-----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, JQy9AZhu5bahzGU3vupmmKO3iLRYUruMDQBZHY9CaAYMURUFBV0KR/0nYvwAImQ1 fuxIdLanxQztr75ArJOsCA== 0000950146-96-000745.txt : 19960514 0000950146-96-000745.hdr.sgml : 19960514 ACCESSION NUMBER: 0000950146-96-000745 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960513 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: HARDINGE INC CENTRAL INDEX KEY: 0000313716 STANDARD INDUSTRIAL CLASSIFICATION: METALWORKING MACHINERY & EQUIPMENT [3540] IRS NUMBER: 160470200 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-15760 FILM NUMBER: 96561711 BUSINESS ADDRESS: STREET 1: ONE HARDING DRIVE CITY: ELMIRA STATE: NY ZIP: 14902 BUSINESS PHONE: 6077342281 MAIL ADDRESS: STREET 1: ONE HARDINGE DRIVE STREET 2: ONE HARDINGE DRIVE CITY: ELMIRA STATE: NY ZIP: 14902 FORMER COMPANY: FORMER CONFORMED NAME: HARDINGE BROTHERS INC DATE OF NAME CHANGE: 19920703 10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (MARK ONE) [x] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Period Ended March 31, 1996 ---------------- or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Transition Period From to Commission File No. 0-15760 ---------------- HARDINGE INC. ------------------------------------------------------ (Exact Name of Registrant as specified in its charter) NEW YORK 16-0470200 - ------------------------------------ ------------------------------------ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) ONE HARDINGE DRIVE, ELMIRA, NEW YORK 14902 - ------------------------------------ ------------------------------------ (Address of principal (Zip Code) executive offices) (607) 734-2281 ------------------------------------------------------ (Registrant's telephone number, including area code) 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 ----- ----- At March 31, 1996, there were 6,471,388 shares of Common Stock of the Registrant outstanding. 1 HARDINGE INC. AND SUBSIDIARIES INDEX Part I Financial Information Page Item 1. Financial Statements Consolidated Balance Sheets at March 31, 1996 and December 31, 1995. 3 Consolidated Statements of Income and Retained Earnings for the three months ended March 31, 1996 and 1995. 5 Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 1996 and 1995. 6 Notes to Consolidated Financial Statements. 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. 9 Part II Other Information Item 1. Legal Proceedings 12 Item 2. Changes in Securities 12 Item 3. Default upon Senior Securities 12 Submission of Matters to a Vote of Security Item 4. Holders 12 Item 5. Other Information 12 Item 6. Exhibits and Reports on Form 8-K 12 Signatures 13 2 Part I, Item 1. HARDINGE INC. AND SUBSIDIARIES Consolidated Balance Sheets (In Thousands) Mar. 31, Dec. 31, 1996 1995 --------- --------- (Unaudited) Assets Current assets: Cash $ 5,821 $ 5,120 Accounts receivable 41,940 41,095 Notes receivable 5,968 5,053 Inventories 86,084 84,968 Deferred income taxes 1,709 2,585 Prepaid expenses 2,580 1,332 -------- -------- Total current assets 144,102 140,153 Property, plant and equipment: Property, plant and equipment 109,330 109,320 Less accumulated depreciation 50,789 49,716 -------- -------- 58,541 59,604 Other assets: Notes receivable 12,435 10,936 Other 172 163 -------- -------- 12,607 11,099 -------- -------- Total assets $215,250 $210,856 ======== ======== See accompanying notes. 3 HARDINGE INC. AND SUBSIDIARIES Consolidated Balance Sheets - Continued (In Thousands) Mar. 31, Dec. 31, 1996 1995 --------- --------- (Unaudited) Liabilities and shareholders' equity Current liabilities: Accounts payable $ 11,664 $ 18,409 Notes payable to bank 8,543 10,504 Accrued expenses 11,035 9,297 Accrued pension plan expense 298 126 Accrued income taxes 3,422 1,323 Current portion long-term debt 714 714 -------- -------- Total current liabilities 35,676 40,373 Other liabilities: Long-term debt 32,706 27,100 Accrued pension plan expense 1,133 1,087 Deferred income taxes 1,143 1,200 Accrued postretirement benefits 5,061 4,993 -------- -------- 40,043 34,380 Shareholders' equity Preferred stock, Series A, par value $.01: Authorized - 2,000,000; issued - none Common stock, $.01 par value: Authorized shares - 20,000,000 Issued shares - 6,476,703 65 65 Additional paid-in capital 56,917 56,323 Retained earnings 90,035 86,666 Treasury shares (139) (2,599) Cumulative foreign currency translation adjustment (1,993) (1,728) Deferred employee benefits (5,354) (2,624) -------- -------- Total shareholders' equity 139,531 136,103 -------- -------- Total liabilities and shareholders' equity $215,250 $210,856 ======== ======== See accompanying notes. 4 HARDINGE INC. AND SUBSIDIARIES Consolidated Statements of Income and Retained Earnings (Unaudited) (In Thousands, Except Per Share Data) Three months ended Mar. 31, ------------------- 1996 1995 ------- ------- Net Sales $59,622 $40,687 Cost of sales 40,290 26,774 ------- ------- Gross profit 19,332 13,913 Selling, general and administrative expenses 11,570 8,415 ------- ------- Income from operations 7,762 5,498 Interest expense 522 476 Interest (income) (215) (121) (Gain) on sale of asset (326) ------- ------- Income before income taxes 7,455 5,469 Income taxes 2,985 2,165 ------- ------- Net income 4,470 3,304 Retained earnings at beginning of period 86,666 74,853 Less dividends declared 1,101 524 ------- ------- Retained earnings at end of period $90,035 $77,633 Weighted average number of common shares outstanding 6,199 3,584 ======= ======= Per share data: Net Income $ .72 $ .92 ======= ======= Dividends Declared $ .17 $ .15 ======= ======= See accompanying notes. 5 HARDINGE INC. AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (Unaudited) (In Thousands) Three Months Ended March 31, -------------------- 1996 1995 -------- -------- Net cash (used in) operating activities ($1,664) ($4,471) Investing activities: Capital expenditures (996) (1,141) Proceeds from sale of assets 447 ------ ------ Net cash (used in) investing activities (996) (694) Financing activities: (Decrease) in short-term notes payable to bank (1,728) Increase in long-term debt 6,011 6,080 Sale (purchase) of treasury stock 171 (379) Dividends paid (1,099) (1,483) ------ ------ Net cash provided by financing activities 3,355 4,218 Effect of exchange rate changes on cash 6 33 ------ ------ Net increase (decrease) in cash $ 701 ($ 914) ====== ====== 6 HARDINGE INC. AND SUBSIDIARIES March 31, 1996 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE A--BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three month period ended March 31, 1996, are not necessarily indicative of the results that may be expected for the year ended December 31, 1996. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report for the year ended December 31, 1995. NOTE B--INVENTORIES Inventories are summarized as follows (dollars in thousands): March 31, December 31, 1996 1995 ------- ------- Finished products $29,175 $29,231 Work-in-process 30,201 29,083 Raw materials and purchased components 26,708 26,654 ------- ------- $86,084 $84,968 ======= ======= NOTE C--CHANGES IN SHAREHOLDERS' EQUITY At the annual meeting on May 16, 1995, shareholders approved amendments to the Company's Certificate of Incorporation (a) authorizing a new class of Preferred Stock consisting of 2,000,000 shares; (b) converting each Class A common share into 2.00 shares of a new single class of Common Stock, representing a 2-for-1 stock split and each Class B common share into 2.05 shares of a new single class of Common Stock, representing a 2.05-for-1 stock split; and (c) increasing the number of shares of Common Stock the Company is authorized to issue from 6,000,000 to 20,000,000 shares and reducing the par value of all Common Stock from $5 to $0.01 per share. All historical per share data has been restated giving effect to the amendments discussed above. In June 1995, the Company issued 2,540,000 shares of its common stock at $19.00 per share in a public common stock offering. Proceeds from the offering, net of commissions and expenses, were $43,584,000. The proceeds were used to reduce the Company's debt, fund building expansion, and fund working capital growth. NOTE D--EARNINGS PER SHARE AND WEIGHTED SHARES OUTSTANDING Earnings per share are calculated using a monthly weighted average shares outstanding and include common stock equivalents related to restricted stock. Historical numbers have been restated to reflect the conversion of stock mentioned above. 7 NOTE E--ACQUISITION On November 29, 1995, the Company acquired 100% of the outstanding stock of L. Kellenberger & Co. AG and subsidiary ("Kellenberger"), a St. Gallen, Switzerland based manufacturer of grinding machines. The acquisition was accounted for as a purchase. The three month period ended March 31, 1996 results of operations of Kellenberger are included in the consolidated financial statements of the Company. NOTE F--DEBT In March, 1996 Hardinge entered into a seven-year $17,750,000 unsecured credit agreement with a syndication of banks. The proceeds were applied to pay down amounts on the Company's revolving loan agreement which had been used to finance the acquisition of Kellenberger. This agreement calls for variable quarterly interest payments based upon the London Interbank Offered Rates plus additional basis points based upon attaining certain financial ratios. Principal payments begin in May, 1998 and will be made in equal quarterly payments through 2003. Hardinge also entered into a cross-currency interest rate swap agreement with a major international bank related to this borrowing. The swap agreement effectively changes the dollar principal payment commitment to a commitment to pay 21,000,000 Swiss Francs over the same period, the effect of which is to hedge exchange rate fluctuations on the Kellenberger equity purchased in November, 1995. The swap agreement also effectively changes the Company's variable interest rate exposure to a fixed rate of 4.49%. 8 Part I, Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following are management's comments relating to significant changes in the results of operations for the three months ended March 31, 1996 and 1995 and in the Company's financial condition during the three month period ended March 31, 1996. Results of Operations Net Sales. Net Sales increased 46% to $59,622,000 in the first quarter of 1996 from $40,687,000 in the same quarter of 1995. Shipments improved in all of our significant geographical areas, but the largest increase came in our European markets. Sales by our Kellenberger subsidiary, acquired in late 1995, and increases in shipments of the rest of Hardinge's product line resulted in increases of $12,930,000, or 285% in Europe. Sales in the United States increased by 12% or $4,025,000. Sales of our machine product lines increased by $14,115,000, or 57% while sales of our non-machine products and services increased by $4,820,000 or 30%. Kellenberger was an important contributor to the increase in machine sales, and the proportion of its machine sales as compared to non-machine products was higher than our traditional relationships. Machine sales accounted for 65% of total sales in the first quarter of 1996. This is higher than the 60% from the same quarter of 1995, but consistent with the full year of 1995. Backlog increased 20% from its December 31, 1995 level. The high level of orders we experienced in the first quarter of 1996 were spread across virtually all of our product lines and were distributed among a wide customer base. We received substantial orders from the auto industry, with the majority scheduled to be shipped in the latter part of 1996. Gross Profit. Gross profit, as a percent of sales, decreased to 32% in the first quarter of 1996 from 34% in the same quarter of 1995. The change in product mix was the primary cause of this margin decrease. Sales in the machine product line traditionally have generated lower margins than the non-machine line. Selling, General and Administrative Expenses. Selling, general and administrative (S.G.&A.) expenses, expressed as a percent of sales, decreased to 19% in the first quarter of 1996 compared to 21% in the same quarter of 1995. This decrease is due to the fixed expense component of this category being compared to a higher sales volume. The addition of Kellenberger's expenses was the most significant factor causing the increase in the amount of S.G.&A expenditures. Income from Operations. Income from operations increased by $2,264,000 or 41% from its 1995 level. Operating income as a percentage of sales decreased to 13.0 % in 1996 from 13.5% in 1995. This reflected the decrease in the gross margin percentage, offset in part by the improved S.G.&A. percentage. Interest Expense and Income. Interest expense remained fairly constant from year to year, reflecting consistent borrowings. Interest income, primarily interest on customer notes, increased by $94,000 due to higher average interest rates on those notes. Gain on Sale of Assets. The first quarter 1995 results include a gain of $326,000 (approximately $198,000 on an after tax basis) on the sale of a building. Income Taxes. Income taxes, as a percent of net income before income taxes, were approximately 40% in both the first quarter of 1996 and 1995. Net Income. Net income increased by $1,166,000 or 35% as a result of the factors discussed above. Geographically, all of our significant operations across the world generated profits. 9 Quarterly Information The following table sets forth certain quarterly financial data for each of the periods indicated. Three Months Ended ----------------------------------------------------- March 31, June 30, Sept. 30, Dec. 31, March 31, 1995 1995 1995 1995 1996 --------- -------- -------- -------- --------- (in thousands, except per share data) ----------------------------------------------------- Net Sales $40,687 $41,501 $42,217 $56,181 $59,622 Gross Profit 13,913 14,207 14,439 18,052 19,332 Income from operations 5,498 5,801 4,949 8,287 7,762 Net income 3,304 3,275 3,182 5,084 4,470 Net income per share .92 .75 .52 .82 .72 Weighted average shares outstanding 3,584 4,349 6,176 6,217 6,199 Liquidity and Capital Resources The Company's current ratio at March 31, 1996 was 4.04:1 compared to 3.47:1 at December 31, 1995. Current assets increased by $3,949,000 and current liabilities decreased by $4,697,000. Accounts payable decreased by $6,745,000 due to the timing of payment of invoices. In the first quarter of 1996, operating activities used $1,664,000 of cash, while operating activities in the same period of 1995 used $4,471,000 of cash. In both periods, cash was used to fund working capital. In our investing and financing activities, we have required cash for capital expenditures and dividend payments. Hardinge provides long-term financing for the purchase of its equipment by qualified customers. We regard this program as an important part of our marketing efforts. Customer financing is offered for a term of up to seven years, with Hardinge retaining a security interest in the purchased equipment. In the event of a customer default and foreclosure, we recondition and resell the equipment and have historically realized the approximate remaining contract value. We periodically sell portfolios of our customer notes to financial institutions in order to reduce debt and finance current operations. We sold $7,100,000 of customer notes in the first quarter of 1996, compared to $3,000,000 during the same quarter of 1995. Recourse against Hardinge from customer defaults is limited to 10% of the outstanding balance of each portfolio of notes sold, and is effected in the form of a hold back of funds at the time of the sale. The hold back portion of customer notes and any notes that have not been sold are included in notes receivable in the consolidated balance sheet. Although Hardinge has no formal arrangements with financial institutions who might purchase its customer notes, we have not experienced difficulty in arranging such sales. Our customer financing program has an impact on our month-to-month borrowings, but it has had little long-term impact on our working capital because of the ability to sell the underlying notes. Capital expenditures in the first quarter of 1996 were approximately $1,000,000. We completed the expansion of the building in Elmira, NY. Related equipment is expected to be operational by the end of the second quarter. We anticipate capital expenditures will total $10,000,000 during 1996, which includes further expenditures to improve productivity and distribution efforts. Hardinge maintains a loan agreement with three banks which provides for borrowing up to $30,000,000 on a revolving basis through August 1, 1997. At that time, the outstanding amounts convert to a term loan payable quarterly over four years through 2001. This facility, along with other short term credit agreements, provide for immediate access of up to $45,000,000. At March 31, 1996, outstanding borrowings under these arrangements totaled $21,400,000. We believe that the currently available funds and credit facilities, along with internally generated funds, will provide sufficient financial resources for ongoing operations. 10 In March, 1996, we completed negotiations with a syndication of banks on an unsecured long term credit agreement for $17,750,000. The proceeds were used to pay down the amount on the revolving loan agreement which had originally been used to finance the acquisition of Kellenberger. Quarterly interest payments begin in 1996, and principal payments begin in the second quarter of 1998. The agreement contains financial covenants similar to the revolving loan agreement. 11 PART II OTHER INFORMATION ITEM 1. Legal Proceedings None ITEM 2. Changes in Securities None ITEM 3. Defaults upon Senior Securities None ITEM 4. Submission of Matters to a Vote of Security-Holders None ITEM 5. Other Information None ITEM 6. Exhibits and Reports on Form 8-K A Exhibits: Item Description 3.1 By-Laws of Hardinge Inc. as amended February 27, 1996. 10.1 Credit Agreement dated as of February 28, 1996, among Hardinge Inc. and the Banks signatory thereto and The Chase Manhattan Bank (N.A.), as Agent. 27.1 Financial Data Schedule B. During the quarter for which this report is filed, the Registrant filed the following Amendment to the Current Report on form 8-K: 1. Current report on Form 8-K, dated November 29, 1995, as amended February 12, 1996, in respect of the acquisition of L. Kellenberger & Co. AG and subsidiary, including financial statements of L. Kellenberger & Co. and subsidiary and pro forma financial information reflecting on a pro forma basis the acquisition of L. Kellenberger & Co. AG and subsidiary. 12 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused the Report to be signed on its behalf by the undersigned, thereunto duly authorized. HARDINGE INC. /s/ Robert E. Agan --------------------------------------- Robert E. Agan Chairman of the Board, President and Chief Executive Officer /s/ Malcolm L. Gibson --------------------------------------- Malcolm L. Gibson Senior Vice President, Chief Financial Officer and Assistant Secretary (Principal Financial Officer) /s/ Richard L. Simons --------------------------------------- Richard L. Simons Controller (Principal Accounting Officer) DATE: May 13, 1996 13 EX-3.1 2 BYLAWS BY-LAWS -of- HARDINGE INC. ARTICLE I Offices. SECTION 1. Principal Office. The principal office of the corporation shall be located in the County of Chemung and State of New York. SECTION 2. Other Offices. The corporation may also have such other offices, either within or without the State of New York, as the Board of Directors may from time to time determine or the business of the corporation may require. ARTICLE II Shareholders. SECTION 1. Place of Meetings of Shareholders. Meetings of shareholders may be held at such place, within or without the State of New York, as may be fixed by the Board of Directors. SECTION 2. Annual Meeting of Shareholders. A meeting of shareholders shall be held annually on such date and at such place and time as may be fixed by the Board of Directors for the election of directors and the transaction of other business. SECTION 3. Special Meetings of Shareholders. Special meetings of the shareholders may be called by the Board of Directors or by the Chairman of the Board or by the President. Such call shall state the purpose or purposes of the proposed meeting. Business transacted at any special meeting shall be confined to the purpose or purposes for which the meeting is called. -2- SECTION 4. Fixing Record Date. The Board of Directors may fix, in advance, a date as the record date for purpose of determining the shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof, or to express consent to or dissent from any proposal without a meeting, or for the purpose of determining shareholders entitled to receive payment of any dividend or the allotment of any rights, or for the purpose of any other action. Such date shall be not more than fifty (50) nor less than ten (10) days before the date of such meeting nor more than 50 days before any other action. If no record date is fixed, the record date for the purpose of determining shareholders entitled to notice of or to vote at a meeting of shareholders shall be at the close of business on the day next preceding the day on which notice is given and for all other purposes shall be at the close of business on the day on which the resolution of the Board of Directors relating thereto is adopted. SECTION 5. Notice of Meetings of Shareholders. Written notice of every meeting of shareholders shall state the place, date and hour of the meeting and unless it is the annual meeting indicate that it is being issued by or at the direction of the person or persons calling the meeting. Notice of a special meeting shall also state the purpose or purposes for which the meeting is called. If, at any meeting, action is proposed to be taken which would, if taken, entitle shareholders fulfilling the statutory requirements to receive payment for their shares, the notice of such meeting shall include a statement of that purpose and to that effect. A copy of the notice of any meeting shall be given, personally or by mail, not less than ten (10) nor more than fifty (50) days before the date of the meeting, to each shareholder entitled to vote at such meeting. If mailed, such notice shall be deemed given when deposited in the United States mail, with postage thereon prepaid, directed to the shareholder at his address as it appears on the record of shareholders, or, if he shall have filed with the secretary of the corporation a written request that notices to him be mailed to some other address, then directed to him at such other address. SECTION 6. Adjourned Meetings. When a determination of shareholders entitled to notice of or to vote at any meeting of shareholders has been made, such determination shall apply to any adjournment thereof, unless the Board of Directors fixes a new record date for the adjourned meeting. When a meeting is adjourned to another time or place, it shall not be necessary to give any notice of the adjourned meeting if the time and place to which the meeting is adjourned are announced at the meeting at which the adjournment is taken, and at -3- the adjourned meeting the corporation may transact any business that might have been transacted on the original date of the meeting. However, if after the adjournment the Board of Directors fixes a new record date for the adjourned meeting, a notice of the adjourned meeting shall be given to each shareholder of record on the new record date entitled to notice. SECTION 7. List of Shareholders at Meeting. A list of shareholders as of the record date, certified by the secretary or by the transfer agent, shall be produced at any meeting of shareholders upon the request thereat or prior thereto of any shareholder. If the right to vote at any meeting is challenged, the inspectors of election, or person presiding thereat, shall require such list of shareholders to be produced as evidence of the right of the persons challenged to vote at such meetings, and all persons who appear from such list to be shareholders entitled to vote thereat may vote at such meeting. SECTION 8. Quorum of Shareholders. The holders of a majority of the shares entitled to vote thereat shall constitute a quorum at a meeting of shareholders for the transaction of any business. When a quorum is once present to organize a meeting, it is not broken by the subsequent withdrawal of any shareholders. Despite the absence of a quorum, the shareholders present may adjourn the meeting. SECTION 9. Proxies. Every shareholder entitled to vote at a meeting of shareholders or to express consent or dissent without a meeting may authorize another person or persons to act for him by proxy. Every proxy must be signed by the shareholder or his attorney-in-fact. No proxy shall be valid after the expiration of eleven (11) months from the date thereof unless otherwise provided in the proxy. Every proxy shall be revocable at the pleasure of the shareholder executing it, except in those cases where an irrevocable proxy is provided by