATIVE COMMON PAID-IN RETAINED DEFERRED PENSION AVAILABLE TRANSLATION STOCK CAPITAL EARNINGS COMPENSATION LIABILITY FOR SALE ADJUSTMENTS ------ ------- -------- ------------ --------- ---------- ----------- (IN THOUSANDS, EXCEPT SHARE DATA) Balance -- December 31, 1994................... $4,282 $64,221 $55,855 $(1,225) $ -- $1,428 $ 3,354 Exercise of stock options........... 8 160 -- -- -- -- -- ESOP debt payments.................. -- -- -- 408 -- -- -- Net income.......................... -- -- 13,830 -- -- -- -- Additional minimum pension liability........................ -- -- -- -- (63) -- -- Cash dividends ($.40 per share)..... -- -- (3,429) -- -- -- -- Change in market value of securities available for sale............... -- -- -- -- -- (601) -- Translation adjustments............. -- -- -- -- -- -- (2,801) ------ ------- ------- ------- ----- ------ -------- Balance -- December 31, 1995................... 4,290 64,381 66,256 (817) (63) 827 553 Exercise of stock options........... 21 750 -- -- -- -- -- ESOP debt payments.................. -- -- -- 408 -- -- -- Restricted stock issued............. 15 543 -- (558) -- -- -- Net income.......................... -- -- 11,229 -- -- -- -- Adjust minimum pension liability.... -- -- -- -- 63 -- -- Cash dividends ($.40 per share)..... -- -- (3,446) -- -- -- -- Change in market value of securities available for sale............... -- -- -- -- -- (139) -- Translation adjustments............. -- -- -- -- -- -- (6,580) ------ ------- ------- ------- ----- ------ -------- Balance -- December 31, 1996................... 4,326 65,674 74,039 (967) -- 688 (6,027) Exercise of stock options........... 15 477 -- -- -- -- -- ESOP debt payments.................. -- -- -- 408 -- -- -- Change in restricted stock.......... -- -- -- 180 -- -- -- Net loss............................ -- -- (36,627) -- -- -- -- Cash dividends ($.40 per share)..... -- -- (3,474) -- -- -- -- Change in market value of securities available for sale............... -- -- -- -- -- (620) -- Translation adjustments............. -- -- -- -- -- -- (28,226) ------ ------- ------- ------- ----- ------ -------- Balance -- December 31, 1997................... $4,341 $66,151 $33,938 $ (379) $ -- $ 68 $(34,253) ====== ======= ======= ======= ===== ====== ========
The accompanying notes are an integral part of these statements. F-5 102 CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1997 1996 1995 ---- ---- ---- (IN THOUSANDS) Cash Flows From Operating Activities: Net income (loss)......................................... $(36,627) $ 11,229 $ 13,830 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities -- Depreciation and amortization........................ 31,417 29,736 22,451 (Gain) loss on disposition of assets................. 1,459 774 (29) Minority interest.................................... (624) (238) 472 Equity in income of joint ventures................... (3,113) (4,187) (3,877) Restructuring and impairment charges................. 27,000 -- -- Change in assets and liabilities, net of effects of acquisitions -- Deferred and refundable income taxes............ (8,631) (762) 1,721 Pension obligations and other................... (1,888) (2,049) 3,327 Accounts payable and accrued liabilities........ 12,687 25,507 4,870 Accounts receivable, net........................ (28,299) (16,956) (3,236) Inventories..................................... (8,674) (473) (2,034) Prepaid expenses and other...................... (10,933) (5,943) (6,607) -------- --------- -------- Total adjustments................................. 10,401 25,409 17,058 -------- --------- -------- Net cash provided by (used in) operating activities...................................... (26,226) 36,638 30,888 -------- --------- -------- Cash Flows From Investing Activities: Purchase of plant and equipment........................... (62,019) (99,147) (46,240) Acquisitions, net of cash acquired........................ -- (1,018) (116,238) Purchase of other assets.................................. (3,087) (3,434) (7,263) Investment in joint ventures and other.................... 1,756 (1,451) (2,054) Proceeds from disposal of assets.......................... 5,415 4,156 4,127 -------- --------- -------- Net cash used in investing activities............. (57,935) (100,894) (167,668) -------- --------- -------- Cash Flows From Financing Activities: Borrowings under revolving lines-of-credit................ 199,981 200,548 161,114 Repayments under revolving lines-of-credit................ (283,116) (135,298) (97,317) Debt repayments........................................... (1,210) (1,104) (13,541) Proceeds from issuance of long-term debt.................. 105,404 2,772 110,550 Proceeds from issuance of convertible preferred securities............................................. 69,000 -- -- Proceeds from issuance of common stock and options........ 492 771 168 Financing fees paid....................................... (5,680) (508) (4,778) Cash dividends paid....................................... (3,463) (3,439) (3,428) -------- --------- -------- Net cash provided by financing activities......... 81,408 63,742 152,768 -------- --------- -------- Effect of Exchange Rate Changes on Cash..................... (1,921) (1,065) (736) -------- --------- -------- Net Increase (Decrease) in Cash............................. (4,674) (1,579) 15,252 Cash at Beginning of Year................................... 18,213 19,792 4,540 -------- --------- -------- Cash at End of Year......................................... $ 13,539 $ 18,213 $ 19,792 ======== ========= ========
The accompanying notes are an integral part of these statements. F-6 103 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation: The consolidated financial statements include the accounts of Walbro Corporation and its wholly-owned and majority-owned subsidiaries (the Company). Investments in joint ventures are accounted for under the equity method (Note 2). Significant transactions and balances among the Company and its subsidiaries have been eliminated in the consolidated financial statements. Foreign Currency Translation: The assets and liabilities of the Company's foreign operations are generally translated into U.S. dollars at current exchange rates, and revenues and expenses are translated at average exchange rates for the year. Resulting translation adjustments are reflected as a separate component of stockholders' equity. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency, except those transactions which operate as a hedge of an identifiable foreign currency commitment or as a hedge of a foreign currency investment position, are included in the results of operations as incurred. Accounts Receivable: Accounts receivable are net of allowances for doubtful accounts of $809,000 and $753,000 as of December 31, 1997 and 1996, respectively. Inventories: Inventories are stated at the lower of cost (first-in, first-out) or market. Inventories include raw materials and component parts, work-in-process and finished products. Work-in-process and finished products inventories include material, labor and manufacturing overhead costs. Inventory at December 31 consisted of the following:
1997 1996 ------- ------- (IN THOUSANDS) Raw materials and components............................... $30,857 $23,964 Work-in-process............................................ 6,545 10,620 Finished products.......................................... 18,805 16,004 ------- ------- $56,207 $50,588 ======= =======
Plant and Equipment: The Company provides for depreciation of plant and equipment based upon the acquisition costs and the estimated service lives of depreciable assets. The straight-line method is the principal method used to compute depreciation for financial reporting purposes. However, the units-of-production method is used to compute depreciation of certain equipment. Estimated service lives of depreciable assets are as follows: buildings and improvements - 10 to 40 years, machinery and equipment - 5 to 15 years. Investments: The carrying value of marketable equity securities is market value. The Company classifies certain investments in common stock securities as "available-for-sale", recording these investments at fair market value with the gross unrealized holding gains and losses, after-tax, included as a separate component of stockholders' equity. F-7 104 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED At December 31, 1997 and 1996, the fair market value of the Company's investments classified as "trading" was $687,000 and $2,594,000, respectively. The change in net unrealized holding gain included in earnings was not significant. Goodwill: Goodwill consists of purchase price and related acquisition costs in excess of the fair value of the identifiable net assets acquired. Goodwill is amortized on a straight-line basis over 15 to 40 years. The Company evaluates the carrying value of goodwill for potential impairment on an ongoing basis. Such evaluations compare the undiscounted expected future cash flows of the operations to which goodwill relates to the carrying value of the goodwill. The Company also considers future anticipated operating results, trends and other circumstances in making such evaluations. Goodwill consisted of the following at December 31:
1997 1996 ---- ---- (IN THOUSANDS) Goodwill................................................... $39,449 $40,234 Less: Accumulated amortization............................. (6,646) (4,236) ------- ------- $32,803 $35,998 ======= =======
Income Taxes: Deferred income taxes represent the effect of cumulative temporary differences between income and expense items reported for financial statement and tax purposes, and between the bases of various assets and liabilities for financial statement and tax purposes. Deferred tax assets are reduced by a valuation allowance if, based on the weight of evidence, it is deemed more likely than not that the asset will not be realized. Financial Instruments: In order to manage exposure to fluctuations in foreign currency exchange rates, the Company enters into forward currency exchange contracts. Gains and losses on contracts that hedge specific foreign currency commitments are deferred and recognized in net income in the period in which the related transaction is consummated. Gains and losses on contracts that hedge net investments in foreign joint ventures or subsidiaries are recognized as cumulative translation adjustments in stockholders' equity. Gains and losses on forward currency exchange contracts that do not qualify as hedges are recognized as foreign currency exchange gain or loss. Reclassifications: Certain amounts in prior years' consolidated financial statements have been reclassified to conform with the presentation used in 1997. 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 reported period. Actual results could differ from these estimates. F-8 105 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 2. JOINT VENTURES The investments in joint ventures as of December 31 are as follows:
PERCENT BENEFICIAL OWNERSHIP ------------------ 1997 1996 1995 ---- ---- ---- Marwal Systems, S.N.C. (France)............................. 49% 49% 49% Mitsuba-Walbro, Inc. (Japan)................................ 50% 50% 50% Marwal do Brasil, Ltda...................................... 49% 49% 49% Korea Automotive Fuel Systems, Ltd.......................... 49% 49% 49% Marwal de Mexico S.A. de C.V................................ 52% 52% -- Marwal Argentina S.A. ...................................... 49% -- --
The above joint ventures are generally involved in the design and manufacture of precision fuel systems products for the global automotive market. All of the above investments in joint ventures are accounted for using the equity method. Certain adjustments are made to the joint ventures' income so that recorded income is stated in accordance with United States generally accepted accounting principles. At December 31, 1997 and 1996, the cumulative effect of these adjustments was to increase the Company's equity in its joint ventures by approximately $3,158,000 and $2,631,000, respectively. At December 31, 1997, the amount included in retained earnings as undistributed earnings of foreign joint ventures was approximately $11,680,000. In 1996, the Company entered into a joint venture (Marwal de Mexico S.A. de C.V.) with its 49% owned joint venture, Marwal Systems, S.N.C. The Company owns 5% of the venture directly and Marwal Systems S.N.C. owns the remaining 95%. Marwal de Mexico S.A. de C.V. manufactures fuel pumps and fuel modules for the Central American and Mexican automotive markets. In the 4th Quarter 1996, the Company expanded its Marwal joint venture locations to include Marwal Argentina S.A. This is a joint venture 1% owned by Walbro, 1% by Magneti Marelli, and 98% owned by Marwal Systems S.N.C. Marwal Argentina builds fuel sending units for the Argentinean automotive market. Summarized combined financial information for joint ventures accounted for under the equity method is as follows (unaudited, in thousands):
AS OF DECEMBER 31, ------------------ 1997 1996 ---- ---- Balance sheet data: Current assets............................................ $90,358 $54,030 Non-current assets........................................ 44,365 65,088 Current liabilities....................................... 65,162 52,038 Non-current liabilities................................... 13,355 9,493
YEAR ENDED DECEMBER 31, -------------------------------- 1997 1996 1995 ---- ---- ---- Income statement data: Net sales................................................. $248,527 $200,276 $170,902 Gross margin.............................................. 31,846 24,806 20,500 Income before provision for income taxes.................. 12,769 14,510 11,641 Net income................................................ 5,978 7,515 7,366
Dividends from joint ventures of approximately $40,000 and $415,000 were received by the Company during 1997 and 1995, respectively. No dividends were received from joint ventures in 1996. The Company F-9 106 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 2. JOINT VENTURES -- CONTINUED had sales to joint ventures of approximately $64,109,000, $42,413,000 and $29,280,000 for 1997, 1996 and 1995, respectively. Included in accounts receivable are trade receivables from joint ventures of approximately $12,741,000 and $11,967,000 as of December 31, 1997 and 1996, respectively and royalty receivables of $1,674,000 and $1,162,000 as of December 31, 1997 and 1996, respectively. The Company had purchases from joint ventures of approximately $41,447,000, $33,149,000 and $22,977,000 for 1997, 1996 and 1995, respectively. Included in accounts payable are trade payables to joint ventures of approximately $5,277,000 and $5,580,000 as of December 31, 1997 and 1996, respectively. NOTE 3. DYNO ACQUISITION On July 27, 1995, the Company acquired the plastic fuel tank business of Dyno Industrier A.S (Dyno), Oslo, Norway for $128,774,000 in cash. Dyno is a leading designer, manufacturer and marketer of plastic fuel tank systems and components to many European vehicle manufacturers and has operations in Belgium, France, Germany, Norway, Spain and the United Kingdom. The acquisition was accounted for under the purchase method, and accordingly, the assets purchased and liabilities assumed in the acquisition are reflected in the accompanying consolidated balance sheets as of December 31, 1997 and 1996 and the operations since the date of acquisition are included in the accompanying consolidated statements of income and cash flows for the years ended December 31, 1997, 1996 and 1995. Goodwill resulting from this transaction is being amortized over 40 years using the straight-line method. The purchase price was allocated to the purchased assets and liabilities as follows (in thousands): Cash consideration paid to seller, net of cash acquired of $15,669................................................... $113,105 Fees and expenses........................................... 3,212 -------- Cost of acquisition, net of cash acquired................... $116,317 ======== Accounts receivable......................................... $ 42,237 Inventory................................................... 16,330 Plant and equipment......................................... 90,792 Accounts payable and accrued liabilities.................... (44,095) Notes payable............................................... (5,663) Other assets purchased and liabilities assumed, net......... (1,432) Goodwill.................................................... 18,148 -------- Total cost allocation....................................... $116,317 ========
In connection with the acquisition, the Company was required to relocate certain facilities, incur costs to move to the new facilities and involuntarily terminate or relocate employees in addition to other costs directly associated with the acquisition. The Company recorded a liability of approximately $12,021,000 related to these costs in purchase accounting and approximately $11,721,000 of costs have been paid and charged against the liability as of December 31, 1997. Assuming the acquisition had taken place as of the beginning of 1995, the consolidated pro forma results of operations of the Company would have been as follows, after giving effect to certain adjustments, including F-10 107 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 3. DYNO ACQUISITION -- CONTINUED depreciation and amortization adjustments, increased interest expense, elimination of certain costs assumed by the seller and the related income tax effects:
1995 ---- (UNAUDITED, IN THOUSANDS) Net sales................................................... $581,291 Net income.................................................. $ 12,336 Net income per common share................................. $ 1.43
The pro forma information above does not purport to be indicative of the results that actually would have been achieved if the operations were combined during the period presented, and is not intended to be a projection of future results or trends. NOTE 4. OTHER ACQUISITIONS In January 1995, the Company acquired an 80% interest in U.S. CoExcell, Inc. for $60,000 in cash plus the forgiveness of debt owed to Walbro of $3,113,000. U.S. CoExcell, Inc. manufactures and markets blow-molded plastic drums. The acquisition was accounted for under the purchase method, and accordingly, the assets purchased and liabilities assumed in the acquisition have been reflected in the accompanying consolidated balance sheets as of December 31, 1997 and 1996 and the operations since the acquisition are included in the accompanying consolidated statements of income and cash flows for the years ended December 31, 1997, 1996 and 1995. Goodwill resulting from this transaction was being amortized over 40 years using the straight-line method until 1997. In 1997, the remaining balance of goodwill was written off as part of the restructuring (Note 5). Pro forma results of this acquisition, assuming it had taken place at the beginning of each year presented, would not be materially different from the results reported. NOTE 5. RESTRUCTURING OF OPERATIONS AND OTHER ACTIONS During the fourth quarter of 1997, the Company recorded a $27 million pretax charge for restructuring its operations and other actions. The charge was comprised of a $17 million charge for restructuring and a $10 million charge associated with asset impairments. In addition, the Company took a pretax charge of $5.7 million for warranty costs (included in cost of sales) which became known in the fourth quarter. The restructuring actions include divestiture of the Company's Ligonier, Indiana, steel fuel rail manufacturing facility and disposition of its interest in U.S. CoExcell Inc., a manufacturer of blow-molded plastic drums in Maumee, Ohio. In addition, the Company will consolidate its small engine operations in the Asia-Pacific region and restructure its European automotive fuel tank operations. The asset impairment charge included the write off of obsolete equipment and tooling, write off of its interest in Saginaw Plastics, an injection molder in Saginaw, Michigan and charges related to its Korean automotive activities. Lastly, the restructuring charge included a corporate-wide headcount reduction of approximately 10 percent including reductions related to the divestitures and restructuring. The net sales of activities that will not be continued totaled approximately $30.2 million, $32.0 million and $31.3 million for the years ended December 31, 1997, 1996 and 1995, respectively, with accompanying operating (losses) income of approximately $(4.6) million, $1.5 million, and $(4.1) million for the same periods. F-11 108 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 6. LONG-TERM DEBT AND LINES OF CREDIT Long-term debt consisted of the following at December 31:
1997 1996 ---- ---- (IN THOUSANDS) Senior notes due 2005, unsecured, stated interest at 9.875% (9.92% effective interest rate) net of unamortized discount of $292,000 and $331,000 at December 31, 1997 and 1996, respectively(a)..................................... $109,708 $109,669 Senior notes due 2007, unsecured, interest at 10.125%(a).... 100,000 -- Revolving credit facility, secured, interest at the agent's base rate plus an additional margin (see below)(b)........ 19,700 114,062 Purchase money loan agreement, secured, interest payable quarterly at the agent's base rate plus an additional margin (see below)(c)..................................... 2,852 -- Senior notes, secured, interest at 7.68%, payable in annual amounts from 1998 to 2004(d).............................. 45,000 45,000 Industrial revenue bond, secured, issued by Town of Ossian, Indiana, interest at a variable municipal bond rate, due in 2023................................................... 9,000 9,000 Industrial revenue bond, issued by City of Ligonier, Indiana, interest at a variable municipal bond rate plus 1%, payable in annual amounts from 2003 to 2007........... 6,300 6,300 Term loan payable in Belgian Francs, interest at 5.44% payable in quarterly amounts from 2003 to 2007............ 5,163 -- Term loan from the State of Connecticut, secured, interest at 6% per annum, payable in monthly amounts from 1998 to 2005...................................................... 3,400 3,400 Capital lease obligations, interest at 7.5%, payable in monthly amounts through February 2002..................... 3,042 3,640 Other....................................................... 1,188 1,741 -------- -------- 305,353 292,812 Less--current portion....................................... 13,960 1,089 -------- -------- $291,393 $291,723 ======== ========
The Company is party to an Intercreditor Agreement (Intercreditor Agreement) dated as of July 26, 1995 and executed by and among the Company, the holders (2004 Noteholders) of the 2004 Notes (as defined below) and the banks which are a party to the Credit Facility (as defined below) (Banks). The Company and the Banks and the 2004 Noteholders disagree with the interpretation of certain provisions of the Intercreditor Agreement. As a result, the Company has agreed to use its best efforts to retire the 2004 Notes by no later than May 31, 1998 and the 2004 Noteholders have agreed that, until May 31, 1998, they will forbear from taking any action under the 2004 Notes. The Company will use proceeds of the New Credit Facility (see Note 21 to Consolidated Financial Statements for further discussion) to provide the financing to retire the 2004 Notes. The New Credit Facility is expected to be used to retire the debt instruments identified below as (b), (c) and (d). (a) In July 1995, the Company sold $110,000,000 in aggregate principal amount of 9.875% Senior Notes due 2005 (the 2005 Notes). In December 1997, the Company sold $100,000,000 in aggregate principal amount of 10.125% Senior Notes due 2007 (the 2007 Notes). The 2005 Notes and 2007 Notes are general unsecured obligations of the Company with interest payable semi-annually. The 2005 Notes and 2007 Notes are guaranteed on a senior unsecured basis, jointly and severally, by each of the Company's principal wholly-owned domestic operating subsidiaries and certain of its indirect wholly-owned subsidiaries. Except as noted below, the 2005 Notes and 2007 Notes are not redeemable at the Company's option prior to July 15, 2000 and December 15, 2002, respectively. Thereafter, the 2005 Notes and 2007 Notes will be redeemable, in whole or part, at the option of the Company at various redemption prices as set forth in the 2005 Note Indenture and 2007 Note Indenture. In the event of a change in control, the Company will be obligated to make an offer to purchase all of the outstanding 2005 Notes and 2007 Notes at a premium. Also, in certain circumstances, the F-12 109 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 6. LONG-TERM DEBT AND LINES OF CREDIT -- CONTINUED Company will be required to make an offer to repurchase the 2005 Notes at a price equal to 100% of the principal amount thereof, plus accrued interest to the date of repurchase, with the net cash proceeds of certain asset sales. (b) In July 1995, the Company executed a new $135,000,000 multi-currency revolving credit facility (Credit Facility) for the Company and certain of its wholly-owned domestic and foreign subsidiaries. The Credit Facility has a maturity of July 2000. By amendment in December 1997, the aggregate advances under the Credit Facility are limited to $30,000,000. Borrowings under the Credit Facility bear interest at a per annum rate equal to the agent's base rate or the prevailing interbank offered rate in the applicable offshore currency market, plus an additional margin ranging from 0.5% to 1.75% based on the specific financial ratios of the Company. Borrowings under the Credit Facility bore interest at 8.5% as of December 31, 1997 and rates ranging from 8.25% to 8.5% as of December 31, 1996. The Company is also required to pay a quarterly facility fee of 0.2% to 0.625%, based on the Company's funded debt ratio. Borrowings under the Credit Facility are secured by first liens on the inventory, accounts receivable and certain intangibles of the Company and its wholly-owned domestic subsidiaries and by a pledge of 100% of the stock of wholly-owned domestic subsidiaries and 65% of the stock of wholly-owned foreign subsidiaries. Collateral for the Credit Facility secures the 2004 Notes (as defined below) on an equal and ratable basis. The Company and its wholly-owned domestic subsidiaries guarantee payment of domestic and foreign borrowings under the Credit Facility. The Company's wholly-owned foreign subsidiaries guarantee payment of foreign borrowings under the Credit Facility. (c) In August 1997, the Company executed a new $25,000,000 purchase money loan agreement. Under this agreement, the Company may borrow 70% of the cost of new purchases of machinery, equipment and other fixed assets, which assets also collateralize the loan. Borrowings under this facility bear the same rate of interest as borrowings under the Credit Facility and reduce the Company's availability under the Credit Facility. The purchase money loans are subject to a call option under which all or any portion of the principal balance then outstanding shall become due and payable within 30 days of the notice of the call option. (d) In October 1994, the Company sold $45,000,000 of 7.68% senior notes (2004 Notes). The 2004 Notes require quarterly interest payments due January 1, April 1, July 1 and October 1. The agreement requires the Company to maintain a funded debt to total capital ratio not greater than .65 to 1, among other measures. The Credit Facility contains numerous restrictive covenants including, but not limited to, the following matters: (i) maintenance of certain financial ratios and compliance with certain financial tests and limitations which become increasingly restrictive with the passage of time; (ii) limitations on payment of dividends, incurrence of additional indebtedness and granting of certain liens; (iii) restrictions on mergers, acquisitions, asset sales, sales of subsidiary stock, capital expenditures and investments; (iv) issuance of preferred stock by subsidiaries and (v) sale and leaseback transactions. The Company received waivers to certain financial covenants from its lenders at December 31, 1997 due to non-compliance with such covenants. As of December 31, 1997 and 1996, assets recorded under a capital lease were approximately $5,127,000 and $4,733,000, respectively, net of accumulated amortization of approximately $806,000 and $394,000, respectively. Aggregate minimum principal payment requirements on long-term debt, including capital lease obligations, in each of the five years subsequent to December 31, 1997 are as follows: 1998 - $13,960,000; 1999 - $7,406,000; 2000 - $30,026,000; 2001 - $7,548,000; 2002 - $6,844,000; thereafter - $239,569,000. Included in the current portion of long-term debt is $6,300,000 which is required to be paid if the Ligonier, IN facility is sold as planned during 1998, otherwise the obligation is not due until 2003 and thereafter as described in the table above. F-13 110 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 6. LONG-TERM DEBT AND LINES OF CREDIT -- CONTINUED In addition to long-term debt, the Company and its subsidiaries have line of credit arrangements with foreign banks for short-term borrowings of approximately $27,600,000, $36,340,000, and $17,191,000 at December 31, 1997, 1996 and 1995, respectively. The weighted average interest rate on short-term bank borrowings outstanding under these arrangements was 4.1%, 3.1% and 6.1% as of December 31, 1997, 1996 and 1995, respectively. NOTE 7. COMMITMENTS AND CONTINGENCIES The manufacture of automotive components entails the risk that a customer or governmental authority may require the recall of one of the Company's products or a product in which one of the Company's products has been installed. The Company has taken and will continue to take all reasonable precautions to avoid the risk of exposure to a recall or warranty claim that would have a material effect on the financial position of the Company. The Company does not believe that significant insurance coverage is available to protect against potential product recall/warranty liability. The Company provides for warranty claims on its products on a specific identification basis. While there can be no assurance that the Company will not incur substantial warranty or recall expense in the future, management believes that any liability resulting from these matters will not have a material impact on the financial position or future results of operations of the Company. NOTE 8. INCOME TAXES A summary of income (loss) before (provision) credit for income taxes, minority interest and equity in income of joint ventures, and components of the (provision) credit are as follows:
1997 1996 1995 ---- ---- ---- (IN THOUSANDS) Income (loss) before (provision) credit for income taxes, minority interest and equity in income of joint ventures: Domestic.............................................. $(31,095) $ 1,774 $ 4,268 Foreign............................................... (13,741) 8,628 7,415 -------- ------- ------- $(44,836) $10,402 $11,683 ======== ======= ======= (Provision) credit for income taxes: Currently payable-- Domestic.............................................. $ (3,297) $ (384) $ (843) Foreign............................................... (1,334) (2,456) (2,977) Utilization of tax credits............................ 1,000 2,517 3,182 -------- ------- ------- (3,631) (323) (638) -------- ------- ------- Deferred-- Domestic.............................................. 14,053 (988) (945) Foreign............................................... 3,264 (1,544) 325 Change in beginning of year valuation allowance....... (3,555) (220) -- -------- ------- ------- 13,762 (2,752) (620) -------- ------- ------- $ 10,131 $(3,075) $(1,258) ======== ======= =======
F-14 111 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 8. INCOME TAXES -- CONTINUED Reconciliations of the U.S. Federal statutory income tax rates to the Company's consolidated effective income tax rates applicable to continuing operations are as follows:
1997 1996 1995 ---- ---- ---- U.S. Federal statutory income tax rate.................... (35.0)% 35.0% 35.0% Increase (decrease) in effective income tax rate resulting from-- Differences between U.S. and foreign income tax rates... 6.4 9.4 2.1 Utilization of tax credits.............................. (2.2) (15.9) (27.2) Increase in valuation allowance......................... 7.9 2.1 -- Goodwill amortization................................... .4 1.5 1.4 Write off of foreign tax credits........................ 3.4 -- -- Tax benefit on deductible preferred stock dividends..... (3.9) -- -- Other, net.............................................. .4 (2.5) (.5) ----- ----- ------ Effective income tax rates................................ (22.6)% 29.6% 10.8% ===== ===== ======
The components of the net deferred income tax (asset) liability at December 31 are summarized as follows:
1997 1996 ---- ---- (IN THOUSANDS) Deferred income tax liabilities: Depreciation and basis difference......................... $ 8,715 $13,311 Unrealized gain on securities available for sale.......... 37 371 Other..................................................... 242 181 -------- ------- 8,994 13,863 -------- ------- Deferred income tax assets: Estimated net operating loss carryforwards................ (5,533) (2,966) Employee benefits......................................... (2,802) (3,380) Foreign tax credit carryforward........................... (980) (440) Accruals.................................................. (3,444) (217) Other tax credit carryforwards............................ (5,783) -- Inventory................................................. (931) (600) Accounts and notes receivable reserve..................... (114) (22) Write-down of investment.................................. (368) (368) Loss on joint ventures.................................... (1,086) (1,052) Other..................................................... (1,936) (649) -------- ------- (22,977) (9,694) Valuation allowance....................................... 4,519 964 -------- ------- (18,458) (8,730) -------- ------- Net deferred income tax (asset) liability................... $ (9,464) $ 5,133 ======== =======
At December 31, 1997, the cumulative amount of undistributed earnings of foreign subsidiaries was approximately $18,898,000. No deferred U.S. income taxes have been provided on these earnings as such amounts are deemed to be permanently reinvested. If such earnings were remitted, the impact of additional U.S. income taxes or foreign withholding taxes would not be significant. As of December 31, 1997, the Company has net operating loss carryforwards of approximately $17,190,000, which expire in varying amounts between 2003 and 2011, available from certain of its subsidiaries. The Company has recorded a deferred tax asset of $5,533,000 associated with these carryfor- F-15 112 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 8. INCOME TAXES -- CONTINUED wards. Realization is dependent on generating sufficient taxable income in specific countries prior to the expiration of the loss carryforwards. Although realization is not assured, management believes it is more likely than not that all of the deferred tax asset will be realized. The amount of the deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carryforward period are reduced. Provisions (credits) for state income taxes are included in selling and administrative expenses and amounted to $(22,000) in 1997, $197,000 in 1996 and $1,369,000 in 1995. NOTE 9. STOCK OPTION PLANS AND LONG-TERM INCENTIVE PLANS The Company has 17,400 stock options outstanding under the Walbro Corporation 1983 Incentive Stock Option Plan (1983 Plan) which were granted at market value on the date of grant. There are no options available for grant remaining under this plan. Under the Walbro Corporation Equity Based Long Term Incentive Plan (Equity Plan), 856,457 shares of common stock are reserved for issuance to officers, directors and key employees. Options are granted yearly based on certain financial performance criteria as compared to the annual business plan and other factors. In addition, Stock Performance Award Grants (Grants) are awarded annually when the common stock price appreciates and Grants are exchanged for common stock at the end of the five-year term. If the Company's common stock price appreciates at a 17% compounded rate over the term, the number of Grants awarded, valued at the common stock price, will equal the dollar amount necessary to exercise the stock options. Participants will receive a greater or lesser number of Grants based on the actual market performance of the stock over the term. The number of grants outstanding was 4,900 and 6,754 as of December 31, 1997 and 1996, respectively. Effective December 1997, the Company approved a Broad-Based Long Term Incentive Plan (Broad-Based Plan), which consists of 572,129 shares of common stock that are reserved and available for distribution to employees and consultants to the Company, its Subsidiaries and Affiliates. The purpose of the plan is to enable these persons to participate in the Company's future and to aid in retaining employees of merit. Under the new plan, 5,200 options were granted in 1997. Of the 5,200 options granted, 3,000 remain unexercisable as of December 31, 1997. Effective January 1, 1996, the Company adopted SFAS No. 123, "Accounting for Stock-Based Compensation (SFAS No. 123)." The Company continues to apply Accounting Principles Board Opinion No. 25 for expense recognition. All stock options issued by the Company are exercisable at a price equal to the market price at the date of the grant. Accordingly, no compensation cost has been recognized for any of the options granted under the Plans. F-16 113 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 9. STOCK OPTION PLANS AND LONG-TERM INCENTIVE PLANS -- CONTINUED A summary of the stock option transactions of the 1983 Plan, the Equity Plan, and the Broad-Based Plan for the years ended December 31, 1997, 1996 and 1995 is as follows:
NUMBER OF SHARES -------------------------- EXERCISABLE OUTSTANDING OPTION PRICE (PER SHARE) ----------- ----------- ------------------------ December 31, 1994.................................. 184,410 273,111 $ 9.25-33.25 Granted.......................................... 174,881 18.00-25.25 Exercised........................................ (15,400) 10.88 Canceled......................................... (500) 33.25 ------- December 31, 1995.................................. 321,695 432,092 9.25-33.25 Granted.......................................... 117,385 18.19-21.75 Exercised........................................ (12,279) 9.25-18.00 Canceled......................................... (5,458) 26.00-33.25 ------- December 31, 1996.................................. 418,936 531,740 9.25-33.25 Granted.......................................... 19,804 13.75-22.75 Exercised........................................ (29,480) 9.25-19.125 Canceled......................................... (83,698) 9.25-33.25 ------- December 31, 1997.................................. 424,016 438,366 $ 9.25-33.25 =======
The weighted-average fair value of options granted during the year is $5.01 and $7.63 for the years ended December 31, 1997 and 1996, respectively. The following table summarizes information about options outstanding at December 31, 1997: Options Outstanding: Range of Exercise Prices...................... $ 9.25 $13.75-19.75 $20.00-27.13 $ 33.25 Number Outstanding at 12/31/97................ 12,875 283,322 124,769 17,400 Weighted-Average: Remaining Contractual Life (years)......... 3.1 7.8 6.5 0.1 Exercise Price............................. $ 9.25 $ 18.03 $ 25.59 $ 33.25 Options Exercisable: Number Exercisable at 12/31/97................ 12,875 272,260 121,481 17,400 Weighted Average Exercise Price............... $ 9.25 $ 18.05 $ 25.68 $ 33.25
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions by year:
ASSUMPTIONS 1997 1996 ----------- ---- ---- Risk-free interest rate..................................... 5.7% 6.4% Expected life............................................... 10 yrs. 10 yrs. Expected volatility......................................... 34.6% 35.2% Expected dividends.......................................... 2.0% 2.0%
F-17 114 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 9. STOCK OPTION PLANS AND LONG-TERM INCENTIVE PLANS -- CONTINUED Had compensation cost for the Plans been determined based on the fair value at the grant dates for awards under those plans consistent with the method described in SFAS No. 123, the Company's net income (loss) and earnings (loss) per share would have been reduced to the pro forma amounts indicated below:
1997 1996 ---- ---- Net income (loss)............................ As reported $(36,627) $11,229 Pro forma (36,644) 10,601 Basic net income (loss) per share............ As reported (4.23) 1.30 Pro forma (4.23) 1.23
The Company cautions that the pro forma net income and per share result in the initial years of adoption are overstated due to the recognition of pro forma compensation cost over the vesting period. During 1996, the Walbro Engine Management Corporation Incentive Compensation Plan reached the end of its five-year measurement term, and the first of three annual payments was made. The second of three payments was made during 1997. The Company has accrued approximately $3,287,000 and $4,472,000 as of December 31, 1997 and 1996, respectively, under this plan. Participants can elect to receive their payments in either cash or common stock of the Company. NOTE 10. POSTRETIREMENT HEALTH BENEFITS The Company provides postretirement health care, dental benefit and prescription drug coverage to a limited number of current retirees. Postretirement benefits are not available for active employees. The following table reconciles the status of the accrued postretirement benefit obligation at December 31:
1997 1996 ---- ---- (IN THOUSANDS) Accumulated postretirement benefit obligation (APBO)........ $3,800 $4,068 Plan assets at fair value................................... -- -- ------ ------ APBO in excess of plan assets............................... 3,800 4,068 Unrecognized net gain....................................... 606 331 ------ ------ Accrued postretirement benefit obligation................... $4,406 $4,399 ====== ======
The discount rates used in 1997 and 1996 were 7.00% and 7.25%, respectively. Net periodic postretirement benefit cost relates to interest costs of $283,000, $319,000 and $350,000 for the years ended December 31, 1997, 1996 and 1995, respectively. For measurement purposes, a 7.19% annual rate of increase was assumed in per capita cost of covered health and dental care benefits for 1997. The rate was assumed to gradually decrease to 5% by the year 2003 and remain at that level thereafter. The health care cost trend rate assumption has a significant impact on the accumulated postretirement benefit obligation and on future amounts accrued. A one percentage point increase each year in the assumed health care cost would increase the accumulated postretirement benefit obligation at December 31, 1997 by $336,000 and the interest cost component of net periodic postretirement benefit cost for the year ended December 31, 1997 by $27,000. NOTE 11. PENSION PLANS The Company sponsors pension plans covering substantially all domestic collectively bargained employees and certain foreign employees. The plan covering domestic collectively bargained employees provides benefits of stated amounts for each year of service. Plans covering certain foreign employees provide payments at termination which are based upon length of service, compensation rate and whether termination was F-18 115 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 11. PENSION PLANS -- CONTINUED voluntary or involuntary. The Company annually contributes to the plans covering domestic employees and certain foreign employees amounts which are actuarially determined to provide the plan with sufficient assets to meet future benefit payment requirements. The plans covering foreign employees in certain countries are not funded. Total pension expense amounted to $330,000 in 1997, $325,000 in 1996 and $251,000 in 1995. The Company recognizes currently the amount which would be payable if employees covered by certain foreign plans terminated voluntarily. Pension expense for the other plans is comprised of the following:
1997 1996 1995 ---- ---- ---- (IN THOUSANDS) Service cost................................................ $ 300 $ 285 $ 136 Interest on projected benefit obligation.................... 408 345 263 Actual return on assets..................................... (397) (324) (240) Net amortization and deferral............................... 19 19 12 ----- ----- ----- $ 330 $ 325 $ 171 ===== ===== =====
The following table summarizes the funded status of the Company's defined benefit pension plans and the related amounts recognized in the Company's consolidated balance sheets as of December 31:
1997 1996 ------------------ ------------------ PBO< PBO> PBO< PBO> ASSETS ASSETS ASSETS ASSETS ------ ------ ------ ------ (IN THOUSANDS) Actuarial present value of benefit obligation-- Vested........................................... $(5,952) $ (535) $(5,237) $ (511) Nonvested........................................ (30) -- (50) -- ------- ------- ------- ------- Accumulated benefit obligation................... (5,982) (535) (5,287) (511) Effects of salary progression.................... -- (56) -- (116) ------- ------- ------- ------- Projected benefit obligation (PBO)............... (5,982) (591) (5,287) (627) ------- ------- ------- ------- Plan assets-- Cash equivalents................................. 1,309 -- 1,247 -- Equity securities................................ 5,306 -- 4,365 -- ------- ------- ------- ------- 6,615 -- 5,612 -- ------- ------- ------- ------- Projected benefit obligation under (over) plan assets........................................... 633 (591) 325 (627) Unamortized net asset at transition................ (9) -- (31) -- Unamortized net (gain) loss........................ (224) -- (77) -- Unrecognized prior service cost.................... 768 -- 823 -- ------- ------- ------- ------- Pension asset (liability) recorded in the consolidated balance sheets...................... $ 1,168 $ (591) $ 1,040 $ (627) ======= ======= ======= =======
The assumptions used in determining the funded status information shown above were as follows:
1997 1996 1995 ---- ---- ---- Discount rate............................................... 6.0-7.0% 6.0-7.5% 7.25-7.5% Long-term rate of return on assets.......................... 6.0-7.0% 6.0-7.25% 8.5%
The Company also sponsors a defined contribution plan for non-union domestic employees under which the Company will make matching contributions of 50% of each participant's before-tax contribution (up to 6% of the participant's annual income) and retirement contribution of up to 3% (subject to change on an annual F-19 116 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 11. PENSION PLANS -- CONTINUED basis) of a participant's annual income. The cost of defined contributions charged to earnings during 1997, 1996 and 1995 was approximately $2,108,000, $2,252,000 and $2,255,000, respectively. Certain non-union employees, excluding officers, are eligible to participate in the Walbro Corporation Employee Stock Ownership Plan (ESOP). The Company will make annual contributions to a trust in the form of either cash or common stock of the Company. The amount of the annual contribution is discretionary, except that it must be sufficient to enable the trust to meet its current obligations. The Company has guaranteed the ESOP's loan and is obligated to contribute sufficient cash to the trust to repay the loan. Contribution expense related to the ESOP amounted to $463,000, $416,000 and $515,000 in 1997, 1996 and 1995, respectively. Contribution expense is net of dividends of $105,000 in 1997, 1996 and 1995. As of December 31, 1997 and 1996, the following are held by the ESOP: 238,000 and 218,000 allocated shares, respectively, and zero and 28,000 suspense (unallocated) shares, respectively. NOTE 12. DISCLOSURES ABOUT DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to help meet financing needs and to reduce exposure to fluctuating foreign currency exchange rates. The Company is exposed to credit loss in the event of nonperformance by the other parties to the financial instruments described below. However, the Company does not anticipate nonperformance by the other parties. The Company does not engage in trading activities with these financial instruments and does not generally require collateral or other security to support these financial instruments. The notional amounts of derivatives summarized below do not represent the amounts exchanged by the parties and, thus, are not a measure of the exposure of the Company through its use of derivatives. The amounts exchanged are calculated on the basis of the notional amounts and the other terms of the derivatives. Financial Instruments with Off-Balance Sheet Risk The Company enters into forward currency exchange contracts to manage its foreign currency exchange risk. As of December 31, 1997 and 1996, the notional amounts of contracts outstanding were approximately $885,000 and $5,975,000, respectively. The Company enters into forward currency exchange contracts to reduce its exposure against fluctuations in foreign currency exchange rates. During 1997, the Company had seventeen forward currency exchange contracts, thirteen of which matured during 1997, which exchanged 540,000,000 Japanese yen, 1,626,900 Deutsche marks and 7,000,000 Swedish krona. During 1996, the Company had fifteen forward currency exchange contracts which matured during 1996, which exchanged 939,000,000 Japanese yen and 20,200,000 Deutsche marks. During 1995, the Company had twenty-one forward currency exchange contracts which matured during 1995 and exchanged 1,015,000,000 Japanese yen and 15,300,000 Singapore dollars. The amounts included in foreign currency exchange (gain) loss in the accompanying consolidated statements of income related to these contracts were a gain of approximately $483,000 for the year ending December 31, 1997, a gain of approximately $339,000 for the year ending December 31, 1996 and a gain of approximately $929,000 for the year ending December 31, 1995. Fair Value of Financial Instruments The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value: Notes Receivable The fair value is estimated using the expected future cash flows discounted at current interest rates. F-20 117 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 12. DISCLOSURES ABOUT DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS -- CONTINUED Marketable Equity Securities The fair value of marketable equity securities is estimated by quoted market prices when the investment is traded on a public stock exchange. For investments not publicly traded, a combination of book value and fair market value of assets is used. Long-Term Debt The fair value of the Company's public debt is estimated using quoted market prices. The fair value of the Company's other long-term debt is estimated using the expected future cash flows discounted at the current interest rates offered to the Company for debt of the same remaining maturities. Forward Currency Exchange Contracts The fair value of forward currency exchange contracts is estimated by obtaining quotes from brokers. The estimated fair values of the Company's financial instruments are as follows:
1997 1996 ----------------------- ----------------------- CARRYING FAIR CARRYING FAIR VALUE VALUE VALUE VALUE -------- ----- -------- ----- (IN THOUSANDS) Notes receivable............................ $ 140 $ 140 $ 1,268 $ 1,268 Long-term debt.............................. 305,353 298,232 292,812 293,212 Forward currency exchange contracts......... -- -- -- (258)
NOTE 13. LEASES The Company has leased certain of its buildings, equipment and vehicles under operating leases. The leases involving buildings contain options enabling the Company to renew the leases at the end of the respective lease terms. Rent expense was approximately $6,178,000, $7,702,000 and $4,761,000 in 1997, 1996 and 1995, respectively. Aggregate minimum future rentals under noncancellable leases are as follows:
CAPITAL OPERATING LEASES LEASES ------- --------- (IN THOUSANDS) 1998........................................................ $ 871 $ 6,331 1999........................................................ 873 6,218 2000........................................................ 865 5,496 2001........................................................ 850 3,921 2002........................................................ 142 3,700 Thereafter.................................................. -- 25,539 ------ ------- Total minimum lease payments.............................. 3,601 $51,205 ======= Amount representing interest................................ 418 ------ Present value of net future minimum lease payments........ $3,183 ======
F-21 118 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 14. ACCRUED LIABILITIES Accrued liabilities consisted of the following at December 31:
1997 1996 ---- ---- (IN THOUSANDS) Compensation related....................................... $13,760 $10,336 Facilities and employee relocation......................... 606 7,471 Interest................................................... 7,385 7,449 Restructuring.............................................. 5,697 -- Other...................................................... 11,773 16,020 ------- ------- $39,221 $41,276 ======= =======
The restructuring liability consists of severance related costs, loan guarantees and other costs associated with the announced activities. There were no significant costs paid and charged against the liability during 1997. NOTE 15. CONVERTIBLE TRUST PREFERRED SECURITIES In February 1997, the Company sold 2,760,000 Convertible Trust Preferred Securities of Walbro Capital Trust, a wholly-owned subsidiary of the Company, at a face value of $25 per share and an interest rate of 8% per annum. The preferred securities are convertible into common stock of the Company at the option of the security-holder anytime after April 4, 1997. Net proceeds of the offering were approximately $66,000,000 and were used to repay a portion of the Company's revolving credit facility. Each preferred security is convertible, at the option of the holder, into shares of common stock of the Company at the rate of 1.1737 shares of common stock for each preferred security. NOTE 16. STOCKHOLDERS' EQUITY The Company has a stock rights plan which entitles the holder of each right, upon the occurrence of certain events, to purchase one one-hundredth of a share of a new series of preferred stock for $75. Furthermore, if the Company is involved in a merger or other business combination at any time after the rights become exercisable, the rights will entitle the holder to buy the number of shares of common stock of the acquiring company having a market value of twice the then current exercise price of each right. Alternatively, if a 15% or more shareholder acquires the Company by means of a reverse merger in which the Company and its stock survives, or engages in self-dealing transactions with the Company, or if any person acquires 50% or more of the Company's common stock, then each right not owned by a 15% or more shareholder will become exercisable for the number of shares of common stock of the Company having a market value of twice the then current exercise price of each right. The rights, which do not have voting rights, expire in December 1998 and may be redeemed by the Company at a price of $.01 per right at any time prior to their expiration or the time they become exercisable. The Company has authorized 1,000,000 shares of $1.00 par value preferred stock. NOTE 17. BUSINESS SEGMENT INFORMATION The Company operates through its subsidiaries in the following industry segments: 1. Automotive, which designs, develops and manufactures fuel storage and delivery products for a broad range of U.S. and foreign manufacturers of passenger automobiles and light trucks (including minivans), F-22 119 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 17. BUSINESS SEGMENT INFORMATION -- CONTINUED 2. Small Engine, which designs, develops and manufactures diaphragm carburetors for portable engines, float feed carburetors for ground supported engines and ignition systems and other components for a variety of small engine products and 3. Aftermarket and Corporate which includes aftermarket operations for both the automotive and small engine markets and the Corporate headquarters, including its direct investments. Selected financial information about the Company's business and geographic segments are as follows:
1997 1996 1995 ---- ---- ---- (IN THOUSANDS) Financial Information by Business Segment Net sales to customers: Automotive................................................ $467,821 $444,239 $324,963 Small Engine.............................................. 130,015 127,914 116,743 Aftermarket and Corporate................................. 35,911 29,689 28,562 -------- -------- -------- 633,747 601,842 470,268 Eliminations................................................ (13,842) (16,453) (10,996) -------- -------- -------- Total net sales............................................. $619,905 $585,389 $459,272 ======== ======== ======== Operating profit (loss): Automotive................................................ $(15,105) $ 24,909 $ 20,167 Small Engine.............................................. 2,145 6,851 11,345 Aftermarket and Corporate................................. (10,961) (5,082) (7,378) -------- -------- -------- Operating profit (loss)..................................... $(23,921) $ 26,678 $ 24,134 ======== ======== ======== Identifiable assets: Automotive................................................ $477,238 $463,144 $377,975 Small Engine.............................................. 87,468 67,020 52,798 Aftermarket and Corporate................................. 45,887 59,485 62,700 -------- -------- -------- Total identifiable assets................................... $610,593 $589,649 $493,473 ======== ======== ======== Depreciation and amortization: Automotive................................................ $ 23,907 $ 20,779 $ 12,967 Small Engine.............................................. 5,984 6,334 6,090 Aftermarket and Corporate................................. 1,526 2,623 3,394 -------- -------- -------- Total depreciation and amortization......................... $ 31,417 $ 29,736 $ 22,451 ======== ======== ======== Capital expenditures: Automotive................................................ $ 46,464 $ 84,293 $ 35,609 Small Engine.............................................. 13,107 11,769 9,692 Aftermarket and Corporate................................. 2,448 3,085 939 -------- -------- -------- Total capital expenditures.................................. $ 62,019 $ 99,147 $ 46,240 ======== ======== ========
F-23 120 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 17. BUSINESS SEGMENT INFORMATION -- CONTINUED
1997 1996 1995 ---- ---- ---- (IN THOUSANDS) Financial Information by Geographic Segment Net sales to customers: United States............................................. $372,013 $342,883 $314,697 Europe.................................................... 201,377 214,400 88,736 Far East and Other Foreign................................ 46,515 28,106 55,839 -------- -------- -------- 619,905 585,389 459,272 Net sales between geographic areas........................ 28,856 30,034 27,663 -------- -------- -------- 648,761 615,423 486,935 Eliminations................................................ (28,856) (30,034) (27,663) -------- -------- -------- Total net sales............................................. $619,905 $585,389 $459,272 ======== ======== ======== Operating profit (loss): United States............................................. $(23,305) $ 16,328 $ 14,313 Europe.................................................... (922) 7,595 3,335 Far East and Other Foreign................................ 306 2,755 6,486 -------- -------- -------- Operating Profit (loss)..................................... $(23,921) $ 26,678 $ 24,134 ======== ======== ======== Identifiable assets: United States............................................. $339,516 $324,988 $262,020 Europe.................................................... 191,630 194,017 193,876 Far East and Other Foreign................................ 79,447 70,644 37,577 -------- -------- -------- Total identifiable assets................................... $610,593 $589,649 $493,473 ======== ======== ========
The Europe geographic segment includes operations in Belgium, France, Germany, Norway, Spain and the United Kingdom. The Far East and Other Foreign geographic segment includes operations in Japan, Singapore, Korea, China, Brazil, Mexico and Canada. Sales between geographic areas are accounted for at cost plus a margin for profit. Identifiable assets are those assets used in the operations in each geographic area. Export sales from domestic locations were approximately $119,300,000, $127,248,000 and $78,985,000 for 1997, 1996 and 1995, respectively. A majority of the Company's sales are to automobile manufacturing companies. Sales to certain major customers which exceeded 10% of consolidated sales are as follows. Sales to one such customer amounted to 19%, 20% and 19% of consolidated sales in 1997, 1996 and 1995, respectively. Sales to another such customer amounted to 5%, 10% and 21% of consolidated sales in 1997, 1996 and 1995, respectively. Several other factors could have a significant impact on the continuing operations of the Company. These factors include changes in demand for automobiles and light trucks, relationships with significant customers, price pressures, the timing and structure of future acquisitions or dispositions, the integration of the Dyno acquisition into Walbro's overall business, impact of environmental regulations, continued availability of adequate funding sources, currency and other risks inherent in international sales, and general economic and business conditions. NOTE 18. SUPPLEMENTAL CASH FLOW INFORMATION In 1997, 1996 and 1995, the Company paid $4,376,000, $5,048,000 and $3,290,000 for income taxes and $29,957,000, $21,674,000 and $7,191,000 for interest, respectively. F-24 121 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 19. QUARTERLY FINANCIAL INFORMATION (UNAUDITED) Selected quarterly financial information for the years ended December 31, 1997 and 1996 is as follows:
QUARTER ----------------------------------------- FIRST SECOND THIRD FOURTH TOTAL ----- ------ ----- ------ ----- (IN THOUSANDS, EXCEPT PER SHARE DATA) 1997-- Net sales.............................. $154,019 $153,842 $146,523 $165,521 $619,905 Cost of sales.......................... 129,821 131,437 125,911 151,582 538,751 -------- -------- -------- -------- -------- Gross profit........................ $ 24,198 $ 22,405 $ 20,612 $ 13,939 $ 81,154 ======== ======== ======== ======== ======== Net income (loss)...................... $ 2,362 $ 1,184 $ (1,190) $(38,983) $(36,627) ======== ======== ======== ======== ======== Basic net income (loss) per share...... $ .27 $ .14 $ (.14) $ (4.49) $ (4.23) ======== ======== ======== ======== ======== Diluted net income (loss) per share.... $ .27 $ .14 $ (.14) $ (4.49) $ (4.23) ======== ======== ======== ======== ======== 1996-- Net sales.............................. $152,966 $155,086 $132,545 $144,792 $585,389 Cost of sales.......................... 124,178 126,752 111,116 126,088 488,134 -------- -------- -------- -------- -------- Gross profit........................ $ 28,788 $ 28,334 $ 21,429 $ 18,704 $ 97,255 ======== ======== ======== ======== ======== Net income (loss)...................... $ 4,534 $ 4,824 $ 2,346 $ (475) $ 11,229 ======== ======== ======== ======== ======== Basic net income (loss) per share...... $ .53 $ .56 $ .27 $ (.05) $ 1.30 ======== ======== ======== ======== ======== Diluted net income (loss) per share.... $ .53 $ .56 $ .27 $ (.05) $ 1.30 ======== ======== ======== ======== ========
Net income per share and weighted average shares are computed independently for each of the quarters presented. Therefore, the sum of the quarterly net income per share may not equal the per share total for the year. NOTE 20. EARNINGS PER SHARE In 1997, the Company adopted SFAS No. 128, "Earnings per Share," which was effective December 15, 1997. The statement changes the calculation of earnings per share to be more consistent with countries outside of the United States. In general, the statement requires two calculations of earnings per share to be disclosed, basic EPS and diluted EPS. Basic EPS is computed using only weighted average shares outstanding. Diluted EPS is computed using the average share price for the period when calculating the dilution of stock options. The following is the Company's calculation of earnings per share.
1997 1996 1995 ---- ---- ---- Net income (in thousands)................................ $ (36,627) $ 11,229 $ 13,830 ========== ========== ========== Weighted average share outstanding....................... 8,661,432 8,608,837 8,579,976 Dilutive options issued to executives.................... 6,664 40,543 29,455 ---------- ---------- ---------- Diluted shares outstanding............................... 8,668,096 8,649,380 8,609,431 ========== ========== ========== Basic net income (loss) per share........................ $ (4.23) $ 1.30 $ 1.61 ========== ========== ========== Diluted net income (loss) per share...................... $ (4.23) $ 1.30 $ 1.61 ========== ========== ==========
NOTE 21. SUBSEQUENT EVENT In April 1998, the Company received a commitment (Commitment) for a $150,000,000 line of credit, consisting of a $125,000,000 revolving line of credit (Revolving Credit Facility) and a $25,000,000 capital F-25 122 NOTE 21. SUBSEQUENT EVENT -- CONTINUED expenditure facility (Capital Expenditure Facility). Closing of the transaction contemplated by the Commitment is subject to various terms and conditions. Under the terms of the Commitment, for the first year of the transaction, the Revolving Credit Facility will bear interest at either the London Interbank Offered Rate (LIBOR), plus 2.25% or at the Prime Rate, plus 0.25%. Availability under the Revolving Credit Facility is subject to a borrowing base, consisting of 85% of the eligible accounts receivable of the Company and certain of its subsidiaries, 60% of certain raw materials and finished goods inventory and 70% of commodity raw material resin inventory, less customary reserves. In addition, the Revolving Credit Facility provides for a $25,000,000 sub-facility for the issuance of letters of credit. The Capital Expenditure Facility initially bears interest at the rate equal to the Prime Rate, plus 0.50% or LIBOR, plus 2.50%. Amounts drawn under the Capital Expenditure Facility are repayable in 20 equal quarterly principal installments, beginning one quarter after such draw. Each of the Revolving Credit Facility and the Capital Expenditure Facility (collectively, the New Credit Facility) is available for a period of five years after the closing. If the Revolving Credit Facility is terminated by the Company during the first three years, certain pre-payment fees may be applicable. The New Credit Facility will contain numerous covenants, including financial covenants such as a fixed charge ratio and a senior secured funded indebtedness to EBITDA (earnings before interest, taxes, depreciation and amortization) ratio, and restrictions on additional indebtedness, liens, capital expenditures, mergers and sales of assets, and events of default. Obligations outstanding under the Revolving Credit Facility will be secured by accounts receivable, inventory and general intangibles of the Company and certain of its subsidiaries, and also will be secured by a pledge of the stock of certain of the material domestic subsidiaries of the Company and 65% of the stock of the material foreign subsidiaries of the Company. Each advance under the Capital Expenditure Facility will be secured by the item of equipment purchased with the proceeds of such advance. The collateral for the Capital Expenditure Facility will not constitute collateral for the Revolving Credit Facility. In addition, certain of the subsidiaries of the Company will provide guarantees of the obligations under the New Credit Facility. The proceeds of the New Credit Facility will be used to replace the existing Credit Facility and the existing purchase money loan agreement, to refinance the 2004 Notes including an early retirement premium of approximately $2.3 million, for capital expenditures and for general working capital purposes. F-26 123 WALBRO CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
MARCH 31, 1998 DECEMBER 31, 1997 -------------- ----------------- (UNAUDITED) (IN THOUSANDS) ASSETS Current Assets: Cash and cash equivalents................................. $ 17,090 $ 13,539 Accounts receivable (net)................................. 160,761 144,985 Inventories............................................... 58,504 56,207 Other current assets...................................... 26,903 25,924 --------- --------- Total Current Assets................................... 263,258 240,655 Property, Plant & Equipment: Land, buildings and improvements.......................... 96,304 95,329 Machinery and equipment................................... 298,457 297,032 --------- --------- Subtotal............................................... 394,761 392,361 Less -- Accumulated depreciation.......................... (123,962) (116,991) --------- --------- Net Property, Plant and Equipment...................... 270,799 275,370 Other Assets: Goodwill (net)............................................ 32,668 32,803 Joint ventures, investments and other..................... 62,781 61,765 --------- --------- Total Other Assets..................................... 95,449 94,568 --------- --------- Total Assets........................................... $ 629,506 $ 610,593 ========= ========= LIABILITIES Current Liabilities: Current portion long-term debt............................ $ 13,938 $ 13,960 Notes payable -- banks.................................... 23,940 26,204 Accounts payable.......................................... 100,884 84,209 Accrued liabilities....................................... 45,181 41,009 --------- --------- Total Current Liabilities................................. 183,943 165,382 Long-Term Liabilities: Long-term debt, net of current............................ 293,804 291,393 Other long-term liabilities............................... 15,572 14,952 --------- --------- Total Long-Term Liabilities............................ 309,376 306,345 Company-obligated mandatorily redeemable convertible preferred securities of Walbro Capital Trust holding solely convertible debentures............................. 69,000 69,000 Stockholders' Equity Common stock, $.50 par value; authorized 25,000,000; outstanding 8,682,914 in 1998 and 8,682,595 in 1997.... 4,341 4,341 Paid-in capital........................................... 66,151 66,151 Retained earnings......................................... 34,508 33,938 Accumulated other comprehensive income.................... (37,813) (34,564) --------- --------- Total Stockholders' Equity............................. 67,187 69,866 --------- --------- Total Liabilities and Stockholders' Equity............. $ 629,506 $ 610,593 ========= =========
The accompanying notes are an integral part of these consolidated balance sheets. F-27 124 WALBRO CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED ---------------------- MARCH 31, MARCH 31, 1998 1997 --------- --------- (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE DATA) Net Sales................................................... $169,292 $154,019 Cost of Sales & Expenses: Cost of sales............................................. 144,058 129,821 Selling and administrative expenses....................... 12,951 12,120 Research and development expenses......................... 4,007 3,350 --------- --------- Operating Income............................................ 8,276 8,728 Other Expense (Income): Interest expense.......................................... 7,665 6,023 Interest income........................................... (162) (131) Other (income) expense.................................... (1,468) (1,089) --------- --------- Income (Loss) Before Income Taxes, Minority Interest, and Joint Ventures............................................ 2,241 3,925 Provision for Income Taxes.................................. 752 1,380 Minority Interest........................................... 1,391 984 Equity in (Income) of Joint Ventures........................ (474) (801) --------- --------- Net Income (Loss)........................................... $ 572 $ 2,362 ========= ========= Basic Net Income Per Share.................................. $ 0.07 $ 0.27 ========= ========= Diluted Net Income Per Share................................ $ 0.07 $ 0.27 ========= ========= Weighted Average Shares Outstanding......................... 8,682,602 8,652,737 Dilutive Options Issued to Executives....................... 3,885 21,710 --------- --------- Diluted Shares Outstanding.................................. 8,686,487 8,674,447 ========= =========
The accompanying notes are an integral part of these consolidated statements. F-28 125 WALBRO CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED ---------------------- MARCH 31, MARCH 31, 1998 1997 --------- --------- (UNAUDITED) (IN THOUSANDS) Cash Flows From Operating Activities: Net income................................................ $ 572 $ 2,362 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation & amortization............................ 9,718 8,180 (Gain) loss on disposition of assets................... (549) 123 Minority interest...................................... 26 110 (Income) of joint ventures............................. (474) (801) Changes in assets and liabilities: Deferred income taxes................................ (612) 108 Pension obligations & other.......................... 583 (592) Accounts payable and accrued liabilities............. 34,819 (4,182) Accounts receivable, net............................. (19,703) (20,412) Inventories.......................................... (2,640) 1,646 Prepaid expenses and other........................... (5,284) (578) -------- -------- Total adjustments.................................... 15,884 (16,398) -------- -------- Net cash provided by (used in) operating activities.... 16,456 (14,036) Cash Flows From Investing Activities: Purchase of fixed assets.................................. (11,826) (14,232) Purchase of other assets.................................. (12) (206) Investment in joint ventures & other...................... (1,838) (2,654) Proceeds from disposal of assets.......................... 3,689 24 -------- -------- Net cash used in investing activities.................. (9,987) (17,068) Cash Flows From Financing Activities: Borrowings under lines-of-credit.......................... 21,713 32,187 Repayments under lines-of-credit.......................... (23,600) (61,562) Debt repayments........................................... (156) (143) Proceeds from issuance of stock & options................. -- 69,000 Financing fees paid....................................... (366) (3,241) Cash dividends paid....................................... (868) (865) -------- -------- Net cash provided by (used in) financing activities.... (3,277) 35,376 Effect of exchange rate changes on cash................... 359 (2,014) -------- -------- Net increase (decrease) in cash........................... 3,551 2,258 Cash and cash equivalents beginning balance............... 13,539 18,213 -------- -------- Cash and cash equivalents ending balance.................. $ 17,090 $ 20,471 ======== ========
The accompanying notes are an integral part of these consolidated statements. F-29 126 WALBRO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) NEW CREDIT FACILITY In April 1998 the Company received a commitment (Commitment) for a $150 million line of credit, consisting of a $125 million revolving line of credit (Revolving Credit Facility) and a $25 million capital expenditure facility (Capital Expenditure Facility). Closing of the transaction contemplated by the Commitment is subject to various terms and conditions. Under the terms of the Commitment, for the first year of the transaction, the Revolving Credit Facility will bear interest at either the London Interbank Offered Rate (LIBOR), plus 2.25% or at the Prime Rate, plus 0.25%. Availability under the Revolving Credit Facility is subject to a borrowing base, consisting of 85% of eligible accounts receivable of the Company and certain of its subsidiaries, 60% of certain raw materials and finished goods inventory and 70% of commodity raw material resin inventory, less customary reserves. In addition, the Revolving Credit Facility provides for a $25 million sub-facility for the issuance of letters of credit. The Capital Expenditure Facility initially bears interest at the rate equal to the prime rate, plus 0.50% or LIBOR, plus 2.50%. Amounts drawn under the Capital Expenditure Facility are repayable in 20 equal quarterly principal installments, beginning one quarter after such draw. Each of the Revolving Credit Facility and the Capital Expenditure Facility (collectively, the New Credit Facility) is available for a period of five years after closing. If the Revolving Credit Facility is terminated by the Company during the first three years, certain pre-payment fees may be applicable. The New Credit Facility will contain numerous covenants, including financial covenants such as a fixed charge ratio and a senior secured funded indebtedness to EBITDA (earnings before interest, taxes, depreciation and amortization) ratio, and restrictions on additional indebtedness, liens, capital expenditures, mergers and sales of assets, and events of default. Obligations outstanding under the Revolving Credit Facility will be secured by accounts receivable, inventory and general intangibles of the Company and certain subsidiaries, and also will be secured by a pledge of the stock of certain of the material domestic subsidiaries of the Company and 65% of the stock of the material foreign subsidiaries of the Company. Each advance under the Capital Expenditure Facility will be secured by the item of equipment purchased with the proceeds of such advance. The collateral for the Capital Expenditure Facility will not constitute collateral for the Revolving Credit Facility. In addition, certain of the subsidiaries of the Company will provide guarantees of the obligations under the New Credit Facility. The proceeds of the New Credit Facility will be used to replace the existing credit facility and the existing purchase money loan agreement, to refinance the Senior Notes due 2004 including an early retirement premium of approximately $2.3 million, for capital expenditures and for general working capital purposes. (2) INVENTORIES Inventories are stated at the lower of cost (first-in, first-out) or market. Inventories include raw material and component parts, work-in-process and finished products. Work-in-process and finished products inventories include material, labor and manufacturing overhead costs. Inventories are comprised of the following:
MARCH 31, DECEMBER 31, 1998 1997 --------- ------------ (IN THOUSANDS) Raw materials and components.......................... $33,701 $30,857 Work-in-process....................................... 9,585 6,545 Finished products..................................... 15,218 18,805 ------- ------- $58,504 $56,207 ======= =======
F-30 127 WALBRO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED (3) COMPREHENSIVE INCOME Effective January 1, 1998, the Company adopted SFAS No. 130 "Reporting Comprehensive Income." The impact of adoption has been to include changes in deferred compensation, unrealized gain or loss on securities and foreign currency translation, which have not been recognized in determining net income, in a new presentation of comprehensive income, as presented below. WALBRO CORPORATION & SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
THREE MONTHS ENDED ------------------------- MARCH 31, MARCH 31, 1998 1997 --------- --------- (IN THOUSANDS) Net income.............................................. $ 572 $ 2,362 ------- ------- Foreign currency translation............................ (3,386) (8,452) Unrealized gains (losses) on securities................. (1) (95) Deferred compensation................................... 138 299 ------- ------- Other comprehensive income (loss)....................... (3,249) (8,248) ------- ------- Comprehensive income (loss)............................. $(2,677) $(5,886) ======= =======
F-31 128 WALBRO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED (4) SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
AS OF MARCH 31, 1998 ------------------------------------------------------------------------- WALBRO CONSOLIDATION CORPORATION AND GUARANTOR NONGUARANTOR (PARENT ELIMINATION CONSOLIDATED SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTAL ------------ ------------ ------------ ------------- ------------ (IN THOUSANDS, EXCEPT SHARE DATA) ASSETS Current Assets: Cash and cash equivalents.................. $ (841) $ 8,297 $ 9,634 $ -- $ 17,090 Accounts receivable, net................... 86,045 73,964 752 -- 160,761 Accounts receivable, intercompany.......... (130,438) (42,355) 163,810 8,983 -- Inventories................................ 25,689 31,873 942 -- 58,504 Prepaid expenses and other................. 11,219 5,324 657 -- 17,200 Deferred and refundable income taxes....... 491 1,428 7,784 -- 9,703 --------- -------- -------- --------- --------- Total Current Assets (7,835) 78,531 183,579 8,983 263,258 --------- -------- -------- --------- --------- Plant and Equipment, Net..................... 124,977 141,169 4,545 108 270,799 --------- -------- -------- --------- --------- Other Assets: Funds held for construction................ -- -- -- -- -- Joint ventures............................. 10,778 16,276 -- -- 27,054 Investments................................ 125,284 24,492 52,471 (197,948) 4,299 Goodwill, net.............................. 14,228 11,443 (1,524) 8,541 32,688 Notes receivable........................... -- 10,719 191,599 (202,182) 136 Deferred income taxes...................... -- 4,054 4,178 -- 8,232 Other...................................... 8,847 2,441 11,752 -- 23,040 --------- -------- -------- --------- --------- Total Other Assets....................... 159,137 69,425 258,476 (391,589) 95,449 --------- -------- -------- --------- --------- Total Assets............................. $ 276,279 $289,125 $446,600 $(382,498) $ 629,506 ========= ======== ======== ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Current portion of long-term debt.......... $ 7,026 $ 54 $ 6,858 $ -- $ 13,938 Bank and other borrowings.................. -- 23,940 -- -- 23,940 Accounts payable........................... 40,256 54,789 5,839 -- 100,884 Accrued liabilities........................ 5,585 20,043 19,421 (788) 44,261 Dividends payable.......................... -- 920 -- -- 920 --------- -------- -------- --------- --------- Total Current Liabilities................ 52,867 99,746 32,118 (788) 183,943 --------- -------- -------- --------- --------- Long-Term Liabilities Long-term debt, less current portion....... 164,425 12,236 340,219 (223,076) 293,804 Pension obligations........................ 2,818 2,765 7,076 -- 12,659 Deferred income taxes...................... -- 1,964 -- -- 1,964 Minority interest.......................... -- 949 -- -- 949 --------- -------- -------- --------- --------- Total Long-Term Liabilities.............. 167,243 17,914 347,295 (223,076) 309,376 --------- -------- -------- --------- --------- Redeemable Preferred Stock................... Stockholders' Equity....................... -- 69,000 -- -- 69,000 Common stock, $.50 par value; authorized 25,000,000; outstanding 8,682,914 in 1998; 8,682,595 in 1997.................. -- 23,935 4,341 (23,935) 4,341 Paid-in capital............................ -- 72,770 66,151 (72,770) 66,151 Retained earnings.......................... 58,756 31,439 34,508 (90,195) 34,508 Deferred compensation...................... -- -- (241) -- (241) Minimum pension liability adjustment....... -- -- -- -- -- Unrealized gain on securities available for sale..................................... -- -- 67 -- 67 Cumulative translation adjustments......... (2,587) (25,679) (37,639) 28,266 (37,639) --------- -------- -------- --------- --------- Total Stockholders' Equity............... 56,169 102,465 67,187 (158,634) 67,187 --------- -------- -------- --------- --------- Total Liabilities and Stockholders' Equity................................. $ 276,279 $289,125 $446,600 $(382,498) $ 629,506 ========= ======== ======== ========= =========
F-32 129 WALBRO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED (4) SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS -- CONTINUED
AS OF DECEMBER 31, 1997 --------------------------------------------------------------------------- WALBRO CORPORATION CONSOLIDATION GUARANTOR NONGUARANTOR (PARENT AND ELIMINATION CONSOLIDATED SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTAL ------------ ------------ ------------ --------------- ------------ (IN THOUSANDS, EXCEPT SHARE DATA) ASSETS Current Assets: Cash and cash equivalents......... $ (744) $ 13,431 $ 852 $ -- $ 13,539 Accounts receivable, net.......... 80,936 63,194 855 -- 144,985 Accounts receivable, intercompany.................... (144,222) (37,755) 171,052 10,925 -- Inventories....................... 26,086 29,012 1,109 -- 56,207 Prepaid expenses and other........ 5,988 9,549 1,868 -- 17,405 Deferred and refundable income taxes........................... 470 1,253 6,796 -- 8,519 --------- -------- -------- --------- -------- Total Current Assets............ (31,486) 78,684 182,532 10,925 240,655 --------- -------- -------- --------- -------- Plant and Equipment, Net............ 123,635 144,423 7,204 108 275,370 --------- -------- -------- --------- -------- Other Assets: Funds held for construction....... -- -- -- -- -- Joint ventures.................... 10,739 15,942 -- -- 26,681 Investments....................... 117,720 24,433 50,959 (189,851) 3,261 Goodwill, net..................... 14,342 11,444 (1,524) 8,541 32,803 Notes receivable -- 6,499 196,198 (202,571) 126 Deferred income taxes............. -- 4,001 4,178 -- 8,179 Other............................. 9,045 2,860 11,613 -- 23,518 --------- -------- -------- --------- -------- Total Other Assets.............. 151,846 65,179 261,424 (383,881) 94,568 --------- -------- -------- --------- -------- Total Assets...................... $ 243,995 $288,286 $451,160 $(372,848) $610,593 ========= ======== ======== ========= ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Current portion of long-term debt............................ $ 7,026 $ 76 $ 6,858 $ -- $ 13,960 Bank and other borrowings......... -- 26,204 -- -- 26,204 Accounts payable.................. 21,540 55,730 6,939 -- 84,209 Accrued liabilities............... 1,103 18,699 20,127 (708) 39,221 Dividends payable................. -- 920 868 -- 1,788 --------- -------- -------- --------- -------- Total Current Liabilities....... 29,669 101,629 34,792 (708) 165,382 --------- -------- -------- --------- -------- Long-Term Liabilities Long-term debt, less current portion......................... 164,581 11,818 339,809 (224,815) 291,393 Pension obligations............... 2,505 2,625 6,693 -- 11,823 Deferred income taxes............. -- 2,077 -- -- 2,077 Minority interest................. -- 1,052 -- -- 1,052 --------- -------- -------- --------- -------- Total Long-Term Liabilities..... 167,086 17,572 346,502 (224,815) 306,345 --------- -------- -------- --------- -------- Redeemable Preferred Stock.......... -- 69,000 -- -- 69,000 Stockholders' Equity Common stock, $.50 par value; authorized 25,000,000; outstanding 8,682,914 in 1998; 8,682,595 in 1997............... -- 23,935 4,341 (23,935) 4,341 Paid-in capital................... -- 72,819 66,151 (72,819) 66,151 Retained earnings................. 49,827 28,747 33,938 (78,574) 33,938 Deferred compensation............. -- -- (379) -- (379) Minimum pension liability adjustment...................... -- -- -- -- -- Unrealized gain on securities available for sale.............. -- -- 68 -- 68 Cumulative translation adjustments..................... (2,587) (25,416) (34,253) 28,003 (34,253) --------- -------- -------- --------- -------- Total Stockholders' Equity...... 47,240 100,085 69,866 (147,325) 69,866 --------- -------- -------- --------- -------- Total Liabilities and Stockholders' Equity.......... $ 243,995 $288,286 $451,160 $(372,848) $610,593 ========= ======== ======== ========= ========
F-33 130 WALBRO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED (4) SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS -- CONTINUED
THREE MONTHS ENDED MARCH 31, 1998 ------------------------------------------------------------------------- WALBRO CONSOLIDATION CORPORATION AND GUARANTOR NONGUARANTOR (PARENT ELIMINATION CONSOLIDATED SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTAL ------------ ------------ ------------ ------------- ------------ (IN THOUSANDS, EXCEPT SHARE DATA) Net Sales.............................. $93,868 $83,421 $ 667 $(8,664) $169,292 Costs and Expenses: Cost of sales........................ 80,829 71,223 670 (8,664) 144,058 Selling, administration & other expenses.......................... 7,389 6,344 3,225 -- 16,958 ------- ------- ------- ------- -------- Operating Income (Loss)................ 5,650 5,854 (3,228) -- 8,276 Other Expense (Income): Interest expense..................... 4,096 2,851 8,471 (7,753) 7,665 Interest income...................... (1,853) (1,752) (4,310) 7,753 (162) Foreign currency exchange loss (gain)............................ (8) 96 -- -- 88 Other................................ (1,062) 98 (592) -- (1,556) ------- ------- ------- ------- -------- Income Before Provision for Income Taxes, Minority Interest, Equity in (income) Loss of Joint Ventures and Subsidiaries.................. 4,477 4,561 (6,797) -- 2,241 Provision (credit) for Income Taxes............................. 1,608 1,784 (2,640) -- 752 Minority Interest.................... -- 1,391 -- -- 1,391 Equity in (Income) Loss of Joint Ventures.......................... (39) (435) -- -- (474) Equity in (Income) of Subsidiaries... (1,980) -- (4,729) 6,709 -- ------- ------- ------- ------- -------- Net Income........................... $ 4,888 $ 1,821 $ 572 $(6,709) $ 572 ======= ======= ======= ======= ========
THREE MONTHS ENDED MARCH 31, 1997 ------------------------------------------------------------------------- WALBRO CONSOLIDATION CORPORATION AND GUARANTOR NONGUARANTOR (PARENT ELIMINATION CONSOLIDATED SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTAL ------------ ------------ ------------ ------------- ------------ (IN THOUSANDS, EXCEPT SHARE DATA) Net Sales.............................. $83,462 $76,336 $ 340 $(6,119) $154,019 Costs and Expenses: Cost of sales........................ 69,021 66,641 278 (6,119) 129,821 Selling, administration & other expenses.......................... 8,162 5,293 2,263 -- 15,718 ------- ------- ------- ------- -------- Operating Income (Loss)................ 6,279 4,402 (2,201) -- 8,480 Other Expense (Income): Interest expense..................... 4,009 1,737 6,335 (6,306) 5,775 Interest income...................... (1,134) (899) (4,404) 6,306 (131) Foreign currency exchange loss (gain)............................ 28 (71) 15 -- (28) Other................................ (1,038) (23) -- -- (1,061) ------- ------- ------- ------- -------- Income Before Provision for Income Taxes, Minority Interest, Equity in (Income) Loss of Joint Ventures and Subsidiaries.................. 4,414 3,658 (4,147) -- 3,925 Provision (credit) for Income Taxes............................. 1,527 1,405 (1,552) -- 1,380 Minority Interest.................... -- 984 -- -- 984 Equity in (Income) Loss of Joint Ventures.......................... (300) (501) -- -- (801) Equity in (Income) of Subsidiaries... (1,793) (52) (4,957) 6,802 -- ------- ------- ------- ------- -------- Net Income........................... $ 4,980 $ 1,822 $ 2,362 $(6,802) $ 2,362 ======= ======= ======= ======= ========
F-34 131 WALBRO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED (4) SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS -- CONTINUED
THREE MONTHS ENDED MARCH 31, 1998 --------------------------------------------------------------------------- WALBRO CORPORATION CONSOLIDATION GUARANTOR NONGUARANTOR (PARENT AND ELIMINATION CONSOLIDATED SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTAL ------------ ------------ ------------ --------------- ------------ (IN THOUSANDS, EXCEPT SHARE DATA) Net cash provided by (used in) operating activities $8,494 $ 3,947 $4,015 $-- $ 16,456 ------ -------- ------ --- -------- Cash Flows from Investing Activities: Purchase of plant and equipment........ (4,807) (7,011) (8) -- (11,826) Acquisitions, net of cash acquired..... -- -- -- -- -- Purchase of other assets............... (94) 89 (7) -- (12) Investment in joint ventures and other................................ (3,534) (282) 1,978 -- (1,838) Proceeds/(payments) of intercompany note rec............................. -- -- -- -- -- Proceeds from disposal of assets -- 51 3,638 -- 3,689 ------ -------- ------ --- -------- Net cash provided by (used in) investing activities................. (8,435) (7,153) 5,601 -- (9,987) ------ -------- ------ --- -------- Cash Flows from Financing Activities: Net borrowings (repayments) under revolving line-of-credit agreements........................... -- (2,287) 400 -- (1,887) Debt repayments (156) -- -- -- (156) Proceeds from issuance of long-term debt................................. -- -- -- -- -- Proceeds from issuance of stock and options.............................. -- -- -- -- -- Financing fees paid.................... -- -- (366) -- (366) Cash dividends paid.................... -- -- (868) -- (868) ------ -------- ------ --- -------- Net cash provided (used in) financing activities........................... (156) (2,287) (834) -- (3,277) ------ -------- ------ --- -------- Effect of Exchange Rate Changes on Cash................................. -- 359 -- -- 359 ------ -------- ------ --- -------- Net Increase (Decrease) in Cash........ (97) (5,134) 8,782 -- 3,551 Cash and Cash Equiv. at Begin of Year................................. (744) 13,431 852 -- 13,539 ------ -------- ------ --- -------- Cash and Cash Equiv. at End of Period............................... $ (841) $ 8,297 $9,634 $-- $ 17,090 ====== ======== ====== === ========
F-35 132 WALBRO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED (4) SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS -- CONTINUED
THREE MONTHS ENDED MARCH 31, 1998 ------------------------------------------------------------------------- WALBRO CONSOLIDATION CORPORATION AND GUARANTOR NONGUARANTOR (PARENT ELIMINATION CONSOLIDATED SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTAL ------------ ------------ ------------ ------------- ------------ (IN THOUSANDS, EXCEPT SHARE DATA) Net cash provided by (used in) operating activities............................ $ 15,267 $ 8,273 $(37,576) $-- $(14,036) -------- -------- -------- --- -------- Cash Flows From Investing Activities: Purchase of plant and equipment....... (8,192) (5,945) (95) -- (14,232) Acquisitions, net of cash acquired.... -- -- -- -- -- Purchase of other assets.............. (359) 22 131 -- (206) Investment in joint ventures and other.............................. (4,329) (164) 1,839 -- (2,654) Proceeds/(payments) of intercompany note rec........................... -- -- -- -- -- Proceeds from disposal of assets...... (1) 25 -- -- 24 -------- -------- -------- --- -------- Net cash provided by(used in) investing activities............................ (12,881) (6,062) 1,875 -- (17,068) -------- -------- -------- --- -------- Cash Flows From Financing Activities: Net borrowings (repayments) under revolving line-of-credit agreements......................... -- (1,813) (27,562) -- (29,375) Debt repayments....................... (145) 2 -- -- (143) Proceeds from issuance of long-term debt............................... -- (69,000) 69,000 -- -- Proceeds from issuance of stock and options............................ -- 69,000 -- -- 69,000 Financing fees paid................... -- -- (3,241) -- (3,241) Cash dividends paid................... -- -- (865) -- (865) -------- -------- -------- --- -------- Net cash provided by (used in) financing activities............................ (145) (1,811) 37,332 -- 35,376 -------- -------- -------- --- -------- Effect of Exchange Rate Changes on Cash.................................. -- (654) (1,360) -- (2,014) -------- -------- -------- --- -------- Net Increase (Decrease) in Cash......... 2,241 (254) 271 -- 2,258 Cash and Cash Equiv. at Begin of Year... 299 17,779 135 -- 18,213 -------- -------- -------- --- -------- Cash and Cash Equiv. at End of Period... $ 2,540 $ 17,525 $ 406 $-- $ 20,471 ======== ======== ======== === ========
F-36 133 [ERNST & YOUNG LETTERHEAD] Mr. Mike Shope Walbro Corporation 6242 Garfield Street Cass City, Michigan 48726-1325 April 14, 1998 Dear Sirs, With respect to the contemplated filing of a registration statement by Walbro Corporation and the inclusion in this filing of the audited financial statements under French GAAP of Marwal Systems for fiscal years ended December 31, 1995, 1996 and 1997, we confirm that our audits of these Marwal Systems financial statements were conducted substantially in accordance with US generally accepted auditing standards. Yours faithfully, /s/ GILLES MEYER - -------------------------------------- Gilles Meyer Partner F-37 134 MARWAL SYSTEMS, S.N.C. STATUTORY AUDITOR'S GENERAL REPORT Year Ended December 31, 1997 In our capacity as statutory auditor, we present below our report on: - the accompanying annual accounts of Marwal Systems, - the specific procedures and disclosures prescribed by law, for the year ended December 31, 1997. These annual accounts are the responsibility of the Company's management. Our responsibility is to express an opinion on these annual accounts based on our audit. 1. OPINION ON THE ANNUAL ACCOUNTS We conducted our audit in accordance with French auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the annual accounts are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the annual accounts. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall annual account presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the annual accounts present fairly, in all material respects, the financial position of the Company at December 31, 1997 and the results of its operations for the year then ended. 11. SPECIFIC PROCEDURES AND DISCLOSURES PRESCRIBED BY LAW We have also carried out, in accordance with professional standards, the specific procedures prescribed by law. We have nothing to report with respect to the fairness of information contained in the Directors' Report and its consistency with the annual accounts and other information presented to shareholders concerning the financial position and annual accounts. The Statutory Auditor ERNST & YOUNG Audit /s/ GILLES MEYER -------------------------------------- Gilles Meyer March 6, 1998 F-38 135 MARWAL SYSTEMS, S.N.C. BALANCE SHEET AS OF DECEMBER 31, 1997 (In French Francs)
DECEMBER 31, 1997 -------------------------------------------------- ACCUMULATED DEPRECIATION AMORTIZATION AND GROSS ALLOWANCES NET BOOK VALUE ----- ---------------- -------------- ASSETS Fixed assets Intangible fixed assets................................. 20.729.684,88 20.016.820,12 712.864,76 Tangible fixed assets................................... 195.110.282,11 109.881.452,28 85.228.829,83 Financial investments: - -- Associates........................................... 22.791.879,00 -- 22.791.879,00 - -- Others............................................... 6.374.518,03 -- 6.374.518,03 -------------- -------------- -------------- Sub-total........................................... 245.006.364,02 129.898.272,40 115.108.091,62 -------------- -------------- -------------- Inventories - -- Raw materials........................................ 23.749.844,00 1.763.056,00 21.986.788,00 - -- Work in-progress..................................... 2.791.156,00 114.766,00 2.676.390,00 - -- Furnished goods...................................... 7.625.179,00 760.089,00 6.865.090,00 -------------- -------------- -------------- Sub-total........................................... 34.166.179,00 2.637.911,00 31.528.268,00 -------------- -------------- -------------- Current assets Advances and payments on accounts....................... 1.890.152,18 -- 1.890.152,18 Trade accounts and notes receivable: - -- Customers and related accounts....................... 133.366.850,61 3.783.169,22 129.583.681,39 - -- Other................................................ 11.275.924,08 -- 11.275.924,08 Other receivables....................................... 1.262.790,11 -- 1.262.790,11 Cash and cash equivalent................................ 106.831.529,38 -- 106.831.529,38 Payments in advance..................................... 390.780,96 -- 390.780,96 Deferred Charges........................................ -- -- -- Foreign exchange translation differences................ 1.273.073,37 -- 1.273.073,37 -------------- -------------- -------------- Sub-total........................................... 256.291.100,69 3.783.169,22 252.507.931,47 -------------- -------------- -------------- Total Assets...................................... 535.463.643,71 136.319.352,62 399.144.291,09 ============== ============== ==============
DECEMBER 31, 1997 ----------------- LIABILITIES AND SHAREHOLDERS' EQUITY Shareholders' equity Share capital............................................... 90.660.000,00 Reserves.................................................... 4.305.050,83 Revaluation reserve Retained earnings at January 1st............................ 37.762.183,66 Result for the year......................................... 41.682.692,84 -------------- Sub-total............................................... 174.409.927,33 -------------- Provisions for contingencies and charges.................... 5.265.122,88 Liabilities Financial debts: - -- Amounts owed to financial institutions................... 234.153,20 - -- Other financial debts.................................... 14.812.419,38 Government subsidies........................................ 2.300.000,00 Accounts payable and related accounts.................................................... 161.799.190,73 Social charges payable...................................... 20.560.799,82 Taxes....................................................... 3.224.082,14 Other....................................................... 4.927.588,11 Other creditors: - -- Accounts payable on fixed assets......................... 6.164.893,10 - -- Group.................................................... -- - -- Other.................................................... 24,00 Deferred income............................................. 4.785.923,26 Foreign exchange translation differences.................... 660.167,14 -------------- Sub-total............................................... 219.469.240,88 -------------- Total Liabilities and Shareholders' Equity............ 399.144.291,09 ==============
F-39 136 MARWAL SYSTEMS, S.N.C. INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 1997 (In French Francs)
DECEMBER 31, 1997 -------------------------------- INCOME STATEMENT FOR THE YEAR Operating revenues:......................................... 701.704.308,65 Sale of goods............................................... 676.820.865,02 Sale of services............................................ 15.333.088,92 Net sales................................................... 692.153.953,94 Movement in finished goods and work-in progress............. (2.537.150,00) In-home production.......................................... 285.562,25 Grants...................................................... 490.998,85 Reversal of provisions and transfer of charges.............. 10.021.636,96 Other income................................................ 1.289.306,65 Operating expenses.......................................... 652.633.885,77 Purchases of raw materials and other supplies............... 342.138.752,19 Movements in raw materials stock............................ 4.649.952,00 Other purchases and extend charges.......................... 112.782.904,48 Taxes and similar charges................................... 9.511.399,78 Wages & salaries............................................ 101.299.556,33 Social charges.............................................. 42.615.435,07 Depreciation and amortisation expenses and provisions: - - Fixed assets.............................................. 24.149.418,15 - - Current assets............................................ 1.205.055,28 - - Contingencies and charges................................. 3.905.450,94 Other charges............................................... 10.377.961,55 -------------- 652.633.885,77 Operating profit............................................ 49.070.422,88 Financial income: From other investments...................................... -- Other interest and similar income........................... 2.691.468,39 Reversal of provisions and transfer of charges.............. 1.608.447,02 Foreign exchange gains...................................... 9.381.457,05 -------------- 13.681.372,46 Financial expenses: Depreciation and provisions................................. 1.425.880,37 Interest and similar charges................................ 4.846.615,22 Foreign gains............................................... 10.464.489,91 -------------- 16.736.985,50 Net financial income/(expenses)............................. (3.055.613,84) Profit before taxation...................................... 46.014.809,84 Exceptional income:......................................... 1.904.436,60 From operating activities................................... -- From capital transactions................................... 409.464,60 Reversal of provisions and transfer of charges.............. 1.494.972,00 -------------- 1.904.436,60 Exceptional charges:........................................ 2.596.473,60 From operating activities................................... 2.320.049,99 From capital transactions................................... 145.203,61 Depreciation and provisions................................. 131.220,00 -------------- 2.596.473,60 Exceptional profit (loss)................................... (692.037,00) Profit before taxation...................................... 45.322.772,84 Profit-Sharing.............................................. 3.640.080,00 Income Tax.................................................. -- Profit after taxation....................................... 41.682.692,84
F-40 137 MARWAL SYSTEMS, S.N.C. NOTES TO THE FINANCIAL STATEMENTS (In Thousands of French Francs) EVENTS DURING THE YEAR The company owns 98% of the shares of Marwal Argentina S.A. as from 12/30/97 (11.760 shares), for an amount of 60,564 French Francs NOTE 1: ACCOUNTING POLICIES The accounts of the Company have been prepared based upon generally accepted accounting principles in France which conform with the Chart of Accounts as set out in the French law dated April 30, 1983 and the decree of November 29, 1983. 1.1 INTANGIBLE FIXED ASSETS The intangible fixed assets consist mainly of goodwill which is amortised on a straight line basis over 5 years and totally amortised at the end of 1997. The amortisation methods and the useful lives for other categories are as follows: - - Set-up costs 3 years straight line - - Computer software 1-3 years straight line
1.2 TANGIBLE FIXED ASSETS Tangible fixed assets are valued at historical purchase price or cost of production when they have been produced in house. The cost of production is made up of the following elements: purchase price of raw materials, consumables and direct production costs. Assets are depreciated on a straight line basis or declining balance, when applicable, for items purchased during or after 1992. The depreciation methods and the useful lives applied are as follows: Installations 10 years straight line Machinery 5-6 2/3 straight line / declining balance Toolings 1-5 years straight line / declining balance Leasehold improvements -- Mac./Toolings 5-6 2/3 straight line / declining balance Vehicles 4-5 years straight line Fixtures and fittings 10 years straight line Computer hardware 4-5 years straight line/ declining balance
1.3 FINANCIAL INVESTMENTS The investments in associates are valued at their acquisition cost in the assets of the Company. A reserve is recorded when their fair value is less than their book value. 1.4 INVENTORY AND WORK IN PROGRESS The policies used are as follows - Inventory is valued at the total cost of production. - Raw materials and consumables are valued at the average weighted cost for goods received in the last three months. This method is similar to FIFO. - The Cost of production includes direct and indirect production expenses and an allocation of the costs of running the Head Office, to the extent that they are related to the production. F-41 138 MARWAL SYSTEMS, S.N.C. NOTES TO THE FINANCIAL STATEMENTS -- CONTINUED NOTE 1: ACCOUNTING POLICIES -- CONTINUED - The provision for obsolescence is determined based upon the anticipated sales. 1.5 ALLOWANCE FOR DOUBTFUL ACCOUNTS The receivables are valued at their face value, a provision is recorded when the value recoverable is less than the book value. 1.6 FOREIGN EXCHANGE TRANSACTIONS The receivables and payables denominated in foreign currency are translated into French Francs at the December 31st exchange rate. The resulting differences with amounts translated at historical exchange rates are shown in the balance sheet as "foreign exchange translation differences." A provision for exchange losses is recorded separately for unrealized losses. 1.7 RETIREMENT INDEMNITY LIABILITIES The "Projected Benefit Obligation" has been applied to calculate the retirement obligation. The total obligation is covered by: - a fund run by La Mondiale, with a value of KFRF.9,680 - a provision of KFRF.1,000 included in the Marwal accounts at December 31, 1997 - an amount payable to La Mondiale of KFRF.450. NOTE 2: FIXED ASSETS The movements in gross value are as follows:
12/31/96 INCREASE DECREASE 12/31/97 -------- -------- -------- -------- Intangible fixed assets................................... 19761 969 -- 20730 Tangible fixed assets..................................... 156594 42804 4288 195110 Financial investments..................................... 27760 2,029 623 29,166
The movements in amortisation and depreciation are analysed as follows:
12/31/96 INCREASE DECREASE 12/31/97 -------- -------- -------- -------- Intangible fixed assets................................... 19075 942 -- 20017 Tangible fixed assets 90817 23207 4143 109881
NOTE 3: INVENTORIES AND WORK IN PROGRESS The reserve for obsolescence for raw materials, consumables and finished goods at 31/12/97 amounts to KFRF.2.638. NOTE 4: ACCOUNTS RECEIVABLE AND OTHER RECEIVABLES At December 31, 1997, accounts receivable can be split by maturity date as follows:
TOTAL LESS THAN 1 YEAR GREATER THAN 1 YEAR ----- ---------------- ------------------- Long term receivables................................ 6,375 6,307 68 Current assets....................................... 147796 147796 --
F-42 139 MARWAL SYSTEMS, S.N.C. NOTES TO THE FINANCIAL STATEMENTS -- CONTINUED NOTE 5: SHORT TERM INVESTMENTS N/A NOTE 6: PREPAYMENTS AND DEFERRED INCOME
12/31/97 -------- Prepayments Fees...................................................... 159 Prepaid maintenance....................................... 29 Leasing................................................... 203 --- 391
12/31/97 -------- Deferred income Finished goods sales...................................... 74 Long term contracts (tooling)............................. 4712 ---- 4786
NOTE 7: DEFERRED CHARGES
CHARGED TO INCOME STATEMENT TOTAL 1997 12/31/97 ----- ---------------- -------- Deferred charges Amortised over 3 years........................ 497 497 0
NOTE 8: SHAREHOLDERS' EQUITY The capital stock is made up of 906,600 shares with a nominal value of FRF.100, completely paid up. The accounts of the Company are consolidated in the group accounts of the Magneti Marelli Spa Group. NOTE 9: TAX PROVISIONS AND PROVISIONS FOR CONTINGENCIES AND CHARGES The movements in the year are analysed as follows:
12/31/96 ADDITIONS REVERSALS 12/31/97 -------- --------- --------- -------- Provisions for contingencies and charges of which:...... 11223 5333 11290 5266 - - Provision for payments on retirement.................. 672 1000 672 1000 - - Provision for guarantee............................... 5812 1948 5812 1948 - - Provision for reorganisation.......................... 70 0 70 0 - - Provision for litigation.............................. 2586 653 2691 548 - - Provision for loss on foreign exchange................ 762 1273 762 1273 - - Provision for charges................................. 1283 409 1283 409 - - Provision for unproductive hours...................... 38 50 -- 88
F-43 140 MARWAL SYSTEMS, S.N.C. NOTES TO THE FINANCIAL STATEMENTS -- CONTINUED NOTE 10: CREDITORS At December 31, 1997, debts, excluding advances and deposits received, deferred income and foreign exchange differences, can be analysed by maturity date as follows:
LESS THAN BETWEEN 1 AND TOTAL 1 YEAR 5 YEARS >5 YEARS ----- --------- ------------- -------- Government subsidy................................... 2300 2300 Other financial debts................................ 14812 14812 Trade payables and other liabilities++............... 196677 193037 3640 Overdraft............................................ 234 234
- ------------------------- ++ of which trade bills payable: 55338 NOTE 11: INFORMATION ON SUBSIDIARY
EQUITY CAPITAL SHARE OTHER THAN LAST CLOSING SHARE IN % DETAILED INFORMATION CAPITAL CAPITAL RESULT - ---------- -------------------- ------- -------------- ------------ (IN THOUSANDS OF PESOS) 95% Marwal de Mexico S.A. de C.V. Tepotzotplan Estado de Mexico............................... 49655* (8739)* 8923* 98% Marwal Argentina S.A. Buenos Aires Estado de Argentina...................................... 12000 Non available Non available
- ------------------------- * after reevaluation
GROSS NET BOOK LOANS GUARANTEE DIVIDENDS DETAILED INFORMATION VALUE VALUE GIVEN GIVEN RECEIVED -------------------- ----- -------- ----- --------- --------- (IN THOUSANDS OF FRANCS) Marwal de Mexico S.A. de C.V..................... 22731 22731 -- -- -- Marwal Argentina S.A............................. 60 60 6085 -- --
The exemption of sub-groups enables Marwal Systems to not consolidate its subsidiaries. NOTE 12: RELATED PARTIES The related parties transactions are included in the different accounts in the balance sheet as follows:
ASSETS LIABILITIES ------ ----------- Trade receivables............ 51778 Trade payables............... 15020 Other receivables............ 2953 Other payables............... 2906 Cash and cash equivalent..... 106522 Financial debt............... --
Interest expenses and financial income with related parties are as follows: Operating income............. 73062 Operating expenses........... 45322 Financial income............. 2953 Interest expenses............ 2812
F-44 141 MARWAL SYSTEMS, S.N.C. NOTES TO THE FINANCIAL STATEMENTS -- CONTINUED NOTE 13: ACCRUALS AND INCOME RECEIVABLE RELATING TO DIFFERENT BALANCE SHEET ACCOUNTS
ASSETS LIABILITIES ------ ----------- Trade receivables - - Customers.......................... 6092 Trade payables - - Suppliers.......................... 240 - Suppliers.......................... 12337 - - Other.............................. 3100 - Tax and social charges............. 16248 - Customers.......................... 1793 - Other.............................. 3135 Other liabilities.................... -- Other receivables.................... -- Financial debts...................... 2050
NOTE 14: EXCHANGE DIFFERENCES RELATED TO BALANCE SHEET ACCOUNTS
EXCHANGE DIFFERENCE -------------------- ASSET LIABILITY ----- --------- Assets Trade receivables........................................... 736 85 Liabilities Trade payables.............................................. 537 575
NOTE 15: SALES TURNOVER ANALYSIS
1996 1997 ---- ---- Sales....................................................... 610479 692154 Sales of goods.............................................. 596746 676821 Sales of services........................................... 13733 15333 Split between export/domestic Domestic.................................................... 323428 290827 Export...................................................... 287051 401327 Sales....................................................... 610479 692154
NOTE 16: DEFERRED TAX POSITION
12/31/96 MOVEMENTS 12/31/97 ----------------- ----------------- ----------------- ASSET LIABILITY ASSET LIABILITY ASSET LIABILITY ----- --------- ----- --------- ----- --------- Timing differences Accrued expenses payable to La Mondiale........................................ 811 811 450 450 Organic......................................... 799 799 797 797 Provision for contingencies and charges......... 1976 1976 1459 1459 Profit sharing.................................. 6348 6348 3650 3640 Expenses to amortize............................ 497 497 Elements having an impact on 1997 fiscal result........................................ Vehicle leasing................................. 4 Difference on foreign exchange unrealised gains......................................... (605)
F-45 142 MARWAL SYSTEMS, S.N.C. NOTES TO THE FINANCIAL STATEMENTS -- CONTINUED NOTE 17: EMPLOYEE INFORMATION
PERMANENT STAFF TEMPORARY STAFF --------------- --------------- Executives & Management............................ 79 Employees.......................................... 155 7 Labor and production............................... 475 56 --- -- Total............................................ 709 63 === ==
NOTE 18: LEASE COMMITMENTS The company leases certain of its buildings:
DEPRECIATION EXPENSE ACQUISITION -------------------------- NET BOOK BALANCE SHEET ACCOUNT COST PERIOD ENDED ACCUMULATED VALUE --------------------- ----------- ------------ ----------- -------- Buildings Chalons........................................... 5000 172 632 4368 Saint-Martin...................................... 8059 101 101 7958 ----- --- --- ----- Total........................................... 13059 273 733 12326 ===== === === =====
NOTE 19: COMMITMENTS UNDERTAKEN AND RECEIVED Discounted trade bills receivable but not matured........... 83007
LEASING: * present value of lease payments based on the BT01 index (value at 01.01.97 = 538.3 francs)
LEASE PAYMENTS FUTURE LEASE PAYMENTS -------------------- ------------------------------------------- PERIOD LESS THAN Between 1 5 TERM BALANCE SHEET CATEGORY ENDED ACCUMULATED 1 YEAR AND 5 YEARS YEARS TOTAL PRICE ---------------------- ------ ----------- --------- ----------- ----- ----- ----- Buildings Chalons*........................ 588.4 2160.3 591.0 2364.1 1797.9 4753.0 Saint-Martin.................... 113.8 113.8 535.4 3391.4 6089.8 10016.6 ----- ------ ------ ------ ------ ------- - Total........................... 702.2 2274.1 1126.4 5755.5 7887.7 14769.6 0 ===== ====== ====== ====== ====== ======= =
NOTE 20: INFORMATION RELATING TO MANAGEMENT N/A NOTE 21: EXCEPTIONAL INCOME Exceptional income from operating activities................ 0 Exceptional income from capital transactions................ 409 Income from the sale of fixed assets........................ 409 Reversal of provisions and transfer of charges.............. 1495 Provision for reorganisation................................ 70 Provision for litigation.................................... 392 Provision for charges....................................... 1033
F-46 143 MARWAL SYSTEMS, S.N.C. NOTES TO THE FINANCIAL STATEMENTS -- CONTINUED NOTE 22: EXCEPTIONAL CHARGES Exceptional charges on operating activities................. 2320 Redundancy payments......................................... 1382 Reimplantation costs........................................ 531 Non refunded IVA............................................ 391 Other....................................................... 16 Exceptional charges from capital transactions............... 145 Net book value of fixed assets sold......................... 145 Depreciation and provisions................................. 131 Provisions for risk......................................... 131
NOTE 23: CHANGE IN ACCOUNTING POLICIES N/A NOTE 24: ANALYSIS OF INCOME TAX As Marwal Systems became a partnership as from 10/01/95, there is no income tax booked.
BASE TAX -------- --- 12/31/97 -------- Operating profits........................................... 46015 0 Exceptional items........................................... (692) 0 - Profit before tax........................................... 45323 0 Income tax credit........................................... 0 - Total Income Tax for the Company.......................... 0 =
NOTE 25: RECONCILIATION TO U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES The accompanying financial statements of Marwal Systems S.N.C. have been prepared in accordance with accounting principles required in France. A reconciliation of these reported results to generally accepted principles in the United States is as follows:
1997 ---- Profit after taxation as shown in the financial statements................................................ 41,683 Adjust depreciable life of goodwill......................... (375) Adjust depreciable expense of fixed assets.................. 1,821 Other....................................................... (416) ------ Net income according to generally accepted accounting principles in the United States........................... 42,713
F-47 144 MARWAL SYSTEMS, S.N.C. STATUTORY AUDITOR'S GENERAL REPORT Year Ended December 31, 1996 In our capacity as statutory auditor, we present below our report on: - the accompanying annual accounts of Marwal Systems, - the specific procedures and disclosures prescribed by law, for the year ended December 31, 1996. These annual accounts are the responsibility of the Company's management. Our responsibility is to express an opinion on these annual accounts based on our audit. 1. OPINION ON THE ANNUAL ACCOUNTS We conducted our audit in accordance with French auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the annual accounts are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the annual accounts. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall annual account presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the annual accounts present fairly, in all material respects, the financial position of the Company at December 31, 1996 and the results of its operations for the year then ended. II. SPECIFIC PROCEDURES AND DISCLOSURES PRESCRIBED BY LAW We have also carried out, in accordance with professional standards, the specific procedures prescribed by law. We have nothing to report with respect to the fairness of information contained in the Directors' Report and its consistency with the annual accounts and other information presented to shareholders concerning the financial position and annual accounts. The Statutory Auditor ERNST & YOUNG Audit /s/ GILLES MEYER - -------------------------------------- Gilles Meyer March 7, 1997 F-48 145 MARWAL SYSTEMS, S.N.C. BALANCE SHEET AS OF DECEMBER 31, 1996
DECEMBER 31, 1996 --------------------------------------------------- ACCUMULATED DEPRECIATION AMORTIZATION AND GROSS ALLOWANCES NET BOOK VALUE ----- ---------------- -------------- (IN FRENCH FRANCS) ASSETS Fixed Assets Intangible fixed assets...................... 19.761.392,48 19.074.600,32 686.792,16 Tangible fixed assets........................ 156.594.185,63 90.816.990,28 65.777.195,35 Financial investments: - -- Associates................................ 22.731.315,00 -- 22.731.315,00 - -- Others.................................... 5.029.079,77 -- 5.029.079,77 -------------- --------------- --------------- Sub-total............................... 204.115.972,88 109.891.590,60 94.224.382,28 -------------- --------------- --------------- Inventories - -- Raw materials............................. 28.365.181,00 2.416.159,00 25.949.022,00 - -- Work-in-progress.......................... 2.868.378,00 233.271,00 2.635.107,00 - -- Finished goods............................ 10.119.722,00 928.075,00 9.191.647,00 -------------- --------------- --------------- Sub-total............................... 41.353.281,00 3.577.505,00 37.775.776,00 -------------- --------------- --------------- Current assets Advances and payments on accounts............ 932.195,00 932.195,00 Trade accounts and notes receivable: - -- Customers and related accounts............ 118.214.952,27 3.803.797,82 114.411.154,45 - -- Other..................................... 9.530.704,08 9.530.704,08 Other receivables............................ 1.489.686,35 1.489.686,35 Cash and cash equivalent..................... 101.785.260,99 101.785.260,99 Payments in advance.......................... 244.063,94 244.063,94 Deferred charges............................. 497.004,94 497.004,94 Foreign exchange translation differences..... 761.691,02 761.691,02 -------------- --------------- --------------- Sub-total............................... 233.455.558,59 3.803.797,82 229.651.760,77 -------------- --------------- --------------- Total Assets.......................... 478.924.812,47 117.272.893,42 361.651.919,05 ============== =============== ===============
DECEMBER 31, 1996 ----------------- LIABILITIES AND SHAREHOLDERS' EQUITY Shareholders' equity Share capital............................................. 90.660.000,00 Reserves.................................................. 1.470.178,30 Revaluation reserve Retained earnings at January 1st.......................... 24.306.987,50 Result for the year....................................... 56.697.450,69 -------------- Sub-total............................................ 173.134.616,49 -------------- Provisions for contingencies and charges.................... 11.222.783,62 Liabilities Financial debts: - - Amounts owed to financial institutions.................... 71.741,14 - - Other financial debts..................................... 7.637.640,38 Accounts payable and related accounts....................... 130.236.872,44 Social charges payable...................................... 21.804.322,68 Taxes....................................................... 3.224.512,15 Other....................................................... 4.710.583,24 Other creditors: - - Accounts payable on fixed assets.......................... 7.006.722,04 - - Group..................................................... 449,84 - - Other..................................................... 64.874,81 Deferred income............................................. 1.271.517,00 Foreign exchange translation differences.................... 1.265.283,22 -------------- Sub-total............................................ 177.294.518,94 -------------- Total Liabilities and Shareholders' Equity........ 361.651.919,05 ==============
F-49 146 MARWAL SYSTEMS, S.N.C. INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 1996
DECEMBER 31, 1996 ----------------- (IN FRENCH FRANCS) INCOME STATEMENT FOR THE YEAR Operating revenues:......................................... 616.818.427,92 Sale of goods............................................... 596.746.296,62 Sale of services............................................ 13.732.425,85 Net sales................................................... 610.478.722,77 Movement in finished goods and work-in-progress............. (1.616.414,00) In-house production......................................... 568.066,00 Grants...................................................... 493.725,00 Reversal of provisions and transfer of charges.............. 5.013.288,15 Other income................................................ 1.881.040,00 Operating expenses.......................................... 554.232.751,85 Purchases of raw materials and other supplies............... 284.395.019,10 Movements in raw materials stock............................ (3.520.706,00) Other purchases and external charges........................ 95.604.496,22 Taxes and similar charges................................... 9.677.879,14 Wages & salaries............................................ 91.916.790,49 Social charges.............................................. 39.787.018,33 Depreciation and amortisation expenses and provisions: - - Fixed assets.............................................. 23.855.292,82 - - Current assets............................................ 2.259.789,97 - - Contingencies and charges................................. 8.262.354,05 Other charges............................................... 1.994.817,73 -------------- 554.232.751,85 Operating profit............................................ 62.585.676,07 Financial income: From other investments...................................... 136,92 Other interest and similar income........................... 2.245.533,46 Reversal of provisions and transfer of charges.............. -- Foreign exchange gains...................................... 10.316.211,72 -------------- 12.561.882,10 Financial expenses: Depreciation and provisions................................. 1.022.855,69 Interest and similar charges................................ 3.906.694,57 Foreign exchange losses..................................... 4.124.523,99 -------------- 9.054.074,25 Net financial income/(expenses)............................. 3.507.807,85 Profit before taxation..................................... 66.093.483,92 Exceptional income:......................................... 3.104.503,48 From operating activities................................... 1.448.388,61 From capital transactions................................... 431.443,87 Reversal of provisions and transfer of charges.............. 1.224.671,00 -------------- 3.104.503,48 Exceptional charges:........................................ 6.152.294,71 From operating activities................................... 4.382.238,16 From capital transactions................................... 275.084,55 Depreciation and provisions................................. 1.494.972,00 -------------- 6.152.294,71 Exceptional profit (loss)................................... (3.047.791,23) Profit before taxation...................................... 63.045.692,69 Profit-Sharing.............................................. 6.348.242,00 Income Tax.................................................. -- Profit after taxation....................................... 56.697.450,69
F-50 147 MARWAL SYSTEMS, S.N.C. NOTES TO THE FINANCIAL STATEMENTS (In Thousands of French Francs) EVENTS DURING THE YEAR The financial investment in Marwal de Mexico was raised from 36.369 French Francs to 22.731.315 French Francs, which is 95% of the shares. NOTE 1: ACCOUNTING POLICIES The accounts of the Company have been prepared based upon generally accepted accounting principles in France which conform with the Chart of Accounts as set out in the French law dated April 30, 1983 and the decree of November 29, 1983. 1.1 INTANGIBLE FIXED ASSETS The intangible fixed assets consist mainly of goodwill which is amortised on a straight line basis over 5 years and totally amortised at the end of 1996. The amortisation methods and the useful lives for other categories are as follows: - - Set-up costs - - Computer software 3 years straight line 1-3 years straight line 1.2 TANGIBLE FIXED ASSETS Tangible fixed assets are valued at historical purchase price or cost of production when they have been produced in house. The cost of production is made up of the following elements: purchase price of raw materials, consumables and direct production costs. Assets are depreciated on a straight line basis or declining balance, when applicable, for items purchased during or after 1992. The depreciation methods and the useful lives applied are as follows: Installations Machinery Toolings Leasehold improvements-Mac/Toolings Vehicles Fixtures and fittings Computer hardware 10 years straight line 5-6 2/3 straight line/declining balance 1-5 years straight line/declining balance 5-6 2/3 straight line/declining balance 4-5 years straight line 10 years straight line 4-5 years straight line/declining balance 1.3 FINANCIAL INVESTMENTS - The investments in associates are valued at their acquisition cost in the assets of the Company. - A reserve is recorded when their fair value is less than their book value. 1.4 INVENTORY AND WORK-IN-PROGRESS The policies used are as follows: - Inventory is valued at the total cost of production. - Raw materials and consumables are valued at the average weighted cost for goods received in the last month. This method is similar to FIFO. - The Cost of production includes direct and indirect production expenses and an allocation of the costs of running the Head Office, to the extent that they are related to the production. F-51 148 MARWAL SYSTEMS, S.N.C. NOTES TO THE FINANCIAL STATEMENTS -- CONTINUED - The provision for obsolescence is determined based upon the anticipated sales. 1.5 ALLOWANCE FOR DOUBTFUL ACCOUNTS The receivables are valued at their face value, a provision is recorded when the value recoverable is less than the book value. 1.6 FOREIGN EXCHANGE TRANSACTIONS The receivables and payables denominated in foreign currency are translated into French Francs at the December 31st exchange rate. The resulting differences with amounts translated at historical exchange rates are shown in the balance sheet as "foreign exchange translation differences". A provision for exchange losses is recorded separately for unrealised losses. 1.7 RETIREMENT INDEMNITY LIABILITIES The "Projected Benefit Obligation" has been applied to calculate the retirement obligation. The total obligation is covered by: - a fund run by La Mondiale, with a value of KFRF.9,006, - a provision of KFRF.652 included in the Marwal accounts at December 31, 1996, - an amount payable to La Mondiale of KFRF.810. NOTE 2: FIXED ASSETS The movements in gross value are as follows:
12/31/95 INCREASE DECREASE 12/31/96 -------- -------- -------- -------- Intangible fixed assets................................... 18226 1535 -- 19761 Tangible fixed assets..................................... 128952 28909 1267 156594 Financial investments..................................... 1047 26812 99 27760
The movements in amortisation and depreciation are analysed as follows:
12/31/95 INCREASE DECREASE 12/31/96 -------- -------- -------- -------- Intangible fixed assets................................... 16433 2642 -- 19075 Tangible fixed assets..................................... 70815 21213 1211 90817
NOTE 3: INVENTORIES AND WORK IN PROGRESS The reserve for obsolescence for raw materials, consumables and finished goods at 31/12/96 amounts to KFRF.3,577. NOTE 4: ACCOUNTS RECEIVABLE AND OTHER RECEIVABLES At December 31, 1996, accounts receivable can be split by maturity date as follows:
TOTAL LESS THAN 1 YEAR GREATER THAN 1 YEAR ----- ---------------- ------------------- Long term receivables................................. 5029 5026 3 Current assets........................................ 130167 130167 --
F-52 149 MARWAL SYSTEMS, S.N.C. NOTES TO THE FINANCIAL STATEMENTS -- CONTINUED NOTE 5: SHORT TERM INVESTMENTS N/A. NOTE 6: PREPAYMENTS AND DEFERRED INCOME
PREPAYMENTS 12/31/96 ----------- -------- Documentation............................................... 2 Prepaid maintenance......................................... 43 Leasing..................................................... 199 --- 244
12/31/96 -------- Deferred income............................................. Long term contracts (tooling)............................... 1272
NOTE 7: DEFERRED CHARGES
CHARGED TO INCOME STATEMENT TOTAL 1996 12/31/96 ----- ---------------- -------- Deferred charges................................ Amortised over 3 years.......................... 2005 1508 497
NOTE 8: SHAREHOLDERS' EQUITY The capital stock is made up of 906,600 shares with a nominal value of FRF.100, completely paid up. The accounts of the Company are consolidated in the group accounts of the Magneti Marelli Spa Group. NOTE 9: TAX PROVISIONS AND PROVISIONS FOR CONTINGENCIES AND CHARGES The movements in the year are analysed as follows:
12/31/95 ADDITIONS REVERSALS 12/31/96 -------- --------- --------- -------- Provisions for contingencies and charges of which:...... 5513 10953 5243 11223 - - Provision for payments on retirement.................. 357 672 357 672 - - Provision for guarantee............................... 2523 5812 2523 5812 - - Provision for loss on foreign exchange................ 433 762 433 762 - - Provision for litigation.............................. 455 1892 455 1892 - - Provision for reimplantation -- 1033 -- 1033
NOTE 10: CREDITORS At December 31, 1996, debts, excluding advances and deposits received, deferred income and foreign exchange differences, can be analysed by maturity date as follows:
LESS THAN BETWEEN 1 5 TOTAL 1 YEAR AND 5 YEARS YEARS ----- --------- ----------- ----- Other financial debts.................................. 7638 7638 Trade payables and other liabilities*.................. 167048 160700* 6348 Overdraft.............................................. 71 71
- ------------------------- * of which trade bills payable: 46031 F-53 150 MARWAL SYSTEMS, S.N.C. NOTES TO THE FINANCIAL STATEMENTS -- CONTINUED NOTE 11: INFORMATION ON SUBSIDIARY
EQUITY CAPITAL SHARE OTHER THAN LAST CLOSING IN % DETAIL INFORMATION SHARE CAPITAL CAPITAL RESULT - ----- ------------------ ------------- -------------- ------------ (IN THOUSANDS OF PESOS) 95% Marwal de Mexico S.A. de C.V....................... Tepotzotplan....................................... 42870 (5075) 1325 Estado de Mexico...................................
GROSS NET BOOK LOANS GUARANTEE DIVIDENDS DETAILED INFORMATION VALUE VALUE GIVEN GIVEN RECEIVED -------------------- ----- -------- ----- --------- --------- (IN THOUSANDS OF FRANCS) Marwal de Mexico S.A. de C.V...................... 22731 22731 -- -- --
The exemption of sub-groups enables Marwal Systems to not consolidate Marwal de Mexico. NOTE 12: RELATED PARTIES The related parties transactions are included in the different accounts in the balance sheet as follows:
ASSETS LIABILITIES ------ ----------- Trade receivables............ 42640 Trade payables............... 12212 Other receivables............ 1972 Other payables............... 2069 Cash and cash equivalent..... 100323 Financial debt............... --
Interest expenses and financial income with related parties are as follows: Operating income............. 57100 Operating expenses........... 46067 Financial income............. 1972 Interest expenses............ 3535
NOTE 13: ACCRUALS AND INCOME RECEIVABLE RELATING TO DIFFERENT BALANCE SHEET ACCOUNTS
ASSETS LIABILITIES ------ ----------- Trade receivables Trade payables - - Customers................... 8442 - Suppliers................... 14284 - - Suppliers................... -- - Tax and social charges...... 17107 - - State....................... 2000 - Other....................... 1896 Other receivables............. -- Other liabilities............. -- Financial debts............... 804
NOTE 14: EXCHANGE DIFFERENCES RELATED TO BALANCE SHEET ACCOUNTS
EXCHANGE DIFFERENCE ------------------ ASSET LIABILITY ----- --------- Assets Trade receivables......................................... 80 1257 Liabilities Trade payables............................................ 682 8
F-54 151 MARWAL SYSTEMS, S.N.C. NOTES TO THE FINANCIAL STATEMENTS -- CONTINUED NOTE 15: SALES TURNOVER ANALYSIS
1995 1996 ---- ---- Sales....................................................... 559587 610479 Sales of goods.............................................. 540479 596746 Sales of services........................................... 19108 13733 Split between export/domestic Domestic.................................................. 318495 323428 Export.................................................... 241092 287051 Sales....................................................... 559587 610479
NOTE 16: DEFERRED TAX POSITION
12/31/95 MOVEMENTS 12/31/96 ------------------ ------------------ ------------------ ASSET LIABILITY ASSET LIABILITY ASSET LIABILITY ----- --------- ----- --------- ----- --------- Timing differences Organic........................................ 730 730 799 799
ELEMENTS HAVING AN IMPACT ON 1996 FISCAL RESULT None. NOTE 17: EMPLOYEE INFORMATION
PERMANENT TEMPORARY STAFF STAFF --------- --------- Executives & Management................................... 67 Employees................................................. 143 3 Labor and production...................................... 468 23 --- -- Total................................................ 678 26 === ==
NOTE 18: LEASE COMMITMENTS None. NOTE 19: COMMITMENTS UNDERTAKEN AND RECEIVED Discounted trade bills receivable but not matured........... 82132
NOTE 20: INFORMATION RELATING TO MANAGEMENT N/A. F-55 152 MARWAL SYSTEMS, S.N.C. NOTES TO THE FINANCIAL STATEMENTS -- CONTINUED NOTE 21: EXCEPTIONAL INCOME Exceptional income from operating activities................ 1448 Grant relating to training.................................. 1400 Other....................................................... 48 Exceptional income from capital transactions................ 431 Income from the sale of fixed assets........................ 136 Other....................................................... 295 Reversal of provisions and transfer of charges.............. 1225 Provision for delocalisation................................ 1225
NOTE 22: EXCEPTIONAL CHARGES Exceptional charges on operating activities................. 4382 Redundancy payments......................................... 1543 Training costs.............................................. 2756 Other....................................................... 83 Exceptional charges from capital transactions............... 275 Net book value of fixed assets sold......................... 55 Other....................................................... 220 Depreciation and provisions................................. 1495 Provision for risk.......................................... 392 Other....................................................... 70 Provision for charges....................................... 1033
NOTE 23: CHANGE IN ACCOUNTING POLICIES Effective January 1, 1996, the toolings participation with Walbro, that used to be booked in deferred charges and amortized over 3 years, are recorded in fixed assets. The amount involved is KFRF. 4,650 at 1996 year end. Past years participations have not been reclassified and are still shown as deferred charges for an amount of KFRF. 497 at December 31, 1996. NOTE 24: ANALYSIS OF INCOME TAX As Marwal Systems became a partnership as from 10/01/95, there is no income tax booked.
BASE 12/31/96 TAX -------- --- Operating profit............................................ 66094 0 Exceptional items........................................... (3048) 0 Profit before tax........................................... 63046 0 Income tax credit 1994...................................... 0 Total Income Tax for the Company....................... 0
F-56 153 MARWAL SYSTEMS, S.N.C. NOTES TO THE FINANCIAL STATEMENTS -- CONTINUED NOTE 25: RECONCILIATION TO U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES The accompanying financial statements of Marwal Systems S.N.C. have been prepared in accordance with accounting principles required in France. A reconciliation of these reported results to generally accepted principles in the United States is as follows:
FOR THE YEAR ENDED DECEMBER 31, -------------------------------- 1996 1995 1994 ---- ---- ---- (IN THOUSANDS OF FRENCH FRANCS) Profit after taxation as shown in the financial statements................................................ 56,697 25,473 15,534 Adjust depreciable life of goodwill......................... 1,375 2,625 2,625 Adjust depreciation expense of fixed assets................. 1,361 1,597 4,827 Other....................................................... 537 409 89 Deferred taxes.............................................. -- 3,582 (1,657) ------ ------ ------ Net income according to generally accepted accounting principles in the United States........................... 59,970 33,686 21,418 ====== ====== ======
F-57 154 MARWAL SYSTEMS, S.N.C. (MARWAL SYSTEMS, S.A. UNTIL SEPTEMBER 30, 1995) STATUTORY AUDITOR'S GENERAL REPORT Year Ended December 31, 1995 In our capacity as statutory auditor, we present below our report on: - the accompanying annual accounts of Marwal Systems, - the specific procedures and disclosures prescribed by law, for the year ended December 31, 1995. These annual accounts are the responsibility of the Company's management. Our responsibility is to express an opinion on these annual accounts based on our audit. I. OPINION ON THE ANNUAL ACCOUNTS We conducted our audit in accordance with French auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the annual accounts are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the annual accounts. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall annual account presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the annual accounts present fairly, in all material respects, the financial position of the Company at December 31, 1995 and the results of its operations for the year then ended. II. SPECIFIC PROCEDURES AND DISCLOSURES PRESCRIBED BY LAW We have also carried out, in accordance with professional standards, the specific procedures prescribed by law. We have nothing to report with respect to the fairness of information contained in the Directors' Report and its consistency with the annual accounts and other information presented to shareholders concerning the financial position and annual accounts. The Statutory Auditor ERNST & YOUNG Audit /s/ GILLES MEYER - -------------------------------------- Gilles Meyer February 26, 1996 F-58 155 MARWAL SYSTEMS, S.N.C. BALANCE SHEET AS OF DECEMBER 31, 1995 (In French Francs)
DECEMBER 31, 1995 -------------------------------------------------- ACCUMULATED DEPRECIATION AMORTIZATION AND GROSS ALLOWANCES NET BOOK VALUE ----- ---------------- -------------- ASSETS Fixed assets Intangible fixed assets................................. 18.226.005,10 16.433.332,65 1.792.672,45 Tangible fixed assets................................... 128.951.636,21 70.814.996,81 58.136.639,40 Financial investments: - -- Associates........................................... 36.369,00 36.369,00 - -- Others............................................... 1.011.340,15 1.011.340,15 -------------- -------------- -------------- Sub-total........................................... 148.225.350,46 87.248.329,46 60.977.021,00 -------------- -------------- -------------- Inventories - -- Raw materials........................................ 24.844.475,00 2.489.620,00 22.354.855,00 - -- Work-in-progress..................................... 2.910.543,00 258.005,00 2.652.538,00 - -- Finished goods....................................... 11.693.971,00 1.057.171,00 10.636.800,00 -------------- -------------- -------------- Sub-total........................................... 39.448.989,00 3.804.796,00 35.644.193,00 -------------- -------------- -------------- Current assets Advances and payments on accounts....................... 823.782,34 823.782,34 Trade accounts and notes receivable: - -- Customers and related accounts....................... 109.941.372,93 3.971.285,50 105.970.087,43 - -- Other................................................ 13.189.440,94 13.189.440,94 Other receivables....................................... 2.327.218,02 2.327.218,02 Cash and cash equivalent................................ 67.163.748,22 67.163.748,22 Payments in advance..................................... 2.113,74 2.113,74 Deferred Charges........................................ 2.004.784,97 2.004.784,97 Foreign exchange translation differences................ 432.784,33 432.784,33 -------------- -------------- -------------- Sub-total........................................... 195.885.245,49 3.971.285,50 191.913.959,99 -------------- -------------- -------------- Total Assets...................................... 383.559.584,95 95.024.410,96 288.535.173,99 ============== ============== ==============
DECEMBER 31, 1995 ----------------- LIABILITIES AND SHAREHOLDERS' EQUITY Shareholders' equity Share capital............................................... 90.660.000,00 Reserves.................................................... 196.550,23 Revaluation reserve......................................... 0 Retained earnings at January 1st............................ 108.054,10 Result for the year......................................... 25.472.561,45 -------------- Sub-total............................................... 116.437.165,78 -------------- Provisions for contingencies and charges.................... 5.513.067,65 Liabilities Financial debts: - - Amounts owed to financial institutions.................... 0 - - Other financial debts..................................... 2.695.629,49 Accounts payable and related accounts....................... 130.472.854,90 Social charges payable...................................... 19.810.842,99 Taxes....................................................... 2.808.171,90 Other....................................................... 2.115.551,85 Other creditors: - - Accounts payable on fixed assets.......................... 6.502.143,36 - - Group..................................................... 0 - - Other..................................................... 128.985,44 Deferred income............................................. 1.112.983,10 Foreign exchange translation differences.................... 937.777,53 -------------- Sub-total............................................... 166.584.940,56 -------------- Total Liabilities and Shareholders' Equity............ 288.535.173,99 ==============
F-59 156 MARWAL SYSTEMS, S.N.C. INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 1995 (In French Francs)
DECEMBER 31, 1995 ------------------------------ Operating revenues:......................................... 565.719.064,53 Sale of goods............................................... 540.478.654,89 Sale of services............................................ 19.107.848,98 -------------- Net sales................................................... 559.586.503,87 Movement in finished goods and work-in-progress............. (957.292,00) In-house production......................................... 958.322,00 Grants...................................................... 1.004.628,42 Reversal of provisions and transfer of charges.............. 4.277.496,90 Other income................................................ 849.405,34 -------------- 565.719.064,53 Operating expenses.......................................... 515.796.687,06 Purchases of raw materials and other supplies............... 267.809.549,46 Movements in raw materials stock............................ 4.985.449,00 Other purchases and external charges........................ 81.354.762,36 Taxes and similar charges................................... 9.142.104,58 Wages & salaries............................................ 85.212.941,72 Social charges.............................................. 37.218.880,73 Depreciation and amortisation expenses and provisions: - - Fixed assets.............................................. 23.363.492,27 - - Current assets............................................ 1.571.179,46 - - Contingencies and charges................................. 4.826.888,73 Other charges............................................... 311.438,75 -------------- 515.796.687,06 Operating profit............................................ 49.922.377,47 Financial income:........................................... 14.072.141,78 From other investments...................................... 521,35 Other interest and similar income........................... 2.887.113,46 Reversal of provisions and transfer of charges.............. 3.136.636,82 Foreign exchange gains...................................... 8.047.870,15 -------------- 14.072.141,78 22.428.209,50 Financial expenses: Depreciation and provisions................................. 924.032,56 Interest and similar charges................................ 6.080.465,40 Foreign exchange losses..................................... 15.423.711,54 -------------- 22.428.209,50 Net financial income/(expenses)............................. (8.356.067,72) Profit before taxation...................................... 41.566.309,75 Exceptional income:......................................... 8.712.352,95 From operating activities................................... 2.897.314,03 From capital transactions................................... 1.072.032,92 Reversal of provisions and transfer of charges.............. 4.743.006,00 -------------- 8.712.352,95 Exceptional charges:........................................ 9.209.111,25 From operating activities................................... 7.178.141,85 From capital transactions................................... 1.217.422,40 Depreciation and provisions................................. 813.547,00 -------------- 9.209.111,25 Exceptional profit (loss)................................... (496.758,30) Profit before taxation...................................... 41.069.551,45 Profit-Sharing.............................................. 4.750.000,00 Income tax.................................................. 10.846.990,00 Profit after taxation....................................... 25.472.561,45 Total income................................................ 588.503.559,26 Total expenditure........................................... 563.030.997,81 Profit...................................................... 25.472.561,45
F-60 157 MARWAL SYSTEMS, S.N.C. NOTES TO THE FINANCIAL STATEMENTS (In Thousands of French Francs) EVENTS DURING THE YEAR The Marwal branch based in Italy was closed on December 31, 1995. An extraordinary shareholders' meeting held on September 29, 1995 decided the transformation of the Company into a "Societe en Nom Collectif", a partnership, with effect from October 1 , 1995. NOTE 1: ACCOUNTING POLICIES The accounts of the Company have been prepared based upon generally accepted accounting principles in France which conform with the Chart of Accounts as set out in the French law dated April 30, 1983 and the decree of November 29, 1983. 1.1 INTANGIBLE FIXED ASSETS The intangible fixed assets consist mainly of goodwill which is amortised on a straight line basis over 5 years. The amortisation methods and the useful lives for other categories are as follows: - - Set-up costs 3 years straight line - - Computer software 1-3 years straight line
1.2 TANGIBLE FIXED ASSETS Tangible fixed assets are valued at historical purchase price or cost of production when they have been produced in house. The cost of production is made up of the following elements: purchase price of raw materials, consumables and direct production costs. Assets are depreciated on a straight line basis or declining balance, when applicable, for items purchased during or after 1992. The depreciation methods and the useful lives applied are as follows: Installations 10 years straight line Machinery 5-6 2/3 straight line / declining balance Toolings 1-5 years straight line / declining balance Leasehold improvements - Mac./Toolings 5-6 2/3 straight line / declining balance Vehicles 4-5 years straight line Fixtures and fittings 10 years straight line Computer hardware 4-5 years straight line / declining balance
1.3 FINANCIAL INVESTMENTS - The investments in associates are valued at their acquisition cost in the assets of the Company. - A reserve is recorded when their fair value is less than their book value. 1.4 INVENTORY AND WORK-IN-PROGRESS The policies used are as follows: - Inventory is valued at the total cost of production. - Raw materials and consumables are valued at the average weighted cost for goods received in the last month. This method is similar to FIFO. F-61 158 MARWAL SYSTEMS, S.N.C. NOTES TO THE FINANCIAL STATEMENTS -- CONTINUED - The Cost of production includes direct and indirect production expenses and an allocation of the costs of running the Head Office, to the extent that they are related to the production. - The provision for obsolescence is determined based upon the sales. 1.5 ALLOWANCE FOR DOUBTFUL ACCOUNTS The receivables are valued at their face value, a provision is recorded when the value recoverable is less than the book value. 1.6 FOREIGN EXCHANGE TRANSACTIONS The receivables and payables denominated in foreign currency are translated into French Francs at the December 31st exchange rate. The resulting differences with amounts translated at historical exchange rates are shown in the balance sheet as "foreign exchange translation differences". A provision for exchange losses is recorded separately for unrealised losses. 1.7 RETIREMENT INDEMNITY LIABILITIES The "Projected Benefit Obligation" has been applied to calculate the retirement obligation. The total obligation is covered by: - a fund run by La Mondiale, with a value of KFRF.8,343, - a provision of KFRF.357 included in the Marwal accounts at December 31, 1995. NOTE 2: FIXED ASSETS The movements in gross value are as follows:
12/31/94 INCREASE DECREASE 12/31/95 -------- -------- -------- -------- Intangible fixed assets................................... 18519 307 600 18226 Tangible fixed assets..................................... 107067 24751 2866 128952 Financial investments..................................... 1122 852 927 1047
The movements in amortisation and depreciation are analysed as follows:
12/31/94 INCREASE DECREASE 12/31/95 -------- -------- -------- -------- Intangible fixed assets................................... 13658 3375 600 16433 Tangible fixed assets..................................... 52431 19988 1604 70815
NOTE 3: INVENTORIES AND WORK IN PROGRESS The reserve for obsolescence for raw materials, consumables and finished goods at 31/12/95 amounts to KFRF. 3,805. NOTE 4: ACCOUNTS RECEIVABLE AND OTHER RECEIVABLES At December 31, 1995, accounts receivable can be split by maturity date as follows:
LESS THAN GREATER TOTAL 1 YEAR THAN 1 YEAR ----- --------- ----------- Long term receivables....................................... 1011 1008 3 Current assets.............................................. 126284 126284 --
F-62 159 MARWAL SYSTEMS, S.N.C. NOTES TO THE FINANCIAL STATEMENTS -- CONTINUED NOTE 5: SHORT TERM INVESTMENTS N/A. NOTE 6: PREPAYMENTS AND DEFERRED INCOME
12/31/95 -------- Prepayments................................................. Other....................................................... 2
12/31/95 -------- Deferred income............................................. Long term contracts (tooling)............................... 1089 Other....................................................... 24 ---- 1113 ====
NOTE 7: DEFERRED CHARGES
CHARGED TO INCOME STATEMENT TOTAL 1995 12/31/95 ----- ---------------- -------- Deferred charges............................................ Amortised over 3 years...................................... 3921 1916 2005
NOTE 8: SHAREHOLDERS' EQUITY The capital stock is made up of 906,600 shares with a nominal value of FRF.100, completely paid up. The accounts of the Company are consolidated in the group accounts of the Magneti Marelli Spa Group. NOTE 9: TAX PROVISIONS AND PROVISIONS FOR CONTINGENCIES AND CHARGES The movements in the year are analysed as follows:
12/31/94 ADDITIONALS REVERSALS 12/31/95 -------- ----------- --------- -------- Provisions for contingencies and charges of which:..... 10058 5104 9649 5513 - - Provision for payments on retirement................. 0 357 0 357 - - Provision for guarantee.............................. 1000 2523 1000 2523 - - Provision for loss on foreign exchange............... 3136 433 3136 433
NOTE 10: CREDITORS At December 31, 1995, debts, excluding advances and deposits received, deferred income and foreign exchange differences, can be analysed by maturity date as follows:
LESS THAN BETWEEN 1 TOTAL 1 YEAR AND 5 YEARS 5 YEARS ----- --------- ----------- --------- Other financial debts................................. 2696 2696 Trade payables and other liabilities*................. 161839 157089* 4750
- ------------------------- * of which trade bills payable: 27225 F-63 160 MARWAL SYSTEMS, S.N.C. NOTES TO THE FINANCIAL STATEMENTS -- CONTINUED NOTE 11: RELATED PARTIES The related parties transactions are included in the different accounts in the balance sheet as follows:
ASSETS LIABILITIES ------ ----------- Trade receivables................... 16856 Trade payables...................... 14716 Other receivables................... 198 Other payables...................... 8 Cash and cash equivalent............ 73017 Financial debt...................... 432
Interest expenses and financial income with related parties are as follows: Operating income.................... 47440 Operating expenses.................. 54317 Financial income.................... 2373 Interest expenses................... 5991
NOTE 12: ACCRUALS AND INCOME RECEIVABLE RELATING TO DIFFERENT BALANCE SHEET ACCOUNTS
ASSETS LIABILITIES ------ ----------- Trade receivables Trade payables - - Customers.......................... 6558 - Suppliers.......................... 14246 - - Suppliers.......................... 2354 - Tax and social charges............. 14641 - - State.............................. 2490 - Other.............................. 1283 Other receivables.................... 534 Other liabilities.................... 390
NOTE 13: EXCHANGE DIFFERENCES RELATED TO BALANCE SHEET ACCOUNTS
EXCHANGE DIFFERENCE ----------------------- ASSET LIABILITY ----- --------- Asset Trade receivables.......................................... 431 3 Liabilities Trade payables............................................. 1 935
NOTE 14: SALES TURNOVER ANALYSIS
1994 1995 ---- ---- Sales....................................................... 565671 559587 Sales of goods.............................................. 535259 540479 Sales of services........................................... 30412 19108 Split between export/domestic Domestic.................................................... 353114 318495 Export...................................................... 212557 241092 Sales....................................................... 565671 559587
NOTE 15: DEFERRED TAX POSITION
12/31/94 MOVEMENTS 12/31/95 ------------------ ------------------ ------------------ NATURE ASSET LIABILITY ASSET LIABILITY ASSET LIABILITY ------ ----- --------- ----- --------- ----- --------- Timing differences............................... Organic.......................................... 559 559 730 730
F-64 161 MARWAL SYSTEMS, S.N.C. NOTES TO THE FINANCIAL STATEMENTS -- CONTINUED NOTE 16: EMPLOYEE INFORMATION
PERMANENT STAFF TEMPORARY STAFF --------------- --------------- Executives & Management............................ 55 Employees.......................................... 135 4 Labor and production............................... 476 10 --- -- Total.............................................. 666 14
NOTE 17: LEASE COMMITMENTS None. NOTE 18: COMMITMENTS UNDERTAKEN AND RECEIVED Discounted trade bills receivable but not matured........... 89827
NOTE 19: INFORMATION RELATING TO MANAGEMENT N/A. NOTE 20: EXCEPTIONAL INCOME Exceptional income from operating activities................ 2897 Redundancy payments reinvoiced to Jaeger S.A................ 251 Grant relating to training.................................. 2565 Other....................................................... 81 Exceptional income from capital transactions................ 1072 Income from the sale of fixed assets........................ 1066 Other....................................................... 6 Reversal of provisions and transfer of charges.............. 4743 Provision for delocalisation................................ 1700 Provision for the starting of pumps......................... 1304 Other....................................................... 1739
NOTE 21: EXCEPTIONAL CHARGES Exceptional charges on operating activities................. 7178 Redundancy payments......................................... 3378 Training costs.............................................. 3056 Other....................................................... 744 Exceptional charges from capital transactions............... 1217 Net book value of fixed assets sold......................... 1217 Depreciation and provisions................................. 813 Provision for delocalisation and other...................... 813
NOTE 22: CHANGE IN ACCOUNTING POLICIES N/A. F-65 162 MARWAL SYSTEMS, S.N.C. NOTES TO THE FINANCIAL STATEMENTS -- CONTINUED NOTE 23: ANALYSIS OF INCOME TAX The income tax accounted for is that which is calculated for the accounts to 9/30/1995, Marwal Systems becoming a partnership as from 10/01/95.
BASE BASE TAX 12/31/95 9/30/95 9/30/95 -------- ------- ------- Operating profit................................... 41566 28083 10977 Exceptional items.................................. (497) (156) (61) ----- ----- ------ Profit before tax.................................. 41069 27927 10916 Income tax credit 1994............................. 69 ------ Total income tax for the Company................. (10847)
F-66 163 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Stockholders of Walbro Corporation: We have audited in accordance with generally accepted auditing standards, the consolidated financial statements included in Walbro Corporation and Subsidiaries' annual report to shareholders included or incorporated by reference in this Form 10-K, and have issued our report thereon dated February 11, 1998 (except with respect to the matters discussed in Notes 6 and 21, as to which the date is April 13, 1998). Our audits were made for the purpose of forming an opinion on those statements taken as a whole. The supplemental notes to the consolidated financial statements on pages S-2 to S-12 are the responsibility of the Company's management and are presented for purposes of complying with the Securities and Exchange Commission's rules and are not a required part of the basic consolidated financial statements. The information contained in these supplemental notes has been subjected to the auditing procedures applied in our 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. /s/ ARTHUR ANDERSEN LLP Detroit, Michigan, February 11, 1998 S-1 164 WALBRO CORPORATION AND SUBSIDIARIES SUPPLEMENTAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) VALUATION AND QUALIFYING ACCOUNTS Following is a summary of changes in the valuation and qualifying accounts for the three years ended December 31, 1997 (in thousands):
1997 1996 1995 ---- ---- ---- Allowance for Doubtful Accounts: Balance Beginning of Year................................. $ 753 $ 978 $ 368 Additions charged to operations........................ 378 302 327 Additions due to acquisition........................... -- -- 309 Deductions for uncollectible accounts written off, net of recoveries......................................... (238) (508) (51) Currency translation adjustment........................ (84) (19) 25 ------- ----- ----- Balance End of Year....................................... $ 809 $ 753 $ 978 ======= ===== ===== Reserve for Inventory Valuation: Balance Beginning of Year................................. $ 668 $ 808 $ 238 Additions charged to operations........................ 3,425 724 182 Additions due to acquisition........................... -- -- 376 Deductions for inventory disposal...................... (1,380) (870) -- Currency translation adjustment........................ (68) 6 12 ------- ----- ----- Balance End of Year....................................... $ 2,645 $ 668 $ 808 ======= ===== ===== Allowance for Notes Receivable: Balance Beginning of Year................................. $ -- $ -- $ 454 Additions charged to operations........................ -- -- -- Deductions............................................. -- -- (454) ------- ----- ----- Balance End of Year....................................... $ -- $ -- $ -- ======= ===== =====
S-2 165 WALBRO CORPORATION AND SUBSIDIARIES SUPPLEMENTAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED (2) SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
DECEMBER 31, 1997 --------------------------------------------------------------------------- WALBRO CORPORATION CONSOLIDATION GUARANTOR NONGUARANTOR (PARENT AND ELIMINATION CONSOLIDATED SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTAL ------------ ------------ ------------ --------------- ------------ (IN THOUSANDS, EXCEPT SHARE DATA) ASSETS Current Assets: Cash..................................... $ (744) $ 13,431 $ 852 $ -- $ 13,539 Accounts receivable, net................. 80,936 63,194 855 -- 144,985 Accounts receivable, intercompany........ (144,222) (37,755) 171,052 10,925 -- Inventories.............................. 26,086 29,012 1,109 -- 56,207 Prepaid expenses and other............... 5,988 9,549 1,868 -- 17,405 Deferred and refundable income taxes..... 470 1,253 6,796 -- 8,519 --------- -------- -------- --------- -------- Total current assets.............. (31,486) 78,684 182,532 10,925 240,655 --------- -------- -------- --------- -------- Plant and Equipment, Net................... 123,635 144,423 7,204 108 275,370 --------- -------- -------- --------- -------- Other Assets: Funds held for construction.............. -- -- -- -- -- Joint ventures........................... 10,739 15,942 -- -- 26,681 Investments.............................. 117,720 24,433 50,959 (189,851) 3,261 Goodwill, net............................ 14,342 11,444 (1,524) 8,541 32,803 Notes receivable......................... -- 6,499 196,198 (202,571) 126 Deferred and refundable income taxes..... -- 4,001 4,178 -- 8,179 Other.................................... 9,045 2,860 11,613 -- 23,518 --------- -------- -------- --------- -------- Total other assets................... 151,846 65,179 261,424 (383,881) 94,568 --------- -------- -------- --------- -------- Total assets............................... $ 243,995 $288,286 $451,160 $(372,848) $610,593 ========= ======== ======== ========= ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Current portion of long-term debt........ $ 7,026 $ 76 $ 6,858 $ -- $ 13,960 Bank and other borrowings................ -- 26,204 -- -- 26,204 Accounts payable......................... 21,540 55,730 6,939 -- 84,209 Accrued liabilities...................... 1,103 18,699 20,127 (708) 39,221 Dividends payable........................ -- 920 868 -- 1,788 --------- -------- -------- --------- -------- Total current liabilities............ 29,669 101,629 34,792 (708) 165,382 --------- -------- -------- --------- -------- Long-Term Liabilities: Long-term debt, less current portion..... 164,581 11,818 339,809 (224,815) 291,393 Pension obligations and other............ 2,505 2,625 6,693 -- 11,823 Deferred income taxes.................... -- 2,077 -- -- 2,077 Minority interest........................ -- 1,052 -- -- 1,052 --------- -------- -------- --------- -------- Total long-term liabilities.......... 167,086 17,572 346,502 (224,815) 306,345 --------- -------- -------- --------- -------- Company-obligated mandatorily redeemable convertible preferred securities of Walbro Capital Trust holding solely convertible debentures................... -- 69,000 -- -- 69,000 Stockholders' Equity: Common stock, $.50 par value; authorized 25,000,000; outstanding 8,579,976 in 1995................................... -- 23,935 4,341 (23,935) 4,341 Paid-in capital.......................... -- 72,819 66,151 (72,819) 66,151 Retained earnings........................ 49,827 28,747 33,938 (78,574) 33,938 Deferred compensation.................... -- -- (379) -- (379) Minimum pension liability adjustment..... -- -- -- -- -- Unrealized gain on securities available for sale............................... -- -- 68 -- 68 Cumulative translation adjustments....... (2,587) (25,416) (34,253) 28,003 (34,253) --------- -------- -------- --------- -------- Total stockholders' equity........... 47,240 100,085 69,866 (147,325) 69,866 --------- -------- -------- --------- -------- Total liabilities and stockholders' equity................................... $ 243,995 $288,286 $451,160 $(372,848) $610,593 ========= ======== ======== ========= ========
S-3 166 WALBRO CORPORATION AND SUBSIDIARIES SUPPLEMENTAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED (2) SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 1996 --------------------------------------------------------------------------- WALBRO CORPORATION CONSOLIDATION GUARANTOR NONGUARANTOR (PARENT AND ELIMINATION CONSOLIDATED SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTAL ------------ ------------ ------------ --------------- ------------ (IN THOUSANDS, EXCEPT SHARE DATA) ASSETS Current Assets: Cash.................................. $ 299 $ 17,779 $ 135 $ -- $ 18,213 Accounts receivable, net.............. 67,944 57,823 742 -- 126,509 Accounts receivable, intercompany..... (81,610) 115 101,752 (20,257) -- Inventories........................... 25,219 22,884 2,485 -- 50,588 Prepaid expenses and other............ 4,464 5,851 920 -- 11,235 Deferred and refundable income taxes............................... 509 1,016 3,446 -- 4,971 -------- -------- -------- --------- -------- Total current assets........... 16,825 105,468 109,480 (20,257) 211,516 -------- -------- -------- --------- -------- Plant and Equipment, Net................ 121,084 150,699 7,995 109 279,887 -------- -------- -------- --------- -------- Other Assets: Funds held for construction........... 1,140 -- -- -- 1,140 Joint ventures........................ 10,629 18,326 -- -- 28,955 Investments........................... 118,673 24,723 104,084 (241,753) 5,727 Goodwill, net......................... 23,238 12,877 (117) -- 35,998 Notes receivable...................... 1,074 -- 204,884 (204,690) 1,268 Deferred and refundable income taxes............................... -- 543 4,871 -- 5,414 Other................................. 8,890 2,926 7,928 -- 19,744 -------- -------- -------- --------- -------- Total other assets............. 163,644 59,395 321,650 (446,443) 98,246 -------- -------- -------- --------- -------- Total assets............................ $301,553 $315,562 $439,125 $(466,591) $589,649 ======== ======== ======== ========= ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Current portion of long-term debt..... $ 598 $ 82 $ 409 $ -- $ 1,089 Bank and other borrowings............. -- 22,072 -- -- 22,072 Accounts payable...................... 34,690 61,068 8,981 (26,800) 77,939 Accrued liabilities................... 17,046 16,498 10,633 (2,901) 41,276 Dividends payable..................... -- -- 865 -- 865 -------- -------- -------- --------- -------- Total current liabilities...... 52,334 99,720 20,888 (29,701) 143,241 -------- -------- -------- --------- -------- Long-Term Liabilities: Long-term debt, less current portion............................. 171,675 83,820 269,141 (232,913) 291,723 Pension obligations and other......... -- 2,826 7,892 -- 10,718 Deferred income taxes................. -- 1,443 3,471 -- 4,914 Minority interest..................... -- 1,320 -- -- 1,320 -------- -------- -------- --------- -------- Total long-term liabilities.... 171,675 89,409 280,504 (232,913) 308,675 -------- -------- -------- --------- -------- Stockholders' Equity: Common stock, $.50 par value; authorized 25,000,000; outstanding 8,652,737 in 1996................... -- 19,853 4,326 (19,853) 4,326 Paid-in capital....................... -- 74,637 65,674 (74,637) 65,674 Retained earnings..................... 77,524 33,569 74,039 (111,093) 74,039 Deferred compensation................. -- -- (967) -- (967) Minimum pension liability adjustment.......................... -- -- -- -- -- Unrealized gain on securities available for sale.................. -- -- 688 -- 688 Cumulative translation adjustments.... 20 (1,626) (6,027) 1,606 (6,027) -------- -------- -------- --------- -------- Total stockholders' equity..... 77,544 126,433 137,733 (203,977) 137,733 -------- -------- -------- --------- -------- Total liabilities and stockholders' equity................................ $301,553 $315,562 $439,125 $(466,591) $589,649 ======== ======== ======== ========= ========
S-4 167 WALBRO CORPORATION AND SUBSIDIARIES SUPPLEMENTAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED (2) SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS -- CONTINUED
FOR THE YEAR ENDED DECEMBER 31, 1997 --------------------------------------------------------------------------- WALBRO CORPORATION CONSOLIDATION GUARANTOR NONGUARANTOR (PARENT AND ELIMINATION CONSOLIDATED SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTAL ------------ ------------ ------------ --------------- ------------ (IN THOUSANDS) Net Sales........................... $323,189 $316,828 $ 2,302 $(22,414) $619,905 Costs and Expenses: Cost of sales..................... 299,913 286,119 2,133 (22,414) 565,751 Selling and administrative expenses....................... 38,423 27,354 12,298 -- 78,075 -------- -------- -------- -------- -------- Operating Income (Loss)............. (15,147) 3,355 (12,129) -- (23,921) Other Expense (Income): Interest expense.................. 23,060 14,720 22,313 (34,683) 25,410 Interest income................... (11,671) (6,079) (17,607) 34,683 (674) Royalty income, net............... (4,477) 599 -- -- (3,878) Foreign currency exchange loss (gain)......................... (900) 534 58 -- (308) Other............................. 425 (50) (10) -- 365 -------- -------- -------- -------- -------- Income before (provision) credit for income taxes, minority interest, equity in income (loss) of joint ventures and subsidiaries......... (21,584) (6,369) (16,883) -- (44,836) (Provision) credit for income taxes............................. 7,818 28 2,285 -- 10,131 Minority interest................... (450) (4,585) -- -- (5,035) Equity in income of joint ventures.......................... 1,007 2,106 -- -- 3,113 Equity in income (loss) of subsidiaries...................... (4,036) -- (22,028) 26,064 -- -------- -------- -------- -------- -------- Net income.......................... $(17,245) $ (8,820) $(36,626) $ 26,064 $(36,627) ======== ======== ======== ======== ========
S-5 168 WALBRO CORPORATION AND SUBSIDIARIES SUPPLEMENTAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED (2) SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS -- CONTINUED
FOR THE YEAR DECEMBER 31, 1996 --------------------------------------------------------------------------- WALBRO CORPORATION CONSOLIDATION GUARANTOR NONGUARANTOR (PARENT AND ELIMINATION CONSOLIDATED SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTAL ------------ ------------ ------------ --------------- ------------ (IN THOUSANDS) Net Sales........................... $325,547 $284,812 $ 1,671 $(26,641) $585,389 Costs and Expenses: Cost of sales..................... 264,824 248,589 1,362 (26,641) 488,134 Selling and administrative expenses....................... 49,599 21,607 (629) -- 70,577 -------- -------- -------- -------- -------- Operating Income (Loss)............. 11,124 14,616 938 -- 26,678 Other Expense (Income): Interest expense.................. 14,824 5,773 22,214 (22,276) 20,535 Interest income................... (5,416) (1,999) (17,577) 22,276 (2,716) Royalty income, net............... (2,042) 632 -- -- (1,410) Foreign currency exchange loss (gain)......................... (309) (131) 370 -- (70) Other............................. (4) 158 (217) -- (63) -------- -------- -------- -------- -------- Income before (provision) credit for income taxes, minority interest, equity in income of joint ventures and subsidiaries.................. 4,071 10,183 (3,852) -- 10,402 (Provision) credit for income taxes............................. (1,240) (4,155) 2,320 -- (3,075) Minority interest................... -- (285) -- -- (285) Equity in income of joint ventures.......................... 552 3,635 -- -- 4,187 Equity in income of subsidiaries.... 9,932 518 12,761 (23,211) -- -------- -------- -------- -------- -------- Net income.......................... $ 13,315 $ 9,896 $ 11,229 $(23,211) $ 11,229 ======== ======== ======== ======== ========
S-6 169 WALBRO CORPORATION AND SUBSIDIARIES SUPPLEMENTAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED (2) SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS -- CONTINUED
FOR THE YEAR ENDED DECEMBER 31, 1995 --------------------------------------------------------------------------- WALBRO CORPORATION CONSOLIDATION GUARANTOR NONGUARANTOR (PARENT AND ELIMINATION CONSOLIDATED SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTAL ------------ ------------ ------------ --------------- ------------ (IN THOUSANDS) Net Sales........................... $335,896 $156,280 $ 2,091 $(34,995) $459,272 Costs and Expenses: Cost of sales..................... 277,196 134,219 1,335 (34,995) 377,755 Selling and administrative expenses....................... 40,598 12,766 4,019 -- 57,383 -------- -------- -------- -------- -------- Operating Income (Loss)............. 18,102 9,295 (3,263) -- 24,134 Other Expense (Income): Interest expense.................. 10,387 4,300 10,852 (13,119) 12,420 Interest income................... (2,974) (797) (10,308) 13,119 (960) Royalty income, net............... (938) 701 -- -- (237) Foreign currency exchange loss (gain)......................... (324) (68) 1,875 -- 1,483 Other............................. 3 (255) (3) -- (255) -------- -------- -------- -------- -------- Income before (provision) credit for income taxes, minority interest, equity in income of joint ventures and subsidiaries.................. 11,948 5,414 (5,679) -- 11,683 (Provision) credit for income taxes............................. (1,237) (1,958) 1,937 -- (1,258) Minority interest................... -- (472) -- -- (472) Equity in income of joint ventures.......................... 1,222 2,655 -- -- 3,877 Equity in income of subsidiaries.... 6,417 -- 17,572 (23,989) -- -------- -------- -------- -------- -------- Net income.......................... $ 18,350 $ 5,639 $ 13,830 $(23,989) $ 13,830 ======== ======== ======== ======== ========
S-7 170 WALBRO CORPORATION AND SUBSIDIARIES SUPPLEMENTAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED (2) SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS -- CONTINUED
FOR THE YEAR ENDED DECEMBER 31, 1997 ------------------------------------------------------------------------------- WALBRO CORPORATION CONSOLIDATION GUARANTOR NONGUARANTOR (PARENT AND ELIMINATION CONSOLIDATED SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTAL ------------ ------------ ------------ --------------- ------------ (IN THOUSANDS) Net cash provided by (used in) operating activities........... $ 25,529 $ 12,845 $(64,600) $ -- $(26,226) -------- -------- -------- ------- -------- Cash Flows from Investing Activities: Purchase of plant and equipment................. (29,952) (31,783) (284) -- (62,019) Acquisitions, net of cash acquired.................. -- -- -- -- -- Purchase of other assets.... (2,974) (27) (86) -- (3,087) Investment in joint ventures and other................. (2,350) 8,142 (4,036) -- 1,756 Proceeds/(payments) of intercompany note receivable................ -- -- -- -- -- Proceeds from disposal of assets.................... 9,370 (5,247) 1,292 -- 5,415 -------- -------- -------- ------- -------- Net cash provided by (used in) investing activities........... (25,906) (28,915) (3,114) -- (57,935) -------- -------- -------- ------- -------- Cash Flows from Financing Activities: Net borrowings (repayments) under revolving line-of-credit agreements................ -- 8,375 (91,510) -- (83,135) Debt repayments............. (666) (136) (408) -- (1,210) Proceeds from issuance of long-term debt............ -- (63,596) 169,000 -- 105,404 Proceeds from issuance of convertible preferred securities................ -- 69,000 -- -- 69,000 Proceeds from issuance of common stock and options................... -- -- 492 -- 492 Financing fees paid......... -- -- (5,680) -- (5,680) Cash dividends paid......... -- -- (3,463) -- (3,463) -------- -------- -------- ------- -------- Net cash provided by (used in) financing activities........... (666) 13,643 68,431 -- 81,408 -------- -------- -------- ------- -------- Effect of Exchange Rate Changes on Cash........................ -- (1,921) -- -- (1,921) -------- -------- -------- ------- -------- Net Increase (Decrease) in Cash........................... (1,043) (4,348) 717 -- (4,674) Cash at Beginning of Year........ 299 17,779 135 -- 18,213 -------- -------- -------- ------- -------- Cash at End of Year.............. $ (744) $ 13,431 $ 852 $ -- $ 13,539 ======== ======== ======== ======= ========
S-8 171 WALBRO CORPORATION AND SUBSIDIARIES SUPPLEMENTAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED (2) SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS -- CONTINUED
FOR THE YEAR ENDED DECEMBER 31, 1996 --------------------------------------------------------------------------- WALBRO CORPORATION CONSOLIDATION GUARANTOR NONGUARANTOR (PARENT AND ELIMINATION CONSOLIDATED SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTAL ------------ ------------ ------------ --------------- ------------ (IN THOUSANDS) Net cash provided by (used in) operating activities.............. $ 61,606 $ 50,441 $(75,409) $ -- $ 36,638 -------- -------- -------- -------- --------- Cash Flows from Investing Activities: Purchase of plant and equipment... (38,884) (60,417) 154 -- (99,147) Acquisitions, net of cash acquired....................... -- (1,018) -- -- (1,018) Purchase of other assets.......... (2,041) (1,297) (96) -- (3,434) Investment in joint ventures and other.......................... (22,509) 10,609 10,449 -- (1,451) Proceeds/(payments) of intercompany note receivable... -- -- -- -- -- Proceeds from disposal of assets......................... 7 328 3,821 -- 4,156 -------- -------- -------- -------- --------- Net cash provided by (used in) investing activities.............. (63,427) (51,795) 14,328 -- (100,894) -------- -------- -------- -------- --------- Cash Flows from Financing Activities: Net borrowings (repayments) under revolving line-of-credit agreements..................... -- 1,189 64,061 -- 65,250 Debt repayments................... (555) (141) (408) -- (1,104) Proceeds from issuance of long-term debt................. 2,600 172 -- -- 2,772 Proceeds from issuance of common stock and options.............. -- -- 771 -- 771 Financing fees paid............... -- -- (508) -- (508) Cash dividends paid............... -- -- (3,439) -- (3,439) -------- -------- -------- -------- --------- Net cash provided by (used in) financing activities.............. 2,045 1,220 60,477 -- 63,742 -------- -------- -------- -------- --------- Effect of Exchange Rate Changes on Cash.............................. -- (1,306) 241 -- (1,065) -------- -------- -------- -------- --------- Net Increase (Decrease) in Cash..... 224 (1,440) (363) -- (1,579) Cash at Beginning of Year........... 75 19,219 498 -- 19,792 -------- -------- -------- -------- --------- Cash at End of Year................. $ 299 $ 17,779 $ 135 $ -- $ 18,213 ======== ======== ======== ======== =========
S-9 172 WALBRO CORPORATION AND SUBSIDIARIES SUPPLEMENTAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED (2) SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS -- CONTINUED
FOR THE YEAR ENDED DECEMBER 31, 1995 ----------------------------------------------------------------------------- WALBRO CONSOLIDATION CORPORATION AND GUARANTOR NONGUARANTOR (PARENT ELIMINATION CONSOLIDATED SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTAL ------------ ------------ ------------ ------------- ------------ (IN THOUSANDS) Net cash provided by (used in) operating activities............ $ 50,509 $11,254 $(30,875) $ -- $ 30,888 --------- ------- -------- -------- --------- Cash flows from Investing Activities: Purchase of plant and equipment.................... (31,237) (14,531) (472) -- (46,240) Acquisitions, net of cash acquired..................... (131,952) 15,774 (60) -- (116,238) Purchase of other assets........ (6,398) (608) (257) -- (7,263) Investment in joint ventures and other........................ 118,704 3,901 (124,659) -- (2,054) Proceeds/(payments) of intercompany note receivable................... -- 500 (500) -- -- Proceeds from disposal of assets....................... 167 7 3,953 -- 4,127 --------- ------- -------- -------- --------- Net cash provided by (used in) investing activities............ (50,716) 5,043 (121,995) -- (167,668) --------- ------- -------- -------- --------- Cash Flows from Financing Activities: Net borrowings (repayments) under revolving line-of-credit agreements.... -- 13,797 50,000 -- 63,797 Debt repayments................. (516) (12,659) (366) -- (13,541) Proceeds from issuance of long-term debt............... 815 120 109,615 -- 110,550 Proceeds from issuance of common stock and options............ -- -- 168 -- 168 Financing fees paid............. -- -- (4,778) -- (4,778) Cash dividends paid............. -- -- (3,428) -- (3,428) --------- ------- -------- -------- --------- Net cash provided by (used in) financing activities............ 299 1,258 151,211 -- 152,768 --------- ------- -------- -------- --------- Effect of Exchange Rate Changes on Cash............................ (92) (861) 217 -- (736) --------- ------- -------- -------- --------- Net Increase (Decrease) in Cash... -- 16,694 (1,442) -- 15,252 Cash at Beginning of Year......... 75 2,525 1,940 -- 4,540 --------- ------- -------- -------- --------- Cash at End of Year............... $ 75 $19,219 $ 498 $ -- $ 19,792 ========= ======= ======== ======== =========
Basis of Presentation -- In July 1995, the Company issued $110,000,000 in aggregate principal amount of 9.875% Senior Notes due in 2005 (the 2005 Notes). In December 1997, the Company sold $100,000,000 in aggregate principal amount of 10.125% Senior Notes due in 2007 (the 2007 Notes). The 2005 and 2007 Notes are guaranteed on a senior unsecured basis, jointly and severally, by each of the Company's principal wholly-owned domestic operating subsidiaries and certain of its indirect wholly-owned subsidiaries (the Guarantors). The Guarantors include Walbro Automotive Corporation, Walbro Engine Management Corporation, Whitehead Engineered Products, Inc. and Sharon Manufacturing Co. The condensed consolidating financial statements of the Guarantors are presented on pages 24 through 31 and should be read in connection with the S-10 173 WALBRO CORPORATION AND SUBSIDIARIES SUPPLEMENTAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED (2) SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS -- CONTINUED consolidated financial statements of the Company. Separate financial statements of the Guarantors are not presented because the Guarantors are jointly, severally and unconditionally liable under the guarantees, and the Company believes the condensed consolidating financial statements presented are more meaningful in understanding the financial position of the Guarantors. Distributions -- There are no significant restrictions on the ability of the Guarantors to make distributions to Walbro Corporation. Selling and Administrative Expenses -- During 1997, 1996 and 1995, the Parent Corporation allocated $5,267,000, $10,422,000 and $3,637,000, respectively, of corporate selling and administrative expenses to its operating subsidiaries. Long-term debt of the Parent Corporation and the Guarantors consisted of the following at December 31 (in thousands):
1997 1996 ---- ---- Senior notes due 2005, unsecured, stated interest at 9.875% (9.92% effective interest rate) net of unamortized discount of $331 and $369 as of December 31, 1996 and 1995, respectively........................................ $109,708 $109,669 Senior notes due 2007, unsecured, interest at 10.125%....... 100,000 -- Revolving credit facility, secured, interest at the agent's base rate plus an additional margin....................... 19,700 114,062 Purchase money loan agreement, secured, interest payable quarterly at the agents base rate plus an additional margin (see below)........................................ 2,852 -- Term loan from the State of Connecticut, secured, interest at 6% per annum, payable in monthly amounts from 1997 to 2005...................................................... 3,400 3,400 Senior notes, secured, interest at 7.68%, payable in annual amounts from 1998 to 2004................................. 45,000 45,000 Industrial revenue bond, issued by Town of Ossian, Indiana, interest at a variable municipal bond rate, due in 2023...................................................... 9,000 9,000 Industrial revenue bond, issued by City of Ligonier, Indiana, interest at a variable municipal bond rate plus 1%, payable in annual amounts from 2003 to 2007........... 6,300 6,300 Capital lease obligations, interest at 7.5%, payable in monthly installments through February 2002................ 3,042 3,640 Other....................................................... 462 884 -------- -------- 299,464 291,955 Less -- Current portion..................................... 13,884 1,007 -------- -------- $285,580 $290,948 ======== ========
For a more detailed description of the above indebtedness, see Note 5 of Notes to Consolidated Financial Statements. Aggregate minimum principal payment requirements on long-term debt, including capital lease obligations, in each of the five years subsequent to December 31, 1997 are as follows (in thousands): 1998 -- $13,884 ; 1999 -- $7,349 ; 2000 -- $29,965 ; 2001 -- $7,484 ; 2002 -- $6,844 and thereafter -- $233,938. S-11 174 ============================================================ NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFER CONTAINED HEREIN OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE INITIAL PURCHASER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR A SOLICITATION OF ANY OFFER TO BUY ANY SECURITY OTHER THAN THOSE TO WHICH IT RELATES, NOR DOES IT CONSTITUTE AN OFFER TO SELL, OR THE SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF. TABLE OF CONTENTS
PAGE ---- AVAILABLE INFORMATION................................ 4 DOCUMENTS INCORPORATED BY REFERENCE.................. 4 FORWARD-LOOKING STATEMENTS........................... 5 PROSPECTUS SUMMARY................................... 6 SUMMARY HISTORICAL FINANCIAL AND OPERATING DATA...... 13 RISK FACTORS......................................... 15 USE OF PROCEEDS...................................... 20 CAPITALIZATION....................................... 20 PRO FORMA UNAUDITED CONDENSED CONSOLIDATED FINANCIAL DATA............................................... 21 THE EXCHANGE OFFER................................... 25 SELECTED FINANCIAL AND OPERATING DATA................ 33 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................ 35 BUSINESS............................................. 43 MANAGEMENT........................................... 55 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT......................................... 60 DESCRIPTION OF OTHER INDEBTEDNESS.................... 62 DESCRIPTION OF THE EXCHANGE NOTES.................... 65 CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES......... 89 REGISTRATION RIGHTS OF THE OLD NOTES................. 91 BOOK ENTRY; DELIVERY AND FORM........................ 93 PLAN OF DISTRIBUTION................................. 94 LEGAL MATTERS........................................ 95 INDEPENDENT PUBLIC ACCOUNTANTS....................... 95 INDEX TO FINANCIAL PAGES............................. F-1
============================================================ ============================================================ WALBRO LOGO WALBRO CORPORATION OFFER TO EXCHANGE 10 1/8% SENIOR NOTES DUE 2007, SERIES B FOR ALL OUTSTANDING 10 1/8% SENIOR NOTES DUE 2007, SERIES A ------------------------ PROSPECTUS ------------------------ JUNE 3, 1998 ============================================================ 175 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Section 145 of the Delaware General Corporation Law provides that a corporation may indemnify any persons, including directors and officers, who are (or are threatened to be made) parties to any threatened, pending or completed legal action, suit or proceeding (whether civil, criminal, administrative or investigative) by reason of their being directors or officers of the corporation. The indemnity may include expenses, attorneys' fees, judgments, fines and amounts paid in settlement, provided such sums were actually and reasonably incurred in connection with the action, suit or proceeding and provided the director or officer acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the corporation's best interests and, in the case of criminal proceedings, provided he had no reasonable cause to believe that his or her conduct was unlawful. The corporation may indemnify directors and officers in a derivative action (in which suit is brought by a stockholder on behalf of the corporation) under the same conditions, except that no indemnification is permitted without judicial approval if the director or officer is adjudged liable to the corporation. If the director or officer is successful on the merits or otherwise in defense of any actions referred to above, the corporation must indemnify him against the expenses and attorneys' fees he actually and reasonably incurred. Article VIII of the Company's By-Laws provides that the Company shall indemnify its officers and directors to the fullest extent permitted by Section 145. Under an existing policy of insurance, the Company is entitled to be reimbursed for certain indemnity payments it is required or permitted to make to directors and officers of the Company. ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (a) Exhibits.
