-----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, WNQn0WauOnb7Nc0NEtuxpBb1WktW6LE0RAHiWyyClcL7JbApXsbBo3qOeh8Ls8CK Z1n+Juma8tvOfjIHTIH8Pw== 0000909012-01-500088.txt : 20010515 0000909012-01-500088.hdr.sgml : 20010515 ACCESSION NUMBER: 0000909012-01-500088 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20010320 FILED AS OF DATE: 20010514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FOSTER WHEELER CORP CENTRAL INDEX KEY: 0000038321 STANDARD INDUSTRIAL CLASSIFICATION: HEAVY CONSTRUCTION OTHER THAN BUILDING CONST - CONTRACTORS [1600] IRS NUMBER: 131855904 STATE OF INCORPORATION: NY FISCAL YEAR END: 1225 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-00286 FILM NUMBER: 1634155 BUSINESS ADDRESS: STREET 1: PERRYVILLE CORPORATE PARK STREET 2: SERVICE ROAD EST 173 CITY: CLINTON STATE: NJ ZIP: 08809 BUSINESS PHONE: 9087304090 10-Q 1 t22568.txt QUARTERLY REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934. FOR THE QUARTERLY PERIOD ENDED MARCH 30, 2001 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 NUMBER 1-286-2 FOSTER WHEELER CORPORATION ------------------------------------------ (Exact name of registrant as specified in its charter) NEW YORK 13-1855904 - ------------------------------------------ -------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) PERRYVILLE CORPORATE PARK, CLINTON, NJ 08809-4000 - -------------------------------------- ------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (908) 730-4000 --------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes (X) No ( ) Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 40,779,560 shares of the Corporation's common stock ($1.00 par value) were outstanding as of March 30, 2001. FOSTER WHEELER CORPORATION INDEX Part I Financial Information: Item 1 - Financial Statements: Condensed Consolidated Balance Sheet at March 30, 2001 and December 29, 2000 Condensed Consolidated Statement of Earnings and Comprehensive Income for the Three Months Ended March 30, 2001 and March 31, 2000 Condensed Consolidated Statement of Cash Flows for the Three Months Ended March 30, 2001 and March 31, 2000 Notes to Condensed Consolidated Financial Statements Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations Item 3 - Quantitative and Qualitative Disclosures about Market Risk Part II Other Information Item 1 - Legal Proceedings Item 4 - Submission of Matters to a Vote of Security Holders Item 6 - Exhibits and Reports on Form 8-K Signatures PART I FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS
FOSTER WHEELER CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET (In Thousands of Dollars) March 30, 2001 December 29, (UNAUDITED) 2000 ---------- ---- ASSETS CURRENT ASSETS: Cash and cash equivalents ................................ $ 158,930 $ 191,893 Short-term investments ................................... 2,613 1,816 Accounts and notes ....................................... 824,203 889,166 receivable Contracts in process and inventories ..................... 498,572 464,329 Prepaid, deferred and refundable income taxes ............ 46,526 50,316 Prepaid expenses ......................................... 26,507 25,456 ----------- ----------- Total current assets ................................. 1,557,351 1,622,976 ----------- ----------- Land, buildings and equipment ................................. 855,395 865,349 Less accumulated depreciation ................................. 372,173 370,315 ----------- ----------- Net book value ....................................... 483,222 495,034 ----------- ----------- Notes and accounts receivable - long-term ..................... 76,709 76,238 Investment and advances ....................................... 116,418 120,551 Intangible assets, net ........................................ 282,815 288,135 Prepaid pension cost and benefits ............................. 184,031 189,261 Other, including insurance recoveries ......................... 589,352 588,474 Deferred income taxes ......................................... 97,366 96,859 ----------- ----------- TOTAL ASSETS ......................................... $ 3,387,264 $ 3,477,528 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current installments on long-term debt ................... $ 20,044 $ 19,876 Bank loans ............................................... 100,347 103,479 Accounts payable and accrued expenses .................... 638,281 708,515 Estimated costs to complete long-term contracts .......... 474,703 521,277 Advance payments by customers ............................ 62,902 62,602 Income taxes ............................................. 33,350 38,854 ----------- ----------- Total current liabilities ............................ 1,329,627 1,454,603 Corporate and other debt less current installments ............ 363,180 306,001 Special-purpose project debt less current installments ........ 250,844 255,304 Deferred income taxes ......................................... 14,889 15,334 Postretirement and other employee benefits other than pensions 156,276 159,667 Other long-term liabilities and minority interest ............. 634,598 637,190 Subordinated Robbins Facility exit funding obligations ........ 110,340 110,340 Mandatorily redeemable preferred securities of subsidiary trust holding solely junior subordinated deferrable interest debentures ............................................... 175,000 175,000 ----------- ----------- TOTAL LIABILITIES .................................... 3,034,754 3,113,439 ----------- ----------- STOCKHOLDERS' EQUITY: Common Stock................................................... 40,804 40,748 Paid-in capital ............................................... 201,444 200,963 Retained earnings ............................................. 246,912 241,250 Accumulated other comprehensive loss .......................... (136,468) (118,707) ----------- ----------- 352,692 364,254 Less cost of treasury stock ................................... 182 165 ----------- ----------- TOTAL STOCKHOLDERS' EQUITY .................................... 352,510 364,089 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .......................................... $ 3,387,264 $ 3,477,528 =========== =========== See notes to condensed consolidated financial statements.
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FOSTER WHEELER CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF EARNINGS AND COMPREHENSIVE INCOME (In Thousands of Dollars, Except Per Share Amounts) (Unaudited) THREE MONTHS ENDED ------------------ MARCH 30, 2001 MARCH 31, 2000 -------------- -------------- Revenues: Operating revenues ......................... $ 682,643 $ 822,036 Other income ............................... 15,592 14,260 ------------ ------------ Total revenues ............................. 698,235 836,296 ------------ ------------ Costs and expenses: Cost of operating revenues ................. 607,685 741,558 Selling, general and adminis- trative expenses ........................ 51,397 54,101 Other deductions/minority interest ................................ 24,709 23,011 Dividends on preferred security of subsidiary trust ..................... 3,937 3,937 ------------ ------------ Total costs and expenses ................... 687,728 822,607 ------------ ------------ Earnings before income taxes ................... 10,507 13,689 Provisions for income taxes .................... 2,402 5,317 ------------ ------------ Net earnings ................................... 8,105 8,372 Other comprehensive loss: Foreign currency translation adjustment .............................. (17,716) (12,115) Change in unrealized losses on derivative instruments, net of tax ................. (6,345) Cumulative effect on prior years (to December 29, 2000) of change in accounting principle for derivatives, net of tax ........... 6,300 ------------ ------------ Comprehensive loss ............................. $ (9,656) $ (3,743) ============ ============ Earnings per share: Basic ...................................... $ .20 $ .21 ============ ============ Diluted .................................... $ .20 $ .21 ============ ============ Shares outstanding: Basic ...................................... 40,834,909 40,776,234 Diluted .................................... 310,261 338 ------------ ------------ Total diluted .............................. 41,145,170 40,776,572 ============ ============ Cash dividends paid per Common share ............................... $ .06 $ .06 ============ ============ See notes to condensed consolidated financial statements.
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FOSTER WHEELER CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (In Thousands of Dollars) (Unaudited) THREE MONTHS ENDED ------------------ MARCH 30, 2001 MARCH 31, 2000 -------------- -------------- CASH FLOWS FROM OPERATING ACTIVITIES Net earnings ............................................... $ 8,105 $ 8,372 Adjustments to reconcile net earnings to cash flows from operating activities: Depreciation and amortization .............................. 13,873 15,086 Deferred tax ............................................... (612) 1,011 Equity earnings, net of dividends .......................... (2,782) (4,546) Other ...................................................... (127) (3,869) Changes in assets and liabilities: Receivables ................................................ 38,231 55,562 Contracts in process and inventories ....................... (23,300) (26,155) Accounts payable and accrued expenses ...................... (48,742) (59,528) Estimated costs to complete long-term contracts ............ (51,757) 14,637 Advance payments by customers .............................. 3,247 19,999 Income taxes ............................................... (1,804) 3,798 Other assets and liabilities ............................... (2,401) (5,726) --------- --------- NET CASH (USED)/PROVIDED BY OPERATING ACTIVITIES ........... (68,069) 18,641 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures ....................................... (9,009) (11,208) Proceeds from sale of properties ........................... 259 798 Decrease in investments and advances ....................... 7,587 5,316 (Increase)/decrease in short-term investments .............. (804) 1,982 Partnership distributions .................................. (1,367) (2,599) --------- --------- NET CASH USED BY INVESTING ACTIVITIES ...................... (3,334) (5,711) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Dividend to stockholders ................................... (2,443) (2,443) Repurchase of common stock ................................. (37) (83) Proceeds from exercise of stock options .................... 531 -- Increase in short-term debt ................................ 5,160 22,569 Proceeds from long-term debt ............................... 50,012 3,321 Repayment of long-term debt ................................ (4,300) (14,067) --------- --------- NET CASH PROVIDED BY FINANCING ACTIVITIES .................. 48,923 9,297 --------- --------- Effect of exchange rate changes on cash and cash equivalents (10,483) (4,780) --------- --------- (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS ........... (32,963) 17,447 Cash and cash equivalents at beginning of year ............. 191,893 170,268 --------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD ................. $ 158,930 $ 187,715 ========= ========= Cash paid during period: Interest (net of amount capitalized) ....................... $ 10,945 $ 9,855 Income taxes ............................................... $ 2,556 $ 4,329
See notes to condensed consolidated financial statements. 3 FOSTER WHEELER CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED) 1. The condensed consolidated balance sheet as of March 30, 2001, and the related condensed consolidated statements of earnings and comprehensive income and cash flows for the three month period ended March 30, 2001 and March 31, 2000 are unaudited. In the opinion of management, all adjustments necessary for a fair presentation of such financial statements have been included. Such adjustments only consisted of normal recurring items. Interim results are not necessarily indicative of results for a full year. The financial statements and notes are presented in accordance with the requirements of Form 10-Q and do not contain certain information included in Foster Wheeler Corporation's Annual Report on Form 10-K for the fiscal year ended December 29, 2000 filed with the Securities and Exchange Commission on March 6, 2001, as amended by the Form 10K/A, (2000 Form 10-K) filed with the Securities and Exchange Commission on May 11, 2001. The Condensed Consolidated Balance Sheet as of December 29, 2000 has been derived from the audited Consolidated Balance Sheet included in the 2000 Form 10-K. A summary of Foster Wheeler Corporation's significant accounting policies is presented on pages 27, 28 and 29 in its 2000 Form 10-K. Users of financial information produced for interim periods are encouraged to refer to the footnotes contained in the 2000 Form 10-K when reviewing interim financial results. There has been no material change in the accounting policies followed by Foster Wheeler Corporation (hereinafter referred to as "Foster Wheeler" or the "Corporation") during the first quarter of 2001, except for the adoption of Statement of Financial Accounting Standard No. 133, "Accounting for Derivative Instruments and Hedging Activities", as discussed in Note 8. 2. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the period reported. Actual results could differ from those estimates. Significant estimates are used when accounting for long-term contracts including customer and vendor claims, depreciation, employee benefit plans, taxes, and contingencies, among others. As of March 30, 2001 and December 29, 2000, costs of approximately $175,000 were included in assets, primarily in receivables and contracts in process, representing amounts expected to be realized from claims to customers. These claims have been recognized in accordance with the AICPA's Statement of Position 81-1, "Accounting for Performance of Construction - Type and Certain Production - Type Contracts". This Statement requires that it be probable that the claim will result in additional contract revenue and the amount can be reliably estimated. Such claims are currently in various stages of negotiation, arbitration and other legal proceedings. Accordingly, it is possible that the amounts realized could differ materially from the balances included in the financial statements. Management believes that these matters will be resolved without a material effect on the Corporation's financial position or results of operations. 