law. SECTION 10. Inspectors at Shareholders' Meetings. The Board of Directors, in advance of any shareholders' meeting, may appoint one or more inspectors to act at the meeting or any adjournment thereof. If inspectors are not so appointed the person presiding at a shareholders' meeting may, and on the request of any shareholder entitled to vote thereat shall, appoint inspectors. If appointed on the request of one or more shareholders, the holders of a majority of shares present and entitled to vote thereat shall determine the number of inspectors to be appointed. In case any person appointed fails to appear or -4- act, the vacancy may be filled by appointment made by the Board of Directors in advance of the meeting or at the meeting by the person presiding thereat. Each inspector, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector at such meeting with strict impartiality and according to the best of his ability. The inspectors shall determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum, the validity and effect of proxies, and shall receive votes, ballots or consents, hear and determine all challenges and questions arising in connection with the right to vote, count and tabulate all votes, ballots or consents, determine the result, and do such acts as are proper to conduct the election or vote with fairness to all shareholders. On request of the person presiding at the meeting or any shareholder entitled to vote thereat, the inspectors shall make a report in writing of any challenge, question or matter determined by them and execute a certificate of any fact found by them. A report or certificate made by them shall be prima facie evidence of the facts stated and of the vote as certified by them. SECTION 11. Qualifications of Voters. Every shareholder of record shall be entitled at every meeting of shareholders to one vote for every share standing in his name on the record of shareholders. Neither treasury shares nor shares held by another domestic or foreign corporation of any type or kind, if a majority of the shares entitled to vote in the election of directors of such other corporation is held by the corporation, shall be voted at any meeting or counted in determining the total number of outstanding shares. Shares held by an administrator, executor, guardian, conservator, committee, or other fiduciary, except a trustee, may be voted by him, either in person or by proxy, without transfer of such shares into his name. Shares held by a trustee may be voted by him, either in person or by proxy, only after the shares have been transferred into his name as trustee or into the name of his nominee. Shares held by or under the control of a receiver may be voted by him without the transfer thereof into his name if authority so to do is contained in an order of the court by which such receiver was appointed. A shareholder whose shares are pledged shall be entitled to vote such shares until the shares have been transferred into the name of the pledgee, or a nominee of the pledgee. -5- Shares standing in the name of another domestic or foreign corporation of any type or kind may be voted by such officer, agent or proxy as the By-Laws of such corporation may provide, or, in the absence of such provision, as the Board of Directors of such corporation may determine. SECTION 12. Vote of Shareholders. Directors shall, except as otherwise required by law, be elected by a plurality of the votes cast at a meeting of shareholders by the holders of shares entitled to vote in the election. Any other corporate action by vote of the shareholders shall, except as otherwise required by law, these By-Laws or the certificate of incorporation, be authorized by a majority of the votes cast at a meeting of shareholders by the holders of shares entitled to vote thereon. SECTION 13. Conduct of Shareholders' Meetings. The Officer presiding over the shareholders' meeting may establish such rules and regulations for the conduct of the meeting as the presiding Officer may deem to be reasonably necessary or desirable for the orderly and expeditious conduct of the meeting. SECTION 14. Shareholder Proposals. No shareholder shall be entitled to submit a proposal to a meeting of shareholders unless at the time of submitting the proposal, the shareholder shall be a record or beneficial owner of at least 1% or $1,000 in market value of shares entitled to be voted at the meeting, and shall have held such shares for at least one year and shall continue to own such shares through the date on which the meeting is held. A shareholder meeting the above requirements shall deliver to the secretary of the corporation not later than 120 days prior to the date on which the corporation's proxy statement was mailed to stockholders in connection with the previous year's annual meeting, the text of any proposal which he intends to propose at an annual meeting of shareholders and a notice of the intention of the shareholder to present such proposal at the meeting. A proposal to be presented at any meeting of shareholders other than an annual meeting shall be delivered to the Secretary a reasonable time before the mailing of the corporation's proxy material. -6- ARTICLE III Directors. SECTION 1. Board of Directors. The business of the corporation shall be managed under the direction of its Board of Directors. SECTION 2. Qualifications of Directors. Each director shall be at least 18 years of age. SECTION 3. Number of Directors. The number of directors constituting the entire Board shall be nine (9), provided however, effective upon the election of directors at the 1996 annual meeting of shareholders, said number shall be eight (8). This number may be increased or decreased from time to time by amendment of these By-Laws, provided, however, that the number may not be decreased to less than three (3). No decrease in the number of directors shall shorten the term of any incumbent director. SECTION 4. Election and Term of Directors. The number of directors constituting the Board shall be nine (9) subject to increase or decrease from time to time as provided herein. The directors shall be classified, with respect to the period for which they shall severally hold office, into three classes as nearly equal in number as possible, each holding office, subject to the transitional provisions described below, for a period expiring at the third annual meeting of stockholders following the first annual meeting of stockholders of the Corporation at which directors of such class have been elected. For transitional purposes the directorships held by the nine directors holding office following the 1995 annual meeting shall be classified as follows: Class I Directorships - Messrs. Agan, Cole and Gibson will be considered to hold Class I Directorships. The Class I Directorships held by Messrs. Agan and Cole will expire at the Annual Meeting of Stockholders in 1996 and 1998 and at the Annual Meetings held in every third year thereafter and the Class I Directorship held by Mr. Gibson will expire at the Annual Meeting of Stockholders in 1995, 1997 and 1998 and at the Annual Meetings held in every third year thereafter. -7- Class II Directorships - Dr. Menger and Messrs. Powers and Hunter will be considered to hold Class II Directorships. The Class II Directorships held by Dr. Menger and Mr. Hunter will expire at the Annual Meeting of Stockholders in 1995, 1997 and 1999 and at the Annual Meetings held in every third year thereafter and the Class II Directorship held by Mr. Powers will expire at the Annual Meeting of Stockholders held in 1996, 1997 and 1999 and at the Annual Meetings held in every third year thereafter; and Class III Directorships - Messrs. Bennett, Flynn and Greenlee will be considered to hold Class III Directorships. The Class III Directorships held by Messrs. Bennett and Flynn will expire at the Annual Meeting of Stockholders in 1995 and 1997 and at the Annual Meetings of Stockholders held in every third year thereafter and the Class III Directorship held by Mr. Greenlee will expire at the Annual Meeting of Stockholders held in 1996 and 1997 and at the Annual Meetings held in every third year thereafter. SECTION 5. Nominations for Directors. Nominations of candidates for election as directors of the corporation at any meeting of stockholders called for the election of directors may be made by the Board of Directors or by any stockholder entitled to vote at such meeting. Nominations made by the Board of Directors shall be made at a meeting of the Board of Directors, or by written consent of directors in lieu of a meeting, not later than sixty days prior to the date of any meeting of stockholders called for the election of directors. The Secretary of the corporation shall request that each such proposed nominee provide the corporation with such information concerning himself as is required, under the rules of the Securities and Exchange Commission, to be included in the corporation's proxy statement soliciting proxies for his election as a director. Any stockholder who intends to make a nomination at any annual meeting of stockholders shall deliver to the Secretary of the corporation not later than 120 days prior to the date on which the corporation's proxy statement was mailed to stockholders in connection with the previous year's annual meeting, or if such nomination is to be made at a meeting of shareholders other than an annual meeting, a reasonable time before the mailing of the corporation's proxy material, a notice setting forth (i) the name, -8- age, business address and residence of each nominee proposed in such notice, (ii) the principal occupation or employment of each such nominee, (iii) the number of shares of capital stock of the corporation which are owned of record and beneficially by each such nominee and (iv) such other information concerning each such nominee as would be required, under the rules of the Securities and Exchange Commission, in a proxy statement soliciting proxies for the election of such nominees. Such notice shall include a signed consent of such nominee to serve as a director of the corporation, if elected. In the event that a person is validly designated as a nominee in accordance with the provisions of this section and shall thereafter become unable or unwilling to stand for election to the Board of Directors, the Board of Directors or the stockholder who proposed such nominee, as the case may be, may designate a substitute nominee. If the Secretary of the meeting of stockholders called for the election of directors determines that a nomination was not made in accordance with the foregoing procedures, such nomination shall be void. SECTION 6. Newly Created Directorships and Vacancies. Newly created directorships resulting from an increase in the number of directors and vacancies occurring in the Board of Directors for any reason may be filled by vote of a majority of the directors then in office, although less than a quorum exists. A director elected to fill, a newly created directorship or a vacancy shall be elected to hold office until the next meeting of shareholders at which the election of directors is in the regular order of business, and until his successor has been elected and qualified. SECTION 7. Removal of Directors. Any director, an entire class of directors or the entire board of directors may be removed from office, only for cause, and only by the affirmative vote of the holders of at least 75% of the outstanding shares of stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class. SECTION 8. Quorum of Directors. One-third (1/3) of the entire Board of Directors shall constitute a quorum for the transaction of business or of any specified item of business. SECTION 9. Action by the Board of Directors. The vote of the majority of the directors present at a meeting of the Board of Directors at the time of the vote, if a quorum is present at such time, shall, except as otherwise provided -9- by law, these By-Laws or the certificate of incorporation, be the act of the Board of Directors. SECTION 10. Written Consent of Directors Without a Meeting. Any action required or permitted to be taken by the Board of Directors or a committee thereof may be taken without a meeting if all members of the Board or the committee consent in writing to the adoption of a resolution authorizing the action. The resolution and the written consents thereto by the members of the Board or committee shall be filed with the minutes of the proceedings of the Board or committee. SECTION 11. Place and Time of Meetings of Board of Directors. Meetings of the Board of Directors, regular or special, may be held at any place, within or without the State of New York and at any time, fixed by the Board of Directors or by the person or persons calling the meeting. Such meetings may be held by means of a conference telephone or similar communications equipment allowing all persons participating in the meeting to hear each other at the same time. SECTION 12. Notice of Meetings of the Board of Directors. Regular meetings of the Board of Directors may be held without notice if the time and place of such meetings are fixed by the Board of Directors. Special meetings of the Board of Directors shall be held upon notice to the directors and may be called by the Chairman of the Board or the President, or any two directors. The notice shall be given personally including by telephone or mail, telegram, cable or other public instrumentality. If given personally or by telephone, such notice shall be given not less than 48 hours before the meeting to each director. If given by mail, cable telegram or other public instrumentality, such notice shall be given not less than five (5) days before the date of the meeting, to each director. Such notice shall be deemed given, if mailed, when deposited in the United States mail, with postage thereon prepaid, or, if telegraphed, cabled or sent by other public instrumentality, when given to the telegraph company, cable company, or other public instrumentality, directed to the director at his business address, or, if he shall have filed with the secretary of the corporation a written request that notices to him be mailed or telegraphed, cabled or sent to some other address, then directed to him at such other address. The notice need not specify the purpose of any regular or special meeting of the Board of Directors. -10- SECTION 13. Interested Directors. No contract or other transaction between the corporation and one or more of its directors, or between the corporation and any other corporation, firm, association or other entity in which one or more of its directors or officers are directors, or have a substantial financial interest, shall be either void or voidable for this reason alone or by reason alone that such director or directors are present at the meeting of the Board, or of a committee thereof, which approves such contract or transaction, or that his or their votes are counted for such purpose: (1) If the material facts as to such director's interest in such contract or transaction and as to any such common directorship, officership or financial interest are disclosed in good faith or known to the Board or committee, and the Board or committee approves such contract or transaction by a vote sufficient for such purpose without counting the vote of such interested director or, if the votes of the disinterested directors are insufficient to constitute an act of the Board as defined in Section 9 of this Article, by unanimous vote of the disinterested directors; or (2) If the material facts as to such director's interest in such contract or transaction and as to any such common directorship, officership or financial interest are disclosed in good faith or known to the shareholders entitled to vote thereon, and such contract or transaction is approved by vote of such shareholders; or (3) If the contract or transaction is affirmatively established by the party or parties thereto to be fair and reasonable as to the corporation at the time it was approved by the Board, a committee thereof, or the shareholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board or a committee thereof which approves such contract or transaction. The Board of Directors shall have authority to fix the compensation of Directors for services in any capacity. A loan shall not be made by the corporation to any director unless it is authorized by vote of the shareholders. For this purpose, the shares of the director who would be the borrower shall not be shares entitled to vote. SECTION 14. Reimbursement and Compensation of Directors. The directors may be paid their expenses of attendance at each meeting of the Board of Directors and may be paid a fixed sum -11- for attendance at each meeting of the Board of Directors or a stated salary as director. No such payment shall preclude any director from serving the corporation in any other capacity and receiving compensation therefor. Members of the executive committee or other committees may be allowed similar reimbursement and compensation for their services as such. SECTION 15. Executive Committee and Other Committees. The Board of Directors by resolution adopted by a majority of the entire board, may designate from among its members an executive committee and other committees, each consisting of three or more directors. Except as to matters listed below and except as otherwise provided by the Board of Directors, the executive committee, during the interim between meetings of the board of directors, shall possess and may exercise all of the powers of the Board of Directors in the management and direction of the business and conduct of the affairs of the corporation, and shall have power to authorize the seal of the corporation to be affixed to all papers which may be required. Each other committee shall have and may exercise such powers as shall be conferred or authorized by the resolution appointing it. No such committee shall have authority as to the following matters: (1) The submission to shareholders of any action that needs shareholders' approval; (2) The filling of vacancies in the Board of Directors or in any committee; (3) The fixing of compensation of the directors for serving on the Board of Directors or on any committee; (4) The amendment or repeal of the by-laws or the adoption of new by-laws; (5) The amendment or repeal of any resolution of the Board of Directors. Each such committee shall serve at the pleasure of the board. The Board of Directors shall have the power at any time to fill vacancies in, to change the size or membership of, and to discharge any such committee. A majority of any such committee may determine its action and may fix the time and place of its meetings, unless provided otherwise by the Board of Directors. Each such committee shall keep a written record of its acts and proceedings and shall submit such record to the Board of Directors at each regular meeting -12- thereof and at such other times as requested by the Board of Directors. Failure to submit such record, or failure of the Board to approve any action indicated therein will not, however, invalidate such action to the extent it has been carried out by the Corporation prior to the time the record of such action was, or should have been, submitted to the Board of Directors as herein provided. ARTICLE IV Officers. SECTION 1. Officers. The Board of Directors may elect from its members a Chairman of the Board and shall elect a President, a Chairman of the Executive Committee, one or more Executive Vice Presidents, one or more Senior Vice Presidents and Vice Presidents, a Secretary, a Treasurer and a Controller. The Board of Directors may also at any time elect one or more Assistant Secretaries and/or Assistant Treasurers. Any two or more offices may be combined and conferred upon one person except the offices of President and Secretary. The Board of Directors shall appoint either the Chairman of the Board, if any, or the President, the Chief Executive Officer of the Corporation ("the CEO"), who, subject to the control of the Board of Directors, shall direct and control all the business and affairs of the Corporation. The Board of Directors may appoint an Executive Vice President or a Senior Vice President as the Chief Operating Officer of the Corporation ("the COO") who shall be subject to the control of, and perform such duties as may be assigned by, the Chairman of the Board, the President or the Board of Directors. The Board of Directors may appoint an Executive Vice President or a Senior Vice President as the Chief Financial Officer of the Corporation ("the CFO") who shall be responsible for all the fiscal affairs of the Corporation and who shall be subject to the control of, and perform such duties as may be assigned by, the Chairman of the Board, the President or the Board of Directors. SECTION 2. Election and Term of Office. The officers of the Corporation shall be elected by a majority vote of the entire Board of Directors at its first meeting held after the annual meeting of the stockholders. In the event of the failure of the Board to elect such officers at such meeting or in the event of a vacancy then such election may be made at any subsequent regular or special meeting of the Board. The President, the Chairman of the Board and the Chairman of the Executive Committee shall be, but the other officers need not be, directors of the Corporation. All officers shall serve under the direction -13- of and at the pleasure of the Board of Directors. Any vacancy occurring in any office may be filled by the Board of Directors. SECTION 3. Powers and Duties of Officers. (a) Chairman of the Board of Directors. The Chairman of the Board of Directors shall preside at all meetings of the stockholders and at all meetings of the Board of Directors, and shall perform such other duties as may be assigned to him from time to time by the Board. (b) Chairman of the Executive Committee. The Chairman of the Executive Committee shall preside at all meetings of the Executive Committee, and in the absence of the Chairman of the Board of Directors and the President shall preside at all meetings of stockholders and at all meetings of the Board of Directors. He shall have such other and further powers and shall perform such other and further duties as may be assigned to him by the Board of Directors. (c) President. The President shall perform the duties of the Chairman of the Board of Directors in his absence or during his inability to act. Any action taken by the President in the performance of the duties of the Chairman of the Board of Directors shall be conclusive evidence of the absence or inability to act of the Chairman of the Board of Directors at the time such action was taken. He shall also have such other and further powers and shall perform such other and further duties as may be assigned to him by the Board of Directors. (d) Executive Vice Presidents, Senior Vice Presidents and Vice Presidents. Executive Vice Presidents, Senior Vice Presidents and Vice Presidents shall perform such duties as may be assigned to them by the Chairman of the Board of Directors or by the President or by the Board of Directors. The Board of Directors may designate any one or more of said Executive Vice Presidents or Senior Vice Presidents as the Chief Operating Officer or the Chief Financial Officer. (e) Treasurer. The Treasurer shall have the care and custody of the corporate funds and securities. He shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors. He shall disburse the funds of the Corporation in the manner ordered by the Board. He shall upon request render an account of all his transactions as Treasurer to the Board of Directors. He shall, at all reasonable hours, exhibit his books and accounts to any director upon application. He or an Assistant Treasurer or such other officers, directors or agents as may be designated by the Board of Directors shall endorse checks, notes or drafts payable to the order of the corporation and sign and -14- countersign checks, drafts, and orders for the payment or withdrawal of moneys or securities on deposit in the corporate accounts in such manner as the Board may direct. He shall perform such other duties as shall be assigned to him by the Board of Directors or by the Chairman of the Board of Directors or by the President. (f) Secretary. The Secretary shall keep the minutes of all meetings of the Board of Directors, and the stockholders, unless another person be appointed for that purpose by the stockholders, and also, unless another person be appointed for that purpose by the Executive Committee, the minutes of the Executive Committee, in books provided for that purpose. He shall give or cause to be given all notices required by these by-laws or by resolution of the Board of Directors. He shall have charge of the stock certificate books, stock transfer books and stock ledgers, all of which shall at all reasonable hours be open to the examination of any director; he shall have custody of the seal of the Corporation; and he shall in general perform all the duties usually incident to the office of Secretary, subject to the control of the Board of Directors. The