EXHIBIT NO. - ----------- 2 Agreement for Sale of the Assets of Sharon Manufacturing Company dated April 9, 1998 between Sharon Manufacturing Company, the Company and Millennium Industries Corporation.(1) 3.1 Restated Certificate of Incorporation of the Company, filed as Exhibit 3.1 to the Company's Registration Statement on Form S-3, File No. 333-18317.(2) 3.2 By-laws of the Company, as amended through July 7, 1993.(1) 3.3 Amendment to Section 2.9 of the By-laws of the Company, filed as Exhibit 3.3 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994.(2) 4.1 Indenture for the 10 1/8% Senior Notes due 2007 dated as of December 15, 1997 among the Company, Walbro Automotive Corporation, Walbro Engine Management Corporation, Sharon Manufacturing Company, Whitehead Engineered Products, Inc. and Bankers Trust Company, as Trustee (including form of the Exchange Note and form of Guarantee), filed as Exhibit 4.1 to the Company's Registration Statement on Form S-4, File No. 333-45693.(2) 4.2 Purchase Agreement dated December 11, 1997 among the Company, Walbro Automotive Corporation, Walbro Engine Management Corporation, Sharon Manufacturing Company, Whitehead Engineered Products, Inc. and Salomon Brothers Inc., filed as Exhibit 4.2 to the Company's Registration Statement on Form S-4, File No. 333-45693.(2) 4.3 Registration Rights Agreement dated December 11, 1997 among the Company, Walbro Automotive Corporation, Walbro Engine Management Corporation, Sharon Manufacturing Company, Whitehead Engineered Products, Inc. and Salomon Brothers Inc., filed as Exhibit 4.3 to the Company's Registration Statement on Form S-4, File No. 333-45693.(2) 4.4 Form of the Exchange Note (included in Exhibit 4.1).
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EXHIBIT NO. - ----------- 4.5 Form of Guarantee (included in Exhibit 4.1). 4.6 Shareholder Rights Plan dated December 8, 1988, filed as the Exhibit to the Company's Registration Statement on Form 8-A for Shareholder Stock Purchase Rights filed December 12, 1988.(2) 4.7 First Amendment to Rights Agreement dated February 6, 1991.(1) 4.8 Loan Agreement between City of Ligonier, Indiana, and Sharon Manufacturing Company dated as of June 1, 1992.(1) 4.9 Loan Agreement between Walbro Automotive Corporation and the Town of Ossian, Indiana, dated as of December 1, 1993, filed as Exhibit 4.13 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993.(2) 4.10 Note Agreement among the Company and the purchasers named therein dated as of October 1, 1994 relating to the 7.68% Senior Notes of the Company, filed as Exhibit 4.9 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994.(2) 4.11 Indenture for the 9 7/8% Senior Notes due 2005 dated as of July 27, 1995 among the Company, Walbro Automotive Corporation, Walbro Engine Management Corporation, Sharon Manufacturing Company, Whitehead Engineered Products, Inc. and Bankers Trust Company, as Trustee (including form of Exchange Note), filed as Exhibit 2.3 to the Company's Current Report on Form 8-K dated July 27, 1995.(2) 4.12 Amended and Restated Credit Agreement dated as of September 22, 1995 among the Company, certain of its subsidiaries, Comerica Bank, as agent, and Harris Bank, as co-agent, filed as Exhibit 4.2 to the Company's Registration Statement on Form S-4, filed September 27, 1995.(2) 4.13 First Amendment dated March 8, 1996 to the Amended and Restated Credit Agreement among the Company, certain of its subsidiaries, Comerica Bank, as agent, and Harris Bank, as co-agent, filed as Exhibit 4.8 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995.(2) 4.14 First Amendment dated as of July 26, 1995 to the Note Agreement among the Company and the purchasers named therein, relating to the 7.68% Senior Notes of the Company, filed as Exhibit 4.9 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995.(2) 4.15 Certificate of Trust of Walbro Capital Trust dated December 17, 1996 filed as Exhibit 4.10 to the Company's Registration Statement on Form S-3, File No. 333-18317.(2) 4.16 Amended and Restated Declaration of Trust of Walbro Capital Trust dated as of February 3, 1997 among Walbro Corporation, as Sponsor, Bankers Trust (Delaware), as Delaware Trustee, and Lambert E. Althaver, Daniel L. Hittler and Michael A. Shope, as Regular Trustees, filed as Exhibit 4.11 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996.(2) 4.17 Indenture between Walbro Corporation and Bankers Trust Company, as Indenture Trustee, dated as of February 3, 1997, filed as Exhibit 4.12 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996.(2) 4.18 Form of Preferred Security issued by Walbro Capital Trust, included as Exhibit A-1 to Exhibit 4.11 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996.(2) 4.19 Convertible Debenture issued by Walbro Corporation to Walbro Capital Trust, included as Exhibit A to Exhibit 4.12 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996.(2)
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EXHIBIT NO. - ----------- 4.20 Preferred Securities Guarantee Agreement between Walbro Corporation, as Guarantor, and Bankers Trust Company, as Guarantee Trustee, with respect to the Preferred Securities of Walbro Capital Trust dated as of February 3, 1997, filed as Exhibit 4.15 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996.(2) 4.21 Second Amendment dated as of March 17, 1997 to Credit Agreement among the Company, Comerica Bank, as agent, and Harris Bank, as co-agent, filed as Exhibit 4.21 to the Company's Registration Statement on Form S-4, File No. 333-45693.(2) 4.22 Third Amendment dated as of August 27, 1997 to Credit Agreement among the Company, Comerica Bank, as agent, and Harris Bank, as co-agent, filed as Exhibit 4.22 to the Company's Registration Statement on Form S-4, File No. 333-45693.(2) 4.23 Purchase Money Loan Agreement dated as of August 27, 1997 among the Company, Comerica Bank, as agent, and Harris Bank, as co-agent, filed as Exhibit 4.23 to the Company's Registration Statement on Form S-4, File No. 333-45693.(2) 4.24 Purchase Money Guaranty dated as of August 27, 1997 by the Company and certain of its subsidiaries to Comerica Bank, as agent, filed as Exhibit 4.24 to the Company's Registration Statement on Form S-4, File No. 333-45693.(2) 4.25 Purchase Money Security Agreement dated as of August 27, 1997 among the Company, and certain of its subsidiaries and Comerica Bank, as agent, filed as Exhibit 4.25 to the Company's Registration Statement on Form S-4, File No. 333-45693.(2) 4.26 Amended and Restated Second Amendment and Waiver Agreement dated as of March 3, 1998 to the Note Agreement among the Company and the purchasers named therein, relating to the 7.68% Senior Notes of the Company, filed as Exhibit 4.26 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997.(2) 4.27 Financing and Securities Agreement dated May 29, 1998 between the Company and subsidiaries and NationsBank, N.A., as Administrative Agent and Lender.(1) 5 Opinion of Katten Muchin & Zavis as to the legality of the securities being registered (including consent).(1) 10.1 Joint Venture Agreement between the Company and Mitsuba Electric Manufacturing Company, Ltd. dated December 12, 1986.(1) 10.2 The Company's Equity Based Long-Term Incentive Plan as amended and restated effective June 20, 1994.(1) 10.3 Retirement Income Plan for Directors dated February 23, 1988.(1)(3) 10.4 The Company's Employee Stock Ownership Plan as amended and restated effective January 1, 1997.(1) 10.5 Walbro Engine Management Incentive Compensation Plan.(1)(3) 10.6 Joint Venture Agreement dated June 17, 1991 between the Company and Jaeger S.A., an indirect, majority-controlled subsidiary of Magneti Marelli S.p.A., relating to the Marwal Systems S.A. joint venture, filed as Exhibit 10.23 to the Company's Registration Statement on Form S-2, File No. 33-41425.(2) 10.7 Joint Venture Agreement between the Company and Jaeger S.A. dated as of January 1, 1993 relating to the Marwal do Brasil joint venture.(1) 10.8 The Company's Advantage Plan, as amended and restated effective January 1, 1997.(1)(3) 10.9 Joint Venture Contract among Walbro Engine Management Corporation, Fujian Fuding Carburetor Factory and Twin Winner Trading Co., Ltd. dated December 30, 1993 relating to the Fujian Hualong Carburetor Co. Ltd. joint venture.(1) 10.10 Agreement among the Company, Walbro Automotive Corporation and Magneti Marelli France S.A. dated February 7, 1995.(1)
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EXHIBIT NO. - ----------- 10.11 Joint Venture Agreement between the Company and Daewoo Precision Industries, Ltd. dated November 30, 1994.(1) 10.12 Purchase and Sale Agreement dated as of April 7, 1995 between the Company and Dyno Industrier AS, filed as Exhibit 2.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1995.(2) 10.13 Addendum to Purchase and Sale Agreement between the Company and Dyno Industrier AS dated as of July 27, 1995, filed as Exhibit 2.2 to the Company's Current Report on Form 8-K dated July 27, 1995.(2) 10.14 General Partnership Agreement dated August 18, 1995 between Iwaki Diecast U.S.A., Inc. and Walbro Tucson Corp.(1) 10.15 Employment Agreement between the Company and L.E. Althaver dated August 16, 1996, filed as Exhibit 10.21 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996.(2)(3) 10.16 Termination and Change of Control Agreement between the Company and L.E. Althaver dated August 16, 1996, filed as Exhibit 10.22 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996.(2)(3) 10.17 Employment Agreement between the Company and Daniel L. Hittler dated August 16, 1996, filed as Exhibit 10.23 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996.(2)(3) 10.18 Termination and Change of Control Agreement between the Company and Daniel L. Hittler dated August 16, 1996, filed as Exhibit 10.24 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996.(2)(3) 10.19 Employment Agreement between the Company and Michael A. Shope dated August 16, 1996, filed as Exhibit 10.25 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996.(2)(3) 10.20 Termination and Change of Control Agreement between the Company and Michael A. Shope dated August 16, 1996, filed as Exhibit 10.26 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996.(2)(3) 10.21 Employment Agreement between the Company and Robert H. Walpole dated August 16, 1996, filed as Exhibit 10.27 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996.(2)(3) 10.22 Termination and Change of Control Agreement between the Company and Robert H. Walpole dated August 16, 1996, filed as Exhibit 10.28 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996.(2)(3) 10.23 Employment Agreement between the Company and R.H. Whitehead III dated August 16, 1996, filed as Exhibit 10.29 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996.(2)(3) 10.24 Termination and Change of Control Agreement between the Company and R.H. Whitehead III dated August 16, 1996, filed as Exhibit 10.30 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996.(2)(3) 10.25 Employment Agreement between the Company and Frank E. Bauchiero dated October 3, 1996, filed as Exhibit 10.31 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996.(2)(3) 10.26 Termination and Change of Control Agreement between the Company and Frank E. Bauchiero dated October 3, 1996, filed as Exhibit 10.32 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996.(2)(3) 10.27 The Company's Broad-Based Long Term Incentive Plan, filed as Exhibit 10.33 to the Company's Registration Statement on Form S-4, File No. 333-45693.(2)
II-4 179
EXHIBIT NO. - ----------- 10.28 The Company's Supplemental Employee Retirement Plan, effective January 1, 1997.(1) 10.29 Separation Agreement and General Release dated May 20, 1998 between the Company and Lambert E. Althaver.(1)(3) 12 Computation of ratio of earnings to fixed charges.(1) 21 Subsidiaries of the Company, filed as Exhibit 21 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997.(2) 23.1 Consent of Arthur Andersen LLP.(1) 23.2 Consent of Ernst & Young Audit.(1) 23.3 Consent of Katten Muchin & Zavis (contained in its opinion filed as Exhibit 5). 24 Power of Attorney, included in signature page to the Company's Registration Statement on Form S-4, File No. 333-45693.(2) 25 Statement of eligibility under the Trust Indenture Act of 1939, as amended, on Form T-1 of Bankers Trust Company, as Trustee under the Indenture, filed as Exhibit 25 to the Company's Registration Statement on Form S-4, File No. 333-45693.(2) 27 Financial Data Schedule.(1) 99.1 Form of Letter of Transmittal for the Exchange Notes, filed as Exhibit 99.1 to the Company's Registration Statement on Form S-4, File No. 333-45693.(2) 99.2 Form of Notice of Guaranteed Delivery for the Exchange Notes, filed as Exhibit 99.2 to the Company's Registration Statement on Form S-4, File No. 333-45693.(2) 99.3 Form of Letter to Registered Holders and Depository Trust Company Participants, filed as Exhibit 99.3 to the Company's Registration Statement on Form S-4, File No. 333-45693.(2) 99.4 Form of Letter to Clients, filed as Exhibit 99.4 to the Company's Registration Statement on Form S-4, File No. 333-45693.(2) 99.5 Form of Instruction to Registered Holder and/or Book Entry Transfer Participant from Beneficial Owner, filed as Exhibit 99.5 to the Company's Registration Statement on Form S-4, File No. 333-45693.(2) 99.6 Guidelines for Certificate of Taxpayer Identification Number on Substitute Form W-9, filed as Exhibit 99.6 to the Company's Registration Statement on Form S-4, File No. 333-45693.(2)
- ------------------------- (1) Filed herewith. (2) Incorporated by reference. (3) Management contract or compensatory plan or arrangement. II-5 180 (b) Financial Statement Schedules. (1) VALUATION AND QUALIFYING ACCOUNTS. The financial statement schedule Valuation and Qualifying Accounts is included in the Supplemental Notes to Consolidated Financial Statements. (2) SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS The financial statement schedule Supplemental Guarantor Condensed Consolidating Financial Statements is included in the Supplemental Notes to Consolidated Financial Statements. (c) Not Applicable. ITEM 22. UNDERTAKINGS. (a) (i) The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (ii) Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Securities Act") may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. (iii) The undersigned registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (b) The undersigned registrant hereby undertakes to respond to requests for information that is incorporated by reference into the prospectus pursuant to Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request. II-6 181 (c) The undersigned registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective. II-7 182 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant has duly caused this Amendment No. 1 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Cass City, State of Michigan on May 29, 1998. WALBRO CORPORATION By: /s/ FRANK E. BAUCHIERO ------------------------------------ Frank E. Bauchiero Chief Executive Officer and President Pursuant to the requirements of the Securities Act of 1933, as amended, this Amendment No. 1 to the Registration Statement has been signed below by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE - --------------------------------------------- --------------------------------------- ------------ /s/ FRANK E. BAUCHIERO Chief Executive Officer, President and - --------------------------------------------- Director May 29, 1998 Frank E. Bauchiero * - --------------------------------------------- Vice President and Director May 29, 1998 Robert H. Walpole /s/ MICHAEL A. SHOPE Chief Financial Officer and Treasurer - --------------------------------------------- (Principal Financial and Accounting May 29, 1998 Michael A. Shope Officer) * - --------------------------------------------- Director May 29, 1998 William T. Bacon, Jr. * - --------------------------------------------- Director May 29, 1998 J. Dwane Baumgardner * - --------------------------------------------- Director May 29, 1998 Vernon E. Oechsle * - --------------------------------------------- Director May 29, 1998 Robert D. Tuttle * - --------------------------------------------- Director May 29, 1998 John E. Utley *By: /s/ MICHAEL A. SHOPE --------------------------------------- Michael A. Shope Attorney-In-Fact
II-8 183 SIGNATURES Each of the Guarantors pursuant to the requirements of the Securities Act of 1933, as amended, has duly caused this Amendment No. 1 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Cass City, State of Michigan on May 29, 1998. WALBRO AUTOMOTIVE CORPORATION WALBRO ENGINE MANAGEMENT CORPORATION SHARON MANUFACTURING COMPANY WHITEHEAD ENGINEERED PRODUCTS, INC. By: /s/ FRANK E. BAUCHIERO ------------------------------------- Frank E. Bauchiero Chief Executive Officer and President Pursuant to the requirements of the Securities Act of 1933, as amended, this Amendment No. 1 to the Registration Statement has been signed below by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE - ------------------------------------------ ------------------------------------------ ------------ /s/ FRANK E. BAUCHIERO Chief Executive Officer, President and - ------------------------------------------ Director (Principal Executive Officer) May 29, 1998 Frank E. Bauchiero /s/ MICHAEL A. SHOPE Treasurer (Principal Financial and - ------------------------------------------ Accounting Officer) May 29, 1998 Michael A. Shope
II-9 184 EXHIBIT INDEX
EXHIBIT NO. - ------- 2 Agreement for Sale of the Assets of Sharon Manufacturing Company dated April 9, 1998 between Sharon Manufacturing Company, the Company and Millennium Industries Corporation.(1) 3.1 Restated Certificate of Incorporation of the Company, filed as Exhibit 3.1 to the Company's Registration Statement on Form S-3, File No. 333-18317.(2) 3.2 By-laws of the Company, as amended through July 7, 1993.(1) 3.3 Amendment to Section 2.9 of the By-laws of the Company, filed as Exhibit 3.3 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994.(2) 4.1 Indenture for the 10 1/8% Senior Notes due 2007 dated as of December 15, 1997 among the Company, Walbro Automotive Corporation, Walbro Engine Management Corporation, Sharon Manufacturing Company, Whitehead Engineered Products, Inc. and Bankers Trust Company, as Trustee (including form of the Exchange Note and form of Guarantee), filed as Exhibit 4.1 to the Company's Registration Statement on Form S-4, File No. 333-45693.(2) 4.2 Purchase Agreement dated December 11, 1997 among the Company, Walbro Automotive Corporation, Walbro Engine Management Corporation, Sharon Manufacturing Company, Whitehead Engineered Products, Inc. and Salomon Brothers Inc., filed as Exhibit 4.2 to the Company's Registration Statement on Form S-4, File No. 333-45693.(2) 4.3 Registration Rights Agreement dated December 11, 1997 among the Company, Walbro Automotive Corporation, Walbro Engine Management Corporation, Sharon Manufacturing Company, Whitehead Engineered Products, Inc. and Salomon Brothers Inc., filed as Exhibit 4.3 to the Company's Registration Statement on Form S-4, File No. 333-45693.(2) 4.4 Form of the Exchange Note (included in Exhibit 4.1). 4.5 Form of Guarantee (included in Exhibit 4.1). 4.6 Shareholder Rights Plan dated December 8, 1988, filed as the Exhibit to the Company's Registration Statement on Form 8-A for Shareholder Stock Purchase Rights filed December 12, 1988.(2) 4.7 First Amendment to Rights Agreement dated February 6, 1991.(1) 4.8 Loan Agreement between City of Ligonier, Indiana, and Sharon Manufacturing Company dated as of June 1, 1992.(1) 4.9 Loan Agreement between Walbro Automotive Corporation and the Town of Ossian, Indiana, dated as of December 1, 1993, filed as Exhibit 4.13 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993.(2) 4.10 Note Agreement among the Company and the purchasers named therein dated as of October 1, 1994 relating to the 7.68% Senior Notes of the Company, filed as Exhibit 4.9 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994.(2) 4.11 Indenture for the 9 7/8% Senior Notes due 2005 dated as of July 27, 1995 among the Company, Walbro Automotive Corporation, Walbro Engine Management Corporation, Sharon Manufacturing Company, Whitehead Engineered Products, Inc. and Bankers Trust Company, as Trustee (including form of Exchange Note), filed as Exhibit 2.3 to the Company's Current Report on Form 8-K dated July 27, 1995.(2) 4.12 Amended and Restated Credit Agreement dated as of September 22, 1995 among the Company, certain of its subsidiaries, Comerica Bank, as agent, and Harris Bank, as co-agent, filed as Exhibit 4.2 to the Company's Registration Statement on Form S-4, filed September 27, 1995.(2) 4.13 First Amendment dated March 8, 1996 to the Amended and Restated Credit Agreement among the Company, certain of its subsidiaries, Comerica Bank, as agent, and Harris Bank, as co-agent, filed as Exhibit 4.8 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995.(2)
185
EXHIBIT NO. - ------- 4.14 First Amendment dated as of July 26, 1995 to the Note Agreement among the Company and the purchasers named therein, relating to the 7.68% Senior Notes of the Company, filed as Exhibit 4.9 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995.(2) 4.15 Certificate of Trust of Walbro Capital Trust dated December 17, 1996 filed as Exhibit 4.10 to the Company's Registration Statement on Form S-3, File No. 333-18317.(2) 4.16 Amended and Restated Declaration of Trust of Walbro Capital Trust dated as of February 3, 1997 among Walbro Corporation, as Sponsor, Bankers Trust (Delaware), as Delaware Trustee, and Lambert E. Althaver, Daniel L. Hittler and Michael A. Shope, as Regular Trustees, filed as Exhibit 4.11 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996.(2) 4.17 Indenture between Walbro Corporation and Bankers Trust Company, as Indenture Trustee, dated as of February 3, 1997, filed as Exhibit 4.12 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996.(2) 4.18 Form of Preferred Security issued by Walbro Capital Trust, included as Exhibit A-1 to Exhibit 4.11 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996.(2) 4.19 Convertible Debenture issued by Walbro Corporation to Walbro Capital Trust, included as Exhibit A to Exhibit 4.12 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996.(2) 4.20 Preferred Securities Guarantee Agreement between Walbro Corporation, as Guarantor, and Bankers Trust Company, as Guarantee Trustee, with respect to the Preferred Securities of Walbro Capital Trust dated as of February 3, 1997, filed as Exhibit 4.15 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996.(2) 4.21 Second Amendment dated as of March 17, 1997 to Credit Agreement among the Company, Comerica Bank, as agent, and Harris Bank, as co-agent, filed as Exhibit 4.21 to the Company's Registration Statement on Form S-4, File No. 333-45693.(2) 4.22 Third Amendment dated as of August 27, 1997 to Credit Agreement among the Company, Comerica Bank, as agent, and Harris Bank, as co-agent, filed as Exhibit 4.22 to the Company's Registration Statement on Form S-4, File No. 333-45693.(2) 4.23 Purchase Money Loan Agreement dated as of August 27, 1997 among the Company, Comerica Bank, as agent, and Harris Bank, as co-agent, filed as Exhibit 4.23 to the Company's Registration Statement on Form S-4, File No. 333-45693.(2) 4.24 Purchase Money Guaranty dated as of August 27, 1997 by the Company and certain of its subsidiaries to Comerica Bank, as agent, filed as Exhibit 4.24 to the Company's Registration Statement on Form S-4, File No. 333-45693.(2) 4.25 Purchase Money Security Agreement dated as of August 27, 1997 among the Company, and certain of its subsidiaries and Comerica Bank, as agent, filed as Exhibit 4.25 to the Company's Registration Statement on Form S-4, File No. 333-45693.(2) 4.26 Amended and Restated Second Amendment and Waiver Agreement dated as of March 3, 1998 to the Note Agreement among the Company and the purchasers named therein, relating to the 7.68% Senior Notes of the Company, filed as Exhibit 4.26 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997.(2) 4.27 Financing and Security Agreement date May 29, 1998 between the Company and subsidiaries and NationsBank, N.A., as Administrative Agent and Lender.(1) 5 Opinion of Katten Muchin & Zavis as to the legality of the securities being registered (including consent).(1) 10.1 Joint Venture Agreement between the Company and Mitsuba Electric Manufacturing Company, Ltd. dated December 12, 1986.(1)
186
EXHIBIT NO. - ------- 10.2 The Company's Equity Based Long-Term Incentive Plan as amended and restated effective June 20, 1994.(1) 10.3 Retirement Income Plan for Directors dated February 23, 1988.(1)(3) 10.4 The Company's Employee Stock Ownership Plan as amended and restated effective January 1, 1997.(1) 10.5 Walbro Engine Management Incentive Compensation Plan.(1)(3) 10.6 Joint Venture Agreement dated June 17, 1991 between the Company and Jaeger S.A., an indirect, majority-controlled subsidiary of Magneti Marelli S.p.A., relating to the Marwal Systems S.A. joint venture, filed as Exhibit 10.23 to the Company's Registration Statement on Form S-2, File No. 33-41425.(2) 10.7 Joint Venture Agreement between the Company and Jaeger S.A. dated as of January 1, 1993 relating to the Marwal do Brasil joint venture.(1) 10.8 The Company's Advantage Plan, as amended and restated effective January 1, 1997.(1)(3) 10.9 Joint Venture Contract among Walbro Engine Management Corporation, Fujian Fuding Carburetor Factory and Twin Winner Trading Co., Ltd. dated December 30, 1993 relating to the Fujian Hualong Carburetor Co. Ltd. joint venture.(1) 10.10 Agreement among the Company, Walbro Automotive Corporation and Magneti Marelli France S.A. dated February 7, 1995.(1) 10.11 Joint Venture Agreement between the Company and Daewoo Precision Industries, Ltd. dated November 30, 1994.(1) 10.12 Purchase and Sale Agreement dated as of April 7, 1995 between the Company and Dyno Industrier AS, filed as Exhibit 2.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1995.(2) 10.13 Addendum to Purchase and Sale Agreement between the Company and Dyno Industrier AS dated as of July 27, 1995, filed as Exhibit 2.2 to the Company's Current Report on Form 8-K dated July 27, 1995.(2) 10.14 General Partnership Agreement dated August 18, 1995 between Iwaki Diecast U.S.A., Inc. and Walbro Tucson Corp.(1) 10.15 Employment Agreement between the Company and L.E. Althaver dated August 16, 1996, filed as Exhibit 10.21 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996.(2)(3) 10.16 Termination and Change of Control Agreement between the Company and L.E. Althaver dated August 16, 1996, filed as Exhibit 10.22 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996.(2)(3) 10.17 Employment Agreement between the Company and Daniel L. Hittler dated August 16, 1996, filed as Exhibit 10.23 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996.(2)(3) 10.18 Termination and Change of Control Agreement between the Company and Daniel L. Hittler dated August 16, 1996, filed as Exhibit 10.24 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996.(2)(3) 10.19 Employment Agreement between the Company and Michael A. Shope dated August 16, 1996, filed as Exhibit 10.25 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996.(2)(3) 10.20 Termination and Change of Control Agreement between the Company and Michael A. Shope dated August 16, 1996, filed as Exhibit 10.26 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996.(2)(3)
187
EXHIBIT NO. - ------- 10.21 Employment Agreement between the Company and Robert H. Walpole dated August 16, 1996, filed as Exhibit 10.27 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996.(2)(3) 10.22 Termination and Change of Control Agreement between the Company and Robert H. Walpole dated August 16, 1996, filed as Exhibit 10.28 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996.(2)(3) 10.23 Employment Agreement between the Company and R.H. Whitehead III dated August 16, 1996, filed as Exhibit 10.29 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996.(2)(3) 10.24 Termination and Change of Control Agreement between the Company and R.H. Whitehead III dated August 16, 1996, filed as Exhibit 10.30 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996.(2)(3) 10.25 Employment Agreement between the Company and Frank E. Bauchiero dated October 3, 1996, filed as Exhibit 10.31 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996.(2)(3) 10.26 Termination and Change of Control Agreement between the Company and Frank E. Bauchiero dated October 3, 1996, filed as Exhibit 10.32 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996.(2)(3) 10.27 The Company's Broad-Based Long Term Incentive Plan, filed as Exhibit 10.33 to the Company's Registration Statement on Form S-4, File No. 333-45693.(2) 10.28 The Company's Supplemental Employee Retirement Plan, effective January 1, 1997.(1) 10.29 Separation Agreement and General Release dated May 20, 1998 between the Company and Lambert E. Althaver.(1)(3) 12 Computation of ratio of earnings to fixed charges.(1) 21 Subsidiaries of the Company, filed as Exhibit 21 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997.(2) 23.1 Consent of Arthur Andersen LLP.(1) 23.2 Consent of Ernst & Young Audit.(1) 23.3 Consent of Katten Muchin & Zavis (contained in its opinion filed as Exhibit 5). 24 Power of Attorney, included in signature page to the Company's Registration Statement on Form S-4, File No. 333-45693.(2) 25 Statement of eligibility under the Trust Indenture Act of 1939, as amended, on Form T-1 of Bankers Trust Company, as Trustee under the Indenture, filed as Exhibit 25 to the Company's Registration Statement on Form S-4, File No. 333-45693.(2) 27 Financial Data Schedule.(1) 99.1 Form of Letter of Transmittal for the Exchange Notes, filed as Exhibit 99.1 to the Company's Registration Statement on Form S-4, File No. 333-45693.(2) 99.2 Form of Notice of Guaranteed Delivery for the Exchange Notes, filed as Exhibit 99.2 to the Company's Registration Statement on Form S-4, File No. 333-45693.(2) 99.3 Form of Letter to Registered Holders and Depository Trust Company Participants, filed as Exhibit 99.3 to the Company's Registration Statement on Form S-4, File No. 333-45693.(2) 99.4 Form of Letter to Clients, filed as Exhibit 99.4 to the Company's Registration Statement on Form S-4, File No. 333-45693.(2)
188
EXHIBIT NO. - ------- 99.5 Form of Instruction to Registered Holder and/or Book Entry Transfer Participant from Beneficial Owner, filed as Exhibit 99.5 to the Company's Registration Statement on Form S-4, File No. 333-45693.(2) 99.6 Guidelines for Certificate of Taxpayer Identification Number on Substitute Form W-9, filed as Exhibit 99.6 to the Company's Registration Statement on Form S-4, File No. 333-45693.(2)
- ------------------------- (1) Filed herewith. (2) Incorporated by reference. (3) Management contract or compensatory plan or arrangement. EX-2 2 EXHIBIT 2 1 EXHIBIT 2 AGREEMENT FOR SALE OF THE ASSETS OF SHARON MANUFACTURING COMPANY This Agreement is entered into on April 9, 1998, between Sharon Manufacturing Company, a corporation organized under the laws of the State of Michigan, with its principal office located at 925 N. Main, Ligonier, IN ("Seller"), and Walbro Corporation, a corporation organized under the laws of the State of Delaware, with its principal office located at 6242 Garfield, Cass City, Michigan 48726 ("Walbro"), the sole shareholder of the Sharon, and Millennium Industries Corporation, a corporation organized under the laws of the State of Michigan, with its principal office located at 4429 Doerr Rd, Cass City, MI 48726, Michigan ("Buyer"). In consideration of the mutual covenants of the parties, Seller, Walbro and Buyer agree: SECTION ONE DEFINITIONS 1.1 "Acquired Assets" means all of the assets of Seller used in the production, processing, assembling, distribution and sale of stamped and brazed steel fuel rails and fuel rail assemblies, as currently conducted at the Ligonier, Indiana, facility other than the Excluded Assets. The Acquired Assets include Inventory, Tangible Personal Property, Contracts, Contract Rights, Real Property, Books and Records, Customer Information, Supplier Information Permits, Proprietary Rights, Products, prepaid amounts, deposits, leasehold rights and improvements, and rights of action. 1.2 "Books and Records" means all records, books of accounts, ledgers, financial records, data, and other recorded information, whether maintained electronically or from hard copies, 2 pertaining to the Business, the Acquired Assets, or the financial affairs, customers, or suppliers of the Business, excluding, however, any Excluded Assets, the corporate records of Seller, all tax records, and records maintained by Seller's accountants and attorneys. 1.3 "Business" means the production, processing, assembling, distribution, and sale of stamped and brazed steel fuel rails and fuel rail assemblies, and other stampings and assemblies carried on at the Ligonier Facility. 1.4 "Closing" means the consummation of the purchases, sales, assignments, and assumptions contemplated under this Agreement and the Transaction Documents, which shall take place on the Closing Date. Unless otherwise agreed in writing by the parties hereto, the Closing shall commence at 9:00 a.m. (eastern time), at the Auburn Hills offices of Walbro, on the Closing Date. 1.5 "Closing Date" means the date of the Closing, which shall be not more than 30 days after delivery of the Environmental Survey described in Section 5.1.9, or such other date as provided in Section Ten of this Agreement. 1.6 "Closing Time" means 12:01 a.m. (eastern time) on the Closing Date. 1.7 "Code" means the Internal Revenue Code of 1986, as amended. 1.8 "Contracts" means those contracts described in Section 2.1.4. 1.9 "Contract Rights" means all of Seller's rights and obligations under: (i) the agreements, contracts, leases, purchase orders, and other commitments that are outstanding and executory in whole or in part on April 9, 1998, and that remain outstanding and executory in whole or in part as of the Closing Time and (ii) the agreements, contracts, leases, purchase orders, and other - 2 - 3 commitments of any kind entered into by Seller in the ordinary course of the conduct of the Business. 1.10 "Customer Information" means all lists, records, credit and payment histories, and other information of any kind relating to past, current, and prospective customers of Seller and the Business. 1.11 "Excluded Assets" means those assets described in Section 2.2, and listed on Schedule 2.2, which shall not be part of the purchase and sale contemplated under this Agreement. 1.12 "Encumbrance" means any mortgage, pledge, security interest, lien (statutory or otherwise), option, or charge of any kind (including any conditional sale or other title retention agreement, any lease in the nature thereof, and the filing of or any agreement to give any financing statement under the Uniform Commercial Code of any jurisdiction), or any other kind of preferential arrangement for the purpose, or having the effect, of protecting a creditor against loss or securing the payment or performance of an obligation. 1.13 "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board (or any successor authority) consistently applied. 1.14 "Governmental Authority" means any administrative, executive, judicial, or legislative body, or any agency, authority, bureau, commission, branch, court, department, or other instrumentality of any foreign, federal, state, or local government. 1.15 "Inventory" means all of Seller's finished goods, raw materials and work in process, wherever located. - 3 - 4 1.16 "Knowledge" when used herein with respect to Buyer means the actual knowledge of Joe Ruffolo, John Neeb, Kelly Smith and Gary Vollmar. 1.17 "Material Adverse Effect" means any change, effect or circumstance that is reasonably likely to be materially adverse to the business, prospects, Acquired Assets, financial condition or results of operations of the party making the representation, warranty, or disclosure. 1.18 "Permits" means all of Seller's licenses, permits, variances, orders, approvals, and contracts from Governmental Authorities that are legally necessary or material, to the operation of the Business. All such Permits are listed on Schedule 2.1.6 hereto. 1.19 "Products" means all of the stamped, formed and/or brazed parts and products that are (i) manufactured, assembled, or held or offered for sale or distribution by Seller or any other Person in connection with the operation of the Business, or (ii) are being developed by or on behalf of Seller solely in connection with the operation of the Business. 1.20 "Proprietary Rights" mean all know-how, trade secrets, inventions, uses of ideas, intellectual property or property rights owned, developed, held under license or similar arrangement by Seller that are employed in or necessary for the operation of the Business, including, without limitation, computer software (or copies thereof), patents, patent applications and registrations, trademarks, trademark applications and registrations, trade names, service marks and service mark applications and registrations, all goodwill associated with such patents, trademarks, service marks and registrations and applications therefor, and all other intellectual property of any kind whatsoever and all mailing lists, proprietary data and technical, manufacturing, and marketing strategies and information, provided, however, that Proprietary Rights shall not include any computer software that is subject to a lease, license, or other - 4 - 5 agreement that precludes the transfer of such software to persons not parties thereto, but excluding the names "Walbro" and "Sharon" or any variation thereof. Schedule 2.1.5 lists all of the Proprietary Rights. 1.21 "Supplier Information" means all agreements with suppliers and other vendors of Seller and the Business and all lists, records, and other information of any kind relating to past, current and prospective suppliers and vendors of Seller and the Business. 1.22 "Tangible Personal Property" means equipment, furniture, fixtures, machinery and equipment, dies, vehicles, tools and tooling. 1.23 "Transaction Documents" means this Agreement and the Certificates specified in this Agreement, and all other agreements or instruments to be executed and delivered by any party hereto or thereto in connection with the consummation of the transactions contemplated hereunder and thereunder. SECTION TWO SALE OF ASSETS 2.1 Sale of Assets. Seller shall sell, assign, and deliver to Buyer, and Buyer shall purchase and accept, on the Closing Date, all of the Acquired Assets owned by Seller or in which Seller has any right, title or interest, inchoate or otherwise, of every kind and description, wherever located, used in the Business as currently conducted at the Ligonier, Indiana, facility (the "Ligonier Facility"), including: - 5 - 6 2.1.1 All the real estate which is currently owned by Seller and located in Ligonier, Indiana, together with all easements and rights connected therewith, as set forth in Schedule 2.1.1 attached hereto (the "Real Property"). 2.1.2 The Tangible Personal Property owned by Seller at the Closing Date. Attached as Schedule 2.1.2 is a listing of the Tangible Personal Property on the books of Seller (whether fully depreciated or not), at December 31, 1997. 2.1.3 All Inventory as of the Closing Date. 2.1.4 All Contract Rights, Books and Records, Customer Information, leasehold rights and improvements, Supplier Information, contracts, rights of action, and sales or purchase orders. 2.1.5 Proprietary Rights used in the Business, including those patents and the software listed in Schedule 2.1.5 attached hereto. 2.1.6 All Permits, to the extent they are transferable, as set forth in Schedule 2.1.6 attached hereto. 2.1.7 All Products of Seller as set forth in Schedule 2.1.7, attached hereto. 2.2 Excluded Assets. The Acquired Assets shall not include any accounts receivable, cash, cash equivalents, customer receivables for tooling central office assets, the name "Walbro" and "Sharon," the HR 2000 software and two sets of vendor owned CD Rom 200 select computer diskettes, and all other assets which are not acquired assets (collectively, the "Excluded Assets"). - 6 - 7 SECTION THREE CONSIDERATION 3.1 Payment. In consideration of the sale of Acquired Assets and of all other things done and agreed to be done by Seller and Walbro, Buyer shall pay to the Seller, in immediately available funds at the Closing, the sum of Four Million Six Hundred Twenty One Thousand and NO/100 Dollars ($4,621,000.00) (the "Purchase Price") less the Earnest Money paid pursuant to Section 3.2 hereof. 3.2 Earnest Money Payment. In consideration of the continued efforts by Seller and Walbro between the date of the execution of this Agreement and the first to occur of (i) the Closing Date, or (ii) the termination of this Agreement as provided in Section 13 herein, Buyer shall pay to the Seller, in immediately available funds upon the execution of this Agreement, the sum of Three Hundred Thousand and NO/100 Dollars ($300,000.00) (the "Earnest Money"). 3.3 Post-Closing Inventory Price Adjustment. As soon as possible, but not later than ten days after the Closing Date, Seller will prepare a report showing the amount of Gross Inventory (as defined below) as reported on the accounts of the Seller as of the Closing Date. Buyer shall permit Seller full access to the Books and Records and computer system to prepare such report. The report shall be complied solely from the accounting records of Seller and there will not be a physical Inventory taken. For purposes of this Section 3.3, Gross Inventory shall be the full cost of inventory before reduction for any (1) reserves for obsolescence and excess quantities, (2) writedowns to net realizable value, or (3) other inventory devaluation. Such calculation shall be made consistent with the methodology utilized in calculating Seller's January 31, 1998 Gross Inventory which amount was agreed by Buyer and Seller to be $2,974,000. - 7 - 8 Buyer shall have ten business days to review the report and either accept such calculation or give Seller written notice of its objection with detailed explanations. If no such notice of objection is made within such time frame, the report shall be deemed accepted. If there is a dispute with respect to the report which the parties are not able to resolve within thirty days after delivery of the report, the calculation shall be submitted for resolution to a independent certified public accounting firm ("CPA") jointly selected by the parties. If the parties cannot agree upon a CPA, then each party shall pick a CPA and the two CPA's shall pick a third CPA. The determination of the CPA will be final and binding upon the parties hereto. If the amount of the Gross Inventory is greater than $2,800,000, Buyer shall pay the amount of such excess to Seller in cash within ten business days after such amount is determined and agreed upon. If the Gross Inventory is less than $2,800,000, Seller shall pay to Buyer the amount of the deficiency in cash within ten business days after such amount is determined. SECTION FOUR LIABILITIES 4.1 Non-Assumption of Liabilities. Unless expressly agreed herein, Buyer shall not assume any liabilities, costs or other obligations of Seller existing prior to the Closing Time including, without limitation, any taxes, employee wages, bonuses, healthcare and post-retirement benefits, workers compensation claims, product liability claims, environmental liabilities, unfavorable customer tooling audits, and product warranty claims, except for (hereinafter the "Assumed Liabilities"): - 8 - 9 4.1.1 Purchase orders entered into in the ordinary course of business. 4.1.2 Equipment leases and supply contracts entered into in the ordinary course of business. SECTION FIVE REPRESENTATIONS AND WARRANTIES OF SELLER 5.1 Seller and Walbro represent and warrant that: 5.1.1 Ownership. Seller is a corporation duly organized, existing, and in good standing under the laws of the State of Michigan, and is authorized and entitled to carry on its business in the State of Indiana. Seller has no subsidiaries. Walbro owns all of the issued and outstanding capital stock of Seller. There are no outstanding contracts, agreements, options, warrants, rights, subscriptions, obligations, or other commitments of Seller, directly or indirectly relating to or requiring the authorization, issuance, transfer, sale, of other disposition of or the repurchase of other acquisition of any shares, issued or unissued, of the capital stock or any other voting interests of any kind of Seller or securities convertible or exchangeable into or for any of the foregoing. 5.1.2 Corporate Authority. Seller and Walbro have the full right, power, legal capacity, and authority to enter into and to perform their obligations under this Agreement and the Transaction Documents. The form, execution, and delivery of this Agreement and the Transaction Documents and the performance by Seller and Walbro of their obligations hereunder and thereunder have been duly approved by their respective Boards of Directors. No other approvals, permits, authorizations, consents, or proceedings are required under Seller's and - 9 - 10 Walbro's Articles of Incorporation or By-Laws, the laws of the State of Michigan or the State of Delaware, or any judgment, order, writ, injunction, decree, ordinance, law, rule or regulation of any federal, state or local Governmental Authority or any instrument, contract, or agreement to which Seller or Walbro is a party, or by which Seller or Walbro is bound. This Agreement is a valid and binding agreement of each of Seller and Walbro, and is enforceable against each of them in accordance with its terms. 5.1.3 No Violations. Except as set forth on Schedule 5.1.3, neither the execution and delivery of this Agreement or any Transaction Document nor the consummation of the transactions contemplated hereby or thereby will (i) violate or conflict with, or result in a default or breach under, the Articles of Incorporation or By-Laws of Seller or Walbro, or any provision of any material agreement, contract, instrument or document of any kind to which Seller or Walbro is a party or by which Seller or Walbro is bound or to which the Business, properties, or assets of any of them are subject, or any statute, law, rule, regulation, or ordinance or any judgment, decree, instrument, or order of any Governmental Authority applicable to and binding upon them, (ii) cause any acceleration of maturity of any loan or obligation to which Seller is a party or by which Seller is bound or with respect to which Seller is an obligor or guarantor, or (iii) result in the creation or imposition of any lien, claim, charge, restriction, or other Encumbrance of any kind whatsoever upon, or give to any other person any interest or right (including any right of termination or cancellation) in or with respect to any of the Acquired Assets, except for any occurrence in (i), (ii), or (iii) above which would not reasonably be likely to have a Material Adverse Effect. - 10 - 11 5.1.4 Permits. Seller has all Permits necessary to operate the Business. Except as provided in Schedule 5.1.4, Seller is in material compliance with the terms of each of the Permits, and there does not exist under any of the Permits any default or event of default or event which, with notice or lapse of time or both, would constitute an event of default under, or violation of, such Permits by Seller, except any default or violation which would not have a Material Adverse Effect. 5.1.5 Real Property. Seller has marketable title to the Real Property. The real property is free and clear of all mortgages, liens, and encumbrances and is not subject to any right-of-way, easement, or restriction that interferes materially with the present use of the real property, except as otherwise specifically referred to in this Agreement. The Real Property is in material compliance with all applicable state and local use, zoning, and building statutes, ordinances, codes, regulations, and requirements and is able to be used for commercial purposes including the conduct of the Business as currently operated without any governmental restrictions or limitations thereon, except customary restrictions which do not affect the use or operation thereof. The Ligonier Facility is the only location at which Seller maintains or stores Inventories, tools, tooling, dies, or fixtures and equipment related to the Business, except as specifically set forth in Schedule 5.1.5. Seller has no knowledge of any material citations, notices, or claims made by any Governmental Authorities of any violations relating to the Ligonier Facility. 5.1.6 Tangible Personal Property. Except as set forth on Schedule 5.1.6, Tangible Personal Property that are Acquired Assets are owned or leased free and clear of all mortgages, liens and encumbrances. - 11 - 12 5.1.7 Patents and Intellectual Property. All Proprietary Rights listed in Schedule 2.1.5 as being owned, controlled, or used by Seller, are valid and in force; all patent applications of Seller listed therein are in good standing, all without challenge or infringement of any kind. Seller owns the entire right, title, and interest in and to such patents and patent applications without qualification, limitation, or Encumbrance of any kind except as specifically provided herein or which would not have a Material Adverse Effect on the Business. Seller has previously given Buyer correct and complete list of all Proprietary Rights. 5.1.8 No Infringement. To Seller's knowledge, the operations of the Ligonier Facility have not infringed and do not infringe upon any rights of third parties with respect to any patent, patent right, trademark, service mark, trade name, or copyright or registration thereof. Seller and Walbro have no knowledge of any claim or threat that any such infringement has been made or implied in respect of any of the foregoing, and no claim of invalidity of any patent described in Schedule 2.1.5, has been made, and no proceedings are pending or, to the knowledge of Seller or Walbro, threatened against Seller that challenges the validity or ownership of any patent or other Proprietary Right described in Schedule 2.1.5, and neither Seller nor Walbro knows of infringing use of any of the same by any other Person. 5.1.9 Environmental. The operations of Seller and Walbro pertaining to the Ligonier Facility comply with all applicable Environmental Laws, except as set forth on Schedule 5.1.9. In the event the environmental survey undertaken by Seller and to be provided to Buyer prior to the Closing (the "Environmental Survey") discloses contamination on the premises occupied by the Ligonier Facility, Seller and Walbro will remedy the such environmental contamination as disclosed by the Environmental Survey. - 12 - 13 5.1.9.1 Except as disclosed in Section 5.1.9, none of Seller's business operations pertaining to the Ligonier Facility, or the Ligonier Facility, is or, during the period of the Seller's ownership of the Ligonier Facility, has been subject to any investigation by, notice of potential liability regarding, order from, or agreement with any Person respecting (i) compliance with or obligation under any Environmental Law, (ii) any Remedial Action or (iii) any claim of liability arising from the Release or threatened Release of a Contaminant. 5.1.9.2 Except as disclosed in Section 5.1.9, to the best of the knowledge of Seller after due inquiry, at no time during the period before the Seller's acquisition of the Ligonier Facility was the Ligonier Facility subject to any investigation by, order from, or agreement with any Person respecting (i) compliance with or obligation under any Environmental Law, (ii) any Remedial Action or (iii) any claim of liability arising from the Release or threatened Release of a Contaminant. 5.1.9.3 Except as disclosed in Section 5.1.9, neither Seller nor Walbro has filed any notice with any Governmental Authority reporting a violation of any applicable Environmental Law pertaining to the Ligonier Facility. 5.1.9.4 Except as disclosed in Section 5.1.9, to the best of Seller's and Walbro's knowledge after due inquiry, there is not now, nor has there ever been, on or in the Ligonier Facility (i) any underground storage tank or surface impoundment or (ii) any release of a Contaminant, except where such Release was in compliance with Environmental Law or except where remedial action has not been or will not be required prior to the Closing Date with respect to such Release under Environmental Law. - 13 - 14 5.1.9.5 No Environmental Encumbrance has attached to the Ligonier Facility. 5.1.9.6 There is no asbestos-containing material on the Ligonier Facility. 5.1.9.7 None of the Products or Discontinued Products produced at the Ligonier Facility, contains or contained asbestos-containing material. 5.1.9.8 For purposes of this Section: "Contaminant" means any pollutant, hazardous substance, radioactive substance or waste, toxic substance, hazardous or extremely hazardous waste, special waste, petroleum or petroleum-derived substance or waste, asbestos, polychlorinated biphenyls, any hazardous or toxic constituent thereof and includes, but is not limited to, these items as defined in Environmental Laws, as well as any other substance that is required by a Governmental Authority to be investigated, cleaned up, removed, treated or otherwise abated. "Environmental Encumbrance" means any lien, claim, or charge in favor of any foreign, federal, state, local or other Governmental Authority for (i) any liability under any Environmental Law, or (ii) damages arising from, or costs incurred by such Governmental Authority in response to, a Release or threatened Release of a Contaminant. "Environmental Law" means all federal, state and local laws, statutes, regulations, rules, codes, ordinances, or common law relating to or addressing the environment, health or safety, including but not limited to CERCLA, OSHA and RCRA and any state equivalent thereof. "Release" means release, spill emission, leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching, or migration of a Contaminant into the indoor or - 14 - 15 outdoor environment or into or out of any real property, including the movement of Contaminants through or in the air, soil, surface water, groundwater, municipal waste water system, or real property. "Remedial Action" means actions required to (i) clean up, remove, treat or in any other way address Contaminants in the indoor or outdoor environment; (ii) prevent the Release or threatened Release or minimize the further release of Contaminants, or (iii) investigate and determine if a remedial response is needed and to design such a response and post-remedial investigation, monitoring, operating, maintenance, and care. "CERCLA" means the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. Section 9601 et seq., any amendments thereto, and any regulations promulgated thereunder. "RCRA" means the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901 et seq., any amendments thereto, and any regulations promulgated thereunder. 5.1.9.9 Health and Safety Schedule 5.1.9.9 sets forth for the calendar years 1995, 1996 and 1997 a complete list of (i) all occupational, safety and health reports filed by Walbro or Seller with respect to the Business or the Ligonier Facility with any Governmental Authority, (ii) annual summaries of workers compensation liabilities of Seller, (iii) all citations, notices, orders, consent orders, or administrative or judicial enforcement proceedings by or from Governmental Authorities with respect to health or safety matters pending with respect to the Business or the Ligonier Facility, and (iv) identification of each inspection by any Governmental Authority concerning health, safety or environmental matters conducted with respect to the Business or the Ligonier Facility. - 15 - 16 5.1.10 Contractual Obligations. Seller is not a party to any material employment agreement, labor union agreement, agreement for the future purchase of materials, supplies, or equipment, sales agreement, pension, profit-sharing, or retirement plan or agreement, distributorship or sales agency agreement, or lease agreement that relate to any period beyond the Closing Date, whether written or oral, except as listed in Schedule 5.1.10. Copies of all such written agreements have been supplied to Buyer, and Buyer has been advised of the terms of all such oral agreements. Buyer shall be obligated to use its best efforts to ratify any or all of said contracts as Buyer. 5.1.11 Customer Relations. Seller enjoys good relations with Ford Motor Company, and there have been no significant difficulties experienced that would indicate that this good relationship will not continue past the Closing Date, except that, Buyer is aware of Seller' loss of its Q-1 Rating with Ford Motor Company for the Ligonier Facility and the reasons therefore. Schedule 5.1.11 is a list of Seller's key customers as of February 5, 1998. Neither Seller nor Walbro has any agreement, arrangement, or understanding with any customer with respect to discriminatory allowances, preferential or special terms of sale, or exclusive dealing or special delivery terms, and, to Seller's and Walbro's knowledge, nothing has been done or said by Seller or Walbro to cause any customer to expect any such special conditions as a prerequisite for its continued purchase of products from Seller or its successor corporation. 5.1.12 Default. Seller is not in default under any Contract, agreement, lease, or other material document to which it is a party which would have a Material Adverse Effect. 5.1.13 Pledge of Assets. Seller has not mortgaged or pledged any of its Proprietary Rights. - 16 - 17 5.1.14 Marketing. Since the date of the Letter of Intent signed December 11, 1997, there has been no substantial change in the marketing activities of Seller. 5.1.15 No Violations. Except as disclosed on Schedule 5.1.9, Seller is in material compliance, and has complied, in all material respects, with all federal, state, and local laws, regulations, rules, orders, decrees, judgments, codes, and ordinances that are applicable to Seller or the Business. 5.1.16 No Litigation. No lawsuit, action, claim, suit, proceeding, or investigation is pending or to Seller's knowledge, threatened, that questions the legality or propriety of any of the transactions contemplated by this Agreement. 5.1.17 No Change of Law. To the knowledge of Seller and Walbro, excluding general business and economic conditions, no legislative or regulatory proposal has been adopted or is pending that reasonably would be expected to adversely affect the production, assembly, marketing, or sale of any Product or that is applicable to the operations of the Business and that reasonably would be expected to have a Material Adverse Effect. 5.1.18 Products. Except for those Inventories located at the Ligon "Air" warehouse and in the storage trailer as described in Schedule 5.1.5., the finished goods inventories conform in all material respects to all applicable Product specifications, labeling requirements, service or Product warranties, all standards or specifications of Governmental Authorities, and any applicable standards related to auto-industry practices. Seller and Walbro have no knowledge of any latent or patent or overt design, manufacturing, or other defect in any of Seller's Products or discontinued Products. - 17 - 18 5.1.19 Product Warranties. Seller's Product warranties and guaranties, whether express or implied, now in effect with respect to the Products or services provided in connection with the Business are standard for the Industry. Seller and Walbro shall be solely responsible for all product warranties for failure to meet customer specifications related to finished goods produced or sold prior to the Closing. 5.1.20 Disclosure. To Seller's and Walbro's knowledge, none of the representations or warranties of Seller and Walbro contained herein, none of the information contained in the Schedules provided by Seller or Walbro referred to in this Agreement, is false or misleading in any material respect, or, contains or will contain any materially untrue statement, or omits to or will omit to state a material fact herein or therein necessary to make the statements herein or therein not misleading, under the circumstances. 5.1.21 Sufficiency. Except for working capital and Excluded Assets, the Acquired Assets and the Transaction Documents constitute all of the assets, properties, and rights necessary for Buyer's operation of the Business. 5.1.22 Raw Materials. The inventory levels of the raw materials held by Seller and used in the manufacture of the Products are sufficient for the conduct of the Business. There has been no impairment of Seller's relationship with any of its vendors or suppliers, which would materially interfere with Buyer's ability to continue to conduct business with such vendors or suppliers in a reasonably commercial manner subsequent to the Closing. 5.1.23 Construction. For purposes of this Agreement, Seller and Walbro will be considered to have "knowledge" or "know" of a matter if the plant manager of Seller or any officer, or director of Seller or Walbro has actual knowledge thereof or if any such plant - 18 - 19 manager, officer or director should reasonably be expected to have had such knowledge in the ordinary course of his duties. 5.1.24 Contemplated Acts. Except as may be required by law, neither Seller nor Walbro has committed any act which will interfere with the transaction contemplated in this Agreement or with Buyer's ability to continue its ownership of the Acquired Assets subsequent to the Closing. SECTION SIX REPRESENTATIONS AND WARRANTIES OF BUYER 6.1 Buyer represents and warrants to Seller and to Walbro as follows: 6.1.1 Organization and Good Standing. Buyer is a corporation duly organized, validly existing, and in good standing under the laws of the State of Michigan, and has the power and authority to carry on the Business. 6.1.2 Power, Authority, Execution and Delivery. Buyer has full right, power, legal capacity and authority to enter into and to perform its obligations under this Agreement, the Transaction Documents and instruments to be executed and delivered by it pursuant to this Agreement and to consummate the transactions contemplated herein and thereby. This Agreement has been duly executed and delivered by Buyer and constitutes, and the Transaction Documents and instruments, when duly executed and delivered by Buyer, will constitute, legal, valid, and binding obligations of Buyer and will be enforceable against Buyer in accordance with its terms. - 19 - 20 6.1.3 Authorization for this Agreement. Except as specifically provided herein, no approval, consent, or other order or action of or filing with any Governmental Authority or other third party is required for the execution and delivery by Buyer of this Agreement or the other agreements to be executed and delivered by Buyer pursuant hereto. 6.1.4 Encumbrances Created By This Agreement. The execution, delivery, and performance of this Agreement and the other agreements and instruments to be executed, delivered, and performed pursuant hereto and the consummation of the transaction contemplated herein and thereby will not result in any breach of or constitute a material default (or would not constitute a default but for the requirement that notice be given or time pass or both) under, and will not accelerate or permit the acceleration of the performance required by, any of the terms or provisions of the Articles of Incorporation or By-laws of Buyer or any material contract, agreement, indenture, instrument, or commitment to which Buyer is a party or by which Buyer is bound or affected. 6.1.5 No Violations. Neither the execution and delivery of this Agreement or any Transaction Document nor the consummation of the transactions contemplated hereby or thereby will violate or conflict with, or result in a default or breach under, the Articles of Incorporation or By-Laws of Buyer, or any provision of any material agreement, contract, instrument or document of any kind to which Buyer is a party or by which Buyer is bound or ordinance or any judgment, decree, instrument, or order of any Governmental Authority applicable to and binding upon them. - 20 - 21 6.1.6 No Litigation. As to Buyer, no lawsuit, action, claim, suit, proceeding, or investigation is pending or to Buyer's knowledge, threatened, that questions the legality or propriety of any of the transactions contemplated by this Agreement. 6.1.7 Disclosure. To Buyer's knowledge, none of the representations or warranties of Buyer contained herein is false or misleading in any material respect, or, contains or will contain any materially untrue statement, or omits to or will omit to state a material fact herein or therein necessary to make the statements herein or therein not misleading, under the circumstances. SECTION SEVEN EMPLOYEES AND BENEFITS 7.1 Employees. At the Closing Time, Buyer shall employ at least 85% of the employees of Seller on substantially similar terms as their current employment, except Buyer shall not assume the employment contract of the plant manager, and Seller shall be solely liable under same. Seller shall pay to its employees any earned but unused vacation up to the Closing Date, and shall deduct from paychecks issued to employees any used but unearned vacation up to the Closing Date. 7.2 No Third Party Beneficiaries. Nothing express or implied in this Agreement is intended by Buyer or Seller to confer upon any employee of Seller or the Business any right or remedies, including, but not limited to any rights of employment for any specified period of time, and no past, present, or future employees of Seller or Buyer shall be treated as third party beneficiaries of this Agreement or this Section. - 21 - 22 7.3 Employee Benefit Plans. Seller shall be responsible for all required contributions to the employee benefit plans when due under each such plan for the employees of Seller that accrue up to the Closing. 7.3.1 Each employee benefit plan, fund, policy or arrangement established or maintained by Buyer shall grant credit to each former Seller employee for all service on or prior to the Closing Date with Seller. 7.3.2 Within thirty days of the Closing Date, Buyer shall establish or maintain a 401(k) plan, which plan shall accept both plan to plan or trustee-to-trustee transfers of the account balances (including loans) attributable to each former Seller employee. 7.3.3 Effective as of the Closing Time, Buyer shall establish or maintain a group health plan which shall cover all former Seller employees and their family members who, immediately prior to the Closing Date were covered under any group health plan maintained by Seller. Any such group health plan established or maintained by Buyer shall (i) waive any waiting period, (ii) waive any exclusion or limitation for pre-existing conditions which were covered (generally and/or specifically as to any individual) under any group health plan maintained by Seller prior to the Closing Date, and (iii) grant credit (for purposes of annual deductibles, copayments and out-of-pocket limits) for any covered claims incurred or payments made on or prior to the Closing Date. Buyer shall not recommend or in any way encourage any individual to elect continuation coverage under any Seller group health plan. - 22 - 23 SECTION EIGHT CONDUCT PRIOR TO CLOSING 8.1 Seller's Covenants. Seller covenants and undertakes, from the date of execution of this Agreement until the Closing or the earlier termination of this Agreement, that Seller shall: 8.1.1 Operation of Business. Operate the Business only in the ordinary course on a basis consistent with past practices, except that Seller may not replace any employee who is terminated or resigns. 8.1.2 Hypothecation. Not sell, offer, lease, license, transfer, assign, pledge, donate, divide or distribute, or otherwise dispose of the Business or any part thereof or any of the Acquired Assets nor create, incur, or permit to exist any additional Encumbrance of any kind on any of the Acquired Assets except in the ordinary course of the Business, provided that Seller may sell Products in the ordinary course of the Business. 8.1.3 Assumed Liabilities. Not assign any Assumed Liability or any interest in any of the Assumed Liabilities without the prior written consent of Buyer. 8.1.4 Guarantees. Not create, incur, assume, or guarantee or agree to create, incur, assume, or guarantee any indebtedness for borrowed money or enter into as a lessee any capitalized lease obligation, except in the ordinary course of the Business; and except in the ordinary course of the Business, not enter into any other contract, agreement, or commitment that would be binding upon or with respect to the Business without Buyer's approval. 8.1.5 Books and Records. Not destroy or dispose of any Books and Records or other material data and files pertaining to the Business, Acquired Assets, or Assumed Liabilities - 23 - 24 without the prior written consent of Buyer, which consent shall not unreasonably be withheld or delayed. 8.1.6 Waiver. Not waive any rights Seller may have with respect to any Acquired Asset. 8.1.7 Modification. Not terminate, modify, amend, or otherwise, alter the terms and conditions of, or default under, any Assumed Liability or Contract without the prior written consent of Buyer, which consent shall not unreasonably be withheld or delayed. 8.1.8 New Transactions. Not enter into any other transaction or agreement of any kind with respect to the Business, Acquired Assets, or Assumed Liabilities other than in the ordinary course of business consistent with the past practices of the Business without Buyer's prior written consent. 8.1.9 Permits. Not terminate or fail to renew or preserve any Permits, unless, in the reasonable business judgment of Seller, such Permit no longer is necessary for the operation of the Business consistent with past practice. 8.1.10 Repair. Not fail to maintain and repair any Acquired Asset in accordance with ordinary and customary maintenance and repair procedures. 8.1.11 Disposal. Not dispose of or permit to lapse any Proprietary Rights without consent of the Buyer, which consent shall not be unreasonably withheld. 8.1.12 Insurance. Not terminate or fail to renew any existing insurance coverage with respect to the Acquired Assets or Business. 8.1.13 Access to Properties and Records. Consult with Buyer about the operations of the Business and keep Buyer advised of all material developments relevant to such - 24 - 25 operations and the consummation of the transaction contemplated by this Agreement; give Buyer and its representatives, advisors and financial institution full and continuing access to the Business, the Assumed Liabilities, the Acquired Assets, and personnel of Seller during regular business hours upon reasonable prior notice. 8.1.14 Consents and Filings. Take all required action to obtain all releases of Encumbrances on the Acquired Assets, except those Encumbrances which, in accordance with the provisions of this Agreement, will remain in effect after the Closing Date. If any contract, license, lease, commitment, or sales or purchase order assignable to Buyer under this Agreement may not be assigned without the consent of the other party thereto, Seller will use their reasonable efforts to obtain the consent of the other party to the assignment. Seller shall also diligently cooperate at its sole expense and in good faith with Buyer's efforts to obtain Permits under Subsection 8.2.1 hereof. 8.1.15 Litigation and Proceedings. Promptly advise Buyer of all developments in all litigation, proceedings, or investigations to which Seller is or becomes a party that relates in any way to the Business, Acquired Assets, Products, discontinued Products, or Assumed Liabilities. Without the prior written consent of Buyer, which consent shall not unreasonably be withheld or delayed, Seller shall not take any action therein, including settlement of any litigation, proceedings, or investigations that could adversely affect Buyer, the Business, Acquired Assets, Products, or Assumed Liabilities. 8.1.16 Information Furnished to Buyer. Furnish Buyer for inclusion in any report or filings of Buyer such information as may be reasonably necessary under the rules and - 25 - 26 regulations of any Governmental Authority. Seller covenants that all such information shall be accurate in all material respects. 8.1.17 Notice of Certain Matters. Promptly notify Buyer of any event of which Seller or Walbro obtains knowledge that could reasonably be expected to have a Material Adverse Affect on the Business or the Acquired Assets, that if known as of the date hereof, would have been required to be disclosed to Buyer. Seller shall give prompt notice to Buyer of (i) the occurrence, or failure to occur, of any event that would reasonably be expected to cause any representation or warranty of Seller or Walbro contained in this Agreement to be untrue or inaccurate in any material respect at any time from the date of this Agreement to the Closing Date, (ii) any failure or inability of Seller or Walbro to comply with or satisfy, in any material respect, any covenant, condition, or agreement to be complied with or satisfied by Seller, or Walbro under this Agreement or any of the Transaction Documents, or (iii) any damage to or loss to any Acquired Asset in excess of Five Thousand and NO/100 ($5,000.00) Dollars. 8.1.18 Suppliers. Seller shall not knowingly commit any act which may reasonably be expected to materially interfere with Buyers ability to continue to conduct business with any vendors or suppliers of Seller in a reasonably commercial manner subsequent to Closing. 8.1.19 Inventory Levels. Seller shall maintain inventory levels consistent with past practices. 8.2 Buyer's Covenants. 8.2.1 Permits and Approvals. Buyer covenants and undertakes, from the date of execution of this Agreement (unless terminated as provided herein) that it shall be responsible - 26 - 27 for taking all such action as is reasonably necessary to obtain the assignment or issuance of all applicable Permits to Buyer as may be necessary to permit the consummation of the transactions contemplated hereunder and Buyer's operation of the Business after the Closing in a manner consistent with prior operation. 8.2.2 Notification Regarding Representations and Warranties. Buyer covenants and undertakes, from the date of execution of this Agreement until the earlier of the Closing or the termination of this Agreement that it shall give prompt notice to Walbro of the occurrence, or failure to occur, of any event that would be likely to cause any representation or warranty of Buyer, Seller or Walbro contained in this Agreement to be untrue or inaccurate in any material respect any time from the date of execution of this Agreement to the Closing Date. SECTION NINE INSTRUMENTS OF TRANSFER 9.1 Documents. The sales, assignments, and deliveries to be made to Buyer pursuant to this Agreement shall be effected by deeds, bills of sale, endorsements, checks, and other instruments of transfer in such form as Buyer's counsel shall reasonably request. Seller shall prepare appropriate forms of instruments of transfer and conveyance in conformity with this Agreement, and a commitment for title insurance in an amount not less than $2,700,000, and shall submit them to Buyer for examination at least 10 days in advance of the Closing Date. Any time and from time to time after the Closing Date, on Buyer's request, Seller will do, execute, acknowledge, and deliver all such further acts, deeds, assignments, transfers, and powers of - 27 - 28 attorney as may be required in conformity with this Agreement for the adequate assigning, transferring, granting, and confirming to Buyer of the assets and properties sold to Buyer. SECTION TEN CLOSING 10.1 Time and Place. The Closing Date shall be not more than 30 days after delivery of the Environmental Survey, and shall take place at 11:00 o'clock A.M. in the Auburn Hills offices of Walbro Corporation, or at such other time and place as the parties shall agree. Notwithstanding the foregoing, and subject to the satisfaction of the conditions set forth in Section 10.3 hereof, Buyer shall use its best efforts to satisfy all of its obligations in connection with this Agreement as soon as possible after the receipt by Buyer of a commitment letter for or other notification of the funding by a lender of the Purchase Price to be paid by Buyer. 10.2 Joint Conditions Precedent to Obligations of Buyer and Seller. 10.2.1 No Proceedings. No claim, action, suit, proceeding, or governmental investigation shall have been threatened or instituted by any Governmental Authority questioning or challenging the validity of this Agreement or the transactions contemplated herein and which could reasonably be expected to materially affect the right or ability of Buyer to consummate the transactions contemplated hereunder. 10.2.2 No Change of Law. Since the date of this Agreement, no foreign, federal, state, or local law, legislation, rule or regulation shall have been enacted or adopted or become apparent through interpretation that has a Material Adverse Effect on the ability of Seller, - 28 - 29 Walbro or Buyer to consummate the transactions contemplated herein or to enjoy the benefits of such transactions. 10.3 Conditions Precedent to Obligations of Buyer. The obligation of Buyer to consummate the transactions contemplated by this Agreement shall be subject to satisfaction on or prior to the Closing Date of each of the following conditions (which may be waived in whole or in part by Buyer at or before the Closing in writing): 10.3.1 Validity of Documents. The instruments executed and delivered to Buyer by Seller and Walbro pursuant to this Agreement are valid in accordance with their terms, and effectively vest in Buyer good and marketable title to the assets and business as contemplated by this Agreement, free and clear of any liabilities, obligations, and encumbrances, except those liabilities and obligations expressly assumed by Buyer as provided in this Agreement. 10.3.2 Approval of Documents. All actions, proceedings, instruments, and documents required of Seller under this Agreement shall be in a form approved by counsel for Buyer, provided that such approval shall not be unreasonably withheld. 10.3.3 Representations, Warranties and Covenants of Seller and Walbro. Seller and Walbro shall have complied with all of their respective agreements and covenants contained herein and in the Transaction Documents in all material respects, and all of the representations and warranties of Seller and Walbro contained herein and in the Transaction Documents shall have been true and correct in all material respects both when given and as of the Closing Date as through such representations and warranties had been made at and as of the Closing. 10.3.4 No Material Adverse Change. There shall not have been a material adverse change in the financial condition of the Seller, the Acquired Assets, the Business, - 29 - 30 business projects or operating results of the Seller since the date hereof. Notwithstanding the foregoing, continuing operational losses consistent with the past 12 months shall not be deemed a material adverse change. 10.3.5 Consents. All necessary consents, approvals, authorizations, and clearances of Governmental Authorities and all consents or approvals of third parties (including, without limitation, the consents of other parties to the Contracts) required for or in connection with the execution or delivery of this Agreement or the consummation of all the transactions contemplated herein shall have been obtained and the waiting periods applicable to any applications, qualifications, designations, declarations, notices, reports, and other filings that Seller is required to make with any Governmental Authority for or in connection with the execution or delivery of this Agreement or the consummation of the transactions contemplated herein shall have expired and no such Governmental Authority shall have requested more information from Buyer or Seller. 10.3.6 Deliveries. There shall have been delivered to Buyer the following instruments in form and substance satisfactory to Buyer in its sole discretion, executed, where necessary, by a duly authorized officer of Seller or Walbro, as applicable: 10.3.6.1 Certificates, dated as of the Closing Date, of the President or Chief Financial Officers of Seller and Walbro, to the effect that the conditions of Section Eight, have been satisfied. 10.3.6.2 Resolutions of the Boards of Directors of Seller authorizing the execution, delivery, and performance of (i) this Agreement, the transaction documents, and the - 30 - 31 transactions contemplated herein and therein, certified by the Secretary or any Assistant Secretary of Seller. 10.3.6.3 Executed original of the Warranty Deed covering the real property in the form of Exhibit 10.3.6.3, attached hereto. 10.3.6.4 Executed original Bill of Sale in substantially the form of Exhibit 11.2.11.4 attached hereto. 10.3.6.5 True, complete and updated lists of the Contracts, referred to in Schedule 2.1.4, as of the close of business on the business day immediately preceding the Closing Date, together with any required consents to Buyer's assumption thereof. 10.3.6.6 Executed originals of the Confidentiality and Non-Competition Agreement in substantially the form of Exhibit 10.3.6.6, attached hereto. 10.3.6.7 Evidence of releases of all Encumbrances on the Acquired Assets, including UCC-3 termination statements signed by all Persons having security interests in any of the Acquired Assets. 10.3.6.8 Such other executed agreements and instruments or evidence of performance as Buyer may reasonably request. 10.4 Conditions Precedent to Obligations of Seller. The obligations of Seller to consummate the transactions contemplated by and to close under this Agreement shall be subject to satisfaction, at or prior to the Closing of all of the following conditions (which may be waived in whole or part by Seller at or before the Closing in writing): 10.4.1 Representations, Warranties and Covenants of Buyer. Buyer shall have complied in all material respects with all of its agreements and covenants contained herein to be - 31 - 32 performed at or prior to the Closing, and all of the representations and warranties by Buyer contained herein and in the Transaction Documents shall have been accurate when given and as of the Closing Date as though such representations and warranties had been made at and as of the Closing Date. 10.4.2 Consents. All necessary consents, approvals, authorizations, and clearances of Governmental Authorities required in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated herein shall have been obtained and the waiting periods applicable to any applications, qualifications, designations, declarations, notices, reports, and other filings that Buyer is required to make with any Governmental Authority for or in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated herein shall have expired and no such Governmental Authority shall have requested additional information from Seller or Buyer. 10.4.3 Deliveries. There shall have been delivered to Seller and Walbro the following instruments in form and substance satisfactory to Seller in their sole discretion, executed, where necessary, by a duly authorized officer of Buyer: 10.4.3.1 Resolutions of the Boards of Directors of Buyer and the authorizing of the execution, delivery, and performance of this Agreement, the Transaction Documents, and the transactions contemplated herein and therein, certified by the Secretary of Buyer. 10.4.3.2 Buyer shall have paid that part of the Purchase Price required to be paid at the Closing pursuant to Section Three hereof. 10.4.3.3 Executed originals of the Confidentiality and Non-Competition Agreement in substantially the form of Exhibit 10.3.6.6, attached hereto. - 32 - 33 10.3.3.4 Such other executed agreements and instruments or evidence of performance as Buyer may reasonably request. SECTION ELEVEN Seller POST CLOSING COVENANTS 11.1 Walbro shall, subsequent to Closing: 11.1.1 Purchases. Purchase cam lock rings and coverplates from Buyer, based upon the projected levels and prices in Walbro's 1998 business plan as provided to Buyer, for a period of at least three years. 11.1.2 Customer Transition. Provide Buyer with sufficient assistance by Walbro's account manager to effectuate an orderly transition of account management for the current customer base and existing prospects, at no charge, for a period of one year from the Closing Date. 11.1.3 Testing Support. Provide engineering testing at the Auburn Hills and Caro Test Centers consistent with past custom and practice, at no charge, for a period of one year from the Closing Date, with respect to the Business subject to customary disclaimers for the automotive testing industry. 11.1.4 Tax Abatements. Cooperate with and assist Buyer in obtaining all applicable benefits of tax abatement for the Acquired Assets. 11.1.5 Confidentiality and Non-Competition. Execute originals of the Confidentiality and Non-Competition Agreement in substantially the form of Exhibit 10.3.6.6 attached hereto. - 33 - 34 SECTION TWELVE WARRANTIES AND INDEMNIFICATION 12.1 Seller's and Walbro's Indemnification. Seller and Walbro hereby agree, jointly and severally, to indemnify and hold Buyer and its affiliates, officers, directors, employees, agents, authorized representatives, successors and assigns harmless from and against and with respect to the following: 12.1.1 Expenses. Costs, claims, losses, liabilities, penalties, fines, damages, expenses (including, without limitation, reasonable attorneys' fees and expenses) or deficiencies (each a "Claim") that arise out of, result from, or are connected with (i) any misrepresentation, false statement or omission or any other agreement, instrument, or document delivered to Buyer, or its representatives by Seller or Walbro or their respective employees, officers, directors, owners, agents, or representative pursuant to this Agreement or any Transaction Document or in connection with the transactions contemplated hereunder or thereunder (collectively, the "Other Documents"); (ii) any breach of any of the warranties made by Seller or Walbro in this Agreement; (iii) any breach, or default in performance by Seller or Walbro of any of the obligations that are to be performed by, or covenants made by Seller or Walbro in this Agreement or any schedule hereto; (iv) any liability or obligation of any nature (absolute or accrued) constituting, relating to, or arising from or in connection with the Excluded Liabilities or Excluded Assets; and (v) any liability or obligation of any nature (absolute or accrued) relating to the use or operation of Acquired Assets or the Business before the Closing Date or the manufacture, assembly, or sale of discontinued products and of Products shipped before the Closing Date. - 34 - 35 12.1.2 Notification of Claim. Buyer shall notify Seller and Walbro in writing of any claim under this Section with reasonable promptness after Buyer becomes aware of such claim, including in any such notice a detailed description of and the basis for the claim. 12.1.3 Limitation. Notwithstanding the foregoing, Buyer shall not be liable under Section 12.1.1 with respect to any individual Claim unless and until (i) such Claim exceeds $7,500 (each an "Included Claim"), and (ii) the aggregate cumulative amount of all Included Claims with respect to all matters referred to in Section 12.1.1 exceeds $50,000 (the "Threshold Amount"), and then Seller and Walbro shall be liable for all Claims in excess of the Threshold Amount. In no event shall the aggregate cumulative liability of Seller and Walbro under Section 12.1.1 exceed $4,621,000. 12.1.4 Buyer Notification. Seller and Walbro shall have no liability to indemnify Buyer for any Claim arising out of or resulting from the inaccuracy, breach, non-fulfillment or non-performance of any representation, warranty, covenant or agreement (each an "Inaccuracy") if such Inaccuracy is known by Buyer prior to the signing of this Agreement. If between the date of this Agreement and the Closing Date, Buyer learns of an Inaccuracy and intentionally fails to give notice to Seller and Walbro of such Inaccuracy to Seller, Buyer shall be construed to have waived, or acquiesced in, the breach of such Inaccuracy. 12.2 Buyer's Indemnification. Buyer hereby agrees to indemnify and hold Seller and Walbro and their respective affiliates, officers, directors, employees, agents, authorized representatives, successors and assigns, harmless from and against and in respect of the following: 12.2.1 Expenses. Claims that arise out of, result from, or are connected with the investigation, defense or settlement of any of the foregoing arising or resulting from (i) any - 35 - 36 misrepresentation, false statement or omissions made by Buyer in this Agreement, its Schedules, any Transaction Document or any other agreement or instrument delivered pursuant to this Agreement, any Transaction Document or other documents; (ii) any breach of any of the warranties made by Buyer in this Agreement, Schedules, any Transaction Document, or any other agreement delivered pursuant to this Agreement or any Transaction Document; (iii) any breach, or default in performance by Buyer of any of the obligations that are to be performed by, or covenants made by Buyer pursuant to this Agreement or any other agreement or instrument delivered pursuant to this Agreement delivered pursuant to this Agreement or any Transaction Document; (iv) any severance pay claims from former employees of Seller who are not hired by Buyer pursuant to Section 7.1; and (v) any other claim, liability, obligation or commitment of any nature arising after the Closing Date with respect to Buyer's ownership and use or performance of the Acquired Assets, Assumed Liabilities, and Contracts from and after the Closing Date, or Buyer's operation of the Business from and after the Closing Date. 12.2.2 Notification of Claim. Seller or Walbro shall notify Buyer in writing of any claim under this Section with reasonable promptness after any of Seller or Walbro becomes aware of such claim, including in any such notice a detailed description of and the basis for the claim. 12.2.3 Limitation. Notwithstanding the foregoing, (a) Buyer shall not be liable under Section 12.2.1 with respect to any individual Claim unless and until (i) such Claim are Included Claims, and (ii) the aggregate cumulative amount of all Included Claims with respect to all matters referred to in Section 12.2.1 exceeds the "Threshold Amount" and then Buyer - 36 - 37 shall be liable for all Claims in excess of the Threshold Amount. In no event shall the aggregate cumulative liability of Buyer under Section 12.2.1 exceed $4,621,000. 12.3 Notice and Right to Defend. Seller, Walbro, and Buyer agree to give prompt notice to one another of the assertion of any claim, or the commencement of any suit, action, or proceeding in respect of which indemnity may be sought hereunder. The indemnifying party shall have the right to assume the defense of any claim, suit, action, or proceeding in respect of which indemnity may be sought hereunder, and the indemnified party may nevertheless participate in the defense of any such claim, suit, action, or proceeding at its own expense, and at the request and expense of the indemnifying party shall assume such defense. No indemnifying party shall be liable under this Section Twelve for any settlement effected without its consent (which consent shall not be unreasonably withheld or delayed) of any claims, litigation, or proceeding in respect of which indemnity may be sought hereunder, and any such settlement that is not so consented to shall not establish the amount of the indemnified loss or expense to which the indemnified party may be entitled under this Section. SECTION THIRTEEN TERMINATION 13.1 This Agreement may be terminated as follows: 13.1.1 By Buyer, Seller, or Walbro at any time if the Closing has not occurred on or before May 11, 1998. - 37 - 38 13.1.2 By Buyer, upon written notice to Seller and Walbro, if any of the conditions set forth in Section 10.3 hereof have not been satisfied by the Closing Date or waived on or before the Closing Date. 13.1.3 By Seller and Walbro, upon written notice to Buyer, if any of the conditions set forth in Section 10.4 hereof have not been satisfied by the Closing Date or waived on or before the Closing Date. 13.1.4 By mutual written consent of the parties hereto. 13.2 Remedies. Absent a party's bad faith or breach of a covenant contained in this Agreement, upon a termination under Section 13.1 of this Agreement and except as provided in Section 13.2(ii) below, (i) neither party shall be liable to the other, at law or in equity, in contract, in tort, or otherwise by reason of the failure of the Closing to have occurred, and (ii) notwithstanding Section 13.2(i) above, and except as a result of the failure of the conditions in Section 10.2 to have been satisfied, if the Closing has not occurred on or before May 11, 1998 for any reason other than Seller's intentional failure to close, Buyer shall forfeit the Earnest Money. 13.3 Termination. If this Agreement is terminated pursuant to Subsection 13.1 of this Agreement, all further obligations of the parties hereto shall terminate except for those obligations set forth in Sections 13.2 (ii), 14.1, 15.2, 15.11 and this Section Thirteen, hereof, which shall survive and continue in full force and effect. - 38 - 39 SECTION FOURTEEN ADDITIONAL AGREEMENTS 14.1 Finder's Fees and Commissions. Seller, Walbro, and Buyer agree to indemnify each other and hold each other harmless from any liability cost, or expense (including, but not limited to, fees and disbursements of legal counsel) resulting from any agreement, arrangement, or understanding made by the indemnifying party with any third party for brokerage or finder's fees or other commissions in connection with this Agreement or the transaction contemplated herein. 14.2 Additional Documents. From time to time at or after the Closing, after written request therefor by Buyer, Seller shall, without further consideration, execute and deliver or cause to be executed and delivered to Buyer in proper form for relevant recording, filing, or registration, such assignments, deeds, powers of attorney, and any other instruments of conveyance and transfer and such other documents, all prepared by Buyer and reasonably acceptable to Seller, as may be reasonably necessary or desirable to more effectively transfer to and vest and confirm in Buyer the Acquired Assets, and to facilitate the effective recordation of title thereto or put Buyer in actual possession and operating control thereof. 14.3 Evidence of Satisfaction of Assumed Liabilities. At the Closing, and thereafter from time to time promptly after request therefor by Seller, Buyer shall take all steps and execute and deliver to Seller all appropriate documents and instruments that it may reasonably desire, as prepared by Seller and reasonably acceptable to Buyer, to effectuate or evidence Buyer's assumption and discharge of Assumed Liabilities and to conclude the other transactions contemplated hereunder and under the other agreements and instruments to be executed, delivered, and performed pursuant hereto. - 39 - 40 14.4 Apportionment of Purchase Price. Buyer shall prepare a schedule allocating the purchase price among the Acquired Assets, subject to Seller's approval, which shall not be unreasonably withheld. Buyer and Seller agree to file Form 8594, with the Internal Revenue Service with their tax returns for their respective tax years in which the Closing Date occurs consistent with such allocation. 14.5 Taxes. Seller shall pay when due, and indemnify and hold Buyer harmless against, all accrued foreign, federal, state and local income, employment, ad valorem, and other taxes, assessments, or charges (and any penalties or interest related thereto) payable by Seller with respect to the ownership of the Acquired Assets and the conduct of the Business through the Closing Time. Seller shall be liable for and shall pay any tax, assessment, or change of any Governmental Authority (including any sales, use or documentary stamp tax) attributable to the sale or transfer of the Acquired Assets by Seller to Buyer pursuant to this Agreement (the "Transfer Taxes"). At the Closing, Buyer shall sign and deliver to Seller such certificates reasonably requested in writing by Seller within a reasonable time in advance of the Closing to establish an exemption from (or otherwise reduce) such transfer taxes, including, to the extent appropriate, but not limited to, valid resale exemption certificates, if available under applicable law or regulation. 14.6 Exclusivity. From the date of this Agreement until the earlier of the Closing or the termination of this Agreement in accordance with its terms, neither Seller nor Walbro shall not, directly, or indirectly through any employee, agent, or other representative, solicit or entertain offers from, negotiate with or in any manner encourage, discuss, accept, or consider any proposal of, any other Person relating to the acquisition of the Acquired Assets, capital stock - 40 - 41 of Seller, or the Business, in whole or in part, whether through direct purchase, merger, consolidation, or other business combination (other than sales of Products in the ordinary course of the conduct of the Business). SECTION FIFTEEN MISCELLANEOUS 15.1 Survival. All representations, warranties and agreements made by any party to this Agreement in or pursuant to this Agreement shall be true on and as of the Closing Date with the same effect as if made on and as of the Closing Date, and shall survive the execution, delivery, and performance of this Agreement, any investigation made by or in behalf of any party hereto any time prior to the Closing, and for one year after the Closing hereunder. All written statements, documents, schedules, or certificates delivery by a party pursuant to this Agreement shall be deemed a representation by such party of the truth, accuracy and completeness of such statement, document, schedule, or certificate. 15.2 Costs and Expenses. Except as expressly otherwise provided in this Agreement, whether or not the transactions contemplated by this Agreement are consummated, each party hereto shall bear its own costs and expenses in connection with the negotiation, preparation, execution, and performance of this Agreement, the Transaction Documents, and the other agreements and instruments to be delivered pursuant hereto and thereto, and the transactions contemplated herein and thereby, including all legal and accounting fees and disbursements. 15.3 Schedules. The Schedules referred to in and attached to this Agreement are incorporated herein by reference and are made a part of this Agreement. - 41 - 42 15.4 Successors and Assigns. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns, heirs, beneficiaries, and personal representatives. Except as herein provided, neither this Agreement, nor any right or liability hereunder, shall be assignable by Buyer or by Seller, provided, however, that Seller acknowledge that Buyer and its affiliates intend to enter lending agreements and in connection therewith assign, as security, its rights under this Agreement (including, without limitation, its rights with respect to the representations and warranties of Seller and Walbro) to each institution that becomes a party to any such lending agreement, and Seller and Walbro agree that such institutions and their successors and assigns are permitted assigns of Buyer hereunder. 15.5 Amendment, Waiver, Discharge, Etc. This Agreement and the other agreements, documents, and instruments to be executed, delivered, and performed hereunder may be amended only by an instrument in writing, specifically identified as an amendment hereto to thereto, duly executed by the parties hereto or thereto. This Agreement may not be released, discharged, abandoned, changed, or modified in any manner except by an instrument in writing signed or behalf of the parties hereto by their duly authorized officers or representatives. The failure of any party hereto to enforce at any time any of the provisions of this Agreement shall in no way be construed to be a wavier of any such provision, nor in any way to affect the validity of this Agreement or any party hereof or the right of any party thereafter to enforce each and every such provision. No waiver of any breach, or any failure to comply with any provision, of this Agreement shall be held to be a wavier of any other subsequent breach or failure to comply. - 42 - 43 15.6 Captions. The captions appearing in this Agreement are inserted only as a matter of convenience and as a reference and in no way define, limit, or describe the scope or intent of this Agreement or any of the provisions hereof. 15.7 Enforcement. If after the Closing any party hereto must initiate any proceedings, including litigation, against any other party to collect amounts due hereunder, the non-prevailing party in any such proceeding or litigation shall pay all of the other party's costs and expenses, including reasonable attorneys' fees and expenses, incurred in such collection, proceeding, or litigation. 15.8 Notices. Any notice, request, or other document required to be given hereunder to the other party hereto shall be in writing and shall be deemed sufficiently given when delivered personally, when transmitted by telegram, telex, or telecopier (confirmed by registered or certified mail), or when deposited in the United State mail by registered or certified mail, return receipt requested, postage prepaid (such mailed notice to be deemed effective on the date such receipt is acknowledged or refused) and addressed as follows: To Buyer: Millennium Industries Corporation 4429 Doerr Rd., Cass City MI, 48726 Fax: (517) 269-8844 Attn: John Neeb - 43 - 44 To Seller: Walbro Corporation 1227 Center Road Auburn Hills, MI 48326 Fax: (248) 377-6820 Attn: Frank E. Bauchiero With a copy to: Katten Muchin & Zavis 525 West Monroe Street, Suite 1600 Chicago, IL 60661 Fax: 312-902-1061 Attn: Arnold S. Harrison, Esq. or to such other address and/or designee as any party may hereafter specify in notice in writing to the other. 15.9 Entire Agreement. This Agreement, the Schedules and Exhibits hereto, the Transaction Documents, and the other agreements and instruments to be delivered pursuant hereto, contain the entire agreement among the parties hereto and there are no representations or warranties, express or implied, made by any of the parties except such as are stated herein or therein. This Agreement supersedes all prior agreements, undertakings, and understandings between the parties hereto relating to the subject matter hereof and thereof. - 44 - 45 15.10 Counterparts. This Agreement and all Transaction Documents and all other agreements to be executed and delivered pursuant hereto may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. Any such counterpart may be executed and delivered by facsimile copy, provided that the originally executed copy is transmitted to the other parties hereto by means of a nationally recognized overnight courier. 15.11 Confidentiality. In the event this Agreement or the transactions contemplated herein are not consummated: 15.11.1 Buyer shall treat, and shall cause its officer, employees, agents, representatives, or financial institutions to treat, as Seller' confidential property, all information provided before or after the date of execution of this Agreement by Seller and their respective employees, agents, assistants, attorneys, and authorized representatives to Buyer about Seller, the Business, Acquired Assets, Assumed Liabilities (the "Confidential Information"). 15.11.2 Buyer will, upon Seller's request, promptly deliver to Seller, or at Buyer's option, destroy all of the Confidential Information, including all copies, reproductions, summaries, analyses, or extracts thereof or based thereon in Buyer's possession or in the possession of any of its employees, agents, or authorized representatives. Such destruction shall, upon demand, be certified in writing to Seller by an authorized officer of Buyer supervising such destruction. 15.11.3 Unless otherwise agreed to in writing by Seller, Buyer agrees (i) to keep all Confidential Information Confidential and not to disclose or reveal any Confidential Information to any person other than those employed by Buyer on Buyer's behalf who are actively and - 45 - 46 directly participating in the evaluation or consummation of the transactions contemplated herein or who otherwise need to know the confidential Information for the purpose of evaluating or assisting the consummation of the transactions contemplated herein and to cause those persons to observe the terms of this Section 19, and (ii) not to use Confidential Information for any purpose other than in connection with the consummation of the transactions contemplated herein, in a manner that Seller have approved. 15.11.4 Unless otherwise required by law, if this Agreement or the transactions contemplated herein are not consummated, neither Buyer nor its representatives, employees, agents, or authorized representatives will, without the prior written consent of Seller, disclose to any person (other than those actively and directly participating in evaluating or assisting the consummation of the transactions contemplated herein) any information about the transactions contemplated herein or the terms, conditions, or other facts relating thereto or the status thereof, or the fact that the Confidential Information has been made available to Buyer. 15.11.5 Notwithstanding anything in this Section to the contrary, Buyer may disclose such Confidential Information as is necessary (i) to obtain the transfer of Permits and licenses and all consents or approvals of Governmental Authorities required for the consummation of the transactions contemplated herein, and (ii) in connection with any report or filing that Buyer makes under the rules and regulations of any Governmental Authority. 15.13 Governing Law. This Agreement shall be governed by and construed under the laws of Michigan, without giving effect to principles of conflicts of law. - 46 - 47 IN WITNESS WHEREOF, the parties have executed this Agreement at the day and year first above written. Sharon Manufacturing Company /s/ DANIEL L. HITTLER ------------------------------------- By Secretary ------------------------------------- Its Walbro Corporation /s/ MICHAEL SHOPE ------------------------------------- By Treasurer and Chief Financial Officer ------------------------------------- Its Millennium Industries Corporation /s/ JOHN NEEB ------------------------------------- By Secretary ------------------------------------- Its EX-3.2 3 EXHIBIT 3.2 1 EXHIBIT 3.2 BY-LAWS OF WALBRO CORPORATION Amended and Restated 7/7/93 2 CONTENTS
Page Number ------ ARTICLE I OFFICES SECTION 1.1. Registered Office..........................................................................1 SECTION 1.2. Other Offices..............................................................................1 ARTICLE II MEETINGS OF STOCKHOLDERS SECTION 2.1. Place of Meetings..........................................................................1 SECTION 2.2. Time of Annual Meeting and Vote Required to Elect Directors................................1 SECTION 2.3. Notice of Annual Meetings..................................................................1 SECTION 2.4. Voting Lists...............................................................................1 SECTION 2.5. Special Meetings...........................................................................1 SECTION 2.6. Notice of Special Meetings.................................................................2 SECTION 2.7. Business to be Transacted at Special Meetings..............................................2 SECTION 2.8. Quorum and Adjournments....................................................................2 SECTION 2.9. Vote Required..............................................................................2 ARTICLE III DIRECTORS SECTION 3.1. Number, Classification, and Term of Office.................................................2 SECTION 3.2. Vacancies..................................................................................2 SECTION 3.3. General Powers.............................................................................2 SECTION 3.4. Place of Meetings..........................................................................3 SECTION 3.5. Regular Meetings...........................................................................3 SECTION 3.6. Special Meetings...........................................................................3 SECTION 3.7 Quorum.....................................................................................3 SECTION 3.8. Resignations...............................................................................3 SECTION 3.9. Informal Action............................................................................3 SECTION 3.10. Participation by Conference Telephone......................................................3 SECTION 3.11. Presumption of Assent......................................................................3 SECTION 3.12. Appointment and Powers.....................................................................4 SECTION 3.13. Committee Rules and Minutes................................................................4 SECTION 3.14. Compensation...............................................................................4
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Page Number ------ ARTICLE IV NOTICES SECTION 4.1. Manner of Notice...........................................................................4 SECTION 4.2. Waiver.....................................................................................4 ARTICLE V OFFICERS SECTION 5.1. Number and Qualifications..................................................................5 SECTION 5.2. Election...................................................................................5 SECTION 5.3. Other Officers and Agents..................................................................5 SECTION 5.4. Salaries...................................................................................5 SECTION 5.5. Term of Office.............................................................................5 SECTION 5.6. The Chairman of the Board..................................................................5 SECTION 5.7. The President..............................................................................5 SECTION 5.8. The Vice-Presidents........................................................................5 SECTION 5.9. The Secretary..............................................................................6 SECTION 5.10. The Assistant Secretary....................................................................6 SECTION 5.11. The Treasurer..............................................................................6 SECTION 5.12. The Assistant Treasurer....................................................................6 ARTICLE VI CERTIFICATES OF STOCK, TRANSFERS, AND RECORD DATES SECTION 6.1. Form of Certificates.......................................................................6 SECTION 6.2. Facsimile Signatures.......................................................................7 SECTION 6.3. Lost Certificates..........................................................................7 SECTION 6.4. Transfers of Stock.........................................................................7 SECTION 6.5. Fixing Record Date.........................................................................7 SECTION 6.6. Registered Stockholders....................................................................7 ARTICLE VII GENERAL PROVISIONS SECTION 7.1. Dividends..................................................................................8 SECTION 7.2. Annual Statement...........................................................................8
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Page Number ------ SECTION 7.3. Checks.....................................................................................8 SECTION 7.4. Fiscal Year................................................................................8 SECTION 7.5. Seal.......................................................................................8 SECTION 7.6. Stock in Other Corporations................................................................8 ARTICLE VIII INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS SECTION 8.1. Indemnification of Directors and Officers..................................................9 SECTION 8.2. Contract with the Corporation..............................................................9 SECTION 8.3. Indemnification of Employees and Agents....................................................9 SECTION 8.4. Other Rights of Indemnification............................................................9 SECTION 8.5. Liability Insurance........................................................................9 ARTICLE IX Amendments...................................................................................................9
5 WALBRO CORPORATION BY-LAWS (as amended) ARTICLE I OFFICES SECTION 1.1 Registered Office. The registered office shall in the City of Wilmington, County of New Castle, State of Delaware. SECTION 1.2 Other Offices. The corporation may also have offices at such other places both within and without the State of Delaware as the Board of Directors may from time to time determine or the business of the corporation may require. ARTICLE II MEETINGS OF STOCKHOLDERS SECTION 2.1. Place of Meeting. All meetings of the stockholders for the election of directors shall be held in the city of Cass City, State of Michigan, at such place as may be fixed from time to time by the Board of Directors, or at such place either within or without the State of Delaware as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting. Meetings of stockholders for any other purpose may be held at such time and place, within or without the State of Delaware, as shall be stated in the notice of meeting or in a duly executed waiver of notice thereof. SECTION 2.2. Time of Annual Meeting and Vote Required to Elect Directors. Annual meetings of stockholders shall be held on the last Tuesday of April, if not a legal holiday, and if a legal holiday, then on the next secular day following, at 11:00 a.m., or at such other date and time as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting, at which they shall elect by a plurality vote directors to succeed those whose terms then expire and transact such other business as may properly be brought before the meeting. SECTION 2.3. Notice of Annual Meetings. Written or printed notice of the annual meeting stating the place, date and hour of the meeting shall be given to each stockholder entitled to vote at such meeting not less than ten (10) nor more than sixty (60) days before the date of the meeting. SECTION 2.4. Voting Lists. The officer who has charge of the stock ledger of the corporation shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or if not so specified at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. SECTION 2.5. Special Meetings. Special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by statute or by the certificate of incorporation, may be called by the Chairman of the Board of the President and shall be called by the President or Secretary at the request in 6 writing of a majority of the Board of Directors, or at the request in writing of stockholders owing a majority in amount of the entire capital stock of the corporation issued and outstanding and entitled to vote. Such request shall state the purpose or purposes of the proposed meeting. SECTION 2.6. Notice of Special Meetings. Written notice of special meeting stating the place, date and hour of the meeting and the purpose or purposes for which the meeting is called, shall be given not less than ten ( 10 ) nor more than sixty (60) days before the date of the meeting, to each stockholder entitled to vote at such meeting. SECTION 2.7. Business to be Transacted at Special Meetings. Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice. SECTION 2.8. Quorum and Adjournments. The holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute or by the certificate of incorporation. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented any business may be transacted which might have been transacted at the meeting as originally notified. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. Section 2.9. Vote Required. In all matters other than the election of directors, the affirmative vote of the majority of shares present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders. Directors shall be elected by plurality of the votes of the shares present in person or represented by proxy at the meeting and entitled to vote on the election of directors." ARTICLE III DIRECTORS SECTION 3.1. Number, Classification, Election and Term of Office. The matters contained herein shall be governed by the certificate of incorporation. SECTION 3.2. Vacancies. Any vacancies in the Board of Directors for any reasons, and any newly created directorships resulting from any increase in the authorized number of directors, may be filled by the affirmative vote of a majority of the directors then in office, even though less than a quorum, or by a sole remaining director. Any directors so chosen shall hold office until the next annual election of the class for which such directors shall have been chosen, and until their successors shall be elected and qualified. SECTION 3.3. General Powers. The business of the corporation shall be managed by or under the direction of the Board of Directors which may exercise all such powers of the corporation and do all such lawful acts and things as are not by statute or by the certificate of incorporation or by these by-laws directed or required to be exercised or done by the stockholders. 7 MEETINGS OF THE BOARD OF DIRECTORS SECTION 3.4. Place of Meetings. The Board of Directors of the corporation may hold meetings, both regular and special, either within or without the State of Delaware. SECTION 3.5. Regular Meetings. A regular meeting of the Board of Directors shall be held without other notice than this by-law, immediately after, and at the same place as, the annual meeting of stockholders. The Board of Directors may provide, by resolution, the time and place, either within or without the State of Delaware, for the holding of additional regular meetings without other notice than such resolution. SECTION 3.6. Special Meetings. Special meetings of the Board may be called by the Chairman of the Board or by the President on three (3) days notice to each director, either personally or by mail or by telegram, mailgram, telex, telecopier, courier, `electronic mail' or any other similar medium; special meetings shall be called by the President or Secretary in like manner and on like notice on the written request of any two (2) of the directors. SECTION 3.7. Quorum. At all meetings of the Board , a majority of directors shall constitutes a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors, except as may be otherwise specifically provided by statute or by the certificate of incorporation. If a quorum shall not be present at any meeting of the Board of Directors the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. SECTION 3.8. Resignations. Any director of the corporation may resign at any time by giving written notice to the Board of Directors, the Chairman of the Board, the President, or the Secretary of the corporation. Such resignation shall take effect at the time specified therein and, unless tendered to take effect upon acceptance thereof, the acceptance of such resignation shall not be necessary to make it effective. SECTION 3.9. Informal Action. Unless otherwise restricted by the certificate of incorporation or these by-laws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all members of the Board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or committee. SECTION 3.10. Participation by Conference Telephone. Unless otherwise restricted by the certificate of incorporation, or these by-laws, members of the Board of Directors, or any committee designated by such Board, may participate in a meeting of such Board, or committee, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this subsection shall constitute presence in person at such meeting. SECTION 3.11. Presumption of Assent. A director of the corporation who is present at a meeting of the Board of Directors at which action on any corporate matter is taken shall be conclusively presumed to have assented to the action taken unless his dissent shall be entered in the minutes of the meeting or unless he shall file his written dissent to such action with the person acting as the secretary of the meeting before the adjournment thereof or shall forward such dissent by registered mail to the Secretary of the 8 corporation immediately after the adjournment of the meeting. Such right to dissent shall not apply to a director who voted in favor of such action. COMMITTEES OF DIRECTORS SECTION 3.12. Appointment and Powers. The Board of Directors may, by resolution passed by a majority of the whole board, designate one or more committees, each committee to consist of one or more of the directors of the corporation. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board of Directors shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to amending the certificate of incorporation, adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease, or exchange of all or substantially all of the corporation's property and assets, recommending to the stockholders a dissolution of the corporation or a revocation of a dissolution, or amending the by-laws of the corporation; and, unless the resolution so provides, no such committee shall have the power or authority to declare a dividend or to authorize the issuance of stock. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the Board of Directors. SECTION 3.13. Committee Rules and Minutes. Each committee shall fix its own rules of procedure and shall keep regular minutes of rules, its meetings and report the same to the Board of Directors when required. COMPENSATION OF DIRECTORS SECTION 3.14. Compensation. The Board of Directors shall have the authority to fix the compensation of directors. The directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors and may be paid a fixed sum for attendance at each meeting of the Board of Directors or a stated salary as director. No such payment shall preclude any director from serving the corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings. ARTICLE IV NOTICES SECTION 4.1. Manner of Notice. Whenever, under the provisions of the statutes or of the certificate of incorporation or of these by-laws, notice is required to be given to any stockholder, it shall not be construed to mean personal notice, but such notice may be given in writing, by mail, addressed to such stockholder, at his address as it appears on the records of the corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Notice to directors may be given by telegram, mailgram, telex, telecopier, courier, "electronic mail" or any other similar medium. 9 SECTION 4.2. Waiver. Whenever any notice is required to be given under the provisions of the statutes or of the certificate of incorporation or of these by-laws, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. ARTICLE V OFFICERS SECTION 5.1. Number and Qualifications. The officers of the corporation shall be chosen by the Board of Directors and shall be a Chairman of the Board, a President, a Vice-president, a Secretary and a Treasurer. The Board of Directors may also choose additional Vice-presidents, and one or more assistant secretaries and assistant treasurers. The Chairman of the Board shall be chosen from among the members of the Board, but membership on the Board shall not be a prerequisite to the holding of any other office. Any number of offices may be held by the same person, unless the certificate of incorporation or these by-laws otherwise provide. SECTION 5.2. Election. The Board of Directors at its first meeting after each annual meeting of stockholders shall elect a Chairman of the Board, a President, one or more Vice-presidents, (one of whom may be chosen Executive Vice-president), a Secretary and a Treasurer, and may choose one or more Assistant Secretaries and Assistant Treasurers. SECTION 5.3. Other Officers and Agents. The Board of Directors may choose such other officers and agents as it shall deem necessary who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board. SECTION 5.4. Salaries. The salaries of all officers and agents of the corporation shall be fixed by the Board of Directors. SECTION 5.5. Term of Office. The officers of the corporation shall hold office until their successors are chosen and qualify. Any officer elected or appointed by the Board of Directors may be removed at any time by the affirmative vote of a majority of the Board of Directors. Any vacancy occurring in any office of the corporation shall be filled by the Board of Directors. SECTION 5.6. The Chairman of the Board. The Chairman of the Board shall preside at meetings of the Board and shall act as Chairman of meetings of the stockholders. The Chairman shall nominate for Board consideration the memberships of Committees of the Board. SECTION 5.7. The President. The President shall be the Chief Executive Officer of the corporation. The Chief Executive Officer shall, under the direction of the Board of Directors, have general supervision, direction and control of the officers, employees, business and affairs of the corporation. He shall see that orders and resolutions of the Board of Directors are carried into effect. He may sign bonds, mortgages, certificates for shares and all other contracts and documents whether or not under the seal of the corporation except in cases where the signing and execution thereof shall be expressly delegated by law, by the Board of Directors or by these by-laws to some other officer or agent of the corporation. He shall have general powers of supervision and shall be the final arbiter of all differences between officers of the corporation and his decision as to any matter affecting the corporation shall be final and binding as between the officers of the corporation subject only to its Board of Directors. 10 SECTION 5.8. The Vice-Presidents. In the absence of the President or in the event of his inability or refusal to act, the Vice-president (or in the event there be more than one vice-president, the Executive Vice-president and then the other Vice-president or Vice-presidents in the order designated, or in the absence of any designation, then in the order of their election) shall perform the duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President. The Vice-Presidents shall perform such other duties and have such other powers as the Chief Executive Officer or the Board of Directors may from time to time prescribe. SECTION 5.9. The Secretary. The Secretary shall attend all meetings of the Board of Directors and all meetings of the stockholders and record all the proceedings of the meetings of the corporation and of the Board of Directors in a book to be kept for that purpose and shall perform like duties for the standing committees when required. He shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors or the Chief Executive Officer, under whose supervision he shall be. He shall have custody of the corporate seal of the corporation and he, or an Assistant Secretary, shall have authority to affix the same to any instrument requiring it and when so affixed, it may be attested by his signature or by the signature of such Assistant Secretary. The Board of Directors may give general authority to any other officer to affix the seal of the corporation and to attest the affixing by his signature. SECTION 5.10. The Assistant Secretary. The Assistant Secretary, or if there be more than one, the Assistant Secretaries in the order determined by the Board of Directors (or if there be no such determination, then in the order of their election), shall, in the absence of the Secretary or in the event of his inability or refusal to act, perform the duties and exercise the powers of the Secretary and shall perform such other duties and have such other powers as the Chief Executive Officer or the Board of Directors may from time to time prescribe. SECTION 5.11. The Treasurer. The Treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the corporation in such depositories as may be designated by the Board of Directors. He shall disburse the funds of the corporation as may be ordered by the Board of Directors, taking proper vouchers for such disbursements, and shall render to the President and the Board of Directors, at its regular meetings, or when the Board of Directors so requires, an account of all his transactions as Treasurer and of the financial condition of the corporation. If required by the Board of Directors, he shall give the corporation a bond (which shall be renewed every six (6) years) in such sum and with such surety or sureties as shall be satisfactory to the board of directors for the faithful performance of the duties of his office and for the restoration to the corporation, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the corporation. SECTION 5.12. The Assistant Treasurer. The Assistant Treasurer, or if there shall be more than one, the Assistant Treasurers in the order determined by the Board of Directors (or if there be no such determination, then in the order of their election), shall, in the absence of the Treasurer or in the event of his inability or refusal to act, perform the duties and exercise the powers of the Treasurer and shall perform such other duties and have such other powers as the Chief Executive Officer or the Board of Directors may from time to time prescribe. 11 ARTICLE VI CERTIFICATES OF STOCK, TRANSFERS, AND RECORD DATES SECTION 6.1. Form of Certificates. Every holder of stock in the corporation shall be entitled to have a certificate, signed by, or in the name of the corporation by, the Chairman of the Board of Directors, or the President or a Vice-president and the Treasurer or an Assistant Treasurer, or the secretary or an Assistant Secretary of the corporation, certifying the number of shares owned by him in the corporation. If the corporation shall be authorized to issue more than one class of stock; or more than one series of any class, the powers, designation, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate which the corporation shall issue to represent such class or series of stock, provided that, except as otherwise provided in Section 202 of the General Corporation Law of Delaware, in lieu of the foregoing requirements, there may be set forth in full or summarized on the face or back of the certificate which the corporation shall issue to represent such class or series of stock, a statement that the corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. SECTION 6.2. Facsimile Signatures. Where a certificate is countersigned (1) by a transfer agent other than the corporation or its employee, or, (2) by a registrar other than the corporation or its employee, any other signature on the certificate may be facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. SECTION 6.3. Lost Certificates. The Board of Directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or his legal representative, to advertise the same in such manner as it shall require and/or to give the corporation a bond in such sum as it may direct as indemnifying against any claim that may be made against the corporation with respect to the certificate alleged to have been lost, stolen or destroyed. SECTION 6.4. Transfers of Stock. Upon surrender to the corporation or the transfer agent of the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. SECTION 6.5. Fixing Record Date. In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty ( 60 ) nor less than ten ( 10 ) days before the date of such meeting, nor more than sixty (60) days prior to any other action. A determination of 12 stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the board of directors may fix a new record date for the adjourned meeting SECTION 6.6. Registered Stockholders. The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. ARTICLE VII GENERAL PROVISIONS SECTION 7.1. Dividends. Dividends upon the capital stock of the corporation, subject to the provisions of the certificate of incorporation, if any, may be declared by the Board of Directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the certificate of incorporation. Before payment of any dividend there may be set aside out of any funds of the corporation available for dividends such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or by repairing or maintaining any property of the corporation, or by such other purpose as the directors shall think conducive to the interest of the corporation, and the directors may modify or abolish any such reserve in the manner in which it was created. SECTION 7.2 Annual Statement. The Board of Directors shall present at each annual meeting, and at any special meeting of the stockholders when called for by vote of the stockholders, a full and clear statement of the business and condition of the corporation. SECTION 7.3. Checks. All checks or demands for money and notes of the corporation shall be signed by such officer or officers or such other person or persons as the Board of Directors may from time to time designate. SECTION 7.4. Fiscal Year. The fiscal year of the corporation shall be fixed by resolution of the Board of Directors. SECTION 7.5. Seal. The corporate seal shall have inscribed thereon the name of the corporation and the words "Corporate Seal, Delaware". The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. SECTION 7.6. Stock in Other Corporations. Shares of any other corporation which may from time to time be held by this corporation may be represented and voted at any meeting of shareholders of such corporation by the Chairman of the Board, the President or a Vice-president, or by any proxy appointed in writing by the Chairman of the Board, the President or a Vice-president of the corporation or by any other person or persons thereunto authorized by the Board of Directors. Shares represented by certificates standing in the name of the corporation may be endorsed for sale or transfer in the name of the corporation by the Chairman of the Board, the President or any Vice-president or by any other officer or officers thereunto authorized by the Board of Directors. Shares belonging to the corporation need not stand 13 in the name of the corporation, but may be held for the benefit of the corporation in the individual name of the Treasurer or of any other nominee designated for the purpose of the Board of Directors. ARTICLE VIII INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS SECTION 8.1. Indemnification of Directors and Officers. The corporation shall to the fullest extent to which it is empowered to do so by the General Corporation Law of the State of Delaware, indemnify any person who was or is threatened to be made a defendant or respondent to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he is or was a director or officer of the corporation, or is or was serving at the request of the corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, against all expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding. SECTION 8.2. Contract with the Corporation. The provisions of this Article VIII shall be deemed to be a contract between the corporation and each director or officer who serves in any such capacity at any time while this Article VIII and the relevant provisions of be General Corporation Law of the State of Delaware are in effect, and any repeal or modification of any such law or of this Article VIII shall not affect any rights or obligations then existing with respect to any state of facts then or theretofore existing or any action, suit or proceeding theretofore or thereafter brought or threatened based in whole or in part upon any such state of facts. SECTION 8.3. Indemnification of Employees and Agents. Persons who are not covered by the foregoing provisions of this Article VIII and who are or were employees or agents of the corporation, or are or were serving at the request of the corporation as employees or agents of another corporation, partnership, joint venture, trust or other enterprise, may be indemnified to the extent authorized at any time or from time to time by the Board of Directors. SECTION 8.4. Other Rights of Indemnification. The indemnification provided or permitted by this Article VIII shall not be deemed exclusive of any other rights to which those indemnified may be entitled by law or otherwise, and shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs executors and administrators of such person. SECTION 8.5. Liability Insurance. The corporation shall have the power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity or arising out of his status as such whether or not the corporation would have the power to indemnify him against such liability under the provisions of this Article VIII. 14 ARTICLE IX AMENDMENTS These by-laws may be altered, amended or repealed or new by-laws may be adopted by the stockholders or by the Board of Directors at any regular meeting of the Board of Directors of the stockholders or at any special meeting of the Board of Directors or of the stockholders, if notice of such alteration, amendment, repeal or adoption of new by-laws be contained in the notice of such special meeting of the Stockholders or the Board of Directors. EX-4.7 4 EXHIBIT 4.7 1 EXHIBIT 4.7 FIRST AMENDMENT TO RIGHTS AGREEMENT THIS FIRST AMENDMENT TO RIGHTS AGREEMENT is entered into as of this ____ day of February, 1991, by and between WALBRO CORPORATION, a Delaware corporation (the "Company"), and HARRIS TRUST AND SAVINGS BANK (the "Rights Agent") amending that certain Rights Agreement (the "Rights Agreement") dated as of December 8, 1988 between the Company and the Rights Agent. W I T N E S S E T H: WHEREAS, the Company and the Rights Agent desire to amend the Rights Agreement, as authorized by Section 27 of the Rights Agreement, by altering, adding, and deleting the provisions set forth herein in the manner set forth below; and WHEREAS, the parties have complied with or satisfied all conditions necessary to the amendment of the Rights Agreement; NOW, THEREFORE, in consideration of the premises and mutual covenants set forth in the Rights Agreement and this First Amendment, the parties hereby agree as follows: A. DEFINITIONS. All terms used herein as defined terms which are not defined in this Amendment shall have the meanings ascribed to them in the Rights Agreement. 2. AMENDMENTS. The Rights Agreement shall be amended as follows: (a) Section 1(a) shall be deleted in its entirety and replaced by a new Section 1(a), which shall read as follows: (a) "Acquiring Person" shall mean any Person (as such term is hereinafter defined) who or which, together with all Affiliates, Associates, and Group Members (as such terms are hereinafter defined) of such Person, without the prior written approval of the Company given as provided in the last two sentences of this Section 1(a), shall be the Beneficial Owner (as such term is hereinafter defined) of 15% or more of the Common Shares of the Company then outstanding, but shall not include the Company, any Subsidiary (as such term is hereinafter defined) of the Company, any employee benefit plan of the Company or any Subsidiary of the Company, or any entity holding Common Shares for or pursuant to the terms of any such plan. Notwithstanding the foregoing, no Person shall become an Acquiring Person as the result of (i) an acquisition of Common Shares by the Company which, by reducing the number of shares outstanding, increases the 2 proportionate number of shares beneficially owned by such Person to 15% or more of the Common Shares of the Company then outstandingly; provided, however, that if a Person shall become the beneficial owner of 15% or more of the Common Shares of the Company then outstanding by reason of share repurchases by the Company and shall, after such share purchases by the Company, become the Beneficial Owner of any additional Common Shares of the Company, then such Person shall immediately thereafter be an Acquiring Person, or (ii) such Person being a party to or bound by a certain Agreement Among Shareholders Among Walbro Corporation dated as of September 29, 1987, as amended. The Company's Board of Directors, acting by majority vote, shall have the sole right and authority to grant approval to a Person to, together with such Person's Affiliates, Associates and Group Members, become the beneficial Owner of 15% or more of the Common Shares of the Company then outstanding; provided that for one year after a majority of the Company's Board of Directors ceases to be comprised of either Independent Directors (as hereinafter defined) or Continuing Directors (as hereinafter defined), such Board may not grant the approval provided for in this Section 1(a). The approval provided for in Section 1(a) may be subject to such conditions as may be determined by the Board of Directors of the Company, including without limitation, that a Person, together with such Person's Affiliates, Associates and Group Members, maintain beneficial ownership of less than a specified percentage of the Common Shares, and if a Person granted a conditional approval fails to comply with such conditions, such Person shall become an Acquiring Person immediately upon the occurrence of such failure. (b) Section 1(j) shall be deleted in its entirety. (c) A new Section 1(u) shall be added, which shall read as follows: (u) "Continuing Director" shall mean any member of the Company's Board of Directors who is duly serving on such Board and who (A) is not (i) an Acquiring Person or an Affiliate, Associate or Group Member of an Acquiring Person, or a Person whose Series A or Series B Rights have become void under the provisions hereof, or (ii) a Person nominated by, or acting as a representative of or for the interests of any Person described in clause 1(i)(A)(i) above, and (B) either was a member of the Company's Board of Directors on the date of this Agreement or, at the time such member was elected to the Company's Board of Directors, such election was recommended, nominated, approved or voted for by a majority of the Continuing Directors at such time. -2- 3 (d) A new Section 1(v) shall be added, which shall read as follows: (v) "Independent Director" shall mean a director of the Company who is not (i) a Continuing Director, (ii) elected to the Board of Directors at a special meeting of shareholders or by action of the Company's shareholders by written consent, or (iii) serving after being nominated by, or in connection with an attempt to facilitate a transaction with, an Acquiring Person or Interested Person (as hereinafter defined), or an Affiliate, Associate or Group Member thereof. (e) A new Section 1(w) shall be added, which shall read as follows: (w) "Interested Person" with respect to any transaction shall mean (x) any Person, other than the Company, any Subsidiary of the Company, any employee benefit plan of the Company or a Subsidiary, or any entity holding shares for or pursuant to the terms of any such plan, who (i) is or will become an Acquiring Person if a transaction were to be consummated, without regard to any required approval of the Company, or (ii) directly or indirectly proposed or nominated a director of the Company which director (or a successor of such Person elected to the Board of Directors for the purpose of either facilitating a transaction with such Interested Person or circumventing directly or indirectly the provisions of this paragraph) is in office at the time of consideration of the transaction in question, or (y) an Affiliate, Associate or Group Member of such a Person. (f) A new Section 1(x) shall be added, which shall read as follows: (x) "Permitted Offer" shall mean a tender or exchange offer made at a price, and on terms, determined prior to the purchase of shares under such tender or exchange offer, by the Company's Board of Directors to be both adequate and otherwise in the best interests of the Company, its stockholders (other than the Person, or an Affiliate, Associate or Group Member thereof on whose behalf the offer is being made) and other relevant constituencies which directors may consider under Delaware law; provided that for one year after the time when a majority of the Board of Directors of the Company is comprised of Persons who are not Independent Directors or Continuing Directors, no offer by an Interested Person may be deemed a Permitted Offer. (g) Section 11(a) (iii) shall be deleted in its entirety. (h) The following shall be added to the end of Section 13: -3- 4 Notwithstanding any provision in this Agreement to the contrary, Section 13 shall not be applicable to a transaction if such transaction is consummated with a Person or Persons who acquired Common Shares pursuant to a Permitted Offer (or a wholly-owned Subsidiary of any such Person or Persons). Upon consummation of any transaction with a Person acquiring shares pursuant to a Permitted Offer as contemplated by the previous sentence, all Rights hereunder shall expire. (i) Section 23(c) shall be deleted in its entirety. (j) Section 23(d) shall be deleted in its entirety and replaced by a new Section, renumbered as Section 23(c), which shall read as follows: (c) Immediately upon the action of the Board of Directors of the Company ordering the redemption of the Series A Rights pursuant to paragraph (b) of this Section 23, and without any further action and without any notice, the right to exercise the Rights will terminate and the only right thereafter of the holders of Rights shall be to receive the Redemption Price. The Company shall promptly give public notice of any such redemption; provided, however, that the failure to give, or any defect in, any such notice shall not affect the validity of such redemption. Within ten days after such action of the Board of Directors ordering the redemption of the Series A Rights pursuant to paragraph (b), the Company shall mail a notice of redemption to all holders of the then outstanding Rights at their last addresses as they appear upon the registry books of the Rights Agent or, prior to the Distribution Date, on the registry books of the transfer agent for the Common Shares. Any notice which is mailed in the manner herein provided shall be deemed given, whether or not the holder receives the notice. Each such notice of redemption will state the method by which the payment of the Redemption Price will be made. Neither the Company nor any of its Affiliates, Associates or Group members may redeem, acquire or purchase for value any Rights at any time in any manner other than that specifically set forth in this Section 23 or in Section 24 hereof, and other than in connection with the purchase of Common Shares prior to the Share Acquisition Date. 3. RIGHTS AGREEMENT. Except as amended hereby, the Rights Agreement shall remain in full force and effect. 4. GOVERNING LAW. This First Amendment to Rights Agreement shall be deemed to be a contract made under the laws of the State of Delaware and for all purposes shall be governed by and construed in accordance with the laws of such state applicable to contracts made and performed entirely within such state. -4- 5 5. COUNTERPARTS. This First Amendment to Rights Agreement may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute one and same instrument. IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to Rights Agreement to be duly executed and attested, all as of the date first above written. ATTEST: WALBRO CORPORATION By: ____________________ ________________________ Assistant Secretary Its: _______________________ ATTEST: HARRIS TRUST AND SAVINGS BANK ___________________ By: _________________________ Its: _________________________ -5- EX-4.8 5 EXHIBIT 4.8 1 EXHIBIT 4.8 LOAN AGREEMENT BETWEEN ________________________________________________________________________________ ________________________________________________________________________________ CITY OF LIGONIER, INDIANA AND SHARON MANUFACTURING COMPANY ________________________________________________________________________________ ________________________________________________________________________________ RELATING TO $6,300,000 CITY OF LIGONIER, INDIANA ECONOMIC DEVELOPMENT REVENUE BONDS (SHARON MANUFACTURING COMPANY PROJECT) SERIES 1992 DATED AS OF JUNE 1, 1992 2 TABLE OF CONTENTS
Page ARTICLE I. DEFINITIONS.......................................................................... 3 ARTICLE II. REPRESENTATIONS...................................................................... 5 SECTION 2.1. Representations by the Company....................................................... 5 SECTION 2.2. Representations of the Issuer........................................................ 9 ARTICLE III. LOAN AND REPAYMENT................................................................... 11 SECTION 3.1. Amount and Evidence of Loan.......................................................... 11 SECTION 3.2. Loan Repayments...................................................................... 11 SECTION 3.3. Mandatory and Optional Prepayments of the Promissory Note............................ 11 SECTION 3.4. Additional Payment Obligations of the Company........................................ 12 SECTION 3.5. Payment of Issuer Expenses........................................................... 13 SECTION 3.6. Administrative Expenses.............................................................. 13 SECTION 3.7. Letter of Credit; Alternate Credit Facility.......................................... 13 SECTION 3.8. Credit for Bonds Surrendered......................................................... 14 ARTICLE IV. SECURITY INTEREST.................................................................... 15 SECTION 4.1. Priority and Maintenance of Lien; Recording.......................................... 15 SECTION 4.2. Further Assurances; After-acquired Property.......................................... 15 SECTION 4.3. Company Duties Under Indenture....................................................... 15 ARTICLE V. CONSTRUCTION OF THE PROJECT.......................................................... 16 SECTION 5.1. Disbursements from the Construction Fund............................................. 16 SECTION 5.2. Obligation of the Company to Complete the Project and to Pay Costs in Event Construction Fund Insufficient....................................................... 16 SECTION 5.3. Investment of Construction Fund, Bond Fund and Bond Purchase Fund Moneys............. 16 SECTION 5.4. Certificate as to Completion......................................................... 17 ARTICLE VI. USE OF PROJECT, MAINTENANCE, TAXES AND INSURANCE..................................... 18 SECTION 6.1. Use, Maintenance and Modifications of Project by Company............................. 18 SECTION 6.2. Taxes, Other Governmental Charges and Utility Charges................................ 18 SECTION 6.3. Insurance............................................................................ 19
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Page ARTICLE VII. DAMAGE, DESTRUCTION AND CONDEMNATION................................................. 20 ARTICLE VIII. SPECIAL COVENANTS.................................................................... 21 SECTION 8.1. Unconditional Obligation............................................................. 21 SECTION 8.2. Right of Access to the Project....................................................... 21 SECTION 8.3. Maintenance of Corporation Existence and Qualification............................... 21 SECTION 8.4. Granting Easements................................................................... 22 SECTION 8.5. Covenant as to Non-Impairment of Tax-Exempt Status................................... 22 SECTION 8.6. Indemnity, Expenses.................................................................. 23 ARTICLE IX. ASSIGNMENT, LEASING, EQUIPMENT....................................................... 25 SECTION 9.1. Transfer, Assignment and Leasing..................................................... 25 SECTION 9.2. Substitution and Removal of Machinery and Equipment.................................. 25 SECTION 9.3. Installation of Company's Own Machinery and Equipment................................ 26 ARTICLE X. EVENTS OF DEFAULT AND REMEDIES....................................................... 27 SECTION 10.1. Events of Default.................................................................... 27 SECTION 10.2. Remedies on Default.................................................................. 28 SECTION 10.3. No Remedy Exclusive.................................................................. 28 SECTION 10.4. Agreement to Pay Attorneys' Fees and Expenses........................................ 29 SECTION 10.5. No Additional Waiver Implied by One Waiver........................................... 29 ARTICLE XI. PAYMENT OF SURPLUS BOND PROCEEDS FROM THE BOND FUND.................................. 30 SECTION 11.1. Surplus Bond Proceeds................................................................ 30 ARTICLE XII. THE BONDS............................................................................ 31 SECTION 12.1. Issuance of the Series 1992 Bonds.................................................... 31 SECTION 12.2. Additional Bonds..................................................................... 31 SECTION 12.3. Compliance with Indenture............................................................ 31 SECTION 12.4. Consent to Issuer's Pledge........................................................... 31 SECTION 12.5. Rights of Trustee Hereunder.......................................................... 31 SECTION 12.6. Amendments to Indenture and this Agreement........................................... 32
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Page ARTICLE XIII. MISCELLANEOUS........................................................................ 33 SECTION 13.1. Amounts Remaining in Funds........................................................... 33 SECTION 13.2. Rights of the Bank................................................................... 33 SECTION 13.3. Notices.............................................................................. 33 SECTION 13.4. Bondholders' Action.................................................................. 34 SECTION 13.5. Binding Effect....................................................................... 34 SECTION 13.6. Severability......................................................................... 35 SECTION 13.7. Captions............................................................................. 35 SECTION 13.8. Interpretation....................................................................... 35 SECTION 13.9. Execution in Counterparts............................................................ 35
iii 5 LOAN AGREEMENT THIS LOAN AGREEMENT is entered into as of June 1, 1992, between the CITY OF LIGONIER, INDIANA, (the "Issuer"), a municipal corporation organized under the laws of the State of Indiana and SHARON MANUFACTURING COMPANY, a Michigan corporation (the "Company"). WHEREAS, the Indiana Code Title 36, Article 7, Chapters 11.9 and 12, as amended (the "Act"), declares that the financing of economic development facilities constitutes a public purpose; and WHEREAS, the Company has applied to the Issuer for a Loan (as hereinafter defined) of $6,300,000 to finance the Costs of the Project (as hereinafter defined); and WHEREAS, the Issuer has determined that granting the Loan request by the Company and issuing the Series 1992 Bonds (as hereinafter defined) will promote and serve the intended purposes of and in all respects will conform to the provisions and requirements of the Act; and WHEREAS, the Issuer and the Company desire to set forth the terms and conditions of the Loan; GRANTING CLAUSES In consideration of the loan of the proceeds of the Series 1992 Bonds to be made by the Issuer, the acceptance of the Series 1992 Promissory Note attached as Exhibit C hereto (the "Promissory Note") by the Issuer, and of other good and valuable consideration, the receipt and sufficiency whereof are hereby acknowledged, and in order to secure the payment of the principal of, premium, if any, and interest payable on the Promissory Note, any additional notes issued hereunder and any notes issued in substitution therefore (herein collectively referred to as the "Notes") and the performance of all the covenants of the Company contained herein, the Company has executed and delivered this Loan Agreement and by these presents does grant a security interest to the Issuer and its successors forever, in all the Company's right, title, and interest in, to and under any and all of the following described property (herein called the "Trust Estate"); DIVISION I Any and all property of every kind and nature from time to time hereafter, by delivery or by writing of any kind, conveyed, pledged or transferred for and as additional security hereunder by the Company or by anyone on its behalf to the Issuer or the Trustee, including without limitation, funds of the Company, other than those on deposit in the Rebate Fund, held by the Trustee as security for the Bonds; 6 DIVISION II All moneys and securities other than those on deposit in the Rebate Fund, from time to time held by the Issuer or the Trustee under the terms of this Agreement or the Indenture; TO HAVE AND TO HOLD all and singular the above-described Trust Estate, whether now owned or hereafter acquired, unto the Issuer, its successors and assigns forever, provided, however, that this Agreement is executed upon the express condition that if the Company shall pay or cause to be paid all indebtedness secured hereby and shall keep, perform and observe all and singular the covenants and promises expressed in the Note and in this Agreement, to be kept, performed and observed by the Company, then this Agreement and the rights granted hereunder shall cease, determine and be void; otherwise to remain in full force and effect. NOW, THEREFORE, in consideration of the premises and of the covenants and undertakings herein expressed, the parties hereto agree as follows: 2 7 ARTICLE I. DEFINITIONS All terms used herein which are defined in the Indenture identified below shall have the meanings set forth, which definitions are by this reference incorporated herein and made a part of this Agreement. In addition to the terms elsewhere defined in this Agreement, the words "this Agreement" as used herein shall mean this Loan Agreement and the following terms used in this Agreement unless the context indicates a difference meaning or intent and such definitions shall be equally applicable to both the singular and plural forms of any of the terms herein defined: "Completion Date" means the date of completion of the Project, as set forth in a completion certificate delivered pursuant to Section 5.4 hereof. "Costs of the Project" means (a) obligations of the Issuer or the Company incurred, or reimbursement to the Company, for labor and to contractors, builders and materialmen in connection with the acquisition, construction and installation of the Project; (b) the cost of contract bonds and of insurance of all kinds that may be required or necessary during the course of acquisition of the Project which is not paid by the contractor or contractors or otherwise provided for; (c) all costs of architectural and engineering services, including estimates and supervising acquisition, as well as for the performance of all other duties required by or consequent upon the proper acquisition and construction of the Project; (d) Issuance Costs; (e) all other costs which the Company shall be required to pay, under the terms of any contract or contracts, for the acquisition, construction and installation of the Project; (f) interest allocable to the Series 1992 Bonds and property taxes through the Completion Date; (g) all other costs relating to the Project to the extent that (i) such costs are eligible for payment under the Act, including, but not limited to, all such costs described in attached Exhibit B, and (ii) payment of such costs will not cause the interest on the Series 1992 Bonds to be included in gross income for federal income tax purposes; and (h) other costs of a nature comparable to those described in clauses (a) through (g) above which the Company shall be required to pay as a result of the damage, destruction, condemnation or taking of the Project or any portion thereof. "Indenture" means the Trust Indenture dated as of June 1, 1992 between the Issuer and the Trustee, as the same may be amended or supplemented from time to time as permitted thereby. "Issuance Costs" means items of expense payable or reimbursable directly or indirectly by the Issuer or the Company and related to the authorization, sale and issuance of the Series 1992 Bonds and authorization and execution of this Agreement which items of expense shall include, but not be limited to, application fees and expenses, publication costs, printing costs, costs of reproducing documents, filing and recording fees, Bond Counsel and Counsel fees, costs of credit ratings, initial fees of the Trustee, Placement Agent fees, charges for execution, 3 8 transportation and safekeeping of the Series 1992 Bonds and related documents, and other costs, charges and fees in connection with the foregoing. "Land" means that certain parcel of land described on Exhibit F attached hereto. "Loan" means the Loan made pursuant to Section 3.1 of this Agreement. "Loan Repayments" means all amounts required to be paid by the Company to the Trustee as the assignee of the Issuer pursuant to the Promissory Note and Section 3.2 of this Agreement. "Principal User" means a principal user of the Project as such term is used in Section 144(a) of the Code. "Project" means the acquisition, construction and equipping of a manufacturing facility, all as more fully described in attached Exhibit D. "Promissory Note" means the promissory note given by the Company pursuant to this Agreement, in the form of attached Exhibit C, as the same may be amended, modified or supplemented in accordance with the terms hereof. "Requisition Certificate" means a certificate in the form of attached Exhibit B delivered pursuant to Section 5.1 hereof. "Series 1992 Bonds" means the City of Ligonier, Indiana Economic Development Revenue Bonds (Sharon Manufacturing Company Project), Series 1992 issued in the aggregate principal amount of $6,300,000. "Trustee" means Fort Wayne National Bank or any successor appointed under the Indenture. (End of Article I) 4 9 ARTICLE II. REPRESENTATIONS SECTION 2.1. Representations by the Company. As an inducement to the Issuer to issue the Series 1992 Bonds and to make the Loan to the Company, the Company makes the following representations, warranties and covenants: (a) The Company is a corporation duly organized and existing under the laws of the State of Michigan and is duly authorized to transact business as a foreign corporation in the State of Indiana. (b) There are no actions, suits, proceedings, inquiries or investigations pending or, to the knowledge of the Company, threatened against or affecting the Company, except as set forth in the General Certificate of the Company in any court or before any governmental authority or arbitration board or tribunal which, if determined adversely to the Company, would materially and adversely affect the transactions contemplated by this Agreement, the Pledge Agreement, the Promissory Note, the Reimbursement Agreement or the Indenture or which, in any way, would materially and adversely affect the enforceability or validity of the Series 1992 Bonds, the Indenture, the Reimbursement Agreement, the Pledge Agreement, the Promissory Note or this Agreement or the ability of the Company to perform its obligations under this Agreement. (c) The execution, delivery and performance of this Agreement, the Pledge Agreement, the Promissory Note and the Reimbursement Agreement and the compliance by the Company with all of the provisions hereof and thereof are within its corporate powers, have been duly authorized by corporate action, and are not in contravention of law or of the terms of the Company's Articles of Incorporation or By-Laws, or any unwaived provision of any mortgage, deed, instrument or undertaking to which the Company is a party or by which it or its property is bound. (d) This Agreement, the Pledge Agreement, the Promissory Note and the Reimbursement Agreement are valid, binding and enforceable in accordance with their terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium and other laws affecting creditors' rights generally and general principles of equity. (e) The Company has obtained all licenses, permits and approvals necessary and obtainable as of the Issue Date for the ownership or conduct of its business on the Land, including the ownership and utilization of the Project thereon and such other transactions as are contemplated by this Agreement, the Indenture, the Pledge Agreement, the Promissory Note and the Reimbursement Agreement. 5 10 (f) The financing, acquisition, construction and completion of the Project is expected to result in an increase of the productivity of the Company and the creation of ninety (90) new jobs. (g) The Company intends to cause the Project to operate at all times during the term of this Agreement so as to qualify as an "economic development facility" as defined in the Act. (h) The Project will be acquired and constructed in such manner as to conform with all applicable zoning, planning, environmental and other regulations of governmental authorities having jurisdiction of the Project; all necessary utilities are or will be available to the Project; and the Company has obtained or caused to be obtained, or will obtain or cause to be obtained, all requisite zoning, planning, environmental and other permits necessary for the acquisition and construction and the use contemplated for the Project. (i) None of the proceeds of the Bonds shall be applied to any costs of the acquisition or construction of the Project which were paid or incurred (within the meaning of Section 103 of the Code) prior to the inducement resolution adopted by the Issuer with respect to the Project on December 16, 1991. (j) No bonds as described in Section 144(a)(2) of the Code have been issued by any state, political subdivision, district, public body, agency, authority, commission or instrumentality, the proceeds of which have been or will be used with respect to facilities located within the unincorporated are of Noble County, Indiana, the Principal User of which is the Company or a Related Person as defined in Section 144(a)(3) of the Code. (k) The Project constitutes land or property of a character subject to the allowance for depreciation provided by the Code, and at least 95% of the net proceeds of the Series 1992 Bonds are being used to acquire property of such character and subject to such allowance. (l) The amount of Issuance Costs financed from the proceeds of the sale of the Series 1992 Bonds shall not exceed 2% of the proceeds of the Series 1992 Bonds. (m) The Company has supplied the Issuer in its Tax Representation Certificate the estimates of the Costs of the Project, the Completion Date and periods of usefulness of the Project. The Company hereby warrants that such estimates were made in good faith and are fair, reasonable and realistic based upon information known to the Company as of the Issue Date. (n) There are no other bonds described in Section 144(a) of the Code which have been issued, or are contemplated to be issued, pursuant to Section 144(a) of the Code (or its predecessor provision), for the benefit of the Company or any Related Person to the Company and which (i) were or are to be sold within 31 days of the Issue Date; (ii) were or are to be sold pursuant to a common plan of marketing as of the marketing plan for the Series 1992 Bonds; (iii) were or are to be sold at substantially the same rate of interest as the interest rate on the 6 11 Series 1992 Bonds; and (iv) are payable directly or indirectly by the Company or from the source from which the Series 1992 Bonds are payable. (o) The information furnished by the Company and used by the Issuer in preparing the Form 8038, Information Return for Private Activity Issues, which has been filed by or on behalf of the Issuer with the Internal Revenue Service in Philadelphia, Pennsylvania pursuant to Section 149)e) of the Code, was true and complete as of the date of filing of said Form 8038. (p) The average maturity of the Series 1992 Bonds does not exceed 120% of the average reasonably expected economic life of the components compromising the Project, as determined pursuant to Section 147(b) of the Code. (q) No more than 25% of the net proceeds of the Series 1992 Bonds will be used to provide a facility the primary purpose of which is retail food and beverage services, automobile sales or service, or the provisions of recreation or entertainment. No portion of the net proceeds of the Series 1992 Bonds will be used to provide any private or commercial golf course, country club, massage parlor, tennis club, skating facility (including roller skating, skateboard and ice skating), racquet sports facility (including any handball or racquetball court), hot tub facility, suntan facility, racetrack, airplane, skybox or other private luxury box, health club facility, facility primarily used for gambling, store the principal business of which is the sale of alcoholic beverages for off premises consumption or residential real property for family units. (r) Less than 25% of the net proceeds of the Series 1992 Bonds will be used to acquire land. No portion of the proceeds of the Series 1992 Bonds will be used to acquire land (or an interest therein) to be used for farming purposes. (s) The sum of the authorized face amount of the Series 1992 Bonds allocable to each test-period beneficiary (as defined in Section 144(a)(10)(D) of the Code) plus the respective aggregate face amount of all tax-exempt facility related bonds (as defined in Section 144(a)(10)(B) of the Code) presently outstanding which are allocable to each such test-period beneficiary does not exceed $40,000,000. (t) The Project does not consist of a portion of a single building, enclosed shopping mall or strip of offices, stores or warehouses using substantial common facilities with any other portion or portions of such property (of which the Project is a part) and where any such other portions are or will be financed with qualified bonds the interest in which is excluded from gross income for federal income tax purposes under Section 103(a) of the Code. (u) The payment of principal or interest with respect to the Series 1992 Bonds is not guaranteed in whole or in part by the United States or any agency or instrumentality thereof. The Series 1992 Bonds are not issued as part of an issue a significant portion of the proceeds of which are to be used in making loans the payment of principal or interest with respect to which are to be guaranteed in whole or in part by the United States or any agency or instrumentality thereof, or invested directly or indirectly in federally insured deposits or 7 12 accounts. The payment of principal or interest on the Series 1992 Bonds is not otherwise indirectly guaranteed in whole or in part by the United States or any agency or instrumentality thereof within the meaning of Section 149(b) of the Code. (v) The Company will comply with the provisions of Section 148 of the Code applicable to the Series 1992 Bonds. (w) The Company will not make any payments, or agreements to pay, to any party other than the United States an amount that is required to be paid to the United States under the rebate requirements under Section 148(f) of the Code by entering into any transaction that reduces the amount required to be paid to the United States because such transaction results in a smaller profit or a larger loss than would have resulted if the transaction had been at arm's length and had the yield on the Series 1992 Bonds not been relevant to either party. The Company will not acquire with Series 1992 Bond proceeds any certificate of deposit, investment contract, or any other type of investment that does not comply with the provisions of the Code. (x) No event has occurred and no condition exists with respect to the Company that would constitute an "Event of Default" under this Agreement or that, with the lapse of time or the giving of notice or both, would become an "Event of Default" under this Agreement. (y) At least 95% of the proceeds of the Series 1992 Bonds will be used to finance a "manufacturing facility" within the meaning of Section 144(a)(12)(C) of the Code, and no more than 25% of the net proceeds of the Series 1992 Bonds will be used to finance facilities that are "directly related an ancillary" thereto within the meaning of Section 144(a)(12)(C) of the Code. For this purpose, the term "manufacturing facility" means any facility which is used in the manufacturing or production of tangible personal property (including the processing resulting in a change in the condition of such property). Manufacturing facilities do not include an office unless such office is located on the premises of the manufacturing facility and not more than a de minimus (5%) portion of the functions to be performed at such office is not directly related to the day-to-day operations at such facility. Manufacturing facilities do not include storage facilities for raw materials, work in process, or finished goods or other materials unless such storage facilities are located on the premises of the manufacturing facility and are directly related to a manufacturing activity conducted at such facility as opposed to a warehousing, distributing, wholesaling, retailing or other non-manufacturing activity. (z) We will not knowingly participate in the sale pursuant to a common plan of marketing of the Series 1992 Bonds in connection with any other tax-exempt bonds which will be sold at substantially the same time (i.e., within the next 31 days) and share common or pooled security, including particularly a letter of credit issued by NBD Bank, N.A. For purposes of this paragraph a common plan of marketing means any situation where obligations are sold under the same Indenture or the same Private Placement Memorandum pursuant to which the Series 1992 Bonds were issued and offered for sale, respectively, or when the purchase of one obligation is conditioned on the purchase of another obligation by the same holder or group of holders. 8 13 SECTION 2.2. Representations of the Issuer. The Issuer makes the following representations and warranties: (a) The Issuer is a municipal corporation organized under the laws of the State and is authorized and empowered by the provisions of the Act and the ordinance authorizing the issuance of the Bonds to enter into the transactions contemplated by this Agreement and to carry out its obligations hereunder, and by proper action of its governing body had been duly authorized to execute and deliver this Agreement. The Project constitutes an "economic development facility" within the meaning of the Act. (b) The Issuer has performed all duties, undertaken all acts, made all findings and held all hearings prerequisite to the adoption of the Bond Ordinance and the issuance of the Bonds. (c) Heretofore the Issuer and the Company did agree that the Issuer would finance the Costs of the Project. The Company has estimated that the aggregate amount thereof will not be less than $6,300,000, and on that basis the Issuer now proposes to issue its Bonds in the aggregate principal amount of $6,300,000, which Bonds will be dated, mature and bear interest as set forth in the Indenture, and which Bonds will be subject to redemption and purchase at the times and the prices set forth in the Indenture, in order to finance the Costs of the Project. (d) The Bonds are to be issued under and secured by the Indenture, pursuant to which certain of the Issuer's interests in this Agreement, and the revenues and receipts to be derived by the Issuer pursuant to this Agreement, will be pledged and assigned to the Trustee as security for payment of the principal or purchase price of, premium, if any, and interest in this Agreement, or the revenues and receipts derived pursuant to this Agreement, excepting Unassigned Rights, other than to the Trustee under the Indenture to secure the Bonds. (e) The Issuer finds and determines that the financing of the Costs of the Project is in the public interest and in compliance with the purposes and provisions of the Act. (f) Neither the execution and delivery of this Agreement, the consummation of the transactions contemplated hereby, nor the fulfillment of or compliance with the terms and conditions of this Agreement conflicts with or results in a breach of the terms, conditions or provisions of any restriction, agreement or instrument to which the Issuer is a party, or by which it or any of its property is bound, or constitutes a default under any of the foregoing. (g) The Issuer covenants not to purchase any of the Bonds at any time that the Letter of Credit is available to be drawn therefor. (h) No member of the Common Council of the Issuer has a pecuniary interest in any employment, contract or agreement related to the transactions contemplated by this Agreement, except as disclosed by such member in accordance with the Act. No member of the Common 9 14 Council of the Issuer has a pecuniary interest in any property required for the acquisition, construction and installation of the Project. (End of Article II) 10 15 ARTICLE III. LOAN AND REPAYMENT SECTION 3.1. Amount and Evidence of Loan. Concurrently with the issuance and delivery of the Series 1992 Bonds, the Issuer shall make and the Company shall receive the Loan in the principal sum of $6,300,000. The proceeds of the Loan shall be used to make a deposit of $6,300,000 to the Construction Fund for payment of the Costs of the Project to be disbursed in accordance with Section 5.1 hereof. The Loan shall be evidenced by the Promissory Note. SECTION 3.2. Loan Repayments. On or before each date on which a payment of principal, premium, if any, or interest is due on the Bonds, whether by acceleration or otherwise, and until the principal of, premium, if any, and interest on the Bonds shall have been fully paid or provided for as set forth in Article V of the Indenture, the Company shall pay, or cause to be paid, to the Trustee, in immediately available funds for deposit in the Bond Fund, the Loan Repayments, including the amounts payable as principal of, premium, if any, and interest due on the Bonds on such date, less any Eligible Funds held by the Trustee in the Bond Fund and required to be applied to the payment of such principal, premium, if any, and interest on such date. Notwithstanding any provision in this Section 3.2 to the contrary, if the Letter of Credit is outstanding and drawings may be made thereunder for the purpose of making payments with respect to the principal of, premium, if any, and interest due on the Bonds which are required to be made pursuant to this Section 3.2, such payments shall be made on such dates on behalf of the Company by the Trustee with funds drawn by the Trustee under the Letter of Credit pursuant to clause (i) of Section 309(a) of the Indenture, and no additional payments shall be due or paid by the Company hereunder with respect to the payment of principal of, premium, if any, or interest on such Bonds to the extent that funds are so drawn on the Letter of Credit and applied by the Trustee for such payment on such dates. The Company shall have the right to presume payment by the Bank under the Letter of Credit or any Alternate Credit Facility which shall be in effect at said times unless the Company receives by 1:00 p.m., Detroit, Michigan time, written notice from the Trustee by telecopier (confirmed by telephone) that such payment has not been received by the Trustee by 12:00 noon, Detroit, Michigan time. SECTION 3.3. Mandatory and Optional Prepayments of the Promissory Note. The Company shall have the option to prepay the Promissory Note in whole or in part, at any time and from time to time, in increments of principal of $100,000 during the Variable Rate Period or $5,000 during the Fixed Rate Period and direct the redemption of the corresponding amount of Series 1992 Bonds then outstanding on such dates and pursuant to the provisions and limitations, and upon payment of any required premium, set forth in Section 217(a) of the Indenture. 11 16 The Company shall be obligated to prepay the Promissory Note at such times in order to enable the Trustee to redeem all or a portion of the Series 1992 Bonds as required in Sections 217(b), (c) and (d) of the Indenture. In the event the Company repays or prepays Loan Repayments and other amounts owing to the Trustee under this Agreement and the Indenture and to the Bank under the Reimbursement Agreement in such a manner so as to permit the Security to be released from the lien of the Indenture in accordance with Article V of the Indenture, then the Loan shall be deemed fully repaid and this Agreement and the Promissory Note shall be cancelled on the date on which the Security is so released. To confirm such cancellation, the Company shall have the right to require the Trustee to cancel the Promissory Note and execute any further reasonable evidence of cancellation on the date the Security is so released. In the event of any optional prepayment of the Promissory Note, on or before the date set for redemption of the Series 1992 Bonds to be redeemed in connection therewith, the Company shall deposit, or cause to be deposited from a draw on the Letter of Credit, in the Bond Fund with the Trustee immediately available Eligible Funds which, when added to Eligible Funds on hand with the Trustee, are sufficient to pay the principal of, premium, if any, and interest on the Series 1992 Bonds and to pay all fees, costs, and expenses of the Issuer and Trustee specified in Sections 3.5, 3.6, 6.4, 8.6, and 10.4 accruing through the date set for redemption of the Series 1992 Bonds (provided that no moneys derived from a draw on the Letter of Credit shall be used to pay such fees, costs and expenses of the Issuer or the Trustee). SECTION 3.4. Additional Payment Obligations of the Company. The Company agrees to pay, or cause to be paid, to the Trustee, for deposit in the Bond Purchase Fund, on or before each Optional Tender Date and on the Conversion Date and on each Mandatory Purchase Date, an amount sufficient, together with any moneys then held by the Trustee in the Bond Purchase Fund and available for such purpose under Section 403 of the Indenture, to enable the Trustee to pay the Purchase Price of all Bonds to be purchased on such date pursuant to Section 205 of the Indenture at the price specified therein; provided, however, that if the Letter of Credit is outstanding and drawings may be made thereunder for such purpose, payments with respect to the Purchase Price of the Bonds on such date which are required to be made by the Company under this Section 3.4 shall be made on behalf of the Company by the Trustee with funds drawn by the Trustee under the Letter of Credit pursuant to clause (ii) of Section 309(a) of the Indenture, and no additional payments shall be due or paid by the Company hereunder with respect to the Purchase Price of such Bonds to the extent that funds are so drawn under the Letter of Credit for the payment of the Purchase Price of Bonds purchased on such date. Anything herein to the contrary notwithstanding, if on any Optional Tender Date or Mandatory Purchase Date or on the Conversion Date the amount theretofore paid by or on behalf of the Comapny hereunder together with the amount theretofore drawn under the Letter of Credit is, for any reason, insufficient to pay the Purchase Price of the Bonds being tendered on such date as provided in the Indenture, the Company hereby agrees to immediately pay an amount equal to such deficiency to the Trustee as its corporate trust office in lawful money of the United States of America and such payment shall be made at such times as are 12 17 necessary so that sufficient funds will be available at such times as are necessary to pay the Purchase Price of the Bonds tendered under the Indenture at the times and in the manner contemplated by the Indenture. SECTION 3.5. Payment of Issuer Expenses. The Company shall pay, within 10 days of demand therefor, the reasonable expenses of the Issuer related to the Project, or incurred by the Issuer in performing or enforcing the provisions of this Agreement or the Indenture. SECTION 3.6. Administrative Expenses. The Company shall pay, or cause to be paid, an amount equal to (i) the reasonable fees and charges of the Trustee for services rendered as Trustee under the Indenture and its reasonable expenses incurred as Trustee under the Indenture, as and when the same become due, including the reasonable fees of its counsel and (ii) the reasonable fees and charges of the Placement Agent for acting as Placement Agent under the Indenture, as and when the same become due, including the reasonable fees of its Counsel. SECTION 3.7. Letter of Credit; Alternate Credit Facility. The Company shall cause the Original Letter of Credit to be delivered to the Trustee on or before the Issue Date. The Original Letter of Credit shall terminate no earlier than the earliest of (i) the payment in full by the Bank of funds authorized to be drawn thereunder, (ii) payment in full of the Series 1992 Bonds pursuant to the provisions of the Indenture, as certified by the Trustee to the Bank, (iii) 5 p.m., Detroit, Michigan time, on June 15, 1997 (subject to extensions) or (iv) the fifth day following the Conversion Date. The Company shall have the right (but is not obligated) to arrange for the renewal, reissuance or extension of any Letter of Credit. Any renewal, reissuance or extension shall be for a period of at least one year and shall expire on a June 15. At any time upon at least 45 days prior written notice to the Trustee, the Company may, at its option, provide for delivery of an Alternate Credit Facility which shall be effective on the date such Alternate Credit Facility is accepted by the Trustee in accordance herewith. Any Alternate Credit Facility shall have the same terms as the Original Letter of Credit, except that such Alternate Credit Facility shall be for a period of at least one year and shall expire on a June 15. On or before the date of delivery of any Alternate Credit Facility to the Trustee, as a condition of acceptance of any Alternate Credit Facility by the Trustee, the Company shall furnish to the Trustee (i) an opinion of bond Counsel stating that the delivery of such Alternate Credit Facility is authorized under and complies with this Section 3.7, and (ii) an opinion of Counsel stating that the Alternate Credit Facility is a binding and enforceable obligation of the issuer thereof (except as enforceability may be limited by (A) bankruptcy, insolvency, reorganization, moratorium and other laws affecting creditors rights generally and (B) the availability of equitable remedies, including specific performance and injunctive relief), and that payments thereunder will not constitute a voidable preference under the United States Bankruptcy Code (in the event of bankruptcy, insolvency or reorganization of the Issuer, the "Company" or any "insider" of the Company). In the case of an Alternate Credit Facility issued by a branch or agency of a foreign commercial bank there shall also be delivered an opinion of Counsel 13 18 satisfactory to the Trustee and licensed to practice law in the jurisdiction in which the head office of such bank is located, to the effect that the Alternate Credit Facility is the legal, valid and binding obligation of such bank enforceable in accordance with its terms. SECTION 3.8. Credit for Bonds Surrendered. The Company shall have the right to surrender Bonds, other than Bonds pledged to the Bank pursuant to the Pledge Agreement, acquired by it to the Trustee. Bonds so surrendered shall be forthwith cancelled and the principal amount thereof shall be applied as credits with respect to the Loan Repayments due and payable on the respective maturity dates on such Bonds. Further, with respect to the amounts credited resulting from Bonds surrendered, interest due on said amounts credited shall cease to accrue on the date on which said amount is credited. The Trustee shall provide the Bank with a certificate for the reduction of the amounts available to be drawn under the Letter of Credit as a result of such payments in accordance with the terms of the Letter of Credit. (End of Article III) 14 19 ARTICLE IV. SECURITY INTEREST SECTION 4.1. Priority and Maintenance of Lien; Recording. This Agreement shall constitute a security interest in the Trust Estate and shall be superior to any other lien. The Company will, at its expense, take all necessary action to maintain and preserve the security interest of this Agreement so long as the Promissory Note is outstanding. The Company will, forthwith after the execution and delivery of this Agreement and thereafter from time to time, cause this Agreement and any financing statements in respect thereof to be filed, registered and recorded in such manner and in such places as may be required by law in order to publish notice of and fully to protect the security interest hereof upon the Trust Estate; and from time to time will perform or cause to be performed any other act as provided by law and will execute or cause to be executed any and all continuation statements and further instruments that may be requested by the Issuer or Trustee for such publication and protection. The Company will pay or cause to be paid all filing, registration and recording fees incident to such filing, registration and recording, and all expenses incident to the preparation, execution and acknowledgement of such instruments of further assurance, and all federal or state fees and other similar fees, duties, imposts, assessments and charges arising out of or in connection with the execution and delivery of this Agreement and such instruments of further assurance. SECTION 4.2. Further Assurances; After-acquired Property. The Company will do, execute, acknowledge and deliver, or cause to be done, executed, acknowledged and delivered, all such further acts, assignments, transfers and assurances as the Issuer or Trustee reasonably may require for the better assuring, assigning and confirming unto the Issuer and the Trustee all and singular the Trust Estate as now or hereafter constituted. SECTION 4.3. Company Duties Under Indenture. The Company agrees to perform all matters provided by the Indenture to be performed by the Company and to comply with all provisions of the Indenture applicable to the Company. (End of Article IV) 15 20 ARTICLE V. CONSTRUCTION OF THE PROJECT SECTION 5.1. Disbursements from the Construction Fund. Moneys in the Construction Fund shall be used for payment of the Costs of the Project and for the other purposes set forth in this Agreement, but for no other purposes. The Trustee shall not be obligated to make any disbursement to the Company out of the Construction Fund upon the occurrence and continuation of an Event of Default under Section 10.1 hereof. Each of the payments to be made for Costs of the Project as herein provided shall be made only upon delivery to the Trustee of a Requisition Certificate signed by an authorized officer of the Company. The Company shall deliver or cause to be delivered to the Trustee, (i) an itemization of Costs of the Project in sufficient detail to evidence the incurring of the costs thereof, and (ii) such other documentation as the Trustee may reasonably request. All requests for payment under this Section 5.1 will be honored within 5 business days of meeting the requirements of this Section, to the extent monies are available therefor. SECTION 5.2. Obligation of the Company to Complete the Project and to Pay Costs in Event Construction Fund Insufficient. The Company hereby agrees to substantially complete the Project on or before June 12, 1995 or such other date acceptable to the Bank. If requested, the Company shall make available to the Issuer, the Bank and the Trustee such information concerning the Project as any of them may reasonably request. The Company may revise the Project, provided, however, that the Project shall not be materially altered in scope, character, value or operation without the prior witness consent of the Issuer, the Trustee and the Bank, and provided, further, that the expenditure of moneys for the Project as modified is permitted by the Act and will not impair the exclusion of interest on the Bonds from gross income for federal income tax purposes. In the event the moneys in the Construction Fund are insufficient to complete the Project and to pay all costs, fees and expenses in connection therewith, the Company nevertheless agrees to substantially complete the Project on or before the date and in the manner specified above, and promptly to pay all such costs, fees and expenses. The Issuer does not make any warranty, either express or implied, that the moneys which will be paid into the Construction Fund will be sufficient to pay the entire amount of such costs, fees and expenses of the Project. The Company shall not be entitled to any reimbursement from the Issuer or the Trustee, on account of its payment of any such excess costs, fees and expenses, nor shall it be entitled to any diminution in or postponement of any payment required hereunder or under the Promissory Note. SECTION 5.3. Investment of Construction Fund, Bond Fund and Bond Purchase Fund Moneys. Any moneys held in the Construction Fund, Bond Fund or Bond Purchase Fund shall, pending disbursement and upon written request of the Company or upon oral request of the Company later confirmed in writing, be invested only in Permitted Investments in accordance 16 21 with the provisions of Section 406 of the Indenture, all at such maturities, rates of interest and other specifications as the Company may indicate in its request to the Trustee. The investments shall mature not later than the respective dates estimated by the Company when the moneys in such Funds shall be needed for the purposes provided in this Agreement and the Indenture, but should the cash balance in a Fund be insufficient for such purpose, the Trustee is authorized to sell the necessary portion of such investments to meet that purpose. Recognizing that such investments shall be made at the written direction of the Company, the Issuer agrees to cooperate with the Company and the Company covenants that it will restrict the use of the proceeds of the bonds (and any other funds or moneys which may be deemed to be proceeds of the Bonds pursuant to Section 148(a) of the Code), in such manner and to such extent, if any, as may be necessary, after taking into account reasonable expectations at the time the Bonds are issued, so that the Bonds will not constitute "arbitrage bonds" under Section 148(a) of the Code. SECTION 5.4. Certificate as to Completion. The Completion Date of the Project and the payment of Costs of the Project shall be evidenced to the Trustee, the Bank and the Issuer by a completion certificate signed by the Company substantially in the form of attached Exhibit A. All Surplus Bond Proceeds shall be transferred to the Bond Fund to be applied by the Trustee in the manner provided in Section 11.1 hereof. (End of Article V) 17 22 ARTICLE VI. USE OF PROJECT, MAINTENANCE, TAXES AND INSURANCE SECTION 6.1. Use, Maintenance and Modifications of Project by Company. The Company intends to use, or cause to be used, the Project during the term of this Agreement principally for manufacturing purposes. The Company does not know of any reason why the Project will not be so used. Notwithstanding the foregoing, the Company shall have the right to use the Project during the term of this Agreement for any lawful purpose that will not affect the validity of the Bonds or impair the exclusion of interest on the Bonds from gross income for federal income tax purposes. The failure of the Company to use, or cause to be used, the Project for its intended purposes shall not in any way abate or reduce the obligation of the Company to repay the Loan under the provisions of this Agreement, and shall not be deemed a default under this Agreement in any respect as long as such alternative use does not impair the exclusion of interest on the Bonds from gross income for federal income tax purposes. The Company may modify the Project from time to time as the Company, in its discretion, may deem to be desirable, provided, however, that such additions, modifications and improvements do not impair the exclusion of interest on the Bonds from gross income for federal income tax purposes and do not contravene the provisions of the Act. The Trustee, the Issuer or the Bank may request opinions of Bond Counsel, satisfactory to the Issuer, the Trustee and the Bank, as to the satisfaction of the requirements set forth in this paragraph. SECTION 6.2. Taxes, Other Governmental Charges and Utility Charges. The Company shall pay, promptly as the same become due and payable, every lawful cost, expense and obligatio for every kind and nature, foreseen or unforeseen, for the payment of which the Company is or shall become liable by reason of its estate or interest in the Project or any portion thereof, by reason of any right or interest of the Company in or under this Agreement, or by reason of or in any manner connected with or arising out of the possession, operation, maintenance, alteration, repair, rebuilding, use or occupancy of the Project or any portion thereof, including, without limitation, all taxes, assessments, whether general or special, and governmental charges of any kind whatsoever that may at any time be lawfully assessed or levied against or with respect to the Project or any machinery, equipment or other property installed or brought by the Company therein or thereon (including, without limiting the generality of the foregoing, any taxes levied upon or with respect to the receipts, income or profits of the Issuer from the Project and all utility and other charges incurred in the operation, maintenance, use, occupancy and upkeep of the Project); provided, that with respect to special assessments or other governmental charges that may lawfully be paid in installments over a period of years, the Company shall be obligated to pay only such installments as the become due. The Company may, at its expense and in its own name, in good faith contest any such taxes, assessments and other charges. 