-----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, S7C6t3JZgul0QzqqywRZ1aX06unXTC7AA6JHbZLqHdkvMJSgrNIFjrxOpdtNmJ8T ewtVf6DeTSbrLsqpyPFcWA== 0000950124-99-002319.txt : 19990423 0000950124-99-002319.hdr.sgml : 19990423 ACCESSION NUMBER: 0000950124-99-002319 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990331 DATE AS OF CHANGE: 19990422 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WALBRO CORP CENTRAL INDEX KEY: 0000104174 STANDARD INDUSTRIAL CLASSIFICATION: 3714 IRS NUMBER: 381358966 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-11567 FILM NUMBER: 99584005 BUSINESS ADDRESS: STREET 1: 6242 GARFIELD ST CITY: CASS CITY STATE: MI ZIP: 48726 BUSINESS PHONE: 5178722131 MAIL ADDRESS: STREET 1: 6242 GARFIELD STREET CITY: CASS CITY STATE: MI ZIP: 48726 10-K 1 FORM 10-K 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------------------- FORM 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 1998 Commission File Number 0-6955 WALBRO CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) Delaware 38-1358966 (STATE OF INCORPORATION) (I.R.S. EMPLOYER ID NO.) 1227 Centre Road, Auburn Hills, Michigan 48236 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) (248) 377-1800 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.50 par value (TITLE OF CLASS) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. The aggregate market value of the registrant's voting stock held by non-affiliates of the registrant, based upon the last reported sale price of the registrant's Common Stock on March 18, 1999. $79,474,260 The number of shares outstanding of the registrant's Common Stock, par value $.50, as of March 18, 1999. 8,688,294 --------------------------- DOCUMENTS INCORPORATED BY REFERENCE Certain sections of the registrant's Notice of Annual Meeting of Stockholders and Proxy Statement for its Annual Meeting of Stockholders to be held on May 4, 1999 are incorporated by reference into Part III of this report. ================================================================================ 2 PART I SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. The statements contained in this discussion 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. Walbro Corporation cautions readers of this discussion that a number of important factors could cause Walbro's actual consolidated results for 1999 and beyond to differ materially from those expressed in any forward-looking statements made by, or on behalf of, Walbro. 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. These important factors and other factors which could affect Walbro's results are more fully discussed in Walbro's filings with the Securities and Exchange Commission. Readers of this discussion are referred to such filings. The Company assumes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. ITEM 1. 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 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 1993 to 1998, the Company increased net sales at the compound rate of approximately 20% 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 $678.0 million in 1997 and 1998. Approximately 73% of the Company's net sales for 1998 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 1998, management estimates that the Company supplied Chrysler (Chrysler refers to the former Chrysler portion of DaimlerChrysler) with approximately 75% of its fuel pump and fuel module requirements, including all requirements for Chrysler's passenger cars and minivans and approximately 45% 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 1 3 customers of the Company and its joint ventures include Audi, Daewoo, Fiat, Ford, General Motors, Hyundai, Kia, Nedcar, Peugeot and Rover. Approximately 21% of the Company's net sales for 1998 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 70% 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 1998 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 1227 Centre Road, Auburn Hills, Michigan 48236, and its telephone number is (248) 377-1800. 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 2 4 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, DaimlerChrysler 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, DaimlerChrysler 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. 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 that range from $100 to $190, 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. 3 5 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 1998 were 39% of the Company's net sales (excluding joint ventures) compared to 20% in 1994. 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 and Argentina 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 opened a new systems center during 1998 in Rastatt, Germany to provide product design and test capabilities for European customers. 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. 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, 4 6 approximately 70% of cars and light trucks manufactured by General Motors, Ford and DaimlerChrysler in North America in 1998 used fuel modules. In 1998, the Company supplied approximately 20% of all of the fuel modules purchased in North America, principally to Ford and Chrysler. Approximately 40% of North American vehicles and 80% of European vehicles produced in 1998 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. The Company launched multi-layer tanks for Volvo during 1998, and expects that as other customers require more sophisticated fuel tanks, the Company will likely provide additional 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. 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. North America. DaimlerChrysler is the Company's largest customer, representing approximately 26% of net sales in 1998 (21% former Chrysler and 5% former Daimler/Mercedes-Benz). General 5 7 Motors, the Company's second largest customer, with approximately 11% of sales, has become a significant customer as a result of substantial plastic fuel tank programs launched since 1996. 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 DaimlerChrysler. 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 DaimlerChrysler 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 ("VITEC") with a group of minority business owners to produce automotive components in Detroit's Empowerment Zone. 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 1999. 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 80% of the European light duty vehicles and 40% 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 1998. 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 January 1998, the Company began production and sale of FSDS products in South Korea for the domestic South Korean automotive market. 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 Automotive (Ford's component group) and Delphi Automotive Systems (formerly GM's component group). In the fuel rail market, the Company's major competitors include Delphi, Visteon Automotive, Echlin Inc. (which was acquired by Dana Corporation in 1998) and Siemens A.G. The 6 8 Company has competition in the fuel module market from Delphi, Robert Bosch GmbH, Denso Corp., VDO and Visteon Automotive. 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 Automotive. 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. Since the Company's systems center in Europe was completed in 1998, the Company has 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. 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 7 9 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 and management estimates 1997 and 1998 production to have been approximately 10.0 million units each year. 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 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 50%, 28% and 15%, respectively, of the Company's 1998 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 8 10 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 75% 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, 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 9 11 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 2.4 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 DaimlerChrysler 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 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. 10 12 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 and has become the primary quality discipline within the automotive industry. All but one of the Company's automotive 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 plus 400 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 delivery systems, 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 opened its new European engineering center in 1998. The Company's engineering departments also engage in design, development and testing. In 1998, 1997 and 1996, the Company spent approximately $12.9 million, $17.3 million and $18.4 million, respectively, for research and product development. The decrease in 1998 was almost entirely due to the reclassification of certain product engineering and testing expenses from research and development to cost of goods sold. 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. 11 13 EMPLOYEES As of December 31, 1998, the Company had approximately 5,422 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. The Company's United States plant employees at two manufacturing sites in Michigan and one site in Connecticut (approximately 707) are unionized. All other United States employees are non-unioned. The Company's five-year contract with the bargaining unit for these Michigan plants expires in November 2003. A three-year contract with the Company's bargaining unit employees at Meriden, Connecticut expires March 20, 2002. 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. 12 14 ITEM 2. PROPERTIES The Company conducts operations in approximately 2.4 million square feet of space in a total of 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. ITEM 3. LEGAL PROCEEDINGS The Company is not a party to any litigation, and is not aware of any pending or threatened litigation, that would have a material adverse effect on the Company or its business. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter of 1998. 13 15 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Price DIVIDENDS QUARTERS ENDED HIGH Low PER SHARE ---- --- --------- December 31, 1998........ 8 1/2 6 3/16 $ -- September 30, 1998....... 12 15/16 7 1/2 -- June 30, 1998............ 14 1/8 8 5/8 -- March 31, 1998........... 15 11 -- -- $ -- December 31, 1997........ 24 1/8 12 $.10 September 30, 1997....... 24 1/4 191/2 .10 June 30, 1997............ 21 1/2 15 .10 March 31, 1997........... 19 1/4 161/2 .10 -- $.40
On February 23, 1999, the closing per share price was $10.00. The above prices do not include retail markup, markdown, or commission. As of February 23, 1999, the approximate number of shareholders was 1,024. Walbro is traded on the NASDAQ National Market ("NNM") and reported by NNM under the symbol "WALB". ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA The results of operations of the Company for each of the years in the three-year period ended December 31, 1998 and balance sheet data as of December 31, 1998 and 1997, respectively, were derived from the audited Consolidated Financial Statements of the Company, and the notes thereto, appearing elsewhere in this Form 10-K.
Years Ended December 31, 1998 1997 1996 1995 1994 ---- ---- ---- ---- ---- (In Thousands, Except Per Share Data) From Continuing Operations: Net Sales.................... $677,990 $ 619,905 $585,389 $459,272 $325,205 Cost of Sales................ 571,992 538,751 488,134 377,755 261,501 Income (Loss) Before Extraordinary Item...................... 5,191 (36,627) 11,229 13,830 14,595 Income (Loss) Per Share Before Extraordinary Item (basic and diluted)....... 0.60 (4.23) 1.30 1.61 1.70 Cash Dividends Per Share....... -- 0.40 0.40 0.40 0.40 Working Capital................ 96,926 75,273 68,275 95,713 58,378 Total Assets................... 648,667 610,593 589,649 493,473 257,366 Long-Term Debt................. 324,289 291,393 291,723 233,389 66,136 Stockholders' Equity........... 77,556 69,866 137,733 135,427 127,915
14 16 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The following is a discussion of the financial condition and results of operations of the Company for the years ended December 31, 1998, 1997 and 1996. YEAR ENDED DECEMBER 31, 1998 COMPARED TO 1997, 1997 COMPARED TO 1996 SALES. The Company reported sales in 1998 of $678.0 million, an increase of 9.4% from $619.9 million in 1997. The 1998 increase was generated by a 8.6% increase in sales to the automotive original equipment market, a 13.1% increase to the small engine market and a 12.8% increase in aftermarket sales. Sales in 1997 of $619.9 million were 5.9% higher than the 1996 sales of $585.4 million. The 1997 sales increase came from increased automotive product sales in North and South America and increased sales to the small engine market partially offset by lower sales to the European automotive market caused by lower foreign currency exchange rates. In addition, aftermarket sales increased by 17.5% in 1997 compared to 1996. Sales of the Company's automotive products were $497.4 million in 1998 compared to $458.0 million in 1997, an increase of 8.6%. In 1998, North American automotive product sales were up 11.4%, despite the General Motors strike that affected sales in the second and third quarters by approximately $7.0 million and several other factors which are described as follows. The Company sold its automotive steel fuel rail operations in 1998, which represented a $17.2 million decline in automotive sales for 1998 compared to 1997. The Company also began to phase out the sale of component parts for fuel pumps to its joint ventures (the joint ventures now buy direct from the parts manufacturers) which reduced U.S. automotive sales by $17.3 million for 1998. The North American and European automotive sales increase in 1998 resulted from increased sales of plastic fuel tank systems as plastic fuel tanks continue to replace steel fuel tanks in both markets. Sales of the Company's automotive products in Europe were up 5.0% for 1998 compared to 1997. However, automotive product sales in Brazil were down 22.0% due to the economic disruptions and reduced vehicle sales in that market. The Company's new plastic fuel tank plant in South Korea started production in January 1998 and added $2.6 million of new sales. The 1997 sales of automotive products were $458.0 million, an increase of 4.4% compared to $438.6 million in 1996. The increase resulted from increased sales of plastic fuel tank systems to both North and South American OEM customers, partially offset by lower sales of steel fuel rails in the U.S. and lower sales dollars from the Company's European operations due to foreign currency exchange rates, which declined 16% compared to the U.S. dollar. The lower sales growth in North America during 1997 was due to insourcing of fuel pumps and fuel modules by Ford Motor Company, and lower shipments to Chrysler in the second quarter of 1997 because of a strike at Chrysler's Mound Road Engine Plant. Sales of the Company's small engine products were $142.4 million in 1998, an increase of 13.1%, compared to $125.9 million in 1997, which had increased by 7.5% in 1997 compared to $117.1 million in 1996. The most significant factors driving the 1998 sales increase was an 11.8% increase in diaphragm carburetor sales, a 23.7% increase in ignition systems sales and an 80.4% increase in float feed carburetor sales in The People's Republic of China ("PRC"). For both ignition systems and PRC carburetors, the Company increased its production capacity and broadened its product offering during 1997 and 1998, which resulted in increased sales during 1998. The Company also gained market share in The PRC during 1998 as importers lost sales due to higher import taxes. The 1997 increase in small engine products was driven by a 25.9% increase in ignition systems and a 6.4% increase in motorcycle carburetor sales in The 15 17 PRC. The 1997 PRC sales were less than expected as the Company experienced a significant reduction in orders during the second half of 1997 as customers reduced excess motorcycle inventories. Sales of the Company's aftermarket products were $33.2 million in 1998, an increase of 12.5%, compared to $29.5 million in 1997, which had increased by 17.5% compared to $25.1 million in 1996. Aftermarket sales growth in both years was primarily due to growth in automotive product sales generated by the addition of new products offered to aftermarket customers and by adding new customers. COST OF SALES. Cost of sales was $572.0 in 1998 compared to $538.8 million in 1997 compared to $488.1 million in 1996. Cost of sales as a percent of sales was 84.4% in 1998 compared to 86.9% in 1997 compared to 83.4% in 1996 and consequently gross margin was 15.6% in 1998 compared to 13.1% in 1997 compared to 16.6% in 1996. Gross margin increased in 1998 due to higher production volumes at most plants, lower launch costs for new plastic tank programs and the benefits of the restructuring program started during the fourth quarter of 1997. The restructuring program resulted in headcount reductions, closure of the Company's small engine carburetor plant in Singapore and sale of the Company's automotive steel fuel rail operations -- all of which contributed to higher gross margin in 1998. Gross margin declined in 1997 compared to 1996 because of lower margins in both automotive and small engine products. Lower automotive gross margin was due to a number of factors including the following: change in the mix of products sold in the U.S., high launch costs for new plastic fuel tank programs, start-up cost 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 increased volume of new plastic fuel tank systems, which carry lower gross margins since they include a high level of purchased components. In addition, sales volume for steel fuel rails, fuel pumps and fuel modules was lower in 1997 because of Ford in-sourcing of fuel systems, the Chrysler strike and lower production of U.S. passenger cars. The lower gross margin in 1997 for small engine products was caused by start-up costs for the new plant in The PRC, lower volume at both facilities in The PRC, the one-time cost of moving two plants in Mexico and increased warranty costs. SELLING AND ADMINISTRATIVE EXPENSES. Selling and Administrative ("S&A") expenses were $55.6 million in 1998, a decrease of 8.6%, compared to $60.8 million in 1997. S&A expenses in 1997 included a number of one-time items totaling $5.1 million which included increased professional fees, financing fees for modifications to bank loan agreements, legal fees, settlement of legal claims and other one-time charges. 1997 S&A expenses were also higher due to the addition of new facilities in Argentina, South Korea and The PRC. The decrease in 1998 was primarily due to headcount reductions and the sale of the Company's steel fuel rail operations when compared to 1997 excluding the one-time charges in 1997. As a percent of sales, S&A expenses were 8.2% in 1998, 9.8% in 1997 and 8.9% in 1996. RESEARCH AND DEVELOPMENT EXPENSES. Research and Development ("R&D") expenses were $12.9 million in 1998, a decrease of 25.4%, compared to $17.3 million in 1997 which declined by 6.0% compared to $18.4 million in 1996. The decline in both 1998 and 1997 was caused by a shift of engineers out of R&D activities and into product engineering activities, which is included in cost of sales. RESTRUCTURING AND IMPAIRMENT CHARGES. During the fourth quarter of 1997, the Company recorded a $27.0 million pretax charge for restructuring its operations and other actions. The charge was comprised of a $17.0 million charge for restructuring and a $10.0 million charge associated with asset impairments. The restructuring actions included 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- 16 18 molded plastic drums in Maumee, Ohio. In addition, the Company consolidated its small engine operations in the Asia Pacific region and restructured its European automotive fuel tank operations. The asset impairment charge included the write down to net realizable value certain tooling, machinery and equipment, 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. All of the restructuring activities were completed during 1998 except for the divestiture of U.S. Coexcell Inc. INTEREST EXPENSE. Interest expense was $31.8 million in 1998 compared to $25.4 million in 1997 and $20.5 million in 1996. In May 1998, the Company obtained a new $150 million bank secured credit facility and in December 1997 the Company sold $100 million of its 10.125% senior notes and used the proceeds to repay the previous secured credit facilities, for working capital and for capital expenditures. The higher interest expense in both 1998 and 1997 was due to higher levels of borrowing in each year and the shift to a higher percentage of long-term fixed rate debt which raised the average cost of borrowing in each year. INTEREST INCOME. Interest income was $3.2 million in 1998 compared to $0.7 million in 1997 and $2.7 million in 1996. The higher amounts in 1998 and 1996 were the result of interest income recorded for interest from the Internal Revenue Service for interest due related to income tax refunds for prior years. ROYALTY INCOME. Royalty income was $3.2 million in 1998 compared to $3.9 million in 1997 and $1.4 million in 1996. The increased royalty income in 1997 versus 1996 was the result of receiving royalty income from the Marwal joint ventures starting in the fourth quarter of 1996 and receiving a full year in 1997. The decline in 1998 compared to 1997 resulted from lower sales by the Marwal joint ventures in Brazil and Argentina. INCOME TAXES. The provision for income taxes was $4.0 million in 1998 compared to a credit for income taxes of $10.1 million in 1997 and a provision of $3.1 million in 1996. The effective tax rate in 1998 was 28.1% due to a large portion of the taxable income earned in France, Germany and Japan, which have higher income tax rates than the U.S. which was more than offset by the benefit from tax deductible preferred stock dividends. The credit in 1997 was the result of the taxable loss recorded in 1997 from the restructuring and other one-time charges. JOINT VENTURE INCOME. The Company's equity in income of joint ventures was $0.8 million in 1998 compared to $3.1 million in 1997 and $4.2 million in 1996. The decrease in 1998 resulted from start-up costs at VITEC, the Company's joint venture in Detroit's Empowerment Zone and by reduced earnings at other automotive joint ventures around the world which were adversely affected by the strong U.S. dollar. In addition, the Marwal joint ventures in Brazil and Argentina were also affected by the difficult economic conditions in that region. The decline in 1997 compared to 1996 resulted from lower earnings at the Marwal joint ventures due to the payment of royalties to the Company, start-up costs for Marwal Argentina and losses at Korea Automotive Fuel Systems, the Company's joint venture in South Korea. MINORITY INTEREST. Minority interest was $5.8 million in 1998 compared to $5.0 million in 1997 and $0.5 million in 1996. The 1998 increase was due to a full year of preferred dividends paid in 1998 on the Convertible Preferred Securities of Walbro Capital Trust issued in February 1997. The 1996 minority interest represented only minority earnings from less than wholly owned subsidiaries. 17 19 INCOME (LOSS) BEFORE EXTRAORDINARY ITEM AND INCOME (LOSS) PER SHARE BEFORE EXTRAORDINARY ITEM. Income before extraordinary item was $5.2 million in 1998 compared to a loss of $36.6 million in 1997 and income of $11.2 million in 1996. Income per share before extraordinary item was $0.60 in 1998 compared to loss per share before extraordinary item of $4.23 in 1997 and income per share of $1.30 in 1996. EXTRAORDINARY ITEM. The extraordinary item in 1998 was $1.5 million net of tax for the early payment premium for the retirement of the 2004 Senior Notes that occurred in May 1998. NET INCOME (LOSS) AND INCOME (LOSS) PER SHARE. Net income in 1998 was $3.7 million compared to a net loss of $36.6 million in 1997 and net income of $11.2 million in 1996. Net income per share was $0.43 in 1998 compared to net loss per share of $4.23 in 1997 and net income per share of $1.30 in 1996. The net loss for 1997 was the result of the reasons stated above including the restructuring charge, warranty reserve and other one-time charges. 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. FOREIGN CURRENCY TRANSACTIONS. Approximately 49% of the Company's sales during 1998 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 (31% of sales), Asia (8% of sales) and South America (2% of sales) are measured in local currency of the countries in which they operate and translated into U.S. dollars. The effects of foreign currency fluctuations in those regions 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 Mexico (8% 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 versus the U.S. dollar. Approximately 44% of the Company's assets at December 31, 1998, are based in its foreign operations and 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 strengthening or weakening of the U.S. dollar. In addition, the Company has equity investments in unconsolidated joint ventures in Argentina, Brazil, France, Japan 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 to manage its exposure to foreign currency fluctuations related to its firm commitments in foreign currencies. THE YEAR 2000 ISSUE. The year 2000 issue ("Y2K") 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 18 20 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 actively participating in the Automotive Industry Action Group ("AIAG") for Y2K and is using AIAG procedures and standards as the guideline for compliance. The Company's plan for compliance includes several phases: (1) awareness, (2) assessment, (3) renovation, (4) validation and (5) implementation. Each phase considers the impact of Y2K on information technology systems, embedded technology (i.e. machinery and equipment with date sensitive technology) and the Company's suppliers. None of the Company's products include date sensitive technology. The Company is currently at various stages of completion within each phase. The Company has completed its assessment of its information technology systems and embedded technology identifying those that need further evaluation. The Company has also identified critical suppliers that need evaluation. This phase of the process includes obtaining compliance certificates from suppliers for all existing systems and embedded technology that are already Y2K compliant and obtaining compliance certificates for all significant vendors. The renovation phase, which is also in process, includes obtaining revised software for existing systems and purchasing new computer programs and replacement computer hardware for non-compliant systems. This phase is expected to be complete by June 30, 1999. The estimated cost associated with the purchase of these items is approximately $2.3 million. Existing staff will do all of the implementation and testing. The Company does not have a project tracking system that tracks the cost and time that its own internal employees spend on the Y2K project. The validation and implementation phases are also in process and are expected to be completed by June 30, 1999. Management believes that this plan will effectively mitigate the risks associated with Y2K. A worst-case scenario with respect to a Y2K failure in a key internal system or supplier system would result in shipments of product to customers to be temporarily interrupted. This could result in missing production schedules with customers, which in turn could lead to lost sales and profits for the Company and our customers. As part of the Y2K strategy, we are in the process of developing contingency plans on a site-by- site, system-by-system basis. These plans include identifying alternative sources of materials and components as well as potentially stockpiling some key raw materials. All plans will be documented and will be executed if necessary. LIQUIDITY AND CAPITAL RESOURCES. As of December 31, 1998, the Company had outstanding $14.4 million in short-term debt, including current portion of long-term debt, and $324.3 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, 1998 are $2.4 million in 1999, $2.6 million in 2000, $2.6 million in 2001, $2.0 million in 2002, $95.9 million in 2003 and $221.3 million thereafter. In May 1998, the Company obtained a $150 million Credit Facility consisting of $125 million revolving line of credit and a $25 million capital expenditure facility. The new credit facility is available for five years. Proceeds of the new credit facility were initially used to retire $30 million under the previous credit facility; to pay off the Purchase Money Loan Agreement; to pay off the $45 million Senior Notes due 2004 including an early retirement premium of $2.0 million. In addition, the facility will be used to finance capital expenditures and to meet working capital needs. At December 31, 1998, the Company had borrowed $93.1 million on the revolving line of credit and $2.5 million of the capital expenditure facility. 19 21 The Company's plans for 1999 capital expenditures for facilities, equipment and tooling total approximately $40 million. The Company intends to finance the capital expenditures with the credit facility, potential lease financing, funds available in the capital markets and cash from operations. As of December 31, 1998, accounts receivable amounted to $154.4 million, an increase of $9.4 million, compared to $145.0 million at December 31, 1997. The increase in accounts receivable was due to higher sales, larger amounts of accounts receivable for customer tooling and additional sales to foreign customers with longer payment terms. The average collection period at December 31, 1998 was 90.2 days compared to the average collection period at December 31, 1997 of 85.3 days. 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. SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. The statements contained in this discussion 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 1999 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 computer issue, continued availability of adequate funding sources, currency and other risks inherent in international sales, and general economic and business conditions. These important factors, and other factors which could affect the Company's results, are more fully disclosed in the Company's filings with the Securities and Exchange Commission. Readers of this discussion are referred to such filings. The Company assumes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. 20 22 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The consolidated balance sheets are as of December 31, 1998 and 1997 and the consolidated statements of income, cash flows and stockholders equity are for each of the years ended December 31, 1998, 1997 and 1996. Report of Independent Public Accountants, page F-1. Consolidated Balance Sheets, page F-2. Consolidated Statements of Income, page F-3. Consolidated Statements of Stockholders' Equity, page F-4. Consolidated Statements of Cash Flows, page F-5. Notes to Consolidated Financial Statements, pages F-6 through F-22. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 21 23 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Incorporated by reference to "Election of Directors" on pages 2 through 5, "Identification of Other Executive Officers" on page 7 and "Section 16(a) Beneficial Ownership Reporting Compliance" on page 7 of the Company's Notice of Annual Meeting of Stockholders and Proxy Statement for its Annual Meeting of Stockholders to be held on May 4, 1999 (the "1999 Proxy Statement"). ITEM 11. EXECUTIVE COMPENSATION Incorporated by reference to "Executive Compensation" on pages 8 through 11 and "Compensation of the Board of Directors" on page 5 of the 1999 Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Incorporated by reference to "Security Ownership of Certain Beneficial Owners and Management" on pages 13 and 14 of the 1999 Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Incorporated by reference to "Indebtedness of Management" on page 7 of the 1999 Proxy Statement. 22 24 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this Form 10-K: 1. The following consolidated financial statements of the Company and its subsidiaries, together with the applicable report of independent public accountants, are included in Item 8: Report of Independent Public Accountants, page F-1. Consolidated Balance Sheets at December 31, 1998 and 1997, page F-2. Consolidated Statements of Income for the years ended December 31, 1998, 1997 and 1996, page F-3. Consolidated Statements of Stockholders' Equity for the years ended December 31, 1998, 1997 and 1996, page F-4. Consolidated Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996, page F-5. Notes to Consolidated Financial Statements, page F-6 through F-22. 2. The following consolidated supplemental financial information of the Company and its subsidiaries for the three years ended December 31, 1998, 1997 and 1996 is filed as part of this Form 10-K. Report of Independent Public Accountants, page S-1. Supplemental Notes to Consolidated Financial Statements, page S-2 through S-12. (1) Valuation and Qualifying Accounts. (2) Supplemental Guarantor Condensed Consolidating Financial Statements. The information required to be submitted in Schedule II is included in the Supplemental Note 1 to Consolidated Financial Statements. 3. The following exhibits are filed with this report or incorporated by reference as set forth below. EXHIBIT NO. 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, filed as Exhibit 3.2 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1989. (2) 23 25 EXHIBIT NO. 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 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) 4.7 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) 4.8 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) 4.9 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) 4.10 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) 4.11 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) 4.12 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) 4.13 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) 24 26 EXHIBIT NO. 4.14 Rights Agreement dated as of June 30, 1998 between Walbro Corporation and Harris Trust and Savings Bank, filed as Exhibit 1 to the Company's Registration Statement on Form 8-A filed on July 8, 1998. (2) 4.15 Financing and Security Agreement between the Company and NationsBank N.A., as Administrative Agent and Lender, dated May 29, 1998. (1) 4.16 Amendment No. 1 to the Financing and Security Agreement between the Company and NationsBank, N.A., as Administrative Agent and Lender, dated December 31, 1998. (1) 10.1 Joint Venture Agreement between the Company and Mitsuba Electric Manufacturing Company, Ltd. dated December 12, 1986, filed as Exhibit 10.4 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1986. (2) 10.2 The Company's Amended and Restated Equity Based Long-Term Incentive Plan effective as of June 20, 1994. (1)(3) 10.3 Retirement Income Plan for Directors dated February 9, 1988, filed as Exhibit 10.11 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1988. (2)(3) 10.4 The Company's Employee Stock Ownership Plan dated August 15, 1989, filed as Exhibit 10.14 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1989. (2) 10.5 Walbro Engine Management Incentive Compensation Plan, filed as Exhibit 10.21 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1990. (2)(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, filed as Exhibit 10.10 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1992. (2) 10.8 The Company's Advantage Plan, filed as the Exhibit to the Company's Registration Statement on Form S-8 filed October 28, 1991. (2)(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, filed as Exhibit 10.14 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994. (2) 10.10 Agreement among the Company, Walbro Automotive Corporation and Magneti Marelli France S.A. dated February 7, 1995, filed as Exhibit 10.24 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994. (2) 10.11 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) 10.12 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) 10.13 General Partnership Agreement dated August 18, 1995 between Iwaki Diecast U.S.A., Inc. and Walbro Tucson Corp., filed as Exhibit 10.31 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995. (2) 10.14 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) 25 27 EXHIBIT NO. 10.15 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) 10.16 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) 10.17 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) 10.18 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) 10.19 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) 10.20 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) 10.21 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) 10.22 Amended and Restated Employment Agreement between the Company and Frank E. Bauchiero effective as of April 17, 1998. (1)(3) 10.23 Amended and Restated Termination and Change of Control Agreement between the Company and Frank E. Bauchiero effective as of April 17, 1998. (1)(3) 10.24 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) 21.1 Subsidiaries of the Company. (1) 23.1 Consent of Arthur Andersen LLP. (1) 27.1 Financial Data Schedule. (1) - - ------------------ (1) Filed herewith. (2) Incorporated by reference. (3) Management contract or compensatory plan or arrangement. (b) Reports on Form 8-K: There was no report on Form 8-K filed during the last quarter of the period covered by this Form 10-K. 26 28 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 29th day of March, 1999. WALBRO CORPORATION By: /s/ MICHAEL A. SHOPE ----------------------------------------- Michael A. Shope, Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- PRESIDENT, CHIEF OPERATING OFFICER AND /S/ FRANK E. BAUCHIERO DIRECTOR (PRINCIPAL EXECUTIVE OFFICER) MARCH 29, 1999 - - ----------------------------- FRANK E. BAUCHIERO CHIEF FINANCIAL OFFICER (PRINCIPAL FINANCIAL /S/ MICHAEL A. SHOPE AND ACCOUNTING OFFICER) MARCH 29, 1999 - - ----------------------------- MICHAEL A. SHOPE /S/ JOHN E. UTLEY CHAIRMAN OF THE BOARD MARCH 29, 1999 - - ----------------------------- John E. Utley /S/ VERNON E. OECHSLE DIRECTOR MARCH 29, 1999 - - ----------------------------- VERNON E. OECHSLE /S/ ROBERT D. TUTTLE DIRECTOR MARCH 29, 1999 - - ---------------------------- ROBERT D. TUTTLE /S/ WILLIAM T. BACON, JR. DIRECTOR MARCH 29, 1999 - - ----------------------------- WILLIAM T. BACON, JR. /S/ ROBERT H. WALPOLE DIRECTOR MARCH 29, 1999 - - ----------------------------- Robert H. Walpole /S/ J. DWANE BAUMGARDNER DIRECTOR MARCH 29, 1999 - - ----------------------------- J. DWANE BAUMGARDNER