Secretary or an Assistant Secretary shall also certify all resolutions and proceedings of the stockholders, directors and Executive Committee. (g) Controller. The Controller shall be the chief accounting officer of the corporation, and shall be responsible for and have active control of all matters pertaining to the accounts of the corporation. He shall audit all payrolls and vouchers and shall direct the manner of certifying the same; shall supervise the manner of keeping all vouchers for payments and all other documents relating to such payments; shall receive and audit all operating and financial statements of the corporation and its subsidiaries; shall have the care, custody and supervision of the books of account of the corporation, their arrangement and classification and shall supervise the accounting and auditing practices of the corporation. He shall, at all reasonable hours, exhibit his books and accounts to any director upon application. He shall, upon request, render an account of the financial condition of the corporation to the Board of Directors. He shall perform such other duties as shall be assigned to him by the Board of Directors or by the Chairman of the Board of Directors or the President. (h) Assistant Officers. The Assistant Secretary or Secretaries and the Assistant Treasurer or Treasurers shall perform the duties of the Secretary and of the Treasurer, respectively, in the absence of those officers and shall have such further powers and perform such other duties as may be assigned to them respectively by the Board of Directors. (i) Removal. Any officer (other than a director) may be removed, either with or without cause, by a vote of a majority of -15- the whole Board of Directors at a special meeting of the Board called for that purpose, or by any committee or superior officer upon whom such power of removal may be conferred by the Board of Directors. (j) Bond. Any officer of the Corporation shall give a bond for the faithful discharge of his duties, in such sum, when and as shall be required by the Board of Directors. (k) Compensation. The compensation of the officers shall be fixed from time to time by the Board of Directors and no officer shall be prevented from receiving such compensation by reason of the fact that he is also a director of the corporation. SECTION 4. The Chairman of the Board, President, Secretary, or any other officer designated by the Board of Directors, is hereby empowered to endorse or execute and deliver any instrument of transfer of any certificate for shares of stock, or bond, or other security owned by or standing in the name of the Corporation. ARTICLE V Contracts, Checks and Deposits. SECTION 1. Contracts. The Board of Directors may authorize any officer or officers, agent or agents, to enter into any contract or execute and deliver any instrument in the name of and on behalf of the corporation and such authority may be general or confined to specific instances. SECTION 2. Checks, Drafts, etc. All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the corporation, shall be signed by such officer or officers, agent or agents of the corporation and in such manner as shall from time to time be determined by resolution of the Board of Directors. SECTION 3. Deposits. All funds of the corporation not otherwise employed shall be deposited from time to time to the credit of the corporation in such banks, trust companies or other depositaries as the Board of Directors may select. -16- ARTICLE VI Certificates Representing Shares, Record of Shareholders, Transfer of Shares. SECTION 1. Issuance of Shares. No shares of any class of the corporation or any obligations or other securities convertible into or carrying options to purchase any such shares of the corporation, or any options or rights to purchase any such shares or securities of the corporation, shall be issued or sold unless such issuance or sale is approved by the affirmative vote of at least a majority of the entire Board of Directors. SECTION 2. Certificates Representing Shares. The shares of the corporation shall be represented by certificates which shall be in such form as shall be determined by the Board of Directors. All such certificates shall be consecutively numbered or otherwise identified. Such certificates shall be signed by the Chairman of the Board or the President or a Vice-President and the Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer, and may, but need not, be sealed with the seal of the corporation or a facsimile thereof. The signature of the officers upon the certificate may be facsimiles if the certificate is countersigned by a transfer agent or an assistant transfer agent, or registered by a registrar other than the corporation itself or its employee. In case any officer who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer at the date of issue. Each certificate shall state upon the face thereof; (1) that the corporation is formed under the laws of New York; (2) the name of the person or persons to whom issued; (3) the number and class of shares and the par value of each share represented by such certificate. SECTION 3. Lost, Destroyed or Wrongfully Taken Certificates. The Board of Directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the corporation, alleged to have been lost, apparently destroyed or wrongfully taken upon the making of an affidavit of that fact by the person claiming the certificate to be lost, apparently destroyed or wrongfully taken. When authorizing such issue of a new certificate or certificates, the Board of Directors, may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, apparently destroyed or wrongfully taken certificate or -17- certificates, or his legal representative to advertise the same in such manner as it shall require and/or give the corporation a bond in such sum and with such surety or sureties as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost, apparently destroyed or wrongfully taken. SECTION 4. Record of Shareholders. The corporation shall keep at its principal office, or at the office of its transfer agent in the State of New York, a record containing the names and addresses of all shareholders, the number and class of shares held by each and the dates when they respectively became the owners of record thereof. The corporation shall be protected in treating the persons in whose names shares stand on the record of shareholders as the owners thereof for all purposes. SECTION 5. Transfer of Shares. Upon surrender to the corporation or the transfer agent of the corporation of a certificate representing shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, and cancel the old certificate. Every such transfer of shares shall be entered on the record of shareholders of the corporation. ARTICLE VII Fiscal Year. The fiscal year of the corporation shall be the calendar year. ARTICLE VIII Dividends. The Board of Directors may from time to time declare, and the corporation may pay, dividends on its outstanding shares in the manner and upon the terms and conditions provided by law and its certificate of incorporation. -18- ARTICLE IX Seal. The seal of the corporation shall be circular in form and contain the name of the corporation, the year when it was formed, and the words "New York". The corporation may use the seal causing it or a facsimile to be affixed or impressed or reproduced in any other manner. ARTICLE X Waiver of Notice. SECTION 1. Waiver of Notice to Shareholders. Notice of meeting need not be given to any shareholder who signed a waiver of notice, in person or by proxy, whether before or after the meeting. The attendance of any shareholder at a meeting, in person or by proxy, without protesting prior to the conclusion of the meeting the lack of notice of such meeting, shall constitute a waiver of notice by him. SECTION 2. Waiver of Notice to Director. Notice of meeting need not be given to any director who signs a waiver of notice whether before or after the meeting, or who attends the meeting without protesting, prior thereto or at its commencement, the lack of notice to him. A waiver of notice need not specify the purpose of any regular or special meeting of the Board of Directors. SECTION 3. Notice Dispensed with When Delivery Prohibited. Whenever communication to any shareholder or any director is unlawful under any statute of the State of New York or of the United States or any regulation, proclamation or order issued under said statutes, the giving of any notice to such shareholder or such director shall not be required and there shall be no duty to apply for license or other permission to so do. ARTICLE XI Indemnification. To the fullest extent permitted by law, either directly or by the purchase of insurance or in part directly and in part by the purchase of insurance, the corporation shall indemnify each natural person, or if deceased, his personal representative made or -19- threatened to be made a party to any action or proceeding civil or criminal, including an appeal therein against the reasonable expenses, attorneys' fees, judgments, fines and amounts paid in settlement if such person is made or threatened to be made a party by reason of the fact that he or his testator or intestate is or was: (1) an officer, director or employee of the corporation or (2) an officer, director or employee of or served in any capacity in any other corporation, partnership, joint venture, trust or other enterprise, at the request of this corporation, provided that in the case of a person serving as an employee or in any other capacity in any other corporation, partnership, joint venture, trust or other enterprises, that such person was at the time he was so designated to serve by this corporation, an employee of this corporation, or (3) the occupant of a position or a member of a committee or board or a person having responsibilities under federal or state law, including but not limited to responsibilities under the Employee Retirement Income Security Act of 1974, who was appointed to such position or to such committee or board by the Board of this corporation or by an officer of this corporation or who served in such position or on such committee or board at the request or direction of the Board of this corporation or of an officer of this corporation or who assumed such responsibilities at the request or direction of the Board of this corporation or of any officer of this corporation, provided only that such person acted in good faith for a purpose which he reasonably believed would be in the best interest of the corporation or in the case of service for any other corporation or any partnership, joint venture, trust, employee benefit plan or other enterprise, not opposed to the best interests of the corporation, and in criminal proceedings had no reasonable cause to believe that his conduct was unlawful. The corporation's obligations under this Article shall be reduced by the amount of any insurance which is available to any such person whether such insurance is purchased by the corporation or otherwise. The right of indemnity created herein shall be personal to the officer, director, employee or other person and their respective legal representatives and in no case shall any insurance carrier be entitled to be subrogated to any rights created herein. Nothing contained herein shall obligate the corporation to indemnify any person against any claim arising out of personal injuries, bodily injuries or property damage. -20- ARTICLE XII Employee Benefits. The Board may from time to time make such provision for the establishment, funding, and carrying out of pension, profit sharing, share bonus, share purchase, share option, savings, thrift and other retirement, incentive and benefit plans, trusts and provisions for any and all of its employees and officers, as in its discretion the Board may deem advisable and the Board may from time to time adopt and carry out any such plan or plans of providing such benefits or modify, discontinue or terminate any such plan as may then be in force. If any such benefit plan entitles members of the Board to participate as employees of the company, every member of the Board shall be entitled to vote upon any matter relating to the adoption, administration, carrying out, modification, discontinuance or termination of any such plan. The Board shall have power to appropriate funds including cash, stock, and other property of the company to defray, in whole or in part, the cost of providing any such benefits which may be based upon services rendered by employees prior to the date of establishment or modification of such plan and upon services to be rendered thereafter prior to the retirement or other payment date provided therein and may obligate the company to make payments toward defraying any such expenses over a period of years, subject always to the power of the Board in its discretion to modify, discontinue and terminate any such benefit plan to the extent then permitted in existing tax or other laws. The Board shall have full power in its discretion to provide for the administration of any such benefit plan and the investment and reinvestment of funds therein by an insurance company, trustees (who may be directors, officers or employees of the company), or other agency under such terms and conditions as the Board may deem advisable or to provide for the administration of such plan and the investment and reinvestment of the funds therein by the company. The Board shall have full power in its discretion to delegate to such committees, individuals (who may be directors, officers or employees of the company) or independent consultants such part of the carrying out of any such plan as in its discretion it may deem advisable. ARTICLE XIII Amendment and Repeal. SECTION 1. Amendment and Repeal by the Shareholders. These By-Laws may be amended or repealed by the affirmative vote of holders of at least 75% of the outstanding shares of stock of the Corporation entitled to vote generally in -21- the election of directors, provided that the notice of meeting states such purpose. SECTION 2. Amendment and Repeal by the Board of Directors. These By-Laws may also be amended or repealed by the affirmative vote of at least 75% of the entire Board of Directors. EX-10.1 3 EXHIBIT 10.1 CREDIT AGREEMENT among HARDINGE INC. (the "Borrower") the Banks signatory hereto and THE CHASE MANHATTAN BANK (NATIONAL ASSOCIATION) as Agent - ------------------------------------------------------------------------------ Dated as of February 28, 1996 - ------------------------------------------------------------------------------ Table of Contents
TITLE PAGE ARTICLE 1 DEFINITIONS; ACCOUNTING TERMS.................................................................. 1 Section 1.01 Definitions........................................................................... 1 Section 1.02 Accounting Terms...................................................................... 8 ARTICLE 2 THE CREDIT..................................................................................... 8 Section 2.01 The Loans............................................................................. 8 Section 2.02 The Notes............................................................................. 8 Section 2.03 Purpose............................................................................... 9 Section 2.04 Borrowing Procedures.................................................................. 9 Section 2.05 Prepayments........................................................................... 9 Section 2.06 Interest Periods...................................................................... 9 Section 2.07 Interest.............................................................................. 9 Section 2.08 Certain Notices.......................................................................10 Section 2.09 Payments Generally....................................................................10 ARTICLE 3 YIELD PROTECTION; ILLEGALITY; ETC..............................................................10 Section 3.01 Additional Costs......................................................................10 Section 3.02 Limitation on Types of Loans..........................................................12 Section 3.03 Illegality............................................................................12 Section 3.04 Certain Variable Rate Loans pursuant to Sections 3.01 and 3.03................................................................12 Section 3.05 Certain Compensation..................................................................12 ARTICLE 4 CONDITIONS PRECEDENT...........................................................................13 Section 4.01 Documentary Conditions Precedent......................................................13 Section 4.02 Additional Conditions Precedent.......................................................14 ARTICLE 5 REPRESENTATIONS AND WARRANTIES.................................................................14 Section 5.01 Incorporation, Good Standing and Due Qualification....................................14 Section 5.02 Corporate Power and Authority; No Conflicts...........................................14 Section 5.03 Government Approval ..................................................................14 Section 5.04 Legally Enforceable Agreements........................................................14 Section 5.05 Financial Statements..................................................................15 Section 5.06 Litigation ...........................................................................15 Section 5.07 Margin Stock..........................................................................15 Section 5.08 Use of Loan Proceeds..................................................................15 i Section 5.09 Tax Returns ..........................................................................15 Section 5.10 ERISA ................................................................................15 Section 5.11 Subsidiaries .........................................................................15 Section 5.12 Ownership and Liens...................................................................15 Section 5.13 Hazardous Materials...................................................................16 Section 5.14 No Defaults on Other Agreements.......................................................16 Section 5.15 Partnerships..........................................................................16 Section 5.16 No Forfeiture.........................................................................16 Section 5.17 Solvency..............................................................................17 ARTICLE 6 AFFIRMATIVE COVENANTS..........................................................................17 Section 6.01 Compliance with Laws, Corporate Existence.............................................17 Section 6.02 Reporting Requirements................................................................18 Section 6.03 Notice of Proceedings ................................................................19 Section 6.04 Insurance ............................................................................19 Section 6.05 Environmental Laws ...................................................................19 Section 6.06 Access to Premises and Records........................................................19 Section 6.07 Notice of Default.....................................................................19 Section 6.08 Subsidiaries..........................................................................20 Section 6.09 Material Adverse Changes .............................................................20 ARTICLE 7 NEGATIVE COVENANTS.............................................................................20 Section 7.01 Liens, Etc............................................................................20 Section 7.02 Lease Obligations.....................................................................21 Section 7.03 Prohibited Transactions...............................................................21 Section 7.04 Margin Stock..........................................................................22 Section 7.05 Consolidations, Mergers, Acquisitions and Sales of Assets.............................22 Section 7.06 Affiliate Transactions................................................................22 Section 7.07 Loans and Advances ...................................................................22 Section 7.08 Guaranties ...........................................................................23 Section 7.09 No Activities Leading to Forfeiture...................................................23 ARTICLE 8 FINANCIAL COVENANTS............................................................................23 Section 8.01 Working Capital.......................................................................23 Section 8.02 Net Worth.............................................................................23 Section 8.03 Debt .................................................................................24 Section 8.04 Cash Flow.............................................................................24 Section 8.05 Total Liabilities to Tangible Net Worth...............................................24 ii ARTICLE 9 EVENTS OF DEFAULT..............................................................................24 Section 9.01 Events of Default.....................................................................24 Section 9.02 Remedies..............................................................................25 ARTICLE 10 THE AGENT; RELATIONS AMONG BANKS, ETC..........................................................26 Section 10.01 Appointment, Powers and Immunities of Agent...........................................26 Section 10.02 Reliance by Agent.....................................................................26 Section 10.03 Defaults..............................................................................27 Section 10.04 Rights of Agent as a Bank.............................................................27 Section 10.05 Indemnification of Agent..............................................................27 Section 10.06 Documents.............................................................................28 Section 10.07 Non-Reliance on Agent and Other Banks.................................................28 Section 10.08 Failure of Agent to Act...............................................................28 Section 10.09 Resignation or Removal of Agent.......................................................28 Section 10.10 Amendments Concerning Agency Function.................................................29 Section 10.11 Liability of Agent....................................................................29 Section 10.12 Transfer of Agency Function...........................................................29 Section 10.13 Non-Receipt of Funds by the Agent.....................................................29 Section 10.14 Taxes.................................................................................30 Section 10.15 Several Obligations and Rights of Banks...............................................30 Section 10.16 Pro Rata Treatment of Loans, Etc......................................................30 Section 10.17 Sharing of Payments Among Banks.......................................................30 ARTICLE 11 MISCELLANEOUS..................................................................................31 Section 11.01 Amendments and waivers................................................................31 Section 11.02 Usury.................................................................................31 Section 11.03 Expenses and Indemnification..........................................................31 Section 11.04 Survival..............................................................................32 Section 11.05 Assignment; Participations............................................................32 Section 11.06 Notices...............................................................................33 Section 11.07 Setoff................................................................................33 Section 11.08 Jurisdiction; Immunities..............................................................33 Section 11.09 Table of Contents; Headings...........................................................34 Section 11.10 Severability..........................................................................34 Section 11.11 Counterparts..........................................................................35 Section 11.12 Integration...........................................................................35 Section 11.13 Governing Law; Submission to Jurisdiction.............................................35 Section 11.14 Confidentiality.......................................................................35 Section 11.15 Treatment of Certain Information......................................................35 Section 11.16 Currency..............................................................................35 iii EXHIBITS Exhibit A Form of Note Exhibit B Authorization Letter Exhibit C Opinion of Counsel for Borrower Exhibit D Confidentiality Agreement SCHEDULES Schedule I Subsidiaries of Borrower Schedule II Hazardous Materials Schedule III Partnerships of Borrower