18 23 The Company shall furnish to the Issuer promptly, upon request, proof of the payment of any such tax, assessment or other governmental or similar charge, or any other charge which is payable by the Company as set forth above. SECTION 6.3. Insurance. The Company shall from the date hereof, continuously insure the Project or cause the Project to be insured against such risks as are customarily insured against by businesses of like size and character. All insurance policies required under this Section 6.3 shall be effected with insurance companies qualified under the laws of the State to assume the risks undertaken. The required insurance may be in the form of blanket insurance policies and may be provided by so-called umbrella coverage. (End of Article VI) 19 24 ARTICLE VII. DAMAGE, DESTRUCTION AND CONDEMNATION In the event (i) the Project is destroyed or sustains damage or (ii) title to or temporary use of all or substantially all of the Project is taken in condemnation or by the exercise of the power of eminent domain by any governmental body or by any Person acting under governmental authority, the Company shall promptly give written notice thereof to the Issuer, the Bank and the Trustee. If the cost of restoration or repair equals or does not exceed $25,000 the Company will restore or repair the Project as hereinafter provided, to the extent that insurance proceeds are made available therefor. If the cost of restoration or repair exceeds $25,000, or if title to or use of all or substantially all of the Project is taken in condemnation or by eminent domain, as soon as practicable, but not later than 60 days after such damage, destruction or taking, the Company shall elect in writing to the Issuer, the Bank and the Trustee whether to restore the Project as hereinafter provided or to prepay the Loan and cause the Series 1992 Bonds to be paid or redeemed to the extent of the available insurance or condemnation proceeds. (End of Article VII) 20 25 ARTICLE VIII. SPECIAL COVENANTS SECTION 8.1. Unconditional Obligation. The Company hereby acknowledges and agrees that the Company's obligation to make Loan Repayments and the other payments required hereunder and to perform and observe the other agreements herein contained shall be absolute and unconditional and shall not be subject to any abatement, reduction, set-off, defense, counterclaim or recoupment for any reason whatsoever. Except as otherwise expressly provided herein, this Agreement shall not terminate, nor shall the obligations of the Company be affected, by reasons of any defect in or damage to or loss or destruction of all or any part of the Project, the failure of the Issuer to perform or observe any agreement, liability or obligation hereunder or the lawful prohibition of the Company's or any other Person's use of the Project, the interference with such use by any Person, the invalidity or unenforceability or lack of due authorization or other infirmity of this Agreement or any part hereof, lack of right, power or authority of the Issuer to enter into this Agreement, or for any other cause whether similar or dissimilar to the foregoing, any present or future tax or other law to the contrary notwithstanding, it being the intention of the parties hereto that Loss Repayments and other amounts payable by the Company hereunder shall continue to be payable in all events unless the obligation to pay the same shall be terminated pursuant to the express provisions of this Agreement. In the event the Company shall fail to make or cause to be made any of the payments required to be made under this Agreement, the unpaid amount shall continue to be an obligation of the Company until such amount shall be fully paid, and the Company agrees to pay the same with interest thereon from the date when due until paid at the greater of the rate borne by the Series 1992 Bonds or the per annum rate of interest equal to the rate of interest announced from time to time by the Trustee as its "reference rate" plus 3%. SECTION 8.2. Right of Access to the Project. Subject to the reasonable security, safety and confidentiality requirements of the Company, the Company agrees that the Issuer, the Bank and the Trustee, and their respective duly authorized agents, shall have the right at all reasonable times upon reasonable prior notice to enter upon the Project to examine and inspect the same, and shall have the right at all reasonable times to inspect all books and records of the Company relating to the Project to confirm compliance with this Agreement and make copies thereof. SECTION 8.3. Maintenance of Corporation Existence and Qualification. The Company agrees that throughout the term of this Agreement it shall maintain its corporate existence and shall not merge or consolidate with any other corporation and shall not transfer or convey all or substantially all of its property, assets and licenses, except as otherwise provided in the Reimbursement Agreement. 21 26 The Company warrants (i) that it is and throughout the term hereof it will continue to be qualified to do business in the State, and (ii) that if it elects to consolidate with, merge into or transfer all or substantially all of its assets to another corporation in accordance with this Section, and such other corporation is not organized under the laws of the State, the Company, as a condition of such consolidation, merger or transfer of assets, shall cause such other corporation to qualify to do business as a foreign corporation in the State and to remain so qualified continuously during the term hereof. SECTION 8.4. Granting Easements. The Company may at any time or times grant easements, licenses, rights-of-way and other rights or privileges in the nature of easements with respect to the Land, or release existing easements, licenses, rights-of-way and other rights or privileges with or without consideration. SECTION 8.5. Covenant as to Non-Impairment of Tax-Exempt Status. The Company covenants that, notwithstanding any provision of this Agreement or the rights of the Company hereunder, it will not knowingly take, or permit to be taken on its behalf, any action that would impair the exclusion of interest on the Bonds from gross income for federal income tax purposes and that it will take such reasonable action as may be necessary to continue such exclusion, including, without limitation, the preparation and filing of any statements required to be filed by it in order to maintain such exclusion. The Company will not cause or permit any proceeds of the Bonds to be invested in a manner contrary to the provisions of Section 148 of the Code and will assure compliance with such requirements on behalf of the Issuer. At least every year, the Company will furnish to the Trustee a report showing the amounts that will be required to be paid to the United States of America pursuant to the provisions of Section 148(f) of the Code as of the end of such year. The Company shall calculate and timely pay to the United States of America, for the account of the Issuer, all amounts required to be so paid in accordance with said Section 148(f) and shall maintain, on behalf of the Issuer, all records required to be maintained pursuant to said Section 148(f). At least once every five years, and not later than sixty days after the payment in full of each series of Bonds, the Company will furnish to the Issuer and the Trustee a certificate showing compliance with the applicable provisions of said Section 148(f), which certificate shall be accompanied by an opinion of Counsel or certificate of accountants supporting the matters set forth in such certificate. In addition to the foregoing covenants, the Company further covenants that (i) it will requisition, apply and spend the moneys in the Construction Fund in a manner so that at least 95% of the total amount requisitioned from the Construction Fund will be applied to finance costs (incurred after December 6, 1991) for the acquisition, or improvement of land and other property which is of a character subject to an allowance for depreciation under Section 167 of the Code; (ii) it will not permit moneys in the Bond Fund, Bond Purchase Fund or Construction Fund to be invested in such a manner as to cause the Bonds to be "arbitrage bonds" under Section 148(a) of the Code; (iii) it will promptly notify the Trustee if, at any time, the Company proposes to take any action, or any action is to be taken by or on behalf of any Principal User 22 27 of the Project or any Related Person, the effect of which could be to cause interest on the Bonds to become includable in the gross income of owners thereof for federal income tax purposes by reason of the $10,000,000 capital expenditure limitation imposed by Section 144(a)(4) of the Code being exceeded or the $40,000,000 limitation imposed by Section 144(a)(10) of the Code being exceeded; (iv) it will not requisition from the Construction Fund more than $126,000 to pay Issuance Costs; and (v) no portion of the net proceeds of the Series 1992 Bonds will be used for the acquisition of any property (or an interest therein) unless the first use of such property is pursuant to such acquisition. The Company acknowledges that a failure to abide by the foregoing covenants may result in a Determination of Taxability. In the event of a Determination of Taxability for any reason, the sole and exclusive remedy of the holders of the Bonds and the Trustee on their behalf shall be the early redemption of the Bonds as provided therein under the caption "Mandatory Redemption." SECTION 8.6. Indemnity, Expenses. (a) Except as provided in subsection (b), the Ligonier Economic Development Commission (the "Commission") and the Issuer and their respective members, officers, agents and employees (hereinafter the "Indemnified Persons") shall not be liable to the Company for any reason. The Company shall indemnify and hold the Issuer and the Indemnified Persons harmless from any loss, expense (including reasonable counsel fees), or liability of any nature due to any and all suits, actions, legal or administrative proceedings, or claims arising or resulting from, or in any way connected with: (i) the financing, installation, construction, operation, use, or maintenance of the Project, (ii) any act, failure to act, or misrepresentation by any person in connection with the issuance, sale, delivery or remarketing of the Bonds, or (iii) any act, failure to act, or misrepresentation by the Issuer in connection with this Agreement or any other document involving the Issuer in this matter. If any suit, action or proceeding is brought against the Issuer or any Indemnified Person, that suit, action or proceeding shall be defended by Counsel to the Company, which Counsel shall be reasonably acceptable to the Issuer. If the Company shall not have employed counsel or if an Indemnified Person shall have reasonably concluded that there may be defenses available to it which are different from or additional to those available to the Company (in which case the Company shall not have the right to direct the defense of such action on behalf of such Indemnified Person), legal and other expenses thereafter reasonably incurred by the Indemnified Person shall be borne by the Company. The Company shall not be liable for any settlement of any proceeding made without its consent (which consent shall not be unreasonably withheld). (b) (i) The Company shall not be obligated to indemnify the Issuer or any Indemnified Person under subsection (a), if a court with competent jurisdiction finds the liability in question was caused by the willful misconduct or gross negligence of the Issuer or the involved Indemnified Person(s), unless the Court determines that, despite the adjudication of liability but in view of all circumstances of the case, the Issuer or the Indemnified Person(s) is (are) fairly and reasonably entitled to indemnity for the expenses which the Court considers proper. 23 28 (ii) Notwithstanding anything to the contrary contained herein or in the Indenture, the Bonds, or in any other instrument or document executed by or on behalf of the Issuer in connection with the issuance of the Bonds, no stipulation, covenant, agreement or obligation contained herein or therein shall be deemed or construed to be a stipulation, covenant, agreement or obligation or any present or future member, commissioner, director, trustee, officer, employee or agent of the Issuer or its Economic Development Commission, or of any incorporator, member, commissioner, director, trustee, officer, employee or agent of any successor to the Issuer or its Economic Development Commission, in any such person's individual capacity, and no such person, in his individual capacity, shall be liable personally for any breach or non-observance of or for any failure to perform, fulfill or comply with any such stipulations, covenants, agreements or the principal of, premium, if any, or interest on any of the Bonds or for any claim based thereon or on any such stipulation, covenant, agreement or obligation, against any such person, in his individual capacity, whether directly or through the Issuer or any successor to the Issuer, under any rule of law or equity, statute or constitution or by the enforcement of any assessment or penalty or otherwise, and all such liability of any such person in his individual capacity, is hereby expressly waived and released. (iii) The Company shall also indemnify the Issuer for all reasonable costs and expenses, including reasonable Counsel fees, incurred in: (i) successfully enforcing any obligation of the Company under this Agreement or any related agreement, (ii) taking any action requested by the Company, (iii) taking any action required by this Agreement or any related agreement, or (iv) taking any action considered necessary by the Issuer and which is authorized by this Agreement or any related agreement. (iv) The Company shall indemnify and save the Trustee harmless against and from all loss, liability or damages and reasonable attorneys' fees incurred by it in the exercise and performance of any of its powers and duties hereunder or under the Indenture except to the extent that such loss, liability or damage, including reasonable attorney fees, is incurred by reason of its negligence or willful misconduct. (v) The obligations of the Company under this Section 8.6 with respect to events arising during the term of the Company's obligation under this Agreement shall survive any assignment or termination of this Agreement. (End of Article VIII) 24 29 ARTICLE IX. ASSIGNMENT, LEASING, EQUIPMENT SECTION 9.1. Transfer, Assignment and Leasing. The Company may lease any portion of the project constituting less than or equal to 10% of the Project to any other tenant without the consent of the Bank and may lease any portion of the Project exceeding 10% of the Project to any other tenant with the consent of the Bank (if a Letter of Credit or Alternate Credit Facility is in effect) provided that the Company delivers to the Bank (if a Letter of Credit or Alternate Credit Facility is in effect), the Issuer and the Trustee in connection with any such leasing an opinion of Bond Counsel that subsequent to the execution of the lease, interest on the Bonds will remain wholly excludeable from gross income of the Bondholders for federal income tax purposes. No leasing shall relieve the Company from primary liability for any of its tax purposes. No leasing shall relieve the Company from primary liability for any of its obligations hereunder, and in the event of any such leasing the Company shall continue to remain primarily liable for the payment of Loan Repayments and for performance and observance of the other agreements herein on its part to be performed and observed. The Company may assign this Agreement and convey, whether by operation of law or otherwise, the Project with the prior written consent of the Bank (if a Letter of Credit or Alternate Credit Facility is in effect), the Bondholders (if no Letter of Credit or Alternate Credit Facility is in effect) and the Issuer. Any assignee shall assume in writing the obligations of the Company hereunder. The Company shall furnish to the Issuer, the Bank (if a Letter of Credit or Alternate Credit Facility is in effect) and the Trustee a true and complete copy of each assignment or lease, as the case may be, together with, if the lease involves 10% or more of the Project, an opinion of Bond Counsel that such assignment or leasing will not adversely affect the exclusion of interest on the Bonds from gross income for federal income tax purposes. SECTION 9.2. Substitution and Removal of Machinery and Equipment. Except as provided in this Section machinery and equipment comprising part of the Project shall remain on the Land. The Company shall have the privilege of removing any machinery or equipment comprising a part of the Project provided that in the opinion of Bond Counsel, such removal shall not impair the exclusion of interest on the Bonds from gross income for federal income tax purposes. The Company may, at its option, replace such removed machinery and equipment with like or different machinery or equipment. Any such substituted machinery and equipment shall be identified in writing by the Company to the Issuer, the Trustee and the Bank and shall become a part of the Project and be included under the terms of this Agreement. The Company may, with the consent of the Bank, sell any machinery and equipment comprising a portion of the Project without substitution therefore so long as the removal of such machinery and equipment from the Project will not, in the opinion of Bond Counsel, impair the exclusion of interest on the Bonds from gross income for federal income tax purposes. 25 30 SECTION 9.3. Installation of Company's Own Machinery and Equipment. In addition to the Project, the Company may from time to time, in its sole discretion and at its own expense, install additional movable personal property, machinery, equipment or furniture on or in the Project. The Company agrees to pay as due the purchase price of, and all costs and expenses with respect to, the acquisition and installation of any such property installed pursuant to this Section. No such property shall constitute a part of the Project under this Agreement. (End of Article IX) 26 31 ARTICLE X. EVENTS OF DEFAULT AND REMEDIES SECTION 10.1. Events of Default. The following shall be events of default under this Agreement and the terms "Event of Default" or "Default" shall mean, whenever they are used in this Agreement, any one or more of the following events: (a) Failure by the Company to pay the Loan Repayments in the amounts and at the times provided in this Agreement or the Promissory Note; provided, however, that no Event of Default described in this subparagraph (a) shall be deemed to have occurred solely by reason of such failure to make such payments if and to the extent that payments have nonetheless been made by the Bank to the Trustee pursuant to the Letter of Credit for deposit in the Bond Fund at such times and in such manner so as to prevent an event of default described under Section 601(a) or (b) of the Indenture; (b) Failure by the Company to make payments in the amounts and at the times provided in Section 3.4 of this Agreement; provided, however that no Event of Default described in this paragraph (b) shall be deemed to have occurred solely by reason of such failure to make such payments if and to the extent that payments have nonetheless been made by the Bank to the Trustee pursuant to the Letter of Credit for deposit in the Bond Purchase fund at such times and in such manner so as to prevent an event of default described under Section 601(c) of the Indenture; (c) Failure by the Company to observe and perform any other covenant, condition or agreement on its part to be observed or performed herein or in the Promissory Note for a period of thirty (30) days after written notice, specifying such failure and requesting that it be remedied, shall have been given to the Company by the Trustee; provided, however, that if the Company shall be unable to observe or perform any such covenant, condition, undertaking or agreement which, if begun and prosecuted with due diligence, can be completed but not within a period of thirty (30) days, then such period shall be increased to such extent as shall be necessary to enable the Company to observe or perform such covenant, condition, undertaking or agreement through the exercise of due diligence; (d) Any representation or warranty made by the Company in any document delivered by the Company to the Trustee or the Bank or the Issuer in connection with the sale and delivery of the Series 1992 Bonds which proves to be untrue when made in any material respect (subject to cure rights contained in such documents); (e) Occurrence of an Event of Default under the Indenture (provided that remedying such Event of Default under the Indenture shall, ipso facto, remedy such hereunder); or (f) The Company (i) shall generally not pay its debts as they become due, (ii) shall admit in writing its inability to pay its debts generally, (iii) shall make a general assignment for 27 32 the benefit of creditors, (iv) shall institute any proceeding or voluntary case (A) seeking to adjudicate it a bankrupt or insolvent or (B) seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief or protection or debtors or (C) seeking the entry of an order for relief or the appointment of a receiver, trustee, custodian or other similar official for it or for any substantial part of its property, (v) shall take any action to authorize any of the actions described above in this subsection (f), or (vi) shall have instituted against it any proceeding (A) seeking to adjudicate it a bankrupt or insolvent or (B) seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief or protection of debtors or (C) seeking the entry of an order for relief or the appointment of a receiver, trustee, custodian or other similar official for it or for any substantial part of its property, and, if such proceeding is being contested by the Company in good faith, such proceeding shall remain undismissed or unstayed for a period of 120 days. SECTION 10.2. Remedies on Default. Whenever an Event of Default referred to in Section 10.1 hereof shall have occurred and be continuing, and if acceleration of the principal amount of the Series 1992 Bonds has been declared pursuant to Section 602 of the Indenture; (a) The Trustee shall declare all Loan Repayments to be immediately due and payable, whereupon the same shall become immediately due and payable and the Trustee shall thereupon draw up the Letter of Credit in accordance with its terms and the terms of the Indenture; (b) Subject to the reasonable security and safety requirements of the Company, the Trustee may have access to and inspect, examine, and make copies of the books and records of the Company insofar as they relate to the Project or the Event of Default and the remedying thereof; and (c) To the extent of any insufficiency after drawing under the Letter of Credit, the Trustee may pursue all remedies now or hereafter existing at law or in equity to collect all amounts then due and thereafter to become due under this Agreement, the Promissory Note or to enforce the performance of any other obligation or agreement of the Company under such documents. Any amounts collected pursuant to action taken under this Section shall be applied in accordance with Section 607 of the Indenture. Notwithstanding any other provision of this Agreement (except Section 13.2 hereof) or the Indenture, the Issuer shall be entitled to cause the Company to perform the Company's obligations under Sections 3.5, 8.6 and 10.4 hereof for the benefit of the Issuer. SECTION 10.3. No Remedy Exclusive. No remedy conferred upon or reserved to the Issuer or the Trustee by this Agreement is intended to be exclusive of any other available 28 33 remedy or remedies, but each and every such remedy shall be cumulative and shall be in addition to every other remedy given under this Agreement, or the Indenture, or now or hereafter existing at law or in equity. No delay or omission to exercise any right or power accruing upon any Default shall impair any such right or power or shall be construed to be a waiver thereof, but any such right and power may be exercised from time to time and as often as may be deemed expedient. In order to entitle the Issuer or the Trustee to exercise any remedy reserved to it in this Article, it shall not be necessary to give any notice, other than such notice as may be herein expressly required. Notwithstanding any other provision of this Agreement (except Section 13.2 hereof) or the Indenture, the Issuer or the Trustee shall not be entitled to exercise any remedy reserved to it in this Article X without the prior written consent of the Bank, except that the Issuer may after notice to, but without the prior written consent of, the Bank institute an action against the Company to recover any fees or expenses to which the Issuer is entitled under this Agreement. SECTION 10.4. Agreement to Pay Attorneys' Fees and Expenses. In the event that the Issuer, the Bank or the Trustee employs attorneys or incurs other expenses for the enforcement of performance or observance of any obligation or agreement on the part of the Company contained in the Promissory Note, the Placement Agreement or in this Agreement, the Company agrees that it will on demand therefor promptly reimburse the reasonable fees of such attorneys and such other expenses so incurred. SECTION 10.5. No Additional Waiver Implied by One Waiver. In the event any term, condition or covenant contained in this Agreement should be breached by either party and thereafter waived by the other party, such waiver shall be limited to the particular breach so waived and shall not be deemed to waive any other breach hereunder. Because of the assignment of the Issuer's rights and interest in this Agreement to the Trustee under the Indenture, the Issuer shall have no power to waive or release the Company from any Event of Default or the performance or observance of any obligation or condition of the Company under this Agreement without prior written consent of the Trustee and the Bank, but the Issuer shall so waive or release the Company if requested by the Trustee and the Bank, provided the Issuer receives an opinion of its Counsel that such action will not impose any pecuniary obligation or liability or adverse consequence upon the Issuer and the Issuer shall have been provided such indemnification from the Company or the Trustee or the Bank, as the Issuer shall deem necessary. (End of Article X) 29 34 ARTICLE XI. PAYMENT OF SURPLUS BOND PROCEEDS FROM THE BOND FUND SECTION 11.1. Surplus Bond Proceeds. All Surplus Bond Proceeds transferred to the Bond Fund pursuant to the provisions of Section 5.4, Article VIII and Section 9.2 hereof shall be applied by the Trustee at the direction of the Company after the date on which such moneys first become Eligible Funds in the Bond Fund (i) to the purchase of Bonds on the open market for cancellation, or (ii) to the redemption of series 1992 Bonds on the first date on which the Series 1992 Bonds may be called for optional redemption without a premium or penalty as set forth in Section 217(a) of the Indenture. Such excess shall be invested at a yield which will not exceed the yield on the Bonds or, in the opinion of Bond Counsel, will not impair the exclusion of interest on the Series 1992 Bonds from gross income for federal income tax purposes. (End of Article XI) 30 35 ARTICLE XII. THE BONDS SECTION 12.1. Issuance of the Series 1992 Bonds. The obligations of the Issuer and the Company hereunder are expressly conditioned upon the execution of the Placement Agreement, satisfaction or waiver of its terms and conditions, and payment for the Series 1992 Bonds pursuant thereto. SECTION 12.2. Additional Bonds. At the request of the Company and with the prior written consent of the Bank, the Issuer may, but shall not be required to, authorize the issuance of Additional Bonds in accordance with Section 220 of the Indenture. The terms of any Additional Bonds shall be approved by the Company and the Bank in writing. Additional Bonds may be issued only to finance any one or more of the following: (i) the cost of completing the Project; (ii) the costs of making improvements to the Project; (iii) the refunding of all or any part of the Bonds; and (iv) the costs of issuance relating to the Additional Bonds and other costs reasonably related to the financing as shall be agreed upon by the Company and the Issuer. Any improvements to the Project acquired with the proceeds of the Additional Bonds shall become a part of the Project and shall be included under this Agreement. Refusal for any reason by the Issuer to Issue Additional Bonds shall not release the Company from any provisions of this Agreement. The foregoing shall not prohibit the issuance of debt obligations by or for the benefit of the Company under the Indenture. SECTION 12.3. Compliance with Indenture. The Issuer agrees to comply with the covenants, requirements and provisions of the Indenture and perform all of its obligations thereunder. SECTION 12.4. Consent to Issuer's Pledge. The Company hereby acknowledges and consents to the assignment and pledge by the Issuer to the Trustee, for the benefit of the Bondholders, and the Bank, of (i) the Promissory Note; (ii) the moneys deposited to the various funds and accounts hereunder and under the Indenture (including investments); and (iii) all of the Issuer's rights and powers under this Agreement, including the right to receive Loan Repayments (but excluding certain rights of the Issuer as specified in Section 301(iv) of the Indenture) and the right and power to enforce, either jointly with the Issuer or separately, the performance of the obligations of the Company under this Agreement. The Company further acknowledges and consents to the right of the Trustee and the Bank, as the case may be, to enforce all rights of the Issuer and Bondholders assigned under the Indenture. SECTION 12.5. Rights of Trustee Hereunder. The parties hereto recognize and agree that the terms of this Agreement and the enforcement thereof are essential to the security of the Trustee (for the benefit of the Bondholders) and the Bank and are entered into for the benefit of the Trustee (on behalf of the Bondholders) and the Bank. The Trustee (and any assignee or subrogee to the Trustee) and the Bank shall accordingly have contractual rights and duties in this agreement and be entitled to require the enforcement of the terms hereof. 31 36 Except for the rights of the Company set forth in Section 13.1 hereof, the Company and the Issuer each acknowledge that neither the Company nor the Issuer has any interest in the Bond Fund or the Bond Purchase Fund and any moneys deposited therein and that the Bond Fund and the Bond Purchase Fund and any moneys deposited therein shall be in the custody of and held by the Trustee in trust for the benefit of the Bondholders and the Bank as provided in the Indenture. SECTION 12.6. Amendments to Indenture and this Agreement. The Issuer shall not amend nor consent to any amendment to the Indenture or this Agreement except as specified in Article VIII of the Indenture, which Article VIII is incorporated herein by this reference as if it were fully set forth herein. The Company hereby agrees to be bound by the provisions of Article VIII of the Indenture. (End of Article XII) 32 37 ARTICLE XIII. MISCELLANEOUS SECTION 13.1. Amounts Remaining in Funds. Any amounts remaining in the Construction Fund, the Bond Purchase Fund and the Bond Fund upon expiration or sooner cancellation or termination of this Agreement, after the Loan and the Bonds shall be deemed to have been paid and discharged under the provisions of the Indenture and the fees, charges and expenses of the Trustee and all other amounts required to be paid under the Indenture, the Reimbursement Agreement and this Agreement shall have been paid, shall be paid to the Company as an overpayment of the Loan. SECTION 13.2. Rights of the Bank. All rights of the Bank under this Agreement to consent to certain extensions, remedies, waivers, actions and amendments hereunder shall cease, terminate and become null and void (i) for so long as the Bank wrongfully dishonors any draft presented in strict conformity with the Letter of Credit and until it has honored a subsequent draft, if any, thereunder or (ii) if the Letter of Credit is no longer in effect and any and all of the Company's obligations to the Bank pursuant to the Reimbursement Agreement have been paid. SECTION 13.3. Notices. All notices, certificates, requests or other communications hereunder shall be sufficiently given and shall be deemed given when mailed by registered or certified mail, postage prepaid, addressed as follows: If to the Issuer: City of Ligonier, Indiana City Hall 103 West 3rd Street Ligonier, Indiana 46767-1999 Attention: City Attorney Telephone: (219) 894-4113 FAX: (219) 894-3999 If to the Company: Sharon Manufacturing Company c/o Walbro Automotion Corporation 1227 Centre Road P.O. Box 215257 Auburn Hills, Michigan 48326 Attention: Guy Barnicoat Telephone: (313) 856-4151 FAX: (313) 856-2773 33 38 If to the Trustee: Fort Wayne National Bank (Correspondence sent P.O. Box 110 via regular mail) Fort Wayne, Indiana 46801 Attention: Corporate Trust Department Telephone: (219) 426-0555 FAX: (219) 461-6198 If to the Trustee: Fort Wayne National Bank (Correspondence sent 6230 Bluffton Road via Certified, Registered, Fort Wayne, Indiana 46809 Overnight or Couriered Delivery) Attention: Corporate Trust Department Telephone: (219) 426-0555 FAX: (219) 461-6198 If to the Bank: NBD Bank, N.A. 611 Woodward Avenue Detroit, Michigan 48226 Attention: Manager, Commercial Loan Department Telephone: (313) 225-1257 FAX: (313) 225-3074 If to the Placement Agent: First Commerce Capital, a division of Porter, White & Yardley, Inc. 272 Commerce Street Montgomery, Alabama 36104 Attention: Joseph A. Whitehead Telephone: (205) 269-0044 FAX: (205) 262-0179
The Company, the Issuer, the Bank, the Trustee and the Placement Agent may designate, by notice given hereunder, any further or different addresses to which subsequent notices, certificates, requests or other communications shall be sent, but no notice directed to any one such entity shall thereby be required to be sent to more than two addresses. SECTION 13.4. Bondholders' Action. Whenever any consent, approvals, waivers or other actions are required of the Bondholders hereunder, under the Indenture, the Promissory Note or any other instrument or document delivered with respect to the Bonds, such consent shall only be given in compliance with Section 806 of the Indenture. SECTION 13.5. Binding Effect. This Agreement shall inure to the benefit of and shall be binding upon the Issuer, the Company and their respective successors and assigns, subject to the limitation that any obligation of the Issuer created by or arising out of this Agreement 34 39 shall not be a general debt of the Issuer but shall be payable solely out of the Trust Estate, anything herein contained to the contrary by implication or otherwise notwithstanding. SECTION 13.6. Severability. If any clause, provision or section of this Agreement be held illegal or invalid by any court, the invalidity of such clause, provision or section shall not affect any of the remaining clauses, provisions or sections hereof and this Agreement shall be construed and enforced as if such illegal or invalid clause, provision or section had not been contained herein. In case any agreement or obligation contained in this agreement be held to be in violation of law, then such agreement or obligation shall be deemed to be the agreement or obligation of the Issuer or the Company, as the case may be, to the full extent permitted by law. SECTION 13.7. Captions. The captions or headings in this Agreement are for convenience only and in no way define, limit or describe the scope or intent of any provision or sections of this Agreement. SECTION 13.8. Interpretation. This Agreement shall be governed by and interpreted in accordance with the laws of the State. SECTION 13.9. Execution in Counterparts. This Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. (End of Article XIII) 35 40 IN WITNESS WHEREOF, the Issuer has caused this Loan Agreement to be executed in its name by its Mayor, and attested thereto by its Clerk-Treasurer, and said Clerk-Treasurer has caused its corporate seal to be hereunto affixed, and the Company has caused this Loan agreement to be executed in its name by its authorized representative, all as of the date first above written. CITY OF LIGONIER, INDIANA (SEAL) By: ---------------------- Mayor Attest:----------------------- Clerk-Treasurer SHARON MANUFACTURING COMPANY By: ------------------------- Gary Vollmer, Treasurer 36 41 EXHIBIT A COMPLETION CERTIFICATE TO: CITY OF LIGONIER, INDIANA NBD BANK, N.A. FORT WAYNE NATIONAL BANK FROM: SHARON MANUFACTURING COMPANY SUBJECT: LOAN AGREEMENT DATED AS OF THE 1ST DAY OF JUNE, 1992 The undersigned does hereby certify: 1. The acquisition, construction and installation of the Project have been substantially completed in such manner as to conform with all applicable zoning and planning regulations of the governmental authorities having jurisdiction of the Project, as of __________, 19__ (the "Completion Date"). 2. The Costs of the Project have been paid in full except for those not yet due and payable, which are described below and for which moneys for payment thereof are being held in the Construction Fund: Cost of the Project not yet due and payable: Description Amount $__________ Total $__________ 3. The Moneys in the Construction Fund in excess of the totals set forth in 2 above represent Surplus Bond Proceeds and the Trustee is hereby authorized and directed to transfer all such Surplus Bond Proceeds to the Bond Fund pursuant to Section 5.4 of the Loan Agreement. 4. No event of default has occurred under the Promissory Note, the Loan Agreement or the Reimbursement Agreement nor has any event occurred which with the giving of notice or lapse of time or both shall become such an event of default. Nothing has occurred to the knowledge of the Company that would prevent the performance of its obligations under the Promissory Note, the Loan Agreement or the Reimbursement Agreement. 37 42 This certificate is given without prejudice to any rights against third parties which exist at the date hereof or which may subsequently come into being. Executed his _____ day of __________, 19__. SHARON MANUFACTURING COMPANY By: ____________________________________ Its: ____________________________________ 38 43 EXHIBIT B COSTS OF THE PROJECT The following are the estimated costs of the Project paid for out of proceeds of the Bonds: Construction Costs $4,500,000 Machinery and Equipment 1,800,000 Issuance Costs -0- TOTAL $6,300,000
39 44 EXHIBIT C CITY OF LIGONIER, INDIANA PROMISSORY NOTE $6,300,000 Dated as of June 1, 1992 FOR VALUE RECEIVED, Sharon Manufacturing Company, a Michigan corporation (the "Company"), promises to pay to the order of the City of Ligonier, Indiana (the "Issuer"), the principal sum of Six Million Three Hundred Thousand Dollars ($6,300,000) together with (a) interest thereon in an amount sufficient to enable the Issuer to make payment of all interest becoming due and payable on the Issuer's Economic Development Revenue Bonds (Sharon Manufacturing Company Project), Series 1992, dated as of June 12, 1992 (the "Bonds") in the principal amount of Six Million Three Hundred Thousand Dollars ($6,300,000), issued pursuant to a Trust Indenture dated as of June 1, 1992 (the "Indenture") between the Issuer and Fort Wayne National Bank, a national banking association, as Trustee (the "Trustee"), which Indenture and Bonds are incorporated herein by reference and made a part hereof, and (b) such redemption premiums and other amounts as are required to be paid by the Company to the Issuer as Loan Repayments as provided in the Loan Agreement, dated as of June 1, 1992 between the Company and the Issuer (the "Loan Agreement"), which is incorporated herein by reference and made a part hereof. The foregoing amounts shall be paid by means of Loan Repayments which shall be due and payable (less any credits to which the Company may be entitled under the Loan Agreement), in immediately available funds, as follows: A. On or before each date on which a payment of interest is due on the Bonds, the Company shall pay interest in an amount equal to the aggregate unpaid interest due or to become due on the Bonds on such payment date, less any Eligible Funds (as defined in the Indenture) then held by the Trustee in the Bond Fund (as defined in the Indenture) which are then being held for application to the payment of interest on the Bonds in accordance with the Indenture; B. On or before each date on which a payment of principal and premium, if any, is due on the Bonds, whether by maturity, redemption, acceleration or otherwise, the Company shall pay principal and premium, if any, in an amount equal to principal and premium, if any, then due or to become due on the Bonds on such payment date, less any Eligible Funds then held by the Trustee in the Bond Fund, other than those Eligible Funds applied to payment of interest on the Bonds as set forth above, which are then being held for the payment of principal and premium, if any, on the Bonds under the Indenture. 40 45 The Company shall have the option to make advance payments of Loan Repayments, from time to time, which advance payments shall be deposited with the Trustee in the Bond Fund and shall be applied as provided in the Loan Agreement and the Indenture. All payments shall be made in coin or currency of the United States of America in immediately available funds at the principal office of the Trustee, or at the office of any successor trustee. If the Company fails to pay any installment of principal, premium, if any, and interest when due under this Promissory Note and the Trustee fails to receive sufficient moneys pursuant to one or more draws under the Letter of Credit (as defined in the Indenture) to pay any such installment, or upon the occurrence of any one or more of the events of default specified in the Loan Agreement, the Trustee then, or at any time thereafter, may under certain conditions specified in Section 602 of the Indenture give notice to the Company declaring all unpaid amounts then outstanding hereunder or under the Loan Agreement (including all fees), to be due and payable, and thereupon, without further notice or demand, all such amounts shall become and be immediately due and payable. Failure to exercise this option shall not constitute a waiver of the right to exercise the same at any time in the event of any continuing or subsequent default. All payments hereon shall be applied first to accrued interest, then to premium, if any, and then to principal. The undersigned waives demand, protest, presentment for payment and notice of nonpayment and agrees to pay all costs of collection when incurred, including reasonable attorneys' fees, and to perform and comply with each of the covenants, conditions, provisions and agreements of the undersigned contained in every instrument evidencing or securing the indebtedness evidenced hereby. No extension of the time for the payment of this Promissory Note made by agreement with any person now or hereafter liable for the payment of this Promissory Note shall operate to release, discharge, modify, change or affect the original liability under this Promissory Note, either in whole or in part, of the undersigned if not a party to such agreement. This Promissory Note is issued under and is subject to the terms and conditions of the Loan Agreement. 41 46 This Promissory Note and all instruments securing the same are to be construed according to the laws of the State of Indiana. SHARON MANUFACTURING COMPANY By: ____________________________ Gary Vollmer, Treasurer Attest: _____________________ 42 47 ENDORSEMENT Pay to the order of Fort Wayne National Bank, as Trustee under the Trust Indenture dated as of June 1, 1992, without warranty or recourse. CITY OF LIGONIER, INDIANA By: _____________________ Mayor (SEAL) Attest: ________________________________ Clerk-Treasurer 43 48 EXHIBIT D PROJECT DESCRIPTION The construction of an approximate 158,000 square foot manufacturing facility to be located adjacent to County Road 860 W in Noble County, Indiana, on an approximate 20-acre parcel more particularly described below for the production of automobile fuel rails, and the acquisition of furnishings, machinery and equipment to be installed and located therein, including but not limited to brazing furnaces, stamping presses, tool room equipment, parts washer, office furnishings. 44 49 EXHIBIT E REQUISITION CERTIFICATE TO: FORT WAYNE NATIONAL BANK AS TRUSTEE FROM: SHARON MANUFACTURING COMPANY (THE "COMPANY") SUBJECT: LOAN AGREEMENT DATED AS OF THE FIRST DAY OF JUNE, 1992 This represents Requisition Certificate No. _____ in the total amount of $__________ for payment of those Costs of the Project detailed in the schedule attached. The undersigned does certify that: 1. All of the expenditures for which moneys are requested hereby represent proper Costs of the Project, have not been included in a previous Requisition Certificate and have been properly recorded on the Company's books. 2. The moneys requested hereby are not greater than those necessary to meet obligations due and payable or to reimburse the Company for funds actually advanced for Costs of the Project. The moneys requested do not include retention or other moneys not yet due or earned under construction contracts. 3. After payment of moneys hereby requested, there will remain available to the Company (from, among other sources, the Construction Fund) sufficient funds to complete the Project. 4. At least 95% of the sum of the payment herein requested from the Construction Fund and all other payments from the proceeds of the Series 1992 Bonds heretofore and hereafter to be made from the Construction Fund have been and will be used to finance the acquisition and installation of machinery and equipment for the Project, all of which property other than land is of a character subject to the allowance for depreciation under Section 167 of the Code, all of which costs for such property or land were first incurred subsequent to December 16, 1991, and no more than 5% of the sum of the payment herein requested from the Construction Fund and all other payments from the proceeds of the Series 1992 Bonds heretofore and hereafter to be made from the Construction Fund has been or will be used, directly or indirectly, as working capital or to finance inventory or Issuance Costs. 45 50 5. The Company is not in default under the Promissory Note, the Loan Agreement or the Reimbursement Agreement and nothing has occurred to the knowledge of the Company that would prevent the performance of its obligations under the Loan Agreement, the Promissory Note or the Reimbursement Agreement. 6. Delivered herewith are all of the documents in form and content required by Section 5.1 of the Loan Agreement and the following other documents requested by either of you: Executed this _____ day of __________, 19__. SHARON MANUFACTURING COMPANY By: ____________________________________ Its: ____________________________________ 46 51 SCHEDULE TO REQUISITION CERTIFICATE NO. _____ PAYEE AND LOCATION AMOUNT $__________ 47 52 EXHIBIT F LAND The Project site consists of a tract of land located in the Northwest Quarter of Section 22, Township 35 North, Range 8 East, in Noble County, the State of Indiana, as more fully described as follows: Commencing at the Northeast Corner of said Northwest Quarter marked by a Harrison Marker found this survey; thence N. 89E 17' 20" W. (1), along the North line of said Northwest Quarter, for 706.70 feet to the intersection of the center line of Main Street extended with the North line of said Northwest Quarter; thence S. 00E 14' 29" W., along the center line of Main Street Extended, for 1180.36 feet to the point of beginning marked by a RR Spike set this survey; thence continuing S. 00E 14' 29" W., along the center line of Main Street Extended, for 935.00 feet to a RR Spike set this survey at a point that is N. 00E 14' 29" E., a distance of 62.00 feet from the Northeast Corner of a tract of land deeded to Jimmy L. Hill per Noble County Deed Record Book 185, Page 533; thence N. 85E 10' 31" W., parallel to the North line of said tract of land deeded to Jimmy L. Hill, for 970.92 feet to a Rebar set this survey; thence N. 00E 14' 29" E., parallel to the center line of Main Street Extended, for 865.35 feet to a Rebar set this survey; thence S. 89E 17' 20" E., parallel to the North line of said Northwest Quarter, for 967.85 feet to the point of beginning, said tract containing 20.00 Acres, more or less, and being subject to all public road right-of-ways and all easements of record. (1) Basis of Bearing for this survey is the same as that shown on Plat of Survey #35-08-15-01 as prepared by Sexton and Associates. The West line of the Southwest Quarter of Section 15, Township 35 North, Range 8 East was assumed to be North-South. A survey of said tract being represented by Plat of Survey #35-08-22-08 as prepared by Sexton and Associates, 419 North State Street, Kendallville, Indiana 46755. Any apparent encroachments affecting said tract of land are as shown on the Plat of Survey. The above described tract of land does not lie within Zone A Flood Hazard Boundary as shown on the Flood Insurance Rate Map Community-Panel Number 180183-0025B as prepared by the Federal Emergency Management Agency. 48 53 EXHIBIT G NO ACT OF BANKRUPTCY CERTIFICATE TO: City of Ligonier, Indiana (the "Issuer"), Fort Wayne National Bank (the "Trustee") and NBD Bank, N.A. FROM: Sharon Manufacturing Company (the "Company") SUBJECT: $6,300,000 City of Ligonier, Indiana Economic Development Revenue Bonds (Sharon Manufacturing Company Project), Series 1992 The undersigned does hereby certify: 1. That on __________, 19__ (the "Payment Date") the Company made its due and timely Loan Repayment as required by the Loan Agreement and/or moneys were transferred to the Bond Fund for which this certificate is required prior to such moneys becoming Eligible Funds as provided in the Loan Agreement in the amount of $__________. 2. That between the Payment Date and the date hereof not less than __________ (_____) consecutive full calendar days have elapsed prior to and during which period no voluntary or involuntary petition in bankruptcy (or other commencement of a bankruptcy or similar proceeding) has been filed by or against the Company as debtor under any applicable bankruptcy, insolvency, reorganization or similar law, now or hereafter in effect. The Company acknowledges that the Trustee may conclusively rely on this Certificate. Under penalties of perjury, this Certificate has been executed this _____ day of __________, 19__, by the duly authorized officers of the Company. ____________________________________ Company 49 EX-4.27 6 EXHIBIT 4.27 1 EXHIBIT 4.27 Financing and Security Agreement Dated May 29, 1998 By and Between WALBRO CORPORATION and Subsidiaries and NationsBank, N. A., as Administrative Agent and Lender 2 FINANCING AND SECURITY AGREEMENT 1 RECITALS 1 AGREEMENTS 1 ARTICLE I DEFINITIONS 1 SECTION 1.1 CERTAIN DEFINED TERMS. 1 SECTION 1.2 ACCOUNTING TERMS AND OTHER DEFINITIONAL PROVISIONS. 29 ARTICLE II THE CREDIT FACILITIES 30 SECTION 2.1 THE REVOLVING CREDIT FACILITY. 30 2.1.1 Revolving Credit Facility. 30 2.1.2 Procedure for Making Advances Under the Revolving Loans; Lender Protection Loans. 31 2.1.3 Borrowing Base. 33 2.1.4 Borrowing Base Report. 34 2.1.5 Revolving Credit Notes. 34 2.1.6 Mandatory Prepayments of Revolving Loan. 35 2.1.7 Optional Prepayments of Revolving Loan. 35 2.1.8 The Collateral Accounts. 35 2.1.9 Revolving Loan Account. 37 2.1.10 Revolving Credit Unused Line Fee. 37 2.1.11 Early Termination Fee. 38 2.1.12 Required Availability under the Revolving Credit Facility. 39 SECTION 2.2 THE LETTER OF CREDIT FACILITY. 39 2.2.1 Letters of Credit. 39 2.2.2 Letter of Credit Fees. 40 2.2.3 Terms of Letters of Credit; Post-Expiration Date Letters of Credit. 40 2.2.4 Procedures for Letters of Credit. 42 2.2.5 Payments of Letters of Credit. 42 2.2.6 Change in Law; Increased Cost. 43 2.2.7 General Letter of Credit Provisions. 44 2.2.8 Participations in the Letters of Credit. 45 2.2.9 Payments by the Lenders to the Appropriate Letter of Credit Issuer. 45 SECTION 2.3 MULTI-CURRENCY PARTICIPATIONS. 47 2.3.1 Multi-Currency Participants. 47 2.3.2 Representations of Multi-Currency Lender and Multi-Currency Letter of Credit Issuer. 48 2.3.3 Standing of Multi-Currency Participant. 49 2.3.4 Reports of Multi-Currency Agent 49 SECTION 2.4 THE CAPITAL EXPENDITURE LINE FACILITY. 50 2.4.1 Capital Expenditure Line Facility. 50 2.4.2 Procedure for Making Advances Under the Capital Expenditure Line. 50 2.4.3 Capital Expenditure Line Notes. 51 2.4.4 Payments of Capital Expenditure Line. 52 2.4.5 Optional Prepayments of Capital Expenditure Line. 52 2.4.6 Application of Capital Expenditure Line Partial Prepayments. 52 SECTION 2.5 INTEREST. 53 2.5.1 Applicable Interest Rates. 53 2.5.2 Selection of Interest Rates. 54 2.5.3 Inability to Determine Eurodollar Base Rate. 56 2.5.4 Indemnity. 56 2.5.5 Payment of Interest. 57 SECTION 2.6 GENERAL FINANCING PROVISIONS. 57
- i - 3 2.6.1 Borrowers' Representatives. 57 2.6.2 Computation of Interest and Fees. 59 2.6.3 Liens; Setoff. 59 2.6.4 Requirements of Law. 60 2.6.5 Administrative Agency Fees. 60 2.6.6 Origination Fee. 60 2.6.7 Funds Transfer Services. 60 2.6.8 Guaranty. 62 SECTION 2.7 SETTLEMENT AMONG LENDERS. 65 2.7.1 Capital Expenditure Line. 65 2.7.2 Revolving Loan. 65 2.7.3 Settlement Procedures as to Revolving Loan. 65 2.7.4 Settlement of Other Obligations. 68 2.7.5 Presumption of Payment. 69 SECTION 2.8 ASSESSMENTS; WITHHOLDING. 70 2.8.1 Payment of Assessments. 70 2.8.2 Indemnification. 70 2.8.3 Receipts. 71 2.8.4 Foreign Bank Certifications. 71 ARTICLE III THE COLLATERAL 73 SECTION 3.1 DEBT AND OBLIGATIONS SECURED. 73 SECTION 3.2 GRANT OF LIENS. 73 SECTION 3.3 COLLATERAL DISCLOSURE LIST. 74 SECTION 3.4 ADDITIONAL COLLATERAL. 74 SECTION 3.5 RECORD SEARCHES. 75 SECTION 3.6 COSTS. 75 SECTION 3.7 RELEASE. 75 SECTION 3.8 INCONSISTENT PROVISIONS. 76 ARTICLE IV REPRESENTATIONS AND WARRANTIES 76 SECTION 4.1 REPRESENTATIONS AND WARRANTIES. 76 4.1.1 Subsidiaries. 76 4.1.2 Good Standing. 76 4.1.3 Power and Authority. 76 4.1.4 Binding Agreements. 77 4.1.5 No Conflicts. 77 4.1.6 No Defaults, Violations. 77 4.1.7 Compliance with Laws. 77 4.1.8 Margin Stock. 77 4.1.9 Investment Company Act; Margin Securities. 78 4.1.10 Litigation. 78 4.1.11 Financial Condition. 78 4.1.12 Full Disclosure. 78 4.1.13 Indebtedness for Borrowed Money. 79 4.1.14 Subordinated Debt. 79 4.1.15 Taxes. 4.1.16 ERISA. 4.1.17 Title to Properties. 80 4.1.18 Patents, Trademarks, Etc. 80 4.1.19 Employee Relations. 80 4.1.20 Presence of Hazardous Materials or Hazardous Materials Contamination. 81 4.1.21 Perfection and Priority of Collateral. 81 4.1.22 Places of Business and Location of Collateral. 81
- ii - 4 4.1.23 Business Names and Addresses. 82 4.1.24 Capital Expenditure Line Equipment. 82 4.1.25 Inventory. 82 4.1.26 Accounts. 82 4.1.27 Assigned Local Currency Receivables. 82 4.1.28 Compliance with Eligibility Standards. 83 4.1.29 Year 2000 Compliance 83 SECTION 4.2 SURVIVAL; UPDATES OF REPRESENTATIONS AND WARRANTIES. 83 ARTICLE V CONDITIONS PRECEDENT 84 SECTION 5.1 CONDITIONS TO THE INITIAL ADVANCE AND INITIAL LETTER OF CREDIT. 84 5.1.1 Organizational Documents - Domestic Borrowers. 84 5.1.2 Opinion of Domestic Borrowers' Counsel. 85 5.1.3 Opinion of Local Currency Borrowers' Counsel. 85 5.1.4 Consents, Licenses, Approvals, Etc. 85 5.1.5 Notes. 85 5.1.6 Financing Documents and Collateral. 85 5.1.7 Additional Financial Matters. 86 5.1.8 Solvency Certificate. 86 5.1.9 Other Financing Documents. 86 5.1.10 Other Documents, Etc. 86 5.1.11 Payment of Fees. 86 5.1.12 Collateral Disclosure List. 86 5.1.13 Recordings and Filings. 86 5.1.14 Insurance Certificate. 87 5.1.15 Landlord's Waivers. 87 5.1.16 Bailee Acknowledgements. 87 5.1.17 Field Examination. 87 5.1.18 Stock Certificates and Stock Powers. 87 5.1.19 Collateral Account Acknowledgments. 87 SECTION 5.2 CONDITIONS TO ADVANCES AND LETTERS OF CREDIT FOR LOCAL CURRENCY BORROWERS. 87 5.2.1 Organizational Documents - Local Currency Borrowers. 88 5.2.2 Opinion of Local Currency Borrowers' Counsel. 89 5.2.3 Consents, Licenses, Approvals, Etc. 89 SECTION 5.3 CONDITIONS TO MULTI-CURRENCY LOANS AND MULTI-CURRENCY LETTERS OF CREDIT. 89 SECTION 5.4 CONDITIONS TO ALL EXTENSIONS OF CREDIT. 89 5.4.1 Compliance. 89 5.4.2 Borrowing Base. 89 5.4.3 Default. 90 5.4.4 Representations and Warranties. 90 5.4.5 Adverse Change. 90 5.4.6 Legal Matters. 90 ARTICLE VI COVENANTS OF THE BORROWERS 90 SECTION 6.1 AFFIRMATIVE COVENANTS. 90 6.1.1 Financial Statements. 90 6.1.2 Reports to SEC and to Stockholders. 93 6.1.3 Recordkeeping, Rights of Inspection, Field Examination, Etc. 93 6.1.4 Corporate Existence. 94 6.1.5 Compliance with Laws. 94 6.1.6 Preservation of Properties. 94 6.1.7 Line of Business. 94 6.1.8 Insurance. 95
- iii - 5 6.1.9 Taxes. 95 6.1.10 ERISA. 95 6.1.11 Notification of Events of Default and Adverse Developments. 96 6.1.12 Hazardous Materials; Contamination. 97 6.1.13 Disclosure of Significant Transactions. 97 6.1.14 Financial Covenants. 98 6.1.15 Collection of Receivables. 98 6.1.16 Assignments of Receivables. 99 6.1.17 Government Accounts. 99 6.1.18 Notice of Returned Goods, etc. 100 6.1.19 Inventory. 100 6.1.20 Insurance With Respect to Capital Expenditure Line Equipment and Inventory. 100 6.1.21 Maintenance of the Collateral. 101 6.1.22 Assigned Local Currency Receivables 101 6.1.23 Capital Expenditure Line Equipment. 101 6.1.24 Defense of Title and Further Assurances. 102 6.1.25 Business Names; Locations. 102 6.1.26 Subsequent Opinion of Counsel as to Recording Requirements. 103 6.1.27 Use of Premises and Equipment. 103 6.1.28 Protection of Collateral. 103 SECTION 6.2 NEGATIVE COVENANTS. 104 6.2.1 Mergers, Acquisition or Sale of Assets. 104 6.2.2 Subsidiaries. 104 6.2.3 Purchase or Redemption of Securities, Dividend Restrictions. 104 6.2.4 Indebtedness for Borrowed Money. 104 6.2.5 Investments, Loans and Other Transactions. 105 6.2.6 Stock of Subsidiaries. 106 6.2.7 Subordinated Indebtedness. 106 6.2.8 Liens. 107 6.2.9 Transactions with Affiliates. 107 6.2.10 Other Businesses. 107 6.2.11 ERISA Compliance. 107 6.2.12 Prohibition on Hazardous Materials. 108 6.2.13 Method of Accounting; Fiscal Year. 108 6.2.14 Compensation. 108 6.2.15 Transfer of Collateral. 108 6.2.16 Sale and Leaseback. 108 6.2.17 Disposition of Collateral. 109 ARTICLE VII DEFAULT AND RIGHTS AND REMEDIES 109 SECTION 7.1 EVENTS OF DEFAULT. 109 7.1.1 Failure to Pay. 109 7.1.2 Breach of Representations and Warranties. 109 7.1.3 Failure to Comply with Covenants. 109 7.1.4 Default Under Other Financing Documents or Obligations. 110 7.1.5 Receiver; Bankruptcy. 110 7.1.6 Involuntary Bankruptcy, etc. 110 7.1.7 Judgment. 111 7.1.8 Execution; Attachment. 111 7.1.9 Default Under Other Borrowings. 111 7.1.10 Challenge to Agreements. 111 7.1.11 Material Adverse Change. 111 7.1.12 Liquidation, Termination, Dissolution, Change in Control etc. 111 7.1.13 Change in Control. 112 SECTION 7.2 REMEDIES. 112
- iv - 6 7.2.1 Acceleration. 112 7.2.2 Further Advances. 112 7.2.3 Uniform Commercial Code. 112 7.2.4 Specific Rights With Regard to Collateral. 113 7.2.5 Application of Proceeds. 115 7.2.6 Performance by Administrative Agent. 115 7.2.7 Other Remedies. 115 ARTICLE VIII THE AGENT 116 SECTION 8.1 APPOINTMENT. 116 SECTION 8.2 NATURE OF DUTIES. 116 8.2.1 In General 116 8.2.2 Express Authorization 117 SECTION 8.3 RIGHTS, EXCULPATION, ETC. 118 SECTION 8.4 RELIANCE. 119 SECTION 8.5 INDEMNIFICATION. 119 SECTION 8.6 NATIONSBANK INDIVIDUALLY. 119 SECTION 8.7 SUCCESSOR ADMINISTRATIVE AGENT. 120 8.7.1 Resignation. 120 8.7.2 Appointment of Successor. 120 8.7.3 Successor Agents. 120 SECTION 8.8 COLLATERAL MATTERS. 121 8.8.1 Release of Collateral, Guaranties. 121 8.8.2 Confirmation of Authority, Execution of Releases. 122 8.8.3 Absence of Duty. 122 SECTION 8.9 AGENCY FOR PERFECTION. 123 SECTION 8.10 EXERCISE OF REMEDIES. 123 SECTION 8.11 CONSENTS. 123 SECTION 8.12 DISSEMINATION OF INFORMATION. 123 SECTION 8.13 DISCRETIONARY ADVANCES. 124 ARTICLE IX MISCELLANEOUS 124 SECTION 9.1 NOTICES. 124 SECTION 9.2 AMENDMENTS; WAIVERS. 125 9.2.1 In General. 125 9.2.2 Circumstances Where Consent of all of the Lenders is Required. 126 SECTION 9.3 CUMULATIVE REMEDIES. 127 SECTION 9.4 SEVERABILITY. 128 SECTION 9.5 ASSIGNMENTS BY LENDERS. 128 SECTION 9.6 PARTICIPATIONS BY LENDERS. 129 SECTION 9.7 DISCLOSURE OF INFORMATION BY LENDERS. 129 SECTION 9.8 SUCCESSORS AND ASSIGNS. 129 SECTION 9.9 CONTINUING AGREEMENTS. 129 SECTION 9.10 ENFORCEMENT COSTS. 130 SECTION 9.11 APPLICABLE LAW; JURISDICTION. 130 9.11.1 Applicable Law. 130 9.11.2 Submission to Jurisdiction. 131 9.11.3 Appointment of Administrative Agent for Service of Process. 131 9.11.4 Service of Process. 131 SECTION 9.12 DUPLICATE ORIGINALS AND COUNTERPARTS. 131 SECTION 9.13 HEADINGS. 132 SECTION 9.14 NO AGENCY. 132 SECTION 9.15 DATE OF PAYMENT. 132 SECTION 9.16 ENTIRE AGREEMENT. 132
- v - 7 SECTION 9.17 WAIVER OF TRIAL BY JURY. 132 SECTION 9.18 LIABILITY OF THE ADMINISTRATIVE AGENT AND THE LENDERS. 133 SECTION 9.19 INDEMNIFICATION. 133 SECTION 9.20 CONFIDENTIALITY. 134 LIST OF SCHEDULES 138 SCHEDULE 1.1-A DOMESTIC BORROWERS 138 SCHEDULE 1.1-B LOCAL CURRENCY BORROWERS 138
- vi - 8 FINANCING AND SECURITY AGREEMENT THIS FINANCING AND SECURITY AGREEMENT (this "Agreement") is made this 29th day of May, 1998, by and among WALBRO CORPORATION, a corporation organized under the laws of the State of Delaware (the "Parent"), and each corporation identified on Schedule 1.1-A attached to and made a part of this Agreement (each a "Domestic Borrower," collectively, the "Domestic Borrowers"), jointly and severally (each of Parent and each Domestic Borrower, a "Borrower"; Parent and the Domestic Borrowers collectively, the "Borrowers"); and NATIONSBANK, N. A., a national banking association ("NationsBank"), and each other Person which is a party to this Agreement whether by execution of this Agreement or otherwise as a lender (collectively, the "Lenders" and individually, a "Lender"); NATIONSBANK, N. A., a national banking association, in its capacity as both collateral and administrative agent for each of the Lenders (the "Administrative Agent"). RECITALS A. The Borrowers have applied to the Lenders for credit facilities consisting of (i) a revolving credit facility in the maximum principal amount of $125,000,000 and (iii) a capital expenditure line facility in the maximum principal amount of $25,000,000, to be used by the Borrowers for the Permitted Uses described in this Agreement. B. The Lenders severally are willing to make those credit facilities available jointly and severally to the Borrowers upon the terms and subject to the conditions set forth in this Agreement. AGREEMENTS NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereby agree as follows: ARTICLE I DEFINITIONS Section 1.1 Certain Defined Terms. As used in this Agreement, the terms defined in the Preamble and Recitals hereto shall have the respective meanings specified therein, and the following terms shall have the following meanings: "Account" individually and "Accounts" collectively mean all presently existing or hereafter acquired or created accounts, accounts receivable, contract rights, notes, drafts, instruments, acceptances, chattel paper, leases and writings evidencing a monetary obligation or a security interest in, or a lease of, goods, all rights to receive the payment of money or other consideration under present or future contracts (including, without limitation, all rights to receive payments under presently existing or hereafter acquired or created letters of credit), or by virtue 9 of merchandise sold or leased, services rendered, loans and advances made or other considerations given, by or set forth in or arising out of any present or future chattel paper, note, draft, lease, acceptance, writing, bond, insurance policy, instrument, document or general intangible, and all extensions and renewals of any thereof, all rights under or arising out of present or future contracts, agreements or general interest in merchandise which gave rise to any or all of the foregoing, including all goods, all claims or causes of action now existing or hereafter arising in connection with or under any agreement or document or by operation of law or otherwise, all collateral security of any kind (including, without limitation, real property mortgages and deeds of trust) and letters of credit given by any Person with respect to any of the foregoing, all books and records in whatever media (paper, electronic or otherwise) recorded or stored, with respect to any or all of the foregoing and all equipment and general intangibles necessary or beneficial to retain, access and/or process the information contained in those books and records, and all proceeds (cash and non-cash) of the foregoing. "Account Debtor" means any Person who is obligated on a Receivable and "Account Debtors" mean all Persons who are obligated on the Receivables. "Additional Borrower" means each Person that has executed and delivered an Additional Borrower Joinder Supplement that has been accepted and approved by the Administrative Agent. "Additional Borrower Joinder Supplement" means an Additional Borrower Joinder Supplement in substantially the form attached hereto as Exhibit A, with the blanks appropriately completed and executed and delivered by the Additional Borrower and accepted by the Parent on behalf of the Borrowers. "Administrative Agency Fee" and "Administrative Agency Fees" have the meanings described in Section 2.6.5 (Administrative Agency Fees). "Affiliate" means, with respect to any designated Person, any other Person, (a) directly or indirectly controlling, directly or indirectly controlled by, or under direct or indirect common control with the Person designated, (b) directly or indirectly owning or holding five percent (5%) or more of any equity interest in such designated Person, or (c) five percent (5%) or more of whose stock or other equity interest is directly or indirectly owned or held by such designated Person. For purposes of this definition, the term "control" (including with correlative meanings, the terms "controlling", "controlled by" and "under common control with") means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities or other equity interests or by contract or otherwise. "Administrative Agent" means the Person defined as the "Administrative Agent" in the preamble of this Agreement and shall also include any successor Administrative Agent appointed pursuant to Section 8.7.3 (Successor Agents). "Agent" means the reference to the Administrative Agent, the Syndication Agent, the Multi-Currency Agent, or any other Person designated from time to time as an "Agent" under this Agreement, as the case may be and each of their respective successors and assigns; and "Agent" means each of the Administrative Agent, the Syndication Agreement, the Multi- - 2 - 10 Currency Agent and any other Person designated as an "Agent" under this Agreement and each of their respective successors and assigns. "Agents' Obligations" means the collective reference to any and all Obligations payable solely to and for the exclusive benefit of any one or more of the Agents by any or all of the Borrowers under the terms of this Agreement and/or any of the other Financing Documents, including, without limitation, Interest Rate Exposure, Foreign Exchange Exposure, the Origination Fee, any and all Letter of Credit Fronting Fees, and/or Administrative Agency Fees. "Agreement" means this Financing and Security Agreement, as amended, restated, supplemented or otherwise modified in writing in accordance with the provisions of Section 9.2 (Amendments; Waivers). "Applicable Interest Rate" means (a) the Eurodollar Rate, or (b) the Base Rate. "Applicable Margin" means the applicable rate per annum added, as set forth in Section 2.5.1 (Applicable Interest Rates), to the Eurodollar Base Rate or the Prime Rate. "Appropriate Letter of Credit Issuer" means, at any time, with respect to matters relating to US Letters of Credit, the US Letter of Credit Issuer and, with respect to matters relating to Multi-Currency Letters of Credit issued for the account of any Local Currency Borrower, the Multi-Currency Letter of Credit Issuer. "Appropriate Notice Office" shall mean with respect (i) to US Revolving Loans and US Letters of Credit and funding of participations in Multi-Currency Revolving Loans or Current Letter of Credit Obligations, the office of the Administrative Agent located at 100 South Charles Street, 4th Floor, Baltimore, Maryland 21201, Attention: David B. Thayer, or such other office or person as the Administrative Agent may designate to the Borrowers and the Lenders from time to time and (ii) Multi-Currency Revolving Loans and Multi-Currency Letters of Credit denominated in any Currency, the office of the Multi-Currency Agent as the Multi-Currency Agent may designate to the Local Currency Borrowers and the Lenders from time to time. "Appropriate Payment Office" shall mean with respect (i) to US Revolving Loans, US Letters of Credit and funding of participations in Multi-Currency Revolving Loans or Current Letter of Credit Obligations, the office of the Administrative Agent located at 100 South Charles Street, 4th Floor, Baltimore, Maryland 21201, Attention: David B. Thayer or such other office or person as the Administrative Agent may designate to the Borrowers and the Lenders from time to time, and (ii) Multi-Currency Revolving Loans and Multi-Currency Letters of Credit denominated in any Currency, the office of the Multi-Currency Agent as the Multi-Currency Agent may designate to the Local Currency Borrowers and the Lenders from time to time. "Approved Foreign Currency" means each of Irish Pounds, Pounds Sterling, French Francs, German Marks, Japanese Yen, Belgian Francs and such other currencies as shall be agreed among the relevant Local Currency Borrower, the Parent, the Multi-Currency Agent and the Agent from time to time and shall also mean, as applicable, the European Monetary Unit or such other European common currency unit equivalent thereof. - 3 - 11 "Assessments" has the meaning set forth in Section 2.8.1(a). "Assets" means at any date all assets that, in accordance with GAAP consistently applied, should be classified as assets on a consolidated balance sheet of the Borrowers and their respective Subsidiaries. "Assigned Local Currency Receivable" means each account of a Local Currency Borrower (a) which is the subject of an assignment which (i) is valid, binding and enforceable according to its terms, (ii) assigns to the Parent absolutely all right, title and interest in the Account free and clear of all claims of creditors, the Local Currency Borrower (including, without limitation, its successors, assigns, and others who at any time derive any interest from the Account Debtor) Governmental Authority and all other Persons whatsoever, and (iii) entitles the Parent under all applicable Laws to collect and enforce the Account directly against the Account Debtor without any limitation whatsoever (including, without limitation, any requirement for notice or filing) which has not been accomplished, (b) which is subject to no Liens other than Liens arising under the Security Documents, (c) the assignment of which complies with all applicable Laws and does not constitute a breach of any agreement of the Local Currency Borrower, the Parent or any of the other Borrowers, and (d) which immediately upon assignment is subject to a Lien in favor of the Administrative Agent, for the benefit of the Lenders ratably and the Agents, which Lien is perfected as to the account by the filing of financing statements in the State of Michigan naming the Parent only as debtor and which Lien constitutes a first priority security interest and Lien. "Assignee" means any Person to which any Lender assigns all or any portion of its interests under this Agreement, any Commitment, and any Loan, in accordance with the provisions of Section 9.5 (Assignments by Lenders), together with any and all successors and assigns of such Person; "Assignees" means the collective reference to all Assignees. "Assignments of Patents" means the collective reference to each collateral assignment of patents, as the same may be amended, modified, restated, substituted, extended and renewed at any time and from time to time, from the Parent to the Administrative Agent for the benefit of the Lenders ratably and the Agents. "Assignments of Purchase Agreement" means the collective reference to each collateral assignment of Purchase Agreement, as the same may be amended, modified, restated, substituted, extended and renewed at any time and from time to time, identified on Schedule 1.1- C attached to and made and made a part of this Agreement. "Assignments of Trademarks" means the collective reference to each collateral assignment of trademarks, as the same may be amended, modified, restated, substituted, extended and renewed at any time and from time to time, from the Parent to the Administrative Agent for the benefit of the Lenders ratably and the Agents. "Bankruptcy Code" means the United States Bankruptcy Code, as amended from time to time, and any successor Laws. "Base Rate" means the sum of (a) the Applicable Margin plus (b) the Prime Rate. - 4 - 12 "Base Rate Loan" means any Loan for which interest is to be computed with reference to the Base Rate. "Borrower" means each Person defined as a "Borrower" in the preamble of this Agreement and each Additional Borrower; "Borrowers" means the collective reference to all Persons defined as "Borrowers" in the preamble to this Agreement and all Additional Borrowers. "Borrowing" means the incurrence of one Type of Loan by any Borrower from all of the Lenders on a pro rata basis on a given date (or resulting from conversions on a given date), having in the case of Eurodollar Loans the same Interest Period. "Borrowing Base" has the meaning described in Section 2.1.3 (Borrowing Base). "Borrowing Base Deficiency" has the meaning described in Section 2.1.3 (Borrowing Base). "Borrowing Base Report" has the meaning described in Section 2.1.4 (Borrowing Base Report). "Business Day" shall mean (i) for all purposes other than as covered by clauses (ii) and (iii) below, any day excluding Saturday, Sunday and any day which shall be in Baltimore, Maryland or in the case of the Lenders other than NationsBank, in the jurisdictions identified in the addresses stated after their names on the signature pages of this Agreement, designated as a legal holiday or a day on which banking institutions are authorized by law or other governmental actions to close, (ii) with respect to all notices and determinations in connection with, and payments of principal and interest on, Eurodollar Loans, any day which is a Business Day described in clause (i) and which is also a day for trading by and between banks in US dollar deposits in the London interbank Eurodollar market, and (iii) if the applicable Business Day relates to any Multi-Currency Loans or Multi-Currency Letters of Credit, any day on which banks are not required or authorized to close in the city of the jurisdiction of such Currency where the Appropriate Payment Office for such Currency is located. "Capital Expenditure" means an expenditure (whether payable in cash or other property or accrued as a liability) for assets which are required to be included in or reflected by, the property, plant and equipment or similar fixed asset accounts on the balance sheet prepared in accordance with GAAP. "Capital Expenditure Line" has the meaning described in Section 2.4.1 (Capital Expenditure Line Facility). "Capital Expenditure Line Commitment" means the agreement of a Lender relating to the making the Capital Expenditure Line and advances thereunder subject to and in accordance with the provisions of this Agreement; and "Capital Expenditure Line Commitments" means the collective reference to the Capital Expenditure Line Commitment of each of the Lenders. "Capital Expenditure Line Commitment Period" means the period of time from the Closing Date to the earlier of March 31, 2003 or the Capital Expenditure Line Termination Date. - 5 - 13 "Capital Expenditure Line Committed Amount" has the meaning described in Section 2.4.1 (Capital Expenditure Line Facility). "Capital Expenditure Line Equipment" means all equipment, machinery, furniture, and fixtures now or hereafter purchased or financed with the proceeds of the Capital Expenditure Line, whether or not the same shall be deemed to be affixed to real property, together with all accessions, additions, fittings, accessories, parts, special tools, improvements thereto and substitutions therefor and all parts and equipment which may be attached to or which are necessary or beneficial for the operation, use and/or disposition of such personal property, all licenses, warranties, franchises and general intangibles related thereto or necessary or beneficial for the operation, use and/or disposition of the same, together with all Accounts, chattel paper, instruments and other consideration received by any Borrower on account of the sale, lease or other disposition of all or any part of the foregoing, and together with all rights under or arising out of present or future documents and contracts relating to the foregoing and all proceeds (cash and non-cash) of the foregoing. "Capital Expenditure Line Expiration Date" means May 1, 2003. "Capital Expenditure Line Facility" means the facility established by the Lenders pursuant to Section 2.4.1 (Capital Expenditure Line Facility). "Capital Expenditure Line Note" and "Capital Expenditure Line Notes" have the meaning described in Section 2.4.3 (Capital Expenditure Line Notes). "Capital Expenditure Line Notice" has the meaning described in Section 2.4.2. "Capital Expenditure Line Optional Prepayment" and "Capital Expenditure Line Optional Prepayments" have the meanings described in Section 2.4.5 (Capital Expenditure Line Optional Prepayment). "Capital Expenditure Line Pro Rata Share" has the meaning described in Section 2.4.1 (Capital Expenditure Line Facility). "Capital Expenditure Line Payment Schedule" has the meaning described in Section 2.4.4 (Payments of Capital Expenditure Line). "Capital Expenditure Line Termination Date" means the earlier of (a) the Capital Expenditure Line Expiration Date, or (b) the Revolving Credit Termination Date. "Capital Lease" means with respect to any Person any lease of real or personal property, for which the related Lease Obligations have been or should be, in accordance with GAAP consistently applied, capitalized on the balance sheet of that Person. "Cash Equivalents" means (a) securities with maturities of one year or less from the date of acquisition issued or fully guaranteed or insured by the United States Government or any agency thereof, (b) certificates of deposit with maturities of one (1) year or less from the date of acquisition of, or money market accounts maintained with, the Administrative Agent, any - 6 - 14 Affiliate of the Administrative Agent, or any other domestic commercial bank having capital and surplus in excess of One Hundred Million Dollars ($100,000,000.00) or such other domestic financial institutions or domestic brokerage houses to the extent disclosed to, and approved by, the Administrative Agent and (c) commercial paper of a domestic issuer rated at least either A-1 by Standard & Poor's Corporation (or its successor) or P-1 by Moody's Investors Service, Inc. (or its successor) with maturities of six (6) months or less from the date of acquisition. "Closing Date" means the Business Day, in any event not later than May 29, 1998, on which the Administrative Agent shall be satisfied that the conditions precedent set forth in Section 5.1 (Conditions to Initial Advance) have been fulfilled or otherwise waived by the Administrative Agent. "Collateral" means all property of each and every Borrower subject from time to time to the Liens of this Agreement, any of the Security Documents and/or any of the other Financing Documents, together with any and all cash and non-cash proceeds and products thereof. "Collateral Account" has the meaning described in Section 2.1.8 (The Collateral Account). "Collateral Disclosure List" has the meaning described in Section 3.3 (Collateral Disclosure List). "Collection" means each check, draft, cash, money, instrument, item, and other remittance in payment or on account of payment of the Accounts or otherwise with respect to any Collateral, including, without limitation, cash proceeds of any returned, rejected or repossessed goods, the sale or lease of which gave rise to an Account, and other proceeds of Collateral; and "Collections" means the collective reference to all of the foregoing. "Commitment" means with respect to each Lender, such Lender's Revolving Credit Commitment, the Letter of Credit Commitment, and Capital Expenditure Line Commitment as the case may be, and "Commitments" means the collective reference to the Revolving Credit Commitments and Capital Expenditure Line Commitments of all of the Lenders. "Committed Amount" means with respect to each Lender, such Lender's Revolving Loan Committed Amount or Capital Expenditure Line Committed Amount, as the case may be, and "Committed Amounts" means collectively the Revolving Loan Committed Amount and Capital Expenditure Line Committed Amount of each of the Lenders. "Compliance Certificate" means a periodic Compliance Certificate described in Section 6.1.1 (Financial Statements). "Commonly Controlled Entity" means an entity, whether or not incorporated, which is under common control with any Borrower within the meaning of Section 414(b) or (c) of the Internal Revenue Code. "Consolidated Net Income" shall mean, for any period, net income or loss (income after tax payments) determined on a consolidated basis for Borrowers and their Subsidiaries in - 7 - 15 accordance with GAAP; provided, however, that there shall not be included in such Consolidated Net Income: (i) any net income of any person if such person is not a Subsidiary, except that equity in the net income of such person for such period shall be included in such Consolidated Net Income up to the aggregate amount of cash actually distributed by such person as a dividend or other distribution (subject, in the case of a dividend or other distribution to a Subsidiary, to the limitation contained in clause (iii) below); (ii) any net income of any person acquired in a pooling of interest transaction for any period prior to the date of such acquisition; (iii) any net income of any Subsidiary if such Subsidiary is subject to restrictions, directly or indirectly, on the payment of dividends or the making of distributions by such Subsidiary, directly or indirectly, to the Parent, except that equity in the net income of any such Subsidiary for such period shall be included in such Consolidated Net Income up to the aggregate amount of cash actually distributed by such Subsidiary during such period as a dividend or other distribution; (iv) any gain or loss realized upon the sale or other disposition of any property, plant or equipment (including pursuant to any sale-leaseback arrangement) which is not sold or otherwise disposed of in the ordinary course of business and any gain or loss realized upon the sale or other disposition of any capital stock of any person; gains or losses arising solely from currency fluctuations; or (v) other extraordinary items including, without limitation, one-time charges for the fourth quarter of fiscal year 1997. "Credit Facility" means with respect to each Lender, such Lender's Pro Rata Share of the Revolving Credit Facility, the Letter of Credit Facility or the Capital Expenditure Line Facility, as the case may be, and "Credit Facilities" means collectively with respect to each Lender, such Lender's Pro Rata Share of the Revolving Credit Facility, the Letter of Credit Facility and the Capital Expenditure Line Facility and any and all other credit facilities now or hereafter extended under or secured by this Agreement. "Currency" means US Dollars or any Approved Foreign Currency. "Default" means an event which, with the giving of notice or lapse of time, or both, could or would constitute an Event of Default under the provisions of this Agreement. "Dollar Equivalent" means, with respect to any amount denominated in a currency other than Dollars on the date of determination thereof, the Foreign Currency Equivalent of such amount in US Dollars. - 8 - 16 "Dollars" and "$" mean the lawful money of the United States of America. "Domestic Borrower" means each of the Parent and each Domestic Borrower, as the case may be and each of their respective successors and assigns, and "Domestic Borrowers" means the Parent and each of the Domestic Borrowers and each of their respective successors and assigns. "Early Termination Fee" has the meaning described in Section 2.1.11 (Early Termination Fee). "EBITDA" means as to each Borrower and its Subsidiaries for any period of determination thereof, the sum of (a) Consolidated Net Income determined in accordance with GAAP consistently applied, plus (b) interest expense, regularly scheduled preferred dividends paid with respect to the Parent's $69,000,000 aggregate principal amount 8% Convertible Subordinated Debentures due 2017, and income tax provisions for such period, plus (c) depreciation, amortization and other non-cash charges and credits (including, without limitation, amortization of goodwill, deferred financing fees and other intangibles) for such period, but only to the extent the items described in items (b) and (c) were deducted in the determination of Consolidated Net Income for such period. "Eligible Inventory" means the collective reference to all Inventory of each Domestic Borrower held for sale in the ordinary course of business, valued (in Dollars or Dollar Equivalent) at the lowest of the net purchase cost or net manufacturing cost, the lowest bulk market price, such Domestic Borrower's lowest bulk selling price, minus estimated expenses for completion and disposal, and minus an allowance for normal profit margin for bulk sales, any ceiling prices which may be established by any Law of any Governmental Authority or prevailing market value, excluding, however, any Inventory which consists of: (a) any Inventory located outside of a jurisdiction in which the Administrative Agent has properly and unavoidably perfected the Liens of the Administrative Agent and the Lenders under this Agreement by filing in that jurisdiction, free and clear of all other Liens, except to the extent provided in subsection (d)(ii) below; (b) any Inventory not in the actual possession of a Domestic Borrower, except to the extent provided in subsection (d) below; (c) any Inventory in the possession of a bailee, warehouseman, consignee or similar third party, except to the extent that such bailee, warehouseman, consignee or similar third party has entered into an agreement with the Administrative Agent in which such bailee, warehouseman, consignee or similar third party consents and agrees to the Administrative Agent's and Lenders' Lien on such Inventory and to such other terms and conditions as may be required by the Administrative Agent; - 9 - 17 (d) (i) except as set forth on Schedule 1.1-D and (ii) except for Inventory in transit subject to a commercial Letter of Credit issued by NationsBank for which documents of title required as a condition of draw under the Letter of Credit have been delivered to NationsBank, to include inventory subject to commercial letters of credit issued by NationsBank requiring delivery of documents of title as a condition of draw, any Inventory located on premises leased or rented to a Domestic Borrower or otherwise not owned by a Domestic Borrower, unless the Administrative Agent has received a waiver and consent from the lessor, landlord and/or owner, in form and substance satisfactory to the Administrative Agent and from any mortgagee of such lessor, landlord or owner to the extent required by the Administrative Agent; (e) any Inventory the sale or other disposition of which has given rise to an Account or other receivable; (f) any Inventory which fails to meet all standards and requirements imposed by any Governmental Authority over such Inventory or its production, storage, use or sale; (g) work-in-process, supplies, displays, packaging and promotional materials; (h) any Inventory as to which the Administrative Agent determines in the reasonable exercise of its discretion at any time and in good faith is not in good condition or is defective, unmerchantable, post-seasonal, slow moving or obsolete; and (i) any Inventory which the Administrative Agent in the reasonable exercise of its discretion has deemed to be ineligible because the Administrative Agent otherwise considers the collateral value to the Administrative Agent and the Lenders to be impaired or its or their ability to realize such value to be insecure. In the event of any dispute under the foregoing criteria as to whether Inventory is, or has ceased to be, Eligible Inventory, the decision of the Administrative Agent in the reasonable exercise of its discretion shall control. "Eligible Receivable" and "Eligible Receivables" mean, at any time of determination thereof, the unpaid portion (valued in Dollars) of each account (which may include Assigned Local Currency Receivables) (net of any returns, discounts, claims, credits, charges, accrued rebates or other allowances, offsets, deductions, counterclaims, disputes or other defenses and reduced by the aggregate amount of all reserves (including, without limitation, reserves to cover value added taxes or sales taxes), limits and deductions provided for by the Administrative Agent in the reasonable exercise of its discretion ) receivable by the Borrower (other than a Local Currency Borrower) in United States Dollars or, in the case of a Local Currency Borrower, receivable as part of the Assigned Local Currency Receivables by the Parent in United States - 10 - 18 Dollars or in the Approved Foreign Currency of the applicable Local Currency Borrower, provided each account conforms and continues to conform to the following criteria to the satisfaction of the Administrative Agent: (a) the account arose in the ordinary course of a Borrower's business from a bona fide outright sale of Inventory by such Borrower or from services performed by such Borrower (including, without limitation, accounts arising from a written agreement with a customer of the Borrower to provide tools and/or dies for the customer); (b) the account is a valid, legally enforceable obligation of the Account Debtor and requires no further act on the part of any Person under any circumstances to make the account payable by the Account Debtor; (c) the account is based upon an enforceable order or contract, written or oral, for Inventory shipped or for services performed, and the same were shipped or performed substantially in accordance with such order or contract; (d) if the account arises from the sale of Inventory, the Inventory the sale of which gave rise to the account has been shipped or delivered to the Account Debtor on an absolute sale basis and not on a bill and hold sale basis, a consignment sale basis, a guaranteed sale basis, a sale or return basis, or on the basis of any other similar understanding; (e) if the account arises from the performance of services, such services have been fully rendered and do not relate to any warranty claim or obligation; (f) the account is evidenced by an invoice or other documentation in form reasonably acceptable to the Administrative Agent, dated no later than the date of shipment or performance and containing only terms normally offered by the respective Borrower to the Account Debtor in question; (g) the amount shown on the books of a Borrower and on any invoice, certificate, schedule or statement delivered to the Administrative Agent is owing to such Borrower and no partial payment has been received unless reflected with that delivery; (h) the account is not outstanding more than ninety (90) days from the date of the invoice therefor; (i) the account is not owing by any Account Debtor for which the Administrative Agent has deemed fifty percent (50%) or more of such Account Debtor's other accounts (or any portion thereof) due to a Borrower, individually, or all of the Borrowers collectively, to be non-Eligible Receivables; - 11 - 19 (j) the account is not owing by an Account Debtor or a group of affiliated Account Debtors to any Borrower whose then existing accounts owing to that Borrower individually exceed in aggregate face amount fifteen percent (15%) of that Borrower's total Eligible Receivables and is not owing by an Account Debtor or a group of affiliated Account Debtors whose then existing accounts to any and all of the Borrowers collectively exceed in aggregate face amount fifteen percent (15%) of the total Eligible Receivables of all Borrowers; (k) the Account Debtor has not returned, rejected or refused to retain, or otherwise notified a Borrower of any dispute concerning, or claimed nonconformity of, any of the Inventory or services from the sale or furnishing of which the account arose; (l) the account is not subject to any present or contingent (and the applicable Borrower has no notice of any facts which exist which are the basis for any future) offset, claim, deduction or counterclaim, dispute or defense in law or equity on the part of such Account Debtor, or any claim for credits, allowances, or adjustments by the Account Debtor because of returned, inferior, or damaged Inventory or unsatisfactory services, or for any other reason including, without limitation, those arising on account of a breach of any express or implied representation or warranty; (m) except with respect to such joint venture net receivables as the Administrative Agent may approve from time to time, the Account Debtor is not a Subsidiary or Affiliate of any Borrower or an employee, officer, director or shareholder of any Borrower or any Subsidiary or Affiliate of any Borrower; (n) the Account Debtor with respect to such account is not insolvent or the subject of any bankruptcy or insolvency proceedings of any kind or of any other proceeding or action, threatened or pending; (o) the Account Debtor is not a Governmental Authority, unless all rights of each Borrower with respect to such account have been assigned to the Administrative Agent for the benefit of the Lenders ratably and the Administrative Agent on terms acceptable to the Administrative Agent pursuant to the Assignment of Claims Act of 1940, as amended; (p) no Borrower is indebted in any manner to the Account Debtor (as creditor, lessor, supplier or otherwise), with the exception of customary credits, adjustments and/or discounts given to an Account Debtor by a Borrower in the ordinary course of its business; (q) the account does not arise from services under or related to any warranty obligation of a Borrower or out of service charges, finance charges or other fees for the time value of money; -12- 20 (r) the account is not evidenced by chattel paper or an instrument of any kind and is not secured by any letter of credit, unless the same is in the possession of the Administrative Agent as part of the Collateral; (s) the title of the respective Borrower to the account is absolute and is not subject to any prior assignment, claim, Lien, or security interest, except Permitted Liens and except in the case of Assigned Local Currency Receivables, title thereto is in the Parent; (t) no bond or other undertaking by a guarantor or surety has been or is required to be obtained, supporting the performance of any Borrower or any other obligor in respect of any of such Borrower's agreements with the Account Debtor unless the same is part of the Collateral; (u) no bond or other undertaking by a guarantor or surety has been or is required to be obtained, supporting the account and any of the Account Debtor's obligations in respect of the account; (v) the Borrower (or, in the case of Assigned Local Currency Receivables, the Parent only) has the full and unqualified right and power to assign and grant a security interest in, and Lien on, the account to the Administrative Agent and the Lenders as security and collateral for the payment of the Obligations and the Agents' Obligations; (w) the account does not arise out of a contract with, or order from, an Account Debtor that, by its terms or by applicable Laws, forbids, makes void or unenforceable, limits, or affects the first Lien priority of the assignment or grant of a security interest by the Borrower (or, in the case of Assigned Local Currency Receivables, the Parent only) to the Administrative Agent, for the benefit of the Lenders ratably and the Administrative Agent, of the account arising from such contract or order; (x) the account is subject to a Lien in favor of the Administrative Agent, for the benefit of the Lenders ratably and the Administrative Agent, which Lien is perfected as to the account by the filing of financing statements and which Lien upon such filing constitutes a first priority security interest and Lien; (y) the Inventory giving rise to the account was not, at the time of the sale thereof, subject to any Lien, except those in favor of the Administrative Agent, for the benefit of the Lenders ratably and the Administrative Agent, and except, with respect to Assigned Local Currency Receivables, those Liens which attach to inventory of the Local Currency Borrower as a matter of applicable Laws in the jurisdiction of such Local Currency Borrower, but which do not attach to the Assigned Local Currency Receivables or any of the other Collateral; -13- 21 (z) except for those representing customer tooling, no part of the account represents a progress billing or a retainage; (aa) the Administrative Agent in the reasonable exercise of its discretion has not deemed the account ineligible because of uncertainty as to the creditworthiness of the Account Debtor or because the Administrative Agent otherwise considers the collateral value of such account to the Administrative Agent and the Lenders to be impaired or its or their ability to realize such value to be insecure. For purposes of calculating the Dollar Equivalent of Eligible Receivables included in the Borrowing Base and not denominated in US Dollars, the Dollar Equivalent shall decrease by such percentage (not to exceed two percent (2%)) as the Administrative Agent in its reasonable discretion may determine. In the event of any dispute, under the foregoing criteria, as to whether an account is, or has ceased to be, an Eligible Receivable, the decision of the Administrative Agent in the good faith exercise of its discretion shall control. "Enforcement Costs" means all expenses, charges, costs and fees whatsoever (including, without limitation, reasonable outside and, without duplication, allocated in-house counsel attorney's fees and expenses) of any nature whatsoever paid or incurred by or on behalf of the Administrative Agent and/or any of the Lenders in connection with (a) any or all of the Obligations, this Agreement and/or any of the other Financing Documents, (b) the creation, perfection, collection, maintenance, preservation, defense, protection, realization upon, disposition, sale or enforcement of all or any part of the Collateral, this Agreement or any of the other Financing Documents, including, without limitation, those costs and expenses more specifically enumerated in Section 3.6 (Costs) and/or Section 9.10 (Enforcement Costs), and (c) the monitoring, administration, processing and/or servicing of any or all of the Obligations, the Financing Documents, and/or the Collateral. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time. "Eurodollar Base Rate" means for any Interest Period with respect to any Eurodollar Loan, the per annum interest rate rounded upward, if necessary, to the nearest 1/100 of 1%, appearing on Telerate Page 3750 (or any successor page) as the London interbank offered rate for deposits in Dollars at or about 11:00 a.m. (London time) on the date that is two (2) Eurodollar Business Days prior to the first day of such Interest Period for a term comparable to such Interest Period. If for any reason such rate is not available, the term "Eurodollar Rate" shall mean, for any Eurodollar Loan for any Interest Period therefor, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on Reuters Screen LIBO Page as the London interbank offered rate for deposits in ollars at approximately 11:00 a.m. (London time) two (2) Eurodollar Business Days prior to the first day of such Interest Period for a term comparable to such Interest Period; provided, however, if more than one rate is specified on Reuters Screen LIBO Page, the applicable rate shall be the arithmetic mean of all such rates (rounded upwards, if necessary, to the nearest 1/100 of 1%). - 14 - 22 "Eurodollar Business Day" means any Business Day on meeting the requirements of clause (ii) of the definition of "Business Day." "Eurodollar Loan" means any Loan for which interest is to be computed with reference to the Eurodollar Rate. "Eurodollar Rate" means for any Interest Period with respect to any Eurodollar Loan, (a) the Applicable Margin, plus (b) the per annum rate of interest calculated pursuant to the following formula: Eurodollar Base Rate ------------------------ 1.00 - Reserve Percentage "Event of Default" has the meaning described in ARTICLE VII (Default and Rights and Remedies). "Facilities" means the collective reference to the loan, letter of credit, interest rate protection, foreign exchange risk, cash management, and other credit facilities now or hereafter provided to any one or more of the Borrowers by the Administrative Agent or the Lenders under this Agreement or otherwise by NationsBank. "Federal Funds Rate" means for any day of determination, the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or, if such day is not a Business Day) by the Federal Reserve Bank for the next preceding Business Day) by the Federal Reserve Bank of Richmond or, if such rate is not so published for any day that is a Business Day, the average of quotations for such day on such transactions received by the Administrative Agent from three (3) Federal funds brokers of recognized standing selected by the Administrative Agent. "Fees" means the collective reference to each fee payable to the Administrative Agent, for its own account or for the ratable benefit of the Lenders, under the terms of this Agreement or under the terms of any of the other Financing Documents, including, without limitation, the Revolving Credit Unused Line Fees, the Letter of Credit Fees, the Early Termination Fee, the Origination Fee, and the Administrative Agency Fees. "Financing Documents" means at any time collectively this Agreement, the Notes, the Security Documents, the Letter of Credit Documents, Foreign Exchange Protection Agreement, Interest Rate Protection Agreements, and any other instrument, agreement or document previously, simultaneously or hereafter executed and delivered by any Borrower and/or any other Person, singly or jointly with another Person or Persons, evidencing, securing, guarantying or in connection with this Agreement, any Note, any of the Security Documents, any of the Facilities, and/or any of the Obligations. "Fixed Charges" means as to the Borrowers and their Subsidiaries for any period of determination, the scheduled or required payments for principal and interest (excluding, if otherwise included, the Administrative Agent's annual $100,000 administrative fee) on all Indebtedness For Borrowed Money of the Borrowers and their Subsidiaries, plus unfinanced - 15 - 23 Capital Expenditures of the Borrowers and their Subsidiaries, plus cash dividends paid, plus cash income taxes paid, by the Borrowers and their Subsidiaries. For the purposes of this definition "unfinanced Capital Expenditures" shall be calculated by deducting from Capital Expenditures an amount equal to the sum of (i) gross financed Capital Expenditures plus (ii) the cash proceeds or purchase price credit received by the Borrowers and their Subsidiaries from the sale or sale-leaseback of fixed or capital assets during the period tested. "Fixed or Capital Assets" of a Person at any date means all assets which would, in accordance with GAAP consistently applied, be classified on the balance sheet of such Person as property, plant or equipment or similar fixed asset accounts at such date. "Foreign Currency Equivalent" means, on any date of determination, the equivalent in any Approved Foreign Currency of an amount in US dollars, or in US dollars of an amount in any Approved Foreign Currency, determined at the rate of exchange quoted by the Multi-Currency Agent in New York City, at 9:00 A.M. (New York City time) on such date of determination, to prime banks in New York City for the spot purchase in the New York foreign exchange market of such amount of US dollars with such Approved Foreign Currency or such amount of such Approved Foreign Currency with US Dollars. "Foreign Exchange Protection Agreement" means any foreign exchange, currency spot, foreign exchange forward contracts and other similar agreements and arrangements between any Borrower and a Person acceptable to the Administrative Agent in its reasonable credit judgement, providing for the transfer or mitigation of foreign exchange currency risks either generally or under specific contingencies. "Foreign Exchange Exposure" means at any time and from time to time of determination, the amount of the obligations and liabilities of any or all of the Borrowers with respect to each Foreign Exchange Protection Agreement with a Person who is the Administrative Agent, a Lender or an Affiliate of the Administrative Agent or any Lender arising as a result of a determination of the amount of Dollars required at such time to purchase such amount of the foreign currency covered by such Foreign Exchange Protection Agreement at the Spot Rate. "Funded Debt to EBITDA Ratio" means the ratio, determined for the Borrowers on a consolidated basis, of (a) Funded Indebtedness which is secured and which is not subordinated to all other Indebtedness for Borrowed Money of the Borrowers to (b) EBITDA. "Funded Indebtedness" shall mean all (a) Indebtedness for Borrowed Money under the Credit Facilities, and (b) all other Indebtedness for Borrowed Money. "GAAP" means generally accepted accounting principles in the United States of America in effect from time to time. "General Intangibles" means all general intangibles of every nature, whether presently existing or hereafter acquired or created, and without implying any limitation of the foregoing, further means all books and records, claims (including without limitation all claims for income tax and other refunds), chooses in action, claims, causes of action in tort or equity, contract rights, judgments, customer lists, patents, trademarks, licensing agreements, rights in intellectual - 16 - 24 property, goodwill (including goodwill of any Borrower's business symbolized by and associated with any and all trademarks, trademark licenses, copyrights and/or service marks), royalty payments, licenses, rights as lessee under any lease of real or personal property, literary rights, copyrights, service names, service marks, logos, trade secrets, amounts received as an award in or settlement of a suit in damages, deposit accounts, interests in joint ventures, general or limited partnerships, or limited liability companies or partnerships, rights in applications for any of the foregoing, books and records in whatever media (paper, electronic or otherwise) recorded or stored, with respect to any or all of the foregoing and all equipment and general intangibles necessary or beneficial to retain, access and/or process the information contained in those books and records, and all proceeds (cash and non-cash) of the foregoing. "Governmental Authority" means any nation or government, any state or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government and any department, agency or instrumentality thereof. "Hazardous Materials" means (a) any "hazardous waste" as defined by the Resource Conservation and Recovery Act of 1976, as amended from time to time, and regulations promulgated thereunder; (b) any "hazardous substance" as defined by the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended from time to time, and regulations promulgated thereunder; (c) any substance the presence of which on any property now or hereafter owned, acquired or operated by any of the Borrowers is prohibited by any Law similar to those set forth in this definition; and (d) any other substance which by Law requires special handling in its collection, storage, treatment or disposal. "Hazardous Materials Contamination" means the contamination (whether presently existing or occurring after the date of this Agreement) by Hazardous Materials of any property owned, operated or controlled by any of the Borrowers or for which any of the Borrowers has responsibility, including, without limitation, improvements, facilities, soil, ground water, air or other elements on, or of, any property now or hereafter owned, acquired or operated by any of the Borrowers, and any other contamination by Hazardous Materials for which any of the Borrowers is, or is claimed to be, responsible. "Indebtedness for Borrowed Money" of a Person means at any date, without duplication, (i) liabilities for borrowed money and redemption obligations in respect of mandatorily redeemable preferred stock, (ii) liabilities for the deferred purchase price of acquired property (excluding accounts payable arising in the ordinary course of business but including all liabilities created through any conditional sale or title retention agreement with respect to acquired property), (iii) rentals capitalized in accordance with GAAP under any Capital Lease, (iv) liabilities for borrowed money secured by a Lien or any other charge on assets, (v) all liabilities in respect of unreimbursed draws under letters of credit, bankers acceptances or similar instruments, (vi) net payment obligations with respect to interest rate swaps, currency swaps and similar obligations which require payments, whether periodically or upon the happening of a contingency, (viii) all indebtedness or other obligations of others with respect to which such Person has become liable through a guarantee or an obligation of indemnification to the extent that the indebtedness or obligations guaranteed are obligations that would constitute - 17 - 25 Indebtedness for Borrowed Money, and (ix) liabilities, whether or not in any such case the same was for money borrowed, (x) represented by notes payable, and drafts accepted, that represent extensions of credit, (y) constituting obligations evidenced by bonds, debentures, notes or similar instruments, or (z) upon which interest charges are customarily paid or that was issued or assumed as full or partial payment for property (other than trade credit that is incurred in the ordinary course of business). "Indemnified Parties" has the meaning set forth in Section 9.19. "Insolvency Proceeding" means any receivership, conservatorship, general meeting of creditors, insolvency or bankruptcy proceeding, assignment for the benefit of creditors, or any proceeding or action by or against any Borrower for any relief under any bankruptcy or insolvency law or other Laws relating to the relief of debtors, readjustment of indebtedness, reorganizations, dissolution, liquidation, compositions or extensions, or the appointment of any receiver, intervenor or conservator of, or trustee, or similar officer for, any Borrower or any substantial part of its properties or assets, including, without limitation, proceedings under the Bankruptcy Code, or under other Laws of the United States or any other Governmental Authority, all whether now or hereafter in effect. "Instrument" means a negotiable instrument (as defined under Article 3 of the Uniform Commercial Code), a "certificated security" (as defined under Article 8 of the Uniform Commercial Code), or any other writing which evidences a right to payment of money and is not itself a security agreement or lease and is of a type which is in the ordinary course of business transferred by delivery with any necessary endorsement. "Intercompany Allocation" has the meaning described in Section 6.1.1(d) (Monthly Statements and Certificates). "Interest Payment Date" means with respect to the Revolving Loan the first day of each calendar month commencing on July 1, 1998 and continuing thereafter until the Obligations have been irrevocably paid in full. "Interest Period" means as to any Eurodollar Loan, the period commencing on and including the date such Eurodollar Loan is made (or on the effective date of the Borrowers' election to convert any Base Rate Loan to a Eurodollar Loan in accordance with the provisions of this Agreement) and ending on and including the day which is one month, two months, three months or six months thereafter, as selected by the Borrowers in accordance with the provisions of this Agreement, and thereafter, each period commencing on the last day of the then preceding Interest Period for such Eurodollar Loan and ending on and including the day which is one month, two months, three months or six months thereafter, as selected by the Borrowers in accordance with the provisions of this Agreement; provided, however that: (a) the first day of any Interest Period shall be a Eurodollar Business Day; (b) if any Interest Period would end on a day that shall not be a Eurodollar Business Day, such Interest Period shall be extended to the next succeeding - 18 - 26 Eurodollar Business Day unless such next succeeding Eurodollar Business Day would fall in the next calendar month, in which case, such Interest Period shall end on the next preceding Eurodollar Business Day; and (c) no Interest Period shall extend beyond the Revolving Credit Expiration Date or the scheduled maturity date of the Capital Expenditure Line, as appropriate. "Interest Rate Election Notice" has the meaning described in Section 2.5.2(e). "Interest Rate Protection Agreement" means any interest rate or currency swap agreements, hedging, cap, floor, and collar agreements, currency spot and forward contracts and other similar agreements and arrangements with the Administrative Agent or any Affiliate of the Administrative Agent. "Interest Rate Exposure" means at any time and from time to time of determination, the amount, determined on a mark-to-market basis, of the obligations and liabilities of any or all of the Borrowers with respect to each Interest Rate Protection Agreement. "Internal Revenue Code" means the Internal Revenue Code of 1986, as amended from time to time, and the Income Tax Regulations issued and proposed to be issued thereunder. "Inventory" means all inventory of each Borrower and all right, title and interest of each Borrower in and to all of its now owned and hereafter acquired goods, merchandise and other personal property furnished under any contract of service or intended for sale or lease, including, without limitation, all raw materials, work-in-process, finished goods and materials and supplies of any kind, nature or description which are used or consumed in any Borrower's business or are or might be used in connection with the manufacture, packing, shipping, advertising, selling or finishing of such goods, merchandise and other licenses, warranties, franchises, general intangibles, personal property and all documents of title or documents relating to the same and all proceeds (cash and non-cash) of the foregoing. "Item of Payment" means each check, draft, cash, money, instrument, item, and other remittance in payment or on account of payment of the Receivables or otherwise with respect to any Collateral, including, without limitation, cash proceeds of any returned, rejected or repossessed goods, the sale or lease of which gave rise to a Receivable, and other proceeds of Collateral; and "Items of Payment" means the collective reference to all of the foregoing. "Laws" means all ordinances, statutes, rules, regulations, orders, injunctions, writs, or decrees of any Governmental Authority. "Lease Obligations" of a Person means for any period the rental commitments of such Person for such period under leases for real and/or personal property (net of rent from subleases thereof, but including taxes, insurance, maintenance and similar expenses which such Person, as the lessee, is obligated to pay under the terms of said leases, except to the extent that such taxes, insurance, maintenance and similar expenses are payable by sublessees), including rental commitments under Capital Leases. - 19 - 27 "Letter of Credit" and "Letters of Credit" shall have the meanings described in Section 2.2.1 (Letters of Credit). "Letter of Credit Agreement" means the collective reference to each letter of credit application and agreement substantially in the form of the Appropriate Letter of Credit Issuer's then standard form of application for letter of credit or such other form as may be approved by the Administrative Agent and the Appropriate Letter of Credit Issuer, executed and delivered by any one or more of the Borrowers in connection with the issuance of a Letter of Credit, as the same may from time to time be amended, restated, supplemented or modified; and "Letter of Credit Agreements" means all of the foregoing in effect at any time and from time to time. "Letter of Credit Documents" means any and all drafts under or purporting to be under a Letter of Credit, any Letter of Credit Agreement, and any other instrument, document or agreement executed and/or delivered by any one or more of the Borrowers or any other Person under, pursuant to or in connection with a Letter of Credit or any Letter of Credit Agreement. "Letter of Credit Facility" means the facility established pursuant to Section 2.2 (Letter of Credit Facility). "Letter of Credit Commitment Fee" and "Letter of Credit Commitment Fees" have the meanings described in Section 2.2.2 (Letter of Credit Fees). "Letter of Credit Fronting Fee" and "Letter of Credit Fronting Fees" have the meanings described in Section 2.2.2(a) (Letter of Credit Fees). "Letter of Credit Obligations" means the collective reference to all Obligations of any one or more of the Borrowers with respect to the Letters of Credit and the Letter of Credit Agreements. "Liabilities" means at any date all liabilities that in accordance with GAAP consistently applied should be classified as liabilities on a consolidated balance sheet of the Borrowers and their respective Subsidiaries. "Lien" means any mortgage, deed of trust, deed to secure debt, grant, pledge, security interest, assignment, encumbrance, judgment, lien, hypothecation, provision in any instrument or other document for confession of judgment, cognovit or other similar right or remedy, claim or charge of any kind, whether perfected or unperfected, avoidable or unavoidable, including, without limitation, any conditional sale or other title retention agreement, any lease in the nature thereof, and the filing of or agreement to give any financing statement under the Uniform Commercial Code of any jurisdiction, excluding the precautionary filing of any financing statement by any lessor in a true lease transaction, by any bailor in a true bailment transaction or by any consignor in a true consignment transaction under the Uniform Commercial Code of any jurisdiction or the agreement to give any financing statement by any lessee in a true lease transaction, by any bailee in a true bailment transaction or by any consignee in a true consignment transaction. Rights of setoff arising by operation of law are not included in the definition of "Liens". - 20 - 28 "Loan" means each of the Revolving Loan or the Capital Expenditure Line as the case may be, and "Loans" means the collective reference to the Revolving Loan and the Capital Expenditure Line. "Loan Notice" has the meaning described in Section 2.1.2(a) (Procedure for Making Advances). "Local Currency Borrower" means each corporation identified on Schedule 1.1-B attached to and made a part of this Agreement and "Local Currency Borrowers" means the collective reference to all Local Currency Borrowers. "Lockbox" has the meaning described in Section 2.1.8 (The Collateral Account). "Material Adverse Effect" means a material adverse effect upon the (i) business, properties, operations or financial condition of the Borrowers, taken as a whole, (ii) ability of the Borrowers to perform their respective obligations under the Financing Documents, (iii) ability of the Lenders to enforce their rights and remedies under the Financing Documents, or (iv) value of, or the ability of the Agents and/or the Lenders to realize upon the value of, the Collateral as security for the Obligations and/or the Agents' Obligations with the priority required by this Agreement. "Multi-Currency Agent" means a Person who is designated by NationsBank to perform the duties of Multi-Currency Agent and who has assumed those duties by a joinder to this Agreement, and shall include any successor to the Multi-Currency Agent appointed pursuant to 8.7.3(Successor Agents). "Multi-Currency Lender" means such Lenders as shall be agreed from time to time among the Lenders, the Multi-Currency Agent, the Administrative Agent and the Borrowers to be Multi-Currency Lenders. "Multi-Currency Letter of Credit" shall have the meanings described in Section 2.2.1 (Letters of Credit). "Multi-Currency Letter of Credit Issuer" means the Multi-Currency Agent. "Multi-Currency Letter of Credit Obligations" means, at any time, the sum of, without duplication, all Letter of Credit Obligations with respect to Multi-Currency Letters of Credit. "Multi-Currency Participant" shall have the meaning provided in 2.3.1. "Multi-Currency Revolving Loan", and, collectively, the "Multi-Currency Revolving Loans" have the meaning set forth in Section 2.1.1(d). "Multi-employer Plan" means a Plan which is a Multi-employer plan as defined in Section 4001(a)(3) of ERISA. - 21 - 29 "Net Outstandings" of any Lender means, at any time, the sum of (a) all amounts paid by such Lender (other than pursuant to Section 8.5 (Indemnification)) to the Administrative Agent in respect to the Revolving Loan or otherwise under this Agreement, minus (b) all amounts paid by the Administrative Agent to such Lender which are received by the Administrative Agent and which, pursuant to this Agreement, are paid over to such Lender for application in reduction of the outstanding principal balance of the Revolving Loan. "Non-Ratable Loan" means an advance under the Revolving Loan made by NationsBank in accordance with the provisions of Section 2.7.3(b) (Selection of Settlement Dates). "Note" means any Revolving Credit Note or any Capital Expenditure Line Note as the case may be, and "Notes" means collectively each Revolving Credit Note, each Capital Expenditure Line Note, and any other promissory note which may from time to time evidence all or any portion of the Obligations. "Obligations" means all present and future indebtedness, duties, obligations, and liabilities, whether now existing or contemplated or hereafter arising, of any one or more of the Borrowers to the Lenders and/or Administrative Agent and/or the other Agents under, arising pursuant to, in connection with and/or on account of the provisions of this Agreement, each Note, each Security Document, Foreign Exchange Protection Agreement, Interest Rate Protection Agreement and/or any of the other Financing Documents, the Loans, and/or any of the Facilities including, without limitation, the principal of, and interest on, each Note, late charges, the Fees, Interest Rate Exposure, Foreign Exchange Exposure, Enforcement Costs, and prepayment fees (if any), letter of credit fees or fees charged with respect to any guaranty of any letter of credit; whether owed to the Administrative Agent, other Agents, the Lenders, and/or to NationsBank or its Affiliates pursuant to or in connection with the transactions contemplated by any of the Financing Documents of any nature whatsoever regardless of whether such debts, obligations and liabilities be direct, indirect, primary, secondary, joint, several, joint and several, fixed or contingent; and also means any and all renewals, extensions, substitutions, amendments, restatements and rearrangements of any such debts, obligations and liabilities. "Origination Fee" has the meaning described in Section 2.6.6 (Origination Fee). "Outstanding Letter of Credit Obligations" has the meaning described in Section 2.2.3 (Terms of Letters of Credit). "PBGC" means the Pension Benefit Guaranty Corporation. "Permitted Liens" means: (a) Liens for Taxes which are not delinquent or which the Administrative Agent has determined in the exercise of its sole and absolute discretion (i) are being diligently contested in good faith and by appropriate proceedings, and such contest operates to suspend collection of the contested Taxes and enforcement of a Lien, (ii) the respective Borrower has the financial ability to pay, with all penalties and interest, at all times without materially and adversely affecting such Borrower, and (iii) are not, and will not be with appropriate filing, the giving of notice and/or the passage of time, entitled to priority over any Lien of the Administrative Agent and/or the Lenders; (b) deposits or pledges to secure obligations under workers' compensation, social security or similar laws, or under unemployment - 22 - 30 insurance in the ordinary course of business; (c) Liens securing the Obligations; (d) judgment Liens to the extent the entry of such judgment does not constitute an Event of Default under the terms of this Agreement or result in the sale or levy of, or execution on, any of the Collateral; (e) Liens securing the Senior Notes but only to the limited extent (i) such Liens do not cover any Collateral described in Section 3.2, (ii) the property and assets covered by such Liens equally and ratably secure the Obligations and the Agents' Obligations by Liens which arose by operation of Section 3.4, and (iii) the failure to grant such Liens at the time the Liens were granted to secure the Obligations and the Agents' Obligations would have constituted an event of default under the Indentures (excluding any modifications thereto), (f) statutory liens of landlords, statutory liens of carriers, warehousemen, mechanics, suppliers, materialmen and repairmen and other statutory liens which arise by operation of law, which liens are incurred in the ordinary course of business and which liens are not overdue for a period of more than 60 days or are being contested in good faith by appropriate proceedings diligently pursued provided that in the case of any such contest (i) any proceedings commenced for the enforcement of such liens and encumbrances shall have been duly suspended; and (ii) such provision for the payment of such liens and encumbrances has been made on the books of such Person as may be required by GAAP; (g) easements, zoning restrictions and other similar encumbrances with respect to real property which do not interfere materially with the ordinary conduct of the business of the Borrowers; (h) Liens arising from the filing of UCC financing statements for precautionary purposes in connection with true leases of personal property; and (i) such other Liens, if any, as are set forth on Schedule 4.1.21. attached hereto and made a part hereof. "Permitted Uses" means (a) with respect to the initial advance under the Revolving Loan, the repayment of the existing indebtedness under the Parent's 7.68% Senior Notes due 2004 and to Comerica Bank and transaction costs related to the closing of this Agreement, (b) with respect to the initial advance under the Capital Expenditure Line, the repayment of the existing equipment financing indebtedness under the Borrowers' credit facility with Comerica Bank, (c) the purchase of equipment or the repayment of any advances under the Revolving Loan used for the purchase of equipment, and (d) with respect to subsequent advances under the Revolving Loan, the ongoing, ordinary course working capital needs of each Borrower's business. "Person" means and includes an individual, a corporation, a partnership, a joint venture, a limited liability company or partnership, a trust, an unincorporated association, a Governmental Authority, or any other organization or entity. "Plan" means any pension plan that is covered by Title IV of ERISA and in respect of which any Borrower or a Commonly Controlled Entity is an "employer" as defined in Section 3 of ERISA. "Post-Default Rate" means the Prime Rate plus the Applicable Margin plus two hundred (200) basis points. "Prepayment" means a Revolving Loan Mandatory Prepayment, a Revolving Loan Optional Prepayment or a Capital Expenditure Line Optional Prepayment, as the case may be, and "Prepayments" mean collectively all Revolving Loan Mandatory Prepayments, all Revolving Loan Optional Prepayments and all Capital Expenditure Line Optional Prepayments. - 23 - 31 "Pricing Ratio" means the Funded Debt to EBITDA Ratio. "Prime Rate" means the floating and fluctuating per annum prime commercial lending rate of interest of the Administrative Agent, as established and declared by the Administrative Agent at any time or from time to time. The Prime Rate shall be adjusted automatically, without notice, as of the effective date of any change in such prime commercial lending rate. The Prime Rate does not necessarily represent the lowest rate of interest charged by the Administrative Agent or any of the Lenders to borrowers. "Pro Rata Share" means at any time and as to any Lender, the percentage derived by dividing the unpaid principal amount of the Loans and Letter of Credit Obligations owing to that Lender by the aggregate unpaid principal amount of all Loans and Letter of Credit Obligations then outstanding; or if no Loans or Letter of Credit Obligations are outstanding, by dividing the total amount of such Lender's Commitments by the total amount of the Commitments of the Administrative Agent and all of the Lenders. "Purchase Agreements" means the collective reference to each assignment and other agreement by which a Local Currency Borrower transfers all of its accounts and related rights to the Parent for the purpose of having such accounts included among the Assigned Local Currency Receivables, and further means each acknowledgement by a Local Currency Borrower that each such assignment and agreement is subject to an Assignment of Purchase Agreement. "Receivable" means one of each Borrower's now owned and hereafter owned, acquired or created Accounts, chattel paper, General Intangibles and instruments which are part of the Collateral; and "Receivables" means all of each Borrower's now or hereafter owned, acquired or created Accounts, chattel paper, General Intangibles and instruments which are part of the Collateral, and all cash and non-cash proceeds and products thereof. "Relevant Currency Time" means, for any Borrowing in any currency, the local time in the city where the Appropriate Payment Office for such currency is located. "Reportable Event" means any of the events set forth in Section 4043(c) of ERISA or the regulations thereunder. "Reserve Percentage" means, at any time, the then current maximum rate for which reserves (including any basic, special, supplemental, marginal and emergency reserves) are required to be maintained by member banks of the Federal Reserve System under Regulation D of the Board of Governors of the Federal Reserve System against "Eurocurrency liabilities", as that term is defined in Regulation D. Without limiting the effect of the foregoing, the Reserve Percentage shall reflect any other reserves required to be maintained by such member banks with respect to (i) any category of liabilities which includes deposits by reference to which the Eurodollar Rate is to be determined, or (ii) any category of extensions of credit or other assets which include Eurodollar Loans. The Eurodollar Rate shall be adjusted automatically on and as of the effective date of any change in the Reserve Percentage. "Responsible Officer" means for each Borrower, its chief executive officer or president or, with respect to financial matters, its chief financial officer or Treasurer. - 24 - 32 "Requisite Lenders" means at any time of determination one or more of the Lenders holding at least sixty-six and two-thirds percent (66-2/3%) of the Commitments. "Revolving Credit Commitment" means the agreement of a Lender relating to the making the Revolving Loan and advances thereunder subject to and in accordance with the provisions of this Agreement; and "Revolving Credit Commitments" means the collective reference to the Revolving Credit Commitment of each of the Lenders. "Revolving Credit Commitment Period" means the period of time from the Closing Date to the Business Day preceding the Revolving Credit Termination Date. "Revolving Credit Committed Amount" has the meaning described in Section 2.1.1 (Revolving Credit Facility). "Revolving Credit Expiration Date" means May 31, 2003, extending automatically for successive periods of one (1) year (but in no event later than May 31, 2008) unless the Administrative Agent in the exercise of its sole and absolute discretion has notified the Parent, or the Parent in the exercise of its sole and absolute discretion has notified the Administrative Agent, no later than the February 28th immediately preceding the next scheduled Revolving Credit Expiration Date of its intention to terminate the Revolving Credit Facility as of the next scheduled Revolving Credit Expiration Date.. "Revolving Credit Facility" means the facility established by the Lenders pursuant to Section 2.1 (Revolving Credit Facility). "Revolving Credit Note" and "Revolving Credit Notes" have the meanings described in Section 2.1.5 (Revolving Credit Notes). "Revolving Credit Pro Rata Share" has the meaning described in Section 2.1.1 (Revolving Credit Facility). "Revolving Credit Termination Date" means the earlier of (a) the Revolving Credit Expiration Date, or (b) the date on which the Revolving Credit Commitments are terminated pursuant to Section 7.2 (Remedies) or otherwise. "Revolving Credit Unused Line Fee" and "Revolving Credit Unused Line Fees" have the meanings described in Section 2.1.10 (Revolving Credit Unused Line Fee). "Revolving Loan" has the meaning described in Section 2.1.1 (Revolving Credit Facility). "Revolving Loan Account" has the meaning described in Section 2.1.9 (Revolving Loan Account). "Revolving Loan Mandatory Prepayment" and "Revolving Loan Mandatory Prepayments" have the meanings described in Section 2.1.6 (Mandatory Prepayments of Revolving Loan). - 25 - 33 "Revolving Loan Optional Prepayment" and "Revolving Loan Optional Prepayments" have the meanings described in Section 2.1.7 (Optional Prepayments of Revolving Loan). "Security Documents" means collectively any assignment, pledge agreement, security agreement, mortgage, deed of trust, deed to secure debt, financing statement and any similar instrument, document or agreement under or pursuant to which a Lien is now or hereafter granted to, or for the benefit of, the Administrative Agent and/or the Lenders on any real or personal property of any Person to secure all or any portion of the Obligations, all as the same may from time to time be amended, restated, supplemented or otherwise modified, including, without limitation, this Agreement, Stock Pledge Agreements, the Assignments of Patents, the Assignments of Trademarks, and the Assignments of Purchase Agreement. "Security Procedures" means the rules, policies and procedures adopted and implemented by the Administrative Agent and its Affiliates at any time and from time to time with respect to security procedures and measures relating to electronic funds transfers, all as the same may be amended, restated, supplemented, terminated, or otherwise modified at any time and from time to time by the Administrative Agent in its sole and absolute discretion. "Senior Notes" means the collective reference to (a) $110,000,000 aggregate principal amount 9-7/8% Senior Notes due 2005 issued pursuant to the provisions of an indenture dated as of July 27, 1995, among the Parent, certain of the Domestic Borrowers as the Guarantors (as defined herein), and Bankers Trust Company, as trustee , and (b) $100,000,000 aggregate principal amount 10-1/8% Senior Notes due 2007 issued pursuant to the provisions of an indenture dated as of December 15, 1997, among the Parent, certain of the Domestic Borrowers as the Guarantors (as defined herein), and Bankers Trust Company, as trustee. "Senior Notes Indentures" means the collective reference to the indentures described in the definition of "Senior Notes." "Senior Notes Trustees" means the collective reference to the trustees under the Senior Notes Indentures." "Settlement Date" means each Business Day after the Closing Date selected by the Administrative Agent in its sole discretion subject to and in accordance with the provisions of Section 2.7.3 (Settlement Procedures as to Revolving Loan) as of which a Settlement Report is delivered by the Administrative Agent and on which settlement is to be made among the Lenders in accordance with the provisions of Section 2.7 (Settlement Among Lenders). "Settlement Report" means each report prepared by the Administrative Agent and delivered to each Lender and setting forth, among other things, as of the Settlement Date indicated thereon and as of the next preceding Settlement Date, the aggregate outstanding principal balance of the Revolving Loan, each Lender's Revolving Credit Pro Rata Share thereof, each Lender's Net Outstandings and all Non-Ratable Loans made, and all payments of principal, interest and Fees received by the Administrative Agent from the Borrowers during the period beginning on such next preceding Settlement Date and ending on such Settlement Date. - 26 - 34 "Spot Rate" means, as of any determination with respect to the conversion of an amount in a currency into Dollars, the rate of exchange quoted at 11:00 a.m. (Baltimore time) by "CRT" tele-rate service for the spot purchase in the foreign exchange market in Chicago of such amount of that currency with Dollars. "State" means the State of Maryland. "Stock Pledge Agreements" means collective reference to each pledge, assignment and security agreement dated the date hereof from the Parent and from Walbro Automotive Corporation to the Administrative Agent for the benefit of the Lenders ratably and the Agents, as the same may from time to time be amended, restated, supplemented or otherwise modified covering collectively 100% of the common stock of the Domestic Borrowers (but not the Parent) and 65% of the common stock of the Local Currency Borrowers. "Subordinated Indebtedness" means all Indebtedness for Borrowed Money, including, without limitation, the Subordinated Debt, incurred at any time by any one or more of the Borrowers, which is in amounts, subject to repayment terms, and subordinated to the Obligations, as set forth in one or more written agreements, all in form and substance satisfactory to the Administrative Agent in its sole and absolute discretion. "Subsidiary" means as to any Person, any corporation, association or other business entity in which such Person or one or more of its Subsidiaries or such Person and one or more of its Subsidiaries owns sufficient equity or voting interests to enable it or them (as a group) ordinarily, in the absence of contingencies, to elect a majority of the directors (or Persons performing similar functions of such entity), and any partnership or joint venture if more than 50% of the interest in the profits or capital thereof is owned by such Person or one or more of its Subsidiaries or such Person and one or more of its Subsidiaries (unless such partnership can and does ordinarily take major business actions without the prior approval of such Person or one or more of its Subsidiaries). "Subsidiary Securities" means the collective reference to each and every "investment property" (as defined under the provisions of Title 9 of the Uniform Commercial Code in the State, whether or not that Title actually applies to or governs) of the Parent of any one or more of the Borrowers in a Subsidiary. "Syndication Date" shall mean the date upon which the Administrative Agent determines (and notifies the Borrowers) that the primary syndication (and resultant addition of Persons as Lenders pursuant to Section 9.5) has been completed (it being understood and agreed that prior to the 180th day after the Closing Date the Administrative Agent agrees to use its reasonable efforts to have the Syndication Date occur on the last day of an Interest Period applicable to outstanding Eurodollar Loans). "Taxes" means all taxes and assessments whether general or special, ordinary or extraordinary, or foreseen or unforeseen, of every character (including all penalties or interest thereon), which at any time may be assessed, levied, confirmed or imposed by any Governmental Authority on any or all of the Borrowers or any of its or their properties or assets or any part thereof or in respect of any of its or their franchises, businesses, income or profits. - 27 - 35 "Total Capital Expenditure Line Committed Amount" has the meaning described in Section 2.4.1. "Total Revolving Credit Committed Amount" has the meaning described in Section 2.1.1. "Type" means any type of Loan determined with respect to the interest option applicable thereto, i.e., a Base Rate Loan or a Eurodollar Loan. "Unused Availability" means as of the date of determination the Borrowing Base minus the outstanding principal amount of the aggregate of (a) the Revolving Loan plus (b) without duplication, Outstanding Letter of Credit Obligations plus (c) Interest Rate Exposure plus (d) Foreign Exchange Exposure. "US Dollars" and the sign "$" shall each mean freely transferable lawful money of the United States of America. "US Letter of Credit" shall have the meanings described in Section 2.2.1 (Letters of Credit). "US Letter of Credit Issuer" shall mean NationsBank. "Uniform Commercial Code" means, unless otherwise provided in this Agreement, the Uniform Commercial Code as adopted by and in effect from time to time in the State or in any other jurisdiction, as applicable. "Wholly Owned Subsidiary" means any corporation all the shares of stock of all classes of which (other than directors' qualifying shares) at the time are owned directly or indirectly by a Borrower and/or by one or more Wholly Owned Subsidiaries of a Borrower. "Wire Transfer Procedures" means the rules, policies and procedures adopted and implemented by the Administrative Agent and its Affiliates at any time and from time to time with respect to electronic funds transfers, including, without limitation, the Security Procedures, all as the same may be amended, restated, supplemented, terminated or otherwise modified at any time and from time to time by the Administrative Agent in its sole and absolute discretion. "Year 2000 Problem" has the meaning set forth in Section 4.1.29 (Year 2000 Compliance). Section 1.2 Accounting Terms and Other Definitional Provisions. Unless otherwise defined herein, as used in this Agreement and in any certificate, report or other document made or delivered pursuant hereto, accounting terms not otherwise defined herein, and accounting terms only partly defined herein, to the extent not defined, shall have the respective meanings given to them under GAAP, as consistently applied to the applicable Person. Unless otherwise defined herein, all terms used herein which are defined by the Uniform Commercial Code shall have the same meanings as assigned to them by the Uniform Commercial Code unless and to the extent varied by this Agreement. The words "hereof", - 28 - 36 "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and article, section, subsection, schedule and exhibit references are references to articles, sections or subsections of, or schedules or exhibits to, as the case may be, this Agreement unless otherwise specified. As used herein, the singular number shall include the plural, the plural the singular and the use of the masculine, feminine or neuter gender shall include all genders, as the context may require. Reference to any one or more of the Financing Documents shall mean the same as the foregoing may from time to time be amended, restated, substituted, extended, renewed, supplemented or otherwise modified. Reference in this Agreement and the other Financing Documents to the "Borrower", the "Borrowers", "each Borrower" or otherwise with respect to any one or more of the Borrowers shall mean each and every Borrower and any one or more of the Borrowers, jointly and severally, unless a specific Borrower is expressly identified. ARTICLE II THE CREDIT FACILITIES Section 2.1 The Revolving Credit Facility. 2.1.1 Revolving Credit Facility. (a) Subject to and upon the provisions of this Agreement, the Lenders collectively, but severally, establish a revolving credit facility in favor of the Borrowers. The amount of each Lender's commitment to lend under the Revolving Loan is herein called such Lender's "Revolving Credit Committed Amount" and is set forth below each Lender's signature to this Agreement. The total of each Lender's Revolving Credit Committed Amount equals One Hundred Twenty-five Million Dollars ($125,000,000) and is herein called the "Total Revolving Credit Committed Amount." The proportionate share set forth below each Lender's signature is herein called such Lender's "Revolving Credit Pro Rata Share." Neither the Administrative Agent nor any of the Lenders shall be responsible for the Revolving Credit Commitment of any other Lender, nor will the failure of any Lender to perform its obligations under its Revolving Credit Commitment in any way relieve any other Lender from performing its obligations under its Revolving Credit Commitment. (b) During the Revolving Credit Commitment Period, any or all of the Borrowers may request advances under the Revolving Credit Facility (each, a "Revolving Loan" and, collectively, the "Revolving Loans") in accordance with the provisions of this Agreement; provided that after giving effect to any Borrower's request: (i) the aggregate outstanding principal balance of the Revolving Loans and all Letter of Credit Obligations would not exceed the lesser of (A) the Total Revolving Credit Committed Amount minus Interest Rate Exposure minus Foreign Exchange Exposure, or (B) the Borrowing Base; and (ii) the outstanding principal balance of each Lender's Pro Rata Share of the Revolving Loans and of the Letter of - 29 - 37 Credit Obligations would not exceed the lesser of (A) such Lender's Revolving Credit Committed Amount minus an amount equal to such Lender's Revolving Credit Pro Rata Share multiplied by the aggregate of (1) Interest Rate Exposure plus (2) the Foreign Exchange Exposure, or (B) such Lender's Revolving Credit Pro Rata Share of the Borrowing Base. (c) As part of the Revolving Credit Facility and subject to the further limitations of 2.1.1(b), each Lender severally agrees, on the terms and conditions set forth herein, to make Revolving Loans denominated in US Dollars (each, a "US Revolving Loan" and, collectively, the "US Revolving Loans") to the Parent and the Domestic Borrowers from time to time. (d) As part of the Revolving Credit Facility and subject to the further limitations of 2.1.1(b) and subject to fulfillment of the additional conditions set forth in Section 5.3, each Multi-Currency Lender agrees, on the terms and conditions set forth in this Agreement, to make its Revolving Credit Pro Rata Share of Revolving Loans denominated in the currency (which shall be an Approved Foreign Currency) of the jurisdiction where the applicable Local Currency Borrower is located (each, a "Multi-Currency Revolving Loan", and, collectively, the "Multi-Currency Revolving Loans") to any Local Currency Borrower from time to time in an amount which, when added to the Multi-Currency Lender's Revolving Credit Pro Rata Share of the aggregate principal amount of all Multi-Currency Revolving Loans then outstanding and owed by such Local Currency Borrower plus the aggregate amount of all Multi-Currency Letter of Credit Obligations issued for the account of such Local Currency Borrower at such time, would not exceed the applicable limitations established pursuant to Section 5.3 (e) Each Revolving Loan (i) shall be denominated in US Dollars or an Approved Foreign Currency, and (ii) except as hereinafter provided, may, at the option of the Borrower to which such Revolving Loan was made, be incurred and maintained as and/or converted into Base Rate Loans or Eurodollar Loans, provided that (x) all Revolving Loans made as part of the same Borrowing shall, unless otherwise specifically provided herein, consist of Revolving Loans of the same Type and (y) unless the Administrative Agent has determined that the Syndication Date has occurred (at which time this clause (y) shall no longer be applicable), each Borrowing of Eurodollar Loans may only have an Interest Period of one month. (f) Notwithstanding any other provision of this Agreement to the contrary, the Borrowers and the Administrative Agent acknowledge and agree that all Revolving Loans shall be US Revolving Loans and all Letters of Credit shall be US Letters of Credit unless and until the Parent gives the Administrative Agent notice that the Parent wishes to obtain Multi-Currency Revolving Loans and a Multi-Currency Agent has been designated by the Administrative Agent and has joined into this Agreement to assume the duties of Multi-Currency Agent under this Agreement and the other Financing Documents and the other conditions set forth in Section 5.3 have been met. The parties to this Agreement agree that to be effective such joinder and assumption may be in a writing signed only by the Administrative Agent and the Multi-Currency Agent, with a copy delivered to the Parent, provided, however, the parties agree to execute and deliver promptly such acknowledgements and agreements with respect thereto as the Administrative Agent may reasonably request. - 30 - 38 2.1.2 Procedure for Making Advances Under the Revolving Loans; Lender Protection Loans. (a) Whenever a Borrower desires to incur Loans, (i) with respect to any Borrowing of US Revolving Loans, it shall give the Administrative Agent at the Appropriate Notice Office, prior to noon (Baltimore City time), (x) at least three Business Days' prior written notice (or telephonic notice promptly confirmed by telecopy) of each Borrowing of Eurodollar Loans and (y) same day written notice (or telephonic notice promptly confirmed by telecopy) of each Borrowing of Base Rate Loans to be made hereunder and (ii) with respect to any Borrowing of Multi-Currency Revolving Loans, it shall give the Multi-Currency Agent at the Appropriate Notice Office, prior to 12:00 P.M. (Relevant Currency Time), (x) at least three Business Days' prior written notice (or telephonic notice promptly confirmed by telecopy) of each Borrowing of Eurodollar Loans and (y) at least one Business Day's prior written notice (or telephonic notice promptly confirmed by telecopy) of each Borrowing of Base Rate Loans to be made hereunder. Each such notice (each, a "Loan Notice") shall, except under the circumstances described in Section 2.5.3, be irrevocable, and, in the case of each written notice and each confirmation of telephonic notice, shall specify (i) the aggregate principal amount and the Approved Foreign Currency, if any, of the Loans to be made pursuant to such Borrowing, (ii) the date of such Borrowing (which shall be a Business Day), (ii) whether the respective Borrowing shall consist of Base Rate Loans or, to the extent permitted hereunder, Eurodollar Loans and, if Eurodollar Loans, the Interest Period to be initially applicable thereto and (iii) in the case of a Borrowing of Multi-Currency Loans, the Multi-Currency Lender requested to make such Multi-Currency Revolving Loan. The Administrative Agent or the Multi-Currency Agent, as the case may be, shall promptly give each Lender written notice (or telephonic notice promptly confirmed in writing) of each proposed Borrowing, of such Lender's proportionate share thereof, if any, and of the other matters covered by the Loan Notice. The Administrative Agent or the Multi-Currency Agent, as applicable, promptly will make available to the requesting Borrower by depositing to its account at such Appropriate Payment Office the aggregate of the amounts received made available in the type of funds received. (b) Without in any way limiting the obligation of any Borrower to confirm in writing any telephonic notice permitted to be given hereunder, the Administrative Agent, the Multi-Currency Agent, or any Letter of Credit Issuer (in the case of the issuance of Letters of Credit), as the case may be, may prior to receipt of written confirmation act without liability upon the basis of such telephonic notice, believed by the Administrative Agent, the Multi-Currency Agent, or such Letter of Credit Issuer, as the case may be, in good faith to be from a Responsible Officer of the relevant Borrower. In each such case, each Borrower hereby waives the right to dispute the Administrative Agent's, the Multi-Currency Agent's, or any Letter of Credit Issuer's record of the terms of such telephonic notice, absent manifest error. (c) In the case of any Borrowing that the related Loan Notice specifies is to be comprised of Eurodollar Loans, the Parent and the requesting Borrower shall indemnify, except under the circumstances described in Section 2.5.3, each Lender against any loss, cost or expense incurred by such Lender as a result of any failure to fulfill on or before the date specified in such Loan Notice for such Borrowing the applicable conditions set forth in - 31 - 39 Section 5.2 (Conditions to All Extensions of Credit), including, without limitation, any loss, cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Lender to fund the Loan to be made by such Lender as part of such Borrowing when such Loan, as a result of such failure, is not made on such date. (d) Upon receipt of any such Loan Notice, the Administrative Agent shall promptly notify each Lender of the amount of each advance to be made by such Lender on the requested borrowing date under such Lender's Revolving Credit Commitment. (e) No later than 1:00 p.m. (Baltimore City Time) on each requested borrowing date for the making of advances under the Revolving Credit Facility, each Lender shall, if it has received timely notice from the Administrative Agent of the Borrowers' request for such advances, make available to the Administrative Agent, in funds immediately available to the Administrative Agent at the Administrative Agent's office set forth in Section 9.1 (Notices), such Lender's Pro Rata Share of the advances to be made on such date. (f) In addition, each of the Borrowers hereby irrevocably authorize the Lenders at any time and from time to time, without further request from, but with notice to follow to the Parent, to make advances under the Revolving Credit Facility which the Administrative Agent, in its sole and absolute discretion, deems necessary or appropriate to protect the interests of the Administrative Agent, the Multi-Currency Agent, other Agents and/or any or all of the Lenders under this Agreement, including, without limitation, advances under the Revolving Credit Facility made to cover debit balances in the Revolving Loan Account, principal of, and/or interest on, any Loan, the Obligations (including any Letter of Credit Obligations), and/or Enforcement Costs, prior to, on, or after the termination of other advances under this Agreement, regardless of whether the outstanding principal amount of the Revolving Credit Facility which the Lenders may advance hereunder exceeds the Total Revolving Credit Committed Amount. 2.1.3 Borrowing Base. As used in this Agreement, the term "Borrowing Base" means at any time, an amount equal to the aggregate of (a) eighty-five percent (85%) of the amount of Eligible Receivables, plus (b) the lesser of (i) the sum of sixty percent (60%) of the amount of Eligible Inventory consisting of raw materials (other than resin raw materials) and finished goods plus seventy percent (70%) of the amount of Eligible Inventory consisting of resin raw materials or (ii) Fifty Million Dollars ($50,000,000), less (c) such reserves as the Administrative Agent shall deem proper in its reasonable judgment based on customary asset-based lending practices. The Borrowing Base shall be computed based on the Borrowing Base Report most recently delivered to and accepted by the Administrative Agent in its sole and absolute discretion. In the event the Borrowers fail to furnish a Borrowing Base Report required by Section 2.1.4 (Borrowing Base Report), or in the event the Administrative Agent believes that a Borrowing Base Report is no longer accurate, the Administrative Agent may, in its sole and absolute discretion exercised from time to time and without limiting other rights and remedies under this Agreement, but with a substantially concurrent notice to the Borrowers, direct the - 32 - 40 Lenders to suspend the making of or limit advances under the Revolving Credit Facility. The Borrowing Base shall be subject to reduction by amounts credited to the Collateral Account since the date of the most recent Borrowing Base Report and by the amount of any Receivable or any Inventory which was included in the Borrowing Base but which the Administrative Agent determines in its good faith discretion fails to meet the respective criteria applicable from time to time for Eligible Receivables or Eligible Inventory. If at any time the total of the aggregate principal amount of the Revolving Loans, Outstanding Letter of Credit Obligations, plus Interest Rate Exposure plus Foreign Exchange Exposure, exceeds the Borrowing Base, a borrowing base deficiency ("Borrowing Base Deficiency") shall exist. Each time a Borrowing Base Deficiency exists, the Borrowers at the sole and absolute discretion of the Administrative Agent exercised from time to time shall pay the Borrowing Base Deficiency ON DEMAND to the Administrative Agent for the benefit of the Lenders from time to time. Without implying any limitation on the Administrative Agent's discretion with respect to the Borrowing Base, the criteria for Eligible Receivables and for Eligible Inventory contained in the respective definitions of Eligible Receivables and of Eligible Inventory are in part based upon the business operations of the Borrowers existing on or about the Closing Date and upon information and records furnished to the Administrative Agent by the Borrowers. If at any time or from time to time hereafter, the business operations of the Borrowers change or such information and records furnished to the Administrative Agent is incorrect or misleading, the Administrative Agent in its discretion may at any time and from time to time during the duration of this Agreement change such criteria or add new criteria. The Administrative Agent shall communicate such changed or additional criteria to the Borrowers from time to time either orally or in writing. 2.1.4 Borrowing Base Report. The Borrowers will furnish to the Administrative Agent no less frequently than monthly and at such other times as may be requested by the Administrative Agent a report of the Borrowing Base (each a "Borrowing Base Report"; collectively, the "Borrowing Base Reports") in the form required from time to time by the Administrative Agent, appropriately completed and duly signed. The Borrowing Base Report shall contain the amount and payments on the Receivables, the value of Inventory, and the calculations of the Borrowing Base, all in such detail, and accompanied by such supporting and other information, as the Administrative Agent may from time to time request. Upon the Administrative Agent's request and upon the creation of any Receivables, or at such intervals as the Administrative Agent may require, the Borrowers will provide the Administrative Agent with (a) confirmatory assignment schedules; (b) copies of Account Debtor invoices; (c) evidence of shipment or delivery; and (d) such further schedules, documents and/or information regarding the Receivables and the Inventory as the Administrative Agent may reasonably require. The items to be provided under this subsection shall be in form satisfactory to the Administrative Agent, and certified as true and correct by a Responsible Officer, and delivered to the Administrative Agent from time to time solely for the Administrative Agent's convenience in maintaining records of the Collateral. Any Borrowers' failure to deliver any of such items to the Administrative Agent shall not affect, terminate, - 33 - 41 modify, or otherwise limit the Liens of the Administrative Agent and the Lenders in the Collateral. 2.1.5 Revolving Credit Notes. The obligation of the Borrowers to pay each Lender's Pro Rata Share of the Revolving Loan, with interest, shall be evidenced by a series of promissory notes (as from time to time extended, amended, restated, supplemented or otherwise modified, collectively the "Revolving Credit Notes" and individually a "Revolving Credit Note") substantially in the form of EXHIBIT "B-1" attached hereto and made a part hereof, with appropriate insertions. Each Lender's Revolving Credit Note shall be dated as of the Closing Date, shall be payable to the order of such Lender at the times provided in the Revolving Credit Note, and shall be in the principal amount of such Lender's Revolving Credit Pro Rata Share. Each of the Borrowers acknowledge and agree that, if the outstanding principal balance of the Revolving Loan outstanding from time to time exceeds the aggregate face amount of the Revolving Credit Notes, the excess shall bear interest at the rates provided from time to time for advances under Revolving Loan evidenced by the Revolving Credit Notes and shall be payable, with accrued interest, ON DEMAND. The Revolving Credit Notes shall not operate as a novation of any of the Obligations or nullify, discharge, or release any such Obligations or the continuing contractual relationship of the parties hereto in accordance with the provisions of this Agreement. 2.1.6 Mandatory Prepayments of Revolving Loan. The Borrowers shall make the mandatory prepayments (each a "Revolving Loan Mandatory Prepayment" and collectively, the "Revolving Loan Mandatory Prepayments") of the Revolving Loan at any time and from time to time in such amounts requested by the Administrative Agent pursuant to Section 2.1.3 (Borrowing Base) in order to cover any Borrowing Base Deficiency. 2.1.7 Optional Prepayments of Revolving Loan. The Borrowers shall have the option at any time and from time to time prepay (each a "Revolving Loan Optional Prepayment" and collectively the "Revolving Loan Optional Prepayments") the Revolving Loan, in whole or in part without premium or penalty. 2.1.8 The Collateral Accounts. (a) The Borrowers will deposit, or cause to be deposited, all Items of Payment into bank accounts designated or approved by the Administrative Agent (collectively, the "Collateral Accounts; " each a "Collateral Account"). The Borrowers agree that following an Event of Default and/or if the Borrowers at any time fail to maintain the availability required by the Section 2.1.12(b), the Administrative Agent, at its option, shall have sole power of access to and withdrawal from the Collateral Accounts. Each depository bank of a Collateral Account shall confirm in a writing that, following notice from the Administrative Agent, the depository bank will honor only the Administrative Agent's instructions with respect to the Collateral Account for which it is the depository. - 34 - 42 (b) Each deposit to the Collateral Accounts shall be made not later than the next Business Day after the date of receipt of the Items of Payment. The Items of Payment shall be deposited in precisely the form received, except for the endorsements of the Borrowers where necessary to permit the collection of any such Items of Payment, which endorsement the Borrowers hereby agree to make. In the event the Borrowers fail to do so, the Borrowers hereby authorize the Administrative Agent to make the endorsement in the name of any or all of the Borrowers. Prior to such a deposit, the Borrowers will not commingle any Items of Payment with any of the Borrowers' other funds or property, but will hold them separate and apart in trust and for the account of the Administrative Agent for the benefit of the Lenders ratably and the Agents. (c) Notwithstanding the provisions of subsections (a) and (b) above, prior to an Event of Default and/or the Borrowers' failure to maintain the availability required by the Section 2.1.12(b), (i) the Parent may continue to use its demand deposit account with Thumb National Bank consistent with past practices and with balances consistent with the Parent's immediate cash needs and (ii) the Local Currency Borrowers may continue to use their demand deposit account with local banks consistent with past practices and with balances consistent with their immediate cash needs. (d) In addition, if so directed by the Administrative Agent following an Event of Default and/or if the Borrowers at any time fail to maintain the availability required by the Section 2.1.12(b), the Borrowers shall direct the mailing of all Items of Payment from their Account Debtors to one or more post-office boxes designated by the Administrative Agent, or to such other additional or replacement post-office boxes pursuant to the request of the Administrative Agent from time to time (collectively, the "Lockbox"). The Administrative Agent shall have unrestricted and exclusive access to the Lockbox. (e) The Borrowers hereby authorize the Administrative Agent, from and after the occurrence and during the continuation of an Event of Default, and/or for so long as the Borrowers fail to maintain the availability required by Section 2.1.12(b), to inspect all Items of Payment, endorse all Items of Payment in the name of any or all of the Borrowers, and deposit such Items of Payment in the Collateral Accounts. The Administrative Agent reserves the right, exercised in its sole and absolute discretion, from and after the occurrence and during the continuation of an Event of Default, and/or for so long as the Borrowers fail to maintain the availability required by Section 2.1.12(b), to provide to the Collateral Accounts credit prior to final collection of an Item of Payment and to disallow credit for any Item of Payment which is unsatisfactory to the Administrative Agent. In the event Items of Payment are returned to the Administrative Agent for any reason whatsoever, the Administrative Agent may, in the exercise of its discretion from time to time, forward such Items of Payment a second time. Any returned Items of Payment shall be charged back to the Collateral Accounts, the Revolving Loan Account, or other account, as appropriate. (f) Unless the Administrative Agent has notified the Borrowers otherwise following an Event of Default and/or if the Borrowers at any time fail to maintain the availability required by the Section 2.1.12(b), the Borrowers may use the amounts - 35 - 43 deposited in the Collateral Accounts for those uses which are Permitted Uses for the Revolving Loan after the Closing Date. (g) In the event the Administrative Agent determines the application of proceeds of the Collateral Accounts pursuant to this Section 2.1.8, the Administrative Agent will apply the whole or any part of the collected funds received by the Administrative Agent from the Collateral Accounts against the Revolving Loan (or with respect to Items of Payment which are not proceeds of Accounts or Inventory or after an Event of Default, against any of the Obligations). 2.1.9 Revolving Loan Account. The Administrative Agent will establish and maintain a loan account on its books (the "Revolving Loan Account") to which the Administrative Agent will (a) debit (i) the principal amount of each advance under the Revolving Loan made by the Lenders hereunder as of the date made, (ii) the amount of any interest accrued on the Revolving Loan as and when due, and (iii) any other amounts due and payable by the Borrowers to the Administrative Agent and/or the Lenders from time to time under the provisions of this Agreement in connection with the Revolving Loan, including, without limitation, Enforcement Costs, Fees, late charges, and service and collection fees, as and when due and payable, and (b) credit all payments made by the Borrowers to the Administrative Agent on account of the Revolving Loan as of the date made including, without limitation, funds credited to the Revolving Loan Account from the Collateral Account. The Administrative Agent may debit the Revolving Loan Account for the amount of any Item of Payment which is returned to the Administrative Agent unpaid. All credit entries to the Revolving Loan Account are conditional and shall be readjusted as of the date made if final and indefeasible payment is not received by the Administrative Agent in cash or solvent credits. The Borrowers hereby promise to pay to the order of the Administrative Agent for the ratable benefit of the Lenders, ON DEMAND, an amount equal to the excess, if any, of all debit entries over all credit entries recorded in the Revolving Loan Account under the provisions of this Agreement. Any and all periodic or other statements or reconciliations, and the information contained in those statements or reconciliations, of the Revolving Loan Account shall be presumed conclusively to be correct, and shall constitute an account stated between the Administrative Agent, the Lenders and the Borrowers unless the Administrative Agent receives specific written objection thereto from any Borrower and/or any Lender within thirty (30) Business Days after such statement or reconciliation shall have been sent by the Administrative Agent. Any and all periodic or other statements or reconciliations, and the information contained in those statements or reconciliations, of the Revolving Loan Account shall be final, binding and conclusive upon the Borrowers in all respects, absent manifest error, unless the Administrative Agent receives specific written objection thereto from the Borrowers within thirty (30) Business Days after such statement or reconciliation shall have been sent by the Administrative Agent. 2.1.10 Revolving Credit Unused Line Fee. (a) The Borrowers shall pay to the Administrative Agent for the ratable benefit of the Lenders a monthly revolving credit facility fee (collectively, the "Revolving Credit Unused Line Fees" and individually, a "Revolving Credit Unused Line Fee") - 36 - 44 based on the average daily unused and undisbursed portion of the Total Revolving Credit Committed Amount in effect from time to time accruing during the preceding month. The accrued and unpaid portion of the Revolving Credit Unused Line Fee shall be paid by the Borrowers to the Administrative Agent on the first day of each month, commencing on the first such date following the date hereof, and on the Revolving Credit Termination Date. (b) The Revolving Credit Unused Line Fee shall initially be thirty-seven and one-half (37.5) basis points per annum. Changes in the Revolving Credit Unused Line Fee shall be made not more frequently than quarterly based on the Borrowers' Pricing Ratio from the fiscal quarter reports required by Section 6.1.1(c), except that the first such determination shall be made based on the Borrowers' annual financial statements required by Section 6.1.1(a) for the Borrowers' fiscal year ended December 31, 1998. The Revolving Credit Unused Line Fee (expressed as basis points) shall vary depending upon the Borrowers' Pricing Ratio, as follows:
- ------------------------------------------------------------------------------- Pricing Ratio Revolving Credit Unused Line Fee - ------------------------------------------------------------------------------- Equal to or greater than 4.0 to 1.0 37.5 - ------------------------------------------------------------------------------- Equal to or greater than 3.0 to 1.0 25.0 - ------------------------------------------------------------------------------- Less than 3.0 to 1.0 12.5 - -------------------------------------------------------------------------------
(c) Notwithstanding the foregoing, following the occurrence and during the continuance of an Event of Default, at the option of the Administrative Agent, the Revolving Credit Unused Line Fee shall equal to thirty-seven and one-half (37.5) basis points per annum. 2.1.11 Early Termination Fee. In the event of the termination by, or on behalf of, the Borrowers, of the Revolving Credit Commitment, the Borrowers shall pay a fee (the "Early Termination Fee") equal to following amount at the following times:
Period Early Termination Fee ------ --------------------- Closing Date through and including, May 31, 1999 $500,000 June 1, 1999, through and including, May 31, 2000 $250,000 June 1, 2000 through and including, May 31, 2001 $100,000 Thereafter $0