3. The Corporation maintains two revolving credit agreements (the "Revolving Credit Agreements") consisting of a $270,000 multi-year facility dated December 1, 1999 that expires on February 12, 2003 and a 364 day facility in the amount of $76,250 dated May 31, 2000 that expires on May 30, 2001. In 2001, the Corporation and the banks that are party to the Revolving Credit Agreements consented to amend those agreements (the "Amendments") on two occasions. The first Amendments provided for the following: (i) provisions associated with the planned change of domicile to Bermuda, (ii) provisions associated with the potential monetization, as previously announced, of certain build, own and operated assets, and (iii) the modification of certain financial covenants. The second amendment was only for the long-term revolving credit agreement. This amendment allows Foster 4 Wheeler LLC to make payments to Foster Wheeler Ltd. in amounts sufficient to pay amounts due on the notes. The Revolving Credit Agreements require, among other things, that the Corporation maintain a maximum consolidated leverage ratio and a minimum consolidated fixed charge coverage ratio. The Corporation was in compliance with the covenants under the Revolving Credit Agreements as amended as of March 30, 2001. Loans under the Revolving Credit Agreements bear interest at a floating rate and are used for general corporate purposes. At March 30, 2001, $135,000 was borrowed under the Long-Term Revolving Credit Agreement and $76,250 was borrowed under the Short-Term Revolving Credit Agreement. These amounts appear on the Consolidated Balance Sheet under the captions "Corporate and Other Debt" and "Bank Loans", respectively. The Corporation pays various fees to the lenders under these agreements. The Corporation is also permitted to allocate a portion of its available credit under the Long-Term Revolving Credit Agreement for the issuance of standby letters of credit. Such amounts are not recorded as funded indebtedness, and at March 30, 2001, $111,180 of such standby letters of credit were outstanding. On January 13, 1999 FW Preferred Capital Trust I, a Delaware Business Trust which is a 100% owned finance subsidiary of the Corporation, issued $175,000 in Preferred Trust Securities. The Preferred Trust Securities are fully and unconditionally guaranteed by the Corporation. These Preferred Trust Securities are entitled to receive cumulative cash distributions at an annual rate of 9.0%. Distributions are paid quarterly in arrears on April 15, July 15, October 15 and January 15 of each year. Such distributions may be deferred for periods up to five years. The maturity date is January 15, 2029. Foster Wheeler can redeem these Preferred Trust Securities on or after January 15, 2004. 4. In connection with the Robbins agreements referred to in PART II, ITEM 1 - LEGAL PROCEEDINGS, Foster Wheeler agreed to fund, on a subordinated basis, the following: (a) 1999C Bonds 7 1/4% interest, installments due October 15, 2009 ($16,560) and October 15, 2024 ($77,155) $ 93,715 (b) 1999D Bonds accrued at 7% due October 15, 2009 18,000 ---------- Total $111,715 ========== 1999C BONDS. The 1999C Bonds are subject to mandatory sinking fund reduction prior to maturity at a Redemption Price equal to 100% of the principal amount thereof, plus accrued interest to the redemption date. 5. At March 30, 2001, a total of 4,240,801 shares of common stock were reserved for issuance under various stock option plans; of this total, 586,180 were not under option. 6. Basic per share data has been computed based on the weighted average number of shares of common stock outstanding. Diluted per share data has been computed based on the basic plus the dilution of stock options. In 1999, the Corporation adopted The Directors Deferred Compensation and Stock Award Plan (the "Plan"). Under the Plan, each non-management director is credited annually with share units of the Corporation's common stock. In addition, each non-management director may elect to defer receipt of compensation for services rendered as a director, which deferred amount is credited to his or her account in the form of share units. The Corporation makes a supplemental contribution equal to 15% of the deferred amount. For the three months ended March 30, 2001, 12,806 share units were credited in participants' accounts. As of March 30, 2001, 101,081 share units were credited in participants' accounts and are included in the calculation of basic earnings per share. 5 7. Interest income and cost for the following periods are: THREE MONTHS ENDED ------------------ MARCH 30, 2001 MARCH 31, 2000 -------------- -------------- Interest Income $ 3,438 $ 2,750 ======= ======== Interest Cost $20,895 $ 20,886 ======= ======== Included in the interest cost is interest capitalized on self-constructed assets, which was $130 and $1,475 for the quarters ended March 30, 2001 and March 31, 2000, respectively. Interest cost for the three months ended March 30, 2001 and March 31, 2000, also included $3,937 for dividends on Preferred Trust Securities. 8. Effective January 1, 2001, the Corporation adopted Statement of Financial Accounting Standard ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended by SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133, an amendment of FASB Statement No. 133", and Statement of SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities", an amendment of FASB Statement No. 133. These statements requires that all derivative instruments be reported on the balance sheet at fair value. The Corporation operates on a worldwide basis. The Corporation's activities expose it to risks related to the effect of changes in the foreign-currency exchange rates. The Corporation maintains a foreign-currency risk-management strategy that uses derivative instruments to protect its interests from unanticipated fluctuations in earnings and cash flows that may arise from volatility in currency exchange rates. These items have been designated as cash flow hedges. The Corporation does not engage in currency speculation. The Corporation's forward exchange contracts do not subject the Corporation to significant risk from exchange rate movement because gains and losses on such contracts offset losses and gains, respectively, in the transactions being hedged. The Corporation is exposed to credit loss in the event of non-performance by the counter-parties. All of these counter- parties are significant financial institutions that are primarily rated A or better by Standard & Poor's or A2 or better by Moody's. The amount of unrealized gains owed to the Corporation by counter-parties at March 30, 2001 is $17,762 and is included in Contracts in process and inventories. The amount of unrealized losses owed by the Corporation to the counter-parties at March 30, 2001 is $17,832 and is included in Estimated costs to complete long-term contracts. A $45 net of tax loss was recorded in Other Comprehensive Income as of March 30, 2001. The Corporation formally documents its hedge relationships at inception, including identification of the hedging instruments and the hedged items, as well as its risk management objectives and strategies for undertaking the hedge transaction. The Corporation also formally assesses both at inception and at least quarterly thereafter, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in the fair value of the hedged items. Changes in the fair value of these derivatives are recorded in other comprehensive income until earnings are affected by the recognition of the foreign exchange gains and losses associated with the hedged forecasted transaction. Such amounts, if they occur, will be included in operating revenues or cost of operating revenues. Any hedge amount by which the changes in fair value of the derivative exceed the recognition of the foreign exchange gains and losses associated with the hedged forecasted transactions, is recorded in current period earnings as other income or other deductions. There were no amounts excluded from the assessment of hedge effectiveness and there was no hedge ineffectiveness for the three months ended March 30, 2001. No amounts were reclassified to earnings during the first quarter in connection with forecasted transactions that are no longer considered probable of occurring. 6 The Corporation recorded a $6,300 net of tax cumulative-effect adjustment in the comprehensive income relating to fair value of hedging instruments as of December 30, 2000 (The first day of the new fiscal year). As of March 30, 2001, $2,995 of deferred net losses on derivative instruments accumulated in other comprehensive income are expected to be reclassified as earnings during the next twelve months based upon the realization of the forecasted cash flows of the transactions. As of December 29, 2000, $5,045 of deferred net gains on derivative instruments accumulated in other comprehensive income was expected to be reclassified as earnings during the next twelve months based upon the recognition of the foreign exchange gains and losses associated with the hedged forecasted transactions. The maximum term over which the Corporation is hedging exposure to the variability of cash flows is thirty six months. A reconciliation of current period changes, net of applicable income taxes, in accumulated other comprehensive income relating to derivatives qualifying as cash flow hedges are as follows: Transition adjustment as of December 30, 2000 $6,300 Current period declines in fair value (5,645) Reclassifications to earnings (700) --------- Balance at March 30, 2001 $ (45) ========= 9. In the third quarter 1998, a subsidiary of the Corporation entered into a three-year agreement with a financial institution whereby the subsidiary would sell an undivided interest in a designated pool of qualified accounts receivable. The agreement contains certain covenants and provides for various events of termination. At March 30, 2001 and December 29, 2000, $50,000 in receivables were sold under the agreement and are therefore not reflected in the accounts receivable - trade balance in the Condensed Consolidated Balance Sheet. 10. On April 23, 2001, the Corporation's shareholders approved the reorganization that will result in the shareholders owning shares of a Bermuda company, Foster Wheeler Ltd. 11. In the ordinary course of business, the Corporation and its subsidiaries enter into contracts providing for assessment of damages for nonperformance or delays in completion. Suits and claims have been or may be brought against the Corporation by customers alleging deficiencies in either equipment design or plant construction. Based on its knowledge of the facts and circumstances surrounding such claims and of its insurance coverage for such claims, if any, management of the Corporation believes that the disposition of such suits will not result in charges against assets or earnings materially in excess of amounts previously provided for in the accounts. The Corporation and its subsidiaries, along with many other companies, are codefendants in numerous lawsuits pending in the United States. Plaintiffs claim damages for personal injury alleged to have arisen from exposure to or use of asbestos in connection with work performed by the Corporation and its subsidiaries during the 1970s and prior. As of March 30, 2001, there were approximately 102,800 claims pending. During the first quarter of 2001, approximately 13,300 new claims have been filed and approximately 2,600 were either settled or dismissed without payment. The amount spent on asbestos litigation defense and case resolution, substantially all of which was reimbursed or will be reimbursed from insurance coverage was $8,900 in the first quarter of 2001. 7 The Corporation continues to actively manage the claims and to negotiate with certain insurance carriers concerning the limits of coverage provided during different time periods. The Corporation has recorded an asset relating to probable insurance recoveries and a liability related to probable losses. During 2000 there were a number of companies that petitioned courts for protection under Federal Bankruptcy Laws as a result of the burden of litigation relating to asbestos, which has effectively reduced the number of potential defendants. In the first quarter of 2001, lawsuits commenced among the Corporation and its insurers to determine their respective rights and responsibilities. Management of the Corporation after consultation with counsel, has considered the litigation, the financial viability and legal obligations of its insurance carriers and believes that except for those insurers that have become or may become insolvent, for which a reserve has been provided, the insurers or their guarantors will continue to adequately fund claims and defense costs relating to asbestos litigation. It should be noted that the estimate of the assets and liabilities related to asbestos claims and recovery is subject to a number of uncertainties that may result in significant changes in the current estimates. Among these are uncertainty as to the ultimate number of claims filed, the amounts of claim costs, the impact of bankruptcies of other companies currently involved in litigation, uncertainties surrounding the litigation process from jurisdiction to jurisdiction and from case to case, as well as potential legislative changes. On November 30, 1999, the United States District Court for the Northern District of Texas handed down a final judgment in the case of KOCH ENGINEERING COMPANY, INC. ET AL VS. GLITSCH, INC., ET AL. Glitsch, Inc. (now known as Tray, Inc.) is an indirect subsidiary of the Corporation. This lawsuit, which claimed damages for patent infringement and trade secret misappropriations, has been pending for over 17 years. The judgment awarded compensatory damages of $20,900 plus prejudgment interest in an amount yet to be calculated by the Court and punitive damages equal to 50% of compensatory damages, or approximately $10,500. While the Court has not finally determined the amount of pre-judgement interest, it has preliminarily ruled that pre-judgement interest on actual patent infringement damages will be based on an annualized 90-day Treasury bill rate calculation. The Court also ruled that post-judgement interest will be paid at a rate of 5.471% on all actual damages from November 30, 1999 until paid. If the Court adopts the plaintiff's pre-judgement interest calculations, the award of pre-judgement interest could amount to approximately $14,800 with respect to the patent infringement damages and approximately $8,200 for the trade secret misappropriation. Tray, Inc. has various motions for relief from the judgment which are presently pending before the trial court. Tray, Inc. believes it has reasonable grounds to appeal the judgement as it has been advised by counsel that the Court's decision contains numerous legal and factual errors subject to reversal on appeal. While Tray, Inc. believes it has reasonable grounds to prevail on appeal, the ultimate outcome cannot be determined. In 1997, the United States Supreme Court effectively invalidated New Jersey's long-standing municipal solid waste flow rules and regulations. The immediate effect was to eliminate the guaranteed supply of municipal solid waste to the Camden County Waste-to-Energy project. As a result, tipping fees have been reduced to market rate in order to provide a steady supply of fuel to the plant. Those market-based revenues are not expected to be sufficient to service the debt on outstanding bonds, which were issued to construct the plant and to acquire a landfill for Camden County's use. The debt, although reflected in the consolidated financial statements of the Corporation, has been issued by the Pollution Control Financing Authority of Camden County. This debt is collateralized by a pledge of certain revenues and assets of the project but not the plant. The Corporation's obligation is to fund the debt to the extent the project generates a positive cash flow. The Corporation has filed suit against the involved parties, including the State of New Jersey, seeking, among other things, to void the applicable contracts and agreements governing this project. Pending final outcome of the litigation and results of legislative initiatives in New Jersey to resolve the issues relating to the debt obligations associated with the project, management believes that the plant will continue to operate at full capacity while receiving market rates for waste disposal. However, at the same time, management cannot determine the ultimate effect of these events on the project. 