iv CREDIT AGREEMENT CREDIT AGREEMENT dated as of February 28, 1996 among HARDINGE INC., a corporation organized under the laws of New York (the "Borrower"), each of the banks which is a signatory hereto (individually a "Bank" and collectively the "Banks") and THE CHASE MANHATTAN BANK (NATIONAL ASSOCIATION), a national banking association organized under the laws of the United States of America, as agent for the Banks (in such capacity, together with its successors in such capacity, the "Agent"). The Borrower desires that the Banks extend credit as provided herein and the Banks are prepared to extend such credit. Accordingly, the Borrower, the Banks and the Agent agree as follows: ARTICLE 1. DEFINITIONS; ACCOUNTING TERMS. Section 1.01. Definitions. As used in this Agreement the following terms have the following meanings (terms defined in the singular to have a correlative meaning when used in the plural and vice versa): "Affiliate" means any Person: (a) which directly or indirectly controls, or is controlled by, or is under common control with, the Borrower or any of its Subsidiaries; (b) which directly or indirectly beneficially owns or holds 5% or more of any class of voting stock of the Borrower or any such Subsidiary; (c) 5% or more of the voting stock of which is directly or indirectly beneficially owned or held by the Borrower or such Subsidiary; or (d) which is a partnership in which the Borrower or any of its Subsidiaries is a general partner. The term "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract, or otherwise. "Agent's Account" means account number 900-9-000002 maintained by the Agent at the Principal Office and any other account designated by the Agent. "Agreement" means this Credit Agreement, as amended or supplemented from time to time. References to Articles, Sections, Exhibits, schedules and the like refer to the Articles, Sections, Exhibits, schedules and the like of this Agreement unless otherwise indicated. "Authorization Letter" means the letter agreement executed by the Borrower in the form of Exhibit B. "Banking Day" means (a) any day on which commercial banks are not authorized or required to close in New York City, and (b) whenever such day relates to a Eurodollar Loan or notice with respect to any Eurodollar Loan, a day on which dealings in Dollar deposits are also carried out in the London interbank market. "Basis Point" means one one-hundredth of one percent. 1 "Capital Lease" means any lease which has been or should be capitalized on the books of the lessee in accordance with GAAP. "Code" means the Internal Revenue Code of 1986, as amended from time to time. "Commitment" means, with respect to each Bank, the obligation of such Bank to make a Loan under this Agreement in the aggregate principal amount following, as such amount may be modified from time to time: The Chase Manhattan Bank (National Association): $6,656,250.00 Chemical Bank 6,656,250.00 Marine Midland Bank 4,437,500.00 -------------- Total: $17,750,000.00 ============== "Consolidated Assets" means all assets of Borrower and its Consolidated Subsidiaries treated as assets in accordance with GAAP. "Consolidated Capital Expenditures" means for any period, the Dollar amount of gross expenditures (including obligations under Capital Leases) made for fixed assets, real property, plant and equipment, and all renewals, improvements and replacements thereto, (but not repairs thereof) incurred during such period for the Borrower and its Consolidated Subsidiaries, as determined on a consolidated basis in accordance with GAAP. "Consolidated Current Assets" means all assets of the Borrower and its Consolidated Subsidiaries, treated as current assets in accordance with GAAP. "Consolidated Current Liabilities" means all liabilities of the Borrower and its Consolidated Subsidiaries, treated as current liabilities in accordance with GAAP, including without limitation (a) all obligations payable on demand or within one (1) year after the date in which the determination is made, and (b) installment and sinking fund payments required to be made within one (1) year after the date on which determination is made, but excluding any such indebtedness renewable or extendable at the option of the obligor under, or payable from the proceeds of other indebtedness which may be incurred pursuant to the provisions of any revolving credit agreements or other similar agreement. "Consolidated Net Income" means for any period the net income of the Borrower and its Consolidated Subsidiaries for such period determined on a consolidated basis without duplication, in accordance with GAAP. "Consolidated Subsidiary" means any Subsidiary whose accounts are or are required to be consolidated with the accounts of the Borrower in accordance with GAAP. "Consolidated Tangible Net Worth" means Tangible Net Worth of the Borrower and its Consolidated Subsidiaries, as determined on a consolidated basis in accordance with GAAP. 2 "Consolidated Total Unsubordinated Liabilities" means all items on a consolidated basis, in accordance with GAAP consistently applied, which would properly be included (a) on the liability side of the balance sheet (other than Subordinated Debt, capital stock, capital surplus and retained earnings), or (b) as obligations under direct or indirect guarantees or obligations (contingent or otherwise) to purchase or otherwise acquire, or otherwise assure a creditor against loss in respect of, indebtedness or obligations of others; provided, however, excluded therefrom shall be all but 10% of the obligations resulting from the sale, pledge or discount of customer notes by Borrower and its Subsidiaries. "Controlled Group" shall have the meaning assigned to such term in Section 6.02(e) hereof. "Debt" means, with respect to any Person: (a) indebtedness of such Person for borrowed money; (b) obligations of such Person as lessee under Capital Leases, (c) obligations under direct or indirect guarantees in respect of, and obligations (contingent or otherwise) to purchase or otherwise acquire, or otherwise to assure a creditor against loss in respect of, indebtedness or obligations of others of the kinds referred to in clause (a) and (b) above, (not otherwise reserved for) and (d) defined benefit pension liabilities in respect of unfunded vested benefits under plans covered by ERISA calculated consistently with GAAP. Excluded from the term Debt shall be an amount equal to 90% of the obligations of the Borrower and its Subsidiaries arising from the sale, pledge, or discounting of customer notes. "Default" means any event which with the giving of notice or lapse of time, or both, would become an Event of Default. "Default Rate" means, with respect to the principal of any Loan and, to the extent permitted by law, any other amount payable by the Borrower under this Agreement or any Note that is not paid when due (whether at stated maturity, by acceleration or otherwise), a rate per annum during the period from and including the due date, to, but excluding the date on which such amount is paid in full equal to 2% above the Variable Rate as in effect from time to time plus the Margin (if any) (provided that, if the amount so in default is principal of a Eurodollar Loan and the due date thereof is a day other than the last day of the Interest period therefor, the "Default Rate" for such principal shall be, for the period from and including the due date and to but excluding the last day of the Interest period therefor, 2% above the interest rate for such Loan as provided in section 2.10 hereof and, thereafter, the rate provided for above in this definition). "Dollars" and the sign "$" mean lawful money of the United States of America. "Domestic Subsidiaries" means any Subsidiary formed and currently existing under the laws of the United States of America or a State thereof. "Earnings Before Interest and Taxes" means Consolidated Net Income prior to the deduction of interest expense and prior to the deduction for federal, state or foreign corporate income and corporate franchise taxes. 3 "Effective Date" means February 29, 1996 or, if later, the date on which the conditions contained in Article IV have been satisfied. "Environmental Laws" means any and all federal, state, local and foreign statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants, franchises, licenses, agreements or other governmental restrictions relating to the environment or to emissions, discharges, releases or threatened releases of pollutants, contaminants, chemicals, or industrial, toxic or hazardous substances or wastes into the environment including, without limitation, ambient air, surface water, ground water, or land, or otherwise relating to the manufacture, processing distribution, use, treatment, storage, disposal, transport, or handling-of pollutants, contaminants, chemicals, or industrial, toxic or hazardous substances or wastes. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, including any rules and regulations promulgated thereunder. "Eurodollar Loan" means any Loan when and to the extent the interest rate therefor is determined on the basis of the definition "LIBO Base Rate." "Event of Default" has the meaning given such term in Section 9.01. "Facility Documents" means this Agreement, the Notes and the Authorization Letter. "Federal Funds Rate" means, for any day, the rate per annum equal to the weighted average of the rates on overnight federal funds transactions as published by the Federal Reserve Bank of New York for such day (or for any day that is not a Banking Day, for the immediately preceding Banking Day). "Forfeiture Proceeding" means any action, proceeding or investigation affecting the Borrower or any of its Subsidiaries or Affiliates before any court, governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, or the receipt of notice by any such party that any of them is a suspect in or a target of any governmental inquiry or investigation, which may result in an indictment of any of them or the seizure or forfeiture of any of their property. "Funded Debt" means, with respect to any Person, all Debt of such Person for borrowed money. "GAAP" means generally accepted accounting principles in the United States of America as in effect from time to time, applied on a basis consistent with those used in the preparation of the financial statements referred to in Section 5.05 (except for changes concurred in by the Borrower's independent public accountants). "Hazardous Materials" means any substance regulated under any Environmental Laws. 4 "Interest Period" means the period initially commencing on the Effective Date and ending on May 29, 1996 and thereafter commencing on the last day of each Interest Period and ending, as the Borrower may select pursuant to Section 2.06 on the twenty-ninth (29th) day in the first, second, third or sixth calendar month thereafter, provided that each such Interest Period which commences on the last Banking Day of a calendar month (or on any day for which there is no numerically corresponding day in the appropriate subsequent calendar month) shall end on the last Banking Day of the appropriate subsequent calendar month. "Lending Office" means, for each Bank and for each type of Loan, the lending office of such Bank (or of an affiliate of such Bank) designated as such for such type of Loan on its signature page hereof or such other office of such Bank (or of an affiliate of such Bank) as such Bank may from time to time specify to the Agent and the Borrower as the office by which its Loans of such type are to be made and maintained. "Liens" shall have the meaning assigned to such term in Section 7.01 hereof. "LIBO Base Rate" means with respect to any Eurodollar Loan the arithmetic mean, as calculated by the Agent, of the respective rates per annum (rounded upwards, if necessary, to the nearest 1/16 of 1%) quoted at approximately 11:00 a.m. London time by the principal London branch of the Principal Reference Bank two Banking Days prior to the first day of the Interest Period for such Loan for the offering to leading banks in the London interbank market of Dollar deposits in immediately available funds, for a period, and in an amount, comparable to such Interest Period and principal amount of the Eurodollar Loan. If the Principal Reference Bank is no longer quoting on the London interbank market, the LIBO Base Rate shall be determined by the Agent on the basis of quotes from a Reference Bank (other than the Agent) selected by the Agent. "LIBO Rate" means, for any Eurodollar Loan, a rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) determined by the Agent to be equal to the sum of the quotient of (a) the LIBO Base Rate for such Loan for the Interest Period therefor, divided by (b) one minus the Reserve Requirement for such Loan for such Interest Period. "Loans" means the loans made by the Banks pursuant to Section 2.01 (each a "Loan). "Margin" means for each Variable Rate Loan and Eurodollar Loan the lowest applicable margin on the table next following, computed as of the date this Agreement based upon Borrower's financial statements for the immediately preceding four fiscal quarters for income statement items and the most recent fiscal quarter for balance sheet items, and adjusted thereafter on the first day of each Interest Period based on information for the immediately preceding four fiscal quarters for income statement items and the immediately preceding fiscal quarter for balance sheet items. 5
============================================================================================================================ (a) Ratio of Funded Debt to Earnings Variable Rate Loans Eurodollar Loans Before Interest & Taxes - ---------------------------------------------------------------------------------------------------------------------------- Equal to less than 1.0 0 Basis Points 45 Basis Points - ---------------------------------------------------------------------------------------------------------------------------- Greater than 1.0 and less than or equal 0 Basis Points 65 Basis Points to 2.0 - ---------------------------------------------------------------------------------------------------------------------------- Greater than 2.0 and less than or equal 0 Basis Points 85 Basis Points to 3.0 - ---------------------------------------------------------------------------------------------------------------------------- Greater than 3.0 0 Basis Points 100 Basis Points ============================================================================================================================
"Multiemployer Plan" means a Plan defined as such in Section 3(37) of ERISA to which contributions have been made by the Borrower or any ERISA Affiliate and which is covered by Title IV of ERISA. "Maturity Date" means February 28, 2003. "Net Worth" means, at any date of determination thereof, the sum for the Borrower and its Subsidiaries (determined on a consolidated basis without duplication in accordance with GAAP) of (a) the amount of common stock; plus (b) the amount of any preferred stock that does not have any requirement for the Borrower to purchase, redeem, retire or otherwise acquire the same; plus (c) the amount of additional paid-in-capital and retained earnings (or, in the case of an additional paid-in-capital or retained earnings deficit, minus the amount of such deficit); plus (d) cumulative pension liability adjustments (or, in the case of negative adjustments, minus the amount of such adjustments); plus (e) cumulative foreign currency translation adjustments (or, in the case of negative adjustments, minus the amount of such adjustments); plus (f) any other items which under GAAP are included in shareholders equity (or, in the case of items excluded from shareholders equity, minus such items); and minus (g) the cost of treasury stock. "Note" means the Note of the Borrower in the form of Exhibit A hereto evidencing the Loans made by the Banks hereunder. "PBGC" means the Pension Benefit Guaranty Corporation and any entity succeeding to any or all of its functions under ERISA. "Person" means an individual, partnership, corporation, limited liability company, business trust, joint stock company, trust, unincorporated association, joint venture, governmental authority or other entity of whatever nature. "Plan" shall have the meaning assigned to such term in Section 6.02 (e) hereof. "Prime Rate" means that rate of interest from time to time announced by the Principal Reference Bank at its principal office as its prime commercial lending rate. 6 "Principal Office" means the principal office of the Agent, presently located at 1 Chase Manhattan Plaza, New York, New York 10081. "Principal Reference Bank" means The Chase Manhattan Bank (National Association), its successors and assigns. "Quarterly Dates" shall mean the twenty-eighth (28th) day of February, May, August, and November in each year, the first of which shall be the first such day after the date of this Agreement. "Reference Banks" means The Chase Manhattan Bank (National Association), Chemical Bank and Marine Midland Bank. "Regulation D" means Regulation D of the Board of Governors of the Federal Reserve System as the same may be amended or supplemented from time to time. "Regulation U" means Regulation U of the Board of Governors of the Federal Reserve System as the same may be amended or supplemented from time to time. "Regulatory Change" means, with respect to any Bank, any change after the date of this Agreement in United States federal, state, municipal or foreign laws or regulations (including without limitation Regulation D) or the adoption or making after such date of any interpretations, directives or requests applying to a class of banks including such Bank of or under any United States, federal, state, municipal or foreign laws or regulations (whether or not having the force of law) by any court or governmental or monetary authority charged with the interpretation or administration thereof. "Required Banks" means, at any time while no Loans are outstanding, Banks having at least 75% of the aggregate amount of the Commitment and, at any time while Loans are outstanding, Banks holding at least 75% of the aggregate outstanding principal amount of the Loans. "Reserve Requirement" means, for any Interest Period for any Eurodollar Loan, the average maximum rate at which reserves (including any marginal, supplemental or emergency reserves) are required to be maintained during the Interest Period for such Loan under Regulation D by member banks of the Federal Reserve System in New York City with deposits exceeding $1,000,000,000.00 against in the case of Eurodollar Loans, "Eurocurrency liabilities" (as such term is used in Regulation D). Without limiting the effect of the foregoing, the Reserve Requirement shall also reflect any other reserves required to be maintained by such member banks by reason of any Regulatory Change against (i) any category of liabilities which includes deposits by reference to which the LIBO Base Rate for Eurodollar Loans is to be determined as provided in the definition of "LIBO Base Rate" in this Section 1.01 or (ii) any category of extensions of credit or other assets which include Eurodollar Loans. 7 "Subordinated Debt" means Debt subordinated to the Banks on terms and conditions satisfactory to the Banks. "Subsidiary" means, with respect to any Person, any corporation or other entity of which at least a majority of the securities or other ownership interests having ordinary voting power (absolutely or contingently) for the election of directors or other persons performing similar functions are at the time owned directly or indirectly by such Person. "Tangible Net Worth" shall have the meaning assigned to such term in Section 8.02 hereof. "Unfunded Benefit Liabilities" means, with respect to any Plan, the amount (if any) by which the present value of all benefit liabilities (within the meaning of section 4001(a)(16) of ERISA) under the Plan exceeds the fair market value of all Plan assets allocable to such benefit liabilities, as determined on the most recent valuation date of the Plan and in accordance with the provisions of ERISA for calculating the potential liability of the Borrower or any ERISA Affiliate under Title IV of ERISA. "Variable Rate" means, for any day, the higher of (a) the Federal Funds Rate for such day plus fifty (50) Basis Points, and (b) the Prime Rate for such day. "Variable Rate Loan" means any Loan when and to the extent the interest rate for such Loan is determined in relation to the Variable Rate. Section 1.02. Accounting Terms. All accounting terms not specifically defined herein shall be construed in accordance with GAAP, and all financial data required to be delivered hereunder shall be prepared in accordance with GAAP. ARTICLE 2. THE CREDIT. Section 2.01. The Loans. (a) Subject to the terms and conditions of this Agreement, each of the Banks severally agree to make a Loan to the Borrower in the amount of its Commitment on the Effective Date. The Loans may be outstanding as Variable Rate Loans or Eurodollar Loans (each a "type" of Loan). The Loan of each Bank shall be maintained as a Variable Rate Loan and/or a Eurodollar Loan pro rata according to the amount of its respective Commitment. The Loans of each type of each Bank shall be made and maintained at such Bank's Lending Office for such type of Loan. (b) The principal of each Loan shall be payable in twenty (20) quarterly installments commencing on May 28, 1998 and continuing on each Quarterly Date thereafter to and including the Maturity Date when the entire unpaid principal balance and accrued and unpaid interest shall be due and payable. Any payment date which is not a Banking Day shall be extended to the next Banking Day unless, in the case of a Eurodollar Loan, such Banking Day would fall in the 8 next calendar month, in which event payment shall be due on the immediately preceding Banking Day. Section 2.02. The Notes. (a) The Loan of each Bank shall be evidenced by the Borrower's promissory note in favor of such Bank substantially in the form of Exhibit A hereto, dated the date of this Agreement, payable to the order of such Bank and otherwise duly completed and executed by the Borrower. (b) The date, amount, interest rate and duration of Interest Period for the Loan made by each Bank to the Borrower and each payment made on account of the principal thereof, shall be recorded by such Bank on its books and, on the schedule attached to each Note or any continuation thereof; provided, however, that the failure of such Bank to make, or any error in making, any such recordation shall not affect the obligations of Borrower to make a payment when due of any amount owing hereunder or under such Note in respect of the Loan evidenced by such Note. Section 2.03. Purpose. The Borrower shall use the proceeds of the Loans for the permanent financing of the acquisition of L. Kellenberger & Co., A.G. Section 2.04. Borrowing Procedures. On the Effective Date each Bank shall, through its Lending Office and subject to the conditions of this Agreement, make the amount of the Loan to be made by it on such day available to the Agent at the Principal Office and in immediately available funds for the account of the Borrower. The amount so received by the Agent shall, subject to the conditions of this Agreement, be made available to the Borrower, in immediately available funds, by the Agent crediting an account of the Borrower designated by the Borrower and maintained with the Agent at the Principal Office. Section 2.05. Prepayments. The Borrower shall have the right to prepay the Loans at any time or from time to time in multiples of One Hundred Fifty Thousand Dollars ($150,000.00) to be applied to principal in inverse order of maturity; provided that: (a) the Borrower shall give the Agent notice of each such prepayment as provided in Section 2.08; (b) Eurodollar Loans may not be prepaid, except on the last day of the Interest Period for such Loan, and (c) all such prepayments shall be applied as provided in Section 10.16. Section 2.06. Interest Periods. Prior to the expiration of each Interest Period, Borrower may select a new Interest Period of any duration in accordance with the definition of Interest Period in Section 1.01, subject to the following limitations: (a) no Interest Period may extend beyond the Maturity Date; (b) no Interest Period for a Eurodollar Loan shall have a duration less than one month and if any such proposed Interest Period would otherwise be for a shorter period, such Interest Period shall not be available; and (c) if an Interest Period would end on a day which is not a Banking Day, such Interest Period shall be extended to the next Banking Day, unless, in the case of a Eurodollar Loan, such Banking Day would fall in the next calendar month in which event such Interest Period shall end on the immediately preceding Banking Day. 9 Section 2.07. Interest. (a) Interest shall accrue on the outstanding and unpaid principal amount of each Loan for the period from and including the Effective Date at the following rates per annum: (i) for a Variable Rate Loan, at a variable rate per annum equal to the Variable Rate plus any Margin, and (ii) for a Eurodollar Loan, at a fixed rate equal to the LIBO Rate plus the Margin. If the principal amount of any Loan and any other amount payable by the Borrower hereunder or under a Note shall not be paid when due (at stated maturity, by acceleration or otherwise), interest shall accrue at the Default Rate on such amount to the full extent permitted by law from and including such due date to but excluding the date such amount is paid in full. (b) The interest rate on each Variable Rate Loan shall change when the Variable Rate changes and interest on each such Loan shall be calculated on the basis of a year of 365 days for the actual number of days elapsed. Interest on each Eurodollar Loan shall be calculated on the basis of a year of 360 days for the actual number of days elapsed. Promptly after the determination of any interest rate provided for herein or any change therein, the Agent shall notify the Borrower and the Banks thereof. (c) Accrued interest shall be due and payable upon any payment of principal and on the last day of the Interest Period with respect thereto, in the case of an Interest Period greater than three (3) months at three month intervals after the first day of such Interest Period; provided that interest accruing at the Default Rate shall be due and payable from time to time on demand of the Agent. Section 2.08. Certain Notices. (a) Notices by the Borrower to the Agent of each prepayment pursuant to Section 2.05, the Interest Period pursuant to Section 2.06 and the interest rate election to be made pursuant to Section 2.07, shall be irrevocable and shall be effective only if received by the Agent before (i) 10:00 a.m. New York time on the day thereof with respect to Variable Rate Loans, and (ii) 12:00 noon New York time three Banking Days prior thereto with respect to Eurodollar Loans. (b) Each such notice shall specify the Interest Period and rate selection, and in the case of prepayment, the date of prepayment (which shall be a Banking Day). If Borrower shall fail to give the Agent notice as required in this Section 2.08, each Loan shall be a Variable Rate Loan for an Interest Period continuing to the first day following the next Quarterly Date. Section 2.09. Payments Generally. Borrower hereby unconditionally promises to pay to the Agent, all payments under this Agreement and the Note in Dollars and in immediately available funds not later than 1:00 p.m. New York time on the relevant dates specified above (each such payment made after such time on such due date to be deemed to have been made on the next succeeding Banking Day) to the Agent's Account for the account of each Bank. If the due date of any payment under this Agreement or the Notes would otherwise fall on a day which is not a Banking Day, such date shall be extended to the next succeeding Banking Day and interest shall be payable for any principal so extended for the period of such extension. Each payment received by the Agent hereunder or under any Note for the account of a Bank shall be paid promptly to such Bank, in immediately available funds, for the account of such Bank's Lending Office. 