27 29 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS Walbro Corporation & Subsidiaries 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, 1998 and 1997, and the related consolidated statements of income, comprehensive income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1998. 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 3.9% and 3.7% of consolidated total assets in 1998 and 1997, respectively, and the equity in their net income together represents income of $1,559,000, $3,710,000 and $4,560,000 in 1998, 1997 and 1996, respectively. Those statements were audited by other auditors whose reports have been furnished to us, and our opinion, insofar as it relates to the amounts included for those entities, is based solely on the reports 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, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Detroit, Michigan, February 17, 1999. F-1 30 Walbro Corporation & Subsidiaries - - -------------------------------------------------------------------------------- CONSOLIDATED BALANCE SHEETS December 31, 1998 and 1997
1998 1997 -------- -------- (In Thousands, Except Share Data) ASSETS Current Assets: Cash...................................................... $ 19,647 $ 13,539 Accounts receivable, net.................................. 154,416 144,985 Inventories............................................... 60,871 56,207 Prepaid expenses and other................................ 11,734 17,405 Deferred and refundable income taxes...................... 10,735 8,519 -------- -------- Total Current Assets................................... 257,403 240,655 -------- -------- Plant and Equipment, at cost: Land...................................................... 4,905 5,230 Buildings and improvements................................ 94,842 90,099 Machinery and equipment................................... 308,151 297,032 -------- -------- 407,898 392,361 Less--Accumulated depreciation............................ 129,357 116,991 -------- -------- Net Plant and Equipment................................ 278,541 275,370 -------- -------- Other Assets: Assets held for sale...................................... 3,175 -- Joint ventures............................................ 38,435 26,681 Investments............................................... 2,690 3,261 Goodwill, net............................................. 31,887 32,803 Notes receivable.......................................... 2,023 126 Deferred income taxes..................................... 5,612 8,179 Other..................................................... 28,901 23,518 -------- -------- Total Other Assets..................................... 112,723 94,568 -------- -------- Total Assets........................................... $648,667 $610,593 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Current portion of long-term debt......................... $ 2,403 $ 13,960 Bank and other borrowings................................. 12,012 26,204 Accounts payable.......................................... 114,133 84,209 Accrued liabilities....................................... 31,009 39,221 Dividends payable......................................... 920 1,788 -------- -------- Total Current Liabilities.............................. 160,477 165,382 -------- -------- Long-Term Liabilities: Long-term debt, less current portion...................... 324,289 291,393 Pension obligations and other............................. 11,585 11,823 Deferred income taxes..................................... 4,535 2,077 Minority interest......................................... 1,225 1,052 -------- -------- Total Long-Term Liabilities............................ 341,634 306,345 -------- -------- 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 8,688,294 in 1998 and 8,682,595 in 1997.... 4,344 4,341 Paid-in capital........................................... 66,088 66,151 Retained earnings......................................... 37,656 33,938 Deferred compensation..................................... (125) (379) Accumulated other comprehensive income.................... (30,407) (34,185) -------- -------- Total Stockholders' Equity............................. 77,556 69,866 -------- -------- Total Liabilities and Stockholders' Equity............. $648,667 $610,593 ======== ========
The accompanying notes are an integral part of these statements. F-2 31 Walbro Corporation & Subsidiaries - - -------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF INCOME For the years ended December 31, 1998, 1997 and 1996
1998 1997 1996 -------- -------- -------- (In Thousands, Except Per Share Data) Net Sales...................................... $677,990 $619,905 $585,389 Costs and Expenses: Cost of sales................................ 571,992 538,751 488,134 Selling and administrative expenses.......... 55,643 60,786 52,177 Research and development expenses............ 12,883 17,289 18,400 Restructuring and impairment charges......... -- 27,000 -- -------- -------- -------- Operating Income (Loss)........................ 37,472 (23,921) 26,678 Other Expense (Income): Interest expense, net of capitalized interest of $204 in 1998, $1,207 in 1997 and $3,683 in 1996................................... 31,806 25,410 20,535 Interest income.............................. (3,177) (674) (2,716) Royalty income, net.......................... (3,228) (3,878) (1,410) Foreign currency exchange gain............... (1,262) (308) (70) Other........................................ (785) 365 (63) -------- -------- -------- Income (Loss) Before (Provision) Credit for Income Taxes, Minority Interest, Equity in Income of Joint Ventures and Extraordinary item......................................... 14,118 (44,836) 10,402 (Provision) Credit for Income Taxes............ (3,967) 10,131 (3,075) Minority Interest.............................. (5,806) (5,035) (285) Equity in Income of Joint Ventures............. 846 3,113 4,187 -------- -------- -------- Income (Loss) before Extraordinary Item........ 5,191 (36,627) 11,229 Extraordinary Item (net of tax of $762)........ (1,473) -- -- -------- -------- -------- Net Income (Loss).............................. $ 3,718 $(36,627) $ 11,229 ======== ======== ======== Basic and Diluted Income (Loss) Per Share before Extraordinary Item.................... $ 0.60 $ (4.23) $ 1.30 Extraordinary Item............................. (0.17) -- -- -------- -------- -------- Basic and Diluted Net Income (Loss) Per Share........................................ $ 0.43 $ (4.23) $ 1.30 ======== ======== ======== CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME For the years ended December 31, 1998, 1997 and 1996 Net Income (Loss).............................. $ 3,718 $(36,627) $ 11,229 Other Comprehensive Income, net of tax: Minimum pension liability adjustment......... -- -- 63 Unrealized loss on securities available for sale...................................... (207) (620) (139) Cumulative translation adjustments........... 3,985 (28,226) (6,580) -------- -------- -------- Other Comprehensive Income (Loss).............. 3,778 (28,846) (6,656) -------- -------- -------- Comprehensive Income (Loss).................... $ 7,496 $(65,473) $ 4,573 ======== ======== ========
The accompanying notes are an integral part of these statements. F-3 32 Walbro Corporation & Subsidiaries - - -------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY For the years ended December 31, 1998, 1997 and 1996
Accumulated Other Comprehensive Income --------------------------------------- Unrealized Gain (Loss) Minimum on 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, 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) Exercise of stock options............... 3 54 -- -- -- -- -- ESOP debt payments...... -- -- -- 408 -- -- -- Change in restricted stock................. -- (117) -- (154) -- -- -- Net income.............. -- -- 3,718 -- -- -- -- Change in market value of securities available for sale.... -- -- -- -- -- (207) -- Translation adjustments........... -- -- -- -- -- -- 3,985 ------ ------- -------- ----- ---- ----- -------- Balance-- December 31, 1998....... $4,344 $66,088 $ 37,656 $(125) $ -- $(139) $(30,268) ====== ======= ======== ===== ==== ===== ========
The accompanying notes are an integral part of these statements. F-4 33 Walbro Corporation & Subsidiaries - - -------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS For the years ended December 31, 1998, 1997 and 1996
1998 1997 1996 --------- --------- --------- (In Thousands) Cash Flows From Operating Activities: Net income (loss)........................ $ 3,718 $ (36,627) $ 11,229 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities-- Depreciation and amortization....... 36,683 31,417 29,736 (Gain) loss on disposition of assets........................... (785) 1,459 774 Minority interest................... 286 (624) (238) Equity in income of joint ventures......................... (846) (3,113) (4,187) Restructuring and impairment charges.......................... -- 27,000 -- Change in assets and liabilities, net of effects of acquisitions--................... Accounts receivable, net....... (10,499) (28,299) (16,956) Inventories.................... (4,362) (8,674) (473) Prepaid expenses and other..... 5,012 (10,933) (5,943) Deferred and refundable income taxes....................... 2,208 (8,631) (762) Accounts payable and accrued liabilities................. 22,874 12,687 25,507 Pension obligations and other....................... 313 (1,888) (2,049) --------- --------- --------- Total adjustments................ 50,884 10,401 25,409 --------- --------- --------- Net cash provided by (used in) operating activities........... 54,602 (26,226) 36,638 --------- --------- --------- Cash Flows From Investing Activities: Purchase of plant and equipment.......... (42,006) (62,019) (99,147) Acquisitions, net of cash acquired....... -- -- (1,018) Purchase of other assets................. (5,476) (3,087) (3,434) Investment in joint ventures and other... (11,569) 1,756 (1,451) Proceeds from disposal of assets......... 8,379 5,415 4,156 --------- --------- --------- Net cash used in investing activities..................... (50,672) (57,935) (100,894) --------- --------- --------- Cash Flows From Financing Activities: Borrowings under revolving lines-of-credit....................... 230,453 199,981 200,548 Repayments under revolving lines-of-credit....................... (157,109) (283,116) (135,298) Debt repayments.......................... (68,831) (1,210) (1,104) Proceeds from issuance of debt........... -- 105,404 2,772 Proceeds from issuance of convertible preferred securities.................. -- 69,000 -- Proceeds from issuance of common stock and options........................... 57 492 771 Financing fees paid...................... (2,603) (5,680) (508) Cash dividends paid...................... (868) (3,463) (3,439) --------- --------- --------- Net cash provided by financing activities..................... 1,099 81,408 63,742 --------- --------- --------- Effect of Exchange Rate Changes on Cash.... 1,079 (1,921) (1,065) --------- --------- --------- Net Increase (Decrease) in Cash............ 6,108 (4,674) (1,579) Cash at Beginning of Year.................. 13,539 18,213 19,792 --------- --------- --------- Cash at End of Year........................ $ 19,647 $ 13,539 $ 18,213 ========= ========= =========
The accompanying notes are an integral part of these statements. F-5 34 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Walbro Corporation & Subsidiaries - - -------------------------------------------------------------------------------- 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 8). 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 $4,159,000 and $809,000 as of December 31, 1998 and 1997, 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:
1998 1997 ------- ------- (In Thousands) Raw materials and components.......... $34,804 $30,857 Work-in-process....... 6,287 6,545 Finished products..... 19,780 18,805 ------- ------- $60,871 $56,207 ======= =======
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 gains and losses, after-tax, included as a separate component of stockholders' equity. At December 31, 1998, the Company had no investments classified as "trading." At December 31, 1997, the fair market value of investments classified as "trading" was $687,000. 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 the 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:
1998 1997 ------- ------- (In Thousands) Goodwill.............. $39,559 $39,449 Less: Accumulated amortization........ (7,672) (6,646) ------- ------- $31,887 $32,803 ======= =======
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 F-6 35 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Walbro Corporation & Subsidiaries NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. (continued) weight of evidence, it is deemed more likely than not that the assets 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. Asset Impairments: The Company continually evaluates whether events and circumstances have occurred that indicate that the carrying amount of certain long-lived assets may not be recoverable. When events and circumstances indicate that a long-lived asset should be evaluated for possible impairment, the Company uses an estimate of the expected undiscounted future cash flows to be generated by the asset to determine whether the carrying amount is recoverable or if an impairment exists. When it is determined that an impairment exists, the Company uses the fair market value of the asset, usually measured by the expected discounted future cash flows to be generated by the asset, to determine the amount of impairment to be recorded in the financial statements. Comprehensive Income: During 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive Income", which establishes standards for the reporting and display of comprehensive income. Comprehensive income is defined as all changes in a Company's net assets except changes resulting from transactions with shareholders. It differs from net income in that certain items currently recorded to equity are included in comprehensive income. Prior years have been restated to conform to the requirements of SFAS No. 130. Reclassifications: Certain amounts in prior years' consolidated financial statements have been reclassified to conform with the presentation used in 1998. 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. NOTE 2. RESTRUCTURING OF OPERATIONS AND OTHER ACTIONS. During the fourth quarter of 1997, the Company recorded a $27,000,000 pre-tax charge for restructuring its operations and other actions. The charge was comprised of a $17,000,000 charge for restructuring and a $10,000,000 charge associated with asset impairments. In addition, the Company recorded a pre-tax charge of $5,700,000 for warranty costs (included in cost of sales) which became known during the fourth quarter of 1997. The components of the restructuring charge included $15,100,000 million for the divestiture of non-strategic businesses and facilities, $1,200,000 for personnel reductions and $700,000 for other actions. The divestiture component included $8,100,000 related to the divestiture of the Company's Ligonier, Indiana, steel fuel rail manufacturing facility, $5,700,000 related to the planned disposition of its interest in U.S. Coexcell Inc., a manufacturer of blow-molded plastic drums in Maumee, Ohio, $400,000 related to the movement of small engine operations in Mexico to a larger facility, $500,000 related to the divestiture of the Company's share of an automotive joint venture in Korea and $400,000 related to the consolidation of small engine operations in the Asia-Pacific region. Amounts paid to consolidate these small engine operations were charged against the reserve during 1998 at approximately the amount established as of December 31, 1997. The $8,100,000 charge related to the divestiture of the Company's steel fuel rail facility is comprised of $7,800,000 of non-cash asset revaluations and $300,000 of exit F-7 36 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Walbro Corporation & Subsidiaries NOTE 2. RESTRUCTURING OF OPERATIONS AND OTHER ACTIONS. (continued) cost liabilities. This facility was sold as of May 31, 1998, resulting in a gain of approximately $500,000. Exit costs were paid and charged against the reserve during 1998 at approximately the amount established as of December 31, 1997. The $5,700,000 charge related to the planned disposition of the Company's interest in U.S. Coexcell Inc. is comprised of $5,300,000 of non-cash asset revaluations and $400,000 of exit cost liabilities. The Company did not complete the disposition of U.S. Coexcell Inc. during 1998 and continued to operate the facility. The Company is continuing to evaluate its options for U.S. Coexcell Inc.. As such, no payments were made or charged against the reserve during 1998. The $400,000 related to the movement of small engine operations in Mexico to a larger facility represents primarily remaining lease payments on the old facility for the period of time in which the Company will no longer use the facility. Of the amount established as of December 31, 1997, $300,000 was paid and charged against the reserve during 1998 and $100,000 remains accrued at December 31, 1998 for the first quarter of 1999. The $500,000 related to the divestiture of the Company's share of an automotive joint venture in Korea represents a non-cash charge to reduce the Company's investment to zero. During 1998, the Company divested its share of the joint venture. The $1,200,000 charge for personnel reductions relates to severance costs associated with a corporate-wide headcount reduction program including reductions related to the divestitures and restructuring. The Company planned to reduce the overall work force by approximately 10% or 500 employees, working in both manufacturing and administrative capacities. During 1998, approximately $1,000,000 was paid and charged against the reserve. The remainder will be paid and charged against the reserve during 1999. The components of the $10,000,000 charge for asset impairments include $4,200,000 to write-down to net realizable value certain tooling, machinery and equipment, $2,800,000 to reserve for uncertainties related to its Korean automotive activities, $1,300,000 to write-off its interest in Saginaw Plastics, an injection molder in Saginaw, Michigan and $1,700,000 associated with other impairment issues. No further circumstances arose during 1998 to question the net realizable value of these assets. NOTE 3. 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 at a rate of 1.1737 shares of common stock for each preferred security. Net proceeds of the offering were approximately $66,000,000 and were used to repay a portion of the Company's Old Revolving Credit Facility. NOTE 4. 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-hundredth of a share of a new series of preferred stock (Series A Junior Participating Preferred Stock) for $45. The rights will be exercisable only if a person or group acquires 15% or more of the Company's common stock or announces a tender offer upon consummation of which such person or group would own 15% or more of the Company's common stock. F-8 37 Walbro Corporation & Subsidiaries - - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) NOTE 5. LONG-TERM DEBT AND LINES OF CREDIT. Long-term debt consisted of the following at December 31:
1998 1997 -------- -------- (In Thousands) Senior notes due 2005, unsecured, stated interest at 9.875% (9.92% effective interest rate), net of unamortized discount of $253 and $292 at December 31, 1998 and 1997, respectively(b)........................................... $109,747 $109,708 Senior notes due 2007, unsecured, interest at 10.125%(b).... 100,000 100,000 New Revolving Credit Facility, secured, interest at the LIBOR or prime rate, plus an additional margin. (a)....... 93,312 -- New Purchase Money Loan Agreement, secured, interest at the LIBOR or prime rate, plus an additional margin (a)........ 2,584 -- Old Revolving Credit Facility, repaid during 1998 (a)....... -- 19,700 Old Purchase Money Loan Agreement, repaid during 1998 (a)... -- 2,852 2004 Senior Notes, repaid during 1998 (a)................... -- 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, repaid during 1998............................... -- 6,300 Term loan, interest at 5.44% payable in Belgian Francs in quarterly amounts from 2003 to 2007....................... 5,550 5,163 Term loan from the State of Connecticut, secured, interest at 6% per annum, payable in monthly amounts from 1998 to 2006...................................................... 3,400 3,400 Capital lease obligation, interest at 7.5%, payable in monthly amounts through February 2002..................... 2,399 3,042 Other....................................................... 700 1,188 -------- -------- 326,692 305,353 Less--current portion....................................... 2,403 13,960 -------- -------- $324,289 $291,393 ======== ========
(a) In May 1998, the Company executed a new $150,000,000 multi-currency revolving credit facility (New Credit Facility) for the Company and certain of its wholly-owned domestic and foreign subsidiaries. The proceeds of the New Credit Facility were used to retire the Old Revolving Credit Facility, the Old Purchase Money Loan Agreement and the 2004 Senior Notes. The early retirement of these debt instruments resulted in an extraordinary charge of $1,473,000 (net of tax) during 1998. The New Credit Facility consists of a $125,000,000 revolving line of credit (New Revolving Credit Facility) and a $25,000,000 capital expenditure facility (New Purchase Money Loan Agreement). The New Credit Facility is available through May 2003. Borrowings under the New Revolving Credit Facility bear interest at either the London interbank offered rate (LIBOR), plus 2.25% or at the prime rate, plus 0.25%. Availability under the New 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, plus the lesser of (i) 60% of certain raw materials and finished products inventory and 70% of commodity raw material resin inventory or (ii) $50,000,000, less customary reserves. The New Purchase Money Loan Agreement bears interest at either the LIBOR, plus 2.50% or at the prime rate, plus 0.50%. Amounts drawn under the New Purchase Money Loan Agreement are repayable in 20 equal quarterly principal installments, beginning one quarter after such draw. If the New 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 coverage 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 New Revolving Credit Facility are secured by accounts receivable, inventory capital expenditure line equipment and general intangibles of the Company and certain of its subsidiaries, and are also 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 New Purchase Money Loan Agreement is secured by the item of equipment purchased with the proceeds of such advance. The collateral for the New F-9 38 Walbro Corporation & Subsidiaries - - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) NOTE 5. LONG-TERM DEBT AND LINES OF CREDIT. (continued) Purchase Money Loan Agreement does not constitute collateral for the New Revolving Credit Facility. In addition, certain of the subsidiaries of the Company provide guarantees of the obligation under the New Credit Facility. (b) 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 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. As of December 31, 1998 and 1997, assets recorded under capital lease obligations were approximately $4,793,000 and $5,127,000, respectively, net of accumulated amortization of approximately $1,140,000 and $806,000, respectively. Aggregate minimum principal payment requirements on long-term debt, including capital lease obligations, in each of the five years subsequent to December 31, 1998 are as follows: 1999 - $2,403,000; 2000 - $2,573,000; 2001 - $2,627,000; 2002 - $1,974,000; 2003 - $95,861,000; thereafter - $221,254,000. 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 $15,493,000 and $27,600,000 at December 31, 1998 and 1997, respectively. The weighted average interest rate on short-term bank borrowings outstanding under these arrangements was 4.7% and 4.1% at December 31, 1998 and 1997, respectively. - - -------------------------------------------------------------------------------- NOTE 6. LEASES. The Company leases 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 $6,313,000, $6,178,000 and $7,702,000 for the years ended December 31, 1998, 1997 and 1996, respectively. Aggregate minimum future payments under noncancellable leases are as follows:
Capital Operating Leases Leases ------- --------- (In Thousands) 1999.................. $ 900 $ 7,234 2000.................. 883 6,531 2001.................. 862 6,244 2002.................. 142 5,723 2003.................. -- 4,731 Thereafter............ -- 18,536 ------ ------- Total minimum lease payments......... 2,787 $48,999 ======= Amount representing interest............ 315 ------ Present value of minimum lease payments......... $2,472 ======
F-10 39 Walbro Corporation & Subsidiaries - - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) NOTE 7. INCOME TAXES. A summary of income (loss) before (provision) credit for income taxes, minority interest, equity in income of joint ventures and extraordinary item and components of the (provision) credit for the years ended December 31, are as follows:
1998 1997 1996 ------- -------- ------- (In Thousands) Income (loss) before (provision) credit for income taxes, minority interest, equity in income of joint ventures and extraordinary item: Domestic...................................... $ 4,255 $(31,095) $ 1,774 Foreign....................................... 9,863 (13,741) 8,628 ------- -------- ------- $14,118 $(44,836) $10,402 ======= ======== ======= (Provision) credit for income taxes: Currently payable-- Domestic...................................... $ 632 $ (3,297) $ (384) Foreign....................................... (1,185) (1,334) (2,456) ------- -------- ------- (553) (4,631) (2,840) ------- -------- ------- Deferred-- Domestic...................................... (2,511) 14,053 (988) Foreign....................................... (1,946) 3,264 (1,544) Utilization of tax credits.................... 2,861 1,000 2,517 Change in valuation allowance................. (1,818) (3,555) (220) ------- -------- ------- (3,414) 14,762 (235) ------- -------- ------- $(3,967) $ 10,131 $(3,075) ======= ======== =======
Reconciliations of the U.S. Federal statutory income tax rates to the Company's consolidated effective income tax rates for the years ended December 31, are as follows:
1998 1997 1996 ----- ----- ----- 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.............................................. (2.3) 6.4 9.4 Utilization of tax credits......................... (20.2) (2.2) (15.9) Increase in valuation allowance.................... 12.9 7.9 2.1 Foreign taxes and dividends........................ 10.8 3.4 -- Goodwill amortization.............................. 4.3 .4 1.5 Tax benefit on deductible preferred stock dividends....................................... (13.7) (3.9) -- Other, net......................................... 1.3 .4 (2.5) ----- ----- ----- Effective income tax rates........................... 28.1% (22.6)% 29.6% ===== ===== =====
F-11 40 Walbro Corporation & Subsidiaries - - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) NOTE 7. INCOME TAXES. (continued) The components of the net deferred income tax asset at December 31 are summarized as follows:
1998 1997 -------- -------- (In Thousands) Deferred income tax liabilities: Depreciation and basis differences........................ $ 12,927 $ 8,715 Other..................................................... 756 279 -------- -------- 13,683 8,994 -------- -------- Deferred income tax assets: Estimated net operating loss carryforwards................ (7,406) (5,533) Employee benefits......................................... (2,927) (2,802) Foreign tax credit carryforwards.......................... (659) (980) Accruals.................................................. (1,845) (3,444) Other tax credit carryforwards............................ (8,965) (5,783) Inventory................................................. (1,709) (931) Accounts receivable reserve............................... (268) (114) Write-down of investment.................................. (368) (368) Loss on joint ventures.................................... (819) (1,086) Other..................................................... (1,103) (1,936) -------- -------- (26,069) (22,977) Valuation allowance....................................... 6,337 4,519 -------- -------- (19,732) (18,458) -------- -------- Net deferred income tax asset............................... $ (6,049) $ (9,464) ======== ========
At December 31, 1998, the cumulative amount of undistributed earnings of foreign subsidiaries was approximately $26,500,000. 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, 1998, the Company has net operating loss carryforwards of approximately $23,515,000, which expire in varying amounts between 2003 and 2012, available from certain of its subsidiaries. The Company has recorded a deferred tax asset of $7,406,000 associated with these carryforwards. Realization of the related deferred tax asset 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 net 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 $410,000 in 1998, $(22,000) in 1997 and $197,000 in 1996. F-12 41 Walbro Corporation & Subsidiaries - - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) NOTE 8. JOINT VENTURES. The investments in joint ventures as of December 31 are as follows:
Percent Beneficial Ownership 1998 1997 1996 ---- ---- ---- 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% Marwal de Mexico S.A. de C.V............... 52% 52% 52% Marwal Argentina S.A. ................ 49% 49% -- Vitec L.L.C............ 48% -- --
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, 1998 and 1997, the cumulative effect of these adjustments was to increase the Company's equity in its joint ventures by approximately $3,884,000 and $3,158,000, respectively. At December 31, 1998, the amount included in retained earnings as undistributed earnings of foreign joint ventures was approximately $8,056,000. 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 1996, the Company expanded its Marwal joint venture locations to include Marwal Argentina S.A. This is a joint venture 1% owned by the Company, 1% owned by Magneti Marelli and 98% owned by Marwal Systems S.N.C. Marwal Argentina S.A. builds fuel sending units for the Argentinean automotive market. In 1998, the Company reduced its equity in its Korean joint venture to zero. Additionally, the Company invested in Vitec L.L.C., a joint venture in Detroit's Empowerment Zone. Vitec manufactures and assembles fuel storage and delivery systems for the U.S. automotive market. Summarized combined financial information for joint ventures accounted for using the equity method is as follows (Unaudited, in Thousands):
As of December 31, 1998 1997 ------- ------- Balance sheet data: Current assets............................................ $93,934 $90,358 Long-term assets.......................................... 58,395 44,365 Current liabilities....................................... 81,936 65,162 Long-term liabilities..................................... 11,666 13,355
For the Year Ended December 31, 1998 1997 1996 -------- -------- -------- Income statement data: Net sales.................................... $209,627 $248,527 $200,276 Gross margin................................. 30,435 31,846 24,806 Income before provision for income taxes..... 2,998 12,769 14,510 Net income................................... 1,715 5,978 7,515
Dividends from joint ventures of approximately $1,052,000 and $3,418,000 were received by the Company during 1998 and 1997, respectively. No dividends were received from joint ventures during 1996. The Company had sales to joint ventures of approximately $37,125,000, $64,109,000 and $42,413,000 during 1998, 1997 and 1996, respectively. Included in accounts receivable are trade receivables from joint ventures of approximately $4,675,000 and $12,741,000 as of December 31, 1998 and 1997, F-13 42 Walbro Corporation & Subsidiaries - - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) NOTE 8. JOINT VENTURES. (continued) respectively and royalty receivables of $1,012,000 and $1,674,000 as of December 31, 1998 and 1997, respectively. The Company had purchases from joint ventures of approximately $35,558,000, $41,447,000 and $33,149,000 during 1998, 1997 and 1996, respectively. Included in accounts payable are trade payables to joint ventures of approximately $8,295,000 and $5,277,000 as of December 31, 1998 and 1997, respectively. - - -------------------------------------------------------------------------------- NOTE 9. STOCK OPTION PLANS AND LONG-TERM INCENTIVE PLANS. 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 common stock over the term. The number of Grants outstanding was 2,331 and 4,900 as of December 31, 1998 and 1997, 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 Broad-Based Plan is to enable these persons to participate in the Company's future and to aid in retaining employees of merit. Effective January 1, 1996, the Company adopted SFAS No. 123, "Accounting for Stock-Based Compensation." 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. A summary of the stock option transactions of the 1983 Plan (closed with no options outstanding as of December 31, 1998), the Equity Plan, and the Broad-Based Plan for the years ended December 31, 1998, 1997 and 1996 is as follows:
Number of Options Exercisable Outstanding Option price (per share) ----------- ----------- ------------------------ 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 Granted............................ 493,966 9.25-13.25 Exercised.......................... (3,700) 9.25 Canceled........................... (164,679) 13.25-33.25 -------- December 31, 1998.................... 663,953 763,953 $9.25-27.125 ========
The weighted-average fair value of options granted during the year is $7.15 and $5.01 for the years ended December 31, 1998 and 1997, respectively. F-14 43 Walbro Corporation & Subsidiaries - - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) NOTE 9. STOCK OPTION PLANS AND LONG-TERM INCENTIVE PLANS. (continued) The following table summarizes information about options outstanding at December 31, 1998: Options Outstanding: Range of Exercise Prices............. $ 9.25 $13.25-19.75 $20.00-27.25 Number Outstanding at 12/31/98....... 109,175 539,692 115,086 Weighted-Average: Remaining Contractual Life (years)......................... 9.03 8.17 5.55 Exercise Price.................... $ 9.25 $ 15.20 $ 25.48 Options Exercisable: Number Exercisable at 12/31/98....... 9,175 539,692 115,086 Weighted Average Exercise Price...... $ 9.25 $ 15.20 $ 25.48
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 1998 1997 1996 - - --------------------- ------- ------- ------- Risk-free interest rate............... 4.6% 5.7% 6.4% Expected life........ 10 yrs. 10 yrs. 10 yrs. Expected volatility......... 37.8% 34.6% 35.2% Expected dividends... 0.0% 2.0% 2.0%
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 basic net income (loss) per share would have been reduced to the pro forma amounts indicated below:
1998 1997 1996 ------ -------- ------- (In thousands) Net income (loss)................................ As reported $3,718 $(36,627) $11,229 Pro forma 1,422 (36,644) 10,601 Basic net income (loss) per share................ As reported 0.43 (4.23) 1.30 Pro forma 0.16 (4.23) 1.23
The Company cautions that the pro forma net income (loss) and per share results 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 four annual payments was made. The second and third of four payments were made during 1997 and 1998, respectively. The Company accrued approximately $1,659,000 and $3,287,000 as of December 31, 1998 and 1997, respectively, under this plan. Participants can elect to receive their payments in either cash or common stock of the Company. - - -------------------------------------------------------------------------------- NOTE 10. 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 recall or warranty 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. F-15 44 Walbro Corporation & Subsidiaries - - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) NOTE 11. PENSION AND OTHER POSTRETIREMENT BENEFIT 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 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 plans with sufficient assets to meet future benefit payment requirements. The plans covering foreign employees in certain countries are not funded. The Company also 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. Effective January 1, 1998, the Company adopted the Statement of Financial Accounting Standards No. 132, "Employers Disclosures about Pensions and Other Postretirement Benefits" (SFAS No. 132). In accordance with SFAS No. 132, the following tables provide a reconciliation of the change in benefit obligation, the change in plan assets and the net amount recognized in the consolidated balance sheets (In Thousands).