8 In 1996, the Corporation completed the construction of a recycling and waste-to-energy project located in the Village of Robbins, Illinois (the "Robbins Facility"). By virtue of the Robbins Facility qualifying under the Illinois Retail Rate Law as a qualified solid waste-to-energy facility, it was to receive electricity revenues projected to be substantially higher than the utility's "avoided cost". Under the Retail Rate Law, the utility was entitled to a tax credit against a state tax on utility gross receipts and invested capital. The State of Illinois (the "State") was to be reimbursed by the Robbins Facility for the tax credit beginning after the 20th year following the initial sale of electricity to the utility. The State repealed the Retail Rate Law insofar as it applied to the Robbins Facility. In October 1999, the Corporation reached an agreement (the "Robbins Agreement") with the holders of bonds issued by the Village of Robbins to finance the construction of the Robbins Facility (the "Bondholders"). As part of the Robbins Agreement, the Corporation agreed to continue to contest this repeal through litigation. Pursuant to the Robbins Agreement, the Corporation has also agreed that any proceeds of such litigation will be allocated in the following order of priority: (1) to redeem all of the outstanding 1999D Bonds, (2) to reimburse the Corporation for any amounts paid by it in respect of the 1999D Bonds (together with interest on the foregoing amounts at a rate of 10.6% per annum) and (3) to reimburse the Corporation for any costs incurred by it in connection with prosecuting the Retail Rate litigation (together with interest on the foregoing amounts at a rate of 10.6% per annum). Then, to the extent there are further proceeds, an amount equal to the amount distributed pursuant to the preceding clause (2) shall fund payments in respect of the Non-Recourse Robbins Bonds. Thereafter, 80% of any further proceeds shall fund payments on the Non-Recourse Robbins Bonds until an amount sufficient to repay such Bonds in full has been paid over, with the remaining 20% being paid over to the Corporation. After the foregoing payments shall have been made, any remaining proceeds shall be paid over to the Corporation. On December 1, 1999, three special purpose subsidiaries of the Corporation commenced reorganization proceedings under Chapter 11 of the U.S. Bankruptcy Code in order to effectuate the terms of the Robbins Agreement. On January 21, 2000, these subsidiaries' plan of reorganization was confirmed, and the plan was consummated on February 3, 2000. On August 8, 2000, the Corporation initiated the final phase of its exit from the Robbins Facility. As part of the Robbins Agreement, the Corporation had agreed to operate the Robbins Facility for the benefit of the bondholders for no more than 2 years or earlier if a buyer could be found for the plant, subject to being reimbursed for all costs of operation. Such reimbursement did not occur and, therefore, under the Robbins Agreement, the Corporation on October 10, 2000, completed the final phase of its exit from the project. The Corporation had been administering the project companies through a Delaware business trust, which owns the project on behalf of the bondholders. As a result of its exit from the project, the Corporation is no longer administering the project companies. At about this time, the project companies commenced new reorganization proceedings under Chapter 11 of the U.S. Bankruptcy Code. In May 2001, The Corporation reached agreement with the debtor project companies and the requisite holders of the bonds favorably resolving issues related to the exit from the project. Under the federal Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") and similar state laws, the current owner or operator of real property and the past owners or operators of real property (if disposal took place during such past ownership or operation) may be jointly and severally liable for the costs of removal or remediation of toxic or hazardous substances on or under their property, regardless of whether such materials were released in violation of law or whether the owner or operator knew of, or was responsible for, the presence of such substances. Moreover, under CERCLA and similar state laws, persons who arrange for the disposal or treatment of hazardous or toxic substances may also be jointly and severally liable for the costs of the removal or remediation of such substances at a disposal or treatment site, whether or not such site was owned or operated by such person ("off-site facility"). Liability at such off-site facilities is typically allocated among all of the viable responsible parties based on such factors as the relative amount of waste contributed to a site, toxicity of such waste, relationship of the waste contributed by a party to the remedy chosen for the site, and other factors. 9 The Corporation currently owns and operates industrial facilities and has also transferred its interests in industrial facilities that it formerly owned or operated. It is likely that as a result of its current or former operations, such facilities have been impacted by hazardous substances. The Corporation is not aware of any conditions at its currently owned facilities in the United States that it expects will cause the Corporation to incur significant costs. The Corporation is aware of potential environmental liabilities at facilities that it acquired in 1995 in Europe, but the Corporation has the benefit of an indemnity from the seller with respect to any required remediation or other environmental violations that it believes will address the costs of any such remediation or other required environmental measures. The Corporation also may receive claims, pursuant to indemnity obligations from owners of recently sold facilities that may require the Corporation to incur costs for investigation and/or remediation. Based on the available information, the Corporation does not believe that such costs will be material. No assurance can be provided that the Corporation will not discover environmental conditions at its currently owned or operated properties, or that additional claims will not be made with respect to formerly owned properties, requiring the Corporation to incur material expenditures to investigate and/or remediate such conditions. The Corporation had been notified that it was a potentially responsible party ("PRP") under CERCLA or similar state laws at three off-site facilities, excluding sites as to which the Corporation has resolved its liability. At each of these sites, the Corporation's liability should be substantially less than the total site remediation costs because the percentage of waste attributable to the Corporation compared to that attributable to all other PRPs is low. The Corporation does not believe that its share of cleanup obligations at any of the three off-site facilities as to which it has received a notice of potential liability will individually exceed $1 million. Several of the Corporation's former subsidiaries associated with the Robbins Facility received a Complaint for Injunction and Civil Penalties from the State of Illinois, dated April 28, 1998 (amended in July 1998) alleging primarily state air violations at the Robbins Facility (PEOPLE OF THE STATE OF ILLINOIS V. FOSTER WHEELER ROBBINS, INC., filed in Circuit Court of Cook County, Illinois, County Department, Chancery Division). The United States Environmental Protection Agency commenced a related enforcement action at approximately the same time. (EPA-5-98-IL-12 and EPA-5-98-IL-13). Although the complaint seeks substantial civil penalties for numerous violations of up to $50.0 for each violation, with an additional penalty of $10.0 for each day of each violation, the maximum allowed under the statute, and an injunction against continuing violations, the relevant subsidiaries have reached a staff-level agreement in principle with the state on a Consent Decree that will resolve all violations. The Corporation's liability, if any, is not expected to be material. The Corporation has brought various project claims against customers for amounts in excess of the agreed contract price or amounts not included in the original contract price. These involve claims by the Corporation for additional costs arising from changes in the initial scope of work or from customer caused delays. The costs associated with these changes or customer caused delays include additional direct costs, such as increased labor or material costs as a result of the additional work, and also costs that are imposed by virtue of the delays in the project. The ultimate legal and financial liability in respect to all claims, lawsuits and proceedings cannot be estimated with certainty. As additional information concerning the estimates used become known, the Corporation reassesses its position both with respect to gain contingencies and accrued liabilities and other potential exposures. Estimates that are particularly sensitive to future change relate to legal matters, which are subject to change as events evolve and as additional information becomes available during the administration and litigation process. 10 12. Changes in equity for the three months ended March 30, 2001 were as follows:
ACCUMULATED OTHER COMMON STOCK PAID-IN RETAINED COMPREHENSIVE SHARES AMOUNT CAPITAL EARNINGS LOSS ------ ------ ------- -------- ---- Balance December 29, 2000 40,747,668 $ 40,748 $ 200,963 $ 241,250 $ (118,707) Net earnings 8,105 Dividends paid - common (2,443) Purchase of treasury stock Foreign currency translation adjustment (17,716) Cumulative effect on prior years (to December 29, 2000) of change in accounting principle for derivatives, net of tax 6,300 Current period declines in fair value, net of tax (5,645) Reclassification to earnings (700) Stock option exercise price and par value 56,500 56 475 Shares issued under incentive plan and other plans 6 ----------- ----------- ----------- ----------- ----------- Balance March 30, 2001 40,804,168 $ 40,804 $ 201,444 $ 246,912 $ (136,468) =========== =========== =========== =========== =========== TOTAL TREASURY STOCK STOCKHOLDERS' SHARES AMOUNT EQUITY ------ ------ ------ Balance December 29, 2000 (24,616) $ (165) $ 364,089 Net earnings 8,105 Dividends paid - common (2,443) Purchase of treasury stock (3,000) (37) (37) Foreign currency translation adjustment (17,716) Cumulative effect on prior years (to December 29, 2000) of change in accounting principle for derivatives, net of tax 6,300 Current period declines in fair value, net of tax (5,645) Reclassification to earnings (700) Stock option exercise price and par value 531 Shares issued under incentive plan and other plans 3,008 20 26 ----------- ----------- ----------- Balance March 30, 2001 (24,608) $ (182) $ 352,510 =========== =========== ===========
11 13. Major Business Groups
THREE MONTHS ENDED MARCH 30, 2001 MARCH 31, 2000 -------------- -------------- ENGINEERING & CONSTRUCTION - -------------------------- Revenues $ 473,552 $ 615,964 Gross earnings from operations 41,122 46,387 Interest expense 250 642 Earnings before income taxes 18,800 20,004 ENERGY EQUIPMENT - ---------------- Revenues $ 238,635 $ 232,823 Gross earnings from operations 33,595 33,459 Interest expense 6,074 9,018 Earnings before income taxes 9,753 9,364 CORPORATE AND FINANCIAL SERVICES (1) - ------------------------------------ Revenues $ (13,952) $ (12,491) Gross earnings from operations 242 632 Interest expense (2) 14,441 9,751 Loss before income taxes (18,046) (15,679) TOTAL - ----- Revenues $ 698,235 $ 836,296 Gross earnings from operations 74,959 80,478 Interest expense (2) 20,765 19,411 Earnings before income taxes 10,507 13,689 Provision for income taxes 2,402 5,317 --------- --------- Net earnings $ 8,105 $ 8,372 ========= ========= (1) Includes intersegment eliminations. (2) Includes dividend on Preferred Trust Securities.
12 14. Consolidating Financial Information The following represents summarized consolidating financial information as of March 30, 2001 and December 29, 2000, with respect to the financial position, and for the three months ended March 30, 2001, and March 31, 2000, for results of operations and cash flows of the Corporation and its wholly-owned and majority-owned subsidiaries. In February 1999, Foster Wheeler USA Corporation, Foster Wheeler Energy Corporation and Foster Wheeler Energy International, Inc. issued guarantees in favor of the holders of the Corporation's 6 3/4% Notes due November 15, 2005 (the "Notes"). Each of the guarantees is full and unconditional, and joint and several. The summarized consolidating financial information is presented in lieu of separate financial statements and other related disclosures of the wholly-owned subsidiary guarantors, because management does not believe that such separate financial statements and related disclosures would be material to investors. None of the subsidiary guarantors are restricted from making distributions to the Corporation.