Payment of the Revolving Loan in whole or in part by or on behalf of the Borrowers, by court order or otherwise, following and as a result of the institution of any bankruptcy proceeding by or against the Borrowers, shall be deemed to be a prepayment of the Revolving Loan subject to the Early Termination Fee provided in this subsection. The Early Termination Fee shall be paid to the Administrative Agent for the ratable benefit of the Lenders. - 37 - 45 Notwithstanding the foregoing, there shall not, however, be an Early Termination Fee due if the termination of the Revolving Credit Commitments and Letters of Credit and repayment of the Revolving Credit Facility is made solely as a result of (a) a replacement credit facility extended by NationsBank and/or its Affiliates to the Borrowers, which generates sufficient proceeds and is in fact used to repay all Obligations (including all Letter of Credit Obligations) in full and, if, in connection with such repayment of all Obligations, all Letters of Credit are terminated, secured by cash or back-to-back letter of credit, and/or released or if the issuers release the Lenders from their obligations to the issuer with respect to the Letters of Credit, or (b) a simultaneous initial public offering of the Parent's common stock with net proceeds to the Parent, of $20,000,000 or more, or (c) the generation and retention of "excess cash flow" sufficient to have maintained the outstanding principal balance of the Revolving Loan at zero for at least one fiscal quarter and the demonstration to the Administrative Agent's reasonable satisfaction that there is no use, need for or contemplation of senior revolving debt for the next four (4) fiscal quarters. As used in this paragraph "excess cash flow" means for any annual period of determination, as determined on a consolidated basis, an amount equal to the Borrowers' EBITDA less Debt Service minus cash taxes paid, minus increases in working capital plus decreases in working capital, minus unfinanced Capital Expenditures, as shown on the annual financial statements for such annual period, furnished to the Administrative Agent in accordance with Section 6.1.1(a); or in the event that the Borrowers fail to deliver such financial statements to the Administrative Agent as and when required, the Administrative Agent shall estimate, in its good faith discretion, the amount of excess cash flow for such period. 2.1.12 Required Availability under the Revolving Credit Facility. (a) On the Closing Date, Unused Availability (after allowance for the payment of the amount of the Permitted Uses of the Revolving Loan required to be made on the Closing Date and the amount of the costs relating to the closing of this Agreement (including, without limitation, applicable Fees, recording costs, recording taxes, and the fees and expenses of the Borrowers' and the Lender's professionals and allowance for the payment the amount of the Borrowers' trade payables in the ordinary course of their businesses and after giving effect to the receipt by the Administrative Agent of the net proceeds from the sale on the Closing Date of the assets of Sharon Manufacturing Company) shall not be less than Twenty Million Dollars ($20,000,000). (b) After the Closing Date, Unused Availability shall at no time be less than Five Million Dollars ($5,000,000). The Parent agrees to use all reasonable efforts to cause Walbro Automotive S. A., its Subsidiary corporation organized under the laws of France, and Walbro Japan, Inc. its Subsidiary corporation organized under the laws of Japan, to enter into Purchase Agreements and provide such other documents and information as the Administrative Agent may reasonably require, which would allow their respective accounts to be included among Assigned Local Currency Receivables on or before June 30, 1998. In the event of such inclusion for either or both of those Subsidiaries, Unused Availability shall at no time be less than Ten Million Dollars ($10,000,000) (c) The Borrowers shall make a Revolving Loan Mandatory Prepayment pursuant to the provisions of Section 2.1.6 (Mandatory Prepayments of Revolving Loan) to the extent necessary to achieve compliance with this Section. - 38 - 46 Section 2.2 The Letter of Credit Facility. 2.2.1 Letters of Credit. Subject to and upon the provisions of this Agreement, and as a part of the Revolving Credit Commitments, each of the Borrowers, upon the prior approval of the Administrative Agent, may obtain commercial and standby letters of credit for drawing in US Dollars (each a "US Letter of Credit", and collectively, the "US Letters of Credit") from the US Letter of Credit Issuer, and for drawing in an Approved Foreign Currency (each a "Multi-Currency Letter of Credit" and, collectively, the "Multi-Currency Letters of Credit") from the Multi-Currency Letter of Credit Issuer (the US Letters of Credit and the Multi-Currency Letters of Credit being collectively, the "Letters of Credit;" and each a "Letter of Credit") from time to time from the Closing Date until the Business Day preceding the Revolving Credit Termination Date. The Borrowers will not be entitled to obtain a Letter of Credit unless (a) the Borrowers are then able to obtain a Revolving Loan (subject to any applicable Approved Local Currency or other restrictions) from the Lenders in an amount not less than the proposed face amount of the Letter of Credit requested by the Borrowers, and (b) the sum of the then Outstanding Letter of Credit Obligations (including the amount of the requested Letter of Credit) does not exceed Twenty-five Million Dollars ($25,000,000). 2.2.2 Letter of Credit Fees. (a) The Borrowers shall pay to the Appropriate Letter of Credit Issuer, for its own account, a fee of twenty-five (25) basis points per annum of the aggregate face amount of the Letters of Credit outstanding on the first day of the month, without regard for provisions contained in the Letters of Credit which may give rise to a reduction in the outstanding principal amount of the Letters of Credit unless such reduction has actually occurred (each a "Letter of Credit Fronting Fee" and collectively, the "Letter of Credit Fronting Fees"). The accrued and unpaid portion of each Letter of Credit Fronting Fee shall be paid in arrears on the first day of each month and upon the expiration or termination date of the respective Letter of Credit Agreements. In addition, the Borrowers shall pay to the Appropriate Letter of Credit Issuer, for its own account, any and all additional issuance, negotiation, processing, transfer or other charges to the extent and as and when required by the provisions of any Letter of Credit Agreement. All Letter of Credit Fronting Fees and such other charges are included in and are a part of the "Fees" payable by the Borrowers under the provisions of this Agreement and are for the sole and exclusive benefit of the Appropriate Letter of Credit Issuer and are a part of the Agents' Obligations. (b) In addition and in connection with each Letter of Credit Agreement, the Borrowers shall pay to the Administrative Agent for the ratable (based upon each Lender's Revolving Credit Pro Rata Share) benefit of the Lenders a fee (each a "Letter of Credit Commitment Fee" and collectively the "Letter of Credit Commitment Fees") in an amount equal to one hundred seventy-five (175) basis points per annum (calculated monthly in arrears on the basis of actual number of days elapsed in a year of 360 days) of the outstanding face amount of each Letter of Credit on the first day of the month, without regard for provisions contained in the Letters of Credit which may give rise to a reduction in the outstanding principal amount of the Letters of Credit unless such reduction has actually occurred. The accrued and unpaid portion of - 39 - 47 each Letter of Credit Commitment Fee shall be paid in arrears on the first day of each month and upon the expiration or termination date of the respective Letter of Credit Agreements. 2.2.3 Terms of Letters of Credit; Post-Expiration Date Letters of Credit. Each Letter of Credit shall (a) be opened pursuant to a Letter of Credit Agreement and (b) expire on a date not later than the Business Day preceding the Revolving Credit Expiration Date; provided, however, if any Letter of Credit does have an expiration date later than the Business Day preceding the Revolving Credit Termination Date (each a "Post-Expiration Date Letter of Credit" and collectively, the "Post-Expiration Date Letters of Credit"), effective as of the Business Day preceding the Revolving Credit Termination Date and without prior notice to or the consent of the Borrowers, the Lenders shall make advances under the Revolving Loan for the account of the Borrowers in the aggregate face amount of all such Letters of Credit. The amount of each Lender's advance shall be equal to its Revolving Credit Pro Rata Share of the aggregate face amount of all such Post-Expiration Date Letters of Credit. The Administrative Agent shall deposit the proceeds of such advances into one or more non-interest bearing accounts with and in the name of the Administrative Agent and over which the Administrative Agent alone shall have exclusive power of access and withdrawal (collectively, the "Letter of Credit Cash Collateral Account"). The Letter of Credit Cash Collateral Account is to be held by the Administrative Agent, for the ratable benefit of the Lenders, as additional collateral and security for any Letter of Credit Obligations relating to the Post-Expiration Date Letters of Credit. The Borrowers hereby assign, pledge, grant and set over to the Administrative Agent, for the ratable benefit of the Lenders, a first priority security interest in, and Lien on, all of the funds on deposit in the Letter of Credit Cash Collateral Account, together with any and all proceeds (cash and non-cash) and products thereof as additional collateral and security for the Letter of Credit Obligations relating to the Post-Expiration Date Letters of Credit. The Borrowers acknowledge and agree that the Administrative Agent shall be entitled to fund any draw or draft on any Post-Expiration Date Letter of Credit from the monies on deposit in the Letter of Credit Cash Collateral Account without notice to or consent of the Borrowers or any of the Lenders. The Borrowers further acknowledge and agree that the Administrative Agent's election to fund any draw or draft on any Post-Expiration Date Letter of Credit from the Letter of Credit Cash Collateral shall in no way limit, impair, lessen, reduce, release or otherwise adversely affect the Borrowers' obligation to pay any Letter of Credit Obligations under or relating to the Post-Expiration Date Letters of Credit. At such time as all Post-Expiration Date Letters of Credit have expired and all Letter of Credit Obligations relating to the Post-Expiration Date Letters of Credit have been paid in full, the Administrative Agent agrees to apply the amount of any remaining funds on deposit in the Letter of Credit Cash Collateral Account to the then unpaid balance of the Obligations under the Revolving Credit Facility in such order and manner as the Administrative Agent shall determine in its sole and absolute discretion in accordance with the provisions of this Agreement. Each Letter of Credit shall be used to support the Borrowers' ordinary course working capital purposes and shall be in a face amount at least equal to Two Hundred Fifty Thousand Dollars ($250,000) or the Foreign Currency Equivalent thereof. The aggregate face amount of all Letters of Credit at any one time outstanding and issued by the Appropriate Letter of Credit Issuer pursuant to the provisions of this Agreement, including, without - 40 - 48 limitation, any and all Post-Expiration Date Letters of Credit, plus the amount of any unpaid Letter of Credit Fees accrued or scheduled to accrue thereon, and less the aggregate amount of all drafts issued under or purporting to have been issued under such Letters of Credit that have been paid by the Appropriate Letter of Credit Issuer and for which the Appropriate Letter of Credit Issuer has been reimbursed by the Borrowers in full in accordance with Section 2.2.5 below and the Letter of Credit Agreements, and for which the Appropriate Letter of Credit Issuer has no further obligation or commitment to restore all or any portion of the amounts drawn and reimbursed, is herein called the "Outstanding Letter of Credit Obligations". 2.2.4 Procedures for Letters of Credit. The Borrowers shall give the Appropriate Letter of Credit Issuer written notice at least five (5) Business Days prior to the date on which a Borrower desires the Appropriate Letter of Credit Issuer to issue a Letter of Credit. Such notice shall be accompanied by a duly executed Letter of Credit Agreement specifying, among other things: (a) the name and address of the intended beneficiary of the Letter of Credit, (b) the requested face amount of the Letter of Credit, (c) whether the Letter of Credit is to be revocable or irrevocable, (d) the Business Day on which the Letter of Credit is to be opened and the date on which the Letter of Credit is to expire, (e) the terms of payment of any draft or drafts which may be drawn under the Letter of Credit, and (f) any other terms or provisions the Borrowers desire to be contained in the Letter of Credit. Such notice shall also be accompanied by such other information, certificates, confirmations, and other items as the Appropriate Letter of Credit Issuer may require to assure that the Letter of Credit is to be issued in accordance with the provisions of this Agreement and a Letter of Credit Agreement. In the event of any conflict between the provisions of this Agreement and the provisions of a Letter of Credit Agreement, the provisions of this Agreement shall prevail and control unless otherwise expressly provided in the Letter of Credit Agreement. Upon (x) receipt of such notice, (y) payment of all Letter of Credit Fees and all other Fees payable in connection with the issuance of such Letter of Credit, and (z) receipt of a duly executed Letter of Credit Agreement, the Appropriate Letter of Credit Issuer shall process such notice and Letter of Credit Agreement in accordance with its customary procedures and open such Letter of Credit on the Business Day specified in such notice. 2.2.5 Payments of Letters of Credit. The Borrowers hereby promise to pay to the Appropriate Letter of Credit Issuer, ON DEMAND and in United States Dollars, the following which are herein collectively referred to as the "Current Letter of Credit Obligations": (a) the amount which the Appropriate Letter of Credit Issuer has paid or will be required to pay under each draft or draw on a Letter of Credit, whether such demand be in advance of the Appropriate Letter of Credit Issuer 's payment or for reimbursement for such payment; (b) any and all reasonable charges and expenses which the Appropriate Letter of Credit Issuer may pay or incur relative to the Letter of Credit and/or such draws or drafts; and - 41 - 49 (c) interest on the amounts described in (a) and (b) not paid by the Borrowers as and when due and payable under the provisions of (a) and (b) above from the day the same are due and payable until paid in full at a rate per annum equal to the Post-Default Rate. In addition, the Borrowers hereby promise to pay any and all other Letter of Credit Obligations as and when due and payable in accordance with the provisions of this Agreement and the Letter of Credit Agreements. The obligation of the Borrowers to pay Current Letter of Credit Obligations and all other Letter of Credit Obligations shall be absolute and unconditional under any and all circumstances and irrespective of any setoff, counterclaim or defense to payment which the Borrowers or any other account party may have or have had against the beneficiary of such Letter of Credit, the Appropriate Letter of Credit Issuer, the Agents, any of the Lenders, or any other Person, including, without limitation, any defense based on the failure of any draft or draw to conform to the terms of such Letter of Credit, any draft or other document proving to be forged, fraudulent or invalid, or the legality, validity, regularity or enforceability of such Letter of Credit, any draft or other documents presented with any draft, any Letter of Credit Agreement, this Agreement, or any of the other Financing Documents, all whether or not the Appropriate Letter of Credit Issuer, any Agent or any of the Lenders had actual or constructive knowledge of the same, and irrespective of any Collateral, security or guarantee therefor or right of offset with respect thereto and irrespective of any other circumstances whatsoever which constitutes, or might be construed to constitute, an equitable or legal discharge of the Borrowers for any Letter of Credit Obligations, in bankruptcy or otherwise; provided, however, that the Borrowers shall not be obligated to reimburse the Appropriate Letter of Credit Issuer for any wrongful payment under such Letter of Credit made as a result of the Appropriate Letter of Credit Issuer's gross negligence or willful misconduct. The obligation of the Borrowers to pay the Letter of Credit Obligations shall not be conditioned or contingent upon the pursuit by the Appropriate Letter of Credit Issuer or any other Person at any time of any right or remedy against any Person which may be or become liable in respect of all or any part of such obligation or against any Collateral, security or guarantee therefor or right of offset with respect thereto. The Letter of Credit Obligations shall continue to be effective, or be reinstated, as the case may be, if at any time payment of all or any portion of the Letter of Credit Obligations is rescinded or must otherwise be restored or returned by the Appropriate Letter of Credit Issuer or any of the Agents or Lenders upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of any Person, or upon or as a result of the appointment of a receiver, intervenor, or conservator of, or trustee or similar officer for, any Person, or any substantial part of such Person's property, all as though such payments had not been made. 2.2.6 Change in Law; Increased Cost. If any change in any law or regulation or in the interpretation thereof by any court or other Governmental Authority charged with the administration thereof shall either (a) impose, modify or deem applicable any reserve, special deposit or similar requirement against Letters of Credit issued by the Appropriate Letter of Credit Issuer, or (b) impose on the Appropriate Letter of Credit Issuer or any of the Agents or Lenders any other condition - 42 - 50 regarding this Agreement or any Letter of Credit, and the result of any event referred to in clauses (a) or (b) above shall be to increase the cost to the Appropriate Letter of Credit Issuer of issuing, maintaining or extending the Letter of Credit or the cost to any of the Lenders of funding any obligation under or in connection with the Letter of Credit (which increase in cost shall be the result of the Appropriate Letter of Credit Issuer's reasonable allocation of the aggregate of such cost increases resulting from such events), then, upon demand by the Appropriate Letter of Credit Issuer, the Borrowers shall immediately pay to the Appropriate Letter of Credit Issuer from time to time as specified by the Appropriate Letter of Credit Issuer, additional amounts which shall be sufficient to compensate the Appropriate Letter of Credit Issuer, the Agents and the Lenders for such increased cost, together with interest on each such amount from the date demanded until payment in full thereof at a rate per annum equal to the then highest current rate of interest on the Revolving Loan. A certificate as to such increased cost incurred by the Appropriate Letter of Credit Issuer and/or any of the Lenders or Agents, submitted by the Administrative Agent to the Borrowers, shall be conclusive, absent manifest error. Notwithstanding the foregoing, each Lender hereby agrees to (i) use good faith efforts to change its Appropriate Payment Office, if such change (A) would eliminate the necessity for the payment of such additional amounts and (B) not have an adverse effect on such Lender and (ii) treat the Borrowers in substantially the same manner as it treats all similarly situated borrowers with respect to the requirement to pay such additional amounts. 2.2.7 General Letter of Credit Provisions. The Borrowers hereby instruct the Appropriate Letter of Credit Issuer to pay any draft complying with the terms of any Letter of Credit irrespective of any instructions of the Borrowers to the contrary. The Borrowers assume all risks of the acts and omissions of the beneficiary and other users of any Letter of Credit. The Appropriate Letter of Credit Issuer, the Agents, the Lenders and their respective branches, Affiliates and/or correspondents shall not be responsible for and the Borrowers hereby indemnify and hold the Appropriate Letter of Credit Issuer, the Agents, the Lenders and their respective branches, Affiliates and/or correspondents harmless from and against all liability, loss and expense (including reasonable attorney's fees and costs) incurred by the Appropriate Letter of Credit Issuer, the Agents, the Lenders and/or their respective branches, Affiliates and/or correspondents relative to and/or as a consequence of (a) any failure by the Borrowers to perform the agreements hereunder and under any Letter of Credit Agreement, (b) any Letter of Credit Agreement, this Agreement, any Letter of Credit and any draft, draw and/or acceptance under or purported to be under any Letter of Credit, (c) any action taken or omitted by the Appropriate Letter of Credit Issuer, any of the Lenders, Agents and/or any of their respective branches, Affiliates and/or correspondents at the request of the Borrowers, (d) any failure or inability to perform in accordance with the terms of any Letter of Credit by reason of any control or restriction rightfully or wrongfully exercised by any de facto or de jure Governmental Authority, group or individual asserting or exercising governmental or paramount powers, and/or (e) any consequences arising from causes beyond the control of the Appropriate Letter of Credit Issuer, any of the Lenders, Agents and/or any of their respective branches, Affiliates and/or correspondents. Except for gross negligence or willful misconduct, the Appropriate Letter of Credit Issuer, the Lenders, the Agents and their respective branches, Affiliates and/or - 43 - 51 correspondents, shall not be liable or responsible in any respect for any (a) error, omission, interruption or delay in transmission, dispatch or delivery of any one or more messages or advices in connection with any Letter of Credit, whether transmitted by cable, telegraph, mail or otherwise and despite any cipher or code which may be employed, and/or (b) action, inaction or omission which may be taken or suffered by it or them in good faith or through inadvertence in identifying or failing to identify any beneficiary or otherwise in connection with any Letter of Credit. Any Letter of Credit may be amended, modified or revoked only upon the receipt by the Appropriate Letter of Credit Issuer from the Borrowers and the beneficiary (including any transferee and/or assignee of the original beneficiary), of a written consent and request therefor. If any Laws, order of court and/or ruling or regulation of any Governmental Authority of the United States (or any state thereof) and/or any country other than the United States permits a beneficiary under a Letter of Credit to require the Appropriate Letter of Credit Issuer, the Lenders, the Agents and/or any of their respective branches, Affiliates and/or correspondents to pay drafts under or purporting to be under a Letter of Credit after the expiration date of the Letter of Credit, the Borrowers shall reimburse the Appropriate Letter of Credit Issuer and the Lenders and Agents, as appropriate, for any such payment pursuant to provisions of Section 2.2.6 (Change in Law; Increased Cost). Except as may otherwise be specifically provided in a Letter of Credit or Letter of Credit Agreement, the laws of the State of Maryland and the Uniform Customs and Practice for Documentary Credits, 1993 Revision, International Chamber of Commerce Publication No. 500 shall govern the Letters of Credit. The Laws, rules, provisions and regulations of the Uniform Customs and Practice for Documentary Credits are hereby incorporated by reference. In the event of a conflict between the Uniform Customs and Practice for Documentary Credits and the laws of the State of Maryland, the Uniform Customs and Practice for Documentary Credits shall prevail. 2.2.8 Participations in the Letters of Credit. Each Lender hereby irrevocably authorizes the Appropriate Letter of Credit Issuer to issue Letters of Credit in accordance with the provisions of this Agreement. As of the date each Letter of Credit is opened or issued by the Appropriate Letter of Credit Issuer pursuant to the provisions of this Agreement, each Lender shall have an undivided participating interest in (a) the rights and obligations of the Appropriate Letter of Credit Issuer under such Letter of Credit, and (b) the Outstanding Letter of Credit Obligations of the Borrowers with respect to such Letter of Credit, in an amount equal to each Lender's Revolving Credit Pro Rata Share of such Outstanding Letter of Credit Obligations. 2.2.9 Payments by the Lenders to the Appropriate Letter of Credit Issuer. If the Borrowers fail to pay to the Appropriate Letter of Credit Issuer any Current Letter of - 44 - 52 Credit Obligations as and when due and payable, the Appropriate Letter of Credit Issuer shall promptly notify each of the Lenders and shall demand payment from each of the Lenders such Lender's Revolving Credit Pro Rata Share of such unpaid Current Letter of Credit Obligations. In addition, if any amount paid to the Appropriate Letter of Credit Issuer on account of Current Letter of Credit Obligations is rescinded or required to be restored or turned over by the Appropriate Letter of Credit Issuer upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of the Borrowers or upon or as a result of the appointment of a receiver, intervenor, trustee, conservator or similar officer for the Borrowers, or is otherwise not indefeasibly covered by an advance under the Revolving Loan, the Appropriate Letter of Credit Issuer shall promptly notify each of the Lenders and shall demand payment from each of the Lenders of its Revolving Credit Pro Rata Share of its portion of the Current Letter of Credit Obligations to be remitted to the Borrowers. Each of the Lenders irrevocably and unconditionally agrees to honor any such demands for payment under this Section and promises to pay to the Appropriate Letter of Credit Issuer's account on the same Business Day as demanded the amount of its Revolving Credit Pro Rata Share of the Current Letter of Credit Obligations in immediately available funds, without any setoff, counterclaim or deduction of any kind. Any payment by a Lender hereunder shall in no way release, discharge or lessen the obligation of the Borrowers to pay Current Letter of Credit Obligations to the Appropriate Letter of Credit Issuer in accordance with the provisions of this Agreement. The obligation of each of the Lenders to remit the amounts of its Revolving Credit Pro Rata Share of Current Letter of Credit Obligations for the account of the Appropriate Letter of Credit Issuer pursuant to this Section shall be unconditional and irrevocable under any and all circumstances and may not be terminated, suspended or delayed for any reason whatsoever, provided that all payments of such amounts by each of the Lenders shall be without prejudice to the rights of each of the Lenders with respect to the Appropriate Letter of Credit Issuer's alleged willful misconduct. Any claim any Lender may have against the Appropriate Letter of Credit Issuer as a result of the Appropriate Letter of Credit Issuer's alleged willful misconduct may be brought by such Lender in a separate action against the Appropriate Letter of Credit Issuer but may not be used as a defense to payment under the provisions of this Section. No failure of any Lender to remit the amount of its Revolving Credit Pro Rata Share of Current Letter of Credit Obligations to the Appropriate Letter of Credit Issuer pursuant to this Section shall affect the obligations of the Appropriate Letter of Credit Issuer under any Letter of Credit, and if any Lender does not remit to the Appropriate Letter of Credit Issuer the amount of its Revolving Credit Pro Rata Share of Current Letter of Credit Obligations on the same day as demanded, then without limiting such Lender's obligation to transmit funds on the same Business Day as demanded, such Lender shall be obligated to pay, on demand of the Appropriate Letter of Credit Issuer and without setoff, counterclaim or deduction of any kind whatsoever interest on the unpaid amount at the Federal Funds Rate for each day from the date such amount shall be due and payable to the Appropriate Letter of Credit Issuer until the date such amount shall have been paid in full to the Appropriate Letter of Credit Issuer by such Lender. - 45 - 53 Section 2.3 Multi-Currency Participations. 2.3.1 Multi-Currency Participants. At any time that a Multi-Currency Lender makes a Multi-Currency Loan or the Multi-Currency Letter of Credit Issuer issues a Multi-Currency Letter of Credit, each other Lender shall be deemed, without further action by any Person, to have purchased from such Multi-Currency Lender or Multi-Currency Letter of Credit Issuer, as the case may be, an unfunded participation in any such Multi-Currency Loan or Multi-Currency Letter of Credit, as the case may be, in an amount equal to such Lender's Revolving Credit Pro Rata Share of the aggregate principal amount of such Multi-Currency Revolving Loan or stated amount of such Multi-Currency Letter of Credit and shall be obligated to fund such participation at such time and in the manner provided below. Upon (i) the occurrence and during the continuance of a Default, and (ii) the demand (confirmed within a reasonable time in writing) (notwithstanding any other fact or circumstance) by any Multi-Currency Lender or Multi-Currency Letter of Credit of Credit Issuer, as the case may be to the Multi-Currency Agent and the Administrative Agent (with prompt telephonic notice of such demand followed by a copy of such written demand to each other Lender, each such other Lender, a "Multi-Currency Participant") and each Borrower with respect to any outstanding Multi-Currency Revolving Loan made by such Multi-Currency Lender or Current Letter of Credit Obligations in respect of any drawing under a Multi-Currency Letter of Credit, each Multi-Currency Participant shall purchase from such Multi-Currency Lender or Multi-Currency Letter of Credit Issuer, as the case may be, without recourse to such Multi-Currency Lender or Multi-Currency Letter of Credit Issuer, as the case may be (except in the case of a breach of the representation and warranty set forth below in this clause (ii)), and such Multi-Currency Lender shall sell and assign to each such Multi-Currency Participant, such Multi-Currency Participant's Revolving Credit Pro Rata Share of the aggregate principal amount of such outstanding Multi-Currency Revolving Loan or such Current Letter of Credit Obligations with respect to a Multi-Currency Letter of Credit as of the date of such demand. Any such demand made by a Multi-Currency Lender or Multi-Currency Letter of Credit Issuer, as the case may be, shall specify the amount of US Dollars (based upon the actual exchange rate at which the Multi-Currency Agent anticipates being able to obtain the relevant Foreign Currency (with any excess payment being refunded to the Multi-Currency Participants and any deficiency remaining payable by the Multi-Currency Participants)) required from such Multi-Currency Participant in order to effect the purchase and funding by such Multi-Currency Participant of its Revolving Credit Pro Rata Share of the aggregate principal amount of any such Multi-Currency Revolving Loan or such Current Letter of Credit Obligations with respect to a Multi-Currency Letter of Credit. Each Multi-Currency Participant shall effect such purchase, sale, assignment and funding by making available to the Multi-Currency Agent for the account of such Multi-Currency Lender or Multi-Currency Letter of Credit Issuer, as the case may be, by deposit to the Appropriate Payment Office, in same day funds in US Dollars, such amount required to effect the purchase by such Multi-Currency Participant of its Revolving Credit Pro Rata Share of the aggregate principal amount of such outstanding Multi-Currency Revolving Loan or such Current Letter of Credit Obligations with respect to a Multi-Currency Letter of Credit. Each Borrower hereby agrees to each such purchase, sale and assignment. Each Multi-Currency Participant agrees to purchase and fund its Revolving Credit Pro Rata Share of the aggregate principal amount of an outstanding Multi-Currency Revolving Loan or Current Letter - 46 - 54 of Credit Obligations in respect of any drawing under a Multi-Currency Letter of Credit on (1) the US Business Day on which demand therefor is made by a Multi-Currency Lender or Multi-Currency Letter of Credit Issuer, as the case may be, provided that notice of such demand is given not later than 11:00 a.m. (Baltimore City time) on such US Business Day or (2) the first US Business Day next succeeding such demand if notice of such demand is given after such time. 2.3.2 Representations of Multi-Currency Lender and Multi-Currency Letter of Credit Issuer. Upon any such purchase, sale and assignment by a Multi-Currency Lender or a Multi-Currency Letter of Credit Issuer to any Multi-Currency Participant of a portion of a Multi-Currency Revolving Loan or Current Letter of Credit Obligations under a Multi-Currency Letter of Credit, such Multi-Currency Lender or Multi-Currency Letter of Credit Issuer, as applicable, represents and warrants to such Multi-Currency Participant that such Multi-Currency Lender or Multi-Currency Letter of Credit Issuer, as applicable, is the legal and beneficial owner of such interest being sold and assigned by it, but makes no other representation or warranty and assumes no responsibility with respect to such Multi-Currency Revolving Loan or Multi-Currency Letter of Credit, the Financing Documents or any Credit Party. If and to the extent that any Multi-Currency Participant shall not have so made the amount of its purchase price with respect to such Multi-Currency Revolving Loan or Current Letter of Credit Obligations in respect of any drawing under a Multi-Currency Letter of Credit available to the Multi-Currency Letter of Credit Issuer, such Multi-Currency Participant agrees to pay to the Multi-Currency Letter of Credit Issuer forthwith on demand such amount together with interest thereon, for each day from the date of demand by such Multi-Currency Lender or Multi-Currency Letter of Credit Issuer to the date such amount is paid to the Multi-Currency Letter of Credit Issuer, at the Federal Funds Rate. If such Multi-Currency Participant shall pay to the Multi-Currency Letter of Credit Issuer such amount for the account of a Multi-Currency Lender or Multi-Currency Letter of Credit Issuer on any Business Day, such amount so paid in respect of principal shall constitute a Multi-Currency Revolving Loan made by such Multi-Currency Participant in its capacity as a Lender (and for such purposes such Lender shall be deemed to be a Multi-Currency Lender with respect to such Multi-Currency Revolving Loan) on such Business Day for purposes of this Agreement, and the outstanding principal amount of such Multi-Currency Revolving Loan originally made by such Multi-Currency Lender shall be reduced by such amount on such Business Day. Each Multi-Currency Participant acknowledges and agrees that, notwithstanding anything in this Agreement to the contrary, its obligation to purchase and fund its Revolving Credit Pro Rata Share of the aggregate principal amount of any Multi-Currency Revolving Loan or in respect of any drawing under a Multi-Currency Letter of Credit hereunder is absolute and unconditional and shall not be affected by any circumstance whatsoever, including, without limitation, (i) the occurrence and continuance of any Default or Event of Default, (ii) the existence of any claim, set-off, defense or other right that such Multi-Currency Participant may have at any time against any Multi-Currency Lender, any Multi-Currency Letter of Credit Issuer, any other Lender, any Borrower or any other Person, whether in connection with the transactions contemplated by this Agreement or any unrelated transaction or (iii) any other circumstance that might otherwise constitute a defense available to, or a discharge of, such Multi-Currency Participant. - 47 - 55 2.3.3 Standing of Multi-Currency Participant. If, and for so long as any Multi-Currency Participant's public debt rating (as defined below) is below A- by S&P or Moody's (or, with respect to any Multi-Currency Participant that does not have such a public debt rating at any time of determination, the Multi-Currency Lenders shall determine that such Multi-Currency Participant's ability to meet such Multi-Currency Participant's obligations under Section 2.3.1 above has declined since the date such Multi-Currency Participant became a Multi-Currency Participant hereunder), (1) such Multi-Currency Participant shall, immediately upon demand by any Multi-Currency Lender or Multi-Currency Letter of Credit Issuer, as the case may be, cash collateralize its Revolving Credit Pro Rata Share of the aggregate principal amount of all outstanding Multi-Currency Revolving Loans and all outstanding Multi-Currency Letters of Credit by depositing an amount equal to such Revolving Credit Pro Rata Share into a cash collateral account designated by the Administrative Agent (and, if necessary, established for such purposes and, so long as no Default or Event of Default has occurred and is continuing, established in such location as determined after consultation with the Borrowers), and (2) each such Multi-Currency Participant shall, if so demanded by any Multi-Currency Lender in its sole discretion, or by any Multi-Currency Letter of Credit Issuer in its sole discretion, as the case may be, by written notice to the Administrative Agent, the Multi-Currency Agent, the Borrowers and such Multi-Currency Participant, prior to the funding by the Multi-Currency Lender of any Multi-Currency Revolving Loans in connection with each additional Multi-Currency Revolving Loan and prior to the issuance of each additional Multi-Currency Letter of Credit, deposit to such cash collateral account an amount equal to such Multi-Currency Participant's Revolving Credit Pro Rata Share of the aggregate amount of such Multi-Currency Revolving Loan or the Letter of Credit Obligations with respect to such Multi-Currency Letter of Credit, as the case may be. Amounts deposited by any Multi-Currency Participant in any such cash collateral account shall be held for the benefit of the Multi-Currency Lenders, shall be applied by the Administrative Agent to satisfy such Multi-Currency Participant's obligations under clause (i) above and shall, to the extent such amounts exceed at any time such Multi-Currency Participant's Revolving Credit Pro Rata Share of all outstanding Multi-Currency Revolving Loans and all outstanding Multi-Currency Letters of Credit, be returned to such Multi-Currency Participant. The term "public debt rating" means, as of any date with respect to any Person, the rating that has been most recently announced by either S&P or Moody's, as the case may be, for any class of non-credit enhanced long-term senior unsecured debt issued by such Person. 2.3.4 Reports of Multi-Currency Agent The Multi-Currency Agent shall furnish to the Administrative Agent and each Lender on the first Business Day of each week a written report summarizing the aggregate principal amount of Multi-Currency Revolving Loans outstanding in each Approved Foreign Currency (including the U.S. Dollar Foreign Currency Equivalent thereof) during the preceding week. - 48 - 56 Section 2.4 The Capital Expenditure Line Facility. 2.4.1 Capital Expenditure Line Facility. Subject to and upon the provisions of this Agreement, the Lenders collectively, but severally, establish a capital expenditure line facility in favor of the Borrowers. The aggregate of all advances under the Capital Expenditure Line Facility are sometimes referred to in this Agreement collectively as the "Capital Expenditure Line". The amount set forth below each Lender's signature to this Agreement is herein called such Lender's "Capital Expenditure Line Committed Amount" and the total of each Lender's Capital Expenditure Line Committed Amount equals Twenty-five Million Dollars ($25,000,000) and is herein called the "Total Capital Expenditure Line Committed Amount". The proportionate share set forth below each Lender's signature to this Agreement is herein called such Lender's "Capital Expenditure Line Pro Rata Share." During the Capital Expenditure Line Commitment Period, any or all of the Borrowers may request advances under the Capital Expenditure Line Facility in accordance with the provisions of this Agreement; provided that after giving effect to any Borrower's request: (a) the outstanding principal balance of each Lender's Capital Expenditure Line Pro Rata Share of the Capital Expenditure Line would not exceed such Lender's Capital Expenditure Line Pro Rata Share; and (b) the aggregate outstanding principal balance of the Capital Expenditure Line would not exceed the Total Capital Expenditure Line Committed Amount. Amounts repaid on the Capital Expenditure Line may not be reborrowed. 2.4.2 Procedure for Making Advances Under the Capital Expenditure Line. The Borrowers may borrow under the Capital Expenditure Line Facility on any Business Day. A Borrower shall give the Administrative Agent written notice (a "Capital Expenditure Line Notice") at least five (5) Business Days prior to the date on which such Borrower desires an advance under the Capital Expenditure Line. Each Capital Expenditure Line Notice shall be accompanied by (a) a contract of sale, purchase order or invoice, in form and substance reasonably satisfactory to the Administrative Agent, which accurately and completely describes the equipment which is the subject of the requested advance and the purchase price therefor, and in the case of Capital Expenditure Line Equipment, expressly identifying and excluding the costs of delivery, installation, taxes, and other "soft" costs, and (b) evidence satisfactory to the Administrative Agent indicating that such equipment has been delivered to and accepted by the respective Borrower not more than 90 days prior to the date of the advance. Each Capital Expenditure Line Notice shall also be accompanied by such other information, certificates, confirmations, and other items as the Administrative Agent may require - 49 - 57 to determine the value and the delivery of the subject equipment and compliance with the other terms of this Agreement. The amount to be advanced with respect to a Capital Expenditure Line Notice shall not exceed the lesser of (a) the amount requested by such Borrower or (b) 80% of the purchase price (excluding the costs of delivery, installation, taxes, and other "soft" costs) of the Capital Expenditure Line Equipment. The Administrative Agent must be satisfied that the equipment for which an advance is requested shall, at the time of advance and at all other times (i) not be affixed to any real property, (ii) not be subject to any Liens in favor of parties other than the Agents and Lenders hereunder, (iii) be free of, and not become, accessions, additions, fittings and accessories which are subject to a Lien in favor of any other person including, without limitation, the holders of the Senior Notes or the Senior Notes Trustees or others acting on their behalf, and (iv) not be subject to any claim by any Person including, without limitation, the holders Senior Notes, that such Person is entitled to pari passu lien. Upon receipt of any such Capital Expenditure Line Notice, the Administrative Agent shall promptly notify each Lender of the amount of each advance to be made by such Lender on the requested borrowing date under such Lender's Capital Expenditure Line Commitment. Each advance under the Capital Expenditure Line shall be not less than $500,000. Not later than 2:00 p.m. (Baltimore City Time) on each requested borrowing date for the making of advances under the Capital Expenditure Line, each Lender shall, if it has received timely notice from the Administrative Agent of the Borrower's request for such advances, make available to the Administrative Agent, in funds immediately available to the Administrative Agent at the Administrative Agent's office set forth in Section 9.1, such Lender's Capital Expenditure Line Pro Rata Share of the advances to be made on such date. 2.4.3 Capital Expenditure Line Notes. The obligation of the Borrowers to pay each Lender's Capital Expenditure Line Pro Rata Share of the Capital Expenditure Line, with interest, shall be evidenced by a series of promissory notes (as from time to time extended, amended, restated, supplemented or otherwise modified, collectively the "Capital Expenditure Line Notes" and individually a "Capital Expenditure Line Note") substantially in the form of EXHIBIT "B-2" attached hereto and made a part hereof, with appropriate insertions. Each Lender's Capital Expenditure Line Note shall be dated as of the Closing Date, shall be payable to the order of such Lender at the times provided in the Capital Expenditure Line Note, and shall be in the principal amount of such Lender's Capital Expenditure Line Pro Rata Share. Each of the Borrowers acknowledges and agrees that, if the outstanding principal balance of the Capital Expenditure Line outstanding from time to time exceeds the aggregate face amount of the Capital Expenditure Line Notes, the excess shall bear interest at the rates provided from time to time for the Capital Expenditure Line evidenced by the Capital Expenditure Line Notes and shall be payable, with accrued interest, ON DEMAND. The Capital Expenditure Line Notes shall not operate as a novation of any of the Obligations or nullify, discharge, or release any such Obligations or the continuing contractual relationship of the parties hereto in accordance with the provisions of this Agreement. - 50 - 58 2.4.4 Payments of Capital Expenditure Line. Each advance under the Capital Expenditure Line shall be repayable in installment payments of principal quarterly (on the first day of each August, November, February, and May after the date of such advance) in an amount equal to 1/20th of the amount of the advance. At the time of each advance under the Capital Expenditure Line, the Parent on behalf of the Borrowers shall furnish a "Capital Expenditure Line Payment Schedule" substantially in the form of EXHIBIT "B-3" attached hereto and made a part hereof, with appropriate insertions, which shall set forth the installment payments with respect to the advance and the aggregate payments due thereafter on all Capital Expenditure Line advances. The Capital Expenditure Line Payment Schedules shall not operate as a novation of any of the Obligations or nullify, discharge, or release any such Obligations or the continuing contractual relationship of the parties hereto in accordance with the provisions of this Agreement or the Capital Expenditure Line Notes. In addition, in the event Capital Expenditure Line Equipment is sold or otherwise disposed of (by casualty or otherwise) and the proceeds of such sale or disposition which are received by the Lenders for application to the Capital Expenditure Line are not sufficient to pay in full an amount equal to the aggregate of the quarterly installment payments of principal remaining with respect to the advance for such Capital Expenditure Line Equipment, then the Borrowers shall pay to the Administrative Agent UPON DEMAND the amount of such deficiency for application to the Capital Expenditure Line and the Borrowers shall furnish a Capital Expenditure Line Payment Schedule reflecting the amount repaid and the new installment amounts. 2.4.5 Optional Prepayments of Capital Expenditure Line. The Borrowers may, at their option, at any time and from time to time prepay (each a "Capital Expenditure Line Optional Prepayment" and collectively the "Capital Expenditure Line Optional Prepayments") the Capital Expenditure Line, in whole or in part without premium or penalty. The amount to be so prepaid, together with interest accrued thereon to date of prepayment if the amount is intended as a prepayment of the Capital Expenditure Line in whole, shall be paid by the Borrowers to the Administrative Agent for the ratable (based upon each Lender's Capital Expenditure Line Pro Rata Share) benefit of the Lenders on the date specified for such prepayment. 2.4.6 Application of Capital Expenditure Line Partial Prepayments. Partial Capital Expenditure Line Loan Optional Prepayments shall be in an amount not less than the aggregate amount of the next principal installment under the Capital Expenditure Line Notes and shall be applied first to all accrued and unpaid interest on the principal of the Capital Expenditure Line Notes, and then pro rata to the balloon payment due at maturity and to the principal installment payments, which proration for each payment shall be equal to the amount to be prepaid times a fraction, the numerator of which is the amount of the balloon or installment (as applicable) payment and the denominator of which is the aggregate outstanding principal balance of the Capital Expenditure Line immediately prior to the prepayment. The Borrowers may not, however, make a partial Capital Expenditure Line Optional - 51 - 59 Prepayment unless the Borrowers have furnished a Capital Expenditure Line Payment Schedule reflecting the amount to be prepaid and the new installment amounts. Section 2.5 Interest. 2.5.1 Applicable Interest Rates. (a) Each Loan shall bear interest until maturity (whether by acceleration, declaration, extension or otherwise) at either the Base Rate or the Eurodollar Rate, as selected and specified by the Borrowers in an Interest Rate Election Notice furnished to the Lender in accordance with the provisions of Section 2.5.2(e), or as otherwise determined in accordance with the provisions of this ARTICLE II, and as may be adjusted from time to time in accordance with the provisions of Section 2.5.3 (Inability to Determine Eurodollar Base Rate). (b) Notwithstanding the foregoing, following the occurrence and during the continuance of an Event of Default, at the option of the Administrative Agent, all Loans and all other Obligations shall bear interest at the Post-Default Rate. (c) The Applicable Margin for (i) Eurodollar Loans shall be 225 basis points per annum, and (ii) Base Rate Loans shall be 25 basis points per annum unless and until a change is required by the operation of Section 2.5.1(d). (d) Changes in the Applicable Margin shall be made not more frequently than quarterly based on the Borrowers' Pricing Ratio determined as of the end of each fiscal quarter by the Administrative Agent based on the Borrowers' statements required by Section 6.1.1(c) (Quarterly Statements and Certificates), except that the first such determination shall be made based on the Borrowers' annual financial statements required by Section 6.1.1(a) (Annual Statements and Certificates ) for the Borrowers' fiscal year ended December 31, 1998 and shall be effective as of the first day of the first month after the Administrative Agent receives such statements. (e) The Applicable Margin (expressed as basis points) for the Revolving Credit Facility shall vary depending upon the Borrowers' Pricing Ratio, as follows:
- ----------------------------------------------------------------------------------------- Pricing Ratio Applicable Margin for Applicable Margin for Base Eurodollar Loans Rate Loans - ----------------------------------------------------------------------------------------- Equal to or greater than 4.0 to 1.0 225 25 - ----------------------------------------------------------------------------------------- Equal to or greater than 3.0 to 1.0 200 0 - ----------------------------------------------------------------------------------------- Less than 3.0 to 1.0 175 0 - -----------------------------------------------------------------------------------------
- 52 - 60 (f) The Applicable Margin (expressed as basis points) for the Capital Expenditure Line shall vary depending upon the Borrowers' Pricing Ratio, as follows:
- ----------------------------------------------------------------------------------------- Pricing Ratio Applicable Margin for Applicable Margin for Base Eurodollar Loans Rate Loans - ----------------------------------------------------------------------------------------- Equal to or greater than 4.0 to 1.0 250 50 - ----------------------------------------------------------------------------------------- Equal to or greater than 3.0 to 1.0 225 25 - ----------------------------------------------------------------------------------------- Less than 3.0 to 1.0 200 0 - -----------------------------------------------------------------------------------------
2.5.2 Selection of Interest Rates. (a) The Borrowers may select the initial Applicable Interest Rate or Applicable Interest Rates to be charged on the Loans. (b) From time to time after the date of this Agreement as provided in this Section, by a proper and timely Interest Rate Election Notice furnished to the Administrative Agent in accordance with the provisions of Section 2.5.2(e), the Borrowers may select an initial Applicable Interest Rate or Applicable Interest Rates for any Loans or may convert the Applicable Interest Rate and, when applicable, the Interest Period, for any existing Loan to any other Applicable Interest Rate or, when applicable, any other Interest Period. (c) The Borrowers' selection of an Applicable Interest Rate and/or an Interest Period, the Borrowers' election to convert an Applicable Interest Rate and/or an Interest Period to another Applicable Interest Rate or Interest Period, and any other adjustments in an interest rate are subject to the following limitations: (i) the Borrowers shall not at any time select or change to an Interest Period that extends beyond the Revolving Credit Expiration Date in the case of the Revolving Loan or beyond the scheduled maturity of the Capital Expenditure Line in the case of the Capital Expenditure Line; (ii) except as otherwise provided in Section 2.5.4 (Indemnity), no change from the Eurodollar Rate to the Base Rate shall become effective on a day other than a Business Day and on a day which is the last day of the then current Interest Period, no change of an Interest Period shall become effective on a day other than the last day of the then current Interest Period, and no change from the Base Rate to the Eurodollar Rate shall become effective on a day other than a day which is a Eurodollar Business Day; (iii) any Applicable Interest Rate change for any Loan to be effective on a date on which any principal payment on account of such Loan is scheduled to be paid shall be made only after such payment shall have been made; - 53 - 61 (iv) no more than ten (10) different Eurodollar Rates may be outstanding at any time and from time to time with respect to the Revolving Loan; (v) only three (3) Eurodollar Rates may be outstanding at any time and from time to time with respect to the Capital Expenditure Line; (vi) the first day of each Interest Period shall be a Eurodollar Business Day; (vii) as of the effective date of a selection, there shall not exist an Event of Default; and (viii) the minimum principal amount of a Eurodollar Loan shall be One Million Dollars ($1,000,000). (d) If a request for an advance under the Loans is not accompanied by an Interest Rate Election Notice or does not otherwise include a selection of an Applicable Interest Rate and, if applicable, an Interest Period, or if, after having made a selection of an Applicable Interest Rate and, if applicable, an Interest Period, the Borrowers fail or are not otherwise entitled under the provisions of this Agreement to continue such Applicable Interest Rate or Interest Period, the Borrowers shall be deemed to have selected the Base Rate as the Applicable Interest Rate until such time as the Borrowers have selected a different Applicable Interest Rate and specified an Interest Period in accordance with, and subject to, the provisions of this Section. (e) The Lenders will not be obligated to make Loans, to convert the Applicable Interest Rate on Loans to another Applicable Interest Rate, or to change Interest Periods, unless the Administrative Agent shall have received an irrevocable written or telephonic notice (an "Interest Rate Election Notice") from the Borrowers specifying the following information: (i) the amount to be borrowed or converted; (ii) a selection of the Base Rate or the Eurodollar Rate; (iii) the length of the Interest Period if the Applicable Interest Rate selected is the Eurodollar Rate; and (iv) the requested date on which such election is to be effective. Any telephonic notice must be confirmed by telecopy within three (3) Business Days. Each Interest Rate Election Notice must be received by the Administrative - 54 - 62 Agent not later than 10:00 a.m. (Baltimore City time) on the Business Day of any requested borrowing or conversion in the case of a selection of the Base Rate and not later than 10:00 a.m. (Baltimore City time) on the third Business Day before the effective date of any requested borrowing or conversion in the case of a selection of the Eurodollar Rate. 2.5.3 Inability to Determine Eurodollar Base Rate. In the event that (a) the Administrative Agent shall have determined that, by reason of circumstances affecting the London interbank eurodollar market, adequate and reasonable means do not exist for ascertaining the Eurodollar Base Rate for any requested Interest Period with respect to a Loan the Borrowers have requested to be made as or to be converted to a Eurodollar Loan or (b) the Administrative Agent shall determine that the Eurodollar Base Rate for any requested Interest Period with respect to a Loan the Borrowers have requested to be made as or to be converted to a Eurodollar Loan does not adequately and fairly reflect the cost to the Lenders of funding or converting such Loan, the Administrative Agent shall give telephonic or written notice of such determination to the Borrowers at least one (1) day prior to the proposed date for funding or converting such Loan. If such notice is given, any request for a Eurodollar Loan shall be made as or converted to a Base Rate Loan. Until such notice has been withdrawn by the Administrative Agent, the Borrowers will not request that any Loan be made as or converted to a Eurodollar Loan. 2.5.4 Indemnity. (a) The Borrowers agree to indemnify and reimburse the Administrative Agent and the Lenders and to hold the Administrative Agent and the Lenders harmless from any loss (including loss of anticipated profits), cost (including administrative costs) or expense which any one or more of the Administrative Agent or the Lenders may sustain or incur as a consequence of (a) a default by the Borrowers in payment when due of the principal amount of or interest on any Eurodollar Loan, (b) the failure of the Borrowers to make, or convert the Applicable Interest Rate of, a Loan after the Borrowers has given a Loan Notice or an Interest Rate Election Notice, (c) the failure of the Borrowers to make any prepayment of a Eurodollar Loan after the Borrowers have given notice of such intention to make such a prepayment, and/or (d) the making by the Borrowers of a prepayment of a Eurodollar Loan on a day which is not the last day of the Interest Period for such Eurodollar Loan including, without limitation, any such loss (including loss of anticipated profits) or expense arising from the reemployment of funds obtained by the Lenders to maintain any Eurodollar Loan or from fees payable to terminate the deposits from which such funds were obtained. (b) In addition to the foregoing, until the earlier of (i) the Syndication Date and (ii) the 180th day following the Closing Date, each Borrower severally shall compensate each Lender (including each Person that becomes a Lender pursuant to Section 9.5), upon its written request (which request shall set forth the basis for requesting such compensation), for all reasonable losses, expenses and liabilities (including, without limitation, any loss, expense or liability incurred by reason of the liquidation or reemployment of deposits or other funds required by such Lender to fund such Borrower's Eurodollar Loans including loss of anticipated profit with respect to any Eurodollar Loans) which such Lender may sustain in - 55 - 63 connection with the Administrative Agent's and the Syndication Agent's syndication of this Agreement to additional Lenders during such period to the extent that such losses, expenses and liabilities arise from assignments of, incurrences of, or repayments of, Eurodollar Loans, provided, however, that the Lenders agree to use good faith efforts to cause the syndication date to occur at the end of an Interest Period. 2.5.5 Payment of Interest. (a) Unpaid and accrued interest on any portion of the Loans which consists of a Base Rate Loan shall be paid monthly, in arrears, on the first day of each calendar month, commencing on the first such date after the date of this Agreement, and on the first day of each calendar month thereafter, and at maturity (whether by acceleration, declaration, extension or otherwise). (b) Notwithstanding the foregoing, any and all unpaid and accrued interest on any Base Rate Loan converted to a Eurodollar Loan or prepaid shall be paid immediately upon such conversion and/or prepayment, as appropriate. (c) Unpaid and accrued interest on any Eurodollar Loan shall be paid monthly and on the last Business Day of each Interest Period for such Eurodollar Loan and at maturity (whether by acceleration, declaration, extension or otherwise); provided, however that any and all unpaid and accrued interest on any Eurodollar Loan prepaid prior to expiration of the then current Interest Period for such Eurodollar Loan shall be paid immediately upon prepayment. Section 2.6 General Financing Provisions. 2.6.1 Borrowers' Representatives. The Borrowers hereby represent and warrant to the Administrative Agent and the Lenders that each of them will derive benefits, directly and indirectly, from each Letter of Credit and from each Loan, both in their separate capacity and as a member of the integrated group to which each of the Borrowers belong and because the successful operation of the integrated group is dependent upon the continued successful performance of the functions of the integrated group as a whole, because (a) the terms of the consolidated financing provided under this Agreement are more favorable than would otherwise would be obtainable by the Borrowers individually, and (b) the Borrowers' additional administrative and other costs and reduced flexibility associated with individual financing arrangements which would otherwise be required if obtainable would substantially reduce the value to the Borrowers of the financing. The Borrowers in the discretion of their respective managements are to agree among themselves as to the allocation of the benefits of Letters of Credit and the proceeds of Loans, provided, however, that the Borrowers shall be deemed to have represented and warranted to the Administrative Agent and the Lenders at the time of allocation that each benefit and use of proceeds is a Permitted Use. - 56 - 64 For administrative convenience, each Borrower hereby irrevocably appoints the Parent as such Borrower's attorney-in-fact, with power of substitution (with the prior written consent of the Administrative Agent in the exercise of its sole and absolute discretion), in the name of the Parent or in the name of such Borrower or otherwise to take any and all actions with respect to the this Agreement, the other Financing Documents, the Obligations and/or the Collateral (including, without limitation, the proceeds thereof) as the Parent may so elect from time to time, including, without limitation, actions to (i) request advances under the Loans, apply for and direct the benefits of Letters of Credits, and direct the Administrative Agent to disburse or credit the proceeds of any Loan directly to an account of the Parent, any one or more of the Borrowers or otherwise, which direction shall evidence the making of such Loan and shall constitute the acknowledgement by each of the Borrowers of the receipt of the proceeds of such Loan or the benefit of such Letter of Credit, (ii) enter into, execute, deliver, amend, modify, restate, substitute, extend and/or renew this Agreement, any Additional Borrower Joinder Supplement, any other Financing Documents, security agreements, mortgages, deposit account agreements, instruments, certificates, waivers, letter of credit applications, releases, documents and agreements from time to time, and (iii) endorse any check or other item of payment in the name of such Borrower or in the name of the Parent. The foregoing appointment is coupled with an interest, cannot be revoked without the prior written consent of the Administrative Agent, and may be exercised from time to time through the Parent's duly authorized officer, officers or other Person or Persons designated by the Parent to act from time to time on behalf of the Parent. Each of the Borrowers hereby irrevocably authorizes each of the Lenders to make Loans to any one or more all of the Borrowers, and hereby irrevocably authorizes the Administrative Agent to issue or cause to be issued Letters of Credit for the account of any or all of the Borrowers, pursuant to the provisions of this Agreement upon the written, oral or telephone request any one or more of the Persons who is from time to time a Responsible Officer of a Borrower under the provisions of the most recent certificate of corporate resolutions and/or incumbency of the Borrowers on file with the Administrative Agent and also upon the written, oral or telephone request of any one of the Persons who is from time to time a Responsible Officer of the Parent under the provisions of the most recent certificate of corporate resolutions and/or incumbency for the Parent on file with the Administrative Agent. Neither the Administrative Agent nor any of the Lenders assumes any responsibility or liability for any errors, mistakes, and/or discrepancies in the oral, telephonic, written or other transmissions of any instructions, orders, requests and confirmations between the Administrative Agent and the Borrowers or the Administrative Agent and any of the Lenders in connection with the Credit Facilities, any Loan, any Letter of Credit or any other transaction in connection with the provisions of this Agreement, except to the extent any such errors, mistakes and/or discrepancies are the proximate result of gross negligence or willful misconduct by the Administrative Agent or any Lender. Without implying any limitation on the joint and several nature of the Obligations, the Lenders agree that, notwithstanding any other provision of this Agreement, the Borrowers may create reasonable inter-company indebtedness between or among the Borrowers with respect to the allocation of the benefits and proceeds of the advances and Credit Facilities under this Agreement. The Borrowers agree among themselves, and the Administrative Agent and the Lenders consent to that agreement, that each Borrower shall have - 57 - 65 rights of contribution from all of the other Borrowers to the extent such Borrower incurs Obligations in excess of the proceeds of the Loans received by, or allocated to purposes for the direct benefit of, such Borrower. All such indebtedness and rights shall be, and are hereby agreed by the Borrowers to be, subordinate in priority and payment to the indefeasible repayment in full in cash of the Obligations, and, unless the Administrative Agent agrees in writing otherwise, shall not be exercised or repaid in whole or in part until all of the Obligations have been indefeasibly paid in full in cash. The Borrowers agree that all of such inter-company indebtedness and rights of contribution are part of the Collateral and secure the Obligations. Each Borrower hereby waives all rights of counterclaim, recoupment and offset between or among themselves arising on account of that indebtedness and otherwise. Each Borrower shall not evidence the inter-company indebtedness or rights of contribution by note or other instrument, and shall not secure such indebtedness or rights of contribution with any Lien or security. Notwithstanding anything contained in this Agreement to the contrary, the amount covered by each Borrower under the Obligations shall be limited to an aggregate amount (after giving effect to any collections from, rights to receive contribution from or payments made by or on behalf of any other Borrower in respect of the Obligations) which, together with other amounts owing by such Borrowers to the Administrative Agent and the Lenders under the Obligations, is equal to the largest amount that would not be subject to avoidance under the Bankruptcy Code or any applicable provisions of any applicable, comparable state or other Laws. 2.6.2 Computation of Interest and Fees. All applicable Fees and interest shall be calculated on the basis of a year of 360 days for the actual number of days elapsed. Any change in the interest rate on any of the Obligations resulting from a change in the Base Rate shall become effective as of the opening of business on the day on which such change in the Base Rate is announced. 2.6.3 Liens; Setoff. The Borrowers hereby grant to the Administrative Agent and to the Lenders a continuing Lien for all of the Obligations (including, without limitation, the Agents' Obligations) upon any and all monies, securities, and other property of the Borrowers and the proceeds thereof, now or hereafter held or received by or in transit to, the Administrative Agent, any of the Lenders, and/or any Affiliate of the Administrative Agent and/or any of the Lenders, from or for the Borrowers, and also upon any and all deposit accounts (general or special) and credits of the Borrowers, if any, with the Administrative Agent, any of the Lenders or any Affiliate of the Administrative Agent or any of the Lenders, at any time existing, excluding any deposit accounts held by the Borrowers in their capacity as trustee for Persons who are not Borrowers or Affiliates of the Borrowers. Without implying any limitation on any other rights the Administrative Agent and/or the Lenders may have under the Financing Documents or applicable Laws, during the continuance of an Event of Default, the Administrative Agent is hereby authorized by the Borrowers at any time and from time to time, without notice to the Borrowers, to set off, appropriate and apply any or all items hereinabove referred to against all Obligations (including, without limitation, the Agents' Obligations) then outstanding (whether or - 58 - 66 not then due), all in such order and manner as shall be determined by the Administrative Agent in its sole and absolute discretion. 2.6.4 Requirements of Law. In the event that any Lender shall have determined in good faith that (a) the adoption of any Laws regarding capital adequacy, or (b) any change therein or in the interpretation or application thereof or (c) compliance by such Lender or any corporation controlling such Lender with any request or directive 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 the capital of such Lender or any corporation controlling such Lender, as a consequence of the obligations of the such Lender hereunder to a level below that which such Lender or any corporation controlling such Lender would have achieved but for such adoption, change or compliance (taking into consideration the policies of such Lender and the corporation controlling such Lender, with respect to capital adequacy) by an amount deemed by such Lender to be material, then from time to time, after submission by such Lender to the Borrowers of a written request therefor and a statement of the basis for such determination, the Borrowers shall pay to such Lender such additional amount or amounts in order to compensate for such reduction, provided, however, that each Lender agrees to (i) use good faith efforts to change its Appropriate Payment Office if such change would (A) eliminate the necessity for such additional payments and (B) not have an adverse effect on such Lender and (ii) treat the Borrowers in substantially the same manner as it treats all similarly situated borrowers with respect to the requirement to payment of such additional amounts. 2.6.5 Administrative Agency Fees. The Borrowers shall pay to the Administrative Agent an administrative agency fee (collectively, the "Administrative Agency Fees" and individually an "Administrative Agency Fee"), which Administrative Agency Fees shall be payable quarterly in advance on the Closing Date and on the first day of each August, November, February, and May of each year commencing on the first such date following the Closing Date, and continuing until the last such date prior to which all Obligations arising out of, or under, the Credit Facilities then outstanding have been paid in full. Each Administrative Agency Fee shall be in the amount of $25,000 per quarter. 2.6.6 Origination Fee. The Borrowers shall pay to the Administrative Agent for the sole and exclusive benefit of the Administrative Agent on or before the Closing Date an origination fee in the amount set forth in the Administrative Agent's fee letter (the "Origination Fee"), which Origination Fee shall be fully earned and nonrefundable upon payment and shall be a part of the Agents' Obligations. 2.6.7 Funds Transfer Services. (a) Each Borrower acknowledges that the Administrative Agent has made available to the Borrowers Wire Transfer Procedures a copy of which is - 59 - 67 attached to this Agreement as EXHIBIT C and which include a description of security procedures regarding funds transfers executed by the Administrative Agent or an Affiliate bank at the request of the Borrowers (the "Security Procedures"). The Borrowers and the Administrative Agent agree that the Security Procedures are commercially reasonable. Each Borrower further acknowledges that the full scope of the Security Procedures which the Administrative Agent or such Affiliate bank offers and strongly recommends for funds transfers is available only if the Borrowers communicate directly with the Administrative Agent or such Affiliate bank as applicable in accordance with said procedures. If a Borrower attempts to communicate by any other method or otherwise not in accordance with the Security Procedures, the Administrative Agent or such Affiliate bank, as applicable, shall not be required to execute such instructions, but if the Administrative Agent or such Affiliate bank, as applicable, does so, the Borrowers will be deemed to have refused the Security Procedures that the Administrative Agent or such Affiliate bank as applicable offers and strongly recommends, and the Borrowers will be bound by any funds transfer, whether or not authorized, which is issued in any Borrower's name and accepted by the Administrative Agent or such Affiliate bank, as applicable, in good faith. The Administrative Agent or such Affiliate bank, as applicable, may modify Wire Transfer Procedures including, without limitation, the Security Procedures at such time or times and in such manner as the Administrative Agent or such Affiliate bank, as applicable, in its sole discretion, deems appropriate to meet prevailing standards of good banking practice. By continuing to use the Administrative Agent's or such Affiliate bank's, as applicable, wire transfer services after receipt of any modification of the Wire Transfer procedures including, without limitation, the Security Procedures, each Borrower agrees that the Security Procedures, as modified, are likewise commercially reasonable. Each Borrower further agrees to establish and maintain procedures to safeguard the Security Procedures and any information related thereto. Neither the Administrative Agent nor any Affiliate of the Administrative Agent is responsible for detecting any error in payment order sent by any Borrower to the Administrative Agent or any of the Lenders. (b) The Administrative Agent or such Affiliate bank, as applicable, will generally use the Fedwire funds transfer system for domestic funds transfers, and the funds transfer system operated by the Society for Worldwide International Financial Telecommunication (SWIFT) for international funds transfers. International funds transfers may also be initiated through the Clearing House InterBank Payment System (CHIPs) or international cable. However, the Administrative Agent or such Affiliate bank, as applicable, may use any means and routes that the Administrative Agent or such Affiliate bank, as applicable, in its sole discretion, may consider suitable for the transmission of funds. Each payment order, or cancellation thereof, carried out through a funds transfer system or a clearinghouse will be governed by all applicable funds transfer system rules and clearing house rules and clearing arrangements, whether or not the Administrative Agent or such Affiliate bank, as applicable, is a member of the system, clearinghouse or arrangement and each Borrower acknowledges that the Administrative Agent's or such Affiliate bank's, as applicable, right to reverse, adjust, stop payment or delay posting of an executed payment order is subject to the laws, regulations, rules, circulars and arrangements described herein. - 60 - 68 2.6.8 Guaranty. (a) Each Domestic Borrower hereby unconditionally and irrevocably, guarantees to the Agents and the Lenders: (i) the due and punctual payment in full (and not merely the collectibility) by the other Borrowers of the Obligations, including unpaid and accrued interest thereon, in each case when due and payable, all according to the terms of this Agreement, the Notes and the other Financing Documents; (ii) the due and punctual payment in full (and not merely the collectibility) by the other Borrowers of all other sums and charges which may at any time be due and payable in accordance with this Agreement, the Notes or any of the other Financing Documents; (iii) the due and punctual performance by the other Borrowers of all of the other terms, covenants and conditions contained in the Financing Documents; and (iv) all the other Obligations of the other Borrowers. (b) The obligations and liabilities of each Domestic Borrower as a guarantor under this Section 2.6.8 shall be absolute and unconditional and joint and several, irrespective of the genuineness, validity, priority, regularity or enforceability of this Agreement, any of the Notes or any of the Financing Documents or any other circumstance which might otherwise constitute a legal or equitable discharge of a surety or guarantor. Each Domestic Borrower in its capacity as a guarantor expressly agrees that the Administrative Agent and the Lenders may, in their sole and absolute discretion, without notice to or further assent of such Domestic Borrower and without in any way releasing, affecting or in any way impairing the joint and several obligations and liabilities of such Domestic Borrower as a guarantor hereunder: (i) waive compliance with, or any defaults under, or grant any other indulgences under or with respect to any of the Financing Documents; (ii) modify, amend, change or terminate any provisions of any of the Financing Documents; (iii) grant extensions or renewals of or with respect to the Credit Facilities, the Notes or any of the other Financing Documents; (iv) effect any release, subordination, compromise or settlement in connection with this Agreement, any of the Notes or any of the other Financing Documents; - 61 - 69 (v) agree to the substitution, exchange, release or other disposition of the Collateral or any part thereof, or any other collateral for the Loan or to the subordination of any lien or security interest therein; (vi) make advances for the purpose of performing any term, provision or covenant contained in this Agreement, any of the Notes or any of the other Financing Documents with respect to which the Borrowers shall then be in default; (vii) make future advances pursuant to the Financing Agreement or any of the other Financing Documents; (viii) assign, pledge, hypothecate or otherwise transfer the Commitments, the Obligations, the Notes, any of the other Financing Documents or any interest therein, all as and to the extent permitted by the provisions of this Agreement; (ix) deal in all respects with the other Borrowers as if this Section 2.6.8 were not in effect; (x) effect any release, compromise or settlement with any of the other Borrowers, whether in their capacity as a Borrower or as a guarantor under this Section 2.6.8, or any other guarantor; and (xi) provide debtor-in-possession financing or allow use of cash collateral in proceedings under the Bankruptcy Code or other Insolvency Proceedings, it being expressly agreed by all Borrowers that any such financing and/or use would be part of the Obligations. (c) The obligations and liabilities of each Domestic Borrower, as guarantor under this Section 2.6.8, shall be primary, direct and immediate, shall not be subject to any counterclaim, recoupment, set off, reduction or defense based upon any claim that a Domestic Borrower may have against any one or more of the other Borrowers, the Administrative Agent, any one or more of the Lenders and/or any other guarantor and shall not be conditional or contingent upon pursuit or enforcement by the Administrative Agent or other Lenders of any remedies it may have against the Borrowers with respect to this Agreement, the Notes or any of the other Financing Documents, whether pursuant to the terms thereof or by operation of law. Without limiting the generality of the foregoing, the Administrative Agent and the Lenders shall not be required to make any demand upon any of the Borrowers, or to sell the Collateral or otherwise pursue, enforce or exhaust its or their remedies against the Borrowers or the Collateral either before, concurrently with or after pursuing or enforcing its rights and remedies hereunder. Any one or more successive or concurrent actions or proceedings may be brought against each Domestic Borrower under this Section 2.6.8 in the same action, if any, brought against any one or more of the Borrowers or in separate actions or proceedings, as often - 62 - 70 as the Administrative Agent may deem expedient or advisable. Without limiting the foregoing, it is specifically understood that any modification, limitation or discharge of any of the liabilities or obligations of any one or more of the Borrowers, any other guarantor or any obligor under any of the Financing Documents, arising out of, or by virtue of, any bankruptcy, arrangement, reorganization or similar proceeding for relief of debtors under federal or state law initiated by or against any one or more of the Borrowers, in their respective capacities as borrowers and guarantors under this Section 2.6.8 under any of the Financing Documents shall not modify, limit, lessen, reduce, impair, discharge, or otherwise affect the liability of each Domestic Borrower under this Section 2.6.8 in any manner whatsoever, and this Section 2.6.8 shall remain and continue in full force and effect. It is the intent and purpose of this Section 2.6.8 that each Domestic Borrower shall and does hereby waive all rights and benefits which might accrue to any other guarantor by reason of any such proceeding, and the Borrowers agree that they shall be liable for the full amount of the obligations and liabilities under this Section 2.6.8, regardless of, and irrespective to, any modification, limitation or discharge of the liability of any one or more of the Borrowers, (other than the discharge of all Borrowers as a result of the indefeasible payment in full in cash of all Obligations) any other guarantor or any obligor under any of the Financing Documents, that may result from any such proceedings (d) Each Domestic Borrower, as guarantor under this Section 2.6.8, hereby unconditionally, jointly and severally, irrevocably and expressly waives: (i) presentment and demand for payment of the Obligations and protest of non-payment; (ii) notice of acceptance of this Section 2.6.8 and of presentment, demand and protest thereof; (iii) notice of any default hereunder or under the Notes or any of the other Financing Documents and notice of all indulgences; (iv) notice of any increase in the amount of any portion of or all of the indebtedness guaranteed by this Section 2.6.8; (v) demand for observance, performance or enforcement of any of the terms or provisions of this Section 2.6.8, the Notes or any of the other Financing Documents; (vi) all errors and omissions in connection with the Lender's administration of all indebtedness guaranteed by this Section 2.6.8, except errors and omissions resulting from acts of bad faith, gross negligence or willful misconduct; (vii) any right or claim of right to cause a marshalling of the assets of any one or more of the other Borrowers; - 63 - 71 (viii) any act or omission of the Administrative Agent or the Lenders which changes the scope of the risk as guarantor hereunder; and all other notices and demands otherwise required by law which the Domestic Borrower may lawfully waive. Within ten (10) days following any request of the Administrative Agent so to do, each Domestic Borrower will furnish the Administrative Agent and the Lenders and such other persons as the Administrative Agent may direct with a written certificate, duly acknowledged stating in detail whether or not any credits, offsets or defenses exist with respect to this Section 2.6.8. Section 2.7 Settlement Among Lenders. 2.7.1 Capital Expenditure Line. The Administrative Agent shall pay to each Lender on each Interest Payment Date or date provided in the Capital Expenditure Line Installment Payment Schedule, as the case may be, such Lender's Capital Expenditure Line Pro Rata Share of all payments received by the Administrative Agent in immediately available funds on account of the Capital Expenditure Line, net of any amounts payable by such Lender to the Administrative Agent, by wire transfer of same day funds; the amount payable to each Lender shall be based on the principal amount of the Capital Expenditure Line owing to such Lender. 2.7.2 Revolving Loan. It is agreed that each Lender's Net Outstandings are intended by the Lenders to be equal at all times to such Lender's Revolving Credit Pro Rata Share of the aggregate outstanding principal amount of the Revolving Loan outstanding. Notwithstanding such agreement, the several and not joint obligation of each Lender to fund the Revolving Loan made in accordance with the terms of this Agreement ratably in accordance with such Lender's Revolving Credit Pro Rata Share and each Lender's right to receive its ratable share of principal payments on the Revolving Loan in accordance with its Revolving Credit Pro Rata Share, the Lenders agree that in order to facilitate the administration of this Agreement and the Financing Documents that settlement among them may take place on a periodic basis in accordance with the provisions of this Section 2.7. 2.7.3 Settlement Procedures as to Revolving Loan. (a) In General. To the extent and in the manner hereinafter provided in this Section 2.7.3, settlement among the Lenders as to the Revolving Loan may occur periodically on Settlement Dates determined from time to time by the Administrative Agent, which may occur before or after the occurrence or during the continuance of a Default or Event of Default and whether or not all of the conditions set forth in Section 5.4 (Conditions to All Extensions of Credit) have been met. On each Settlement Date payments shall be made by or to NationsBank and the other Lenders in the manner provided in this Section 2.7.3 in accordance with the Settlement Report delivered by the Administrative Agent pursuant to the provisions of - 64 - 72 this Section 2.7.3 in respect of such Settlement Date so that as of each Settlement Date, and after giving effect to the transactions to take place on such Settlement Date, each Lender's Net Outstandings shall equal such Lender's Revolving Credit Pro Rata Share of the Revolving Loan outstanding. (b) Selection of Settlement Dates. If the Administrative Agent elects, in its discretion, but subject to the consent of NationsBank, to settle accounts among the Lenders with respect to principal amounts of Revolving Loan less frequently than each Business Day, then the Administrative Agent shall designate periodic Settlement Dates which may occur on any Business Day after the Closing Date; provided, however, that the Administrative Agent shall designate as a Settlement Date any Business Day which is an Interest Payment Date; and provided further, that a Settlement Date shall occur at least once during each seven-day period. The Administrative Agent shall designate a Settlement Date by delivering to each Lender a Settlement Report not later than 12:00 noon (Baltimore City Time) on the proposed Settlement Date, which Settlement Report shall be with respect to the period beginning on the next preceding Settlement Date and ending on such designated Settlement Date. (c) Non-Ratable Loans and Payments. Between Settlement Dates, the Administrative Agent shall request and NationsBank may (but shall not be obligated to) advance to the Borrowers out of NationsBank's own funds, the entire principal amount of any advance under the Revolving Loan requested or deemed requested pursuant to Section 2.1.2(f) (Procedure for Making Advances Under the Revolving Loan) (any such advance under the Revolving Loan being referred to as a "Non-Ratable Loan"). The making of each Non-Ratable Loan by NationsBank shall be deemed to be a purchase by NationsBank of a 100% participation in each other Lender's Revolving Credit Pro Rata Share of the amount of such Non-Ratable Loan. All payments of principal, interest and any other amount with respect to such Non-Ratable Loan shall be payable to and received by the Administrative Agent for the account of NationsBank. Upon demand by NationsBank, with notice to the Administrative Agent, each other Lender shall pay to NationsBank, as the repurchase of such participation, an amount equal to 100% of such Lender's Revolving Credit Pro Rata Share of the principal amount of such Non-Ratable Loan. Any payments received by the Administrative Agent between Settlement Dates which in accordance with the terms of this Agreement are to be applied to the reduction of the outstanding principal balance of Revolving Loan, shall be paid over to and retained by NationsBank for such application, and such payment to and retention by NationsBank shall be deemed, to the extent of each other Lender's Revolving Credit Pro Rata Share of such payment, to be a purchase by each such other Lender of a participation in the advance under the Revolving Loan (including the repurchase of participations in Non-Ratable Loans) made by NationsBank. Upon demand by another Lender, with notice thereof to the Administrative Agent, NationsBank shall pay to the Administrative Agent, for the account of such other Lender, as a repurchase of such participation, an amount equal to such other Lender's Revolving Credit Pro Rata Share of any such amounts (after application thereof to the repurchase of any participations of NationsBank in such other Lender's Revolving Credit Pro Rata Share of any Non-Ratable Loans) paid only to NationsBank by the Administrative Agent. (d) Net Decrease in Outstandings. If on any Settlement Date the increase, if any, in the dollar amount of any Lender's Net Outstandings which is required to - 65 - 73 comply with the first sentence of Section 2.7.2 (Revolving Loan) is less than such Lender's Revolving Credit Pro Rata Share of amounts received by the Administrative Agent but paid only to NationsBank since the next preceding Settlement Date, such Lender and the Administrative Agent, in their respective records, shall apply such Lender's Revolving Credit Pro Rata Share of such amounts to the increase in such Lender's Net Outstandings, and NationsBank shall pay to the Administrative Agent, for the account of such Lender, the excess allocable to such Lender. (e) Net Increase in Outstandings. If on any Settlement Date the increase, if any, in the dollar amount of any Lender's Net Outstandings which is required to comply with the first sentence of Section 2.7.2 (Revolving Loan) exceeds such Lender's Revolving Credit Pro Rata Share of amounts received by the Administrative Agent but paid only to NationsBank since the next preceding Settlement Date, such Lender and the Administrative Agent, in their respective records, shall apply such Lender's Revolving Credit Pro Rata Share of such amounts to the increase in such Lender's Net Outstandings, and such Lender shall pay to the Administrative Agent, for the account of NationsBank, any excess. (f) No Change in Outstandings. If a Settlement Report indicates that no advance under the Revolving Loan has been made during the period since the next preceding Settlement Date, then such Lender's Revolving Credit Pro Rata Share of any amounts received by the Administrative Agent but paid only to NationsBank shall be paid by NationsBank to the Administrative Agent, for the account of such Lender. If a Settlement Report indicates that the increase in the dollar amount of a Lender's Net Outstandings which is required to comply with the first sentence of Section 2.7.2 (Revolving Loan) is exactly equal to such Lender's Revolving Credit Pro Rata Share of amounts received by the Administrative Agent but paid only to NationsBank since the next preceding Settlement Date, such Lender and the Administrative Agent, in their respective records, shall apply such Lender's Revolving Credit Pro Rata Share of such amounts to the increase in such Lender's Net Outstandings. (g) Return of Payments. If any amounts received by NationsBank in respect of the Obligations are later required to be returned or repaid by NationsBank to the Borrowers or any other obligor or their respective representatives or successors in interest, whether by court order, settlement or otherwise, in excess of the NationsBank's Revolving Credit Pro Rata Share of all such amounts required to be returned by all Lenders, each other Lender shall, upon demand by NationsBank with notice to the Administrative Agent, pay to the Administrative Agent for the account of NationsBank, an amount equal to the excess of such Lender's Revolving Credit Pro Rata Share of all such amounts required to be returned by all Lenders over the amount, if any, returned directly by such Lender. (h) Payments to Administrative Agent, Lenders. (i) Payment by any Lender to the Administrative Agent shall be made not later than 2:00 p.m. (Baltimore City Time) on the Business Day such payment is due, provided that if such payment is due on demand by another Lender, such demand is made on the paying Lender not later than 10:00 a.m. (Baltimore City Time) on such - 66 - 74 Business Day. Payment by the Administrative Agent to any Lender shall be made by wire transfer, promptly following the Administrative Agent's receipt of funds for the account of such Lender and in the type of funds received by the Administrative Agent, provided that if the Administrative Agent receives such funds at or prior to 12:00 p.m. noon (Baltimore City Time), the Administrative Agent shall pay such funds to such Lender by 2:00 p.m. (Baltimore City Time) on such Business Day. If a demand for payment is made after the applicable time set forth above, the payment due shall be made by 2:00 p.m. (Baltimore City Time) on the first Business Day following the date of such demand. (ii) If a Lender shall, at any time, fail to make any payment to the Administrative Agent required hereunder, the Administrative Agent may, but shall not be required to, retain payments that would otherwise be made to such Lender hereunder and apply such payments to such Lender's defaulted obligations hereunder, at such time, and in such order, as the Administrative Agent may elect in its sole discretion. (iii) With respect to the payment of any funds under this Section 2.7.3, whether from the Administrative Agent to a Lender or from a Lender to the Administrative Agent, the party failing to make full payment when due pursuant to the terms hereof shall, upon demand by the other party, pay such amount together with interest on such amount at the Federal Funds Rate. 2.7.4 Settlement of Other Obligations. All other amounts received by the Administrative Agent on account of, or applied by the Administrative Agent to the payment of, any Obligation owed to the Lenders (including, without limitation, Fees payable to the Lenders and proceeds from the sale of, or other realization upon, all or any part of the Collateral following an Event of Default) that are received by the Administrative Agent not later than 11:00 a.m. (Baltimore City Time) on a Business Day will be paid by the Administrative Agent to each Lender on the same Business Day, and any such amounts that are received by the Administrative Agent after 11:00 a.m. (Baltimore City Time) will be paid by the Administrative Agent to each Lender on the following Business Day. Unless otherwise stated herein, the Administrative Agent shall distribute Fees payable to the Lenders ratably to the Lenders based on each Lender's Revolving Credit Pro Rata Share and shall distribute proceeds from the sale of, or other realization upon, all or any part of the Collateral following an Event of Default ratably to the Lenders based on the amount of the Obligations then owing to each Lender. 2.7.5 Presumption of Payment. Unless the Administrative Agent shall have received notice from a Lender prior to 12:00 p.m. noon (Baltimore City Time) on the date of the requested date for the making - 67 - 75 of advances under the Revolving Loan that such Lender will not make available to the Administrative Agent such Lender's Revolving Credit Pro Rata Share of the advances to be made on such date, the Administrative Agent may assume that such Lender has made such amount available to the Administrative Agent on such date in accordance with this Section 2.7, and the Administrative Agent, in its sole discretion may, in reliance upon such assumption, make available to the Borrowers on such date a corresponding amount on behalf of such Lender. If and to the extent such Lender shall not have so made available to the Administrative Agent its Revolving Credit Pro Rata Share of the advances under the Revolving Loan made on such date, and the Administrative Agent shall have so made available to the Borrowers a corresponding amount on behalf of such Lender, such Lender shall, on demand, pay to the Administrative Agent such corresponding amount, together with interest thereon, at the Federal Funds Rate, for each day from the date such corresponding amount shall have been so available by the Administrative Agent to the Borrowers until the date such amount shall have been repaid to the Administrative Agent. Such Lender shall not be entitled to payment of any interest which accrues on the amount made available by the Administrative Agent to the Borrowers for the account of such Lender until such time as such Lender reimburses the Administrative Agent for such amount, together with interest thereon, as provided in this Section 2.7.5. A certificate of the Administrative Agent submitted to any Lender with respect to any amounts owing to the Administrative Agent by such Lender under this Section 2.7 shall be conclusive and binding on such Lender, absent manifest error. If such Lender does not pay such amounts to the Administrative Agent promptly upon the Administrative Agent's demand, the Administrative Agent shall promptly notify the Borrowers of such Lender's failure to make payment, and the Borrowers shall immediately repay such amounts to the Administrative Agent, together with accrued interest thereon at the applicable rate on the Revolving Loan, all without prejudice to the rights and remedies of the Administrative Agent against any defaulting Lender. Any and all amounts due and payable to the Administrative Agent by the Borrowers under this Section 2.7 constitute and shall be part of the Agents' Obligations. Unless the Administrative Agent shall have received notice from the Borrowers prior to the date on which any payment is due to the Administrative Agent that the Borrowers will not make such payment in full, the Administrative Agent may assume that the Borrowers have made such payment in full to the Administrative Agent on such date and the Administrative Agent in its sole discretion may, in reliance upon such assumption, cause to be distributed to each Lender on such due date an amount equal to the amount then due such Lender. If and to the extent the Borrowers shall not have so made such payment in full to the Administrative Agent and the Administrative Agent shall have distributed to any Lender all or any portion of such amount, such Lender shall repay to the Administrative Agent on demand the amount so distributed to such Lender, together with interest thereon at the Federal Funds Rate, for each day from the date such amount is distributed to such Lender until the date such Lender repays such amount to the Administrative Agent. - 68 - 76 Section 2.8 Assessments; Withholding. 2.8.1 Payment of Assessments. (a) Any and all payments by the Borrowers hereunder or under any Note or other document evidencing any obligations shall be made free and clear of and without reduction for any and all taxes, levies, imposts, deductions, charges, withholdings, and all stamp or documentary taxes, excise taxes, ad valorem taxes and other taxes imposed on the value of the Collateral, charges or levies which arise from the execution, delivery or registration, or from payment or performance under, or otherwise with respect to, any of the Financing Documents or the Revolving Credit Commitments and all other liabilities with respect thereto excluding, in the case of each Lender and the Administrative Agent, taxes imposed on its income, capital, profits or gains and franchise taxes imposed on it by (i) the United States, except certain withholding taxes contemplated pursuant to Section 2.8.4(b)(iii), (ii) the Governmental Authority of the jurisdiction in which such Applicable Lending Office is located or any political subdivision thereof, (iii) the Governmental Authority in which such Person is organized, managed and controlled or any political subdivision thereof or (iv) any political subdivision of the United States, unless such taxes are imposed solely as a result of such Lender's performance of any of the Financing Documents in such political subdivision and such Lender would not otherwise be subject to tax by such political subdivision (all such non-excluded taxes, levies, imposts, deductions, charges, withholdings and liabilities being hereinafter referred to as "Assessments"). (b) If a Borrower shall be required by law to withhold or deduct any Assessments from or in respect of any sum payable hereunder or under any such Note or document to any Lender or the Administrative Agent, (i) the sum payable to such Lender or the Administrative Agent shall be increased as may be necessary so that after making all required withholding or deductions (including withholding or deductions applicable to additional sums payable under this Section 2.8) such Lender or the Administrative Agent (as the case may be) receives an amount equal to the sum it would have received had no such withholding or deductions been made, (ii) such Borrower shall make such withholding or deductions, and (iii) such Borrower shall pay the full amount withheld or deducted to the relevant taxation authority or other authority in accordance with applicable law. 2.8.2 Indemnification. The Borrowers jointly and severally agree to indemnify each Lender and the Administrative Agent against, and reimburse each on demand for, the full amount of all Assessments (including, without limitation, any Assessments imposed by any Governmental Authority on amounts payable under this Section 2.8 and any additional income or franchise taxes resulting therefrom) incurred or paid by such Lender or the Administrative Agent (as the case may be) or any of their respective Affiliates and any liability (including penalties, interest, and out-of-pocket expenses paid to third parties) arising therefrom or with respect thereto, whether or not such Assessments were lawfully payable (other than any liability that results from the gross negligence or willful misconduct of the Lenders and the Administrative Agent, whether or not such Assessments were correctly or legally asserted by the relevant taxing authority or other governmental authority). A certificate as to any additional amount payable to any Person - 69 - 77 under this Section 2.8 submitted by it to the Borrower shall, absent manifest error, be final, conclusive and binding upon all parties hereto. Each Lender and the Administrative Agent agrees (ii) within a reasonable time after receiving a written request from the Parent, to provide the Parent and the Administrative Agent with such certificates as are reasonably required, (ii) to take such other actions as are reasonably necessary to claim such exemptions as such Lender, the Administrative Agent or such Affiliate may be entitled to claim in respect of all or a portion of any Assessments which are otherwise required to be paid or deducted or withheld pursuant to this Section 2.8 in respect of any payments under this Agreement or under the Notes, (iii) to take such actions, including changing of the Appropriate Payment Office, to avoid the necessity of paying such Assessments, provided such change would not have an adverse effect on the business of the applicable Lender and (iv) treat the Borrowers in the same manner as it treats all similarly situated borrowers with respect to the requirement to pay such Assessments. If any Lender or the Administrative Agent receives a refund in respect of any Assessments for which such Lender or the Administrative Agent has received payment from a Borrower hereunder, it shall promptly apply such refund (including any interest received by such Lender or the Administrative Agent from the taxing authority with respect to the refund with respect to such Assessments) to the obligations of such Borrower, net of all out-of-pocket expenses of such Lender or the Administrative Agent; provided that such Borrower, upon the request of such Lender or the Administrative Agent, agrees to reimburse such refund (plus penalties, interest or other charges) to such Lender or the Administrative Agent in the event such Lender or the Administrative Agent is required to repay such refund. 2.8.3 Receipts. Within thirty (30) days after the date of any payment of Assessments pursuant to this Section 2.8 by any Borrower or any of the Borrowers' Subsidiaries, the Parent will furnish to the Administrative Agent at its request, at its address referred to in Section 9.1, a copy of a receipt, if any, or other documentation reasonably satisfactory to the Administrative Agent, evidencing payment thereof. The Borrowers shall furnish to the Administrative Agent, within thirty (30) days after the request of the Administrative Agent from time to time, a certificate of a Responsible Officer stating that all Assessments of which they are aware are due have been paid and that no additional Assessments of which it is aware are due. 2.8.4 Foreign Bank Certifications. (a) Each Lender that is not created or organized under the laws of the United States or a political subdivision thereof has delivered to the Borrowers and the Administrative Agent on the date on which such Lender became a Lender or shall deliver to the Borrowers on the date such Lender becomes a Lender, if such date is after the Closing Date, a true and accurate certificate executed in duplicate by a duly authorized officer of such Lender to the effect that such Lender is eligible to receive all payments hereunder and under the Notes without deduction or withholding of United States federal income tax (i) under the provisions of an applicable tax treaty concluded by the United States (in which case the certificate shall be accompanied by two duly completed copies of IRS Form 1001 (or any successor or substitute form or forms)) or (ii) under Section 1441(c)(1) as modified for purposes of Section 1442(a) of the Internal Revenue Code (in which case the certificate shall be accompanied by two - 70 - 78 duly completed copies of IRS Form 4224 (or any successor or substitute form or forms)). If a Lender is unable to deliver the certificate and forms described in, and on the dates required by, the preceding sentence, then the applicable Borrower shall withhold the applicable tax and shall have no indemnification obligation with respect to such withholding tax. (b) Each Lender further agrees to promptly deliver to the Borrowers and the Administrative Agent from time to time, a true and accurate certificate executed in duplicate by a duly authorized officer of such Lender before or promptly upon the occurrence of any event requiring a change in the most recent certificate previously delivered by it to the Borrowers and the Administrative Agent pursuant to this Section 2.8.4 (including, but not limited to, a change in such Lender's lending office). Each certificate required to be delivered pursuant to this Section 2.8.4 shall certify as to one of the following: (i) that such Lender can continue to receive payments hereunder and under the Notes without deduction or withholding of United States federal income tax; (ii) that such Lender cannot continue to receive payments hereunder and under the Notes without deduction or withholding of United States federal income tax as specified therein but does not require additional payments pursuant to Section 2.8.1 because it is entitled to recover the full amount of any such deduction or withholding from a source other than the Borrowers; (iii) that such Lender is no longer capable of receiving payments hereunder and under the Notes without deduction or withholding of United States federal income tax as specified therein by reason of a change in law (including the Internal Revenue Code or applicable tax treaty) after the later of the Closing Date or the date on which such Lender became a Lender and that it is not capable of recovering the full amount of the same from a source other than the Borrowers; or (iv) that such Lender is no longer capable of receiving payments hereunder without deduction or withholding of United States federal income tax as specified therein other than by reason of a change in law (including the Internal Revenue Code or applicable tax treaty) after the later of the Closing Date or the date on which such Lender became a Lender. (c) Each Lender agrees to deliver to the Borrowers and the Administrative Agent further duly completed copies of the above-mentioned IRS forms on or before the earlier of (i) the date that any such form expires or becomes obsolete or otherwise is required to be resubmitted as a condition to obtaining an exemption from withholding from United States federal income tax and (ii) fifteen (15) days after the occurrence of any event requiring a change in the most recent form previously delivered by such Lender to the Borrowers - 71 - 79 and the Administrative Agent, unless any change in treaty, law, regulation or official interpretation thereof which would render such form inapplicable or which would prevent the Lender from duly completing and delivering such form has occurred prior to the date on which any such delivery would otherwise be required and the Lender or promptly advises the Borrowers that it is not capable of receiving payments hereunder or under the Notes without any deduction or withholding of United States federal income tax. ARTICLE III THE COLLATERAL Section 3.1 Debt and Obligations Secured. All property and Liens assigned, pledged or otherwise granted under or in connection with this Agreement (including, without limitation, those under Section 3.2 (Grant of Liens)) or any of the Financing Documents shall secure (a) the payment of all of the Obligations, including, without limitation, Obligations with respect to any and all Outstanding Letter of Credit Obligations and any and all Agents' Obligations, and (b) the performance, compliance with and observance by the Borrowers of the provisions of this Agreement and all of the other Financing Documents or otherwise under the Obligations; provided, however, that notwithstanding the foregoing, the Capital Expenditure Line Equipment shall secure only the Obligations (including, without limitation, interest and Enforcement Costs) with respect to the amount advanced under the Capital Expenditure Line, the proceeds of which were utilized to purchase the applicable items of Capital Expenditure Line Equipment. The security interest and Lien of each Lender in such property shall rank equally in priority with the interest of each other Lender, but the security interest and Lien of the Administrative Agent with respect to the Agents' Obligations shall be superior and paramount to the security interest and Lien of the Lenders. Section 3.2 Grant of Liens. Each of the Domestic Borrowers hereby assigns, pledges and grants to the Administrative Agent, for the ratable benefit of the Lenders and for the benefit of the Administrative Agent and the other Agents with respect to the Agents' Obligations, and agrees that the Administrative Agent, the other Agents and the Lenders shall have a perfected and continuing security interest in, and Lien on, all of the Domestic Borrowers' Accounts, Inventory, Capital Expenditure Line Equipment, and General Intangibles, whether now owned or existing or hereafter acquired or arising, all returned, rejected or repossessed goods, the sale or lease of which shall have given or shall give rise to an Account or chattel paper, all insurance policies relating to the foregoing, all books and records in whatever media (paper, electronic or otherwise) recorded or stored, with respect to the foregoing and all equipment and general intangibles necessary or beneficial to retain, access and/or process the information contained in those books and records, and all cash and non-cash proceeds and products of the foregoing. Each of the Domestic Borrowers further agrees that the Administrative Agent, for the ratable benefit of the Lenders and for the benefit of the Administrative Agent and the other Agents with respect to the Agents' Obligations, shall have in respect thereof all of the rights and remedies of a secured party under the Uniform Commercial Code as well as those provided in this Agreement, under each of the other Financing Documents and under applicable Laws. - 72 - 80 Section 3.3 Collateral Disclosure List. On or prior to the Closing Date, the Domestic Borrowers shall deliver to the Administrative Agent a list (the "Collateral Disclosure List") which shall contain such information with respect to each Borrower's business and real and personal property as the Administrative Agent may require and shall be certified by a Responsible Officer of each of the Domestic Borrowers, all in the form provided to the Domestic Borrowers by the Administrative Agent. Promptly after demand by the Administrative Agent, but no more frequently than on a semi-annual basis, unless and until an event of Default shall have occurred and be continuing, in which case the foregoing limitation shall not apply, the Domestic Borrowers, as appropriate, shall furnish to the Administrative Agent an update of the information contained in the Collateral Disclosure List at any time and from time to time as may be requested by the Administrative Agent. Section 3.4 Additional Collateral. Following an Event of Default and during the continuation thereof, the Administrative Agent, in its sole and absolute discretion exercised from time to time, may require that the Borrowers further secure the Obligations, for the ratable benefit of the Lenders and for the benefit of the Administrative Agent with respect to the Agents' Obligations, by a first priority (subject only to Permitted Liens), perfected Lien, in form and substance satisfactory to the Administrative Agent and its counsel, on all or any part (as the Administrative Agent , in its sole and absolute discretion exercised from time to time may require) of the real and personal property and other assets of the Borrowers which are not part of the Collateral described in Section 3.2 and on which a Permitted Lien may arise solely by operation of and in conformance with clause (e) (relating to Liens securing the Indentures) of the definition of "Permitted Lien." Without implying any limitation on the Borrowers' obligations under Section 6.1.24, but subject to the provisions of the immediately preceding sentence, the Administrative Agent may obtain and/or require the Borrowers to obtain with respect to such real and personal property and other assets, opinions of counsel, corporate resolutions, record searches, title insurance, assignments, waivers, certificates and other documents, certificates, instruments and information as the Administrative Agent may require, all in form and substance satisfactory to the Administrative Agent and its counsel, in the exercise of their sole and absolute discretion. Section 3.5 Record Searches. As of the Closing Date and thereafter at the time any Financing Document is executed and delivered by the Domestic Borrowers pursuant to this Section, the Administrative Agent shall have received, in form and substance reasonably satisfactory to the Administrative Agent, such Lien or record searches with respect to all of the Domestic Borrowers and/or any other Person, as appropriate, and the property covered by such Financing Document showing that the Lien of such Financing Document will be a perfected first priority Lien on the property covered by such Financing Document subject only to Permitted Liens or to such other matters as the Administrative Agent may approve. - 73 - 81 Section 3.6 Costs. The Borrowers agree to pay, as part of the Enforcement Costs and to the fullest extent permitted by applicable Laws, on demand all reasonable costs, fees and expenses incurred by the Administrative Agent and/or any of the Lenders in connection with the taking, perfection, preservation, protection and/or release of a Lien on the Collateral, including, without limitation: (a) customary fees and expenses incurred by the Administrative Agent and/or any of the Lenders in preparing, reviewing, negotiating and finalizing the Financing Documents from time to time (including, without limitation, reasonable attorneys' fees incurred in connection with preparing, reviewing, negotiating, and finalizing any of the Financing Documents, including, any amendments and supplements thereto); (b) all filing and/or recording taxes or fees; (c) all costs of Lien and record searches; (d) reasonable attorneys' fees in connection with all legal opinions required; (e) appraisal costs; and (f) all related costs, fees and expenses. Section 3.7 Release. Upon the indefeasible repayment in full in cash of the Obligations and performance of all Obligations of the Borrowers and all obligations and liabilities of each other Person, other than the Administrative Agent and the Lenders, under this Agreement and all other Financing Documents, the termination and/or expiration of all of the Commitments, all Letters of Credit and all Outstanding Letter of Credit Obligations, upon the Borrowers' request and at the Borrowers' sole cost and expense, the Administrative Agent shall release and/or terminate any Financing Document but only if and provided that there is no commitment or obligation (whether or not conditional) of the Administrative Agent and/or any of the Lenders to re-advance amounts which would be secured thereby and/or no commitment or obligation of the Administrative Agent to issue any Letter of Credit or return or restore any payment of any Current Letter of Credit Obligations. Section 3.8 Inconsistent Provisions. In the event that the provisions of any Financing Document directly conflict with any provision of this Agreement, the provisions of this Agreement govern. - 74 - 82 ARTICLE IV REPRESENTATIONS AND WARRANTIES Section 4.1 Representations and Warranties. The Borrowers, for themselves and for each other, represent and warrant to the Administrative Agent and the Lenders, as follows: 4.1.1 Subsidiaries. The Borrowers have the Subsidiaries listed on the Collateral Disclosure List attached hereto and made a part hereof and no others. Each of the Subsidiaries is a Wholly Owned Subsidiary except as shown on the Collateral Disclosure List, which correctly indicates the nature and amount of each Borrower's ownership interests therein. 4.1.2 Good Standing. Each Borrower and its Subsidiaries (a) is a corporation duly organized, existing and in good standing under the laws of the jurisdiction of its incorporation, (b) has the corporate power to own its property and to carry on its business as now being conducted, and (c) is duly qualified to do business and is in good standing in each jurisdiction in which the character of the properties owned by it therein or in which the transaction of its business makes such qualification necessary. 4.1.3 Power and Authority. Each Borrower has full corporate power and authority to execute and deliver this Agreement the Purchase Agreements, and the other Financing Documents to which it is a party, to make the borrowings and request Letters of Credit under this Agreement and to incur and perform the Obligations whether under this Agreement, the other Financing Documents or otherwise, all of which have been duly authorized by all proper and necessary corporate action. No consent or approval of shareholders or any creditors of any Borrower, and no consent, approval, filing or registration with or notice to any Governmental Authority on the part of any Borrower which has not been obtained or taken, is required as a condition to the execution, delivery, validity or enforceability of this Agreement, the Purchase Agreements, or any of the other Financing Documents and the performance by any Borrower of the Obligations. 4.1.4 Binding Agreements. This Agreement and the other Financing Documents executed and delivered by the Borrowers have been properly executed and delivered and constitute the valid and legally binding obligations of the Borrowers and are fully enforceable against each of the Borrowers in accordance with their respective terms, subject to bankruptcy, insolvency, reorganization, moratorium and other laws of general applications affecting the rights and remedies of creditors and secured parties, and general principles of equity regardless of whether applied in a proceeding in equity or at law. - 75 - 83 4.1.5 No Conflicts. Neither the execution, delivery and performance of the terms of this Agreement or of any of the other Financing Documents executed and delivered by any Borrower nor the consummation of the transactions contemplated by this Agreement will conflict with, violate or be prevented by (a) any Borrower's charter or bylaws, (b) any existing mortgage, indenture, contract or agreement binding on any Borrower or affecting its property, except to the extent any such conflict or violation would not reasonably be expected to have a Material Adverse Effect, or (c) any Laws applicable to any Borrower. 4.1.6 No Defaults, Violations. (a) No Default or Event of Default has occurred and is continuing. (b) None of the Borrowers nor any of their respective Subsidiaries is in default under or with respect to any obligation under any existing mortgage, indenture, contract or agreement binding on it or affecting its property in any respect, which default reasonably would be expected to have a Material Adverse Effect. 4.1.7 Compliance with Laws. None of the Borrowers nor any of their respective Subsidiaries is in violation of any applicable Laws (including, without limitation, any Laws relating to employment practices, to environmental, occupational and health standards and controls) or order, writ, injunction, decree or demand of any court, arbitrator, or any Governmental Authority affecting any Borrower or any of its properties, the violation of which, considered in the aggregate, reasonably would be expected to have a Material Adverse Effect. 4.1.8 Margin Stock. None of the proceeds of the Loans will be used, directly or indirectly, by any Borrower or any Subsidiary for the purpose of purchasing or carrying, or for the purpose of reducing or retiring any indebtedness which was originally incurred to purchase or carry, any "margin security" within the meaning of Regulation G (12 CFR Part 207), or "margin stock" within the meaning of Regulation U (12 CFR Part 221), of the Board of Governors of the Federal Reserve System or for any other purpose which reasonably would be expected to make the transactions contemplated in this Agreement a "purpose credit" within the meaning of said Regulation G or Regulation U, or cause this Agreement to violate any other regulation of the Board of Governors of the Federal Reserve System or the Securities Exchange Act of 1934 or the Small Business Investment Act of 1958, as amended, or any rules or regulations promulgated under any of such statutes. 4.1.9 Investment Company Act; Margin Securities. None of the Borrowers nor any of their respective Subsidiaries is an investment company within the meaning of the Investment Company Act of 1940, as amended, - 76 - 84 nor is it, directly or indirectly, controlled by or acting on behalf of any Person which is an investment company within the meaning of said Act. None of the Borrowers nor any of their respective Subsidiaries is engaged principally, mor as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying "margin security" within the meaning of Regulation G (12 CFR Part 207), or "margin stock" within the meaning of Regulation U (12 CFR Part 221), of the Board of Governors of the Federal Reserve System. 4.1.10 Litigation. Except as otherwise disclosed on Schedule 4.1.10 attached to and made a part of this Agreement, there are no proceedings, actions or investigations pending or, so far as any Borrower has notice in writing, threatened before or by any court, arbitrator or any Governmental Authority which, in any one case or in the aggregate, if determined adversely to the interests of any Borrower or any Subsidiary, reasonably would be expected to have a Material Adverse Effect. 4.1.11 Financial Condition. The consolidated financial statements of the Borrowers dated December 31, 1997, are complete and correct and fairly present in all material respects the financial position of each of the Borrowers and its Subsidiaries and the results of their operations and transactions in their surplus accounts as of the date and for the period referred to and have been prepared in accordance with GAAP applied on a consistent basis throughout the period involved. There are no liabilities, direct or indirect, fixed or contingent, of any Borrower or any Subsidiary as of the date of such financial statements which are not reflected therein or in the notes thereto. There has been no material adverse change in the financial condition or operations of any Borrower or any Subsidiary since the date of such financial statements and to the Borrowers' knowledge no such material adverse change is pending or threatened. None of the Borrowers nor any Subsidiary has guaranteed the obligations of, or made any investment in or advances to, any Person, except as disclosed in such financial statements. 4.1.12 Full Disclosure. The financial statements referred to in Section 4.1.11 (Financial Condition) of this Agreement, the Financing Documents (including, without limitation, this Agreement), and the statements, reports or certificates furnished by any Borrower in connection with the Financing Documents (a) do not contain any untrue statement of a material fact and (b) when taken in their entirety, do not omit any material fact necessary to make the statements contained therein not misleading. There is no fact known to any Borrower which such Borrower has not disclosed to the Administrative Agent and the Lenders in writing prior to the date materially and adversely affects or in the future would reasonably be expected to have a Material Adverse Effect. 4.1.13 Indebtedness for Borrowed Money. Except for the Obligations and except as set forth in Schedule 4.1.13 attached to and made a part of this Agreement, the Borrowers have no Indebtedness for - 77 - 85 Borrowed Money. The Administrative Agent has received photocopies of all promissory notes evidencing any Indebtedness for Borrowed Money set forth in Schedule 4.1.13, together with any and all subordination agreements, and other material agreements, documents, or instruments securing, evidencing, guarantying or otherwise executed and delivered in connection therewith. 4.1.14 Subordinated Debt. None of the Subordinated Debt Loan Documents has been amended, supplemented, restated or otherwise modified except as otherwise disclosed to the Administrative Agent in writing on or before the effective date of any such amendment, supplement, restatement or other modification. In addition, there does not exist any default or any event which upon notice or lapse of time or both would constitute a default under the terms of any of the Subordinated Debt Loan Documents. 4.1.15 Taxes. Except for any extensions which have been filed and are in effect in accordance with applicable law, each of the Borrowers and its Subsidiaries has filed all returns, reports and forms for Taxes which, to the knowledge of the Borrowers, are required to be filed, and has paid all Taxes as shown on such returns or on any assessment received by it, to the extent that such Taxes have become due, unless and to the extent only that such Taxes, assessments and governmental charges are currently contested in good faith and by appropriate proceedings by a Borrower, such Taxes are not the subject of any Liens other than Permitted Liens, and adequate reserves therefor have been established as required under GAAP. All tax liabilities of the Borrowers were as of the date of audited financial statements referred to in Section 4.1.11 (Financial Condition), and are now, adequately provided for on the books of the Borrowers and its Subsidiaries, as appropriate. No tax liability has been asserted by the Internal Revenue Service or any state or local authority against any Borrower for Taxes in excess of those already paid. 4.1.16 ERISA. With respect to any Plan that is maintained or contributed to by the Borrower and/or by any Commonly Controlled Entity or as to which any of the Borrowers retains material liability: (a) no "accumulated funding deficiency" as defined in Code Section 412 or ERISA Section 302 has occurred, whether or not that accumulated funding deficiency has been waived; (b) no Reportable Event has occurred other than events for which reporting has been waived or that are unlikely to result in material liability for any of the Borrowers; (c) no termination of any plan subject to Title IV of ERISA has occurred; (d) neither the Borrower nor any Commonly Controlled Entity has incurred a "complete withdrawal" within the meaning of ERISA Section 4203 from any Multi-employer Plan that is reasonably likely to result in material liability for one or more of the Borrowers; (e) neither the Borrower nor any Commonly Controlled Entity has incurred a "partial withdrawal" within the meaning of ERISA Section4205 with respect to any Multi-employer Plan that is likely to result in material liability for one or more of the Borrowers; (f) no Multi-employer Plan to which the Borrower or any Commonly Controlled Entity has an obligation to contribute is to the knowledge of the Borrowers, in "reorganization" within the - 78 - 86 meaning of ERISA Section 4241 nor has notice been received by the Borrower or any Commonly Controlled Entity that such a Multi-employer Plan will be placed in "reorganization". 4.1.17 Title to Properties. The Borrowers have good and marketable title to all of their respective properties, including, without limitation, the Collateral and the properties and assets reflected in the balance sheets described in Section 4.1.11 (Financial Condition). The Borrowers have legal and enforceable rights to use freely such property and assets subject to no contest with respect to any material portion of such property of which any Borrower has knowledge. All of such properties, including, without limitation, the Collateral which were purchased, were purchased for fair consideration and reasonably equivalent value in the ordinary course of business of both the seller and the Borrowers and not, by way of example only, as part of a bulk sale. 4.1.18 Patents, Trademarks, Etc. Each of the Borrowers and its Subsidiaries owns, possesses, or has the right to use all necessary patents, licenses, trademarks, copyrights, permits and franchises to own its properties and to conduct its business as now conducted, without known conflict with the rights of any other Person. Any and all obligations to pay royalties or other charges with respect to such properties and assets are properly reflected on the financial statements described in Section 4.1.11 (Financial Condition). 4.1.19 Employee Relations. Except as disclosed on Schedule 4.1.19 attached hereto and made a part hereof, (a) no Borrower nor any Subsidiary thereof nor any of the Borrower's or Subsidiary's employees is subject to any collective bargaining agreement, (b) no petition for certification or union election is pending with respect to the employees of any Borrower or any Subsidiary and no union or collective bargaining unit currently is seeking such certification or recognition with respect to the employees of a Borrower, (c) there are no strikes, slowdowns, work stoppages or controversies pending or, to the best knowledge of the Borrowers after due inquiry, threatened between any Borrower and its employees, and (d) no Borrower nor any Subsidiaries is subject to an employment contract, severance agreement, commission contract, consulting agreement or bonus agreement. Hours worked and payments made to the employees of any one or more of the Borrowers have not been in violation of the Fair Labor Standards Act or any other applicable law dealing with such matters. All payments due from any one or more of the Borrowers or for which any claim may be made against a Borrower, on account of wages and employee and retiree health and welfare insurance and other benefits have been paid or accrued as a liability on its books. The consummation of the transactions contemplated by the Financing Agreement or any of the other Financing Documents will not give rise to a right of termination or right of renegotiation on the part of any union under any collective bargaining agreement to which any Borrower is a party or by which it is bound. - 79 - 87 4.1.20 Presence of Hazardous Materials or Hazardous Materials Contamination. To the best of each Borrower's knowledge, (a) no Hazardous Materials are located on any real property owned, controlled or operated by any Borrower or for which any Borrower is, or is claimed to be, responsible, except for reasonable quantities of necessary supplies for use by a Borrower in the ordinary course of its current line of business and stored, used and disposed of in accordance with applicable Laws; and (b) no property owned, controlled or operated by any Borrower or for which any Borrower has, or is claimed to have, responsibility has ever been used as a manufacturing, storage, or dump site for Hazardous Materials nor is affected by Hazardous Materials Contamination at any other property. 4.1.21 Perfection and Priority of Collateral. The Administrative Agent and the Lenders have, or upon execution and recording of this Agreement and the Security Documents will have, and provided continuous possession is maintained for that portion of the Collateral for which possession is required to obtain and maintain perfection, will continue to have as security for the Obligations, a valid and perfected Lien on and security interest in all Collateral, free of all other Liens, claims and rights of third parties whatsoever except Permitted Liens, including, without limitation, those described on Schedule 4.1.21. 4.1.22 Places of Business and Location of Collateral. The information contained in the Collateral Disclosure List is complete and correct. The Collateral Disclosure List completely and accurately identifies the address of (a) the chief executive office of each Borrower, (b) any and each other place of business of each Borrower, (c) the location of all books and records pertaining to the Collateral, and (d) each location, other than the foregoing, where any of the Collateral is located. The proper and only places to file financing statements with respect to the Collateral within the meaning of the Uniform Commercial Code are the filing offices for those jurisdictions in which any one or more of the Borrowers maintains a place of business as identified on the Collateral Disclosure List. 4.1.23 Business Names and Addresses. In the twelve (12) years preceding the date hereof, no Borrower has changed its name, identity or corporate structure, has conducted business under any name other than its current name, or has conducted its business in any jurisdiction other than those disclosed on the Collateral Disclosure List. 4.1.24 Capital Expenditure Line Equipment. All Capital Expenditure Line Equipment is personalty and is not and will not be affixed to real estate in such manner as to become a fixture or part of such real estate. No equipment is held by any Borrower on a sale on approval basis. - 80 - 88 4.1.25 Inventory. The Inventory of the Borrowers is (a) of good and merchantable quality, free from defects of which the Borrowers have knowledge, (b) not stored with a bailee, warehouseman, carrier, or similar party, (c) not on consignment, sale on approval, or sale or return, and (d) located at the places of business set forth on the Collateral Disclosure List. No goods offered for sale by any Borrower are consigned to or held on sale or return terms by that Borrower. 4.1.26 Accounts. With respect to all Accounts and to the best of the Borrowers' knowledge (a) they are genuine, and in all respects what they purport to be, and are not evidenced by a judgment, an instrument, or chattel paper (unless such judgment has been assigned and such instrument or chattel paper has been endorsed and delivered to the Administrative Agent for the benefit of itself and the Lenders); (b) they represent bona fide transactions completed in accordance with the terms and provisions contained in the invoices, purchase orders and other contracts relating thereto, and the underlying transaction therefor is in accordance with all applicable Laws; (c) the amounts shown on the respective Borrower's books and records, with respect thereto are actually and absolutely owing to that Borrower and are not contingent or subject to reduction for any reason other than regular discounts, credits or adjustments allowed by that Borrower in the ordinary course of its business; (d) no payments have been or shall be made thereon except payments turned over to the Administrative Agent by the Borrowers; (e) all Account Debtors thereon have the capacity to contract; and (f) the goods sold, leased or transferred or the services furnished giving rise thereto are not subject to any Liens except the security interest granted to the Administrative Agent and the Lenders by this Agreement and Permitted Liens. 4.1.27 Assigned Local Currency Receivables. The Administrative Agent has received true and correct photocopies of the Purchase Agreements executed, delivered and/or furnished on or before the Closing Date. The Purchase Agreements have not been modified, changed, supplemented, canceled, amended or otherwise altered or affected, except as otherwise disclosed to the Agent in writing on or before the Closing Date. The transactions described in the Purchase Agreements have been effected, closed and consummated pursuant to, and in accordance with, the terms and conditions of the Purchase Agreements and with all applicable Laws. The Purchase Agreements effect the transfer of the accounts covered by the Purchase Agreements, which accounts meet each requirement for inclusion among Assigned Local Currency Receivables. Each Account included in the calculation of the Assigned Local Currency Receivables does and will at all times meet and comply with all of the components of the definition of "Assigned Local Currency Receivables." 4.1.28 Compliance with Eligibility Standards. Each account and all inventory included in the calculation of the Borrowing Base does and will at all times meet and comply with all of the standards for Eligible Receivables and Eligible Inventory. With respect to those accounts which the Administrative - 81 - 89 Agent has deemed Eligible Receivables (a) each account which originated as an account of a Local Currency Borrower or which arose on account of goods or services provided by a Local Currency Borrower and which the Administrative Agent has deemed to be an Eligible Receivables, is an Assigned Local Currency Receivable, (b) without implying any limitation on the effect of clause (a), to the best of the Borrowers' knowledge, there are no facts, events or occurrences which reasonably would be expected to impair the validity, collectibility or enforceability thereof or tend to reduce the amount payable thereunder; and (c) there are no proceedings or actions known to any Borrower which are threatened or pending against any Account Debtor which reasonably would be expected to result in any material adverse change in the Borrowing Base. 4.1.29 Year 2000 Compliance The Borrowers have (i) initiated a review and assessment of all areas within the Borrowers and each of their Subsidiaries' businesses and operations (including those affected by suppliers and vendors) with respect to which the "Year 2000 Problem" (that is, the risk that computer applications used by the Borrowers or any of their Subsidiaries (or its suppliers and vendors) may be unable to recognize and perform properly date-sensitive functions involving certain dates prior to and any date after December 31, 1999) reasonably would be expected to have a Material Adverse Effect, (ii) developed a plan and timeline for addressing the Year 2000 Problem on a timely basis, and (iii) to date, implemented that plan in accordance with that timetable. The Borrowers reasonably believe that all computer applications (including those of its suppliers and vendors) that are material to the Borrowers or any of their Subsidiaries' businesses and operations will on a timely basis be able to perform properly date-sensitive functions for all dates before and after January 1, 2000 (that is, be "Year 2000 compliant"), except to the extent that a failure to do so would not reasonably be expected to have a Material Adverse Effect. Section 4.2 Survival; Updates of Representations and Warranties. All representations and warranties contained in or made under or in connection with this Agreement and the other Financing Documents shall survive the Closing Date, the making of any advance under the Loans and extension of credit made hereunder, and the incurring of any other Obligations and shall be deemed to have been made at the time of each request for, and again at the time the making of, each advance under the Loans or the issuance of each Letter of Credit, except that the representations and warranties which relate to financial statements which are referred to in Section 4.1.11 (Financial Condition), shall also be deemed to cover financial statements furnished from time to time to the Administrative Agent and the Lenders pursuant to Section 6.1.1 (Financial Statements). - 82 - 90 ARTICLE V CONDITIONS PRECEDENT Section 5.1 Conditions to the Initial Advance and Initial Letter of Credit. The making of the initial advance under the Loans and the issuance of the initial Letter of Credit is subject to the fulfillment on or before the Closing Date of the following conditions precedent in a manner reasonably satisfactory in form and substance to the Administrative Agent and its counsel: 5.1.1 Organizational Documents - Domestic Borrowers. The Administrative Agent shall have received for each Domestic Borrower: (a) a certificate of good standing certified by the Secretary of State, or other appropriate Governmental Authority, of the state of incorporation of such Domestic Borrower; (b) a certificate of qualification to do business for such Domestic Borrower certified by the Secretary of State or other Governmental Authority of each state in which such Domestic Borrower conducts business; (c) a certificate dated as of the Closing Date by the Secretary or an Assistant Secretary of such Domestic Borrower covering: (d) true and complete copies of that Domestic Borrower's corporate charter, bylaws, and all amendments thereto; (e) true and complete copies of the resolutions of its Board of Directors authorizing (A) the execution, delivery and performance of the Financing Documents to which it is a party, (B) the borrowings hereunder, (C) the granting of the Liens contemplated by this Agreement and the Financing Documents to which that Domestic Borrower is a party; (f) the incumbency, authority and signatures of the officers of such Domestic Borrower authorized to sign this Agreement and the other Financing Documents to which such Domestic Borrower is a party; and (g) the identity of such Domestic Borrower's current directors, common stock holders and other equity holders, as well as their respective percentage ownership interests. - 83 - 91 5.1.2 Opinion of Domestic Borrowers' Counsel. The Administrative Agent shall have received the favorable opinion of counsel (including the validity and binding transfer of the Assigned Local Currency Receivables) for the Domestic Borrowers addressed to the Administrative Agent and the Lenders in form satisfactory to the Administrative Agent. 5.1.3 Opinion of Local Currency Borrowers' Counsel. The Administrative Agent shall have received the favorable opinion of Local Currency Borrowers' counsel with respect to the validity and binding transfer of the Assigned Local Currency Receivables and other related matters addressed to the Administrative Agent and the Lenders in form satisfactory to the Administrative Agent. 5.1.4 Consents, Licenses, Approvals, Etc. The Administrative Agent shall have received copies of all consents, licenses and approvals, required in connection with the execution, delivery, performance, validity and enforceability of the Financing Documents, and such consents, licenses and approvals shall be in full force and effect. 5.1.5 Notes. The Administrative Agent shall have received for delivery to each of the Lenders the Revolving Credit Notes and the Capital Expenditure Line Notes, each conforming to the requirements hereof and executed by a Responsible Officer of each Borrower and attested by a duly authorized representative of each Borrower. 5.1.6 Financing Documents and Collateral. Each Borrower shall have executed and delivered the Financing Documents to be executed by it, and shall have delivered original chattel paper, instruments, Subsidiary Securities, and related Collateral and all opinions, and other documents contemplated by ARTICLE III (The Collateral). 5.1.7 Additional Financial Matters. The Parent shall have delivered to the Administrative Agent the Borrowers' consolidated financial statements for the period ending February 28, 1998, together with such pros formas and projections as the Administrative Agent may reasonably request. 5.1.8 Solvency Certificate. The Administrative Agent shall have received a solvency certificate from the appropriate Responsible Officer of each Borrower, in form and substance satisfactory to the Administrative Agent. - 84 - 92 5.1.9 Other Financing Documents. In addition to the Financing Documents to be delivered by the Borrowers, the Administrative Agent shall have received the Financing Documents duly executed and delivered by Persons other than the Borrowers. 5.1.10 Other Documents, Etc. The Administrative Agent shall have received such other certificates, opinions, documents and instruments confirmatory of or otherwise relating to the transactions contemplated hereby as may have been reasonably requested by the Administrative Agent. 5.1.11 Payment of Fees. The Administrative Agent and the Lenders shall have received payment of any Fees due on or before the Closing Date. 5.1.12 Collateral Disclosure List. Each Borrower shall have delivered the Collateral Disclosure List required under the provisions of Section 3.3 (Collateral Disclosure List) duly executed by a Responsible Officer of each Borrower. 5.1.13 Recordings and Filings. Each Borrower shall have: (a) executed and delivered all Financing Documents (including, without limitation, UCC-1 and UCC-3 statements) required to be filed, registered or recorded in order to create, in favor of the Administrative Agent and the Lenders, a perfected Lien in the Collateral (subject only to the Permitted Liens) in form and in sufficient number for filing, registration, and recording in each office in each jurisdiction in which such filings, registrations and recordations are required, and (b) delivered such evidence as the Administrative Agent may deem satisfactory that all necessary filing fees and all recording and other similar fees, and all Taxes and other expenses related to such filings, registrations and recordings will be or have been paid in full. 5.1.14 Insurance Certificate. The Administrative Agent shall have received an insurance certificate in accordance with the provisions of Section 6.1.8 (Insurance) and Section 6.1.20 (Insurance With Respect to Capital Expenditure Line Equipment and Inventory). 5.1.15 Landlord's Waivers. The Administrative Agent shall have received a landlord's waiver from each landlord of each and every business premise leased by each Borrower and on which any of the Collateral is or may hereafter be located, which landlords' waivers must be reasonably acceptable to the Administrative Agent and its counsel in their sole and absolute discretion. - 85 - 93 5.1.16 Bailee Acknowledgements. The Administrative Agent shall have received an agreement acknowledging the Liens of the Administrative Agent and the Lender from each bailee, warehouseman, consignee or similar third party which has possession of any of the Collateral, which agreements must be reasonably acceptable to the Administrative Agent and its counsel in their sole and absolute discretion. 5.1.17 Field Examination. The Administrative Agent shall have completed a field examination of each Borrower's business, operations and income, the results of which field examination shall be in all respects acceptable to the Administrative Agent in its sole and absolute discretion and shall include reference discussions with key customers and vendors. 5.1.18 Stock Certificates and Stock Powers. The Administrative Agent shall have received all of the original stock certificates of the Domestic Borrowers and the Local Currency Borrowers (except those certificates which are in the possession of a prior secured party, which after the application of the proceeds of the initial advance under this Agreement shall no longer have a Lien) and fully executed irrevocable stock powers from the holders of all such stock certificates. 5.1.19 Collateral Account Acknowledgments. The Administrative Agent shall have received the agreement of the depository banks required by Section 2.1.8(a) with respect to the Collateral Account. Section 5.2 Conditions to Advances and Letters of Credit for Local Currency Borrowers. The making of the initial advance under the Loans, and the issuance of the initial Letter of Credit, , to or for the benefit of a Local Currency Borrower is subject to the fulfillment of the following conditions precedent in a manner satisfactory in form and substance to the Administrative Agent and its counsel: 5.2.1 Organizational Documents - Local Currency Borrowers. The Administrative Agent shall have received for each Local Currency Borrower: (a) a certificate of good standing certified by the appropriate Governmental Authority of the jurisdiction of incorporation of such Local Currency Borrower; (b) a certificate of qualification to do business for such Local Currency Borrower certified by the appropriate - 86 - 94 Governmental Authority of each jurisdiction in which such Local Currency Borrower conducts business; (c) a certificate dated as of a date not earlier than thirty (30) days prior to such initial advance or issuance, as applicable, by the Secretary or an Assistant Secretary (or other appropriate officer) of such Local Currency Borrower covering: (d) true and complete copies of that Local Currency Borrower's corporate charter, bylaws, and all amendments thereto; (e) true and complete copies of the resolutions of its Board of Directors authorizing (A) the execution, delivery and performance of the Financing Documents to which it is a party and (B) the borrowings hereunder; (f) the incumbency, authority and signatures of the officers of such Local Currency Borrower authorized to sign this Agreement and the other Financing Documents to which such Local Currency Borrower is a party; (g) the identity of such Local Currency Borrower's current directors, common stock holders and other equity holders, as well as their respective percentage ownership interests; and (h) a duly executed and delivered Additional Borrower Joinder Supplement, allonges and such other Financing Documents as the Administrative Agent may reasonably request. 5.2.2 Opinion of Local Currency Borrowers' Counsel. The Administrative Agent shall have received the favorable opinion of counsel for the Local Currency Borrowers addressed to the Administrative Agent and the Lenders in form reasonably satisfactory to the Administrative Agent. 5.2.3 Consents, Licenses, Approvals, Etc. The Administrative Agent shall have received copies of all consents, licenses and approvals, required in connection with the execution, delivery, performance, validity and enforceability of the Financing Documents, and such consents, licenses and approvals shall be in full force and effect. Section 5.3 Conditions to Multi-Currency Loans and Multi-Currency Letters of Credit. The making of the initial advance under the Multi-Currency Revolving Loan, and the issuance of the initial Multi-Currency Letter of Credit, are subject to the appointment by the Administrative Agent of a Multi-Currency Agent, the acceptance of that appointment by the - 87 - 95 Multi-Currency Agent and the Borrowers, the designation of Multi-Currency Lenders, the acceptance of that designation by the Multi-Currency Lenders and the Borrowers, and the establishment of foreign availability amounts, multi-currency revolving loan sublimits, foreign currency sublimits, and foreign exchange reserves, all in a manner satisfactory in form and substance to the Multi-Currency Agent, the Multi-Currency Lenders, the Administrative Agent, the Borrowers and their respective counsel. Section 5.4 Conditions to all Extensions of Credit. The making of all advances under the Loans and the issuance of all Letters of Credit is subject to the fulfillment of the following conditions precedent in a manner reasonably satisfactory in form and substance to the Administrative Agent and its counsel: 5.4.1 Compliance. Each Borrower shall have complied and shall then be in compliance with all terms, covenants, conditions and provisions of this Agreement and the other Financing Documents. 5.4.2 Borrowing Base. The Borrowers shall have furnished all Borrowing Base Reports required by Section 2.1.4 (Borrowing Base Report), there shall exist no Borrowing Base Deficiency, and as evidence thereof, the Borrowers shall have furnished to the Administrative Agent such reports, schedules, certificates, records and other papers as may be requested by the Administrative Agent, and the Borrowers shall be in compliance with the provisions this Agreement both immediately before and immediately after the making of the advance requested. 5.4.3 Default. There shall exist no Event of Default or Default hereunder. 5.4.4 Representations and Warranties. The representations and warranties of each of the Borrowers contained among the provisions of this Agreement shall be true and with the same effect as though such representations and warranties had been made at the time of the making of, and of the request for, each advance under the Loans or the issuance of each Letter of Credit, except that the representations and warranties which relate to financial statements which are referred to in Section 4.1.11 (Financial Condition), shall also be deemed to cover financial statements furnished from time to time to the Administrative Agent pursuant to Section 6.1.1 (Financial Statements). 5.4.5 Adverse Change. No material adverse change shall have occurred in the condition (financial or otherwise), operations or business of any Borrower that would, in the good faith judgment of - 88 - 96 the Administrative Agent, materially impair the ability of that Borrower to pay or perform any of the Obligations. 5.4.6 Legal Matters. All legal documents incident to each advance under the Loans and each of the Letters of Credit shall be reasonably satisfactory to counsel for the Administrative Agent. ARTICLE V I COVENANTS OF THE BORROWERS Section 6.1 Affirmative Covenants. So long as any of the Obligations (or any the Commitments therefor) or Letters of Credit shall be outstanding hereunder, the Borrowers agree jointly and severally with the Administrative Agent and the Lenders as follows: 6.1.1 Financial Statements. The Borrowers shall furnish to the Administrative Agent and the Lenders: (a) Annual Statements and Certificates. The Borrowers shall furnish to the Administrative Agent and the Lenders as soon as available, but in no event more than one hundred (120) days after the close of the Borrowers' fiscal years, (i) a copy of the annual financial statement in reasonable detail satisfactory to the Administrative Agent relating to the Borrowers and their Subsidiaries, prepared in accordance with GAAP and examined and certified by independent certified public accountants reasonably satisfactory to the Administrative Agent, which financial statement shall include a consolidated and consolidating balance sheet of the Borrowers and their Subsidiaries as of the end of such fiscal year and consolidated and consolidating statements of income and of cash flows and a consolidated statement of changes in shareholders equity of the Borrowers and their Subsidiaries for such fiscal year, and (ii) a Compliance Certificate, in substantially the form attached to this Agreement as EXHIBIT D, containing a detailed computation of each financial covenant in this Agreement which is applicable for the period reported, a certification that no change has occurred to the information contained in the Collateral Disclosure List (except as set forth on any schedule attached to the certification), and a cash flow projection report, each prepared by a Responsible Officer of the Borrowers in a format reasonably acceptable to the Administrative Agent; and shall also furnish to the Administrative Agent with a sufficient number of copies for all of the Lenders promptly after receipt, each management letter in the form prepared by the Borrowers' independent certified public accountants. (b) Annual Opinion of Accountant. The Borrowers shall furnish to the Administrative Agent and the Lenders as soon as available, but in no event more than one hundred (120) days after the close of the Borrowers' fiscal years, a letter or opinion of the accountant who examined and certified the annual financial statement relating to the Borrowers and their Subsidiaries (i) stating whether anything in such accountant's examination has revealed the occurrence of a Default or an Event of Default hereunder insofar as they relate - 89 - 97 to accounting matters, and, if so, stating the facts with respect thereto and (ii) acknowledging that the Administrative Agent and the Lenders will rely on the statement and that the Borrowers know of the intended reliance by the Administrative Agent and the Lenders. (c) Quarterly Statements and Certificates. The Borrowers shall furnish to the Administrative Agent, with a sufficient number of copies for all of the Lenders as soon as available, but in no event more than sixty (60) days after the end of each fiscal quarter of the Borrowers, consolidated balance sheets of the Borrowers and their Subsidiaries as of the close of such period, consolidated and consolidating income statements and statements of cash flows and a consolidated statement of changes in shareholders equity statements for such period, and a Compliance Certificate, in substantially the form attached to this Agreement as EXHIBIT D, containing a detailed computation of each financial covenant in this Agreement which is applicable for the period reported, and a certification that no change has occurred to the information contained in the Collateral Disclosure List (except as set forth on any schedule attached to the certification), each prepared by a Responsible Officer of or on behalf of each Borrower in a format reasonably acceptable to the Administrative Agent, and certified by a Responsible Officer of the Borrowers and accompanied by a certificate of that officer stating whether any event has occurred which constitutes a Default or an Event of Default hereunder, and, if so, stating the facts with respect thereto. (d) Monthly Statements and Certificates. The Borrowers shall furnish to the Administrative Agent, with a sufficient number of copies for all of the Lenders as soon as available, but in no event more than sixty (60) days after the end of each January and February and in no event more than thirty (30) days after the end of each other month, management prepared consolidated and consolidating balance sheets of the Borrowers and their Subsidiaries as of the close of such period, consolidated and consolidating income statements, consolidated cash flows and changes in shareholders equity statements for such period, and a certification that no change has occurred to the information contained in the Collateral Disclosure List (except as set forth on any schedule attached to the certification), and the exact Dollar allocation of the amount borrowed as between each of the Borrowers (the "Intercompany Allocation", which Intercompany Allocation shall include any Loan proceeds loaned or otherwise advanced by any Borrower to any other Borrower) under the Revolving Credit Facility, each prepared by a Responsible Officer of or on behalf of each Borrower in a format reasonably acceptable to the Lender and certified by a Responsible Officer of the Borrowers and accompanied by a certificate of that officer stating whether any event has occurred which constitutes a Default or an Event of Default hereunder, and, if so, stating the facts with respect thereto. (e) Monthly reports. The Borrowers shall furnish to the Administrative Agent, with a sufficient number of copies for all of the Lenders within (x) thirty (30) days after the end of January and (y) fifteen (15) days after the end of each fiscal month, a report containing the following information: (i) a detailed aging schedule of all Receivables by Account Debtor and, in the case of Assigned Local Currency Receivables, by Local Currency Borrower, in such detail, and - 90 - 98 accompanied by such supporting information, as the Administrative Agent may from time to time reasonably request; (ii) a detailed aging of all accounts payable by supplier, in such detail, and accompanied by such supporting information, as the Administrative Agent may from time to time reasonably request; (iii) a listing of all Inventory by component, category and location, and reconciliations of general ledger inventory accounts to the perpetual inventory records, all in such detail, and as accompanied by such supporting information as the Administrative Agent may from time to time reasonably request; and (iv) such other information as the Administrative Agent may reasonably request. (f) Annual Budget and Projections. The Borrowers shall furnish to the Administrative Agent, with a sufficient number of copies for each Lender as soon as available, but in no event later than the 10th day before the end of each fiscal year: (i) a consolidated and consolidating budget and pro forma financial statements on a quarter-to-quarter basis for the following fiscal year, and (ii) five (5) year projections. (g) Additional Reports and Information. The Borrowers shall furnish to the Administrative Agent and the Lenders promptly, such additional information, reports or statements as the Administrative Agent and/or any of the Lenders may from time to time reasonably request. 6.1.2 Reports to SEC and to Stockholders. The Borrowers will furnish to the Administrative Agent and the Lenders, promptly upon the filing or making thereof, at least one (l) copy of all financial statements, reports, notices and proxy statements sent by any Borrower to its stockholders, and of all regular and other reports filed by any Borrower with any securities exchange or with the Securities and Exchange Commission. 6.1.3 Recordkeeping, Rights of Inspection, Field Examination, Etc. (a) Each of the Borrowers shall, and shall cause each of its Subsidiaries to, maintain (i) a standard system of accounting in accordance with GAAP, and (ii) proper books of record and account in which full, true and correct entries are made of all dealings and transactions in relation to its properties, business and activities. - 91 - 99 (b) Each of the Borrowers shall, and shall cause each of its Subsidiaries to, permit authorized representatives of the Administrative Agent to visit and inspect the properties of the Borrowers and its Subsidiaries, to review, audit, check and inspect the Collateral, with notice given during normal business hours, which inspection shall be conducted during normal business hours and at other reasonable times, if no Event of Default has occurred and with or without notice and at any time if an Event of Default has occurred and is continuing. During such inspection, such representatives also shall be entitled to make abstracts and photocopies of the books and records of each Borrower, and to discuss the affairs, finances and accounts of the Borrowers and their Subsidiaries, with the officers, directors, employees and other representatives of the Borrowers and their Subsidiaries and their respective accountants. Unless an Event of Default shall have occurred and be continuing, no such inspection shall disrupt the normal business operations of any Borrower. All information obtained during any such inspection shall be subject to the provisions of Section 9.20. (c) Each of the Borrowers hereby irrevocably authorizes and directs all accountants and auditors employed by any of the Borrowers and/or any of their Subsidiaries at any time prior to the repayment in full of the Obligations to exhibit and deliver to the Administrative Agent and the Lenders copies of any and all of the financial statements, trial balances, management letters, or other accounting records of any nature of any or all of the Borrowers and/or any or all of their respective Subsidiaries in the accountant's or auditor's possession, and to disclose to the Administrative Agent and any of the Lenders any information they may have concerning the financial status and business operations of any or all of the Borrowers and/or any or all of their respective Subsidiaries. Further, each of the Borrowers hereby authorizes all Governmental Authorities to furnish to the Administrative Agent and the Lenders copies of reports or examinations relating to any and all of the Borrowers and/or any or all Subsidiaries, whether made by the Borrowers or otherwise. (d) Any and all costs and expenses incurred by, or on behalf of, the Administrative Agent in connection with the conduct of any of the foregoing shall be part of the Enforcement Costs and shall be payable to the Administrative Agent upon demand. The Borrowers acknowledge and agree that such expenses may include, but shall not be limited to, any and all out-of-pocket costs and expenses of the Administrative Agent's employees and agents in, and when, travelling to any of the Borrowers' facilities. Notwithstanding the foregoing, provided no Event of Default shall have occurred and the continuing, Borrowers shall not be required to pay for more than four (4) inspections each year. 6.1.4 Corporate Existence. Except as permitted by Section 6.2.1, each of the Borrowers shall maintain, and cause each of its Subsidiaries to maintain, its corporate existence in good standing in the jurisdiction in which it is incorporated and in each other jurisdiction where it is required to register or qualify to do business if the failure to do so in such other jurisdiction reasonably would be expected to have a Material Adverse Effect. - 92 - 100 6.1.5 Compliance with Laws. Each of the Borrowers shall comply, and cause each of its Subsidiaries to comply, with all applicable Laws and observe the valid requirements of Governmental Authorities, the noncompliance with or the nonobservance of which reasonably would be expected to have a Material Adverse Effect. 6.1.6 Preservation of Properties. Each of the Borrowers will, and will cause each of its Subsidiaries to, at all times (a) maintain, preserve, protect and keep its properties, whether owned or leased, in good operating condition, working order and repair (ordinary wear and tear excepted), and from time to time will make all proper repairs, maintenance, replacements, additions and improvements thereto needed to maintain such properties in good operating condition, working order and repair, unless such property becomes obsolete or is no longer useful in the operation of the business of the applicable Borrower and (b) do or cause to be done all things necessary to preserve and to keep in full force and effect its material franchises, leases of real and personal property, trade names, patents, trademarks and permits which are necessary for the orderly continuance of its business. 6.1.7 Line of Business. Each of the Borrowers will continue to engage substantially only in the business of the design and manufacture of high precision fuel system products for the global automotive and outdoor power equipment markets. 6.1.8 Insurance. Each of the Borrowers will, and will cause each of its Subsidiaries to, at all times maintain with "A" or better rated insurance companies such insurance as is required by applicable Laws and such other insurance, in such amounts, of such types and against such risks, hazards, liabilities, casualties and contingencies as are usually insured against in the same geographic areas by business entities engaged in the same or similar business. Without limiting the generality of the foregoing, each of the Borrowers will, and will cause each of its Subsidiaries to, keep adequately insured all of its property against loss or damage resulting from fire or other risks insured against by extended coverage and maintain public liability insurance against claims for personal injury, death or property damage occurring upon, in or about any properties occupied or controlled by it, or arising in any manner out of the businesses carried on by it. Each of the Borrowers shall deliver to the Administrative Agent on the Closing Date (and thereafter on each date there is a material change in the insurance coverage) a certificate of a Responsible Officer of the Borrowers containing a detailed list of the insurance then in effect and stating the names of the insurance companies, the types, the amounts and rates of the insurance, dates of the expiration thereof and the properties and risks covered thereby. - 93 - 101 6.1.9 Taxes. Except to the extent that the validity or amount thereof is being contested in good faith and by appropriate proceedings, each of the Borrowers will, and will cause each of its Subsidiaries, to pay and discharge all Taxes prior to the date when any interest or penalty would accrue for the nonpayment thereof. Each of the Borrowers shall furnish to the Administrative Agent at such times as the Administrative Agent may require proof reasonably satisfactory to the Administrative Agent of the making of payments or deposits required by applicable Laws including, without limitation, payments or deposits with respect to amounts withheld by any of the Borrowers from wages and salaries of employees and amounts contributed by any of the Borrowers on account of federal and other income or wage taxes and amounts due under the Federal Insurance Contributions Act, as amended. 6.1.10 ERISA. Each of the Domestic Borrowers will, and will cause each of its Commonly Controlled Entities to, comply with the funding requirements of ERISA with respect to Plans for its respective employees. No Domestic Borrower will permit with respect to any Plan (a) any prohibited transaction or transactions under ERISA or the Internal Revenue Code, which results, or reasonably would be expected to result, in any material liability of the Domestic Borrower, or (b) any Reportable Event if, upon termination of the plan or plans with respect to which one or more such Reportable Events shall have occurred, there is or would be any material liability of the Domestic Borrower to the PBGC. Upon the request of the Administrative Agent, the Domestic Borrowers will deliver to the Administrative Agent a copy of the most recent actuarial report, financial statements and annual report completed with respect to any Plan. 6.1.11 Notification of Events of Default and Adverse Developments. Each of the Borrowers shall promptly notify the Administrative Agent upon obtaining knowledge of the occurrence of: (a) any Event of Default; (b) any Default; (c) any litigation instituted or threatened against any of the Borrowers or any of their Subsidiaries and of the entry of any judgment or Lien (other than any Permitted Liens) against any of the assets or properties of any of the Borrowers or any Subsidiary where the claims against any Borrower or any Subsidiary exceed One Million Dollars ($1,000,000) and are not covered by insurance; (d) any event, development or circumstance whereby the financial statements furnished hereunder fail in any material respect to present fairly, in all material respects and in accordance with GAAP, the financial condition and operational results of any of the Borrowers or any of their respective Subsidiaries; - 94 - 102 (e) any judicial, administrative or arbitral proceeding pending against any of the Borrowers or any of their respective Subsidiaries and any judicial or administrative proceeding known by any of the Borrowers to be threatened against any Borrower or any Subsidiary which, if adversely decided, reasonably would be expected to have a Material Adverse Effect; (f) the receipt by any of the Borrowers or any Subsidiary of any notice, claim or demand from any Governmental Authority which alleges that any of the Borrowers or any Subsidiary is in violation of any of the terms of, or has failed to comply with any applicable Laws regulating its operation and business, including, but not limited to, the Occupational Safety and Health Act and the Environmental Protection Act, which violation or failure reasonably would be expected to have a Material Adverse Effect; and (g) any other development in the business or affairs of any of the Borrowers or any of their respective Subsidiaries which reasonably would be expected to have a Material Adverse Effect; in each case describing in detail reasonably satisfactory to the Administrative Agent the nature thereof and the action the Borrowers propose to take with respect thereto. 6.1.12 Hazardous Materials; Contamination. Each of the Borrowers agrees to: (a) give notice to the Administrative Agent immediately upon acquiring knowledge of the presence of any Hazardous Materials or any Hazardous Materials Contamination on any property owned, operated or controlled by any Borrower or for which any Borrower is, or is claimed to be, responsible (provided that such notice shall not be required for Hazardous Materials placed or stored on such property in accordance with applicable Laws in the ordinary course (including, without limitation, quantity) of a Borrower's line of business expressly described in this Agreement), with a full description thereof; (b) promptly comply with any Laws requiring the removal, treatment or disposal of Hazardous Materials or Hazardous Materials Contamination and provide the Administrative Agent with satisfactory evidence of such compliance; (c) provide the Administrative Agent, within thirty (30) days after a demand by the Administrative Agent, with a bond, letter of credit or similar financial assurance evidencing to the Administrative Agent's satisfaction that the necessary funds are available to pay the cost - 95 - 103 of removing, treating, and disposing of such Hazardous Materials or Hazardous Materials Contamination and discharging any Lien which has been established as a result thereof on any property owned, operated or controlled by any Borrower or for which any Borrower is, or is claimed to be, responsible; and (d) as part of the Obligations, defend, indemnify and hold harmless the Administrative Agent, each of the Lenders and each of their respective agents, employees, trustees, successors and assigns from any and all claims which may now or in the future (whether before or after the termination of this Agreement) be asserted as a result of the presence of any Hazardous Materials or any Hazardous Materials Contamination on any property owned, operated or controlled by any Borrower for which any Borrower is, or is claimed to be, responsible. Each Borrower acknowledges and agrees that this indemnification shall survive the termination of this Agreement and the Commitments and the payment and performance of all of the other Obligations. 6.1.13 Disclosure of Significant Transactions. Each of the Borrowers shall deliver to the Administrative Agent a written notice describing in detail each transaction by it involving the purchase, sale, lease, or other acquisition or loss or casualty to or disposition of an interest in Fixed or Capital Assets which exceeds One Million Dollars ($1,000,000), said notices to be delivered to the Administrative Agent within thirty (30) days of the occurrence of each such transaction. 6.1.14 Financial Covenants. (a) Fixed Charge Coverage Ratio. The Borrowers will maintain, on a consolidated basis and tested as of the last day of each of the Borrowers' fiscal quarters (i) during fiscal year 1998 only, for the period commencing January 1, 1998 and ending on the last day of the applicable quarter, and (ii) after fiscal year 1998, for the four (4) quarter period ending on the last day of the applicable quarter, a EBITDA to Fixed Charges Ratio (i) of not less than 0.75 to 1.0 if the average Unused Availability during such quarter is $25,000,000 or more or (ii) of not less than 1.0 to 1.0 if the average Unused Availability during such quarter is less than $25,000,000. (b) Funded Debt to EBITDA Ratio. The Borrowers will maintain, on a consolidated basis and tested as of the last day of each of the Borrowers' fiscal quarters for which the average Unused Availability during such quarter is more than $25,000,000, for the four (4) quarter period ending on that date, a ratio of Funded Debt to EBITDA of not more than 2.5 to 1.0. (c) Capital Expenditures. The Borrowers and their Subsidiaries will not permit Capital Expenditures to exceed in any fiscal year the following: - 96 - 104 Fiscal Year Limit 1998 $55,000,000 Thereafter per annum $40,000,000 Notwithstanding the foregoing, up to 25% of the unused portion of the limit set forth above with respect to any fiscal year may be carried forward and utilized in the immediately succeeding year. 6.1.15 Collection of Receivables. Until such time that the Administrative Agent shall notify the Borrowers of the revocation of such privilege, the Borrowers and their Subsidiaries shall at their own expense have the privilege for the account of, and in trust for, the Administrative Agent and the Lenders of collecting their Receivables and receiving in respect thereto all Items of Payment and shall otherwise completely service all of the Receivables including (a) the billing, posting and maintaining of complete records applicable thereto, (b) the taking of such action with respect to the Receivables as the Administrative Agent may request or in the absence of such request, as each of the Borrowers and each of the Subsidiaries may deem advisable; and (c) the granting, in the ordinary course of business, to any Account Debtor, any rebate, refund or adjustment to which the Account Debtor may be lawfully entitled, and may accept, in connection therewith, the return of goods, the sale or lease of which shall have given rise to a Receivable and may take such other actions relating to the settling of any Account Debtor's claim as may be commercially reasonable. The Administrative Agent may, at its option, at any time or from time to time after and during the continuance of an Event of Default hereunder, revoke the collection privilege given in this Agreement to any one or more of the Borrowers and each of the Subsidiaries by either giving notice of its assignment of, and Lien on the Collateral to the Account Debtors or giving notice of such revocation to the Borrowers. The Administrative Agent shall not have any duty to, and the Borrowers hereby release the Administrative Agent and the Lenders from all claims of loss or damage caused by the delay or failure to collect or enforce any of the Receivables or to preserve any rights against any other party with an interest in the Collateral. The Administrative Agent shall be entitled at any time and from time to time to confirm and verify Receivables with the Account Debtors thereunder; provided, however, that absent an Event of Default, the Administrative Agent shall effect such verification by a means which does not identify the Administrative Agent by name. 6.1.16 Assignments of Receivables. Each Borrower will promptly, upon request, execute and deliver to the Administrative Agent written assignments, in form and content acceptable to the Administrative Agent, of specific Receivables or groups of Receivables; provided, however, the Lien and/or security interest granted to the Administrative Agent, for the ratable benefit of the Lenders and for the benefit of the Administrative Agent with respect to the Agents' Obligations, under this Agreement shall not be limited in any way to or by the inclusion or exclusion of Receivables within such assignments. Receivables so assigned shall secure payment of the Obligations and are not sold to the Administrative Agent and/or the Lenders whether or not any assignment thereof, which is separate from this Agreement, is in form absolute. The Borrowers agree that neither any assignment to the Lender nor any other provision contained in this Agreement or any - 97 - 105 of the other Financing Documents shall impose on the Administrative Agent or the Lenders any obligation or liability of any of the Borrowers with respect to that which is assigned and the Borrowers hereby agree jointly and severally to indemnify the Administrative Agent and the Lenders and hold the Administrative Agent and the Lenders harmless from any and all claims, actions, suits, losses, damages, costs, expenses, fees, obligations and liabilities which may be incurred by or imposed upon the Administrative Agent and/or any of the Lenders by virtue of the assignment of and Lien on any Borrower's rights, title and interest in, to, and under the Collateral, except for any such claims, actions, suits, losses, damages, costs, expenses, fees, obligations or liabilities which are the proximate result of the gross negligence or willful misconduct of the Administrative Agent or any Lender. 6.1.17 Government Accounts. The Borrowers will immediately notify the Administrative Agent if any of the Receivables arise out of contracts with the United States or with any other Governmental Authority, and, as appropriate, execute any instruments and take any steps required by the Administrative Agent in order that all moneys due and to become due under such contracts shall be assigned to the Administrative Agent, for the ratable benefit of the Lenders and for the benefit of the Administrative Agent with respect to the Agents' Obligations, and notice thereof given to the Governmental Authority under the Federal Assignment of Claims Act or any other applicable Laws. 6.1.18 Notice of Returned Goods, etc. The Borrowers will promptly notify, and will cause the Subsidiaries to promptly notify, the Administrative Agent of the return, rejection or repossession of any goods sold or delivered in respect of any Receivables, and of any claims made in regard thereto to the extent that the aggregate purchase price of any such goods in any given calendar month exceeds in the aggregate One Million Dollars ($1,000,000) for such month. 6.1.19 Inventory. With respect to the Inventory, the Borrowers and their Subsidiaries will: (a) as soon as possible upon demand by the Administrative Agent from time to time, prepare and deliver to the Administrative Agent designations of Inventory specifying the Borrowers' and Subsidiaries' cost of Inventory, the retail price thereof, and such other matters and information relating to the Inventory as the Administrative Agent may reasonably request; provided; however, that unless an Event of Default shall have occurred and be continuing such request shall not be made any more than one (1) time each quarter; (b) keep correct and accurate records itemizing and describing the kind, type, quality and quantity of Inventory, the Borrowers' and Subsidiaries' cost therefor and the selling price thereof, all of which, subject to the provisions of Section 6.1.3 above, records shall be available to the officers, employees or agents of the Administrative Agent for inspection and copying thereof; (c) not store any Inventory with a bailee, warehouseman or similar Person without the Administrative Agent's prior written consent, which consent may be conditioned on, among other things, delivery by the bailee, warehouseman or similar Person to the Administrative Agent of warehouse receipts, in form - 98 - 106 acceptable to the Administrative Agent, in the name of the Administrative Agent evidencing the storage of Inventory and the interests of the Administrative Agent and the Lenders therein; and (d) permit the Administrative Agent and its agents or representatives to inspect and examine the Inventory and to check and test the same as to quality, quantity, value and condition at any time or times hereafter during the Borrowers' and Subsidiaries' usual business hours or at other reasonable times. Any such inspection described in this clause (d) shall be subject to the provisions of Sections 6.1.3(a) and (c). The Borrowers shall be permitted to sell their Inventory in the ordinary course of business until the occurrence and during the continuation of an Event of Default. 6.1.20 Insurance With Respect to Capital Expenditure Line Equipment and Inventory. The Borrowers will (a) maintain and cause each of their Subsidiaries to maintain hazard insurance with fire and extended coverage and naming the Administrative Agent as an additional insured with loss payable to the Administrative Agent as its respective interest may appear on the Capital Expenditure Line Equipment and Inventory in an amount at least equal to the lesser amount of the outstanding principal amount of the Obligations or the fair market value of the Capital Expenditure Line Equipment and Inventory (but in any event sufficient to avoid any co-insurance obligations) and with a specific endorsement to each such insurance policy pursuant to which the insurer agrees to give the Administrative Agent at least thirty (30) days written notice before any alteration or cancellation of such insurance policy and that no act or default of any of the Borrowers shall affect the right of the Administrative Agent to recover under such policy in the event of loss or damage; and (b) file, and cause each of their Subsidiaries to file, with the Administrative Agent, upon its request, a detailed list of the insurance then in effect and stating the names of the insurance companies, the amounts and rates of the insurance, dates of the expiration thereof and the properties and risks covered thereby; provided, however, that unless an Event of Default shall have occurred and be continuing such request shall not be made any more than one (1) time each quarter. 6.1.21 Maintenance of the Collateral. The Borrowers will maintain the Collateral in good working order, saving and excepting ordinary wear and tear and loss of maintenance due to obsolescence or the items of Collateral no longer being necessary to the operation of the business of the Borrowers, and will not permit anything to be done to the Collateral which reasonably would be expected to materially impair the value thereof. The Administrative Agent, or an agent designated by the Administrative Agent, shall be permitted to enter the premises of each of the Borrowers and their Subsidiaries and examine, audit and inspect the Collateral at any reasonable time and from time to time in accordance with the provisions of Sections 6.1.3(a) and (c). The Administrative Agent agrees to act in a commercially reasonable manner when inspecting the premises of the Borrowers and their Subsidiaries and when examining, auditing and/or inspecting the Collateral. The Administrative Agent shall not have any duty to, and the Borrowers hereby release the Administrative Agent and the Lenders from all claims of loss or damage caused by the delay or failure to collect or enforce any of the Receivables or to preserve any rights against any other - 99 - 107 party with an interest in the Collateral which occurs at any time during the continuation of an Event of Default. 6.1.22 Assigned Local Currency Receivables Each Local Currency Borrower shall assign its Accounts as Assigned Local Currency Receivables promptly after such Accounts are created and the Borrowers shall thereafter maintain the Assigned Local Currency Receivables in compliance with each component of the definition of that term. 6.1.23 Capital Expenditure Line Equipment. The Borrowers shall (a) maintain all Capital Expenditure Line Equipment as personalty, (b) not affix any Capital Expenditure Line Equipment to any real estate in such manner as to become a fixture or part of such real estate, and (c) shall hold no Capital Expenditure Line Equipment on a sale on approval basis. The Borrowers hereby declare their intent that, notwithstanding the means of attachment, no goods of the Borrowers hereafter attached to any realty shall be deemed a fixture, which declaration shall be irrevocable, without the Administrative Agent's consent, until all of the Obligations have been paid in full and all of the Commitments have been terminated or have expired. All legal documents incident to each advance under the Loans and each of the Letters of Credit shall be reasonably satisfactory to counsel for the Administrative Agent. 6.1.24 Defense of Title and Further Assurances. At their expense, the Borrowers will defend the title to the Collateral (and any part thereof), and will promptly execute, acknowledge and deliver any financing statement, renewal, affidavit, deed, assignment, continuation statement, security agreement, certificate or other document which the Administrative Agent in good faith may require in order to perfect, preserve, maintain, continue, protect and/or extend the Lien or security interest granted to the Administrative Agent, for the ratable benefit of the Lenders and for the benefit of the Administrative Agent with respect to the Agents' Obligations, under this Agreement, under any of the other Financing Documents and the first priority of that Lien, subject only to the Permitted Liens. The Borrowers will from time to time do whatever the Administrative Agent reasonably may require by way of obtaining, executing, delivering, and/or filing financing statements, landlords' or mortgagees' waivers, notices of assignment and other notices and amendments and renewals thereof and the Borrowers will take any and all steps and observe such formalities as the Administrative Agent reasonably may require, in order to create and maintain a valid Lien upon, pledge of, or paramount security interest in, the Collateral, subject to the Permitted Liens. The Borrowers shall pay to the Administrative Agent on demand all taxes, costs and expenses incurred by the Administrative Agent in connection with the preparation, execution, recording and filing of any such document or instrument. To the extent that the proceeds of any of the Accounts or Receivables of the Borrowers are expected to become subject to the control of, or in the possession of, a party other than the Borrowers or the Administrative Agent, the Borrowers shall cause all such parties to execute and deliver on the Closing Date security documents, financing statements or other documents as requested by the Administrative Agent and as may be - 100 - 108 necessary to evidence and/or perfect the security interest of the Administrative Agent, for the ratable benefit of the Lenders and for the benefit of the Administrative Agent with respect to the Agents' Obligations, in those proceeds. The Borrowers agree that a copy of a fully executed security agreement and/or financing statement shall be sufficient to satisfy for all purposes the requirements of a financing statement as set forth in Article 9 of the applicable Uniform Commercial Code. Each Borrower hereby irrevocably appoints the Administrative Agent as the Borrower's attorney-in-fact, with power of substitution, in the name of the Administrative Agent or in the name of the Borrower or otherwise, for the use and benefit of the Administrative Agent for itself and the Lenders, but at the cost and expense of the Borrowers and without notice to the Borrowers, to execute and deliver any and all of the instruments and other documents and take any action which the Lender may require pursuant the foregoing provisions of this Section 6.1.24; provided, however, that unless the Lenders have a reasonable belief that any Lien securing the Obligations is impaired or may be impaired by delay, no such filing shall be made unless the Administrative Agent has requested the Borrowers to make such filing and the Borrowers have failed to comply with such request within ten (10) Business Days after such request has been delivered to the Borrowers. 6.1.25 Business Names; Locations. Each Borrower will notify and cause each of the Subsidiaries to notify the Administrative Agent not less than thirty (30) days prior to (a) any change in the name under which the Borrower or the applicable Subsidiary conducts its business, (b) any change of the location of the chief executive office of the applicable Borrower or Subsidiary, and (c) the opening of any new place of business or the closing of any existing place of business, and any change in the location of the places where the Collateral, or any part thereof, or the books and records, or any part thereof, are kept. 6.1.26 Subsequent Opinion of Counsel as to Recording Requirements. In the event that any Borrower or any Subsidiary shall transfer its principal place of business or the office where it keeps its records pertaining to the Collateral, upon the Administrative Agent's request the Borrowers will provide to the Administrative Agent a subsequent opinion of counsel as to the filing, recording and other requirements with which the Borrowers and their Subsidiaries have complied to maintain the Lien and security interest in favor of the Administrative Agent, for the ratable benefit of the Lenders and for the benefit of the Administrative Agent with respect to the Agents' Obligations, in the Collateral. 6.1.27 Use of Premises and Equipment. The Borrowers agree that until the Obligations are fully paid and all of the Commitments and the Letters of Credit have been terminated or have expired, the Administrative Agent (a) after and during the continuance of an Event of Default, may use any of the Borrowers' owned or leased lifts, hoists, trucks and other facilities or equipment for handling or removing the Collateral; and (b) shall have, and is hereby granted, a right of ingress and egress to the places where the Collateral is located, and may proceed over and through any of the Borrowers' owned or leased property, subject, however, to the provisions of Section 6.1.3. - 101 - 109 6.1.28 Protection of Collateral. The Borrowers agree that the Administrative Agent may at any time during the continuation of an Event of Default take such steps as the Administrative Agent deems reasonably necessary to protect the interest of the Administrative Agent and the Lenders in, and to preserve the Collateral, including, the hiring of such security guards or the placing of other security protection measures as the Administrative Agent deems appropriate, may employ and maintain at any of the Borrowers' premises a custodian who shall have full authority to do all acts necessary to protect the interests of the Administrative Agent and the Lenders in the Collateral and may lease warehouse facilities to which the Administrative Agent may move all or any part of the Collateral to the extent commercially reasonable. The Borrowers agree to cooperate fully with the Administrative Agent's efforts to preserve the Collateral and will take such actions to preserve the Collateral as the Administrative Agent may reasonably direct. All of the Administrative Agent's expenses of preserving the Collateral, including any reasonable expenses relating to the compensation and bonding of a custodian, shall be part of the Enforcement Costs. Section 6.2 Negative Covenants. So long as any of the Obligations or the Commitments or Letters of Credit therefor shall be outstanding hereunder, the Borrowers agree with the Administrative Agent and the Lenders that without the prior written consent of the Administrative Agent: 6.2.1 Mergers, Acquisition or Sale of Assets. None of the Borrowers will enter into any merger or consolidation or amalgamation, windup or dissolve themselves (or suffer any liquidation or dissolution) or acquire all or substantially all the assets of any Person, or sell, lease or otherwise dispose of any of its assets (except Inventory disposed of in the ordinary course of business prior to an Event of Default); provided, however, that any Borrower may merge or consolidate with or sell, lease or dispose of any of its assets to any other Borrower. Any consent of the Administrative Agent to the disposition of any assets may be conditioned on a specified use of the proceeds of disposition. 6.2.2 Subsidiaries. None of the Borrowers will create or acquire any Subsidiaries other than the Subsidiaries identified on the Collateral Disclosure List. 6.2.3 Purchase or Redemption of Securities, Dividend Restrictions. Except as permitted pursuant to the terms of the Senior Notes and then only if no Event of Default or failure to maintain the availability required by the Section 2.1.12(b) shall then exist or result therefrom, none of the Borrowers will purchase, redeem or otherwise acquire any shares of its capital stock or warrants now or hereafter outstanding, declare or pay any dividends thereon (other than stock dividends), apply any of its property or assets to the purchase, redemption or other retirement of, set apart any sum for the payment of - 102 - 110 any dividends on, or for the purchase, redemption, or other retirement of, make any distribution by reduction of capital or otherwise in respect of, any shares of any class of capital stock of any Borrower, or any warrants, permit any Subsidiary to purchase or acquire any shares of any class of capital stock of, or warrants issued by, any Borrower, make any distribution to stockholders or set aside any funds for any such purpose, and not prepay, purchase or redeem any Indebtedness for Borrowed Money other than the Obligations. 6.2.4 Indebtedness for Borrowed Money. None of the Borrowers will create, incur, assume or suffer to exist any Indebtedness for Borrowed Money or permit any Subsidiary to do so, except: (a) the Obligations; (b) current accounts payable arising in the ordinary course; (c) the Senior Notes and the guarantees executed in connection therewith; (d) Indebtedness for Borrowed Money secured by Permitted Liens; (e) Subordinated Indebtedness; (f) Indebtedness for Borrowed Money of the Borrowers existing on the date hereof and reflected on the financial statements furnished pursuant to Section 4.1.11 (Financial Condition); (g) Guarantees by any Borrower of Indebtedness for Borrowed Money otherwise permitted hereunder of any other Borrower; (h) Refinancing of any of the amounts listed in clauses (c) and (d) above and in this clause (h), provided the amount as refinanced does not exceed the original principal amount (or commitment with respect thereto) of the Indebtedness for Borrowed Money so refinanced and on terms not materially less favorable to the applicable Borrowers and do not result in a Default or Event of Default; (i) Indebtedness for Borrowed Money represented by Capitalized Leases otherwise permitted by this Agreement and (j) other Indebtedness for Borrowed Money in an amount not to exceed in the aggregate for the Parent and its Subsidiaries at any time outstanding, the sum of Five Million Dollars ($5,000,000) (or the equivalent thereof in any other currency, as applicable), which Indebtedness for Borrowed Money shall not be secured. - 103 - 111 6.2.5 Investments, Loans and Other Transactions. Except as otherwise provided in this Agreement, none of the Borrowers will, and will permit any of its Subsidiaries to, (a) make, assume, acquire or continue to hold any investment in any real property (unless used in connection with their business and treated as a Fixed or Capital Asset of any Borrower or any Subsidiary) or any Person, whether by stock purchase, capital contribution, acquisition of indebtedness of such Person or otherwise (including, without limitation, investments in any joint venture or partnership), (b) guaranty or otherwise become contingently liable for the Liabilities or obligations of any Person, or (c) make any loans or advances, or otherwise extend credit to any Person, except: (i) any advance to an officer or employee of any Borrower or any Subsidiary for travel or other business expenses in the ordinary course of business, provided that the aggregate amount of all such advances by all of the Borrowers and their Subsidiaries (taken as a whole) outstanding at any time shall not exceed One Million Dollars ($1,000,000); (ii) the endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business; (iii) any investment in Cash Equivalents, which are pledged to the Administrative Agent, for the ratable benefit of the Lenders and for the benefit of the Administrative Agent with respect to the Agents' Obligations, as collateral and security for the Obligations; (iv) trade credit extended to customers in the ordinary course of business; (v) guarantees permitted pursuant to Section 6.2.4; (vi) investments, loans, advances and guaranties not to exceed $10,000,000 in the aggregate with respect to the VITEC venture for the production of fuel storage and delivery systems for General Motors Corporation and Chrysler Corporation; and (vii) after January 1, 1999, other investments, loans, advances and guaranties not to exceed $5,000,000 in the aggregate for any fiscal year. 6.2.6 Stock of Subsidiaries. None of the Borrowers will sell or otherwise dispose of any shares of capital stock of any Subsidiary (except in connection with a merger or consolidation of a Wholly Owned Subsidiary into any of the Borrowers or another Wholly Owned Subsidiary of any of the - 104 - 112 Borrowers or with the dissolution of any Subsidiary) or permit any Subsidiary to issue any additional shares of its capital stock except pro rata to its stockholders. 6.2.7 Subordinated Indebtedness. None of the Borrowers will, and will permit any Subsidiary to make: (a) any payment of principal of, or interest on, any of the Subordinated Indebtedness, including, without limitation, the Subordinated Debt, if a Default or Event of Default then exists hereunder or would result from such payment; (b) any payment of the principal or interest due on the Subordinated Indebtedness as a result of acceleration thereunder or a mandatory prepayment thereunder; (c) any amendment or modification of or supplement to the documents evidencing or securing the Subordinated Indebtedness; and (d) payment of principal or interest on the Subordinated Indebtedness other than when due (without giving effect to any acceleration of maturity or mandatory prepayment). 6.2.8 Liens. Each Borrower agrees that it (a) will not create, incur, assume or suffer to exist any Lien upon any of its properties or assets, whether now owned or hereafter acquired, or permit any Subsidiary so to do, except for Liens securing the Obligations and Permitted Liens, (b) will not agree to, assume or suffer to exist any provision in any instrument or other document for confession of judgment, cognovit or other similar right or remedy, (c) except as required by law for real estate and other property taxes and for mechanic's and similar liens, will not allow or suffer to exist any Permitted Liens to be superior to Liens securing the Obligations, (d) will not enter into any contracts for the consignment of goods, will not execute or suffer the filing of any financing statements or the posting of any signs giving notice of consignments, and will not, as a material part of its business, engage in the sale of goods belonging to others, and (e) will not allow or suffer to exist the failure of any Lien described in the Security Documents to attach to, and/or remain at all times perfected on, any of the property described in the Security Documents. 6.2.9 Transactions with Affiliates. None of the Borrowers nor any of their Subsidiaries will enter into or participate in any transaction with any Affiliate unless the same is on fair and reasonable terms consistent with past practice, or, except in the ordinary course of business, with the officers, directors, employees and other representatives of any Borrower and/or any Subsidiary. - 105 - 113 6.2.10 Other Businesses. None of the Borrowers nor any of their Subsidiaries will engage directly or indirectly in any business other than its current line of business described elsewhere in this Agreement. 6.2.11 ERISA Compliance. None of the Domestic Borrowers nor any Commonly Controlled Entity shall: (a) engage in or permit any "prohibited transaction" (as defined in ERISA); (b) cause any "accumulated funding deficiency" as defined in ERISA and/or the Internal Revenue Code; (c) terminate any pension plan in a manner which reasonably would be expected to result in the imposition of a lien on the property of any Domestic Borrower pursuant to ERISA; (d) terminate or consent to the termination of any Multi-employer Plan; or (e) incur a complete or partial withdrawal with respect to any Multi-employer Plan. 6.2.12 Prohibition on Hazardous Materials. None of the Borrowers shall place, manufacture or store or permit to be placed, manufactured or stored any Hazardous Materials on any property owned, operated or controlled by any Borrower or for which any Borrower is responsible other than Hazardous Materials placed or stored on such property in accordance with applicable Laws in the ordinary course of a Borrower's business expressly described in this Agreement. 6.2.13 Method of Accounting; Fiscal Year. Each Borrower agrees that: (a) it shall not change the method of accounting employed in the preparation of any financial statements furnished to the Administrative Agent under the provisions of Section 6.1.1 (Financial Statements), unless required to conform to GAAP and on the condition that the Borrowers' accountants shall furnish such information as the Administrative Agent reasonably may request to reconcile the changes with the Borrowers' prior financial statements; and (b) it will not change its fiscal year from a year ending on December 31. 6.2.14 Compensation. None of the Borrowers nor any Subsidiary will pay any bonuses, fees, compensation, commissions, salaries, drawing accounts, or other payments (cash and non-cash), whether direct or indirect, to any stockholders of any Borrower or any Subsidiary, or any Affiliate of any Borrower or any Subsidiary, other than reasonable compensation for actual services rendered by stockholders in their capacity as officers or employees. - 106 - 114 6.2.15 Transfer of Collateral. Except to the extent permitted by and in compliance with the provisions of this Agreement, none of the Borrowers nor any of their Subsidiaries will transfer, or permit the transfer, to another location of any of the Collateral or the books and records related to any of the Collateral. 6.2.16 Sale and Leaseback. Except for transactions disclosed on Schedule 6.2.16, none of the Borrowers nor any of the Subsidiaries will directly or indirectly enter into any arrangement to sell or transfer all or any substantial part of its fixed assets and thereupon or within one year thereafter rent or lease the assets so sold or transferred. 6.2.17 Disposition of Collateral. None of the Borrowers will sell, discount, allow credits or allowances, transfer, assign, extend the time for payment on, convey, lease, assign, transfer or otherwise dispose of the Collateral, except, prior to an Event of Default, dispositions expressly permitted elsewhere in this Agreement, the sale of Inventory in the ordinary course of business, and the sale of unnecessary or obsolete equipment, but, in the case of Capital Expenditure Line Equipment, only if the proceeds of the sale of such Capital Expenditure Line Equipment are (a) used to purchase similar Capital Expenditure Line Equipment to replace the unnecessary or obsolete Capital Expenditure Line Equipment or (b) immediately turned over to the Administrative Agent for application to the Obligations in accordance with the provisions of this Agreement. ARTICLE V II DEFAULT AND RIGHTS AND REMEDIES Section 7.1 Events of Default. The occurrence of any one or more of the following events shall constitute an "Event of Default" under the provisions of this Agreement: 7.1.1 Failure to Pay. The failure of the Borrowers to pay any of the Obligations as and when due and payable in accordance with the provisions of this Agreement, the Notes and/or any of the other Financing Documents and (except in the case of payment of principal and/or interest) such failure shall have continued for a period of five (5) days, there being no grace period with respect to a payment at maturity. 7.1.2 Breach of Representations and Warranties. Any representation or warranty made in this Agreement or in any report, statement, schedule, certificate, opinion (including any opinion of counsel for the Borrowers), - 107 - 115 financial statement or other document furnished in connection with this Agreement, any of the other Financing Documents, or the Obligations, shall prove to have been false or misleading when made (or, if applicable, when reaffirmed) in any material respect. 7.1.3 Failure to Comply with Covenants. The failure of the Borrowers to perform, observe or comply with any covenant, condition or agreement contained in this Agreement. and, (i) only with respect to a failure under Section 6.1.1 (Financial Statement), such failure continues uncured for a period of five (5) days, or (ii) only with respect to a failure under Sections 6.1.3(b) (Bookkeeping), 6.1.4 (Corporate Existence), 6.1.6 (Preservation of Properties), or 6.1.9 (Taxes) which does not relate to Taxes due or claimed to be due in excess of $250,000 in the aggregate, if the Borrowers after discovering such failure, fail to diligently and continuously pursue the cure of such failure or such failure continues uncured thirty (30) days after discovery 7.1.4 Default Under Other Financing Documents or Obligations. A default shall occur under any of the other Financing Documents or under any other Obligations, and such default is not cured within any applicable grace period provided therein. 7.1.5 Receiver; Bankruptcy. Any Borrower or any Subsidiary shall (a) apply for or consent to the appointment of a receiver, trustee or liquidator of itself or any of its property, (b) admit in writing its inability to pay its debts as they mature, (c) make a general assignment for the benefit of creditors, (d) be adjudicated a bankrupt or insolvent, (e) file a voluntary petition in bankruptcy or a petition or an answer seeking or consenting to reorganization or an arrangement with creditors or to take advantage of any bankruptcy, reorganization, insolvency, readjustment of debt, dissolution or liquidation law or statute, or an answer admitting the material allegations of a petition filed against it in any proceeding under any such law, or take corporate action for the purposes of effecting any of the foregoing, or (f) by any act indicate its consent to, approval of or acquiescence in any such proceeding or the appointment of any receiver of or trustee for any of its property, or suffer any such receivership, trusteeship or proceeding to continue undischarged for a period of sixty (60) days, or (g) by any act indicate its consent to, approval of or acquiescence in any order, judgment or decree by any court of competent jurisdiction or any Governmental Authority enjoining or otherwise prohibiting the operation of a material portion of any Borrower's or any Subsidiary's business or the use or disposition of a material portion of any Borrower's or any Subsidiary's assets; provided, however, that with respect to a Subsidiary which is not a Borrower, the foregoing shall not be an Event of Default unless a Material Adverse Effect results. 7.1.6 Involuntary Bankruptcy, etc. (a) An order for relief shall be entered in any involuntary case brought against any Borrower or any Subsidiary under the Bankruptcy Code or any order or filing with a similar effect shall arise under any other Insolvency Proceedings, or (b) any such - 108 - 116 case shall be commenced against any Borrower or any Subsidiary and shall not be dismissed within sixty (60) days after the filing of the petition, or (c) an order, judgment or decree under any other Law is entered by any court of competent jurisdiction or by any other Governmental Authority on the application of a Governmental Authority or of a Person other than any Borrower or any Subsidiary (i) adjudicating any Borrower, or any Subsidiary bankrupt or insolvent, or (ii) appointing a receiver, trustee or liquidator of any Borrower or of any Subsidiary, or of a material portion of any Borrower's or any Subsidiary's assets, or (iii) enjoining, prohibiting or otherwise limiting the operation of a material portion of any Borrower's or any Subsidiary's business or the use or disposition of a material portion of any Borrower's or any Subsidiary's assets, and such order, judgment or decree continues unstayed and in effect for a period of sixty (60) days from the date entered; provided, however, that with respect to a Subsidiary which is not a Borrower, the foregoing shall not be an Event of Default unless a Material Adverse Effect results. 7.1.7 Judgment. Unless adequately insured in the opinion of the Administrative Agent, the entry of a final judgment for the payment of money involving more than $5,000,000 against any Borrower or any Subsidiary, and the failure by such Borrower or such Subsidiary to discharge the same, or cause it to be discharged, within thirty (30) days from the date of the order, decree or process under which or pursuant to which such judgment was entered, or to secure a stay of execution pending appeal of such judgment. 7.1.8 Execution; Attachment. Any execution or attachment shall be levied against the Collateral, or any part thereof, and such execution or attachment shall not be set aside, discharged or stayed within thirty (30) days after the same shall have been levied. 7.1.9 Default Under Other Borrowings. Default shall be made with respect to any Indebtedness in excess of $5,000,000 of any of the Borrowers (other than the Loans) if the effect of such default is to accelerate the maturity of such Indebtedness or to permit the holder or obligee thereof or other party thereto to cause such Indebtedness to become due prior to its stated maturity. 7.1.10 Challenge to Agreements. Any Borrower shall challenge the validity and binding effect of any provision of any of the Financing Documents or shall state its intention to make such a challenge of any of the Financing Documents or any of the Financing Documents shall for any reason (except to the extent permitted by its express terms) cease to be effective or to create a valid and perfected first priority Lien (except for Permitted Liens) on, or security interest in, any of the Collateral purported to be covered thereby. - 109 - 117 7.1.11 Material Adverse Change. The Administrative Agent, in its sole discretion, determines in good faith that a material adverse change has occurred in the financial condition of any of the Borrowers. 7.1.12 Liquidation, Termination, Dissolution, Change in Control etc. Any Borrower shall liquidate, dissolve or terminate its existence or any change occurs in the control of any Borrower without the prior written consent of the Administrative Agent or unless the same is otherwise permitted by this Agreement. 7.1.13 Change in Control. A "Change in Control" shall occur under the Senior Note Indentures, as the case may be, or the Parent has issued any "Change of Control Notice" or "Control Change" Notice thereunder. Section 7.2 Remedies. Upon the occurrence and during the continuation of any Event of Default, the Administrative Agent may, in the exercise of its sole and absolute discretion from time to time, and shall, at the direction of the Requisite Lenders, at any time thereafter exercise any one or more of the following rights, powers or remedies. 7.2.1 Acceleration. The Administrative Agent may declare any or all of the Obligations to be immediately due and payable, notwithstanding anything contained in this Agreement or in any of the other Financing Documents to the contrary, without presentment, demand, protest, notice of protest or of dishonor, or other notice of any kind, all of which the Borrowers hereby waive. 