10 ARTICLE 3. YIELD PROTECTION; ILLEGALITY; ETC. Section 3.01. Additional Costs. (a) The Borrower shall pay directly to each Bank from time to time on demand such amounts as such Bank may reasonably determine to be necessary to compensate it for any costs which such Bank determines are attributable to its making or maintaining any Eurodollar Loans under this Agreement or its Note or its obligation to make any such Loans hereunder, or any reduction in any amount receivable by such Bank hereunder in respect of any such Loans or such obligation (such increases in costs and reductions in amounts receivable being herein called "Additional Costs"), resulting from any Regulatory Change, or any Reserve Requirement for any such Loans which: (i) changes the basis of taxation of any amounts payable to such Bank under this Agreement or its Note in respect of any of such Loans (other than taxes imposed on the overall net income of such Bank or of its Lending Office for any of such Loans by the jurisdiction in which such Bank has its principal office or such Lending Office); or (ii) imposes or modifies any reserve, special deposit, deposit insurance or assessment, minimum capital, capital ratio or similar requirements relating to any extensions of credit or other assets of, or any deposits with or other liabilities of, such Bank (including any of such Loans or any deposits referred to in the definition of "LIBO Base Rate" in Section 1.01); or (iii) imposes any other condition affecting this Agreement or its Note (or any of such extensions of credit or liabilities). Each Bank will notify the Borrower of any event occurring after the date of this Agreement which will entitle such Bank to compensation pursuant to this Section 3.01(a) as promptly as practicable after it obtains knowledge thereof and determines to request such compensation. The amount payable to any such Bank shall be computed from the date of the occurrence giving rise to Additional Cost, or the date that is 120 days prior to the date of demand by such Bank, whichever is later. If any Bank requests compensation from the Borrower under this section 3.01(a), or under section 3.01(c), the Borrower may, by notice to such Bank (with a copy to the Agent), suspend the obligation of such Bank to maintain Loans of the type with respect to which such compensation is requested (in which case the provisions of section 3.04 shall be applicable). (b) Without limiting the effect of the foregoing provisions of this Section 3.01, in the event that, by reason of any Regulatory Change, any Bank either (i) incurs Additional Costs based on or measured by the excess above a specified level of the amount of a category of deposits or other liabilities of such Bank which includes deposits by reference to which the interest rate on Eurodollar Loans is determined as provided in this Agreement or a category of extensions of credit or other assets of such Bank which includes Eurodollar Loans or (ii) becomes subject to restrictions on the amount of such a category of liabilities or assets which it may hold, then, if such Bank so elects by notice to the Borrower (with a copy to the Agent), the obligation of such Bank to make Loans of such type hereunder shall be suspended until the date such Regulatory Change ceases to be in effect (in which case the provisions of Section 3.04 shall be applicable). (c) Without limiting the effect of the foregoing provisions of this Section 3.01 (but without duplication), the Borrower shall pay directly to each Bank from time to time on request such amounts as such Bank may reasonably determine to be necessary to compensate such Bank for any costs which it determines are attributable to the maintenance of capital by it or any of 11 its Affiliates pursuant to any future law or regulation of any jurisdiction or any interpretation, directive or request (whether or not having the force of law and whether in effect on the date of this Agreement or thereafter) of any court or governmental or monetary authority in respect of its Loan hereunder or its obligation to make its Loan hereunder (such compensation to include, without limitation, an amount equal to any reduction in return on assets or equity of such Bank to a level below that which it could have achieved but for such law, regulation, interpretation, directive or request). Each Bank will notify the Borrower if it is entitled to compensation pursuant to this Section 3.01(c) as promptly as practicable after it determines to request such compensation. The amount payable to any Bank shall be computed from the date of the occurrence entitling such Bank to compensation, or the date that is one hundred twenty (120) days prior to the date of demand by such Bank, whichever is later. (d) Determinations and allocations by a Bank for purposes of this Section 3.01 of the effect of any Regulatory Change pursuant to subsections (a) or (b), or of the effect of capital maintained pursuant to subsection (c), on its costs of making or maintaining Loans or its obligation to make Loans, or on amounts receivable by, or the rate of return to, it in respect of Loans or such obligation, and of the additional amounts required to compensate such Bank under this Section 3.01, shall be conclusive, provided that such determinations and allocations are made on a reasonable basis. Section 3.02. Limitation on Types of Loans. Anything herein to the contrary notwithstanding, if: (a) the Agent determines (which determination shall be conclusive) that quotations of interest rates for the relevant deposits referred to in the definition of "LIBO Rate" in Section 1.01 are not being provided in the relevant amounts or for the relevant maturities for purposes of determining the rate of interest for any type of Eurodollar Loans as provided in this Agreement; or (b) the Required Banks determine (which determination shall be conclusive) and notify the Agent and the Borrower (which notice shall include each Bank's respective calculation of cost) that the relevant rates of interest referred to in the definition of "LIBO Base Rate" in Section 1.01 upon the basis of which the rate of interest for any type of Eurodollar Loans is to be determined do not adequately cover the cost to the Banks of making or maintaining such Loans; then the Agent shall give the Borrower and each Bank prompt notice thereof, and so long as such condition remains in effect, the Banks shall be under no obligation to make or maintain a Loan of such type. Section 3.03. Illegality. Notwithstanding any other provision in this Agreement, in the event that it becomes unlawful for any Bank or its Lending Office to honor its obligation to make or maintain a Eurodollar Loan hereunder, then such Bank shall promptly notify the Borrower thereof (with a copy to the Agent) and such Bank's obligation to make or maintain a Eurodollar Loan hereunder shall be suspended until such time as such Bank may again make 12 and maintain such affected Loan (in which case the provisions of Section 3.04 shall be applicable). Section 3.04. Certain Variable Rate Loans pursuant to Sections 3.01 and 3.03. If the obligations of any Bank to make a Loan of a particular type (Loans of such type being herein called "Affected Loans" and such type being herein called the "Affected Type") shall be suspended pursuant to Section 3.01 or 3.03, a Loan which would otherwise be maintained by such Bank as a Loan of the Affected Type shall be made instead as Variable Rate Loan and, if an event referred to in Section 3.01(b) or 3.03 has occurred and such Bank so requests by notice to the Borrower (with a copy to the Agent), the Affected Loan of such Bank then outstanding shall be automatically converted into Variable Rate Loan on the date specified by such Bank in such notice. Section 3.05. Certain Compensation. The Borrower shall pay to the Agent for the account of each Bank, upon the request of such Bank through the Agent, such amount or amounts as shall be sufficient (in the reasonable opinion of such Bank) to compensate it for any loss, cost or expense which such Bank reasonably determines is attributable to any payment to such Bank of a Eurodollar Loan made by such Bank on a date other than the last day of an Interest Period for such Loan (whether by reason of acceleration or otherwise); Without limiting the foregoing, such compensation shall include an amount equal to the excess, if any, of: (i) the amount of interest which otherwise would have accrued on the principal amount so paid or not borrowed for the period from and including the date of such payment or failure to borrow to but excluding the last day of the Interest Period for such Loan (or, in the case of a failure to borrow, to but excluding the last day of the Interest Period for such Loan which would have commenced on the date specified therefor in the relevant notice) at the applicable rate of interest for such Loan provided for herein; over (ii) the amount of interest (as reasonably determined by such Bank) such Bank would have bid in the London interbank market (if such Loan is a Eurodollar Loan) for deposits in Dollars for amounts comparable to such principal amount and maturities comparable to such period. ARTICLE 4. CONDITIONS PRECEDENT. Section 4.01. Documentary Conditions Precedent. The obligations of the Banks to make the Loans constituting the borrowing hereunder are subject to the condition precedent that the Agent shall have received on or before the date of such Loans each of the following, in form and substance satisfactory to the Agent and its counsel: (a) the Notes duly executed by the Borrower; (b) the Authorization Letter duly executed by the Borrower; (c) a certificate of the Secretary or Assistant Secretary of the Borrower, dated the Effective Date, attesting to all corporate action taken by the Borrower, including resolutions of 13 its Board of Directors authorizing the execution, delivery and performance of the Facility Documents to which it is a party and each other document to be delivered pursuant to this Agreement; (d) a certificate of the Secretary or Assistant Secretary of the Borrower, dated the Effective Date, certifying the names and true signatures of the officers of the Borrower authorized to sign the Facility Documents to which it is a party and the other documents to be delivered by the Borrower under this Agreement; (e) a certificate of a duly authorized officer of the Borrower, dated the Closing Date, stating that the representations and warranties in Article 5 are true and correct on such date as though made on and as of such date and that no event has occurred and is continuing which constitutes a Default or Event of Default; (f) a favorable opinion of counsel for the Borrower, dated the Closing Date, in substantially the form of Exhibit C and as to such other matters as the Agent or any Bank may reasonably request; (g) a recently dated certificate of the Secretary of State of the State of Borrower's formation as to its good standing. Section 4.02. Additional Conditions Precedent. The obligations of the Banks to make the Loans shall be subject to the further conditions precedent that on the date of such Loan: (a) the following statements shall be true: (i) the representations and warranties contained in Article 5 are true and correct on and as of the Effective Date as though made on and as of such date; and (ii) no Default or Event of Default has occurred and is continuing, or would result from such Loan; and (b) the Agent shall have received such approvals, opinions or documents as the Agent or any Bank may reasonably request. ARTICLE 5. REPRESENTATIONS AND WARRANTIES. The Borrower hereby represents and warrants that: Section 5.01. Incorporation, Good Standing and Due Qualification. The Borrower and each of its Subsidiaries is a corporation duly incorporated, validly existing and in good standing under the laws of the jurisdiction of its formation, has all power and authority to carry on its business as now being conducted and to own its properties and is duly licensed or qualified and in good standing or a foreign corporation in each other jurisdiction in which its properties are located or in which failure to qualify would materially and adversely affect the conduct of its business or the enforceability of contractual rights of the Borrower. 14 Section 5.02. Corporate Power and Authority: No Conflicts. The execution, delivery and performance by the Borrower of the Facility Documents are within the Borrower's corporate powers, have been duly authorized by all necessary corporate action, and do not contravene (a) the Borrower's charter or by-laws,or (b) any law or any contractual restriction or provision binding on or affecting the Borrower. Section 5.03. Governmental Approval. No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required for the due execution, delivery and performance by the Borrower of the Facility Documents to which the Borrower is a party. Section 5.04. Legally Enforceable Agreements. Each Facility Document to which Borrower is a party is, or when delivered hereunder will be, legal, valid and binding obligations of the Borrower enforceable against the Borrower in accordance with their respective terms. Section 5.05. Financial Statements. The balance sheets of the Borrower and its Subsidiaries as at December 31, 1994, and the related statements of income and retained earnings of the Borrower and its Subsidiaries for the fiscal year then ended, and the unaudited balance sheets of the Borrower and its Subsidiaries as at September 30, 1995 and the related statements of income and retained earnings, copies of which have been furnished to each Bank, fairly present the financial condition of the Borrower and its Subsidiaries at such date and the results of the operations of the Borrower and its subsidiaries for the period ended on such date, all in accordance with GAAP, and since September 30, 1995, there has been no material adverse change in such condition or operations. Section 5.06. Litigation. There is no pending or threatened action or proceeding affecting the Borrower or any of its Subsidiaries before any court, governmental agency or arbitrator, which may materially adversely affect the financial condition or operations of the Borrower or any Subsidiary. Section 5.07. Margin Stock. The Borrower is not engaged in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulation U issued by the Board of Governors of the Federal Reserve System). Section 5.08. Use of Loan Proceeds. No part of the proceeds of the Loans will be used, whether directly or indirectly, and whether immediately, incidentally or ultimately, (a) to purchase or to carry margin stock or to extend credit to others for the purpose of purchasing or carrying margin stock, or to refund indebtedness originally incurred for such purpose, or (b) for any purpose which violates or is inconsistent with the provisions of the Regulations G, T, U or X of the Board of Governors of the Federal Reserve System. Section 5.09. Tax Returns. Each of the Borrower and its Subsidiaries has filed (or has obtained extensions of the time by which it is required to file) all United States federal income tax returns and all other material tax returns required to be filed by it and has paid all taxes shown due on the returns so filed as well as all other taxes, assessments and governmental 15 charges which have become due, except such taxes, if any, as are being contested in good faith and as to which adequate reserves have been provided. Section 5.10. ERISA. Each member of the Controlled Group has fulfilled its obligations under the minimum funding standards of ERISA and the Code with respect to each Plan subject to the provisions thereof and is in compliance in all material respects with the presently applicable provisions of ERISA and the Code, and has not incurred any liability to the PBGC or a Plan under Title IV of ERISA. Section 5.11. Subsidiaries. Other than the proposed formation of a subsidiary in the Peoples Republic of China, the Borrower has no Subsidiaries other than those set forth on Schedule I attached hereto as amended from time to time. Section 5.12. Ownership and Liens. Each of the Borrower and its Subsidiaries has good and marketable title to its material properties and assets reflected on the balance sheet referred to in Section 5.05 hereof, except for such properties and assets as have been disposed of since the date of such balance sheet as no longer used or useful in the conduct of its business or as have been disposed of in the ordinary course of business, and all such properties and facets are free and clear of mortgages, pledges, liens, charges and other encumbrances, except for mortgages on real estate located in Switzerland in the approximate amount of 7,000,000 Swiss Francs and liens incurred in the ordinary course of business, any encumbrances that do not materially interfere with the use or operation of such property or assets and except as required or permitted by the provisions hereof or as disclosed in the balance sheet referred to in Section 5.05 hereof or otherwise disclosed to the Banks. Section 5.13. Hazardous Materials. Except as set forth in Schedule II hereof, and qualified in each instance whereby a breach of this representation set forth in this Section 5.13 would materially and adversely affect the business, operations, assets or financial condition of the Borrower, the Borrower is in compliance in all material respects with all Environmental Laws governing Hazardous Materials and the Borrower has not used Hazardous Materials on, from, or affecting any property now owned or occupied or hereafter owned or occupied by the Borrower in any manner which violates Federal, state or local laws, ordinances, rules, regulations, or policies governing the use, storage, treatment, transportation, manufacture, refinement, handling, production or disposal of Hazardous Materials, and that, to the best of the Borrower's knowledge, no prior owner of any such property or any tenant, subtenant, prior tenant or prior subtenant have used Hazardous Materials on, from, or affecting such property in any manner which violates Federal, state or local laws, ordinances, rules, regulations, or policies governing the use, storage, treatment, transportation, manufacture, refinement, handling, production or disposal of Hazardous Materials; without limiting the foregoing, the Borrower shall not cause or permit any property owned or occupied by it to be used to generate, manufacture, refine, transport, treat, store, handle, dispose, transfer, produce or process Hazardous Materials, except in compliance with all applicable Federal, state and local laws or regulations, nor shall the Borrower cause or permit, as a result of any intentional or unintentional act or omission on its part or any tenant or subtenant, a release of Hazardous Materials onto any property owned or occupied by the Borrower or onto any other property; the 16 Borrower shall comply with and ensure compliance by all tenants and subtenants with all applicable Environmental Laws, whenever and by whomever triggered, and shall obtain and comply with any and all approvals, registrations or permits required thereunder. Section 5.14. No Default on Other Agreements. Neither the Borrower or any of its Subsidiaries is in default in any manner which would materially and adversely affect the business, properties or assets, operations or condition (financial or otherwise) of the Borrower in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any agreement or instrument to which it is a party. Section 5.15. Partnerships. Except as set forth on Schedule III, neither the Borrower nor any of its Subsidiaries is a partner in any partnership. Section 5.16. No Forfeiture. Neither the Borrower nor any of its Subsidiaries or Affiliates is engaged in or proposes to be engaged in the conduct of any business or activity which could result in a Forfeiture Proceeding and no Forfeiture Proceeding against any of them is pending or threatened, which would individually or in the aggregate materially and adversely affect the business, operations, assets or financial condition of the Borrower or any of its Subsidiaries. Section 5.17. Solvency. (a) The present fair saleable value of the assets of the Borrower after giving effect to all the transactions contemplated by the Facility Documents and the funding of all Commitments hereunder exceeds the amount that will be required to be paid on or in respect of the existing debts and other liabilities (including contingent liabilities) of the Borrower and its Subsidiaries as they mature. (b) The property of the Borrower does not constitute unreasonably small capital for the Borrower to carry out its business as now conducted and as proposed to be conducted including the capital needs of the Borrower. (c) The Borrower does not intend to, nor does it believe that it will, incur debts beyond its ability to pay such debts as they mature (taking into account the timing and amounts of cash to be received by the Borrower, and of amounts to be payable on or in respect of debt of the Borrower). The cash available to the Borrower after taking into account all other anticipated uses of the cash of the Borrower, is anticipated to be sufficient to pay all such amounts on or in respect of debt of the Borrower when such amounts are required to be paid. (d) The Borrower does not believe that final judgments against it in actions for money damages will be rendered at a time when, or in an amount such that, the Borrower will be unable to satisfy any such judgments promptly in accordance with their terms (taking into account the maximum reasonable amount of such judgments in any such actions and the