FOSTER WHEELER CORPORATION CONDENSED CONSOLIDATING BALANCE SHEET (In Thousands of Dollars) March 30, 2001 GUARANTOR NON-GUARANTOR ASSETS FWC SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ------ --- ------------ ------------ ------------ ------------ Current assets $ 403,865 $ 514,739 $ 1,485,003 $ (846,256) $ 1,557,351 Investment in subsidiaries 911,934 311,739 114,196 (1,337,869) -- Land, buildings & equipment (net) 47,409 25,219 416,614 (6,020) 483,222 Notes and accounts receivable - long-term 48,363 3,741 331,941 (307,336) 76,709 Intangible assets (net) -- 85,358 196,181 1,276 282,815 Other non-current assets 753,770 5,734 187,408 40,255 987,167 ----------- ----------- ---------- ----------- ----------- TOTAL ASSETS $ 2,165,341 $ 946,530 $ 2,731,343 $(2,455,950) $ 3,387,264 =========== =========== =========== =========== =========== LIABILITIES & STOCKHOLDERS' EQUITY Current liabilities $ 510,741 $ 478,903 $ 1,186,239 $ (846,256) $ 1,329,627 Long-term debt 359,190 -- 391,846 (137,012) 614,024 Other non-current liabilities 657,560 9,081 255,526 (116,404) 805,763 Subordinated Robbins Obligations 110,340 110,340 Preferred trust securities 175,000 -- 175,000 (175,000) 175,000 ----------- ----------- ---------- ----------- ----------- TOTAL LIABILITIES 1,812,831 487,984 2,008,611 (1,274,672) 3,034,754 TOTAL STOCKHOLDERS' EQUITY 352,510 458,546 722,732 (1,181,278) 352,510 ----------- ----------- ---------- ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,165,341 $ 946,530 $ 2,731,343 $(2,455,950) $ 3,387,264 =========== =========== =========== =========== ===========
13
FOSTER WHEELER CORPORATION CONDENSED CONSOLIDATING BALANCE SHEET (In Thousands of Dollars) December 29, 2000 Guarantor Non-Guarantor ASSETS FWC SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ------ --- ------------ ------------ ------------ ------------ Current assets $ 391,560 $ 497,486 $ 1,571,314 $ (837,384) $ 1,622,976 Investment in subsidiaries 918,582 317,663 139,008 (1,375,253) Land, buildings & equipment (net) 46,621 26,455 428,080 (6,122) 495,034 Notes and accounts receivable - long-term 48,203 5,245 330,867 (308,077) 76,238 Intangible assets (net) -- 85,977 202,158 -- 288,135 Other non-current assets 754,246 5,735 193,070 42,094 995,145 ----------- ----------- ----------- ----------- ----------- TOTAL ASSETS $ 2,159,212 $ 938,561 $ 2,864,497 $(2,484,742) $ 3,477,528 =========== =========== =========== =========== =========== LIABILITIES & STOCKHOLDERS' EQUITY Current liabilities $ 543,360 $ 470,835 $ 1,277,792 $ (837,384) $ 1,454,603 Long-term debt 309,190 -- 389,173 (137,058) 561,305 Other non-current liabilities 657,233 9,081 263,435 (117,558) 812,191 Subordinated Robbins obligations 110,340 110,340 Preferred trust securities 175,000 -- 175,000 (175,000) 175,000 ----------- ----------- ----------- ----------- ----------- TOTAL LIABILITIES 1,795,123 479,916 2,105,400 (1,267,000) 3,113,439 TOTAL STOCKHOLDERS' EQUITY 364,089 458,645 759,097 (1,217,742) 364,089 ----------- ----------- ----------- ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,159,212 $ 938,561 $ 2,864,497 $(2,484,742) $ 3,477,528 =========== =========== =========== =========== ===========
14
FOSTER WHEELER CORPORATION CONDENSED CONSOLIDATING STATEMENT OF EARNINGS (In Thousands of Dollars) Three Months Ended March 30, 2001 Guarantor Non-Guarantor FWC SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED Operating revenues $ 163,480 $ 581,954 $ (62,791) $ 682,643 Other Income $4,075 2,840 21,788 (13,111) 15,592 ------ --------- --------- ----------- --------- Total revenues 4,075 166,320 603,742 (75,902) 698,235 Cost of operating revenues - 153,761 516,715 (62,791) 607,685 Selling, general and administrative expenses 2 ,621 13,268 35,508 - 51,397 Other deductions and minority interests(*) 10,969 1,471 29,317 (13,111) 28,646 Equity in net earnings of subsidiaries 14,600 (5,964) (8,636) ------ --------- --------- ----------- --------- Earnings/(loss) before income taxes 5,085 (8,144) 22,202 (8,636) 10,507 (Benefit)/provision for income taxes (3,020) (803) 6,225 - 2,402 ------ --------- ---------- ----------- --------- Net earnings/(loss) 8,105 (7,341) 15,977 (8,636) 8,105 Other comprehensive loss: Foreign currency translation adjustment (17,716) (5,202) (15,679) 20,881 (17,716) Changes in unrealized gains/(loss) on derivative instruments, net of tax 3,399 (9,744) (6,345) Cumulative effect on prior years (to December 29, 2000) of change in accounting principle for derivatives, net of tax 3,535 2,765 6,300 ------- -------- -------- ---------- --------- Comprehensive loss $ (9,611) $ (5,609) $(6,681) $ 12,245 $ (9,656) ========= ======== ======== ========== ========== (*) Includes interest expense and dividends on preferred securities of $20,765.
15
FOSTER WHEELER CORPORATION CONDENSED CONSOLIDATING STATEMENT OF EARNINGS (In Thousands of Dollars) Three Months Ended March 31, 2000 GUARANTOR NON-GUARANTOR FWC SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED --- ------------ ------------ ------------ ------------ Operating revenues $ 259,806 $ 629,457 $ (67,227) $ 822,036 Other income $ 4,551 609 22,572 (13,472) 14,260 --------- --------- --------- --------- --------- Total revenues 4,551 260,415 652,029 (80,699) 836,296 Cost of operating revenues 243,098 565,687 (67,227) 741,558 Selling, general and administrative expenses 4,902 12,165 37,034 54,101 Other deductions and minority interest(*) 15,531 1,065 23,824 (13,472) 26,948 Equity in net earnings of subsidiaries 19,079 2,618 (21,697) --------- --------- --------- --------- --------- Earnings/ (loss) before income taxes 3,197 6,705 25,484 (21,697) 13,689 (Benefit)/provision for income taxes (5,175) 1,693 8,799 5,317 --------- --------- --------- --------- --------- Net earnings/(loss) 8,372 5,012 16,685 (21,697) 8,372 Other comprehensive loss: Foreign currency translation adjustment (12,115) (5,304) (9,962) 15,266 (12,115) --------- --------- --------- --------- --------- Comprehensive (loss)/earnings $ (3,743) $ (292) $ 6,723 $ (6,431) $ (3,743) ========= ========= ========= ========= ========= (*) Includes interest expense and dividends on preferred securities of $19,411.
16
FOSTER WHEELER CORPORATION CONDENSED CONSOLIDATING STATEMENT OF CASH FLOW (In Thousands of Dollars) Three Months Ended March 30, 2001 GUARANTOR NON-GUARANTOR FWC SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED --- ------------ ------------ ------------ ------------- CASH FLOWS FROM OPERATING ACTIVITIES NET CASH (USED)/PROVIDED BY OPERATING ACTIVITIES $ (1,659) $ (64,083) $ (8,960) $ 6,633 $ (68,069) --------- --------- --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (484) (8,525) (9,009) Proceeds from sale of properties 259 259 Decrease/(increase) in investment and advances 1,671 10,209 (4,293) 7,587 Increase in short-term investments (804) (804) Other (91) (1,276) (1,367) --------- --------- --------- --------- --------- NET CASH PROVIDED/(USED) BY INVESTING ACTIVITIES 1,671 (484) 1,048 (5,569) (3,334) --------- --------- --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Dividends to Stockholders (2,443) (2,443) Increase in short-term debt 5,160 5,160 Proceeds from long-term debt 50,000 12 50,012 Repayment of long-term debt (4,300) (4,300) Other (67,994) 63,340 6,212 (1,064) 494 --------- --------- --------- --------- --------- NET CASH (USED)/PROVIDED BY FINANCING ACTIVITIES (20,437) 63,340 7,084 (1,064) 48,923 --------- --------- --------- --------- --------- Effect of exchange rate changes on Cash and cash equivalents (10,483) (10,483) DECREASE IN CASH AND CASH EQUIVALENTS (20,425) (1,227) (11,311) (32,963) Cash and cash equivalents, beginning of period 30,976 2,187 158,730 191,893 --------- --------- --------- --------- --------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 10,551 $ 960 $ 147,419 $ 0 $ 158,930 ========= ========= ========= ========= =========
17
FOSTER WHEELER CORPORATION CONDENSED CONSOLIDATING STATEMENT OF CASH FLOW (In Thousands of Dollars) Three Months Ended March 31, 2000 GUARANTOR NON-GUARANTOR FWC SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED --- ------------ ------------ ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES NET CASH (USED)/ PROVIDED BY OPERATING ACTIVITIES $ (25,187) $ 30,396 $ 1,998 $ 11,434 $ 18,641 --------- --------- --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (2,349) (8,859) (11,208) Proceeds from sale of properties 798 798 (Increase)/decrease in investment and advances (820) (5,889) 12,025 5,316 Decrease in short-term Investments 1,982 1,982 Other (2,599) (2,599) --------- --------- --------- --------- ----------- NET CASH (USED)/PROVIDED BY INVESTING ACTIVITIES (820) (2,349) (14,567) 12,025 (5,711) --------- --------- --------- --------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Dividends to Stockholders (2,443) (2,443) Increase in short-term debt 22,569 22,569 Proceeds from long-term debt 3,321 3,321 Repayment of long-term debt (10,000) (4,067) (14,067) Other 31,747 (28,491) 20,120 (23,459) (83) --------- --------- --------- --------- ----------- NET CASH PROVIDED/(USED) BY FINANCING ACTIVITIES 19,304 (28,491) 41,943 (23,459) 9,297 --------- --------- --------- --------- ----------- Effect of exchange rate changes on cash and cash (4,780) (4,780) equivalents (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS (6,703) (444) 24,594 17,447 Cash and cash equivalents, beginning of period 16,262 3,080 150,926 170,268 --------- --------- --------- --------- ----------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 9,559 $ 2,636 $ 175,520 $ 0 $ 187,715 ========= ========= ========= ========= ===========
18 15. The Corporation owns a non-controlling equity interest in four cogeneration projects; three of which are located in Italy and one in Chile. In addition, the Corporation owns an equity interest in a hydrogen producing plant in Venezuela. Following is summarized financial information for the Corporation's equity affiliates combined, as well as the Corporation's interest in the affiliates.