Other Postretirement Pension Benefits Benefits ------------------- -------------------- 1998 1997 1998 1997 ------- ------ ------- ------- CHANGE IN BENEFIT OBLIGATION Benefit obligation at beginning of year.... $ 6,573 $5,771 $ 3,800 $ 4,068 Service cost............................... 371 301 -- -- Interest cost.............................. 460 408 255 283 Foreign currency changes................... (3) (9) -- -- Amendments................................. 664 -- -- -- Actuarial (gain) loss...................... 658 227 40 (166) Benefits paid.............................. (151) (125) (321) (385) ------- ------ ------- ------- Benefit obligation at end of year.......... $ 8,572 $6,573 $ 3,774 $ 3,800 ======= ====== ======= ======= CHANGE IN PLAN ASSETS Fair value of plan assets at beginning of year..................................... $ 6,617 $5,612 $ -- $ -- Actual return on plan assets............... 519 789 -- -- Employer contributions..................... 216 492 -- -- Foreign currency changes................... (32) (151) -- -- Benefits paid.............................. (151) (125) -- -- ------- ------ ------- ------- Fair value of plan assets at end of year... $ 7,169 $6,617 $ -- $ -- ======= ====== ======= ======= Funded status.............................. $(1,403) $ 44 $(3,774) $(3,800) Unrecognized net actuarial (gain) loss..... 117 (210) (501) (606) Unrecognized net asset at transition....... -- (9) -- -- Unrecognized prior service cost............ 1,613 780 -- -- ------- ------ ------- ------- Net amount recognized...................... $ 327 $ 605 $(4,275) $(4,406) ======= ====== ======= =======
F-16 45 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Walbro Corporation & Subsidiaries - - -------------------------------------------------------------------------------- NOTE 11. PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS. (continued)
Other Postretirement Pension Benefits Benefits -------------------- -------------------- 1998 1997 1998 1997 ------- ------- ------- ------- AMOUNTS RECOGNIZED IN CONSOLIDATED BALANCE SHEETS CONSIST OF: Prepaid benefit cost...................... $ 1,070 $ 1,083 $ -- $ -- Accrued benefit liability................. (743) (478) (4,275) (4,406) ------- ------- ------- ------- Net amount recognized..................... $ 327 $ 605 $(4,275) $(4,406) ======= ======= ======= =======
WEIGHTED-AVERAGE ASSUMPTIONS Discount rate............................. 6- 6 - 7% 6.75% 7.00% 6.75% Expected return on plan assets............ 6- 6 - 7% -- -- 6.75% Rate of compensation increase............. 2.50- 3% -- -- 3.00%
COMPONENTS OF NET PERIODIC BENEFIT COST Service cost.............................. $ 371 $ 301 $ 255 $ 283 Interest cost............................. 460 408 -- -- Expected return on plan assets............ (455) (404) -- -- Amortization of transition (asset) obligation.............................. (9) (22) -- -- Amortization of prior service cost........ 95 41 -- -- Amortization of unrecognized (gain) loss.................................... -- -- (12) -- Recognized actuarial loss................. (21) -- -- -- ------- ------- ------- ------- Net periodic benefit cost................. $ 441 $ 324 $ 243 $ 283 ======= ======= ======= =======
For measurement purposes, a 6.75% annual rate of increase was assumed in per capita cost of covered health and dental care benefits for 1998. The rate was assumed to gradually decrease to 4.75% by the year 2004 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, 1998 by $363,000 and the interest cost component of net periodic postretirement benefit cost for the year ended December 31, 1998 by $24,000. A one percentage point decrease each year in the assumed health care cost would increase the accumulated postretirement benefit obligation at December 31, 1998 by $318,000 and the interest cost component of net periodic postretirement benefit cost for the year ended December 31, 1998 by $21,000. The Company also sponsors a defined contribution plan for non-union domestic employees under which the Company makes matching contributions of 50% of each participant's before-tax contribution of up to 6% of each participant's annual income and retirement contribution of up to 3% (subject to change on an annual basis) of each participant's annual income. The cost of defined contributions charged to earnings during 1998, 1997 and 1996 was approximately $1,808,000, $2,108,000 and $2,252,000, respectively. Certain non-union employees, excluding officers, are eligible to participate in the Walbro Corporation Employee Stock Ownership Plan (ESOP). The Company makes 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. Contribution expense related to the ESOP amounted to $408,000, $463,000 and $416,000 during 1998, 1997 and 1996, respectively. Contribution expense is net of dividends of $105,000 in 1997 and 1996. As of December 31, 1998 and 1997, the ESOP held 207,000 and 238,000 shares, respectively, which are all allocated to participant accounts. F-17 46 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 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, 1998 and 1997, the notional amounts of contracts outstanding were approximately $2,125,000 and $885,000, respectively. The Company enters into forward currency exchange contracts to reduce its exposure against fluctuations in foreign currency exchange rates. During 1998, the Company had seventy-seven forward currency exchange contracts, sixty-eight of which matured during 1998, which exchanged 65,200,000 Swedish krona, 4,400,000 Norwegian krone and 110,300,000 French francs. 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. The amounts included in foreign currency exchange (gain) loss in the accompanying consolidated statements of income related to these contracts were zero for the year ended December 31, 1998, a gain of approximately $483,000 for the year ended December 31, 1997 and a gain of approximately $339,000 for the year ended December 31, 1996. 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. 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. F-18 47 Walbro Corporation & Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) - - -------------------------------------------------------------------------------- NOTE 12. DISCLOSURES ABOUT DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS. (continued) The estimated fair values of the Company's financial instruments at December 31 are as follows:
1998 1997 ------------------------- ------------------------- Carrying Fair Carrying Fair Value Value Value Value -------- -------- -------- -------- (In Thousands) Notes receivable................ $ 2,023 $ 2,023 $ 140 $ 140 Long-term debt.................. 326,692 319,951 305,353 298,232
- - -------------------------------------------------------------------------------- NOTE 13. ACCRUED LIABILITIES. Accrued liabilities consist of the following at December 31:
1998 1997 ------- ------- (In Thousands) Compensation related... $10,911 $13,760 Facilities and employee relocation........... -- 606 Interest............... 6,367 7,385 Restructuring (Note 2)................... 700 5,697 Other.................. 13,031 11,773 ------- ------- $31,009 $39,221 ======= =======
- - -------------------------------------------------------------------------------- NOTE 14. BUSINESS SEGMENT INFORMATION. The Company has adopted SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." SFAS No. 131 establishes standards for reporting information about operating segments in annual financial statements and requires selected information about operating segments in interim financial reports issued to stockholders. It also establishes standards for related disclosures about products and services, geographic areas and major customers. Management uses information at the plant level for evaluating performance and allocating resources. Management also uses information from the plants at the product line and geographic levels as the basis for management decisions. The Company's reportable segments are managed separately as each business utilizes different technology and marketing strategies. The Company's reportable segments are grouped as follows: 1. Automotive, which designs, develops and manufactures fuel storage and delivery products for a broad range of U.S. and non-U.S. manufacturers of passenger automobiles and light trucks (including minivans), 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, 3. Aftermarket, which provides replacement parts for both the automotive and small engine markets and, 4. Corporate, which includes corporate headquarters and direct investments. The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies. The Company evaluates performance based on earnings before interest, income taxes, minority interest, equity in income of joint ventures and extraordinary items (EBIT). The Company accounts for intercompany sales as if they were to third parties, that is, at current market prices. The Company accounts for property transfers at net book value. F-19 48 Walbro Corporation & Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) - - ----------------------------------------------------------------------- NOTE 14. BUSINESS SEGMENT INFORMATION. (continued) The following tables present financial information at and for the year ended December 31 by reportable segment:
1998 1997 1996 --------- --------- --------- (In Thousands) Net sales to external customers Automotive...................................... $ 497,449 $ 458,057 $ 438,596 Small Engine.................................... 142,406 125,937 117,102 Aftermarket..................................... 33,239 29,466 25,102 Corporate....................................... 4,896 6,445 4,589 --------- --------- --------- Total net sales to external customers............. 677,990 619,905 585,389 --------- --------- --------- Intercompany sales Automotive...................................... 76,465 66,304 64,330 Small Engine.................................... 44,805 38,161 37,357 Aftermarket..................................... 911 1,044 890 Corporate....................................... 1,253 225 634 --------- --------- --------- Total intercompany sales.......................... 123,434 105,734 103,211 Elimination of intercompany sales................. (123,434) (105,734) (103,211) --------- --------- --------- Total net sales................................... $ 677,990 $ 619,905 $ 585,389 ========= ========= ========= Depreciation and amortization Automotive...................................... $ 27,309 $ 24,491 $ 20,779 Small Engine.................................... 6,594 5,553 6,150 Aftermarket..................................... 261 166 184 Corporate....................................... 2,519 1,207 2,623 --------- --------- --------- Total depreciation and amortization............... $ 36,683 $ 31,417 $ 29,736 ========= ========= ========= Restructuring and impairment charges Automotive...................................... $ -- $ 19,608 $ -- Small Engine.................................... -- 750 -- Aftermarket..................................... -- -- -- Corporate....................................... -- 6,642 -- --------- --------- --------- Total restructuring and impairment charges........ $ -- $ 27,000 $ -- ========= ========= ========= EBIT Automotive...................................... $ 45,121 $ 3,291 $ 25,541 Small Engine.................................... 6,651 6,545 5,920 Aftermarket..................................... 8,228 7,003 6,540 Corporate....................................... (17,253) (36,939) (9,780) --------- --------- --------- Total EBIT........................................ 42,747 (20,100) 28,221 --------- --------- --------- Unallocated amounts Interest income.............................. 3,177 674 2,716 Interest expense............................. (31,806) (25,410) (20,535) Minority interest, net of tax................ (5,806) (5,035) (285) Equity in income of joint ventures, net of tax........................................ 846 3,113 4,187 --------- --------- --------- Total income (loss) before income taxes and extraordinary item.............................. $ 9,158 $ (46,758) $ 14,304 ========= ========= ========= Investment in equity method investees Automotive...................................... $ 38,435 $ 26,681 $ 28,955 Small Engine.................................... -- -- -- Aftermarket..................................... -- -- -- Corporate....................................... -- -- -- --------- --------- --------- Total investment in equity method investees....... $ 38,435 $ 26,681 $ 28,955 ========= ========= =========
F-20 49 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Walbro Corporation & Subsidiaries - - ----------------------------------------------------------------------- NOTE 14. BUSINESS SEGMENT INFORMATION. (continued)
1998 1997 1996 --------- --------- --------- (In Thousands) Expenditures for fixed assets Automotive...................................... $ 29,338 $ 46,464 $ 84,293 Small Engine.................................... 10,928 13,107 11,560 Aftermarket..................................... 197 180 209 Corporate....................................... 1,543 2,268 3,085 --------- --------- --------- Total expenditures for fixed assets............... $ 42,006 $ 62,019 $ 99,147 ========= ========= ========= Assets Automotive...................................... $ 448,123 $ 477,238 $ 463,144 Small Engine.................................... 94,621 87,468 67,020 Aftermarket..................................... 9,051 10,574 7,640 Corporate....................................... 96,872 35,313 51,845 --------- --------- --------- Total assets...................................... $ 648,667 $ 610,593 $ 589,649 ========= ========= =========
The following tables present financial information at and for the year ended December 31 by geographic area:
1998 1997 1996 -------- -------- -------- (In Thousands) Net sales to external customers(a) United States...................................... $414,190 $372,600 $321,527 Other(b)........................................... 263,800 247,305 263,862 -------- -------- -------- Total net sales to external customers................ $677,990 $619,905 $585,389 ======== ======== ======== Long-Lived Assets United States...................................... $219,896 $210,062 $215,427 Other (b).......................................... 165,756 151,697 157,292 -------- -------- -------- Total long-lived assets.............................. $385,652 $361,759 $372,719 ======== ======== ========
(a) Net sales to external customers are attributed to countries based on location of Walbro facility. (b) Other includes Walbro facilities in Canada, Mexico, Italy, Netherlands, France, Belgium, Germany, United Kingdom, Spain, Norway, Argentina, Brazil, Korea, Japan, Singapore and China. A majority of the Company's sales are to automobile manufacturing companies. Sales to one customer amounted to $141,942,000, $117,040,000 and $115,090,000 in 1998, 1997 and 1996, respectively. Sales to another customer amounted to $20,793,000, $33,421,000 and $59,176,000 in 1998, 1997 and 1996, respectively. - - -------------------------------------------------------------------------------- NOTE 15. SUPPLEMENTAL CASH FLOW INFORMATION. In 1998, 1997 and 1996, the Company paid $4,738,000, $4,376,000 and $5,048,000 for income taxes and $31,260,000, $29,957,000 and $21,674,000 for interest, respectively. F-21 50 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Walbro Corporation & Subsidiaries - - -------------------------------------------------------------------------------- NOTE 16. EARNINGS PER SHARE. In 1997, the Company adopted SFAS No. 128, "Earnings per Share," which changes the calculation of earnings per share to be more consistent with countries outside of the United States. In general, SFAS No. 128 requires two calculations of earnings per share to be disclosed, basic net income (loss) per share and diluted net income (loss) per share. Basic net income (loss) per share is computed using the weighted average common outstanding during the period. Diluted net income (loss) per share is computed using the average share price during the period when calculating the dilutive effect of stock options. The following is the Company's calculation of diluted common shares outstanding:
1998 1997 1996 --------- --------- --------- Weighted average common shares outstanding........... 8,686,213 8,661,432 8,608,837 Dilutive effect of stock options..................... -- 6,664 40,543 --------- --------- --------- Diluted common shares outstanding.................... 8,686,213 8,668,096 8,649,380 ========= ========= =========
- - -------------------------------------------------------------------------------- NOTE 17. QUARTERLY FINANCIAL INFORMATION (UNAUDITED). Selected quarterly financial information for the years ended December 31, 1998 and 1997 is as follows:
Quarter First Second Third Fourth Total -------- -------- -------- -------- -------- (In Thousands, Except Per Share Data) 1998-- Net sales..................... $169,292 $168,136 $165,648 $174,914 $677,990 Cost of sales................. 144,058 139,369 138,682 149,883 571,992 -------- -------- -------- -------- -------- Gross profit............... $ 25,234 $ 28,767 $ 26,966 $ 25,031 $105,998 ======== ======== ======== ======== ======== Income before extraordinary item....................... $ 572 $ 1,568 $ 538 $ 2,513 $ 5,191 ======== ======== ======== ======== ======== Net income.................... $ 572 $ 95 $ 538 $ 2,513 $ 3,718 ======== ======== ======== ======== ======== Basic and Diluted income per share before extraordinary item....................... $ 0.07 $ 0.18 $ 0.06 $ 0.29 $ 0.60 ======== ======== ======== ======== ======== Basic and Diluted income per share...................... $ 0.07 $ 0.01 $ 0.06 $ 0.29 $ 0.43 ======== ======== ======== ======== ======== 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 and Diluted net income (loss) per share........... $ 0.27 $ 0.14 $ (0.14) $ (4.49) $ (4.23) ======== ======== ======== ======== ========
Per share amounts and weighted average shares are computed independently for each of the quarters presented. Therefore, the sum of the quarterly per share amounts may not equal the per share total for the year. F-22 51 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 17, 1999. Our audits were made for the purpose of forming an opinion on those consolidated 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 17, 1999. S-1 52 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, 1998 (in thousands):
1998 1997 1996 -------- -------- -------- ALLOWANCE FOR DOUBTFUL ACCOUNTS: Balance Beginning of Year $ 809 $ 753 $ 978 Additions charged to operations 869 378 302 Other 2,818 -- -- Deductions for uncollectible accounts written off, net of recoveries (470) (238) (508) Currency translation adjustment 133 (84) (19) -------- -------- -------- Balance End of Year $ 4,159 $ 809 $ 753 ======== ======== ======== RESERVE FOR INVENTORY VALUATION: Balance Beginning of Year $ 2,645 $ 668 $ 808 Additions charged to operations 1,033 3,425 724 Deductions for inventory disposal (2,299) (1,380) (870) Currency translation adjustment 33 (68) 6 -------- -------- -------- Balance End of Year $ 1,412 $ 2,645 $ 668 ======== ======== ========
S-2 53 WALBRO CORPORATION AND SUBSIDIARIES SUPPLEMENTAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (2) SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
DECEMBER 31, 1998 --------------------------------------------------------------------------- WALBRO CORPORATION CONSOLIDATION GUARANTOR NONGUARANTOR (PARENT AND ELIMINATION CONSOLIDATED SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTAL ------------ ------------ ------------ --------------- ------------ (IN THOUSANDS, EXCEPT SHARE DATA) ASSETS CURRENT ASSETS: Cash..................................... $ 1,190 $ 18,563 $ (106) $ -- $ 19,647 Accounts receivable, net................. 66,739 55,015 32,662 -- 154,416 Accounts receivable, intercompany........ (103,735) (37,056) 141,663 (872) -- Inventories.............................. 21,898 37,918 1,055 -- 60,871 Prepaid expenses and other............... 1,690 9,007 1,037 -- 11,734 Deferred and refundable income taxes..... -- 1,507 9,228 -- 10,735 ---------- --------- --------- ---------- --------- Total current assets................... (12,218) 84,954 185,539 (872) 257,403 ---------- --------- --------- ---------- --------- PLANT AND EQUIPMENT, NET................... 109,941 160,478 8,014 108 278,541 ---------- --------- --------- ---------- --------- OTHER ASSETS: Assets held for sale..................... -- 3,175 -- -- 3,175 Joint ventures........................... 20,169 18,266 -- -- 38,435 Investments.............................. 134,676 24,766 68,408 (225,160) 2,690 Goodwill, net............................ 13,886 9,460 -- 8,541 31,887 Notes receivable......................... 2,000 8,310 -- (8,287) 2,023 Deferred income taxes.................... -- 5,266 346 -- 5,612 Other.................................... 9,705 4,740 14,456 -- 28,901 ---------- --------- --------- ---------- --------- Total other assets..................... 180,436 73,983 83,210 (224,906) 112,723 ---------- --------- --------- ---------- --------- Total assets............................... $278,159 $319,415 $276,763 $(225,670) $648,667 ========== ========= ========= ========== ========= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of long-term debt........ $ 776 $ 134 $ 1,493 $ -- $ 2,403 Bank and other borrowings................ -- 12,012 -- -- 12,012 Accounts payable......................... 28,094 79,454 6,585 -- 114,133 Accrued liabilities...................... 13,164 14,440 2,176 1,229 31,009 Dividends payable........................ -- 920 -- -- 920 ---------- --------- --------- ---------- --------- Total current liabilities.............. 42,034 106,960 10,254 1,229 160,477 ---------- --------- --------- ---------- --------- LONG-TERM LIABILITIES: Long-term debt, less current portion..... 165,617 18,882 181,757 (41,967) 324,289 Pension obligations and other............ -- 3,754 7,831 -- 11,585 Deferred income taxes.................... -- 5,170 (635) -- 4,535 Minority interest........................ -- 1,225 -- -- 1,225 ---------- --------- --------- ---------- --------- Total long-term liabilities............ 165,617 29,031 188,953 (41,967) 341,634 ---------- --------- --------- ---------- --------- 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 8,688,294 in 1998...................... -- 25,678 4,344 (25,678) 4,344 Paid-in capital.......................... -- 73,618 66,088 (73,618) 66,088 Retained earnings........................ 73,816 34,118 37,656 (107,934) 37,656 Deferred compensation.................... -- -- (125) -- (125) Accumulated other comprehensive income... (3,308) (18,990) (30,407) 22,298 (30,407) ---------- --------- --------- ---------- --------- Total stockholders' equity............. 70,508 114,424 77,556 (184,932) 77,556 ---------- --------- --------- ---------- --------- Total liabilities and stockholders' equity............................... $278,159 $319,415 $276,763 $(225,670) $648,667 ========== ========= ========= ========== =========
S-3 54 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: 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 8,682,595 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) Accumulated other comprehensive income... (2,587) (25,416) (34,185) 28,003 (34,185) ----------- ---------- ----------- -------------- ---------- 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-4 55 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, 1998 ---------------------------------------------------------------------------- WALBRO CORPORATION CONSOLIDATION GUARANTOR NONGUARANTOR (PARENT AND ELIMINATION CONSOLIDATED SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTAL ------------ ------------ ------------ --------------- ------------- (IN THOUSANDS) NET SALES............................. $357,379 $339,813 $ 2,624 $(21,826) $677,990 COSTS AND EXPENSES: Cost of sales....................... 296,326 295,254 2,238 (21,826) 571,992 Selling, administrative, research and development expenses......... 30,331 26,574 11,621 - 68,526 -------- -------- -------- -------- -------- OPERATING INCOME (LOSS)............... 30,722 17,985 (11,235) - 37,472 OTHER EXPENSE (INCOME): Interest expense.................... 25,649 10,486 26,117 (30,446) 31,806 Interest income..................... (7,809) (6,823) (18,991) 30,446 (3,177) Royalty income, net................ (3,667) 439 - - (3,228) Foreign currency exchange loss (gain)........................... (73) (1,173) (16) - (1,262) Other............................... (721) 490 (554) - (785) -------- -------- -------- -------- -------- Income before (provision) credit for income taxes, minority interest, equity in income (loss) of joint ventures and subsidiaries and extraordinary item.................. 17,343 14,566 (17,791) - 14,118 (Provision) credit for income taxes... (5,496) (3,110) 4,639 - (3,967) Minority interest..................... - (5,806) - - (5,806) Equity in income (loss) of joint ventures............................ (353) 1,199 - - 846 Equity in income (loss) of subsidiaries........................ 8,226 - 18,343 (26,569) - -------- -------- -------- -------- -------- Income before extraordinary item...... 19,720 6,849 5,191 (26,569) 5,191 Extraordinary item.................... - - (1,473) - (1,473) -------- -------- ------- -------- -------- Net income............................ $ 19,720 $ 6,849 $ 3,718 $(26,569) $ 3,718 ======== ======== ======= ======== ======== Net income............................ $ 19,720 $ 6,849 $ 3,718 $(26,569) $ 3,718 Other comprehensive income, net of tax: Unrealized loss on securities for sale.......................... - - (207) - (207) Cumulative translation adjustments.. (721) 6,426 3,985 (5,705) 3,985 -------- -------- -------- -------- -------- Other comprehensive income............ (721) 6,426 3,778 (5,705) 3,778 -------- -------- -------- -------- -------- Comprehensive income.................. $ 18,999 $ 13,275 $ 7,496 $(32,274) $ 7,496 ======== ======== ======== ======== ========
S-5 56 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 and restructuring and. impairment charges............... 299,913 286,119 2,133 (22,414) 565,751 Selling, administrative, research and development 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) ======== ======== ======== ========= ========= Net income............................ $(17,245) $ (8,820) $(36,626) $ 26,064 $ (36,627) Other comprehensive income, net of tax: Unrealized loss on securities available for sale................ -- -- (620) -- (620) Cumulative translation adjustments.. (2,607) (23,790) (28,226) 26,397 (28,226) -------- -------- -------- --------- --------- Other comprehensive income............ (2,607) (23,790) (28,846) 26,397 (28,846) -------- -------- -------- --------- --------- Comprehensive income.................. $(19,852) $(32,610) $(65,472) $ 52,461 $ (65,473) ======== ======== ======== ========= =========
S-6 57 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 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 administrative, research and development 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 ======== ======== ========= ========= ======== Net income ........................ $ 13,315 $ 9,896 $ 11,229 $ (23,211) $ 11,229 Other comprehensive income, net of tax: Minimum pension liability adjustment...................... -- -- 63 -- 63 Unrealized loss on securities available for sale.............. -- -- (139) -- (139) Cumulative translation adjustments.................... (551) (5,085) (6,580) 5,636 (6,580) -------- -------- --------- --------- -------- Other comprehensive income......... (551) (5,085) (6,656) 5,636 (6,656) -------- -------- --------- --------- -------- Comprehensive income............... $ 12,764 $ 4,811 $ 4,573 $ (17,575) $ 4,573 ======== ======== ========= ========= ========
S-7 58 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, 1998 --------------------------------------------------------------------------- WALBRO CORPORATION CONSOLIDATION GUARANTOR NONGUARANTOR (PARENT AND ELIMINATION CONSOLIDATED SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTAL ------------ ------------ ------------ --------------- ------------ (IN THOUSANDS) Net cash provided by (used in) operating activities.............. $ 33,107 $ 53,196 $(31,701) $-- $ 54,602 --------- --------- --------- ----- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of plant and equipment.................... (16,474) (25,237) (295) -- (42,006) Acquisitions, net of cash acquired..................... -- -- -- -- -- Purchase of other assets....... 12,235 (11,320) (6,391) -- (5,476) Investment in joint ventures and other.................... (22,201) 3,240 7,392 -- (11,569) Proceeds/(payments) of intercompany note receivable................... -- -- -- -- -- Proceeds from disposal of assets....................... 2,211 653 5,515 -- 8,379 -------- -------- -------- ----- -------- Net cash provided by (used in) investing activities.............. (24,229) (32,664) 6,221 -- (50,672) -------- -------- -------- ----- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Net borrowings (repayments) under revolving line-of-credit agreements................... -- -- 73,344 -- 73,344 Debt repayments................ (6,944) (16,479) (45,408) -- (68,831) Proceeds from issuance of long-term debt............... -- -- -- -- -- Proceeds from issuance of common stock and options..... -- -- 57 -- 57 Financing fees paid............ -- -- (2,603) -- (2,603) Cash dividends paid............ -- -- (868) -- (868) -------- -------- -------- ----- -------- Net cash provided by (used in) financing activities.............. (6,944) (16,479) 24,522 -- 1,099 -------- -------- -------- ----- -------- EFFECT OF EXCHANGE RATE CHANGES ON CASH.............................. -- 1,079 -- -- 1,079 -------- -------- -------- ----- -------- NET INCREASE (DECREASE) IN CASH..... 1,934 5,132 (958) -- 6,108 CASH AT BEGINNING OF YEAR........... (744) 13,431 852 -- 13,539 -------- -------- -------- ----- -------- CASH AT END OF YEAR................. $ 1,190 $ 18,563 $ (106) $-- $ 19,647 ========= ======== ======== ===== ========
S-8 59 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-9 60 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-10 61 WALBRO CORPORATION AND SUBSIDIARIES SUPPLEMENTAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (2) SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (CONTINUED) 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 S-2 through S-10 and should be read in connection with the 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 1998, 1997 and 1996 the Parent Corporation allocated $3,399,000, $5,267,000 and $10,422,000, respectively, of corporate selling and administrative expenses to its operating subsidiaries. S-11 62 WALBRO CORPORATION AND SUBSIDIARIES SUPPLEMENTAL NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (2) SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (CONTINUED) Long-term debt of the Parent Corporation and the Guarantors consisted of the following at December 31 (in thousands):
1998 1997 ------ ------- 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. $109,747 $109,708 Senior notes due 2007, unsecured, interest at 10.125%............ 100,000 100,000 New Revolving Credit Facility, secured, interest at the LIBOR or prime rate, plus an additional margin ......................... 93,312 -- New Purchase Money Loan Agreement, secured, interest at the LIBOR or prime rate, plus an additional margin...................................... 2,584 -- Old Revolving Credit Facility, repaid during 1998................ -- 19,700 Old Purchase Money Loan Agreement, repaid during 1998............ -- 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 2004 Senior Notes, repaid during 1998............................ -- 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, repaid during 1998............................................. -- 6,300 Capital lease obligations, interest at 7.5%, payable in monthly installments through February 2002............................. 2,399 3,042 Other............................................................ -- 462 -------- -------- 320,442 299,464 Less -- Current portion.......................................... 2,269 13,884 -------- -------- $318,173 $285,580 ======== ========
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, 1998 are as follows (in thousands): 1999 - $2,269; 2000 - $2,447; 2001 - $2,515; 2002 - $1,867; 2003 - $90,199 and thereafter - $221,145. S-12 63 INDEX TO EXHIBITS
SEQUENTIAL EXHIBITS DESCRIPTION PAGE NO. 4.15 Financing and Security Agreement between the Company and NationsBank, N.A., as Administrative Agent and Lender, dated May 29, 1998. 4.16 Amendment No. 1 to the Financing and Security Agreement between the Company and NationsBank, N.A., as Administrative Agent and Lender, dated December 31, 1998. 10.2 The Company's Amended and Restated Equity Based Long-Term Incentive Plan effective as of June 20, 1994. 10.22 Amended and Restated Employment Agreement between the Company and Frank E. Bauchiero effective as of April 17, 1998. 10.23 Amended and Restated Termination and Change of Control Agreement between the Company and Frank E. Bauchiero effective as of April 17, 1998. 21.1 Subsidiaries of the Company. 23.1 Consent of Arthur Andersen LLP, independent public accountants. 27.1 Financial Data Schedule.