earliest reasonable time at which such judgments might be rendered). The cash available to the Borrower after taking into account all other anticipated uses of the cash of the Borrower (including the payments on or in respect of debt referred to in paragraph (c) of this Section 17 5.17), is anticipated to be sufficient to pay all such judgments promptly in accordance with their terms. ARTICLE 6. AFFIRMATIVE COVENANTS. So long as any of the Notes shall remain unpaid or any Bank shall have any Commitment under this Agreement, the Borrower shall, unless the Banks shall otherwise consent in writing: Section 6.01. Compliance with Laws, Corporate Existence (a) Comply, and cause each of its Subsidiaries to comply, in all material respects with all applicable laws, rules, regulations and orders of any governmental authority, the breach of which would materially and adversely affect the business, operations, prospects or assets or the financial condition or otherwise of the Borrower. Such compliance shall include, without limitation, paying before the same become delinquent all taxes, assessments and governmental charges or levies imposed upon it or on its income or profits or upon its property except to the extent (i) such payment is being contested in good faith and by proper proceedings, and (ii) adequate reserves are being maintained with respect thereto; and (b) do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence, rights, franchises, trade names and preserve all of its property used or useful in the conduct of its business and keep same in good repair and working condition except for property it deems no longer useful. Section 6.02. Reporting Requirements. Furnish directly to each of the Banks: (a) as soon as available and in any event within 45 days after the end of each of the first three quarters of each fiscal year of the Borrower, consolidated balance sheets of the Borrower and its Subsidiaries as of the end of such quarter and statements of income and retained earnings and changes in financial position of the Borrower and its Subsidiaries for the period commencing at the end of the previous fiscal year and ending with the end of such quarter, with a certification by the chief financial officer of the Borrower that such financial statements fairly present the financial condition and results of operations of the Borrower in accordance with GAAP, at the dates and for the periods set forth therein; (b) as soon as available and in any event within 90 days after the end of each fiscal year of the Borrower, a copy of the annual report for such year for the Borrower and its Subsidiaries, containing consolidated and consolidating financial statements for such year certified in a manner acceptable to the Required Banks by Ernst & Young or other independent public accountants acceptable to the Required Banks; (c) with the statements submitted under subsections (c) and (b) above, a certificate signed by the chief financial officer of the Borrower or the certified public accountants, as the case may be, stating (i) the requirements of Section 4.02 hereof and (ii) the calculation of all financial covenants and ratios required under Article 8 hereof; 18 (d) promptly after the sending or filing thereof, copies of all reports which the Borrower sends to any of its security holders, and copies of all reports and registration statements which the Borrower or any Subsidiary files with the Securities and Exchange Commission or any national securities exchange; (e) promptly after the filing or receiving thereof, if and when the Borrower or any member of the Controlled Group (as defined below) (i) gives or is required to give notice to the PBGC of any "reportable event" (as defined in Section 4043 of ERISA) with respect to any Plan (as defined below) under Title IV of ERISA, or knows that the plan administrator of any Plan has given or is required to give notice of any such reportable event, a copy of the notice of such reportable event given or required to be given to PBGC; (ii) receives notice of complete or partial withdrawal liability under Title IV of ERISA, promptly followed by a copy of such notice to the Bank; or (iii) receives notice from the PBGC under Title IV of ERISA of an intent to terminate or appoint a trustee to administer any Plan, promptly followed by a copy of such notice to the Bank. As used in this Subsection 6.02(e), "Controlled Group" means all members of a control group of corporations and all trades or businesses (whether or not incorporated) under common control, which together with the Borrower, are treated as a single employer under Section 414(b) or 414(c) of the Code of 1954, and "Plan" means at any time an employee pension benefit plan which is covered by Title IV of ERISA or is subject to the minimum funding standards under Section 412 of the Code and is either (x) maintained by the Borrower or any member of the Controlled Group for employs of the Borrower or any member of the Controlled Group, or (xx) maintained pursuant to a collective bargaining agreement or similar arrangement under which more than one employer makes contributions and to which the Borrower or any member of the Controlled Group is then making or accruing an obligation to make contributions or has within the preceding five plan years made contributions; (f) prior to the end of each fiscal year of the Borrower, a budget (in format satisfactory to the Banks) for the succeeding fiscal year of the Borrower, plus from time to time any revisions or modifications to such budget within 15 days of the adoption of such revision or modification; and (g) such other information respecting the condition or operations, financial or otherwise, of the Borrower or any of its subsidiaries as any Bank through the Agent may from time to time reasonably request. Section 6.03. Notice of Proceedings. Promptly give notice in writing to the Agent and each of the Banks of all litigation, arbitral proceedings, regulatory proceedings and Forfeiture Proceedings affecting the Borrower or any Subsidiary, except litigation or proceedings which, if adversely determined, could not materially and adversely affect the consolidated financial condition or the business taken as a whole of the Borrower and its Subsidiaries. Section 6.04. Insurance. The Borrower will, and will cause each Subsidiary to, maintain insurance with insurance companies or associations rated "A-" or better by A.M. Best & 19 Company or a comparable rating agency in such amounts and against such risks as is usually carried by owners of similar businesses and properties in the same general areas in which the Borrower and its subsidiaries operate. Section 6.05. Environmental Laws. Comply in all material respects with all Environmental Laws and provide to the Agent all documentation in connection with such compliance that the Agent may reasonably request. Section 6.06. Access to Premises and Records. At any reasonable time and from time to time, but only to the extent relevant to the loan transaction hereunder and the Borrower's ability to perform under the Credit Agreement, upon reasonable notice and during normal business hours, the Borrower shall permit the Agent and each of the Banks, or any agent or representative thereof to examine the records and books of account and visit the properties of the Borrower or its subsidiaries and to discuss the affairs, finances and accounts of the Borrower and any Consolidated Subsidiary with any of the Borrower's officers and directors. Section 6.07. Notice of Default. In the event any financial officer of the Borrower knows of any default or event of default under any agreement to which the Borrower is a party or any Event of Default which shall have occurred or knows of the occurrence of any event which, upon notice or lapse of time or both, would constitute an Event of Default, promptly furnish to the Agent a written statement as to such occurrence specifying the nature and extent thereof and the action (if any) which is proposed to be taken with respect thereto. Section 6.08. Subsidiaries. Give the Agent prompt written notice of the creation, establishment or acquisition, in any manner, of any Subsidiary not existing on the date hereof. Borrower will cause each newly formed or acquired Domestic Subsidiary whose assets equal or exceed by amount 10% of the Borrower's Consolidated Assets to jointly, severally, and unconditionally guarantee payment of the Loan and performance of all of the obligations of the Borrower created by this Agreement. Section 6.09. Material Adverse Changes. The Borrower shall promptly notify the Bank of any litigation matter, investigation, audit, business development or change in financial condition, which has resulted in, or which the Borrower or its Subsidiaries reasonably believes will result in an Event of Default. ARTICLE 7. NEGATIVE COVENANTS. So long as any of the Notes shall remain unpaid or any Bank shall have any Commitment under this Agreement, the Borrower shall not without the written consent of the Banks: Section 7.01. Liens, Etc. Create or suffer to exist, or permit any of its Subsidiaries to create or suffer to exist, any Lien, or any other type of preferential arrangement, upon or with respect to any of its properties, whether now owned or hereafter acquired, or assign, or permit 20 any of its Subsidiaries to assign, any right to receive income, in each case to secure any Debt of any person or entity, other than: (a) Liens securing the payment of taxes, assessments or governmental charges or levies or the demands of suppliers, mechanics, carriers, warehousers, landlords and other like Persons, provided that (i) they do not in the aggregate materially reduce the value of any properties subject to the Liens or materially interfere with their use in the ordinary conduct of the owning business, and (ii) all claims which the Liens secure are being actively contested in good faith and by appropriate proceedings; (b) Liens incurred or deposits made in the ordinary course of business (i) in connection with worker's compensation, unemployment insurance, social security and other like laws, or (ii) to secure the performance of letters of credit, bids, tenders, sales contract, leases, statutory obligations, surety, appeal and performance bonds and other similar obligations, in each case not incurred in connection with the borrowing of money, the obtaining of advances or the payment of the deferred purchase price of property; (c) attachment, judgment and other similar Liens arising in connection with court proceedings provided that (i) execution and other enforcement are effectively stayed, and (ii) all claims which the Liens secure are being actively contested in good faith and by appropriate proceedings; (d) Liens on property of a Subsidiary provided that they secure only obligations owing to the Borrower or another Subsidiary; (e) Liens related to lease obligations, and within the limitations, described in Section 7.02; (f) Liens against customer notes, which are created in connection with the sale, pledge or discounting of such customer notes, provided that immediately after giving effect thereto the Borrower's aggregate liabilities on account of such Debt secured by such Liens does not exceed $11,000,000.00; and (g) Liens against property leased pursuant to Capital Leases, provided that the aggregate amount of Debt secured by such Liens does not exceed $3,000,000.00. For the purposes of this Agreement, the term "Lien" shall mean any interest in property securing any Debt or obligation owed to, or a claim by, a Person other than the owner of the property, whether the interest is based on common law, statute or contract (including the security interest or lien arising from a mortgage, encumbrance, pledge, conditional sale or trust receipt or a lease, consignment or bailment for security purposes). The term "Lien" shall not include minor reservations, exceptions, encroachments, easements, rights-of-way, covenants, conditions, restrictions and other minor title exceptions affecting property, provided that they do not constitute security for a monetary obligation. For the purposes of this Agreement, the Borrower or a Subsidiary shall be deemed to be the owner of any property which it has acquired or holds 21 subject to a conditional sale agreement, Capital Lease or other arrangement pursuant to which title to the property has been retained by or vested in some other Person for security purposes, and such retention or vesting shall be deemed to be a Lien. In connection with any sale, pledge or discounting of Borrower's or its subsidiaries' customer notes, a "Lien" or "Liens" shall be deemed to exist to the extent of (i) the amount of any sums withheld from the Borrower or any Subsidiary in any such transaction, plus (ii) the amount of any obligation of the Borrower or any Subsidiary resulting from the non-payment of any customer notes involved in any such transaction. Section 7.02. Lease Obligations. Create or suffer to exist, or permit any of its Subsidiaries to create or suffer to exist, any obligations for the payment of rental for any property under leases or agreements to lease other than Capital Leases which would cause the liabilities of the Borrower and its Subsidiaries, on a consolidated basis, in respect of all such obligations to exceed $5,000,000.00 payable in any period of 12 months. Section 7.03. Prohibited Transactions. Use the proceeds of any Loan to acquire any security in any transaction which is subject to Sections 13 and 14 of the Securities Exchange Act of 1934 or use the proceeds of any Loan to otherwise acquire any public company other than on a friendly basis. Section 7.04. Margin Stock. Use the proceeds of any Loan to purchase or carry any margin stock or to extend credit to others for the purpose of purchasing or carrying any margin stock. Section 7.05. Consolidations, Mergers, Acquisitions and Sales of Assets. Consolidate or merge with or into, or sell, lease or otherwise dispose of any of its assets to, any Person, or acquire all or any substantial portion of the properties, assets or shares of stock of any other organization or permit any Subsidiary to do any of the above, unless the Borrower is the surviving entity, the transaction is on a friendly basis and immediately thereafter the Borrower is in compliance with all terms and provisions of this Agreement and except that: (a) any Subsidiary may consolidate or merge with the Borrower or any wholly-owned Subsidiary of the Borrower; (b) the Borrower or any Subsidiary may sell, lease or otherwise dispose of any of its inventory in the ordinary course of business and any of its assets which are obsolete, excess or unserviceable; (c) the Borrower or any Subsidiary may sell, pledge or discount customer notes; (d) the Borrower or any Subsidiary may sell, lease or otherwise dispose of any of its assets (other than as permitted by clauses (a) to (c) inclusive), provided that the aggregate net book value of all assets of the Borrower and its Subsidiaries sold, leased or otherwise disposed of during any fiscal year of the Borrower pursuant to this clause (d) shall not exceed 5% of the 22 Consolidated Tangible Net Worth of the Borrower and its Subsidiaries at the end of the preceding fiscal year. All sales, leases or dispositions of assets pursuant to clause (b), (c) or (d) shall be at fair market value. Notwithstanding the foregoing, the aggregate amount of acquisitions (net of amounts paid for with the Borrower's stock) permitted under this section from and after the Effective Date shall not be greater than $10,000,000.00 in any consecutive 24 month period without the prior written consent of the Required Banks. Section 7.06. Affiliate Transactions. Enter into or permit any Subsidiary to enter into any transaction (including the purchase, sale or exchange of Property or the rendering of any service) with any Affiliate except upon fair and reasonable terms which are at least as favorable to the Borrower or the Subsidiary as would be obtained in a comparable arms-length transaction with a non-Affiliate. Section 7.07. Loans and Advances. Make or permit to exist any loans or advances to any Person, except that loans or advances incurred in the normal course of business (including employee advances and customer notes) are permitted. Section 7.08. Guaranties. Become or permit any Subsidiary to become liable for or permit any of its Property to become subject to any guaranty except guaranties under which the maximum aggregate amount of indebtedness, dividend or other obligation being guarantied can be mathematically determined at the time of issuance. Each Guaranty permitted by this Section 7.08 must comply with the requirements of Section 8.01 (if it is included among Consolidated Current Liabilities) and with the requirement of Sections 8.03 and 8.05. Section 7.09. No Activities Leading to Forfeiture. Neither the Borrower nor any of its Subsidiaries or Affiliates shall engage in or propose to be engaged in the conduct of any business or activity which could result in a Forfeiture Proceeding, which would, individually or in the aggregate, materially and adversely affect the business, operations, assets or financial condition of the Borrower or any of its Subsidiaries. 23 ARTICLE 8. FINANCIAL COVENANTS. So long as any of the Notes shall remain unpaid or any Bank shall have any Commitment under this Agreement: Section 8.01. Working Capital. The Borrower shall maintain at all times an excess of Consolidated Current Assets over Consolidated Current Liabilities of not less than $50,000,000.00. Consolidated Current Liabilities shall not include the current portion of the indebtedness evidenced by the Notes or of any other indebtedness maturing more than one year after the date of its creation. Section 8.02. Net Worth. The Borrower shall maintain a Consolidated Tangible Net Worth, at all times during each fiscal year of not less than the amount set forth below opposite such fiscal year: Fiscal Year Ending December 31 Amount 1995 $125,000,000 1996 128,000,000 1997 131,000,000 1998 134,000,000 1999 137,000,000 2000 140,000,000 2001 143,000,000 2002 146,000,000 The term "Consolidated Tangible Net Worth" shall mean the total shareholders' equity prior to any cumulative foreign currency translation adjustments minus intangible assets. Section 8.03. Debt. The Borrower shall not create or suffer to exist, or permit any of its Subsidiaries to create or suffer to exist, any Debt if, immediately after giving effect to such Debt and the receipt and application of any proceeds thereof, the aggregate amount of Debt of the Borrower and its Subsidiaries, on a consolidated basis, would exceed 60% of the Consolidated Tangible Net Worth of the Borrower and its Subsidiaries. Section 8.04. Cash Flow. The Borrower shall maintain a Cash Flow Ratio at all times of not less than 2.0 to 1.0. "Cash Flow Ratio" means the ratio at the end of each fiscal quarter equal to (a) the sum of Consolidated Net Income plus depreciation, amortization and other non-cash expenses for the previous four consecutive fiscal quarters divided by (b) the current portion (i.e. due within one year) of long term Debt. 24 Section 8.05. Total Liabilities to Tangible Net Worth. The Borrower shall not permit the ratio of Consolidated Total Unsubordinated Liabilities to Consolidated Tangible Net Worth to be greater than .75 to 1.0 at any time. ARTICLE 9. EVENTS OF DEFAULT. Section 9.01. Events of Default. Any of the following events shall be an "Event of Default": (a) The Borrower shall fail to pay when due any installment of principal of, or interest on, any Note; or (b) Any representation or warranty made by the Borrower herein or in any other Facility Document, or by the Borrower (or any of its officers) in connection with this Agreement shall prove to have been incorrect in any material respect when made; or (c) The Borrower shall fail to perform or observe any other term, covenant or agreement contained in this Agreement or in any other Facility Document on its part to be performed or observed and any such failure shall remain unremedied for 10 days after written notice thereof shall have been given to the Borrower by the Agent or any Bank; or (d) The Borrower or any of its Subsidiaries shall fail to pay any Debt (but excluding Debt evidenced by the Notes) of the Borrower or such Subsidiary as the case may be, or any interest or premium thereon, when due (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise) and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to such Debt; or any other default under any agreement or instrument relating to any such Debt, or any other event, shall occur and shall continue after the applicable grace period, if any, specified in such agreement or instrument, if the effect of such default or event is to accelerate, or to permit the acceleration of, the maturity of such Debt; or any such Debt shall be declared to be due and payable, or required to be prepaid (other than by a regularly scheduled required prepayment), prior to the stated maturity thereof; or (e) The Borrower or any of its Subsidiaries shall generally not pay its debts as such debts become due, or shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors; or any proceeding shall be instituted by or against the Borrower or any of its Subsidiaries seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, or other similar official for it or for any substantial part of its property; or the Borrower or any of its Subsidiaries shall take any corporate action to authorize any of the actions set forth above in this subsection (e); or 25 (f) Any judgment or order for the payment of money in excess of $2,500,000.00 shall be rendered against the Borrower or any of its Subsidiaries, and either (i) enforcement proceedings shall have been commenced by any creditor upon such judgment or order or (ii) there shall be any period of 10 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; or (g) Any member of the Controlled Group shall fail to pay when due an amount or amounts aggregating in excess of $250,000.00 which it shall have become liable to pay to the PBGC or to a Plan under Title IV of ERISA; or notice of intent to terminate a Plan or Plans having aggregate Unfunded Benefit Liabilities in such amount or amounts which would at such time create a liability in excess of liabilities of such Plan or Plans recognized prior thereto on the Borrower's financial statements and which liability would cause a violation of any of the covenants under Article 7 (collectively, a "Material Plan") shall be filed under Title IV of ERISA by any member of the Controlled Group, any plan administrator any combination of the foregoing; or the PBGC shall institute proceedings under Title IV of ERISA to terminate or to cause a trustee to be appointed to administer any Material Plan or a proceeding shall be instituted by a fiduciary of any Material Plan against any member of the Controlled Group to enforce Section 515 of ERISA and such proceeding shall not have been dismissed within 30 days thereafter; or a condition shall exist by reason of which the PBGC would be entitled to obtain a decree adjudicating that any Material Plan must be terminated; (h) Any Forfeiture Proceeding shall have been commenced or the Borrower shall have given any Bank written notice of the commencement of any Forfeiture Proceeding, which would, individually or in the aggregate, materially and adversely affect the business, operations, assets or financial condition of the Borrower or any of its Subsidiaries, or any Bank has a good faith basis to believe that a Forfeiture Proceeding has been threatened or commenced, which would, individually or in the aggregate, materially and adversely affect the business, operations, assets or financial condition of the Borrower or any of its subsidiaries. Section 9.02. Remedies. If any Event of Default shall occur and be continuing, the Agent shall, upon request of the Required Banks, by notice to the Borrower, (a) declare the Commitments to be terminated, whereupon the same shall forthwith terminate, and (b) declare the outstanding principal of the Notes, all interest thereon and all other amounts payable under this Agreement and the Notes to be forthwith due and payable, whereupon the Notes, all such interest and all such amounts shall become and be forthwith due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Borrower; provided that, in the case of an Event of Default referred to in Section 9.01(e) or Section 9.01(h) above, the Commitments shall be immediately terminated, and the Notes, all interest thereon and all other amounts payable under this Agreement shall be immediately due and payable without notice, presentment, demand protest or other formalities of any kind, all of which are hereby expressly waived by the Borrower. 