MARCH 30, 2001 DECEMBER 29, 2000 -------------- ----------------- BALANCE SHEET DATA: ------------------- Current assets $ 91,718 $ 146,277 Other assets (primarily buildings and equipment) 574,266 603,665 Current liabilities 34,701 48,604 Other liabilities (primarily long- term debt) 477,808 529,182 Net assets 153,475 172,156 INCOME STATEMENT DATA FOR THREE MONTHS: --------------------------------------- MARCH 30, 2001 MARCH 31, 2000 -------------- -------------- Total revenues $ 56,046 $ 52,213 Income before income taxes 10,984 14,163 Net earnings 7,810 9,367
As of March 30, 2001, the Corporation's share of the net earnings and investment in the equity affiliates totaled $4,696 and $116,417, respectively. Dividends of $1,914 were received during the first three months of 2001. The Corporation has guaranteed certain performance obligations of such projects. The Corporation's contingent obligations under such guarantees are approximately $2,000 per year for the four projects. The Corporation has provided a $10,000 debt service reserve letter of credit providing liquidity for debt service payments. No amount has been drawn under the letter of credit. In April, 2001 the Corporation successfully completed the sale of it's interest in two hydrogen production plants in South America. The net proceeds from these transactions was approximately $40.0 million. An after tax loss of $5.0 million, or approximately $.12 per share, will be recorded in the second quarter relating to these sales. 16. The difference between the statutory and effective tax rate is predominately due to state and local taxes, certain tax credits and the favorable settlement of a contested foreign tax liability. 19 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (IN MILLIONS OF DOLLARS, EXCEPT PER SHARE AMOUNTS) The following is Management's Discussion and Analysis of certain significant factors that have affected the financial condition and results of operations of the Corporation for the periods indicated below. This discussion and analysis should be read in conjunction with the 2000 Form 10-K. RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 30, 2001 COMPARED TO THE THREE MONTHS ENDED MARCH 31, 2000 CONSOLIDATED DATA THREE MONTHS ENDED ------------------ MARCH 30, 2001 MARCH 31, 2000 -------------- -------------- Backlog $ 6,250.5 $6,290.6 =========== ======== New orders $ 950.5 $1,191.9 =========== ======== Revenues $ 698.2 $ 836.3 =========== ========= Net earnings $ 8.1 $ 8.4 ============ ========== The Corporation's consolidated backlog at March 30, 2001 totaled $6,250.5, which represented a decrease of 1% from the amount reported as of March 31, 2000. As of March 30, 2001, 43% of the consolidated backlog was from lump-sum work, 65% of which was for the Energy Equipment Group, and 57% was from reimbursable work. The dollar amount of backlog is not necessarily indicative of the future earnings of the Corporation related to the performance of such work. The backlog of unfilled orders includes amounts based on signed contracts as well as agreed letters of intent which management has determined are likely to be performed. Although backlog represents only business which is considered firm, cancellations or scope adjustments may occur. Due to factors outside the Corporation's control, such as changes in project schedules, the Corporation cannot predict with certainty the portion of backlog to be performed in a given year. Backlog is adjusted to reflect project cancellations, deferrals, sale of subsidiaries and revised project scope and cost. This adjustment for the three months ended March 30, 2001 was $15.9, compared with $51.5 for the three months ended March 31, 2000. Furthermore, because of the large size and uncertain timing of projects, future trends are difficult to predict. New orders awarded for the three months ended March 30, 2001 were $950.5 compared to $1,191.9 for the period ended March 31, 2000, a reduction of approximately 20%. Approximately 38% of new orders booked in the three months ended March 30, 2001 were for projects awarded to the Corporation's subsidiaries located outside the United States. Key countries and geographic areas contributing to new orders awarded for the three months ended March 30, 2001 were the United States, Europe and Asia. The reduction was due to lower activity in both the Engineering and Construction and the Energy Equipment Groups. Operating revenues decreased 17% in the three months ended March 30, 2001 compared to the three months ended March 31, 2000 to $682.6 from $822.0. This reduction was primarily due to lower activity in the Engineering and Construction Group. Gross earnings, which are equal to operating revenues minus the cost of operating revenues, decreased by $5.5 in the three months ended March 30, 2001 as compared with the three months ended March 31, 2000 to $75.0 from $80.5. This reduction was due to lower operating revenues in the Engineering and Construction Group. 20 Selling, general and administrative expenses decreased by 5% in the three months ended March 30, 2001 as compared with the same period in 2000, from $54.1 to $51.4. This reduction partially relates to the Corporation's 1999 Cost Realignment Plan. Other income in the three months ended March 30, 2001 increased to $15.6 from $14.3 for the period ended March 31, 2000. This increase can be primarily related to interest income ($.7) and foreign transaction gains ($.5). Other deductions and dividends on the Preferred Trust Securities for the three months ended March 30, 2001 were $0.9 higher than that reported in the three months ended March 31, 2000. The increase primarily relates to higher interest expense. Net earnings for the three months ended March 30, 2001 were $8.1 or $.20 per share diluted compared to net earnings of $8.4 or $.21 diluted per share for the three months ended March 31, 2000. The decrease relates to lower earnings before taxes ($3.2) due to lower operating revenues, offset by a lower tax provision ($2.9) relating to certain tax credits and the favorable settlement of a contested foreign tax liability. ENGINEERING AND CONSTRUCTION GROUP THREE MONTHS ENDED ------------------ MARCH 30, 2001 MARCH 31, 2000 -------------- -------------- Backlog $ 4,522.5 $4,836.1 ========== ======== New orders $ 577.0 $ 766.9 ========== ======= Operating revenues $ 465.9 $ 608.2 ========== ======= Gross earnings from operations $ 41.1 $ 46.4 =========== ====== The Engineering and Construction Group ("E&C Group"), had a backlog of $4,522.5 at March 30, 2001, which represented a decrease of $313.6 from March 31, 2000. New orders booked for the three month period ended March 30, 2001 decreased by 25% compared with the period ended March 31, 2000. This decrease reflects lower new orders in the United States, Spain, France and Italy, which were partially offset by increased activity in the United Kingdom. Operating revenues for the three month period ended March 30, 2001 decreased 23% compared to the three month period ended March 31, 2000. Gross earnings from operations decreased by 11% for the three month period ended March 30, 2001, compared with the corresponding period ended March 31, 2000. Both the operating revenues and gross earnings decrease can be associated with lower activity in the United States, France and Italy. 21 ENERGY EQUIPMENT GROUP THREE MONTHS ENDED ------------------ MARCH 30, 2001 MARCH 31, 2000 -------------- -------------- Backlog $ 1,839.5 $1,581.2 =========== ======== New orders $ 378.9 $ 425.5 =========== ======= Operating revenues $ 230.3 $ 224.4 =========== ======= Gross earnings from operations $ 33.6 $ 33.5 =========== ======= The Energy Equipment Group had a backlog of $1,839.5 at March 30, 2001, which represented a 16% increase from March 31, 2000, due primarily to the high amount of orders awarded in the year 2000. Approximately 17% of the Energy Equipment Group's backlog as of March 30, 2001 represents orders from Asia. These orders, which are supported by financing agreements guaranteed by the United States and Finland, are for large utility size boilers. New orders booked for the three month period ended March 30, 2001 decreased by 11% from corresponding periods in 2000. This decrease is primarily due to a large order from Poland that was received in the first quarter of 2000. Operating revenues for the three month period ended March 30, 2001 increased by 3%. Gross earnings from operations were approximately the same for the three month period ended March 30, 2001 compared with the period ended March 31, 2000. As previously disclosed, the Corporation has reviewed various methods of monetizing selected Power Systems facilities. Based on current economic conditions, the Management concluded that it would continue to operate the facilities in the normal course of business. Management has reviewed these facilities for impairment on an undiscounted cash flow basis and determined that no adjustment to the carrying amounts is required. However, if conditions were to change, monetization might again become a viable option. It is possible that the amounts realized could differ materially from the balances in the financial statements. FINANCIAL CONDITION Stockholders' equity for the three months ended March 30, 2001 decreased by $11.5, due primarily to changes in the foreign currency translation adjustment of $17.7 and dividends paid of $2.4, offset by net earnings of $8.1. During the three months ended March 30, 2001, long-term investments in land, buildings and equipment were $9.0 as compared with $11.2 for the comparable period in 2000. During the first three months of 2000, approximately $5.5 was invested in waste-to-energy projects in Italy, versus $1.7 in 2001. Corporate and other debt, special purpose project debt and bank loans net of cash and short term investments increased by $81.9 since December 29, 2000, as a result of slow payment by certain customers and unfavorable payment terms on certain contracts. 22 Our corporate and other debts, including the revolving credit agreements, are as follows: March 30, December 29, 2001 2000 ---------- ------------- Corporate and other debt consisted of the following: Revolving Credit Agreements (average interest rate 7.65%) $135.0 $ 85.0 6.75% Notes due November 15, 2005 200.0 200.0 Other......................................... 28.3 21.2 ------ ------- $363.3 $306.2 Less, Current portion .1 .2 ------- -------- $363.2 $306.0 ====== ====== Principal payments are payable in annual installments of: 2002........................................... $ 20.6 2003........................................... 85.2 2004........................................... .1 2005........................................... 200.0 2006........................................... .1 ------- $306.0 In the third quarter 1998, a subsidiary of the Corporation entered into a three year agreement with a financial institution whereby the subsidiary would sell an undivided interest in a designated pool of qualified accounts receivable. The agreement contains certain covenants and provides for various events of termination. At March 30, 2001 and December 29, 2000, $50.0 in receivables were sold under the agreement and are therefore not reflected in the accounts receivable - trade balance in the Consolidated Balance Sheet. LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents totaled $158.9 at March 30, 2001, a decrease of $33.0 from fiscal year end 2000. Short-term investments increased by $0.8 to $2.6. During the first quarter of fiscal 2001, the Corporation paid $2.4 in dividends to stockholders. Cash used by operating activities for working capital needs amounted to $68.1, of which $54.0 was utilized by the Engineering and Construction Group and $15.9 was utilized by the Energy Equipment Group. The Corporation's working capital varies from period to period depending on the mix, stage of completion and commercial terms and conditions of the Corporation's contracts. Working capital needs have increased during the past several years because of the need to give customers more favorable payment terms under contracts to compete successfully for certain projects. Those requests generally include lower advance payments and less favorable payment schedules. In the future, the working capital needs will increase as unfilled orders continue to grow. It is expected that these less favorable payment terms, together with our customer delays in payment and the growth in business, will continue to put pressure on the short-term borrowing needs of the Corporation. Management of the Corporation believes that cash and cash equivalents of $158.9 and short-term investments of $2.6 at March 30, 2001, when combined with cash flows from operating activities, amounts available under its Revolving Credit Agreements and access to third-party financing in the capital markets will be adequate to meet its working capital and liquidity needs for the foreseeable future. During the second quarter of 1998, the Corporation filed a Registration Statement on Form S-3 relating to $300.0 of debt, equity, and other securities, $175.0 of which has been issued as of March 30, 2001. 23 The Corporation's liquidity has been negatively impacted by a number of claims relating to projects that have been affected by substantial scope of work changes and other adverse factors. The net exposure associated with these claims, which have accumulated over a period of time, approximate $175.0 at March 30, 2001. While the future collections of these claims will increase cash inflows, the timing of collection of such claims is subject to uncertainty of recoverability as described in note 2 to the financial statements. At March 30, 2001, the Corporation had a receivable of approximately $11.0 from Pacific Gas and Electric Company, a wholly owned utility subsidiary of PG&E Corporation, which recently petitioned the courts for protection under Federal Bankruptcy Laws. While the Corporation believes this receivable will be collected, the ultimate timing of the collection is uncertain and an appropriate reserve has been established. In April, 2001 the Corporation successfully completed the sale of it's interest in two hydrogen production plants in South America. The net proceeds from these transactions was approximately $40.0 An after tax loss of $5.0, or approximately $.12 per share, will be recorded in the second quarter relating to these sales. The Corporation is reviewing various methods to monetize certain assets in order to concentrate on reducing both corporate and project debt and improving cash flow. CORPORATE REORGANIZATION On November 28, 2000, the Corporation's board of directors approved a reorganization that will effectively result in the Corporation becoming a Bermuda corporation. On April 23, 2001, the Corporation's shareholders approved the reorganization. The Corporation believes that a significant portion of its business is, and will be, generated from non-U.S. markets. This reorganization will provide financial and other business advantages that are not available under the current corporate structure. By aligning the structure with the business operations, it should promote operational efficiencies, including improvements in global cash management. The reorganization should provide a more favorable corporate and regulatory structure for expansion of current and future business opportunities. The reorganization may also facilitate access to financing sources outside of the United States and broaden the investor base by making the stock more attractive to non-U.S. investors. In addition, the reorganization should provide greater flexibility over the long-term in seeking to improve the worldwide effective tax rate. Pursuant to the plan of reorganization, Foster Wheeler Corporation shareholders will receive the equivalent number of shares in the newly formed company, Foster Wheeler Ltd., organized in Bermuda. The shares will be listed on the New York Stock Exchange under "FWC", the same symbol under which the Corporation's common stock is currently listed. The reorganization is subject to certain conditions to closing. Additional information relating to the reorganization can be obtained by referring to the Corporation's Form S-4/A Registration No. 333-52468. 