EX-4.15 2 FINANCING & SERVICING AGREEMENT 1 EXHIBIT 4.15 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. 28 ARTICLE II THE CREDIT FACILITIES 29 SECTION 2.1 THE REVOLVING CREDIT FACILITY. 29 2.1.1 Revolving Credit Facility. 29 2.1.2 Procedure for Making Advances Under the Revolving Loans; Lender Protection Loans. 31 2.1.3 Borrowing Base. 32 2.1.4 Borrowing Base Report. 33 2.1.5 Revolving Credit Notes. 34 2.1.6 Mandatory Prepayments of Revolving Loan. 34 2.1.7 Optional Prepayments of Revolving Loan. 34 2.1.8 The Collateral Accounts. 34 2.1.9 Revolving Loan Account. 36 2.1.10 Revolving Credit Unused Line Fee. 36 2.1.11 Early Termination Fee. 37 2.1.12 Required Availability under the Revolving Credit Facility. 38 SECTION 2.2 THE LETTER OF CREDIT FACILITY. 39 2.2.1 Letters of Credit. 39 2.2.2 Letter of Credit Fees. 39 2.2.3 Terms of Letters of Credit; Post-Expiration Date Letters of Credit. 40 2.2.4 Procedures for Letters of Credit. 41 2.2.5 Payments of Letters of Credit. 41 2.2.6 Change in Law; Increased Cost. 43 2.2.7 General Letter of Credit Provisions. 43 2.2.8 Participations in the Letters of Credit. 44 2.2.9 Payments by the Lenders to the Appropriate Letter of Credit Issuer. 45 SECTION 2.3 MULTI-CURRENCY PARTICIPATIONS. 46 2.3.1 Multi-Currency Participants. 46 2.3.2 Representations of Multi-Currency Lender and Multi-Currency Letter of Credit Issuer. 47 2.3.3 Standing of Multi-Currency Participant. 48 2.3.4 Reports of Multi-Currency Agent 49 SECTION 2.4 THE CAPITAL EXPENDITURE LINE FACILITY. 49 2.4.1 Capital Expenditure Line Facility. 49 2.4.2 Procedure for Making Advances Under the Capital Expenditure Line. 49 2.4.3 Capital Expenditure Line Notes. 50 2.4.4 Payments of Capital Expenditure Line. 51 2.4.5 Optional Prepayments of Capital Expenditure Line. 51 2.4.6 Application of Capital Expenditure Line Partial Prepayments. 51 SECTION 2.5 INTEREST. 52 2.5.1 Applicable Interest Rates. 52 2.5.2 Selection of Interest Rates. 53 2.5.3 Inability to Determine Eurodollar Base Rate. 55 2.5.4 Indemnity. 55 2.5.5 Payment of Interest. 56 SECTION 2.6 GENERAL FINANCING PROVISIONS. 56
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2.6.1 Borrowers' Representatives. 56 2.6.2 Computation of Interest and Fees. 58 2.6.3 Liens; Setoff. 58 2.6.4 Requirements of Law. 59 2.6.5 Administrative Agency Fees. 59 2.6.6 Origination Fee. 59 2.6.7 Funds Transfer Services. 59 2.6.8 Guaranty. 61 SECTION 2.7 SETTLEMENT AMONG LENDERS. 64 2.7.1 Capital Expenditure Line. 64 2.7.2 Revolving Loan. 64 2.7.3 Settlement Procedures as to Revolving Loan. 64 2.7.4 Settlement of Other Obligations. 67 2.7.5 Presumption of Payment. 67 SECTION 2.8 ASSESSMENTS; WITHHOLDING. 69 2.8.1 Payment of Assessments. 69 2.8.2 Indemnification. 69 2.8.3 Receipts. 70 2.8.4 Foreign Bank Certifications. 70 ARTICLE III THE COLLATERAL 72 SECTION 3.1 DEBT AND OBLIGATIONS SECURED. 72 SECTION 3.2 GRANT OF LIENS. 72 SECTION 3.3 COLLATERAL DISCLOSURE LIST. 73 SECTION 3.4 ADDITIONAL COLLATERAL. 73 SECTION 3.5 RECORD SEARCHES. 73 SECTION 3.6 COSTS. 74 SECTION 3.7 RELEASE. 74 SECTION 3.8 INCONSISTENT PROVISIONS. 74 ARTICLE IV REPRESENTATIONS AND WARRANTIES 75 SECTION 4.1 REPRESENTATIONS AND WARRANTIES. 75 4.1.1 Subsidiaries. 75 4.1.2 Good Standing. 75 4.1.3 Power and Authority. 75 4.1.4 Binding Agreements. 75 4.1.5 No Conflicts. 76 4.1.6 No Defaults, Violations. 76 4.1.7 Compliance with Laws. 76 4.1.8 Margin Stock. 76 4.1.9 Investment Company Act; Margin Securities. 76 4.1.10 Litigation. 77 4.1.11 Financial Condition. 77 4.1.12 Full Disclosure. 77 4.1.13 Indebtedness for Borrowed Money. 77 4.1.14 Subordinated Debt. 78 4.1.15 Taxes. 78 4.1.16 ERISA. 78 4.1.17 Title to Properties. 79 4.1.18 Patents, Trademarks, Etc. 79 4.1.19 Employee Relations. 79 4.1.20 Presence of Hazardous Materials or Hazardous Materials Contamination. 80 4.1.21 Perfection and Priority of Collateral. 80 4.1.22 Places of Business and Location of Collateral. 80
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4.1.23 Business Names and Addresses. 80 4.1.24 Capital Expenditure Line Equipment. 80 4.1.25 Inventory. 81 4.1.26 Accounts. 81 4.1.27 Assigned Local Currency Receivables. 81 4.1.28 Compliance with Eligibility Standards. 81 4.1.29 Year 2000 Compliance 82 SECTION 4.2 SURVIVAL; UPDATES OF REPRESENTATIONS AND WARRANTIES. 82 ARTICLE V CONDITIONS PRECEDENT 83 SECTION 5.1 CONDITIONS TO THE INITIAL ADVANCE AND INITIAL LETTER OF CREDIT. 83 5.1.1 Organizational Documents - Domestic Borrowers. 83 5.1.2 Opinion of Domestic Borrowers' Counsel. 84 5.1.3 Opinion of Local Currency Borrowers' Counsel. 84 5.1.4 Consents, Licenses, Approvals, Etc. 84 5.1.5 Notes. 84 5.1.6 Financing Documents and Collateral. 84 5.1.7 Additional Financial Matters. 84 5.1.8 Solvency Certificate. 84 5.1.9 Other Financing Documents. 85 5.1.10 Other Documents, Etc. 85 5.1.11 Payment of Fees. 85 5.1.12 Collateral Disclosure List. 85 5.1.13 Recordings and Filings. 85 5.1.14 Insurance Certificate. 85 5.1.15 Landlord's Waivers. 85 5.1.16 Bailee Acknowledgements. 86 5.1.17 Field Examination. 86 5.1.18 Stock Certificates and Stock Powers. 86 5.1.19 Collateral Account Acknowledgments. 86 SECTION 5.2 CONDITIONS TO ADVANCES AND LETTERS OF CREDIT FOR LOCAL CURRENCY BORROWERS. 86 5.2.1 Organizational Documents - Local Currency Borrowers. 86 5.2.2 Opinion of Local Currency Borrowers' Counsel. 87 5.2.3 Consents, Licenses, Approvals, Etc. 87 SECTION 5.3 CONDITIONS TO MULTI-CURRENCY LOANS AND MULTI-CURRENCY LETTERS OF CREDIT. 87 SECTION 5.4 CONDITIONS TO ALL EXTENSIONS OF CREDIT. 88 5.4.1 Compliance. 88 5.4.2 Borrowing Base. 88 5.4.3 Default. 88 5.4.4 Representations and Warranties. 88 5.4.5 Adverse Change. 88 5.4.6 Legal Matters. 89 ARTICLE VI COVENANTS OF THE BORROWERS 89 SECTION 6.1 AFFIRMATIVE COVENANTS. 89 6.1.1 Financial Statements. 89 6.1.2 Reports to SEC and to Stockholders. 91 6.1.3 Rights of Inspection, Field Examination, Etc. 91 6.1.4 Corporate Existence. 92 6.1.5 Compliance with Laws. 93 6.1.6 Preservation of Properties. 93 6.1.7 Line of Business. 93 6.1.8 Insurance. 93
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6.1.9 Taxes. 94 6.1.10 ERISA. 94 6.1.11 Notification of Events of Default and Adverse Developments. 94 6.1.12 Hazardous Materials; Contamination. 95 6.1.13 Disclosure of Significant Transactions. 96 6.1.14 Financial Covenants. 96 6.1.15 Collection of Receivables. 97 6.1.16 Assignments of Receivables. 97 6.1.17 Government Accounts. 98 6.1.18 Notice of Returned Goods, etc. 98 6.1.19 Inventory. 98 6.1.20 Insurance With Respect to Capital Expenditure Line Equipment and Inventory. 99 6.1.21 Maintenance of the Collateral. 99 6.1.22 Assigned Local Currency Receivables 100 6.1.23 Capital Expenditure Line Equipment. 100 6.1.24 Defense of Title and Further Assurances. 100 6.1.25 Business Names; Locations. 101 6.1.26 Subsequent Opinion of Counsel as to Recording Requirements. 101 6.1.27 Use of Premises and Equipment. 101 6.1.28 Protection of Collateral. 102 SECTION 6.2 NEGATIVE COVENANTS. 102 6.2.1 Mergers, Acquisition or Sale of Assets. 102 6.2.2 Subsidiaries. 102 6.2.3 Purchase or Redemption of Securities, Dividend Restrictions. 102 6.2.4 Indebtedness for Borrowed Money. 103 6.2.5 Investments, Loans and Other Transactions. 104 6.2.6 Stock of Subsidiaries. 104 6.2.7 Subordinated Indebtedness. 105 6.2.8 Liens. 105 6.2.9 Transactions with Affiliates. 105 6.2.10 Other Businesses. 106 6.2.11 ERISA Compliance. 106 6.2.12 Prohibition on Hazardous Materials. 106 6.2.13 Method of Accounting; Fiscal Year. 106 6.2.14 Compensation. 106 6.2.15 Transfer of Collateral. 107 6.2.16 Sale and Leaseback. 107 6.2.17 Disposition of Collateral. 107 ARTICLE VII DEFAULT AND RIGHTS AND REMEDIES 107 SECTION 7.1 EVENTS OF DEFAULT. 107 7.1.1 Failure to Pay. 107 7.1.2 Breach of Representations and Warranties. 107 7.1.3 Failure to Comply with Covenants. 108 7.1.4 Default Under Other Financing Documents or Obligations. 108 7.1.5 Receiver; Bankruptcy. 108 7.1.6 Involuntary Bankruptcy, etc. 108 7.1.7 Judgment. 109 7.1.8 Execution; Attachment. 109 7.1.9 Default Under Other Borrowings. 109 7.1.10 Challenge to Agreements. 109 7.1.11 Material Adverse Change. 110 7.1.12 Liquidation, Termination, Dissolution, Change in Control etc. 110 7.1.13 Change in Control. 110 SECTION 7.2 REMEDIES. 110
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7.2.1 Acceleration. 110 7.2.2 Further Advances. 110 7.2.3 Uniform Commercial Code. 111 7.2.4 Specific Rights With Regard to Collateral. 112 7.2.5 Application of Proceeds. 113 7.2.6 Performance by Administrative Agent. 113 7.2.7 Other Remedies. 114 ARTICLE VIII THE AGENT 114 SECTION 8.1 APPOINTMENT. 114 SECTION 8.2 NATURE OF DUTIES. 114 8.2.1 In General 114 8.2.2 Express Authorization 115 SECTION 8.3 RIGHTS, EXCULPATION, ETC. 116 SECTION 8.4 RELIANCE. 117 SECTION 8.5 INDEMNIFICATION. 117 SECTION 8.6 NATIONSBANK INDIVIDUALLY. 117 SECTION 8.7 SUCCESSOR ADMINISTRATIVE AGENT. 118 8.7.1 Resignation. 118 8.7.2 Appointment of Successor. 118 8.7.3 Successor Agents. 118 SECTION 8.8 COLLATERAL MATTERS. 119 8.8.1 Release of Collateral, Guaranties. 119 8.8.2 Confirmation of Authority, Execution of Releases. 120 8.8.3 Absence of Duty. 120 SECTION 8.9 AGENCY FOR PERFECTION. 121 SECTION 8.10 EXERCISE OF REMEDIES. 121 SECTION 8.11 CONSENTS. 121 SECTION 8.12 DISSEMINATION OF INFORMATION. 121 SECTION 8.13 DISCRETIONARY ADVANCES. 122 ARTICLE IX MISCELLANEOUS 122 SECTION 9.1 NOTICES. 122 SECTION 9.2 AMENDMENTS; WAIVERS. 123 9.2.1 In General. 123 9.2.2 Circumstances Where Consent of all of the Lenders is Required. 124 SECTION 9.3 CUMULATIVE REMEDIES. 125 SECTION 9.4 SEVERABILITY. 126 SECTION 9.5 ASSIGNMENTS BY LENDERS. 126 SECTION 9.6 PARTICIPATIONS BY LENDERS. 127 SECTION 9.7 DISCLOSURE OF INFORMATION BY LENDERS. 127 SECTION 9.8 SUCCESSORS AND ASSIGNS. 127 SECTION 9.9 CONTINUING AGREEMENTS. 127 SECTION 9.10 ENFORCEMENT COSTS. 128 SECTION 9.11 APPLICABLE LAW; JURISDICTION. 128 9.11.1 Applicable Law. 128 9.11.2 Submission to Jurisdiction. 128 9.11.3 Appointment of Administrative Agent for Service of Process. 129 9.11.4 Service of Process. 129 SECTION 9.12 DUPLICATE ORIGINALS AND COUNTERPARTS. 129 SECTION 9.13 HEADINGS. 130 SECTION 9.14 NO AGENCY. 130 SECTION 9.15 DATE OF PAYMENT. 130 SECTION 9.16 ENTIRE AGREEMENT. 130
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SECTION 9.17 WAIVER OF TRIAL BY JURY. 130 SECTION 9.18 LIABILITY OF THE ADMINISTRATIVE AGENT AND THE LENDERS. 131 SECTION 9.19 INDEMNIFICATION. 131 SECTION 9.20 CONFIDENTIALITY. 132 LIST OF SCHEDULES 136 SCHEDULE 1.1-A DOMESTIC BORROWERS 136 SCHEDULE 1.1-B LOCAL CURRENCY BORROWERS 136
-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 -1- 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 Dollars 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) Not 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 -39- 47 Letters of Credit unless such reduction has actually occurred. The accrued and unpaid portion of 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 -40- 48 Letter of Credit Issuer pursuant to the provisions of this Agreement, including, without 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; -41- 49 (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 (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. -42- 50 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 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 -43- 51 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 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 -44- 52 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 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 -45- 53 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. 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 -46- 54 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 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 -47- 55 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. 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. -48- 56 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. 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 -49- 57 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 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 -50- 58 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. 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 -51- 59 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 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 duly -70- 78 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, or 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 Section 4205 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 VI 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 VII 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 VIII 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 _________________________ By:____________________________(Seal) 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 _________________________ By:____________________________(Seal) 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 _____________________________ By:____________________________(Seal) 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 LIST OF SCHEDULES ----------------- Schedule 1.1-A Domestic Borrowers Schedule 1.1-B Local Currency Borrowers Schedule 1.1-C Assignment of Purchase Agreements Schedule 1.1-D Certain Off Site Inventory Locations Schedule 4.1.10 Litigation Schedule 4.1.13 Indebtedness for Borrowed Money Schedule 4.1.19 Employee Relations Schedule 4.1.21. Perfection and Priority of Collateral Schedule 6.2.16 Sale and Leaseback Transactions -136- EX-4.16 3 AMEND #1 TO FINANCING & SERVICING AGREEMENT 1 EXHIBIT 4.16 AMENDMENT NO. 1 TO FINANCING AND SECURITY AGREEMENT THIS AMENDMENT NO. 1 TO FINANCING AND SECURITY AGREEMENT (this "Amendment") is made as of this day of December, 1998, by and between 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 the Financing and Security Agreement dated May 29, 1998 (the "Original Financing Agreement"), and NATIONSBANK, N.A., a national banking association, in its capacity as both collateral and administrative agent (the "Administrative Agent"), and each of the Lenders under the Original Financing Agreement (collectively, the "Lenders" and individually, a "Lender"). RECITALS A. The Parent and the Domestic Borrowers (collectively, 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 (ii) a Capital Expenditure Line Facility in the maximum principal amount of $25,000,000 (collectively, the "Credit Facilities") under the provisions of the Original Financing Agreement, as amended, restated, supplemented or otherwise modified, the "Financing Agreement". All capitalized terms used, but not specifically defined herein, shall have the meaning given such terms in the Financing Agreement. B. The Borrowers have requested that the Administrative Agent and the Lenders enter into this Amendment for the purpose of effecting certain modifications to the terms and conditions under which the Credit Facilities are made available by the Lenders to the Borrowers. AGREEMENTS NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, receipt of which is hereby acknowledged, the Borrowers, the Administrative Agent and the Lenders agree as follows: 1. Definitions (a) Section 1.1 of the Original Financing Agreement is hereby amended to add the following defined terms: "`Bonds' means the Town of Ossian, Indiana Variable Rate Demand Economic Development Revenue Bonds 1 2 (Walbro Automotive Corporation Project) Series 1993, issued by the Town of Ossian, Indiana in the original aggregate principal amount of $9,000,000." "`Bond Letter of Credit' means that certain irrevocable letter of credit to be issued by the Administrative Agent in the initial stated amount of $9,086,302, for the account of Walbro Automotive Corporation and for the benefit of National City Bank of Indiana, as Trustee, and as security for the Bonds as the same may be amended, restated, reissued, renewed, supplemented, replaced or otherwise modified at any time and from time to time." "`Bond Letter of Credit Commitment' means the agreement of the Administrative Agent relating to the issuance of the Bond Letter of Credit and the repayment of the Bond Letter of Credit Obligations and the agreements of the Lenders to purchase a participation interest in the Bond Letter of Credit Obligations, all subject to and in accordance with the provisions of this Agreement; and "Bond Letter of Credit Commitments" means the collective reference to the Bond Letter of Credit Commitment of the Administrative Agent and each of the Lenders." "`Bond Letter of Credit Documents' means all instruments, agreements or documents previously, simultaneously or hereafter executed and delivered by any Borrower, any Guarantor or any other Person, singly or jointly with another Person or Persons evidencing, securing, guarantying or in connection with the Bonds or the Bond Letter of Credit, all as the same may be amended, restated, supplemented, replaced or otherwise modified at any time and from time to time." "`Bond Letter of Credit Facility' means the facility established pursuant to Section 2.9 (Bond Letter of Credit Facility)." "`Bond Letter of Credit Fee' and "Bond Letter of Credit Fees" have the meanings described in Section 2.9.2 (Bond Letter of Credit Fees)." "`Bond Letter of Credit Fronting Fee' and "Bond Letter of Credit Fronting Fees" have the meanings described in Section 2.9.2 (Bond Letter of Credit Fees)." "`Bond Letter of Credit Obligations' means the 2 3 collective reference to all obligations of the Borrowers under and with respect to the Bond Letter of Credit Documents." "`Deed of Trust - Ossian' means that certain deed of trust or mortgage dated as of December 1, 1993, between Walbro Automotive Corporation and Harris Trust and Savings Bank and assigned to the Administrative Agent on or about the date of this Amendment, as the same may from time to time be amended, restated, supplemented or modified, which Deed of Trust - Ossian grants the Administrative Agent for the benefit of the Lenders ratably and for the benefit of the Agents, a first priority lien on that certain property known generally as 1200 Baker Drive, Ossian, Indiana 46777, as security for the Bond Letter of Credit Obligations." "`Security Agreement - Ossian' means that certain security agreement dated as of December 1, 1993, between Walbro Automotive Corporation and Harris Trust and Savings Bank and assigned to the Administrative Agent on or about the date of this Amendment, as the same may from time to time be amended, restated, supplemented or modified, which Security Agreement - Ossian grants to the Administrative Agent for the benefit of the Lenders ratably and for the benefit of the Agents, a first priority lien on certain personal property more particularly therein described, as security for the Bond Letter of Credit Obligations." (b) Section 1.1 of the Original Financing Agreement is hereby amended to modify the following defined terms by deleting the original definitions thereof and substituting the following definitions: "`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, the Bond Letter of Credit Documents 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." "`Obligations means all present and future indebtedness, duties, obligations, and liabilities, 3 4 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, Bond Letter of Credit Document 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; also means all other present and future indebtedness, liabilities and obligations, whether now existing or contemplated or hereafter arising, of any one or more of the Borrowers to the Agents and to the Lenders or their Affiliates 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." "`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, the Assignments of Purchase Agreement, the Deed of Trust - Ossian and the Security Agreement - Ossian. "`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 4 5 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, and the Pledge, Assignment and Security Agreement dated on or about the date of this Amendment, from the Parent 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 80% of the common stock of U.S. Coexcell, Inc." 2. Schedules. Schedule 1.1-C to the Original Financing Agreement is hereby amended to add as item no. 7 the Collateral Assignment of Agreement by and between Walbro Automotive S.A., a French Corporation, and Walbro Corporation. 3. Amendments to Section 2.1 (The Revolving Credit Facility). In order to reflect the reduction of the Total Revolving Credit Committed Amount necessary to permit the issuance of the Bond Letter of Credit without increasing the aggregate Commitment. Section 2.1.1(a) of the Original Financing Agreement is hereby deleted in its entirety and replaced with the following Section 2.1.1(a): "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 Fifteen Million Nine Hundred Thirteen Thousand Six Hundred and Ninety Eight Dollars ($115,913,698) 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." 5 6 4. Unused Availability Requirement. Section 2.1.12 of the Original Financing Agreement is hereby amended to include the following additional clause (d): "(d) Notwithstanding anything to the contrary contained in this Section 2.1.12, the Unused Availability requirement shall be waived until the earlier to occur of (i) the sale by the Parent of the common stock owned by it in U.S. Coexcell, Inc., which stock represents 80% of the total issued and outstanding common stock and which is pledged to the Administrative Agent for the benefit of the Lenders ratably and the Agents, pursuant to a Stock Pledge Agreement dated on or about the date of this Amendment, or (ii) the first anniversary of this Amendment." 5. Bond Letter of Credit. Article II of the Original Financing Agreement is hereby amended to add the following Section 2.9: "Section 2.9 The Bond Letter of Credit Facility. 2.9.1 Bond Letter of Credit. Subject to and upon the provisions of the Bond Letter of Credit Documents, the Administrative Agent has agreed to issue the Bond Letter of Credit upon satisfaction of all conditions precedent described in Section 5.3 of this Financing Agreement, which Bond Letter of Credit will have an expiry date no later than the Business Day preceding the Revolving Credit Termination Date (the "Bond Letter of Credit Commitment"). 2.9.2 Bond Letter of Credit Fees. The Borrowers shall pay to the Administrative Agent, for its own account, an issuance fee of one-quarter of one percent (1/4%) per annum of the stated amount of the Bond Letter of Credit, without regard for provisions contained in the Bond Letter of Credit which may give rise to a reduction in the stated amount thereof unless such reduction has actually occurred (each a "Bond Letter of Credit Fronting Fee" and collectively, the "Bond Letter of Credit Fronting Fees"). The Bond Letter of Credit Fronting Fees shall be paid upon the issuance of the Bond Letter of Credit and upon each anniversary thereof, if any. In addition, the Borrower shall pay to the Administrative 6 7 Agent all other reasonable and customary negotiation, processing, transfer or other fees in accordance with the Administrative Agent's customary practices for the issuance of standby letters of credit. All Bond Letter of Credit Fronting Fees and all such other additional fees 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 Administrative Agent and are a part of the Agent's Obligations. In addition and in connection with the Bond Letter of Credit, 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 "Bond Letter of Credit Fee" and collectively the "Bond Letter of Credit 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 stated amount of the Bond Letter of Credit on the first day of the month, without regard for provisions contained in the Bond Letter of Credit which may give rise to a reduction in the stated amount thereof unless such reduction has actually occurred. The accrued and unpaid portion of each Bond Letter of Credit Fee shall be paid in arrears on the first day of each month and upon the expiration or termination date of the Bond Letter of Credit. 2.9.3 Terms of Bond Letters of Credit. The Bond Letter of Credit shall (a) be issued pursuant to a completed and executed Application and Agreement for Standby Letter of Credit in substantially the form attached hereto as Exhibit A and made a part hereof, and (b) shall be issued in substantially the form attached hereto as Exhibit B and made a part hereof, and (c) expire on a date not later than the Business Day preceding the Revolving Credit Termination Date. The Bond Letter of Credit shall be issued for the sole purpose of providing security for the payment of principal (whether at maturity, upon acceleration or upon purchase or redemption) and interest on the Bonds. The stated amount of the Bond Letter of Credit issued by the Administrative Agent pursuant to the provisions of this Agreement, plus the amount of any unpaid Bond Letter of Credit Fees and Bond Letter of Credit Fronting Fees accrued or scheduled to accrue thereon, 7 8 and less the aggregate amount of all drafts drawn under or purporting to have been drawn under the Bond Letter of Credit that have been paid by the Administrative Agent and for which the Administrative Agent has been reimbursed by the Borrowers in full in accordance with Section 2.9.5 (Payments of Bond Letters of Credit) and the Bond Letter of Credit Documents, and for which the Administrative Agent has no further obligation or commitment to restore all or any portion of the amounts drawn and reimbursed, is herein called the "Outstanding Bond Letter of Credit Obligations". 2.9.4 Procedures for Bond Letter of Credit. Following satisfaction of all conditions precedent described in Section 5.3 of the Financing Agreement, the Borrowers shall give the Administrative Agent written notice at least five (5) Business Days prior to the date on which the Borrowers desire the Administrative Agent to issue the Bond Letter of Credit. Such notice shall be accompanied by a completed and executed Application and Agreement for Standby Letter of Credit in substantially the form attached hereto as Exhibit A specifying, among other things: (a) the name and address of the intended beneficiary of the Bond Letter of Credit, (b) the requested stated amount of the Bond Letter of Credit, (c) that the Bond Letter of Credit is to be irrevocable, (d) the Business Day on which the Bond Letter of Credit is to be issued and the date on which the Bond Letter of Credit is to expire, (e) the terms of payment of any draft or drafts which may be drawn under the Bond Letter of Credit, and (f) any other terms or provisions the Borrowers desire to be contained in the Bond Letter of Credit. Such notice shall also be accompanied by such other information, certificates, confirmations, and other items as the Administrative Agent may reasonably require to assure that the Bond Letter of Credit is to be issued in accordance with the provisions of this Agreement and the Bond Letter of Credit Documents. In the event of any conflict between the provisions of this Agreement and the provisions of the Bond Letter of Credit Documents, the provisions of this Agreement shall prevail and control unless otherwise expressly provided in the Bond Letter of Credit Documents. Upon (i) receipt of such notice and (ii) payment of all Bond Letter of Credit Fronting Fees and all other Fees payable in connection with the issuance of such Bond Letter of Credit, the Administrative Agent shall 8 9 process such notice and Application and Agreement for Standby Letter of Credit in accordance with its customary procedures and issue such Bond Letter of Credit on the Business Day specified in such notice, subject to compliance by all parties with the requirements of the Bond Letter of Credit Documents pertaining to the replacement of credit enhancement for the bonds. 