7.2.2 Further Advances. The Administrative Agent may from time to time without notice to the Borrowers suspend, terminate or limit any further advances, loans or other extensions of credit under the Commitment, under this Agreement and/or under any of the other Financing Documents. Further, upon the occurrence and during the continuation of an Event of Default or Default specified in Sections 7.1.5 (Receiver; Bankruptcy) or 7.1.6 (Involuntary Bankruptcy, etc.), the Revolving Credit Commitments, the Letter of Credit Commitments and any agreement in any of the Financing Documents to provide additional credit and/or to issue Letters of Credit shall immediately and automatically terminate and the unpaid principal amount of the Notes (with accrued interest thereon) and all other Obligations then outstanding, shall immediately become due and payable without further action of any kind and without presentment, demand, protest or notice of any kind, all of which are hereby expressly waived by the Borrowers. - 110 - 118 7.2.3 Uniform Commercial Code. The Administrative Agent shall have all of the rights and remedies of a secured party under the applicable Uniform Commercial Code and other applicable Laws. Upon demand by the Administrative Agent, the Borrowers shall assemble the Collateral and make it available to the Administrative Agent, at a place reasonably designated in the United States or reasonably designated elsewhere by the Administrative Agent. The Administrative Agent or its agents may without notice from time to time enter upon any Borrower's premises to take possession of the Collateral, to remove it, to render it unusable, to process it or otherwise prepare it for sale, or to sell or otherwise dispose of it. Any written notice of the sale, disposition or other intended action by the Administrative Agent with respect to the Collateral which is sent by regular mail, postage prepaid, to the Borrowers at the address set forth in Section 9.1 (Notices), or such other address of the Borrowers which may from time to time be shown on the Administrative Agent's records, at least ten (10) days prior to such sale, disposition or other action, shall constitute commercially reasonable notice to the Borrowers. The Administrative Agent may alternatively or additionally give such notice in any other commercially reasonable manner. Nothing in this Agreement shall require the Administrative Agent to give any notice not required by applicable Laws. If any consent, approval, or authorization of any state, municipal or other Governmental Authority or of any other Person or of any Person having any interest therein, should be necessary to effectuate any sale or other disposition of the Collateral, the Borrowers agree to execute all such applications and other instruments, and to take all other action, as reasonably may be required in connection with securing any such consent, approval or authorization. The Borrowers recognize that the Administrative Agent may be unable to effect a public sale of all or a part of the Collateral consisting of Subsidiary Securities by reason of certain prohibitions contained in the Securities Act of 1933, as amended, and other applicable Federal and state Laws. The Administrative Agent may, therefore, in its discretion, take such steps as it may deem appropriate to comply with such Laws and may, for example, at any sale of the Collateral consisting of securities restrict the prospective bidders or purchasers as to their number, nature of business and investment intention, including, without limitation, a requirement that the Persons making such purchases represent and agree to the satisfaction of the Administrative Agent that they are purchasing such securities for their account, for investment, and not with a view to the distribution or resale of any thereof. The Borrowers covenant and agree to do or cause to be done promptly all such acts and things as the Administrative Agent reasonably may request from time to time and as may be necessary to offer and/or sell the securities or any part thereof in a manner which is valid and binding and in conformance with all applicable Laws. Upon any such sale or disposition, the Administrative Agent shall have the right to deliver, assign and transfer to the purchaser thereof the Collateral consisting of securities so sold. - 111 - 119 7.2.4 Specific Rights With Regard to Collateral. In addition to all other rights and remedies provided hereunder or as shall exist at law or in equity from time to time, the Administrative Agent may (but shall be under no obligation to), without notice to any of the Borrowers, and each Borrower hereby irrevocably appoints the Administrative Agent as its attorney-in-fact, with power of substitution, in the name of the Administrative Agent and/or any or all of the Lenders and/or in the name of any or all of the Borrowers or otherwise, for the use and benefit of the Administrative Agent and the Lenders, but at the cost and expense of the Borrowers and without notice to the Borrowers: (a) request any Account Debtor obligated on any of the Accounts to make payments thereon directly to the Administrative Agent, with the Administrative Agent taking control of the cash and non-cash proceeds thereof; (b) compromise, extend or renew any of the Collateral or deal with the same as it may deem advisable; (c) make exchanges, substitutions or surrenders of all or any part of the Collateral; (d) copy, transcribe, or remove from any place of business of any Borrower all books, records, ledger sheets, correspondence, invoices and documents, relating to or evidencing any of the Collateral or without cost or expense to the Administrative Agent or the Lenders, make such use of any Borrower's place(s) of business as may be reasonably necessary to administer, control and collect the Collateral; (e) repair, alter or supply goods if necessary to fulfill in whole or in part the purchase order of any Account Debtor; (f) demand, collect, receipt for and give renewals, extensions, discharges and releases of any of the Collateral; (g) institute and prosecute legal and equitable proceedings to enforce collection of, or realize upon, any of the Collateral; (h) settle, renew, extend, compromise, compound, exchange or adjust claims in respect of any of the Collateral or any legal proceedings brought in respect thereof; (i) endorse or sign the name of any Borrower upon any items of payment, certificates of title, instruments, securities, stock powers, documents, documents of title, financing statements, assignments, notices or other writing relating to or part of the Collateral and on any proof of claim in bankruptcy against an Account Debtor; - 112 - 120 (j) notify the Post Office authorities to change the address for the delivery of mail to the Borrowers to such address or Post Office Box as the Administrative Agent may designate and receive and open all mail addressed to any of the Borrowers provided; however, that the Borrowers shall have immediate access to the mail which does not pertain to the Collateral; and (k) take any other action necessary or beneficial to realize upon or dispose of the Collateral or to carry out the terms of this Agreement. 7.2.5 Application of Proceeds. Any proceeds of sale or other disposition of the Collateral will be applied by the Administrative Agent to the payment first of any and all Agents' Obligations, then to any and all Enforcement Costs, and thereafter (i) proceeds from Receivables and Inventory shall be applied first to the Obligations with respect to the Revolving Credit Facility, second to the Obligations with respect to the Capital Expenditure Line, then to any other Obligations, (ii) proceeds from the Capital Expenditure Line Equipment which is the subject of advances under the Capital Expenditure Line, first to the Obligations with respect to the Capital Expenditure Line, second to the Obligations with respect to the Revolving Credit Facility, and then to any other Obligations, and (iii) proceeds from other Collateral shall be applied first to the Obligations with respect to the Revolving Credit Facility, second to the Obligations with respect to the Capital Expenditure Line, and then to any other Obligations. If the sale or other disposition (by foreclosure, liquidation or otherwise) of the Collateral fails to fully satisfy the Obligations, the Domestic Borrowers shall remain liable to the Administrative Agent and the Lenders for any deficiency. 7.2.6 Performance by Administrative Agent. If the Borrowers shall fail to pay the Obligations or otherwise fail to perform, observe or comply with any of the conditions, covenants, terms, stipulations or agreements contained in this Agreement or any of the other Financing Documents, the Administrative Agent without notice to or demand upon the Borrowers and without waiving or releasing any of the Obligations or any Event of Default, may (but shall be under no obligation to) at any time thereafter make such payment or perform such act for the account and at the expense of the Borrowers, and may enter upon the premises of the Borrowers for that purpose and take all such action thereon as the Administrative Agent may consider necessary or appropriate for such purpose and each of the Borrowers hereby irrevocably appoints the Administrative Agent as its attorney-in-fact to do so, with power of substitution, in the name of the Administrative Agent, in the name of any or all of the Lenders, or in the name of any or all of the Borrowers or otherwise, for the use and benefit of the Administrative Agent, but at the cost and expense of the Borrowers and without notice to the Borrowers. All sums so paid or advanced by the Administrative Agent together with interest thereon from the date of payment, advance or incurring until paid in full at the Post-Default Rate and all costs and expenses, shall - 113 - 121 be deemed part of the Enforcement Costs, shall be paid by the Borrowers to the Administrative Agent on demand, and shall constitute and become a part of the Agents' Obligations. 7.2.7 Other Remedies. The Administrative Agent may from time to time proceed to protect or enforce the rights of the Administrative Agent and/or any of the Lenders by an action or actions at law or in equity or by any other appropriate proceeding, whether for the specific performance of any of the covenants contained in this Agreement or in any of the other Financing Documents, or for an injunction against the violation of any of the terms of this Agreement or any of the other Financing Documents, or in aid of the exercise or execution of any right, remedy or power granted in this Agreement, the Financing Documents, and/or applicable Laws. The Administrative Agent and each of the Lenders is authorized to offset and apply to all or any part of the Obligations all moneys, credits and other property of any nature whatsoever of any or all of the Borrowers now or at any time hereafter in the possession of, in transit to or from, under the control or custody of, or on deposit with, the Administrative Agent, any of the Lenders or any Affiliate of the Administrative Agent or any of the Lenders. ARTICLE V III THE AGENT Section 8.1 Appointment. Each Lender hereby designates and appoints NationsBank as its agent under this Agreement and the Financing Documents, and each Lender hereby irrevocably authorizes the Administrative Agent to take such action or to refrain from taking such action on its behalf under the provisions of this Agreement and the Financing Documents and to exercise such powers as are set forth herein or therein, together with such other powers as are reasonably incidental thereto. The Administrative Agent agrees to act as such on the express conditions contained in this ARTICLE VIII. The provisions of this ARTICLE VIII are solely for the benefit of the Administrative Agent and the Lenders and neither the Borrowers nor any Person shall have any rights as a third party beneficiary of any of the provisions hereof. In performing its functions and duties under this Agreement, the Administrative Agent shall act solely as an administrative representative of the Lenders and does not assume and shall not be deemed to have assumed any obligation toward or relationship of agency or trust with or for the Lenders, the Borrowers or any Person. The Administrative Agent may perform any of its duties hereunder, or under the Financing Documents, by or through its agents or employees. Section 8.2 Nature of Duties. 8.2.1 In General The Administrative Agent shall have no duties, obligations or responsibilities except those expressly set forth in this Agreement or in the Financing Documents. The duties of the Administrative Agent shall be mechanical and administrative in nature. The Administrative Agent shall not have by reason of this Agreement a fiduciary - 114 - 122 relationship in respect of any Lender. Each Lender shall make its own independent investigation of the financial condition and affairs of the Borrowers in connection with the extension of credit hereunder and shall make its own appraisal of the creditworthiness of the Borrowers, and the Administrative Agent shall have no duty or responsibility, either initially or on a continuing basis, to provide any Lender with any credit or other information with respect thereto, whether coming into its possession before the Closing Date or at any time or times thereafter. If the Administrative Agent seeks the consent or approval of any of the Lenders to the taking or refraining from taking of any action hereunder, then the Administrative Agent shall send notice thereof to each Lender. The Administrative Agent shall promptly notify each Lender any time that the applicable percentage of Lenders has instructed the Administrative Agent to act or refrain from acting pursuant hereto. 8.2.2 Express Authorization The Administrative Agent is hereby expressly and irrevocably authorized by each of the Lenders, as agent on behalf of itself and the other Lenders: (a) to receive on behalf of each of the Lenders any payment or collection on account of the Obligations and to distribute to each Lender its Pro Rata Share of all such payments and collections so received as provided in this Agreement; (b) to receive all documents and items to be furnished to the Lenders under the Financing Documents (nothing contained herein shall relieve the Borrowers of any obligation to deliver any item directly to the Lenders to the extent expressly required by the provisions of this Agreement); (c) to act or refrain from acting in this Agreement and in the other Financing Documents with respect to those matters so designated for the Administrative Agent; (d) to act as nominee for and on behalf of the Lenders in and under this Agreement and the other Financing Documents; (e) to arrange for the means whereby the funds of the Lenders are to be made available to the Borrowers; (f) to distribute promptly to the Lenders, if required by the terms of this Agreement, all written information, requests, notices, Loan Notices, payments, Prepayments, documents and other items received from the Borrowers or other Person; (g) to amend, modify, or waive any provisions of this Agreement or the other Financing Documents on behalf of the Lenders subject to the requirement that certain of the Lenders' consent be obtained in certain instances as provided in 9.2.2 (Circumstances Where Consent of all of the Lenders is Required); - 115 - 123 (h) to deliver to the Borrowers and other Persons, all requests, demands, approvals, notices, and consents received from any of the Lenders; (i) to exercise on behalf of each Lender all rights and remedies of the Lenders upon the occurrence and during the continuation of any Event of Default and/or Default specified in this Agreement and/or in any of the other Financing Documents or applicable Laws; (j) to execute any of the Security Documents and any other documents on behalf of the Lenders as the secured party for the benefit of the Administrative Agent and the Lenders; and (k) to take such other actions as may be requested by the Requisite Lenders. Section 8.3 Rights, Exculpation, Etc. Neither the Administrative Agent nor any of its officers, directors, employees or agents shall be liable to any Lender for any action taken or omitted by them hereunder or under any of the Financing Documents, or in connection herewith or therewith, except that the Administrative Agent shall be obligated on the terms set forth herein for performance of its express obligations hereunder, and except that the Administrative Agent shall be liable with respect to its own gross negligence or willful misconduct. The Administrative Agent shall not be liable for any apportionment or distribution of payments made by it in good faith and if any such apportionment or distribution is subsequently determined to have been made in error the sole recourse of any Lender to whom payment was due but not made, shall be to recover from other the Lenders any payment in excess of the amount to which they are determined to be entitled (and such other Lenders hereby agree to return to such Lender any such erroneous payments received by them). The Administrative Agent shall not be responsible to any Lender for any recitals, statements, representations or warranties herein or for the execution, effectiveness, genuineness, validity, enforceability, collectible, or sufficiency of this Agreement or any of the Financing Documents or the transactions contemplated thereby, or for the financial condition of any Person. The Administrative Agent shall not be required to make any inquiry concerning either the performance or observance of any of the terms, provisions or conditions of this Agreement or any of the Financing Documents or the financial condition of any Person, or the existence or possible existence of any Default or Event of Default. The Administrative Agent may at any time request instructions from the Lenders with respect to any actions or approvals which by the terms of this Agreement or of any of the Financing Documents the Administrative Agent is permitted or required to take or to grant, and the Administrative Agent shall be absolutely entitled to refrain from taking any action or to withhold any approval and shall not be under any liability whatsoever to any Person for refraining from any action or withholding any approval under any of the Financing Documents until it shall have received such instructions from the applicable percentage of the Lenders. Without limiting the foregoing, no Lender shall have any right of action whatsoever against the Administrative Agent as a result of the Administrative Agent acting or refraining from acting under this Agreement or any of the other - 116 - 124 Financing Documents in accordance with the instructions of the applicable percentage of the Lenders and notwithstanding the instructions of the Lenders, the Administrative Agent shall have no obligation to take any action if it, in good faith believes that such action exposes the Administrative Agent to any liability. Section 8.4 Reliance. The Administrative Agent shall be entitled to rely upon any written notices, statements, certificates, orders or other documents or any telephone message or other communication (including any writing, telex, telecopy or telegram) believed by it in good faith to be genuine and correct and to have been signed, sent or made by the proper Person, and with respect to all matters pertaining to this Agreement or any of the Financing Documents and its duties hereunder or thereunder, upon advice of counsel selected by it. The Administrative Agent may deem and treat the original Lenders as the owners of the respective Notes for all purposes until receipt by the Administrative Agent of a written notice of assignment, negotiation or transfer of any interest therein by the Lenders in accordance with the terms of this Agreement. Any interest, authority or consent of any holder of any of the Notes shall be conclusive and binding on any subsequent holder, transferee, or assignee of such Notes. The Administrative Agent shall be entitled to rely upon the advice of legal counsel, independent accountants, and other experts selected by the Administrative Agent in its sole discretion. Section 8.5 Indemnification. Each Lender, severally, agrees to reimburse and indemnify the Administrative Agent for and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses, advances or disbursements including, without limitation, Enforcement Costs, of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against the Administrative Agent in any way relating to or arising out of this Agreement or any of the Financing Documents or any action taken or omitted by the Administrative Agent under this Agreement for any of the Financing Documents, in proportion to each Lender's Pro Rata Share, all of the foregoing as they may arise, be asserted or be imposed from time to time; provided, however, that no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses, advances or disbursements resulting from the Administrative Agent's gross negligence or willful misconduct. The obligations of the Lenders under this Section 8.5 shall survive the payment in full of the Obligations and the termination of this Agreement. Section 8.6 NationsBank Individually. With respect to its Commitments and the Loans made by it, and the Notes issued to it, NationsBank shall have and may exercise the same rights and powers hereunder and is subject to the same obligations and liabilities as and to the extent set forth herein for any other Lender. The terms "the Lenders" or "Requisite Lenders" or any similar terms shall, unless the context clearly otherwise indicates, include NationsBank in its individual capacity as a Lender or one of the Requisite Lenders. NationsBank and its Affiliates may lend money to, accept deposits from and generally engage in any kind of banking, trust or other business with the Borrowers, any Affiliate - 117 - 125 of any Borrower, or any other Person or any of their officers, directors and employees as if NationsBank were not acting as the Administrative Agent pursuant hereto and the Administrative Agent may accept fees and other consideration from the Borrowers, any Affiliate of the Borrowers or any of their officers, directors and employees (in addition to the Agency Fees or other arrangements fees heretofore agreed to between the Borrowers and the Administrative Agent) for services in connection with this Agreement or otherwise without having to account for or share the same with the Lenders. Section 8.7 Successor Administrative Agent. 8.7.1 Resignation. The Administrative Agent may resign from the performance of all its functions and duties hereunder at any time by giving at least thirty (30) Business Days' prior written notice to the Borrowers and the Lenders. Such resignation shall take effect upon the acceptance by a successor Administrative Agent of appointment pursuant to Section 8.7.2 (Appointment of Successor) or as otherwise provided below. 8.7.2 Appointment of Successor. Upon any such notice of resignation pursuant to Section 8.7.1 (Resignation), the Requisite Lenders shall appoint a successor to the Administrative Agent, provided that if no Event of Default then shall exist, such successor shall be subject to the consent of the Borrowers, which consent shall not be unreasonably withheld or delayed. If a successor to the Administrative Agent shall not have been so appointed within said thirty (30) Business Day period, the Administrative Agent retiring, upon notice to the Borrowers, shall then appoint a successor Administrative Agent who shall serve as the Administrative Agent until such time, as the Requisite Lenders with the consent of the Borrowers, provided no Event of Default than shall exist, appoint a successor the Administrative Agent as provided above. 8.7.3 Successor Agents. (a) Any Agent may resign from the performance of all its functions and duties hereunder and/or under the other Financing Documents at any time by giving 20 Business Days' prior written notice to the Borrowers and the Lenders. Such resignation shall take effect upon the appointment of a successor Agent pursuant to clauses (b) and (c) below or as otherwise provided below. (b) Upon any such notice of resignation by any Agent, the Requisite Lenders shall appoint a successor Agent hereunder who shall be a commercial bank or trust company reasonably acceptable to the Borrowers. (c) If a successor Agent shall not have been so appointed within such 20 Business Day period, such retiring Agent, with the consent of the Borrowers, which consent shall not be unreasonably withheld, shall then appoint a successor Agent who shall serve as Agent hereunder until such time, if any, as the Requisite Lenders appoint a successor Agent as provided in clause (b) above. - 118 - 126 (d) If no successor Agent has been appointed pursuant to clause (b) or (c) above by the 25th Business Day after the date such notice of resignation was given by the retiring Agent, the retiring Agent's resignation shall become effective and the Requisite Lenders shall thereafter perform all the duties of the retiring Agent hereunder and/or under any other Financing Document until such time, if any, as the Requisite Lenders appoint a successor Agent as provided in clause (b) above. (e) After the resignation of any Agent hereunder, the provisions of this ARTICLE VIII shall inure to its benefit as to any actions taken or omitted to be taken by it while it was an Agent under this Agreement. Upon the acceptance of any appointment as the Administrative Agent under the Financing Documents by a successor Administrative Agent, such successor to the Administrative Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the Administrative Agent retiring, and the Administrative Agent retiring shall be discharged from its duties and obligations under the Financing Documents. After any Administrative Agent's resignation as the Administrative Agent under the Financing Documents, the provisions of this ARTICLE VIII shall inure to its benefit as to any actions taken or omitted to be taken by it while it was the Administrative Agent under the Financing Documents. Section 8.8 Collateral Matters. 8.8.1 Release of Collateral, Guaranties. The Lenders hereby irrevocably authorize the Administrative Agent, at its option and in its discretion, to release any Lien granted to or held by the Administrative Agent upon any property covered by this Agreement or the Financing Documents: (a) upon termination of the Commitments and payment and satisfaction of all Obligations; (b) constituting property being sold or disposed of if the Borrowers certify to the Administrative Agent that the sale or disposition is made in compliance with the provisions of this Agreement (and the Administrative Agent may rely in good faith conclusively on any such certificate, without further inquiry); (c) constituting property leased to the Borrowers under a lease which has expired or been terminated in a transaction permitted under this Agreement or is about to expire and which has not been, and is not intended by the Borrowers to be, renewed or extended; or (d) constituting property covered by Permitted Liens with lien priority superior to those Liens in favor or for the benefit of the Lenders. - 119 - 127 In addition during any fiscal year of the Borrowers (x) the Administrative Agent may release Collateral having a book value of not more than 5% of the book value of all Collateral, (y) the Administrative Agent, with the consent of Requisite Lenders, may release Collateral having a book value of not more than 10% of the book value of all Collateral and (z) the Administrative Agent, with the consent of the Lenders having 90% of (i) the Commitments and (ii) Loans, may release all the Collateral. In addition, the Administrative Agent may release any Borrower from its Guarantee, if such Borrower no longer is to be a Borrower hereunder pursuant to the provisions of Section 6.2.1 hereof. 8.8.2 Confirmation of Authority, Execution of Releases. Without in any manner limiting the Administrative Agent's authority to act without any specific or further authorization or consent by the Lenders as set forth in Section 8.8.1 (Release of Collateral; Guarantees), each Lender agrees to confirm in writing, upon request by the Borrowers, the authority to release any property or guarantees covered by this Agreement or the Financing Documents conferred upon the Administrative Agent under Section 8.8.1 (Release of Collateral; Guarantees). So long as no Event of Default is then continuing, upon receipt by the Administrative Agent of confirmation from the requisite percentage of the Lenders, of its authority to release any particular item or types of property or guarantees covered by this Agreement or the Financing Documents, and upon at least five (5) Business Days prior written request by the Borrowers, the Administrative Agent shall (and is hereby irrevocably authorized by the Lenders to) execute such documents as may be necessary to evidence the release of the Liens or guarantees granted to the Administrative Agent for the benefit of the Lenders herein or pursuant hereto upon such Collateral; provided, however, that (a) the Administrative Agent shall not be required to execute any such document on terms which, in the Administrative Agent's opinion, would expose the Administrative Agent to liability or create any obligation or entail any consequence other than the release of such Liens or guarantees without recourse or warranty, and (b) such release shall not in any manner discharge, affect or impair the Obligations or any Liens upon (or obligations of any Person in respect of), all interests retained by any Person, including, without limitation, the proceeds of any sale, all of which shall continue to constitute part of the property covered by this Agreement or the Financing Documents. 8.8.3 Absence of Duty. The Administrative Agent shall have no obligation whatsoever to any Lender, the Borrowers or any other Person to assure that the property covered by this Agreement or the Financing Documents exists or is owned by the Borrowers or is cared for, protected or insured or has been encumbered or that the Liens granted to the Administrative Agent on behalf of the Lenders herein or pursuant hereto have been properly or sufficiently or lawfully created, perfected, protected or enforced or are entitled to any particular priority, or to exercise at all or in any particular manner or under any duty of care, disclosure or fidelity, or to continue exercising, any of the rights, authorities and powers granted or available to the Administrative Agent in this Section 8.8.3 or in any of the Financing Documents, it being understood and agreed that in respect of the property covered by this Agreement or the Financing Documents or any act, - 120 - 128 omission or event related thereto, the Administrative Agent may act in any manner it may deem appropriate, in its discretion, given the Administrative Agent's own interest in property covered by this Agreement or the Financing Documents as one of the Lenders and that the Administrative Agent shall have no duty or liability whatsoever to any of the other the Lenders. Section 8.9 Agency for Perfection. Each Lender hereby appoints the Administrative Agent and each other Lender as agent for the purpose of perfecting the Lenders' Liens in Collateral which, in accordance with Article 9 of the Uniform Commercial Code in any applicable jurisdiction or otherwise, can be perfected only by possession. Should any Lender (other than the Administrative Agent) obtain possession of any such Collateral, such Lender shall notify the Administrative Agent thereof, and, promptly upon the Administrative Agent's request therefor, shall deliver such Collateral to the Administrative Agent or in accordance with the Administrative Agent's instructions. Section 8.10 Exercise of Remedies. Each Lender agrees that it will not have any right individually to enforce or seek to enforce this Agreement or any Financing Document or to realize upon any collateral security for the Obligations, it being understood and agreed that such rights and remedies may be exercised only by the Administrative Agent. Section 8.11 Consents. (a) In the event the Administrative Agent requests the consent of a Lender and does not receive a written denial thereof, or a written notice from a Lender that due course consideration of the request requires additional time, in each case, within ten (10) Business Days after such Lender's receipt of such request, then such Lender will be deemed to have given such consent. (b) In the event the Administrative Agent requests the consent of a Lender and such consent is denied, then NationsBank may, at its option, require such Lender to assign its interest in the Loans and the other Obligations to NationsBank for a price equal to the then outstanding principal amount thereof plus accrued and unpaid interest, fees and costs and expenses due such Lender under the Financing Documents, which principal, interest, fees and costs and expenses will be paid on the date of such assignment. In the event that NationsBank elects to require any Lender to assign its interest to NationsBank, NationsBank will so notify such Lender in writing within thirty (30) days following such Lender's denial, and such Lender will assign its interest to NationsBank no later than five (5) days following receipt of such notice. Section 8.12 Dissemination of Information. The Administrative Agent will provide the Lenders with any information received by the Administrative Agent from the Borrowers which is required to be provided to the Administrative Agent or to the Lenders hereunder; provided, however, that the Administrative Agent shall not - 121 - 129 be liable to any one or more the Lenders for any failure to do so, except to the extent that such failure is attributable to the Administrative Agent's gross negligence or willful misconduct. Section 8.13 Discretionary Advances. The Administrative Agent may, in its sole discretion, make, for the account of the Lenders on a pro rata basis, advances under the Revolving Loan of up to 10% in excess of the Borrowing Base (but not in excess of the limitation set forth in aggregate Revolving Credit Commitments) for a period of not more than 30 consecutive days. ARTICLE IX MISCELLANEOUS Section 9.1 Notices. All notices, requests and demands to or upon the parties to this Agreement shall be in writing and shall be deemed to have been given or made when delivered by hand on a Business Day, or two (2) days after the date when deposited in the mail, postage prepaid by registered or certified mail, return receipt requested, or when sent by overnight courier, on the Business Day next following the day on which the notice is delivered to such overnight courier, addressed as follows: Borrowers: c/o Walbro Corporation 1227 Center Road Auburn Hills, Michigan 48326 Attn: Chief Financial Officer with a copy to: Susan Schneider, Esquire Katten Muchen & Zavis 525 West Monroe Street Suite 1600 Chicago, Illinois 60661-3693 Administrative Agent: NationsBank, N.A. 100 South Charles Street Baltimore, Maryland 21201 Attention: David B. Thayer, Senior Vice President with a copy to: Frederick W. Runge, Jr., Esquire Miles & Stockbridge 10 Light Street Baltimore, Maryland 21202 - 122 - 130 Lenders: NationsBank, N.A. 100 South Charles Street Baltimore, Maryland 21201 Attention: David B. Thayer, Senior Vice President and at the addresses stated after their names on the signature pages of this Agreement By written notice, each party to this Agreement may change the address to which notice is given to that party, provided that such changed notice shall include a street address to which notices may be delivered by overnight courier in the ordinary course on any Business Day. Without implying any limitation of the foregoing paragraph, and with respect only to those provisions which expressly allow the giving of notice by telecopy, such telecopy notices shall be given to the Administrative Agent at 410.576.2958, Attention: David B. Thayer, or as the Administrative Agent may otherwise provide by notice to the applicable party or to the Parent at 517.872.2301, Attention: Michael A. Shope, Chief Financial Officer. Section 9.2 Amendments; Waivers. 9.2.1 In General. This Agreement and the other Financing Documents may not be amended, modified, or changed in any respect except by an agreement in writing signed by the Administrative Agent, the Requisite Lenders and the Borrowers, and, to the extent provided in Section 9.2.2 (Circumstances Where Consent of all of the Lenders is Required), by an agreement in writing signed by the Administrative Agent, all of the Lenders and the Borrowers. No waiver of any provision of this Agreement or of any of the other Financing Documents, nor consent to any departure by the Borrowers therefrom, shall in any event be effective unless the same shall be in writing signed by the Requisite Lenders. No course of dealing between the Borrowers and the Administrative Agent and/or any of the Lenders and no act or failure to act from time to time on the part of the Administrative Agent and/or any of the Lenders shall constitute a waiver, amendment or modification of any provision of this Agreement or any of the other Financing Documents or any right or remedy under this Agreement, under any of the other Financing Documents or under applicable Laws. Without implying any limitation on the foregoing, and subject to the provisions of Section 9.2.2 (Circumstances Where Consent of all of the Lenders is Required): (a) Any waiver or consent shall be effective only in the specific instance, for the terms and purpose for which given, subject to such conditions as the Administrative Agent and Lenders may specify in any such instrument. (b) No waiver of any Default or Event of Default shall extend to any subsequent or other Default or Event of Default, or impair any right consequent thereto. - 123 - 131 (c) No notice to or demand on the Borrowers in any case shall entitle the Borrowers to any other or further notice or demand in the same, similar or other circumstance. (d) No failure or delay by the Lenders to insist upon the strict performance of any term, condition, covenant or agreement of this Agreement or of any of the other Financing Documents, or to exercise any right, power or remedy consequent upon a breach thereof, shall constitute a waiver, amendment or modification of any such term, condition, covenant or agreement or of any such breach or preclude the Lenders from exercising any such right, power or remedy at any time or times. (e) By accepting payment after the due date of any amount payable under this Agreement or under any of the other Financing Documents, the Lenders shall not be deemed to waive the right either to require prompt payment when due of all other amounts payable under this Agreement or under any of the other Financing Documents, or to declare a default for failure to effect such prompt payment of any such other amount. 9.2.2 Circumstances Where Consent of all of the Lenders is Required. Notwithstanding anything to the contrary contained herein, no amendment, modification, change or waiver shall be effective without the consent of all of the Lenders to: (a) extend the maturity of the principal of, or interest on, any Note or of any of the other Obligations; (b) reduce the principal amount of any Note or of any of the other Obligations, the rate of interest thereon or the Fees due to the Lenders, except as expressly permitted therein; (c) change the aggregate Commitments; (d) change the date of payment of principal of, or interest on, any Note or of any of the other Obligations; (e) change the method of calculation utilized in connection with the computation of interest and Fees; (f) change the manner of pro rata application by the Administrative Agent of payments made by the Borrowers, or any other payments required hereunder or under the other Financing Documents; (g) modify this Section, Section 8.8.1 (Release of Collateral, Guarantees), Section 8.12 (Dissemination of Information), or the definition of "Requisite Lenders;" or - 124 - 132 (h) change the definition of "Borrowing Base". Additionally, no change may be made to the amount of a Lender's Commitment or to the Lender's percentage of all Commitments without the prior written consent of that Lender. Section 9.3 Cumulative Remedies. The rights, powers and remedies provided in this Agreement and in the other Financing Documents are cumulative, may be exercised concurrently or separately, may be exercised from time to time and in such order as the Administrative Agent shall determine, subject to the provisions of this Agreement, and are in addition to, and not exclusive of, rights, powers and remedies provided by existing or future applicable Laws. In order to entitle the Administrative Agent to exercise any remedy reserved to it in this Agreement, it shall not be necessary to give any notice, other than such notice as may be expressly required in this Agreement. Without limiting the generality of the foregoing and subject to the terms of this Agreement, the Administrative Agent may: (a) proceed against any one or more of the Borrowers with or without proceeding against any other Person who may be liable (by endorsement, guaranty, indemnity or otherwise) for all or any part of the Obligations; (b) proceed against any one or more of the Borrowers with or without proceeding under any of the other Financing Documents or against any Collateral or other collateral and security for all or any part of the Obligations; (c) without reducing or impairing the obligation of the Borrowers and without notice, release or compromise with any guarantor or other Person liable for all or any part of the Obligations under the Financing Documents or otherwise; (d) without reducing or impairing the obligations of the Borrowers and without notice thereof: (i) fail to perfect the Lien in any or all Collateral or to release any or all the Collateral or to accept substitute Collateral; (ii) approve the making of advances under the Revolving Loan under this Agreement; (iii) waive any provision of this Agreement or the other Financing Documents; - 125 - 133 (iv) exercise or fail to exercise rights of set-off or other rights; or (v) accept partial payments or extend from time to time the maturity of all or any part of the Obligations. Section 9.4 Severability. In case one or more provisions, or part thereof, contained in this Agreement or in the other Financing Documents shall be invalid, illegal or unenforceable in any respect under any Law, then without need for any further agreement, notice or action: (a) the validity, legality and enforceability of the remaining provisions shall remain effective and binding on the parties thereto and shall not be affected or impaired thereby; (b) the obligation to be fulfilled shall be reduced to the limit of such validity; (c) if such provision or part thereof pertains to repayment of the Obligations, then, at the sole and absolute discretion of the Administrative Agent, all of the Obligations of the Borrowers to the Administrative Agent and the Lenders shall become immediately due and payable; and (d) if the affected provision or part thereof does not pertain to repayment of the Obligations, but operates or would prospectively operate to invalidate this Agreement in whole or in part, then such provision or part thereof only shall be void, and the remainder of this Agreement shall remain operative and in full force and effect. Section 9.5 Assignments by Lenders. Any Lender may, with the prior written consent of the Administrative Agent and, provided no Event of Default then exists, the Borrowers (which consent shall not be unreasonably withheld), assign to any Person (each an "Assignee" and collectively, the "Assignees") all or a portion of such Lender's Commitments; provided that, after giving effect to such assignment, such Lender must continue to hold a Pro Rata Share of the Commitments at least equal to Ten Million Dollars ($10,000,000). Any Lender that elects to make such an assignment shall pay to the Administrative Agent, for the exclusive benefit of the Administrative Agent, an administrative fee for processing each such assignment in the amount of Three Thousand Five Hundred Dollars ($3,500.00). Such Lender and its Assignee shall notify the Administrative Agent and the Borrowers in writing of the date on which the assignment is to be effective (the "Adjustment Date"). On or before the Adjustment Date, the assigning Lender, the Administrative Agent, the Borrowers and the respective Assignee shall execute and deliver a - 126 - 134 written assignment agreement in a form acceptable to the Administrative Agent, which shall constitute an amendment to this Agreement to the extent necessary to reflect such assignment. Upon the request of any assigning Lender following an assignment made in accordance with this Section 9.5, the Borrowers shall issue new Notes to the assigning Lender and its Assignee reflecting such assignment, in exchange for the existing Notes held by the assigning Lender. In addition, notwithstanding the foregoing, any Lender may at any time pledge all or any portion of such Lender's rights under this Agreement, any of the Commitments or any of the Obligations to a Federal Reserve Bank. Section 9.6 Participations by Lenders. Any Lender may at any time sell to one or more financial institutions participating interests in any of such Lender's Obligations or Commitments; provided, however, that (a) no such participation shall relieve such Lender from its obligations under this Agreement or under any of the other Financing Documents to which it is a party, (b) such Lender shall remain solely responsible for the performance of its obligations under this Agreement and under all of the other Financing Documents to which it is a party, and (c) the Borrowers, the Administrative Agent and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement and the other Financing Documents. Section 9.7 Disclosure of Information by Lenders. In connection with any sale, transfer, assignment or participation by any Lender in accordance with Section 9.5 (Assignments by Lenders )or Section 9.6 (Participations by Lenders), each Lender shall have the right to disclose to any actual or potential purchaser, assignee, transferee or participant all financial records, information, reports, financial statements and documents obtained in connection with this Agreement and/or any of the other Financing Documents or otherwise, provided, however, that such proposed assignee or participant agrees to be subject to the provisions of Section 9.20 hereof. Section 9.8 Successors and Assigns. This Agreement and all other Financing Documents shall be binding upon and inure to the benefit of the Borrowers, the Administrative Agent, any other Agents, and the Lenders and their respective heirs, personal representatives, successors and assigns, except that the Borrowers shall not have the right to assign their rights hereunder or any interest herein without the prior written consent of the Administrative Agent and the Requisite Lenders, which consent shall not unreasonably be withheld or delayed. Section 9.9 Continuing Agreements. All covenants, agreements, representations and warranties made by the Borrowers in this Agreement, in any of the other Financing Documents, and in any certificate delivered pursuant hereto or thereto shall survive the making by the Lenders of the Loans, the issuance of Letters of Credit by the Appropriate Letter of Credit Issuer, and the execution and delivery of the Notes, - 127 - 135 shall be binding upon the Borrowers regardless of how long before or after the date hereof any of the Obligations were or are incurred, and shall continue in full force and effect so long as any of the Obligations are outstanding and unpaid. From time to time upon the Administrative Agent's request, and as a condition of the release of any one or more of the Security Documents, the Borrowers and other Persons obligated with respect to the Obligations shall provide the Administrative Agent with such acknowledgments and agreements as the Administrative Agent may require to the effect that there exists no defenses, rights of setoff or recoupment, claims, counterclaims, actions or causes of action of any kind or nature whatsoever against the Administrative Agent, any or all of the Lenders, and/or any of its or their agents and others, or to the extent there are, the same are waived and released. Section 9.10 Enforcement Costs. The Borrowers agree to pay to the Administrative Agent on demand all Enforcement Costs, together with interest thereon from the date incurred or advanced until paid in full at a per annum rate of interest equal at all times to the (a) Base Rate, provided, no Event of Default then shall exist or (b) if an Event of Default then shall exist, at the Post-Default Rate. Enforcement Costs shall be immediately due and payable at the time advanced or incurred, whichever is earlier. Without implying any limitation on the foregoing, the Borrowers agree, as part of the Enforcement Costs, to pay upon demand any and all stamp and other Taxes and fees payable or determined to be payable in connection with the execution and delivery of this Agreement and the other Financing Documents and to save the Administrative Agent and the Lenders harmless from and against any and all liabilities with respect to or resulting from any delay by Borrowers in paying or omission by Borrowers to pay any Taxes or fees referred to in this Section. The provisions of this Section shall survive the execution and delivery of this Agreement, the repayment of the other Obligations and shall survive the termination of this Agreement. Without limiting the foregoing, the Administrative Agent shall at the request of the Parent provide to the Parent a written description of the Enforcement Costs. Section 9.11 Applicable Law; Jurisdiction. 9.11.1 Applicable Law. Borrowers acknowledge and agree that the Financing Documents, including, this Agreement, shall be governed by the Laws of the State, as if each of the Financing Documents and this Agreement had each been executed, delivered, administered and performed solely within the State even though for the convenience and at the request of the Borrowers, one or more of the Financing Documents may be executed elsewhere. The Administrative Agent and the Lenders acknowledge, however, that remedies under certain of the Financing Documents which relate to property outside the State may be subject to the laws of the state in which the property is located. 9.11.2 Submission to Jurisdiction. The Borrowers irrevocably submit to the jurisdiction of any state or federal court sitting in the State over any suit, action or proceeding arising out of or relating to - 128 - 136 this Agreement or any of the other Financing Documents. Each of the Borrowers irrevocably waives, to the fullest extent permitted by law, any objection that it may now or hereafter have to the laying of the venue of any such suit, action or proceeding brought in any such court and any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. Final judgment in any such suit, action or proceeding brought in any such court shall be conclusive and binding upon the Borrowers and may be enforced in any court in which the Borrowers are subject to jurisdiction, by a suit upon such judgment, provided that service of process is effected upon the Borrowers in one of the manners specified in this Section or as otherwise permitted by applicable Laws. 9.11.3 Appointment of Administrative Agent for Service of Process. The Borrowers hereby irrevocably designate and appoint The Corporation Trust, Incorporated, 32 South Street, Baltimore, Maryland 21202, as the Borrowers' authorized agent to receive on the Borrowers' behalf service of any and all process that may be served in any suit, action or proceeding of the nature referred to in this Section in any state or federal court sitting in the State. If such agent shall cease so to act, the Borrowers shall irrevocably designate and appoint without delay another such agent in the State satisfactory to the Administrative Agent and shall promptly deliver to the Administrative Agent evidence in writing of such other agent's acceptance of such appointment and its agreement that such appointment shall be irrevocable. 9.11.4 Service of Process. Each of the Borrowers hereby consents to process being served in any suit, action or proceeding of the nature referred to in this Section by (a) the mailing of a copy thereof by registered or certified mail, postage prepaid, return receipt requested, to such Borrower at such Borrower's address designated in or pursuant to Section 9.1 (Notices), and (b) serving a copy thereof upon the agent, if any, designated and appointed by such Borrower as such Borrower's agent for service of process by or pursuant to this Section. The Borrowers irrevocably agree that such service (y) shall be deemed in every respect effective service of process upon the Borrowers in any such suit, action or proceeding, and (z) shall, to the fullest extent permitted by law, be taken and held to be valid personal service upon the Borrowers. Nothing in this Section shall affect the right of the Administrative Agent to serve process in any manner otherwise permitted by law or limit the right of the Administrative Agent otherwise to bring proceedings against the Borrowers in the courts of any jurisdiction or jurisdictions. Section 9.12 Duplicate Originals and Counterparts. This Agreement may be executed in any number of duplicate originals or counterparts, each of such duplicate originals or counterparts shall be deemed to be an original and all taken together shall constitute but one and the same instrument. - 129 - 137 Section 9.13 Headings. The headings in this Agreement are included herein for convenience only, shall not constitute a part of this Agreement for any other purpose, and shall not be deemed to affect the meaning or construction of any of the provisions hereof. Section 9.14 No Agency. Nothing herein contained shall be construed to constitute the Borrowers as the agent of the Administrative Agent or any of the Lenders for any purpose whatsoever or to permit the Borrowers to pledge any of the credit of the Administrative Agent or any of the Lenders. Neither any of the Agents nor any of the Lenders shall (i) be responsible or liable for any shortage, discrepancy, damage, loss or destruction of any part of the Collateral wherever the same may be located and regardless of the cause other than gross negligence or willful misconduct with respect to Collateral in the possession of the Administrative Agent or Lender thereof or (ii) by anything herein or in any of the Financing Documents or otherwise, except as may arise by express, written agreement signed by the Agents and the Lenders, assume any of the Borrowers' obligations under any contract or agreement assigned to the Administrative Agent and/or the Lenders, and neither the Administrative Agent nor any of the Lenders shall be responsible in any way for the performance by the Borrowers of any of the terms and conditions thereof. Section 9.15 Date of Payment. Should the principal of or interest on the Notes become due and payable on a day other than a Business Day, the maturity thereof shall be extended to the next succeeding Business Day and in the case of principal, interest shall be payable thereon at the rate per annum specified in the Notes during such extension. Section 9.16 Entire Agreement. This Agreement is intended by the Administrative Agent, the Lenders and the Borrowers to be a complete, exclusive and final expression of the agreements contained herein. Neither the Administrative Agent, the Lenders nor the Borrowers shall hereafter have any rights under any prior agreements pertaining to the matters addressed by this Agreement but shall look solely to this Agreement for definition and determination of all of their respective rights, liabilities and responsibilities under this Agreement. Section 9.17 Waiver of Trial by Jury. THE BORROWERS, THE AGENT AND THE LENDERS HEREBY JOINTLY AND SEVERALLY WAIVE TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO WHICH THE BORROWER AND THE AGENT AND/OR ANY OR ALL OF THE LENDERS MAY BE PARTIES, ARISING OUT OF OR IN ANY WAY PERTAINING TO (A) THIS AGREEMENT, (B) ANY OF THE FINANCING DOCUMENTS, OR (C) THE COLLATERAL. THIS WAIVER CONSTITUTES A WAIVER OF TRIAL BY JURY OF ALL - 130 - 138 CLAIMS AGAINST ALL PARTIES TO SUCH ACTIONS OR PROCEEDINGS, INCLUDING CLAIMS AGAINST PARTIES WHO ARE NOT PARTIES TO THIS AGREEMENT. This waiver is knowingly, willingly and voluntarily made by the Borrowers, the Administrative Agent and the Lenders, and the Borrowers, the Administrative Agent and the Lenders hereby represent that no representations of fact or opinion have been made by any individual to induce this waiver of trial by jury or to in any way modify or nullify its effect. The Borrowers, the Administrative Agent and the Lenders further represent that they have been represented in the signing of this Agreement and in the making of this waiver by independent legal counsel, selected of their own free will, and that they have had the opportunity to discuss this waiver with counsel. Section 9.18 Liability of the Administrative Agent and the Lenders. The Borrowers hereby agree that neither the Administrative Agent nor any of the Lenders shall be chargeable for any negligence, mistake, act or omission of any accountant, examiner, agency or attorney employed by the Administrative Agent and/or any of the Lenders in making examinations, investigations or collections, or otherwise in perfecting, maintaining, protecting or realizing upon any lien or security interest or any other interest in the Collateral or other security for the Obligations. By inspecting the Collateral or any other properties of the Borrowers or by accepting or approving anything required to be observed, performed or fulfilled by the Borrowers or to be given to the Administrative Agent and/or any of the Lenders pursuant to this Agreement or any of the other Financing Documents, neither the Administrative Agent nor any of the Lenders shall be deemed to have warranted or represented the condition, sufficiency, legality, effectiveness or legal effect of the same, and such acceptance or approval shall not constitute any warranty or representation with respect thereto by the Administrative Agent and/or the Lenders. Section 9.19 Indemnification. The Borrowers agrees to indemnify and hold harmless, the Administrative Agent, the Lenders, the respective parent and Affiliates of the Administrative Agent and the Lenders and the respective parent's and Affiliates' officers, directors, shareholders, employees and agents (each an collectively, the "Indemnified Parties"), from and against any and all claims, liabilities, losses, damages, costs and expenses (whether or not such Indemnified Party is a party to any litigation), including without limitation, reasonable attorney's fees and costs and costs of investigation, document production, attendance at depositions or other discovery, incurred by any Indemnified Party with respect to, arising out of or as a consequence of (a) this Agreement or any of the other Financing Documents, including without limitation, any failure of the Borrowers to pay when due (at maturity, by acceleration or otherwise) any principal, interest, fee or any other amount due under this Agreement or the other Loan documents, or any other Event of Default; (b) the use by the Borrowers of any proceeds advanced hereunder; (c) the transactions contemplated hereunder; or (d) any claim, demand, action or cause of action being asserted against (i) the Borrowers or any of their Affiliates by any other Person, or (ii) any Indemnified Party by the Borrowers in connection with the transactions contemplated hereunder. - 131 - 139 Notwithstanding anything herein or elsewhere to the contrary, the Borrowers shall not be obligated to indemnify or hold harmless any Indemnified Party from any liability, loss or damage resulting from the gross negligence, willful misconduct or unlawful actions of such Indemnified Party. Any amount payable to the Administrative Agent and/or the Lenders under this Section will bear interest at the (i) Base Rate, provided no Event of Default then shall exist or (ii) if an Event of Default then shall exist, at the Post-Default Rate from the due date until paid. Section 9.20 Confidentiality. Each Lender agrees that it will use reasonable efforts to keep confidential any non-public information from time to time supplied to it under any Financing Document; provided, however, that nothing herein shall prevent the disclosure of any such information to (a) the extent the Lender believes such disclosure is required by applicable Laws, (b) the Lender's counsel, accountants, and other representatives, (c) bank examiners, regulators, auditors or comparable Persons (whether in the United States or elsewhere), (d) any Affiliate or successor of a Lender, (e) each Agent, other Lender and other Person to whom such other Lender may make a disclosure without violating this Section 9.20, (f) any assignee, transferee or participant, or any potential assignee, transferee or participant, of all or any portion of any Lender's rights under this Agreement who is notified of the confidential nature of the information and who agrees, orally or otherwise, to be bound by the provisions of this Section 9.20, or (g) any other Person in connection with any litigation to which any one or more of the Lenders is a party; and, provided further, that no Lender shall have obligations under this Section 9.20 to the extent any such information becomes available on a non-confidential basis from a source other than a Borrower or that information becomes publicly available other than by breach of this Section 9.20. IN WITNESS WHEREOF, each of the parties hereto have executed and delivered this Agreement under their respective seals as of the day and year first written above. [SIGNATURES BEGIN ON THE FOLLOWING PAGE] - 132 - 140 WITNESS: NATIONSBANK, N.A., in its capacity as Lender /s/ Kandace Harries By: /s/ David B. Thayer (Seal) - ------------------------------ ----------------------------- Kandace Harries David B. Thayer Senior Vice President
-------------------------------------------------------------------------- NATIONSBANK, N.A. -------------------------------------------------------------------------- Credit Facility Committed Amount Pro Rata Share -------------------------------------------------------------------------- Revolving Credit Facility $125,000,000 100% -------------------------------------------------------------------------- Capital Expenditure Line $25,000,000 100% --------------------------------------------------------------------------
Address: NationsBank, N.A. NationsBank Business Credit 100 South Charles Street Mail Stop MD4-325-04-14 Baltimore, Maryland 21201 Attention: David B. Thayer WITNESS: NATIONSBANK, N.A. in its capacity as Administrative Agent /s/ Kandace Harries By: /s/ David B. Thayer (Seal) - ----------------------------- ------------------------------- Kandace Harries David B. Thayer Senior Vice President [SIGNATURES OF THE BORROWERS BEGIN ON THE FOLLOWING PAGE] - 133 - 141 WITNESS: WALBRO CORPORATION WALBRO AUTOMOTIVE CORPORATION WALBRO ENGINE MANAGEMENT CORPORATION WHITEHEAD ENGINEERED PRODUCTS, INC. SHARON MANUFACTURING COMPANY /s/ Kandace Harries By: /s/ Michael A. Shope (Seal) - ------------------------ ---------------------------- Kandace Harries Michael A. Shope Treasurer and Chief Financial Officer for each of the foregoing - 134 - 142 LIST OF EXHIBITS A. Additional Borrower Joinder Supplement B-1. Revolving Credit Note B-2 Capital Expenditure Note B-3 Capital Expenditure Line Payment Schedule C. Wire Transfer Procedures D. Form of Compliance Certificate - 135 - 143 Exhibit A To Financing And Security Agreement ADDITIONAL BORROWER JOINDER SUPPLEMENT THIS ADDITIONAL BORROWER JOINDER SUPPLEMENT (this "Agreement") is made this ____ day of _____, ____, by and among WALBRO CORPORATION, a corporation organized under the laws of the State of Delaware ("Parent"), ______________________, a _______________ corporation (the "Additional Borrower") and wholly-owned subsidiary of the Parent, and NATIONSBANK, N.A., a national banking association ("NationsBank"), and each other person which is a party to the Financing Agreement (as that term is defined below) (collectively, the "Lenders" and individually, a "Lender"); and NATIONSBANK, N.A., a national banking association, in its capacity as both collateral and administrative agent for each or the Lenders (the "Administrative Agent")[ and other Agents]. NOW, THEREFORE, for value received the undersigned agree as follows: 1. Reference is hereby made to the Financing and Security Agreement dated as of May 29, 1998 (as amended, modified, restated, substituted, extended and renewed at any time and from time to time, the "Financing Agreement") by and among Parent, and each other Person which is included in the definition of "Borrower" (as that term is defined in the Financing Agreement) immediately prior to the date of this Agreement (together with Parent, the "Existing Borrowers"), the "Lenders" from time to time parties thereto, the Administrative Agent and the other "Agents" from time to time parties thereto. Capitalized terms not otherwise defined in this Agreement shall have the meanings given to them in the Financing Agreement. 2. (a) The Additional Borrower and the Existing Borrowers hereby acknowledge, confirm and agree that on and as of the date of this Agreement the Additional Borrower has become an "Additional Borrower" (as that term is defined in the Financing Agreement), and, along with the Existing Borrowers, is included in the definition of "Borrower" under the Financing Agreement and the other Financing Documents for all purposes thereof, and as such shall be jointly and severally liable, as provided in the Financing Documents, for all Obligations thereunder (whether incurred or arising prior to, on, or subsequent to the date hereof) and otherwise bound by all of the terms, provisions and conditions thereof. Notwithstanding the foregoing, if the Additional Borrower is a Local Currency Borrower, its liability shall be limited to that portion of the Obligations directly attributable to it. (b) [With respect to Domestic Borrowers: Without in any way implying any limitation on any of the provisions of this Agreement, the Financing Agreement, or any of the other Financing Documents, the Additional Borrower hereby assigns, pledges and grants to the Administrative Agent, for the ratable benefit of the Lenders as security for the Obligations and for the benefit of the Agents as security for the Agents' Obligations, and agrees that the Agents and the Lenders shall have a perfected and continuing security interest in, and Lien on [describe Collateral]. The Additional Borrower further agrees that the Administrative Agent, for the ratable benefit of the Lenders and for the benefit of the Agents as security for the Agents' Obligations, shall have in respect thereof all of the rights and remedies of a secured party under 1 144 the Uniform Commercial Code as well as those provided in this Agreement, under each of the other Financing Documents and under applicable Laws,] (c) Without in any way implying any limitation on any of the provisions of this Agreement, the Additional Borrower agrees to execute such financing statements, instruments, and other documents as the Administrative Agent may require including, without limitation, an allonge to the Notes. 3. Each of the Borrowers hereby covenants and agrees with the Administrative Agent and the Lenders as follows: (a) The Obligations include all present and future indebtedness, duties, obligations, and liabilities, whether now existing or contemplated or hereafter arising, of any one or more of the Additional Borrower or the Existing Borrowers. (b) Reference in this Agreement, the Financing Agreement and the other Financing Documents to the "Borrower" or otherwise with respect to any one or more of the Persons now or hereafter included in the definition of "Borrower" shall mean each and every such Person and any one or more of such Persons, jointly and severally, unless the context requires otherwise (by way of example, and not limitation, if only one such Person is the owner of the real property which is the subject of a mortgage). 4. (a) Each of the Borrowers hereby represents and warrants to the Administrative Agent and the Lenders that each of them will derive benefits, directly and indirectly, from each Letter of Credit and from each Loan, both in their separate capacity and as a member of the integrated group to which each such Person belongs and because the successful operation of the integrated group is dependent upon the continued successful performance of the functions of the integrated group as a whole, because (i) the terms of the consolidated financing provided under this Agreement are more favorable than would otherwise would be obtainable by such Persons individually, and (ii) the additional administrative and other costs and reduced flexibility associated with individual financing arrangements which would otherwise be required if obtainable would substantially reduce the value to such Persons of the financing. (b) Each of the Borrowers hereby represents and warrants that all of the representations and warranties contained in the Financing Documents are true and correct on and as of the date hereof as if made on and as of such date, both before and after giving effect to this Agreement, and that no Event of Default or Default has occurred and is continuing or exists or would occur or exist after giving effect to this Agreement. 5. [Additional requirements] 6. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Maryland, without regard to principles of choice of law. 2 145 WITNESS the due execution hereof as of the day and year first written above. WITNESS: Additional Borrower: ________________________ By:______________________________(SEAL) Name: Title: WITNESS: [Parent/Other Borrowers] ________________________ By:______________________________(SEAL) Name: Title: WITNESS: NATIONSBANK, N.A., in its capacity as Administrative Agent ________________________ By:______________________________(Seal) Name: Title: WITNESS: NATIONSBANK, N.A. in its capacity as a Lender ________________________ By:______________________________(Seal) Name: Title: WITNESS: [Other Lenders and Agents] ________________________ By:______________________________(Seal) Name: Title: 3 146 EXHIBIT B -137- 147 Exhibit B-1 to Financing and Security Agreement REVOLVING CREDIT NOTE $125,000,000 Baltimore, Maryland May 29,1998 FOR VALUE RECEIVED, WALBRO CORPORATION, a corporation organized under the laws of the State of Delaware, WALBRO AUTOMOTIVE CORPORATION, a corporation organized under the laws of the State of Delaware, WALBRO ENGINE MANAGEMENT CORPORATION, a corporation organized under the laws of the State of Delaware, WHITEHEAD ENGINEERED PRODUCTS, INC., a corporation organized under the laws of the State of Delaware, and SHARON MANUFACTURING COMPANY, a corporation organized under the laws of the State of Michigan (each a "Borrower" and collectively the "Borrowers"), jointly and severally, promise to pay to the order of NATIONSBANK, N.A., a national banking association (the "Lender"), the principal sum of ONE HUNDRED TWENTY-FIVE MILLION DOLLARS ($125,000,000) (the "Principal Sum"), or so much thereof as has been or may be advanced and/or readvanced to or for the account of any Borrower pursuant to the terms and conditions of the Financing Agreement (as hereinafter defined), together with interest thereon at the rate or rates hereinafter provided, in accordance with the following: 1. Interest. Commencing as of the date hereof and continuing until repayment in full of all sums due hereunder, the unpaid Principal Sum shall bear interest at the Applicable Interest Rate or the Post Default Rate in effect from time to time for the Revolving Loan. The Applicable Interest Rate shall be determined in the manner provided in the Financing Agreement. 2. Payments and Maturity. The unpaid Principal Sum, together with interest thereon at the rate or rates provided above, shall be payable as follows: (a) Interest only on the unpaid Principal Sum shall be due and payable on each Interest Payment Date; and (b) Unless sooner paid, the unpaid Principal Sum, together with interest accrued and unpaid thereon, shall be due and payable in full on the Revolving Credit Expiration Date. The fact that the balance hereunder may be reduced to zero from time to time pursuant to the Financing Agreement will not affect the continuing validity of this Note or the Financing Agreement, and the balance may be increased to the Principal Sum after any such reduction to zero. 3. Default Interest. 148 Exhibit B-1 to Financing and Security Agreement Upon the occurrence of an Event of Default (as hereinafter defined), at the option of the Administrative Agent and upon written notice to the Borrowers, the unpaid Principal Sum shall bear interest thereafter at the Post-Default Rate until such Event of Default is cured or waived. 4. Application and Place of Payments. All payments made on account of this Note shall be applied in the manner provided in the Financing Agreement. All payments on account of this Note shall be paid in lawful money of the United States of America in immediately available funds during regular business hours of the NationsBank, N.A., a national banking association (the "Administrative Agent" under the Financing Agreement), at its NationsBank Business Credit office at 100 South Charles Street, Baltimore, Maryland, or at such other times and other Appropriate Payment Offices as the Administrative Agent may at any time and from time to time designate in writing to the Borrowers. 5. Prepayment. The Borrowers may prepay the Principal Sum at the times and in the manner provided in the Financing Agreement. 6. Financing Agreement and Other Financing Documents. This Note is the "Revolving Credit Note" described in a Financing and Security Agreement of even date herewith by and among the Administrative Agent, the Lender, the other Lenders under the Financing Agreement, and the Borrowers (as amended, modified, restated, substituted, extended and renewed at any time and from time to time, the "Financing Agreement"). The indebtedness evidenced by this Note is included within the meaning of the term "Obligations" as defined in the Financing Agreement. The term "Financing Documents" as used in this Note shall mean collectively this Note, the Financing Agreement and any other instrument, agreement, or document previously, simultaneously, or hereafter executed and delivered by any Borrower and/or any other person, singularly or jointly with any other person, evidencing, securing, guaranteeing, or in connection with the Principal Sum, this Note and/or the Financing Agreement. 7. Security. This Note is secured as provided in the Financing Agreement. The occurrence of any one or more of the following events shall constitute an event of default (individually, an "Event of Default" and collectively, the "Events of Default") under the terms of this Note: (a) The failure of the Borrowers to pay to the Lender when due any and all amounts payable by the Borrowers to the Lender under the terms of this Note; or (b) The occurrence of an event of default (as defined therein) under the terms and conditions of any of the other Financing Documents. -2- 149 Exhibit B-1 to Financing and Security Agreement 9. Remedies. Upon the occurrence and during the continuation of an Event of Default, at the option of the Lender, all amounts payable by the Borrowers to the Lender under the terms of this Note shall immediately become due and payable by the Borrowers to the Lender without notice to the Borrowers or any other person, and the Lender shall have all of the rights, powers, and remedies available under the terms of this Note, any of the other Financing Documents and all applicable laws. The Borrowers and all endorsers, guarantors, and other parties who may now or in the future be primarily or secondarily liable for the payment of the indebtedness evidenced by this Note hereby severally waive presentment, protest and demand, notice of protest, notice of demand and of dishonor and non-payment of this Note and expressly agree that this Note or any payment hereunder may be extended from time to time without in any way affecting the liability of the Borrowers, guarantors and endorsers. 10. Expenses. The Borrowers promise to pay to the Lender on demand by the Lender all reasonable costs and expenses incurred by the Lender in connection with the collection and enforcement of this Note, including, without limitation, reasonable attorneys' fees and expenses and all court costs. 11. Notices. Any notice, request, or demand to or upon the Borrowers or the Lender shall be deemed to have been properly given or made when delivered in accordance with Section 9.1 of the Financing Agreement. 12. Miscellaneous. Each right, power, and remedy of the Lender as provided for in this Note or any of the other Financing Documents, or now or hereafter existing under any applicable law or otherwise shall be cumulative and concurrent and shall be in addition to every other right, power, or remedy provided for in this Note or any of the other Financing Documents or now or hereafter existing under any applicable law, and the exercise or beginning of the exercise by the Lender of any one or more of such rights, powers, or remedies shall not preclude the simultaneous or later exercise by the Lender of any or all such other rights, powers, or remedies. No failure or delay by the Lender to insist upon the strict performance of any term, condition, covenant, or agreement of this Note or any of the other Financing Documents, or to exercise any right, power, or remedy consequent upon a breach thereof, shall constitute a waiver of any such term, condition, covenant, or agreement or of any such breach, or preclude the Lender from exercising any such right, power, or remedy at a later time or times. By accepting payment after the due date of any amount payable under the terms of this Note, the Lender shall not be deemed to waive the right either to require prompt payment when due of all other amounts payable under the terms of this Note or to declare an Event of Default for the failure to effect such prompt payment of any such other amount. No course of dealing or conduct shall be effective to amend, modify, waive, release, or change any provisions of this Note. -3- 150 Exhibit B-1 to Financing and Security Agreement 13. Partial Invalidity. In the event any provision of this Note (or any part of any provision) is hold by a court of competent jurisdiction to be invalid, illegal, or unenforceable in any respect, such invalidity, illegality, or unenforceability shall not affect any other provision (or remaining part of the affected provision) of this Note; but this Note shall be construed as if such invalid, illegal, or unenforceable provision (or part thereof) had not been contained in this Note, but only to the extent it is invalid, illegal, or unenforceable. 14. Captions. The captions herein set forth are for convenience only and shall not be deemed to define, limit, or describe the scope or intent of this Note. 15. Applicable Law. The Borrowers acknowledge and agree that this Note shall be governed by the laws of the State of Maryland, even though for the convenience and at the request of the Borrowers, this Note may be executed elsewhere. 16. Consent to Jurisdiction. Each Borrower irrevocably submits to the jurisdiction of any state or federal court sitting in the State of Maryland over any suit, action, or proceeding arising out of or relating to this Note or any of the other Financing Documents. Each Borrower irrevocably waives, to the fullest extent permitted by law, any objection that the respective Borrower may now or hereafter have to the laying of venue of any such suit, action, or proceeding brought in any such court and any claim that any such suit, action, or proceeding brought in any such court has been brought in an inconvenient forum. Final judgment in any such suit, action, or proceeding brought in any such court shall be conclusive and binding upon the respective Borrower and may be enforced in any court in which such Borrower is subject to jurisdiction by a suit upon such judgment, provided that service of process is effected upon such Borrower as provided in this Note or as otherwise permitted by applicable law. 17. Service of Process. Each Borrower hereby irrevocably designates and appoints CT Corporation System, 300 East Lombard Street, Baltimore, Maryland, 21202, as the respective Borrower's authorized agent to receive on such Borrower's behalf service of any and all process that may be served in any suit, action, or proceeding instituted in connection with this Note in any state or federal court sitting in the State of Maryland. If such agent shall cease so to act, each Borrower shall irrevocably designate and appoint without delay another such agent in the State of Maryland satisfactory to the Lender and shall promptly deliver to the Lender evidence in writing of such agent's acceptance of such appointment and its agreement that such appointment shall be irrevocable. The Borrowers hereby consent to process being served in any suit, action, or proceeding instituted in connection with this Note by (a) the mailing of a copy thereof by certified mail, -4- 151 Exhibit B-1 to Financing and Security Agreement postage prepaid, return receipt requested, to the Borrowers at the address for notices set forth in Section 9.1 of the Financing Agreement and (b) serving a copy thereof upon CT Corporation System, the agent hereinabove designated and appointed by the Borrowers as the Borrowers' agent for service of process. The Borrowers irrevocably agree that such service shall be deemed in every respect effective service of process upon the Borrowers in any such suit, action or proceeding, and shall, to the fullest extent permitted by law, be taken and held to be valid personal service upon the Borrowers. Nothing in this Section shall affect the right of the Lender to serve process in any manner otherwise permitted by law or limit the right of the Lender otherwise to bring proceedings against any Borrower in the courts of any jurisdiction or jurisdictions. 18. WAIVER OF TRIAL BY JURY. THE BORROWERS AND THE LENDER HEREBY WAIVE TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO WHICH THE BORROWERS AND THE LENDER MAY BE PARTIES, ARISING OUT OF OR IN ANY WAY PERTAINING TO (A) THIS NOTE OR (B) THE FINANCING DOCUMENTS. IT IS AGREED AND UNDERSTOOD THAT THIS WAIVER CONSTITUTES A WAIVER OF TRIAL BY JURY OF ALL CLAIMS AGAINST ALL PARTIES TO SUCH ACTIONS OR PROCEEDINGS, INCLUDING CLAIMS AGAINST PARTIES WHO ARE NOT PARTIES TO THIS NOTE. THIS WAIVER IS KNOWINGLY, WILLINGLY AND VOLUNTARILY MADE BY THE BORROWERS AND THE BORROWERS HEREBY REPRESENT THAT NO REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY ANY INDIVIDUAL TO INDUCE THIS WAIVER OF TRIAL BY JURY OR TO IN ANY WAY MODIFY OR NULLIFY ITS EFFECT. THE BORROWERS FURTHER REPRESENT THAT THEY HAVE BEEN REPRESENTED IN THE SIGNING OF THIS NOTE AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, SELECTED OF THEIR OWN FREE WILL, AND THAT THEY HAVE HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL. IN WITNESS W11EREOF, each Borrower has caused this Note to be executed under seal by its duly authorized officers as of the date first written above. WITNESS OR ATTEST: WALBRO CORPORATION WALBRO AUTOMOTIVE CORPORATION WALBRO ENGINE MANAGEMENT CORPORATION WHITEHEAD ENGINEERED PRODUCTS, INC. SHARON MANUFACTURING COMPANY ___________________________ By:______________________________(Seal) Michael A. Shope Treasurer and Chief Financial Officer for each of the foregoing -5- 152 Exhibit B-2 to Financing and Security Agreement CAPITAL EXPENDITURE LINE NOTE $25,000,000 Baltimore, Maryland May 29,1998 FOR VALUE RECEIVED, WALBRO CORPORATION, a corporation organized under the laws of the State of Delaware, WALBRO AUTOMOTIVE CORPORATION, a corporation organized under the laws of the State of Delaware, WALBRO ENGINE MANAGEMENT CORPORATION, a corporation organized under the laws of the State of Delaware, AD ENGINEERED, PRODUCTS, INC., a corporation organized under the laws of the State of Delaware, and SHARON MANUFACTURING COMPANY, a corporation organized under the laws of the State of Michigan (each a "Borrower" and collectively the "Borrowers"), jointly and severally, promise to pay to the order of NATIONSBANK, N.A., a national banking association (the "Lender"), the principal sum of TWENTY-FIVE MILLION DOLLARS ($25,000,000) (the "Principal Sum"), or such lesser amount equal to the Lender's Capital Expenditure Line Pro Rata Share (as that term is defined in the "Financing Agreement" as that term is defined below) of the Capital Expenditure Line (as that term is defined in the Financing Agreement) or so much thereof as has been or may be advanced or readvanced under the Capital Expenditure Line, to or for the account of the Borrowers pursuant to the terms and conditions of the Financing Agreement, together with interest thereon at the rate or rates hereinafter provided, in accordance with the following: 1. Interest. Commencing as of the date hereof and continuing until repayment in full of all sums due hereunder, the unpaid Principal Sum shall bear interest at the Applicable Interest Rate or the Post Default Rate in effect from time to time for the Capital Expenditure Line. The Applicable Interest Rate shall be determined in the manner provided in the Financing Agreement. 2. Payments and Maturity. The unpaid Principal Sum, together with interest thereon at the rate or rates provided above, shall be payable as follows: (a) Interest only on the unpaid Principal Sum shall be due and payable monthly, commencing July 1, 1998, and on the first day of each month thereafter to maturity; and (b) The Borrowers shall pay to the Lender its Capital Expenditure Line Pro Rata Share of payments made pursuant to the Capital Expenditure Line Installment Payment Schedule at the times and in the manner set forth in Section 2.4.4 of the Financing Agreement; and (c) Unless sooner paid, the unpaid Principal Sum, together with interest accrued and unpaid thereon, shall be due and payable in full on the earlier of May 31, 2003 or the Revolving Credit Termination Date. Except on the Capital Expenditure Line Termination Date, the fact that the balance hereunder may be reduced to zero from time to time pursuant to the Financing Agreement will 153 Exhibit B-2 to Financing and Security Agreement not affect the continuing validity of this Note or the Financing Agreement, and the balance may be increased to the Principal Sum after any such reduction to zero. 3. Default Interest. Following the occurrence and during the continuation of an Event of Default, at the option of the Administrative Agent and upon written notice to the Borrowers, the unpaid Principal Sum shall bear interest at the Post-Default Rate until such Event of Default is cured or waived. 4. Application and Place of Payments. All payments made on account of this Note shall be applied in the manner provided in the Financing Agreement. All payments on account of this Note shall be paid in lawful money of the United States of America in immediately available funds during regular business hours of the NationsBank N.A., a national banking association (the "Administrative Agent" under the Financing Agreement), at its NationsBank Business Credit office at 100 South Charles Street, Baltimore, Maryland, or at such other times and places as the Administrative Agent may at any time and from time to time designate in writing to the Borrowers. 5. Prepayment. The Borrowers may prepay the Principal Sum at the times and in the manner provided in the Financing Agreement. 6. Financing Agreement and Other Financing Documents. This Note is a "Capital Expenditure Line Note" described in a Financing and Security Agreement of even date herewith (as amended, modified, restated, substituted, extended and renewed at any time and from time to time, the "Financing Agreement") by and among the Agent, the Lender, the other Lenders under the Financing Agreement, and the Borrowers. All terms used in this Note which are not otherwise defined herein shall have the meaning set forth In the Financing Agreement. The indebtedness evidenced by this Note is included within the meaning of the term "Obligations" as defined in the Financing Agreement, 7. Security. This Note is secured as provided in the Financing Agreement. 8. Events of Default. The occurrence of any one or more of the following events shall constitute an event of default (individually, an "Event of Default" and collectively, the "Events of Default") under the terms of this Note-, (a) The failure of the Borrowers to pay to the Lender when due any and all amounts payable by the Borrowers to the Lender under the terms of this Note; or -2- 154 Exhibit B-2 to Financing and Security Agreement (b) The occurrence of an event of default (as defined therein) under the terms and conditions of any of the other Financing Documents. 9. Waivers. The Borrowers and all endorsers, guarantors, and other parties who may now or in the future be primarily or secondarily liable for the payment of the indebtedness evidenced by this Note hereby severally waive presentment, protest and demand, notice of protest, notice of demand and of dishonor and non-payment of this Note and expressly agree that this Note or any payment hereunder may be extended from time to time without in any way affecting the liability of the Borrowers, guarantors and endorsers. 10. Notices. Any notice, request, or demand to or upon the Borrowers or the Lender shall be deemed to have been properly given or made when delivered in accordance with Section 9.1 of the Financing Agreement. 11. Partial Invalidity. In the event any provision of this Note (or any part of any provision) is held by a court of competent jurisdiction to be invalid, illegal, or unenforceable in any respect, such invalidity, illegality, or unenforceability shall not affect any other provision (or remaining part of the affected provision) of this Note; but this Note shall be construed as if such invalid, illegal, or unenforceable provision (or part thereof) had not been contained in this Note, but only to the extent it is invalid, illegal, or unenforceable, 12. Captions. The captions herein set forth are for convenience only and shall not be deemed to define, limit, or describe the scope or intent of this Note. 13. Applicable Law. The Borrowers acknowledge and agree that this Note shall be deemed delivered in and shall be governed by the laws of the State of Maryland (even though for the convenience and at the request of the Borrowers, this Note may be executed elsewhere), all as if this Note had been executed, delivered, administered and performed solely within the State of Maryland. 14. Consent to Jurisdiction. Each Borrower irrevocably submits to the jurisdiction of any state or federal court sitting in the State of Maryland over any suit, action, or proceeding arising out of or relating to this Note or any of the other Financing Documents. Each Borrower irrevocably waives, to the fullest extent permitted by law, any objection that the respective Borrower may now or hereafter have to the laying of venue of any such suit, action, or proceeding brought in any such court and any claim that any such suit, action, or proceeding brought in any such court has been brought in an inconvenient forum. Final judgment in any such suit, action, or proceeding brought in any such -3- 155 Exhibit B-2 to Financing and Security Agreement court shall be conclusive and binding upon the respective Borrower and may be enforced in any court in which such Borrower is subject to jurisdiction by a suit upon such judgment, provided that service of process is effected upon such Borrower as provided in this Note or as otherwise permitted by applicable law. 15. Service of Process. Each Borrower hereby irrevocably designates and appoints CT Corporation System, 300 East Lombard Street, Baltimore, Maryland, 21202, as the respective Borrower's authorized agent to receive on such Borrower's behalf service of any and all process that may be served in any suit, action, or proceeding instituted in connection with this Note in any state or federal court sitting in the State of Maryland. If such agent shall cease so to act, each Borrower shall irrevocably designate and appoint without delay another such agent in the State of Maryland satisfactory to the Lender and shall promptly deliver to the Lender evidence in writing of such agent's acceptance of such appointment and its agreement that such appointment shall be irrevocable. The Borrowers hereby consent to process being served in any suit, action, or proceeding instituted in connection with this Note by (a) the mailing of a copy thereof by certified mail, postage prepaid, return receipt requested, to the Borrowers at the address for notices set forth in Section 9.1 of the Financing Agreement and (b) serving a copy thereof upon CT Corporation System, the agent hereinabove designated and appointed by the Borrowers as the Borrowers' agent for service of process. The Borrowers irrevocably agree that such service shall be deemed in every respect effective service of process upon the Borrowers in any such suit, action or proceeding, and shall, to the fullest extent permitted by law, be taken and held to be valid personal service upon the Borrowers. Nothing in this Section shall affect the right of the Lender to serve process in any manner otherwise permitted by law or limit the right of the Lender otherwise to bring proceedings against any Borrower in the courts of any jurisdiction or jurisdictions. IN WITNESS WHEREOF, each of the Borrowers has caused this Note to be executed under seal by its authorized officer as of the date first written above. WITNESS OR ATTEST: WALBRO CORPORATION WALBRO AUTOMOTIVE CORPORATION WALBRO ENGINE MANAGEMENT CORPORATION WHITEHEAD ENGINEERED PRODUCTS, INC. SHARON MANUFACTURING COMPANY _________________________ By:______________________________(Seal) Michael A. Shope Treasurer and Chief Financial Officer for each of the foregoing -4- 156 Exhibit B-3 to Financing And Security Agreement CAPITAL EXPENDITURE LINE INSTALLMENT PAYMENT SCHEDULE THIS CAPITAL EXPENDITURE LINE INSTALLMENT PAYMENT SCHEDULE is furnished as of ___________, ___________, by WALBRO CORPORATION, a corporation organized under the laws of the State of Delaware (the "Parent"), to NATIONSBANK, N.A., a national banking association (the "Administrative Agent"), pursuant to Section 2.4.4 of the Financing and Security Agreement dated May 29, 1998 (as amended, modified, restated, substituted, extended and renewed at any time and from time to time, the "Financing Agreement"), by and among the Parent, the parties identified as the "Borrowers" in the Financing Agreement, the Administrative Agent, and the parties identified as the "Lenders" and "Agents" in the Financing Agreement. I, ___________, hereby certify that I am the _______________ of the Parent and am a Responsible Officer (as that term is defined in the Financing Agreement) authorized to certify to the Lender on behalf of the Borrowers as follows: 1. This Schedule is given to induce the Lenders to make an advance to ________________ in the amount of $______________ under the Capital Expenditure Line (as that term is defined in the Financing Agreement). 2. Immediately after the advance described in paragraph 1, the aggregate outstanding principal balance of the Capital Expenditure Line shall be $________________. 3. Installment payments of principal shall be due and payable on the advance described in paragraph 1 in the amount of $______________ quarterly, commencing ______________, ____________ and on the first day of each August, November, February, and May after the date of such advance. 4. The aggregate of all installment payments of principal due and payable after the advance described in paragraph 1 on all Capital Expenditure Line advances shall be $__________ quarterly commencing _____________, _________ and on the first day of each August, November, February, and May after the date of such advance. IN WITNESS WHEREOF, the Parent has executed and delivered this Capital Expenditure Line Payment Schedule on behalf of the Borrowers under seal as of the day and year first written above. WITNESS: WALBRO CORPORATION __________________________ By:______________________________(Seal) Name: Title: 157 Exhibit C to Financing and Security Agreement NATIONSBANK BUSINESS CREDIT WIRE TRANSFER PROCEDURES The transfer of funds by means of wire may be made by NationsBank (lender) at the request of its customer (borrower). Such wire transfers are categorized by lender as either repetitive or non-repetitive. Repetitive: Repetitive wire transfers may vary in amount, but are consistent in terms of the payee, the location to which funds are wired, the bank name, account number and the routing transit number. Either borrower or lender may initiate a repetitive wire transfer. The borrower may identify the repetitive nature of transfers and request they be established as such via the "Repetitive Wire Transfer Authorization Form" (copy attached). Lender, after observing numerous transfers to the same recipient and destination, may initiate the repetitive process by faxing or mailing the "Repetitive Wire Authorization Form" to the borrower for completion and return. Although a first request for a repetitive wire transfer may be honored from a faxed copy of the "Repetitive Wire Transfer Authorization Form", a copy of the form containing an original signature must be received from the borrower. All transfer authorization forms must be approved by and contain the signature of a person authorized by the borrower to advance funds from borrower's line of credit with the lender. After receipt of the original "Repetitive Wire Transfer Authorization Form" by the lender, subsequent wire transfers to the recipient named thereon may be initiated by telephone request, provided the requesting party is identified by the lender as a person authorized by borrower to advance funds from the borrower's line of credit with lender. Non-Repetitive: Non-Repetitive wire transfers are directed to recipients on a one-time or infrequent basis or are directed to varied destinations. Non-repetitive wire transfers require that written notification be provided to lender by borrower, showing payee, location, account number, routing transit number and name and location of bank into which funds are to be transferred. Such written notification may be provided by means of a "Non-Repetitive Wire Transfer Authorization Form" (copy attached). Required information may be faxed to lender in order to expedite the transfer; however, a copy of the transfer authorization form with an original signature(s) must be received by lender from borrower. The transfer authorization form must be approved by and contain the signature of a person authorized by the borrower to advance funds from borrower's line of credit with the lender. For any non-repetitive wire transfer, Lender may, at its discretion, perform a telephone verification with an authorized representative (the original signer or another authorized representative) of borrower prior to initiating the transfer. 158 NATIONSBANK BUSINESS CREDIT REPETITIVE WIRE TRANSFER AUTHORIZATION CUSTOMER INFORMATION Customer Name:_________________________________ Date:___________________________ Name of Person Authorizing Transfer for Customer:_______________________________ Note: Must be Person Authorized to Advance Funds Signature of Person Authorizing Transfer for Customer:__________________________ PAYEE Name of Recipient of Funds:_____________________________________________________ Location:_______________________________________________________________________ Account Number into which Funds are to be Transferred:__________________________ DESTINATION OF FUNDS Name and Location of Bank Receiving Funds: Bank Name:______________________________________________________________________ Routing Information (ABA Number):______________________ Bank Location: City:___________________________________________________________________________ State:__________________________________________________________________________ (for international Wires) Country:______________________________________________ Special Instructions:___________________________________________________________ ________________________________________________________________________________ BANK USE ONLY Business Credit Department Business Credit Authorization:__________________________________________________ Print name of person at Bank approved to authorize Wire Transfers Business Credit Authorization:__________________________________________________ Signature of person at Bank approved to authorize Wire Transfers WIRE TRANSFER DEPARTMENT F.D. Number Assigned:___________________________________________________________ Account Number to Debit:________________________________________________________ 159 NATIONSBANK BUSINESS CREDIT NON-REPETITIVE WIRE TRANSFER AUTHORIZATION CUSTOMER INFORMATION Customer Name:_________________________________ Date:___________________________ Name of Person Authorizing Transfer for Customer:_______________________________ Note: Must be Person Authorized to Advance Funds Signature of Person Authorizing Transfer for Customer:__________________________ PAYEE Name of Recipient of Funds:_____________________________________________________ Location:_______________________________________________________________________ Account Number into which Funds are to be Transferred:__________________________ DESTINATION OF FUNDS Name and Location of Bank Receiving Funds: Bank Name:______________________________________________________________________ Routing Information (ABA Number):______________________ Bank Location: City:___________________________________________________________________________ State:__________________________________________________________________________ (for international Wires) Country:______________________________________________ Special Instructions:___________________________________________________________ ________________________________________________________________________________ 160 Exhibit D to Financing And Security Agreement COMPLIANCE CERTIFICATE THIS CERTIFICATE is made as of ________________, ________ by ________________, a _______________ organized under the laws of the State of _________________ (the "Borrower'), NATIONSBANK, N.A., a national banking association (the "Administrative Agent'), pursuant to Section 2.4.4 of the Financing and Security Agreement dated May 29, 1998 (as amended, modified, restated, substituted, extended and renewed at any time and from time to time, the "Financing Agreement"), by and among the Parent, the parties identified as the "Borrowers" in the Financing Agreement, the. Administrative Agent, and the parties identified as the "Lenders" and "Agents" in the Financing Agreement. I, ________________, hereby certify that I am the _____________ of the Borrower and am a Responsible Officer (as that is defined in the Financing Agreement) authorized to certify to the Lender on behalf the Borrower as follows: 1. This Certificate is given to induce the Lender to make advances to the Borrower under the Financing Agreement. 2. This Certificate accompanies ______________ the financial statements for the period ended _____________ (the "Current Financials') which the Borrower is furnishing to the Lender pursuant to Section 6.1.1(_) of the Financing Agreement. 'Me Current Financials have been prepared in accordance with GAAP (as that term is defined in the Financing Agreement). 3. As required by Section 6.1.1(_) of the Financing Agreement, I have set forth on Schedule 1 to this Certificate a detailed computation, to the extent applicable, of each financial covenant in the Financing Agreement and a cash flow projection report. 4. No change has occurred to the information contained in the Collateral Disclosure List except as set forth on Schedule 2 to this Certificate. By way of example and not limitation, the Collateral Disclosure List, together with Schedule 2, contains a listing of all of the Patents, Trademarks, Copyrights of the Domestic Borrowers (as those terms are defined in the Financing Agreement), all locations (owned, leased, warehouses or otherwise) where any Collateral (as that term is defined in the Financing Agreement) is located, and all Subsidiaries (as that term is defined in the Financing Agreement). 5. As of the date hereof, there exists no Default or Event of Default, as defined in the Financing Agreement. 6. On the date hereof, the representations and warranties contained in Article 4 of the Financing Agreement are true with the same effect as though such representations and warranties had been made on the date hereof. WITNESS my signature this _____ day of _________, ________. ___________________________ Name: Title: EX-5 7 EXHIBIT 5 1 EXHIBIT 5 June 3, 1998 Walbro Corporation 6242 Garfield Street Cass City, Michigan 48726 Re: Registration Statement on Form S-4 - File No. 333-45693 Ladies and Gentlemen: We have acted as counsel for Walbro Corporation, a Delaware corporation (the "Company"), in connection with the preparation and filing of a registration statement on Form S-4, File No. 333-45693 (the "Registration Statement") with the Securities and Exchange Commission under the Securities Act of 1933, as amended. The Registration Statement relates to the exchange of up to an aggregate principal amount of $100,000,000 of its 10 1/8% Senior Notes due 2007, Series B (the "New Notes") for up to an aggregate principal amount of $100,000,000 of its outstanding 10 1/8% Senior Notes due 2007, Series A (the "Old Notes"). Capitalized terms used but not defined herein shall have the meanings as set forth in the Registration Statement or the Indenture for the New Notes, as the case may be. In connection with this opinion, we have relied as to matters of fact, without investigation, upon certificates of public officials and others and upon affidavits, certificates and written statements of directors, officers, and employees of, and the accountants for, the Company. We have also examined originals or copies, certified or otherwise identified to our satisfaction, of such instruments, documents, and records as we have deemed relevant and necessary to examine for the purpose of this opinion, including (a) the Registration Statement (b) the Restated Certificate of Incorporation of the Company, (c) the By-laws of the Company, (d) the minutes of meetings of the Board of Directors of the Company, (e) the Indenture for the Notes, (f) the Form of New Note, and (g) the Statements on Form T-1 under the Trust Indenture Act of 1939, as amended, relating to the Indenture. In connection with this opinion, we have assumed the accuracy and completeness of all documents and records that we have reviewed, the genuineness of all signatures, the due authority of the parties signing such documents, the authenticity of the documents submitted to us as originals and the conformity to authentic original documents of all documents submitted to us as certified, conformed or reproduced copies. We have further assumed that: 2 Walbro Corporation June 3, 1998 Page 2 (i) All natural persons involved in the transactions contemplated by the Registration Statement (the "Offering") and the Indenture have sufficient legal capacity to enter into and perform their respective obligations under the Indenture and to carry out their roles in the Offering. (ii) Each party involved in the Offering other than the Company (collectively the "Other Parties") has satisfied all legal requirements that are applicable to it to the extent necessary to make the Indenture enforceable against it. (iii) Each of the Other Parties has complied with all legal requirements pertaining to its status as such related to its rights to enforce the Indenture against the Company. Based upon and subject to the foregoing, it is our opinion that: (1) The Company is a corporation duly incorporated and existing under the laws of the State of Delaware. (2) The New Notes covered by the Registration Statement, when executed in the manner set forth in the Indenture and issued and delivered in the manner set forth in the Registration Statement, will be legally issued and will be binding obligations of the Company under the terms of the Indenture, except (i) as enforceability may be limited by the effects of bankruptcy, insolvency, reorganization, receivership, moratorium and other similar laws affecting the rights and remedies of creditors generally; (ii) as enforceability may be limited by the effects of general principles of equity, whether applied by a court of law or equity; (iii) as rights to indemnity or contribution under the same may be limited by federal or state securities laws or the public policy underlying such laws; and (iv) that we express no opinion as to the waiver of the defense of usury. This opinion is limited to the laws of the States of Delaware and New York, and the federal securities laws of the United States of America, and is given as of the date hereof. We do not express any opinion herein concerning any other law, and we assume no obligation to advise you of changes that may hereafter be brought to our attention. 3 Walbro Corporation June 3, 1998 Page 3 We hereby consent to the reference to our name in the Registration Statement under the caption "Legal Matters" and further consent to the filing of this opinion as Exhibit 5 to the Registration Statement. Very truly yours, /s/ KATTEN MUCHIN & ZAVIS ---------------------------- KATTEN MUCHIN & ZAVIS EX-10.1 8 EXHIBIT 10.1 1 EXHIBIT 10.1 AGREEMENT THIS AGREEMENT is entered into this 12th day of December, 1986 by and between MITSUBA ELECTRIC MANUFACTURING COMPANY, LTD., a company organized and existing under the laws of Japan, ("MITSUBA"), having its principal office at 2681, Hirosawacho 1-chome, Kiryu City, Japan and WALBRO CORPORATION, a company organized and existing under the laws of the State of Delaware, with its principal office at 6242 Garfield Street, Cass City, Michigan 48726 USA ("WALBRO"). WITNESSETH WHEREAS, MITSUBA and WALBRO wish to establish a corporation ("NEWCO") pursuant to the laws of Japan to engage in the manufacture and sale of automotive fuel systems components ("PRODUCTS") to Japanese automotive original equipment) manufacturers and the replacement market on the terms and conditions hereinafter set forth; NOW, THEREFORE, in consideration of the premises and the mutual promises hereinafter set forth, the parties hereto agree as follows: ARTICLE I. DEFINITIONS For the purpose of this Agreement, the following terms shall have the meaning set forth below: 1.1 MITSUBA. Mitsuba Electric Manufacturing Company, Ltd. with its principal place of business in Kiryu City, Japan. 1.2 WALBRO. Walbro Corporation, a Delaware Corporation, with its principal place of business in Cass City, Michigan. 2 1.3 AFFILIATE. A person (a) who directly or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, the Person specified; (b) who beneficially owns or holds twenty-five percent or more of the voting stock or equity interest of which is beneficially owned or held by the Person specified; (c) twenty-five percent or more of the voting stock or equity interest of which is beneficially owned or held by the Person specified; or (d) who is an officer or director of the Person specified or an entity in (a), (b) or (c) above. As used in this definition "control" shall mean the power through equity ownership, contract or otherwise to direct the affairs of another Person. 1.4 PRODUCTS. WALBRO's gerotor type electric motor driven fuel pump Series 5000 and all derivatives of such pump. As conditions permit, the parties intend to expand the scope of the joint venture to include the manufacture and sale of additional automotive electronic fuel injection system components. This expansion will be handled on a product by product basis pursuant to future negotiation of the parties and pursuant to an agreement in writing. 1.5 NEWCO. The stock corporation (Kabushiki Kaisha) to be organized in accordance with the laws of Japan by MITSUBA and WALBRO in the manner provided in Paragraph 2.1 hereof. ARTICLE II. ORGANIZATION AND CAPITALIZATION OF THE JOINT VENTURE 2.1 Organization. In accordance with a schedule proposed by counsel, which counsel is approved by MITSUBA and WALBRO, the parties shall cause the organization, under the laws of Japan, of a new corporation ("NEWCO") to be named "Mitsuba-Walbro, Inc.". The Articles of Incorporation of NEWCO shall be substantially in the form attached hereto as Exhibit A. It is intended that NEWCO will have its principal office in Kiryu City, Japan. 3 2.2 Purpose. The purpose of NEWCO shall be to manufacture and market (both OEM and aftermarket) the PRODUCTS in Japan under an arrangement whereby NEWCO will have a nonexclusive license to manufacture, use and sell the PRODUCTS under the terms and conditions set forth in Exhibit B. MITSUBA shall provide technical services and personnel to NEWCO to assist engineering, manufacturing and selling the PRODUCTS under the terms and conditions of Exhibit C. Exhibits A, B & C are hereby incorporated by reference. 2.3 Logo. The parties agree that a logo shall be designed for NEWCO which preserves within it the identity of both parties. WALBRO agrees that the logo for NEWCO includes WALBRO trademark and MITSUBA agrees that the logo for NEWCO includes MITSUBA trademark. 2.4 Capital. The authorized share capital of NEWCO shall be Four Hundred Million Yen ((YEN)400,000,000.-), consisting of Eight Thousand (8,000) common shares with a par value of (YEN)50,000 per share. At the completion of the closing, NEWCO shall issue share certificates to MITSUBA and WALBRO representing the shares to be acquired by them pursuant to this Agreement. All of NEWCO's shares shall be alike in all respects and the holders thereof shall be entitled to identical rights and privileges including, without limitation of the foregoing, identical rights and privileges with respect to dividends, voting power and distribution of assets in the event of any voluntary or involuntary liquidation or dissolution. It is understood and agreed that MITSUBA and WALBRO shall each at all times hold 50% of the issued and outstanding share of capital and voting rights of NEWCO. The initial paid-in capital shall be One Hundred Million Yen ((YEN)100,000,000.-). MITSUBA and WALBRO shall each contribute 50% of the initial paid-in capital. 4 2.5 Additional Equity. Upon a determination by the Board of Directors of NEWCO that additional shareholders' equity is necessary, the parties shall take such steps as may be deemed necessary or appropriate by the Board of Directors of NEWCO to increase the parties' respective equity investments in NEWCO by purchase of additional shares of capital stock, contributions to capital, or otherwise. All such increases in equity investments shall be made by the parties in amounts that are in proportion to their respective shareholdings in NEWCO, 50% by MITSUBA and 50% by WALBRO, and the requirement that each party make any additional investment shall be conditioned upon (a) the making of a proportional additional investment by the other, and (b) the absence of a material breach by the other of any provisions of this Agreement. 2.6 Indebtedness. Upon determination by the Board of Directors of NEWCO that it is necessary or desirable for NEWCO to raise additional funds by incurring indebtedness, NEWCO shall incur such debt on such terms and conditions as the Board of Directors of NEWCO may deem appropriate. 2.7 Loans. If the Board of Directors of NEWCO shall determine that additional financing is necessary or desirable, and that such financing can most advantageously be provided by loans provided or guaranteed (severally and not jointly) by the parties, such loans or guarantees, as may be requested by the Board of Directors of NEWCO, shall be provided simultaneously by MITSUBA and WALBRO, equally. 2.8 Distributions. Distributions from NEWCO to MITSUBA and WALBRO may be made at such times and in such amounts as may be determined by the Board of Directors of NEWCO, subject to the resolution of the Ordinary General Meeting of Shareholders of NEWCO. The distributions shall be made equally. 5 2.9 Board of Directors of NEWCO. The Board of Directors of NEWCO shall consist of six (6) individuals, three of whom shall be appointed by MITSUBA and three of whom shall be appointed by WALBRO. MITSUBA and WALBRO each agree to vote their respective NEWCO shares in favor of three of the other party's nominees at each and every meeting of shareholders held for the purpose of electing Directors in order to assure that each party shall elect one-half of NEWCO's Directors. In the event that a party shall wish to remove a director who was nominated by the party, the other party shall vote its shares in favor of such removal. In the event a Director nominated by a party shall cease to be a Director for any reason, the other party shall vote its shares in favor of the individual whom that party shall nominate to fill such vacant position. Each party agrees that it shall take any and all necessary actions in a timely fashion in order to obtain the results contemplated by this Paragraph 2.9. All Directors shall be reimbursed by NEWCO for out-of pocket travel, lodging, food and incidental expenses incurred in connection with attendance at Directors' meetings. The presence in person of a majority of the Directors shall be required to constitute a quorum for the transaction of business. In all events, the Board of Directors of NEWCO shall use reasonable efforts to notify MITSUBA and WALBRO of any significant action on behalf of NEWCO, or its intention in respect of any significant action that it proposes to take. No member of the Board of Directors of NEWCO shall be liable to the parties by reason of his acts as such, except in the case of his gross negligence or fraudulent or dishonest conduct. 2.10 Auditors. NEWCO shall have two (2) individual auditors, one of whom shall be appointed by MITSUBA and one of whom shall be appointed by WALBRO. MITSUBA and 6 WALBRO each agree to vote their respective NEWCO shares in favor of one of the other party's nominees at each and every meeting of shareholders held for the purpose of electing Auditors in order to assure that each party shall elect one-half of NEWCO's Auditors. 2.11 Representative Directors. NEWCO shall have two (2) representative directors who shall be elected by the Board of Directors of NEWCO from among the members of said board. During the period that the proportionate equity interests between the parties hereto remain 1:1 for MITSUBA and WALBRO, respectively, one of the representative directors shall be an individual nominated by MITSUBA and acceptable to WALBRO and the other representative director shall be an individual nominated by WALBRO and acceptable to MITSUBA. The parties hereto hereby covenant and agree to cause the directors of NEWCO respectively nominated by them to cast their votes so as to elect those individuals who qualify under the foregoing provisions of this Paragraph 2.11. It is agreed between the parties that MITSUBA's designee shall be the President and WALBRO's designee shall be the Executive Vice-President for NEWCO's first six years of business. After the first six years the Board of Directors of NEWCO shall appoint the President and the Executive Vice President by Board action. 2.12 Employees. The parties acknowledge that it may be necessary for NEWCO to employ individuals who will remain as employees of MITSUBA or WALBRO or an AFFILIATE of MITSUBA or WALBRO. In that event NEWCO shall reimburse MITSUBA or WALBRO, as the case may be, for all costs and expenses incurred by MITSUBA or WALBRO in connection with furnishing such individuals to NEWCO. 2.13 Shareholder Actions. Actions by the shareholders of NEWCO shall be taken as provided by laws or by NEWCO's Articles of Incorporation or By-Laws, provided that in no 7 event may action be taken with regard to the following matters without the favorable vote or written consent of all shareholders: (a) amendments of the Articles of Incorporation or By-Laws which would deprive a party of a right expressly granted under this Agreement; (b) dissolution; (c) merger or consolidation with another entity; (d) disposition of all or substantially all of the assets of NEWCO. ARTICLE III. RESTRICTIONS ON DISPOSITION OF JOINT VENTURE INTEREST 3.1 Restrictions. Neither MITSUBA nor WALBRO may sell, transfer, assign, pledge or hypothecate any of its interest in NEWCO, or permit such interest to become subject to any mortgage, pledge, encumbrance, lien or charge of any kind except as provided in Article IV. 3.2 Purpose. Each party acknowledges and agrees that the restrictions on transfer of NEWCO interests herein are reasonable in view of the purpose and intent of the partners. ARTICLE IV. TRANSFER OF SHARES 4.1 Provision in The Articles of Incorporation. In implementation of the undertakings contained in paragraph 3.1 hereof, MITSUBA and WALBRO agree that at all times the Articles of Incorporation of NEWCO shall contain a provision that is as follows: "Any transfer of the shares of this Company shall be subject to approval by the Board of Directors." 4.2 Right of First Refusal and First Offer. Each party hereto hereby extends to the other party hereto, the right of first refusal with respect to shares of NEWCO of which such party wishes to dispose. Accordingly, if at any time any party hereto desires to dispose of all or any portion of the shares of NEWCO held by it, such party shall first offer to sell said shares to the other party at a 8 purchase price per share and upon other terms of sale to be in accordance with the provisions of Paragraph 4.4 hereof. Any such first offer shall be made in writing by registered airmail, postage prepaid, and shall be sent to the last known address of the other party to whom such first offer is made. Such first offer shall state that the first offer being made shall remain effective until whichever of the following events shall first occur. (1) Dispatch by a party to whom such first offer is made of written notice of rejection of the first offer so extended; or (2) The elapse of ninety (90) days after the date of receipt by the party to whom such first offer is made pursuant to this Paragraph 4.2. Acceptance of any first offer which has been made by an offering party pursuant to this Paragraph 4.2 shall be effective upon dispatch, by the party to whom such first offer has been made, of written notice of acceptance thereof by registered airmail, postage prepaid, if such dispatch occurs within ninety (90) days after the date of receipt by the said party to whom such first offer has been made pursuant to this Paragraph 4.2. 4.3 Failure or Refusal To Accept First Offer. If the party hereto to whom a first offer is extended pursuant to Paragraph 4.2 hereof refuses or fails to acquire all of the shares of NEWCO which the party hereto making such first offer wishes to dispose of, such offering party shall have the right to offer such shares which are not acquired to any person, natural or juridical, who is not a party to this Agreement, if the price of the shares in question to any such person as aforesaid is equal to or greater than, and the other terms of sale are not less favorable than, the price and other terms of sale determined pursuant to Paragraph 4.2 hereof. Further, any transfer of the shares of NEWCO by any party hereto to a person not a party hereto pursuant to the immediately 9 preceding sentence of this Paragraph 4.3 shall be conditioned upon the full assumption by any such third party transferee of all of the obligations of the transferor provided for in this Agreement. 4.4 Purchase Price Per Share. If any party hereto desires to transfer all or any portion of the shares of NEWCO held by it, the parties hereto shall negotiate in good faith (including, but not limited to, acquisition of such experts' opinions as certified public accountants, research institutes of securities companies, etc.) to establish the price and other terms and sale of which said shares shall be offered to the other party hereto pursuant to Paragraph 4.2 hereof; provided, however, that if the parties hereto are unable to agree to a price and other terms of sale for the shares in question, said shares shall be offered at a price and upon other terms of sale determined by the offering party. ARTICLE V. TERM AND TERMINATION 5.1 Term. This Agreement shall become effective as of the date of execution and shall continue in force and effect for an indefinite term thereafter in so far as each of the parties hereto has a one-half ownership interest in NEWCO unless this Agreement is sooner terminated pursuant to the following provisions of Paragraph 5.2 and Paragraph 5.3. 5.2 Bankruptcy or Liquidation. Any of the parties hereto may terminate this Agreement by written notice to the other party hereto in the event that the other party hereto shall: (a) Be declared insolvent or bankrupt, or make an assignment or other arrangement for the benefit of its creditors; 10 (b) Be dissolved, liquidated, merged, consolidated or otherwise reorganized, unless mutual agreement is obtained between both parties in the event of merger, consolidation or other corporate reorganization. If any of the parties hereto is involved in any of the events mentioned in sub-paragraphs (a) and (b), such party shall be obligated immediately to notify the other party hereto of the occurrence of such event. Further, if any party hereto shall be involved in any of the events mentioned in sub-paragraphs (a) and (b), it shall be obligated to offer all its shares in NEWCO to the other party hereto in accordance with the pertinent provisions of Article IV. 5.3 Default by a Party Hereto. If either party defaults in any of the provisions of this Agreement and does not cure the default within sixty (60) days after receipt of a written notice given by the other party requesting it to cure the default, the other party may terminate this Agreement by giving a written notice thereof. 5.4 After closing, this Agreement shall terminate automatically upon dissolution of NEWCO or if one party (other than by transfer of shares to a Wholly-Owned Subsidiary) ceases to be a shareholder of fifty percent (50%) ownership interest of NEWCO. 5.5 Upon termination of this Agreement pursuant to this Article V, all of the rights and obligations under this Agreement shall terminate except (a) all claims of either party against the other for damages arising out of acts or omission of the other parties outside the scope of, or in breach of, this Agreement, which shall survive such termination; or (b) as otherwise specifically provided by this Agreement. 11 ARTICLE VI. FISCAL MATTERS 6.1 Fiscal Year. The fiscal year of NEWCO shall be from January 1 until December 31 every year. 6.2 Books and Records. Proper books and records shall be kept with reference to NEWCO transactions, and each party shall at all reasonable times during business hours have access thereto. The books shall be kept in accordance with Japanese generally accepted accounting principles. The books and records of NEWCO shall be reviewed annually at the expense of NEWCO by a certified public accountant who shall prepare and deliver to the parties, for filing, the appropriate income tax schedules for Japan and as appropriate, the United States of America. ARTICLE VII. CLOSING 7.1 Closing. The closing for execution of Exhibit B and Exhibit C will be held at Kiryu City, Japan on February 2, 1987, or at an earlier date to be specified by the parties at least ten (10) days in advance thereof, as soon as practicable after (i) the incorporation of NEWCO based upon this Agreement; (ii) all actions to be taken hereunder prior to the closing have been completed. All obligations of the parties hereunder not to be performed at or before the closing shall be contingent upon and subject to the occurrence of the closing. 7.2 Other Transactions and Arrangements. At the closing, (i) NEWCO will enter into a non-exclusive license to manufacture the PRODUCTS in Japan in the form of Exhibit B, and (ii) NEWCO will enter into a Technical Services and Personnel Assignment with MITSUBA in the form of Exhibit C. At closing, WALBRO agrees to execute and to deliver to NEWCO the 12 License Agreement. At closing, MITSUBA agrees to execute and to deliver to NEWCO the Technical Services and Personnel Assignment Agreement. ARTICLE VIII. MISCELLANEOUS PROVISIONS 8.1 No Waiver of Rights. No failure or delay on the part of either party in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege. All rights and remedies existing under this Agreement are cumulative to, and not exclusive of, any rights or remedies otherwise available. 8.2 Assignment. Neither this Agreement nor any right or obligation hereunder is assignable in whole or in part by either party without the prior written consent of the other party except as permitted by Article IV. 8.3 Integration. This document with the annexed Exhibits sets forth the entire understanding between the parties relating to the subject matter contained herein and merges all prior discussions between them. No amendment to this Agreement shall be effective unless in writing and executed by the parties hereto. 8.4 Severability. If any one or more of the provisions (other than provisions constituting a material consideration to a party's entering into this Agreement or such other document) contained in this Agreement or any document executed in connection herewith shall be invalid, illegal or unenforceable in any respect under any applicable law, the validity, legality and enforceability of the remaining provision contained herein shall not in any way be affected or impaired; provided, however, that in such case the parties oblige themselves to use their best efforts to achieve the purpose of the invalid provision by a new legally valid stipulation. 13 8.5 Notice. Any notice herein required or permitted to be given shall be in writing and may be personally served or sent by telex or mail and shall be deemed to have been given as follows: if personally served, when served; if by telex, on the second business day after transmission thereof on a telex machine to the proper address and telex number with confirmed answerback; if by facsimile transmission, when transmission is complete; or if mailed, on the tenth business day after deposit in the mail with airmail postage prepaid and properly addressed. For the purposes hereof, the addresses of the parties hereto (until notice of a change thereof is given as provided in this Paragraph) shall be the addresses set forth on the first page of this Agreement. 8.6 Confidentiality. Each of the parties hereby covenants that any information regarding the business, assets, customers, vendors, materials, prices, profit margins, processes and methods of the other which it may learn in the course of negotiations for, or carrying out of, this Agreement is treated by it in strict confidence and shall not make use of such information, unless such information (a) is known to the party prior to learning of it from the other; (b) is obtained by such party from a source other than the other party source which (i) did not require such party to hold such secrets or information in confidence and (ii) did not limit or restrict such parties use thereof; or (c) becomes public knowledge otherwise than through the fault of the party seeking to use or disclose such knowledge. It is agreed by the parties that the subject of this Paragraph is unique in nature and may be enforced in a court of equity with an injunction. 8.7 Costs. WALBRO and MITSUBA hereby agree to pay their own respective costs in connection with the negotiation, execution and closing of this Agreement. 14 8.8 Arbitration. (a) Any and all disputes arising from this Agreement shall be amicably and promptly settled upon consultation between the parties hereto, but in case of failure, the matter shall be settled by arbitration in accordance with the Agreement between the Japan Commercial Arbitration Association and the American Arbitration Association to Facilitate the Use of Commercial Arbitration in Trade between Japan and the United States of America dated September 16, 1952 and the award shall be final and binding upon both parties. (b) Unless otherwise agreed, in the event arbitration is demanded by MITSUBA, arbitration shall be held in Detroit, USA or if demanded by WALBRO, in Tokyo, Japan. 8.9 Exhibits. The Exhibits hereto are an integral part of this Agreement and all references herein to this Agreement shall encompass such Exhibits. 8.10 Independence. MITSUBA and WALBRO shall each carry out their respective obligations under this Agreement independently and not as agents for each other. 8.11 Counterparts. This Agreement may be executed simultaneously in any number of counter parts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 8.12 Controlling Language and Applicable Law. This Agreement has been signed and delivered in English which shall be the controlling language. This Agreement shall be governed, interpreted and its performance determined by the substantive laws of the State of Michigan of the United States to the extent that the laws of the State of Michigan are not preempted by the applicable laws of the United States of America and Japan. 15 8.13 Headings. The inserted headings are for convenient reference only and shall not be used to construe or interpret this Agreement. ARTICLE IX. FUTURE OPPORTUNITIES IN NORTH AMERICA In the event Honda, North America in the future decides to purchase the PRODUCTS locally from WALBRO, WALBRO covenants that it will appoint MITSUBA's United States subsidiary (to be formed) exclusive sales agent for purposes of the sale of the PRODUCTS to Honda, North America. The fee to which MITSUBA shall be entitled for the sales agency shall be negotiated at the time the sales opportunity arises. IN WITNESS WHEREOF the parties have caused this Agreement to be executed by their officers duly authorized thereto in duplicate on the day and year first above written and each retain one copy. Attest: MITSUBA ELECTRIC MANUFACTURING COMPANY, LTD. /s/ /s/ - --------------------------- -------------------------------------------- Toshifumi Kohno Noboru Hino Executive Vice President Attest: Walbro Corporation /s/ /s/ - --------------------------- -------------------------------------------- Tatsuo Yagi Robert H. Walpole Executive Vice President EX-10.2 9 EXHIBIT 10.2 1 EXHIBIT 10.2 WALBRO CORPORATION EQUITY BASED LONG TERM INCENTIVE PLAN (AS AMENDED AND RESTATED EFFECTIVE JUNE 20, 1994) SECTION 1. Purposes; Definitions. This Equity Based Long Term Incentive Plan was adopted by the Board of Directors on February 6, 1991 and approved by the Shareholders on April 23, 1991. The Board of Directors of the Company has determined to amend and restate the Plan, effective June 20, 1994 to permit certain awards in respect of non-employee directors, and effective as of the date of the executive hereof, to permit certain other modifications the Board of Directors deems appropriate, subject to the approval of the Company's shareholders. The purpose of the Plan as amended and restated is to enable officers, key employees and directors of the Company and its Affiliates, its subsidiaries and affiliates to participate in the Company's future and to enable the Company to attract and retain such persons by offering them proprietary interests in the Company. The Plan also provides a means through which the Company can attract and retain such key persons of merit. For purposes of the Plan, the following terms are defined as set forth below: (a) "Account" means the record of an interest in this Plan with respect to a Director's Deferred Retainer represented by his or her: (1) "Cash Account" which means an interest in this Plan composed of Deferred Retainers posted with a cash value to the credit of the Director, plus all income and gains credited to and minus all losses charged to such account, and minus all distributions charged to such account. (2) "Stock Account" which means an interest in this Plan composed of Deferred Retainers posted with shares of Common Stock to the credit of the Director, plus all income and gains credited to and minus all losses charged to such account, and minus all distributions charged to such account. The value of an Account at any time, other than on a Valuation Date, shall be the Account accrued as of the immediately preceding Valuation Date increased by the amount credited to the Account since the previous Valuation Date, and reduced by the value of any distributions from the Account. On the Valuation Date, the value shall be that as determined under the preceding sentence increased by the value of any income and gains and decreased by the value of all losses for that Valuation Date. Each Account represents an unfunded commitment of the Company to pay in the future the amounts credited thereunder, subject to all of the terms and conditions of this Plan. The Committee may establish more than one Account with respect to a Director, and the Plan shall apply separately with respect to each Account. -1- 2 (b) "Affiliate" means a corporation or other entity controlled by the Company and designated by the Committee as such. (c) "Award" means a Stock Appreciate Right, Stock Option, Deferred Option, Restricted Stock or Deferred Stock. (d) "Board" means the Board of Directors of the Company. (e) "Cause" means an act or acts of dishonesty by the optionee constituting a felony under applicable law and resulting or intending to result directly or indirectly in gain to or personal enrichment of the optionee at the Company's expense. Notwithstanding the foregoing, the optionee shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to him a copy of a resolution, duly adopted by the affirmative vote of not less than a majority of the entire membership of the Board at a meeting of the Board called and held for that purpose (after reasonable notice to him has been given or has been made and an opportunity for him, together with his counsel, to be heard before the Board), finding that in the good faith opinion of the Board the optionee was guilty of conduct set forth above in the first sentence of this Section 2(e) and specifying the particulars thereof in detail. (f) "Change in Control" and "Change in Control Price" have the meanings set forth in Sections 15(b) and (c), respectively. (g) "Code" means the Internal Revenue Code of 1986, as amended from time to time, and any successor thereto. (h) "Commission" means the Securities and Exchange Commission or any successor agency. (i) "Committee" means the Committee referred to in Section 3. (j) "Common Stock" means common stock, par value $0.50 per share, of the Company. (k) "Company" means Walbro Corporation, a Delaware corporation. (l) "Conversion Election" means a non-binding election, on such form as may be required by the Committee, by a Director to change the method of measuring the investment return on all or some specified portion of the Director's Cash Account. (m) "Director's Grant Date" means (1) with respect to a person who was a Director on such date, June 20, 1994, and (2) with respect to a Director who was not a Director on June 20, 1994, the first business day of the initial term for which the Director is elected; and (3) with respect to a Deferred Option, the date the Retainer would have been paid in cash if not deferred pursuant to an Election. -2- 3 (n) "Deferred Stock" means a award made pursuant to Section 8. (o) "Deferral Election" or "Election" means an election by a Director to (a) either receive all of his or her Retainer on a current basis or to reduce his or her Retainer for a Retainer Year by an amount or percentage specified in the Election; and (b) to select whether the Deferred Retainer for that Retainer Year will be posted to the Cash Account, the Stock Account, converted to Deferred Options or a combination of the foregoing. With respect to any period or Election for which Rule 16b-3 as in effect on April 30, 1991 is in effect or applies, the Election shall be a one-time, irrevocable Election and shall apply to each and every Retainer during the period such Rule 16b-3 applies to the Plan (or any later period if designated by the Committee), and with respect to any period or Election for which Rule 16b-3 as promulgated in Securities and Exchange Commission Release 34-28869 (including any amendment or successor thereto) applies, the Deferral Election shall be effective only if received on a Notice Date that is at least six months prior to the transaction to which the Election relates and is irrevocable with respect to any Retainer Year that has commenced. (p) "Deferred Retainer" means the amount of the Retainer posted to the Account from time to time based upon the Director's Deferral Election to defer some or all of his or her Retainer. (q) "Director" means each and any director who serves on the Board and who is not an officer or employee of the Company or any of its Affiliates. (r) "Deferred Option" means an Option granted to the Director pursuant to a Deferral Election. (s) "Disability" means a permanent and total disability as determined under procedures established by the Committee for purposes of the Plan. (t) "Disinterested Person" shall have the meaning set forth in Rule 16(b)-(3), or any successor definition adopted by the Commission and shall mean a person who is also an "outside director" under Section 162(m) of the Code. (u) "Early Retirement" means retirement from active employment with the Company or an Affiliate on or after attainment of age 55. (v) "Earnings Factor" means the product of (1) the prime interest rate as of the first business day within the accounting period as established by the Company's principal bank, or such other interest rate as may be designated from time to time by the Committee and (2) a fraction, the numerator of which is the number of full calendar months in the accounting period and the denominator of which is 12. If the accounting period is other than one or more full calendar months, the Committee shall appropriately modify the fraction calculated under the preceding sentence. -3- 4 (w) "Effective Date" means the date specified by the Board at the time the Plan is approved by the Board. (x) "Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time, and any successor thereto. (y) "Fair Market Value" means, except as otherwise provided in this Plan, the mean, as of any given date, between the highest and lowest reported sales prices of the Common Stock on the New York Stock Exchange Composite Tape or, if not listed on such exchange, any other national exchange on which the Common Stock is listed or on NASDAQ. If there is no regular public trading market for such stock, the Fair Market Value of the Common Stock shall be determined by the Committee in good faith. (z) "Investment Election" means an election, on such form as may be required by the Committee, by the Director to direct the method of measuring the investment return of his or her Cash Account. (aa) "Investment Fund" means one or more of the investment alternatives (other than Common Stock) which are available and designated by the Committee, and which are used as a measurement of investment return on Cash Accounts. (bb) "Notice Date" means the date established by the Committee as the deadline for it to receive a Deferral Election or any other notification with respect to an administrative matter in order to be effective under this Plan. (cc) "Normal Retirement" means retirement from active employment with the Company or an Affiliate at or after age sixty-five (65). (dd) "Payment Date" means, with respect to an Account, the first day of the month coincident with or next following the earlier of (1) the date of the Director's Termination of Directorship and (2) the date of a Change in Control. (ee) "Plan" means the Walbro Corporation Equity Based Long Term Incentive Plan, as set forth herein and as hereinafter amended from time to time. (ff) "Restricted Stock" means an award under Section 9. (gg) "Retainer" means the retainer provided to a Director for services rendered as a Director, including attendance at meetings, but not the reimbursement of expenses, in his or her capacity as a Director. (hh) "Retainer Year" means the calendar year. (ii) "Retirement" means Normal or Early Retirement. -4- 5 (jj) "Rule 16b-3" means Rule 16b-3, as promulgated by the Commission under Section 16(b) of the Exchange Act, as amended from time to time. (kk) "Settlement Date" means the date on which financial transactions from a Trade Date are considered to be settled. (ll) "Stock Appreciation Right" means a right granted under Section 8. (mm) "Stock Option" or "Option" means an option granted under Section 6. (nn) "Sweep Date" means the date established by the Committee as the cutoff date and time for the Committee to receive notification with respect to a financial transaction in order to be processed with respect to a Trade Date. (oo) "Termination of Employment" means the termination of the participant's employment with the Company or any Affiliate. A participant employed by an Affiliate of the Company shall also be deemed to incur a termination of employment if the Affiliate ceases to be an Affiliate and the participant does not immediately thereafter become an employee of the Company or another Affiliate. (pp) "Termination of Directorship" means the occurrence of any act or event that actually or effectively causes or results in the person's ceasing, for whatever reason, to be a Director of the Company, including, without limitation, death, Disability, removal, severance at the election of the Director, retirement, failure to be elected or stand for election as a Director, or severance as a result of the discontinuance, liquidation, sale or transfer by the Company or its Affiliates of all businesses owned or operated by the Company or its Affiliates. (qq) "Trade Date" means the date as of which a financial transaction is considered by this Plan to have occurred. (rr) "Trust" means the Walbro Corporation 1994 Director's Stock Incentive Trust. (ss) "Valuation Date" means the dates established by the Committee. In addition, certain other terms used herein have definitions given to them in the first place on which they are used. SECTION 2. Plan Awards. To carry out the purpose of the Plan, the Company and its Subsidiaries will from time to time enter into various arrangements with persons eligible to participate in the Plan and confer various benefits upon them. If their terms and conditions and the benefits conferred by them are not inconsistent with the provisions of the Plan, such arrangements are authorized under the Awards. The authorized categories of benefits for which Awards may be granted, which are -5- 6 more fully described elsewhere in this Plan, are Stock Options, Deferred Options, Stock Appreciation Rights, Restricted Stock and any other benefits granted under the Plan that are not among those listed above, but which (a) by their terms will or might involve the issuance or sale of Common Stock, (b) are measured, in whole or in part, by the value, appreciation, dividend yield or other features attributable to a specified number of shares of Common Stock, or (c) may result in a cash payment. An Award may confer one such benefit or two or more of them in tandem or in the alternative. Subject to the provisions of the Plan, any Award granted pursuant to the Plan shall contain such additional terms and provisions as those administering the Plan for the Company may consider appropriate. Among other things, any such Award may, but need not, also provide for the satisfaction of any applicable tax withholding obligation by the retention of shares to which the grantee would otherwise be entitled or by the grantee's delivery of previously owned shares or other property. SECTION 3. Administration. The Plan shall be administered by the Compensation Committee of the Board or such other committee of the Board, composed of such number of Disinterested Persons as is required for an application of Rule 16b-3, each of whom shall be appointed by and serve at the pleasure of the Board. If at any time no Committee shall be in office, the functions of the Committee specified in the Plan shall be exercised by the members of the Board who are Disinterested Persons. The Committee shall have plenary authority to grant Awards to officers, key employees and Directors of the Company and its Affiliates. Among other things, the Committee shall have the authority, subject to the terms of the Plan: (a) to select the officers and key employees to whom Awards may from time to time be granted; (b) to determine whether and to what extent Stock Options, Deferred Options, Stock Appreciation Rights, Restricted Stock and Deferred Stock or any combination thereof are to be granted hereunder; (c) to determine the number of shares of Common Stock to be covered by each Award granted hereunder; (d) to determine the terms and conditions of any Award granted hereunder (including, but not limited to, the share price, any vesting restriction or limitation and any vesting acceleration or forfeiture waiver regarding any Award and the shares of Common Stock relating thereto, based on such factors as the Committee shall determine); -6- 7 (e) to adjust the terms and conditions, at any time or from time to time, of any Awards, including with respect to performance goals and measurements applicable to performance-based awards pursuant to the terms of the Plan; (f) to determine under what circumstances an Award may be settled in cash or Common Stock under the terms of the Plan; (g) to determine to what extent and under what circumstances Common Stock and other amounts payable with respect to an Award shall be deferred; (h) to establish, maintain and adjust Accounts; (i) to administer Deferral Elections, and to determine whether to permit and administer Investment Elections and Conversion Elections; (j) to establish and determine the Earnings Factor, if any; (k) to establish and determine the Investment Funds, if any, to be applied under the Plan; (l) to direct and implement the payment of Accounts as of the Payment Date; and (m) to interpret and make final determination with respect to the number of shares of common stock remaining available. The Committee shall have the authority to adopt, alter and repeal such administrative rules, guidelines and practices governing the Plan as it shall, from time to time, deem advisable, to interpret the terms and provisions of the Plan and any Award issued under the Plan (and any agreement relating thereto) and to otherwise supervise the administration of the Plan. The Committee may act only by a majority of its members then in office, except that the members thereof may authorize any one (1) or more of their number or any officer of the Company to execute and deliver documents on behalf of the Committee. Any determination made by the Committee pursuant to the provisions of the Plan with respect to any Award shall be made in its sole discretion at the time of the grant of the Award or, unless in contravention of any express term of the Plan, at any time thereafter. All decisions made by the Committee pursuant to the provisions shall be final and binding on all persons, including the Company and the Plan participants. SECTION 4. Common Stock Subject to the Plan. The total number of shares of Common Stock reserved and available for distribution pursuant to Awards under the Plan shall be equal to ten percent (10%) of the number of shares of Common Stock outstanding on the date the amendment and restatement of the Plan is -7- 8 approved by the Stockholders of the Company. Such shares may consist, in whole or in part, of authorized and unissued shares or treasury shares. Subject to Section 8(b)(iv), if any shares of Stock that have been optioned cease to be subject to a Stock Option, if any shares of Stock that are subject to any Award are forfeited, if any Award otherwise terminates without a payment being made to the participant in the form of Stock or if any shares of Common Stock that were previously issued under the Plan are received in connection with the exercise of an Award, such shares shall again be available for distribution in connection with Awards under the Plan. In the event of any merger, reorganization, consolidation, recapitalization, spin-off, stock dividend, stock split, extraordinary distribution with respect to the Common Stock or other similar change in corporate structure affecting the Common Stock, such substitution or adjustments shall be made in the aggregate number of shares reserved for issuance under the Plan, in the number and Option price of shares subject to outstanding Stock Options and Stock Appreciation Rights, and in the number of shares subject to other outstanding Awards granted under the Plan as may be determined to be appropriate by the Board, in its sole discretion; provided, however, that the number of shares subject to any Award shall always be a whole number. Such adjusted Option price shall also be used to determine the amount payable by the Company upon the exercise of any Stock Appreciation Right associated with any Stock Option. SECTION 5. Eligibility. Officers and key employees of the Company and its Affiliates (but excluding members of the Committee) who are responsible for or contribute to the management, growth and profitability of the business of the Company and its Affiliates are eligible to be granted Awards under the Plan. Each Director shall be eligible to be granted Stock Options to purchase shares of Common Stock in accordance with Section 7 and shall be eligible to make a Deferral Election as provided in the Plan. The Committee may designate any person as not eligible to participate in the Plan even if such person would be otherwise eligible to participate in the Plan, and members of the Committee are not eligible to participate to the extent inconsistent with such persons intended status as a Disinterested Person. SECTION 6. Stock Options. (a) Administration. Stock Options may be granted either alone or in addition to other Awards granted under the Plan. The Committee shall determine the officers and key employees to whom, and the time or times at which grants of Stock Options will be made, the number of shares of Common Stock with respect to which Stock Options will be granted, the time or times within which such Stock Options will be subject to forfeiture, and any other terms and conditions of the Stock Options, in addition to those contained in Section 6(c). Any Stock Option granted under the Plan shall be in such form as the Committee may from time to time approve and the Committee shall have the authority to grant any optionee Stock Options. However, no Stock Options within the meaning of Section 422 of the Code may be granted under the Plan, and no Stock Option shall be granted under this Section 6 to a Director. During any three-calendar-year period, Stock Options for no more than 150,000 shares of Common Stock shall be granted to any person. -8- 9 (b) Option Agreements. Stock Options shall be evidenced by Option agreements, the terms and provisions of which need not be the same with respect to each such Optionee. The grant of a Stock Option shall occur on the date the Committee by resolution selects an individual as a participant in any grant of Stock Options, determines the number of shares of Common Stock to be subject to such Stock Option to be granted to such individual and specifies the terms and provisions of the Option agreement. The Company shall notify a participant of any grant of a Stock Option, and a written Option agreement or agreements shall be duly executed and delivered by the Company to the participant. Such agreement or agreements shall become effective upon execution by the participant. (c) Terms and Conditions. Options granted under the Plan shall be subject to the following terms and conditions and the relevant Option agreements shall contain such additional terms and conditions as the Committee shall deem desirable: (i) Option Price. The Option price per share of Common Stock purchasable under a Stock Option shall be set forth in the Option agreement and shall be equal to the Fair Market Value of the Common Stock subject to the Stock Option on the date of grant. (ii) Option Term. The term of each Stock Option shall be fixed by the Committee, but no Stock Option shall be exercisable more than the ten (10) years and one (1) day after the date the Stock Option was granted. (iii) Exercisability. Subject to Section 6(c)(i) and 15(a)(i), Stock Options shall be exercisable at such time or times and subject to such terms and conditions as shall be determined by the Committee. If the Committee provides that any Stock Option is exercisable only in installments, the Committee may at any time waive such installment exercise provisions, in whole or in part, based on such factors as the Committee may determine. In addition, the Committee may at any time accelerate the exercisability of any Stock Option. (d) Method of Exercise. Subject to the provisions of this Section 6, Stock Options may be exercised, in whole or in part, at any time during the option period by giving written notice of exercise to the Company specifying the number of shares of Common Stock subject to the Stock Option to be purchased. Such notice shall be accompanied by payment in full of the purchase price by certified or bank check or such other instrument as the Company may accept. If approved by the Committee, payment in full or in part may also be made (i) by delivering Common Stock already owned by the optionee having a total Fair Market Value on the date of such delivery equal to the Option price; (ii) by authorizing the Company to retain shares of Common Stock which would otherwise be issuable upon exercise of the Option having a total Fair Market Value as of the date of delivery equal to the Option price; (iii) by delivery of cash or the extension of credit by a broker-dealer to whom the optionee has submitted a notice of exercise (in accordance -9- 10 with Part 220, Chapter II, Title 12 of the Code of Federal Regulations, so-called "cashless" exercise); or (iv) any combination of the foregoing. If payment of the option exercise price of a Non-Qualified Stock Option is made in whole or in part in the form of Restricted Stock or Deferred Stock, the number of shares of Stock to be received upon such exercise equal to the number of shares of Restricted Stock or Deferred Stock used for payment of the option exercise price shall be subject to the same forfeiture restrictions or deferral limitations to which such Restricted Stock or Deferred Stock was subject, unless otherwise determined by the Committee. No shares of Common Stock shall be issued until full payment therefor has been made. Subject to any forfeiture restrictions or deferral limitations that may apply if a Stock Option is exercised using Restricted Stock or Deferred Stock, an optionee shall have all of the rights of a stockholder of the Company holding the class or series of Common Stock that is subject to such Stock Option (including, if applicable, the right to vote the shares and the right to receive dividends), when the optionee has given written notice of exercise, has paid in full for such shares, has given, if requested, the representation described in Section 18(a) and such shares have been recorded on the Company's official stockholder records as having been issued or transferred. No adjustment shall be made for cash dividends or other rights for which the record date is prior to the date such shares are recorded on the Company's official stockholder records as having been issued or transferred, except as provided in Section 4. (e) Non-transferability of Options. Except as provided in an Option agreement, no Stock Option shall be transferable by the optionee other than by will or by the laws of descent and distribution, and all Stock Options shall be exercisable, during the optionee's lifetime, only by the optionee or by the guardian or legal representative of the optionee. Notwithstanding the foregoing, if and to extent transferability is permitted and exempt under Rule 16b-3 and except as otherwise provided in an Agreement, every Stock Option shall be freely transferable. The terms "holder" and "optionee" include the guardian and legal representative of the optionee named in the Option agreement and any person to whom an Option is transferred. (f) Effect of Termination of Employment on Option. (i) By Reason of Death. If an optionee's employment terminates by reason of death, any Stock Option held by such optionee may thereafter be exercised, to the extent then exercisable or on such accelerated basis as the Committee may determine, for a period of five (5) years (or such other period as the Committee may specify in the relevant Option agreement) from the date of such death or until the expiration of the stated term of such Stock Option, whichever period is the shorter. (ii) By Reason of Disability. If an optionee's employment terminates by reason of Disability, any Stock Option held by such optionee may thereafter be exercised by the optionee, to the extent then exercisable or on such accelerated basis as the Committee may determine, for a period of six (6) years (or such other period as the Committee may specify in the relevant Option agreement) from the date of such Disability or until the expiration of the stated term of such Stock Option, whichever period is shorter; provided, however, that if the optionee dies within such six (6) year period (or such shorter -10- 11 period), an unexercised Stock Option held by such optionee shall, notwithstanding the expiration of such six (6) year (or shorter) period, continue to be exercisable to the extent to which it was exercisable at the time of death for a period of twelve (12) months from the date of such death or until the expiration of the stated terms of such Stock Option, or whichever period is the shorter. (iii) By Reason of Retirement. If an optionee's employment terminates by reason of Retirement, any Stock Option held by such optionee may thereafter be exercised by the optionee, to the extent it was exercisable at the time of such Retirement or on such accelerated basis as the Committee may determine, for a period of six (6) years (or such shorter period as the Committee may specify in the relevant Option agreement) from the date of such termination of employment or until the expiration of the stated term of such Stock Option, whichever period is the shorter; provided, however, that if the optionee dies within such six (6) year (or such shorter) period any unexercised Stock Option held by such optionee shall, notwithstanding the expiration of such six (6) year (or such shorter) period, continue to exercisable to the extent to which it was exercisable at the time of death for a period of twelve (12) months from the date of such death or until the expiration of the stated term of such Stock Option, whichever period is the shorter. (iv) Other Termination. Unless otherwise determined by the Committee and set forth in the relevant Option agreement, if an optionee incurs a Termination of Employment for any reason other than death, Disability or Retirement, any Stock Option held by such Optionee shall thereupon terminate, except that such Stock Option, to the extent then exercisable, may be exercised for the lesser of three (3) months from the date of such Termination of Employment or the balance of such Stock Option's term if such Termination of Employment of the optionee is involuntary and without Cause. Notwithstanding the foregoing, if an optionee incurs a Termination of Employment at or after a Change in Control, other than by reason of death, Disability or Retirement, any Stock Option held by such optionee shall be exercisable for the lesser of (x) six (6) months and one (1) day from the date of such Termination of Employment, and (y) the balance of such Stock Option's term. (g) Cashing Out of Option; Settlement of Spread Value in Stock. On receipt of written notice of exercise, the Committee may elect to cash out all or part of the portion of any Stock Option to be exercised by paying the optionee an amount in cash or Common Stock, equal to the excess of the Fair Market Value of the Common Stock that is the subject of the Option over the Option price times the number of shares of Common Stock subject to the Option on the effective date of such cash out. Cash outs relating to Options held by optionees who are actually or potentially subject to Section 16(b) of the Exchange Act shall comply with the "window period" provisions of Rule 16b-3, to the extent applicable, and the Committee may determine Fair Market Value based on the highest mean sales price of the Common Stock on any exchange on which the Common Stock is listed (or NASDAQ) on any day during such "window period" under the pricing rules set forth in Section 8(b)(ii)(2). (h) Change in Control. Notwithstanding any other provision of the Plan, upon a Change in Control, in the case of Stock Options other than Stock Options held by an officer or -11- 12 director of the Company (within the meaning of Section 16 of the Exchange Act) which were granted less than six (6) months prior to the Change in Control (which will be governed by the proviso to this sentence) during the sixty (60) day period from and after a Change in Control (the "Exercise Period"), unless the Committee shall determine otherwise at the time of grant, an optionee shall have the right, whether or not the Stock Option is fully exercisable, in lieu of the payment of the exercise price of the shares of Common Stock being purchased under the Stock Option and by giving notice to the Company, to elect (within the Exercise Period) to surrender all or part of the Stock Option to the Company and to receive cash, within thirty (30) days of such notice, in an amount equal to the amount by which the Change in Control Price per share of Common Stock on the date of such election shall exceed the exercise price per share of the Common Stock under the Stock Option (the "Aggregate Spread") multiplied by the number of shares of Common Stock granted under the Stock Option as to which the right granted under this Section 6 shall have been exercised; provided, however, that if the end of such sixty (60) day period from and after a Change in Control is within six (6) months of the date of grant of a Stock Option held by an optionee who is an officer or director of the Company (within the meaning of Section 16(b) of the Exchange Act), such Stock Option shall be cancelled in exchange for a cash payment to the optionee at the time of optionee's termination of employment equal to the Aggregate Spread multiplied by the number of shares of common Stock granted under said Stock Option, plus interest on such amount at the prime rate as reported in the Wall Street Journal, compounded annually and determined from time to time. SECTION 7. Director Option Grants. (a) Eligibility. Each Director shall be eligible to be granted Stock Options or Deferred Options to purchase shares of Common Stock as provided in this Section. (b) Grant and Exercise. Each Director who is a Director on June 20, 1994 shall be granted a Stock Option on such date to purchase 10,000 shares of Common Stock without further action by the Board of Directors or the Committee. Each Director whose initial term as a member of the Board commences after June 20, 1994 shall be granted a Stock Option (other than a Deferred Option) on the Director Grant Date to purchase 10,000 shares of Common Stock without further action by the Board of Directors or the Committee. A Director shall be granted Deferred Options if elected by the Director in a Deferral Election on the Director Grant Date applicable to that Election. The number of Deferred Options to be granted for any Retainer Year shall equal the quotient obtained by dividing the amount of the Deferred Retainer by 75% of the Fair Market Value per share of the Common Stock on the relevant date. If the number of shares of Common Stock available to grant under the Plan on a scheduled date of grant is insufficient to make all automatic grants required to be made pursuant to the Plan on such date, then each eligible Director shall receive an Option to purchase a pro rata number of the remaining shares of Common Stock available under the Plan; provided further, however, that if such proration results in fractional shares of Common Stock, then such Option shall be rounded down to the nearest number of whole shares of Common Stock. The Option price of all Deferred Options shall be 25% of the Fair Market Value per share on the Director's Grant Date. -12- 13 (c) Terms and Conditions. Options shall be subject to such terms and conditions as shall be determined by the Committee and unless otherwise provided in an Agreement shall include the following: (d) Option Period. The Option Period of each Option shall be ten (10) years. (e) Exercisability. Subject to Section 15(a), Options shall be exercisable upon the earliest of the date of the Director's death or Disability and the date that is the six-month anniversary of the Director's Grant Date. If the Committee provides that any Option is exercisable only in installments, the Committee may at any time waive such installment exercise provisions, in whole or in part. In addition, the Committee may at any time accelerate the exercisability of any Option. An Award, including any Options not yet exercised and the value of the Account not yet distributed shall be forfeited if the Director incurs a Termination of Directorship due to Cause. (f) Method of Exercise. A Director desiring to exercise an Option, in whole or in part, at any time during the Option period must give written notice of exercise on a form provided by the Committee (if available) to the Company specifying the number of shares of Common Stock subject to the Option to be purchased. Such notice shall be accompanied by payment in full of the purchase price by cash or check or such other form of payment as the Company may accept. If approved by the Committee, payment in full or in part may also be made (i) by delivering Common Stock already owned by the Director having a total Fair Market Value on the date of such delivery equal to the Option price; (ii) by authorizing the Company to retain shares of Common Stock which would otherwise be issuable upon exercise of the Option having a total Fair Market Value on the date of delivery equal to the Option price; (iii) by the delivery of cash or the extension of credit by a broker-dealer to whom the Director has submitted a notice of exercise (in accordance with Part 220, Chapter II, Title 12 of the Code of Federal Regulations, so-called "cashless" exercise); or (iv) by any combination of the foregoing. No shares of Common Stock shall be issued until full payment therefor has been made. (g) Non-transferability of Options. Except as provided in an Option agreement, no Stock Option shall be transferable by the optionee other than by will or by the laws of descent and distribution, and all Stock Options shall be exercisable, during the optionee's lifetime, only by the optionee or by the guardian or legal representative of the optionee. Notwithstanding the foregoing, if and to extent transferability is permitted and exempt under Rule 16b-3 and except as otherwise provided in an agreement, every Stock Option shall be freely transferable. The terms "holder" and "optionee" include the guardian and legal representative of the optionee named in the Option agreement and any person to whom an Option is transferred. (h) Application of Other Sections. Section 6(g) and 6(h) shall apply to Options granted to Director under this Section 7, to the extent permitted by applicable law. SECTION 8. Stock Appreciation Rights. (a) Grant and Exercise. Stock Appreciation Rights may be granted in conjunction with all or part of any Stock Option (other than a Stock Option granted to a Director) granted under the Plan. Such rights may be granted either at or after the time of grant of such Stock -13- 14 Option, but may not be granted to a Director. A Stock Appreciation Right shall terminate and no longer be exercisable upon the termination or exercise of the related Stock Option. A Stock Appreciation Right may be exercised by an optionee in accordance with Section 6(b) by surrendering the applicable portion of the related Stock Option in accordance with procedures established by the Committee. Upon such exercise and surrender, the optionee shall be entitled to receive an amount determined in the manner prescribed in Section 8(b). Stock Options which have been so surrendered shall no longer be exercisable to the extent the related Stock Appreciation Rights have been exercised. During any three-calendar-year period, Stock Appreciation Rights for no more than 150,000 Stock Appreciation Rights shall be granted to any person. (b) Terms and Conditions. Stock Appreciation Rights shall be subject to such terms and conditions as shall be determined by the Committee, including the following: (i) Stock Appreciation Rights shall be exercisable only at such time or times and to the extent that the Stock Options to which they relate are exercisable in accordance with the provisions of Section 6 and this Section 8; provided, however, that a Stock Appreciation Right shall not be exercisable during the first six months of its term by an optionee who is actually or potentially subject to Section 16(b) of the Exchange Act, except that this limitation shall not apply in the event of death or Disability of the optionee prior to the expiration of the six month period. (ii) Upon the exercise of a Stock Appreciation Right, an optionee shall be entitled to receive an amount in cash, shares of Common Stock or both equal in value to the excess of the Fair Market Value of one share of Common Stock over the Option price per share specified in the related Stock Option multiplied by the number of shares in respect of which the Stock Appreciation Right shall have been exercised, with the Committee having the right to determine the form of payment. In the case of Stock Appreciation Rights relating to Stock Options held by optionees who are actually or potentially subject to Section 16(b) of the Exchange Act, the Committee: (1) may require that such Stock Appreciation Rights be exercised only in accordance with the applicable "window period" provisions of Rule 16b-3; and (2) may provide that the amount to be paid upon exercise of such Stock Appreciation Rights during a rule 16b-3 "window period" shall be based on the highest mean sales price of the Stock on the New York Stock Exchange on any day during such "window period". (iii) Stock Appreciation Rights shall be transferable only when and to the extent that the underlying Stock Option would be transferable under Section 6(e). (iv) To the extent required by Rule 16b-3, upon the exercise of a Stock Appreciation Right, the Stock Option or part thereof to which such Stock Appreciation Right is related shall be deemed to have been exercised for the purpose of the limitation set forth in Section 4 on the number of shares of Stock to be issued under the Plan, but -14- 15 only to the extent of the number of shares covered by the Stock Appreciation Right at the time of exercise based on the value of the Stock Appreciation Right at such time. SECTION 9. Restricted Stock. (a) Administration. Shares of Restricted Stock may be awarded either alone or in addition to other awards granted under the Plan, but may not be awarded to a Director. The Committee shall determine the officers and key employees to whom and the time or times at which grants of Restricted Stock will be awarded, the number of shares to be awarded to any participant, the time or times within which such Awards may be subject to forfeiture and any other terms and conditions of the Awards, in addition to those contained in Section 9(c). The Committee may condition the grant of Restricted Stock upon the attainment of specified performance goals of the participant or of the Company or subsidiary, division or department of the Company for or within which the participant is primarily employed or such other factors or criteria as the Committee shall determine. The provisions of Restricted Stock Awards need not be the same with respect to each recipient. (b) Awards and Certificates. Each participant receiving an Award of Restricted Stock shall be issued a certificate in respect of such shares of Restricted Stock. Such certificate shall be registered in the name of such participant and shall bear an appropriate legend referring to the terms, conditions, and restrictions applicable to such Award, substantially in the following form: "The transferability of this certificate and shares of stock represented hereby are subject to the terms and conditions (including forfeiture) of the Walbro Corporation Equity Based Long Term Incentive Plan and a Restricted Stock Agreement. Copies of such Plan and Agreement are on file at the offices of Walbro Corporation, 6242 Garfield Street, Cass City, Michigan 48726." The Committee may require that the certificates evidencing such shares be held in custody by the Company until the restrictions thereon shall have lapsed and that, as a condition of any Award of Restricted Stock, the participant shall have delivered a stock power, endorsed in blank, relating to the stock covered by such award. (c) Terms and Conditions. Shares of Restricted Stock shall be subject to the following terms and conditions: (i) Restrictions. Subject to the provisions of the Plan and the Restricted Stock Agreement referred to in Section 9(c)(vi), during a period set by the Committee, commencing with the date of such Award (the "Restriction Period"), the participant shall not be permitted to sell, assign, transfer, pledge or otherwise encumber shares of Restricted Stock. Within these limits, the Committee may provide for the lapse of such restrictions in installments and may accelerate or waive such restrictions, in whole or in part, based on service, performance of the participant or of the Company or the subsidiary, division or department for which the participant is employed or such other factors or criteria as the Committee may determine. -15- 16 (ii) Rights as Shareholder. Except as provided in this paragraph (ii) and Section 9(c)(i), the participant shall have, with respect to the shares of Restricted Stock, all of the rights of a stockholder of the Company holding the class or series of Stock that is the subject of the Restricted Stock, including, if applicable, the right to vote the shares and the right to receive any cash dividends. Unless otherwise determined by the Committee and subject to Section 18(f) of the Plan, (i) cash dividends on the class or series of Common Stock that is the subject of the Restricted Stock shall be automatically deferred and reinvested in additional Restricted Stock, and (ii) non-cash dividends on the class or series of Common Stock that is the subject of the Restricted Stock payable in Common Stock shall be paid in the form of Restricted Stock of the same class as the Common Stock on which such dividend was paid. (iii) Forfeiture of Restricted Stock. Except to the extent otherwise provided in the applicable Restricted Stock Agreement (referred to in Section 9(c)(vi)) and Sections 9(c)(i), 9(c)(iv) and 15(a)(ii), upon a participant's Termination of Employment for any reason during the Restriction Period, all shares still subject to restriction shall be forfeited by the participant. (iv) Waiver of Restrictions. In the event of hardship or other special circumstances of a participant whose employment is involuntarily terminated (other than for Cause), the Committee shall have the discretion to waive in whole or in part any or all remaining restrictions with respect to such participant's shares of Restricted Stock. (v) Expiration of Restriction Period. If and when the Restriction Period expires without a prior forfeiture of the Restricted Stock subject to such Restriction Period, unlegended certificates for such shares shall be delivered to the participant. (vi) Each Award shall be confirmed by, and be subject to the terms of, a Restricted Stock Agreement. SECTION 10. Deferred Stock. (a) Administration. Deferred Stock may be awarded either alone or in addition to other Awards granted under the Plan. The Committee shall determine the officers and key employees to whom and the time or times at which Deferred Stock shall be awarded, the number of shares of Deferred Stock to be awarded to any participant, the duration of the period (the "Deferral Period") during which, and the conditions under which, receipt of the Common Stock will be deferred and any other terms and conditions of the Award, in addition to those contained in Section 10(b). Directors shall not be awarded Deferred Stock. The Committee may condition the grant of Deferred Stock upon the attainment of specified performance goals of the participant or of the Company or subsidiary, division or department of the Company for or within which the participant is primarily employed or upon such other factors or criteria the Committee shall determine. The provisions of Deferred Stock Awards need not be the same with respect to each recipient. -16- 17 (b) Terms and Conditions. Deferred Stock Awards shall be subject to the following terms and conditions: (i) Subject to the provisions of the Plan and the Deferred Stock Agreement referred to in Section 10(b)(vii), Deferred Stock Awards may not be sold, assigned, transferred, pledged or otherwise encumbered during the Deferral Period. At the expiration of the Deferral Period (or Elective Deferral Period as defined in Section 10(b)(vi), where applicable), the Committee my elect to deliver (1) Stock or (2) cash equal to the Fair Market Value of such Stock to the participant for the shares covered by the Deferred Stock Award. (ii) Unless otherwise determined by the Committee and subject to Section 18(f) of the Plan, amounts equal to any dividends declared during the Deferral Period on the class or series of Stock covered by the Deferred Stock Award, with respect to the number of shares covered by a Deferred Stock Award, will be awarded, automatically deferred and deemed to be reinvested in additional Deferred Stock. (iii) Except to the extent otherwise provided in the applicable Deferred Stock Agreement and Sections (10)(b)(iv), 10(b)(v) and 15(a)(ii), upon a participant's Termination of Employment for any reason during the Deferral Period, the rights to shares still covered by the Deferred Stock Award shall be forfeited by the participant. (iv) Based on service, performance of the participant or of the Company or the subsidiary, division or department for which the participant is employed or such other factors or criteria as the Committee may determine, the Committee may provide for the lapse of deferral limitations in installments and may accelerate the vesting of all or any part of any Deferred Stock Award and waive the deferral limitations for all or any part of such Award. (v) Except to the extent otherwise provided in Section 15(a)(ii), in the event that a participant's employment is involuntarily terminated (other than for Cause), the Committee shall have the discretion to waive in whole or in part any or all remaining deferral limitations with respect to any or all of such participant's Deferred Stock. (vi) A participant may elect to further defer receipt of the Deferred Stock payable under an Award (or an installment of an Award) for a specified period or until a specified event, subject in each case to the Committee's approval and to such terms as are determined by the Committee. Subject to any exceptions adopted by the Committee, such election must generally be made at least 12 months prior to completion of the Deferral Period for the Award (or for such installment of an Award). (vii) Each Award shall be confirmed by, and be subject to the terms of a Deferred Stock Agreement. SECTION 11. Director Deferrals (a) Deferred Retainer -17- 18 A Director who desires to have a Deferred Retainer credited to an Account on his or her behalf shall file a Deferral Election pursuant to the procedures of the Committee specifying and authorizing an amount or percentage of his or her Retainer otherwise payable to be reduced and to be (1) posted to the Cash Account; or (2) posted to the Stock Account; or (3) replaced by Deferred Options; or (4) a combination of any of the foregoing. If a Director's Deferral Election is, in whole or in part, the election to receive a Deferred Option, the terms and conditions regarding such Deferred Option shall be determined under Section 7 and unless otherwise specified shall be the same as any other Stock Options granted to Directors under the Plan. A Director who does not elect a Deferred Retainer shall be deemed to have made an Election to receive all the Retainer on a current basis. (b) Election Procedures. If properly executed and received by the Committee, a Deferral Election shall be effective only with respect to a Retainer paid in a Retainer Year to which the Deferral Election applies and only with respect to a Retainer paid after the Notice Date for the Deferral Election. Consistent with the above, the Committee may establish rules and procedures governing when a Deferral Election will be effective and what Retainer will be deferred by the Deferral Election; provided such rules and procedures are not more permissive than the terms and provisions of this Plan. (c) Posting. For each Retainer Year for which a Deferral Election is in effect, the Company shall (1) post to the Cash Account the amount reflected in the Deferral Election to be so posted; (2) post to the Stock Account the number of shares of Common Stock equal to the amount of the Deferred Retainer to be posted to the Stock Account divided by the Fair Market Value per share of the Common Stock on the posting date; (3) distribute to the Participant Deferred Options; or (4) a combination of the foregoing. (d) Fully Vested Deferral Accounts. A Director shall be fully vested and have a nonforfeitable right to his or her Account at all times. -18- 19 (e) Distribution. A Director shall receive the value of the Account in cash in a single sum on the Payment Date (in the case of a Payment Date other than due to the death of the Director). (f) Payment to a Representative. Upon the death of a Director, the balance in his or her Accounts shall be paid to the Director's beneficiary in a single sum as soon as administratively possible after the Director's Payment Date (which is due to the death of the Director). SECTION 12. Accounting for Directors' Accounts and for Investment Funds. (a) Individual Accounting. (1) Account Maintenance. The Committee shall cause the Accounts for each Director to reflect transactions involving amounts posted to the Accounts and the measurement of investment returns on Accounts in accordance with this Plan. Investment returns during or with respect to an accounting period shall be accounted for at the individual account level by "posting" such returns to each of the appropriate Accounts of each affected Director. Account values shall be maintained in shares, units or dollars. Cash dividends credited to the Director's Stock Account shall be deemed to be invested in additional shares of Common Stock. (2) Trade Date Accounting and Investment Cycle. For any financial transaction involving a change in the measurement of investment returns, or distributions to be processed as of a Trade Date, the Committee must receive instructions by the Sweep Date and such instructions shall apply only to amounts posted to the Accounts as of the Trade Date. Such financial transactions in an Investment Fund shall be posted to a Director's Accounts as of the Trade Date and based upon the Trade Date values. All such transactions shall be effected on the Settlement Date (or as soon as is administratively feasible) relating to the Trade Date as of which the transaction occurs. (3) Suspension of Transactions. Whenever the Committee considers such action to be appropriate, the Committee, in its discretion, may suspend from time to time the Trade Date. (4) Error Correction. The Committee may correct any errors or omissions in the administration of this Plan by restoring or charging any Account with the amount that would be credited or charged to the Account had no error or omission been made. (b) Accounting for Investment Funds. The investment returns of each Investment Fund shall be tracked in the manner directed by the Committee. Investment income, earnings, and losses charged against the Accounts shall be based solely upon the actual performance of each of the Investment Funds for the period of time all or some portion of each of the Accounts has been designated to use such Investment Fund as a measurement of investment returns. -19- 20 SECTION 13. Investment Funds and Elections (a) General. The Committee may provide in its sole discretion for the application of Investment Funds under the Plan. If so, a separate Investment Election and Conversion Election must be made with respect to the Deferred Retainer and Accounts; provided however, if no Investment Election or Conversion Election is received from a Director, such Director will be deemed to have submitted a Conversion Election with respect to his or her Accounts, which designates that such Account will have its investment returns measured by the Earnings Factor. If Investment Funds are not applied by the Committee, investment returns shall be measured by the Earning Factor. (b) Investment of Deferred Retainer. (1) Investment Election. Subject to Section 13(a), each Director may, by submission to the Committee of a completed Investment Election form provided for that purpose by the Committee, request the Committee to use a measurement of investment returns for Deferred Retainers posted to his or her Cash Account in one or more Investment Funds. (2) Effective Date of Investment Election; Change of Investment Election. A Director's initial Investment Election will be effective with respect to a Fund on the Trade Date which relates to the Sweep Date on which or prior to which the Investment Election is received pursuant to procedures specified by the Committee. Any Investment Election which has not been properly completed will be deemed not to have been received. A Director's Investment Election will continue in effect notwithstanding any change in the Retainer until the effective date of a new Investment Election. A change in Investment Election shall be effective with respect to a Fund on the Trade Date which relates to the Sweep Date on which or prior to which the Committee receives the Director's new Investment Election. (c) Investment of Cash Accounts. (1) Conversion Election. Notwithstanding a Director's Investment Election, if the Committee permits the application of Investment Funds, a Director may request the Committee, by submission of a completed Conversion Election provided for that purpose to the Committee, to change the measurement of investment returns of his or her Cash Account. (2) Effective Date of Conversion Election. A Conversion Election to change a Participant's measurement of investment returns of his or her Cash Accounts in one Investment Fund to another Investment Fund shall be effective with respect to such Investment Funds on and after the Trade Date which relates to the Sweep Date on which or prior to which the Conversion Election is received pursuant to procedures specified by the Committee. Notwithstanding the foregoing, to the extent required by any provisions of an Investment Fund, the effective date of any Conversion Election may be delayed or the amount of any permissible Conversion -20- 21 Election may be reduced. Any Investment Election which has not been properly completed will be deemed not to have been received. SECTION 14. FUNDING. (a) Satisfaction of Obligation. The Company's obligation to a Director with respect to an Account shall be satisfied by payments made to the Director from the Trust or from the Company in its sole discretion. (b) Trust. The Company may establish the Trust on or about the date this Agreement is adopted. The Trust may be revocable or irrevocable. (c) Letter of Credit. Within thirty (30) days of the Effective Date, the Company may place in the Trust a standing letter of credit for an amount sufficient to pay estimated accruals under this Agreement. Within the first thirty (30) days of commencement of each Fiscal Year, the Company may adjust the amount of the letter of credit to equal the sum of all Directors' Accounts as of the last Valuation Date in the prior fiscal year of the Company plus a good faith estimate of accruals for the current fiscal year. The letter of credit may be irrevocable. (d) Notice to Trustee. If a payment required under the terms of this Agreement has not been made to a Director or Representative, the Director or Representative must notify the Trustee in writing of the amount owed to him pursuant to this Agreement and the date such amount was due and payable. SECTION 15. Change in Control Provisions. (a) Impact of Event. Notwithstanding any other provision of the Plan to the contrary, in the event of a Change in Control (as defined in Section 15(b)): (i) Any Stock Appreciation Rights, Stock Options and Deferred Stock Options outstanding as of the date such Change in Control is determined to have occurred and not then exercisable and vested shall become fully exercisable and vested in the full extent of the original grant; provided, however, that, in the case of the holder of Stock Appreciation Rights who is actually subject to Section 16(b) of the Exchange Act, such Stock Appreciation Rights shall have been outstanding for at least six months at the date such Change in Control is determined to have occurred. (ii) The restrictions and deferral limitations applicable to any Restricted Stock and Deferred Stock shall lapse, and such Restricted Stock and Deferred Stock shall become free of all restrictions and become fully vested and transferable to the full extent of the original grant. (b) Definition of Change in Control. For purposes of the Plan, a "Change in Control" shall mean the happening of any of the following events: -21- 22 (i) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of thirty percent (30%) or more of either (1) the then outstanding shares of Common Stock of the Company or (2) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors; provided, however, that the following acquisitions shall not constitute a Change in Control: (1) any acquisition directly from the Company; (2) any acquisition by the Company; (3) any acquisition by a Person including the participant or with whom or with which the participant is affiliated; (4) any acquisition by a Person or Persons one or more of which is a member of the Board or an officer of the Company or an affiliate of any of the foregoing on the Effective Date, (5) any acquisition by any employee benefit Plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company; or (6) any acquisition by any corporation pursuant to a transaction described in clauses (A), (B) and (C) of paragraph (iii) of this Section 15(b); or (ii) During any period of twenty-four (24) consecutive months, individuals who, as of the beginning of such period, constituted the entire Board cease for any reason to constitute at least a majority of the Board, unless the election, or nomination for election, by the Company's stockholders, of each new director was approved by a vote of at least two-thirds (2/3) of the Continuing Directors, as hereinafter defined, in office on the date of such election or nomination for election for the new director. For purposes hereof, "Continuing Director" shall mean: (a) any member of the Board at the close of business on the Effective Date; or (b) any member of the Board who succeeded any Continuing Director described in clause (1) above if such successor's election, or nomination for election, by the Company's stockholders, was approved by a vote of at least two-thirds (2/3) of the Continuing Directors then still in office. The term "Continuing Director" shall not, however, include any individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such term is used in Rule 14a-11 of Regulation 14A of the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a person other than the Board. (iii) Approval by the stockholders of the Company of a reorganization, merger or consolidation, in each case, unless following such reorganization, merger or consolidation, (A) more than 60% of the then outstanding securities having the right to vote in the election of directors of the corporation resulting from such reorganization, merger or consolidation is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who where the beneficial owners of the outstanding securities having the right to vote in the election of directors of the Company immediately prior to such reorganization, merger or consolidation, (B) no Person (excluding the Company, any employee benefit Plan (or related trust) of the Company or such corporation resulting from such reorganization, merger or consolidation and any -22- 23 Person beneficially owning, immediately prior to such reorganization, merger or consolidation, directly or indirectly, 30% or more of the then outstanding securities having the right to vote in the election of directors of the Company) beneficially owns, directly or indirectly, 30% or more of the then outstanding securities having the right to vote in the election of the corporation resulting from such reorganization, merger or consolidation, and (C) at least a majority of the members of the board of directors of the corporation resulting from such reorganization, merger are Continuing Directors at the time of the execution of the initial agreement providing for such reorganization, merger or consolidation; or (iv) Approval by the stockholders of the Company of (A) complete liquidation or dissolution of the Company or (B) the sale or other disposition of all or substantially all of the assets of the Company, other than to a corporation, with respect to which following such sale or other disposition, (1) more than 60% of the then outstanding securities having the right to vote in the election of directors of such corporation is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners of the outstanding securities having the right to vote in the election of directors of the Company immediately prior to such sale or other disposition of such outstanding securities, (2) no Person (excluding the Company and any employee benefit Plan (or related trust) of the Company or such corporation and any Person beneficially owning, immediately prior to such sale or other disposition, directly or indirectly, 30% or more of the outstanding securities having the right to vote in the election of directors of the Company) beneficially owns, directly or indirectly, 30% or more of the then outstanding securities having the right to vote in the election of directors of such corporation and (3) at least a majority of the members of the board of directors of such corporation are Continuing Directors at the time of the execution of the initial agreement or action of the Board providing for such sale or other disposition assets of the Company. (c) Change in Control Price. For purposes of the Plan, "Change in Control Price" means the highest price per share (i) paid in any transaction reported on the New York Stock Exchange Composite or other national exchange on which such shares are listed or on NASDAQ, or (ii) paid or offered in any bona fide transaction related to a potential or actual Change in Control of the Company at any time during the preceding sixty (60) day period as determined by the Committee. SECTION 16. Amendments and Termination. The Board may amend, alter, or discontinue the Plan, but no amendment, alteration or discontinuation shall be made which would (i) impair the rights of an optionee under a Stock Option or a Deferred Option or a recipient of a Stock Appreciation Right, Restricted Stock Award and Deferred Stock Award theretofore granted without the optionee's or recipient's consent, except such an amendment made to cause the Plan to qualify for the exemption provided by Rule 16b-3 or (ii) disqualify the Plan from the exemption provided by Rule 16b-3. In addition, no such amendment shall be made without the approval of the Company's stockholders to the extent such approval is required by law, agreement or the rules of any exchange upon which the Common Stock is listed or NASDAQ. -23- 24 The Committee may amend the terms of any Award theretofore granted, prospectively or retroactively, but no such amendment shall impair the rights of any holder without the holder's consent except such an amendment made to cause the Plan or Award to qualify for the exemption provided by Rule 16b-3, and no amendment shall reduce the Option price. Subject to the above provisions, the Board shall have the authority to amend the Plan to take into account changes in law and tax and accounting rules, as well as other factors necessary to administer the Plan in accordance with the intentions of the Company in establishing the Plan and to grant Awards which qualify for beneficial treatment under such rules without shareholder approval. SECTION 17. Unfunded Status of Plan. It is presently intended that the Plan constitute an "unfunded" Plan for incentive and deferred compensation. The Committee may authorize the creation of trusts or other arrangements to meet the obligations created under the Plan to deliver Stock or make payments; provided, however, that unless the Committee otherwise determines, the existence of such trusts or other arrangements is consistent with the "unfunded" status of the Plan. SECTION 18. General Provisions. (a) The Committee may require each person purchasing or receiving shares pursuant to an Award to represent to and agree with the Company in writing that such person is acquiring the shares without a view to the distribution thereof. The certificates for such shares may include any legend which the Committee deems appropriate to reflect any restrictions on transfer. All certificates for shares of Common Stock or other securities delivered under the Plan shall be subject to such stock transfer orders and other restrictions as the Committee may deem advisable under the rules, regulations and other requirements of the Commission, any stock exchange upon which the Common Stock is then listed (or NASDAQ) and any applicable Federal or state securities law, and the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions. (b) Nothing contained in the Plan shall prevent the Company or an Affiliate from adopting other or additional compensation arrangements for its employees. (c) The adoption of the Plan shall not confer upon any employee any right to continued employment or service as a Director nor shall it interfere in any way with the right of the Company or an Affiliate to terminate the employment of any employee at any time. (d) No later than the date as of which an amount first becomes includible in the gross income of the participant for Federal income tax purposes with respect to any Award under the Plan, the participant shall pay to the Company, or make arrangements satisfactory to the Company regarding the payment of, any Federal, state, local or foreign taxes of any kind required by law to be withheld with respect to such amount. Unless otherwise determined by the Company, withholding obligations may be settled with Common Stock, including Common -24- 25 Stock that is part of the Award that gives rise to the withholding requirement. The obligations of the Company under the Plan shall be conditional on such payment or arrangements, and the Company and its Affiliates shall, to the extent permitted by law, have the right to deduct any such taxes from any payment otherwise due to the participant. (e) At the time of grant, the Committee may provide in connection with any grant made under the Plan that the shares of Common Stock received as a result of such grant shall be subject to a right of first refusal pursuant to which the participant shall be required to offer to the Company any shares that the participant wishes to sell at the then Fair Market Value of the Common Stock, subject to such other terms and conditions as the Committee may specify at the time of grant. (f) The reinvestment of cash dividends in additional Restricted Stock or Deferred Stock at the time of any dividend payment shall only be permissible if sufficient shares of Common Stock are available under Section 4 for such reinvestment (taking into account then outstanding Stock Options and other Plan Awards). (g) The Committee shall establish such procedures as it deems appropriate for a participant to designate a beneficiary to whom any amounts payable in the event of the participant's death are to be paid. (h) The Plan and all Awards made and actions taken thereunder shall be governed by and construed in accordance with the laws of the State of Delaware. (i) In addition to such other rights of indemnification as they may have as members of the Board and to the extent permitted by law, the members of the Committee or the Committee shall be indemnified and held harmless by the Company against the reasonable expenses, including attorneys' fees, actually and necessarily incurred in connection with the defense of any action, suit or proceeding, or in connection with any appeal therein, to which they or any of them may be a party by reason of any action taken or any failure to act under or in connection with the Plan or any Option granted thereunder, and against all amounts paid by them in settlement thereof (provided such settlement is approved by legal counsel selected by the Company) as paid by them in satisfaction of a judgment in any action, suit or proceeding, except in relation to matters as to which it shall be adjudged in such action, suit or proceeding that such Committee or Committee Member is liable for gross negligence or gross misconduct in the performance of its or his duties; provided that, within 60 days after institution of any such action, suit or proceeding, the Committee or the Committee member shall offer the Company, in writing, the opportunity at its own expense, to handle and defend the action, suit or proceeding. (j) This Plan shall inure to the benefit of and be binding upon the Company and its successors and permitted assigns. (k) A grant of any Award pursuant to the Plan shall not affect in any way the right or power of the Company to make adjustments, reclassifications, reorganizations or changes in its capital or business structures or to merge, consolidate, dissolve, liquidate, sell or transfer all or part of its business or its assets. -25- EX-10.3 10 EXHIBIT 10.3 1 EXHIBIT 10.3 EXTRACTED FROM MINUTES OF BOARD OF DIRECTORS MEETING OF WALBRO CORPORATION ON FEBRUARY 23, 1988 WALBRO CORPORATION BOARD OF DIRECTORS RETIREMENT POLICY Subject to exceptions voted upon by a majority of the Board, a member of the Board of Directors is not expected to serve beyond the first term of office which expires following his or her 72nd birthday. Current members of the Board of Directors are exempted from this policy. Upon retirement all "Eligible Directors" shall be entitled to an annual retirement benefit as defined below. For purposes of this policy "Eligible Directors" are those Walbro Corporation Directors who have served on its Board for five or more years, are at least sixty years of age and were not employees of the Company. A director who is not at least sixty years of age upon retirement shall be entitled to begin receiving the benefit upon reaching sixty years of age. The benefit shall be in the form of an annuity for life equal to the annual retainer paid to the outside directors of Walbro Corporation as periodically modified, subject to the following vesting schedule related to the years of service to the Company:
Years of Service as a Director Percentage Vested ------------------------------ ----------------- 5 50% 6 60% 7 70% 8 80% 9 90% 10 or more 100%
If upon death a Director is survived by a widow, she shall be entitled to receive an annuity for her life equal to 50% of the annuity that would be payable to her husband under this policy if he was still living. This policy shall be effective immediately, apply to currently serving Directors and past service shall be taken into account when computing the benefit for current directors upon their retirement." The Compensation Committee reported on its deliberations concerning the proposed Long Term Incentive Plan. The Committee recommended approval of the amended Plan subject to approval by the Stockholders. Mr. Bacon moved, Mr. Tuttle seconded and a majority of the Board adopted the following Resolution with Mr. Althaver and Mr. Walpole abstaining from the vote: EX-10.4 11 EXHIBIT 10.4 1 EXHIBIT 10.4 WALBRO CORPORATION --------------------------- WALBRO CORPORATION EMPLOYEE STOCK OWNERSHIP PLAN --------------------------- AS AMENDED AND RESTATED EFFECTIVE JANUARY 1, 1997 2 WALBRO CORPORATION EMPLOYEE STOCK OWNERSHIP PLAN - -------------------------------------------------------------------------------- WALBRO CORPORATION established the WALBRO CORPORATION EMPLOYEE STOCK OWNERSHIP PLAN for the benefit of eligible employees of the Company and its participating affiliates. The provisions of this Plan relating to the borrowing of funds to acquire common stock of the Company, the establishment of an Unallocated Inventory of such stock as collateral for such loan, the allocation to Accounts of such stock acquired (from the Unallocated Inventory or otherwise) with Employer Contributions, and distributions thereof, are intended to constitute a leveraged "employee stock ownership plan" under the Code and ERISA and, in that regard, are further intended to constitute a qualified stock bonus plan, as described in Section 401(a) of the Code. The Plan constitutes an amendment and restatement of the WALBRO CORPORATION EMPLOYEE STOCK OWNERSHIP PLAN which was originally established effective as of January 1, 1988. 3 TABLE OF CONTENTS - -------------------------------------------------------------------------------- PAGE ARTICLE I DEFINITIONS................................................................. 1 1.1 "Accounting Period"............................................. 1 1.2 "Account"....................................................... 1 1.3 "Accrued Benefit"............................................... 1 1.4 "Acquisition Loan".............................................. 1 1.5 "Appendix"...................................................... 1 1.6 "Authorized Leave of Absence"................................... 1 1.7 "Beneficiary"................................................... 2 1.8 "Board of Directors"............................................ 2 1.9 "Committee"..................................................... 2 1.10 "Commonly Controlled Entity".................................... 2 1.11 "Company"....................................................... 2 1.12 "Company Stock"................................................. 2 1.13 "Compensation".................................................. 3 1.14 "Continuous Service"............................................ 4 1.15 "Contributions"................................................. 4 1.16 "Custodial Agreement"........................................... 4 1.17 "Custodian"..................................................... 4 1.18 "Direct Rollover"............................................... 4 1.19 "Distributee"................................................... 4 1.20 "Effective Date"................................................ 4 1.21 "Eligible Employee"............................................. 5 1.22 "Eligible Retirement Plan"...................................... 5 1.23 "Eligible Rollover Distribution"................................ 6 1.24 "Employee"...................................................... 6 1.25 "Employer"...................................................... 6 1.26 "Employment Date"............................................... 6 1.27 "ERISA"......................................................... 6 1.28 "Fair Market Value"............................................. 7 1.29 "Financed Shares"............................................... 7 1.30 "Forfeiture".................................................... 7 1.31 "Forfeiture Account"............................................ 7 1.32 "Fund".......................................................... 7 1.33 "Highly Compensated Eligible Employee" or "HCE"................. 7 1.34 "Hour of Service"............................................... 9 1.35 "Internal Revenue Code" or "Code"............................... 10 1.36 "Maternity/Paternity Absence"................................... 10 1.37 "Named Fiduciary"............................................... 10 - i - 4 TABLE OF CONTENTS - -------------------------------------------------------------------------------- PAGE 1.38 "Net Repayment Fund"............................................ 10 1.39 "Non-Highly Compensated Employee" or "NHCE"..................... 10 1.40 "Normal Retirement Date"........................................ 10 1.41 "Participant"................................................... 10 1.42 "Payment Date".................................................. 10 1.43 "Period of Severance"........................................... 11 1.44 "Plan".......................................................... 11 1.45 "Plan Year"..................................................... 11 1.46 "QDRO".......................................................... 11 1.47 "Qualified Election Period"..................................... 11 1.48 "Qualified Participant"......................................... 11 1.49 "Related Plan".................................................. 11 1.50 "Settlement Date"............................................... 11 1.51 "Spousal Consent"............................................... 11 1.52 "Spouse"........................................................ 12 1.53 "Sweep Date".................................................... 12 1.54 "Termination of Employment"..................................... 12 1.55 "Trade Date".................................................... 12 1.56 "Trust"......................................................... 12 1.57 "Trust Agreement"............................................... 12 1.58 "Trust Fund".................................................... 12 1.59 "Trustee"....................................................... 13 1.60 "Trustee Transfer".............................................. 13 1.61 "Unallocated Inventory"......................................... 13 1.62 "Valuation Date"................................................ 13 1.63 "Vesting Service"............................................... 13 ARTICLE II PARTICIPATION............................................................... 14 2.1 Eligibility..................................................... 14 2.2 Reemployment.................................................... 14 2.3 Participation Upon Change of Job Status......................... 14 ARTICLE III EMPLOYER CONTRIBUTIONS AND ALLOCATIONS...................................... 15 3.1 Employer Contributions.......................................... 15 3.2 Miscellaneous................................................... 15 - ii - 5 TABLE OF CONTENTS - -------------------------------------------------------------------------------- PAGE ARTICLE IV ACCOUNTING FOR PARTICIPANTS' ACCOUNTS....................................... 17 4.1 Individual Participant Accounting............................... 17 4.2 Accounting for Trust Funds...................................... 17 4.3 Accounts for QDRO Beneficiaries................................. 19 4.4 Adjustments to Accounts for Release from Unallocated Inventory....................................................... 19 4.5 Election to Diversify Portion of Account with Respect to Qualification Election Period................................... 20 ARTICLE V VESTING AND FORFEITURES..................................................... 22 5.1 Full Vesting Upon Attainment of Event........................... 22 5.2 Vesting Schedule and Forfeitures................................ 22 5.3 Forfeitures..................................................... 23 5.4 Forfeiture Account.............................................. 24 ARTICLE VI DISTRIBUTIONS ON AND AFTER TERMINATION OF EMPLOYMENT................................................... 25 6.1 Request for Distribution of Benefits............................ 25 6.2 Deadline for Distribution....................................... 25 6.3 Payment Form and Medium......................................... 26 6.4 Small Amounts Paid Immediately.................................. 27 6.5 Payment Within Life Expectancy.................................. 28 6.6 Incidental Benefit Rule......................................... 28 6.7 Dividend Distributions.......................................... 28 6.8 Direct Rollover................................................. 28 ARTICLE VII DISTRIBUTION OF ACCRUED BENEFITS ON DEATH................................... 29 7.1 Payment to Beneficiary.......................................... 29 7.2 Beneficiary Designation......................................... 29 7.3 Benefit Election................................................ 29 7.4 Payment Form.................................................... 30 7.5 Time Limit for Payment to Beneficiary........................... 30 7.6 Direct Rollover................................................. 30 - iii - 6 TABLE OF CONTENTS - -------------------------------------------------------------------------------- PAGE ARTICLE VIII MAXIMUM CONTRIBUTIONS....................................................... 31 8.1 Definitions..................................................... 31 8.2 Avoiding an Annual Excess....................................... 32 8.3 Correcting an Annual Excess..................................... 32 8.4 Correcting a Multiple Plan Excess............................... 33 8.5 Two-Plan Limit.................................................. 33 8.6 Short Plan Year................................................. 34 8.7 Grandfathering of Applicable Limitations........................ 34 ARTICLE IX CUSTODIAL ARRANGEMENTS...................................................... 35 9.1 Custodial Agreement............................................. 35 9.2 Selection of Custodian.......................................... 35 9.3 Custodian's Duties.............................................. 35 9.4 Separate Entity................................................. 35 9.5 Plan Asset Valuation............................................ 36 9.6 Right of Employers to Plan Assets............................... 36 ARTICLE X ADMINISTRATION AND INVESTMENT MANAGEMENT.................................... 39 10.1 Authority and Responsibility of the Board of Directors.......... 39 10.2 Committee Membership............................................ 39 10.3 Committee Structure............................................. 39 10.4 Committee Actions............................................... 39 10.5 Compensation.................................................... 40 10.6 Responsibility and Authority of the Committee Regarding Administration of the Plan...................................... 40 10.7 Allocations and Delegations of Responsibility................... 41 10.8 Committee Bonding............................................... 41 10.9 Information to be Supplied by Employer.......................... 41 10.10 Records......................................................... 41 10.11 Plan Expenses................................................... 42 10.12 Fiduciary Capacity.............................................. 42 10.13 Employer's Agent................................................ 42 10.14 Plan Administrator.............................................. 42 10.15 Appointment of Record-Keeper.................................... 42 10.16 Plan Administrator Duties and Authority......................... 42 - iv - 7 TABLE OF CONTENTS - -------------------------------------------------------------------------------- PAGE 10.17 Committee Decisions Final....................................... 44 ARTICLE XI CLAIMS PROCEDURE............................................................ 45 11.1 Initial Claim for Benefits...................................... 45 11.2 Review of Claim Denial.......................................... 45 ARTICLE XII ADOPTION AND WITHDRAWAL FROM PLAN........................................... 47 12.1 Procedure for Adoption.......................................... 47 12.2 Procedure for Withdrawal........................................ 47 ARTICLE XIII AMENDMENT, TERMINATION AND MERGER........................................... 48 13.1 Amendments...................................................... 48 13.2 Plan Termination................................................ 49 13.3 Plan Merger..................................................... 50 ARTICLE XIV SPECIAL TOP-HEAVY RULES..................................................... 51 14.1 Application..................................................... 51 14.2 Special Terms................................................... 51 14.3 Minimum Contribution............................................ 54 14.4 Maximum Benefit Accrual......................................... 55 14.5 Special Vesting................................................. 55 ARTICLE XV MISCELLANEOUS PROVISIONS.................................................... 57 15.1 Assignment and Alienation....................................... 57 15.2 Protected Benefits.............................................. 57 15.3 Plan Does Not Affect Employment Rights.......................... 57 15.4 Deduction of Taxes from Amounts Payable......................... 57 15.5 Facility of Payment............................................. 57 15.6 Source of Benefits.............................................. 57 15.7 Indemnification................................................. 58 15.8 Reduction for Overpayment....................................... 58 - v - 8 TABLE OF CONTENTS - -------------------------------------------------------------------------------- PAGE 15.9 Limitation on Liability......................................... 58 15.10 Company Merger.................................................. 58 15.11 Employees' Trust................................................ 58 15.12 Gender and Number............................................... 58 15.13 Invalidity of Certain Provisions................................ 59 15.14 Headings........................................................ 59 15.15 Uniform and Nondiscriminatory Treatment......................... 59 15.16 Law Governing................................................... 59 15.17 Notice and Information Requirements............................. 59 - vi - 9 ARTICLE I - -------------------------------------------------------------------------------- DEFINITIONS The following sections of this Article I provide basic definitions of terms used throughout the Plan, and whenever used herein in a capitalized form, except as otherwise expressly provided, the terms shall be deemed to have the following meanings: 1.1 "Accounting Period" means the Plan Year. 1.2 "Account" means the record of a Participant's interest in the Plan's assets represented by his or her Contributions allocated on or after January 1, 1997 to the Participant under the Plan, the amount allocated under the Plan, as of January 1, 1997, if any (as identified by the Committee), plus all income and gains credited to, and minus all losses, expenses, withdrawals and distributions charged to, such Account. 1.3 "Accrued Benefit" means the shares held in or posted to an Account on the Settlement Date. 1.4 "Acquisition Loan" means a loan (or other extension of credit) used by the Trust to finance the acquisition of Company Stock, or a refinancing of such a loan, which loan or loans may constitute an extension of credit to the Trust from a party-in-interest (as defined in ERISA) or a disqualified person (as defined in the Code) with respect to the Plan. 1.5 "Appendix" means a written supplement attached to this Plan and made a part hereof which has been added in accordance with the provisions of the Plan. 1.6 "Authorized Leave of Absence" means an absence, with or without Compensation, authorized on a nondiscriminatory basis by a Commonly Controlled Entity under its standard personnel practices applicable to the Employee, including any period of time during which such person is covered by a short-term disability plan of his or her Employer. An Employee who leaves the service of a Commonly Controlled Entity to enter the Armed Forces of the United States of America and who reenters the service of the Commonly Controlled Entity with reemployment rights under any statute granting reemployment rights to persons in the Armed Forces shall be deemed to have been on an Authorized Leave of Absence. The date that an Employee's Authorized Leave of Absence ends shall be determined in accordance with the personnel policies of such Commonly Controlled Entity, which ending date shall be no earlier than the date that the Authorized Leave of Absence is scheduled to end, unless the Employee communicates to such Commonly Controlled Entity that he or she is to have a Termination of Employment as of an earlier date. - 1 - 10 1.7 "Beneficiary" means any person designated by a Participant to receive any benefits which shall be payable with respect to the death of a Participant under the Plan or as a result of a QDRO. 1.8 "Board of Directors" means the board of directors of the Company. 1.9 "Committee" means the committee appointed pursuant to the terms of the Plan to manage and control the operation and administration of the Plan. 1.10 "Commonly Controlled Entity" means (1) an Employer and any corporation, trade or business, but only for so long as it and the Employer are members of a controlled group of corporations as defined in Section 414(b) of the Code or under common control as defined in Section 414(c) of the Code; provided, however, that solely for purposes of the limitations of Code Section 415, the standard of control under Sections 414(b) and 414(c) of the Code shall be deemed to be "more than 50%" rather than "at least 80%," (2) an Employer and an organization, but only for so long as it and the Employer are, on and after the Effective Date, members of an affiliated service group as defined in Section 414(m) of the Code, (3) an Employer and an organization, but only for so long as the employees of it and the Employer are required to be aggregated, on and after the Effective Date, under Section 414(o) of the Code, or (4) any other organization designated as such by the Committee. 1.11 "Company" means WALBRO CORPORATION or any successor corporation by merger, consolidation, purchase, or otherwise, which elects to adopt the Plan and the Trust. 1.12 "Company Stock" means common stock issued by the Company (or any Commonly Controlled Entity) having a combination of voting power and dividend rates equal to or in excess of: (a) that class of common stock of the Company (or of the Commonly Controlled Entity) having the greatest voting power, and (b) that class of common stock of the Company (or of the Commonly Controlled Entity) having the greatest dividend rights. Non-callable preferred stock shall be treated as Company Stock if such stock is convertible at any time into stock which meets the requirements of (a) and (b) above and if such conversion is at a conversion price which (as of the date of the acquisition by the Plan) is reasonable. For purposes of the prior sentence, preferred stock shall be treated as non-callable if, after the call, there will be a reasonable opportunity for a conversion which meets the requirements of the prior sentence. - 2 - 11 1.13 "Compensation" means: (a) for purposes of applicable Code provisions other than Section 415: (1) for Plan Years beginning prior to January 1, 1997, base remuneration paid to an Employee while an Employee by all Employers on a cash basis during the Plan Year for personal services, including salary reduction contributions to the Walbro Corporation Advantage Plan and excluding bonuses, overtime pay, relocation allowances, the imputed value of group life insurance, reimbursement of medical expenses, premiums on insurance policies, tuition refunds, living allowances, expense allowances, any Employer Contributions (other than salary reduction contributions) allocable under this Plan and any other Related Plan, income attributable to stock options, stock appreciation rights, performance award rights, fringe benefits which receive special tax benefit, severance pay, and all other extraordinary compensation; provided that in no event shall the annual compensation of any Employee taken into account under the Plan (other than for Code Section 415 purposes) for any Plan Year exceed two hundred thousand dollars ($200,000) (adjusted at the same time and manner as under Section 415(d) of the Code, prorated for any Plan Year of less than twelve (12) months, and increased for family members as provided in Section 401(a)(17) of the Code); and (2) for Plan Years beginning on and after January 1, 1997, wages within the meaning of Section 3401(a) of the Code and all other payments to an Employee by an Employer for which the Employer is required to furnish the Employee a written statement under Sections 6041(d) and 6051(a)(3) of the Code, and including elective amounts excludible from gross income under Code Sections 125 and 402(a)(8), but excluding amounts paid or reimbursed by the Employer for moving expenses incurred by the Employee (to the extent it is reasonable to believe such payments are deductible by the Employee under Section 217 of the Code). (b) for purposes of applying Section 415 of the Code to the Plan and its Participants for any limitation year, such compensation as determined by the Committee and satisfying the definition of compensation under Section 415 of the Code. For Plan Years beginning on or after January 1, 1994, any reference in the Plan to the limitation under Section 401(a)(17) of the Code shall mean the OBRA '93 annual Compensation limit set forth in this provision. If Compensation for any prior determination period is taken into account in determining an Employee's benefits accruing in the current Plan Year, the Compensation for that prior determination period is subject to the OBRA '93 - 3 - 12 annual Compensation limit in effect for that prior determination period. For this purpose, for determination periods beginning before the first day of the first Plan Year beginning on or after January 1, 1994, the OBRA '93 annual compensation limit is $150,000. In determining the compensation of a participant for purposes of this limitation, the rules of section 414(q)(6) of the Code shall apply, except in applying such rules, the term `family' shall include only the spouse of the participant and any lineal descendants of the participant who have not attained age 19 before the close of the year. If, as a result of the application of such rules the adjusted annual compensation limitation is exceeded, then the limitation shall be prorated among the affected individuals in proportion to each such individual's compensation as determined under this section prior to the application of this limitation." 1.14 "Continuous Service" means the years (and fractions of years) of an Employee's periods of employment with a Commonly Controlled Entity, measured from his Employment Date to his date of Termination of Employment, provided that if an Employee has a Period of Severance of less than twelve (12) consecutive months after a Termination of Employment, such Termination of Employment shall be disregarded and such Employee's Continuous Service shall include such period when he is not employed by a Commonly Controlled Entity. 1.15 "Contributions" means an amount contributed by the Employer and allocated on a pay based formula to eligible Participant's Accounts. 1.16 "Custodial Agreement" means the Trust Agreement or an insurance contract to provide for the holding of the assets of the Plan. 1.17 "Custodian" means the Trustee or an insurance company if the contract issued by such company is not held by the Trustee. 1.18 "Direct Rollover" means a payment by the Plan to the Eligible Retirement Plan specified by the Distributee. 1.19 "Distributee" includes an Employee or former Employee. In addition, the Employee's or former Employee's surviving Spouse and the Employee's or former Employee's Spouse or former Spouse who is the alternate payee under a QDRO are Distributees with regard to the interest of the Spouse or former Spouse. 1.20 "Effective Date" means January 1, 1997, the date upon which the provisions of this document become effective. In general, the provisions of this document only apply to Participants who are Employees on or after the Effective Date. However, investment and distribution provisions apply to all Participants with Account balances to be invested or distributed after the Effective Date. - 4 - 13 1.21 "Eligible Employee" means, effective January 1, 1992, any Employee (including an Employee on an Authorized Leave of Absence) of an Employer on and after the Effective Date of the adoption of this Plan by the Employer, excluding any Employee: (a) who is a member of a group of Employees represented by a collective bargaining representative, unless a currently effective collective bargaining agreement between his or her Employer and the collective bargaining representative of the group of Employees of which he or she is a member provides for coverage by the Plan; (b) who is considered an Employee solely because of the application of Section 414(n) of the Code; (c) who is a nonresident alien who receives no earned income, within the meaning of Code Section 911(d)(2), from sources within the United States within the meaning of Code Section 861(a)(3); (d) who is employed as a cooperative student while attending a secondary educational institution or college; (e) who is attending high school or is on a summer break between high school classes; (f) who is a participant in either the Walbro Engine Management Corporation Incentive Compensation Plan or Walbro Corporation Equity Based Long Term Incentive Plan, or effective January 1, 1997, the Walbro Corporation Executive Plan; (g) who is an employee at the Caro, Auburn Hills or Troy location of Walbro Automotive Corporation on December 31 of the applicable Plan Year, provided such person was not hired on or prior to July 1, 1992 by Walbro Corporation or Walbro Automotive Corporation; (h) who is an officer of an Employer; or (i) who is scheduled in an Appendix. 1.22 "Eligible Retirement Plan" means an individual retirement account described in section 408(a) of the Code, an individual retirement annuity described in section 408(b) of the Code, an annuity plan described in section 403(a) of the Code, or a qualified trust described in section 401(a) of the Code, that accepts the Distributee's Eligible Rollover Distribution. However, in the case of an Eligible Rollover Distribution to the surviving Spouse, an Eligible Retirement Plan is an individual retirement account or individual retirement annuity. - 5 - 14 1.23 "Eligible Rollover Distribution" means any distribution of all or any portion of the balance to the credit of the Distributee, except that an eligible rollover distribution does not include any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the Distributee or the joint lives (or joint life expectancies) of the Distributee and the Distributee's designated Beneficiary, or for a specified period of ten years or more; any distribution to the extent such distribution is required under section 401(a)(9) of the Code; and the portion any distribution that is not includible in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to employer securities). 1.24 "Employee" means any person who rendered services as a common law employee to a Commonly Controlled Entity or is on an Authorized Leave of Absence, including the period of time before which the trade or business became a Commonly Controlled Entity, but excluding the period of time after which it ceases to be a Commonly Controlled Entity. A Leased Employee shall be deemed employed by the Commonly Controlled Entity for which the individual performed services. The term `Leased Employee' means any person (other than an employee of the recipient) who pursuant to an agreement between the recipient and any other person (`leasing organization') has performed services for the recipient (or for the recipient and related persons determined in accordance with section 414(n)(6) of the Code) on a substantially full time basis for a period of at least one year, and such services are of a type historically performed by employees in the business field of the recipient employer. Contributions or benefits provided a leased employee by the leasing organization which are attributable to services performed for the recipient employer shall be treated as provided by the recipient employer. 1.25 "Employer" means the Company and any Commonly Controlled Entity which has adopted the Plan; provided, that an entity will cease to be an Employer when it ceases to be a Commonly Controlled Entity. 1.26 "Employment Date" means the day an Employee first earns an Hour of Service; provided however, where such person loses his Vesting Service, it shall mean, only with respect to Vesting Service, the day such person first earns an Hour of Service following the Period of Severance. 1.27 "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. Reference to any specific section shall include such section, any valid regulation promulgated thereunder, and any comparable provision of any future legislation amending, supplementing or superseding such section. - 6 - 15 1.28 "Fair Market Value" means: (a) with respect to a security for which there is a generally recognized market, the price of the security prevailing on a national securities exchange which is registered under Section 6 of the Securities Act of 1934; (b) unless determined otherwise by the Committee, with respect to any guaranteed income contract, the value reported by the issuing company or bank; and (c) for any other asset, the fair market value of the asset, as determined in good faith by the Trustee or the Committee in accordance with regulations promulgated under Section 3(18) of ERISA. 1.29 "Financed Shares" means the shares of Company Stock acquired by the Trust with the proceeds of an Acquisition Loan. 1.30 "Forfeiture" means the portion of the Participant's Accrued Benefit which is forfeited pursuant to the terms of the Plan. If interests in more than one class of Company Stock shall have been allocated to a Participant's Account, any Forfeiture of such Participant's Accrued Benefit must result in the Participant forfeiting the same proportion of each such class. If only a portion of a Participant's Account is forfeited, that portion of a Participant's Account constituting Company Stock released from Unallocated Inventory shall be forfeited only after other assets. 1.31 "Forfeiture Account" means an account holding amounts forfeited by Participants. 1.32 "Fund" means the assets of the Trust Fund, specifically excluding assets held in Unallocated Inventory. 1.33 "Highly Compensated Eligible Employee" or "HCE" means a highly compensated active employee or a highly compensated former employee. A highly compensated active employee includes any Employee who performs service for the Employer during the determination year and who, during the look-back year: (i) received Compensation from the Employer in excess of $75,000 (as adjusted pursuant to Section 415(d) of the Code); (ii) received Compensation from the Employer in excess of $50,000 (as adjusted pursuant to Section 415(d) of the Code) and was a member of the top-paid group for such year; or (iii) was an officer of the Employer and received Compensation during such year that is greater than 50 percent of the dollar limitation in effect under Section 415(b)(1)(A) of the Code. The term highly compensated active employee also includes: (i) Employees who are both described in the preceding sentence if the term "determination year" is substituted for the term "look-back year" and the Employee is one of the 100 Employees who received the most Compensation from the Employer during the determination year; and - 7 - 16 (ii) Employees who are 5-percent owners at any time during the look-back year or determination year. If no officer has satisfied the Compensation requirement of (iii) above during either a determination year or look-back year, the highest paid officer for such year shall be treated as a highly compensated active employee. For this purpose, the determination year shall be the Plan Year. The look-back year shall be the twelve-month period immediately preceding the determination year. Pursuant to Code Section 414(q), the Committee may elect for the look-back year to be the calendar year ending with or within the applicable Plan Year determination year. If the Employer at all times during the Plan Year maintains significant business activities (and employs Employees in such activities) in at least two significantly separate geographic areas and satisfies such other conditions as the Secretary of the Treasury may prescribe, the Committee may elect to apply a simplified definition of Highly Compensated Employee under the Plan by substituting "$50,000" for "$75,000" in paragraph (i) above, and disregarding paragraph (ii) above. An Employee who performs services for the Employer any time during the year is in the top-paid group of Employees for any year if such Employee is in the group consisting of the top 20% of the Employees when ranked on the basis of Compensation paid during such year. For purposes of determining the number of Employees in the top-paid group (but not for identifying the particular Employees in the top-paid group), the following Employees shall be excluded: (i) Employees who have not completed six (6) months of service; (ii) Employees who normally work less than seventeen and one-half (17 1/2) Hours of Service; (iii) Employees who normally work not more than six (6) months during any year; (iv) Employees who have not attained age twenty-one (21); (v) Employees who are included in a unit of Employees covered by a bona fide collective bargaining agreement with the Employer; and (vi) Employees who are nonresident aliens and who receive no earned income (within the meaning of Section 911(d)(2) of the Code) from the Employer which constitutes income from sources within the United States (within the meaning of Section 861(a)(3) of the Code). The Committee may elect to apply paragraph (i), (ii) or (iv) of this Section by substituting a shorter period of service, smaller number of hours or months, or lower age for that specified in such subparagraphs. - 8 - 17 A highly compensated former employee includes any Employee who separated from service (or was deemed to have separated) prior to the determination year, performs no service for the Employer during the determination year, and was a Highly Compensated Employee for either the separation year or any determination year ending on or after the Employee's 55th birthday. If a former Employee separated from service with the Employer prior to January 1, 1987, and the Committee irrevocably elects to apply this special rule, he is a Highly Compensated Employee only if he or she was described in any one or more of the following groups during either the Employee's separation year (or the year preceding such separation year) or any year ending on or after such individual's 55th birthday (or the last year ending before such Employee's 55th birthday): (i) 5-percent owner. The Employee was a 5-percent owner of the Employer at any time during the year. (ii) Compensation amount. The Employee received Compensation in excess of $50,000 during the year. The determination of who is a Highly Compensated Employee, including the determination of the number and identity of Employees in the top-paid group, the top 100 Employees, the number of Employees treated as officers and the Compensation that is considered, will be made in accordance with Section 414(q) of the Code and the regulations thereunder. 1.34 "Hour of Service" means each hour for which an Employee is entitled to: (a) payment for the performance of duties for any Commonly Controlled Entity; (b) payment from any Commonly Controlled Entity for any period during which no duties are performed (irrespective of whether the employment relationship has terminated) due to vacation, holiday, sickness, incapacity (including disability), layoff, leave of absence, jury duty or military service; (c) back pay, irrespective of mitigation of damages, by award or agreement with any Commonly Controlled Company (and these hours shall be credited to the period to which the agreement pertains); or (d) no payment, but is on an Authorized Leave of Absence (and these hours shall be based upon his or her normally scheduled hours per week or a 40 hour week if there is no regular schedule). The crediting of hours shall be made in accordance with Department of Labor regulation section 2530.200b-2 and 3. Actual hours shall be used whenever an accurate record of hours are maintained for an Employee. - 9 - 18 1.35 "Internal Revenue Code" or "Code" means the Internal Revenue Code of 1986, as amended, any subsequent Internal Revenue Code and final Treasury Regulations. If there is a subsequent Internal Revenue Code, any references herein to Internal Revenue Code sections shall be deemed to refer to comparable sections of any subsequent Internal Revenue Code. 1.36 "Maternity/Paternity Absence" means a paid or unpaid and unapproved absence from employment with a Commonly Controlled Entity (1) by reason of the pregnancy of the Employee; (2) by reason of the birth of a child of the Employee; (3) by reason of the placement of a child under age eighteen (18) in connection with the adoption of such child by the Employee (including a trial period prior to adoption); and (4) for the purpose of caring for a child of the Employee immediately following the birth or adoption of such child. The Employee must prove to the satisfaction of the Committee or its agent that the absence meets the above requirements and must supply information concerning the length of the absence unless the Committee has access to relevant information without the Employee submitting it. 1.37 "Named Fiduciary" means: (a) with respect to Plan administration, the Board of Directors, the Committee and the Plan Administrator; (b) with respect to investment, the Board of Directors, the Committee and the Trustee. 1.38 "Net Repayment Fund" means the total amount paid under the Plan towards an Acquisition Loan, subtracted from the sum of (1) all Contributions and any other contributions (other than contributions of Company Stock) made to the Plan to meet the Acquisition Loan, (2) all earnings attributable to such contributions, and (3) the total amount of all earnings attributable to any Financed Shares. 1.39 "Non-Highly Compensated Employee" or "NHCE" means an Employee who is neither an HCE nor a Family Member. 1.40 "Normal Retirement Date" means the date a Participant attains sixty-five (65) years of age. 1.41 "Participant" means an Eligible Employee who begins to participate in the Plan after completing the eligibility requirements. A Participant's participation continues until his or her Termination of Employment and his or her Accrued Benefit is distributed or forfeited. 1.42 "Payment Date" means the date on or after the Settlement Date on which a Participant's Accrued Benefit is distributed or commences to be distributed, which date shall be at least the minimum number of days required by law, if any, after the date the Participant has received any notice required by law, if any. - 10 - 19 If a distribution is one to which Sections 401(a)(11) and 417 of the Internal Revenue Code do not apply, such distribution may commence less than thirty (30) days after the notice required under Section 1.411(a)-11(c) of the Income Tax Regulations is given, provided that: (a) the plan administrator clearly informs the Participant that the Participant has a right to a period of at least thirty (30) days after receiving the notice to consider the decision of whether or not to elect a distribution (and, if applicable, a particular distribution option), and (b) the Participant, after receiving the notice, affirmatively elects a distribution. 1.43 "Period of Severance" means the period of time measured from the later of (1) an Employee's Termination of Employment and (2) the conclusion of a Maternity/Paternity Absence of no longer than twenty-four (24) consecutive months, to the date he first earns an Hour of Service following his Termination of Employment. 1.44 "Plan" means the WALBRO CORPORATION EMPLOYEE STOCK OWNERSHIP PLAN, as set forth herein and as hereafter may be amended from time to time. 1.45 "Plan Year" means the annual accounting period of the Plan and Trust which ends on each December 31. 1.46 "QDRO" means a domestic relations order which the Committee has determined to be a qualified domestic relations order within the meaning of Section 414(p) of the Code. 1.47 "Qualified Election Period" means the six (6) consecutive Plan Year period beginning with the first Plan Year in which the Participant first becomes a Qualified Participant. 1.48 "Qualified Participant" means a Participant who has attained age fifty-five (55) and who has completed at least ten (10) years of participation under this Plan. 1.49 "Related Plan" means with respect to Section 415 of the Code, any other defined contribution plan or a defined benefit plan (as defined in Section 415(k) of the Code) maintained by a Commonly Controlled Entity, respectively called a "Related Defined Contribution Plan" and a "Related Defined Benefit Plan". 1.50 "Settlement Date" means the date on which the transactions from the most recent Trade Date are settled. 1.51 "Spousal Consent" means the written consent given by a Spouse to a Participant's election (or waiver) of a specified form of benefit or Beneficiary designation. The Spouse's consent must acknowledge the effect on the Spouse of - 11 - 20 the Participant's election, waiver or designation and be duly witnessed by a Plan representative or notary public. Spousal Consent shall be valid only with respect to the spouse who signs the Spousal Consent and only for the particular choice made by the Participant which requires Spousal Consent. A Participant may revoke (without Spousal Consent) a prior election, waiver or designation that required Spousal Consent at any time before the Sweep Date associated with the Settlement Date upon which payments will begin. Spousal Consent also means a determination by the Administrator that there is no Spouse, the Spouse cannot be located or such other circumstances as may be established by applicable law. 1.52 "Spouse" means a person who, as of the earlier of a Participant's Payment Date and death, is alive and married to the Participant within the meaning of the laws of the State of the Participant's residence as evidenced by a valid marriage certificate or other proof acceptable to the Committee. A spouse who was the Spouse on the Payment Date but who is divorced from the Participant at the Participant's death shall still be the Spouse at the date of the Participant's death, except as otherwise provided in a QDRO. 1.53 "Sweep Date" means the date established by the Committee as the cutoff date and time for the responsible Named Fiduciary to receive notification with respect to a financial transaction for an Accounting Period in order to be processed with respect to a Trade Date designated by the Committee. 1.54 "Termination of Employment" occurs when a person ceases to be an Employee, as determined by the personnel policies of the Commonly Controlled Entity to whom he or she rendered services; provided, however, where a Commonly Controlled Entity ceases to be such with respect to an Employee as a result of either an asset sale or stock sale, an Employee of the Commonly Controlled Entity shall be deemed not to have incurred a Termination of Employment if the Committee shall make a Trustee Transfer of his or her Accrued Benefit. Transfer of employment from one Commonly Controlled Entity to another Commonly Controlled Entity shall not constitute a Termination of Employment for purposes of the Plan. 1.55 "Trade Date" means the date as of which a financial transaction occurs, however. 1.56 "Trust" means the legal entity resulting from the agreement between the Company and the Trustee and all amendments thereto, in which some or all of the assets of this Plan will be received, held, invested and distributed to or for the benefit of Participants and Beneficiaries. 1.57 "Trust Agreement" means the agreement between the Company and the Trustee establishing the Trust, and any amendments thereto. 1.58 "Trust Fund" means any property, real or personal, received by and held by the Trustee, plus all income and gains and minus all losses, expenses, withdrawals and distributions chargeable thereto. - 12 - 21 1.59 "Trustee" means any corporation, individual or individuals designated in the Trust Agreement who shall accept the appointment as Trustee to execute the duties of the Trustee as set forth in the Trust Agreement. 1.60 "Trustee Transfer" means (a) a transfer to the Custodian of an amount by the custodian of a retirement plan qualified for tax-favored treatment under Section 401(a) of the Code or by the trustee(s) of a trust forming part of such a plan, which plan provides for such transfer; or (b) a Direct Rollover within the meaning of Section 402(c)(8)(B) of the Code; provided that with respect to any withdrawal or distribution from the Plan, a Participant may elect a transfer to only one eligible retirement plan, except as may otherwise be determined by the Committee, in a uniform and nondiscriminatory manner. 1.61 "Unallocated Inventory" means all Financed Shares and any earnings or distributions thereon held by the Trustee as collateral on an Acquisition Loan. 1.62 "Valuation Date" means the last business day of each Plan Year. Effective June 1, 1994, Valuation Date shall mean the last business day of June and such other special date as the Committee shall designate in the interests of Participants and Beneficiaries. 1.63 "Vesting Service" means the sum of the Employee's years (and fractional years) of Continuous Service excluding: (a) for purposes of determining a Participant's vested percentage in the portion of the Participant's Account accrued before a Period of Severance of five (5) or more years, Vesting Service earned after such Period of Severance; and (b) with respect to an Employee who has no nonforfeitable interest under the Plan and who incurs a Period of Severance of five (5) or more years, Vesting Service earned prior to such Period of Severance if the number of years of the Period of Severance equals or exceeds the years of Vesting Service earned prior to the Period of Severance. - 13 - 22 ARTICLE II - -------------------------------------------------------------------------------- PARTICIPATION 2.1 Eligibility. On or after the Effective Date, as to each Employer: (a) Participant on January 1, 1997. Each person who has an Accrued Benefit on January 1, 1997 shall become a Participant as of January 1, 1997. (b) Other Eligible Employee. Each other Eligible Employee shall become a Participant on the first day of the Plan Year coincident with or next following the date on which such Employee first earns an Hour of Service, provided he is an Eligible Employee on such date. 2.2 Reemployment. (a) Eligible Employee Was Previously a Participant. An Eligible Employee who previously was a Participant prior to his or her Termination of Employment shall become a Participant on the first day he or she earns an Hour of Service. (b) Eligible Employee Had a Termination. An Eligible Employee who had a Termination of Employment before he or she became a Participant shall be eligible to become a Participant on the later of (1) the date he or she would have become a Participant but for his or her Termination of Employment, or (2) the date he or she again performs an Hour of Service. 2.3 Participation Upon Change of Job Status. An Employee who is not an Eligible Employee shall become a Participant on the later of (1) the date he or she would have become a Participant had he or she always been an Eligible Employee, or (2) the date he or she becomes an Eligible Employee. - 14 - 23 ARTICLE III - -------------------------------------------------------------------------------- EMPLOYER CONTRIBUTIONS AND ALLOCATIONS 3.1 Employer Contributions. (a) Frequency and Eligibility. Subject to the limits of the Plan, for each Plan Year, the Employer may make a Contribution in an amount determined by the Board of Directors on behalf of each Participant who was an Eligible Employee on the last day of the Plan Year. (b) Allocation Method. The Employer Contribution for each period shall be allocated, along with any Forfeitures, among eligible Participants in direct proportion to their Compensation. (c) Timing, Medium and Posting. The Employer shall make each period's Contribution in cash or Company Stock as soon as is feasible, and not later than the Employer's federal tax filing date, including extensions, for deducting such Contribution. The Committee shall post such amount to each Participant's Account once the total Contribution received by the Custodian has been balanced against the specific amount to be credited to each Participant's Account. (d) Minimum Aggregate Amount. Subject to Article XIII, the aggregate amount of Employer Contributions in cash (or proceeds in cash thereof) shall not be less than is required to pay each installment of principal and interest on all Acquisition Loans payable by the Trust entered into to acquire Financed Shares on or before the date such installment is due and to meet the obligations of the Trustee under such loan whether or not any tax benefit to the Employers results from such contribution. (e) Compensation. Compensation shall be measured by the period (not to exceed the Plan Year) for which the Contribution is being made. 3.2 Miscellaneous. (a) Deduction Limits. Subject to Section 3.1(d), in no event shall the Employer Contributions for a Plan Year exceed the maximum the Company estimates will be deductible (or which would be deductible if the Employers had taxable income) by any Employer or Commonly Controlled Entity under Section 404 of the Code ("Deductible Amount") and any amount in excess of the Deductible Amount shall not be contributed. - 15 - 24 (b) Stock Bonus Plan. Notwithstanding anything herein to the contrary, the Plan shall constitute a stock bonus plan for all purposes of the Code. (c) Employee Stock Ownership Plan. Notwithstanding anything herein to the contrary, the Plan shall constitute an employee stock ownership plan within the meaning of Code Section 4975(e)(7) and, as such, is designed to invest primarily in Company Stock in accordance with the terms of the Trust Agreement. - 16 - 25 ARTICLE IV - -------------------------------------------------------------------------------- ACCOUNTING FOR PARTICIPANTS' ACCOUNTS 4.1 Individual Participant Accounting. (a) Account Maintenance. The Committee shall cause the Account for each Participant to reflect transactions involving assets of the Account in accordance with this Article. Financial transactions during or with respect to an Accounting Period shall be accounted for at the individual Account level by "posting" each transaction to the appropriate Account of each affected Participant. Participant Account values shall be maintained in shares. At any point in time, the value of a Participant's Accrued Benefit shall be equal to the net Fair Market Value of his or her Account determined by using the most recent Trade Date values provided by the Custodian. (b) Trade Date Accounting and Investment Cycle. For any transaction to be processed as of a Trade Date, the Committee must receive instructions by the Sweep Date and such instructions shall apply only to amounts held in or posted to the Accounts as of the Trade Date. Financial transactions in the Trust Fund shall be posted to a Participant's Account as of the Trade Date and based upon the Trade Date values provided by the Custodian. All transactions shall be effected on the Settlement Date relating to the Trade Date (or as soon as is administratively feasible). (c) Suspension of Transactions. Whenever the Committee considers such action to be in the best interest of the Participants, the Committee in its discretion may suspend from time to time the Trade Date. (d) How Fees and Expenses are Charged to Participants. Account maintenance fees shall be charged to each Participant's Account, provided that no fee shall reduce a Participant's Account balance below zero. Transaction type fees shall be charged to the Accounts involved in the transaction. (e) Error Correction. The Committee may correct any errors or omissions in the administration of the Plan by restoring or charging any Participant's Accrued Benefit with the amount that would be credited or charged to the Account had no error or omission been made. Funds necessary for any such restoration shall be provided through payment made by the Employer. 4.2 Accounting for Trust Funds. (a) Share Accounting. The investments in the Investment Fund shall be maintained in full and fractional shares of Company Stock. The Committee - 17 - 26 is responsible for determining the number of full and fractional shares of Company Stock. (b) Accounting for Company Stock. The following additional rules shall apply to Company Stock: (1) Voting Rights. All Company Stock in an Account shall be voted by the Trustee pursuant to the procedures of the Trust Agreement. (2) Tender Offer. If a tender offer is commenced for Company Stock, the provisions of the Trust Agreement regarding the response to such tender offer, the holding and investment of proceeds derived from such tender offer and the substitution of new securities for such proceeds shall be followed. (3) Dividends and Income. (i) The Fund. The Trustee shall use cash dividends received by the Trustee in respect of Financed Shares held in the Account of each Participant on the dividend record date (other than (A) dividends paid to the Trust prior to June 30, 1989, and (B) dividends paid on the Account of a former Employee where the dividend record date would result in payment of such dividend to the Trust in the next Plan Year) to be applied toward the repayment of any outstanding balance of an Acquisition Loan. The Committee shall cause any other income on Company Stock held in such Account since the last Valuation Date to be credited to such Account as of the coincident or next following Valuation Date. Stock or other noncash dividends received by the Trustee in respect of Company Stock held in each Participant's Account on the dividend record date shall be credited thereto and the average cost of Company Stock held in the Account shall be appropriately adjusted. After payment of each outstanding Acquisition Loan, any cash dividends on Company Stock held in such Account on such dividend record date shall be distributed pursuant to the provisions of Section 6.7. (ii) Unallocated Inventory. Cash dividends paid on Financed Shares held in Unallocated Inventory and any other income received on the assets in Unallocated Inventory during a Plan Year shall first be applied - 18 - 27 toward repayment of any outstanding balance of an Acquisition Loan. Stock dividends paid on Financed Shares held in Unallocated Inventory shall be credited to Unallocated Inventory and the average cost basis of Company Stock held in Unallocated Inventory shall be appropriately adjusted. (4) Transaction Costs. Any brokerage commissions, transfer taxes, transaction charges, and other charges and expenses in connection with the purchase or sale of Company Stock shall be added to the cost thereof in the case of a purchase or deducted from the proceeds thereof in the case of a sale; provided, however, where the purchase or sale of Company Stock is with a "disqualified person" as defined in Section 4975(e)(2) of the Code or a "party in interest" as defined in Section 3(14) of ERISA, no commissions may be charged with respect thereto. 4.3 Accounts for QDRO Beneficiaries. A separate Account shall be established for a Beneficiary entitled to any portion of a Participant's Account under a QDRO as of the date and in accordance with the directions specified in the QDRO. Such Account shall be valued and accounted for in the same manner as any other Account. A QDRO Beneficiary shall be entitled to payment as provided in the QDRO and permissible under the otherwise applicable terms of this Plan, regardless of whether the Participant is an Employee, and to name a Beneficiary as specified in the QDRO. 4.4 Adjustments to Accounts for Release from Unallocated Inventory. The Committee or its delegate shall adjust the Account of each Participant as provided herein as of the Valuation Date in the following manner: (a) First - Allocable Amount and Repayment of Acquisition Loan. As of each December (effective on and after June 1, 1994, only each June) Valuation Date, the Committee shall charge each Participant's Account with his share of the Contribution used to repay an Acquisition Loan for the Plan Year in an amount equal to the product of (1) the "Nondividend Debt Payments" for the Plan Year, and (2) the "Participant's Percentage" (both as hereinafter defined). At the same time, the Committee shall credit to such Participant's Account a number of full and fractional shares of Company Stock ("ESOP Shares") equal to the product of (1) and (2), where (1) is equal to the product of (i) a fraction, the numerator of which is that portion of the Contribution used to repay an Acquisition Loan for the Plan Year ("Nondividend Debt Payments"), and the denominator of which is the aggregate amount of all payments made in satisfaction of the Acquisition Loan for a Plan Year ("Debt Payments"), and (ii) the number of Financed Shares released from Unallocated Inventory for that Plan Year; and (2) is equal to a Participant's Percentage. Each Participant's Percentage is a fraction determined for such Participant where the numerator is such Participant's share of the Contribution for the Plan Year and the denominator of which is the Contribution ("Participant's Percentage"). - 19 - 28 (b) Second - Dividends Used to Repay Acquisition Loan. As of the Valuation Date, the Committee shall charge each Participant's Account with the cash dividends allocated to his Account with respect to such Plan Year that are available (under Section 4.2(b)(3)) to repay an Acquisition Loan for that Plan Year ("Participant's Dividend"). At the same time, the Committee shall credit to each Participant's Account a number of full and fractional shares of Company Stock ("Dividend Shares") equal to the sum of the following: (1) the quotient of (i) divided by (ii), where (i) is equal to the Participant's Dividend, and (ii) is equal to the Fair Market Value of a share of Company Stock as of the Valuation Date; and (2) the product of (i) and (ii), where (i) is equal to the number of Financed Shares released from Unallocated Inventory for that Plan Year, less the aggregate number of ESOP shares determined in Section 4.4(a) and the aggregate number of shares determined in paragraph (1) hereof, and (ii) is equal to the Participant's Percentage; provided however, if the aggregate Fair Market Value of the difference in the number of Financed Shares released from Unallocated Inventory for the Plan Year, less the aggregate number of ESOP shares, is less than the aggregate of each Participant's Dividend for the Plan Year then, in lieu of (1) and (2) above, the Dividend Shares credited to each Participant's Account for such Plan Year shall be equal to a number of shares which will have a Fair Market Value on the Valuation Date equal to the Participant's Dividend, and provided further, if additional shares of Company Stock are needed to satisfy this requirement, the Company and all other Employers shall contribute shares of Company Stock or its cash equivalent to the Trust to satisfy this shortfall for each Participant. 4.5 Election to Diversify Portion of Account with Respect to Qualification Election Period. (a) Within ninety (90) days after the last day of each Plan Year during a Participant's Qualified Election Period, such Qualified Participant shall be permitted to elect, subject to Paragraph (e) hereof, to transfer to the Walbro Corporation Advantage Plan the portion of his Account described in Paragraph (b) hereof. (b) Subject to the amount of a Qualified Participant's Account as of the relevant recent Valuation Date, the portion of a Participant's Account which a Qualified Participant can elect to transfer is no greater than: (1) In the case of a distribution with respect to the first Plan Year of the Qualified Election Period, twenty-five percent (25%) of the total number of shares of Company Stock that have ever been allocated to the Qualified Participant's Contribution Account on or before the Valuation Date - 20 - 29 in such Plan Year, as determined in accordance with applicable law ("Company Stock Subject to Diversification"); (2) In the case of a distribution with respect to the second, third, fourth and fifth Plan Year of the Qualified Election Period for a Participant who has not elected to receive a distribution, twenty-five percent (25%) of the Company Stock Subject to Diversification; (3) In the case of a distribution with respect to the second, third, fourth and fifth Plan Year of the Qualified Election Period for a Participant who has elected to receive a distribution, an amount equal to twenty-five percent (25%) of the Company Stock Subject to Diversification, reduced by the number of shares distributed in prior Plan Years; (4) In the case of a distribution with respect to the last Plan Year of the Qualification Election Period for a Participant who has not elected to receive a distribution, fifty percent (50%) of the Company Stock Subject to Diversification; and (5) In the case of a distribution with respect to the last Plan Year of the Qualified Election Period for a Participant who has elected to receive a distribution, an amount equal to fifty percent (50%) of the Company Stock Subject to Diversification, reduced by the number of shares distributed in prior Plan Years. (c) An election by a Qualified Participant shall be in writing and delivered to the Committee on a form provided by the Committee for that purpose. (d) A transfer pursuant to a Qualified Participant's election shall be made by the Trustee no later than one hundred and eighty (180) days after the last day of the Plan Year to which the election relates in a single sum in cash in an amount equal to the Fair Market Value thereof. (e) Notwithstanding the provisions of Paragraph (2) hereof, if the Fair Market Value as of the Valuation Date immediately preceding the first day on which a Qualified Participant could otherwise make an election pursuant to this Section, of the Company Stock acquired by or contributed to the Plan (and acquired by or contributed to, after December 31, 1986, any other employee stock ownership plan or tax credit employee stock ownership plan maintained by a Commonly Controlled Entity) and allocated to a Qualified Participant's accounts is less than five hundred dollars ($500), such Qualified Participant shall not be entitled to make an election under this Section, except to the extent determined by the Committee in a uniform and nondiscriminatory manner. - 21 - 30 ARTICLE V - -------------------------------------------------------------------------------- VESTING AND FORFEITURES 5.1 Full Vesting Upon Attainment of Event. A Participant's Accrued Benefit shall be fully vested and nonforfeitable upon the occurrence of any one or more of the following events: (a) completion of at least the minimum number of years of Vesting Service in the vesting schedule which applies to such Participant for a 100% nonforfeitable percentage; (b) attainment of Normal Retirement Date; or (c) he or she dies while an Employee. 5.2 Vesting Schedule and Forfeitures. (a) Vesting. If a Participant has a Termination of Employment, the Participant shall be vested and have a nonforfeitable right to his or her Accrued Benefit in his or her Account, determined in accordance with the following vesting schedule: Years of Vesting Service Nonforfeitable Percentage ------------------------ ------------------------- Less than 3 years 0% 3 years but less than 4 years 20% 4 years but less than 5 years 40% 5 years but less than 6 years 60% 6 years but less than 7 years 80% 7 years or more 100% Notwithstanding the above, with respect to each Participant who is an Eligible Employee on December 31, 1992, and who is employed by Orbital-Walbro, Inc. on that date, the vested portion of the Participant's Accrued Benefit is the vested percentage of the Participant's Account determined in accordance with the following table: Years of Vesting Service Nonforfeitable Percentage ------------------------ ------------------------- Less than 3 years 50% 3 years but less than 4 years 60% 4 years but less than 5 years 70% - 22 - 31 5 years but less than 6 years 80% 6 years but less than 7 years 90% 7 years or more 100% 5.3 Forfeitures. (a) Forfeiture Where Payment Commences After a Period of Severance. If no Payment Date of a Participant's nonforfeitable Accrued Benefit occurs after the Participant incurs a Period of Severance of sixty (60) consecutive months, that portion of the Participant's Accrued Benefit (which is Employer-derived) which is forfeitable as of his or her Termination of Employment shall be forfeited as of the Valuation Date coincident with or next following the completion of a Period of Severance of sixty (60) consecutive months. If the Participant is reemployed as an Employee prior to having incurred a Period of Severance of sixty (60) consecutive months, the Forfeiture shall not occur. If the Participant is reemployed as an Employee after incurring a Period of Severance of sixty (60) consecutive months, the Participant shall be fully vested and have a nonforfeitable interest in that portion of his or her Accounts accrued prior to the Period of Severance of sixty (60) consecutive months and not forfeited as a result of such Period of Severance. A Participant who incurs a Termination of Employment with a zero vested interest in his or her Accrued Benefit (which is Employer-derived) shall be deemed to have a Payment Date and a Forfeiture of his or her Accrued Benefit as of such Termination of Employment. (b) Forfeiture Where Payment Commences Prior to a Period of Severance. If the Payment Date of a Participant's nonforfeitable percentage of his or her Accrued Benefit occurs prior to having incurred a Period of Severance of sixty (60) consecutive months, that portion of his or her Accrued Benefit which is forfeitable shall be forfeited as of the Payment Date. Thereafter, if such person is rehired as an Employee prior to incurring a Period of Severance of sixty (60) consecutive months, he or she shall be entitled to make repayment to the Plan of the full amount distributed to him or her on or after the Payment Date no later than (1) the date he or she incurs a Period of Severance of sixty (60) consecutive months, and (2) the last day of the sixty (60) consecutive month period commencing on or after his or her date of reemployment. Upon making repayment in a single payment of the Fair Market Value (determined as of the Payment Date) of the aggregate Accrued Benefit distributed to him or her, the Fair Market Value of the Accrued Benefit which was forfeited and repaid shall be reinstated to his Account as of the coincident or next following Valuation Date. The amount required to restore such Participant's Accounts shall be charged against the Plan's Forfeitures, and if insufficient, be made up from additional Contributions. Where a Participant has been deemed to have a Payment Date because he or she had a zero vested interest in his or her Accrued Benefit, he or she will be deemed to have made the repayment required by this subparagraph on his or her date of hire. - 23 - 32 If the Employee makes the above-described repayment, such repayment shall be considered to be the "investment in the contract" for purposes of Sections 72(c)(1)(A), 72(f) and 402(e)(4)(D)(i) of the Code in relation to the amount reinstated in his Employer Contribution Account on account of the repayment. 5.4 Forfeiture Account. A Forfeiture will be posted, no later than the end of the Plan Year in which the Forfeiture arises, to the Forfeiture Account on the Settlement Date for the Trade Date on which the Custodian, at the direction of the Committee, has converted the Forfeiture to cash. The Forfeiture Account shall be invested in interest bearing deposits of the Custodian or short term money market instruments. No later than the end of each Plan Year, the Forfeiture Account shall be used to reduce Contributions, as determined by the Committee, or pay expenses of the Plan. - 24 - 33 ARTICLE VI - -------------------------------------------------------------------------------- DISTRIBUTIONS ON AND AFTER TERMINATION OF EMPLOYMENT 6.1 Request for Distribution of Benefits. (a) Request for Distribution. Subject to the other requirements of this Article, a Participant may elect to have his or her vested Accrued Benefit paid to him or her beginning upon any Settlement Date following his or her Termination of Employment by submitting a completed distribution election in accordance with a procedure established by the Committee. Such election form shall include or be accompanied by a notice which provides the Participant with information regarding all optional times and forms of payment available. The election must be submitted to the Committee by the Sweep Date that relates to the Payment Date. (b) Failure to Request Distribution. If a Participant has a Termination of Employment and fails to submit a distribution request in accordance with a procedure established by the Committee by the last Payment Date permitted under this Article, his or her vested Accrued Benefit shall be valued as of the Valuation Date which immediately precedes such latest date of distribution (called the "Default Valuation Date") and a notice of such deemed distribution shall be issued to his or her last known address as soon as administratively possible. If the Participant does not respond to the notice or cannot be located, his or her vested Accrued Benefit determined on the Default Valuation Date shall be treated as a Forfeiture. If the Participant subsequently files a claim, the amount forfeited (unadjusted for gains and losses) shall be reinstated to his or her Accounts and distributed as soon as administratively feasible, and such payment shall be accounted for by charging it against the Forfeiture Account or by a contribution from the Employer of the affected Participant. 6.2 Deadline for Distribution. (a) General. In addition to any other Plan requirements and unless the Participant elects otherwise, or cannot be located, the Payment Date of a Participant's vested Accrued Benefit shall be not later than sixty (60) days after the latest of the close of the Plan Year in which (i) the Participant attains the earlier of age sixty-five (65) or his or her Normal Retirement Date, (ii) occurs the tenth (10th) anniversary of the Plan Year in which the Participant commenced participation, or (iii) the Participant had a Termination of Employment. However, if the amount of the payment or the location of the Participant (after a reasonable search) cannot be ascertained by that deadline, payment shall be made no later than sixty (60) days after the earliest date on which such amount or location is ascertained. In any case, the Payment Date of a Participant's vested Accrued Benefit shall not be later than April 1 following the - 25 - 34 calendar year in which the Participant attains age seventy and one-half (70 1/2) and each December 31 thereafter and shall comply with the requirements of Section 401(a)(9) of the Code and the Treasury Regulations promulgated thereunder. (b) Special Benefit Commencement Dates. In addition to any other Plan requirements, the Payment Date of a Participant's vested Accrued Benefit held in his or her Account shall be not later than the following applicable date: (1) In the case of a Participant who has reached his Normal Retirement Date, is Disabled, or who has died, and who has elected distribution of his vested Accrued Benefit, the Payment Date shall be no later than one year after the end of the Plan Year during which the Participant incurred a Termination of Employment. (2) In the case of a Participant who has incurred a Termination of Employment for reasons other than in (1), the Payment Date shall be no later than one year after the end of the fifth Plan Year following the Plan Year in which the Participant incurred a Termination of Employment unless the Participant is reemployed as an Employee before that Payment Date. For purposes of this paragraph, a Participant's Account shall not include any portion of such Account attributable to Financed Shares acquired with the proceeds of an Acquisition Loan until the end of the Plan Year in which the Acquisition Loan is repaid in full. 6.3 Payment Form and Medium. (a) Form of Payment of Benefits. A Participant's Accrued Benefit shall be paid in the form of a lump sum or in annual installments. (b) Right to Demand Company Stock. A Participant's Accrued Benefit payable under the Plan will be distributed in cash, shares of Company Stock, or a combination of both, as determined by the Trustee; provided however, that each Participant shall be notified of his right to demand distribution of his Accrued Benefit entirely in whole shares of Company Stock with the value of any fractional share paid in cash. (c) Rights, Options and Restrictions on Company Stock. Except as otherwise provided herein, no shares of Company Stock held or distributed by the Trustee may be subject to a put, call or other option, or buy-sell or similar arrangement. The provisions of this Section shall continue to be applicable to Company Stock even if the Plan ceases to be an employee stock ownership plan under Section 4975(e)(7) of the Code. - 26 - 35 (1) Right of First Refusal. Any shares of Company Stock distributed by the Trust, if neither listed on a national securities exchange registered under Section 6 of the Securities Exchange Act of 1934 or quoted on a system sponsored by a national securities association, registered under Section 15A(b) of the Securities Exchange Act, shall be subject to a "right of first refusal." The right of first refusal shall provide that, prior to any subsequent transfer of such shares, the shares must first be offered for purchase in writing to the Company, and then to the Trust, at the then fair market value. A bona fide written offer from an independent prospective buyer shall be deemed to be the fair market value of such Company Stock for this purpose. The Company and the Trustee shall have a total of fourteen (14) days to exercise the right of first refusal on the same terms offered by a prospective buyer. The Company may require that a Participant entitled to a distribution of Company Stock execute an appropriate stock transfer agreement (evidencing the right of first refusal prior to receiving a certificate for Company Stock). (2) Put Option. The Company shall issue a "put option" to any Participant who receives a distribution from the Trust of Company Stock which is not readily tradable on an established market. The put option shall permit the Participant to sell such Company Stock to the Company at any time during two option periods, at the Fair Market Value of such shares. The first put option period shall be for at least sixty (60) days beginning on the date of distribution. The second put option period shall be for at least sixty (60) days beginning after notice to the Participant in the following Plan Year. The Company may allow the Trustee to purchase shares of Company Stock tendered to the Company under a put option. The payment for any Company Stock sold under a put option shall be made in a single sum or adequately secured and made in substantially equal, annual installments over a period not exceeding five (5) years, with interest payable at a reasonable rate on any unpaid installment balance (as determined by the Company or the Trustee). The first installment shall be paid within thirty (30) days after the Participant exercises the put option. In the event the Trustee purchases Company Stock by installment payments, such shares shall be held in an Unallocated Inventory account with respect to such Acquisition Loan. (3) Investment Legend. Shares of Company Stock held or distributed by the Trustee may include such legend restrictions on transferability as the Company may reasonably require in order to assure compliance with applicable Federal and state securities laws. 6.4 Small Amounts Paid Immediately. If a Participant has a Termination of Employment and the Participant's Vested Accrued Benefit does not exceed and has never exceeded $3,500 at the time of any prior distribution, the Participant's Accrued - 27 - 36 Benefit shall be paid as a single sum as soon as administratively feasible after his or her Termination of Employment. 6.5 Payment Within Life Expectancy. The Participant's payment election must be consistent with the requirement of Code section 401(a)(9) that all payments are to be completed within a period not to exceed the lives or the joint and last survivor life expectancy of the Participant or his or her Beneficiary. The life expectancies of a Participant and his or her spouse may be recomputed annually. 6.6 Incidental Benefit Rule. The Participant's payment election must be consistent with the requirement that, if the Participant's Spouse is not his or her sole primary Beneficiary, the minimum annual distribution for each calendar year, beginning with the year in which he or she attains age seventy and one-half (70 1/2), shall not be less than the quotient obtained by dividing (a) the Participant's vested Accrued Benefit as of the last Trade Date of the preceding year by (b) the applicable divisor as determined under the incidental benefit requirements of Code Section 401(a)(9). 6.7 Dividend Distributions. Any cash dividends on Company Stock allocated to the Account of a Participant may be paid currently (or within ninety (90) days after the end of the Plan Year in which the dividends are paid to the Trust) in cash to such Participant on a nondiscriminatory basis, as determined by the Committee. Such distribution (if any) of cash dividends to a Participant may be limited to a Participant who is still an Employee, may be limited to dividends on shares of Company Stock which are then vested or may be applicable to dividends on all shares allocated to Accounts. The decision as to whether cash dividends on Company Stock will be distributed to Participants or held in the Trust shall be made in the sole discretion of the Committee, and the Committee may request the Company to pay such dividends directly to Participants. 6.8 Direct Rollover. With respect to any payment in excess of $200 hereunder which constitutes an Eligible Rollover Distribution, a Distributee may direct the Committee to have such payment paid in the form of a Trustee Transfer, in accordance with procedures established by the Committee, provided the Committee receives written Notice of such direction with specific instructions as to the Eligible Retirement Plan on or prior to the applicable Sweep Date for payment. If the Participant does not transfer all of such payment, the minimum amount which can be transferred is $500. - 28 - 37 ARTICLE VII - -------------------------------------------------------------------------------- DISTRIBUTION OF ACCRUED BENEFITS ON DEATH 7.1 Payment to Beneficiary. On the death of a Participant prior to his or her Payment Date, his or her vested Accrued Benefit shall be paid to the Beneficiary or Beneficiaries designated by the Participant in accordance with the procedure established by the Committee. Death of a Participant on or after his or her Payment Date shall result in payment to his or her Beneficiary of whatever death benefit is provided by the form of payment in effect on his or her Payment Date. 7.2 Beneficiary Designation. Each Participant shall complete a beneficiary designation indicating the Beneficiary who is to receive the Participant's remaining Plan interest at the time of his or her death. The Participant may change such designation of Beneficiary from time to time by filing a new beneficiary designation with the Committee. No designation of Beneficiary or change of Beneficiary shall be effective until properly filed with the Committee. Notwithstanding any designation to the contrary, the Participant's Beneficiary shall be the Participant's Spouse to whom the Participant is legally married under the laws of the State of the Participant's residence on the date of the Participant's death and surviving him or her on such date, unless such designation includes Spousal Consent. If the Participant dies leaving no Spouse and either (1) the Participant shall have failed to file a valid beneficiary designation, or (2) all persons designated on the beneficiary designation shall have predeceased the Participant, the Committee shall have the Custodian distribute such Participant's Accrued Benefit in a single sum to his or her estate. 7.3 Benefit Election. (a) Request for Distribution. In the event of a Participant's death prior to his or her Payment Date, a Beneficiary may elect to have the vested Accrued Benefit of a deceased Participant paid to him or her beginning upon any Settlement Date following the Participant's date of death by submitting a completed distribution election in accordance with the procedure established by the Committee. The election must be submitted to the Committee by the Sweep Date that relates to the Settlement Date upon which payments are to begin. (b) Failure to Request Distribution. In the event a Beneficiary fails to submit a timely distribution request, his or her vested Accrued Benefit shall be valued as of the Valuation Date which immediately precedes such latest date of distribution (called the "Default Valuation Date") and a notice of such deemed distribution shall be issued to his or her last known address as soon as administratively possible. If the Beneficiary does not respond to the notice or cannot be located, his or her vested Accrued Benefit determined on the Default Valuation Date shall be treated as a Forfeiture. If the Beneficiary subsequently - 29 - 38 files a claim, the amount forfeited (unadjusted for gains and losses) shall be reinstated to his or her Accounts and distributed as soon as administratively feasible, and such payment shall be accounted for by charging it against the Forfeiture or by a Contribution from the Employer of the affected Beneficiary. 7.4 Payment Form. In the event of a Participant's death prior to his or her Payment Date, a Beneficiary shall be limited to the same form of payment as the Participant was limited. 7.5 Time Limit for Payment to Beneficiary. Payment to a Beneficiary must either: (a) be completed within five (5) years of the Participant's death; or (b) begin within one year of his or her death and be completed within the period of the Beneficiary's lifetime, except that: (1) If the Participant dies after the April 1 immediately following the end of the calendar year in which he or she attains age seventy and one-half (70 1/2), payment to his or her Beneficiary must be made at least as rapidly as provided in the Participant's distribution election; (2) If the surviving Spouse is the Beneficiary, payments need not begin until the date on which the Participant would have attained age seventy and one-half (70 1/2) and must be completed within the Spouse's lifetime; and (3) If the Participant and the surviving Spouse who is the Beneficiary die (A) before the April 1 immediately following the end of the calendar year in which the Participant would have attained age seventy and one-half (70 1/2); and (B) before payments have begun to the Spouse, the Spouse will be treated as the Participant in applying these rules. 7.6 Direct Rollover. With respect to any payment in excess of $200 hereunder which constitutes an Eligible Rollover Distribution, a Distributee may direct the Committee to have such payment paid in the form of a Trustee Transfer, in accordance with the procedure established by the Committee, provided the Committee receives written Notice of such direction with specific instructions as to the Eligible Retirement Plan on or prior to the applicable Sweep Date for payment. If the Participant does not transfer all of such payment, the minimum amount which can be transferred is $500. - 30 - 39 ARTICLE VIII - -------------------------------------------------------------------------------- MAXIMUM CONTRIBUTIONS 8.1 Definitions. (a) "Annual Additions" means with respect to a Participant for any Plan Year the sum of: (1) Contributions and Forfeitures (and any earnings thereon) allocated as of a date within the Plan Year; (2) All contributions, forfeitures and suspended amounts (and income thereon) for such Plan Year, allocated to such Participant's account(s) under any Related Defined Contribution Plan as of a date within such Plan Year; (3) The sum of all after-tax contributions of the Participant to Related Plans for the Plan Year and allocated to such Participant's accounts under such Related Plans as of a date within such Plan Year ("Aggregate Employee Contributions"); (4) Solely for purposes of this Section, all contributions to any "separate account" (as defined in Section 419A(d) of the Code) allocated to such Participant as of a date within the Plan Year if such Participant is a "Key Employee" within the meaning of Code Section 416(i); and (5) Solely for purposes of this Section, all amounts allocated, after March 31, 1984, to an individual medical account, as defined in section 415(l)(2) of the Code, which is part of a pension or annuity plan maintained by the Company. Notwithstanding the above, Annual Additions shall not include any Forfeitures of Company Stock acquired with an Acquisition Loan allocated to such Participant's Account as of a date within such Plan Year, and such portion of Contributions applied by the Plan to the repayment of interest on an Acquisition Loan and charged against the Participant's Account as of a date within such Plan Year. (b) "Maximum Annual Additions" of a Participant for a Plan Year means the lesser of: - 31 - 40 (1) twenty-five percent (25%) of the Participant's Compensation, or (2) the greater of thirty thousand dollars ($30,000) or one-quarter of the dollar limitation in Code Section 415(b)(1)(A) as adjusted for cost of living increases (determined in accordance with regulations prescribed by the Secretary of the Treasury or his or her delegate pursuant to the provisions of Section 415(d) of the Code). (c) "Annual Excess" means, for each Participant affected, the amount by which the allocable Annual Additions for such Participant exceeds or would exceed the Maximum Annual Addition for such Participant. 8.2 Avoiding an Annual Excess. Notwithstanding any other provision of this Plan, a Participant's "Annual Additions" for any Plan Year, which is hereby designated as the "limitation year" for the Plan, as that term is used in Section 415 of the Code, shall not exceed his or her "Maximum Annual Additions." If, at any time during a Plan Year, the allocation of additional Contributions for a Plan Year would produce an Annual Excess, the affected Participant shall receive the Maximum Annual Addition from Contributions, and, at the direction of the Committee, for the remainder of the Plan Year Contributions will be reduced, if possible, to the amount needed for each affected Participant to receive the Maximum Annual Addition. Notwithstanding the foregoing, with respect to any Plan Year for which Annual Additions (without application of the last sentence thereof) would exceed Maximum Annual Additions, then no more than one-third (1/3) of the Contributions for such Plan Year which are deductible under Section 404(a)(9) of the Code may be allocated to HCEs. Any amount in excess of one-third (1/3) of the Contributions for such Plan Year which are deductible under Section 404(a)(9) of the Code and which would (without regard to the preceding sentence) otherwise be allocable to HCEs shall be, with respect to such Plan Year, allocated to the Accounts of any Participants who are not HCEs in the same manner as Contributions are allocated. 8.3 Correcting an Annual Excess. If for any Plan Year as a result of a reasonable error in estimating a person's Compensation, or such other facts and circumstances which the Internal Revenue Service will permit, a Participant's Annual Excess shall be treated in the following manner: (a) Aggregate Employee Contributions allocable under a Related Plan shall be distributed to the Participant, if permitted, by the amount of the Annual Excess. (b) If any Annual Excess (adjusted for investment gains and losses) remains, Contributions shall be a Forfeiture for such Participant from Contributions. - 32 - 41 (c) Any Forfeiture of a Participant's allocations of Contributions under subparagraph above shall be held in the Forfeiture Account and shall be used for the Plan Year to reduce Contributions. If any such amount remains in the Forfeiture Account, it shall again be held in suspense in the Forfeiture Account and be utilized to reduce future Contributions for succeeding Plan Years. (d) Any amounts held in suspense in the Forfeiture Account pursuant to Paragraph above remaining upon Plan termination shall be returned to the Employers in such proportions as shall be determined by the Committee. 8.4 Correcting a Multiple Plan Excess. If a Participant's Accounts have or would have an Annual Excess, the Annual Excess shall be corrected by reducing the Annual Addition to this Plan before reductions have been made to other Related Defined Contribution Plans. 8.5 Two-Plan Limit. If a Participant participates in any Related Defined Benefit Plan, the sum of the "Defined Benefit Plan Fraction" (as defined below) and the "Defined Contribution Plan Fraction" (as defined below) for such Participant shall not exceed one (called the "Combined Fraction"). (a) "Defined Benefit Plan Fraction" means, for any Plan Year, a fraction, the numerator of which is the projected benefit payable pursuant to Code Section 415(e)(2)(A) under all Related Defined Benefit Plans and the denominator of which is the lesser of: (i) the product of 1.25 and the dollar limit in effect for the Plan Year under Code Section 415(b)(1)(A), and (ii) the product of 1.4 and one hundred percent (100%) of the Participant's average Compensation for his or her high three (3) years. (b) "Defined Contribution Plan Fraction" means, for any Plan Year, a fraction, the numerator of which is the sum of the Annual Additions (as determined pursuant to Section 415(c) of the Code in effect for such Plan Year) to a Participant's Accounts as of the end of the Plan Year under the Plan or any Related Defined Contribution Plan, and the denominator of which is the lesser of: (1) The sum of the products of 1.25 and the dollar limit under Code Section 415(c)(1)(A) for such Plan Year and for each prior year of service with a Commonly Controlled Entity and its predecessor, and - 33 - 42 (2) the sum of the products of 1.4 and twenty-five percent (25%) of the Participant's Compensation for such Plan Year and for each prior year of service with a Commonly Controlled Entity and its predecessor. If the Combined Fraction of such Participant exceeds one and if the Related Defined Benefit Plan permits it, the Participant's Defined Benefit Plan Fraction shall be reduced by limiting the Participant's annual benefits payable from the Related Defined Benefit Plan in which he or she participates to the extent necessary to reduce the Combined Fraction of such Participant to one. 8.6 Short Plan Year. With respect to any change of the Plan Year (and co-existent limitation year), the dollar limitation of the Maximum Annual Addition for such Plan Year shall be determined by multiplying such dollar amount by a fraction, the numerator of which is the number of months (including fractional parts of a month) in the short Plan Year, and the denominator of which is twelve (12). 8.7 Grandfathering of Applicable Limitations. The Plan shall recognize and apply any grandfathering of applicable benefits and contributions limitations which are permitted under ERISA, the Tax Equity and Fiscal Responsibility Act of 1982 and the Tax Reform Act of 1986. - 34 - 43 ARTICLE IX - -------------------------------------------------------------------------------- CUSTODIAL ARRANGEMENTS 9.1 Custodial Agreement. The Committee may enter into one or more Custodial Agreements to provide for the holding, investment and payment of Plan assets, or direct by execution of an insurance contract that all or a specified portion of the Plan's assets be held, invested and paid under such a contract. All Custodial Agreements, as from time to time amended, shall continue in force and shall be deemed to form a part of the Plan. Subject to the requirements of the Code and ERISA, the Committee may cause assets of the Plan which are securities to be held in the name of a nominee or in street name provided such securities are held on behalf of the Plan by: (a) a bank or trust company that is subject to supervision by the United States or a State, or a nominee of such bank or trust company; (b) a broker or dealer registered under the Securities Exchange Act of 1934, or a nominee of such broker or dealer; or (c) a "clearing agency" as defined in Section 3(a)(23) of the Securities Exchange Act of 1934, or its nominee. 9.2 Selection of Custodian. The Committee shall select, remove or replace the Custodian in accordance with the Custodial Agreement. The subsequent resignation or removal of a Custodian and the approval of its accounts shall all be accomplished in the manner provided in the Custodial Agreement. 9.3 Custodian's Duties. Except as provided in ERISA, the powers, duties and responsibilities of the Custodian shall be as stated in the Custodial Agreement, and unless expressly stated or delegated to the Custodian (with the Custodian's acceptance), nothing contained in this Plan shall be deemed by implication to impose any additional powers, duties or responsibilities upon the Custodian. All Contributions shall be paid into the Trust, and all benefits payable under the Plan shall be paid from the Trust, except to the extent such amounts are paid to a Custodian other than the Trustee. An Employer shall have no rights or claims of any nature in or to the assets of the Plan except the right to require the Custodian to hold, use, apply and pay such assets in its hands, in accordance with the directions of the Committee, for the exclusive benefit of the Participants and their Beneficiaries, except as hereinafter provided. 9.4 Separate Entity. The Custodial Agreement under this Plan from its inception shall be a separate entity aside and apart from Employers or their assets, and the corpus and income thereof shall in no event and in no manner whatsoever be subject to the rights or claims of any creditor of any Employer. - 35 - 44 9.5 Plan Asset Valuation. As of each Valuation Date, the Fair Market Value of the Plan's assets held or posted to the Trust Fund shall be determined by the Committee or the Custodian, as appropriate. 9.6 Right of Employers to Plan Assets. The Employers shall have no right or claim of any nature in or to the assets of the Plan except the right to require the Custodian to hold, use, apply, and pay such assets in its possession in accordance with the Plan for the exclusive benefit of the Participants or their Beneficiaries and for defraying the reasonable expenses of administering the Plan; provided, that: (a) if the Plan receives an adverse determination with respect to its initial qualification under Section 401(a) of the Code, Contributions conditioned upon the qualification of the Plan shall be returned to the appropriate Employer within one (1) year of such denial of qualification; provided, that the application for determination of initial qualification is made by the time prescribed by law for filing the respective Employer's return for the taxable year in which the Plan is adopted, or by such later date as is prescribed by the Secretary of the Treasury under Section 403(c)(2)(B) of ERISA; (b) if, and to the extent that, deduction for a Contribution under Section 404 of the Code is disallowed, Contributions conditioned upon deductibility shall be returned to the appropriate Employer within one (1) year after the disallowance of the deduction; (c) if, and to the extent that, a Contribution is made through mistake of fact, such Contribution shall be returned to the appropriate Employer within one year of the payment of the Contribution; (d) any amounts held suspended pursuant to the limitations of Code Section 415 shall be returned to the Employers upon termination of the Plan; and (e) Financed Shares held in Unallocated Inventory with respect to any Acquisition Loan, and the outstanding balance of the Net Repayment Fund to the extent of a default of an Acquisition Loan between the Trust and an Employer, but only upon (and to the extent of) the failure of the Plan to meet the payment schedule of such Acquisition Loan. All Contributions made hereunder are conditioned upon the Plan being qualified under Sections 401(a) or of the Code and a deduction being allowed for such contributions under Section 404 of the Code. If these provisions result in the return of Contributions after such amounts have been allocated to Accounts, such Accounts shall be reduced by the amount of the allocation attributable to such amount, adjusted for any losses or expenses. - 36 - 45 9.7 Authority to Borrow. (a) Terms of Loan. At the direction of the Committee, the Trustee may incur Acquisition Loans from time to time to finance or refinance the acquisition of Company Stock in accordance with the terms of the Trust Agreement. An installment obligation incurred in connection with the purchase of Company Stock shall constitute an Acquisition Loan. An Acquisition Loan shall be for a specific term, shall bear a reasonable rate of interest and shall not be payable on demand except in the event of default. An Acquisition Loan may be secured by a pledge of the Financed Shares so acquired or so refinanced. No other Trust assets may be pledged as collateral for an Acquisition Loan, and no lender shall have recourse against Trust assets other than any Financed Shares remaining subject to pledge. If the lender is a party in interest (as defined in ERISA), Financed Shares may be transferred to the lender only upon and to the extent of the failure of the Plan to meet the payment schedule of the loan. Any pledge of Financed Shares must provide for the release of the shares so pledged in accordance with this Section as payments on the Acquisition Loan are made by the Trustee. The Committee shall not direct the Trust to make payments of principal and, if applicable, interest on any Acquisition Loan in an amount greater than the Net Repayment Fund plus any cash dividend available on allocated shares of Company Stock. (b) Release from Encumbrance. The number of Financed Shares to be released from Unallocated Inventory for each Plan Year shall be consistently determined with respect to any Acquisition Loan by the Committee as follows. The number of Financed Shares held in Unallocated Inventory immediately before the release for the current Plan Year shall be multiplied by a fraction. The numerator of the fraction shall be the amount of principal and interest paid on the Acquisition Loan for that Plan Year. The denominator of the fraction shall be the sum of the numerator plus the total payments of principal and interest on that Acquisition Loan projected to be paid for all future Plan Years. For this purpose, the interest to be paid in future years is to be computed by using the interest rate in effect as of the Valuation Date. For this purpose, Contributions used to repay an Acquisition Loan for a Plan Year shall be determined with reference to the taxable year of the Company ending with or within such Plan Year for which the Company claimed a deduction under Code Section 404(a) for such Contribution, and dividends used to repay an Acquisition Loan for a Plan Year shall be determined with reference to the taxable year of the Company ending with or within such Plan Year for which the Company claimed a deduction under Code Section 404(k) for such dividend. Notwithstanding the foregoing, the Committee may elect (at the time an Acquisition Loan is incurred), or the provisions of the Acquisition Loan may provide, for the release of Financed Shares from Unallocated Inventory based solely on a fraction, the numerator of which is the principal paid on the Acquisition Loan for that Plan Year and the denominator of which is the sum of the numerator plus the total payments of principal on the Acquisition Loan to - 37 - 46 be paid for all Plan Years after the Plan Year for which payment is made. This method may be used only to the extent that: (1) the Acquisition Loan provides for annual payments of principal and interest at a cumulative rate that is not less rapid at any time than level annual payments of such amounts for ten (10) years; (2) interest included in any payment on the Acquisition Loan is disregarded only to the extent that it would be determined to be interest under standard loan amortization tables; and (3) the entire duration of the Acquisition Loan repayment period does not exceed ten (10) years, even in the event of a renewal, extension or refinancing of the Acquisition Loan. - 38 - 47 ARTICLE X - -------------------------------------------------------------------------------- ADMINISTRATION AND INVESTMENT MANAGEMENT 10.1 Authority and Responsibility of the Board of Directors. The Board of Directors shall have overall responsibility for the establishment, amendment and termination of the Plan and for the establishment of a funding policy for the Plan. There is hereby delegated to the Committee, as set forth in this Plan and the Custodial Agreement, such responsibilities as are designated in each document. 10.2 Committee Membership. The Committee shall consist of not less than two (2) persons, who shall be appointed by the Board of Directors of the Company. In the absence of such appointment of the Committee, the Company will be the Committee. Committee members shall remain in office at the will of the Board of Directors and the Board of Directors may from time to time remove any of said members with or without cause and shall appoint their successors. 10.3 Committee Structure. Any individual may be a member of the Committee. Any member of the Committee may resign by delivering his or her written resignation to the Board of Directors, and such resignation shall become effective upon the date specified therein. A member who is an Employee shall automatically cease to be a member upon his or her Termination of Employment. In the event of a vacancy in membership, the remaining members shall constitute the Committee in question with full power to act until said vacancy is filled. 10.4 Committee Actions. The Committee may act as follows: (a) The members of the Committee may act at a meeting (including a meeting at different locations by telephone conference) or in writing without a meeting (through the use of a single document or concurrent document). (b) Any Committee member by writing may delegate any or all of his or her rights, powers, duties and discretions to any other member with the consent of such other member. (c) The Committee shall act by majority decision, which action shall be effective as if such action had been taken by all members of the Committee; provided that by majority action one or more Committee members or other persons may be authorized to act with respect to particular matters on behalf of all Committee members. (d) Subject to applicable law, no member of the Committee shall be liable for an act or omission of the other Committee members in which the former had not concurred. - 39 - 48 (e) Any action by the Committee under this Plan shall be treated as an action of a Named Fiduciary under this Plan; provided that, where reference is made in this Plan (or where the Committee designates in writing) that the action is on behalf of the Employer, the Committee shall be acting as an agent of the Employer, pursuant to authority granted by the Employer. 10.5 Compensation. The members of the Committee shall serve without compensation for their services as such. 10.6 Responsibility and Authority of the Committee Regarding Administration of the Plan. The Committee on behalf of the Participants will enforce the Plan in accordance with its respective terms and maintain the Plan in the form of a written document as required by law and to maintain its tax-exempt status under the Code. Unless otherwise specifically provided in the Plan, the Committee shall have full and complete authority, responsibility and control over the management, administration, and operation of the Plan, including, but not limited to, the authority and discretion to: (a) Formulate, adopt, issue and apply procedures and rules and change, alter or amend such procedures and rules in accordance with law and as may be consistent with the terms of the Plan; (b) Exercise such discretion as may be required to construe and apply the provisions of the Plan, subject only to the terms and conditions of the Plan; (c) Appoint and compensate such agents and other specialists (including attorneys, actuaries and accountants) to aid it in the administration of the Plan, and arrange for such clerical, accounting, legal or other services, as the Committee considers necessary or appropriate in carrying out the provisions of the Plan; (d) To appoint and compensate an independent outside accountant to conduct such audits of the financial statements of the Plan as the Committee considers necessary or appropriate; (e) Delegate to the Custodian any tax withholding or tax reporting obligations it may have under law; (f) Be the agent for service of legal process; (g) Determine the Accounting Periods and Sweep Date for various transactions; and (h) Take all necessary and proper acts as are required for the Committee to fulfill its duties and obligations under the Plan. - 40 - 49 10.7 Allocations and Delegations of Responsibility. (a) Delegations. Each Named Fiduciary, respectively, shall have the authority to delegate, from time to time, all or any part of its responsibilities under the Plan to such person or persons as it may deem advisable and to revoke any such delegation of responsibility. Any action of the delegate in the exercise of such delegated responsibilities shall have the same force and effect for all purposes hereunder as if such action had been taken by the Named Fiduciary. Any Named Fiduciary shall not be liable for any acts or omissions of any such delegate. The delegate shall report periodically to the Named Fiduciary, as applicable, concerning the discharge of the delegated responsibilities. (b) Allocations. Each Named Fiduciary, respectively, shall have the authority to allocate, from time to time, all or any part of its responsibilities under the Plan to one or more of its members as it may deem advisable, and to revoke such allocation of responsibilities. Any action of the member to whom responsibilities are allocated in the exercise of such allocated responsibilities shall have the same force and effect for all purposes hereunder as if such action had been taken by the Named Fiduciary. Any Named Fiduciary shall not be liable for any acts or omissions of such member. The member to whom responsibilities have been allocated shall report periodically to the Named Fiduciary, as applicable, concerning the discharge of the allocated responsibilities. (c) Limit on Liability. Fiduciary duties and responsibilities which have been allocated or delegated pursuant to the terms of the Plan or the Trust, are intended to limit the liability of each Named Fiduciary, as appropriate, in accordance with the provisions of Section 405(c)(2) of ERISA. 10.8 Committee Bonding. The members of the Committee shall serve without bond (except as otherwise required by federal law). 10.9 Information to be Supplied by Employer. Each Employer shall supply to the Committee, within a reasonable time of its request, the names of all Employees, their age, their date of hire, and the amount of Compensation paid to each Employee, the names and dates of all Employees who incurred a Termination of Employment during the Plan Year, and the Hours of Service earned by each Employee during the Plan Year. Each Employer shall provide to the Committee or its delegate such other information as it shall from time to time need in the discharge of its duties. The Committee may rely conclusively on the information certified to it by an Employer. 10.10 Records. The regularly kept records of the Committee (or, where applicable, the Custodian) and any Employer shall be conclusive evidence of the Accrued Benefit of a Participant, his or her Compensation, his or her age, his or her status as an Eligible Employee, and all other matters contained therein applicable to this Plan; provided that a Participant may request a correction in the record of his or - 41 - 50 her age at any time prior to retirement, and such correction shall be made if within ninety (90) days after such request he or she furnishes in support thereof a birth certificate, baptismal certificate, or other documentary proof of age satisfactory to the Committee. 10.11 Plan Expenses. All expenses of the Plan shall be paid by the Trust except to the extent paid by the Employers, and if paid by the Employers such Employers may seek reimbursement of such expenses from the Trust and the Trust shall reimburse the Employers if not prohibited by ERISA. If borne by the Employers, expenses of administering the Plan shall be borne by the Employers in such proportions as the Committee shall determine. 10.12 Fiduciary Capacity. Any person or group of persons may serve in more than one fiduciary capacity with respect to the Plan. 10.13 Employer's Agent. The Committee shall act as agent for each Employer in the administration of the Plan and the investment of the Plan's assets and the Company shall act as agent for each Employer in amending or terminating the Plan. 10.14 Plan Administrator. The Committee may appoint a plan administrator who may (but need not) be a member of the Committee; and in the absence of such appointment, the Committee shall be the plan administrator. 10.15 Appointment of Record-Keeper. The plan administrator has responsibility for the maintenance of the records of the Participants' Accounts in accordance with the terms of the Plan. Such records shall include year-to-date and life-to-date Contributions under the Plan (adjusted for gains, losses and distributions) allocated to each Participant's Accounts and such other information, including such information as the Committee or plan administrator require to satisfy their reporting and disclosure obligations under ERISA and the Code. The plan administrator also has responsibility for preparation and issuance of any and all reports required by the Code with respect to distributions under the Plan and the responsibility with respect to the withholding of any amounts required by the Code to be withheld at the source and to transmit funds withheld and any and all necessary reports with respect to such withholding to the Internal Revenue Service. 10.16 Plan Administrator Duties and Authority. Except to the extent that certain responsibilities may be reserved by the Committee to itself or delegated to other fiduciaries, the plan administrator shall perform all such duties as are necessary to operate, administer and manage the Plan in accordance with the terms thereof, including but not limited to the following: (a) to determine all questions relating to a Participant's eligibility for participation and benefits under the Plan and to finally resolve, in the exercise of its full and complete discretionary authority, any issues presented through the Plan claims procedure (and any final determination of the Committee shall - 42 - 51 not be subject to de novo review if challenged in court and shall not be overturned unless proven to be arbitrary and capricious upon the evidence considered by the Committee at the time of its decision); (b) to provide each Participant with a summary plan description no later than 90 days after he or she has become a Participant (or such other period permitted under ERISA Section 104(b)(1)), as well as informing each Participant of any material modification to the Plan in a timely manner; (c) to make appropriate determinations as to allocations of Contributions and the application of Forfeitures; (d) to interpret and construe the provisions of the Plan, to make regulations and settle disputes within limits which are not inconsistent with the terms thereof; (e) to adopt and prescribe procedures for giving instructions to the Committee, a Named Fiduciary or the Trustee; (f) to prepare and file reports, notices, and any other documents relating to the Plan which may be required by the Secretary of Labor, the Secretary of the Treasury or any other governmental department or agency, including, without limitation, those relating to a Participant's service, accrued benefits, the percentage of such benefits which are nonforfeitable, the date after which benefits are nonforfeitable even if the Participant dies and annual registrations; (g) to prepare and distribute to Participants all communication materials required by ERISA; (h) to compute and certify to the Custodian the amount and kind of benefits payable to or withdrawn from Participants and Beneficiaries and the date of payment, including withdrawals; and to prescribe procedures to be followed by Participants and Beneficiaries in claiming benefits; (i) to keep records relating to Participants and other matters applicable to this Plan, provided that the Committee and the Custodian may, by a separate written agreement, require that the Custodian keep such records; (j) to respond to a QDRO; (k) to make available for inspection and to provide upon request at such charge as may be permitted and determined by the Committee, documents and instruments required to be disclosed by ERISA; - 43 - 52 (l) to take such actions as are necessary to establish and maintain in full and timely compliance with any law or regulation having pertinence to this Plan; and (m) to have reasonable powers necessary or appropriate to accomplish its duties as plan administrator, including delegation to, employment of, or contracting for the services of others to assist in performing its duties. 10.17 Committee Decisions Final. The decision of the Committee in matters within its jurisdiction shall be final, binding, and conclusive upon the Employers and the Custodian and upon each Employee, Participant, Spouse, Beneficiary, and every other person or party interested or concerned. - 44 - 53 ARTICLE XI - -------------------------------------------------------------------------------- CLAIMS PROCEDURE 11.1 Initial Claim for Benefits. Each person entitled to benefits under this Plan (a "Claimant") must sign and submit his or her claim for benefits to the Committee or its agent in writing in such form as is provided or approved by such Committee. A Claimant shall have no right to seek review of a denial of benefits, or to bring any action in any court to enforce a claim for benefits prior to his or her filing a claim for benefits and exhausting his or her rights under this Section. When a claim for benefits has been filed properly, such claim for benefits shall be evaluated and the Claimant shall be notified by the Committee or agent of its approval or denial within ninety (90) days after the receipt of such claim unless special circumstances require an extension of time for processing the claim. If such an extension of time for processing is required, written notice of the extension shall be furnished to the Claimant by the Committee or agent prior to the termination of the initial ninety (90) day period which shall specify the special circumstances requiring an extension and the date by which a final decision will be reached (which date shall not be later than one hundred eighty (180) days after the date on which the claim was filed). A Claimant shall be given a written notice in which the Claimant shall be advised as to whether the claim is granted or denied, in whole or in part. If a claim is denied, in whole or in part, the Claimant shall be given written notice which shall contain (1) the specific reasons for the denial, (2) references to pertinent Plan provisions upon which the denial is based, (3) a description of any additional material or information necessary to perfect the claim and an explanation of why such material or information is necessary, and (4) the Claimant's rights to seek review of the denial. 11.2 Review of Claim Denial. If a claim is denied, in whole or in part (or if within the time periods prescribed for in the initial claim, the Committee or agent has not furnished the Claimant with a denial and the claim is therefore deemed denied), the Claimant shall have the right to request that the Committee review the denial, provided that the Claimant files a written request for review with the Committee within sixty (60) days after the date on which the Claimant received written notification of the denial. A Claimant (or his or her duly authorized representative) may review pertinent documents and submit issues and comments in writing to the Committee. Within sixty (60) days after a request for review is received, the review shall be made and the Claimant shall be advised in writing by the Committee of the decision on review, unless special circumstances require an extension of time for processing the review, in which case the Claimant shall be given a written notification by the Committee within such initial sixty (60) day period specifying the reasons for the extension and when such review shall be completed (provided that such review shall be completed within one hundred and twenty (120) days after the date on which the request for review was filed). The decision on review shall be forwarded to the Claimant by the Committee in writing and shall include specific reasons for the decision and references to Plan provisions upon which the decision is based. A - 45 - 54 decision on review shall be final and binding on all persons for all purposes. If a Claimant shall fail to file a request for review in accordance with the procedures described in this Section, such Claimant shall have no right to review and shall have no right to bring action in any court and the denial of the claim shall become final and binding on all persons for all purposes. - 46 - 55 ARTICLE XII - -------------------------------------------------------------------------------- ADOPTION AND WITHDRAWAL FROM PLAN 12.1 Procedure for Adoption. Any Commonly Controlled Entity may by resolution of such Commonly Controlled Entity's board of directors adopt the Plan for the benefit of its employees as of the date specified in the board resolution. No such adoption shall be effective until such adoption has been approved by the Committee. 12.2 Procedure for Withdrawal. Any Employer (other than the Company) may, by resolution of the board of directors of such Employer, with the consent of the Committee and subject to such conditions as may be imposed by the Committee, terminate its adoption of the Plan. Notwithstanding the foregoing, an Employer will be deemed to have terminated its adoption of the Plan when it ceases to be a Commonly Controlled Entity. With respect to any Participant whose Employer is deemed to have withdrawn from the Plan because it ceases to be a Commonly Controlled Entity, such Participant's Account shall be fully vested. - 47 - 56 ARTICLE XIII - -------------------------------------------------------------------------------- AMENDMENT, TERMINATION AND MERGER 13.1 Amendments. (a) Power to Amend. The Board of Directors on behalf of all Employers or the board of directors of an Employer, may amend, modify, change, revise or discontinue this Plan by amendment at any time; provided, however, that no amendment shall: (1) increase the duties or liabilities of the Custodian or the Committee without its written consent; (2) have the effect of vesting in any Employer any interest in any funds, securities or other property, subject to the terms of this Plan and the Custodial Agreement; (3) authorize or permit at any time any part of the corpus or income of the Plan's assets to be used or diverted to purposes other than for the exclusive benefit of Participants and Beneficiaries; (4) except to the extent permissible under ERISA and the Code, make it possible for any portion of the Trust assets to revert to an Employer to be used for, or diverted to, any purpose other than for the exclusive benefit of Participants and Beneficiaries entitled to Plan benefits and to defray reasonable expenses of administering the Plan; (5) amend the provisions of this Plan which either (1) state the amount and price of Company Stock to be awarded to designated officers or categories of officers and, specifically, the timing of such awards, or (2) set forth a formula that determines the amount, price and timing of such awards, shall not be amended more than once every six (6) months, other than to comport with changes in the Code, ERISA or the rules thereunder; and (6) have any retroactive effect as to deprive any such person of any benefit already accrued, except that no amendment made in order to conform the Plan as a plan described in Section 401(a) of the Code of which amendments are permitted by the Code or are required or permitted by any other statute relating to employees' trusts, or any official - 48 - 57 regulations or ruling issued pursuant thereto, shall be considered prejudicial to the rights of any such person. (b) Restriction on Amendment. No amendment to the Plan shall deprive a Participant of his or her nonforfeitable rights to benefits accrued to the date of the amendment. Further, if the vesting schedule of the Plan is amended, each Participant with at least three (3) years of Vesting Service with the Employer may elect, within a reasonable period after the adoption of the amendment, to have his or her nonforfeitable percentage computed under the Plan without regard to such amendment. The period during which the election may be made shall commence with the date the amendment is adopted and shall end on the latest of: (1) sixty (60) days after the amendment is adopted; (2) sixty (60) days after the amendment becomes effective; or (3) sixty (60) days after the Participant is issued written notice of the amendment by the Employer or the Committee. The preceding language concerning an amendment to the Plan's vesting schedule shall also apply when a Plan with a different vesting schedule is merged into this Plan. In addition to the foregoing, the Plan shall not be amended so as to eliminate an optional form of payment of an Accrued Benefit attributable to employment prior to the date of the amendment. The foregoing limitations do not apply to benefit accrual occurring after the date of the amendment. 13.2 Plan Termination. It is the expectation of the Company that it will continue the Plan and the payment of Contributions hereunder indefinitely, but the continuation of the Plan and the payment of Contributions hereunder is not assumed as a contractual obligation of the Company or any other Employer. The right is reserved by the Company to terminate the Plan at any time, and the right is reserved by the Company and any other Employer at any time to reduce, suspend or discontinue its Contributions hereunder, provided, however, that the Contributions for any Plan Year accrued or determined prior to the end of said year shall not after the end of said year be retroactively reduced, suspended or discontinued except as may be permitted by law. Upon termination of the Plan or complete discontinuance of Contributions hereunder (other than for the reason that the Employer has had no net profits or accumulated net profits), each Participant's Accrued Benefit shall be fully vested. Upon termination of the Plan or a complete discontinuance of Contributions, unclaimed amounts shall be applied as Forfeitures and any unallocated amounts shall be allocated to Participants who are Eligible Employees as of the date of such termination or discontinuance on the basis of Compensation for the Plan Year (or short Plan Year). Upon a partial termination of the Plan, the Accrued Benefit of each - 49 - 58 affected Participant shall be fully vested. In the event of termination of the Plan, the Committee shall direct the Custodian to distribute to each Participant the entire amount of his or her Accrued Benefit as soon as administratively possible, but not earlier than would be permitted in order to retain the Plan's qualified status under Section 401(a) of the Code, as if all Participants who are Employees had incurred a Termination of Employment on the Plan's termination date. If the Plan is terminated and neither the Company nor any Related Entity maintains another defined contribution plan (other than an employee stock ownership plan as defined in section 4975(e)(7) of the Code), the Committee may, pursuant to Section 411 of the Code, direct the Custodian to distribute a Participant's Accrued Benefit without the Participant's consent. If the Company or a Related Entity does at that time maintain another defined contribution plan, then the Committee may direct the Custodian to transfer the Participant's Accrued Benefit to that defined contribution plan without the Participant's consent if the Participant does not consent to an immediate distribution of his Accrued Benefit from this Plan. 13.3 Plan Merger. The Plan shall not merge or consolidate with, or transfer any assets or liabilities to any other plan, unless each person entitled to benefits would receive a benefit immediately after the merger, consolidation or transfer (if the Plan were then terminated) which is equal to or greater than the benefit he or she would have been entitled to immediately before the merger, consolidation or transfer (if the Plan were then terminated). The Committee shall amend or take such other action as is necessary to amend the Plan in order to satisfy the requirements applicable to any merger, consolidation or transfer of assets and liabilities. - 50 - 59 ARTICLE XIV - -------------------------------------------------------------------------------- SPECIAL TOP-HEAVY RULES 14.1 Application. Notwithstanding any provisions of this Plan to the contrary, the provisions of this Article shall apply and be effective for any Plan Year for which the Plan shall be determined to be a "Top-Heavy Plan" as provided and defined herein. 14.2 Special Terms. For purposes of this Article, the following terms shall have the following meanings: (a) "Aggregate Benefit" means the sum of: (1) the present value of the accrued benefit under each and all defined benefit plans in the Aggregation Group determined on each plan's individual Determination Date as if there were a termination of employment on the most recent date the plan is valued by an actuary for purposes of computing plan costs under Section 412 of the Code within the twelve (12) month period ending on the Determination Date of each such plan, but with respect to the first plan year of any such plan determined by taking into account the estimated accrued benefit as of the Determination Date; provided (A) the method of accrual used for the purpose of this Paragraph (1) shall be the same as that used under all plans maintained by all Employers and Commonly Controlled Entities if a single method is used by all stock plans or, otherwise, the slowest accrual method permitted under Section 411(b)(1)(C) of the Code, and (B) the actuarial assumptions to be applied for purposes of this Paragraph (1) shall be the same assumptions as those applied for purposes of determining the actuarial equivalents of optional benefits under the particular plan, except that the interest rate assumption shall be five percent (5%); (2) the present value of the accrued benefit (i.e., account balances) under each and all defined contribution plans in the Aggregation Group, valued as of the valuation date coinciding with or immediately preceding the Determination Date of each such plan, including (A) contributions made after the valuation date but on or prior to the Determination Date, (B) with respect to the first plan year of any plan, any contribution made subsequent - 51 - 60 to the Determination Date but allocable as of any date in the first plan year, or (C) with respect to any defined contribution plan subject to Section 412 of the Code, any contribution made after the Determination Date that is allocable as of a date on or prior to the Determination Date; and (3) the sum of each and all amounts distributed (other than a rollover or plan-to-plan transfer) from any Aggregation Group Plan, plus a rollover or plan-to-plan transfer initiated by the Employee and made to a plan which is not an Aggregation Group Plan within the Current Plan Year or within the preceding four (4) plan years of any such plan, provided such amounts are not already included in the present value of the accrued benefits as of the valuation date coincident with or immediately preceding the Determination Date. The Aggregate Benefit shall not include the value of any rollover or plan-to-plan transfer to an Aggregation Group Plan, which rollover or transfer was initiated by a Participant, was from a plan which was not maintained by an Employer or a Commonly Controlled Entity, and was made after December 31, 1983, nor shall the Aggregate Benefit include the value of employee contributions which are deductible pursuant to Section 219 of the Code. (b) "Aggregation Group" means the Plan and one or more plans (including plans that terminated) which is described in Section 401(a) of the Code, is an annuity contract described in Section 403(a) of the Code or is a simplified employee pension described in Section 408(k) of the Code maintained or adopted by an Employer or a Commonly Controlled Entity in the Current Plan Year or one of the four preceding Plan Years which is either a "Required Aggregation Group" or a "Permissive Aggregation Group". (1) A "Required Aggregation Group" means all Aggregation Group Plans in which either (1) a Key Employee participates or (2) which enables any Aggregation Group Plan in which a Key Employee participates to satisfy the requirements of Sections 401(a)(4) and 410 of the Code. (2) A "Permissive Aggregation Group" means Aggregation Group Plans included in the Required Aggregation Group, plus one or more other Aggregation Group Plans, as designated by the Committee in its sole discretion, which satisfy the requirements of Sections 401(a)(4) and 410 of the Code, when considered with the other component plans of the Required Aggregation Group. - 52 - 61 (c) "Aggregation Group Plan" means the Plan and each other plan in the Aggregation Group. (d) "Current Plan Year" means (1) with respect to the Plan, the Plan Year in which the Determination Date occurs, and (2) with respect to each other Aggregation Group Plan, the plan year of such other plan in which occurs the Determination Date of such other plan. (e) "Determination Date" means (1) with respect to the Plan and its Plan Year, the last day of the preceding Plan Year; or (2) with respect to any other Aggregation Group Plan in any calendar year during which the Plan is not the only component plan of an Aggregation Group, the determination date of each plan in such Aggregation Group to occur during the calendar year as determined under the provisions of each such plan. (f) "Former Key Employee" means an Employee (including a terminated Employee) who is not a Key Employee but who was a Key Employee. (g) "Key Employee" means an Employee (or a terminated Employee) who at any time during the Current Plan Year or at any time during the four preceding Plan Years is: (1) an officer of a Commonly Controlled Entity whose compensation from a Commonly Controlled Entity during the Plan Year is greater than fifty percent (50%) of the amount specified in Section 415(b)(1)(A) of the Code (as adjusted for cost-of-living increases by the Secretary of the Treasury) for the calendar year in which the Plan Year ends; provided, however, that no more than the lesser of (A) fifty (50) Employees, or (B) the greater of (i) three (3) Employees or (ii) ten percent (10%) (rounded to the next whole integer) of the greatest number of Employees during the Current Plan Year or any of the preceding four Plan Years shall be considered as officers for this purpose. Such officers considered will be those with the greatest annual compensation as an officer during the five (5) year period ending on the Determination Date; (2) One of the ten employees who owns (or is considered to own within the meaning of Section 318 of the Code) more than a one half percent (1/2%) interest in value and the largest percentage ownership interest in value in a Commonly Controlled Entity and whose total annual compensation from a Commonly Controlled Entity is not less than the amount specified in Section 415(b)(1)(A) of the Code (as adjusted for cost-of-living increases by the - 53 - 62 Secretary of the Treasury) for the calendar year in which the Plan Year ends; (3) A person who owns more than five percent (5%) of the value of the outstanding stock of any Commonly Controlled Entity or more than five percent (5%) of the total combined voting power of all stock of any Commonly Controlled Entity (considered separately) or; (4) A person who owns more than one percent (1%) of the value of the outstanding stock of a Commonly Controlled Entity or more than one percent (1%) of the total combined voting power of all stock of a Commonly Controlled Entity (considered separately) and whose total annual compensation (as defined in section 1.415-2(d) of the Treasury Regulations) from the Employer or a Commonly Controlled Entity is in excess of one hundred and fifty thousand dollars ($150,000). The rules of Section 416 (i)(1)(B) and (C) of the Code shall be applied for purposes of determining an Employee's ownership interest in a Commonly Controlled Entity for purposes of Paragraphs (3) and (4) herein. A Beneficiary (who would not otherwise be considered a Key Employee) of a deceased Key Employee shall be deemed to be a Key Employee in substitution for such deceased Key Employee. Any person who is a Key Employee under more than one of the four Paragraphs of this Section shall have his or her Aggregate Benefit under the Aggregation Group Plans counted only once with respect to computing the Aggregate Benefit of Key Employees as of any Determination Date. Any Employee who is not a Key Employee shall be a Non-Key Employee. (h) "Top-Heavy Plan" means the Plan with respect to any Plan Year if the Aggregate Benefit of all Key Employees or the Beneficiaries of Key Employees determined on the Determination Date is an amount in excess of sixty percent (60%) of the Aggregate Benefit of all persons who are Employees within the Current Plan Year; provided, that if an individual has not performed services for an Employer or a Commonly Controlled Entity at any time during the five (5) year period ending on the Determination Date, the individuals's Accrued Benefit shall not be taken into account. With respect to any calendar year during which the Plan is not the only Aggregation Group Plan, the ratio determined under the preceding sentence shall be computed based on the sum of the Aggregate Benefits of each Aggregation Group Plan totaled as of the last Determination Date of any Aggregation Group Plan to occur during the calendar year. 14.3 Minimum Contribution. For any Plan Year that the Plan shall be a Top-Heavy Plan, each Participant who is an Eligible Employee but who is neither a Key Employee nor a Former Key Employee on the last day of the Plan Year shall have - 54 - 63 allocated to his or her Account on the last day of the Plan Year a Contribution in an amount equal to the lesser of (1) 3 percent (3%) of such Participant's Compensation or (2) the amount which bears the same ratio or percentage to such Participant's Compensation for the Plan Year that the Contributions and Forfeitures allocated to the Account of a Key Employee bears to such Key Employee's Compensation, but taking into account only the Key Employee who has the highest such ratio or percentage for the Plan Year; provided, however, in no event shall such contribution on behalf of such Participant be less than five percent (5%) of such Compensation if any Aggregation Group Plan is a defined benefit plan which does not satisfy the minimum benefit requirements with respect to such Participant. The amount of Contributions required to be allocated under this Section for any Plan Year shall be reduced by the amount of Employer Contributions and Forfeitures allocated under this Plan on behalf of the Participant and employer contributions and forfeitures allocated on behalf of the Participant under any other defined contribution plan in the Aggregation Group for the Plan Year. Elective Deferrals to any Aggregation Group Plan made on behalf of a Participant in Plan Years beginning after December 31, 1984 but before January 1, 1989 shall be deemed to be Employer Contributions for the purpose of this Section. Elective Deferrals and matching contributions to Aggregation Group Plans in Plan Years beginning on or after January 1, 1989 shall not be used to meet the minimum contribution requirements of this Section. Where Employer Contributions and Forfeitures allocated on behalf of a Participant are insufficient to satisfy the minimum contribution otherwise required by this Section, an additional Contribution shall be made and allocated to the Account of such Participant. 14.4 Maximum Benefit Accrual. For any Plan Year that the Plan is a Top-Heavy Plan, the denominator of the "defined benefit plan fraction" and the denominator of the "defined contribution plan fraction" shall be determined by substituting "1.0" for "1.25"; provided, however, this limit shall not apply with respect to an Employee for any Plan Year during which he or she accrues no benefit under any plan of the Aggregation Group. The preceding sentence shall not apply if, within this Article, there is substituted "four percent (4%)" for "three percent (3%)" and "seven and one-half percent (7.5%)" for "five percent (5%)" and "ninety percent (90%)" for "sixty percent (60%)." 14.5 Special Vesting. If the Plan becomes a Top-Heavy Plan after the Effective Date, vesting for all Employees shall thereafter be accelerated to the extent the following vesting schedule produces a greater vested percentage for the Employee than the normal vesting schedule at any relevant time: - 55 - 64 Years of Vesting Service Vested Percentage ------------------------ ----------------- Less than 2 years 0% 2 years but less than 3 years 20% 3 years but less than 4 years 40% 4 years but less than 5 years 60% 5 years but less than 6 years 80% 6 years or more 100% - 56 - 65 ARTICLE XV - -------------------------------------------------------------------------------- MISCELLANEOUS PROVISIONS 15.1 Assignment and Alienation. As provided by Code Section 401(a)(13) and to the extent not otherwise required by law, no benefit provided by the Plan may be anticipated, assigned or alienated, except to create, assign or recognize a right to any benefit with respect to a Participant pursuant to a QDRO. 15.2 Protected Benefits. All benefits which are protected by the terms of Code Section 411(d)(6) and ERISA Section 204(g), which cannot be eliminated without adversely affecting the qualified status of the Plan on and after January 1, 1997, shall be provided under this Plan to Participants for whom such benefits are protected. The Committee shall cause such benefits to be determined and the terms and provisions of the Plan immediately prior to January 1, 1997 are incorporated herein by reference and made a part hereof, but only to the extent such terms and provisions are so protected. Otherwise, they shall operate within the terms and provisions of this Plan, as determined by the Committee. 15.3 Plan Does Not Affect Employment Rights. The Plan does not provide any employment rights to any Employee. The Employer expressly reserves the right to discharge an Employee at any time, with or without Cause, without regard to the effect such discharge would have upon the Employee's interest in the Plan. 15.4 Deduction of Taxes from Amounts Payable. The Custodian shall deduct from the amount to be distributed such amount as the Custodian, in its sole discretion, deems proper to protect the Custodian and the Plan's assets held under the Custodial Agreement against liability for the payment of death, succession, inheritance, income, or other taxes, and out of money so deducted, the Custodian may discharge any such liability and pay the amount remaining to the Participant, the Beneficiary or the deceased Participant's estate, as the case may be. 15.5 Facility of Payment. If a Participant or Beneficiary is declared an incompetent or is a minor and a conservator, guardian, or other person legally charged with his or her care has been appointed, any benefits to which such Participant or Beneficiary is entitled shall be payable to such conservator, guardian, or other person legally charged with his or her care. The decision of the Committee in such matters shall be final, binding, and conclusive upon the Employer and the Custodian and upon each Employee, Participant, Beneficiary, and every other person or party interested or concerned. An Employer, the Custodian and the Committee shall not be under any duty to see to the proper application of such payments. 15.6 Source of Benefits. All benefits payable under the Plan shall be paid or provided for solely from the Plan's assets held under the Custodial Agreement and the Employers assume no liability or responsibility therefor. - 57 - 66 15.7 Indemnification. To the extent permitted by law each Employer shall indemnify and hold harmless each member (and former member) of the Board of Directors, each member (and former member) of the Committee, and each officer and employee (and each former officer and employee) of an Employer to whom are (or were) delegated duties, responsibilities, and authority with respect to the Plan against all claims, liabilities, fines and penalties, and all expenses reasonably incurred by or imposed upon him or her (including but not limited to reasonable attorney fees and amounts paid in any settlement relating to the Plan) by reason of his or her service under the Plan if he or she did not act dishonestly, with gross negligence, or otherwise in knowing violation of the law under which such liability, loss, cost or expense arises. This indemnity shall not preclude such other indemnities as may be available under insurance purchased or provided by an Employer under any by-law, agreement, or otherwise, to the extent permitted by law. Payments of any indemnity, expenses or fees under this Section shall be made solely from assets of the Employer and shall not be made directly or indirectly from the assets of the Plan. 15.8 Reduction for Overpayment. The Committee shall, whenever it determines that a person has received benefit payments under this Plan in excess of the amount to which the person is entitled under the terms of the Plan, make two reasonable attempts to collect such overpayment from the person. 15.9 Limitation on Liability. No Employer nor any agent or representative of any Employer who is an employee, officer, or director of an Employer in any manner guarantees the assets of the Plan against loss or depreciation, and to the extent not prohibited by federal law, none of them shall be liable (except for his or her own gross negligence or willful misconduct), for any act or failure to act, done or omitted in good faith, with respect to the Plan. No Employer shall be responsible for any act or failure to act of any Custodian appointed to administer the assets of the Plan. 15.10 Company Merger. In the event any successor corporation to the Company, by merger, consolidation, purchase or otherwise, shall elect to adopt the Plan, such successor corporation shall be substituted hereunder for the Company upon filing in writing with the Custodian its election so to do. 15.11 Employees' Trust. The Plan and Custodial Agreement are created for the exclusive purpose of providing benefits to the Participants in the Plan and their Beneficiaries and defraying reasonable expenses of administering the Plan, and the Plan and Custodial Agreement shall be interpreted in a manner consistent with their being, respectively, a Plan described in Section 401(a) of the Code and Custodial Agreements exempt under Section 501(a) of the Code. At no time shall the assets of the Plan be diverted from the above purpose. 15.12 Gender and Number. Except when the context indicates to the contrary, when used herein, masculine terms shall be deemed to include the feminine, and singular the plural. - 58 - 67 15.13 Invalidity of Certain Provisions. If any provision of this Plan shall be held invalid or unenforceable, such invalidity or unenforceability shall not affect any other provisions hereof and the Plan shall be construed and enforced as if such provisions, to the extent invalid or unenforceable, had not been included. 15.14 Headings. The headings or articles are included solely for convenience of reference, and if there is any conflict between such headings and the text of this Plan, the text shall control. 15.15 Uniform and Nondiscriminatory Treatment. Any discretion exercisable hereunder by an Employer or the Committee shall be exercised in a uniform and nondiscriminatory manner. 15.16 Law Governing. The Plan shall be construed and enforced according to the laws of the state in which the Trust is located, to the extent not preempted by ERISA. 15.17 Notice and Information Requirements. Except as otherwise provided in this Plan or in the Custodial Agreement or as otherwise required by law, the Employer shall have no duty or obligation to affirmatively disclose to any Participant or Beneficiary, nor shall any Participant or Beneficiary have any right to be advised of, any material information regarding the Employer, at any time prior to, upon or in connection with the Employer's purchase, or any other distribution or transfer (or decision to defer any such distribution) of any Company Stock or any other stock held under the Plan. Executed this ____ day of __________, 1997, but effective as of the Effective Date. WALBRO CORPORATION By:________________________________ Title:_____________________________ - 59 - EX-10.5 12 EXHIBIT 10.5 1 EXHIBIT 10.5 EXHIBIT B WALBRO ENGINE MANAGEMENT CORPORATION I. Corporate Structure A. Puts structure in place for future sale, spin-off etc. of Walbro Engine Management Corporation if appropriate. B. Allows management to earn ownership in WEMC. C. Structure defines WEMC asset base and allows management to focus on maximizing cash flow. D. Structure allows clearer financial reporting and control. E. Structure clarifies to financial public Walbro's two businesses. F. Walbro has two separate businesses each in different stages of product life cycle. Automotive is in growth cycle, Engine Management is in a mature market with a forecasted down turn. It is time to reap the cash flow benefits from Engine Management. Therefore, cash generation is the appropriate measurement criteria for management. II. Valuation of WEMC A. Independent appraisal using a combination of the following: 1. Discounted cash flow 2. Book value 3. Liquidation value B. Valuation amount is the basis for incentive plan. January 11, 1991 2 WALBRO ENGINE MANAGEMENT CORPORATION MANAGEMENT EQUITY EARN OUT 1. The management of Walbro Engine Management (WEMC) will be given an opportunity to earn up to 15% equity in WEMC by generating operating cash flow sufficient to service $50,000,000 debt as illustrated in the debt service schedule. The threshold cumulative total payment needed to earn equity is all interest on the unpaid principal balance due plus 70% of original principal balance on a pro rata basis. If 70% of original principal is paid 0% If 80% of original principal is paid 5% If 90% of original principal is paid 10% If 100% of original principal is paid 15% VALUATION SCHEDULE Walbro Engine Management Corporation has an estimated value of $50,000,000 plus. Per the 11/30/90 balance sheet, book value of total assets over current liabilities is $51,443,000. Based on a net operating profit return of 18%, cash flow would support $50,000,000 debt and leave 2,664,000 for capital expenditures. Debt Service Schedule 10% Payment Interest Principal Balance Beginning 50,000,000 1st year 10,300,000 5,000,000 5,300,000 44,700,000 2nd year 10,300,000 4,470,000 5,830,000 38,870,000 3rd year 10,300,000 3,887,000 6,413,000 32,457,000 4th year 10,300,000 3,246,000 7,054,000 25,403,000 5th year 10,300,000 2,540,000 7,760,000 17,643,000 6th year 10,300,000 1,764,000 8,536,000 9,107,000 7th year 10,300,000 1,193,000 9,107,000 0 3 WALBRO ENGINE MANAGEMENT CORPORATION DEBT SERVICE CAPACITY SCHEDULE WEMC Income Statement 1991 Net Operating Profit 7,153 Interest Expense 5,000 ------ Net Operating Profit After Interest 2,153 Taxes 818 ------ Net Income 1,335 ------
WEMC Cash Flow Statement 1991 Net Income 1,335 Depreciation & Amortization 4,000 ------ Cash Flow From Operations 5,335 Interest Expense 5,000 ------ Available for Debt Service and Capital Expenditures 10,335 Debt Service Per Year 10,300 ------ Available for Capital Expenditures 35
------ 4 WALBRO ENGINE MANAGEMENT CORPORATION Balance Sheet 11/30/90
WCC WFE WSP WMX Total GmbH WEMC Assets Cash 14 70 298 382 Acct. Rec. 11,066 2,197 100 13,363 Inventory 8,513 1,166 1,484 11,163 Prepaids 3,070 486 364 3,920 Fixed Asset (Net) 21,317 3,107 5,928 1,975 32,327 Deferred Tools 1,343 1,343 Patents 451 451 Other 34 765 ------ ----- ----- ----- ------ Total Assets 45,808 7,727 8,074 2,075 63,684 ====== ===== ===== ===== ====== Liabilities Accounts Payable 3,370 2,703 203 6,276 Accrued Expense 3,346 1,174 348 4,868 Long-term Liab. 836 261 1,097 Long-term Debt 4,928 3,986 1,340 10,254 ----- ----- ----- ----- ------ Total Liabilities 6,716 9,641 4,798 1,340 22,495 Equity 41,189 ------ Total Liabilities & Equity 63,684 ======
5 WALBRO ENGINE MANAGEMENT CORPORATION TARGETED NET OPERATING PROFIT
14% 16% 18% Sales 68,994 68,994 68,994 NOP 9,659 11,039 12,419 R & D 812 812 812 -------- --------- -------- NOP Before Int. 8,847 10,227 11,607 Interest 5,000 5,000 5,000 ------- ------- ------- Net Inc Before Taxes 3,847 5,227 6,607 Taxes 1,539 2,090 2,643 ------- ------- ------- Net Income 2,308 3,137 3,964 ======= ======= =======
TARGETED CASH FLOW AND DEBT SERVICE
14% 16% 18% Net Income 2,308 3,137 3,964 Depreciation 4,000 4,000 4,000 Interest Expense 5,000 5,000 5,000 ------ ------ ------ Available for Debt Service 11,308 12,137 12,964 Debt Service 10,300 10,300 10,300 Available for Corporate Exp. 1,008 1,837 2,664 ====== ====== ======
6 WALBRO ENGINE MANAGEMENT CORPORATION ADMINISTRATION OF INCENTIVE PLAN 1. Committee of five individuals will administer the incentive plan. Membership as follows: A. Chairman Walbro Holding B. WEMC President C. WEMC Director of Operations D. Two Participants elected each year from the incentive pool. 2. Committee determines who will participate in the incentive program yearly in advance (estimate 10 people will participate). 3. Committee allocates 100 points each year to the individuals who are participating. 4. Based on the total equity earned over the five year period, each employee receives a percentage of it based on the number of points he has accumulated over the five year period divided by 500. 7 WALBRO ENGINE MANAGEMENT CORPORATION EARNED EQUITY ALLOCATION Example 1. Assumptions: Number of employees included in incentive program 10 -- Five equal payments of $10,300,000 per year Each employee has constant number of points allocated to him/her 2 Employees 150 points 4 Employees 200 points 4 Employees 150 points --- 500 points Because management met the payment schedule necessary to pay off $50,000,000 the following distribution of equity would occur. 2 Employees receive 15% of 15% = 2.25% each 4 Employees receive 10% of 15% = 1.5% each 4 Employees receive 7.5% of 15%= 1.125% each Example 2. Assumptions: Number of employees 10 1st and 2nd year 13 3rd, 4th and 5th year Payments $ 9,300,000 in 1st, 2nd and 3rd year $10,300,000 in 4th and 5th Points 1st and 2nd years Five employees 15 points each Five employees 5 points each 3rd, 4th and 5th years Five employees 12 points each Eight employees 5 points each Because management underpaid it's payment by $1,000,000 in each of the first three years, they were paying at the 90% rate or earning equity at the 10% rate instead of the 15% rate. Therefore, in the first three years there is 2% equity to allocate for each year. Five employees earned 66 points each 330 points Five employees earned 25 points each 125 points Three employees earned 15 points each 45 points --- 500 points 8 Equity to be Distributed (3years x 2% + 2years x 3%) = 12% Five employees earned (66/500 x 12%) = 1.58% each Five employees earned (25/500 x 12%) = .6% each Three employees earned (15/500 x 12%) = .36% each EX-10.7 13 EXHIBIT 10.7 1 EXHIBIT 10.7 JOINT VENTURE AGREEMENT This Joint Venture Agreement (the "Agreement") is made and entered into as of the day of January 1, 1993, between WALBRO AUTOMOTIVE CORPORATION, a Delaware corporation whose registered office is located at Auburn Hills, Michigan 48326 USA, ("Walbro"), and JAEGER S.A., a company incorporated under the laws of France with share capital of FRF 156,000,000, whose registered office is located at 19 rue Lavoisier, 9200 Nanterre France and registered at the Company and Commercial Registry of Nanterre number B552150195, represented by Frederic Girardot ("Jaeger"). Jaeger is an indirect, majority-controlled subsidiary of Magneti Marelli S.p.A., a company incorporated under the laws of Italy ("Marelli"). Walbro and Jaeger are hereinafter collectively referred to as "the parties". R E C I T A L S: A. Walbro designs and manufactures fuel delivery subsystems as original equipment for application on automotive electronic fuel injection systems. B. The parties believe, based on their extensive experience in different aspects of fuel delivery systems, that the market for fuel delivery systems will develop so as to offer important opportunities for suppliers that have the ability to design and manufacture integrated fuel delivery systems, which generally include a fuel pump, module, level sensor, bracket, tubes and flanges, connectors and filter (collectively, an "FDS"). C. Jaeger designs and manufactures, inter alia, various fuel level sensors, brackets and other ancillary components for applications in fuel delivery subsystems. D. Walbro has advanced technology with respect to automotive electronic fuel injection system components, making particular technological advancements in the design and manufacture of electric fuel pumps and other delivery system-related technology. E. In light of the foregoing and the parties' objective to compete effectively in the South American markets, the parties desire to utilize their respective strengths by establishing a Joint Venture (the "JV"), to be jointly owned by Walbro and Jaeger, to develop, manufacture and market integrated FDS and their component elements for sale to designated markets, as further described below. NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and undertakings provided herein, the parties agree as follows: ARTICLE I FORMATION OF THE JV 1.1 INCORPORATION. The parties will cause the incorporation and registration of the JV as sociedade por quotas de responsabilidade limitada ("Limitada") organized under the laws of Brazil. The Contrato Social of the JV ("Charter") shall be substantially in the form of EXHIBIT 1.1 attached hereto. 2 1.2 OWNERSHIP. The equity interest in the JV will be owned by the parties based on their percentage share of capital contributions of 51% for Jaeger and 49% for Walbro, as set forth in SECTION 2.1, as may be adjusted from time to time ("Capital Percentages"). Such ownership may be through direct or indirect wholly-owned subsidiaries or Controlled Affiliates (as defined in Section 6.1) of either or both parties. 1.3 PURPOSE. The purpose of the JV will be to develop, manufacture and market FDS and component elements thereof to the JV Territory as described in SECTION 1.4 below. An FDS includes a fuel pump, module, level sensor, brackets, tubes and flanges, connectors, filters and related components and subassemblies. Except as expressly provided in SECTION 4.3, the JV will be the exclusive vehicle through which each of the parties develops, manufactures and markets FDS and component elements thereof in the JV Territory for both automotive original equipment manufacturers and aftermarket customers. 1.4 TERRITORY. The designated market for the JV (the "JV Territory") will be Colombia, Venezuela, Brazil, Guyana, Suriname, French Guiana, Ecuador, Peru, Bolivia, Chile, Argentina, Paraguay and Uruguay and any new nation created by the merger or separation of any of the above countries and all territories in the South regions controlled by any of the above countries. The territory shall not include Mexico. 1.5 NAME. The parties agree that the JV shall operate under the name Marwal do Brasil Ltda. ARTICLE II CAPITALIZATION AND FUNDING OF THE JV 2.1 CAPITAL CONTRIBUTIONS. The JV will be formed and capitalized as follows: (a) The initial capitalization of the JV shall be $3,000,000 of equity. The above amounts shall be contributed to the JV by the parties in proportion to their respective Capital Percentages. (b) The equity contributions constituting the initial capitalization shall be made at such times as requested by the Board. 2.2 OPERATING DEFICITS. Operating deficits of the JV beyond those provided for in the initial capitalization described above or needs for additional working capital will be funded by outside borrowings to the maximum extent available. If guarantees are required to secure outside borrowings, the parties shall render such guarantees in proportion to their Capital Percentages. Such guarantees shall be several except if and to the extent a bank requires the guarantees to be joint and several, in which event each party shall have a right of contribution from the other party. Any additional operating deficits or working capital needs will be funded by the parties in proportion to their respective Capital Percentages. Unless otherwise agreed at the time of funding, such deficits will be funded by loans from the parties. 2.3 SUBSEQUENT CAPITAL OR LOANS. Additional capital requirements contemplated by the Business Plan will be made by the parties in proportion to their respective Capital Percentages. No additional capital contributions or loans other than those contemplated by the Business Plan will be 3 required unless approved by both parties; if so approved, they will also be made in proportion to their respective Capital Percentages. ARTICLE III GOVERNANCE OF THE JV The parties agree that the JV will be governed substantially as set forth below, and the parties agree and acknowledge that these governance provisions have been agreed to for the direct benefit of the JV and its business. The parties further agree: (a) that the JV will be structured to reflect this governance to the fullest extent permitted under applicable law; and (b) that, in the event of a conflict between the Charter and the following provisions, the following provisions will prevail to the extent such a result is not directly contrary to applicable public policy. 3.1 MANAGEMENT TEAM. The day-to-day operations of the JV will be conducted by two managers and their staff appointed by Walbro and Jaeger. 3.2 CONSULTATIVE BOARD. 3.2.1 COMPOSITION. The JV will have a Consultative Board or similar governing body (the "Board") comprised of four persons which shall function at the shareholder level. Jaeger will designate two members (the "Jaeger Members"), and Walbro will designate two members (the "Walbro Members"). The Board will elect the Chairman from among the members. The Chairman will be a designee of Jaeger. The Board will also elect a Vice Chairman from among the members, who will be a designee of Walbro. Members of the Board shall be designated by Notice and will serve until replaced by the party so designating. 3.2.2 ROUTINE DECISIONS BY THE BOARD. For all matters other than those set forth in SECTION 3.2.3: (a) each member shall be given 7 days' written notice (with acknowledgment of receipt) of any meeting, annual or special, of the Board; (b) attendance in person at such a meeting, without written objection to lack of sufficient notice, waives this notice requirement; (c) three members shall constitute a quorum; (d) the vote of a majority of all members present in person shall be decisive; (e) the vote of the Chairman will be decisive in a tie vote; and (f) whenever necessary under Brazilian law, decisions of the Board shall be confirmed by a general shareholder meeting. 4 3.2.3 SPECIAL MATTERS. With respect to each of the following situations, the Board will not have the power to act unless the requisite majority voting in favor of a resolution includes at least one Walbro Member and one Jaeger Member or in the alternative there is unanimous approval by one Walbro Member and one Jaeger Member; and whenever necessary under Brazilian law, decisions of the Board shall be confirmed by a general shareholder meeting. (a) payment of a dividend other than from current year's earnings; (b) approval, ratification or substantial change of the operating budget of the JV, including without limitation, the capital expenditures, additions or improvements for the year; (c) approval, ratification or substantial change of the Business Plan; (d) sale of a substantial portion of the assets of the JV; (e) authorization or approval of a merger, consolidation or change in the capital structure of the JV; (f) creation or incurrence of indebtedness for borrowed money if, after giving effect to the creation of such indebtedness, the total amount of the JV's indebtedness for borrowed money will exceed $2,000,000, except unsecured current liabilities incurred in the ordinary course of business; (g) creation or incurrence of any mortgage, pledge, lien, charge or encumbrance upon any property or assets now owned or hereinafter acquired by the JV except for (i) mortgages, pledges, liens, charges or encumbrances on, and incurred at the time of and in connection with the acquisition of property acquired in the ordinary course of business, (ii) minor liens and encumbrances, and (iii) other liens and encumbrances for amounts not exceeding $2,000,000 in the aggregate at any one time outstanding; (h) making, ratifying or causing the JV to become a party to a contract or commitment, or to renew, extend or modify any contract or commitment between JV the and one of its equity holders or an "affiliate" of an equity holder which requires payment of an aggregate amount in excess of $250,000. For purposes of this subsection, an "affiliate" will mean: i. a company, domestic or foreign, of which an equity holder in the JV owns or controls, directly or indirectly, at least 25 % of the assets, voting stock or capital; ii. a company, domestic or foreign, which owns or controls, directly or indirectly, at least 25% of the assets, voting stock or capital of an equity holder of the JV; or iii. a company, domestic or foreign, under common control with an equity holder through direct or indirect ownership of at least 25 % of the assets, voting stock or capital of that company. (i) material agreement or commitment to any matter required of the JV pursuant to a contract or agreement, including Ancillary Documents, with Jaeger, Walbro or an affiliate (as that term is 5 defined in subsection (h) above) of Jaeger or Walbro, including the modification or termination of any existing contract; (j) agreement or commitment to purchase services, from Walbro, Jaeger or their affiliates (as that term is defined in subsection (h) above); and (k) approval of the licensing or sublicensing of any FDS technology, fuel pump or other component embodying FDS technology, by the JV. (1) any amendment to the Charter. In case of a deadlock over one or more of these issues, the provisions set forth in SECTION 3.2.4 below will control. 3.2.4 DEADLOCK. The following sets forth the parties' agreement with respect to a deadlock situation. In the event that: (a) either of Jaeger or Walbro (in this subsection called "the First Party") gives written notice to the other party (in this subsection called "the Second Party") specifying as subject to this subsection a resolution requiring the affirmative vote of a majority of the Board, including at least one Walbro Member and one Jaeger Member or the unanimous approval of the shareholders, which resolution was previously put to and not passed by a general or special meeting of the Board or shareholders, as applicable, because the Second Party or its designee Members present did not vote in favor of the resolution or voted against the resolution, or the Second Party or its designee Members were not present for the vote; and (b) such resolution is again put at another such meeting called within 30 days of the original meeting and the First Party or its designee Members present, as the case may be, votes for the resolution but the Second Party or its designee Members, as the case may be, does not vote or votes against the resolution, or the Second Party or its designee Members, as the case may be, are not present for the vote, then a deadlock situation will be deemed to have arisen. Within seven days of such event arising, Walbro and Jaeger will prepare and circulate to the other a memorandum or other form of statement setting out its position on the matter in dispute and its reasons for adopting such position. Each such memorandum or statement will be considered by the Chief Executive Officers of Jaeger and of Walbro who will respectively use their reasonable efforts to resolve such dispute. If the parties agree upon a resolution of the dispute, they will jointly sign a statement setting forth the terms of such resolution and Walbro and Jaeger will exercise all voting rights and other powers of control available to them in relation to the JV to procure that such resolution is fully and promptly carried into effect. If a resolution of the dispute is not agreed upon within 30 days after delivery of the memorandum or statements mentioned above or such longer period as Walbro and Jaeger may agree in writing, the JV will automatically terminate as prescribed in ARTICLE VII. 6 If a resolution is agreed upon by the parties but is not implemented by the JV within 60 days after such agreement, or such longer period as Walbro and Jaeger may agree in writing, the JV will automatically terminate as prescribed in ARTICLE VII. ARTICLE IV CONDUCT OF THE JV 4.1 BUSINESS PLAN. A five-year business plan (the "Business Plan") in the form attached as EXHIBIT 4.1 will be approved by the Board in accordance with SECTION 3.2.3 and will be implemented by the management of the JV. The Business Plan will include initial and subsequent funding requirements. The Business Plan will be revised and updated on an annual basis by the Board in accordance with Section 3.2.3. 4.2 MANUFACTURING. Components to be incorporated into the FDS products will be selected based on "best in class" for quality, performance and cost. The JV will provide customer application engineering and manufacturing technology with substantial support from Walbro under the Engineering Support Agreement. The parties acknowledge that certain products will be manufactured by the JV initially, that fuel pumps will be manufactured by Walbro and sold to the JV and that certain level sensors will be manufactured by Jaeger and sold to the JV. The JV may purchase fuel pumps and other components from Walbro and level sensors and other components from Jaeger at prices to be agreed upon. 4.3 MARKETING. The JV will be responsible for the marketing of all FDS products in the JV Territory. Distribution and marketing of FDS products to aftermarket customers in the JV territory will be handled by the JV through the Marelli or JV network as mutually agreed upon by the parties. Walbro shall not sell FDS products in the JV Territory, except that Walbro may continue its current practice of selling to U.S. aftermarket customers who export to the JV Territory independent of the Marelli network. 4.4 ENGINEERING SUPPORT FROM WALBRO. The Business Plan provides for certain engineering services to be provided to the JV by Walbro. Walbro will provide such services to the JV on the basis provided under, and which services will be governed by, the Walbro Engineering Support Agreement in substantially the form attached as EXHIBIT 4.4. If and when necessary, simplified versions of this agreement shall be prepared for filing with the INPI (Brazilian patent office) or other governmental bodies. As between the parties, the terms of the Engineering Support Agreement, as per Exhibit 4.4 shall prevail in any conflict with the terms of the agreements filed with the INPI or any other governmental body. ARTICLE V LICENSES 5.1 JAEGER TECHNOLOGY LICENSE. Jaeger will provide all of its current FDS component (other than fuel pump) technology to the JV via a fully paid-up license (the "Jaeger License"), in the form of EXHIBIT 5.1, which is exclusive in the JV Territory. The Jaeger License will provide Jaeger with all modifications and improvements made by the JV to the level sensor technology licensed thereby via a grant-back of such rights. 7 5.2 WALBRO TECHNOLOGY LICENSE. Walbro will provide all of its FDS technology to the JV via a license (the "Walbro License"), substantially in the form of EXHIBIT 5.2, which will be exclusive in the JV Territory (except for the Ford Motor Company and General Motor Corporation licenses to produce for their own use, as such licenses may be renewed or extended from time to time). The Walbro License shall provide that the sale of "Future Licensed Products" will be on a royalty-bearing basis. The Walbro License will provide Walbro with all modifications and improvements to the fuel pump technology licensed thereby via a grant-back of such rights. 5.3 BRAZILIAN LICENSES FOR FILING. If and when necessary, simplified versions of the licenses in Sections 5.1 and 5.2 shall be prepared for filing with the INPI (Brazilian patent office). These simplified licenses shall comply with the requirements of the INPI and will be constructed to protect the parties' property rights in their patents, trademarks, logos, know-how and the like. As between the parties, the terms of the licenses under Sections 5.1 and 5.2 shall prevail in any conflict with the terms in the licenses filed with the INPI. 5.4 FUTURE JV TECHNOLOGY. The JV may develop future FDS technology for use in its operations and will be the owner of any such technology except as provided by grant-back in Sections 5.1 and 5.2. The JV will grant to Walbro a non-exclusive license to use all new FDS technology owned by the JV in areas other than the JV Territory via a royalty-bearing license to be agreed upon by the parties, unless said technology is in any significant manner a modification or improvement of the technology licensed pursuant to the Walbro License which was not the subject of a "grant-back", in which case the license will be royalty-free. The parties further agree that, in negotiating the royalty to be paid under such license agreement, they will take into account the relative contributions of technology supplied by Walbro, supplied by Jaeger, and developed by the JV itself to the products covered by such license. 5.5 CONSEQUENCES OF JV TERMINATION ON WALBRO LICENSE. 5.5.1 TERMINATION GENERALLY. If the JV terminates under ARTICLE VII for any reason other than those described in SECTIONS 5.5.2 and 5.5.3 below, Walbro agrees to enter into a new license agreement with the JV or Jaeger, as the case may be, provided that the Walbro License has not been terminated by Walbro due to a material breach by the JV thereof. The terms of the new license shall be substantially identical to the terms of the Walbro License, except that: (a) the royalty rate to be paid with respect to Licensed Products (as defined in the Walbro License) shall be revised to a reasonable royalty rate which is agreed upon by the parties hereto or is determined by an appropriate expert appointed by the parties (or, if the parties cannot agree on such appointment, the expert shall be appointed through the arbitration process set forth in SECTION 9.6); and (b) certain of the other terms of the Walbro License shall be changed as set forth in EXHIBIT 5.5.1. Walbro's obligation hereunder shall be void and no license shall be granted unless all of the terms of the above license are approved by the appropriate Brazilian governmental authorities. 5.5.2 CERTAIN WALBRO BREACHES. If the JV terminates under SECTION 7.1.6, then the Walbro License shall continue in full force and effect regardless of termination of the JV, and the Walbro License may be assignable to Jaeger at that time. 8 5.5.3 CERTAIN JAEGER BREACHES. If the JV terminates under Section 7.1.5, then Walbro shall have no further obligation to enter into a new license with either the JV or Jaeger. ARTICLE VI RESTRICTIONS ON TRANSFER OF INTERESTS IN THE JV 6.1 NO TRANSFER WITHOUT APPROVAL. Neither Walbro nor Jaeger may transfer any of its equity interests in the JV to any third party (other than direct or indirect Controlled Affiliates) without the prior written approval of the other party. It is the intention of the parties that there be only two owners of the JV; consequently, any attempted transfer of equity interests in the JV must encompass the entire equity interest of the transferring party. For purposes of this Agreement, a "Controlled Affiliate" of a party means any person which controls, is controlled by or is under common control with, such party; "control" means the ownership of a majority of both the voting power of, and the equity interests in, a person. 6.2 RIGHT OF FIRST REFUSAL. If for any reason a transfer of equity interest in the JV cannot be restricted as provided in SECTION 6.1, then a transfer by either party of any of its shares of capital stock of the JV to any third party (other than to a direct or indirect Controlled Affiliate), shall be subject to a right of first refusal by the other party to acquire such interests as set forth below. 6.2.1 FIRST OFFER. If either of Walbro or Jaeger receives from a third party (the "Outsider") a bona fide written offer (a "Bona Fide Offer") to purchase all of its shares of capital stock of the JV (the "Equity Interest"), such party (the "Selling Party") agrees that prior to effecting any sale pursuant to such Bona Fide Offer, it will first make a written offer (the "Offer") upon the terms and conditions provided herein to sell its Equity Interest to the other party (the "Offeree Party"). 6.2.2 NOTICE OF OFFER. The Offer will set forth the following: (a) the Selling Party's intention to sell its Equity Interest; (b) a photostatic copy of the Bona Fide Offer of the Outsider, and all written communications relating to the proposed sale and purchase of the Equity Interest; (c) a written offer to sell to the Offeree Party the Equity Interest of the Selling Party upon the same terms and conditions and for the same price as the Bona Fide Offer; and (d) the U.S. dollar equivalent of the price. 6.2.3 OFFEREE PARTY ACCEPTANCE. The Offeree Party may accept such Offer for all, but not less than all, of the offered Equity Interest by giving written notice within 30 days after receipt of the Offer to the Selling Party. If the sale to the Offeree Party is not consummated within 45 days after the expiration of this 30-day notice period (which 45-day period will be tolled by any waiting period or suspension of the transaction imposed or required by applicable law or any unnecessary delay caused by the Selling Party) or 9 as provided in the Bona Fide Offer, the Selling Party will have the right to sell its interest to the Outsider as provided in SECTION 6.2.5 below. 6.2.4 PURCHASE BY THE OFFEREE PARTY. Any purchase by the Offeree Party pursuant to this ARTICLE VI will be consummated upon the same terms and conditions and for the U.S. dollar equivalent price as the Bona Fide Offer for the Equity Interest. Any terms and conditions not specified in the Bona Fide Offer will be mutually agreed upon by the Offeree Party and the Selling Party. 6.2.5 PURCHASE BY OUTSIDER. If the Offeree Party fails to accept the Offer pursuant to SECTION 6.2.3, the Selling Party will then have the right to sell its Equity Interest to such Outsider on the same terms and conditions as contained in the notice described in SECTION 6.2.2; provided that (i) the sale to the Outsider is consummated within 45 days after the expiration of the 30-day option period described in SECTION 6.2.3 (which 45-day period will be tolled by any waiting period or suspension of the transaction imposed or required by applicable law) or as provided in the Bona Fide Offer, and (ii) the Outsider becomes a party to this Agreement contemporaneous with his purchase of the Equity Interest. If the Selling Party and the Outsider do not consummate the sale of the Equity Interest within the time period described in (i) above or intend to consummate such sale on materially different terms than the Bona Fide Offer, the Equity Interest may only be sold to said Outsider after again complying with the terms of this ARTICLE VI. ARTICLE VII TERMINATION OF THE JV 7.1 TERM AND TERMINATION OF THE JV. Unless otherwise terminated as provided below, the JV will be of perpetual duration. The JV will be terminated: 7.1.1 BY MUTUAL CONSENT. At any time by the mutual consent of the parties; 7.1.2 FOR BREACH. Upon the material breach, which is not cured within 90 days after notice thereof, by a party of its obligations to the JV or otherwise under this Agreement, at the option of the non-breaching party exercised within 10 days after the expiration of the 90-day cure period; 7.1.3 BANKRUPTCY. Automatically upon the filing of a voluntary petition or answer admitting jurisdiction of the court and the material allegations, or the consent to, an involuntary petition pursuant to or purporting to be pursuant to any reorganization or insolvency law of any jurisdiction, or an assignment for the benefit of creditors, or an application for or consent to the appointment of a receiver or trustee of a substantial part of the property of a party hereto; 7.1.4 DEADLOCK. Upon an unresolved deadlock as described in SECTION 3.2.4; 7.1.5 TERMINATION OF WALBRO LICENSE BY WALBRO. At the option of Walbro, immediately upon the termination of the Walbro license agreement pursuant to Section 9.02(F) thereof; 7.1.6 VIOLATION OF CERTAIN PROVISIONS. At the option of Jaeger, upon the failure or refusal of Walbro or its designees to comply with the governance provisions set forth in SECTION 3.2.3; or 10 7.1.7 FORCE MAJEURE. At the option of the non-offending party, upon the failure of a party to begin fully performing its obligations under this Agreement within six months after such party declares an inability to perform due to force majeure as provided in SECTION 9.5. 7.1.8 EXPROPRIATION. Upon the expropriation of a substantial portion of the JV's property. 7.2 CONSEQUENCES OF TERMINATION. 7.2.1 PURCHASE OPTION. Upon termination of the JV pursuant to SECTION 7.1 above, either party will have the option, in lieu of proceeding with the dissolution of the JV, to purchase the other party's Equity Interest by giving notice within 30 days after the termination of the JV to the other party that it desires to purchase for cash all of the Equity Interest of the other party at a stated price. Any offers made under this provision will be submitted simultaneously on the last day of the 30-day period. If within the 30-day period only one party gives notice that it wishes to purchase the other party's Equity Interest, then the other party may either accept such offer, or give notice within 20 days of the offer that the price will be equal to the fair market value of the Equity Interest as determined by an investment banker with recognized standing in the international finance community and mutually acceptable to the parties. In the event the parties cannot agree on an investment banker, each party will select one banker and the two bankers will select a third banker, which third banker will conclusively determine fair market value. For purposes of this section, "fair market value" of an Equity Interest will be the value of the JV as if it were being sold as a whole business and a going concern to one purchaser, multiplied by the selling party's Capital Percentage at the time of the valuation. If within the 30-day period both parties give notice that they wish to purchase the other party's Equity Interest, then the party whose notice contains the highest stated per share price will purchase the other party's Equity Interest at that price for cash, or as otherwise mutually agreed to by the parties. Notwithstanding anything to the contrary, this purchase option will not be available to a party whose breach, bankruptcy, insolvency, or liquidation has given rise to the termination of the JV pursuant to SECTION 7.1.2, SECTION 7.1.3, SECTION 7.1.5 or SECTION 7.1.6. 7.2.2 DISSOLUTION. If the above purchase option is not exercised by either party, the parties will use their best efforts to dissolve the JV and wind up its affairs in a manner designed to preserve the interests of both parties in the JV products and JV Territory, including the granting of cross-licenses by each party for the use on a non-exclusive basis of all technology developed and owned by the JV at the time of its dissolution. Nothing herein shall prejudice the rights of Jaeger to enter into the license agreement provided by SECTION 5.4.1. 7.2.3 DAMAGES. Nothing herein shall prejudice the rights of a party, in addition to the exercise of any other remedy hereunder, to recover money damages for any breach by a party of this Agreement or any Ancillary Document (as defined). 11 ARTICLE VIII REGULATORY MATTERS AND INVALIDITY 8.1 COOPERATION IN MAKING REGISTRATIONS. The parties shall cooperate fully in making, whenever required or necessary, registrations under National Institute of Individual Property (INPI) Resolution N-022 with respect to agreements for the transfer of technology and rendering of technical assistance. 8.2 CONSEQUENCES OF INVALIDITY. If for any reason whatever at any time, any provision of this Agreement or any of the Ancillary Documents is or becomes invalid, illegal or unenforceable, or is declared by any court of competent jurisdiction or any other competent authority to be invalid, illegal or unenforceable or if such competent authority: (i) refuses, or formally indicates an intention to refuse authorization of, or exemption to, any of the provisions of or arrangements contained in this Agreement or in any of the Ancillary Documents (in the case of a refusal either by way of outright refusal or by way of requiring an amendment or deletion of any provision of this Agreement or of any of the Ancillary Documents and/or the inclusion of any new provision in this Agreement or in the Ancillary Documents and/or the giving of undertakings as to future conduct before such authorization or exemption can be granted); or (ii) formally indicates that to continue to operate any provision of this Agreement or of any of the Ancillary Documents may expose the parties to sanctions under any order, enactment or regulation, or requests any party to give undertakings as to future conduct in order that such party may not be subject to such sanctions; and in all cases, whether initially or at the end of any earlier period or periods of exemption (each of which circumstances being referred to in this ARTICLE VIII as "a Relevant Invalidity"), then in any such case, at the request of either party by notice or a series of notices to that effect to the other ("Negotiation Notice"), the parties will meet to negotiate in good faith to agree upon valid, binding and enforceable substitute provisions while at the same time reconsidering the other terms of this Agreement and of any of the Ancillary Documents not so affected so as to reestablish an appropriate balance of the commercial interests of the parties ("Substitute Provisions"). 8.3 FAILURE TO AGREE ON SUBSTITUTE PROVISIONS. If and to the extent that Substitute Provisions are formally agreed in writing within one month of the service of a Negotiation Notice, or such other period as may be formally agreed in writing between the parties, then in that respect the matter shall be deemed to be settled and such substitute provisions shall be deemed part of this Agreement or of any of the Ancillary Documents. If, however, in respect of any Relevant Invalidity no Substitute Provisions can be agreed within such period, then if any party considers on reasonable grounds that its commercial interests with regard to this Agreement and/or any of the Ancillary Documents is materially and adversely affected as a consequence of the Relevant Invalidity it may submit such matter to arbitration pursuant to SECTION 9.8. 