26 ARTICLE 10. THE AGENT; RELATIONS AMONG BANKS AND BORROWER. Section 10.01. Appointment, Powers and Immunities of Agent. Each Bank hereby irrevocably (but subject to removal by the Required Banks pursuant to Section 10.09) appoints and authorizes the Agent to act as its agent hereunder and under any other Facility Document with such powers as are specifically delegated to the Agent by the terms of this Agreement and any other Facility Document, together with such other powers as are reasonably incidental thereto. The Agent shall have no duties or responsibilities except those expressly set forth in this Agreement and any other Facility Document, and shall not by reason of this Agreement be a trustee for any Bank. The Agent shall not be responsible to the Banks for any recitals, statements, representations or warranties made by the Borrower or any officer or official of the Borrower or any other Person contained in this Agreement or any other Facility Document, or in any certificate or other document or instrument referred to or provided for in, or received by any of them under, this Agreement or any other Facility Document, or for the value, legality, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Facility Document or any other document or instrument referred to or provided for herein or therein, for the perfection or priority of any collateral security for the Loans or for any failure by the Borrower to perform any of its obligations hereunder or thereunder. The Agent may employ agents and attorneys-in-fact and shall not be responsible, except as to money or securities received by it or its authorized agents, for the negligence or misconduct of any such agents or attorneys-in-fact selected by it with reasonable care. Neither the Agent nor any of its directors, officers, employees or agents shall be liable or responsible for any action taken or omitted to be taken by it or them hereunder or under any other Facility Document or in connection herewith or therewith, except for its or their own gross negligence or willful misconduct. The Borrower shall pay any fee agreed to by the Borrower and the Agent with respect to the Agent's services hereunder. Section 10.02. Reliance by Agent. The Agent shall be entitled to rely upon any certification, notice or other communication (including any thereof by telephone, telex, telegram or cable) believed by it to be genuine and correct and to have been signed or sent by or on behalf of the proper Person or Persons, and upon advice and statements of legal counsel, independent accountants and other experts selected by the Agent. The Agent may deem and treat each Bank as the holder of the Loan made by it for all purposes hereof unless and until a notice of the assignment or transfer thereof satisfactory to the Agent signed by such Bank shall have been furnished to the Agent but the Agent shall not be required to deal with any Person who has acquired a participation in any Loan from a Bank. As to any matters not expressly provided for by this Agreement or any other Facility Document, the Agent shall in all cases be fully protected in acting, or in refraining from acting, hereunder in accordance with instructions signed by the Required Banks, and such instructions of the Required Banks and any action taken or failure to act pursuant thereto shall be binding on all of the Banks and any other holder of all or any portion of any Loan. Section 10.03. Defaults. The Agent shall not be deemed to have knowledge of the occurrence of a Default or Event of Default (other than the non-payment of principal of or interest on the Loans to the extent the same is required to be paid to the Agent for the account 27 of the Banks) unless the Agent has received notice from a Bank or the Borrower specifying such Default or Event of Default. In the event that the Agent receives such a notice of the occurrence of a Default or Event of Default, the Agent shall give prompt notice thereof to the Banks (and shall give each Bank prompt notice of each such non-payment). The Agent shall (subject to Section 10.08) take such action with respect to such Default or Event of Default which is continuing as shall be directed by the Required Banks; provided that, unless and until the Agent shall have received such directions, the Agent may take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable in the best interest of the Banks; and provided further that the Agent shall not be required to take any such action which it determines to be contrary to law. Section 10.04. Rights of Agent as a Bank. With respect to its Commitment and the Loan made by it, the Agent in its capacity as a Bank hereunder shall have the same rights and powers hereunder as any other Bank and may exercise the same as though it were not acting as the Agent, and the term "Bank" or "Banks" shall, unless the context otherwise indicates, include the Agent in its capacity as a Bank. The Agent and its affiliates may (without having to account therefor to any Bank) accept deposits from, lend money to (on a secured or unsecured basis), and generally engage in any kind of banking, trust or other business with, the Borrower (and any of its affiliates) as if it were not acting as the Agent, and the Agent may accept fees and other consideration from the Borrower for services in connection with this Agreement or otherwise without having to account for the same to the Banks. Although the Agent and its affiliates may in the course of such relationships and relationships with other Persons acquire information about the Borrower, its Affiliates and such other Persons, the Agent shall have no duty to disclose such information to the Banks. Section 10.05. Indemnification of Agent. The Banks agree to indemnify the Agent (to the extent not reimbursed under section 11.03 or under the applicable provisions of any other Facility Document, but without limiting the obligations of the Borrower under Section 11.03 or such provisions), ratably in accordance with the aggregate unpaid principal amount of the Loans made by the Banks (without giving effect to any participations, in all or any portion of such Loans, sold by them to any other Person) (or, if no Loans are at the time outstanding, ratably in accordance with their respective Commitments), for any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind and nature whatsoever which may be imposed on, incurred by or asserted against the Agent in any way relating to or arising out of this Agreement, any other Facility Document or any other documents contemplated by or referred to herein or the transactions contemplated hereby or thereby (including, without limitation, the costs and expenses which the Borrower is obligated to pay under Section 11.03 or under the applicable provisions of any other Facility Document but excluding, unless a Default or Event of Default has occurred, normal administrative costs and expenses incident to the performance of its agency duties hereunder) or the enforcement of any of the terms hereof or thereof or of any such other documents or instruments; provided that no Bank shall be liable for any of the foregoing to the extent they arise from the gross negligence or willful misconduct of the party to be indemnified. 28 Section 10.06. Documents. The Agent will forward to each Bank, promptly after the Agent's receipt thereof, a copy of each report, notice or other document required by this Agreement or any other Facility Document to be delivered to the Agent for such Bank. Section 10.07. Non-Reliance on Agent and Other Banks. Each Bank agrees that it has, independently and without reliance on the Agent or any other Bank, and based on such documents and information as it has deemed appropriate, made its own credit analysis of the Borrower and its Subsidiaries and decision to enter into this Agreement and that it will, independently and without reliance upon the Agent or any other Bank, and based on such documents and information as it shall deem appropriate at the time, continue to make its own analysis and decisions in taking or not taking action under this Agreement or any other Facility Document. The Agent shall not be required to keep itself informed as to the performance or observance by the Borrower of this Agreement or any other Facility Document or any other document referred to or provided for herein or therein or to inspect the properties or books of the Borrower or any Subsidiary. Except for notices, reports and other documents and information expressly required to be furnished to the Banks by the Agent hereunder, the Agent shall not have any duty or responsibility to provide any Bank with any credit or other information concerning the affairs, financial condition or business of the Borrower or any Subsidiary (or any of their Affiliates) which may come into the possession of the Agent or any of its affiliates. The Agent shall not be required to file this Agreement, any other Facility Document or any document or instrument referred to herein or therein, for record or give notice of this Agreement, any other Facility Document or any document or instrument referred to herein or therein, to anyone. Section 10.08. Failure of Agent to Act. Except for action expressly required of the Agent hereunder, the Agent shall in all cases be fully justified in failing or refusing to act hereunder unless it shall have received further assurances (which may include cash collateral) of the indemnification obligations of the Banks under Section 10.05 in respect of any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. Section 10.09. Resignation or Removal of Agent. Subject to the appointment and acceptance of a successor Agent as provided below, the Agent may resign at any time by giving written notice thereof to the Banks and the Borrower, and the Agent may be removed at any time with or without cause by the Required Banks; provided that the Borrower and the other Banks shall be promptly notified thereof. Upon any such resignation or removal, the Required Banks shall have the right to appoint a successor Agent. If no successor Agent shall have been so appointed by the Required Banks and shall have accepted such appointment within 30 days after the retiring Agent's giving of notice of resignation or the Required Banks' removal of the retiring Agent, then the retiring Agent may, on behalf of the Banks, appoint a successor Agent, which shall be a bank which has an office in New York, New York. The Required Banks or the retiring Agent, as the case may be, shall upon the appointment of a successor Agent promptly so notify the Borrower and the other Banks. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, and the 29 retiring Agent shall be discharged from its duties and obligations hereunder. After any retiring Agent's resignation or removal hereunder as Agent, the provisions of this Article 10 shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as the Agent. Section 10.10. Amendments Concerning Agency Function. The Agent shall not be bound by any waiver, amendment, supplement or modification of this Agreement or any other Facility Document which affects its duties hereunder or thereunder unless it shall have given its prior consent thereto. Section 10.11. Liability of Agent. The Agent shall not have any liabilities or responsibilities to the Borrower on account of the failure of any Bank to perform its obligations hereunder or to any Bank on account of the failure of the Borrower to perform its obligations hereunder or under any other Facility Document. This Section 10.11 shall not be construed to limit the Agent's liability or responsibility where the Agent is acting as a Bank under this Agreement. Section 10.12. Transfer of Agency Function. Without the consent of the Borrower or any Bank, the Agent may at any time or from time to time transfer its functions as Agent hereunder to any of its offices wherever located, provided that the Agent shall promptly notify the Borrower and the Banks thereof. Section 10.13. Non-Receipt of Funds by the Agent. Unless the Agent shall have been notified by a Bank or the Borrower (either one as appropriate being the "Payor") prior to the date on which such Bank is to make payment hereunder to the Agent of the proceeds of a Loan or the Borrower is to make payment to the Agent, as the case may be (either such payment being a "Required Payment"), which notice shall be effective upon receipt, that the Payor does not intend to make the Required Payment to the Agent, the Agent may assume that the Required Payment has been made and may, in reliance upon such assumption (but shall not be required to), make the amount thereof available to the intended recipient on such date and, if the Payor has not in fact made the Required Payment to the Agent, the recipient of such payment (and, if such recipient is the Borrower and the Payor Bank fails to pay the amount thereof to the Agent forthwith upon demand, the Borrower) shall, on demand, repay to the Agent the amount made available to it together with interest thereon for the period from the date such amount was so made available by the Agent until the date the Agent recovers such amount at a rate per annum equal to the average daily Federal Funds Rate for such period. Section 10.14. Withholding Taxes. Each Bank represents that it is entitled to receive any payments to be made to it hereunder without the withholding of any U.S. tax and will furnish to the Agent such forms, certifications, statements and other documents as the Agent may request from time to time to evidence such Bank's exemption from the withholding of any U.S. tax imposed by any domestic jurisdiction or to enable the Agent to comply with any applicable laws or regulations relating thereto. Without limiting the effect of the foregoing, if any Bank is not created or organized under the laws of the United States of America or any state thereof, in the event that the payment of interest by the Borrower is treated for U.S. income tax purposes 30 as derived in whole or in part from sources from within the U.S., such Bank will furnish to the Agent Form 4224 or Form 1001 of the Internal Revenue Service, or such other forms, certifications, statements or documents, duly executed and completed by such Bank as evidence of such Bank's exemption from the withholding of U.S. tax with respect thereto. The Agent shall not be obligated to make any payments hereunder to such Bank in respect of any Loan or such Bank's Commitment until such Bank shall have furnished to the Agent the requested form, certification, statement or document. Section 10.15. Several Obligations and Rights of Banks. The failure of any Bank to make the Loan to be made by it on the date specified therefor shall not relieve any other Bank of its obligation to make its Loan on such date, but no Bank shall be responsible for the failure of any other Bank to make the Loan to be made by such other Bank. The amounts payable at any time hereunder to each Bank shall be a separate and independent debt, and each Bank shall be entitled to protect and enforce its rights arising out of this Agreement, and it shall not be necessary for any other Bank to be joined as an additional party in any proceeding for such purpose. Section 10.16. Pro Rata Treatment of Loans, Etc. Except to the extent otherwise provided (a) the borrowings under Section 2.04 shall be made from the Banks pro rata according to the amounts of their respective Commitment; and (b) each prepayment and payment of principal of or interest on Loans of a particular type and a particular Interest Period shall be made to the Agent for the account of the Banks pro rata in accordance with the respective unpaid principal amounts of such Loans held by such Banks. Section 10.17. Sharing of Payments Among Banks. If a Bank shall obtain payment of any principal of or interest on any Loan made by it through the exercise of any right of setoff, banker's lien, counterclaim, or by any other means (including any payment obtained from or charged against any Third Party), it shall promptly purchase from the other Banks participations in (or, if and to the extent specified by such Bank, direct interests in) the Loans made by the other Banks in such amounts, and make such other adjustments from time to time as shall be equitable to the end that all the Banks shall share the benefit of such payment (net of any expenses which may be incurred by such Bank in obtaining or preserving such benefit) pro rata in accordance with the unpaid principal and interest on the Loans held by each of them. To such end the Banks shall make appropriate adjustments among themselves (by the resale of participations sold or otherwise) if such payment is rescinded or must otherwise be restored. The Borrower agrees that any Bank so purchasing a participation (or direct interest) in the Loans made by other Banks may exercise all rights of setoff, banker's lien, counterclaim or similar rights with respect to such participation (or direct interest). Nothing contained herein shall require any Bank to exercise any such right or shall affect the right of any Bank to exercise, and retain the benefits of exercising, any such right with respect to any other indebtedness of the Borrower. 31 ARTICLE 11. MISCELLANEOUS. Section 11.01. Amendments and Waivers. Except as otherwise expressly provided in this Agreement, any provision of this Agreement may be amended or modified only by an instrument in writing signed by the Borrower, the Agent and the Required Banks, or by the Borrower and the Agent acting with the consent of the Required Banks and any provision of this Agreement may be waived by the Required Banks or by the Agent acting with the consent of the Required Banks; provided that no amendment, modification or waiver shall, unless by an instrument signed by all of the Banks or by the Agent acting with the consent of all of the Banks: (a) increase or extend the term, or extend the time or waive any requirement for the reduction or termination, of the Commitments, (b) extend the date fixed for the payment of principal of or interest on any Loan or any fee payable hereunder, (c) reduce the amount of any payment of principal thereof or the rate at which interest is payable thereon or any fee payable hereunder, (d) alter the terms of this Section 11.01, (e) amend the definition of the term "Required Banks" or (f) waive any of the documentary conditions precedent set forth in Section 4.01 hereof and provided, further, that any amendment of Article 10 hereof or any amendment which increases the obligations of the Agent hereunder shall require the consent of the Agent. No failure on the part of the Agent or any Bank to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof or preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. Section 11.02. Usury. Anything herein to the contrary notwithstanding, the obligations of the Borrower under this Agreement and the Notes shall be subject to the limitation that payments of interest shall not be required to the extent that receipt thereof would be contrary to provisions of law applicable to a Bank limiting rates of interest which may be charged or collected by such Bank. Section 11.03. Expenses and Indemnification. The Borrower shall reimburse the Agent and the Banks on demand for all costs, expenses, and charges (including, without limitation, fees and charges of external legal counsel for the Agent and each Bank and costs allocated by their respective internal legal departments) incurred by the Agent or the Banks in connection with the enforcement of this Agreement or the Notes by reason of any Event of Default or any event which, after the giving of notice or passage of time, or both, would constitute an Event of Default. The Borrower agrees to indemnify and hold harmless the Agent and each Bank from and against any and all claims, damages, liabilities and expenses (including, without limitation, fees and disbursements of counsel) (each an "Indemnified Liability") which may be incurred by or asserted against the Agent or such Bank in connection with or arising out of any threatened or actual litigation, or proceeding related to any acquisition or proposed acquisition by the Borrower, or by any Subsidiary, of all or any portion of the stock of substantially all the assets of any Person whether or not the Agent or such Bank is a party thereto. The Borrower agrees that any Indemnified Liability will be promptly paid to the Person to be indemnified upon the written demand of such Person. 32 Section 11.04. Survival. The obligations of the Borrower under Sections 3.01, 3.05 and 11.03 shall survive the repayment of the Loans and the termination of the Commitments. Section 11.05. Assignment; Participations. (a) This Agreement shall be binding upon, and shall inure to the benefit of, the Borrower, the Agent, the Banks and their respective successors and assigns, except that the Borrower may not assign or transfer its rights or obligations hereunder. (b) Each Bank may, with the consent of the Agent and the Borrower (which consent will not be unreasonably withheld or delayed) assign all or any part of its Commitments, its Note or Loans to another bank or other Person provided, however, that (i) no such consent by the Borrower or the Agent shall be required in the case of any assignment to another Bank; and (ii) any such partial assignment shall be made in an amount of at least $2,500,000.00. Upon execution and delivery by the assignee to the Borrower and the Agent of an instrument in writing pursuant to which such assignee agrees to become a "Bank" hereunder (if not already a Bank) having the Commitment and Loan specified in such instrument, and upon consent thereto by the Borrower and the Agent, to the extent required above, the assignee shall have, to the extent of such assignment (unless otherwise provided in such assignment with the consent of the Borrower and the Agent), the obligations, rights and benefits of a Bank hereunder holding the Commitment and Loans (or portions thereof) assigned to it (in addition to the Commitment and Loans, if any, theretofore held by such Assignee) and the assigning Bank shall, to the extent of assignment, be released from the Commitment (or portion thereof) so assigned. Upon each such assignment the assignee shall pay the Agent an assignment fee of $2,500.00. (c) A Bank may sell or agree to sell to one or more banks or other Persons a participation in all or any part of any Loans held by it, or in its Commitment, in which event each purchaser of a participation (a "Participant") shall not, except as otherwise provided in Section 10.17 hereof, have any rights or benefits under this Agreement or any Note (the participant's rights against such Bank in respect of such participation to be those set forth in the agreements executed by such Bank in favor of the Participant). All amounts payable by the Borrower to any Bank under Section 2 hereof in respect of Loans held by it and its Commitment, shall be determined as if such Bank had not sold or agreed to sell any participations in such Loan and Commitment, and as if such Bank were funding each of such Loan and Commitment in the same way that it is funding the portion of such Loan and Commitment in which no participations have been sold. The agreement executed by such Bank in favor of the Participant shall not give the Participant the right to require such Bank to take or omit to take any action hereunder except action directly relating to (i) the extension of the Maturity Date, (ii) the extension of a payment date with respect to any fees payable hereunder or any portion of the principal of or interest on any amount outstanding hereunder allocated to such participant, (iii) the reduction of the principal amount outstanding hereunder, or (iv) the reduction of the rate of interest payable on such amount or any amount of fees payable hereunder to a rate or amount, as the case may be, below that which the Participant is entitled to receive under its agreement with such Bank. 33 (d) In addition to the assignments and participations permitted under paragraphs (b) and (c) above, any Bank may assign and pledge all or any portion of its Loan and Note to (i) any affiliate of such Bank, or (ii) any Federal Reserve Bank as collateral security pursuant to Regulation A of the Board of Governors of the Federal Reserve System and any operating Circular issued by such Federal Reserve Bank. No such assignment shall release the assigning Bank from its obligations hereunder. (e) A Bank may furnish any information concerning the Borrower or any of its Subsidiaries in the possession of such Bank from time to time to assignees and participants (including prospective assignees and participants), provided that such Bank shall require any assignee or participant (prospective or otherwise) to agree in writing to maintain the confidentiality of such information. Section 11.06. Notices. All notices, requests and other communications provided for herein (including, and not by way of limitation, any modifications of, or waivers, requests or consents under, this Agreement) shall be given or made in writing (including and not by way of limitation by telecopy), or, with respect to notices given pursuant to Section 2.04 hereof, by telephone confirmed in writing by telex, telecopier or other writing by the close of business on the day notice is given, delivered (or telephoned, as the case may be) to the intended recipient at the "Address for Notices" specified below its name on the signature pages hereof); or, as to any party, at such other address as shall be designated