2.9.5 Payment of Bond Letter of Credit Obligations. (a) Subject to the provisions of paragraph (b) below, the Borrowers hereby promise to pay to the Administrative Agent, ON DEMAND and in United States Dollars, the following which are herein collectively referred to as the "Current Bond Letter of Credit Obligations": (i) the amount which the Administrative Agent has paid under each draft or draw on the Bond Letter of Credit, whether such demand be in advance of the Administrative Agent's payment or for reimbursement for such payment; (ii) any and all reasonable charges and expenses which the Administrative Agent may pay or incur relative to the Bond Letter of Credit and/or such draws or drafts; and (iii) interest on the amounts described in (i) and (ii) not paid by the Borrowers as and when due and payable under the provisions of (i) and (ii) above from the day the same are due and payable until paid in full at a rate per annum equal to the then current highest rate of interest on the Revolving Loan. (b) Notwithstanding the provisions of paragraph (a) above, as long as no Event of Default has occurred and is continuing, any drawing under the Bond Letter of Credit to purchase Bonds which were tendered for purchase by the holders thereof and which were not remarketed in a timely fashion (each referred to herein as a "Purchase Drawing"), shall constitute an advance to the Borrowers under the Revolving Loan and shall not be required to be reimbursed to the Administrative Agent ON DEMAND. The Borrowers promise to pay to the Administrative Agent the amount of each Revolving Loan 9 10 advance resulting from a Purchase Drawing under the Bond Letter of Credit, with Interest payable at the times and at the rate then applicable to other Revolving Loan advances in accordance with the terms of the Financing Agreement, on the earliest to occur of (i) the date on which the Bonds purchased with the proceeds of a Purchase Drawing and held by Walbro Automotive Corporation or by the trustee for the Bonds, or its agent, for the account of Walbro Automotive Corporation, are redeemed or cancelled pursuant to the Bond Letter of Credit Documents, (ii) the date on which the Bonds purchased with the proceeds of a Purchase Drawing are remarketed pursuant to the terms of the Bond Letter of Credit Documents, (iii) the date on which the Bond Letter of Credit is replaced by a substitute letter of credit pursuant to the terms of the Bond Letter of Credit Documents, (iv) the date which is 180 calendar days following the date of such Purchase Drawing, and (v) the Revolving Credit Termination Date. In the event that any of the payments required by this paragraph (b) are not made when due or an Event of Default occurs and is continuing, all of the foregoing amounts shall be immediately due and payable ON DEMAND. (c) In addition, the Borrowers hereby promise to pay any and all other Bond Letter of Credit Obligations as and when due and payable in accordance with the provisions of this Agreement and the Bond Letter of Credit Documents. The obligation of the Borrowers to pay Current Bond Letter of Credit Obligations and all other Bond 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 the Bond Letter of Credit, the Administrative Agent, 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 the Bond Letter of Credit, any draft or other document proving to be forged, fraudulent or invalid, or the legality, validity, regularity or enforceability of the Bond Letter of Credit, any draft or other documents presented with any draft, this Agreement, any of the Bond Letter of Credit Documents, or any of the other Financing Documents, all whether or not the Administrative Agent or any of the Lenders had actual or constructive knowledge of the 10 11 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 Bond Letter of Credit Obligations, in bankruptcy or otherwise; provided, however, that the Borrowers shall not be obligated to reimburse the Administrative Agent for any wrongful payment under the Bond Letter of Credit made as a result of the Administrative Agent's willful misconduct or gross negligence. The obligation of the Borrowers to pay the Bond Letter of Credit Obligations shall not be conditioned or contingent upon the pursuit by the Administrative Agent 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 Bond 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 Bond Letter of Credit Obligations is rescinded or must otherwise be restored or returned by the Administrative Agent or any of the 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. 2.9.6 Security for Bond Letter of Credit Obligations. Notwithstanding any other provision of this Agreement, the only Collateral for the Bond Letter of Credit Obligations shall consist of the property covered by the Deed of Trust - Ossian and the Security Agreement - Ossian, and the property covered by the Deed of Trust - Ossian and the Security Agreement - Ossian shall not constitute Collateral for any of the other Obligations. 2.9.7 Change in Law; Increased Cost. If any change in any law or regulation or in 11 12 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 the Bond Letter of Credit issued by the Administrative Agent, or (b) impose on the Administrative Agent or any of the Lenders any other condition regarding this Agreement, or the Bond 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 Administrative Agent of issuing, maintaining or extending the Bond Letter of Credit or the cost to any of the Lenders of funding any obligation under or in connection with the Bond Letter of Credit (which increase in cost shall be the result of the Administrative Agent's reasonable allocation of the aggregate of such cost increases resulting from such events), then, upon demand by the Administrative Agent, the Borrowers shall immediately pay to the Administrative Agent from time to time as specified by the Administrative Agent, additional amounts which shall be sufficient to compensate the Administrative Agent 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 Administrative Agent and/or any of the Lenders, 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. 2.9.8 General Letter of Credit Provisions. The Borrowers hereby instruct the Administrative Agent to pay any draft complying with the terms of the Bond 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 the Bond Letter of Credit. The Administrative Agent, the Lenders and their respective branches, Affiliates and/or 12 13 correspondents shall not be responsible for and the Borrowers hereby indemnify and hold the Administrative Agent, 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 Administrative Agent, 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 Bond Letter of Credit Document, (b) any Bond Letter of Credit Document, this Agreement, the Bond Letter of Credit and any draft, draw and/or acceptance under or purported to be under the Bond Letter of Credit, (c) any action taken or omitted by the Administrative Agent, any of the Lenders and/or any of their respective branches, Affiliates and/or correspondents at the request of the Borrowers, other than acts of willful misconduct and gross negligence, (d) any failure or inability to perform in accordance with the terms of the Bond Letter of Credit by reason of any control or restriction rightfully or wrongfully exercised by any defacto or dejure 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 Administrative Agent, any of the Lenders and/or any of their respective branches, Affiliates and/or correspondents. Except for willful misconduct and gross negligence, the Administrative Agent, the Lenders and their respective branches, Affiliates and/or 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 the Bond 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 the Bond Letter of Credit. The Bond Letter of Credit may be amended, modified or revoked only upon the receipt by the Administrative Agent from the Borrowers and the beneficiary (including any transferee and/or assignee of the original beneficiary), of a written consent and 13 14 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 the beneficiary of the Bond Letter of Credit to require the Administrative Agent, the Lenders and/or any of their respective branches, Affiliates and/or correspondents to pay drafts under or purporting to be under the Bond Letter of Credit after the expiration date of the Bond Letter of Credit, the Borrowers shall reimburse the Administrative Agent and the Lenders, as appropriate, for any such payment pursuant to provisions of Section 2.9.5 (Payments of Bond Letters of Credit). Except as may otherwise be specifically provided in the Bond Letter of Credit or a Bond Letter of Credit Document, the laws of the State of Maryland and the Uniform Customs and Practice for Documentary Credits, 1995 Revision, International Chamber of Commerce Publication No. 500 shall govern the Bond Letter 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. 2.9.9 Participations in the Bond Letter of Credit. Each Lender hereby irrevocably authorizes the Administrative Agent to issue the Bond Letter of Credit in accordance with the provisions of this Agreement. As of the date the Bond Letter of Credit is opened or issued by the Administrative Agent pursuant to the provisions of this Agreement, each Lender shall have an undivided participating interest in (a) the rights and obligations of the Administrative Agent under the Bond Letter of Credit, and (b) the Outstanding Bond Letter of Credit Obligations of the Borrowers in an amount equal to each Lender's Revolving Credit Pro Rata Share of such Outstanding Bond Letter of Credit Obligations. 2.9.10 Payments by the Lenders to the 14 15 Administrative Agent. If the Borrowers fail to pay to the Administrative Agent any Current Bond Letter of Credit Obligations as and when due and payable, the Administrative Agent 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 Bond Letter of Credit Obligations, as appropriate. In addition, if any amount paid to the Administrative Agent on account of any Current Bond Letter of Credit Obligations is rescinded or required to be restored or turned over by the Administrative Agent upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of any Borrower or upon or as a result of the appointment of a receiver, intervenor, trustee, conservator or similar officer for any Borrower, or is otherwise not indefeasibly covered by an advance under the Revolving Loan, the Administrative Agent 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 Bond Letter of Credit Obligations to be remitted to such Borrower. Each of the Lenders irrevocably and unconditionally agrees to honor any such demands for payment under this Section and promises to pay to the Administrative Agent's account on the same Business Day as demanded the amount of its Revolving Credit Pro Rata Share of the Current Bond 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 Bond Letter of Credit Obligations to the Administrative Agent in accordance with the provisions of this Agreement. The obligation of each of the Lenders to remit the amount of its Revolving Credit Pro Rata Share of Current Bond Letter of Credit Obligations for the account of the Administrative Agent 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 Administrative 15 16 Agent's alleged willful misconduct. Any claim any Lender may have against the Administrative Agent as a result of the Administrative Agent's alleged willful misconduct may be brought by such Lender in a separate action against the Administrative Agent 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 Bond Letter of Credit Obligations to the Administrative Agent pursuant to this Section shall affect the obligations of the Administrative Agent under the Bond Letter of Credit, and if any Lender does not remit to the Administrative Agent the amount of its Revolving Credit Pro Rata Share of Current Bond 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 Administrative Agent 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 Administrative Agent until the date such amount shall have been paid in full to the Administrative Agent by such Lender." 6. Representations and Warranties. (a) The Borrowers hereby reaffirm each of the representations and warranties made by them in Article IV of the Original Financing Agreement. (b) Without limiting the generality of the foregoing, the Borrowers hereby specifically make the representations contained in Section 4.1.27 with respect to the Assigned Local Currency Receivables originated by Walbro Automotive S.A. (France). (c) The Borrowers hereby represent and warrant that the Bond Letter of Credit Documents consist only of the following, all of which are dated as of December 1, 1993, except as specifically indicated otherwise: (i) Trust Indenture between the Town of Ossian, Indiana and Fort Wayne National Bank, as Trustee for the holders of the Bonds; (ii) The Bonds; (iii) Loan Agreement between the Town of Ossian, Indiana 16 17 and Walbro Automotive Corporation; (iv) Promissory Note by Walbro Automotive Corporation to the Town of Ossian, Indiana; (v) Reimbursement Agreement between Harris Trust and Savings Bank and Walbro Corporation and Walbro Automotive Corporation; (vi) Security Agreement by Walbro Automotive Corporation in favor of Harris Trust and Savings Bank; (vii) Mortgage and Security Agreement with Assignment of Rents between Walbro Automotive Corporation and Harris Trust and Savings Bank; and (viii) Placement Agreement between Walbro Automotive Corporation and Harris Trust and Savings Bank, as Placement Agent; and (ix) Remarketing Agreement between Walbro Automotive Corporation and Paine Webber Incorporated. None of the above-listed Bond Letter of Credit Documents have been modified, changed, supplemented, canceled, amended or otherwise altered, except as otherwise disclosed to the Administrative Agent in writing prior to the date of this Amendment. The Borrowers hereby confirm each of the representations and warranties made by them in the Bond Letter of Credit Documents and further represent and warrant that the Borrowers are in compliance with the terms thereof, including (without limitation) all covenants and agreements relating to the tax-exempt status of the interest payable on the Bonds. There are no defaults or events of default outstanding under any of the Bond Letter of Credit Documents except for any defaults which would be cured by the effectuation of this Amendment. 7. Conditions Precedent. (a) The effectiveness of this Amendment is subject to satisfaction of the following conditions precedent: (i) All conditions precedent set forth in Section 5.1 of the Original Financing Agreement have been and remain satisfied. (ii) The Pledge, Assignment and Security Agreement creating a Lien on 80% of the issued and outstanding capital stock in U.S. Coexcell, Inc. has been executed and delivered 17 18 by the Parent. (iii) Each of the items described in Section 5.2.1 and 5.2.2 of the Original Financing Agreement has been delivered in respect of Walbro Automotive, S.A. (France). (iv) The Master Receivables Subrogation Agreement between Walbro Automotive, S.A. (France) and Walbro Corporation, together with the Collateral Assignment of Agreement relating thereto by Walbro Corporation in favor of the Administrative Agent have been executed and delivered to the Administrative Agent. (v) The Administrative Agent shall have received payment of the Amendment Fee (hereinafter defined). (b) The issuance of the Bond Letter of Credit by the Administrative Agent is subject to satisfaction of the following additional conditions precedent: (i) All of the requirements of the Bond Letter of Credit Documents relating to the substitution of letters of credit having been satisfied. (ii) The Deed of Trust - Ossian and the Security Agreement - Ossian, together with any and all UCC-1 Financing Statements relating to the subject Collateral, have been assigned by Harris Trust and Savings Bank to the Administrative Agent for the benefit of the Lenders ratably and the Agents, as security for the Bond Letter of Credit Obligations. (iii) The initial Bond Letter of Credit Fee and the initial Bond Letter of Credit Fronting Fee shall have been paid in full. 8. Sale of U.S. Coexcell, Inc. Section 6.2.6 of the Original Financing Agreement is hereby amended to permit the Parent to sell all but not part of its shares of common stock in U.S. Coexcell, Inc., subject to the terms of the Pledge Assignment and Security Agreement dated on or about the date of this Amendment, whereupon the Unused Availability requirement will be reinstated. All proceeds of the sale of stock in U.S. Coexcell, Inc., net of reasonable and customary costs and expenses incurred in connection therewith, shall be applied to reduce the outstanding Revolving Loan. 9. Amendment Fee. The Borrowers shall pay to the Administrative Agent for benefit of the Lenders ratably 18 19 based on their respective Pro Rata Shares an amendment fee (the "Amendment Fee") in the amount of Three Hundred Thousand Dollars ($300,000), which fee has been fully earned and is non-refundable and shall be paid on the date of this Amendment and as a condition precedent to the effectiveness hereof. 10. No Other Amendments. Except as specifically contemplated by the terms of this Amendment, the Original Financing Agreement and all of the other Financing Documents shall remain in full force and effect in accordance with their respective terms. 11. Governing Law. This Amendment shall be construed in accordance with and governed by the laws of the State. 12. Counterparts. This Amendment may be executed in any number of counterparts, each of which shall be considered an original for all purposes; provided, however, that all such counterparts shall together constitute one and the same instrument. 13. No Novation. The parties hereto covenant and agree that the execution of this Amendment is not intended to and shall not cause or result in a novation with respect to the Obligations or the Financing Documents and that the existing Obligations, as evidenced by the Financing Documents are continuing, without interruption, and have not been discharged by a new agreement. IN WITNESS WHEREOF, the parties hereby have caused this Amendment to be executed, sealed and delivered by their duly authorized officers. WALBRO CORPORATION WALBRO AUTOMOTIVE COPRORATION 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 WITNESS: NATIONSBANK, N.A., in its capacity as Lender 19 20 ________________________ By:____________________(SEAL) David B. Thayer Senior Vice President NATIONSBANK, N.A., in its capacity as Administrative Agent ________________________ By:___________________(SEAL) David B. Thayer Senior Vice President KEY CORPORATE CAPITAL INC. ________________________ By:___________________(SEAL) Chris Clegg Vice President PNC BANK, N.A. ________________________ By:___________________(SEAL) Janeann K. Fehrle Vice President NATIONAL CITY COMMERCIAL FINANCE, INC. ________________________ By:___________________(SEAL) Mark Hanak Credit Officer BANK BOSTON, N.A. ________________________ By:___________________(SEAL) Neal C. Hesler Vice President SANWA BUSINESS CREDIT CORPORATION 20 21 ________________________ By:___________________(SEAL) L. David Brown Account Executive 21 EX-10.2 4 AMENDED & RESTATED EQUITY BASED LONG-TERM INC. PLN 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 -5- 6 Awards. The authorized categories of benefits for which Awards may be granted, which are 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 -7- 8 of Common Stock outstanding on the date the amendment and restatement of the Plan is 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 -8- 9 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. (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 -9- 10 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 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. -10- 11 (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 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 -11- 12 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 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 -12- 13 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. (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. -13- 14 (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 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 -14- 15 (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 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. -15- 16 (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. (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. -16- 17 (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. (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 -17- 18 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 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. -18- 19 (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. (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. -19- 20 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. 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 -20- 21 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 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. -21- 22 (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: (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 -22- 23 (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 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 -23- 24 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. 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 -24- 25 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 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. -25- 26 (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. -26- EX-10.22 5 AMENDED & RESTATED EMPLOYMENT AGREEMENT 1 EXHIBIT 10.22 WALBRO CORPORATION AMENDED AND RESTATED EMPLOYMENT AGREEMENT FOR FRANK E. BAUCHIERO Effective April 17, 1998 2 TABLE OF CONTENTS 1. Employment.......................................................... 1 2. Term................................................................ 1 3. Office and Duties................................................... 2 4. Salary and Annual Incentive Compensation............................ 2 5. Long-Term Compensation, Including Stock Options, and Benefits, Deferred Compensation, and Expense Reimbursement.................... 3 6. Governing Law; Reimbursements....................................... 9 7. Miscellaneous....................................................... 10 8. Definitions......................................................... 12 i 3 AMENDED AND RESTATED EMPLOYMENT AGREEMENT THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT ("Employment Agreement") by and between WALBRO CORPORATION, a Delaware corporation (the "Company"), and Frank E. Bauchiero ("Executive") is dated August __, 1998. RECITALS A. Executive has been President of the Company since August 16, 1996 (the "Employment Date") and a director of the Company since 1990. Between the Employment Date and April 17, 1998, Executive also served as Chief Operating Officer of the Company. B. The Company and Executive desire to amend and restate the Employment Agreement dated October 3, 1996 in its entirety as set forth below to reflect the appointment of Executive as President and Chief Executive Officer of the Company on April 17, 1998. C. The definitions of certain capitalized terms are set forth in Section 8 of this Employment Agreement. AGREEMENT In consideration of the mutual agreements contained herein, the Company and Executive hereby agree as follows: 1. EMPLOYMENT. The Company hereby agrees to continue to employ Executive as its President and Chief Executive Officer of the Company and Executive hereby agrees to continue to accept such employment and serve in such capacity, during the Term as defined in Section 2 and upon the terms and conditions set forth in this Employment Agreement. 2. TERM. The term of employment of Executive under this Employment Agreement (the "Term") shall be the period commencing on April 17, 1998 and terminating on Decem ber 31, 2001 and any period of extension thereof in accordance with this Section 2, subject to earlier termination in accordance with the Amended and Restated Termination and Change of Control Agreement dated the date of this Employment Agreement between the Company and the Executive ("Termination Agreement"). The Term shall be extended automatically without further action by either party for a one-year period beginning on January 1, 2002 and each succeeding annual anniversary thereafter, unless either party shall have served written notice in accordance with the provisions of Section 7(d) upon the other party on or prior to the applicable anniversary date upon which such extension would become effective, electing not to extend the Term, in which case the 1 4 Term shall terminate (subject to earlier termination in accordance with the Termination Agreement) on the last business day prior to the applicable anniversary date with respect to which such notice is received. Notwithstanding the above, if there is a Change of Control, the Company hereby agrees to continue the Term of this Employment Agreement and the Executive in its employ, and the Executive hereby agrees to remain in the employ of the Company, in each case subject to the terms and conditions of the Termination Agreement and, to the extent provided in the Termination Agreement, this Employment Agreement, for the period commencing on the Extension Date and ending on the third anniversary of such date (such period, the "Extended Employment Period"). 3. OFFICE AND DUTIES. The provisions of this Section 3 will apply during the Term: (a) Generally. During the Term, Executive shall serve as President and Chief Executive Officer of the Company, and shall perform such duties and responsibilities as are substantially consistent with his duties, responsibilities, rank and status as President and Chief Executive Officer of the Company as of April 17, 1998. It is also contemplated that, in connection with each annual meeting of stockholders of the Company during the Term, the Board will nominate Executive for election as a member of the Board, and the stockholders of the Company will reelect Executive as a member of the Board. During the Term, and excluding any periods of disability, vacation, or sick leave to which Executive is entitled, Executive shall devote full business time and attention, and his best efforts, abilities, experience, and talent to the performance of such duties and responsibilities for the businesses of the Company and its subsidiaries; provided, however, that nothing in this Employment Agreement shall preclude or prohibit Executive from engaging in other activities to the extent that such other activities do not preclude Executive's employment or otherwise inhibit the performance of Executive's duties and responsibilities under this Employment Agreement or conflict with the businesses of the Company or its subsidiaries. (b) Place of Employment. Executive's principal place of employment shall be the Executive's present headquarters location or such other headquarters location as may be assigned by the Company which is less than thirty-five (35) miles from the present headquarters location in Auburn Hills, Michigan. 4. SALARY AND ANNUAL INCENTIVE COMPENSATION. As partial compensation for the services to be rendered hereunder by Executive, the Company agrees to pay to Executive during the Term the compensation set forth in this Section 4. (a) Base Salary. Effective as of April 17, 1998, the Company will pay to Executive during the Term a base salary at the annual rate of $450,000 ("Annual Base Salary"), payable in cash in substantially equal monthly installments during each calendar year, or portion thereof, of the Term and otherwise in accordance with the Company's usual payroll practices with respect to senior executives. Executive's Annual Base Salary shall be reviewed by the Compensation 2 5 Committee at least once in each calendar year and may from time to time be increased as determined by the Compensation Committee. Effective as of the date of any such increase, the Annual Base Salary as so increased shall be considered the new Annual Base Salary for all purposes of this Employment Agreement and may not thereafter be reduced. (b) Annual Incentive Compensation. For 1998 and each subsequent calendar year during the Term, the Company will pay to Executive annual incentive compensation ("Annual Bonus") as follows: (i) For the calendar year 1998, the amount of the Annual Bonus shall equal the greater of (A) 25% of Executive's Annual Base Salary, or (B) the amount, if any, determined in accordance with the 1998 plan for an Annual Bonus. (ii) For calendar years 1999, 2000 and 2001, the amount of the Annual Bonus shall be based upon Executive's satisfaction of the following EPS performance standards, and with payouts, as a percentage of Annual Base Salary during such year, equal to the following benchmark percentages:
BONUS LEVEL 1999 2000 2001 ----------- ---- ---- ---- 25% An amount equal to the previous year's actual EPS level, "Threshold Bonus" or if higher, as determined by the Compensation Com mittee (after consultation with Executive) within 90 days after the beginning of such calendar year. 50% $1.50 $2.60 $3.00 "Target Bonus" 75% $2.60 $3.00 As determined by the Compensation "Maximum Bonus" Committee within 90 days after the beginning of such calendar year.