8.4 DEFERRAL OF DETERMINATION OF ADVERSE EFFECT. If any party considers that it is unable to assess the consequence of any Relevant Invalidity in the light of facts subsisting at the time, that party may 12 defer commencement of an arbitration in respect of the provision or provisions affected by such Relevant Invalidity until such time as it considers on reasonable grounds that its commercial interests with regard to this Agreement and/or any of the Ancillary Documents are materially and adversely affected in the light of events occurring subsequent to communication of the finding of invalidity to the parties. Notwithstanding the foregoing, a party must commence arbitration pursuant to SECTION 8.3 within 60 days of receipt of the Negotiation Notice. ARTICLE IX MISCELLANEOUS PROVISIONS 9.1 ANCILLARY DOCUMENTS; INTERPRETATION. The parties acknowledge and agree that, in the event of an inconsistency or disagreement between this Agreement, on the one hand, and any other agreement or document referred to herein to be entered into in connection with the JV (each an ("Ancillary Document" and, collectively, the "Ancillary Documents"), this Agreement shall prevail. 9.2 PUBLIC ANNOUNCEMENTS AND CONFIDENTIALITY. The parties agree that all data and information relating to the JV, including but not limited to any information relating to or provided under any Ancillary Document, the JV's trade secrets, know-how, inventions, discoveries, improvements, technologies, business practices and methods, whether or not patented, lists of suppliers, and information relating to the JV's financial statements, customer identities and utilization patterns, needs and participation levels, potential customers, suppliers, products, servicing methods, equipment, programs, analyses, profit margins and cost data, shall be kept confidential by both parties and shall not, whether prior to or after the date hereof, be disclosed to any person, firm, or corporation, except to the extent that such data or information is generally known to the trade or in the public domain. The parties, however, may provide the information to third parties (i) for the purpose of assisting in the evaluation of the JV, its performance, or its operations, (ii) for the purpose of determining the value of said party's equity interest in the JV, and (iii) for any other purpose consistent with the activities contemplated by this Agreement and the Ancillary Documents; provided that in each case the disclosing party takes reasonable precautions to maintain the confidential nature of the information. The parties may also make any disclosures necessary to comply with applicable securities and other disclosure laws. The parties recognize and acknowledge that any breach by them of the foregoing provisions of this section may cause irreparable harm to the other party and the JV and, in the event of any such breach, such other party or the JV shall, in addition to all other remedies available to it, at law or in equity, be entitled, if it so elects, to institute and prosecute proceedings in any court of competent jurisdiction to enjoin such breaching party from doing any act in violation of such provisions, and that such other party or the JV shall not be required to show actual monetary damages as a prerequisite to such relief. The above provisions shall survive any termination of this Agreement and any dissolution of the JV for a period of two years after such termination or dissolution. Each party agrees not to make any public disclosure regarding the existence or the substance of the transactions contemplated hereby without the prior approval of the other party, except to the extent that either party reasonably determines that such disclosure is required by applicable law or regulation. 9.3 ACCOUNTING. The JV's accounting methods will be in accordance with Brazilian law and Brazilian generally accepted accounting principles and all accounts shall be maintained in Brazilian 13 currency units. Indexing or currency conversions shall be the responsibilities of, and at the expense of the parties. 9.4 INSURANCE. Insurance protection provided for the JV under this Agreement must apply both to each individual installation of the JV and to all installations as a whole. The JV's insurance must also provide insurance coverage for all types of risk related to the construction and operation of the aforementioned installations, including material and other property losses caused to fixed assets belonging to the JV, rented by it, or acquired on credit by it, as well as its civil liability for property or physical damage which may be caused to third parties in connection with the JV's activity, either by defects in the goods its produces or by JV workers and employees in connection with their performance of their job responsibilities. 9.5 FORCE MAJEURE. Where either party is unable, wholly or in part, by reason of force majeure to carry out its obligations under this Agreement, such obligations are suspended so far as they are affected by the force majeure during the continuance thereof; provided that an obligation to pay money is never excused by force majeure. The party affected by the force majeure will give notice to the other party of the particulars of the situation and the probable extent to which it will be unable to, or delayed in, performing its obligations under this Agreement, within 10 days after the occurrence of the force majeure. For purposes of this section, "force majeure" means an act of God, strike, lockout or other interference with work, war declared or undeclared, blockade, disturbance, lightning, fire, earthquake, storm, flood or explosion; governmental or quasi-governmental restraint action, expropriation, prohibition, intervention, direction or embargo; unavailability or delay in availability of equipment or transport; inability or delay in obtaining governmental or quasi-governmental approvals, consents, permits, licenses, authorities or allocations; and any other cause whether of the kind specifically enumerated above, or otherwise which is not reasonably within the control of the party affected. 9.6 EXPENSES. Walbro and Jaeger, and not the JV, will each pay their own costs and expenses incurred in negotiating and drafting this Agreement and the Ancillary Documents. 9.7 FURTHER ASSURANCES. Walbro and Jaeger agree to execute and deliver such other instruments, agreements or documents and take such other action as may reasonably be necessary or desirable to consummate the transactions contemplated by this Agreement. 9.8 RESOLUTION OF DISPUTES. Any dispute, controversy or claim arising out of or relating to this Agreement or any Ancillary Agreement, including, without limitation, the breach, termination or invalidity thereof, shall be settled pursuant to and shall be subject to that certain Arbitration Agreement dated June 17, 1991, attached as Exhibit 9.8, except that for purposes of any such arbitration, the arbitrators shall apply the substantive law specified in this Agreement or any Ancillary Documents. 9.9 SUCCESSORS AND ASSIGNS. This Agreement will be binding upon and inure to the benefit of the parties and their respective successors and permitted assigns, but will not be assignable or delegable by any party without the prior written consent of the other party, except that either party may assign, in whole or 14 in part, its rights hereunder, subject to all obligations hereunder, to a Controlled Affiliate in connection with any transfer of Equity Interests in the JV permitted pursuant to ARTICLE VI; provided, however, that such assignment will not relieve that party of any of its obligations or liabilities hereunder. 9.10 AMENDMENTS, SUPPLEMENTS, ETC. This Agreement may be amended or supplemented at any time by additional written agreements signed by both parties, as may mutually be determined by the parties to be necessary, desirable or expedient to further the purposes of this Agreement or to clarify the intention of the parties. 9.11 NOTICES. All notices and other communications required or permitted hereunder will be in writing and, unless otherwise provided in this Agreement, will be deemed to have been duly given when delivered in person or one business day after having been dispatched by telegram or electronic facsimile transfer (confirmed in writing by mail simultaneously dispatched with a copy of the sender's machine printed facsimile confirmation) or three business days after having been dispatched by an internationally recognized overnight courier service to the appropriate party at the address specified below. (a) If to Walbro, to: Walbro Automotive Corporation 6242 Garfield Street Cass City, Michigan 48726 Facsimile Number: (517) 872-2301 Attention: Chief Financial Officer With a copy to: Katten Muchin & Zavis 525 W. Monroe Street, Suite 1600 Chicago, Illinois 60661-3693 Facsimile Number: (312) 902-1061 Attention: Arnold S. Harrison Howard S. Lanznar (b) If to Jaeger, to: Jaeger S.A. 19 rue Lavoisier 9200 Nanterre France Attention: Directeur-Generale With a copy to: Magneti Marelli S.p.A. Viale Aldo Borletti 20011 Corbetta Milan, Italy 15 Facsimile Number: (39) (2) 97200523 Attention: General Counsel 9.12 WAIVER. Waiver by either party of a breach by the other party of any obligation or requirement contained in, or arising from, this Agreement does not operate as a waiver of another or continuing breach by the other party of the same, or any other, obligation or requirement hereunder. Any waiver by either party must be in writing, signed by the waiving party. 9.13 ENTIRE AGREEMENT. This Agreement and the Ancillary Documents represent the understanding of the parties with respect to the subject matter hereof and thereof and supersede any other agreement, whether written or oral, that may have been made or entered into by Walbro or Jaeger or their affiliates relating to the matters contemplated hereby. 9.14 NO STRICT CONSTRUCTION. The language used in this Agreement will be deemed to be the language chosen by the parties hereto to express their mutual intent, and no rule of strict construction will be applied against either party. 9.15 SEVERABILITY. Subject to the provisions of ARTICLE VIII, if any provision of this Agreement or the application of any such provision to any person or circumstance is held invalid, illegal or unenforceable in any respect by a court of competent jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision hereof. 9.16 GOVERNING LAW. This Agreement will be governed by and construed in accordance with the laws of the State of New York, without giving effect to the principles of conflict of laws thereof. 9.17 THIRD PARTIES. Nothing in this Agreement express or implied is intended to confer any right or remedy under or by reason of this Agreement on any person other than the parties, their respective heirs, representatives, successors and permitted assigns, affect or discharge the obligation or liability of any third persons to any party to this Agreement, or give any third party any right or subrogation or action over against any party to this Agreement. 9.18 TITLES AND HEADINGS. Titles and headings to sections herein are inserted for convenience of reference only, and are not intended to be a part of or to affect the meaning or interpretation of this Agreement. 9.19 EXECUTION IN COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which will be deemed an original, but all of which together will constitute one and the same agreement. 9.20 SURVIVAL. The covenants and agreements made in SECTIONS 5.4, 7.2, 9.2, 9.4, 9.6 and 9.14 will survive any termination of this Agreement. 16 IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day and year first above written. WALBRO AUTOMOTIVE CORPORATION By: /s/ Gary Vollmar -------------------------------- Its: Treasurer -------------------------------- JAEGER S.A. By: /s/ Frederic Girardot -------------------------------- Its: Director General -------------------------------- EX-10.8 14 EXHIBIT 10.8 1 EXHIBIT 10.8 WALBRO CORPORATION --------------------------- WALBRO CORPORATION ADVANTAGE PLAN --------------------------- As Amended and Restated Effective January 1, 1997 2 WALBRO CORPORATION ADVANTAGE PLAN - ------------------------------------------------------------------------------- Walbro Corporation established the Walbro Corporation Advantage Plan for the benefit of eligible employees of the Company and its participating affiliates. The Plan is intended to constitute a qualified profit sharing plan, as described in Code Section 401(a), which includes a qualified cash or deferred arrangement, as described in Code Section 401(k). The Plan constitutes an amendment and restatement of the Walbro Corporation Advantage Plan and the merger of Sharon Manufacturing Company Savings Retirement Plan prior to January 1, 1997. 3 TABLE OF CONTENTS - -------------------------------------------------------------------------------- PAGE ARTICLE I DEFINITIONS................................................................. 1 1.1 "Accounting Period"....................................... 1 1.2 "Accounts"................................................ 1 1.3 "Accrued Benefit"......................................... 2 1.4 "Administrative Committee"................................ 2 1.5 "Appendix"................................................ 2 1.6 "Applicable Named Fiduciary".............................. 2 1.7 "Authorized Leave of Absence"............................. 2 1.8 "Beneficiary"............................................. 3 1.9 "Board of Directors"...................................... 3 1.10 "Break in Service"........................................ 3 1.11 "Change Date"............................................. 3 1.12 "Commonly Controlled Entity".............................. 3 1.13 "Company"................................................. 3 1.14 "Company Stock"........................................... 4 1.15 "Compensation"............................................ 4 1.16 "Computation Period"...................................... 4 1.17 "Continuous Service"...................................... 4 1.18 "Contributions"........................................... 5 1.19 "Contribution Dollar Limit"............................... 5 1.20 "Contribution Election" or "Election"..................... 5 1.21 "Contribution Percentage"................................. 5 1.22 "Conversion Election"..................................... 5 1.23 "Custodial Agreement"..................................... 5 1.24 "Custodian"............................................... 6 1.25 "Direct Rollover"......................................... 6 1.26 "Disability or Disabled".................................. 6 1.27 "Distributee"............................................. 6 1.28 "Effective Date".......................................... 6 1.29 "Elective Deferral"....................................... 6 1.30 "Eligible Employee"....................................... 6 1.31 "Eligibility Service"..................................... 7 1.32 "Eligible Retirement Plan"................................ 7 1.33 "Eligible Rollover Distribution".......................... 7 1.34 "Employee"................................................ 7 1.35 "Employer"................................................ 8 1.36 "Employment Date"......................................... 8 1.37 "Entry Date".............................................. 8 - i - 4 TABLE OF CONTENTS - -------------------------------------------------------------------------------- PAGE 1.38 "ERISA"....................................................... 8 1.39 "Fair Market Value"........................................... 8 1.40 "Forfeiture".................................................. 9 1.41 "Forfeiture Account".......................................... 9 1.42 "Highly Compensated Eligible Employee" or "HCE"............... 9 1.43 "Hour of Service"............................................. 11 1.44 "Internal Revenue Code" or "Code"............................. 11 1.45 "Investment Election"......................................... 11 1.46 "Investment Manager".......................................... 12 1.47 "Investment Fund" or "Fund"................................... 12 1.48 "Limited Deferrals"........................................... 12 1.49 "Maternity/Paternity Absence"................................. 12 1.50 "Non-Highly Compensated Employee" or "NHCE"................... 12 1.51 "Normal Retirement Date"...................................... 12 1.52 "Notice Date"................................................. 12 1.53 "Participant"................................................. 12 1.54 "Payment Date"................................................ 12 1.55 "Period of Severance"......................................... 13 1.56 "Plan"........................................................ 13 1.57 "Plan Year"................................................... 13 1.58 "QDRO"........................................................ 13 1.59 "Qualified Matching Contribution"............................. 13 1.60 "Related Plan"................................................ 13 1.61 "Rollover Contribution"....................................... 13 1.62 "Settlement Date"............................................. 14 1.63 "Spousal Consent"............................................. 14 1.64 "Spouse"...................................................... 14 1.65 "Sweep Account"............................................... 14 1.66 "Sweep Date".................................................. 14 1.67 "Termination of Employment"................................... 14 1.68 "Trade Date".................................................. 15 1.69 "Trust"....................................................... 15 1.70 "Trust Agreement"............................................. 15 1.71 "Trust Fund".................................................. 15 1.72 "Trustee"..................................................... 15 1.73 "Trustee Transfer"............................................ 15 1.74 "Valuation Date".............................................. 16 1.75 "Vesting Service"............................................. 16 1.76 "Year of Service"............................................. 16 - ii - 5 TABLE OF CONTENTS - -------------------------------------------------------------------------------- PAGE ARTICLE II PARTICIPATION............................................................... 17 2.1 Eligibility.................................................... 17 2.2 Reemployment................................................... 17 2.3 Participation Upon Change of Job Status........................ 17 2.4 Ceasing to be a Participant.................................... 17 ARTICLE III PARTICIPANT CONTRIBUTIONS................................................... 18 3.1 Pre-Tax Contribution Election.................................. 18 3.2 Election Procedures............................................ 18 3.3 Limitation of Elective Deferrals for all Participants.......... 19 ARTICLE IV EMPLOYER CONTRIBUTIONS AND ALLOCATIONS...................................... 21 4.1 Pre-Tax Contributions.......................................... 21 4.2 Matching Contributions......................................... 21 4.3 Pay Based Contributions........................................ 22 4.4 Special Contributions.......................................... 22 4.5 Miscellaneous.................................................. 23 ARTICLE V ROLLOVERS................................................................... 25 5.1 Rollovers....................................................... 25 ARTICLE VI ACCOUNTING FOR PARTICIPANTS' ACCOUNTS AND FOR INVESTMENT FUNDS........................................... 26 6.1 Individual Participant Accounting............................... 26 6.2 Accounting for Investment Funds................................. 27 6.3 Accounts for QDRO Beneficiaries................................. 28 6.4 Special Accounting During Conversion Period..................... 29 - iii - 6 TABLE OF CONTENTS - -------------------------------------------------------------------------------- PAGE ARTICLE VII INVESTMENT FUNDS AND ELECTIONS.............................................. 30 7.1 Investment Funds........................................... 30 7.2 Investment of Contributions................................ 30 7.3 Investment of Accounts..................................... 31 7.4 Establishment of Investment Funds.......................... 31 7.5 Transition Rules........................................... 32 ARTICLE VIII VESTING AND FORFEITURES..................................................... 33 8.1 Fully Vested Contribution Accounts......................... 33 8.2 Full Vesting Upon Attainment of Event...................... 33 8.3 Vesting Schedule and Forfeitures........................... 33 8.4 Forfeitures................................................ 34 8.5 Forfeiture Account......................................... 35 ARTICLE IX PARTICIPANT LOANS........................................................... 36 9.1 Participant Loans Permitted............................... 36 9.2 Loan Funding Limits....................................... 36 9.3 Maximum Number of Loans................................... 36 9.4 Source of Loan Funding.................................... 37 9.5 Interest Rate............................................. 37 9.6 Repayment................................................. 37 9.7 Repayment Hierarchy....................................... 37 9.8 Loan Application, Note and Security....................... 37 9.9 Default, Suspension and Acceleration Feature.............. 38 ARTICLE X IN-SERVICE WITHDRAWALS...................................................... 39 10.1 Withdrawals for 401(k) Hardship........................... 39 10.2 Withdrawals for Participants over age 59 1/2.............. 40 10.3 Withdrawal Processing..................................... 41 - iv - 7 TABLE OF CONTENTS - -------------------------------------------------------------------------------- PAGE ARTICLE XI DISTRIBUTIONS ON AND AFTER TERMINATION OF EMPLOYMENT................................................. 42 11.1 Request for Distribution of Benefits.......................... 42 11.2 Deadline for Distribution..................................... 42 11.3 Payment Form and Medium....................................... 43 11.4 Small Amounts Paid Immediately................................ 43 11.5 Payment Within Life Expectancy................................ 43 11.6 Incidental Benefit Rule....................................... 44 11.7 QJSA and QPSA Information and Elections....................... 44 11.8 Continued Payment of Amounts in Payment Status on January 1, 1997............................................... 45 11.9 Direct Rollover............................................... 45 ARTICLE XII DISTRIBUTION OF ACCRUED BENEFITS ON DEATH................................. 47 12.1 Payment to Beneficiary......................................... 47 12.2 Beneficiary Designation........................................ 47 12.3 Benefit Election............................................... 47 12.4 Payment Form................................................... 48 12.5 Time Limit for Payment to Beneficiary.......................... 48 12.6 QPSA Information and Election.................................. 48 12.7 Direct Rollover................................................ 49 ARTICLE XIII MAXIMUM CONTRIBUTIONS..................................................... 50 13.1 Definitions.................................................... 50 13.2 Avoiding an Annual Excess...................................... 51 13.3 Correcting an Annual Excess.................................... 51 13.4 Correcting a Multiple Plan Excess.............................. 52 13.5 Two-Plan Limit................................................. 52 13.6 Short Plan Year................................................ 52 13.7 Grandfathering of Applicable Limitations....................... 53 ARTICLE XIV ADP AND ACP TESTS......................................................... 54 14.1 Contribution Limitation Definitions............................ 54 - v - 8 TABLE OF CONTENTS - -------------------------------------------------------------------------------- PAGE 14.2 ADP and ACP Tests.......................................... 55 14.3 Correction of ADP and ACP Tests............................ 55 14.4 Method of Calculation...................................... 56 14.5 Multiple Use Test.......................................... 56 14.6 Adjustment for Investment Gain or Loss..................... 57 14.7 Required Records........................................... 58 14.8 Incorporation by Reference................................. 58 14.9 Collectively Bargained Employees........................... 58 14.10 QSLOB...................................................... 58 ARTICLE XV CUSTODIAL ARRANGEMENTS...................................................... 59 15.1 Custodial Agreement....................................... 59 15.2 Selection of Custodian.................................... 59 15.3 Custodian's Duties........................................ 59 15.4 Separate Entity........................................... 59 15.5 Plan Asset Valuation...................................... 60 15.6 Right of Employers to Plan Assets......................... 60 ARTICLE XVI ADMINISTRATION AND INVESTMENT MANAGEMENT.................................... 61 16.1 General................................................... 61 16.2 Administrative Committee Acting as Employer............... 61 16.3 Administrative Committee as Applicable Named Fiduciary for Plan.................................................. 63 16.4 Administrative Committee as Applicable Named Fiduciary for Trust................................................. 63 16.5 Administrative Committee Membership....................... 64 16.6 Administrative Committee Structure........................ 64 16.7 Administrative Committee Actions.......................... 64 16.8 Procedures for Designation of an Applicable Named Fiduciary................................................. 65 16.9 Compensation.............................................. 65 16.10 Discretionary Authority of each Applicable Named Fiduciary................................................. 65 16.11 Responsibility and Powers of the Administrative Committee Regarding Administration of the Plan...................... 66 16.12 Allocations and Delegations of Responsibility............. 67 16.13 Administrative Committee Bonding.......................... 68 - vi - 9 TABLE OF CONTENTS - -------------------------------------------------------------------------------- PAGE 16.14 Information to be Supplied by Employer...................... 68 16.15 Information to be Supplied by Applicable Named Fiduciary.... 68 16.16 Misrepresentations.......................................... 68 16.17 Records..................................................... 69 16.18 Plan Expenses............................................... 69 16.19 Fiduciary Capacity.......................................... 69 16.20 Employer's Agent............................................ 69 16.21 Plan Administrator.......................................... 69 16.22 Plan Administrator Duties and Power......................... 69 16.23 Applicable Named Fiduciary Decisions Final.................. 70 16.24 No Agency................................................... 70 ARTICLE XVII CLAIMS PROCEDURE............................................................. 71 17.1 Initial Claim for Benefits.................................. 71 17.2 Review of Claim Denial...................................... 71 ARTICLE XVIII ADOPTION AND WITHDRAWAL FROM PLAN............................................ 73 18.1 Procedure for Adoption...................................... 73 18.2 Procedure for Withdrawal.................................... 73 ARTICLE XIX AMENDMENT, TERMINATION AND MERGER............................................ 74 19.1 Amendments.................................................. 74 19.2 Plan Termination............................................ 75 19.3 Plan Merger................................................. 76 ARTICLE XX SPECIAL TOP-HEAVY RULES...................................................... 77 20.1 Application................................................. 77 20.2 Special Terms............................................... 77 20.3 Minimum Contribution........................................ 80 20.4 Maximum Benefit Accrual..................................... 81 20.5 Special Vesting............................................. 81 - vii - 10 TABLE OF CONTENTS - -------------------------------------------------------------------------------- PAGE ARTICLE XXI MISCELLANEOUS PROVISIONS.................................................... 82 21.1 Assignment and Alienation................................. 82 21.2 Protected Benefits........................................ 82 21.3 Plan Does Not Affect Employment Rights.................... 82 21.4 Deduction of Taxes from Amounts Payable................... 82 21.5 Facility of Payment....................................... 82 21.6 Source of Benefits........................................ 83 21.7 Indemnification........................................... 83 21.8 Reduction for Overpayment................................. 83 21.9 Limitation on Liability................................... 83 21.10 Company Merger............................................ 83 21.11 Employees' Trust.......................................... 83 21.12 Gender and Number......................................... 84 21.13 Invalidity of Certain Provisions.......................... 84 21.14 Headings.................................................. 84 21.15 Uniform and Nondiscriminatory Treatment................... 84 21.16 Law Governing............................................. 84 21.17 Notice and Information Requirements....................... 84 - viii - 11 ARTICLE I - -------------------------------------------------------------------------------- DEFINITIONS The following sections of this Article I provide basic definitions of terms used throughout the Plan, and whenever used herein in a capitalized form, except as otherwise expressly provided, the terms shall be deemed to have the following meanings: 1.1 "Accounting Period" means the periods designated by the Administrative Committee with respect to each Investment Fund not to exceed one year in duration. 1.2 "Accounts" means the record of a Participant's interest in the Plan's assets represented by his or her: (a) "Matching Account" which means a Participant's interest in the Plan's assets composed of Matching Contributions allocated on or after January 1, 1997 to the Participant under the Plan, the amount allocated under the Plan, as of January 1, 1997, if any (as identified by the Administrative Committee), amounts allocated from the Sharon Manufacturing Company Savings Retirement Plan prior to January 1, 1997, if any, which continue to be accounted for under the Plan (as identified by the Administrative Committee), plus all income and gains credited to, and minus all losses, expenses, withdrawals and distributions charged to, such Account. (b) "Pre-Tax Account" which means a Participant's interest in the Plan's assets composed of Pre-Tax Contributions allocated on or after January 1, 1997 to the Participant under the Plan, the amount allocated under the Plan, as of January 1, 1997, if any (as identified by the Administrative Committee), amounts allocated from the Sharon Manufacturing Company Savings Retirement Plan prior to January 1, 1997, if any, which continue to be accounted for under the Plan (as identified by the Administrative Committee), plus all income and gains credited to, and minus all losses, expenses, withdrawals and distributions charged to, such Account. (c) "Retirement Contribution Account" which means a Participant's interest in the Plan's assets composed of Pay Based Contributions allocated on or after January 1, 1997 to the Participant under the Plan, the amount allocated under the Plan, as of January 1, 1997, if any (as identified by the Administrative Committee), amounts allocated from the Sharon Manufacturing Company Savings Retirement Plan prior to January 1, 1997, if any, which continue to be accounted for under the Plan (as identified by the Administrative Committee), plus all income and gains credited to, and minus all losses, expenses, withdrawals and distributions charged to, such Account. - 1 - 12 (d) "Rollover Account" which means a Participant's interest in the Plan's assets composed of Rollover Contributions allocated on or after January 1, 1997 to the Participant under the Plan, the amount allocated under the Plan, as of January 1, 1997, if any (as identified by the Administrative Committee), plus all income and gains credited to, and minus all losses, expenses, withdrawals and distributions charged to, such Account. (e) "Special Account" which means a Participant's interest in the Plan's assets composed of Special Contributions allocated on or after January 1, 1997 to the Participant under the Plan, the amount allocated under the Plan, as of January 1, 1997, if any (as identified by the Administrative Committee), plus all income and gains credited to, and minus all losses, expenses, withdrawals and distributions charged to, such Account. 1.3 "Accrued Benefit" means the dollars or shares held in or posted to Accounts on the Settlement Date. 1.4 "Administrative Committee" means the committee appointed pursuant to the terms of the Plan to manage and control the operation and administration of the Plan. 1.5 "Appendix" means a written supplement made a part hereof which has been added in accordance with the provisions of the Plan. 1.6 "Applicable Named Fiduciary" means: (a) with respect to the authority each has over management and operation of the Plan's administration and operation or discretionary authority and control it may have with respect to the Plan, the Administrative Committee and such other person (other than a person acting as an Investment Manager or Trustee) who may be designated to be an Applicable Named Fiduciary pursuant to Article XVI; (b) with respect to the management and control of the Plan's assets or the discretionary authority it may have with respect to the Plan's assets, the Administrative Committee, and other such person (other than a person acting as an Investment Manager or Trustee) who may be designated to be an Applicable Named Fiduciary pursuant to Article XVI. 1.7 "Authorized Leave of Absence" means an absence, with or without Compensation, authorized on a nondiscriminatory basis by a Commonly Controlled Entity under its standard personnel practices applicable to the Employee, including any period of time during which such person is covered by a short-term disability plan of his or her Employer. An Employee who leaves the service of a Commonly Controlled Entity to enter the Armed Forces of the United States of America and who reenters the service of the Commonly Controlled Entity with reemployment rights under any statute granting reemployment rights to persons in the Armed Forces shall be deemed - 2 - 13 to have been on an Authorized Leave of Absence. The date that an Employee's Authorized Leave of Absence ends shall be determined in accordance with the personnel policies of such Commonly Controlled Entity, which ending date shall be no earlier than the date that the Authorized Leave of Absence is scheduled to end, unless the Employee communicates to such Commonly Controlled Entity that he or she is to have a Termination of Employment as of an earlier date. 1.8 "Beneficiary" means any person designated by a Participant to receive any benefits which shall be payable with respect to the death of a Participant under the Plan or as a result of a QDRO. 1.9 "Board of Directors" means the board of directors of the Company. 1.10 "Break in Service" means: (a) with respect to Continuous Service, the fifth anniversary (or sixth anniversary if absence from employment was due to a Maternity/Paternity Absence) of the date of the Participant's termination of employment; and (b) with respect to Computation Periods, the end of five consecutive Computation Periods (or six consecutive Computation Periods if absence from employment was due to a Maternity/Paternity Absence) for which a Participant is credited with less than 501 Hours of Service. 1.11 "Change Date" means the one or more dates during the Plan Year designated by the Administrative Committee as the dates available for implementing or changing a Participant's Contribution Election. 1.12 "Commonly Controlled Entity" means (1) an Employer and any corporation, trade or business, but only for so long as it and the Employer are members of a controlled group of corporations as defined in Section 414(b) of the Code or under common control as defined in Section 414(c) of the Code; provided, however, that solely for purposes of the limitations of Code Section 415, the standard of control under Sections 414(b) and 414(c) of the Code shall be deemed to be "more than 50%" rather than "at least 80%," (2) an Employer and an organization, but only for so long as it and the Employer are, on and after the Effective Date, members of an affiliated service group as defined in Section 414(m) of the Code, (3) an Employer and an organization, but only for so long as the employees of it and the Employer are required to be aggregated, on and after the Effective Date, under Section 414(o) of the Code, or (4) any other organization designated as such by the Administrative Committee. 1.13 "Company" means WALBRO CORPORATION or any successor corporation by merger, consolidation, purchase, or otherwise, which elects to adopt the Plan and the Trust. - 3 - 14 1.14 "Company Stock" means common stock issued by WALBRO CORPORATION. 1.15 "Compensation" means for purposes of allocating Contributions and for purposes of applying Section 415 of the Code to the Plan and its Participants for any limitation year, such compensation earned while an Eligible Employee as determined by the Administrative Committee and satisfying the definition of compensation under Section 415 of the Code (within the meaning of Treasury Regulation 1.415-2(d)(11)(ii)) and for any determination period with respect to an applicable provision of the Code other than Section 415, such compensation as determined by the Administrative Committee and which satisfies the requirements of Section 414(s) of the Code. Notwithstanding the foregoing provisions, Compensation shall include elective amounts excludible from gross income under Code Sections 125 and 402(e)(3) (other than for Code Section 415 purposes). In addition to other applicable limitations set forth in the Plan, and notwithstanding any other provision of the Plan to the contrary, for Plan Years beginning on or after January 1, 1994, the annual Compensation of each Employee taken into account under the Plan shall not exceed the OBRA '93 annual compensation limit. The OBRA '93 annual compensation limit is $160,000, as adjusted by the Commissioner of Internal Revenue for increases in the cost-of-living in accordance with Section 401(a)(17)(B) of the Code. The cost-of-living adjustment in effect for a calendar year applies to any period, not exceeding twelve (12) months, over which Compensation is determined (determination period) beginning in such calendar year. If a determination period consists of fewer than twelve (12) months, the OBRA '93 annual compensation limit will be multiplied by a fraction, the numerator of which is the number of months in the determination period, and the denominator of which is twelve (12). For Plan Years beginning on or after January 1, 1994, any reference in this Plan to the limitation under Section 401(a)(17) of the Code shall mean the OBRA '93 annual compensation limit set forth in this provision. If Compensation for any prior determination period is taken into account in determining an Employee's benefits accruing in the current Plan Year, the Compensation for that prior determination period is subject to the OBRA '93 annual compensation limit in effect for that prior determination period. For this purpose, for determination periods beginning before the first day of the first Plan Year beginning on or after January 1, 1994, the OBRA '93 annual compensation limit is $150,000. 1.16 "Computation Period" means with respect to Eligibility Service, and any Break in Service with respect to Eligibility Service, the twelve (12) consecutive month period commencing with an Employee's Employment Date and the Plan Year which includes the first anniversary of the Employment Date and each subsequent Plan Year. 1.17 "Continuous Service" means the sum of the years (and fractions of years) measured from an Employee's Employment Date to his or her date of Termination of Employment first to occur after his or her Employment Date; provided, that if an - 4 - 15 Employee has a Period of Severance of less than twelve (12) consecutive months after a Termination of Employment, such Termination of Employment shall be disregarded and such Employee's Continuous Service shall include such period when he or she is not employed by a Commonly Controlled Entity. 1.18 "Contributions" means amounts contributed to the Plan by the Employer or an Eligible Employee. Specific types of contributions include: (a) "Matching". An amount contributed by the Employer based upon the amount contributed by the eligible Participant. (b) "Pay Based". An amount contributed by the Employer and allocated on a pay based formula to eligible Participants' Accounts. (c) "Pre-Tax". An amount contributed on a pre-tax basis in conjunction with a Participant's Code Section 401(k) salary deferral agreement. (d) "Special". An amount contributed by the Employer to avoid prohibited discrimination under Section 401(a)(4) of the Code. 1.19 "Contribution Dollar Limit" means the annual limit imposed on each Participant pursuant to Section 402(g) of the Code, which shall be nine thousand five hundred dollars ($9,500) per calendar year (as indexed for cost-of-living adjustments pursuant to Code Section 402(g)(5) and 415(d)). 1.20 "Contribution Election" or "Election" means the election made by a Participant to reduce his or her Compensation by an amount equal to the product of his or her Contribution Percentage and such Compensation subject to the Contribution Election. 1.21 "Contribution Percentage" means the percentage of a Participant's Compensation which is to be contributed to the Plan by his or her Employer as a Pre-Tax Contribution. 1.22 "Conversion Election" means an election by a Participant to change the investment of all or some specified portion of such Participant's Accounts by voice response to the telephone number provided by the Applicable Named Fiduciary, or on such form that may be required by the Applicable Named Fiduciary to whom it is delivered. No Conversion Election shall be deemed to have been given to the Applicable Named Fiduciary unless it is complete and delivered in accordance with the procedures established by such Applicable Named Fiduciary for this purpose. 1.23 "Custodial Agreement" means the Trust Agreement or an insurance contract to provide for the holding of the assets of the Plan. - 5 - 16 1.24 "Custodian" means the Trustee or an insurance company if the contract issued by such company is not held by the Trustee. 1.25 "Direct Rollover" means a payment by the Plan to the Eligible Retirement Plan specified by the Distributee. 1.26 "Disability or Disabled" means the Participant is disabled for purposes of the Employer's long term disability plan. 1.27 "Distributee" includes an Employee or former Employee. In addition, the Employee's or former Employee's surviving Spouse and the Employee's or former Employee's Spouse or former Spouse who is the alternate payee under a QDRO are Distributees with regard to the interest of the Spouse or former Spouse. 1.28 "Effective Date" means January 1, 1997, the date upon which the provisions of this document become effective. In general, the provisions of this document only apply to Participants who are Employees on or after the Effective Date. However, investment and distribution provisions apply to all Participants with Account balances to be invested or distributed after the Effective Date. 1.29 "Elective Deferral" means amounts subject to the Contribution Dollar Limit. 1.30 "Eligible Employee" means any Employee (including an Employee on an Authorized Leave of Absence) of an Employer on and after the Effective Date of the adoption of this Plan by the Employer, excluding any Employee: (a) who is a member of a group of Employees represented by a collective bargaining representative, unless a currently effective collective bargaining agreement between his or her Employer and the collective bargaining representative of the group of Employees of which he or she is a member provides for coverage by the Plan; (b) who is considered an Employee solely because of the application of Section 414(n) of the Code; (c) who is not a U.S. citizen or a resident alien; (d) who has a Computation Period in which he or she earns less than 501 Hours of Service, prior to the date he or she completes a Year of Service; (e) who is employed as a cooperative student while attending a secondary educational institution or college; or (f) who is attending high school, is on a summer break between high school classes, or is on a summer break between high school and college classes. - 6 - 17 1.31 "Eligibility Service" means the sum of an Employee's Years of Service; provided, however: if such Years of Service were earned prior to the date the Employee's Employer became a Commonly Controlled Entity, they are disregarded unless the Administrative Committee makes such a determination not to apply this exclusion with respect to each such Employee in a uniform and nondiscriminatory manner. 1.32 "Eligible Retirement Plan" means an individual retirement account described in Section 408(a) of the Code, an individual retirement annuity described in Section 408(b) of the Code, an annuity plan described in Section 403(a) of the Code, or a qualified trust described in Section 401(a) of the Code, that accepts the Distributee's Eligible Rollover Distribution. However, in the case of an Eligible Rollover Distribution to the surviving Spouse, an Eligible Retirement Plan is an individual retirement account or individual retirement annuity. 1.33 "Eligible Rollover Distribution" means any distribution of all or any portion of the balance to the credit of the Distributee, except that an Eligible Rollover Distribution does not include any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the Distributee or the joint lives (or joint life expectancies) of the Distributee and the Distributee's designated Beneficiary, or for a specified period of ten years or more; any distribution to the extent such distribution is required under Section 401(a)(9) of the Code; and the portion of any distribution that is not includible in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to employer securities). 1.34 "Employee" means any person who renders services as a common law employee to a Commonly Controlled Entity or is on an Authorized Leave of Absence, including the period of time before which the trade or business became a Commonly Controlled Entity, but excluding the period of time after which it ceases to be a Commonly Controlled Entity. Any individual considered an Employee of a Commonly Controlled Entity under Section 414(n) of the Code shall be deemed employed by the Commonly Controlled Entity for which the individual performed services. No person who was hired through a temporary agency (including but not limited to any leased Employee) shall be considered an Employee and no person, the terms of whose services are governed by an independent contractor or consulting agreement with an Employer, shall be considered an Employee except to the extent explicitly provided to the contrary in such agreement; provided, however, any individual who is a citizen of the United States of America and who is an Employee of a foreign affiliate (as defined in Code Section 3121(e)(8)) of an Employer which is an American employer, as defined in Code Section 3121(h), shall be treated as an Employee, and, if an Eligible Employee, shall be entitled to participate in this Plan and contributions thereto to the same extent, subject to the same limitations and at the same times as any other Employee who is an Eligible Employee of such Employer; provided: - 7 - 18 (a) such Employer has entered into an agreement under Code Section 3121(l) which applies to the foreign affiliate of which such individual is a common law employee; and (b) contributions under a funded plan of defined compensation are not provided by any other person with respect to the remuneration paid to such individual by the foreign affiliate. 1.35 "Employer" means the Company and any Commonly Controlled Entity which has adopted the Plan; provided, that an entity will cease to be an Employer when it ceases to be a Commonly Controlled Entity. Notwithstanding the preceding sentence, the Administrative Committee may permit an affiliate of an Employer to adopt the Plan. 1.36 "Employment Date" means the day an Employee first earns an Hour of Service; provided, however, with respect to an Employee who incurs a Period of Severance of twelve (12) consecutive months or more, the Employment Date for such Employee shall be adjusted forward in time by a period of days equal to the number of days in the Period of Severance, and for purposes of becoming an Eligible Employee, such person shall be considered to have an Employment Date on the first day he or she earns an Hour of Service as of his or her reemployment as an Employee. 1.37 "Entry Date" means the first day of January, April, July or October. 1.38 "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. Reference to any specific Section shall include such Section, any valid regulation promulgated thereunder, and any comparable provision of any future legislation amending, supplementing or superseding such Section. 1.39 "Fair Market Value" means: (a) with respect to a security for which there is a generally recognized market, the price of the security prevailing on a national securities exchange which is registered under Section 6 of the Securities Exchange Act of 1934; (b) unless determined otherwise by the Administrative Committee, with respect to any guaranteed income contract, the value reported by the issuing company or bank; (c) with respect to a Participant loan, the unpaid principal and accrued interest; and (d) for any other asset, the fair market value of the asset, as determined in good faith by the Trustee or the Administrative Committee in accordance with regulations promulgated under Section 3(18) of ERISA. - 8 - 19 1.40 "Forfeiture" means the portion of the Participant's Accrued Benefit which is forfeited pursuant to the terms of the Plan. 1.41 "Forfeiture Account" means an account holding amounts forfeited by Participants. 1.42 "Highly Compensated Eligible Employee" or "HCE" means a highly compensated active employee or a highly compensated former employee. A highly compensated active employee includes any Employee who performs service for the Employer during the determination year and who, during the look-back year: (i) received Compensation from the Employer in excess of $75,000 (as adjusted pursuant to Section 415(d) of the Code); (ii) received Compensation from the Employer in excess of $50,000 (as adjusted pursuant to Section 415(d) of the Code) and was a member of the top-paid group for such year; or (iii) was an officer of the Employer and received Compensation during such year that is greater than fifty percent (50%) of the dollar limitation in effect under Section 415(b)(1)(A) of the Code. The term highly compensated active employee also includes: (i) Employees who are both described in the preceding sentence if the term "determination year" is substituted for the term "look-back year" and the Employee is one of the one hundred (100) Employees who received the most Compensation from the Employer during the determination year; and (ii) Employees who are five-percent (5%) owners at any time during the look-back year or determination year. If no officer has satisfied the Compensation requirement of (iii) above during either a determination year or look-back year, the highest paid officer for such year shall be treated as a highly compensated active employee. For this purpose, the determination year shall be the Plan Year. The look-back year shall be the twelve(12)-month period immediately preceding the determination year. Pursuant to Code Section 414(q), the Administrative Committee may elect for the look-back year to be the calendar year ending with or within the applicable Plan Year determination year. If the Employer at all times during the Plan Year maintains significant business activities (and employs Employees in such activities) in at least two significantly separate geographic areas and satisfies such other conditions as the Secretary of the Treasury may prescribe, the Administrative Committee may elect to apply a simplified definition of Highly Compensated Employee under the Plan by substituting "$50,000" for "$75,000" in paragraph (i) above, and disregarding paragraph (ii) above. An Employee who performs services for the Employer any time during the year is in the top-paid group of Employees for any year if such Employee is in the group consisting of the top twenty percent (20%) of the Employees when ranked on the basis of Compensation paid during such year. For purposes of determining the number of Employees in the top-paid group (but not for identifying the particular Employees in the top-paid group), the following Employees shall be excluded: - 9 - 20 (i) Employees who have not completed six (6) months of service; (ii) Employees who normally work less than seventeen and one-half (17 1/2) Hours of Service per week; (iii) Employees who normally work not more than six (6) months during any year; (iv) Employees who have not attained age twenty-one (21); (v) Employees who are included in a unit of Employees covered by a bona fide collective bargaining agreement with the Employer; and (vi) Employees who are nonresident aliens and who receive no earned income (within the meaning of Section 911(d)(2) of the Code) from the Employer which constitutes income from sources within the United States (within the meaning of Section 861(a)(3) of the Code). The Administrative Committee may elect to apply paragraph (i), (ii) or (iv) of this Section by substituting a shorter period of service, smaller number of hours or months, or lower age for that specified in such subparagraphs. A highly compensated former employee includes any Employee who separated from service (or was deemed to have separated) prior to the determination year, performs no service for the Employer during the determination year, and was a Highly Compensated Employee for either the separation year or any determination year ending on or after the Employee's 55th birthday. If a former Employee separated from service with the Employer prior to January 1, 1987, and the Administrative Committee irrevocably elects to apply this special rule, he is a Highly Compensated Employee only if he or she was described in any one or more of the following groups during either the Employee's separation year (or the year preceding such separation year) or any year ending on or after such individual's 55th birthday (or the last year ending before such Employee's 55th birthday): (i) 5-percent owner. The Employee was a five-percent (5%) owner of the Employer at any time during the year. (ii) Compensation amount. The Employee received Compensation in excess of $50,000 during the year. The determination of who is a Highly Compensated Employee, including the determination of the number and identity of Employees in the top-paid group, the top 100 Employees, the number of Employees treated as officers and the Compensation that is considered, will be made in accordance with Section 414(q) of the Code and the regulations thereunder. - 10 - 21 1.43 "Hour of Service" means: (a) as it applies to Eligibility Service, each hour for which an Employee is entitled to: (1) payment for the performance of duties for any Commonly Controlled Entity; (2) payment from any Commonly Controlled Entity for any period during which no duties are performed (irrespective of whether the employment relationship has terminated) due to vacation, holiday, sickness, incapacity (including disability), layoff, leave of absence, jury duty or military service; (3) back pay, irrespective of mitigation of damages, by award or agreement with any Commonly Controlled Company (and these hours shall be credited to the period to which the agreement pertains); or (4) no payment, but is on an Authorized Leave of Absence (and these hours shall be based upon his or her normally scheduled hours per week or a 40 hour week if there is no regular schedule). The crediting of hours shall be made in accordance with Department of Labor regulation Section 2530.200b-2 and 3, but in no event shall hours be credited in excess of the minimum number required thereunder for a Computation Period in order to avoid a Break in Service. An equivalent number of hours shall be credited for each payroll period in which the Employee would be credited with at least 1 hour. The payroll period equivalences are 190 hours monthly. (b) as it applies to Vesting Service for purposes of determining Continuous Service, each hour for which an Employee is directly or indirectly paid or entitled to payment by a Commonly Controlled Entity for the performance of duties. 1.44 "Internal Revenue Code" or "Code" means the Internal Revenue Code of 1986, as amended, any subsequent Internal Revenue Code and final Treasury Regulations. If there is a subsequent Internal Revenue Code, any references herein to Internal Revenue Code Sections shall be deemed to refer to comparable Sections of any subsequent Internal Revenue Code. 1.45 "Investment Election" means an election by which a Participant directs the investment of his or her Contributions by voice response to the telephone number provided by the Applicable Named Fiduciary, or on such form that may be required by the Applicable Named Fiduciary to whom it is delivered. No Investment Election shall be deemed to have been given to the Applicable Named Fiduciary unless it is complete and delivered in accordance with the procedures established by such Applicable Named Fiduciary for this purpose. - 11 - 22 1.46 "Investment Manager" means a fiduciary who meets the requirements of Section 3(38) of ERISA and to whom the Administrative Committee has delegated the responsibility for investment of a portion of the assets of the Trust Fund. 1.47 "Investment Fund" or "Fund" means one or more collective investment funds, a pool of assets, or deposits with the Custodian, a mutual fund, insurance contract, or managed pool of assets. The Investment Funds authorized by the Administrative Committee are listed in an Appendix. 1.48 "Limited Deferrals" means Elective Deferrals subject to the limits of Code Section 401(a)(30). 1.49 "Maternity/Paternity Absence" means a paid or unpaid and approved absence from employment with a Commonly Controlled Entity (1) by reason of the pregnancy of the Employee; (2) by reason of the birth of a child of the Employee; (3) by reason of the placement of a child under age eighteen (18) in connection with the adoption of such child by the Employee (including a trial period prior to adoption); and (4) for the purpose of caring for a child of the Employee immediately following the birth or adoption of such child. The Employee must prove to the satisfaction of the Administrative Committee or its agent that the absence meets the above requirements and must supply information concerning the length of the absence unless the Administrative Committee has access to relevant information without the Employee submitting it. 1.50 "Non-Highly Compensated Employee" or "NHCE" means an Employee who is not an HCE. 1.51 "Normal Retirement Date" means the date a Participant attains sixty-five (65) years of age. 1.52 "Notice Date" means the date established by the Administrative Committee as the deadline for it to receive notification with respect to an administrative matter in order to be processed as of a Change Date designated by the Administrative Committee. 1.53 "Participant" means an Eligible Employee who begins to participate in the Plan after completing the eligibility requirements. A Participant's participation continues until his or her Termination of Employment and his or her Accrued Benefit is distributed or forfeited. 1.54 "Payment Date" means the date on or after the Settlement Date on which a Participant's Accrued Benefit is distributed or commences to be distributed, which date shall be at least the minimum number of days required by law, if any, after the date the Participant has received any notice required by law, if any. If a distribution is one to which Sections 401(a)(11) and 417 of the Internal Revenue Code do not apply, such distribution may commence less than thirty - 12 - 23 (30) days after the notice required under Section 1.401(a)-11(c) of the Income Tax Regulations is given, provided that: (a) the Applicable Named Fiduciary clearly informs the Participant that the Participant has a right to a period of at least thirty (30) days after receiving the notice to consider the decision of whether or not to elect a distribution (and, if applicable, a particular distribution option), and (b) the Participant, after receiving the notice, affirmatively elects a distribution. 1.55 "Period of Severance" means the period of time measured from the later of (a) an Employee's Termination of Employment, and (b) the conclusion of a Maternity/Paternity Absence of no longer than twelve (12) consecutive months, to the date thereafter he or she first earns an Hour of Service. 1.56 "Plan" means the WALBRO CORPORATION ADVANTAGE PLAN, as set forth herein and as hereafter may be amended from time to time. 1.57 "Plan Year" means the annual Accounting Period of the Plan and Trust which ends on each December 31. 1.58 "QDRO" means a domestic relations order which the Administrative Committee has determined to be a qualified domestic relations order within the meaning of Section 414(p) of the Code. 1.59 "Qualified Matching Contribution" means a Matching Contribution that is treated as a Pre-Tax Contribution and posted to the Pre-Tax Account. 1.60 "Related Plan" means: (a) with respect to Section 401(k) and 401(m) of the Code, any plan or plans maintained by a Commonly Controlled Entity which is treated with this Plan as a single plan for purposes of Sections 401(a)(4) or 410(b) of the Code; and (b) with respect to Section 415 of the Code, any other defined contribution plan or a defined benefit plan (as defined in Section 415(k) of the Code) maintained by a Commonly Controlled Entity, respectively called a "Related Defined Contribution Plan" and a "Related Defined Benefit Plan". 1.61 "Rollover Contribution" means: (a) a rollover contribution as described in Section 402(c) of the Code (or its predecessor); or - 13 - 24 (b) a Trustee Transfer (1) to the Custodian of an amount by the custodian of a retirement plan qualified for tax-favored treatment under Code Section 401(a), which plan provides for such transfer; (2) with respect to which the benefits otherwise protected by Code Section 411 in such transfer or plan are no longer required by Code Section 411 to be protected in this Plan; and (3) which does not include amounts subject to Code Section 401(k). 1.62 "Settlement Date" means the date on which the transactions from the most recent Trade Date are settled. 1.63 "Spousal Consent" means the written consent given by a Spouse to a Participant's election (or waiver) of a specified form of benefit or Beneficiary designation. The Spouse's consent must acknowledge the effect on the Spouse of the Participant's election, waiver or designation and be duly witnessed by a Plan representative or notary public. Spousal Consent shall be valid only with respect to the spouse who signs the Spousal Consent and only for the particular choice made by the Participant which requires Spousal Consent. A Participant may revoke (without Spousal Consent) a prior election, waiver or designation that required Spousal Consent at any time before the Sweep Date associated with the Settlement Date upon which payments will begin. Spousal Consent also means a determination by the Administrator that there is no Spouse, the Spouse cannot be located or such other circumstances as may be established by applicable law. 1.64 "Spouse" means a person who, as of the earlier of a Participant's Payment Date and death, is alive and married to the Participant within the meaning of the laws of the State of the Participant's residence as evidenced by a valid marriage certificate or other proof acceptable to the Administrative Committee. A spouse who was the Spouse on the Payment Date but who is divorced from the Participant at the Participant's death shall still be the Spouse at the date of the Participant's death, except as otherwise provided in a QDRO. 1.65 "Sweep Account" means the subsidiary Account for each Contribution type within each Participant's Account through which all transactions for such Contribution type are processed and which is invested in interest bearing deposits of the Trustee. 1.66 "Sweep Date" means the date established by the Applicable Named Fiduciary as the cutoff date and time for the Applicable Named Fiduciary to receive notification with respect to a financial transaction for an Accounting Period in order to be processed with respect to a Trade Date designated by the Administrative Committee. 1.67 "Termination of Employment" occurs when a person ceases to be an Employee or if earlier, the first anniversary of the date his or her Authorized Leave of Absence commenced, as determined by the personnel policies of the Commonly Controlled Entity to whom he or she rendered services; provided, however, where a Commonly Controlled Entity ceases to be such with respect to an Employee as a result - 14 - 25 of either an asset sale or stock sale an Employee of the Commonly Controlled Entity shall be deemed not to have incurred a Termination of Employment: (a) unless the Administrative Committee shall make a determination that the transaction satisfies Section 401(k) of the Code, or if no such determination is made, until such Employee ceases to be employed by the successor to the Commonly Controlled Entity; or (b) if the Administrative Committee shall make a Trustee Transfer of his or her Accrued Benefit. Transfer of employment from one Commonly Controlled Entity to another Commonly Controlled Entity shall not constitute a Termination of Employment for purposes of the Plan. 1.68 "Trade Date" means the date as of which a financial transaction occurs, however: (a) with respect to a transaction involving Investment Funds maintained on a dollar accounting methodology, the transaction shall be executed based upon the Fair Market Value of a Unit as of the applicable Valuation Date; (b) with respect to a transaction involving Investment Funds maintained on a share accounting methodology, the transaction shall be executed based upon the daily average of the proceeds or purchase price of sales and purchases, respectively, of a share. 1.69 "Trust" means the legal entity resulting from the agreement between the Company and the Trustee and all amendments thereto, in which some or all of the assets of this Plan will be received, held, invested and distributed to or for the benefit of Participants and Beneficiaries. 1.70 "Trust Agreement" means the agreement between the Company and the Trustee establishing the Trust, and any amendments thereto. 1.71 "Trust Fund" means any property, real or personal, received by and held by the Trustee, plus all income and gains and minus all losses, expenses, withdrawals and distributions chargeable thereto. 1.72 "Trustee" means any corporation, individual or individuals designated in the Trust Agreement who shall accept the appointment as Trustee to execute the duties of the Trustee as set forth in the Trust Agreement. 1.73 "Trustee Transfer" means (a) a transfer to the Custodian of an amount by the custodian of a retirement plan qualified for tax-favored treatment under Section 401(a) of the Code or by the trustee(s) of a trust forming part of such a plan, which plan provides for such transfer; or (b) a Direct Rollover within the meaning of Section 402(c)(8)(B) of the Code; provided that with respect to any withdrawal or distribution from the Plan, a Participant may elect a transfer to only one eligible retirement plan, except as may otherwise be determined by the Administrative Committee, in a uniform and nondiscriminatory manner. - 15 - 26 1.74 "Valuation Date" means the close of business on each business day. 1.75 "Vesting Service" means the sum of the Years of Service of an Employee; provided however, Years of Service shall be disregarded: (a) if the Employee had no vested interest in his or her Contributions by an Employer, Years of Service earned before the Break in Service; or (b) if such Years of Service were earned prior to a Period of Severance of at least twelve (12) months, unless and until the Participant has completed a Year of Service; or (c) if such Years of Service were earned after a Break in Service, for purposes of determining the nonforfeitable percentage of his or her Accrued Benefit earned before such Break in Service; or (d) if such Years of Service were earned prior to the date the Employee's Employer became a Commonly Controlled Entity shall be disregarded, unless the Administrative Committee makes such a determination not to apply this exclusion with respect to each such Employee in a uniform and nondiscriminatory manner. 1.76 "Year of Service" means: (1) as it applies to Eligibility Service, a Computation Period in which an Employee is credited with at least 1,000 Hours of Service. (2) as it applies to Vesting Service, a twelve (12) consecutive month period of Continuous Service. An Employee's service with a company, the assets of which are acquired by a Commonly Controlled Entity, shall only be counted as employment with such Commonly Controlled Entity in the determination of his or her Years of Service if (1) the Administrative Committee directs that credit for such service be granted, or (2) a qualified plan of the acquired company is subsequently maintained by any Employer or Commonly Controlled Entity. - 16 - 27 ARTICLE II - -------------------------------------------------------------------------------- PARTICIPATION 2.1 Eligibility. On or after the Effective Date, as to each Employer: (a) Participant on January 1, 1997. Each person who has an Accrued Benefit on January 1, 1997 shall become a Participant as of January 1, 1997. (b) Other Eligible Employee. Each other Eligible Employee shall become a Participant on the Entry Date on or after the date he or she completes at least one year of Eligibility Service. 2.2 Reemployment. (a) Eligible Employee Was Previously a Participant. An Eligible Employee who previously was a Participant prior to his or her Termination of Employment shall become a Participant on the first Entry Date on and after the date he or she earns an Hour of Service. (b) Eligible Employee Had a Termination. An Eligible Employee who previously completed the service requirement to become a Participant and who had a Termination of Employment before he or she became a Participant shall be eligible to become a Participant on the later of (1) the date he or she would have become a Participant but for his or her Termination of Employment, or (2) the date he or she again earns an Hour of Service. 2.3 Participation Upon Change of Job Status. An Employee who is not an Eligible Employee shall become a Participant on the later of (1) the date he or she would have become a Participant had he or she always been an Eligible Employee, or (2) the date he or she becomes an Eligible Employee. 2.4 Ceasing to be a Participant. A Participant will cease to be a Participant on the later of (1) the date his Accrued Benefit becomes zero,and (2) his Termination of Employment. - 17 - 28 ARTICLE III - -------------------------------------------------------------------------------- PARTICIPANT CONTRIBUTIONS 3.1 Pre-Tax Contribution Election. (a) A Participant who is an Eligible Employee and who desires to have Pre-Tax Contributions made on his or her behalf by his or her Employer shall file a Contribution Election pursuant to procedures specified by the Administrative Committee specifying his or her Contribution Percentage of not less than one percent (1.00%) nor more than twelve percent (12%) (stated as a whole integer percentage) and authorizing the Compensation otherwise payable to him or her to be reduced. (b) Notwithstanding Subsection (a) hereof, for any Plan Year the Administrative Committee may determine that the maximum Contribution Percentage shall be greater or lesser than the percentages set forth in Subsection (a) hereof. Otherwise, the maximum Contribution Percentage as provided in Subsection (a) hereof shall apply. (c) A Participant's Contribution Election shall be effective only with respect to Compensation not yet paid as of the date the Contribution Election is effective. A Contribution Election received on or before a Notice Date shall become initially effective with respect to payroll cycles ended after the applicable Change Date, or if participants are reemployed, on the first day of each Plan Year quarter. However, the Administrative Committee, in its sole discretion, may declare an additional window period to Participants. Any Contribution Election which has not been properly completed will be deemed not to have been received and be void. 3.2 Election Procedures. A Participant's Contribution Election shall continue in effect (with automatic adjustment for any change in his or her Compensation) until the earliest of the date (1) his or her Contribution Election is changed in accordance with paragraph (a) hereof; (2) he or she ceases to be paid as an Eligible Employee; or (3) his or her Contribution Election is cancelled in accordance with paragraph (b) hereof. (a) Changing the Election. A Participant may increase or decrease his or her Contribution Percentage (subject to the percentage limits stated above) only once each Change Date by making a new Contribution Election, pursuant to procedures specified by the Administrative Committee, on which is specified the amount of the Contribution Percentage. - 18 - 29 (1) If such Contribution Election is received by the Notice Date, the change shall be effective with respect to the first payroll cycle ended after the Change Date. (2) However, if the Administrative Committee deems it necessary, the Administrative Committee may specify an additional window period to Participants. (3) The amount of increase or decrease of such Contribution Percentage shall be effective only with respect to Compensation not yet paid. (4) Any Contribution Election which has not been properly completed or which does not have a valid Investment Election will be deemed not to have been received and be void. (b) Canceling the Election. A Participant desiring to cancel his or her existing Contribution Election and reduce his or her Contribution Percentage to zero must deliver to the Applicable Named Fiduciary a new Contribution Election, pursuant to procedures specified by the Administrative Committee. The Administrative Committee will establish procedures, to be administered in a uniform and nondiscriminatory manner, for allowing a Participant to cancel his or her Contribution Election. Any Contribution Election received by the Applicable Named Fiduciary on or before a Notice Date shall become effective with respect to the payroll cycle ended after the next Change Date. A Participant who is an Eligible Employee and who has cancelled his or her Election may again make a Contribution Election at any time. If such Contribution Election is received by the Applicable Named Fiduciary by the Notice Date, it shall become effective with respect to the first payroll cycle ended after the next Change Date, provided at least three (3) months have elapsed since the effective date of the cancellation. Any Participant who has improperly completed a Contribution Election will be deemed not to have made an Election. 3.3 Limitation of Elective Deferrals for all Participants. A Participant's Limited Deferrals for any calendar year shall not exceed the Contribution Dollar Limit. If a Participant advises the Administrative Committee that he or she has Elective Deferrals (reduced by Elective Deferrals previously distributed or which are recharacterized as a result of the application of Code Section 401(k)(3) to such Participant) in excess of the Contribution Dollar Limit ("Excess Deferral"), the Administrative Committee shall return such Excess Deferrals for the taxable year to the Participant. To the extent the Participant's Limited Deferrals exceed the Contribution Dollar Limit, the Employer may notify the Plan on behalf of the Participant (and "Excess Deferral" shall be calculated by taking into account only Limited Deferrals). If such advice was received by the Administrative Committee during the taxable year, the Plan shall distribute the Excess Deferral as soon as administratively feasible. If such advice was received by the - 19 - 30 Administrative Committee after the taxable year but no later than March 1 (or as late as April 14, if allowed by the Administrative Committee) following the close of the taxable year, the Administrative Committee shall cause the Plan to return such Excess Deferral no later than April 15 immediately following the end of such taxable year, adjusted by income allocable to that amount. The net investment gain or loss associated with the Excess Deferral is calculated as follows: G E x --------- x (1 + (10% x M)) (AB-G) where: E = the Excess Deferral amount, G = the net gain or loss for the Plan Year in the Participant's Pre-Tax Account, AB = the total value of the Participant's Pre-Tax Account, determined as of the end of the calendar year being corrected, M = the number of full months from the calendar year end to the date the excess amount is paid, plus one for the month during which payment is to be made if payment will occur after the 15th of that month. If the application of the limitations in this Section results in a reduction of previously contributed Pre-Tax Contributions on behalf of a Participant, Matching Contributions allocable with respect thereto (prior to such reduction) which are not distributed under the ACP Test shall be forfeited. - 20 - 31 ARTICLE IV - -------------------------------------------------------------------------------- EMPLOYER CONTRIBUTIONS AND ALLOCATIONS 4.1 Pre-Tax Contributions. (a) Frequency and Eligibility. Subject to the limits of the Plan and to the Administrative Committee's authority to limit Contributions under the terms of this Plan, for each period for which a Contribution Election is in effect, the Employer shall contribute to the Plan on behalf of each Participant an amount equal to the amount designated by the Participant as a Pre-Tax Contribution on his or her Contribution Election. (b) Allocation. The Pre-Tax Contribution shall be allocated to the Pre-Tax Account of the Participant with respect to whom the amount is paid. (c) Timing, Medium and Posting. Pre-Tax Contributions shall be paid to the Custodian in cash and posted to each Participant's Pre-Tax Account by the Applicable Named Fiduciary as soon as such amounts can reasonably be balanced against the specific amount made on behalf of each Participant. Pre-Tax Contributions shall be paid to the Custodian not later than the fifteenth (15th) day of the month next following the month in which amounts are deducted from the Participant's Compensation. 4.2 Matching Contributions. (a) Frequency and Eligibility. Subject to the limits of the Plan and to the Administrative Committee's authority to limit Contributions under the Plan, for each period with respect to which the Participant makes a Pre-Tax Contribution, the Employer shall make Matching Contributions as described in the following Allocation Method paragraph on behalf of each Participant who contributed during the period and was an Eligible Employee at any time during each quarter of the Plan Year. (b) Allocation Method. The Matching Contributions, together with any available Forfeiture Account amounts to be applied as Matching Contributions, for each period shall total fifty percent (50%) of each eligible Participant's Pre-Tax Contributions for the period, provided that no Matching Contributions and Forfeiture Account amounts shall be made based upon a Participant's Contributions in excess of three percent (3%) of his or her Compensation for the period. The Employer may change the fifty percent (50%) matching rate or the three percent (3%) of considered Compensation to any other percentages, including zero (0%). - 21 - 32 (c) Timing, Medium and Posting. The Employer shall make each period's Matching Contribution in cash as of a date determined by the Employer, and not later than the Employer's federal tax filing date, including extensions, for deducting such Contribution. The Applicable Named Fiduciary shall post such amount to each Participant's Matching Account once the total Contribution received by the Custodian has been balanced against the specific amount to be credited to each Participant's Matching Account. (d) Compensation. Compensation shall be measured by the period (not to exceed the Plan Year) for which the Contribution is being made provided the Eligible Employee is a Participant during such period. 4.3 Pay Based Contributions. (a) Frequency and Eligibility. Subject to the limits of the Plan and to the Administrative Committee's authority to limit Contributions under the Plan, for each Plan Year, the Employer shall make a Pay Based Contribution on behalf of each Participant who was an Eligible Employee on the last day of each Plan Year. (b) Allocation Method. The Pay Based Contribution, together with any available Forfeiture Account amount to be applied as a Pay Based Contribution, for each period shall be equal to three percent (3%) of each eligible Participant's Compensation. (c) Timing, Medium and Posting. The Employer shall make each period's Pay Based Contribution in cash as soon as is feasible, and not later than the Employer's federal tax filing date, including extensions, for deducting such Contribution. The Applicable Named Fiduciary shall post such amount to each Participant's Retirement Contribution Account once the total Contribution received by the Custodian has been balanced against the specific amount to be credited to each Participant's Retirement Contribution Account. (d) Compensation. Compensation shall be measured by the period (not to exceed the Plan Year) for which the Contribution is being made provided the Eligible Employee is a Participant during such period. 4.4 Special Contributions. (a) Frequency and Eligibility. Subject to the limits of the Plan and to the Administrative Committee's authority to limit Contributions under the Plan, for each Plan Year, the Employer may make a Special Contribution in an amount determined by the Administrative Committee on behalf of each Non-Highly Compensated Employee Participant who was an Eligible Employee at any time during the Plan Year. - 22 - 33 (b) Allocation Method. The Special Contribution for each period shall be allocated among eligible Participants as determined by the Administrative Committee, subject to a maximum dollar amount which may be contributed on behalf of any Participant as determined by the Administrative Committee. (c) Timing, Medium and Posting. The Employer shall make each period's Special Contribution in cash as soon as is feasible, but no later than twelve (12) months after the end of the Plan Year to which it is allocated. The Applicable Named Fiduciary shall post such amount to each Participant's Special Account once the total Contribution received by the Custodian has been balanced against the specific amount to be credited to each Participant's Special Account. (d) Compensation. Compensation shall be measured by the period (not to exceed the Plan Year) for which the Contribution is being made, provided the Eligible Employee is a Participant during such period. 4.5 Miscellaneous. (a) Deduction Limits. Employer Contributions for any Plan Year shall be made from current or accumulated earnings and profits of the Employers; provided, however, that in the event there are insufficient current or accumulated earnings or profits to make all Employer Contributions, the Board of Directors (or the board of directors of any Employer which is not a Commonly Controlled Entity) shall decide, in its discretion, whether or not or to what extent such contributions shall be made. In addition, in no event shall the Employer Contributions for a Plan Year exceed the maximum the Company estimates will be deductible (or which would be deductible if the Employers had taxable income) by any Employer or Commonly Controlled Entity under Section 404 of the Code ("Deductible Amount"). Any amount in excess of the Deductible Amount shall not be contributed in the following order of Contribution type, to the extent needed to eliminate the excess: (1) Each Participant's allocable share of Pre-Tax Contributions for the Plan Year will be reduced by an amount equal to the excess of the Participant's Pre-Tax Contributions over an amount which bears the same ratio to the amount of Pre-Tax Contributions made to the Plan on behalf of such Participant during the Plan Year as the Deductible Amount available for the Plan Year (reduced by the total amount of other types of Employer Contributions for the Plan Year) bears to the aggregate Pre-Tax Contributions made to the Plan on behalf of all Participants subject to such Deductible Amount during the Plan Year (before the application of this provision). - 23 - 34 (2) If the application of Section (a)(1) would result in a reduction of a Participant's Pre-Tax Contributions which are matched by Matching Contributions, the rate at which Pre-Tax Contributions are reduced shall be offset by a reduction for each Matching Contribution not made as a result. (3) Pay Based Contributions. (b) Profit Sharing Plan. Notwithstanding anything herein to the contrary, the Plan shall constitute a profit sharing plan for all purposes of the Code. - 24 - 35 ARTICLE V - -------------------------------------------------------------------------------- ROLLOVERS 5.1 Rollovers. The Administrative Committee may authorize the Custodian to accept a Rollover Contribution from an Eligible Employee in cash, even if he or she is not yet a Participant. The Employee shall furnish satisfactory evidence to the Administrative Committee that the amount is eligible for rollover treatment. Such amount shall be posted to the Employee's Rollover Account by the Applicable Named Fiduciary as of the date received by the Custodian. Such Eligible Employee shall not be treated as a Participant for purposes of Articles III and IV until he or she has satisfied the requirements of Article II. If it is later determined that an amount transferred pursuant to the above paragraph did not in fact qualify as a Rollover Contribution, the balance credited to the Employee's Rollover Account shall immediately be (1) segregated from all other Plan assets, (2) treated as a non-qualified trust established by and for the benefit of the Employee, and (3) distributed to the Employee. Any such nonqualifying rollover shall be deemed never to have been a part of the Plan. - 25 - 36 ARTICLE VI - -------------------------------------------------------------------------------- ACCOUNTING FOR PARTICIPANTS' ACCOUNTS AND FOR INVESTMENT FUNDS 6.1 Individual Participant Accounting. (a) Account Maintenance. The Applicable Named Fiduciary shall cause the Accounts for each Participant to reflect transactions involving assets of the Accounts in accordance with this Article. Financial transactions during or with respect to an Accounting Period shall be accounted for at the individual Account level by "posting" each transaction to the appropriate Account of each affected Participant. Participant Account values shall be maintained in dollars or shares depending on the Investment Fund. At any point in time, the value of a Participant's Accrued Benefit shall be equal to the Fair Market Value of his or her Account determined by using the most recent Trade Date values provided by the Custodian. (b) Trade Date Accounting and Investment Cycle. For any transaction to be processed as of a Trade Date, the Applicable Named Fiduciary must receive instructions by the Sweep Date and such instructions shall apply only to amounts held in or posted to the Accounts as of the Trade Date. Financial transactions in an Investment Fund shall be posted to a Participant's Account as of the Trade Date and based upon the Trade Date values provided by the Custodian. All transactions shall be effected on the Settlement Date relating to the Trade Date (or as soon as is administratively feasible). (c) Suspension of Transactions. Whenever the Administrative Committee considers such action to be in the best interest of the Participants, the Administrative Committee in its discretion may suspend from time to time the Trade Date. (d) Temporary Investment. All transactions related to amounts being contributed to or distributed from the Trust shall be posted to each affected Participant's Sweep Account. Any amount held in the Sweep Account will be credited with interest up until the Settlement Date or the later date on which it is removed from the Sweep Account. (e) How Fees and Expenses are Charged to Participants. Account maintenance fees shall be charged prorata to each Participant's Account on the basis of each Participant's Accrued Benefit, provided that no fee shall reduce a Participant's Account balance below zero. Transaction type fees (such as special asset fees, Conversion Election change fees, etc.) shall be charged to the Accounts involved in the transaction. Fees and expenses incurred for the - 26 - 37 management and maintenance of Investment Funds shall be charged at the Investment Fund level and reflected in the net gain or loss of each Fund. (f) Error Correction. The Administrative Committee may correct any errors or omissions in the administration of the Plan by restoring or charging any Participant's Accrued Benefit with the amount that would be credited or charged to the Account had no error or omission been made. Funds necessary for any such restoration shall be provided through payment made by the Employer. (g) Accounting for Participant Loans. Participant loans shall be held in a separate Fund for investment only by such Participant and accounted for in dollars as an earmarked asset of the borrowing Participant's Account. 6.2 Accounting for Investment Funds. (a) Dollar Accounting. Investments in the Investment Fund designated in the Appendix shall be maintained in dollars. The Applicable Named Fiduciary is responsible for determining the dollar value of a unit of each Investment Fund as of each Trade Date. To the extent the Investment Fund is comprised of a collective investment fund of the Custodian, the net asset and unit values shall be determined in accordance with the rules governing such collective investment funds, which are incorporated herein by reference. Fees and expenses incurred for the management and maintenance of Investment Funds shall be charged at the Investment Fund level and reflected in the net gain or loss of each Fund Fees. (b) Share Accounting. The investments in each Investment Fund designated in the Appendix shall be maintained in full and fractional shares. The Applicable Named Fiduciary is responsible for determining the number of full and fractional shares of each such Fund. To the extent an Investment Fund is comprised of a collective investment fund of the Custodian, the net asset and unit values shall be determined in accordance with the rules governing such collective investment funds, which are incorporated herein by reference. Fees and expenses incurred for the management and maintenance of Investment Funds shall be charged at the Investment Fund level and reflected in the net gain or loss of each Fund. (c) Accounting for Company Stock. The following additional rules shall apply to the Company Stock Fund: (1) Shareholder Rights. Shareholder Rights with respect to all Company Stock in an Account shall be exercised by the Trustee in accordance with directions from the Participant pursuant to the procedures of the Trust Agreement. - 27 - 38 (2) Tender Offer. If a tender offer is commenced for Company Stock, the provisions of the Trust Agreement regarding the response to such tender offer, the holding and investment of proceeds derived from such tender offer and the substitution of new securities for such proceeds shall be followed. (3) Dividends and Income. Dividends (whether in cash or in property) and other income received by the Custodian in respect of Company Stock shall be reinvested in Company Stock and shall constitute income and be recognized on an accrual basis for the Accounting Period in which occurs the record date with respect to such dividend; provided that, with respect to any dividend which is reflected in the market price of the underlying stock, the Administrative Committee shall direct the Custodian during such trading period to trade such stock the regular way to reflect the value of the dividend, and all Fund transfers and cash distributions shall be transacted accordingly with no accrual of such dividend, other than as reflected in such market price. (4) Transaction Costs. Any brokerage commissions, transfer taxes, transaction charges, and other charges and expenses in connection with the purchase or sale of Company Stock shall be added to the cost thereof in the case of a purchase or deducted from the proceeds thereof in the case of a sale; provided, however, where the purchase or sale of Company Stock is with a "disqualified person" as defined in Section 4975(e)(2) of the Code or a "party in interest" as defined in Section 3(14) of ERISA, no commissions may be charged with respect thereto. 6.3 Accounts for QDRO Beneficiaries. A separate Account shall be established for a Beneficiary entitled to any portion of a Participant's Account under a QDRO as of the date and in accordance with the directions specified in the QDRO. Such Account shall be valued and accounted for in the same manner as any other Account. (a) Investment Direction. A QDRO Beneficiary may direct the investment of such Account in the same manner as any other Participant; provided however, a QDRO Beneficiary may not acquire Company Stock. (b) Distributions. A QDRO Beneficiary shall be entitled to payment as provided in the QDRO and permissible under the otherwise applicable terms of this Plan, regardless of whether the Participant is an Employee, and to name a Beneficiary as specified in the QDRO. - 28 - 39 (c) Participant Loans. A QDRO Beneficiary shall not be entitled to borrow from his or her Account. If a QDRO specifies that the QDRO Beneficiary is entitled to any portion of the Account of a Participant who has an outstanding loan balance, all outstanding loans shall continue to be held in the Participant's Account and shall not be divided between the Participant's and QDRO Beneficiary's Accounts. 6.4 Special Accounting During Conversion Period. The Administrative Committee and Custodian may use any reasonable accounting methods in performing their respective duties during the period of converting the prior accounting system of the Plan and Trust to conform to the individual Participant accounting system described in this Section. This includes, but is not limited to, the method for allocating net investment gains or losses and the extent, if any, to which contributions received by and distributions paid from the Trust during this period share in such allocation. All or a portion of the Trust assets may be held, if necessary, in a short term interest bearing vehicle, which may include deposits of the Trustee, during the conversion period for establishing such individual Participant Accounts. - 29 - 40 ARTICLE VII - -------------------------------------------------------------------------------- INVESTMENT FUNDS AND ELECTIONS 7.1 Investment Funds. Except for a Participant's Sweep and loan Accounts, the Trust shall be maintained in various Investment Funds. The Administrative Committee may change the number or composition of the Investment Funds, subject to the terms and conditions agreed to with the Custodian. 7.2 Investment of Contributions. (a) Investment Election. Each Participant may direct the Trustee, by submission to the responsible Applicable Named Fiduciary of a completed Investment Election provided for that purpose by the responsible Applicable Named Fiduciary, to invest Contributions posted to his or her Accounts in one or more Investment Funds which shall be entirely invested in the Investment Fund specified by the Administrative Committee in the Appendix. If the Administrative Committee directs, for any Accounting Period, Contributions with respect to which the Participant has investment control may be invested separately in Funds. If a Participant does not have a valid Investment Election on file, his or her Election shall be deemed to be a 100% election of the Investment Fund designated by the Administrative Committee as the default option, as indicated in Appendix A. If the Participant elects to have any such Contributions made on his or her behalf invested in more than one Investment Fund, he or she must designate in whole multiples of one percent (1%) what percentage of the Contribution is to be invested in each such Investment Fund. If the Administrative Committee directs, for any Accounting Period, Contributions with respect to which the Participant has investment control may be invested separately in Funds. (b) Effective Date of Investment Election; Change of Investment Election. A Participant's initial Investment Election will be effective with respect to a Fund on the Trade Date which relates to the Sweep Date on which or prior to which the Investment Election is received pursuant to procedures specified by the Administrative Committee. Any Investment Election which has not been properly completed will be deemed not to have been received. If a Participant does not have a valid Investment Election on file, his or her Election shall be deemed to be a 100% election of the Investment Fund designated by the Administrative Committee as the default option, as indicated in Appendix A. A Participant's Investment Election shall continue in effect, notwithstanding any change in his or her Compensation or his or her Contribution Percentage, until the earliest of (1) the effective date of a new Investment Election, or (2) the date he or she ceases to be paid as an Eligible Employee. A change in Investment Election shall be effective with respect to a Fund on the Trade Date which relates to the Sweep Date on which or prior to which the Participant's - 30 - 41 new Investment Election is received pursuant to procedures specified by the Administrative Committee. Any Investment Election which has not been properly completed will be deemed not to have been received. (c) Switching Fees. A reasonable processing fee may be charged directly to a Participant's Account for Investment Election changes in excess of a specified number per Plan Year as determined by the Administrative Committee. 7.3 Investment of Accounts. (a) Conversion Election. Notwithstanding a Participant's Investment Election, a Participant or Beneficiary may direct the Trustee, by completing a Conversion Election in accordance with such procedures as are adopted by the responsible Applicable Named Fiduciary, to change the interest his or her Accrued Benefit has in one or more Investment Funds. If the Participant or Beneficiary elects to invest his or her Accrued Benefit in more than one (1) Investment Fund, he or she must designate in whole multiples of one percent (1%) what percentage of his or her Accounts is to be invested in such Investment Fund. If the Administrative Committee directs, for any Accounting Period, Accounts may be invested separately in Funds. (b) Effective Date of Conversion Election. A Conversion Election to change a Participant's or Beneficiary's investment of his or her Accrued Benefit in one Investment Fund to another Fund shall be effective with respect to such Funds on the Trade Date(s) which relates to the Sweep Date on which or prior to which the Election is received pursuant to procedures specified by the Administrative Committee. Notwithstanding the foregoing, to the extent required by any provisions of an Investment Fund, the effective date of any Conversion Election may be delayed or the amount of any permissible Conversion Election may be reduced. Any Conversion Election which has not been properly completed will be deemed not to have been received. (c) Switching Fees. A reasonable processing fee may be charged directly to a Participant's Account for Conversion Election changes in excess of a specified number per Plan Year as determined by the Administrative Committee. 7.4 Establishment of Investment Funds. The Administrative Committee shall cause to be established one or more Investment Funds set forth in the Appendix. In addition, the Administrative Committee may, from time to time, in its discretion: (a) limit investments in or transfers from an Investment Fund; (b) add funding vehicles thereunder; - 31 - 42 (c) liquidate, consolidate or otherwise reorganize an existing Investment Fund; or (d) add a new Investment Fund to the Appendix. 7.5 Transition Rules. Effective as of the date any Investment Fund is added or deleted, each Participant and Beneficiary shall have the opportunity to submit new Investment Elections and Conversion Elections to the responsible Applicable Named Fiduciary no later than the applicable Sweep Date. The Administrative Committee and Custodian may use any reasonable accounting methods in performing their respective duties during the period of transition from one Investment Fund to another, including, but not limited to: (a) designating into which Investment Fund a Participant's Accrued Benefit will be invested if the Participant fails to submit a proper Conversion Election; (b) the method for allocating net investment gains or losses and the extent, if any, to which amounts received by and distributions paid from the Trust during this period share in such allocation; or (c) investing all or a portion of the Trust's assets in a short-term, interest-bearing Fund during such transition period. - 32 - 43 ARTICLE VIII - -------------------------------------------------------------------------------- VESTING AND FORFEITURES 8.1 Fully Vested Contribution Accounts. A Participant shall be fully vested and have a nonforfeitable right to his or her Accrued Benefit in these Accounts at all times: Pre-Tax Account Rollover Account Special Account. 8.2 Full Vesting Upon Attainment of Event. A Participant's Accrued Benefit shall be fully vested and nonforfeitable upon the occurrence of any one or more of the following events: (a) completion of at least the minimum number of years of Vesting Service in the Vesting Schedule for a 100% nonforfeitable percentage; (b) attainment of Normal Retirement Date; (c) his or her Termination of Employment for reason of a Disability; or (d) he or she dies while an Employee. 8.3 Vesting Schedule and Forfeitures. (a) Vesting. If a Participant has a Termination of Employment, the Participant shall be vested and have a nonforfeitable right to his or her Accrued Benefit in his or her Matching and Retirement Contribution Accounts, determined in accordance with the following vesting schedule: Years of Vesting Service Nonforfeitable Percentage Less than 3 years 0% 3 years or more 100% Notwithstanding the preceding sentence, with respect to that portion of a Participant's Accounts that is attributable to amounts transferred from the Sharon Manufacturing Company Savings Retirement Plan, the vested percentage of such Accounts shall be no less than their vested percentage under the Sharon Manufacturing Company Savings Retirement Plan as of the transfer's effective date. - 33 - 44 8.4 Forfeitures. (a) Forfeiture Where Payment Commences After a Break in Service. If no Payment Date of a Participant's nonforfeitable Accrued Benefit occurs before having incurred a Break in Service, that portion of the Participant's Accrued Benefit (which is Employer-derived) which is forfeitable as of his or her Termination of Employment shall be forfeited as of the completion of a Break in Service. If the Participant is reemployed as an Employee prior to having incurred a Break in Service, the Forfeiture shall not occur. If the Participant is reemployed as an Employee after incurring a Break in Service, the Participant shall be fully vested and have a nonforfeitable interest in that portion of his or her Accounts accrued prior to the Break in Service and not forfeited as a result of such Break in Service. A Participant who incurs a Termination of Employment with a zero vested interest in his or her Accrued Benefit (which is Employer-derived) shall be deemed to have a Payment Date and a Forfeiture of his or her Accrued Benefit as of such Termination of Employment. (b) Forfeiture Where Payment Commences Prior to a Break in Service. If the Payment Date of a Participant's nonforfeitable percentage of his or her Accrued Benefit occurs prior to having incurred a Break in Service, that portion of his or her Accrued Benefit which is forfeitable shall be forfeited as of the Payment Date. Thereafter, if such person is rehired as an Employee prior to incurring a Break in Service, he or she shall be entitled to make repayment to the Plan of the full amount distributed to him or her on or after the Payment Date no later than (1) the date he or she incurs a Break in Service, and (2) the last day of the 5-year period commencing on or after his or her date of reemployment. Upon making repayment in a single payment of the amount distributed to him or her, the amount repaid shall be credited to the Participant's Account from which paid and the Forfeiture shall be reinstated to his or her Accounts and invested in the same manner as the Account to which it is posted. The amount required to restore such Participant's Accounts shall be charged against the Plan's Forfeitures, and if insufficient, be made up from additional Employer Contributions. Where a Participant has been deemed to have a Payment Date because he or she had a zero vested interest in his or her Accrued Benefit, he or she will be deemed to have made the repayment required by this subparagraph on his or her date of hire. If the Employee makes the above-described repayment, such repayment shall be considered to be the "investment in the contract" for purposes of Sections 72(c)(1)(A), 72(f) and 402(e)(4)(D)(i) of the Code in relation to the amount reinstated in his or her Account on account of the repayment. - 34 - 45 8.5 Forfeiture Account. A Forfeiture will be posted, no later than the end of the Plan Year in which the Forfeiture arises, to the Forfeiture Account on the Settlement Date for the Trade Date on which the Custodian, at the direction of the Administrative Committee, has converted the Forfeiture to cash. The Forfeiture Account shall be invested in interest bearing deposits of the Custodian or short term money market instruments. The Forfeiture Account shall be used to reinstate Accrued Benefits, to reduce Employer Contributions as determined by the Administrative Committee, and to pay expenses of the Plan. - 35 - 46 ARTICLE IX - ------------------------------------------------------------------------------- PARTICIPANT LOANS 9.1 Participant Loans Permitted. The Administrative Committee is authorized to establish and administer a loan program for a Participant pursuant to the terms and conditions set forth in this Article. All loan limits are determined as of the Trade Date the Trustee reserves funds for the loan. The funds will be disbursed to the Participant as soon as is administratively feasible after the next following Settlement Date. 9.2 Loan Funding Limits. The loan amount must meet the following limits: (a) Plan Minimum Limit. The minimum amount for any loan is $1,000.00. (b) Plan Maximum Limit. Subject to the legal limit described in (c) below, the maximum a Participant may borrow, including the outstanding balance of existing Plan loans, is fifty percent (50%) of his or her following Accounts which are fully vested: Pre-Tax Account Special Account Matching Account Retirement Contribution Account Rollover Account. (c) Legal Maximum Limit. The maximum a Participant may borrow, including the outstanding balance of existing loans, is based upon the value of his or her vested interest in this Plan and all other qualified plans maintained by a Commonly Controlled Entity (the "Vested Interest"). The maximum amount is equal to fifty percent (50%) of his or her Vested Interest, not to exceed $50,000. However, the $50,000 amount is reduced by the Participant's highest outstanding balance of all loans from any Commonly Controlled Entity's qualified plans during the 12-month period ending on the day before the Trade Date on which the loan is made. 9.3 Maximum Number of Loans. A Participant may have only one loan outstanding at any given time, and any prior existing loan must be fully repaid for 12 months before a new loan may be secured. - 36 - 47 9.4 Source of Loan Funding. A loan to a Participant shall be made solely from the assets of his or her following Accounts which are fully vested: Pre-Tax Account Special Account Matching Account Retirement Contribution Account Rollover Account. The available assets shall be determined first by Contribution Account and then by investment type within each type of Contribution Account. The hierarchy for loan funding by type of Contribution Account shall be the order listed in the preceding Plan Maximum Limit paragraph. Within each Account used for funding, amounts shall first be taken from the available cash in the Account and then taken by type of investment in direct proportion to the market value of the Participant's interest in each Investment Fund as of the Sweep Date on which the loan is made. 9.5 Interest Rate. The interest rate charged on Participant loans shall be fixed and equal to the prime rate published in the Wall Street Journal plus one percentage point (1%). The rate may be determined once for all loans made in a month, and the maturity may be determined to the nearest year. 9.6 Repayment. Substantially level amortization shall be required of each loan with payments made at least monthly, through payroll deduction, provided that payment can be made by check for advance loan payments, or when a Participant is on an Authorized Leave of Absence or transferred to the employ of a Commonly Controlled Entity which is not participating in the Plan. Loans may be prepaid in full at any time. The loan repayment period shall be as mutually agreed upon by the Participant and Administrative Committee, not to exceed five (5) years. 9.7 Repayment Hierarchy. Loan principal repayments shall be credited to the Participant's Contribution Accounts in the inverse of the order used to fund the loan. Loan interest shall be credited to the Contribution Accounts in direct proportion to the principal repayment. Loan payments are credited by investment type based upon the Participant's current Investment Election for that Account. 9.8 Loan Application, Note and Security. A Participant shall apply for any loan in accordance with a procedure established by the Applicable Named Fiduciary. The Applicable Named Fiduciary shall administer Participant loans and shall specify the time frame for approving loan applications. All loans shall be evidenced by a promissory note and security agreement and secured only by a Participant's vested Account balance. The Plan shall have a lien on a Participant's Account to the extent of any outstanding loan balance. - 37 - 48 9.9 Default, Suspension and Acceleration Feature. (a) Default. A loan is treated as a default on the earlier of (i) the date any scheduled loan payment is more than ninety (90) days late, provided that the Administrative Committee may agree to a suspension of loan payments for up to twelve (12) months for a Participant who is on an Authorized Leave of Absence or (ii) thirty (30) days from the time the Participant receives written notice of the note being due and payable and a demand for past due amounts. (b) Actions upon Default. In the event of default, the Applicable Named Fiduciary will direct the Trustee to report the default as a taxable distribution. As soon as a Plan withdrawal or distribution to such Participant would otherwise be permitted, the Applicable Named Fiduciary will direct the Trustee to execute upon its security interest in the Participant's Account by segregating the unpaid loan balance from the Account, including interest to the date of default, and to distribute the note to the Participant. (c) Acceleration. A loan shall become due and payable in full once the Participant incurs a Termination of Employment. - 38 - 49 ARTICLE X - ------------------------------------------------------------------------------- IN-SERVICE WITHDRAWALS 10.1 Withdrawals for 401(k) Hardship. (a) Requirements. A Participant may request the withdrawal of any amount from the portion of his or her Pre-Tax Account to the extent vested needed to satisfy a financial need by making a withdrawal request in accordance with a procedure established by the Administrative Committee. The Applicable Named Fiduciary shall only approve those requests for withdrawals (1) on account of a Participant's "Deemed Financial Need", and (2) which are "Deemed Necessary" to satisfy the financial need. (b) "Deemed Financial Need". Financial commitments relating to: (1) costs directly related to the purchase or construction (excluding mortgage payments or balloon payments) of a Participant's principal residence; (2) the payment of expenses for medical care described in Section 213(d) of the Code previously incurred by the Participant, the Participant's Spouse, or any dependents of the Participant (as defined in Section 152 of the Code) or necessary for those persons to obtain medical care described in Section 213(d) of the Code; (3) payment of tuition and related educational fees and room and board expenses for the next twelve (12) months of post-secondary education for the Participant, his or her Spouse, children or dependents (as defined in Section 152 of the Code); or (4) necessary payments to prevent the eviction of the Participant from his or her principal residence or the foreclosure on the mortgage of the Participant's principal residence. (c) "Deemed Necessary". A withdrawal is "deemed necessary" to satisfy the financial need only if all of these conditions are met: (1) the withdrawal may not exceed the dollar amount needed to satisfy the Participant's documented Financial Hardship, plus an amount necessary to pay federal, state, or local - 39 - 50 income taxes or penalties reasonably anticipated to result from such withdrawal; (2) the Participant must have obtained all distributions, other than Financial Hardship distributions, and all nontaxable loans under all plans maintained by the Company or any Commonly Controlled Entity; (3) the Participant will be suspended from making Pre-Tax Contributions, post-tax contributions, (or similar contributions under any other qualified or nonqualified plan of deferred compensation maintained by a Commonly Controlled Entity) for at least twelve (12) months from the date the withdrawal is received; and (4) the Contribution Dollar Limit for the taxable year immediately following the taxable year in which the Financial Hardship withdrawal is received shall be reduced by the Elective Deferrals for the taxable year in which the Financial Hardship withdrawal is received. (d) Account Sources for Withdrawal. The withdrawal amount shall come only from his or her Pre-Tax Account. The amount that may be withdrawn from a Participant's Pre-Tax Account shall not include earnings and Qualified Matching Contributions posted to his or her Pre-Tax Account after the end of the Plan Year which ends before July 1, 1989. 10.2 Withdrawals for Participants over age 59 1/2. (a) Requirements. A Participant who is over age 59 1/2 may withdraw from his or her Accounts to the extent vested listed in paragraph (b) below. (b) Account Sources for Withdrawal. The withdrawal amount shall come only from his or her Accounts, in the following priority order of Accounts: Rollover Account Pre-Tax Account Special Account Matching Account Retirement Contribution Account. (c) Permitted Frequency. The maximum number of withdrawals permitted from these Accounts after age 59 1/2 in any three (3) month period is one (1). (d) Suspension from Further Contributions. If the withdrawal is from an Account with respect to which there is a Matching Contribution, - 40 - 51 Contributions directed by the Participant shall be suspended for a period of 6 months following the Sweep Date of the withdrawals, unless the Participant is suffering from a hardship described above. 10.3 Withdrawal Processing. (a) Minimum Amount. The minimum amount for any type of withdrawal is $500.00. (b) Application by Participant. A Participant must submit a withdrawal request in accordance with a procedure established by the Applicable Named Fiduciary to the Applicable Named Fiduciary to apply for any type of withdrawal. Only a Participant who is an Employee may make a withdrawal request. (c) Approval by the Applicable Named Fiduciary. The Applicable Named Fiduciary is responsible for determining that a withdrawal request conforms to the requirements described in this Section and notifying the Custodian of any payments to be made in a timely manner. (d) Time of Processing. The Custodian shall process all withdrawal requests which it receives by a Sweep Date, based on the value as of the Trade Date to which it relates, and fund them on the next Settlement Date. The Custodian shall then make payment to the Participant as soon thereafter as is administratively feasible. (e) Medium and Form of Payment. The medium of payment for withdrawals is either cash or direct deposit. The form of payment for withdrawals shall be a single installment. (f) Investment Fund Sources. Within each Account used for funding a withdrawal, amounts shall be taken from the Sweep Account and then taken by type of investment in direct proportion to the market value of the Participant's interest in each Investment Fund (which excludes Participant's loans) at the time the withdrawal is made. (g) Direct Rollover. With respect to any payment hereunder in excess of $200 which constitutes an Eligible Rollover Distribution, a Distributee may direct the Applicable Named Fiduciary to have all or some portion of such payment paid in the form of a Trustee Transfer, in accordance with procedures established by the Administrative Committee, provided the Applicable Named Fiduciary receives written notice of such direction with specific instructions as to the Eligible Retirement Plan on or prior to the applicable Sweep Date for payment. If the Participant does not transfer all of such payment, the minimum amount which can be transferred is $500. - 41 - 52 ARTICLE XI - ------------------------------------------------------------------------------- DISTRIBUTIONS ON AND AFTER TERMINATION OF EMPLOYMENT 11.1 Request for Distribution of Benefits. (a) Request for Distribution. Subject to the other requirements of this Article, a Participant may elect to have his or her vested Accrued Benefit paid to him or her beginning upon any Settlement Date following his or her Termination of Employment by submitting a completed distribution election in accordance with a procedure established by the Applicable Named Fiduciary. Such election form shall include or be accompanied by a notice which provides the Participant with information regarding all optional times and forms of payment available. The election must be submitted to the Applicable Named Fiduciary by the Sweep Date that relates to the Payment Date. (b) Failure to Request Distribution. If a Participant has a Termination of Employment and fails to submit a distribution request in accordance with a procedure established by the Applicable Named Fiduciary by the last Payment Date permitted under this Article, his or her vested Accrued Benefit shall be valued as of the Valuation Date which immediately precedes such latest date of distribution (called the "Default Valuation Date") and a notice of such deemed distribution shall be issued to his or her last known address as soon as administratively possible. If the Participant does not respond to the notice or cannot be located, his or her vested Accrued Benefit determined on the Default Valuation Date shall be treated as a Forfeiture. If the Participant subsequently files a claim, the amount forfeited (unadjusted for gains and losses) shall be reinstated to his or her Accounts and distributed as soon as administratively feasible, and such payment shall be accounted for by charging it against the Forfeiture Account or by a contribution from the Employer of the affected Participant. 11.2 Deadline for Distribution. In addition to any other Plan requirements and unless the Participant elects otherwise, or cannot be located, the Payment Date of a Participant's vested Accrued Benefit shall be not later than sixty (60) days after the latest of the close of the Plan Year in which (i) the Participant attains the earlier of age sixty-five (65) or his or her Normal Retirement Date, (ii) occurs the tenth (10th) anniversary of the Plan Year in which the Participant commenced participation, or (iii) the Participant had a Termination of Employment. However, if the amount of the payment or the location of the Participant (after a reasonable search) cannot be ascertained by that deadline, payment shall be made no later than sixty (60) days after the earliest date on which such amount or location is ascertained. In any case, the Payment Date of a Participant's vested Accrued Benefit shall not be later than April 1 following the calendar year in which the Participant attains age seventy and one-half - 42 - 53 (70 1/2) and each December 31 thereafter and shall comply with the requirements of Section 401(a)(9) of the Code and the Treasury Regulations promulgated thereunder. 11.3 Payment Form and Medium. (a) General. A Participant's vested Accrued Benefit shall be paid in the form of: (1) a lump sum; (2) a single or joint life annuity; (3) installment refund annuity (with a period certain of five (5), ten (10) or fifteen (15) years); (4) periodic distributions of at least $500.00, each in an amount designated by the Participant, but not to exceed five (5) distributions nor more than one (1) in each calendar year; or (5) annual installment distributions over a period of two (2) to fifteen (15) years payable in an amount equal to the Participant's Account balance as of the Valuation Date the units or shares are liquidated or sold, respectively, divided by the number of years remaining in the period of payments, including the year of payment. (b) Medium of Payment. Payments will generally be made in cash (generally by check), alternatively, if the Participant elects an in-kind distribution, a single sum payment will be made in a combination of cash and whole shares (to the extent his or her Accrued Benefit is invested in the Company Stock). Any annuity option permitted will be provided through the purchase of a non-transferable single premium contract from an insurance company which must conform to the terms of the Plan and Section 401(a)(9) of the Code and which will be distributed to the Participant or Beneficiary in complete satisfaction of the benefit due. 11.4 Small Amounts Paid Immediately. If a Participant has a Termination of Employment and the Participant's vested Accrued Benefit is $3,500 or less, the Participant's Accrued Benefit shall be paid as a single sum as soon as administratively feasible after his or her Termination of Employment. 11.5 Payment Within Life Expectancy. The Participant's payment election must be consistent with the requirement of Code Section 401(a)(9) that all payments are to be completed within a period not to exceed the lives or the joint and last survivor life expectancy of the Participant and his or her Beneficiary. The life expectancies of a Participant and his or her spouse may not be recomputed annually. 11.6 Incidental Benefit Rule. The Participant's payment election must be consistent with the requirement that, if the Participant's Spouse is not his or her sole - 43 - 54 primary Beneficiary, the minimum annual distribution for each calendar year, beginning with the year in which he or she attains age seventy and one-half (70 1/2), shall not be less than the quotient obtained by dividing (a) the Participant's vested Accrued Benefit as of the last Trade Date of the preceding year by (b) the applicable divisor as determined under the incidental benefit requirements of Code Section 401(a)(9). 11.7 QJSA and QPSA Information and Elections. The following information and election rules will apply to any Participant who elects an annuity option. (a) QJSA. A qualified joint and fifty percent (50%) survivor annuity, meaning a form of benefit payment which is the actuarial equivalent of the Participant's applicable portion of the vested Accrued Benefit at the Payment Date, payable to the Participant in monthly payments for life and providing that, if the Participant's Spouse survives him or her, monthly payments equal to fifty percent (50%) of the amount payable to the Participant during his or her lifetime will be paid to the Spouse for the remainder of such person's lifetime. (b) QPSA. A qualified pre-retirement survivor annuity, meaning that upon the death of a Participant before the Payment Date of the applicable portion of the his or her vested Accrued Benefit, such benefit will become payable to the surviving Spouse as an annuity, unless Spousal Consent has been given to a different Beneficiary or the surviving Spouse chooses a different form of payment. (c) QJSA Information to a Participant. No more than ninety (90) days before the Payment Date, each Participant who has a Spouse and requests or will receive an annuity form of payment shall be given a written explanation of (1) the terms and conditions of the QJSA to his or her annuity; (2) the right to make an election to waive this form of payment and choose an optional form of payment and the effect of this election; (3) the right to revoke this election and the effect of this revocation; and (4) the need for Spousal Consent. (d) QJSA Election. A Participant may elect (and such election shall include Spousal Consent if married), at any time within the ninety (90) day period ending on the Payment Date, to (1) waive the right to receive the QJSA and elect an optional form of payment; or (2) revoke or change any such election. (e) QJSA Spousal Consent to Participant Loans. Spousal Consent must be obtained for any Participant loan which is funded from any amount to which the election in paragraph (d) above applies within the ninety (90) day period ending on the date such loan is secured. (f) QJSA Spousal Consent to Participant In-Service Withdrawals. Spousal Consent must be obtained for any Participant in-service withdrawal which is funded from the applicable portion of his or her Account or any portion - 44 - 55 of an Account to which the election in paragraph (d) above applies within the ninety (90) day period ending on the date of such in-service withdrawal. (g) QPSA Beneficiary Information to Participant. Each married Participant who has requested or will receive an annuity form of payment shall be given written information stating that (1) his or her death benefit is payable to his or her surviving Spouse; (2) his or her ability to choose that the benefit be paid to a different Beneficiary; (3) the right to revoke or change a prior designation and the effects of such revocation or change; and (4) the need for Spousal Consent. Such information shall be provided during whichever of the following periods ends later: (1) the period that begins one year before the date on which the Participant requests an annuity form of payment and that ends one year after such date; and (2) the period that begins with the first day of the Plan Year in which the Participant attains age thirty-two (32) and that ends with the close of the Plan Year in which the Participant attains age thirty-five (35). Notwithstanding the foregoing, if the Participant incurs a Termination of Employment after requesting an annuity form of payment, but before attaining age thirty-five (35), the information described in the first sentence of this Subsection shall be provided during the period that begins one year before the date of the Participant's Termination of Employment and that ends one year after such date. (h) QPSA Beneficiary Designation by Participant. A married Participant may designate (with Spousal Consent) a non-spouse Beneficiary at any time after the Participant has been given the information in the QPSA Beneficiary Information to Participant paragraph above and upon the earlier of (1) the date the Participant incurs a Termination of Employment, or (2) the beginning of the Plan Year in which that Participant attains age thirty-five (35). 11.8 Continued Payment of Amounts in Payment Status on January 1, 1997. Any person who became a Participant prior to January 1, 1997 only because he or she had an Accrued Benefit and who had commenced to receive payments prior to January 1, 1997 shall continue to receive such payments in the same form and payment schedule under this Plan. 11.9 Direct Rollover. With respect to any payment in excess of $200 hereunder which constitutes an Eligible Rollover Distribution, a Distributee may direct the Applicable Named Fiduciary to have such payment paid in the form of a Trustee Transfer, in accordance with procedures established by the Administrative Committee, provided the Applicable Named Fiduciary receives written notice of such direction with specific instructions as to the Eligible Retirement Plan on or prior to the applicable - 45 - 56 Sweep Date for payment. If the Participant does not transfer all of such payment, the minimum amount which can be transferred is $500. - 46 - 57 ARTICLE XII - -------------------------------------------------------------------------------- DISTRIBUTION OF ACCRUED BENEFITS ON DEATH 12.1 Payment to Beneficiary. On the death of a Participant prior to his or her Payment Date, his or her vested Accrued Benefit shall be paid to the Beneficiary or Beneficiaries designated by the Participant in accordance with the procedure established by the Administrative Committee. Death of a Participant on or after his or her Payment Date shall result in payment to his or her Beneficiary of whatever death benefit is provided by the form of payment in effect on his or her Payment Date. 12.2 Beneficiary Designation. Each Participant shall complete a beneficiary designation indicating the Beneficiary who is to receive the Participant's remaining Plan interest at the time of his or her death. The Participant may change such designation of Beneficiary from time to time by filing a new beneficiary designation with the Applicable Named Fiduciary. No designation of Beneficiary or change of Beneficiary shall be effective until properly filed with the Applicable Named Fiduciary. Notwithstanding any designation to the contrary, the Participant's Beneficiary shall be the Participant's Spouse to whom the Participant is legally married under the laws of the State of the Participant's residence on the date of the Participant's death and surviving him or her on such date, unless such designation includes Spousal Consent. If the Participant dies leaving no Spouse and either (1) the Participant shall have failed to file a valid beneficiary designation, or (2) all persons designated on the beneficiary designation shall have predeceased the Participant, the Applicable Named Fiduciary shall have the Custodian distribute such Participant's Accrued Benefit in a single sum to his or her estate. 12.3 Benefit Election. (a) Request for Distribution. In the event of a Participant's death prior to his or her Payment Date, a Beneficiary may elect to have the vested Accrued Benefit of a deceased Participant paid to him or her beginning upon any Settlement Date following the Participant's date of death by submitting a completed distribution election in accordance with the procedure established by the Administrative Committee. The election must be submitted to the Applicable Named Fiduciary by the Sweep Date that relates to the Settlement Date upon which payments are to begin. (b) Failure to Request Distribution. In the event a Beneficiary fails to submit a timely distribution request, his or her vested Accrued Benefit shall be valued as of the Valuation Date which immediately precedes such latest date of distribution (called the "Default Valuation Date") and a notice of such deemed distribution shall be issued to his or her last known address as soon as administratively possible. If the Beneficiary does not respond to the notice or cannot be located, his or her vested Accrued Benefit determined on the Default - 47 - 58 Valuation Date shall be treated as a Forfeiture. If the Beneficiary subsequently files a claim, the amount forfeited (unadjusted for gains and losses) shall be reinstated to his or her Accounts and distributed as soon as administratively feasible, and such payment shall be accounted for by charging it against the Forfeiture or by a Contribution from the Employer of the affected Beneficiary. 12.4 Payment Form. In the event of a Participant's death prior to his or her Payment Date, a Beneficiary shall be limited to the same form of payment to which the Participant was limited. Payments will generally be made in cash (by check); alternatively, if the Beneficiary elects an in-kind distribution, a single sum payment will be made in a combination of cash and whole shares (to the extent his or her Accrued Benefit is invested in the Company Stock). 12.5 Time Limit for Payment to Beneficiary. Payment to a Beneficiary must either: (a) be completed within five (5) years of the Participant's death; or (b) begin within one year of his or her death and be completed within the period of the Beneficiary's lifetime, except that: (1) If the Participant dies after the April 1 immediately following the end of the calendar year in which he or she attains age seventy and one-half (70 1/2), payment to his or her Beneficiary must be made at least as rapidly as provided in the Participant's distribution election; (2) If the surviving Spouse is the Beneficiary, payments need not begin until the date on which the Participant would have attained age seventy and one-half (70 1/2) and must be completed within the Spouse's lifetime; and (3) If the Participant and the surviving Spouse who is the Beneficiary die (A) before the April 1 immediately following the end of the calendar year in which the Participant would have attained age seventy and one-half (70 1/2); and (B) before payments have begun to the Spouse, the Spouse will be treated as the Participant in applying these rules. 12.6 QPSA Information and Election. The following information and election rules will apply to any Beneficiary of a Participant who dies prior to his or her Payment Date after having elected a life annuity option. (a) Form of Payment. The applicable portion of a Participant's vested Accrued Benefit will be paid in the form of a QPSA. - 48 - 59 (b) QPSA Information to a Surviving Spouse. Each surviving Spouse who requests an annuity form of payment shall be given a written explanation of (1) the terms and conditions of being paid his or her vested Accrued Benefit in the form of a single life annuity, (2) the right to make an election to waive this form of payment and choose an optional form of payment and the effect of making this election, and (3) the right to revoke this election and the effect of this revocation. (c) QPSA Election by Surviving Spouse. A surviving Spouse may elect, at any time up to the Sweep Date associated with the Settlement Date upon which payments will begin, to (1) waive the single life annuity and elect an optional form of payment, or (2) revoke or change any such election. (d) Small Amounts Paid Immediately. If a Beneficiary's vested Accrued Benefit is $3,500 or less, the Beneficiary's Accrued Benefit shall be paid as a single sum as soon as administratively feasible. 12.7 Direct Rollover. With respect to any payment in excess of $200 hereunder which constitutes an Eligible Rollover Distribution, a Distributee may direct the Applicable Named Fiduciary to have such payment paid in the form of a Trustee Transfer, in accordance with the procedure established by the Administrative Committee, provided the Applicable Named Fiduciary receives written Notice of such direction with specific instructions as to the Eligible Retirement Plan on or prior to the applicable Sweep Date for payment. If the Participant does not transfer all of such payment, the minimum amount which can be transferred is $500. - 49 - 60 ARTICLE XIII - ------------------------------------------------------------------------------- MAXIMUM CONTRIBUTIONS 13.1 Definitions. (a) Annual Additions means with respect to a Participant for any Plan Year the sum of: (1) Contributions and Forfeitures (and any earnings thereon) allocated as of a date within the Plan Year; (2) All contributions, forfeitures and suspended amounts (and income thereon) for such Plan Year, allocated to such Participant's account(s) under any Related Defined Contribution Plan as of a date within such Plan Year; (3) The sum of all after-tax contributions of the Participant to Related Plans for the Plan Year and allocated to such Participant's accounts under such Related Plan as of a date within such Plan Year ("Aggregate Employee Contributions"); (4) Solely for purposes of this Section, all contributions to any "separate account" (as defined in Section 419A(d) of the Code) allocated to such Participant as of a date within the Plan Year if such Participant is a "Key Employee" within the meaning of Code Section 416(i); and (5) Solely for purposes of this Section, all contributions to any "individual medical benefit account" (as defined in Section 415(l) of the Code) allocated to such Participant as of a date within the Plan Year. (b) Maximum Annual Additions of a Participant for a Plan Year means the lesser of: (1) twenty-five percent (25%) of the Participant's Compensation, or (2) the greater of thirty thousand dollars ($30,000) or one-quarter of the dollar limitation in Code Section 415(b)(1)(A) as adjusted for cost of living increases (determined in accordance with regulations prescribed by - 50 - 61 the Secretary of the Treasury or his or her delegate pursuant to the provisions of Section 415(d) of the Code). (c) Annual Excess means, for each Participant affected, the amount by which the allocable Annual Additions for such Participant exceeds or would exceed the Maximum Annual Addition for such Participant. 13.2 Avoiding an Annual Excess. Notwithstanding any other provision of this Plan, a Participant's "Annual Additions" for any Plan Year, which is hereby designated as the "limitation year" for the Plan, as that term is used in Section 415 of the Code, shall not exceed his or her "Maximum Annual Additions." If, at any time during a Plan Year, the allocation of additional Contributions for a Plan Year would produce an Annual Excess, the affected Participant shall receive only the Maximum Annual Addition from Contributions, and, at the direction of the Applicable Named Fiduciary, for the remainder of the Plan Year Contributions will be reduced, if possible, to the amount needed for each affected Participant to receive only the Maximum Annual Addition. 13.3 Correcting an Annual Excess. If for any Plan Year as a result of a reasonable error in estimating a person's Compensation, Elective Deferrals, or such other facts and circumstances which the Internal Revenue Service will permit, a Participant's Annual Excess shall be treated in the following manner: (a) Aggregate Employee Contributions allocable under a Related Plan shall be distributed to the Participant, if permitted, by the amount of the Annual Excess. (b) If any Annual Excess remains, Pre-Tax Contributions (and earnings thereon) shall be distributed to such Participant. (c) If any Annual Excess (adjusted for investment gains and losses) remains, Contributions shall be a Forfeiture for such Participant in the following order: (1) Matching Contributions; (2) Pay-Based Contributions. (d) Any Forfeiture of a Participant's allocations of Contributions under subparagraph above shall be held in the Forfeiture Account and shall be used for the Plan Year to reduce or applied as Contributions. If any such amount remains in the Forfeiture Account, it shall again be held in suspense in the Forfeiture Account and be utilized to reduce future Contributions for succeeding Plan Years. (e) Any amounts held in suspense in the Forfeiture Account pursuant to Paragraph above remaining upon Plan termination shall be returned - 51 - 62 to the Employers in such proportions as shall be determined by the Administrative Committee. 13.4 Correcting a Multiple Plan Excess. If a Participant's Accounts have or would have an Annual Excess, the Annual Excess shall be corrected by reducing the Annual Addition to this Plan before reductions have been made to other Related Defined Contribution Plans. 13.5 Two-Plan Limit. If a Participant participates in any Related Defined Benefit Plan, the sum of the "Defined Benefit Plan Fraction" (as defined below) and the "Defined Contribution Plan Fraction" (as defined below) for such Participant shall not exceed one (called the "Combined Fraction"). (a) Defined Benefit Plan Fraction means, for any Plan Year, a fraction, the numerator of which is the projected benefit payable pursuant to Code Section 415(e)(2)(A) under all Related Defined Benefit Plans and the denominator of which is the lesser of: (i) the product of 1.25 and the dollar limit in effect for the Plan Year under Code Section 415(b)(1)(A), and (ii) the product of 1.4 and one hundred percent (100%) of the Participant's average Compensation for his or her high three (3) years. (b) Defined Contribution Plan Fraction means, for any Plan Year, a fraction, the numerator of which is the sum of the Annual Additions (as determined pursuant to Section 415(c) of the Code in effect for such Plan Year) to a Participant's Accounts as of the end of the Plan Year under the Plan or any Related Defined Contribution Plan, and the denominator of which is the lesser of: (1) The sum of the products of 1.25 and the dollar limit under Code Section 415(c)(1)(A) for such Plan Year and for each prior year of service with a Commonly Controlled Entity and its predecessor, and (2) the sum of the products of 1.4 and twenty-five percent (25%) of the Participant's Compensation for such Plan Year and for each prior year of service with a Commonly Controlled Entity and its predecessor. If the Combined Fraction of such Participant exceeds one and if the Related Defined Benefit Plan permits it, the Participant's Defined Benefit Plan Fraction shall be reduced by limiting the Participant's annual benefits payable from the Related Defined Benefit Plan in which he or she participates to the extent necessary to reduce the Combined Fraction of such Participant to one. 13.6 Short Plan Year. With respect to any change of the Plan Year (and co-existent limitation year), the dollar limitation of the Maximum Annual Addition for such Plan Year shall be determined by multiplying such dollar amount by a fraction, - 52 - 63 the numerator of which is the number of months (including fractional parts of a month) in the short Plan Year, and the denominator of which is twelve (12). 13.7 Grandfathering of Applicable Limitations. The Plan shall recognize and apply any grandfathering of applicable benefits and contributions limitations which are permitted under ERISA, the Tax Equity and Fiscal Responsibility Act of 1982 and the Tax Reform Act of 1986. - 53 - 64 ARTICLE XIV - -------------------------------------------------------------------------------- ADP AND ACP TESTS 14.1 Contribution Limitation Definitions. For purposes of this Article, the following terms are defined as follows: (a) Average Contribution Percentage or ACP means, separately, the average of the Calculated Percentage for Participants within the HCE Group and the NHCE Group, respectively, for a Plan Year. (b) Average Deferral Percentage or ADP means, separately, the average of the Calculated Percentage calculated for Participants within the HCE Group and the NHCE Group, respectively, for a Plan Year. (c) Calculated Percentage means the calculated percentage for a Participant. The calculated percentage refers to either the K-Contributions (including amounts distributed because they exceeded the Contribution Dollar Limit) with respect to Compensation which would have been received by the Participant in the Plan Year but for his or her Contribution Election, or M-Contributions allocated to the Participant's Account as of a date within the Plan Year, divided by his or her Compensation for such Plan Year. (d) M-Contributions shall include Matching Contributions (excluding Qualified Matching Contributions). In addition, M-Contributions may include Pre-Tax Contributions and Special Contributions treated as Matching Contributions, but only to the extent that (1) the Administrative Committee elects to use them; and (2) they meet the requirements of Code Section 401(m) to be regarded as Matching Contributions. M-Contributions shall not include Matching Contributions which become a Forfeiture because the Contribution to which it relates is in excess of the ADP Test, ACP Test or the Contribution Dollar Limit. (e) K-Contributions shall include Pre-Tax Contributions (excluding Pre-Tax Contributions treated as Matching Contributions), but shall exclude Limited Deferrals to this Plan made on behalf of any NHCE in excess of the Contribution Dollar Limit. In addition, Deferrals may include Qualified Matching Contributions and Special Contributions, but only to the extent that (1) the Administrative Committee elects to use them and (2) they meet the requirements of Code Section 401(k) to be regarded as elective contributions. (f) HCE Group and NHCE Group means, with respect to each Employer and its Commonly Controlled Entities, the respective group of HCEs and NHCEs who are eligible to have amounts contributed on their behalf for the Plan Year, including Employees who would be eligible but for their election not - 54 - 65 to participate or to contribute, or because their pay is greater than zero but does not exceed a stated minimum, but subject to the following: (1) If the Related Plans are subject to the ADP or ACP Test, and are considered as one plan for purposes of Code Sections 401(a)(4) or 410(b) (other than 410(b)(2)), all such plans shall be aggregated and treated as one plan for purposes of meeting the ADP and ACP Tests provided that, for Plan Years beginning after December 31, 1989, plans may only be aggregated if they have the same Plan Year. (2) If an HCE is covered by more than one cash or deferred arrangement maintained by the Related Plans, all such arrangements (other than arrangements in plans that are not required to be aggregated for this purpose under Treas. Reg. Sections 1.401(k)-1(g)(l)(ii)(B)) with respect to the Plan Years ending with or within the same calendar year shall be aggregated and treated as one arrangement for purposes of calculating the separate percentage for the HCE which is used in the determination of the Average Percentage. 14.2 ADP and ACP Tests. For each Plan Year, the ADP and ACP for the HCE Group must meet either the Basic or Alternative Limitation when compared to the respective ADP and ACP for the NHCE Group: (a) Basic Limitation. The ADP or ACP for the HCE Group may not exceed 1.25 times the ADP or ACP, respectively, for the NHCE Group. (b) Alternative Limitation. The ADP or ACP for the HCE Group is limited by reference to the ADP or ACP, respectively, for the NHCE Group as follows: If the NHCE Group Then the Maximum HCE Percentage is : Group Percentage is: Less than 2% 2 times ADP or ACP for the NHCE Group 2% to 8% ADP or ACP for the NHCE Group plus 2% More than 8% Basic Limitation applies 14.3 Correction of ADP and ACP Tests. (a) Reduction of K-Contributions or M-Contributions. If the ADP or ACP are not met or will not be met, the Administrative Committee shall - 55 - 66 determine a maximum percentage to be used in place of the Calculated Percentage for each HCE that would reduce the ADP or ACP of the HCE Group by a sufficient amount to meet the ADP and ACP Tests. (b) ADP Correction. Pre-Tax Contributions (including amounts previously refunded because they exceeded the Contribution Dollar Limit) shall be refunded to the Participant by the end of the next Plan Year in an amount equal to the actual K-Contribution minus the product of the maximum percentage for that HCE and the HCE's Compensation. Matching Contributions with respect to such distributed Pre-Tax Contributions shall be forfeited (unless paid to the Participant due to an ACP Correction). (c) ACP Correction. Matching Contribution amounts in excess of the maximum percentage of an HCE's Compensation shall, by the end of the next Plan Year, be refunded to the Participant to the extent vested, and forfeited to the extent such amounts were not vested as of the end of the Plan Year being tested. (d) Investment Fund Sources. Once the amount of Pre-Tax and Matching Contributions to be refunded is determined, amounts shall then be taken by type of investment in direct proportion to the market value of the Participant's interest in each Investment Fund (which excludes Participant loans) as of the Trade Date as of which the correction is processed. 14.4 Method of Calculation. The Applicable Named Fiduciary shall determine the maximum percentage for each HCE whose Calculated Percentage(s) is(are) the highest at any one time by reducing his or her Calculated Percentage in the following manner until the ADP and/or ACP Test is satisfied: (a) The Calculated Percentage for each HCE under a Related Plan shall be reduced to the extent permitted under such Related Plan. (b) If more reduction is needed, the Calculated Percentage of each HCE whose Calculated Percentage (stated in absolute terms) is the greatest shall be reduced by one-hundredth (1/100) of one percentage point. (c) If more reduction is needed, the Calculated Percentage of each HCE whose Calculated Percentage (stated in absolute terms) is the greatest (including the Calculated Percentage of any HCE whose Calculated Percentage was adjusted under Paragraph (b) shall be reduced by one-hundredth (1/100) of one percentage point. (d) If more reduction is needed, the procedures of Paragraph (c) shall be repeated. 14.5 Multiple Use Test. If the Average Contribution Percentage and the Average Deferral Percentage for the HCE Group exceeds the Basic Limitation in both - 56 - 67 the ADP or the ACP Tests (after correction of the ADP and ACP Test), the ADP and ACP (as corrected) for the HCE Group must also comply with the requirements of Code Section 401(m)(9), which as of the Effective Date require that the sum of these two percentages (as determined after any corrections needed to meet the ADP or ACP Tests have been made) must not exceed the greater of: (a) the sum of (1) the larger of the ADP or ACP for the NHCE Group times 1.25; and (2) the smaller of the ADP or ACP for the NHCE Group, times two (2) if the NHCE Average Percentage is less than two percent (2%), or plus two percent (2%) if it is two percent (2%) or more; or (b) the sum of (1) the lesser of the ADP or ACP for the NHCE Group times 1.25; and (2) the greater of the ADP or ACP for the NHCE Group, times two (2) if the NHCE Average Percentage is less than two percent (2%), or plus two percent (2%) if it is two percent (2%) or more. If the multiple use limit is exceeded, the Administrative Committee shall determine a maximum ADP or ACP for the HCE Group and shall reduce the ADP or ACP for each HCE in the same manner as would be used to correct to ADP or ACP. 14.6 Adjustment for Investment Gain or Loss. The net investment gain or loss associated with the K-Contributions and/or M-Contributions to be distributed shall be distributed or charged against a distribution within two and one-half (2 1/2) months - 57 - 68 but no later than twelve (12) months following the close of the applicable Plan Year. Such gain or loss is calculated as follows: G E x -------- x (1 + (10% x M)) (AB-G) where: E = the total excess Deferrals or Contributions, G = the net gain or loss for the Plan Year from all of an HCE's affected Accounts, AB = the total value of an HCE's affected Accounts, determined as of the end of the Plan Year being corrected, M = the number of full months from the Plan Year end to the date excess amounts are paid, plus one for the month during which payment is to be made if payment will occur after the fifteenth (15th) of the month. 14.7 Required Records. The Applicable Named Fiduciary shall maintain records which are sufficient to demonstrate that the ADP, ACP and Multiple Use Test has been met for each Plan Year for at least as long as the Employer's corresponding tax year is open to audit. 14.8 Incorporation by Reference. The provisions of this Section are intended to satisfy the requirements of Code Sections 401(k)(3), (m)(2), (m)(9) and Treas. Reg. Sections 1.401(k)-1(b), 1.401(m)-1(b) and 1.401(m)-2 and, to the extent not otherwise stated in this Section, those Code Sections and Treasury Regulations are incorporated herein by reference. 14.9 Collectively Bargained Employees. The provisions of this Article shall apply separately to Participants who are collectively bargained employees within the meaning of Treas. Reg. Sections 1.410(b)-6(d)(2) and for Participants who are not collectively bargained employees. 14.10 QSLOB. The Administrative Committee in its sole discretion may apply the provisions of this Article separately with respect to each qualified separate line of business, as defined in Section 414(r) of the Code. - 58 - 69 ARTICLE XV - -------------------------------------------------------------------------------- CUSTODIAL ARRANGEMENTS 15.1 Custodial Agreement. The Administrative Committee may enter into one or more Custodial Agreements to provide for the holding, investment and payment of Plan assets, or direct by execution of an insurance contract that all or a specified portion of the Plan's assets be held, invested and paid under such a contract. All Custodial Agreements, as from time to time amended, shall continue in force and shall be deemed to form a part of the Plan. Subject to the requirements of the Code and ERISA, the Administrative Committee may cause assets of the Plan which are securities to be held in the name of a nominee or in street name provided such securities are held on behalf of the Plan by: (a) a bank or trust company that is subject to supervision by the United States or a State, or a nominee of such bank or trust company; (b) a broker or dealer registered under the Securities Exchange Act of 1934, or a nominee of such broker or dealer; or (c) a "clearing agency" as defined in Section 3(a)(23) of the Securities Exchange Act of 1934, or its nominee. 15.2 Selection of Custodian. The Administrative Committee shall select, remove or replace the Custodian in accordance with the Custodial Agreement. The subsequent resignation or removal of a Custodian and the approval of its accounts shall all be accomplished in the manner provided in the Custodial Agreement. 15.3 Custodian's Duties. Except as provided in ERISA, the powers, duties and responsibilities of the Custodian shall be as stated in the Custodial Agreement, and unless expressly stated or delegated to the Custodian (with the Custodian's acceptance), nothing contained in this Plan shall be deemed by implication to impose any additional powers, duties or responsibilities upon the Custodian. All Employer Contributions and Rollover Contributions shall be paid into the Trust, and all benefits payable under the Plan shall be paid from the Trust, except to the extent such amounts are paid to a Custodian other than the Trustee. An Employer shall have no rights or claims of any nature in or to the assets of the Plan except the right to require the Custodian to hold, use, apply and pay such assets in its hands, in accordance with the directions of the Administrative Committee, for the exclusive benefit of the Participants and their Beneficiaries, except as hereinafter provided. 15.4 Separate Entity. The Custodial Agreement under this Plan from its inception shall be a separate entity aside and apart from Employers or their assets, and the corpus and income thereof shall in no event and in no manner whatsoever be subject to the rights or claims of any creditor of any Employer. - 59 - 70 15.5 Plan Asset Valuation. As of each Valuation Date, the Fair Market Value of the Plan's assets held or posted to an Investment Fund shall be determined by the Administrative Committee or the Custodian, as appropriate. 15.6 Right of Employers to Plan Assets. The Employers shall have no right or claim of any nature in or to the assets of the Plan except the right to require the Custodian to hold, use, apply, and pay such assets in its possession in accordance with the Plan for the exclusive benefit of the Participants or their Beneficiaries and for defraying the reasonable expenses of administering the Plan; provided, that: (a) if the Plan receives an adverse determination with respect to its initial qualification under Sections 401(a), 401(k) and 401(m) of the Code, Contributions conditioned upon the qualification of the Plan shall be returned to the appropriate Employer within one (1) year of such denial of qualification; provided, that the application for determination of initial qualification is made by the time prescribed by law for filing the respective Employer's return for the taxable year in which the Plan is adopted, or by such later date as is prescribed by the Secretary of the Treasury under Section 403(c)(2)(B) of ERISA; (b) if, and to the extent that, deduction for a Contribution under Section 404 of the Code is disallowed, Contributions conditioned upon deductibility shall be returned to the appropriate Employer within one (1) year after the disallowance of the deduction; (c) if, and to the extent that, a Contribution is made through mistake of fact, such Contribution shall be returned to the appropriate Employer within one year of the payment of the Contribution; and (d) any amounts held suspended pursuant to the limitations of Code Section 415 shall be returned to the Employers upon termination of the Plan. All Contributions made hereunder are conditioned upon the Plan being qualified under Sections 401(a) or 401(k) and 401(m) of the Code and a deduction being allowed for such contributions under Section 404 of the Code. Pre-Tax Contributions returned to an Employer pursuant to this Section shall be paid to the Participant for whom contributed as soon as administratively convenient. If these provisions result in the return of Contributions after such amounts have been allocated to Accounts, such Accounts shall be reduced by the amount of the allocation attributable to such amount, adjusted for any losses or expenses. - 60 - 71 ARTICLE XVI - -------------------------------------------------------------------------------- ADMINISTRATION AND INVESTMENT MANAGEMENT 16.1 General. The Company, through the authority vested in the Board of Directors, has established, by separate documentation, the Administrative Committee, and has enabled such committee to have the power and authority to act, to the extent delegated to each such committee, on behalf of the Company (and therefore all Employers), with respect to matters which relate to the Plan and Trust, but not on behalf of the Plan and Trust. Furthermore, the Company has adopted the Plan and Trust, thereby: (a) establishing a separate Administrative Committee to have the power and authority to act, to the extent provided in the Plan or Trust, on behalf of the Plan or Trust, but not on behalf of the Company; and (b) enabling the Administrative Committee to have the power and authority to act, to the extent provided in and the manner provided in the Plan or Trust, on behalf of the Company, but not on behalf of the Plan or Trust. 16.2 Administrative Committee Acting as Employer. The Administrative Committee has such authority and control as shall be granted to it, from time to time, to act on behalf of the Company, including but not limited to the power to: (a) amend or terminate the Plan in part or completely; (b) designate which employee groups are eligible to participate in the Plan; (c) select, monitor and remove, as necessary, consultants, actuaries, underwriters, insurance companies, third party administrators, or other service providers, and to appoint and remove any such person as an Applicable Named Fiduciary, and determine and delegate to them their duties and responsibilities, either directly or by the adoption of Plan provisions which specify such duties and responsibilities (the provisions of the Plan documents will control in the case of a conflict); (d) appoint and consult with legal counsel, independent consulting or evaluation firms, accountants, actuaries, or other advisors, as necessary, to perform its functions; (e) determine what expenses, if any, related to the operation and administration of the Plan and the investment of Plan assets, may be paid from Plan assets, subject to applicable law; - 61 - 72 (f) recommend to the Board of Directors all Plan changes requiring his or her approval; (g) report to the Board of Directors any Plan matters of significance to the Company; (h) review with the Board of Directors any proposals which would be submitted to the Board of Directors; (i) establish such policies and make such other delegations or designations necessary or incidental to the Company's sponsorship of the Plan; and (j) take any other actions necessary or incidental to the performance of the above-stated powers and duties. (k) adopt, amend or terminate, in part or completely, a Trust document, provided such action is consistent with the Plan for which the Trust is established; (l) appoint and consult with legal counsel, investment advisors, independent consulting or evaluation firms, accountants, actuaries, or other advisors, as necessary, to perform its functions; (m) determine the funding of Plan benefits and related matters; (n) report to the Board of Directors any Plan funding or investment policies of significance to the Company; (o) review with the Board of Directors any proposals which would be submitted to the Board of Directors; (p) establish such policies and make such other delegations or designations necessary or incidental to the Company's sponsorship of the Plan; (q) select, monitor and remove, as necessary, consultants, actuaries, underwriters, insurance companies, third party administrators, or other service providers, and to appoint and remove any such person as an Applicable Named Fiduciary, and determine and delegate to them their duties and responsibilities, either directly or by the adoption of Plan provisions which specify such duties and responsibilities (the provisions of the Plan documents will control in the case of a conflict); and (r) take any other actions necessary or incidental to the performance of the above-stated powers and duties. - 62 - 73 16.3 Administrative Committee as Applicable Named Fiduciary for Plan. (a) The Administrative Committee, acting on behalf of the Plan or Trust and subject to subparagraph (b) hereof, shall be an Applicable Named Fiduciary with respect to the authority to manage and control the administration and operation of the Plan, including without limitation, the management and control with respect to the operation and administration of the Plan contained in an agreement with an Applicable Named Fiduciary but only to the extent it has been specifically designated in such agreement as being the responsibility of the Administrative Committee, an Employer, the Company, or any employee, member or delegate of any of them. (b) The Administrative Committee shall not be an Applicable Named Fiduciary whenever it acts on behalf of the Company and, notwithstanding any other term or provision of the Plan, Trust, or an agreement with an Applicable Named Fiduciary, the Administrative Committee shall cease to be an Applicable Named Fiduciary with respect to some specified portion of the operation and administration of the Plan or Trust, to the extent that an Applicable Named Fiduciary is designated pursuant to the procedure in the Plan or Trust to severally have authority to manage and control such portion of the operation and administration of the Plan or Trust. 16.4 Administrative Committee as Applicable Named Fiduciary for Trust. The Administrative Committee, acting on behalf of the Trust and subject to subparagraph (b) hereof, shall be an Applicable Named Fiduciary with respect to its authority to manage and control the Trust or the Trust's assets, but only to the extent not inconsistent with the Trust, including without limitation, the following: (a) to appoint and remove the Trustee; (b) to selectively direct the Trustee as to the investment and reinvestment of the assets of the Trust Fund; (c) to appoint an Investment Manager, by written notice in writing to the Trustee, to manage, acquire or dispose of that portion of the Trust Fund which is assigned to it by the Administrative Committee; (d) to direct the Trustee, by notice in writing to the Trustee, to enter into an agreement with an Investment Manager; and (e) to require that the Trustee is subject to the direction of the Administrative Committee with respect to a portion of the Trust Fund; (f) to appoint any other person or entity which handles Trust assets, including insurance companies and custodians; and - 63 - 74 (g) establish written investment policies as to the Trust and ensure compliance with such policies and applicable law, including monitoring the diversification of investments and avoidance of prohibited transactions, as well as monitoring investment performance. 16.5 Administrative Committee Membership. The Administrative Committee shall consist of not less than 3 persons, who shall be appointed by the Board of Directors. Members shall remain in office at the will of the Board of Directors and the Board of Directors may from time to time remove any of said members with or without cause and shall appoint their successors. 16.6 Administrative Committee Structure. Any individual may be a member of the Administrative Committee. Any member may resign by delivering his or her written resignation to the Board of Directors, and such resignation shall become effective upon the date specified therein. A member who is an Employee shall automatically cease to be a member upon his or her Termination of Employment. In the event of a vacancy in membership, the remaining members shall constitute the Administrative Committee with full power to act until said vacancy is filled. 16.7 Administrative Committee Actions. The Administrative Committee may act, whether as an Applicable Named Fiduciary on behalf of the Plan or on behalf of the Company, as follows: (a) The members may act at a meeting (including a meeting at different locations by telephone conference) or in writing without a meeting (through the use of a single document or concurrent document). (b) Any member by writing may delegate any or all of his or her rights, powers, duties and discretions to any other member with the consent of such other member. (c) The Administrative Committee shall act by majority decision, which action shall be effective as if such action had been taken by all members; provided that by majority action one or more members or other persons may be authorized to act with respect to particular matters on behalf of all members. (d) Subject to applicable law, no member shall be liable for an act or omission of the other members of the same committee in which the former had not concurred. (e) Any action by the Administrative Committee on behalf of this Plan or Trust involving its authority to manage and control the operation and administration of the Plan or Trust or the Plan's assets shall be treated as an action of an Applicable Named Fiduciary under this Plan. (f) Where reference is made in this Plan or Trust (or where the Administrative Committee designates in writing) that its action is on behalf of - 64 - 75 the Company, such committee shall be acting only on behalf of the Company and not as an Applicable Named Fiduciary. (g) Except as provided in Section 16.24, the Administrative Committee may, in writing delivered to the Trustee, empower a representative to act on its behalf and such person shall have the authority to act within the scope of such empowerment to the full extent the Administrative Committee could have acted. 16.8 Procedures for Designation of an Applicable Named Fiduciary. The Administrative Committee, acting on behalf of the Company, may from time to time, designate a person to be an Applicable Named Fiduciary with respect to some portion of the authority it may have with respect to management and control of the operation and administration of the Plan or the management and control of the Plan's assets. Such designation shall specify the person designated by name and either (a) specify the management and control authority with respect to which the person will be an Applicable Named Fiduciary; or (b) incorporate by reference an agreement with such Applicable Named Fiduciary to provide services to or on behalf of the Plan or Trust and use such agreement as a means for specifying the management and control authority with respect to which such person will be an Applicable Named Fiduciary. No person who is designated as an Applicable Named Fiduciary hereunder must consent to such designation nor shall it be necessary for the Administrative Committee to seek such person's acquiescence. The authority to manage and control, which any person who is designated to be an Applicable Named Fiduciary hereunder may have, shall be several and not joint with the Administrative Committee, whichever is applicable, and shall result in the Administrative Committee no longer being an Applicable Named Fiduciary with respect to, nor having any longer, such authority to manage and control. On and after the designation of a person as an Applicable Named Fiduciary, the Employer, the Administrative Committee, and any other Applicable Named Fiduciary with respect to the Plan or Trust, shall have no liability for the acts (or failure to act) of any such Applicable Named Fiduciary except to the extent of its co-fiduciary duty under ERISA. 16.9 Compensation. The members of Administrative Committee, acting on behalf of the Plan or Trust, shall serve without compensation for their services as such. 16.10 Discretionary Authority of each Applicable Named Fiduciary. Each Applicable Named Fiduciary on behalf of the Plan and Trust will enforce the Plan and Trust in accordance with their terms. Each Applicable Named Fiduciary shall have full and complete authority, responsibility and control (unless an allocation has been made to another Applicable Named Fiduciary in which case such Applicable Named Fiduciary shall have such authority, responsibility and control) over that portion of the management, administration, and operation of the Plan or Trust allocated to such Applicable Named Fiduciary, including, but not limited to, the authority and discretion to: - 65 - 76 (a) Formulate, adopt, issue and apply procedures and rules and change, alter or amend such procedures and rules in accordance with law and as may be consistent with the terms of the Plan or Trust; (b) Specify the basis upon which payments are to be made under the Plan and, as the final appeals fiduciary under ERISA Section 503, to make a final determination, based upon the information known to the Applicable Named Fiduciary within the scope of its authority and control as an Applicable Named Fiduciary, based upon determinations made and such other information made available from an Employer plus such final determinations made by each other Applicable Named Fiduciary within the scope of its authority and control, as are determined to be relevant to the final appeals fiduciary; (c) Exercise such discretion as may be required to construe and apply the provisions of the Plan or Trust, subject only to the terms and conditions of the Plan or Trust; and (d) Take all necessary and proper acts as are required for such Applicable Named Fiduciary to fulfill its duties and obligations under the Plan or Trust. 16.11 Responsibility and Powers of the Administrative Committee Regarding Administration of the Plan. The Administrative Committee shall have full and complete authority, responsibility and control (unless an allocation has been made to another Applicable Named Fiduciary in which case such Applicable Named Fiduciary shall have such authority, responsibility and control only if specifically provided) over that portion of the management, administration, and operation of the Plan or Trust allocated to the Administrative Committee and the power to act on behalf of the Plan or Trust, including, but not limited to, the authority and discretion: (a) to execute contracts on behalf of the Plan or Trust; (b) to appoint and compensate such specialists (including attorneys, actuaries and accountants) to aid it in the administration of the Plan, and arrange for such other services, as the Administrative Committee considers necessary or appropriate in carrying out the provisions of the Plan; (c) to appoint and compensate an independent outside accountant to conduct such audits of the financial statements of the Trust as the Administrative Committee considers necessary or appropriate; (d) to settle or compromise any litigation against the Plan or a Fiduciary with respect to which the Plan has an indemnity obligation; (e) to appoint the Plan Administrator to act within the duties and responsibilities set forth in Section 16.22; - 66 - 77 (f) to create a legal remedy to the Plan with respect to a Participant or Beneficiary, or to a Participant or Beneficiary, for any loss incurred (whether restitution or opportunity losses) by the Plan on behalf of such Participant or Beneficiary, or by such Participant or Beneficiary, due to a breach of fiduciary duty to the Plan by an Applicable Named Fiduciary or other error (whether negligent or willful) which the Administrative Committee determines is a substantial contributing factor to such loss (or a portion of such loss); and (g) to take all necessary and proper acts as are required for the Administrative Committee to fulfill its duties and obligations under the Plan or Trust. 16.12 Allocations and Delegations of Responsibility. (a) Delegations. Each Applicable Named Fiduciary may designate persons (other than an Applicable Named Fiduciary) to carry out fiduciary responsibilities (other than trustee responsibilities as described in Section 405(c)(3) of ERISA) it may have with respect to the Plan or Trust and make a change of delegated responsibilities. Such delegation shall specify the delegated person by name and either (a) specify the discretionary authority with respect to which the person will be a fiduciary; or (b) incorporate by reference an agreement with such Applicable Named Fiduciary to provide services to the Plan or Trust on behalf of the delegating Applicable Named Fiduciary as a means of specifying the discretionary authority with respect to which such person will be a fiduciary. No person (other than an investment manager (as defined in Section 3(38) of ERISA) to whom fiduciary responsibility has been delegated must consent to being a fiduciary nor shall it be necessary for the Applicable Named Fiduciary to seek such person's acquiescence; however, where such person has not contractually accepted the responsibility delegated, he or she must be given notification of the services to be performed and, in either case, will be deemed to have accepted such fiduciary responsibility if he or she performs the services described for thirty (30) days or more without specific objection thereto. The discretionary authority any person who is delegated fiduciary responsibilities hereunder may have shall be several and not joint with the Applicable Named Fiduciary delegating and each other Named Fiduciaries. A delegation of fiduciary responsibility to a person which is not implemented in the manner set forth herein shall not be void; however, whether the delegating Applicable Named Fiduciary shall have joint liability for acts of such person shall be determined by applicable law. (b) Allocations. The Administrative Committee, acting on behalf of the Company, may allocate fiduciary responsibilities (other than trustee responsibilities described in Section 405(c)(3) of ERISA) among Named Fiduciaries when it designates an Applicable Named Fiduciary in the manner described in Section 16.8, or may reallocate fiduciary responsibilities among existing Named Fiduciaries by action of such Administrative Committee in accordance with Sections 16.7 and 16.8; provided each such Applicable Named - 67 - 78 Fiduciary is given notice of the services, management and control authority allocated to it either by way of an amendment to the Plan, Trust or a contract with such person, or by way of correspondence from the Administrative Committee. Each Applicable Named Fiduciary, by signing its contract or by accepting such amendment or correspondence and rendering the services requested without objection for thirty (30) days, shall be conclusively bound to have assumed such fiduciary responsibility as an Applicable Named Fiduciary. An allocation of fiduciary responsibility to a person which is not implemented in the manner set forth herein shall not be void, however, such person may not be an Applicable Named Fiduciary with respect to the Plan and Trust. (c) Limit on Liability. Fiduciary duties and responsibilities which have been allocated or delegated pursuant to the terms of the Plan or the Trust, are intended to limit the liability of the Company, the Administrative Committee, and each Applicable Named Fiduciary, as appropriate, in accordance with the provisions of Section 405(c) of ERISA. 16.13 Administrative Committee Bonding. The members of the Administrative Committee, acting on behalf of the Plan and Trust, shall serve without bond (except as otherwise required by Federal law). 16.14 Information to be Supplied by Employer. Each Employer shall supply to the Administrative Committee, acting on behalf of the Plan and Trust, or a designated Applicable Named Fiduciary, within a reasonable time of its request, the names of all Employees, their age, their date of hire, the names and dates of all Employees who incurred a Termination of Employment during the Plan Year, and such other information in the Employer's possession as the Administrative Committee shall from time to time need in the discharge of its duties. The Administrative Committee and each Applicable Named Fiduciary may rely conclusively on the information certified to it by an Employer. 16.15 Information to be Supplied by Applicable Named Fiduciary. Whenever a term, definition, standard, protocol or other, basis for determining whether an Accrued Benefit exists or whether an Accrued Benefit will be paid under the terms of the Plan, or which has been incorporated by reference into this Plan, the Applicable Named Fiduciary who has the authority to manage and control the administration and operation of the Plan with respect to all or any basis specified for the payment of such Accrued Benefit (including the authority to establish or amend such term, definition, standard protocol or other basis) shall provide a copy thereof either (1) to the Administrative Committee, upon its request, (2) to a Participant or Beneficiary but only to the extent required by law, or (3) to the extent required in any proceeding involving the Plan or any Applicable Named Fiduciary with respect to the Plan. 16.16 Misrepresentations. The Administrative Committee, acting on behalf of the Plan and Trust, may, but shall not be required to, rely upon any certificate, statement or other representation made to it by an Employee, Participant, other Applicable Named Fiduciary, or other individual with respect to any fact regarding any - 68 - 79 of the provisions of the Plan. Any such certificate, statement or other representation shall be conclusively binding upon such Employee, Participant, other Applicable Named Fiduciary, or other individual or personal representative thereof, heir, or assignee (but not upon the Administrative Committee), and any such person shall thereafter be estopped from disputing the truth of any such certificate, statement or other representation. 16.17 Records. The regularly kept records of the designated Applicable Named Fiduciary (or, where applicable, the Trustee) and any Employer shall be conclusive evidence of a person's age, his or her status as an Eligible Employee, and all other matters contained therein applicable to this Plan. 16.18 Plan Expenses. All expenses of the Plan which have been approved by the Administrative Committee, acting on behalf of the Plan and Trust, shall be paid by the Trust except to the extent paid by the Employers; and if paid by the Employers, such Employers may, if authorized by the Administrative Committee acting on behalf of the Company, seek reimbursement of such expenses from the Trust and the Trust shall reimburse the Employers. If borne by the Employers, expenses of administering the Plan shall be borne by the Employers in such proportions as the Administrative Committee, acting on behalf of the Company, shall determine. 16.19 Fiduciary Capacity. Any person or group of persons may serve in more than one fiduciary capacity with respect to the Plan. 16.20 Employer's Agent. The Administrative Committee shall act as agent for the Company when acting on behalf of the Company and the Company shall act as agent for each Employer. 16.21 Plan Administrator. The Plan Administrator (within the meaning of Section 3(16)(A)) shall be appointed by the Administrative Committee, acting on behalf of the Company, and may (but need not) be a member of the Administrative Committee; and in the absence of such appointment, the Administrative Committee, acting on behalf of the Plan and Trust, shall be the Plan Administrator. 16.22 Plan Administrator Duties and Power. The Plan Administrator will have full and complete authority, responsibility and control over the management, administration and operation of the Plan with respect to the following: (a) satisfy all reporting and disclosure requirements applicable to the Plan, Trust or Plan Administrator under ERISA, the Code or other applicable law; (b) provide and deliver all written forms used by Participants and Beneficiaries, give notices required by law, and seek a favorable determination letter for the Plan and Trust; - 69 - 80 (c) withhold any amounts required by the Code to be withheld at the source and to transmit funds withheld and any and all necessary reports with respect to such withholding to the Internal Revenue Service; (d) respond to a QDRO; (e) make available for inspection and to provide upon request at such charge as may be permitted and determined by it, documents and instruments required to be disclosed by ERISA; (f) take such actions as are necessary to establish and maintain in full and timely compliance with any law or regulation having pertinence to this Plan; (g) whatever responsibilities are delegated to the Plan Administrator by the Administrative Committee; and (h) interpret and construe the provisions of the Plan, to make regulations and settle disputes described above which are not inconsistent with the terms thereof. 16.23 Applicable Named Fiduciary Decisions Final. The decision of the Administrative Committee or an Applicable Named Fiduciary in matters within its jurisdiction shall be final, binding, and conclusive upon the Employers and the Trustee and upon each Employee, Participant, Spouse, Beneficiary, and every other person or party interested or concerned. 16.24 No Agency. Each Applicable Named Fiduciary shall perform (or fail to perform) its responsibilities and duties or discretionary authority with respect to the Plan and Trust as an independent contractor and not as an agent of the Company, any Employer, or the Administrative Committee. No agency is intended to be created nor is the Administrative Committee empowered to create an agency relationship with an Applicable Named Fiduciary. - 70 - 81 ARTICLE XVII - -------------------------------------------------------------------------------- CLAIMS PROCEDURE 17.1 Initial Claim for Benefits. Each person entitled to benefits under this Plan (a "Claimant") must sign and submit his or her claim for benefits to the Applicable Named Fiduciary or its agent in writing in such form as is provided or approved by such Applicable Named Fiduciary. A Claimant shall have no right to seek review of a denial of benefits, or to bring any action in any court to enforce a claim for benefits prior to his or her filing a claim for benefits and exhausting his or her rights under this Section. When a claim for benefits has been filed properly, such claim for benefits shall be evaluated and the Claimant shall be notified by the Applicable Named Fiduciary or agent of its approval or denial within ninety (90) days after the receipt of such claim unless special circumstances require an extension of time for processing the claim. If such an extension of time for processing is required, written notice of the extension shall be furnished to the Claimant by the Applicable Named Fiduciary or agent prior to the termination of the initial ninety (90) day period which shall specify the special circumstances requiring an extension and the date by which a final decision will be reached (which date shall not be later than one hundred eighty (180) days after the date on which the claim was filed). A Claimant shall be given a written notice in which the Claimant shall be advised as to whether the claim is granted or denied, in whole or in part. If a claim is denied, in whole or in part, the Claimant shall be given written notice which shall contain (1) the specific reasons for the denial, (2) references to pertinent Plan provisions upon which the denial is based, (3) a description of any additional material or information necessary to perfect the claim and an explanation of why such material or information is necessary, and (4) the Claimant's rights to seek review of the denial. 17.2 Review of Claim Denial. If a claim is denied, in whole or in part (or if within the time periods prescribed for in the initial claim, the Applicable Named Fiduciary or agent has not furnished the Claimant with a denial and the claim is therefore deemed denied), the Claimant shall have the right to request that the Administrative Committee review the denial, provided that the Claimant files a written request for review with the Administrative Committee within sixty (60) days after the date on which the Claimant received written notification of the denial. A Claimant (or his or her duly authorized representative) may review pertinent documents and submit issues and comments in writing to the Administrative Committee. Within sixty (60) days after a request for review is received, the review shall be made and the Claimant shall be advised in writing by the Administrative Committee of the decision on review, unless special circumstances require an extension of time for processing the review, in which case the Claimant shall be given a written notification by the Administrative Committee within such initial sixty (60) day period specifying the reasons for the extension and when such review shall be completed (provided that such review shall be completed within one hundred and twenty (120) days after the date on which the request for review was filed). The decision on review shall be forwarded to the - 71 - 82 Claimant by the Administrative Committee in writing and shall include specific reasons for the decision and references to Plan provisions upon which the decision is based. A decision on review shall be final and binding on all persons for all purposes. If a Claimant shall fail to file a request for review in accordance with the procedures described in this Section, such Claimant shall have no right to review and shall have no right to bring action in any court and the denial of the claim shall become final and binding on all persons for all purposes. - 72 - 83 ARTICLE XVIII - -------------------------------------------------------------------------------- ADOPTION AND WITHDRAWAL FROM PLAN 18.1 Procedure for Adoption. Any Commonly Controlled Entity or affiliate of the Company may by resolution of such Commonly Controlled Entity's board of directors adopt the Plan for the benefit of its employees as of the date specified in the board resolution. No such adoption shall be effective until such adoption has been approved by the Administrative Committee. 18.2 Procedure for Withdrawal. Any Employer (other than the Company) may, by resolution of the board of directors of such Employer, with the consent of the Administrative Committee and subject to such conditions as may be imposed by the Administrative Committee, terminate its adoption of the Plan. Notwithstanding the foregoing, an Employer will be deemed to have terminated its adoption of the Plan when it ceases to be a Commonly Controlled Entity. With respect to any Participant whose Employer is deemed to have withdrawn from the Plan because it ceases to be a Commonly Controlled Entity, such Participant's Account shall be fully vested as of the date of such withdrawal, provided there is no successor plan or trust to which the balance of such Participant's Accounts may be transferred. - 73 - 84 ARTICLE XIX - -------------------------------------------------------------------------------- AMENDMENT, TERMINATION AND MERGER 19.1 Amendments. (a) Power to Amend. The Company, by resolution of the Board of Directors on behalf of all Employers, or the Administrative Committee as provided in Subsection (c) below, may amend, modify, change, revise or discontinue this Plan by amendment at any time; provided, however, that no amendment shall: (1) increase the duties or liabilities of the Custodian or the Administrative Committee without its written consent; (2) have the effect of vesting in any Employer any interest in any funds, securities or other property, subject to the terms of this Plan and the Custodial Agreement; (3) authorize or permit at any time any part of the corpus or income of the Plan's assets to be used or diverted to purposes other than for the exclusive benefit of Participants and Beneficiaries; (4) except to the extent permissible under ERISA and the Code, make it possible for any portion of the Trust assets to revert to an Employer to be used for, or diverted to, any purpose other than for the exclusive benefit of Participants and Beneficiaries entitled to Plan benefits and to defray reasonable expenses of administering the Plan; (5) amend the provisions of this Plan which either (1) state the amount and price of Company Stock to be awarded to designated officers or categories of officers and, specifically, the timing of such awards, or (2) set forth a formula that determines the amount, price and timing of such awards, shall not be amended more than once every six (6) months, other than to comport with changes in the Code, ERISA or the rules thereunder; (6) permit an Employee to be paid the balance of his or her Pre-Tax Account unless the payment would otherwise be permitted under Code Section 401(k); and - 74 - 85 (7) have any retroactive effect as to deprive any such person of any benefit already accrued, except that no amendment made in order to conform the Plan as a plan described in Section 401(a) of the Code of which amendments are permitted by the Code or are required or permitted by any other statute relating to employees' trusts, or any official regulations or ruling issued pursuant thereto, shall be considered prejudicial to the rights of any such person. (b) Restriction on Amendment. No amendment to the Plan shall deprive a Participant of his or her nonforfeitable rights to benefits accrued to the date of the amendment. Further, if the vesting schedule of the Plan is amended, each Participant with at least three (3) years of Vesting Service with the Employer may elect, within a reasonable period after the adoption of the amendment, to have his or her nonforfeitable percentage computed under the Plan without regard to such amendment. The period during which the election may be made shall commence with the date the amendment is adopted and shall end on the latest of: (1) sixty (60) days after the amendment is adopted; (2) sixty (60) days after the amendment becomes effective; or (3) sixty (60) days after the Participant is issued written notice of the amendment by the Employer or the Administrative Committee. The preceding language concerning an amendment to the Plan's vesting schedule shall also apply when a Plan with a different vesting schedule is merged into this Plan. In addition to the foregoing, the Plan shall not be amended so as to eliminate an optional form of payment of an Accrued Benefit attributable to employment prior to the date of the amendment. The foregoing limitations do not apply to benefit accrual occurring after the date of the amendment. (c) The Administrative Committee. The Administrative Committee may amend, modify, change or revise the Plan by amendment if such amendment could have been adopted under this Section and it does not cause a change in the level or type of contributions to be made to the Plan or otherwise materially increase the duties and obligations of any or all Employers with respect to the Plans. 19.2 Plan Termination. It is the expectation of the Company that it will continue the Plan and the payment of Contributions hereunder indefinitely, but the continuation of the Plan and the payment of Contributions hereunder is not assumed as a contractual obligation of the Company or any other Employer. The right is - 75 - 86 reserved by the Company to terminate the Plan at any time, and the right is reserved by the Company and any other Employer at any time to reduce, suspend or discontinue its Contributions hereunder, provided, however, that the Contributions for any Plan Year accrued or determined prior to the end of said year shall not after the end of said year be retroactively reduced, suspended or discontinued except as may be permitted by law. Upon termination of the Plan or complete discontinuance of Contributions hereunder (other than for the reason that the Employer has had no net profits or accumulated net profits), each Participant's Accrued Benefit shall be fully vested. Upon termination of the Plan or a complete discontinuance of Contributions, unclaimed amounts shall be applied as Forfeitures and any unallocated amounts shall be allocated to Participants who are Eligible Employees as of the date of such termination or discontinuance on the basis of Compensation for the Plan Year (or short Plan Year). Upon a partial termination of the Plan, the Accrued Benefit of each affected Participant shall be fully vested. In the event of termination of the Plan, the Administrative Committee shall direct the Custodian to distribute to each Participant the entire amount of his or her Accrued Benefit as soon as administratively possible, but not earlier than would be permitted in order to retain the Plan's qualified status under Sections 401(a), (k) and (m) of the Code, as if all Participants who are Employees had incurred a Termination of Employment on the Plan's termination date. Should a Participant or a Beneficiary) not elect immediate payment of a nonforfeitable Accrued Benefit in excess of three thousand five hundred dollars ($3,500), the Administrative Committee shall direct the Custodian to continue the Plan and Custodial Agreement for the sole purpose of paying to such Participant his or her Accrued Benefit or death benefit, respectively, unless in the opinion of the Administrative Committee, to make immediate single sum payments to such Participant or Beneficiary would not adversely affect the tax qualified status of the Plan upon termination and would not impose additional liability upon any Employer or the Custodian. 