by such party in a notice to each other party. Except as otherwise provided in this Agreement, (a) notices shall be given to the Agent by telephone, confirmed by telex, telecopy or other writing by the close of business on the day notice is given, and (b) notices to the Banks and to the Borrower by telecopy, commercial overnight courier service, ordinary mail, or telex addressed to such party at its address on the signature page of this Agreement. Notices shall be effective: (i) if given by mail, three (3) days after deposit in the mails with first class postage prepaid, addressed as aforesaid; (ii) if given by telex, when the telex is transmitted to the telex number as aforesaid, and (iii) in all other cases when delivered or received. Provided, however, that notices to the Agent and the Banks shall be effective upon receipt. Section 11.07. Setoff. The Borrower agrees that, in addition to (and without limitation of) any right of setoff, banker's lien or counterclaim a Bank may otherwise have, each Bank shall be entitled, at its option, to offset balances (general or special, time or demand, provisional or final) held by it for the account of the Borrower at any of such Bank's offices, in Dollars or in any other currency, against any amount payable by the Borrower to such Bank under this Agreement or such Bank's Note which is not paid when due (regardless of whether such balances are then due to the Borrower), in which case it shall promptly notify the Borrower and the Agent thereof; provided that such Bank's failure to give such notice shall not affect the validity thereof. Payments by the Borrower hereunder shall be made without setoff or counterclaim. SECTION 11.08. JURISDICTION; IMMUNITIES. (a) THE BORROWER HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY NEW YORK STATE OR UNITED STATES FEDERAL COURT SITTING IN NEW YORK COUNTY OVER ANY 34 ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE NOTES, AND THE BORROWER HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH NEW YORK STATE OR FEDERAL COURT. THE BORROWER IRREVOCABLY CONSENTS TO THE SERVICE OF ANY AND ALL PROCESS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES OF SUCH PROCESS TO THE BORROWER AT ITS ADDRESS SPECIFIED IN SECTION 11.06. THE BORROWER AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. THE BORROWER FURTHER WAIVES ANY OBJECTION TO VENUE IN SUCH STATE AND ANY OBJECTION TO AN ACTION OR PROCEEDING IN SUCH STATE ON THE BASIS OF FORUM NON CONVENIENS. THE BORROWER FURTHER AGREES THAT ANY ACTION OR PROCEEDING BROUGHT AGAINST THE AGENT SHALL BE BROUGHT ONLY IN NEW YORK STATE OR UNITED STATES FEDERAL COURT SITTING IN NEW YORK COUNTY. THE BORROWER WAIVES ANY RIGHT IT MAY HAVE TO JURY TRIAL. (b) Nothing in this Section 11.08 shall affect the right of the Agent or any Bank to serve legal process in any other manner permitted by law or affect the right of the Agent or any Bank to bring any action or proceeding against the Borrower or its property in the courts of any other jurisdictions. (c) To the extent that the Borrower has or hereafter may acquire any immunity from jurisdiction of any court or from any legal process (whether from service or notice, attachment prior to judgment, attachment in aid of execution, execution or otherwise) with respect to itself or its property, the Borrower hereby irrevocably waives such immunity in respect of its obligations under this Agreement and the Notes. Section 11.09. Table of Contents; Headings. Any table of contents and the headings and captions hereunder are for convenience only and shall not affect the interpretation or construction of this Agreement. Section 11.10. Severability. The provisions of this Agreement are intended to be severable. If for any reason any provision of this Agreement shall be held invalid or unenforceable in whole or in part in any jurisdiction, such provision shall, as to such jurisdiction, be ineffective to the extent of such invalidity or unenforceability without in any manner affecting the validity or enforceability thereof in any other jurisdiction or the remaining provisions hereof in any jurisdiction. Section 11.11. Counterparts. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument, and any party hereto may execute this Agreement by signing any such counterpart. 35 Section 11.12. Integration. The Facility Documents set forth the entire agreement among the parties hereto relating to the transactions contemplated thereby and supersede any prior oral or written statements or agreements with respect to such transactions. SECTION 11.13. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND INTERPRETED AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, INCLUDING SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW, BUT EXCLUDING ALL OTHER CONFLICT-OF-LAW RULES. Section 11.14. Confidentiality. Each Bank and the Agent agrees (on behalf of itself and each of its affiliates, directors, officers, employees and representatives) to use reasonable precautions to keep confidential, in accordance with safe and sound banking practices, any non-public information supplied to it by the Borrower pursuant to this Agreement which is identified by the Borrower as being confidential at the time the same is delivered to the Banks or the Agent, provided that nothing herein shall limit the disclosure of any such information (a) to the extent required by statute, rule, regulation or judicial process, (b) to counsel for any of the Banks or the Agent, (c) to bank examiners, auditors or accountants, (d) in connection with any litigation to which any one or more of the Banks is a party, (e) to any assignee or participant (or prospective assignee or participant) so long as such assignee or participant (or prospective assignee or participant) first executes and delivers to the respective Bank a Confidentiality Agreement in substantially the form of Exhibit D hereto; or (f) to the extent such information becomes publicly available other than as a result of disclosure by a Bank; and provided further that in no event shall any Bank or the Agent be obligated or required to return any materials furnished by the Borrower. Section 11.15. Treatment of Certain Information. The Borrower (a) acknowledges that services may be offered or provided to it (in connection with this Agreement or otherwise) by each Bank or by one or more of their respective subsidiaries or affiliates and (b) acknowledges that any information delivered to each Bank or its subsidiaries or affiliates regarding the Borrower may be shared among such Bank and such subsidiaries and affiliates. This Section 11.15 shall survive the repayment of the Loans and the termination of the Commitments. Section 11.16. Currency. This is an international loan transaction in which the specification of Dollars and payment in State of New York, is of the essence, and Dollars shall be the currency of account in all events relating to the Loans. The payment obligations of the Borrower under this Agreement and the Notes shall not be discharged by an amount paid in another currency or in another place, whether pursuant to a judgment or otherwise, to the extent that the amount so paid on conversion to Dollars and transferred to the place of payment under normal banking procedures does not yield the amount of Dollars due hereunder. If for the purpose of obtaining a judgment in any court it is necessary to convert a sum due hereunder in Dollars into another Currency (the "Second Currency"), the rate of exchange which shall be applied shall be that at which in accordance with the normal banking procedures the Agent could purchase Dollars with the Second Currency on the Business Day next preceding that on which such judgment is rendered. The obligation of the Borrower in respect of any sum due from it 36 to the Agent or any Bank hereunder (an "Entitled Person") shall, notwithstanding the rate of exchange actually applied in rendering such judgment, be discharged only to the extent that on the Business Day following receipt by such Entitled Person of any sum adjudged to be due hereunder or under the Notes in the Second Currency, such Entitled Person may in accordance with normal banking procedures purchase and transfer to place of payment, Dollars with the amount of the Second Currency so adjudged to be due; and the Borrower hereby, as a separate obligation and notwithstanding any judgment, agrees to indemnify such Entitled Person against, and to pay such Entitled Person on demand in Dollars, any difference between the sum originally due to such Entitled Person in Dollars in the amount of Dollars so purchase and transferred. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written. HARDINGE INC. By: ---------------------------------------------------- Robert E. Agan, Chairman of the Board, President and Chief Executive Officer Address for Notices: One Hardinge Drive Elmira, New York 14902 Telephone No.: (607) 734-2281 Telecopier No.: (607) 734-5517 37 AGENT: THE CHASE MANHATTAN BANK (NATIONAL ASSOCIATION) By ---------------------------------------------------- Michelle Benedict-Jones, Vice President Address for Notices: 4 Chase MetroTech Center 13th Floor Brooklyn, New York 11245 Attention: New York Agency Telex: 6720516 CMBNYAUW Alternate Telex: 62910 CMBUW Telephone No.: (718) 242-7977 Telecopier No.: (718) 242-6910 38 BANKS: THE CHASE MANHATTAN BANK (NATIONAL ASSOCIATION) By ---------------------------------------------------- Michelle Benedict-Jones, Vice President Lending Office and Address for Notices: One Chase Square Rochester, New York 14643 Attention: Hardinge Loan Officer Telephone No.: (716) 258-5437 Telecopier No.: (716) 258-7604 39 CHEMICAL BANK By ---------------------------------------------------- Christine McLeod, Vice President Lending Offices: 1975 Lake Street Elmira, New York 14901 Attention: Christine McLeod, Vice President Telephone No.: (607) 734-4227 Telecopier No.: (607) 734-7645 Address for Notices: 4 New York Plaza, 17th Floor New York, New York 10004-2477 Attention: Ruth Tortorici Telephone No.: (212) 623-2508 Telecopier No.: (212) 797-3426 Telex: CHEMUS 3321BF 40 MARINE MIDLAND BANK By ---------------------------------------------------- Ronald W. Lesch, Vice President Lending Offices: One Marine Midland Plaza Binghamton, New York 13902 Attention: Ronald W. Lesch, Vice President Telephone No.: (607) 772-5670 Telecopier No.: (607) 772-5611 Address for Notices: One Marine Midland Plaza Binghamton, New York 13902 Attention: Patricia Peaslee, Regional Support Telephone No.: (607) 772-5670 Telecopier No.: (607) 772-5611 21480.03 41 EXHIBIT A [Form of Note] PROMISSORY NOTE $__________________ ____________, 19__ New York, New York HARDINGE INC. (the "Borrower"), a corporation organized under the laws of New York, for value received, hereby promises to pay to the order of _________________________________ (the "Bank") at the principal office of The Chase Manhattan Bank (National Association), at 1 Chase Manhattan Plaza New York, New York 10081 or at such other place as required by the Credit Agreement referred to below, for the account of the appropriate Lending Office of the Bank, the principal amount of $__________________ in lawful money of the United States of America and in immediately available funds, on the date(s) and in the manner provided in the Credit Agreement referred to below. The Borrower also promises to pay interest on the unpaid principal balance of the Loan in like money, for the period such balance is outstanding, at said principal office for the account of said Lending Office, at the rates of interest as provided in the Credit Agreement, on the dates and in the manner provided in said Credit Agreement. The date and amount of the Loan made by the Bank to the Borrower under the Credit Agreement referred below, interest rate, Interest Period, maturity date and each payment of principal thereof, shall be recorded by the Bank on its books and, prior to any transfer of this Note (or, at the discretion of the Bank, at any other time), endorsed by the Bank on the schedule attached hereto or any continuation thereof; provided, however, the failure of the Bank to make any such recordation or endorsement shall not affect the obligations of the Borrower to make payment when due of any amount owing under the Credit Agreement or hereunder in respect of the Variable Rate Loans made by the Bank. This is one of the Notes referred to in that certain Credit Agreement (as amended from time to time the "Credit Agreement") dated as of February 28, 1996 among the Borrower, the Banks named therein (including the Bank) and the Agent and evidences the Loan made by the Bank thereunder. All terms not defined herein shall have the meanings given to them in the Credit Agreement. The Credit Agreement provides for the acceleration of the maturity of principal upon the occurrence of certain Events of Default and for prepayments on the terms and conditions specified therein. The Borrower waives presentment, notice of dishonor, protest and any other notice or formality with respect to this Note. The Borrower waives to the full extent permitted by applicable law the right to trial by jury in any legal proceeding arising out of or relating to this Note. This Note shall be governed by, and interpreted and construed in accordance with, the laws of the State of New York, including Section 5-1401 of the New York General Obligations Law (or any similar successor provision thereto) but excluding all other conflict-of-law rules. HARDINGE INC. By -------------------------------- Name: Title: SCHEDULE TO NOTE Duration Amount Interest of Interest Amount of Balance Notation Date of Loan Rate Period Payment Outstanding By EXHIBIT B [Form of Authorization Letter] ___________________, 1996 The Chase Manhattan Bank, N.A. 4 Chase MetroTech Center, 13th Floor Brooklyn, New York 11245 Attn: New York Agency Re: Credit Agreement dated as of February 28, 1996 (the "Credit Agreement") among Hardinge Inc. the Banks named therein, and The Chase Manhattan Bank (National Association) as Agent for said Banks Ladies and Gentlemen: In connection with the captioned Credit Agreement, we hereby designate any one of the following persons to give to you instructions, including notices required pursuant to the Agreement, orally or by telephone or teleprocess: NAME (Typewritten) ------------------------------------------ ------------------------------------------ ------------------------------------------ ------------------------------------------ Instructions may be honored on the oral, telephonic or teleprocess instructions of anyone purporting to be any one of the above designated persons even if the instructions are for the benefit of the person delivering them. We will furnish you with confirmation of each such instruction either by telex (whether tested or untested) or in writing signed by any person designated above (including any telecopy which appears to bear the signature of any person designated above) on the same day that the instruction is provided to you but your responsibility with respect to any instruction shall not be affected by your failure to receive such confirmation or by its contents. You shall be fully protected in, and shall incur no liability to us for, acting upon any instructions which you in good faith believe to have been given by any person designated above, and in no event shall you be liable for special, consequential or punitive damages. In addition, we agree to hold you and your agents harmless from any and all liability, loss and expense arising directly or indirectly out of instructions that we provide to you in connection with the Credit Agreement except for liability, loss or expense occasioned by the gross negligence or willful misconduct of you or your agents. Upon notice to us, you may, at your option, refuse to execute any instruction, or part thereof, without incurring any responsibility for any loss, liability or expense arising out of such refusal if you in good faith believe that the person delivering the instruction is not one of the persons designated above or if the instruction is not accompanied by an authentication method that we have agreed to in writing. We will promptly notify you in writing of any change in the persons designated above and, until you have actually received such written notice and have had a reasonable opportunity to act upon it, you are authorized to act upon instructions, even though the person delivering them may no longer be authorized. Very truly yours, HARDINGE INC. By ----------------------------- Name: Title: EXHIBIT C [Letterhead of counsel to the Borrower] [Closing Date] The Chase Manhattan Bank (National Association) 1 Chase Manhattan Plaza New York, New York 10081 [other Banks] Ladies and Gentlemen: We have acted as counsel to Hardinge Inc. (the "Borrower") in connection with the execution and delivery of that certain Credit Agreement (the "Credit Agreement") dated as of February 28, 1996 among the Borrower, the Banks signatory thereto and The Chase Manhattan Bank (National Association) as Agent. Except as otherwise defined herein, all terms used herein and defined in the Credit Agreement or any agreement delivered thereunder shall have the meanings assigned to them therein. In connection with the preparation of this Opinion, we have examined originals or counterparts, executed on behalf of the Borrower, of the Facility Documents and the exhibits attached thereto in originals or copies, certified to our satisfaction, of such records, certificates and documents as we deemed relevant and necessary as a basis for rendering this Opinion. Based upon the foregoing, and having regard to such legal considerations as we deem relevant, we are of the opinion that: 1. The Borrower and to the best of our knowledge, each of its Subsidiaries is a corporation duly incorporated, validly existing and in good standing under the laws of the jurisdiction of its incorporation, has all power and authority to carry on its business as presently being conducted and to own its properties, and is duly licensed or qualified and in good standing as a foreign corporation in each other jurisdiction in which its properties are located or in which failure to qualify would materially and adversely affect either the conduct or its business or the enforceability of contractual rights of the Borrower. 2. The execution, delivery and performance by the Borrower of the Facility Documents to which it is a party have been duly authorized by all necessary corporate action and do not and will not: (a) require any consent or approval of its stockholders; (b) contravene its charter or by-laws; (c) contravene any law or to the best of our knowledge contractual restriction or provision binding on or affecting the Borrower. 3. No authorization or approval or other action by, and no notice to or filing with any governmental authority or regulatory body is required for the due execution, delivery and performance by the Borrower of the Facility Documents. 4. The Credit Agreement is, and the other Facility Documents when executed thereunder will be, legal, valid and binding obligations enforceable in accordance with their respective terms, except that (a) the availability of equitable remedies may be limited by principals of equity, and (b) enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application relating to or affecting the enforcement of the rights of creditors generally. 5. Each Facility Document to which the Borrower is a party is, or when delivered under the Credit Agreement will be, a legal, valid and binding obligation of the Borrower, enforceable against the Borrower in accordance with its terms, except to the extent that such enforcement may be limited by applicable bankruptcy, insolvency and other similar laws affecting creditors' rights generally. 6. There is no pending, or to our knowledge threatened actions, suits or proceedings against or affecting the Borrower or any of its Subsidiaries before any court, governmental agency or arbitrator, which may, in any one case or in the aggregate, materially adversely affect the financial condition or operations of the Borrower or of any such Subsidiary, or the ability of the Borrower to perform its obligations under the Facility Documents to which it is a party. Very truly yours, EXHIBIT D CONFIDENTIALITY AGREEMENT [Date] [Insert Name and Address of Prospective Participant or Assignee] Re: Credit Agreement dated as of February 28, 1996 between Hardinge Inc., the Banks party thereto, and The Chase Manhattan Bank (National Association) as Agent. Dear ________________ As a Bank, party to the above-referenced Credit Agreement (the "Credit Agreement"), we have agreed with Hardinge Inc. (the "Borrower") pursuant to Section 11.14 of the Credit Agreement to use reasonable precautions to keep confidential, except as otherwise provided therein, all non-public information identified by the Borrower as being confidential at the time the same is delivered to us pursuant to the Credit Agreement. As provided in said Section 11.14, we are permitted to provide you, as a prospective [holder of a participation in the Loans (as defined in the Credit Agreement)] [assignee Bank], with certain of such non-public information subject to the execution and delivery by you, prior to receiving such non-public information, of a Confidentiality Agreement in this form. Such information will not be made available to you until your execution and return to us of this Confidentiality Agreement. Accordingly, in consideration of the foregoing, you agree (on behalf of yourself and each of your affiliates, directors, officers, employees and representatives) that (A) such information will not be used by you except in connection with the proposed [participation] [assignment] mentioned above and (B) you shall use reasonable precautions, in accordance with your customary procedures for handling confidential information and in accordance with safe and sound banking practices, to keep such information confidential, provided that nothing herein shall limit the disclosure of any such information (i) to the extent required by statute, rule, regulation or judicial process, (ii) to your counsel or to counsel for any of the Banks or the Agent, (iii) to bank examiners, auditors or accountants, (iv) in connection with any litigation to which you or any one or more of the Banks is a party; or (v) to the extent such information becomes publicly available other than as a result of disclosure other than as a result of disclosure by a Bank. Provided further, that, unless specifically prohibited by applicable law or court order, you agree, prior to disclosure thereof, to notify the Borrower of any request for disclosure of any such non-public information (x) by any governmental agency or representative thereof (other than any such request in connection with an examination of your financial condition by such governmental agency) or (y) pursuant to legal process; and provided finally that in no event shall you be obligated to return any materials furnished to you pursuant to this Confidentiality Agreement. Would you please indicate your agreement to the foregoing by signing at the place provided below the enclosed copy of this Confidentiality Agreement. Very truly yours, [Insert Name of Bank] By: --------------------------------- The foregoing is agreed to as of the date of this letter. [Insert name of prospective participant or assignee] By: ----------------------------- SCHEDULE I Subsidiaries of Borrower
Jurisdiction Percentage Name and Address of Incorporation of Ownership Hardinge Credit Co., Inc. One Hardinge Drive Elmira, New York 14902 New York 100% Hardinge Technologies Systems,Inc. One Hardinge Drive Elmira, New York 14902 New York 100% Morrison Machine Products, Inc. One Hardinge Drive Elmira, New York 14902 New York 100% Canadian Hardinge Machine Tools, Ltd. Toronto, Canada Canada 100% Hardinge Machine Tools, Ltd. Exeter, England United Kingdom 100% Hardinge Brothers GmbH Krefield, West Germany Federal Republic of Germany 100% L. Kellenberger & Co., A.G. Switzerland 100% Kellenberger, Inc. New York 100%
SCHEDULE II Hazardous Materials In December, 1992, Hardinge removed an underground waste oil tank at its College Avenue facility. Environmental sampling following the removal of the tank disclosed the presence of hydrocarbon contamination in surrounding soils. An environmental consultant retained by Hardinge prepared a site assessment and an action plan for on-site remediation which were adopted and approved by the New York State Department of Environmental Conservation. The project is on site. Remediation commenced in the Fall of 1995. SCHEDULE III Partnerships of Borrower Egret Aviation Co. Ownership of airplane with three other companies. Box 228 Elmira, New York 14902 21480.03 EX-27 4 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTIANS SUMMARY INFORMATION EXTRACTED FROM THE COMPANY'S UNAUDITED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-1996 MAR-31-1996 5,821 0 60,343 0 86,084 144,102 109,330 50,789 215,250 35,676 32,706 65 0 0 139,466 215,250 59,622 59,622 40,290 11,570 0 0 522 7,455 2,985 4,470 0 0 0 4,470 0.72 0.72
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