(iii) The Company shall pay the entire Annual Bonus that is payable with respect to a calendar year in a lump-sum cash payment as soon as practicable (but in no event more than 90 days) after the close of such year as the Compensation Committee can determine whether and the degree to which Maximum Bonus, Target Bonus or Threshold Bonus has been achieved. 5. LONG-TERM COMPENSATION, INCLUDING STOCK OPTIONS, AND BENEFITS, DEFERRED COMPENSATION, AND EXPENSE REIMBURSEMENT. (a) Executive Equity Plans. During the Term, Executive shall be entitled during the Term to participate in all executive equity plans, practices, policies and programs intended for 3 6 general participation by senior executives of the Company, as presently in effect or as they may be modified or added to by the Company from time to time, subject to the eligibility and other requirements of such plans and programs (which requirements shall not result in Executive being treated any less favorably than any other senior executive of the Company). Notwithstanding the preceding sentence, the Company will make Option grants to the Executive as follows: (i) As an inducement to Executive to enter into this Employment Agreement, the Company shall grant to Executive, effective as of the date of this Employment Agreement, an Option to purchase 100,000 shares of Common Stock (the "First Option") and, effective as of the date of the first meeting of the stockholders of the after the date of this Employment Agreement, an Option to purchase 350,000 shares of Common Stock (the "Second Option"); provided, however, that the grant of the Second Option shall be subject to the approval by the stockholders of the Company of an amendment of the Existing Equity Plan or the adoption of a New Equity Plan, which amendment or New Equity Plan authorizes the delivery of at least 350,000 additional shares of Common Stock to employees of the Company, including Executive ("Shareholder Approval"). (ii) Although the Company and Executive intend the First Option and the Second Option to be in lieu of normal annual or other Option grants through Decem ber 31, 2001, the Compensation Committee may at any time in its discretion consider Executive for possible grants of additional Options. (iii) Each Option shall have a term of at least ten (10) years and an exercise price equal to 100% of the Fair Market Value of the Common Stock on the date of its grant. (iv) The First Option shall be fully and immediately vested and exercisable immediately upon grant. (v) For so long as Executive is an employee, the Second Option shall become vested and exercisable in the following percentages based on the Company's achievement of the following amounts of EPS: (x) as to 33-1/3% of the shares subject to the Second Option, when EPS first equals or exceeds $1.50, (y) as to a total of 66-2/3% of the shares subject to the Second Option, when EPS first equals or exceeds $2.60; and (z) as to a total of 100% of the shares subject to the Second Option, when EPS first equals or exceeds $3.00. Any such vesting and exercisability in respect of any such year shall occur on the date the Company releases its financial report for such year (as derived from the Company's audited consolidated financial statements for such year). Any unvested and unexercisable portion of the Second Option shall in all events vest and become exercisable on the fifth 4 7 anniversary of its date of grant, if Executive is then employed by the Company; provided, however, if the Second Option does not receive Shareholder Approval at the April 1999 stockholders meeting, then any unvested and unexercisable portion of the Second Option, if any, shall in all events vest and become exercisable on April 17, 2003, if Executive is then employed by the Company (vi) Effective upon (x) Executive's Date of Termination that is prior to a Change of Control and in connection with a Termination Without Cause or a Termination For Good Reason, or (y) Executive's Date of Termination that is prior to, on or after a Change of Control and in connection with a termination of employment by reason of Executive's Normal Retirement, Approved Early Retirement, death or Disability, the portion of the Second Option that remains unvested and unexercisable as of such Date of Termination shall vest and become exercisable on the fifth anniversary of its date of grant; provided, however, if the Second Option does not receive shareholder approval at the April 1999 shareholders meeting, then any unvested and unexercisable portion of the Second Option, if any, shall in all events vest and become exercisable on April 17, 2003. (vii) If, immediately prior to the commencement of the Company's cooperation with a due diligence investigation by a potential acquiror of the Company, the Second Option is not yet granted by the Board pursuant to paragraph (i) above, the Board shall determine whether, in its absolute discretion, it shall cause the Second Option to be granted notwithstanding the Shareholder Approval condition on granting the Second Option contained in paragraph (i) above. If, on the date of a Change of Control, the Second Option is unvested and unexercisable as to the first 33-1/3% of the shares subject thereto, the Second Option shall become vested and exercisable on such date as to such 33-1/3%. If, immediately prior to the commencement of the Company's cooperation with a due diligence investigation by a potential acquirer of the Company, the Second Option is unvested and unexercisable as to any portion of the remaining 66-2/3% of the shares subject thereto, the Board shall determine whether, in its absolute discretion, it shall cause such remaining portion of the shares subject to the Second Option to become vested and exercisable effective upon such Change of Control. Effective upon Executive's Date of Termination that is on or after the date of a Change of Control and in connection with a Termination Without Cause or a Termination For Good Reason, any portion of the Second Option, if any, that remains unvested and unexercisable as of such Date of Termination shall vest and become exercisable as of such Date of Termination. (viii) After a Termination Without Cause, a Termination for Good Reason, or a termination of Executive's employment by reason of death or Disability, each Option shall, to the extent such Option is vested and exercisable on the Date of Termination (after giving effect to any acceleration of exercisability pursuant to this Section 5(a)) or thereafter becomes vested and exercisable pursuant to this Section 5(a), be exercisable for five years after the Date of Termination, but not after the expiration of the term of such Option. (ix) Executive, his Permitted Transferee or, if after Executive's death, a Beneficiary may pay the exercise price of the Option and any related Withholding Taxes 5 8 in any one or more of the following: (A) cash, (B) previously-owned shares of Common Stock (which, if acquired from the Company or an Affiliate, shall have been held by Executive for at least six months) valued at their Fair Market Value on the date of exercise, or (C) pursuant to a so-called "cashless exercise" arrangement approved by the Company (which approval shall not unreasonably be withheld or delayed). The Company shall use its reasonable best efforts to cause all shares issued upon the exercise of Options to be registered or qualified under all applicable securities laws so that all such shares shall be unrestricted and freely transferable, except for such restrictions, if any, which result solely from Executive being considered an Affiliate. (x) An Option shall not be transferable by Executive during his lifetime except to a Permitted Transferee. In addition, this Employment Agreement shall not terminate or modify Executive's right to vest in 10,000 shares of restricted stock on December 31, 1998. (b) Welfare Benefit Plans. During the Term, Executive and/or his family, as the case may be, shall be eligible to participate in and shall receive all benefits under welfare benefit plans and programs provided by the Company (including medical, prescription, dental, disability, salary continuance, employee life, group life, dependent life, accidental death and travel accident insurance plans and programs) to the extent such plans and programs are from time to time available to other senior executives of the Company, subject to the eligibility and other requirements of such plans and programs. In furtherance of and not in limitation of the foregoing, during the Term: (i) Executive will participate in all executive and employee vacation and time-off programs and shall be entitled to not less than four weeks paid annual vacation; (ii) The Company will provide Executive with coverage by long-term disability insurance and benefits no less favorable (including any required contributions by Executive) than the more favorable to Executive of (x) such insurance and benefits provided to Executive on April 17, 1998 or (y) from time to time provided to any other senior executive of the Company; and (iii) The Company will provide Executive coverage by group term life insurance providing a death benefit of one and one-half (1-1/2) times Executive's Annual Base Salary but not to exceed $150,000. (c) Savings, Profit Sharing and Stock Ownership Plans. In addition to Annual Base Salary and an Annual Bonus, Executive shall be entitled to participate during the Term in all savings, profit sharing and stock ownership plans and programs that are from time to time available to other senior executives of the Company. (d) Supplemental Retirement Benefit. 6 9 (i) The Executive will receive from the Company a nonqualified supplemental employee retirement benefit ("Supplemental Retirement Benefit") which will provide to Executive a single life annuity, commencing when the Executive attains age 65, in an amount equal to one and one-half percent (1.5%) of average Annual Base Salary of the Executive for the three consecutive years of employment with the Company during which Executive received the highest average annual amount. For purposes of calculating such benefits, Executive shall be credited with service (x) for each full or partial year of service during calendar years 1996, 1997, 1998, 1999, 2000 and 2001, in an amount equal to three (3) times the actual service earned during such years and (y) for each full or partial year of service after 2001, in an amount equal to one (1.0) times the actual service earned during such years. (For example, at the end of 1999 and assuming a July 1, 1996 start date, the Executive will have earned 10.5 years of service credit.) In addition, for purposes of calculating such benefits, Executive shall be credited with no less than 10.5 years of service credit in the event of a Termination Without Cause, a termination of Executive's employment by reason of death or disability, or a Termination For Good Reason. Executive's Supplemental Retirement Benefit is and shall remain fully vested. (ii) The Company may settle its obligation to pay the Supplemental Retirement Benefit by directing the trustee of an irrevocable "rabbi trust" to distribute all or part of the assets of such trust and the Company shall be relieved of such obligation to the extent that assets are so distributed. Executive acknowledges that his rights to the Supplemental Retirement Benefit are no greater than those of a general unsecured creditor of the Company, and that such rights may not be pledged, collateralized, encumbered, hypothecated, or liable for or subject to any lien, obligation, or liability of Executive, or be assignable or transferable by Executive, otherwise than by will or the laws of descent and distribution, provided that Executive may designate one or more Beneficia ries to receive any payment of such amounts in the event of his death. (iii) If, prior to the first to occur of the Date of Termination or the date on which first occurs a Change of Control, Executive shall elect to receive the Supplemental Retirement Benefit in the form of a single-life annuity, the Supplemental Retirement Benefit shall be paid in such form in annual installments commencing on the Date of Termination or, if earlier, the first date of a Change of Control. If the Company shall not have been timely notified in writing of Executive's election in accordance with the preceding sentence, the Supplemental Retirement Benefit shall be paid as of the Date of Termination or, if earlier, the first date of a Change of Control in a lump sum equal to the aggregate present value of the annuity described in this Section 5(d), as determined under generally-accepted actuarial principles using an interest rate of 7.2% and the 1983 Group Annuity Mortality Tables. In the event of a termination of Executive's employment by reason of his death, the amount of such lump sum payment to the Beneficiary shall equal the lump sum payment that would have been payable to Executive if he had been alive on the Date of Termination. (iv) This Employment Agreement shall not terminate or modify Executive's fully-vested right to a life and 50% surviving spouse annuity in an annual amount equal 7 10 to 60% of the annual retainer for non-employee directors (as modified from time to time) payable pursuant to Company's Board of Directors Retirement Policy in respect of Executive's service as a non-employee director of the Company between 1990 and 1996. (e) Relocation. The Executive shall be provided by the Company with a relocation package for relocating from Illinois to Michigan, together with a Gross-Up Payment on Taxes incurred by Executive with respect to such relocation package. Such relocation package shall include the following features. The Executive shall have the right to either (i) sell his home through his own efforts, or (ii) to direct the Company to purchase the Executive's home at such time as the Executive shall direct not later than December 31, 1999. The purchase price for the Executive's home for purposes of the preceding sentence shall be the fair market value of the home as established by an appraisal performed, no more than sixty (60) days prior to the closing date of the sale, by an appraiser who is mutually acceptable to the Executive and the Company. Until such time as the Executive sells his home, the Company shall reimburse the Executive for all travel costs for the Executive and the Executive's spouse between the Executive's temporary living quarters and the Executive's current home, and shall pay to the Executive the cost of temporary living expenses, including the rental of a furnished apartment and utilities. Upon the Executive's sale of his home, the Company shall pay all costs of moving and relocating his principal residence from his current home to a new home in Michigan at which the Executive intends to reside. (f) Fringe Benefits. During the Term, the Company shall provide to Executive the following fringe benefits: (i) all fringe benefits available to other senior executives of the Company, (ii) use of corporate aircraft for business and personal purposes (provided that such personal use shall not significantly interfere with the Company's use such aircraft for business purposes), together with a Gross-up Payment with respect to Taxes payable by Executive or members of his immediate family in connection any taxable income attributable to such personal use, (iii) an annual physical, (iv) the use of a current model, luxury automobile in connection with Executive's services on behalf of the Company, together with the payment of all costs relating thereto, including gasoline, repairs, maintenance and insurance, and (v) a country club membership. (g) Deferral of Compensation. (i) The Company shall permit Executive to elect to defer receipt, pursuant to written deferral election terms and forms executed by Executive and filed with the Company (the "Deferral Election Forms") or as may otherwise be specified in the Termination Agreement, of all or a specified portion of his Annual Bonus until such date(s) or event(s) as elected by Executive and specified in the Deferral Election Forms; provided, however, that such deferrals shall not reduce Executive's total cash compensation in any calendar year below the sum of the FICA maximum taxable wage base plus 1.45% of Executive's wages in excess of such FICA maximum. (ii) In accordance with such executed Deferral Election Forms, the Company shall, in lieu of payment by the Company to Executive, credit to one or more bookkeeping 8 11 accounts maintained for Executive ("Deferral Accounts"), on each date on which an Annual Bonus would otherwise be payable to Executive, a number of phantom shares of Common Stock ("Deferral Shares") equal to (1) divided by (2), where (1) is the cash amount deferred multiplied times the number 1.25 and (2) is the Fair Market Value of a share of Common Stock on the date such shares are credited. Phantom shares shall not entitle Executive to vote, or receive any dividends on account of, any shares of Common Stock. (iii) Upon such date(s) or event(s) set forth in the Deferral Election Forms (including forms filed after deferral but before settlement in which Executive may elect to further defer settlement), the Company shall pay to Executive cash equal to the then value of any phantom shares of Common Stock then credited to Executive's Deferral Accounts, less applicable withholding taxes, and such distribution shall be deemed to fully settle such Deferral Accounts; provided, however, that the Company may instead settle such Deferral Accounts in full or in part by directing the trustee of a "rabbi trust" to distribute all or part of the assets of such trust and the Company shall be relieved of its obligation under this Employment Agreement and the Termination Agreement to the extent that assets are so distributed. The Company and Executive agree that compensa tion deferred pursuant to this Section 5(g) shall be fully vested and nonforfeitable; provided, however, Executive acknowledges that his rights to the deferred compensation provided for in this Section 5(g) shall be no greater than those of a general unsecured creditor of the Company, and that such rights may not be pledged, collateralized, encumbered, hypothecated, or liable for or subject to any lien, obligation, or liability of Executive, or be assignable or transferable by Executive, otherwise than by will or the laws of descent and distribution, provided that Executive may designate one or more Beneficiaries to receive any payment of such amounts in the event of his death. (h) Expense Reimbursement. The Company shall from time to time reimburse Executive for all reasonable employment-related expenses incurred by him during the Term promptly after the Company's receipt of an accounting in accordance with practices, policies and procedures applicable to other senior executives of the Company. 6. GOVERNING LAW; REIMBURSEMENTS. (a) Governing Law; Severability. This Employment Agreement is governed by and is to be construed, administered, and enforced in accordance with the laws of the State of Michigan, without regard to Michigan conflicts of law principles, except insofar as the Delaware General Corporation Law and federal laws and regulations may be applicable. If under the governing law, any portion of this Employment Agreement is at any time deemed to be in conflict with any applicable statute, rule, regulation, ordinance, or other principle of law, such portion shall be deemed to be modified or altered to the extent necessary to conform thereto or, if that is not possible, to be omitted from this Employment Agreement. The invalidity of any such portion shall not affect the force, effect, and validity of the remaining portion hereof. 9 12 (b) Legal Expense Reimbursement. All reasonable costs and expenses (including fees and disbursements of counsel) incurred by Executive in negotiating the terms and conditions of this Employment Agreement shall be paid on behalf of or reimbursed to Executive promptly by the Company. All reasonable costs and expenses (including fees and disbursements of counsel) incurred by Executive in seeking to enforce rights pursuant to this Employment Agreement shall be paid on behalf of or reimbursed to Executive promptly by the Company, whether or not Executive prevails in his assertion of such rights. The Company shall pay to Executive a Tax Gross-Up Payment with respect to any Taxes incurred by Executive as a result of any payments made to or on behalf of Executive pursuant to this Section 6(b). (c) Overdue Payments. Effective as of the Date of Termination, if the Company shall fail to pay any amount due to Executive under this Employment Agreement within 14 days after such amount first becomes due, the Company shall pay to Executive interest on such unpaid amount at a rate equal to the highest rate of interest charged by the Company's principal lender or, in the absence of such a lender, at the prime commercial lending rate published in The Wall Street Journal on the date such amount is due or, if no such rate shall be so published on such date, the immediately prior date on which such a rate is so published; provided, however, that if the interest rate determined in accordance with this Section exceeds the highest legally- permissible interest rate, then the interest rate shall the highest legally-permissible interest rate. (d) Gross-Up Payment. If it shall be determined that any payment to Executive pursuant to this Employment Agreement or the Termination Agreement or any other payment or benefit from the Company, any Affiliate, or any shareholder of the Company or any other Person would be subject to the excise tax imposed by Section 4999 of the Code or any similar tax payable under any United States federal, state, local or other law, then Executive shall receive a Gross-Up Payment with respect to all such excise taxes and similar taxes. 7. MISCELLANEOUS. (a) Integration. This Employment Agreement modifies and supersedes any and all prior agreements and understandings between the parties hereto with respect to the employment of Executive by the Company and its subsidiaries, except for the Termination Agreement and contracts relating to compensation under executive compensation and employee benefit plans of the Company. Subject to the rights, benefits and obligations provided for in such executive compensation contracts and employee benefit plans of the Company, this Employment Agreement and the Termination Agreement constitute the entire agreement among the parties with respect to the matters herein provided, and no modification or waiver of any provision hereof shall be effective unless in writing and signed by the parties hereto. Executive shall not be entitled to any payment or benefit under this Employment Agreement which duplicates a payment or benefit received or receivable by Executive under such prior agreements and understandings with the Company or under any benefit or compensation plan of the Company. (b) Non-Transferability. Neither this Employment Agreement nor the rights or obliga tions hereunder of the parties hereto shall be transferable or assignable by Executive, except in accordance with the laws of descent and distribution or as specified in Sections 5(a)(ix) or 7(c). 10 13 The Company may assign this Employment Agreement and the Company's rights and obligations hereunder, and shall assign this Employment Agreement, to any Successor (as hereinafter defined) which, by operation of law or otherwise, continues to carry on substantially the business of the Company prior to the event of succession, and the Company shall, as a condition of the succession, require such Successor to agree to assume the Company's obligations and be bound by this Employment Agreement and the Termination Agreement; provided, however, that the Company shall remain jointly and severally liable with such Successor for all of the obligations of such Successor under the Employment Agreement and the Termination Agreement. For purposes of this Employment Agreement, "Successor" shall mean any Person that succeeds to, or has the practical ability to control (either immediately or with the passage of time), the Company's business directly, by merger or consolidation, or indirectly, by purchase of the Company's voting securities or all or substantially all of its assets, or otherwise. (c) Beneficiaries. If Executive dies prior to receiving all of the amounts payable to him in accordance with the terms of this Employment Agreement, such amounts shall be paid to one or more beneficiaries (each, a "Beneficiary") designated by Executive in writing to the Company during his lifetime, or if no such Beneficiary is designated, to Executive's estate. Such payments shall be made in a lump sum to the extent so payable and, to the extent not payable in a lump sum, in accordance with the terms of this Employment Agreement. Executive, without the consent of any prior Beneficiary, may change his designation of Beneficiary or Beneficiaries at any time or from time to time by a submitting to the Company a new designation in writing. (d) Notices. Any notice given under this Employment Agreement shall be in writing, signed by the party or parties giving or making the same, and shall be served on the person or persons for whom it is intended or who should be advised or notified, by Federal Express or other similar overnight service or by certified or registered mail, return receipt requested, postage prepaid and addressed to such party at the address set forth below or at such other address as may be designated by such party by like notice: If to the Company: Walbro Corporation 6242 Garfield Street Cass City, Michigan 48726-1397 Attention: Secretary If to Executive: Frank E. Bauchiero P.O. Box 790 Roscoe, Illinois 61073 with copies to: Roger C. Siske, Esquire Sonnenschein Nath & Rosenthal 8000 Sears Tower Chicago, Illinois 60606 If the parties by mutual agreement supply each other with telecopier numbers for the purposes of providing notice by facsimile, such notice shall also be proper notice under this Employment 11 14 Agreement. In the case of Federal Express or other similar overnight service, such notice or advice shall be effective one business day after deposit with such service during its normal business hours, and, in the cases of certified or registered mail, shall be effective five business days after deposit with the U.S. Postal Service. (e) Headings. The headings of this Employment Agreement are for convenience of reference only and do not constitute a part hereof. (f) No General Waivers. The failure of any party at any time to require performance by any other party of any provision hereof or to resort to any remedy provided herein or at law or in equity shall in no way affect the right of such party to require such performance or to resort to such remedy at any time thereafter, nor shall the waiver by any party of a breach of any of the provisions hereof be deemed to be a waiver of any subsequent breach of such provisions. No such waiver shall be effective unless in writing and signed by the party against whom such waiver is sought to be enforced. (g) Successors and Assigns. This Employment Agreement shall be binding upon and shall inure to the benefit of Executive, his heirs, executors, administrators and Beneficiaries, and shall be binding upon and inure to the benefit of the Company and its successors and assigns. 8. DEFINITIONS. As used in this Employment Agreement, the terms set forth below have the following meanings (such meanings to be applicable to both the singular and plural forms, except where otherwise expressly indicated): (a) "Affiliate" means any Person directly or indirectly controlling, controlled by, or under direct or indirect common control with, the Company. For the purposes of this definition, the term "control" when used with respect to any Person means the power to direct or cause the direction of management or policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise. (b) "Annual Base Salary" -- see Section 4(a). (c) "Annual Bonus" -- see Section 4(b). (d) "Approved Early Retirement" has the meaning specified in the Termination Agreement. (e) "Beneficiary" -- see Section 7(c). (f) "Board" means the Board of Directors of the Company. (g) "Cause" has the meaning specified in the Termination Agreement. 12 15 (h) "Change of Control" has the meaning specified in the Termination Agreement. (i) "Code" means the Internal Revenue Code of 1986, as amended from time to time. (j) "Common Stock" means the common stock, $0.50 par value, of the Company. (k) "Company" -- see the introductory paragraph of this Employment Agreement. (l) "Compensation Committee" means the Compensation Committee of the Board. (m) "Date of Termination" has the meaning specified in the Termination Agreement. (n) "Disability" has the meaning specified in the Termination Agreement. (o) "Employment Agreement" -- see the introductory paragraph of this Employment Agreement. (p) "EPS" means the fully diluted, net income earnings per share (as adjusted to eliminate the effect of restructuring charges or extraordinary items which have been approved by the Board) for such year and after all applicable taxes. (q) "Executive" -- see the introductory paragraph of this Employment Agreement. (r) "Existing Equity Plan" means the Company's Equity Based Long Term Incentive Plan. (s) "Extension Date" has the meaning specified in the Termination Agreement. (t) "Fair Market Value" means, as of any date, (a) the average of the high and low prices of the Common Stock on such date reported on The NASDAQ Stock Market or a national securities exchange (as applicable) or, if no sale of the Common Stock was reported for such date, on the next preceding date on which such a sale of such security was reported, (b) if the Common Stock is not listed on The NASDAQ Stock Market or any national securities exchange as of such date, the average of the high bid and low asked quotations for the Common Stock on such date in the over-the-counter market or, if no quotation of the Common Stock was reported for such date, on the next preceding date on which such a quotation of such security was report ed, or (c) if there is no public market for the Common Stock as of such date, the fair market value of the Common Stock determined by the Compensation Committee in the good faith exercise of its discretion. (u) "First Option" -- see Section 5(b)(i). (v) "Good Reason" has the meaning specified in the Termination Agreement. (w) "Gross-Up Payment" has the meaning specified in the Termination Agreement. 13 16 (x) "New Equity Plan" means any successor to the Existing Equity Plan that permits the grant of Options on terms and conditions that are in all material respects at least as favorable to Executive as the terms and conditions of the Existing Equity Plan. (y) "Option" means an option to purchase shares of Common Stock. (z) "Permitted Transferee" means the spouse of Executive, a lineal descendant of Executive or a spouse of a lineal descendant of Executive or a trust, limited partnership or other entity principally benefitting all or a portion of such individuals. (aa) "Person" means any individual, sole proprietorship, partnership, joint venture, trust, unincorporated organization, association, corporation, institution, public benefit corporation, entity or government instrumentality, division, agency, body or department. (ab) "Second Option" -- see Section 5(b)(i). (ac) "Supplemental Retirement Benefit" -- see Section 5(e). (ad) "Taxes" means the incremental United States federal, state and local income, excise and other taxes payable by Executive with respect to any applicable item of income. (ae) "Term" -- see Section 2. (af) "Termination Agreement" -- see Section 2. (ag) "Termination For Good Reason" means a termination by Executive of his employment during the Term for a Good Reason. (ah) "Termination Without Cause" means a termination by the Company of Executive's employment during the Term for any reason other than Cause or Executive's death or Disability. (ai) "Withholding Taxes" means any United States federal, state, local or foreign withholding taxes and other deductions required to be paid in accordance with applicable law by reason of compensation received pursuant to this Employment Agreement or the Termination Agreement. 14 17 IN WITNESS WHEREOF, Executive and the Company have executed this Employment Agreement on first date above written. WALBRO CORPORATION By: -------------------------------------- Name: ------------------------------------ Title: ----------------------------------- FRANK E. BAUCHIERO ------------------------------------------ 15 EX-10.23 6 AMENDED & RESTATED TERMINATION & CHANGE OF CONTROL 1 EXHIBIT 10.23 WALBRO CORPORATION AMENDED AND RESTATED TERMINATION AND CHANGE OF CONTROL AGREEMENT FOR FRANK E. BAUCHIERO 2 TABLE OF CONTENTS