19.3 Plan Merger. The Plan shall not merge or consolidate with, or transfer any assets or liabilities to any other plan, unless each person entitled to benefits would receive a benefit immediately after the merger, consolidation or transfer (if the Plan were then terminated) which is equal to or greater than the benefit he or she would have been entitled to immediately before the merger, consolidation or transfer (if the Plan were then terminated). The Administrative Committee shall amend or take such other action as is necessary to amend the Plan in order to satisfy the requirements applicable to any merger, consolidation or transfer of assets and liabilities. - 76 - 87 ARTICLE XX - -------------------------------------------------------------------------------- SPECIAL TOP-HEAVY RULES 20.1 Application. Notwithstanding any provisions of this Plan to the contrary, the provisions of this Article shall apply and be effective for any Plan Year for which the Plan shall be determined to be a "Top-Heavy Plan" as provided and defined herein. 20.2 Special Terms. For purposes of this Article, the following terms shall have the following meanings: (a) "Aggregate Benefit" means the sum of: (1) the present value of the accrued benefit issued X and all defined benefit plans in the Aggregation Group determined on each plan's individual Determination Date as if there were a termination of employment on the most recent date the plan is valued by an actuary for purposes of computing plan costs under Section 412 of the Code within the twelve (12) month period ending on the Determination Date of each such plan, but with respect to the first plan year of any such plan determined by taking into account the estimated accrued benefit as of the Determination Date; provided (A) the method of accrual used for the purpose of this Paragraph (1) shall be the same as that used under all plans maintained by all Employers and Commonly Controlled Entities if a single method is used by all stock plans or, otherwise, the slowest accrual method permitted under Section 411(b)(1)(C) of the Code, and (B) the actuarial assumptions to be applied for purposes of this Paragraph (1) shall be the same assumptions as those applied for purposes of determining the actuarial equivalents of optional benefits under the particular plan, except that the interest rate assumption shall be five percent (5%); (2) the present value of the accrued benefit (i.e., account balances) under each and all defined contribution plans in the Aggregation Group, valued as of the valuation date coinciding with or immediately preceding the Determination Date of each such plan, including (A) contributions made after the valuation date but on or prior to the Determination Date, (B) with respect to the first plan year of any plan, any contribution made subsequent - 77 - 88 to the Determination Date but allocable as of any date in the first plan year, or (C) with respect to any defined contribution plan subject to Section 412 of the Code, any contribution made after the Determination Date that is allocable as of a date on or prior to the Determination Date; and (3) the sum of each and all amounts distributed (other than a rollover or plan-to-plan transfer) from any Aggregation Group Plan, plus a rollover or plan-to-plan transfer initiated by the Employee and made to a plan which is not an Aggregation Group Plan within the Current Plan Year or within the preceding four (4) plan years of any such plan, provided such amounts are not already included in the present value of the accrued benefits as of the valuation date coincident with or immediately preceding the Determination Date. The Aggregate Benefit shall not include the value of any rollover or plan-to-plan transfer to an Aggregation Group Plan, which rollover or transfer was initiated by a Participant, was from a plan which was not maintained by an Employer or a Commonly Controlled Entity, and was made after December 31, 1983, nor shall the Aggregate Benefit include the value of employee contributions which are deductible pursuant to Section 219 of the Code. (b) "Aggregation Group" means the Plan and one or more plans (including plans that terminated) which is described in Section 401(a) of the Code, is an annuity contract described in Section 403(a) of the Code or is a simplified employee pension described in Section 408(k) of the Code maintained or adopted by an Employer or a Commonly Controlled Entity in the Current Plan Year or one of the four preceding Plan Years which is either a "Required Aggregation Group" or a "Permissive Aggregation Group". (1) A "Required Aggregation Group" means all Aggregation Group Plans in which either (1) a Key Employee participates or (2) which enables any Aggregation Group Plan in which a Key Employee participates to satisfy the requirements of Sections 401(a)(4) and 410 of the Code. (2) A "Permissive Aggregation Group" means Aggregation Group Plans included in the Required Aggregation Group, plus one or more other Aggregation Group Plans, as designated by the Administrative Committee in its sole discretion, which satisfy the requirements of Sections 401(a)(4) and 410 of the Code, when considered with the other component plans of the Required Aggregation Group. - 78 - 89 (c) "Aggregation Group Plan" means the Plan and each other plan in the Aggregation Group. (d) "Current Plan Year" means (1) with respect to the Plan, the Plan Year in which the Determination Date occurs, and (2) with respect to each other Aggregation Group Plan, the plan year of such other plan in which occurs the Determination Date of such other plan. (e) "Determination Date" means (1) with respect to the Plan and its Plan Year, the last day of the preceding Plan Year; or (2) with respect to any other Aggregation Group Plan in any calendar year during which the Plan is not the only component plan of an Aggregation Group, the determination date of each plan in such Aggregation Group to occur during the calendar year as determined under the provisions of each such plan. (f) "Former Key Employee" means an Employee (including a terminated Employee) who is not a Key Employee but who was a Key Employee. (g) "Key Employee" means an Employee (or a terminated Employee) who at any time during the Current Plan Year or at any time during the four preceding Plan Years is: (1) an officer of a Commonly Controlled Entity whose compensation from a Commonly Controlled Entity during the Plan Year is greater than fifty percent (50%) of the amount specified in Section 415(b)(1)(A) of the Code (as adjusted for cost-of-living increases by the Secretary of the Treasury) for the calendar year in which the Plan Year ends; provided, however, that no more than the lesser of (A) fifty (50) Employees, or (B) the greater of (i) three (3) Employees or (ii) ten percent (10%) (rounded to the next whole integer) of the greatest number of Employees during the Current Plan Year or any of the preceding four Plan Years shall be considered as officers for this purpose. Such officers considered will be those with the greatest annual compensation as an officer during the five (5) year period ending on the Determination Date; (2) One of the ten employees who owns (or is considered to own within the meaning of Section 318 of the Code) more than a one half percent (1/2%) interest in value and the largest percentage ownership interest in value in a Commonly Controlled Entity and whose total annual compensation from a Commonly Controlled Entity is not less than the amount specified in Section 415(b)(1)(A) of the Code (as adjusted for cost-of-living increases by the - 79 - 90 Secretary of the Treasury) for the calendar year in which the Plan Year ends; (3) A person who owns more than five percent (5%) of the value of the outstanding stock of any Commonly Controlled Entity or more than five percent (5%) of the total combined voting power of all stock of any Commonly Controlled Entity (considered separately) or; (4) A person who owns more than one percent (1%) of the value of the outstanding stock of a Commonly Controlled Entity or more than one percent (1%) of the total combined voting power of all stock of a Commonly Controlled Entity (considered separately) and whose total annual compensation (as defined in Section 1.415-2(d) of the Treasury Regulations) from the Employer or a Commonly Controlled Entity is in excess of one hundred and fifty thousand dollars ($150,000). The rules of Section 416 (i)(1)(B) and (C) of the Code shall be applied for purposes of determining an Employee's ownership interest in a Commonly Controlled Entity for purposes of Paragraphs (3) and (4) herein. A Beneficiary (who would not otherwise be considered a Key Employee) of a deceased Key Employee shall be deemed to be a Key Employee in substitution for such deceased Key Employee. Any person who is a Key Employee under more than one of the four Paragraphs of this Section shall have his or her Aggregate Benefit under the Aggregation Group Plans counted only once with respect to computing the Aggregate Benefit of Key Employees as of any Determination Date. Any Employee who is not a Key Employee shall be a Non-Key Employee. (h) "Top-Heavy Plan" means the Plan with respect to any Plan Year if the Aggregate Benefit of all Key Employees or the Beneficiaries of Key Employees determined on the Determination Date is an amount in excess of sixty percent (60%) of the Aggregate Benefit of all persons who are Employees within the Current Plan Year; provided, that if an individual has not performed services for an Employer or a Commonly Controlled Entity at any time during the five (5) year period ending on the Determination Date, the individuals's Accrued Benefit shall not be taken into account. With respect to any calendar year during which the Plan is not the only Aggregation Group Plan, the ratio determined under the preceding sentence shall be computed based on the sum of the Aggregate Benefits of each Aggregation Group Plan totaled as of the last Determination Date of any Aggregation Group Plan to occur during the calendar year. 20.3 Minimum Contribution. For any Plan Year that the Plan shall be a Top-Heavy Plan, each Participant who is an Eligible Employee but who is neither a Key Employee nor a Former Key Employee on the last day of the Plan Year shall have - 80 - 91 allocated to his or her Matching Account on the last day of the Plan Year a Pay Based Contribution in an amount equal to three percent (3%) of such Participant's Compensation; provided, however, in no event shall such contribution on behalf of such Participant be less than five percent (5%) of such Compensation if any Aggregation Group Plan is a defined benefit plan which does not satisfy the minimum benefit requirements with respect to such Participant. The amount of Pay Based Contributions required to be allocated under this Section for any Plan Year shall be reduced by the amount of Employer Contributions and Forfeitures allocated under this Plan on behalf of the Participant and employer contributions and forfeitures allocated on behalf of the Participant under any other defined contribution plan in the Aggregation Group for the Plan Year. Elective Deferrals to any Aggregation Group Plan made on behalf of a Participant in Plan Years beginning after December 31, 1984 but before January 1, 1989 shall be deemed to be Employer Contributions for the purpose of this Section. Elective Deferrals and matching contributions to Aggregation Group Plans in Plan Years beginning on or after January 1, 1989 shall not be used to meet the minimum contribution requirements of this Section. Where Employer Contributions and Forfeitures allocated on behalf of a Participant are insufficient to satisfy the minimum contribution otherwise required by this Section, an additional employer contribution shall be made and allocated to the Matching or Retirement Contribution Account of such Participant. 20.4 Maximum Benefit Accrual. For any Plan Year that the Plan is a Top-Heavy Plan, the denominator of the "defined benefit plan fraction" and the denominator of the "defined contribution plan fraction" shall be determined by substituting "1.0" for "1.25"; provided, however, this limit shall not apply with respect to an Employee for any Plan Year during which he or she accrues no benefit under any plan of the Aggregation Group. The preceding sentence shall not apply if, within this Article, there is substituted "four percent (4%)" for "three percent (3%)" and "seven and one-half percent (7.5%)" for "five percent (5%)" and "ninety percent (90%)" for "sixty percent (60%)." 20.5 Special Vesting. If the Plan becomes a Top-Heavy Plan after the Effective Date, vesting for all Employees shall thereafter be accelerated to the extent the following vesting schedule produces a greater vested percentage for the Employee than the normal vesting schedule at any relevant time: Years of Vesting Service Vested Percentage ------------------------ ----------------- Less than 3 years 0% 3 years or more 100% - 81 - 92 ARTICLE XXI - -------------------------------------------------------------------------------- MISCELLANEOUS PROVISIONS 21.1 Assignment and Alienation. As provided by Code Section 401(a)(13) and to the extent not otherwise required by law, no benefit provided by the Plan may be anticipated, assigned or alienated, except: (a) to create, assign or recognize a right to any benefit with respect to a Participant pursuant to a QDRO, or (b) to use a Participant's vested Account balance as security for a loan from the Plan which is permitted pursuant to Code Section 4975. 21.2 Protected Benefits. All benefits which are protected by the terms of Code Section 411(d)(6) and ERISA Section 204(g), which cannot be eliminated without adversely affecting the qualified status of the Plan on and after January 1, 1997, shall be provided under this Plan to Participants for whom such benefits are protected. The Administrative Committee shall cause such benefits to be determined and the terms and provisions of the Plan immediately prior to January 1, 1997 are incorporated herein by reference and made a part hereof, but only to the extent such terms and provisions are so protected. Otherwise, they shall operate within the terms and provisions of this Plan, as determined by the Administrative Committee. 21.3 Plan Does Not Affect Employment Rights. The Plan does not provide any employment rights to any Employee. The Employer expressly reserves the right to discharge an Employee at any time, with or without Cause, without regard to the effect such discharge would have upon the Employee's interest in the Plan. 21.4 Deduction of Taxes from Amounts Payable. The Custodian shall deduct from the amount to be distributed such amount as the Custodian, in its sole discretion, deems proper to protect the Custodian and the Plan's assets held under the Custodial Agreement against liability for the payment of death, succession, inheritance, income, or other taxes, and out of money so deducted, the Custodian may discharge any such liability and pay the amount remaining to the Participant, the Beneficiary or the deceased Participant's estate, as the case may be. 21.5 Facility of Payment. If a Participant or Beneficiary is declared an incompetent or is a minor and a conservator, guardian, or other person legally charged with his or her care has been appointed, any benefits to which such Participant or Beneficiary is entitled shall be payable to such conservator, guardian, or other person legally charged with his or her care. The decision of the Administrative Committee in such matters shall be final, binding, and conclusive upon the Employer and the Custodian and upon each Employee, Participant, Beneficiary, and every other person or party interested or concerned. An Employer, the Custodian and the Administrative - 82 - 93 Committee shall not be under any duty to see to the proper application of such payments. 21.6 Source of Benefits. All benefits payable under the Plan shall be paid or provided for solely from the Plan's assets held under the Custodial Agreement and the Employers assume no liability or responsibility therefor. 21.7 Indemnification. To the extent permitted by law each Employer shall indemnify and hold harmless each member (and former member) of the Board of Directors, each member (and former member) of the Administrative Committee, and each officer and employee (and each former officer and employee) of an Employer to whom are (or were) delegated duties, responsibilities, and authority with respect to the Plan against all claims, liabilities, fines and penalties, and all expenses reasonably incurred by or imposed upon him or her (including but not limited to reasonable attorney fees and amounts paid in any settlement relating to the Plan) by reason of his or her service under the Plan if he or she did not act dishonestly, with gross negligence, or otherwise in knowing violation of the law under which such liability, loss, cost or expense arises. This indemnity shall not preclude such other indemnities as may be available under insurance purchased or provided by an Employer under any by-law, agreement, or otherwise, to the extent permitted by law. Payments of any indemnity, expenses or fees under this Section shall be made solely from assets of the Employer and shall not be made directly or indirectly from the assets of the Plan. 21.8 Reduction for Overpayment. The Administrative Committee shall, whenever it determines that a person has received benefit payments under this Plan in excess of the amount to which the person is entitled under the terms of the Plan, make two reasonable attempts to collect such overpayment from the person. 21.9 Limitation on Liability. No Employer nor any agent or representative of any Employer who is an employee, officer, or director of an Employer in any manner guarantees the assets of the Plan against loss or depreciation, and to the extent not prohibited by federal law, none of them shall be liable (except for his or her own gross negligence or willful misconduct), for any act or failure to act, done or omitted in good faith, with respect to the Plan. No Employer shall be responsible for any act or failure to act of any Custodian appointed to administer the assets of the Plan. 21.10 Company Merger. In the event any successor corporation to the Company, by merger, consolidation, purchase or otherwise, shall elect to adopt the Plan, such successor corporation shall be substituted hereunder for the Company upon filing in writing with the Custodian its election so to do. 21.11 Employees' Trust. The Plan and Custodial Agreement are created for the exclusive purpose of providing benefits to the Participants in the Plan and their Beneficiaries and defraying reasonable expenses of administering the Plan, and the Plan and Custodial Agreement shall be interpreted in a manner consistent with their being, respectively, a Plan described in Sections 401(a), 401(k) and 401(m) of the - 83 - 94 Code and Custodial Agreements exempt under Section 501(a) of the Code. At no time shall the assets of the Plan be diverted from the above purpose. 21.12 Gender and Number. Except when the context indicates to the contrary, when used herein, masculine terms shall be deemed to include the feminine, and singular the plural. 21.13 Invalidity of Certain Provisions. If any provision of this Plan shall be held invalid or unenforceable, such invalidity or unenforceability shall not affect any other provisions hereof and the Plan shall be construed and enforced as if such provisions, to the extent invalid or unenforceable, had not been included. 21.14 Headings. The headings or articles are included solely for convenience of reference, and if there is any conflict between such headings and the text of this Plan, the text shall control. 21.15 Uniform and Nondiscriminatory Treatment. Any discretion exercisable hereunder by an Employer or the Administrative Committee shall be exercised in a uniform and nondiscriminatory manner. 21.16 Law Governing. The Plan shall be construed and enforced according to the laws of the state in which the Trust is located, to the extent not preempted by ERISA. 21.17 Notice and Information Requirements. Except as otherwise provided in this Plan or in the Custodial Agreement or as otherwise required by law, the Employer shall have no duty or obligation to affirmatively disclose to any Participant or Beneficiary, nor shall any Participant or Beneficiary have any right to be advised of, any material information regarding the Employer, at any time prior to, upon or in connection with the Employer's purchase, or any other distribution or transfer (or decision to defer any such distribution) of any Company Stock or any other stock held under the Plan. Executed in _______ counterpart originals this ____ day of __________, 1996, but effective as of the Effective Date. WALBRO CORPORATION By:________________________________ Title:_____________________________ - 84 - 95 APPENDIX A Investment Funds The Investment Funds offered to Participants and Beneficiaries as of January 1, 1997, based upon share accounting, are: 1. American Express Trust Income Fund II 2. IDS Mutual (Y) 3. IDS New Dimensions Fund (Y) 4. American Express Trust Equity Index Fund II 5. Templeton Foreign Fund. The Investment Funds offered to Participants and Beneficiaries, as of January 1, 1997, based upon dollar accounting, includes the Walbro Company Stock Fund. If investment instructions are not received from any Participant or Beneficiary, his or her investment instructions shall be assumed to be a percentage investment in the following funds: Fund Name Percentage - --------- ---------- IDS New Dimension Fund (Y) 33% IDS Mutual (Y) 33% American Express Trust Equity Index Fund II 34% EX-10.9 15 EXHIBIT 10.9 1 EXHIBIT 10.9 SINO-FOREIGN JOINT VENTURE FUJIAN HUALONG CARBURETOR CO. LTD. JOINT VENTURE CONTRACT CHAPTER I GENERAL PROVISIONS ARTICLE 1 In accordance with "The Law of the People's Republic of China on Sino-Foreign Joint Ventures" and other relevant Chinese laws and regulations, adhering to the principle of equality and mutual benefit and through friendly consultations, it is hereby agreed that Fujian Hualong Carburetor Co. Ltd., a limited liability company (hereinafter referred to as the "Joint Venture Company"), shall be set up in Fuding County, Fujian Province. The contract is worked out hereunder. CHAPTER II PARTIES TO THE JOINT VENTURE ARTICLE 2 Parties to the joint venture: FUJIAN FUDING CARBURETOR FACTORY (hereinafter referred to as "Party A"), registered in Fuding County, with its legal address at No. 9, Longahan Industrial District, Fuding County. Legal representative: Zhou Tixu, position: Chairman cum Factory Manager, Nationality: Chinese. TWIN WINNER TRADING CO., LTD. of Hong Kong (hereinafter referred to as "Party B"), registered in Hong Kong, with its legal address at Shun Tak Centre 33/F, No. 200, Connaught Road, Central Hong Kong. Legal representative: Liang Xin Hai, Position: General Manager, Nationality: Chinese. WALBRO ENGINE MANAGEMENT CORPORATION (hereinafter referred to as "Party C"), registered in United States of America, with its legal address at 6242 Garfield Street, Cass City, Michigan 48726-0096 U.S.A. Legal representative: Robert Wapole, Nationality: American. 2 CHAPTER III ORGANIZATION OF THE COMPANY AND SCOPE OF BUSINESS ARTICLE 3 The name of the Joint Venture Company is Fujian Hualong Carburetor Co. Ltd. Its name in English is FUJIAN HUALONG CARBURETOR CO. LTD. ARTICLE 4 The organization form of the Joint Venture Company is a limited liability company. ARTICLE 5 The legal address of the Joint Venture Company: No. 9, Longahan Industrial Zone, Fuding County, Fujian Province. ARTICLE 6 The purpose of the Joint Venture Company shall be: to strengthen economic cooperation and technological exchange; to import advanced technology, equipment and methods of management; to develop carburetors for motorcycles, and automobiles; to enhance the quality of products and raise the competitiveness of the enterprise; to devote itself to domestic production of carburetors and at the same time make its entry into the international market so as to create more wealth and better economic benefit for the society, thereby achieving satisfactory economic benefits for each investor. ARTICLE 7 The business scope of the Joint Venture Company is to produce, manufacture and develop various types of series of carburetors and other related spare parts and accessories for motorcycles and automobiles for the domestic and foreign markets. ARTICLE 8 All activities of the Joint Venture Company shall be governed by the laws, decrees and pertinent rules and regulations of the People's Republic of China. -2- 3 CHAPTER IV TOTAL AMOUNT OF INVESTMENT AND REGISTERED CAPITAL ARTICLE 9 The total amount of investment of the Joint Venture Company is US$2,500,000, which shall be the registered capital of the Joint Venture Company. Of the said amount: Party A shall contribute US$750,000, accounting for 30%; Party B shall contribute US$250,000, accounting for 10% Party C shall contribute US$1,500,000, accounting for 80% Party C shall contribute its investment in foreign exchange (calculated at the foreign exchange swap rate of the Fujian Province Forax Swap Centre on the date the payment is made). ARTICLE 10 Each party to the Joint Venture Company is liable to the Joint Venture Company within the limit of the capital subscribed by it. The profits, risks and losses of the Joint Venture Company shall be shared by the parties in proportion to their contributions to the registered capital. ARTICLE 11 The parties shall contribute the following as their investment: Party A and Party B: In the form of the existing assets of plant and machinery, factory, buildings, inventory, etc., confirmed by a valuation agency to be worth Renminbi 7,500,000 (deemed to be the equivalent of US$850,000), and any deficit thereof shall be made good with Renminbi 1,320,000 (deemed to be the equivalent of US$150,000) (calculated at the foreign exchange swap rate of the Fujian Province Forax Swap Centre on the date the contribution is made). Party C shall contribute its investment in foreign currency in the sum of US$1,500,000. ARTICLE 12 The registered capital of the Joint Venture Company shall be paid in full into the Joint Venture Company's bank with which it operates an account by the parties in proportion to their respective contributions within six months after this Contract takes effect. ARTICLE 13 The parties to the Joint Venture Company shall pay in full their respective investments within the time stipulated in this Contract. In the event of any party failing to make payment -3- 4 or failing to pay in full their share of the contribution, any profit made by the Joint Venture Company shall be shared by the parties in proportion to the actual investment made. ARTICLE 14 In case any party intends to assign all or part of the investment subscribed by it to a fourth party, consent shall be obtained from the other parties and approval from the examination and approval authority is required. When one party assigns all or part of its Investment, the other parties have a preemptive right. The terms and conditions of assignment by any part to a fourth party shall not be more favorable than the terms of assignment to the other parties. CHAPTER V BOARD OF DIRECTORS AND MANAGEMENT ORGANIZATION ARTICLE 15 The Joint Venture Company shall establish a Board of Directors, which shall be its highest authority and shall decide all major issues concerning the Joint Venture Company. ARTICLE 16 The Board of Directors shall comprise seven Directors. The number of Directors shall be discussed between and determined by the parties by reference to the proportion of their capital contribution. Two of the Directors shall be appointed by Party A, one by Party B and four by Party C. The Chairman of the Board shall be appointed by Party C, and the Vice-Chairman by Party A. The term of office for the Chairman, Vice-Chairman and Directors is four years; their term of office may be renewed if continuously appointed by the relevant party. ARTICLE 17 The Board of Directors shall convene at least one meeting every year. The meeting shall be called and presided over by the Chairman of the Board. Should the Chairman be absent, the Vice-Chairman shall call and preside over the Board meeting. The Chairman may convene an interim meeting based on a proposal made by more than one-third of the total number of Directors. The Board meeting requires a quorum of over two-thirds of the total number of Directors. Should a Director be unable to attend the Board meeting, he shall appoint a proxy in written form to attend and vote on his behalf. -4- 5 If the Director of any party neither attends a Board meeting nor appoints a proxy, and as a result the meeting does not have a sufficient quorum, the meeting shall be adjourned for 30 days and the Director not in attendance shall receive a written notice. In the event that the number of Directors attending an adjourned meeting shall be less than the quorum of two-thirds, such number in attendance shall be deemed to be the quorum. And such Directors shall be entitled to pass resolutions by majority vote on all matters except for the four set out in Article 18. ARTICLE 18 Resolutions with respect to the following matters shall require the unanimous approval of the Directors present at a Board meeting: (1) Amendment of the Articles of Association of the Joint Venture Company; (2) Termination or dissolution of the Joint Venture Company; (3) Increase in or assignment of the registered capital of the Joint Venture Company; (4) Merger of the Joint Venture Company with another economic organization. ARTICLE 19 The Chairman of the Board is the legal representative of the Joint Venture Company. Should the Chairman be unable to exercise his responsibilities for some reason, he shall authorize the Vice-Chairman or any other Director to represent the Joint Venture Company temporarily. ARTICLE 20 The Joint Venture Company shall carry out the system where by the General Manager assumes the responsibilities under the leadership of the Board of Directors. He shall be responsible for the day-to-day management of the Joint Venture Company. The Joint Venture Company shall have one General Manager. ARTICLE 21 The responsibility of the General Manager is to carry out the decisions of the Board meeting and organize and conduct the day-to-day management of the Joint Venture Company. Within the scope authorized by the Board of Directors, the General Manager shall represent the Joint Venture Company in external matters and, within the company, appoint and dismiss subordinate personnel and exercise the other powers conferred upon him by the Board of Directors. -5- 6 ARTICLE 22 The General Manager shall be appointed by the Board of Directors, and his term of office shall be two years. At the invitation of the Board of Directors, the Chairman, Vice-Chairman or Directors may concurrently be the General Manager. The General Manager shall not be involved in other economic organizations which are in commercial competition with the Joint Venture Company. ARTICLE 23 In case of graft or serious dereliction of duty on the part of the General Manager and other senior personnel, the Board of Directors shall have the power to dismiss them at any time. CHAPTER VI EQUIPMENT AND TECHNOLOGY ARTICLE 24 Apart from the equipment contributed by Party A as its investment, the main production equipment of the Joint Venture Company may be chosen and purchased by the Joint Venture Company from the domestic or overseas markets whenever there is a necessity to import advanced equipment. ARTICLE 25 When the Joint Venture Company wants to import advanced production technology, Party C shall be entrusted with the importation thereof. However, the technology imported by the Joint Venture Company shall be appropriate and advanced and enable the Joint Venture Company's products to have marked social benefits domestically or to be competitive in the international market. ARTICLE 26 Each of the parties agree that Party C shall have the option to license any technology it owns to the Joint Venture Company subject to the approval of the PRC Ministry of Foreign Trade and Economic Cooperation (including specifying a royalty between 3 and 7%). The royalty for such technology shall be agreed by the parties according to the nature of the technology and the relevant laws and regulations of China. -6- 7 CHAPTER VII PURCHASE OF RAW MATERIALS AND SELLING OF PRODUCTS ARTICLE 27 In its purchase of required raw materials, fuel, parts, means of transportation and articles for office use, etc., the Joint Venture Company shall give first priority to purchase in China where conditions are equal. With regard to the raw and processed materials, fuels or parts that have to be imported from abroad, Party B and Party C shall render assistance to the Joint Venture Company. The purchase price and fees shall be borne by the Joint Venture Company. ARTICLE 28 The trademark to be used on the products of the Joint Venture Company shall be separately studied and determined by the Board of Directors. ARTICLE 29 The sale of the Joint Venture Company's products on the overseas market may be entrusted to the sales organization of Party C or its subsidiaries. CHAPTER VII TAXES, FINANCE AND AUDIT ARTICLE 30 The Joint Venture Company shall pay taxes in accordance with the stipulations of Chinese laws and other relevant regulations. ARTICLE 31 Staff members and workers of the Joint Venture Company shall pay individual income tax according to the "Individual Income Tax Law of the People's Income Tax Law of the People's Republic of China." ARTICLE 32 The Joint Venture Company shall formulate its system of financial management and accounting in accordance with the relevant provisions of the laws, decrees of China and provisions concerning systems of financial management and accounting of foreign investment enterprises, with reference to the circumstances of the Joint Venture Company. ARTICLE 33 The fiscal year of the Joint Venture Company shall be the Gregorian year, commencing on January 1 and ending on December 31. -7- 8 ARTICLE 34 The General Manager shall submit to the Board of Directors of the Joint Venture Company within the first ten days of every month, the profit-loss amount and balance sheet of the Joint Venture Company of the preceding month and, in the first three months of each fiscal year, the General Manager shall prepare the previous year's balance sheet, profit and loss statement and proposal regarding the disposal of profits, and submit them to the Board of Directors for examination and approval. ARTICLE 35 The Joint Venture Company shall adopt the internationally used accrual basis and debit and credit accounting systems for accounting. All vouchers, accounts books, statements and financial reports prepared by the Joint Venture Company must be written in Chinese. In addition, statements, annual balance sheet and profit and loss statement shall be also written in English. ARTICLE 36 After paying taxes in accordance with the "Income Tax Law of the People's Republic of China Concerning Sino-Foreign Joint Ventures," the Joint Venture Company shall distribute its profits in accordance with the following principles: (1) Allocations shall be made for the reserve fund, expansion fund, bonus and welfare fund for staff and workers, with the ratio for such allocations to be determined by the Board of Directors; (2) As for the profits that may be distributed, after allocations of the three funds as prescribed in paragraph (1) of this Article, if the Board of Directors decides to make a distribution, it shall be made according to the ratio of the respective investments of the parties to the Joint Venture Company. ARTICLE 37 The Joint Venture Company may not distribute profits until its losses from previous years have been made up. Undistributed profits from previous years may be included in the current year's profits for distribution. ARTICLE 38 Financial checking and examination of the Joint Venture Company shall be conducted by an auditor registered in China and reports shall be submitted to the Board of Directors and the General Manager. -8- 9 In case Party B or Party C considers it necessary to employ a foreign auditor registered in another country to undertake annual financial checking and examination, the other two parties shall give its consent. All the expenses thereof shall be borne by the party making the request. CHAPTER IX LABOR MANAGEMENT AND WELFARE INSURANCE ARTICLE 39 The recruitment, employment, dismissal and resignation, wages, labor insurance, welfare, rewards, penalty and other matters concerning the staff and workers of the Joint Venture Company shall be handled in accordance with the Chinese laws, regulations and "Provisional Regulations of the Fujian Province on Labor Management in Sino-Foreign Joint Ventures" and based on the circumstances of the Company. ARTICLE 40 The amount of salaries, social insurance, welfare and travelling expenses, etc. of the General Manager and senior management staff shall be decided by the Board of Directors. ARTICLE 41 Insurance policies of the Joint Venture Company on various kinds of risks shall be underwritten with the People's Insurance Company of China. Types, value and duration of insurance shall be decided by the Board of Directors based on the actual circumstances in accordance with the stipulations of the People's Insurance Company of China. CHAPTER X DURATION, TERMINATION AND LIQUIDATION ARTICLE 42 The duration of the Joint Venture Company is 50 years. The establishment of the Joint Venture Company shall start from the date on which the business license of the Joint Venture Company is issued. An application for the extension of the duration, proposed by one party and unanimously approved by the Board of Directors, shall be submitted to the examination and approval authority six months prior to the expiration date of the Joint Venture. After the Joint Venture Company has received approval to extend its term, it shall carry out procedures for amending its registration in accordance with the provisions of "the Procedures of the People's Republic of China for the Registration and Administration of Sino-Foreign Joint Ventures." -9- 10 ARTICLE 43 The Joint Venture Company may be dissolved in the following situations: (1) Expiration of the term of the Joint Venture Company; (2) Inability to continue operations due to heavy losses of the Joint Venture Company; (3) Inability to continue operations due to the failure of one of the parties to the Joint Venture to fulfill its obligations set forth in the Contract and Articles of Association of the Joint Venture Company and such nonfulfillment not having been remedied after such party has received written notice thereof; (4) Inability to continue operations due to serious losses arising from a natural disaster, war or other event of force majeure; (5) Failure of the Joint Venture Company to achieve its business objective, coupled with no possibility of future development; (6) The occurrence of any other event stipulated in this Contract or Articles of Association of the Joint Venture Company to be grounds for dissolution. Should any of Items (2), (3), (4), and (5) of this Article occur, the Board of Directors shall submit an application for dissolution to the original examining and approval agency. Upon occurrence of the situation described in (3) of this Article, the party which fails to perform the obligations provided in the Contract or Articles of Association of the Joint Venture Company shall bear the responsibility for compensating the Joint Venture Company for losses arising therefrom. ARTICLE 44 Upon announcement of the Joint Venture Company's dissolution, the Board of Directors shall propose liquidation procedures and principles and nominate members for a liquidation committee. ARTICLE 45 The Joint Venture Company shall apply all of its assets to the satisfaction of its debts. After all of the Joint Venture Company's debts have been discharged, any remaining property shall be distributed between the parties to the Joint Venture Company in accordance with the ratio of their respective investments. -10- 11 ARTICLE 46 After the liquidation of the Joint Venture Company is completed, the Joint Venture Company shall submit a liquidation report to the original examining and approval agency and carry out procedures for canceling the Joint Venture Company's registration at the original agency for registration and administration. ARTICLE 47 Following the dissolution of the Joint Venture Company, all of its account books and documents shall be retained by the original Chinese party. However, the other parties may make copies of such account books and documents for their records. CHAPTER XI LIABILITIES FOR BREACH OF CONTRACT ARTICLE 48 Should the Joint Venture Company suffer losses due to the failure of one of the parties to fulfill its obligations under this Contract and the Articles of Association, or serious breach of the stipulations of this Contract and Articles of Association, that party shall be liable for the economic losses thus caused to the Joint Venture Company. ARTICLE 49 Should all or part of this Contract and its appendices be unable to be fulfilled owing to the fault of any party, such party in breach shall bear the responsibilities thus caused according to actual circumstances. ARTICLE 50 Should any of Party A, Party B or Party C fail to pay on schedule the contributions in accordance with the provisions defined in Chapter IV of this Contract, the party in breach shall pay to the other parties not in breach 5% of the contribution for every month during which the breach continues, starting from the first month after the expiration of the time limit. Should the party in breach fail to pay after 3 months after due date, 10% of the contribution shall be paid by the party in breach to the other parties not in breach, who shall also have the right to terminate this Contract and to claim damages from the party in breach in accordance with the stipulation in Article 42 of this Contract. -11- 12 CHAPTER XII SETTLEMENT OF DISPUTES ARTICLE 51 Any disputes between the parties hereto arising from the explanation, or implementation of, this Contract, the Articles of Association shall be settled through friendly consultations between both parties. In case no settlement can be reached through consultations, the disputes shall be submitted to the China International Economic & Trade Arbitration Commission of the China Council for the Promotion of International Trade for arbitration in accordance with its rules of procedure. The arbitral award is final and binding upon both parties. ARTICLE 52 During arbitration, the provisions of this Contact and the Articles of Association shall continue to be performed by both parties except for matters in dispute. CHAPTER XIII, EFFECTIVENESS OF THE CONTRACT AND MISCELLANEOUS MATTERS ARTICLE 53 This Contract shall be written in Chinese, with an English translation for reference. ARTICLE 54 This Contract and its appendices shall come into force after it has been signed by the duly authorized representatives of the parties hereto and approved by the examination and approval authority. The appendices to this Contract (including the Article of Association) drawn up in accordance with the principles of this Contract are an integral part of this Contract. ARTICLE 55 If any time in the duration of this joint venture there shall be any changes to the existing Chinese laws, decrees, or regulations which may affect the purpose of this Contract or that of the Joint Venture Company or the economic interest of any party, then the parties shall consult together and make the appropriate changes to this Contract. In the event that the parties are unable to reach an agreement within 90 days of commencement of such consultations, the party affected shall be entitled to request the Board for termination. -12- 13 ARTICLE 56 The contents of this Contract and any appendices hereto and related previous and future documentation and correspondence are to be treated in strict confidence by the parties hereto. Information contained in such documents may be disclosed only to persons legally entitled to such information and each party's lawyers, accountants and other business advisors, and notice of such disclosure shall first be given to the other parties unless such disclosure is legally compelled and times does not permit notice to the other parties. ARTICLE 57 In the event that any matter concerning the joint venture has not been incorporated in this Contract, the parties hereto shall consult with each other and execute the necessary supplemental agreements to this Contract. ARTICLE 58 This Contract is to be signed in 10 copies; Party A, Party B and Party C will each receive 2 copies and the rest will be retained by the Joint Venture Company for record except for those copies required to be submitted to the relevant authorities. Party A: Legal representative: FUDING FUJIAN CARBURETOR FACTORY /s/ Zhou Txu -------------------------------- Party B: Legal representative: TWIN WINNER TRADING CO., LTD. /s/Liang Xin Hai -------------------------------- Party C: Legal representative: WALBRO ENGINE MANAGEMENT CORPORATION /s/Robert H. Walpole -------------------------------- Signed on: 30th December 1993 -13- EX-10.10 16 EXHIBIT 10.10 1 EXHIBIT 10.10 AGREEMENT This Agreement dated February 7th, 1995 by and among: 1. Walbro Corporation, a Delaware corporation whose registered office is located at Cass City, Michigan 48726 USA, represented by Mr. Gary L. Vollmar (Walbro). 2. Walbro Automotive Corporation (Automotive), a Delaware corporation whose registered office is located at Auburn Hills, Michigan 48326 USA, represented by Mr. Gary L. Vollmar. 3. Magneti Marelli France S.A., a company incorporated under the laws of France with share capital of FRF 424,494,000, whose registered office is located at 19 rue Lavoisier, 9200 Nanterre France and registered at the Company and Commercial Registry of Nanterre number B652044827, represented by Mr. Frederic Girardot (MM) which came to the rights of Jaeger S.A. when it was absorbed by a merger into MM on July 1, 1994. (collectively the "Parties") R E C I T A L S a. Walbro and Jaeger entered into a Joint Venture Agreement dated June 17, 1991 establishing a Joint Venture Company in France (JV France) for the purpose of developing, manufacturing and marketing integrated TSS and their component elements for sale to designated markets in Europe (hereinafter the First Agreement). b. In addition to the First Agreement Walbro and Jaeger entered into a number of Ancillary Agreements, the list of which is contained in Appendix B to this Agreement. c. Automotive and Jaeger entered into a Joint Venture Agreement dated as of January 1, 1993 establishing a JV in Brasil (JV Brasil) for the purpose of developing, manufacturing and marketing integrated FDS and their component elements for sale to designated markets in South America (hereinafter the Second Agreement). d. Together with the Second Agreement, Automotive and Jaeger entered into a number of Ancillary Agreements the list of which is contained in Appendix D to this Agreement. e. The Parties believe that the automotive component market is a worldwide market in which there are few car manufacturers which select their suppliers based on the capability of such suppliers to deliver and service on a worldwide basis. The Parties therefore decided to restructure their cooperation with the purpose of eliminating any barrier among the existing Joint Ventures and also with the view of setting up, in the near future, new companies in other countries. 2 f. The Parties also believe that it is necessary for them to strengthen their cooperation by providing the JV France with the technical capability and technology necessary to compete independently in the market and to approach on its own customers around the world. g. In furtherance of these objectives, the Parties hereby agree to amend and modify the First Agreement with respect to the products, territory, structure of JV Group and those other changes as detailed below. Unless otherwise indicated, terms used in the Agreement shall have the same meanings as in the First Agreement, and Second Agreement, where applicable. NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and undertakings provided herein, the Parties agree as follows: GENERAL PROVISIONS 1. The First Agreement is hereby confirmed and remains in effect to the extent it is not amended or modified by this Agreement. 2. The cooperation among the Parties will take the form of a group of companies controlled by JV France which shall hereinafter be identified as the "JV Group". 3. Concurrent with this Agreement the Parties hereto shall cause the transfer of all of the stock of Marwal do Brasil ("JV Brasil") to JV France, and shall cancel the Second Agreement effective as of the date of transfer. In addition the product definition for the JV Brasil shall include fuel tanks. 4. The Parties hereby agree to cause JV France to form a Sociedad Anonima de Capital Variable ("JV Mexico") as a member of JV Group which will be owned 95% by JV France and 5% by Automotive. The initial paid up capital of JV Mexico shall be equivalent to $4,000,000. JV Mexico shall acquire from Magneti Marelli do Mexico fixed assets valued at $2,600,000 (as depreciable assets); the capital stock of F.E.S.A. valued at $150,000 and the stock of the level sensor business valued at market value. JV Mexico shall not solicit any customer in the United States or Canada; however, should JV Mexico be approached by any customer purchasing product for resale in the United States or Canada, it shall immediately inform Automotive which shall have full responsibility for dealing with such customers. Furthermore the prices of the products to be sold by JV Mexico within Mexico to Car Manufacturer controlled by any of Ford General Motors or Chrysler shall be mutually agreed upon by the Parties. 5. Should Automotive complete the purchase of the plastic fuel tank division of Dyno Industrier A.S. ("Tank Company") it will cause JV France and the Tank Company to set up jointly (50/50) a fuel storage and delivery system technical centre. -2- 3 The location, capitalization, management and other aspects with respect to such Technical Centre shall be determined at the time of the formation of the Technical Centre. SPECIFIC AMENDMENTS TO THE FIRST AGREEMENT The following amendments are effective as of February 7, 1995. Each section number corresponds to the section of the First Agreement. 1.3 This section is amended to read as follows: "PURPOSE. The purpose of the JV will be to develop, manufacture and market Fuel Delivery System (FDS) and components thereof to the JV's Territories as described in SECTION 1.4 below. A FDS includes a fuel pump, module, bracket and level sensor. Except as especially provided in SECTION 4.3, the JV Group will be the exclusive vehicle through which each of the Parties develop, manufacture, and market FDS in the Exclusive Territory for both automotive original equipment manufacturers and aftermarket customers." Consistent with this new SECTION 1.3, FDS shall be substituted for TSS throughout the First Agreement. 1.4 This Section is amended to read as follows: "TERRITORY: The designated market of the JV (the JV Territory) will be determined as follows: a) Exclusive Territory: Europe (as defined in the First Agreement), South America (as defined in the Second Agreement), and Mexico, except that Walbro will be permitted to sell directly to aftermarket customers in Mexico. b) Excluded Territory: The United States, Canada and Korea. c) Non-Exclusive Territory: All countries not included in the Exclusive Territory and the Excluded Territory. The JV Group will take no actions which would cause Walbro to violate its agreement with Mitsuba-Walbro, Inc. or Mitsuba Electric Manufacturing Company. ARTICLE III GOVERNANCE OF THE JV Except for Section 3.2.4 which is hereby deleted, Article 3 of the First Agreement remains substantially unchanged. The governance principles laid down in Article 3 will apply to the governance of the JV Group. More specifically the Board of Directors and the P.D.G. of JV France shall be responsible for the management of the JV Group. Subject to local laws, only -3- 4 routine decisions shall be delegated to local managers and all special matters, and strategic issues shall be decided upon by the Board of Directors of JV France. 3.1 The day-to-day operation of the JV will be conducted by the Chairman of the Board ("President Directeur General") and its staff. Unless otherwise agreed, key management personnel of the JV will be provided by the parties as set forth on Exhibit 3.1 (in which Deputy CEO is cancelled). Walbro shall have the right to approve the appointment of any new P.D.G. which approval shall not be unreasonably withheld. 3.2 The last sentence beginning "The Board" and ending "designee of Walbro" is cancelled. 3.2.3 SPECIAL MATTERS k) Licensing or sub-licensing to a member of the JV Group shall not be a special matter. l) The addition of a new member of the JV Group shall be a special matter. m) Liquidation or dissolution of any member of the JV Group shall be a special matter. The last sentence of section 3.2.3 shall be deleted and the following substituted: "Sections 3.2.3 and 3.2.5 shall be suspended and of no force or effect for a period of three years from the date that any party (other than current members of management) acquires stock which constitutes greater than 50% of the total voting power of Walbro Corporation and the JV France by- laws shall be modified accordingly. After such three year period, the above-mentioned sections shall be reinstated and in full force and effect. ARTICLE IV CONDUCT OF THE JV 4.2 MANUFACTURING. The third sentence of this section which begins "The parties acknowledge that certain products" shall be deleted. Walbro and MM will cause JV France to expand its capabilities in design and development and in customer application for FDS in order for JV France to achieve greater autonomy. JV France can sublicense the Walbro technology, the Jaeger technology and its own technology to members of the JV Group as appropriate. As far as Walbro technology is concerned, Walbro will receive from JV France the stipulated royalties on worldwide sales by your members of the JV Group. JV France will be responsible for providing to members of the JV Group support engineering and application engineering services. 4.3 MARKETING. This section is modified to be consistent with the modification to the definition of Territories. -4- 5 4.4 This section is deleted. 4.6 This section is deleted. ARTICLE V LICENSES TO/FROM THE JV It is the intent of the Parties that the Walbro License shall be modified and hereby amended to be consistent with the amendments and purposes of this Agreement: for example, JV France shall be permitted to sublicense any technology to any member of the JV Group without consent. In addition the Parties agree that any technology developed by the JV Group which is not subject to the grant-back provision of the Walbro License, shall be offered for license to Walbro and MM as follows: (1) Walbro shall have the right to an exclusive license in the Excluded Territory for a royalty payment to be agreed upon by the Parties. (2) Walbro and MM shall have the right to a nonexclusive license in the Non-Exclusive Territory for a royalty payment to be agreed upon by the Parties. 5.2 WALBRO TECHNOLOGY LICENSE. This section is modified to provide that the Walbro License shall be exclusive in the Exclusive Territory and nonexclusive in the Non-Exclusive Territory. The License shall only include technology related to FDS. 5.3 FUTURE JV TECHNOLOGY. This section is modified to provide that the JV will grant to Walbro and MM a nonexclusive license in the Non-Exclusive Territory and to Walbro an exclusive license in the Excluded Territory. The Licenses shall only include technology related to FDS. 5.4 SPECIAL EXTRA-TERRITORIAL LICENSE. This section is modified to be consistent with the modification to the definition of Territory. 5.5.1 TERMINATION GENERALLY. This section is amended to provide that the License herein granted shall be a nonexclusive license throughout the world, except there is no license in the Excluded Territory. The first sentence of 5.5.1 shall be modified to read as follows: If the JV Agreement terminates for any reason, Walbro agrees to enter into a new license agreement with MM provided the Walbro License has not been terminated by Walbro due to a material breach by the JV thereof. -5- 6 ARTICLE VII TERMINATION OF THE JV 7.1.1 BY MUTUAL CONSENT. Add to the end of the sentence "and subject to such conditions as agreed between them". 7.1.2 FOR BREACH. The nonbreaching party shall also has the right to be treated as Noninitiating party under section 7.1.4. 7.1.3 BANKRUPTCY. This section is deleted. 7.1.4 DEADLOCK. This section is deleted and the following is substituted: 7.1.4 UNILATERAL TERMINATION. At the election of any party pursuant to the procedures and conditions of section 7.2. 7.1.5 TERMINATION OF THE WALBRO LICENSE BY WALBRO. This section is deleted. 7.1.6 VIOLATION OF CERTAIN PROVISIONS. This section is deleted. 7.1.7 FORCE MAJEURE. This section is deleted. 7.2 CONSEQUENCES OF TERMINATION. This section is deleted and replaced by the following section: 7.2 PROCEDURES AND GUIDELINES FOR A UNILATERAL TERMINATION 7.2.1 PROCEDURES. For any reason, one party may give written notice (the Initiating Party) to the other party (the Non- Initiating Party) that it elects to cause the termination of the JV Agreement. Within thirty days of receipt of such notice the Chief Executive Officers of the Parties hereto will meet and use their reasonable efforts to determine if such dissolution is in the best interest of the Parties. If the Parties are unable to agree upon a continuation of the JV Agreement, then they shall jointly sign a statement to such effect and the termination of the JV Agreement and the division of the assets and liabilities of the JV Group ("Business") shall proceed as follows. 7.2.2 GUIDELINES TO THE TERMINATION. The Business shall be divided among the Parties in any manner and subject to any terms and conditions that they may agree upon. If the Parties cannot agree upon terms and conditions for a termination within three months from the initial receipt of notice from the Initiating Party, then the following procedures shall apply. The Parties shall appoint an independent consultant (Consultant) which shall be a Merchant or Investment Banker with international expertise and knowledge in the automotive -6- 7 industry, to analyze and determine the method for division of the Business under the guidelines prescribed below. If the Parties are unable to agree upon the appointment of a Consultant, each Party shall appoint its own consultant which consultant will appoint the Consultant for purposes of this termination. There shall be a professional appraisal of the Business utilizing standard appraisal procedures for a transaction such as this, and the division of the Business shall be done in a manner to as closely divide the Business in equal value shares as possible. In the event that the two parts of the Business are not equal in value, one Party shall pay the other the difference in cash. The Business shall also be divided based upon customer relations, and to the extent possible each Party should get an equal value of potential customers. Business attributable to any one customer shall not be divided between the Parties. In addition, the Consultant shall give due consideration to the likelihood that any Party is more likely to retain any specific customer. For a period of 12 months after the division, neither Party will sell FDS to the other Party's customers at a loss. With respect to the transfer of physical assets of the Business, the Parties will cooperate with each other for a transition period, in producing product for the customers. The transition period will last for the shorter of (i) the time needed for one Party to construct a plant and production lines and have customer approval of the manufacturing process or (ii) two years. During the transition period, the Party owning the plant shall manufacture product on a timely bases with reasonable cost sharing allocations for the other Party. In addition to the foregoing division of the Business, the Initiating Party shall pay to the Non-Initiating Party an amount equal to 25% of the total appraised value of the entire Business. The Non-Initiating Party shall have the right to require, by written notice to be delivered not later than thirty days after the receipt of the Consultant's plan of division, that in lieu of proceeding in such divisions, the Initiating Party must buy out its interest in the JV Group's Business for 150% of its appraised value. Any technology owned by the JV Group which is transferred to one Party in the division of the Business shall be licensed, on a nonexclusive and royalty free basis to the other Party. All parties shall have the right of sublicense. 8. The ancillary agreements listed in Appendix B and in Appendix D are hereby modified to be consistent with the modifications and amendments herein contained or cancelled if not in use on the date hereof. -7- 8 IN WITNESS WHEREOF, the Parties hereto have executed this Agreement the day and the year first above written. MAGNETI MARELLI FRANCE S.A. WALBRO CORPORATION /s/ Frederic Girardot /s/ Gary L. Vollmar - -------------------------------- ----------------------------- By: Frederic Girardot By: Gary L. Vollmar Its: President Its: Vice President WALBRO AUTOMOTIVE CORPORATION /s/ Gary L. Vollmar ----------------------------- By: Gary L. Vollmar Its: President and COO -8- EX-10.11 17 EXHIBIT 10.11 1 EXHIBIT 10.11 JOINT VENTURE AGREEMENT This Joint Venture Agreement (the "Agreement") is made and entered into as of November 30, 1994, between WALBRO AUTOMOTIVE CORPORATION, ("WALBRO") a Delaware corporation located at Auburn Hills, Michigan 48326 USA, and DAEWOO PRECISION INDUSTRIES, LTD. ("DPI"), a company incorporated under the laws of The Republic of Korea ("Korea") located at P.O. Box 25 Kum-Jeong, Pusan, Korea. DPI is an affiliate of Daewoo Motor Company Limited ("Daewoo"), a company incorporated under the laws of Korea. Walbro and DPI are hereinafter collectively referred to as "the parties". R E C I T A L S: A. Walbro designs and manufactures fuel delivery subsystems as original equipment for application on automotive electronic fuel injection systems. B. Walbro has advanced technology with respect to automotive electronic fuel injection system components, making particular technological advancements in the design and manufacture of electric fuel pumps, modules, level sensors, brackets, tubes, flanges, electric connectors and filters (collectively "Sending Units" or "SU"). C. DPI has strong manufacturing capabilities in Korea. D. In light of the foregoing the parties desire to utilize their respective strengths by establishing a Joint Venture (the "JV"), to be jointly owned by Walbro and DPI, to do applications engineering, manufacture and sell integrated SU and their components. NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and undertakings provided herein, the parties agree as follows: ARTICLE I FORMATION OF THE JV 1.1 INCORPORATION. As soon as possible after receipt of the necessary governmental approvals, permits, licenses, consents and waivers (collectively, the "Governmental Approvals"), the parties will cause the incorporation and registration of the JV as a limited liability company organized under the laws of Korea. The Articles of Incorporation of the JV ("Charter") shall be substantially in the form of EXHIBIT 1.1 attached hereto. -1- 2 1.2 OWNERSHIP. The equity interests in the JV will initially be owned 51% by DPI and 49% by Walbro ("Equity Interests"). Such ownership may subsequently be transferred to direct or indirect wholly-owned subsidiaries or Controlled Affiliates (as defined in Article VI) of either or both parties. 1.3 PURPOSE. The purpose of the JV will be to do applications engineering, manufacture and sell SU and component elements thereof to Daewoo, its Controlled Affiliates and unrelated customers in the JV Territory. An SU includes a fuel pump, module, level sensor, brackets, tubes and flanges, connectors and filters. By mutual written agreement of the parties, the scope of the JV may be expanded to add additional fuel system products. 1.4 TERRITORY. The designated market for the JV (the "JV Territory") will be such geographic areas as indicated on EXHIBIT 1.4. 1.5 NAME. The parties agree that the JV shall operate under the name Korea Automotive Fuel Systems Ltd. 1.6 REGISTERED OFFICE. The registered office of the JV shall be at such place of business as determined by the Board of Directors. 1.7 LIMITED LIABILITY COMPANY. The JV shall be a limited liability company [Chusik Hoesa], and the creditors of the JV shall look solely to the assets of the JV for relief. The parties shall not bear any direct or indirect liability for the debts or obligations of the JV other than each party's respective obligation to pay in full the amount of its share subscription. ARTICLE II CAPITALIZATION AND FUNDING OF THE JV 2.1 CAPITAL CONTRIBUTIONS. The initial capitalization of the JV shall be 1,600 Million Won of equity which shall be contributed to the JV by the parties in accordance with their Equity Interests. Additional contributions shall be made as provided on page 28 of the Business Plan. 2.2 OPERATING DEFICITS . Operating deficits of the JV beyond those provided for in the initial capitalization described above or needs for additional working capital will be funded by outside borrowings to the maximum extent available. If guarantees are required to secure outside borrowings, the parties shall render such guarantees in proportion to their Equity Interests. Such guarantees shall be several unless a bank requires the guarantees to be joint and several, in which event each party shall have a right of contribution from the other party. Additional operating deficits or working capital needs which cannot be funded with outside borrowings will be funded by the parties in proportion to their respective Equity Interest. Unless otherwise agreed at the time of funding, such deficits will be funded by loans from the parties. -2- 3 2.3 SUBSEQUENT CAPITAL CONTRIBUTIONS. If additional capital requirements are contemplated by the Business Plan, they will be made by the parties in proportion to their respective Equity Interests. No additional capital contributions other than those contemplated by the Business Plan will be required unless approved by both parties. 2.4 PROMOTERS. DPI, Walbro and five individual promoters designated by DPI shall serve as the promoters of the JV and one invited individual subscriber designated by DPI shall serve as a non-promoter subscriber of the JV as required by the Korean Commercial Code ("KCC"). Each individual promoter designated by DPI shall be deemed a nominee shareholder of the JV on behalf of the DPI and subscribe for one share each in order that such promoter can sign the Articles of Incorporation for the sole purpose of forming the JV in accordance with applicable laws. DPI shall ensure that the individual promoters shall immediately transfer said shares to DPI on incorporation of the JV. ARTICLE III GOVERNANCE OF THE JV The parties agree that the JV will be governed substantially as set forth below, and acknowledge that these governance provisions are for the direct benefit of the JV and its business. The parties further agree: (a) that the JV will be structured to reflect this governance to the fullest extent permitted under applicable law; and (b) that, in the event of a conflict between the Charter and the following provisions, the following provisions will prevail to the extent such a result is not directly contrary to applicable public policy. The parties shall cause the provisions of the Charter to be amended from time to time as may be required to ensure that they at all times shall conform with the terms and conditions of this Agreement and any amendments thereto. 3.1 REPRESENTATIVE DIRECTORS. The operations of the JV will be conducted by two Representative Directors ("RD") elected from the Board of Directors. Walbro and DPI shall each nominate one RD which election shall be approved by the Board. The RDs shall operate under a Joint Representative Directors system whereby the DPI RD will make the day-to-day routine operations decisions. The Walbro RD will always be kept informed of the activities and consulted with important decisions on corporate actions. 3.2 BOARD OF DIRECTORS. 3.2.1 COMPOSITION. The JV will have a Board of Directors (the "Board") comprised of four persons which shall function in accordance with the provisions of the KCC. DPI will designate in writing two members (the "DPI Members"), and Walbro will, designate in writing two members (the "Walbro Members"). The parties agree to exercise their voting rights as shareholders of the JV so as to effect the election of the persons so nominated. The Board will elect the Chairman from among the members. The Chairman will be a designee of DPI. The Board will also elect a Vice Chairman from among the members, who will be a designee of Walbro. Members of the Board will serve until replaced by the party so designating. In the event of a vacancy in the position of any -3- 4 Director for any reason, the shareholders shall immediately elect a Director nominated by the party which had the right to nominate the predecessor. 3.2.2 ROUTINE DECISIONS BY THE BOARD. Except as provided in SECTION 3.2.3: (a) each member shall be given 7 days' written notice (with acknowledgement of receipt) of any meeting, annual or special, of the Board; (b) attendance in person at such a meeting, without written objection to lack of sufficient notice, waives this notice requirement; (c) three members shall constitute a quorum; (d) the vote of a majority of all members present in person shall be decisive except that in the case of a tie vote, the vote of the Chairman will be decisive; and (e) whenever necessary under Korean law, decisions of the Board shall be confirmed by a general shareholder meeting. 3.2.3 SPECIAL MATTERS. The following matters may only be decided at the Board level and with respect to each of the following situations, the Board will not have the power to act unless the requisite majority voting in favor of a resolution includes at least one Walbro Member and one DPI Member: (a) payment of a dividend other than from current year's earnings; (b) approval, ratification or substantial change of the operating budget of the JV, including without limitation, the capital expenditures, additions or improvements for the year; (c) approval, ratification or substantial change of the Business Plan and the annual budget of the JV; (d) making of political contributions; (e) authorization or approval of a merger, consolidation or change in the capital structure of the JV; (f) creation or incurrence of indebtedness for borrowed money if, after giving effect to the creation of such indebtedness, the total amount of the JV's indebtedness for borrowed money will exceed $250,000, except unsecured current liabilities incurred in the ordinary course of business; (g) giving a guarantee or creation or incurrence of any mortgage, pledge, lien, charge or encumbrance upon any property or assets now owned or hereinafter acquired by the JV except for (i) mortgages, pledges, liens, charges or -4- 5 encumbrances on, and incurred at the time of and in connection with the acquisition of property acquired in the ordinary course of business, (ii) minor liens and encumbrances, and (iii) other liens and encumbrances for amounts not exceeding $250,000 in the aggregate at any one time outstanding; (h) making, ratifying or causing the JV to become a party to a contract or commitment, or to renew, extend or modify any contract or commitment, including, but not limited to pricing of product sales, between the JV and one of its equity holders, or an "affiliate" of any of them which requires payment of an aggregate amount in excess of $250,000. For purposes of this subsection, an "affiliate" will mean: (i) a company, domestic or foreign, of which an equity holder in the JV owns or controls, directly or indirectly, at least 10% of the assets, voting stock or capital; (ii) a company, domestic or foreign, which owns or controls, directly or indirectly, at least 10% of the assets, voting stock or capital of an equity holder of the JV; or (iii) a company, domestic or foreign, under common control with an equity holder through direct or indirect ownership of at least 10% of the assets, voting stock or capital of that company. (i) material agreement or commitment to any matter required of the JV pursuant to a contract or agreement, including Ancillary Documents, with DPI, Walbro or an affiliate (as that term is defined in subsection (h) above) of DPI or Walbro, including the modification or termination of any existing contract; (j) agreement or commitment to purchase services, from Walbro, DPI or their affiliates (as that term is defined in subsection (h) above); and (k) approval of the licensing or sublicensing of any SU technology. (l) any amendment to the Charter. (m) increase or decrease in authorized and/or issued shares of the JV; (n) capital expenditures exceeding $250,000 which were not previously approved in the current annual capital expenditure plan; and (o) divestitures, including, without limitation, sale, transfer, or other disposition by the JV of all or substantial part of its assets, with a value exceeding $250,000. In case of a deadlock over one or more of these issues, the provisions set forth in SECTION 3.2.4 below will control. -5- 6 3.2.4 DEADLOCK. To facilitate the resolution of disputes, the following sets forth the parties' agreement with respect to a deadlock situation. In the event that: (a) either of DPI or Walbro (in this subsection called "the First Party") gives written notice to the other party (in this subsection called "the Second Party") specifying as subject to this subsection a resolution requiring the affirmative vote of a majority of the Board, including at least one Walbro Member and one DPI Member or an approval of the shareholders as provided in SECTION 9.3, which resolution was previously put to and not passed by a general or special meeting of the Board or shareholders, as applicable, because the Second Party or its designee Members present did not vote in favor of the resolution or voted against the resolution, or the Second Party or its designee Members were not present for the vote; and (b) such resolution is again put at another such meeting called within 30 days of the original meeting and the First Party or its designee Members present, as the case may be, votes for the resolution but the Second Party or its designee Members, as the case may be, does not vote in favor of or votes against the resolution, or the Second Party or its designee Members, as the case may be, are not present for the vote, then a deadlock situation will be deemed to have arisen. Within seven days of such event arising, Walbro and DPI will prepare and circulate to the other a memorandum or other form of statement setting out its position on the matter in dispute and its reasons for adopting such position. Each such memorandum or statement will be considered by the Chief Executive Officers of DPI and of Walbro who will respectively use their reasonable efforts to resolve such dispute. If the parties agree upon a resolution of the dispute, they will jointly sign a statement setting forth the terms of such resolution and Walbro and DPI will exercise all voting rights and other powers of control available to them in relation to the JV to procure that such resolution is fully and promptly carried into effect. If a resolution of the dispute is not agreed upon within 30 days after delivery of the memorandum or statements mentioned above or such longer period as Walbro and DPI may agree in writing, the JV will automatically terminate as prescribed in ARTICLE VII. If a resolution is agreed upon by the parties but is not implemented by the JV within 60 days after such agreement, or such longer period as Walbro and DPI may agree in writing, the JV will automatically terminate as prescribed in ARTICLE VII. 3.3 OFFICERS. DPI shall designate the President and Walbro shall designate the Executive Vice President. The President shall appoint the balance of the organizational staff after consulting with the Executive Vice President. The organizational staff shall report to the President. The Executive Vice President shall be kept informed of operational matters on a day-to-day basis by the organizational staff. -6- 7 ARTICLE IV CONDUCT OF THE JV 4.1 BUSINESS PLAN. The five-year business plan (the "Business Plan") attached as EXHIBIT 4.1 will be approved by the Board in accordance with SECTION 3.2.3 and will be implemented by the management of the JV. The Business Plan includes initial and subsequent funding requirements. The Business Plan will be revised, updated and approved on an annual basis by the Board in accordance with SECTION 3.2.3. 4.2 MANUFACTURING. Components to be incorporated into the SU products will be selected based on "best in class" for quality, performance and cost. Walbro will start the JV with customer application engineering and manufacturing technology with substantial support from Walbro under the Engineering Support Agreement attached as EXHIBIT 4.2. The parties acknowledge that initially, fuel pumps will be manufactured by Walbro and sold to the JV at full absorption cost ("FAC") plus 5%. FAC includes materials, labor, overhead plus allocations of selling, administrative, general and research and development overhead. The parties further agree that the sales price for any components sold by Walbro to the JV shall be acquisition cost if purchased from a third party or FAC if manufactured by Walbro plus tooling amortization, procurement expenses (generally 8-13% of cost), plus 9%. Walbro also encourages the JV to purchase components directly from Walbro's recommended suppliers at Walbro's acquisition cost plus tooling, if necessary. Common tooling will be paid for by Walbro and the JV will reimburse Walbro for tooling cost based on the JV's pro rata tool use plus 10%. Walbro will be kept informed of the JV's purchasing activity to insure proper volume allocation. The parties agree to utilize the Recommended Localization Plan (attached as EXHIBIT 4.2A) for this purpose. As soon as feasible, such manufacturing shall be done by the JV. Walbro further agrees to use its best efforts to perform all acts necessary for the acquisition by the JV of the necessary imported machinery, equipment, components and raw materials at arm's length fair market value and on the most favorable terms and conditions acceptable to the JV until such time that these machinery, equipment, components and raw materials are available from domestic sources. 4.3 MARKETING. The JV will be responsible for the sale of all SU products to its customers in the JV Territory. The JV will begin sales to customers in 1995. Prior to such time the parties may sell SU to customers in the JV Territory. With respect to the JV Territory, the JV will have the exclusive right to sell SU in Korea. With respect to all other countries in the JV Territory, such rights shall be non-exclusive. 4.4 ENGINEERING SUPPORT FROM WALBRO. Walbro will provide engineering services to the JV as provided in the Engineering Support Agreement. -7- 8 ARTICLE V LICENSES 5.1 MASTER TECHNOLOGY LICENSE AGREEMENT. Walbro will provide its SU technology to the JV via a license (the "Walbro License") granted under the Master Technology Agreement attached as EXHIBIT 5.1. 5.2 CONSEQUENCES OF JV TERMINATION ON WALBRO LICENSE. If the JV terminates for any reason, the Walbro License shall simultaneously terminate. 5.3 COOPERATION. The parties hereto will use their best efforts, in all relevant capacities, to cause the JV to perform all its obligations under the Walbro License. ARTICLE VI RESTRICTIONS ON TRANSFER OF INTERESTS IN THE JV Neither Walbro nor DPI may transfer any of its Equity Interests in the JV to any third party (other than Controlled Affiliates) without the prior written approval of the other party. It is the intention of the parties that there be only two equity holders in the JV; consequently, any attempted transfer of Equity Interests in the JV must encompass the entire Equity Interest of the transferring party. A designated transferee (whether or not a Controlled Affiliate) shall issue a written undertaking to the non-transferring party hereto and the JV agreeing to be bound by all provisions of this Agreement as if it had executed this Agreement in lieu of the transferring party and assume all of the transferring party's duties, obligations and liabilities under this Agreement, the Articles of Incorporation and the Ancillary Documents as defined in Section 13.1. Any transfer shall be subject to the approval of the Korean Government, if necessary, and shall not become effective until such approval has been obtained. For purposes of this Agreement, a "Controlled Affiliate" of a party means any person which directly or indirectly controls, is controlled by or is under common control with, such party; "control" means the ownership of a majority of both the voting power of, and the equity interests in, a person. ARTICLE VII TERMINATION OF THE JV 7.1 TERM AND TERMINATION OF THE JV. Unless otherwise terminated as provided below, the JV will be of perpetual duration. The JV will be terminated: 7.1.1 BY MUTUAL CONSENT. At any time by the mutual consent of the parties; 7.1.2 FOR BREACH. Upon the material breach, including a non-permitted transfer in violation of Article VI, which is not cured within 90 days after notice thereof, by a party of its obligations to the JV or otherwise under this Agreement, at the option of the -8- 9 non-breaching party exercised within 10 days after the expiration of the 90-day cure period; 7.1.3 BANKRUPTCY. Automatically upon the filing of a voluntary petition or answer admitting jurisdiction of the court and the material allegations, or the consent to, an involuntary petition pursuant to or purporting to be pursuant to any reorganization or insolvency law of any jurisdiction, or an assignment for the benefit of creditors, or an application for or consent to the appointment of a receiver or trustee of a substantial part of the property of a party hereto; 7.1.4 DEADLOCK. Upon an unresolved deadlock as described in SECTION 3.2.4; 7.1.5 TERMINATION OF WALBRO LICENSE BY WALBRO. At the option of Walbro, immediately upon the termination of the Walbro License pursuant to Section 9.02 of the Master Technology License Agreement; 7.1.6 VIOLATION OF CERTAIN PROVISIONS. Upon the failure or refusal of a party or its designees to comply with the governance provisions set forth in SECTION 3.2.3 or to comply with the capitalization obligations under ARTICLE II, the non-offending party may terminate this Agreement, at its option and without prejudice to any of its other legal and equitable rights and remedies, by giving not less than 60 days' prior written notice. This clause shall survive any judicial determination that the restrictions set forth in SECTION 3.2.3 or the requirements set forth in ARTICLE II are unenforceable or void. 7.1.7 FORCE MAJEURE. At the option of the non-offending party, upon the failure of a party to begin fully performing its obligations under this Agreement within six months after such party declares an inability to perform due to force majeure as provided in SECTION 13.5; 7.1.8 EXPROPRIATION. Upon the expropriation of a substantial portion of the JV's property; or 7.1.9 NO GOVERNMENT APPROVALS. At the option of either party, upon the failure to obtain any required governmental approvals within six months from the execution of this Agreement. 7.2 CONSEQUENCES OF TERMINATION. 7.2.1 PURCHASE OPTION. Upon termination of the JV pursuant to SECTION 7.1 above, either party will have the option, in lieu of proceeding with the dissolution of the JV, to purchase the other party's Equity Interest by giving notice within 30 days after the termination of the JV to the other party that it desires to purchase for cash all of the Equity Interest of the other party at a stated price. If within the 30-day period only one party gives notice that it wishes to purchase the other party's Equity Interest, then the other party may either accept such offer, or give -9- 10 notice within 20 days of the offer that the price will be equal to the fair market value of the Equity Interest as determined by an investment banker with recognized standing in the international finance community and mutually acceptable to the parties. In the event the parties cannot agree on an investment banker, each party will select one banker and the two bankers will select a third banker, which third banker will conclusively determine fair market value. For purposes of this section, "fair market value" of an Equity Interest will be the value of the JV as if it were being sold as a whole business and a going concern to one purchaser, multiplied by the selling party's equity percentage at the time of the valuation. If within the 30-day period both parties give notice that they wish to purchase the other party's Equity Interest, then the party whose notice contains the highest stated per share price will purchase the other party's Equity Interest at that price for cash, or as otherwise mutually agreed to by the parties. Notwithstanding anything to the contrary, this purchase option will not be available to a party whose breach, bankruptcy, insolvency, or liquidation has given rise to the termination of the JV pursuant to SECTION 7.1.2, SECTION 7.1.3, SECTION 7.1.5 or SECTION 7.1.6. 7.2.2 DISSOLUTION. If the above purchase option is not exercised by either party, the parties will use their best efforts to dissolve the JV and wind up its affairs in a manner designed to preserve and maximize the economic interests of both parties. 7.2.3 DAMAGES. Nothing herein shall prejudice the rights of a party, in addition to the exercise of any other remedy hereunder, to recover money damages for any breach by a party of this Agreement or any Ancillary Document. Upon termination of this Agreement, neither party shall be discharged from any antecedent obligations or liabilities to the other party or the JV hereunder unless agreed otherwise in writing. ARTICLE VIII REGULATORY MATTERS AND INVALIDITY 8.1 COOPERATION IN MAKING REGISTRATIONS. The parties shall cooperate fully in making, whenever required or necessary, registrations under Korean law with respect to agreements for the transfer of technology and rendering of technical assistance. 8.2 CONSEQUENCES OF INVALIDITY. If for any reason whatever at any time, any provision of this Agreement or any of the Ancillary Documents is or becomes invalid, illegal or unenforceable, or is declared by any court of competent jurisdiction or any other competent authority to be invalid, illegal or unenforceable (each of which circumstances being referred to in this ARTICLE VIII as "a Relevant Invalidity") or if such competent authority: (i) refuses, or formally indicates an intention to refuse authorization of, or exemption to, any of the provisions of or arrangements contained in this Agreement or in any of the Ancillary Documents (in the case of a refusal either by way of outright refusal or by way of requiring an amendment or deletion of any provision of this -10- 11 Agreement or of any of the Ancillary Documents and/or the inclusion of any new provision in this Agreement or in the Ancillary Documents and/or the giving of undertakings as to future conduct before such authorization or exemption can be granted); or (ii) formally indicates that to continue to operate any provision of this Agreement or of any of the Ancillary Documents may expose the parties to sanctions under any order, enactment or regulation, or requests any party to give undertakings as to future conduct in order that such party may not be subject to such sanctions; and in all cases, whether initially or at the end of any earlier period or periods of exemption, then in any such case, at the request of either party by notice or a series of notices to that effect to the other ("Negotiation Notice"), the parties will meet to negotiate in good faith to agree upon valid, binding and enforceable substitute provisions while at the same time reconsidering the other terms of this Agreement and of any of the Ancillary Documents not so affected so as to reestablish an appropriate balance of the commercial interests of the parties ("Substitute Provisions"). 8.3 FAILURE TO AGREE ON SUBSTITUTE PROVISIONS. If and to the extent that Substitute Provisions are formally agreed in writing within one month of the service of a Negotiation Notice, or such other period as may be formally agreed in writing between the parties, then in that respect the matter shall be deemed to be settled and such substitute provisions shall be deemed part of this Agreement or of any of the Ancillary Documents. If, however, in respect of any Relevant Invalidity no Substitute Provisions can be agreed within such period, then if any party considers on reasonable grounds that its commercial interests with regard to this Agreement and/or any of the Ancillary Documents is materially and adversely affected as a consequence of the Relevant Invalidity it may submit such matter to arbitration pursuant to SECTION 13.8. 8.4 DEFERRAL OF DETERMINATION OF ADVERSE EFFECT. If any party considers that it is unable to assess the consequence of any Relevant Invalidity in the light of facts subsisting at the time, that party may defer commencement of an arbitration in respect of the provision or provisions affected by such Relevant Invalidity until such time as it considers on reasonable grounds that its commercial interests with regard to this Agreement and/or any of the Ancillary Documents are materially and adversely affected in the light of events occurring subsequent to communication of the finding of invalidity to the parties. Notwithstanding the foregoing, a party must commence arbitration pursuant to SECTION 8.3 within 60 days of receipt of the Negotiation Notice. ARTICLE IX GENERAL MEETING OF SHAREHOLDERS 9.1 GENERAL. The JV shall hold an ordinary General Meeting of Shareholders within three months after the end of each fiscal year, and may convene at any time an extraordinary General Meeting of Shareholders in compliance with the resolutions of the Board of Directors and Korean laws; provided that the first ordinary General Meeting of -11- 12 Shareholders shall be held without delay after the shares to be issued at the time of establishment of the JV are fully paid and subscribed for hereunder. 9.2 TIME, PLACE, QUORUM. The date, time, place and agenda for a General Meeting of Shareholders shall be determined by the Board of Directors. Notices for a General Meeting of Shareholders shall be sent to the shareholders and other persons entitled to receive notice by the chairman of Board of Directors not later than 30 days before the relevant General Meeting. A quorum at all General Meetings of Shareholders shall be the presence of shareholders representing at least 52% of the total number of issued and outstanding shares entitled to vote thereon. A shareholder shall be entitled one vote for each share of the JV he owns. All resolutions shall be passed by the affirmative vote of at least 52% of the total issued and outstanding shares entitled to vote are present or represented by proxy, except where a greater majority is required by subsection 9.3 below, by the Articles of Incorporation or by law. 9.3 MATTERS. The following matters shall be determined by the affirmative vote of shareholders representing not less than two thirds of the total issued and outstanding shares entitled to vote are present or represented by proxy: (i) Amendment of Articles of Incorporation (ii) Increase or decrease in authorized and/or paid in capital of the JV; (iii) Dissolution, reorganization or merger of the JV; (iv) Sale or transfer of all or substantial portion of assets and property of the JV; and (v) Dismissal of a Director or the Auditor of the JV. 9.4 RECORDING. The substance of the proceedings at a General Meeting of Shareholders and the results thereof shall be recorded in English. ARTICLE X AUDITOR The JV shall have two statutory auditors one of whom shall be nominated by DPI and one of whom shall be nominated by Walbro. They shall be elected at the General Meeting of the Shareholders. ARTICLE XI ACCOUNTING The fiscal year of the JV shall be the calendar year. The JV shall keep true and accurate accounting records of all operations in Korean currency units in accordance with generally accepted accounting principles, and such -12- 13 records shall be open to inspection by the parties hereto or by their duly authorized representatives at all reasonable times. The JV's financial books shall be audited annually at the expense of the JV by an internationally recognized firm or association of certified public accountants. The financial statements for the JV shall be prepared promptly following each fiscal year of the JV and copies of all such financial statements shall be provided promptly to each shareholder and Director of the JV. ARTICLE XII REPRESENTATIONS AND WARRANTIES Each party hereby warrants and represents to the other party and to the JV that the following warranties and representations are true as of the date hereof (except for matters disclosed in writing prior to such date) and will be true (without exception) on the date the parties first subscribe for the shares of the JV: (i) It is a corporation duly organized and validly existing under the laws of the jurisdiction of incorporation, and it has all requisite legal and corporate power and authority to own and operate its properties and to carry on its business; (ii) Its execution, delivery and performance of this Agreement has been duly authorized by all requisite corporate action, and this Agreement constitutes the valid, legal and binding obligation of such party, enforceable in accordance with the terms hereof; and (iii) It does not have any outstanding commitments or obligations, contractual or otherwise, which would in any way conflict with or impede its ability and right to enter into this Agreement and fulfill its duties and obligations hereunder; Each party shall indemnify and hold harmless the other party and the JV from and against any and all liabilities (direct or indirect), losses, costs, damages, claims, commissions and expenses (including attorneys' fees and other legal fees) which the other party or the JV may sustain by reason of a material breach of, or material inaccuracy with respect to, any representation or warranty made by such party herein or pursuant hereto. ARTICLE XIII MISCELLANEOUS PROVISIONS 13.1 ANCILLARY DOCUMENTS; INTERPRETATION. The parties acknowledge and agree that, in the event of an inconsistency or disagreement between this Agreement, on the one hand, and the Master Technology License Agreement, Charter, Engineering Support Agreement and any other agreement or document referred to herein to be entered into in connection with the JV (each an "Ancillary Document" and, collectively, the "Ancillary Documents"), this Agreement shall prevail. -13- 14 13.2 PUBLIC ANNOUNCEMENTS AND CONFIDENTIALITY. The parties agree that all data and information relating to the JV, including but not limited to any information relating to or provided under any Ancillary Document, the JV's trade secrets, know-how, inventions, discoveries, improvements, technologies, business practices and methods, whether or not patented, lists of suppliers, and information relating to the JV's financial statements, customer identities and utilization patterns, needs and participation levels, potential customers, suppliers, products, servicing methods, equipment, programs, analyses, profit margins and cost data, shall be kept confidential by both parties and shall not, whether prior to or after the date hereof, be disclosed to any person, firm, or corporation, except to the extent that such data or information is generally known to the trade or in the public domain. The parties, however, may provide the information to third parties (i) for the purpose of assisting in the evaluation of the JV, its performance, or its operations, (ii) for the purpose of determining the value of said party's equity interest in the JV, (iii) with the written consent of the other party to the JV and (iv) for any other purpose consistent with the activities contemplated by this Agreement and the Ancillary Documents; provided that in each case the disclosing party takes reasonable precautions to maintain the confidential nature of the information. The parties may also make any disclosures necessary to comply with applicable securities and other disclosure laws. The parties recognize and acknowledge that any breach by them of the foregoing provisions of this section may cause irreparable harm to the other party and the JV and, in the event of any such breach, such other party or the JV shall, in addition to all other remedies available to it, at law or in equity, be entitled, if it so elects, to institute and prosecute proceedings in any court of competent jurisdiction to enjoin such breaching party from doing any act in violation of such provisions, and that such other party or the JV shall not be required to show actual monetary damages as a prerequisite to such relief. The above provisions shall survive any termination of this Agreement and any dissolution of the JV for a period of five years after such termination or dissolution. Each party agrees not to make any public disclosure regarding the existence or the substance of the transactions contemplated hereby without the prior approval of the other party, except to the extent that either party reasonably determines that such disclosure is required by applicable law or regulation. 13.3 EFFECTIVENESS. The effective date of this Agreement shall be the date on which the later of the following events occurs: (i) the execution of this Agreement by the parties hereto, (ii) November 30, 1994 or (iii) the issuance of the necessary Governmental Approvals in form satisfactory to both parties hereto. 13.4 INSURANCE. Insurance protection provided for the JV under this Agreement must apply both to each individual installation of the JV and to all installations as a whole. The JV's insurance must also provide insurance coverage for all types of risk related to the construction and operation of the aforementioned installations, including material and other property losses caused to fixed assets belonging to the JV, rented by it, or acquired on credit by it, as well as its civil liability for property or physical damage which may be caused to third parties in connection with the JV's activity, either by defects in the goods its produces or by JV workers and employees in connection with their performance of their job responsibilities. -14- 15 13.5 FORCE MAJEURE. Where either party is unable, wholly or in part, by reason of force majeure to carry out its obligations under this Agreement, such obligations are suspended so far as they are affected by the force majeure during the continuance thereof; provided that an obligation to pay money is never excused by force majeure. The party affected by the force majeure will give notice to the other party of the particulars of the situation and the probable extent to which it will be unable to, or delayed in, performing its obligations under this Agreement, within 10 days after the occurrence of the force majeure. For purposes of this section, "force majeure" means an act of God, strike, lockout or other interference with work, war declared or undeclared, blockade, lightning, fire, earthquake, storm, flood or explosion; governmental or quasi-governmental restraint action, expropriation, prohibition, intervention, direction or embargo; unavailability or delay in availability of equipment or transport; inability or delay in obtaining governmental or quasi-governmental approvals, consents, permits, licenses, authorities or allocations; and any other cause whether of the kind specifically enumerated above, or otherwise which is not reasonably within the control of the party affected. 13.6 EXPENSES. Walbro and DPI will each pay its own costs and expenses incurred in the negotiation and drafting of this Agreement and the Ancillary Documents. 13.7 FURTHER ASSURANCES. Walbro and DPI agree to execute and deliver such other instruments, agreements or documents and take such other action as may reasonably be necessary or desirable to consummate the transactions contemplated by this Agreement. 13.8 RESOLUTION OF DISPUTES - ARBITRATION. Any dispute, controversy or claim ("Dispute") arising out of or relating to this Agreement or any Ancillary Document, including, without limitation, the breach, termination or invalidity thereof, shall be settled pursuant to this section. (a) Any Dispute shall before commencement of any arbitration procedure, be put before the Chairman of Walbro and the President of DPI for an amicable solution. If such a solution cannot be achieved within 15 days of written notice of such Dispute by either party to the other party then arbitration shall commence pursuant to this section. (b) The arbitration shall be conducted in Paris, France in accordance with the Rules of Arbitration and Conciliation of the International Chamber of Commerce then in effect. (c) Each party shall appoint one arbitrator within 15 days after receipt of a demand for arbitration. The two arbitrators thus appointed shall, within 30 days after both shall have been appointed, appoint a third arbitrator, who shall not be a national of Korea nor of the U.S.A. and who shall preside over the arbitration proceedings. If any appointment required herein shall not be made within the -15- 16 prescribed time, then such appointment may be made by the President of the International Chamber of Commerce. (d) The proceedings shall be conducted in English, and all arbitrators shall be conversant in and have a thorough command of the English language. (e) Both parties shall be bound by the award rendered by the arbitrators and judgment thereon may be entered in any court of competent jurisdiction. (f) Notwithstanding any other provision of this Agreement, either party shall be entitled to seek preliminary injunctive relief from any court of competent jurisdiction pending the final decision or award of the arbitrators. 13.9 SUCCESSORS AND ASSIGNS. This Agreement will be binding upon and inure to the benefit of the parties and their respective successors and permitted assigns, but will not be assignable or delegable by any party without the prior written consent of the other party, except that either party may assign, in whole or in part, its rights hereunder, subject to all obligations hereunder, to a Controlled Affiliate in connection with any transfer of Equity Interests in the JV permitted pursuant to ARTICLE VI; provided, however, that such assignment will not relieve that party of any of its obligations or liabilities hereunder. 13.10 AMENDMENTS, SUPPLEMENTS, ETC. This Agreement may be amended or supplemented at any time by additional written agreements signed by both parties, as may mutually be determined by the parties to be necessary, desirable or expedient to further the purposes of this Agreement or to clarify the intention of the parties. 13.11 NOTICES. All notices and other communications required or permitted hereunder will be in writing and, unless otherwise provided in this Agreement, will be deemed to have been duly given when delivered in person or one business day after having been dispatched by telegram or electronic facsimile transfer (confirmed in writing by mail simultaneously dispatched with a copy of the sender's machine printed facsimile confirmation) or three business days after having been dispatched by an internationally recognized overnight courier service to the appropriate party at the address specified below. (a) If to Walbro, to: Walbro Automotive Corporation 1227 Centre Road P.O. Box 215257 Auburn Hills, MI 48326 Facsimile Number: (313) 377-1660 Attention: President; Director of International Operations With a copy to: Katten Muchin & Zavis -16- 17 525 W. Monroe Street, Suite 1600 Chicago, Illinois 60661-3693 Facsimile Number: (312) 902-1061 Attention: Arnold S. Harrison (b) If to DPI, to: Daewoo Precision Industries, Ltd. P.O. Box 25 Kum-Jeong Pusan, Korea Facsimile Number: 82-51-508-3339 With a copy to: President 13.12 WAIVER. Waiver by either party of a breach by the other party of any obligation or requirement contained in, or arising from, this Agreement does not operate as a waiver of another or continuing breach by the other party of the same, or any other, obligation or requirement hereunder. Any waiver by either party must be in writing, signed by the waiving party. 13.13 DISCLAIMER OF AGENCY. This Agreement does not constitute either party as the legal representative or agent of the other party for any purpose whatsoever. Neither party shall have any right or authority to assume, create or incur any liability or obligation of any kind, express or implied, against, in the name of or on behalf of the other party except in accordance with this Agreement or as may otherwise be agreed in writing by the parties. 13.14 SEVERABILITY. Subject to the provisions of ARTICLE VIII, if any provision of this Agreement or the application of any such provision to any person or circumstance is held invalid, illegal or unenforceable in any respect by a court of competent jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision hereof. 13.15 GOVERNING LAW. This Agreement will be governed by and construed in accordance with the laws of Korea. 13.16 THIRD PARTIES. Nothing in this Agreement express or implied is intended to confer any right or remedy under or by reason of this Agreement on any person other than the parties, their respective heirs, representatives, successors and permitted assigns, nor to affect or discharge the obligation or liability of any third persons to any party to this Agreement, or give any third party any right or subrogation or action over against any party to this Agreement. 13.17 TITLES AND HEADINGS. Titles and headings to sections herein are inserted for convenience of reference only, and are not intended to be a part of or to affect the meaning or interpretation of this Agreement. -17- 18 13.18 EXECUTION IN COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which will be deemed an original, but all of which together will constitute one and the same agreement. 13.19 SURVIVAL. The covenants and agreements made in SECTIONS 7.2, 13.2, 13.4, 13.6 and 13.13 will survive any termination of this Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day and year first above written. WALBRO AUTOMOTIVE CORPORATION By: LAMBERT E. ALTHAVER Sharon M. Reyerk Its: CHAIRMAN SHARON M. REYERK Notary Public, Oakland County, MI My Commission Expires Jan. 21, 1997 DAEWOO PRECISION INDUSTRIES, LTD. By: OH-JOON KWON Its: PRESIDENT -18- EX-10.14 18 EXHIBIT 10.14 1 EXHIBIT 10.14 GENERAL PARTNERSHIP AGREEMENT OF TUCSON PRECISION PRODUCTS THIS GENERAL PARTNERSHIP AGREEMENT is entered into this 18th day of August, 1995, by and between Iwaki Diecast U.S.A., Inc., a company organized and existing under the laws of Arizona ("IDC") and Walbro Tucson Corp., a company organized and existing under the laws of the State of Delaware ("Walbro") (each of the parties hereto are hereinafter referred to, individually, as a "Partner," and collectively as the "Partners"). ARTICLE I FORMATION OF PARTNERSHIP The parties hereby enter into a general partnership (the "Partnership") under the provisions of the Uniform Partnership Act of the State of Delaware (the "Act") and, except as herein otherwise expressly provided, the rights and liabilities of the Partners shall be as provided in that Act. ARTICLE II NAME The business of the Partnership shall be conducted under the name "Tucson Precision Products". The parties shall promptly comply with all laws regarding the use of such name as an assumed name by the Partnership, if necessary. ARTICLE III DEFINITIONS 3.1 "Agreement" means this Partnership Agreement, as amended, modified or supplemented from time to time. 3.2 "Capital Account" shall mean, with respect to any Partner, the separate "book" account which the Partnership shall establish and maintain for such Partner in accordance with Section 704(b) of the Code. 3.3 "Code" shall mean the Internal Revenue Code of 1986, as amended and in effect from time to time. Any reference herein to a specific section of the Code shall be deemed to include a reference to any corresponding provision of succeeding laws. 2 3.4 "Management Committee" shall mean a five-member committee, three of which shall be appointed by Walbro, in its sole discretion and two of which shall be appointed by IDC, in its sole discretion. 3.5 "Participating Percentage" means, with respect to any Partner, subject to adjustment in accordance with this Agreement, the percentage indicated on Schedule A, attached hereto which initially represents each Partner's interest received in exchange for its capital contribution. ARTICLE IV PURPOSE The purpose of the Partnership is to (i) engage in the manufacture and sale of certain die cast parts and assemblies (described in greater detail on Exhibit 4) in North America (Canada, Mexico and the United States), both as original equipment and replacement parts and (ii) engage in any and all operations, activities and businesses which are in the unanimous judgment of the Management Committee, convenient, necessary or incidental to the accomplishment of the foregoing Partnership purpose, including any operations, businesses or activities permitted under the Act and any other applicable law or regulation. ARTICLE V NAMES AND BUSINESS ADDRESSES OF PARTNERS The names and business addresses of the Partners are as set forth in Schedule A attached hereto and made a part hereof. ARTICLE VI TERM The Partnership shall continue until December 31, 2015, unless sooner terminated as hereinafter provided. -2- 3 ARTICLE VII PRINCIPAL PLACE OF BUSINESS The principal place of business of the Partnership shall be 6601 South Renaissance Drive, Tucson, Arizona 85746-6042 (USA) or such other place or places as the Partners may designate. ARTICLE VIII CAPITAL AND CONTRIBUTIONS 8.1 The initial capital of the Partnership is as set forth on Schedule A attached hereto, and, simultaneous with the execution hereof, each of the Partners shall contribute to the capital of the Partnership the amount of cash indicated on said Schedule A. 8.2 No Partner shall be obligated to make any additional capital contributions unless the Management Committee unanimously shall determine that such is required for the operation of the Partnership's business. In the event additional capital is contributed by the Partners pursuant to this SECTION 8.2, the Partners shall be obligated to contribute their pro rata portion (as determined by their respective Participating Percentage at the time of such contribution) of such additional capital requirement. No Partner shall be allowed to make any voluntary capital contributions without the prior written consent of the other Partner. 8.3 No withdrawal of capital shall be made by any Partner except with the unanimous approval of all of the members of the Management Committee, and no interest shall be paid on the capital contributed by any Partner. 8.4 If the Management Committee shall unanimously determine that additional financing is necessary or desirable, and that such financing can most advantageously be provided by loans from or guaranteed by the Partners, such loans or guarantees, as may be requested by the unanimous vote of the Management Committee, shall be provided simultaneously by each of the Partners in amounts that are in proportion to their respective Participating Percentages. The Partnership shall not accept any voluntary loans from any Partners without the prior written consent of every other non-lending Partner. ARTICLE IX DISTRIBUTIONS 9.1 Subject to the provisions of SECTION 9.2 below, when, in the discretion of all of the members of the Management Committee, the Partnership has cash available for distribution ("Distributions"), such funds shall be distributed among the Partners in accordance with their -3- 4 respective Partnership Percentages at the time of such Distribution. The Partnership shall comply with any federal, state, local or foreign tax withholding requirements in making such distributions. 9.2 Prior to making any annual Distributions, if any, the Partnership shall, for each taxable year in which the Partnership reports net taxable income, distribute to each Partner, no later than seventy-five days after the end of such taxable year, an amount equal to the sum of (i) the product of such Partner's taxable income as shown on its Schedule K-1 for such taxable year (such taxable income to be reduced, but not below zero, by the excess, if any, of the cumulative allocations of taxable deduction and loss pursuant to ARTICLE X to such Partner for all prior taxable years over the cumulative allocations of taxable income pursuant to ARTICLE X to such Partner for all prior taxable years), multiplied by the maximum marginal federal income tax rate in effect for such taxable year for non-S status corporations, plus (ii) an amount (which shall be proportionate as to all Partners based upon Participating Percentages) which is intended to approximate, as nearly as possible, such Partner's pro rata share (based on the taxable income shown on the Partners' Schedule K-1's) of any applicable state taxes (assuming maximum applicable tax rates for non-S status corporations) for which the Partners are responsible based on the income of the Partnership, all as determined in good faith by the unanimous determination of the Management Committee, whose determination shall be final and binding. Distributions pursuant to this SECTION 9.2 shall be treated as Distributions to each Partner for the purposes of determining the aggregate amount of available cash distributed to each Partner under SECTION 9.1 and SECTION 17.2. ARTICLE X ALLOCATIONS OF PROFITS AND LOSSES Except as otherwise required by Section 704(b) of the Code, each item of the Partnership's income, gain, loss, deduction or credit from operations shall be allocated to the Partners in accordance with their Participating Percentages. ARTICLE XI BOOKS OF ACCOUNT AND RECORDS Proper and complete records and books of account shall be kept by the Management Committee in which shall be entered fully and accurately all transactions and other matters relative to the Partnership's business as usually entered into records and books of account maintained by persons engaged in business of a like character. The Partnership books and records shall be kept on an accrual basis. The books and records shall at all times be open to the reasonable inspection and examination by the Partners or their duly authorized representatives during reasonable business hours. The Management Committee shall deliver to -4- 5 each Partner (i) audited financial statements for each fiscal year of the Partnership as soon as such audited statements are available, (ii) unaudited financial statements for each completed quarterly period of the Partnership and (iii) federal and state Schedule K-1's and any other tax information necessary for the preparation and timely filing of their respective federal and state income tax returns. All of the members of the Management Committee shall approve, in writing, the selection of an independent public accounting firm to render the necessary accounting and auditing services. ARTICLE XII FISCAL YEAR The fiscal year of the Partnership shall be the calendar year. ARTICLE XIII PARTNERSHIP FUNDS The funds of the Partnership shall be deposited in such bank account or accounts, or invested in such interest-bearing or non-interest- bearing investments, as shall be designated by the Partnership. All withdrawals from any such bank accounts shall be made by the authorized agent or agents of the Partnership. Partnership funds shall be separately identifiable from those of any other person or entity. ARTICLE XIV MANAGEMENT OF THE PARTNERSHIP 14.1 The Management Committee shall have exclusive authority to manage the operations and affairs of the Partnership and to make all decisions regarding the business of the Partnership. Pursuant to the foregoing, it is hereby agreed that the Management Committee shall have all of the rights and powers of a general partner as provided in the Act and as otherwise provided by law and any action taken by the Management Committee shall constitute the act of and serve to bind the Partnership. In dealing with the Management Committee acting on behalf of the Partnership, no person shall be required to inquire into the authority of the Management Committee to bind the Partnership. Persons dealing with the Partnership are entitled to rely conclusively on the power and authority of the Management Committee as set forth in this Agreement. Notwithstanding the foregoing or anything that may be contrary herein, Walbro shall, in its sole discretion, determine the products to be manufactured and sold by the Partnership, subject to prior consultation with IDC representatives; provided, however, in the event Walbro requires that any products be manufactured which represents a new product that -5- 6 is substantially different than any of the products set forth on Exhibit 4 and such new product requires significant capital expenditures by the Partnership, the Management Committee must unanimously determine that it is in the best interests of the Partnership to manufacture such new products. Subject to the foregoing, the unanimous approval of the Management Committee shall be required for (i) approval of any business plans, marketing plans and operating projections, (ii) any material change in the business of the Partnership, (iii) any borrowings by the Partnership in excess of $250,000 in principal amount, (iv) any material transactions between the Partnership and any Partner (or affiliate of any Partner). Furthermore, the written consent of both Partners shall be required for the consummation of (a) the admission of any additional partners, (b) any amendments to this Agreement, (c) any investment by the Partnership in another entity, (d) the sale of all or substantially all of the assets of the Partnership, (e) dissolution of the Partnership and (f) any sublicense of the technology which is the subject of the License Agreement (as defined below) by the Partnership to an unaffiliated third party. Any disagreement between the members of the Management Committee shall be submitted to all of the Partners for resolution; which resolution shall be approved by both Partners. 14.2 Subject to the foregoing, the Management Committee is hereby granted the right, power and authority to do on behalf of the Partnership all things which, in its sole judgment, are necessary, proper or desirable to carry out the aforementioned duties and responsibilities, including but not limited to the right, power and authority to lease, sell, exchange, refinance or grant an option for the sale of all or any portion of the property of the Partnership at such rental, price or amount, for cash, securities or other consideration and upon such other terms as the Management Committee in its sole discretion deems proper. 14.3 The Management Committee shall have the authority to delegate its day-to-day managerial authority to such officers, employees or agents of the Partnership, and to give such employees or agents such titles, as the Management Committee shall from time to time designate, and to revoke or change such managerial authority and change or eliminate such titles in the sole discretion of the Management Committee. Initially, the officers of the Partnership shall consist of a General Manager, Business Manager, and Engineering Manager. Walbro shall have the right to appoint the General Manager and the Business Manager and IDC shall have the right to appoint the Engineering Manager. Each of Walbro and IDC agree to consult with the other in connection with their respective appointments of such officer positions. As of the formation of the Partnership, the officers shall be as follows: General Manager Kuniaki Hohzawa Business Manager Wayne Heckman Engineering Manager Hiroto Yokoyama The authority of such officers shall be limited to the operations of the Partnership which occur in the normal and ordinary course of business. Any matters which arise in connection with the operations of the Partnership which are outside of the normal and ordinary course of business of the Partnership shall immediately be submitted to the Management Committee for -6- 7 approval, in accordance with the terms hereof. Upon such approval, the officers shall have the authority to bind the Partnership with respect to such matters. 14.4 The "Tax Matters Partner" of the Partnership shall be designated by the Management Committee. 14.5 Neither the Management Committee, any member or agent of the Management Committee or any officer of the Partnership shall be liable, responsible or accountable in damages or otherwise to the Partnership or any Partner for any action taken or failure to act on behalf of the Partnership within the scope of the authority conferred on the Management Committee or any such officer by this Agreement or by law unless such action or omission was performed or omitted fraudulently or in bad faith or constituted gross negligence. The Partners specifically acknowledge, without limiting the general applicability of this SECTION 14.5, that the Management Committee and the officers of the Partnership shall not be liable, responsible or accountable in damages or otherwise to the Partnership or any Partner with respect to any action taken by the Management Committee or any such officer in conjunction with an audit of the Partnership for income tax or other purposes. 14.6 The Management Committee shall not be required to manage the Partnership as its sole and exclusive function and may have other business interests and may engage in other activities in addition to those relating to the Partnership. Neither the Partnership nor any Partner shall have any right by virtue of this Agreement or the partnership relationship created hereby in or to such other ventures or activities or to the income or proceeds derived therefrom, and the pursuit of such ventures and activities, even if competitive with the business of the Partnership, shall not be deemed wrongful or improper. All expenses of the Management Committee incurred in the performance of its duties hereunder shall be borne by the Partnership. 14.7 No Partner shall have the authority to act for or bind the Partnership except with the approval of the Management Committee. 14.8 The Partnership shall indemnify and hold harmless all members of the Management Committee and all officers of the Partnership, from and against any loss, expense, damage or injury suffered or sustained either by reason of any acts, omissions or alleged acts or omissions arising out of their activities on behalf of the Partnership, including, but not limited to, any judgment, award, settlement, reasonable attorneys' fees and other costs or expenses incurred in connection with the defense of any actual or threatened action, proceeding or claim, if the acts, omissions or alleged acts or omissions upon which such actual or threatened action, proceeding or claim is based were for a purpose reasonably believed to be in the best interests of the Partnership and were not performed or omitted fraudulently or in bad faith. Any such indemnification shall only be from the assets of the Partnership. 14.9 Unless otherwise expressly provided herein, all decisions requiring the consent of the Partners shall be made by the affirmative vote of each Partner then entitled to vote. -7- 8 Unless otherwise expressly provided for herein, all decisions requiring the approval of the Management Committee shall require the unanimous consent of all of the members of the Management Committee. ARTICLE XV WITHDRAWALS AND TRANSFERS 15.1 Any Partner may withdraw from the Partnership upon one year's prior written notice to the Partnership. If a Partner withdraws, an "Event of Default" (as defined below) will be deemed to have occurred on the date such withdrawal notice is delivered, and the provisions set forth in ARTICLE XVI shall apply. 15.2 Each Partner agrees not to sell, transfer, assign, hypothecate, pledge or encumber all or any portion of such Partner's interest hereunder without the prior consent of all of the Partners. Notwithstanding the foregoing sentence, a Partner may sell, assign or transfer all, or a part of, its interest in the Partnership to any person or entity that is an affiliate of such Partner; provided, however, such transfer must not result in a deemed termination of the Partnership under Section 708(b)(1)(B) of the Code which results in adverse tax consequences to the Partnership or any other non-transferring Partner. The Partners agree that any transfer of a Partnership interest by any Partner to an affiliate pursuant to this SECTION 15.2 shall be conditioned upon the full assumption by such party of all of the obligations of the transferring party provided in this Agreement and the Basic Agreements (as defined below). ARTICLE XVI DEFAULTS 16.1 In the case of an "Event of Default" (as defined herein) by any Partner, then the defaulting party (the "Defaulting Partner") shall immediately have suspended any all of its rights as a Partner, including, without limitation, the right to vote and consent or otherwise approve or disapprove of any actions taken by the Partnership (including in connection with such Defaulting Partner's rights (or its designee) as a Management Committee member), except that such Defaulting Partner shall maintain the right to its economic interest in the Partnership. Unless otherwise specified herein, if an Event of Default occurs, then the non-defaulting party (the "Non-Defaulting Partner") may exercise any of the following remedies: (1) causing the Partnership to be dissolved or liquidated according to the terms set forth herein and all applicable laws, or -8- 9 (2) purchasing for cash all of the equity interest in the Partnership then held by the Defaulting Partner at a purchase price equal to the book value of such equity interest determined using generally accepted accounting practices, consistently applied. 16.2 In the event that an Event of Default occurs as a result of a material breach under any term of (i) the License and Technical Assistance Agreement (the "License Agreement") between the Partnership and Iwaki Diecast Co. Ltd., an affiliate of IDC, or (ii) the Walbro Sale Assistance and Administrative Service Agreement (the "Sales Agreement") between the Partnership and Walbro Engine Management Corporation, an affiliate of Walbro (together, the "Basic Agreements"), and such breach is not remedied within a period of thirty (30) days after receiving written notice of such breach, then the Non-Defaulting Partner may exercise any of the following remedies: (1) purchasing for cash all of the equity interest in the Partnership then held by the Defaulting Partner, at a purchase price equal to the book value of such equity interest determined using generally accepted accounting practices, consistently applied. (2) require that the Defaulting Partner purchase for cash all of the equity of the Partnership then held by the Non-Defaulting Partner, at a purchase price determined pursuant to SECTION 16.5 below. 16.3 The rights provided in this Agreement shall be in addition to and not in substitution of any other remedies that may be available to the Partnership or the Non-Defaulting Partner (including those set forth herein and/or as may be available by law), and any exercise of such rights shall not relieve the Defaulting Partner from any accrued obligation or any liability or damages which are incurred by the Partnership or the Non-Defaulting Partner as a result of the occurrence of an Event of Default. 16.4 For purposes of this Agreement, an "Event of Default" shall be deemed to have occurred upon any one of the following occurrences: (i) the failure by any Partner to make a required capital contribution which is not made within five (5) days of a delivery of written notice to such Partner of its failure to remit the required capital contribution, (ii) a Partner (or the holder of a majority of the equity interest of such Partner) being the subject of a voluntary or involuntary petition in bankruptcy or insolvency, or of a petition for relief or reorganization under any bankruptcy or insolvency law, (iii) breach by a Partner (or an affiliate of any Partner) of any of the terms of this Agreement or the Basic Agreements which is not cured pursuant to SECTION 16.2 above or (iv) the withdrawal of a Partner for any reason. 16.5 If an Event of Default occurs and the Non-Defaulting Partner wishes to require the Defaulting Partner to purchase its Partnership interest, pursuant to its rights under this ARTICLE XVI, the purchase price for such Partnership interest shall be equal to its fair market value, as determined by an independent nationally recognized appraiser, selected by each of the Defaulting Partner and Non- Defaulting Partner. In the event the Partners can not agree on an appraiser, each Partner shall choose an appraiser and the two appraisers shall agree on a third -9- 10 appraiser. The determination of such third appraiser and its appraisal shall be final and binding on the Partners. 16.6 If an Event of Default occurs as a result of a Partner being the subject of a voluntary or involuntary petition in bankruptcy or insolvency, or of a petition for relief or reorganization under any bankruptcy or insolvency law, and the Non-Defaulting Partner does not wish to exercise its remedies set forth in SECTION 16.1, then the Partnership shall continue in full force and effect; provided, however, that any successor of a dissolved, insolvent or bankrupt Partner, as the case may be, shall not become a substituted Partner in the Partnership. Such successor shall not have any of the rights of a Partner, except that such successor shall only be entitled to receive the share of profits and losses of the Partnership, the return of such capital contributions and any other payments to which such bankrupt Partner would have been entitled on the date of such Event of Default. ARTICLE XVII DISSOLUTION AND TERMINATION OF THE PARTNERSHIP 17.1 The Partnership shall dissolve upon the first to occur of the following: (a) expiration of the stated term of the Partnership on December 31, 2015, as provided in ARTICLE VI hereof; (b) the withdrawal of a Partner or Partners causing only one other Partner to remain in the Partnership; (c) the unanimous written consent or affirmative vote by the Partners, then entitled to vote, to dissolve the Partnership; (d) the disposition of all of the Partnership's interest in its property, including notes received in connection with the sale thereof; or (e) by the election of a Non-Defaulting Partner's pursuant to the terms set forth in ARTICLE XVI. 17.2 In the event of the dissolution of the Partnership, the Partnership shall terminate, be wound up and liquidated as herein provided. During such period, the Partners shall continue to share income and losses during the period of liquidation in the same proportion as immediately prior thereto, subject to the terms of this Agreement. The proceeds of the liquidation (after payment of all costs and expenses thereof and the establishment of reasonable reserves for contingent liabilities) shall be applied in order of priority as follows: (a) To the repayment of debts of the Partnership other than to Partners; -10- 11 (b) To the repayment of debts of the Partnership to the Partners pro rata according to the amount of the Partnership's indebtedness to each Partner; (c) To the Partners, to the extent of their respective Capital Accounts or (if the remaining assets are insufficient for such purposes), pro rata on the basis of the relative amounts of their respective Capital Accounts; and (d) To the Partners, to the extent of any balance remaining, based on their respective Participating Percentages at the time of such dissolution. 17.3 Each Partner shall look solely to the assets of the Partnership for all distributions with respect to the Partnership and such Partner's capital contributions thereto and shall have no recourse therefor against the other Partners. No Partner shall have any right to demand or receive property other than cash upon dissolution and termination of the Partnership or to demand the return of its capital contributions to the Partnership prior to dissolution and termination of the Partnership. ARTICLE XVIII NOTICES All notices and demands required or permitted under this Agreement shall be in writing and may be sent by U.S. mail, first class mail, postage prepaid, overnight air courier or personal delivery to the Partners at their addresses as shown from time to time on the records of the Partnership. Any Partner may specify a different address by notifying the other Partners in writing of such different address. ARTICLE XIX AMENDMENT OF PARTNERSHIP AGREEMENT This Agreement may be amended only upon the unanimous consent or affirmative vote of each Partner then entitled to vote. ARTICLE XX INDEMNIFICATION OF PARTNERS AND REIMBURSEMENT 20.1 The Partnership shall indemnify and hold harmless all Partners, from and against any loss, expense, damage or injury suffered or sustained by either by reason of any acts, omissions or alleged acts or omissions arising out of their activities on behalf of the Partnership, -11- 12 including, but not limited to, any judgment, award, settlement, reasonable attorneys' fees and other costs or expenses incurred in connection with the defense of any actual or threatened action, proceeding or claim, if the acts, omissions or alleged acts or omissions upon which such actual or threatened action, proceeding or claim is based were for a purpose reasonably believed to be in the best interests of the Partnership and were not performed or omitted fraudulently or in bad faith. Any such indemnification shall only be from the assets of the Partnership. 20.2 In the event any Partner pays any costs or expenses on behalf of the Partnership which relate directly to the operations of the Partnership, such Partner shall submit reasonable supporting documentation evidencing such payment to the Management Committee. Upon receipt of such supporting documentation and unanimous approval of the Management Committee, the Partnership shall promptly reimburse such Partner for such costs and expenses incurred. ARTICLE XXI MISCELLANEOUS 21.1 This Agreement constitutes the entire agreement among the parties. It supersedes any prior agreement or understandings among them, and it may not be modified or amended in any manner other than as set forth herein. 21.2 This Agreement and the rights of the parties hereunder shall be governed by and interpreted in accordance with the laws of the State of Delaware, without giving effect to provisions thereof regarding conflicts of laws. 21.3 If any controversy or claim between the Partners arise out of this Agreement, except as otherwise specifically provided in this Agreement: (a) Such disagreement or dispute shall be discussed in good faith during a ten-day period following the occurrence of such dispute. If the dispute or disagreement cannot be resolved by the parties after good faith discussion, it shall be submitted to binding arbitration in Tucson, Arizona, under the Commercial Arbitration Rules of the American Arbitration Association. (b) Three arbitrators shall be appointed under the Commercial Arbitration Rules of the American Arbitration Association. As soon as the panel has been convened, a hearing date shall be set within 45 days thereafter. Written submittals shall be presented and exchanged by both parties 15 days before the hearing date, including reports prepared by experts upon whom either party intends to rely. At such time the parties shall also exchange copies of all documentary evidence upon which they will rely at the arbitration hearing and a list of the witnesses whom they intend to call to testify at the hearing. Each party shall also make its respective experts available for deposition -12- 13 by the other party prior to the hearing date. The arbitrators shall make their award as promptly as practicable after conclusion of the hearing. (c) The arbitrators shall not be bound by the rules of evidence or civil procedure, but rather may consider such writings and oral presentations as reasonable businessmen would use in the conduct of their day-to-day affairs, and may require the parties to submit some or all of their presentation orally or in written form as the arbitrators may deem appropriate. It is the intention of the parties to limit live testimony and cross-examination to the extent necessary to insure a fair hearing to the parties on the matters submitted to arbitration, and to provide neither party more than five (5) complete business days to present its position. The parties have included the foregoing provisions limiting the scope and extent of the arbitration with the intention of providing for prompt, economic and fair resolution of any dispute submitted to arbitration. (d) The arbitrators shall have the discretion to award the costs of arbitration, arbitrators' fees and the respective attorneys' fees of each party to the party who the arbitrators determine, in their sole discretion, to have prevailed in the dispute. Judgment upon the award entered by the arbitrators may be entered in any court having jurisdiction thereof. The arbitrators shall make their award in accordance with applicable law and based on the evidence presented by the parties, and at the request of either party at the start of the arbitration shall include in their award findings of fact and conclusions of law both in law and equity which would be available in a court having jurisdiction over the parties and over the subject matter of the dispute. Such powers shall include, but not be limited to, the power to require specific performance. (e) The arbitration agreement set forth herein shall not limit a court from granting a temporary restraining order or preliminary injunction in order to preserve the status quo of the parties pending arbitration. Further the arbitrator(s) shall have power to enter such orders by way of interim award, and they shall be enforceable in court. 21.3 Except as herein otherwise specifically provided, this Agreement shall be binding upon and inure to the benefit of the parties and their legal representatives, heirs, administrators, executors, successors and assigns. 21.4 Wherever from the context it appears appropriate, each term stated in either the singular or the plural shall include the singular and the plural, and pronouns stated in either the masculine, the feminine or the neuter gender shall include the masculine, feminine and neuter. 21.5 Captions contained in the Agreement are inserted only as a matter of convenience and in no way define, limit or extend the scope or intent of this Agreement or any provisions thereto. 21.6 If any provision of this Agreement, or the application of such provision to any person or circumstance, shall be held invalid, the remainder of this Agreement, or the -13- 14 application of such provision to persons or circumstances other than those to which it is held invalid, shall not be affected hereby. 21.7 This Agreement may be executed in multiple counterparts, each of which shall be deemed an original but all of which shall constitute one and the same instrument. 21.8 This Agreement may be translated from English to Japanese. In the event any conflict or ambiguity exists as a result of, or in connection with, such translation, the original English version shall govern. IN WITNESS WHEREOF, the undersigned have executed this Agreement as of this 18th day of August, 1995. WALBRO TUCSON CORP. By: -------------------------------------------------------- Its: -------------------------------------------------------- IWAKI DIECAST USA, INC. By: -------------------------------------------------------- Its: -------------------------------------------------------- -14- 15 SCHEDULE A TO GENERAL PARTNERSHIP AGREEMENT OF TUCSON PRECISION PRODUCTS
CAPITAL PARTICIPATING PARTNERS CONTRIBUTION PERCENTAGE - - ------------------------------------------------------ -------------- --------------- Walbro Tucson Corp. $450,000 60% 6242 Garfield Cass City, Michigan 48726 U.S.A. Iwaki Diecast U.S.A., Inc. $300,000 40% 6601 South Renaissance Drive Tucson, Arizona 85746-6042
A-1 EX-10.28 19 EXHIBIT 10.28 1 EXHIBIT 10.28 WALBRO CORPORATION SUPPLEMENTAL EMPLOYEE RETIREMENT PLAN -------- EFFECTIVE JANUARY 1, 1997 2 TABLE OF CONTENTS - -------------------------------------------------------------------------------- PAGE ARTICLE I DEFINITIONS .................................................... 1 1.1 "Actuarial Equivalent"................................. 1 1.2 "Appendix"............................................. 1 1.3 "Base Salary".......................................... 1 1.4 "Beneficiary".......................................... 1 1.5 "Benefit Trust Committee".............................. 1 1.6 "Board of Directors"................................... 1 1.7 "Change of Control".................................... 1 1.8 "Company".............................................. 1 1.9 "Compensation Committee"............................... 2 1.10 "Credited Service"..................................... 2 1.11 "Death Benefit"........................................ 2 1.12 "Effective Date"....................................... 2 1.13 "Eligible Employee".................................... 2 1.14 "Employee"............................................. 2 1.15 "Employment Agreement"................................. 2 1.16 "ERISA"................................................ 2 1.17 "Final Average Earnings"............................... 2 1.18 "Installment Period"................................... 2 1.19 "Internal Revenue Code" or "Code"...................... 2 1.20 "Normal Retirement Date"............................... 3 1.21 "Notice Date".......................................... 3 1.22 "Participant".......................................... 3 1.23 "Payment Date"......................................... 3 1.24 "Plan"................................................. 3 1.25 "Plan Year"............................................ 3 1.26 "Retirement Benefit"................................... 3 1.28 "Termination Agreement"................................ 3 1.30 "Termination of Employment"............................ 3 1.31 "Trust"................................................ 4 ARTICLE II PARTICIPATION................................................... 5 2.1 Eligibility............................................ 5 2.2 Beneficiary Election................................... 5 -i- 3 TABLE OF CONTENTS - -------------------------------------------------------------------------------- PAGE ARTICLE III BENEFITS........................................................ 6 3.1 Retirement Benefit.................................... 6 3.2 Death Benefit Prior to Payment Date................... 6 3.3 Death Benefit On and After Payment Date............... 7 ARTICLE IV VESTING AND FORFEITURES......................................... 8 4.1 Fully Vested Retirement Benefit....................... 8 ARTICLE V DISTRIBUTIONS................................................... 9 5.1 Retirement Benefit Prior to a Change or Control....... 9 5.2 Death Benefit Prior to Payment Date................... 9 5.3 Payment of Retirement Benefit and Death Benefit Due to a Change of Control................................ 10 5.4 Claim Procedures...................................... 10 ARTICLE VI AMENDMENT....................................................... 12 6.1 Prior to a Change of Control.......................... 12 6.2 After a Change of Control............................. 12 ARTICLE VII TERMINATION..................................................... 13 ARTICLE VIII MISCELLANEOUS PROVISIONS........................................ 14 8.1 Administration........................................ 14 8.2 Finality of Determination............................. 14 8.3 Expenses.............................................. 14 8.4 Indemnification and Exculpation....................... 14 8.5 Funding............................................... 14 8.6 Corporate Action...................................... 15 8.7 Interests not Transferable............................ 15 8.8 Effect on Other Benefit Plans......................... 15 -ii- 4 TABLE OF CONTENTS - -------------------------------------------------------------------------------- PAGE 8.9 Legal Fees and Expenses............................... 15 8.10 Deduction of Taxes from Amounts Payable............... 15 8.11 Facility of Payment................................... 15 8.12 Merger................................................ 15 8.13 Gender and Number..................................... 16 8.14 Invalidity of Certain Provisions...................... 16 8.15 Headings.............................................. 16 8.16 Notice and Information Requirements................... 16 8.17 Governing Law......................................... 16 -iii- 5 WALBRO CORPORATION SUPPLEMENTAL EMPLOYEE RETIREMENT PLAN - -------------------------------------------------------------------------------- WALBRO CORPORATION establishes, effective as of January 1, 1997, an unfunded, deferred compensation plan on behalf of certain designated management or highly compensated employees of Walbro Corporation. This document defines the provisions of such plan and shall be known as the "Walbro Corporation Supplemental Employee Retirement Plan." This plan is intended in part to be an unfunded, deferred compensation plan for a select group of management or highly compensated employees, as described in sections 201(2), 301(a)(3), and 401(a)(1) of the Employee Retirement Income Security Act of 1974 ("ERISA") and in part to be an excess benefit plan described in section 3(36) of ERISA. 6 ARTICLE I - -------------------------------------------------------------------------------- DEFINITIONS The following sections of this Article I provide basic definitions of terms used throughout this Plan, and whenever used herein in a capitalized form, except as otherwise expressly provided, the terms shall be deemed to have the following meanings: 1.1 "Actuarial Equivalent" means an amount equal in value to the benefit replaced based on an interest rate discount assumption of 9.2% per annum. 1.2 "Appendix" means a written supplement attached to this Plan and made a part hereof which has been added in accordance with the provisions of this Plan. 1.3 "Base Salary" has the meaning given to it in the Participant's Employment Agreement, or if applicable, Termination Agreement. 1.4 "Beneficiary" means with respect to the Death Benefit payable upon the death of a Participant, any person designated by the Participant on his or her most recent Beneficiary election form approved by the Benefit Trust Committee; provided that if a Participant fails to designate a Beneficiary on a Beneficiary election form or if all such designated persons predecease the Participant without the Participant completing a new, approved Beneficiary election form, then Beneficiary means the Participant's Spouse, or if no surviving Spouse, then the Participant's estate. An individual who is entitled to receive a Death Benefit on and after the death of a Participant will remain a Beneficiary until the receipt of such Beneficiary's Death Benefit, if any, is completed (or made in a single sum). 1.5 "Benefit Trust Committee" means the Benefit Trust Committee appointed pursuant to the terms of the Trust which will have the power to manage and control the operation and administration of this Plan; or if none is appointed, the Committee appointed for the Walbro Corporation Advantage Plan. 1.6 "Board of Directors" means the board of directors of the Company. 1.7 "Change of Control" shall have the same meaning as set forth in the Participant's Termination Agreement. 1.8 "Company" means WALBRO CORPORATION or any successor entity by operation of law or any successor entity which affirmatively adopts the Plan, the Trust and the obligations of Walbro Corporation with respect to the Plan and the Trust. 1 7 1.9 "Compensation Committee" means the Compensation Committee of the Board of Directors. 1.10 "Credited Service" means only the uninterrupted, continuous period of employment as an Employee, and shall be given on the basis of full years and calendar months. Credited Service shall also include periods granted to a particular Participant under the terms of his or her Employment Agreement, or if applicable, Termination Agreement. 1.11 "Death Benefit" means a monthly (or single sum) benefit payable to a Beneficiary and determined in accordance with this Plan. 1.12 "Effective Date" means January 1, 1997. 1.13 "Eligible Employee" means each Employee who is entitled to participate in this Plan under the terms of his or her Employment Agreement, or if applicable, Termination Agreement. 1.14 "Employee" means any person who renders services as a common law employee to the Company. Walbro Automotive Corporation or Engine Management Corporation. 1.15 "Employment Agreement" means the current version of the Employment Agreement between the Participant and the Company. 1.16 "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time. 1.17 "Final Average Earnings" shall mean the average of the Base Salary of the Participant for the three (3) highest consecutive years of employment as an Employee, or if such period of the Participant's employment is less than three (3) years, the period of such Participant's employment as an Employee, annualized if the Participant is employed as an Employee for less than a full year. 1.18 "Installment Period" means a period commencing with an annual installment on the Payment Date and ending with an annual installment on the earlier of (1) the ninth anniversary of the Payment Date or (2) the anniversary of the Payment Date on or immediately preceding the death of the Participant; or if a Beneficiary survives the Participant, the date of such Beneficiary's death. 1.19 "Internal Revenue Code" or "Code" means the Internal Revenue Code of 1986, as amended, any subsequent Internal Revenue Code and final Treasury Regulations. If there is a subsequent Internal Revenue Code, any references herein to Internal Revenue Code sections shall be deemed to refer to comparable sections of any subsequent Internal Revenue Code. 2 8 1.20 "Normal Retirement Date" shall mean the first day of the month next following a Participant's 65th birthday or such other date set forth in a Participant's Employment Agreement. 1.21 "Notice Date" means the date established by the Benefit Trust Committee as the deadline for it to receive any notification with respect to an administrative matter in order to be effective under this Plan. 1.22 "Participant" means an Eligible Employee who begins to participate in this Plan after completing the eligibility requirements. An individual will remain a Participant until the payment of his or her Retirement Benefit, if any, is completed (or made in a single sum). 1.23 "Payment Date" means the date a Participant's Retirement Benefit, or if payments of a Retirement Benefit have not commenced on the Participant's date of death, the Beneficiary's Death Benefit, is distributed or commences to be distributed as described in Article V. 1.24 "Plan" means the Walbro Corporation Supplemental Employee Retirement Plan, as it may be validly amended from time to time. 1.25 "Plan Year" means the annual accounting period of this Plan which ends on each December 31. 1.26 "Retirement Benefit" means a monthly (or single sum) pension benefit payable to a Participant and determined in accordance with this Plan. 1.27 "Spouse" means the person to whom a Participant is validly married under the laws of the State of the Participant's primary residence; provided however, if the Participant is legally separated from a person who would otherwise be such Participant's Spouse (but for this proviso), then such person shall cease to be such Participant's Spouse. For this purpose a common law spouse is a Spouse only if the Participant resides in a State that legally recognizes common law marriages; a person to whom a Participant was formerly married is not a Spouse; and if a Participant could possibly be married to more than one person under the laws of a State, only one such person may be designated as the Participant's Spouse during any Plan year. 1.28 "Termination Agreement" means the current version of the Termination and Change of Control Agreement between the Participant and the Company. 1.29 "Lump Sum" means a Retirement Benefit or Death Benefit payable in a single sum payment which is Actuarially Equivalent to the form of payment it replaces. 1.30 "Termination of Employment" occurs when a person ceases to be an Employee as determined by the personnel policies of the Company; provided however, transfer of employment from the Company, or from one affiliate of the Company, to 3 9 another affiliate of the Company shall not constitute a Termination of Employment for purposes of this Plan. 1.31 "Trust" means the trust created by the Walbro Corporation Benefit Trust Agreement as it may be validly amended from time to time. 4 10 ARTICLE II - -------------------------------------------------------------------------------- PARTICIPATION 2.1 Eligibility. On or after the Effective Date, each Eligible Employee shall become a Participant as of the date he or she became an Eligible Employee. 2.2 Beneficiary Election. Each person first eligible to become a Participant shall complete, sign and return a Beneficiary election form provided for that purpose by the Benefit Trust Committee, to the Benefit Trust Committee no later than the designated Notice Date. 5 11 ARTICLE III - -------------------------------------------------------------------------------- BENEFITS 3.1 Retirement Benefit. (a) General. A Participant who has a nonforfeitable right to a Retirement Benefit and has a Termination of Employment will begin receiving his or her Normal Retirement Benefit commencing on the Payment Date. The payment and form of payment of the Retirement Benefit determined hereunder shall be governed by the provisions of Article V. (b) Amount. A Participant's Retirement Benefit shall be an annual amount for the Installment Period commencing on the Payment Date equal to one and one-half percent (1 1/2%) of the Participant's Final Average Earnings multiplied times the number of years and months of the Participant's Credited Service. Notwithstanding the above, (1) if the Participant is the Chief Executive Officer of the Company with forty (40) or more years of Credited Service, his or her Normal Retirement Benefit shall be based on the annual accrual rate of one percent (1%) instead of one and one-half percent (1 1/2%) as described above; and (2) if the Participant's Employment Agreement, or if applicable, Termination Agreement, provides for a different annual accrual rate other than one and one-half percent (1 1/2%), such Participant's Retirement Benefit shall be based on the accrual rate specified in such Employment Agreement, or if applicable, Termination Agreement. 3.2 Death Benefit Prior to Payment Date. (a) General. A Participant who has a nonforfeitable right to a Retirement Benefit and dies prior to the Payment Date of his or her Retirement Benefit will have a Death Benefit paid to his or her Beneficiary. The payment and form of payment of the Death Benefit determined hereunder shall be governed by the provisions of Article V. (b) Amount. The amount of the Death Benefit payable to a deceased Participant's Beneficiary shall be an annual amount for the Installment Period commencing on the Payment Date equal to fifty percent (50%) of the amount of Retirement Benefit payments which would have been paid to the deceased Participant had the Retirement Benefit commenced to be paid to the Participant the day before the Participant died. 6 12 3.3 Death Benefit On and After Payment Date. (a) General. A Participant who has a nonforfeitable right to a Retirement Benefit, who dies on or after the the Payment Date of his or her Retirement Benefit and who did not receive a Lump Sum payment of the Retirement Benefit, will have a Death Benefit paid to his or her Beneficiary. The date of payment and form of payment of the Death Benefit determined hereunder shall be the same as the deceased Participant's. (b) Amount. The amount of the Death Benefit payable to a deceased Participant's Beneficiary shall be an annual amount for the remainder of the Participant's Installment Period which is equal to fifty percent (50%) of the amount of annual Retirement Benefit payments which would have been paid to the deceased Participant had the Participant not died. 7 13 ARTICLE IV - -------------------------------------------------------------------------------- VESTING AND FORFEITURES 4.1 Fully Vested Retirement Benefit. A Participant shall be fully vested in, and have a nonforfeitable right to, his or her Retirement Benefit upon the earliest to occur of the following: (a) attainment of age 60 and completion of at least five (5) years of Credited Service; (b) upon such other earlier date as specifically provided for such Participant in his or her Employment Agreement; or if applicable Termination Agreement; or (c) upon the occurrence of a Change of Control. 4.2 A Participant who incurs a Termination of Employment and who does not have a fully vested and nonforfeitable right to his or her Retirement Benefit shall forfeit all right and interest in such Retirement Benefit and any other benefit provided under this Plan. The Beneficiaries of such Participant shall also forfeit any right or interest to any Death Benefit under this Plan. 8 14 ARTICLE V - -------------------------------------------------------------------------------- DISTRIBUTIONS Benefits payable under this Plan shall be paid in the form and time prescribed below. 5.1 Retirement Benefit Prior to a Change or Control. A Participant shall receive a Retirement Benefit in the following form of payment and as of the following Payment Date: (a) Form of Payment. The form of payment of the Retirement Benefit shall be annual payments for the Installment Period. Notwithstanding the preceding sentence, the form of payment shall be a Lump Sum if: (1) the Compensation Committee, in its discretion, determines to cash out Participant's Retirement Benefit because it is too small to maintain on the Company's records or because of the health and short life expectancy of the Participant on his or her Payment Date; (2) such Participant's last election in writing, on a form delivered to the Benefit Trust Committee at least two years on or prior to the earlier of (i) his or her Termination of Employment or (ii) his or her Payment Date, is to convert the Retirement Benefit payable under this Plan into an Actuarial Equivalent Lump Sum form of payment and the Participant has attained at least age sixty (60) on or prior to his or her date of Termination of Employment; or (3) the Company incurs a Change of Control. (b) Payment Date. If the Participant's form of payment is installment payments, the Payment Date shall be the first day of the month next following the later of (i) the attainment of the Participant's Normal Retirement Date or (ii) the Participant's Termination of Employment. If the Participant's form of payment is a Lump Sum, the Payment Date shall be the first day of the month following his or her Termination of Employment. Notwithstanding the preceding sentence, if payment is made in a Lump Sum (other than under Section 5.3) and will result in any portion of the payment (or any other amount paid to such Participant during the same Plan Year) not being deductible by reason of Code section 162(m), the Benefit Trust Committee may defer such Actuarial Equivalent single sum payment to a later Payment Date designated by it. 5.2 Death Benefit Prior to Payment Date. A Beneficiary of a Participant who dies prior to the Participant's Payment Date shall receive a Death Benefit in the following form of payment and as of the following Payment Date. (a) Form of Payment. The form of payment of a Beneficiary's Death Benefit shall be in annual installments for the Installment Period; provided, however, the Compensation Committee in its discretion, or such Participant by electing in writing on a form delivered to the Benefit Trust Committee prior to 9 15 his or her death, may convert the Death Benefit payable under this Plan into a Lump Sum form of payment. (b) Time of Payment. A Beneficiary's Death Benefit shall commence to be paid as of the earliest date on or after the Participant's death as is administratively possible but no later than ninety days; provided however, if payment is made in a Lump Sum and will result in any portion of the payment (or any other amount paid to such Beneficiary during the same Plan Year) not being deductible by reason of Code section 162(m), the Benefit Trust Committee may defer such Actuarial Equivalent single sum payment to a later Payment Date designated by it. 5.3 Payment of Retirement Benefit and Death Benefit Due to a Change of Control. On and after a Change of Control and notwithstanding Sections 5.1 or 5.2, the following shall apply: (a) Retirement Benefit. Upon Termination of Employment (other than for reason of death) of a Participant within three (3) years following a Change of Control, a Lump Sum payment shall be made immediately to such Participant; provided that for this purpose the calculation of the Participant's Retirement Benefit will be based upon any assumptions regarding this Plan set forth in the Participant's Employment Agreement and Termination Agreement. (b) Death Benefit. A Beneficiary who is receiving, or would within three (3) years following the date of the Company's Change of Control otherwise be eligible to commence to receive, a Death Benefit shall be paid immediately a Lump Sum payment of such unpaid Death Benefit on the date of the Company's Change of Control or on the Participant's date of death, respectively. 5.4 Claim Procedures. (a) Initial Claim for Benefits. Each person entitled to benefits under this Plan (a "Claimant") must sign and submit his or her claim for benefits to the Benefit Trust Committee or its agent in writing in such form as is provided or approved by such Benefit Trust Committee. A Claimant shall have no right to seek review of a denial of benefits, or to bring any action in any court to enforce a claim for benefits prior to his or her filing a claim for benefits and exhausting his or her rights under this Section. When a claim for benefits has been filed properly, such claim for benefits shall be evaluated and the Claimant shall be notified by the Benefit Trust Committee or agent of its approval or denial within ninety (90) days after the receipt of such claim unless special circumstances require an extension of time for processing the claim. If such an extension of time for processing is required, written notice of the extension shall be furnished to the Claimant by the Benefit Trust Committee or agent prior to the termination of the initial ninety (90) day period which shall specify the special circumstances requiring an extension and the date by which a final 10 16 decision will be reached (which date shall not be later than one hundred eighty (180) days after the date on which the claim was filed). A Claimant shall be given a written notice in which the Claimant shall be advised as to whether the claim is granted or denied, in whole or in part. If a claim is denied, in whole or in part, the Claimant shall be given written notice which shall contain (1) the specific reasons for the denial, (2) references to pertinent Plan provisions upon which the denial is based, (3) a description of any additional material or information necessary to perfect the claim and an explanation of why such material or information is necessary, and (4) the Claimant's rights to seek review of the denial. (b) Review of Claim Denial. If a claim is denied, in whole or in part (or if within the time periods prescribed for in the initial claim, the Benefit Trust Committee or agent has not furnished the Claimant with a denial and the claim is therefore deemed denied), the Claimant shall have the right to request that the Benefit Trust Committee review the denial, provided that the Claimant files a written request for review with the Benefit Trust Committee within sixty (60) days after the date on which the Claimant received written notification of the denial. A Claimant (or his or her duly authorized representative) may review pertinent documents and submit issues and comments in writing to the Benefit Trust Committee. Within sixty (60) days after a request for review is received, the review shall be made and the Claimant shall be advised in writing by the Benefit Trust Committee of the decision on review, unless special circumstances require an extension of time for processing the review, in which case the Claimant shall be given a written notification by the Benefit Trust Committee within such initial sixty (60) day period specifying the reasons for the extension and when such review shall be completed (provided that such review shall be completed within one hundred and twenty (120) days after the date on which the request for review was filed). The decision on review shall be forwarded to the Claimant by the Benefit Trust Committee in writing and shall include specific reasons for the decision and references to Plan provisions upon which the decision is based. A decision on review shall be final and binding on all persons for all purposes. If a Claimant shall fail to file a request for review in accordance with the procedures described in this Section, such Claimant shall have no right to review and shall have no right to bring action in any court and the denial of the claim shall become final and binding on all persons for all purposes. 11 17 ARTICLE VI - -------------------------------------------------------------------------------- AMENDMENT 6.1 Prior to a Change of Control. The Company reserves the right to amend this Plan from time to time by action of the Board of Directors, but without the written consent of each Participant and Beneficiary of a deceased Participant, no such action may relieve the Company of any obligation or reduce such obligation with respect to any Retirement Benefit or Death Benefit accrued under this Plan by such Participant or Beneficiary, respectively, as of the date of such amendment, except to the extent such amendment is required by written opinion of counsel to the Company to avoid more likely than not the recognition of income by a Participant or Beneficiary subject to federal income taxation. 6.2 After a Change of Control. After a Change of Control of the Company, the Company, by action of its Board of Directors, may amend this Plan solely for the purpose of freezing benefit accruals, provided such freeze does not change the definition of Actuarial Equivalent nor the ability to elect timing and optional forms of payment or a Beneficiary on or after such Change of Control date. 12 18 ARTICLE VII - -------------------------------------------------------------------------------- TERMINATION The Company, by action of the Board of Directors, reserves the right to terminate this Plan, provided the Company pays to each Participant and Beneficiary, on such date of termination of this Plan, the Lump Sum value of a Participant's unpaid Retirement Benefit, or if a Beneficiary is receiving the Death Benefit, the Beneficiary's unpaid Death Benefit; provided however, for this purpose the calculation of a Participant's Retirement Benefit will be based upon any assumption regarding this Plan set forth in the Participant's Employment Agreement or Termination Agreement. 13 19 ARTICLE VIII - -------------------------------------------------------------------------------- MISCELLANEOUS PROVISIONS 8.1 Administration. This Plan shall be administered by the Benefit Trust Committee. The Benefit Trust Committee shall have the full discretionary authority to interpret and manage this Plan. 8.2 Finality of Determination. The determination of the Benefit Trust Committee as to any disputed questions arising under this Plan, including questions of construction and interpretation shall be final, binding, and conclusive upon all persons. 8.3 Expenses. The expenses of administering this Plan shall be borne by the Company. 8.4 Indemnification and Exculpation. The members of the Benefit Trust Committee, its agents and officers, directors and employees of the Company shall be indemnified and held harmless by the Company against and from any and all loss, cost, liability, or expense that may be imposed upon or reasonably incurred by them in connection with or resulting from any claim, action, suit, or proceeding to which they may be a party or in which they may be involved by reason of any action taken or failure to act under this Plan and against and from any and all amounts paid by them in settlement (with the Company's written approval) or paid by them in satisfaction of a judgment in any such action, suit, or proceeding. The foregoing provision shall not be applicable to any person if the loss, cost, liability, or expense is due to such person's gross negligence or willful misconduct. 8.5 Funding. While all benefits payable under this Plan constitute general corporate obligations, the Company may establish a separate irrevocable grantor trust for the benefit of all Participants, which trust shall be subject to the claims of the general creditors of the Company in the event of such corporation's insolvency, to be used as a reserve for the discharge of the Company's obligations under this Plan to such Participants. Any payments made to a Participant under the separate trust for his benefit shall reduce dollar for dollar the amount payable to the Participant from the general assets of the Company. The amounts payable under this Plan shall be reflected on the accounting records of the Company but shall not be construed to create or require the creation of a trust, custodial, or escrow account, except as described above in this section. No Participant (or Beneficiary of a Participant) shall have any right, title, or interest whatever in or to any investment reserves, accounts, or funds that the Company may purchase, establish, or accumulate to aid in providing benefits under this Plan. Nothing contained in this Plan, and no action taken pursuant to its provisions, shall create a trust or fiduciary relationship of any kind between the Company, or Compensation Committee and a Participant, Beneficiary or any other 14 20 person. Neither a Participant nor any shall acquire any interest greater than that of an unsecured, general creditor. 8.6 Corporate Action. Any action required of or permitted by the Company under this Plan shall be by resolution of its Board of Directors, the Compensation Committee or any person or persons authorized by resolution of such Compensation Committee. 8.7 Interests not Transferable. The interests of the Participants and their Beneficiaries under this Plan are not subject to the claims of their creditors and may not be voluntarily or involuntarily transferred, assigned, alienated, or encumbered by them. 8.8 Effect on Other Benefit Plans. Amounts credited or paid under this Plan shall not be considered to be compensation for the purposes of a qualified pension plan maintained by the Company. The treatment of such amounts under other employee benefits plans shall be determined pursuant to the provisions of such plans. 8.9 Legal Fees and Expenses. After a Change of Control, the Company shall pay all reasonable legal fees and expenses which the Participant or a Beneficiary may incur as a result of the Company's contesting the validity, enforceability or the Participant's interpretation of, or determinations made under, this Plan or the Trust. 8.10 Deduction of Taxes from Amounts Payable. The Company may withhold whatever taxes (including FICA, state or federal taxes) it, in its sole discretion, deems proper to protect the Company against liability for the payment of such withholding taxes and out of the money so deducted, the Company may discharge any such liability. Withholding for this purpose may come from any wages due to the Participant, or if none, from the Participant's Account hereunder. 8.11 Facility of Payment. If a Participant or Beneficiary is declared an incompetent or is a minor and a conservator, guardian, or other person legally charged with his or her care has been appointed, any benefits to which such Participant or Beneficiary is entitled shall be payable to such conservator, guardian, or other person legally charged with his or her care. The decision of the Benefit Trust Committee in such matters shall be final, binding, and conclusive upon the Company and upon each Participant, Beneficiary, and every other person or party interested or concerned. The Company and the Benefit Trust Committee shall not be under any duty to see to the proper application of such payments. 8.12 Merger. This Plan shall be binding and enforceable with respect to the obligation of the Company against any successor to the Company by operation of law or by express assumption of the Plan, and such successor shall be substituted hereunder for the Company. 15 21 8.13 Gender and Number. Except when the context indicates to the contrary, when used herein, masculine terms shall be deemed to include the feminine, and singular the plural. 8.14 Invalidity of Certain Provisions. If any provision of this Plan shall be held invalid or unenforceable, such invalidity or unenforceability shall not affect any other provisions hereof and this Plan shall be construed and enforced as if such provisions, to the extent invalid or unenforceable, had not been included. 8.15 Headings. The headings or articles are included solely for convenience of reference, and if there is any conflict between such headings and the text of this Plan, the text shall control. 8.16 Notice and Information Requirements. Except as otherwise provided in this Plan or as otherwise required by law, the Company shall have no duty or obligation to affirmatively disclose to any Participant or Beneficiary, nor shall any Participant or Beneficiary have any right to be advised of, any material information regarding the Company, or at any time prior to, upon or in connection with the Company's purchase, or any other distribution or transfer (or decision to defer any such distribution) of any Company Stock or any other stock held under this Plan. 8.17 Governing Law. This Plan shall be governed by the laws of the State of Delaware. Adopted on the ______ day of _______________ by the Board of Directors of the Company as to its obligations. By:______________________________ Title:___________________________ 16 EX-10.29 20 EXHIBIT 10.29 1 EXHIBIT 10.29 SEPARATION AGREEMENT AND GENERAL RELEASE Walbro Corporation ("Walbro" or the "Company") and Lambert E. Althaver (the "Executive") hereby enter into this Separation Agreement ("Agreement") this 20th day of May, 1998: WHEREAS, Executive has been employed as Chief Executive Officer of Walbro and been an officer and director with various entities affiliated with Walbro, including without limitation, Walbro Corporation; Walbro Netherlands B.V.; Auburn Die Cast; U.S. Coexcell, Inc.; Walbro Automotive Japan, Inc.; Walbro Korea, Ltd.; Walbro Automotive S.A. - France; Walbro Automotive AS - Norway; Walbro Automotive Limited - United Kingdom; Walbro Automotive FSC, Inc.; CME, Marwal Systems, SNC; Mitsuba-Walbro, Inc.; and Whitehead Engineered Products, Inc. (collectively, the "Affiliates"); and WHEREAS, Walbro and Executive are parties to a certain Employment Agreement dated August 16, 1996 and a certain Termination and Change of Control Agreement dated August 16, 1996 (collectively the "Prior Agreements") and wish to terminate the Prior Agreements and sever their employment relationship and fully settle all claims which either party has or may have; and WHEREAS, Executive has concluded it is in his best interest to retire and resign his position with the Company and the Affiliates, subject to the terms and conditions provided in this Agreement, and the Company has agreed to accept Executive's resignation;. WHEREAS, both parties desire to part on the terms and conditions contained in this Agreement. NOW, THEREFORE, Walbro and Executive agree as follows: 1. Effective as of the close of business on April 15, 1998 ("Separation Date"), Executive resigns his employment and the office of Chief Executive Officer, and effective as of the close of business on May 20, 1998, Executive resigns directorships Executive may hold with Walbro and any of its Affiliates and his position as Chairman of the board of directors of Walbro. Executive and Walbro shall implement the resignation in a manner designed to ensure the least disruption to the operations and business of Walbro and its Affiliates, while continuing the good standing in which Executive is held in the industry and his community. After the Separation Date, except as described in this Agreement, neither Executive nor Walbro shall have any further obligation under the Prior Agreements. 2. No provision of the Prior Agreements shall survive this Agreement, except subsections (a) and (b) of Section 11 of the Termination and Change of Control Agreement 2 entered into by and between Executive and Walbro on August 16, 1996 ("Termination and Change of Control Agreement") as provided above in Section 9 of this Agreement. 3. In consideration for the agreements and in full and final settlement of all of Executive's stated and unstated claims, Walbro agrees: (a) Walbro shall continue to pay Executive his Annual Base Salary at the rate in effect (Four Hundred and Fifty Thousand Dollars ($450,000.00) per annum) through August 15, 1998, less all appropriate deductions and withholdings required by law. (b) Within seven days following the Effective Date, Walbro shall pay Executive Fifty-One Thousand Five Hundred Sixty-Two and 50/100 Dollars ($51,562.50), less all appropriate deductions and withholdings required by law, as Executive's Annual Incentive Compensation for the fiscal year ending 1998 (such amount determined by multiplying the average of Executive's fiscal year 1995, 1996, and 1997 bonuses by a fraction, the numerator of which is 227, the number of days in 1998 through August 15, and the denominator of which is 365). (c) Stock Options granted under the Walbro Corporation Equity Based Long Term Incentive Plan (as identified in an interoffice memorandum from D. L. Hittler to L. E. Althaver dated March 16, 1998) shall be fully exercisable on and after the Separation Date for the lesser of six (6) years after the Separation Date or ten (10) years from date of grant. (d) One Thousand Seventy (1,070) Phantom Stock certificates shall be converted to stock certificates (or, alternatively, to cash at fair market value) on the date of notice provided by Executive; provided that such notice must be provided not later than August 29, 1998. (e) As of the date of this Agreement, Executive shall cease to accrue benefits under the Company's supplemental employee retirement plan ("SERP"); provided, however, Walbro shall pay to Executive ten (10) annual installments with the initial payment on September 1, 1998 under the SERP, less appropriate deductions and withholdings required by law. Each installment payment shall be One Hundred Ninety Six Thousand Six Hundred Ninety Five Dollars ($196,695). (f) Walbro shall provide office facilities through August 15, 1999, at a location to be chosen by Walbro. (g) Walbro will reimburse Executive for the monthly lease cost of his assigned vehicle (1998 Cadillac Seville) and shall provide insurance coverage for such vehicle from the Separation Date to August 15, 1999. Executive shall be responsible for operating, maintenance and repair costs. 2 3 (h) All other fringe benefits shall terminate on May 20, 1998. 4. In consideration for agreement and in full settlement of all claims: (a) Executive agrees to repay the One Hundred Thousand Dollars ($100,000) outstanding loan not later than August 15, 1998. (b) Executive agrees that, as a part of his responsibilities, he shall (i) return all Company property (including customer lists, data, software, etc.) in his possession and (ii) use reasonable efforts to assure a smooth transition of his duties and responsibilities to the management executives or other individuals designated by Walbro and shall provide the details concerning corporate opportunities which have not resulted in agreements with third parties in which he is and was involved and be available for consultation regarding general business matters for a period of one year following the Separation Date. Executive further agrees to cooperate with Walbro in the truthful and honest prosecution and/or defense of any claim in which the Released Parties (as hereinafter defined) may have an interest (subject to reasonable limitations concerning time and place), which may include without limitation making himself available to participate in any proceeding involving any of the Released Parties, allowing himself to be interviewed by representatives of Walbro, appearing for depositions and testimony without requiring a subpoena, and producing and/or providing any documents or names of other persons with relevant information; provided that Walbro shall provide Executive reasonable compensation for the time actually expended in such endeavors and shall pay Executive's reasonable expenses incurred at Walbro's request. 5. Except for a claim based upon a breach of this Agreement, Executive hereby releases Walbro, its Affiliates, directors, officers and employees of any and all claims, suits, demands, actions or causes of action of any kind of nature whatsoever, whether the underlying facts are known or unknown, which Executive has or now claims, or might have a claim, pertaining to or arising out of Executive's employment by Walbro, his resignation therefrom, the Prior Agreements, or any other agreement or benefit plan of Walbro. This release covers all claims, actions or liability under (i) Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1991, the Civil Rights Act of 1866 (42 U.S.C. Section 1981), the Age Discrimination in Employment Act, the Americans With Disabilities Act, the Fair Labor Standards Act, the National Labor Relations Act, the Employee Retirement Income Security Act, the Family and Medical Leave Act, the Worker Adjustment and Retraining Notification Act, the Elliott Larsen Civil Rights Law, the Michigan Handicappers Civil Rights Act, and Michigan wage laws; (ii) any other federal, state or local statute, ordinance, or regulation regarding employment, compensation, employee benefits, termination of employment, or discrimination in employment; and (iii) the common law of any state relating to employment contracts, wrongful discharge, defamation, or any other matter. This release shall run to and be for the benefit of Walbro and each of its Affiliates or related entities, and all predecessors, successors and assigns thereof and each of their trustees, shareholders, directors, officers, Executives, agents and attorneys, past or present, and all predecessors, successors, heirs and assigns thereof (collectively "Released 3 4 Parties"). This release shall run to and be binding upon Executive and his heirs and assigns. The Executive waives any reinstatement or future employment with the Company, and agrees never to apply for employment or otherwise seek to be hired, rehired, employed or reemployed by the Company or its Affiliates. The following provisions are applicable to and made a part of this Agreement and the foregoing general release and waiver: (a) Executive does not release or waive any right or claim which he may have under the Age Discrimination in Employment Act, as amended by the Older Workers Benefits Protection Act, which arises after the date of execution of this Agreement; provided that Executive acknowledges and agrees that any claim under the Age Discrimination in Employment Act relating to his separation from employment with Walbro has arisen prior to the execution of this Agreement; (b) In exchange for this general release and waiver hereunder, Executive hereby acknowledges that he has received separate consideration beyond that which he is otherwise entitled to under the Prior Agreements, Walbro policy or applicable law; (c) Walbro hereby expressly advises Executive to consult with an attorney of his choosing prior to executing this Agreement, which contains a general release and waiver; (d) Executive has twenty-one (21) days from the date of presentment to consider whether or not to execute this Agreement. In the event of such execution, Executive has a further period of seven (7) days from the date of execution in which to revoke said execution by an unequivocal and written notice to Daniel L. Hittler, Secretary and Chief Administrative Officer, Walbro Automotive Corporation that shall be effective when actually received by Mr. Hittler if received by 5:00 p.m. on the seventh day after the signing of the Agreement, and this Agreement shall not become effective or enforceable until the expiration of such revocation period ("Effective Date"); and (e) Prior to pursuing any claim that requires the Court to disregard or invalidate this Agreement, Executive shall return to Walbro the consideration described in paragraph 3 above. 6. Walbro and its Affiliates hereby remise, release and forever discharge and covenant not to sue and shall be deemed to have remised, released and forever discharged Executive of and from any and all causes and causes of action, suits, sums of money, debts, duties, accounts and accounting, breaches or defaults, damages, judgments and liabilities, by reason of any agreement, act or occurrence, fact or circumstance, conduct or misconduct, contractual or otherwise, general and special, contingent, known or unknown, liquidated or unliquidated, or matter, cause or thing whatsoever, from the beginning of time to the date 4 5 hereof, including but not limited to Executive's employment with Walbro, provided, however, that nothing herein contained shall be deemed to release Executive from his obligations under this Agreement. 7. Walbro shall indemnify Executive and advance expenses in accordance with its practices for former senior executive officers and directors. In addition, Walbro hereby agrees to indemnify and hold harmless Executive and any of his heirs, successors and assigns, and each of them, from and against any and all losses, damages, fines, assessments, claims, judgments, proceedings, expenses or liabilities (including, without limitation, reasonable attorneys' fees) arising out of, attributable to or which result from any claim by any of Walbro or Walbro's affiliates or by any third party against Executive based upon or related to (i) Executive's position as an officer and/or director of any of the Walbro or Walbro's affiliates; and (ii) Executive's function as a trustee of any Company-sponsored plans; except to the extent any such claim, as a matter of law, constitutes a claim for which Walbro is not permitted to indemnify Executive or arises out of enforcement of this Agreement. 8. To the maximum extent permitted by law, (1) Executive covenants not to sue or to institute or cause to be instituted any action in any federal, state or local agency or court against Walbro or any Released Party regarding the matters covered by the release contained in paragraph 5 above, except to enforce the terms of this Agreement; and (2) Walbro covenants not to sue or to institute or cause to be instituted any action in any federal, state or local agency or court against Executive or any Released Party regarding the matters covered by the release contained in paragraph 6 above, except to enforce the terms of this Agreement. 9. Executive agrees to continue be bound by the provisions of subsections (a) and (b) of Section 11 "Non-Competition and Non-Disclosure; Executive Cooperation" of the Termination and Change of Control Agreement, such restrictions to continue to be in effect until August 15, 1999. 10. This Agreement comprises the entire agreement between the parties with regard to the subject matter hereof. No modification of this Agreement shall be valid unless signed by the authorized representative of the party against whom such modification is sought to be enforced. 11. Executive agrees that any breach by Executive of Section 9 of this Agreement will cause Walbro great injury which will be difficult, if not impossible, to measure and that such injury will be immediate and irreparable for which Walbro will have no adequate remedy at law. Consequently, Executive and Walbro agree that any material breach thereof by Executive shall entitle Walbro to the non-exclusive remedy of injunctive relief. Executive agrees that, in the event of a breach by Executive of this Agreement, Walbro would be more harmed by the denial of an injunction or other equitable relief than Executive would be harmed by the issuance of an injunction or other equitable relief and that the public interest would be furthered by the issuance of an injunction or other equitable relief to prevent further or additional breach of Section 9 hereof. 5 6 12. Executive agrees that neither this Agreement or performance hereunder constitutes an admission by Walbro of any violation of any federal, state or local law, regulation, common law, of any breach of any contract or any other wrongdoing of any type. 13. If any provision, section, subsection or other portion of this Agreement shall be determined by any court of competent jurisdiction to be invalid, illegal or unenforceable in whole or in part, and such determination shall become final, such provision or portion shall be deemed to be severed or limited, but only to the extent required to render the remaining provisions and portions of Section 11 of the Termination and Change of Control Agreement enforceable. This Agreement or Section 11 of the Termination and Change of Control Agreement, as amended, shall be enforced so as to give effect of the intention of the parties insofar as that is possible; provided, however, that upon any finding by a court of competent jurisdiction that a release or waiver of claims or rights or a covenant provided by Section 11 of the Termination and Change of Control Agreement is illegal, void or unenforceable, the Executive agrees to execute promptly a release, waiver and/or covenant that is legal and enforceable. In addition, the parties hereby expressly empower a court of component jurisdiction to modify any term or provision of Section 11 of the Termination and Change of Control Agreement, as amended, to the extent necessary to comply with existing law and to enforce Section 11 of the Termination and Change of Control Agreement, as amended. 14. This Agreement and Section 11 of the Termination and Change of Control Agreement shall be construed in accordance with the laws of the State of Michigan without regard to its choice of law rules, and the parties hereto consent to the exclusive jurisdiction of the State of Michigan courts, except as to the enforcement or execution of the judgement of any such court and as to either party seeking injunctive relief in any jurisdiction in which such party believes that a breach hereof may have occurred. 15. Executive acknowledges that he has carefully read and fully understands the terms and provisions of this Agreement and all of his rights and obligations thereunder, has had an opportunity to be represented by legal counsel of his choosing, and that his execution of this Agreement is voluntary. 16. Neither this Agreement nor any term or provision herein shall create any rights on the part of any person or entity as a third-party beneficiary. 17. Walbro and Executive agree that neither will (without the prior written consent of the other) disclose, publish, indicate or, in any manner communicate, the terms and provisions of this Agreement to any other person or entity except: (a) as may be specifically required by law; (b) to his accountant and/or financial advisor to the extent necessary to prepare his tax returns; (c) to his attorney; and (d) to his spouse; and as may be otherwise publicly available. The Executive further agrees that prior to any such authorized disclosure, he will inform each such person to whom disclosure is to be made that the terms of the Agreement are confidential and he will secure the agreement of each such person to maintain the confidentiality of the terms and provisions of the Agreement. Walbro and Executive further agree that neither will disparage the other, the Affiliates or any of the Released Parties. The Executive agrees to refer any request for a reference to the attention of Mr. Daniel L. Hittler. 6 7 18. The Executive acknowledges that the Company hereby advises him in writing to consult with an attorney before signing this Agreement, that he was given a period of twenty-one (21) days within which to consider this Agreement, that he had an adequate opportunity to review this Agreement with an attorney, that he fully understands its terms, that her was not coerced into signing it, and that he has signed it knowingly and voluntarily. The Executive understands that by signing this Agreement, he is waiving each and every claim he has, had, or may have regarding his employment by, or termination of employment with, the Company. IN WITNESS WHEREOF, the parties have executed this Agreement on the date first written above. WALBRO CORPORATION By: /s/ DANIEL L. HITTLER By: /s/ LAMBERT E. ALTHAVER ----------------------------- ----------------------------- Daniel L. Hittler Lambert E. Althaver 7 EX-12 21 EXHIBIT 12 1 EXHIBIT 12 COMPUTATIONS OF RATIO OF EARNINGS TO FIXED CHARGES (in thousands, except for ratios)
Three months ended Year Ended December 31, March 31, -------------------------------------------------------- ---------------- 1997 1996 1995 1994 1993 1992 1996 1997 -------- ------- ------- ------ ----- ------ ------ ------ FIXED CHARGES: Interest on debt $ 25,410 $ 20,535 $ 12,420 $ 3,970 $ 2,688 $ 4,439 $ 7,665 $ 6,023 Dividends on convertible trust preferred securities 5,029 -- -- -- -- -- 1,380 874 Interest element of rentals (1) 2,059 2,567 1,587 1,108 885 936 670 487 Capitalized interest 1,207 3,683 518 -- -- -- 204 299 -------- -------- -------- ------- ------- ------- ------- ------- $ 33,705 $ 26,785 $ 14,525 $ 5,078 $ 3,573 $ 5,375 $ 9,919 $ 7,683 ======== ======== ======== ======== ======= ======= ======= ======= EARNINGS: Net income $(36,627) 11,229 $ 13,830 $ 14,595 $ 9,667 $12,526 $ 572 $11,704 Provision for national income taxes (10,131) 3,075 1,258 5,824 4,574 4,664 752 1,380 Cumulative effect of accounting change -- -- -- -- 4,394 -- -- -- Fixed charges 33,705 26,785 14,525 5,078 3,573 5,375 9,919 7,683 Capitalized interest (1,207) (3,683) (518) -- -- -- (204) (299) Minority interest in income 6 285 472 92 -- -- (11) (110) Equity in (income)losses of joint ventures (3,113) (4,187) (3,877) (2,609) 89 (179) (474) (801) -------- -------- -------- -------- ------- ------- ------- ------- $(17,367) $ 33,504 $ 25,690 $ 22,980 $22,297 $22,386 $10,554 $19,557 ======== ======== ======== ======== ======= ======= ======= ======= RATI0 OF EARNINGS TO FIXED CHARGES -0.5 1.3 1.8 4.5 6.2 4.2 1.1 2.5 FIXED CHARGES IN EXCESS OF EARNINGS $ 51,072 $ -- $ -- $ -- $ -- $ -- $ -- $ --
(1) Deemed to be approximately one-third of rental expenses. EX-23.1 22 EXHIBIT 23.1 1 EXHIBIT 23.1 [ARTHUR ANDERSEN LLP LETTERHEAD] CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the use of our report included in this Registration Statement File No. 333-45693 on Form S-4 and to the incorporation by reference in this Registration Statement of our report dated February 11, 1998 (except with respect to the matters discussed in Notes 6 and 21, as to which the date is April 13, 1998) included in Walbro Corporation and Subsidiaries' Form 10-K for the year ended December 31, 1997 and to all references to our Firm included in this Registration Statement. /s/ ARTHUR ANDERSEN LLP Detroit, Michigan, June 1, 1998. EX-23.2 23 EXHIBIT 23.2 1 EXHIBIT 23.2 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference in this Registration Statement No. 333-45693 on Form S-4 of our reports dated February 26, 1996, March 7, 1997 and March 6, 1998 with respect to the balance sheets of Marwal Systems as of December 31, 1995, 1996 and 1997 and the related statements of income for the years then ended, which reports are included or incorporated by reference in the Registration Statement on Form S-4 and related Prospectus of Walbro Corporation for the registration of Exchange Notes and to the reference to our firm under the caption "Independent Public Accountants" included therein. ERNST & YOUNG AUDIT Paris, France /s/ Gilles Meyer June 1, 1998 Gilles Meyer EX-27 24 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS DEC-31-1997 JAN-01-1998 MAR-31-1998 17,090 0 160,761 0 58,504 263,258 394,761 123,962 629,506 183,943 293,804 69,000 0 4,341 62,846 629,506 169,292 169,292 144,058 161,016 (1,468) 0 7,503 2,241 752 572 0 0 0 572 0.07 0.07
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