24 OTHER MATTERS On April 2, 2001, the Corporation announced the retirement by the end of the year of Richard J. Swift, its Chairman, President, and Chief Executive Officer. As a result of this retirement, the Corporation will incur an after tax charge of approximately $1.6, or $.04 per share, which will be recorded in the second quarter. During the year 2000, the pension plan assets of the Corporation declined substantially due to the performance of the stock market. In addition, the anticipated return on these assets for the year was less than expected. Because of these factors, the actual pension expense for 2001 will be higher than previously forecasted, which will result in an additional charge to net earnings after tax of $3.2 million, or $.08 per share for the year. Of this amount, approximately $1.2 or $.03 per share, will be recorded in the second quarter. The ultimate legal and financial liability of the Corporation in respect to all claims, lawsuits and proceedings cannot be estimated with certainty. As additional information concerning the estimates used by the Corporation becomes known, the Corporation reassesses its position both with respect to gain contingencies and accrued liabilities and other potential exposures. Estimates that are particularly sensitive to future change relate to legal matters, which are subject to change as events evolve and as additional information becomes available during the administration and litigation processes. 25 ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (MILLIONS OF DOLLARS) Management's strategy for managing transaction risks associated with currency fluctuations is for each operating unit to enter into derivative transactions, such as forward foreign exchange agreements, to hedge its exposure on contracts into the operating unit's functional currency. The Corporation utilizes all such financial instruments solely for hedging. Corporate policy prohibits the speculative use of such instruments. The Corporation is exposed to credit loss in the event of nonperformance by the counter parties to such financial instruments. To minimize this risk, the Corporation enters into these financial instruments with financial institutions that are primarily rated A or better by Standard & Poor's or A2 or better by Moody's. Management believes that the geographical diversity of the Corporation's operations mitigates the effects of the currency translation exposure. No significant unhedged assets or liabilities are maintained outside the functional currency of the operating subsidiaries. Accordingly, translation exposure is not hedged. Interest Rate Risk - The Corporation is exposed to changes in interest rates primarily as a result of its borrowings under its Revolving Credit Agreements and its variable rate project debt. If market rates average 1% more in 2001 than in 2000, the Corporation's interest expense for the next twelve months would increase, and income before tax would decrease by approximately $4.2. This amount has been determined by considering the impact of the hypothetical interest rates on the Corporation's variable-rate balances as of March 30, 2001. In the event of a significant change in interest rates, management would likely take action to further mitigate its exposure to the change. However, due to uncertainty of the specific actions that would be taken and their possible effects, the sensitivity analysis assumes no changes in the Corporation's financial structure. Foreign Currency Risk - The Corporation has significant overseas operations. Generally, all significant activities of the overseas affiliates are recorded in their functional currency, which is generally the currency of the country of domicile of the affiliate. This results in a mitigation of the potential impact of earnings fluctuations as a result of changes in foreign exchange rates. In addition in order to further mitigate risks associated with foreign currency fluctuations, the affiliates of the Corporation enter into foreign currency exchange contracts to hedge the exposed contract value back to their functional currency. As of March 30, 2001, the Corporation had approximately $416.0 of foreign exchange contracts outstanding. These contracts mature between 2001 and 2004. Approximately 15% of these contracts require a domestic subsidiary to sell Japanese yen and receive U.S. dollars. The remaining contracts have been established by various international subsidiaries to sell a variety of currencies and either receive their respective functional currency or other currencies for which they have payment obligations to third parties. The Corporation does not enter into foreign currency contracts for speculative purposes. INFLATION The effect of inflation on the Corporation's revenues and earnings is minimal. Although a majority of the Corporation's revenues are made under long-term contracts, the selling prices of such contracts, established for deliveries in the future, generally reflect estimated costs to complete in these future periods. In addition, some contracts provide for price adjustments through escalation clauses. 26 SAFE HARBOR STATEMENT This Management's Discussion and Analysis of Financial Condition and Results of Operations and other sections of this Form 10-Q contain forward-looking statements that are based on management's assumptions, expectations and projections about the various industries within which the Corporation operates. Such forward-looking statements by their nature involve a degree of risk and uncertainty. The Corporation cautions that a variety of factors, including but not limited to the following, could cause business conditions and results to differ materially: o changes in the rate of economic growth in the United States and other major international economies, o changes in investment by the energy, power and environmental industries, o changes in regulatory environment, o changes in project schedules, o changes in trade, monetary and fiscal policies worldwide, o currency fluctuations, o outcomes of pending and future litigation, including litigation regarding the Corporation's liability for damages and insurance coverage for asbestos exposure, o protection and validity of patents and other intellectual property rights and o increasing competition by foreign and domestic companies. For additional information about the Corporation, see the Corporation's reports on Forms 10-K, 10K/A, 10-Q and 8-K filed with the Securities and Exchange Commission from time to time. 27 PART II OTHER INFORMATION ITEM 1 - LEGAL PROCEEDINGS In the ordinary course of business, the Corporation and its subsidiaries enter into contracts providing for assessment of damages for nonperformance or delays in completion. Suits and claims have been or may be brought against the Corporation by customers alleging deficiencies in either equipment design or plant construction. Based on its knowledge of the facts and circumstances surrounding such claims and of its insurance coverage for such claims, if any, management of the Corporation believes that the disposition of such suits will not result in charges against assets or earnings materially in excess of amounts previously provided for in the accounts. The Corporation and its subsidiaries, along with many other companies, are codefendants in numerous lawsuits pending in the United States. Plaintiffs claim damages for personal injury alleged to have arisen from exposure to or use of asbestos in connection with work performed by the Corporation and its subsidiaries during the 1970s and prior. As of March 30, 2001, there were approximately 102,800 claims pending. During the first quarter of 2001, approximately 13,300 new claims have been filed and approximately 2,600 were either settled or dismissed without payment. The amount spent on asbestos litigation defense and case resolution, substantially all of which was reimbursed or will be reimbursed from insurance coverage was $8.9 million in the first quarter of 2001. The Corporation continues to actively manage the claims and to negotiate with certain insurance carriers concerning the limits of coverage provided during different time periods. An agreement the Corporation has had with a number of insurers to allow for efficient and thorough handling of claims was terminated by one of the participant insurers with respect to claims filed after June 12, 2001. As a result in the first quarter of 2001, lawsuits commenced among the Corporation and certain of the insurers to determine the respective rights and responsibilities under the policies going forward. The Corporation is currently in negotiations with the insurers, and the Corporation believes that it will enter into a similar replacement arrangement to govern the management of, and allocation of payments on, asbestos related claims filed after June 12, 2001. The Corporation anticipates that the existing insurance policies are adequate whether or not the Corporation can agree on a new arrangement. Although the expiration of the previous arrangement may delay the ability of the Corporation to get reimbursed on a timely basis by the insurers for claims filed after June 12, 2001, the Corporation policies will continue to cover asbestos related claims brought against the Corporation after June 12, 2001 and it is anticipated that the Corporation can continue to manage the resolution of such claims without a material adverse impact on the Corporation's financial condition. The Corporation has recorded an asset relating to probable insurance recoveries and a liability related to probable losses. The Corporation's ability to continue to recover its costs or any portion thereof relating to the defense and payment of these claims is uncertain and dependent on a number of factor including the financial solvency of the insurers, some of which are currently insolvent, including one insurer that has provided policies for a substantial amount of coverage. The Corporation's management after consultation with counsel, has considered the litigation with the insurers described above, and the financial viability and legal obligations of the insurance carriers and believe that except for those insurers that have become or may become insolvent, the insurers or their guarantors should continue to adequately fund claims and defense costs relating to asbestos litigation. 28 The Corporation has been effective in managing the asbestos litigation in part because (1) the Corporation has access to historical project documents and other business records going back more than 50 years, allowing the Corporation to defend itself by determining if it was present at the location that is the cause of the alleged asbestos claim and, if so the timing and extent of the Corporation's presence. (2) the Corporation maintains good records on its insurance policies and have identified policies issued since 1952, and (3) the Corporation has consistently and vigorously defended these claims which has allowed the Corporation to dismiss claims that are without merit or to settle claims at amounts that are considered reasonable. On November 30, 1999, the United States District Court for the Northern District of Texas handed down a final judgment in the case of KOCH ENGINEERING COMPANY, INC. ET AL VS. GLITSCH, INC., ET AL. Glitsch, Inc. (now known as Tray, Inc.) is an indirect subsidiary of the Corporation. This lawsuit, which claimed damages for patent infringement and trade secret misappropriations, has been pending for over 17 years. The judgment awarded compensatory damages of $20.9 million plus prejudgment interest in an amount yet to be calculated by the Court and punitive damages equal to 50% of compensatory damages, or approximately $10.5 million. While the Court has not finally determined the amount of pre-judgement interest, it has preliminarily ruled that pre-judgement interest on actual patent infringement damages will be based on an annualized 90-day Treasury bill rate calculation. The Court also ruled that post-judgement interest will be paid at a rate of 5.471% on all actual damages from November 30, 1999 until paid. If the Court adopts the plaintiff's pre-judgement interest calculations, the award of pre-judgement interest could amount to approximately $14.8 million with respect to the patient infringement damages and approximately $8.2 million for the trade secret misappropriation. Tray, Inc. has various motions for relief from the judgment which are presently pending before the trial court. Tray, Inc. believes it has reasonable grounds to appeal the judgement as it has been advised by counsel that the Court's decision contains numerous legal and factual errors subject to reversal on appeal. While Tray, Inc. believes it has reasonable grounds to prevail on appeal, the ultimate outcome cannot be determined. In 1997, based on a 1994 United States Supreme Court decision, a federal circuit court effectively invalidated New Jersey's long-standing municipal solid waste flow rules and regulations. The immediate effect was to eliminate the guaranteed supply of municipal solid waste to the Camden County Waste-to-Energy Project with its corresponding tipping fee revenue. As a result, tipping fees have been reduced to market rate in order to provide a steady supply of fuel to the plant. Those market-based revenues are not expected to be sufficient to service the debt on outstanding bonds, which were issued to construct the plant and to acquire a landfill for Camden County's use. These outstanding bonds are public debt, not debt of the Corporation. The Corporation has filed suit against the involved parties, including the State of New Jersey, seeking, among other things, to void the applicable contracts and agreements governing this project. Pending final outcome of the litigation and results of legislative initiatives in New Jersey to resolve this crisis, management believes that the plant will continue to operate at full capacity while receiving market rates for waste disposal. At the same time, management cannot determine the ultimate effect of these events on the project. In 1996, the Corporation completed the construction of a recycling and waste-to-energy project located in the Village of Robbins, Illinois (the "Robbins Facility"). By virtue of the Robbins Facility qualifying under the Illinois Retail Rate Law as a qualified solid waste-to-energy facility, it was to receive electricity revenues projected to be substantially higher than the utility's "avoided cost". Under the Retail Rate Law, the utility was entitled to a tax credit against a state tax on utility gross receipts and invested capital. The State of Illinois (the "State") was to be reimbursed by the Robbins Facility for the tax credit beginning after the 20th year following the initial sale of electricity to the utility. The State repealed the Retail Rate Law insofar as it applied to the Robbins Facility. In October 1999, the Corporation reached an agreement (the "Robbins Agreement") with the holders of bonds issued by the Village of Robbins to finance the construction of the Robbins Facility (the "Bondholders"). As part of the Robbins Agreement, the Corporation agreed to continue to contest this repeal through litigation. Pursuant to the Robbins Agreement, the Corporation has also agreed that any proceeds of such litigation will be allocated in the following order of priority: (1) to redeem all of the outstanding 1999D Bonds, (2) to reimburse the Corporation for any amounts paid by it in respect of the 1999D Bonds (together with interest on the foregoing 29 amounts at a rate of 10.6% per annum) and (3) to reimburse the Corporation for any costs incurred by it in connection with prosecuting the Retail Rate litigation (together with interest on the foregoing amounts at a rate of 10.6% per annum). Then, to the extent there are further proceeds, an amount equal to the amount distributed pursuant to the preceding clause (2) shall fund payments in respect of the Non-Recourse