PAGE 1. Term and Application............................................................ 1 2. Office and Duties............................................................... 2 3. Salary and Annual Incentive Compensation........................................ 2 4. Long-Term Compensation, Including Stock Options, and Benefits, Deferred Compensation, and Expense Reimbursement......................................... 3 5. Termination of Employment....................................................... 4 6. Payments Upon Termination of Employment......................................... 4 7. Other Amounts................................................................... 9 8. Definitions Relating to Termination Events...................................... 10 9. Excise Tax Gross-Up............................................................. 15 10. Non-Competition and Non-Disclosure; Executive Cooperation....................... 19 11. Governing Law................................................................... 20 12. Expense Reimbursement........................................................... 20 13. Funding of Company Obligations.................................................. 21 14. Miscellaneous................................................................... 21 15. Indemnification................................................................. 23 16. Definitions..................................................................... 23
-i- 3 AMENDED AND RESTATED TERMINATION AND CHANGE OF CONTROL AGREEMENT THIS AMENDED AND RESTATED TERMINATION AND CHANGE OF CONTROL AGREEMENT ("Termination Agreement") by and between WALBRO CORPORATION, a Delaware corporation (the "Company"), and Frank E. Bauchiero ("Executive") is dated August __, 1998. RECITALS A. Executive has been President of the Company since August 16, 1996 (the "Employment Date") and a director of the Company since 1990. Between the Employment Date and April 17, 1998, Executive also served as the Chief Operating Officer of the Company. B. The Company and Executive desire to amend and restate the Termination and Change of Control Agreement dated October 3, 1996 between the Company and Executive in its entirety as set forth below to reflect the appointment of Executive as President and Chief Executive Officer of the Company on April 17, 1998. C. The definitions of certain capitalized terms used in this Termination Agreement shall have the respective meanings specified in Sections 9 and 16 of this Termination Agreement. D. The Board of Directors of the Company (the "Board") has determined that it is in the best interests of the Company and its shareholders to assure that the Company will have the continued dedication of the Executive, notwithstanding the possibility, threat or occurrence of a Change of Control (as defined below) of the Company. The Board believes it is imperative to diminish the inevitable distraction of the Executive by virtue of the personal uncertainties and risks created by a pending or threatened Change of Control and to encourage the Executive's full attention and dedication to the Company currently and in the event of any threatened or pending Change of Control, and to provide the Executive with compensation and benefits arrangements upon a Change of Control which ensure that the compensation and benefits expectations of the Executive will be satisfied and which are competitive with those of other corporations. Therefore, in order to accomplish these objectives, the Board has caused the Company to enter into this Termination Agreement. AGREEMENT In consideration of the mutual agreements contained herein, the Company and Executive hereby agree as follows: 1. TERM AND APPLICATION. The term of Executive's employment under this Termination Agreement (the "Term of this Termination Agreement") shall be the same (subject to earlier termination in accordance with this Agreement) as the term (the "Term of the Employment Agreement") of the Employment Agreement, dated October 3, 1996 and as amended -1- 4 and restated as of the date of this Termination Agreement, between the Company and the Executive (the "Employment Agreement"); provided, however, notwithstanding the Term of the Employment Agreement, on or after the Extension Date (as defined in Section 9(g) of this Termination Agreement), the Term of this Termination Agreement shall be the Extended Employment Period (as defined in the Employment Agreement). Notwithstanding the Employment Agreement, the terms and provisions of this Termination Agreement shall also apply on and after the Extension Date and, where specifically in conflict with the Employment Agreement, shall supersede the Employment Agreement. In no event shall Executive receive benefits under both this Termination Agreement and the Employment Agreement with respect to the same Termination of Employment. 2. OFFICE AND DUTIES. (a) Generally. During the Extended Employment Period, the Executive's position (including status, offices, titles and reporting requirements), authority, duties and responsibilities shall be at least commensurate in all material respects with the most significant of those held, exercised and assigned at any time during the 120-day period immediately preceding the Extension Date. During the Extended Employment Period it shall not be a violation of the Employment Agreement for the Executive to (i) serve on corporate, civic or charitable boards or committees, (ii) deliver lectures, fulfill speaking engagements or teach at educational institutions, and (iii) manage personal investments, so long as such activities do not significantly interfere with the performance of the Executive's responsibilities as an employee of the Company in accordance with this Termination Agreement. It is expressly understood and agreed that, to the extent that any activities have been conducted by the Executive prior to the Extension Date, the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) subsequent to the Extension Date shall not thereafter be deemed to interfere with the performance of the Executive's responsibilities to the Company. (b) Place of Employment. During the Extended Employment Period, the Executive's services shall be performed at the present headquarters location of the Company in Auburn Hills, Michigan or such other headquarters location as may be assigned by the Company which is less than thirty-five (35) miles from such present headquarters location. 3. SALARY AND ANNUAL INCENTIVE COMPENSATION. (a) Base Salary. During the Extended Employment Period, the Executive shall receive an Annual Base Salary, which shall be paid at a monthly rate, at least equal to twelve (12) times the highest monthly base salary paid or payable, including any base salary which has been earned but deferred, to the Executive by the Company and its affiliated companies in respect of the 12- month period immediately preceding the month in which the Extension Date occurs. During the Extended Employment Period, the Annual Base Salary shall be reviewed by the Compensation -2- 5 Committee of the Board no more than twelve (12) months after the last salary increase awarded to the Executive prior to the Extension Date and thereafter at least annually. Any increase in Annual Base Salary shall not serve to limit or reduce any other obligation to the Executive under this Termination Agreement. Annual Base Salary shall not be reduced after any such increase and the term Annual Base Salary as utilized in this Termination Agreement shall refer to Annual Base Salary as so increased. As used in this Termination Agreement, the term "affiliated companies" shall include any company controlled by, controlling or under common control with the Company. (b) Annual Incentive Compensation. During the Extended Employment Period, any annual incentive compensation payable to Executive shall, subject to the last sentence of this Section 3(b), be paid in accordance with the Company's usual practices in effect prior to the Extension Date with respect to payment of incentive compensation of senior executives (except to the extent deferred). In addition to Annual Base Salary, the Executive shall be awarded, for each fiscal year ending during the Extended Employment Period, an Annual Bonus in cash at least equal to the Executive's highest Annual Bonus for the last three full fiscal years prior to the Extension Date (annualized in the event that the Executive was not employed by the Company for the whole of such fiscal year) (the "Recent Annual Bonus"). Each such Annual Bonus shall be paid no later than the end of the third month of the fiscal year next following the fiscal year for which the Annual Bonus is awarded, unless the Executive shall elect to defer the receipt of such Annual Bonus. 4. LONG-TERM COMPENSATION, INCLUDING STOCK OPTIONS, AND BENEFITS, DEFERRED COMPENSATION, AND EXPENSE REIMBURSEMENT. (a) Executive Equity Plans. During the Extended Employment Period, the Company shall provide Executive with benefits, options to acquire Common Stock, and compensation and incentive award opportunities (measured with respect to both regular and special incentive opportunities, to the extent, if any, that such distinction is applicable) under its incentive and compensation Plans which are no less favorable, in the aggregate, than the most favorable of those provided by the Company and its affiliated companies for the Executive under such Plans, including without limitation, the long-term incentive features of the Company's Equity Based Long Term Incentive Plan (together with any successor plan, the "EBP"), as in effect at any time during the 120-day period immediately preceding the Extension Date or, if more favorable to the Executive, those provided at any time after the Extension Date to any other senior executives of the Company and its affiliated companies. (b) Employee and Executive Benefit Plans. During the Extended Employment Period, the Company's benefit plans and programs, including but not limited to, the welfare benefit plans, fringe benefit plans and deferred compensation plans described in Sections 5(b), (c), (e), (f) and (g) of the Employment Agreement, shall provide Executive with benefits which are at least as favorable to Executive as the most favorable of such plans, practices, policies and programs in effect for the Executive at any time during the 120-day period immediately preceding the Extension Date or, if more favorable to the Executive, those provided at any time after the -3- 6 Extension Date to any other senior executive of the Company and its affiliated companies. 5. TERMINATION OF EMPLOYMENT (a) Death or Disability. The Executive's employment shall terminate automatically upon the Executive's death during the Term of this Termination Agreement. If the Board determines in good faith that the Disability of the Executive has occurred during the Term of this Termination Agreement, the Company may give to the Executive written notice of its intention to terminate the Executive's employment. In such event, the termination of Executive's employment is effective on the 30th day after receipt of such notice by the Executive (the "Disability Effective Date"), provided that, within the thirty (30) days after such receipt, the Executive shall not have returned to full-time performance of the Executive's duties. (b) Notice of Termination. Any termination by the Company for Cause, or by the Executive for Good Reason, shall be communicated by Notice of Termination for Cause or Notice of Termination for Good Reason, as applicable, to the other party hereto given in accordance with Section 9(b) or 9(h), respectively, of this Termination Agreement, including without limitation the substantive and procedural requirements thereof. (c) Date of Termination. "Date of Termination" means (i) if the Executive's employ ment is terminated by the Company for Cause, or by the Executive for Good Reason, the date of receipt of the Notice of Termination for Cause or the Notice of Termination for Good Reason, as applicable, or any later date specified therein, as the case may be, (ii) if the Executive's employment is terminated by the Company other than for Cause or Disability, the Date of Termination shall be the date on which the Company notifies the Executive that the Executive's employment will terminate, (iii) if the Executive's employment is terminated by reason of death or Disability, the Date of termination shall be the date of death of the Executive or the Disability Effective Date, as the case may be, (iv) if the Executive terminates his employment without Good Reason due to Approved Early Retirement, Normal Retirement or other voluntary termination, the date the Executive notifies the Company that the Executive's employment will terminate, and (v) if the Executive's employment is terminated by reason of the Company's not renewing the Term of the Employment Agreement for reasons other than Cause, the Date of termination shall be the last day of the Term of this Termination Agreement. 6. PAYMENTS UPON TERMINATION OF EMPLOYMENT. (a) Normal Retirement, Approved Early Retirement, Death, or Disability. Upon Executive's Termination of Employment due to a voluntary decision by Executive to retire on or after the Executive's Normal Retirement Date (other than for Good Reason) ("Normal Retirement") or a mutually agreed upon early retirement date ("Approved Early Retirement") or due to Executive's death or Disability, all obligations of the Company and Executive under Sections 1 through 5 of the Employment Agreement or Sections 1 through 4 of this Termination Agreement, as applicable, shall immediately cease to accrue and the Company shall: -4- 7 (i) pay to Executive (or his Beneficiaries) as soon as practicable after the Date of Termination (but in any event within ten (10) days thereafter) a lump sum amount equal to the sum of Executive's Accrued Base Salary, Accrued Annual Bonus and Prorata Annual Bonus; (ii) pay to Executive in accordance with the terms and conditions of all compensation and benefit Plans (and the agreements and documents thereunder) in which Executive participated prior to the Date of Termina tion, all vested, nonforfeitable amounts owing and accrued at the Date of Termination under such Plans, including any earned Performance Shares; (iii) cause all Deferral Accounts under the Employment Agreement to be settled in accordance with the provisions of Section 5(g) of the Employment Agreement and the Executive's Deferral Election Forms (as defined in such Section); and (iv) if the Company has terminated Executive's employment due to Disability: (x) provide for Executive and his family to continue to participate throughout the period extending from the Date of Termination until Executive reaches age 65 in all employee benefit Plans providing health, medical, and life insurance in which Executive and his family were participating immediately prior to the Date of Termina tion and the terms of which allow Executive's continued participa tion, at the same times and in the same manner as such benefits would have been received by Executive and his family under such Plans if the Executive had continued in employment with the Company during such period, and (y) to the extent that such Plans do not allow Executive's continued participation therein after the Date of Termination, pay to Executive a cash amount that is equivalent on an after-tax basis to the value of the additional benefits Executive would have received under such Plans if he had received credit under such Plans for age and service with the Company during such period following the Date of Termination; provided that with respect to any benefit to be provided on a third-party insured basis, such value shall be the present value of the premiums expected to be paid for such coverage, and with respect to other benefits, such value shall be the present value of the expected net cost to the Company of providing such benefits. -5- 8 (b) Termination by the Company for Cause and Termination by Executive for Reasons Other Than Normal Retirement, Approved Early Retirement, Death or Disability. Upon a Termination of Employment by the Company for Cause or voluntarily by Executive for reasons other than Good Reason, but excluding a Termination of Employment due to Normal Retirement, Approved Early Retirement, death or Disability, all obligations of the Company and Executive under Sections 1 through 5 of the Employment Agreement or Sections 1 through 4 of this Termination Agreement, as applicable, shall immediately cease to accrue and the Company shall: (i) pay to Executive (or his Beneficiaries) as soon as practicable after the Date of Termination (but in any event within ten (10) days thereafter) a lump sum amount equal to the sum of Executive's Accrued Base Salary and Accrued Annual Bonus; (ii) pay to Executive in accordance with the terms and conditions of all compensation and benefit Plans (and the agreements and documents thereunder) in which Executive participated prior to the Date of Termina tion all vested, nonforfeitable amounts owing and accrued at the Date of Termination under such Plans, including any earned Performance Shares; and (iii) pay to Executive as soon as practicable following such Date of Termina tion, but in any event within ten (10) days thereafter, and without regard to any otherwise applicable period of deferral, an amount equal to the Fair Market Value as of the Date of Termination of all Deferral Shares credited to Executive's Deferral Accounts as of the Date of Termination; provided, however, that the Company may instead settle such Deferral Accounts by directing the trustee under a "rabbi trust" to make a distribution of the assets of the such trust (in which case the Company shall be relieved of its obligation in respect of such Deferral Accounts the extent of such distribution). (c) Termination Without Cause and Termination for Good Reason Before the Extension Date. Upon a Termination Without Cause or a Termination for Good Reason, in either case prior to the Extension Date, all obligations of the Company and Executive under Sections 1 through 5 of the Employment Agreement or Sections 1 through 4 of this Termination Agreement, as applicable, shall immediately cease to accrue and the Company shall: (i) pay to Executive (or his Beneficiaries) immediately after the Date of Termination, a lump-sum cash amount equal to the sum of the following: (A) Executive's Accrued Base Salary, (B) Executive's Accrued Annual Bonus, -6- 9 (C) Executive's Prorata Annual Bonus, (D) the product of (I) the sum of Executive's Annual Base Salary multiplied by (II) a factor equal to the lesser of two (2.0) or the number of whole and fractional years during the period commenc ing on the Date of Termination and the date on which the Term of this Termination Agreement would have expired without giving effect to any Termination of Employment; provided that such factor shall in no event be less than one (1.0); (E) an amount equal to the Fair Market Value as of the Date of Termination of all Deferral Shares credited to Executive's Deferral Accounts as of the Date of Termination; provided, however, that the Company may instead settle such Deferral Accounts by directing the trustee under a "rabbi trust" to make a distribution of the assets of the such trust (in which case the Company shall be relieved of its obligation in respect of such Deferral Accounts to the extent of such distribution); and (ii) to the extent that any vested, nonforfeitable amounts remain owing to Executive at the Date of Termination under any compensation and benefit Plans are not covered by clause (i) above, the Company shall pay all such amounts under the terms and conditions of the Plans (and agreements and documents thereunder) pursuant to which such compensation and benefits were granted. Amounts which are immediately payable pursuant to this Section will be paid as promptly as practicable (but in any event within five (5) business days) after the Date of Termination, without regard to any stated period of deferral otherwise remaining in respect of such amounts. (d) Termination Without Cause and Termination for Good Reason During the Extended Employment Period. Upon a Termination Without Cause or a Termination for Good Reason, in either case during the Extended Employment Period, obligations of the Company and Executive under Sections 1 through 5 of the Employment Agreement or Sections 1 through 4 of this Termination Agreement, as applicable, shall immediately cease to accrue and the Company shall: (i) pay to Executive (or his Beneficiaries) immediately after the Date of Termination (without regard to any stated period of deferral otherwise applicable in respect of such amounts), a lump-sum cash amount equal to the sum of the following: (A) Executive's Accrued Base Salary, -7- 10 (B) Executive's Accrued Annual Bonus, (C) Executive's Prorata Annual Bonus, (D) three (3.0) times the sum of Executive's Annual Base Salary and Highest Annual Bonus; (E) in lieu of any payment in respect of Performance Shares, or other long term incentive awards (including awards of phantom shares under the EBP) granted prior to the Extension Date or in accordance with Section 4(a), for any performance period not completed at the Date of Termination, an amount equal to the cash amount payable plus the Fair Market Value of any shares of Common Stock or other property (valued as of the Date of Termination) payable upon the achievement of maximum performance (or in the case of phantom shares, target performance under the EBP) in respect of each tranche of such Performance Shares or awards, without proration and as if the Date of Termination had occurred at the end of the performance period; and (F) a cash amount equal to the Fair Market Value as of the Date of Termination of any Deferral Shares credited to Executive's Deferral Accounts as of the Date of Termination; provided, however, that the Company may instead settle such accounts by directing the Trustee to distribute the assets of the "rabbi trust" and the Company shall be relieved of its obligation in respect of such Deferral Accounts to the extent of such distribution; (ii) to the extent not covered in clause (i) above, pay to Executive under the terms and conditions of the Plans (and agreements and documents thereunder) pursuant to which such compensation and benefits were granted, all vested, nonforfeitable amounts owing or accrued as of the Date of Termination under any other compensation and benefit Plans in which Executive theretofore participated; (iii) (x) continue for three years after the Date of Termination (or the longest period that is provided under the terms of the applicable Plan) to provide to the Executive and his family welfare plan benefits at least equal to those which would have been provided in accordance with Section 4(b) of this Termination Agreement if the Executive's employment had not been terminated or, if more favorable to the Executive, as in effect at any time thereafter with respect to any other senior executives of the Company and its -8- 11 affiliated companies and their families; provided, however, that if the Executive becomes reemployed with another employer and receives medical or other welfare benefits under another employer- provided plan, the medical and other welfare benefits described herein shall be secondary to those provided under such other plan, and (y) to the extent that such Plans do not allow Executive's continued participation therein after the Date of Termination or that Executive so elects, pay to Executive a cash amount that is equivalent on an after-tax basis to the value of the additional benefits Executive would have received under such Plans if he had received credit under such Plans for age and service with the Company during such period following the Date of Termination; provided that with respect to any benefit to be provided on a third-party insured basis, such value shall be the present value of the premiums expected to be paid for such coverage, and with respect to other benefits, such value shall be the present value of the expected net cost to the Company of providing such benefits; and (iv) pay or reimburse Executive as incurred for the cost of outplacement services, the scope and provider of which shall be selected by the Executive in his sole discretion. 7. OTHER AMOUNTS. (a) Stock Options and Restricted Stock. In the event of any Termination of Employment, stock options and restricted stock held by Executive as of the Date of Termination will be exercisable or vested, as applicable, to the extent and for such periods, and otherwise governed, by the Plans (and the agreements and other documents thereunder) pursuant to which such stock options or restricted stock were granted; provided, however, that the stock options described in Section 5(b) of the Employment Agreement shall be fully vested and shall be exercisable to the extent and for such periods, and otherwise governed by, the provisions of Section 5(b) of the Employment Agreement. (b) Supplemental Retirement Benefit. In the event of any Termination of Employment, the Executive's Supplemental Retirement Benefit shall be paid at the time or times and in the amounts determined in accordance with Section 5(e) of the Employment Agreement, except that in the event of a Termination Without Cause or a Termination for Good Reason during the Extended Employment Period, the Supplemental Retirement Benefit shall be computed as though (i) Executive's employment with the Company had continued for three years after the Date of Termination for purposes of determining his years of employment with the Company (as determined pursuant to Section 5(d) of the Employment Agreement) and (ii) Executive had -9- 12 received compensation in each of such three years determined in accordance with Section 3 hereof. 8. DEFINITIONS RELATING TO TERMINATION EVENTS. (a) "Cause." For purposes of this Termination Agreement, "Cause" shall mean Executive's gross misconduct (as defined herein) or willful breach of Section 10 of this Termination Agreement that results in financial detriment that is material to the Company and its affiliated companies taken as a whole. For purposes of this definition, "gross misconduct" shall mean (A) a felony conviction in a court of law under applicable federal or state laws which results in material damage to the Company and its affiliated companies taken as a whole or materially impairs the value of Executive's services to the Company, or (B) willfully engaging in one or more acts, or willfully omitting to act in accordance with duties hereunder, which is demonstrably and materially damaging to the Company and its affiliated companies taken as a whole. Cause shall not include any one or more of the following: (A) any act or failure to act resulting from any incapacity of Executive, (B) bad judgment, (C) negligence, (D) any act or omission that Executive believed in good faith to have been in or not opposed to the interest of the Company (without intent of Executive to gain therefrom, directly or indirectly, a profit to which he was not legally entitled), or (E) any act or omission of which any member of the Board who is not a party to such act or omission has had actual knowledge for at least six months. Notwithstanding the foregoing, Executive shall not be terminated for Cause unless and until: (A) no fewer than 60 days prior to the Date of Termination, the Company provides Executive with written notice (the "Notice of Consideration") of its intent to consider termination of Executive's employment for Cause, including a detailed description of the specific reasons which form the basis for such consideration; (B) for a period of not less than 30 days after the date Notice of Consideration is provided, Executive shall have the opportunity to (x) appear before the Board, with or without legal representation, at Executive's election, to present arguments and evidence on his own behalf and (y) to correct the acts or omissions complained of, if correctable; and (C) following the presentation to the Board as provided in clause (B) above or Executive's failure to appear before the Board at a date and time specified in the Notice of Consideration (which date shall not be less than 30 days after the date the Notice of Consideration is provided), Executive may be terminated for Cause only if (x) the Board, by the affirmative vote of all of its members (excluding Executive if he is a member of the Board, and any other member of the Board reasonably believed by the Board to be involved in the events leading the Board to terminate Executive for Cause), deter mines that the actions or inactions of Executive specified in the Notice of Consideration did occur, that such actions or inactions constitute Cause, -10- 13 and that Executive's employment should accordingly be terminated for Cause; and (y) the Board provides Executive with a written determination (a "Notice of Termination for Cause") setting forth in specific detail the basis of such termination of employment, which Notice of Termination for Cause shall be consistent with the reasons set forth in the Notice of Consideration. Unless the Company establishes, by clear and convincing evidence, both (x) its full compliance with the substantive and procedural requirements of this Section prior to its Termination for Cause, and (y) that Executive's action or inaction specified in the Notice of Termination for Cause did occur and constituted Cause, any Termination of Employment shall be deemed a Termination Without Cause. (b) "Change of Control." For purposes of this Termination Agreement, a "Change of Control" shall mean: (i) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of twenty percent (20%) or more of either (A) the then-outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (B) the combined voting power of the then-outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this subsection (i), the following acquisitions shall not constitute a Change of Control: (A) any acquisition directly from the Company, (B) any acquisition by the Company, (C) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, (D) any acquisition by a lender to the Company pursuant to a debt restructuring of the Company, or (E) any acquisition by any corporation pursuant to a transaction which complies with clauses (A), (B) and (C) of subsection (iii) of this Section; (ii) Individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption -11- 14 of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; (iii) Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a "Business Combination"), in each case, unless, following such Business Combination, (A) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than fifty percent (50%) of, respectively, the then- outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (B) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 15% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination, or the combined voting power of the then-outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination and (C) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or (iv) Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company. (c) "Disability" means a mental or physical condition which, in the opinion of the Board, renders Executive unable or incompetent to carry out the material job responsibilities which such Executive held or the material duties to which Executive was assigned at the time the disability was incurred, which has existed for at least three months and which in the opinion of a physician mutually agreed upon by the Company and Executive (provided that neither party shall -12- 15 unreasonably withhold his agreement) is expected to be permanent or to last for an indefinite duration or a duration in excess of six months. (d) "Extension Date" shall mean the first date during the Term of the Employment Agreement on which a Change of Control occurs. Anything in this Termination Agreement or the Employment Agreement to the contrary notwithstanding, if a Change of Control occurs after a Date of Termination, and if the Executive reasonably demonstrates that such Termination of Employment (i) was at the request of a third party who has taken steps reasonably calculated to effect a Change of Control or (ii) otherwise arose in connection with or anticipation of a Change of Control, then for all purposes of this Termination Agreement and the Employment Agreement the "Extension Date" shall mean the date immediately prior to the date of such Termination of Employment. (e) "Good Reason." For purposes of this Termination Agreement, "Good Reason" shall mean the occurrence of any of the following, without Executive's prior written consent that such event shall not be Good Reason: (i) the assignment to the Executive of any duties inconsistent in any respect with the Executive's position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as contemplated by Section 3(a) of the Employment Agreement of, on or after the Extension Date, Section 2(a) of this Termination Agreement, or any other action by the Company which results in a diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstan tial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Execu tive; (ii) any failure by the Company to comply with any of the provisions of this Termination Agreement or the Employment Agreement, other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (iii) any failure to nominate or elect Executive as President and Chief Executive Officer of the Company or as member of the Board; (iv) causing or requiring Executive to report to anyone other than the Board; or (v) the Company's requiring the Executive to be based at any office or location other than as provided in Section 3(b) of the Employment Agreement or, on or after the Extension Date, Section 2(b) hereof or the Company's requiring the Executive to travel on Company business to a substantially -13- 16 greater extent than