Robbins Bonds. Thereafter, 80% of any further proceeds shall fund payments on the Non-Recourse Robbins Bonds until an amount sufficient to repay such Bonds in full has been paid over, with the remaining 20% being paid over to the Corporation. After the foregoing payments shall have been made, any remaining proceeds shall be paid over to the Corporation. On December 1, 1999, three special purpose subsidiaries of the Corporation commenced reorganization proceedings under Chapter 11 of the U.S. Bankruptcy Code in order to effectuate the terms of the Robbins Agreement. On January 21, 2000, these subsidiaries' plan of reorganization was confirmed, and the plan was consummated on February 3, 2000. On August 8, 2000, the Corporation initiated the final phase of its exit from the Robbins Facility. As part of the Robbins Agreement, the Corporation had agreed to operate the Robbins Facility for the benefit of the bondholders for no more than 2 years or earlier if a buyer could be found for the plant, subject to being reimbursed for all costs of operation. Such reimbursement did not occur and, therefore, under the Robbins Agreement, the Corporation on October 10, 2000, completed the final phase of its exit from the project. The Corporation had been administering the project companies through a Delaware business trust, which owns the project on behalf of the bondholders. As a result of its exit from the project, the Corporation is no longer administering the project companies. At about this time, the project companies commenced new reorganization proceedings under Chapter 11 of the U.S. Bankruptcy Code. In May 2001, The Corporation reached agreement with the debtor project companies and the requisite holders of the bonds favorably resolving issues related to the exit from the project. Under the federal Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") and similar state laws, the current owner or operator of real property and the past owners or operators of real property (if disposal took place during such past ownership or operation) may be jointly and severally liable for the costs of removal or remediation of toxic or hazardous substances on or under their property, regardless of whether such materials were released in violation of law or whether the owner or operator knew of, or was responsible for, the presence of such substances. Moreover, under CERCLA and similar state laws, persons who arrange for the disposal or treatment of hazardous or toxic substances may also be jointly and severally liable for the costs of the removal or remediation of such substances at a disposal or treatment site, whether or not such site was owned or operated by such person ("off-site facility"). Liability at such off-site facilities is typically allocated among all of the viable responsible parties based on such factors as the relative amount of waste contributed to a site, toxicity of such waste, relationship of the waste contributed by a party to the remedy chosen for the site, and other factors. The Corporation currently owns and operates industrial facilities and has also transferred its interests in industrial facilities that it formerly owned or operated. It is likely that as a result of its current or former operations, such facilities have been impacted by hazardous substances. The Corporation is not aware of any conditions at its currently owned facilities in the United States that it expects will cause the Corporation to incur significant costs. The Corporation is aware of potential environmental liabilities at facilities that it acquired in 1995 in Europe, but the Corporation has the benefit of an indemnity from the seller with respect to any required remediation or other environmental violations that it believes will address the costs of any such remediation or other required environmental measures. The Corporation also may 30 receive claims, pursuant to indemnity obligations from owners of recently sold facilities that may require the Corporation to incur costs for investigation and/or remediation. Based on the available information, the Corporation does not believe that such costs will be material. No assurance can be provided that the Corporation will not discover environmental conditions at its currently owned or operated properties, or that additional claims will not be made with respect to formerly owned properties, requiring the Corporation to incur material expenditures to investigate and/or remediate such conditions. The Corporation had been notified that it was a potentially responsible party ("PRP") under CERCLA or similar state laws at three off-site facilities, excluding sites as to which the Corporation has resolved its liability. At each of these sites, the Corporation's liability should be substantially less than the total site remediation costs because the percentage of waste attributable to the Corporation compared to that attributable to all other PRPs is low. The Corporation does not believe that its share of cleanup obligations at any of the three off-site facilities as to which it has received a notice of potential liability will individually exceed $1 million. Several of the Corporation's former subsidiaries associated with the Robbins Facility received a Complaint for Injunction and Civil Penalties from the State of Illinois, dated April 28, 1998 (amended in July 1998) alleging primarily state air violations at the Robbins Facility (PEOPLE OF THE STATE OF ILLINOIS V. FOSTER WHEELER ROBBINS, Inc., filed in Circuit Court of Cook County, Illinois, County Department, Chancery Division). The United States Environmental Protection Agency commenced a related enforcement action at approximately the same time. (EPA-5-98-IL-12 and EPA-5-98-IL-13). Although the complaint seeks substantial civil penalties for numerous violations of up to $50,000 for each violation, with an additional penalty of $10,000 for each day of each violation, the maximum allowed under the statute, and an injunction against continuing violations, the relevant subsidiaries have reached a staff-level agreement in principle with the state on a Consent Decree that will resolve all violations. The Corporation's liability, if any, is not expected to be material. The Corporation's project claims have increased as a result of the increase in our lump-sum contracts between 1992 and 1999. Project claims brought by us against project owners for additional costs over the contract price or amounts not included in the original contract price, typically arising from changes in the initial scope of work or from owner-caused delays. These claims are often subject to lengthy arbitration or litigation proceedings. The costs associated with these changes or owner-caused delays include additional direct costs, such as increased labor and material costs associated with the performance of the additional works, as well as indirect costs that may arise due to delays in the completion of the project, such as increased labor costs resulting from changes in labor markets. The Corporation has used significant additional working capital in projects with costs overruns pending the resolution of the relevant project claims. The Corporation cannot assure that project claims will not continue to increase. In the ordinary course of business, the Corporation enters into contracts providing for assessment of damages for nonperformance or delays in completion. Suits and claims have been or may be brought against the Corporation by customers alleging deficiencies in either equipment or plant construction. Based on the Corporation's knowledge of the facts and circumstances relating to the liabilities, if any, and to the insurance coverage, the management believes that the disposition of those suits will not result in charges against assets or earning materially in excess of amounts previously provided in the accounts. 31 ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (a) Date of Meeting. The Annual Meeting of Stockholders of Foster Wheeler Corporation was held on April 23, 2001, at the Hunterdon Hills Playhouse, 88 Route 173 West, Hampton, New Jersey. (b) Election of Directors - Voting Results Directors Elected Eugene D. Atkinson 37,409,927 For 443,253 Voted to Withhold Authority E. James Ferland 37,404,863 For 448,317 Voted to Withhold Authority Joseph J. Melone 37,405,606 For 447,574 Voted to Withhold Authority Richard J. Swift 37,357,048 For 496,132 Voted to Withhold Authority Other Directors continuing in office: Louis E. Azzato Martha Clark Goss John P. Clancey Constance J. Horner David J. Farris John E. Stuart (c) Additional Matters Voted Upon. To approve the proposed Reorganization and Agreement and Plan of Merger among Foster Wheeler Corporation, Foster Wheeler LLC and Foster Wheeler Ltd. whereby Foster Wheeler Corporation will effectively change its domicile from New York to Bermuda, with all shares of Foster Wheeler Corporation automatically converting into shares of Foster Wheeler Ltd. 27,633,695 For 914,066 Against 131,084 Abstain 9,174,335 Broker non-votes Ratification of the appointment of PricewaterhouseCoopers LLP as Independent Accounts of the Corporation for 2001. 37,543,835 For 214,440 Against 94,905 Abstain 0 Broker non-votes 32 ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS EXHIBIT NUMBER EXHIBIT 4.1 First Amendment dated March 1, 2001 to the Amended and Restated Rights Agreement dated September 30, 1997, between Foster Wheeler Corporation and Mellon Investor Services L.L.C. (f/n/a ChaseMellon Shareholders Services, L.L.C.), as rights agent. 10.1 Change of Control Agreement entered into by the Corporation with the following Executive Officers: H.E. Bartoli, J.C. Blythe, L. Fries Gardner, R.D. Iseman, T.R. O'Brien, G.A. Renaud and J.E. Schessler dated March 1, 2001. 10.2 Amendment to amended and restated Revolving Credit Agreement and Consent among the Corporation, the Guarantors signatory thereto, the Lenders Signatory thereto, and the Agents and Arrangers signatory thereto, dated as of May 31, 2000. 12.1 Statement of Computation of Consolidated Ratio of Earnings to Fixed Charges and Combined Fixed (b) REPORTS ON FORM 8-K On April 2, 2001 the Corporation announced the Retirement and Consulting Agreement entered into by its Chairman, President and C.E.O. (Filed as exhibits 99.1 and 10.1, respectively, to this Form 8-K dated April 2, 2001) 33 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. FOSTER WHEELER CORPORATION -------------------------- (Registrant) Date: MAY 14, 2001 /S/ RICHARD J. SWIFT ---------------- ---------------------------------- Richard J. Swift (Chairman, President and Chief Executive Officer) Date: MAY 14, 2001 /S/ GILLES A. RENAUD ---------------- ---------------------------------- Gilles A. Renaud (Senior Vice President and Chief Financial Officer) 34 EX-10.1 2 exh10-1.txt CHANGE OF CONTROL EMPLOYMENT AGREEMENT CHANGE OF CONTROL EMPLOYMENT AGREEMENT -------------------- AGREEMENT by and between Foster Wheeler Corporation, a New York corporation (the "Company") and Name of Executive (the "Executive"), dated as of the 1st day of March, 2001. WHEREAS the Board of Directors of the Company (the "Board"), has determined that it is in the best interests of the Company and its shareholders to assure that the Company will have the continued dedication of the Executive, notwithstanding the possibility, threat or occurrence of a Change of Control (as defined below) of the Company. The Board believes it is imperative to diminish the inevitable distraction of the Executive by virtue of the personal uncertainties and risks created by a pending or threatened Change of Control and to encourage the Executive's full attention and dedication to the Company currently and in the event of any threatened or pending Change of Control, and to provide the Executive with compensation and benefits arrangements upon a Change of Control which ensure that the compensation and benefits expectations of the Executive will be satisfied and which are competitive with those of other corporations. Therefore, in order to accomplish these objectives, the Board has caused the Company to enter into this Agreement. NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS: 1. CERTAIN DEFINITIONS. (a) "Effective Date" shall mean the first date during the Change of Control Period (as defined in Section 1(b)) on which a Change of Control (as defined in Section 2) occurs. Anything in this Agreement to the contrary notwithstanding, if a Change of Control occurs and if the Executive's employment with the Company is terminated prior to the date on which the Change of Control occurs, and if it is reasonably demonstrated by the Executive that such termination of employment (i) was at the request of a third party who has taken steps reasonably calculated to effect a Change of Control or (ii) otherwise arose in connection with or anticipation of a Change of Control, then for all purposes of this Agreement the "Effective Date" shall mean the date immediately prior to the date of such termination of employment. (b) The "Change of Control Period" shall mean the period commencing on the date hereof and ending on the third anniversary of the date hereof; provided, however, that commencing on the date one year after the date hereof, and on each annual anniversary of such date (such date and each annual anniversary thereof shall be hereinafter referred to as the "Renewal Date"), unless previously terminated, the Change of Control Period shall be automatically extended so as to terminate three years from such Renewal Date, unless at least 60 days prior to the Renewal Date the Company shall give notice to the Executive that the Change of Control Period shall not be so extended. (c) "Affiliated Company" means any company controlled by, controlling or under common control with the Company. 2. CHANGE OF CONTROL. For the purpose of this Agreement, a "Change of Control" shall mean: (a) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of voting securities of the Company where such acquisition causes such Person to own 20% or more of the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"), provided, however, that for purposes of this subsection (a), the following acquisitions shall not be deemed to result in a Change of Control: (i) any acquisition directly from the Company, (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or (iv) any acquisition by any corporation pursuant to a transaction that complies with clauses (i), (ii) and (iii) of subsection (c) below; and provided, further, that if any Person's beneficial ownership of the Outstanding Company Voting Securities reaches or exceeds 20% as a result of a transaction described in clause (i) or (ii) above, and such Person subsequently acquires beneficial ownership of additional voting securities of the Company, such subsequent acquisition shall be treated as an acquisition that causes such Person to own 20% or more of the Outstanding Company Voting Securities; or (b) Individuals who, as of the date hereof, constitute the Board of Directors of the Company (such Board of Directors, the "Board" and such individuals, the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (c) The approval by the shareholders of the Company of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company ("Business Combination") or, if consummation of such Business Combination is subject, at the time of such approval by shareholders, to the consent of any government or governmental agency, the obtaining of such consent (either explicitly or implicitly by consummation); excluding, however, such a Business Combination pursuant to which (i) all or substantially all of the individuals and entities who were the beneficial owners of the Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 60% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation that as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company -2- Voting Securities, (ii) no Person (excluding any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination and (iii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or (d) approval by the shareholders of the Company of a complete liquidation or dissolution of the Company. 