generally required of other senior execu tives of the Company immediately prior to the date of this Agreement; (vi) any failure by the Company to perform any material obligation under, or breach by the Company of any material provision of, this Termination Agreement or the Employment Agreement; (vii) any purported Termination of Employment by the Company otherwise than as expressly permitted by this Termination Agreement; (viii) any failure by the Company to comply with Section 14(b) of this Termination Agreement; (ix) any failure of the Company to assign this Termination Agreement and the Employment to a successor to the Company or failure of a successor to the Company to explicitly assume and agree to be bound by this Termina tion Agreement and the Employment Agreement; (x) the delivery to Executive of a Notice of Consideration pursuant to Section 14(c) hereof if, within a period of 90 days thereafter, the Board fails for any reason to terminate Executive for Cause in compliance with all of the substantive and procedural requirements of set forth in the definition of "Cause" in Section 8 hereof; (xi) any termination of Employment by Executive for any reason or no reason during the 60 day period commencing two months after a Change of Control. For purposes of this Section, any good faith determination of "Good Reason" made by the Executive shall be conclusive. Any Termination for Good Reason shall be communicated by a Notice of Termination for Good Reason to the Company given in accordance with Section 13(d) of this Termination Agreement. For purposes of this Termination Agreement, a "Notice of Termination for Good Reason" means a written notice which (i) indicates the specific termination provision in this Termination Agreement relied upon, (ii) sets forth in reasonable detail the facts and circumstances claimed to constitute Good Reason and (iii) if the Date of Termination is other than the date of receipt of such notice, specifies the Date of Termination (which date shall be not more than thirty (30) days after the giving of such notice). The failure by the Executive to set forth in the Notice of Termination for Good Reason any fact or circumstance which contributes to a showing of Good Reason shall not waive any right of the Executive hereunder or preclude the Executive from asserting such fact or circumstance in enforcing the Executive's rights hereunder. (f) "Normal Retirement Date" means the date of Executive's attainment of age sixty-five (65). -14- 17 9. EXCISE TAX GROSS-UP. (a) If Executive becomes entitled to one or more payments (with a "payment" including, without limitation, the vesting of an option or other non-cash benefit or property), whether pursuant to the terms of this Termination Agreement, the Employment Agreement or any other Plan or agreement with the Company or any of its affiliated companies (the "Total Payments"), which are or become subject to the tax imposed by Section 4999 of the Code or any similar tax that may hereafter be imposed (the "Excise Tax"), the Company shall pay to Executive at the time specified below an additional amount (the "Gross-up Payment") (which shall include, without limitation, reimbursement for any penalties and interest that may accrue in respect of such Excise Tax) such that the net amount retained by Executive, after reduction for any Excise Tax (including any penalties or interest thereon) on the Total Payments and any federal, state and local income or employment tax and Excise Tax on the Gross-up Payment provided for by this Section, but before reduction for any federal, state, or local income or employment tax on the Total Payments, shall be equal to the sum of (a) the Total Payments, and (b) an amount equal to the product of any deductions disallowed for federal, state, or local income tax purposes because of the inclusion of the Gross-up Payment in Executive's adjusted gross income multiplied by the highest applicable marginal rate of federal, state, or local income taxation, respectively, for the calendar year in which the Gross-up Payment is to be made. (b) For purposes of determining whether any of the Total Payments will be subject to the Excise Tax and the amount of such Excise Tax: (i) The Total Payments shall be treated as "parachute payments" within the meaning of Section 280G(b)(2) of the Code, and all "excess parachute payments" within the meaning of Section 280G(b)(1) of the Code shall be treated as subject to the Excise Tax, unless, and except to the extent that, in the written opinion of independent compensation consultants or auditors of nationally recognized standing ("Independent Advisors") selected by the Company and reasonably acceptable to Executive, the Total Payments (in whole or in part) do not constitute parachute payments, or such excess parachute payments (in whole or in part) represent reasonable compensa tion for services actually rendered before a Change of Control within the meaning of Section 280G(b)(4)(B) of the Code in excess of the base amount within the meaning of Section 280G(b)(3) of the Code or are otherwise not subject to the Excise Tax; (ii) The amount of the Total Payments which shall be treated as subject to the Excise Tax shall be equal to the lesser of (i) the total amount of the Total Payments or (ii) the total amount of excess parachute payments within the meaning of Section 280G(b)(1) of the Code (after applying clause (a) above); and -15- 18 (iii) The value of any non-cash benefits or any deferred payment or benefit shall be determined by the Independent Advisors in accordance with the principles of Sections 280G(d)(3) and (4) of the Code. (c) For purposes of determining the amount of the Gross-up Payment, Executive shall be deemed (A) to pay federal income taxes at the highest marginal rate of federal income taxation for the calendar year in which the Gross-up Payment is to be made; (B) to pay any applicable state and local income taxes at the highest marginal rate of taxation for the calendar year in which the Gross-up Payment is to be made, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes if paid in such year (determined without regard to limitations on deductions based upon the amount of Executive's adjusted gross income); and (C) to have otherwise allowable deductions for federal, state, and local income tax purposes at least equal to those disallowed because of the inclusion of the Gross-up Payment in Executive's adjusted gross income. In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time the Gross-up Payment is made, Executive shall repay to the Company at the time that the amount of such reduction in Excise Tax is finally determined (but, if previously paid to the taxing authorities, not prior to the time the amount of such reduction is refunded to Executive or otherwise realized as a benefit by Executive) the portion of the Gross-up Payment that would not have been paid if such Excise Tax had been applied in initially calculating the Gross-up Payment, plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder at the time the Gross-up Payment is made (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-up Payment), the Company shall make an additional Gross-up Payment in respect of such excess (plus any interest and penalties payable with respect to such excess) at the time that the amount of such excess is finally determined. (d) The Gross-up Payment provided for above shall be paid on the 30th day (or such earlier date as the Excise Tax becomes due and payable to the taxing authorities) after it has been determined that the Total Payments (or any portion thereof) are subject to the Excise Tax; provided, however, that if the amount of such Gross-up Payment or portion thereof cannot be finally determined on or before such day, the Company shall pay to Executive on such day an estimate, as determined by the Independent Advisors, of the minimum amount of such payments and shall pay the remainder of such payments (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code), as soon as the amount thereof can be determined. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Company to Executive, payable on the fifth day after demand by the Company (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code). If more than one Gross-up Payment is made, the amount of each Gross-up Payment shall be computed so as not to duplicate any prior Gross-up Payment. (e) Notwithstanding the foregoing, the Executive may at any time elect to demand the payment of the amount which the Executive, in accordance with an Opinion of counsel to the -16- 19 Executive, determines to be the Gross-Up Payment. Any such demand by the Executive shall be made by delivery to the Company of a written notice which specifies the Gross-Up Payment determined by the Executive and an Opinion of counsel to the Executive regarding such Gross- Up Payment (such written notice and Opinion collectively, the "Executive's Determination"). Within fourteen (14) days after the Executive's delivery of the Executive's Determination to the Company, the Company shall: (i) pay to the Executive the Gross-Up Payment set forth in the Executive's Determination unless (ii) the Company shall deliver to the Executive a written notice specifying the Gross-Up Payment determined by the Company together with an Opinion of the Company's counsel regarding such Gross-Up Payment (such written notice and Opinion collectively, the "Company's Determination") and shall pay to the Executive the Gross-Up Payment specified in the Company's Determination. For purposes of this Section, "Opinion" shall mean an unqualified legal opinion that a Gross-Up Payment has been calculated in accordance with this Section and applicable law, unless such Opinion shall state therein that an unqualified Opinion cannot be given as to any Gross-Up Payment. In such case, the Opinion shall state that the Gross-Up Payment set forth therein both (A) is more likely than not to be in accordance with this Section and applicable law, and (B) is more likely to be in accordance with this Section and applicable law than any other Gross-Up Payment. (f) The Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten (10) business days after the Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which it gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (i) give the Company any information reasonably requested by the Company relating to such claim, (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without -17- 20 limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company, (iii) cooperate with the Company in good faith in order effectively to contest such claim, and (iv) permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section, the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or to contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Executive, on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. If, after the receipt by the Executive of an amount advanced by the Company pursuant to this Section, the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Company's complying with the requirements of this Section) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company pursuant to this Section, a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of thirty (30) days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. -18- 21 10. NON-COMPETITION AND NON-DISCLOSURE; EXECUTIVE COOPERATION. (a) Non-Competition. Without the consent in writing of the Board, upon a Termination of Employment for any reason, Executive will not, for a period of one year thereafter, acting alone or in conjunction with others, directly or indirectly: (i) engage (either as owner, investor, partner, stockholder, employer, employee, consultant, advisor or director) in any business in the continental United States in which he has been directly engaged, or has supervised as an executive, during the last two years prior to such Date of Termination and which is directly in competition with a business conducted by the Company or its subsidiaries as of the Date of Termination and, for the Company's most recently-completed fiscal year, contributed more than 5% of the Company's consolidated revenues; provided, however, that Executive shall not be deemed to have breached this clause (i) solely as a result of Executive being employed by or otherwise providing services to a business of which a unit is in competition with the Company or any subsidiary but as to which unit Executive does not have direct or indirect responsibilities for the products or services involved; (ii) induce any customers of the Company or any of its subsidiaries with whom Executive has had contacts or relationships, directly or indirectly, during and within the scope of his employment with the Company or any of its subsidiaries, to curtail or cancel their business with such companies or any of them; or (iii) induce, or attempt to influence, any employee of the Company or any of its subsidiaries to terminate employment. The provisions of subparagraphs (i), (ii), and (iii) above are separate and distinct commitments independent of each of the other subparagraphs. It is agreed that the ownership of not more than one percent of the equity securities of any company having securities listed on an exchange or regularly traded in the over-the-counter market shall not, of itself, be deemed inconsistent with clause (i) of this paragraph (a). (b) Non-Disclosure. Executive shall not at any time (including following a Termination of Employment for any reason), disclose, use, transfer, or sell, except in the course of employment with or other service to the Company, any confidential or proprietary information of the Company or any of its subsidiaries so long as such information has not otherwise been disclosed or is not otherwise in the public domain, except as required by law or pursuant to legal process. (c) Cooperation With Regard to Litigation. Executive agrees to cooperate with the Company (including following a Termination of Employment for any reason), provided that such cooperation would not unreasonably interfere with the personal or business activities or employment obligations of the Executive, by making himself available to testify on behalf of the Company or any subsidiary or affiliate of the Company, in any action, suit, or proceeding, -19- 22 whether civil, criminal, administrative, or investigative, and to assist the Company, or any subsidiary or affiliate of the Company, in any such action, suit, or proceeding, by providing information and meeting and consulting with the Board and its representatives or counsel, or representatives or counsel of or to the Company, or any subsidiary or affiliate of the Company, as reasonably requested; provided, however, this subsection (c) shall not apply to any action between the Executive and the Company to enforce this Termination Agreement or the Employment Agreement. The Company agrees to reimburse Executive for all expenses actually incurred in connection with his provision of testimony or assistance, together with a Tax Gross- up Payment with respect to Taxes payable by Executive in connection any taxable income attributable to such reimbursement. (d) Survival. Notwithstanding any provision of this Termination Agreement to the contrary, the provisions of this Section shall survive the termination or expiration of this Termination Agreement, shall be valid and enforceable, and shall be a condition precedent to the Executive (or his Beneficiaries) receiving any amounts payable hereunder. 11. GOVERNING LAW. This Termination Agreement is governed by and is to be construed, administered, and enforced in accordance with the laws of the State of Michigan, without regard to Michigan conflicts of law principles, except insofar as the Delaware General Corporation Law and federal laws and regulations may be applicable. If under the governing law, any portion of this Termination Agreement is at any time deemed to be in conflict with any applicable statute, rule, regulation, ordinance, or other principle of law, such portion shall be deemed to be modified or altered to the extent necessary to conform thereto or, if that is not possible, to be omitted from this Termination Agreement. The invalidity of any such portion shall not affect the force, effect, and validity of the remaining portion hereof. If any court determines that any provision of Section 12 hereof is unenforceable because of the duration or geographic scope of such provision, it is the parties' intent that such court shall have the power to modify the duration or geographic scope of such provision, as the case may be, to the extent necessary to render the provision enforceable and, in its modified form, such provision shall be enforced. 12. EXPENSE REIMBURSEMENT. All reasonable costs and expenses (including fees and disbursements of counsel) incurred by Executive in negotiating the terms and conditions of this Termination Agreement shall be paid on behalf of or reimbursed to Executive promptly by the Company. All reasonable costs and expenses (including fees and disbursements of counsel) incurred by Executive in seeking to enforce rights pursuant to this Termination Agreement shall be paid on behalf of or reimbursed to Executive promptly by the Company, whether or not Executive is successful in asserting such rights[; provided, however, that if Executive does not prevail (after exhaustion of all available judicial remedies) in respect of a claim by Executive or by the Company hereunder, and the Company establishes before a court of competent jurisdiction, by clear and convincing evidence, that Executive had no reasonable basis for his claim hereunder, or for his response to the Company's claim hereunder, and acted in bad faith, no further reimbursement for legal fees and expenses shall be due to Executive in respect of such claim and Executive shall refund any amounts previously reimbursed hereunder with respect to such claim]. -20- 23 The Company shall pay to Executive a Tax Gross-Up Payment in respect to any Taxes incurred by Executive with respect to all amounts reimbursed pursuant to this Section 12. 13. FUNDING OF COMPANY OBLIGATIONS. During the Extended Employment Period, the Company agrees to maintain a minimum amount in a rabbi trust (or to provide to the trustee of such rabbi trust an irrevocable letter of credit in an amount equal to such minimum amount and callable at will by such trustee) sufficient to fund the aggregate present value of all liabilities potentially owed to the Executive hereunder or under the Employment Agreement as if the Company had terminated Executive's employment without Cause. 14. MISCELLANEOUS. (a) Integration. This Termination Agreement modifies and supersedes any and all prior agreements and understandings between the parties hereto with respect to the employment of Executive by the Company and its subsidiaries, except for the Employment Agreement and contracts relating to compensation under executive compensation and employee benefit Plans of the Company. Subject to the rights, benefits and obligations provided for in such executive compensation contracts and employee benefit Plans of the Company, this Termination Agreement and the Employment Agreement together constitute the entire agreement among the parties with respect to the matters herein provided, and no modification or waiver of any provision hereof shall be effective unless in writing and signed by the parties hereto. Executive shall not be entitled to any payment or benefit under this Termination Agreement which duplicates a payment or benefit received or receivable by Executive under such prior agreements and understandings with the Company or under any benefit or compensation Plan of the Company. (b) Non-Transferability. Executive may not assign any of his obligations under this Employment Agreement. The Company may not assign its rights or obligations under this Termination Agreement without the prior written consent of Executive except to a successor of the Company's business which expressly assumes the Company's obligations hereunder in writing. This Termination Agreement shall be binding upon and inure to the benefit of Executive, his estate and Beneficiaries, the Company and the successors and permitted assigns of the Company. (c) Beneficiaries. If Executive dies prior to receiving all of the amounts payable to him in accordance with the terms of this Termination Agreement, such amounts shall be paid to one or more beneficiaries (each, a "Beneficiary") designated by Executive in writing to the Company during his lifetime, or if no such Beneficiary is designated, to Executive's estate. Such payments shall be made in a lump sum to the extent so payable and, to the extent not payable in a lump sum, in accordance with the terms of this Termination Agreement. Executive, without the consent of any prior Beneficiary, may change his designation of Beneficiary or Beneficiaries at any time or from time to time by a submitting to the Company a new designation in writing. (d) Notices. Any notice under this Termination Agreement shall be in writing, signed by the party or parties giving or making the same, and shall be served on the person or persons -21- 24 for whom it is intended or who should be advised or notified, by Federal Express or other similar overnight service or by certified or registered mail, return receipt requested, postage prepaid and addressed to such party at the address set forth below or at such other address as may be designated by such party by like notice: If to the Company: Walbro Corporation 6242 Garfield Street Cass City, Michigan 48726-1397 Attention: Secretary If to Executive: Frank E. Bauchiero P.O. Box 790 Roscoe, Illinois 61073 With copies to: Roger C. Siske, Esquire Sonnenschein Nath & Rosenthal 8000 Sears Tower Chicago, Illinois 60606 If the parties by mutual agreement supply each other with telecopier numbers for the purposes of providing notice by facsimile, such notice shall also be proper notice under this Termination Agreement. In the case of Federal Express or other similar overnight service, such notice or advice shall be effective one business day after deposit with such service during its normal business hours, and, in the cases of certified or registered mail, shall be effective five business days after deposit with the U.S. Postal Service. (e) Reformation. The invalidity of any portion of this Termination Agreement shall not deemed to render the remainder of this Termination Agreement invalid. (f) Headings. The headings of this Termination Agreement are for convenience of reference only and do not constitute a part hereof. (g) No General Waivers. The failure of any party at any time to require performance by any other party of any provision hereof or to resort to any remedy provided herein or at law or in equity shall in no way affect the right of such party to require such performance or to resort to such remedy at any time thereafter, nor shall the waiver by any party of a breach of any of the provisions hereof be deemed to be a waiver of any subsequent breach of such provisions. No such waiver shall be effective unless in writing and signed by the party against whom such waiver is sought to be enforced. (h) No Obligation to Mitigate. Executive shall not be required to seek other employment or otherwise to mitigate Executive's damages hereunder, nor shall the amount of any payment hereunder be reduced by any compensation earned by the Executive as a result of employment by -22- 25 another employer; provided, however, that any health and other insurance benefits provided for this Termination Agreement shall not duplicate any benefits that are provided to Executive and his family by such other employer and shall be secondary to any coverage provided by such other employer. (i) No Offsets; Withholding. The amounts required to be paid by the Company to Executive pursuant to this Termination Agreement shall not be subject to offset, counterclaim, recoupment, defense or other claim, right or action which the Company may have against Executive or others, other than with respect to any amounts that are owed to the Company by Executive due to his receipt of Company funds as a result of his fraudulent activity. The foregoing and other provisions of this Termination Agreement notwithstanding, all payments to be made to Executive under this Termination Agreement will be subject to Withholding Taxes and other required deductions. (j) Successors and Assigns. This Termination Agreement shall be binding upon and shall inure to the benefit of Executive, his heirs, executors, administrators and beneficiaries, and shall be binding upon and inure to the benefit of the Company and its successors and assigns. 15. INDEMNIFICATION. All rights to indemnification by the Company now existing in favor of Executive as provided in the Company's Certificate of Incorporation or By-Laws or pursuant to other agreements in effect on the date of this Termination Agreement shall continue in full force and effect (including after the expiration of the Term), and the Company shall also advance expenses for which indemnification may be ultimately claimed as such expenses are incurred to the fullest extent permitted under applicable law, subject to any requirement that Executive provide an undertaking to repay such advances if it is ultimately determined that Executive is not entitled to indemnification; provided, however, that any determination required to be made with respect to whether Executive's conduct complies with the standards required to be met as a condition of indemnification or advancement of expenses under applicable law and the Company's Certificate of Incorporation, By-Laws, or other agreement shall be made by independent counsel mutually acceptable to Executive and the Company (except to the extent otherwise required by law). The Company shall not amend its Certificate of Incorporation or By-Laws or any agreement in any manner which adversely affects the rights of Executive to indemnification thereunder. Any provision contained herein notwithstanding, this Termination Agreement shall not limit or reduce any rights of Executive to indemnification pursuant to applicable law. In addition, the Company will maintain directors' and officers' liability insurance in effect and covering acts and omissions of Executive, during the Term and for a period of six years thereafter, on terms substantially no less favorable as those in effect on the date of this Termination Agreement. 16. DEFINITIONS. As used in this Termination Agreement, the terms set forth below have the following meanings (such meanings to be applicable to both the singular and plural forms, except where otherwise expressly indicated): -23- 26 (a) "Accrued Annual Bonus" means any unpaid amount of Executive's Annual Bonus with respect to the Company's most recent fiscal year ended prior to the Date of Termination determined in accordance with (i) Section 4(b) of the Employment Agreement (if such fiscal year ended before an Extension Date) or (ii) Section 3(b) of this Termination Agreement (if such fiscal year ended on or after the Extension Date). (b) "Accrued Base Salary" means the sum of (i) the amount of Executive's Annual Base Salary (as determined under Section 4(a) of the Employment Agreement) which is accrued through the Extension Date but not yet paid as of the Date of Termination and (ii) the amount of Executive's Annual Base Salary (as determined under Section 3(a) of this Termination Agreement) which is accrued but not yet paid as of the Date of Termination. (c) "affiliated companies" -- see Section 2(a) hereof. (d) "Annual Bonus" means, for 1998 and subsequent years, the annual incentive compensation paid to Executive pursuant to Section 4(b) of the Employment Agreement or Section 3(b) of this Termination Agreement, as applicable, and, for years prior to 1998, the annual cash incentive compensation paid to Executive pursuant of the Former Employment Agreement. (e) "Approved Early Retirement" -- see Section 6 hereof. (f) "Beneficiary" -- see Section 14(c) hereof. (g) "Code" means the Internal Revenue Code of 1986, as amended. (h) "Date of Termination" -- see Section 5(b) hereof: (i) "Deferral Account" the accounts on the Company's books that reflect the Company's unfunded obligations under the deferral arrangements authorized under Section 5 of the Employ ment Agreement. (j) "Deferral Shares" means the phantom shares of Common Stock credited to Executive's Deferral Accounts. (k) "EBP" -- see Section 4(a). (l) "Extended Employment Period" shall have the meaning specified in Section 2(d) of the Employment Agreement. (m) "Fair Market Value" has the meaning specified in Section 8 of the Employment Agreement. -24- 27 (n) "Highest Annual Bonus" means the higher of (i) the Recent Annual Bonus and (ii) the Annual Bonus that would have been payable (without giving effect to any deferral elections in regard thereof) for the most recently completed fiscal year of the Company (annualized for any fiscal year consisting of less than twelve (12) full months), assuming full satisfaction of any performance standards or targets applicable to determining the maximum amount payable. (o) "Normal Retirement" -- see Section 6 hereof. (p) "Notice of Non-Renewal" has the meaning specified in Section 2(b) of the Employment Agreement. (q) "Performance Shares" means performance shares granted under the EBP and any performance shares, performance units, stock grants, or other long-term incentive arrangements adopted as a successor or replacement to performance shares under the EBP or other Plans of the Company. (r) "Plans" means plans, practices, policies, programs and arrangements. (s) "Prorata Annual Bonus" for any year means the product of (i) the Executive's target annual bonus for such year multiplied by (ii) a fraction of which the numerator is the numbers of days which have elapsed in such fiscal year through and including the Date of Termination and the denominator of which is 365; provided, however, that if a Date of Termination occurs after the Extension Date, the Highest Annual Bonus shall be used instead of the Target Annual Bonus for purposes of this definition. (t) "Recent Annual Bonus" -- see Section 3(b). (u) "Supplemental Retirement Benefit" has the meaning specified in Section 5(e) of the Employment Agreement. (v) "Tax Gross-Up Payment" has the meaning specified in Section 8 of the Employment Agreement. (w) "Termination of Employment" means a termination by the Company or by Executive of Executive's employment with the Company. (x) "Termination For Good Reason" means a Termination of Employment by Executive for a Good Reason, whether during or after the Term. (y) "Termination Without Cause" means a Termination of Employment by the Company for any reason other than Cause or Executive's death or Disability, whether during or after the Term, including a Termination of Employment at the end of the Term of the Employment Agreement after the Company's giving a Notice of Non-Renewal. -25- 28 (z) "Withholding Taxes" has the meaning specified in Section 8 of the Employment Agreement. IN WITNESS WHEREOF, Executive and the Company have executed this Termination Agreement as of the date first above written. WALBRO CORPORATION By: ----------------------------------- Name: --------------------------------- Title: --------------------------------- FRANK E. BAUCHIERO -------------------------------------- -------------------------------------- -26- EX-21.1 7 SUBSIDIARIES OF COMPANY 1 EXHIBIT 21.1
SUBSIDIARIES OF WALBRO CORPORATION Name of Subsidiary Jurisdiction of Incorporation ------------------ ----------------------------- Auburn Diecast Corporation Michigan U.S. Coexcell, Inc. Ohio Walbro Capital Pte. Ltd. Republic of Singapore Walbro Automotive Corporation Delaware Walbro Automotive A.S Norway Walbro Automotive do Brasil Ltd.a. Brazil Walbro Automotive Europe S.A. France Walbro Automotive FSC, Inc. U.S. Virgin Islands Walbro Automotive GmbH Germany Walbro Automotive Japan, Inc. Japan Walbro Automotive Limited Great Britain Walbro Automotive N.V. Belgium Walbro Automotive S.A. France Walbro Automotive S.A. Spain Walbro Korea, Ltd. Republic of Korea Walbro Netherlands B.V. Netherlands Sharon Manufacturing Company Michigan Whitehead Engineered Products, Inc. Delaware Walbro Engine Management Corporation Delaware Walbro de Mexico, S.A. de C.V. Mexico Walbro GmbH Germany Walbro Japan, Inc. Japan Walbro Singapore Pte. Ltd. Republic of Singapore Walbro Tucson Corporation Delaware Tucson Precision Products Delaware Fujian Hualong Carburetor Co., Ltd. People's Republic of China Tianjin Walbro Industries, Ltd. People's Republic of China Mutual Walbro P. Ltd. India Walbro Capital Trust Delaware
EX-23.1 8 CONSENT OF ARTHUR ANDERSEN LLP 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports dated February 17, 1999 included (or incorporated by reference) in this Form 10-K, into the Company's previously filed Registration Statement File Nos. 33-20841, 33-32068 and 33-48562. /s/ ARTHUR ANDERSEN LLP Detroit, Michigan, March 29, 1999. EX-27.1 9 FINANCIAL DATA SCHEDULE
5 1,000 YEAR DEC-31-1998 JAN-01-1998 DEC-31-1998 19,647 0 154,416 0 60,871 257,403 407,898 129,357 648,667 160,477 324,289 69,000 0 4,344 73,212 648,667 677,990 677,990 571,992 571,992 68,526 0 31,806 14,118 3,967 5,191 0 (1,473) 0 3,718 .43 .43
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