3. EMPLOYMENT PERIOD. The Company hereby agrees to continue the Executive in its employ, subject to the terms and conditions of this Agreement, for the period commencing on the Effective Date and ending on the third anniversary of the Effective Date (the "Employment Period"). The Employment Period shall terminate upon the Executive's termination of employment for any reason. 4. TERMS OF EMPLOYMENT. (a) POSITION AND DUTIES. (i) During the Employment Period, (A) the Executive's position (including status, offices, titles and reporting requirements), authority, duties and responsibilities shall be at least commensurate in all material respects with the most significant of those held, exercised and assigned at any time during the 120-day period immediately preceding the Effective Date and (B) the Executive's services shall be performed at the office where the Executive was employed immediately preceding the Effective Date or at any other location less than 35 miles from such office. (ii) During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote reasonable attention and time during normal business hours to the business and affairs of the Company and, to the extent necessary to discharge the responsibilities assigned to the Executive hereunder, to use the Executive's reasonable best efforts to perform faithfully and efficiently such responsibilities. During the Employment Period it shall not be a violation of this Agreement for the Executive to (A) serve on corporate, civic or charitable boards or committees, (B) deliver lectures, fulfill speaking engagements or teach at educational institutions and (C) manage personal investments, so long as such activities do not significantly interfere with the performance of the Executive's responsibilities as an employee of the Company in accordance with this Agreement. It is expressly understood and agreed that to the extent that any such activities have been conducted by the Executive prior to the Effective Date, the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) subsequent to the Effective Date shall not thereafter he deemed to interfere with the performance of the Executive's responsibilities to the Company. (b) COMPENSATION. (i) BASE SALARY. During the Employment Period, the Executive shall receive an annual base salary ("Annual Base Salary"), at an annual rate, at least equal to twelve times the highest monthly base salary paid or payable, including any base salary which has been earned but deferred, to the Executive by the Company and the Affiliated -3- Companies in respect of the twelve-month period immediately preceding the month in which the Effective Date occurs. The Annual Base Salary shall be paid at such intervals as the Company pays executive salaries generally. During the Employment Period, the Annual Base Salary shall be reviewed at least annually, beginning no more than 12 months after the last salary increase awarded to the Executive prior to the Effective Date. Any increase in Annual Base Salary shall not serve to limit or reduce any other obligation to the Executive under this Agreement. Annual Base Salary shall not be reduced after any such increase and the term "Annual Base Salary" shall refer to Annual Base Salary as so increased. (ii) ANNUAL AND LONG TERM BONUS. In addition to Annual Base Salary, but subject to Section 4(b)(ix) below, the Executive shall be awarded, for each fiscal year ending during the Employment Period, an annual bonus (the "Annual Bonus") in cash at least equal to the Executive's highest Annual Incentive Payment under the Annual Incentive Segment of the Company's Executive Compensation Plan, or any comparable bonus under any successor plan, including any bonus or portion thereof that has been earned but deferred, for the last three full fiscal years prior to the Effective Date (or for such lesser number of full fiscal years prior to the Effective Date for which the Executive was eligible to earn such a bonus, and annualized in the event that the Executive was not employed by the Company for the whole of such fiscal year) (the "Recent Annual Bonus"). In addition, the Executive shall be awarded, for each fiscal year during the Employment Period, a long term incentive bonus in cash at least equal to the Executive's highest long term incentive bonus payment under the Long Term Incentive Segment of the Company's Executive Compensation Plan, or any comparable bonus under any successor plan including any bonus or portion thereof that has been earned but deferred, for the last three full fiscal years prior to the Effective Date (or for such lesser number of full fiscal years prior to the Effective Date for which the Executive was eligible to earn such a bonus, and annualized in the event that the Executive was not employed by the Company for the whole of any such fiscal year) (the "Recent Long Term Bonus"). Each such Annual Bonus and Long Term Bonus shall be paid no later than the end of the third month of the fiscal year next following the fiscal year for which the Annual Bonus is awarded, unless the Executive shall elect to defer the receipt of such Annual Bonus. (iii) INCENTIVE, SAVINGS AND RETIREMENT PLANS. During the Employment Period, the Executive shall be entitled to participate in all cash incentive, equity incentive, savings and retirement plans, practices, policies and programs applicable generally to other peer executives of the Company and the Affiliated Companies, but in no event shall such plans, practices, policies and programs (taken together with the bonus payable under Section 4(b)(ii)) provide the Executive with incentive opportunities (measured with respect to both regular and special incentive opportunities, to the extent, if any, that such distinction is applicable), savings opportunities and retirement benefit opportunities, in each case, less favorable, in the aggregate, than the most favorable of those provided by the Company and the Affiliated Companies for the Executive under such plans, practices, policies and programs as in effect at any time during the 120-day period immediately preceding the Effective Date or if more favorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and the Affiliated Companies. (iv) WELFARE BENEFIT PLANS. During the Employment Period, the Executive and/or the Executive's family, as the case may be, shall be eligible for participation in -4- and shall receive all benefits under welfare benefit plans, practices, policies and programs provided by the Company and the Affiliated Companies (including, without limitation, medical, prescription, dental, disability, salary continuance, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent applicable generally to other peer executives of the Company and the Affiliated Companies, but in no event shall such plans, practices, policies and programs provide the Executive with benefits which are less favorable, in the aggregate, than the most favorable of such plans, practices, policies and programs in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and the Affiliated Companies. (v) EXPENSES. During the Employment Period, the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in accordance with the most favorable policies, practices and procedures of the Company and the Affiliated Companies in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. (vi) FRINGE BENEFITS. During the Employment Period, the Executive shall be entitled to fringe benefits, including, without limitation, tax and financial planning services, payment of club dues, and, if applicable, use of an automobile and payment of related expenses, in accordance with the most favorable plans, practices, programs and policies of the Company and the Affiliated Companies in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and the Affiliated Companies. (vii) OFFICE AND SUPPORT STAFF. During the Employment Period, the Executive shall be entitled to an office or offices of a size and with furnishings and other appointments, and to exclusive personal secretarial and other assistance, at least equal to the most favorable of the foregoing provided to the Executive by the Company and the Affiliated Companies at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as provided generally at any time thereafter with respect to other peer executives of the Company and the Affiliated Companies. (viii) VACATION. During the Employment Period, the Executive shall be entitled to paid vacation in accordance with the most favorable plans, policies, programs and practices of the Company and the Affiliated Companies as in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and the Affiliated Companies. (ix) As soon as practicable following the Effective Date, the Executive shall receive an immediate payment in cash of the Executive's Annual Incentive Payment under the Executive Compensation Plan for the year in which the Change of Control takes place, based upon the Executive's Target Incentive percentage with an Adjustment Factor of 1.0. If it is -5- determined, after the end of such year, that the Annual Incentive Payment (or other bonus) that is actually earned for such year exceeds the amount paid pursuant to the preceding sentence, the excess shall be paid to such participant in accordance with the terms of the Plan. In addition, as soon as practicable following the Effective Date, the Executive shall receive immediate payment in cash of a pro rata portion of the Executive's Performance Units under the Executive Compensation Plan for each Cycle that includes the Effective Date, based upon a Performance Unit value equal to the highest such value paid with respect to any of the most recent three Cycles ending before the Effective Date, and pro-rated based upon the ratio of the number of days during the portion of the relevant Cycle that occurs before the Effective Date to the total number of days during such Cycle. If it is determined, after the end of the relevant Cycle, that the value of the Performance Units for such Cycles as actually earned exceeds the amount paid with respect thereto pursuant to the preceding sentence, the excess shall be paid to such participant in accordance with the terms of the Plan. Notwithstanding the foregoing, if as of the Effective Date the Executive Compensation Plan has been amended or replaced, such that any of the foregoing provisions are no longer applicable, the Executive shall be entitled to receive payments with respect to the annual and long term awards thereunder for periods that include the Effective Date on an equivalent basis (I.E., payment of the annual awards as if target performance had been achieved, without pro-ration, and payment of a pro-rata portion of the long term awards based upon the highest level of achievement during the three performance periods immediately preceding the Effective Date). 5. TERMINATION OF EMPLOYMENT. (a) DEATH OR DISABILITY. The Executive's employment shall terminate automatically if the Executive dies during the Employment Period. If the Company determines in good faith that the Disability (as defined herein) of the Executive has occurred during the Employment Period (pursuant to the definition of "Disability"), it may give to the Executive written notice in accordance with Section 12(b) of its intention to terminate the Executive's employment. In such event, the Executive's employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive (the "Disability Effective Date"), provided that, within the 30 days after such receipt, the Executive shall not have returned to full-time performance of the Executive's duties. For purposes of this Agreement, "Disability" shall mean the absence of the Executive from the Executive's duties with the Company on a full-time basis for 180 consecutive business days as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive's legal representative. (b) CAUSE. The Company may terminate the Executive's employment during the Employment Period for Cause. For purposes of this Agreement, "Cause" shall mean: (i) the willful and continued failure of the Executive to perform substantially the Executive's duties (as contemplated by Section 4(a)(1)(A)) with the Company or any Affiliated Company (other than any such failure resulting from incapacity due to physical or mental illness or following the Executive's delivery of a Notice of Termination for Good Reason), after a written demand for substantial performance is delivered to the Executive by the Board or the Chief Executive Officer of the -6- Company which specifically identifies the manner in which the Board or Chief Executive Officer of the Company believes that the Executive has not substantially performed the Executive's duties, or (ii) the willful engaging by the Executive in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company. For purposes of this provision, no act or failure to act, on the part of the Executive, shall be considered "willful" unless it is done, or omitted to be done, by the Executive in bad faith or without reasonable belief that the Executive's action or omission was in the best interests of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or upon the instructions of the Chief Executive Officer of the Company or a senior officer of the Company or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Company. The cessation of employment of the Executive shall not be deemed to be for Cause unless and until there shall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board (excluding the Executive, if the Executive is a member of the Board) at a meeting of the Board called and held for such purpose (after reasonable notice is provided to the Executive and the Executive is given an opportunity, together with counsel for the Executive, to be heard before the Board), finding that, in the good faith opinion of the Board, the Executive is guilty of the conduct described in Section 4(b)(i) or 4(b)(ii), and specifying the particulars thereof in detail. (c) GOOD REASON. The Executive's employment may be terminated by the Executive for Good Reason or by the Executive voluntarily without Good Reason. For purposes of this Agreement, "Good Reason" shall mean: (i) the assignment to the Executive of any duties inconsistent in any respect with the Executive's position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as contemplated by Section 4(a), or any other diminution in such position, authority, duties or responsibilities (whether or not occurring solely as a result of the Company's ceasing to be a publicly traded entity), excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (ii) any failure by the Company to comply with any of the provisions of Section 4(b), other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (iii)the Company's requiring the Executive (A) to be based at any office or location other than as provided in Section 4(a)(i)(B), (B) to be based at a location other than the principal executive offices of the Company if the Executive was employed at such location immediately preceding the Effective Date, or (C) to travel on Company business to a substantially greater extent than required immediately prior to the Effective Date; -7- (iv) any purported termination by the Company of the Executive's employment otherwise than as expressly permitted by this Agreement; or (v) any failure by the Company to comply with and satisfy Section 11(c). For purposes of this Section 5(c), any good faith determination of Good Reason made by the Executive shall be conclusive. Anything in this Agreement to the contrary notwithstanding, a termination by the Executive for any reason pursuant to a Notice of Termination given during the 30-day period immediately following the first anniversary of the Effective Date shall be deemed to be a termination for Good Reason for all purposes of this Agreement. The Executive's mental or physical incapacity following the occurrence of an event described above in clauses (i) through (v) shall not affect the Executive's ability to terminate employment for Good Reason. (d) NOTICE OF TERMINATION. Any termination by the Company for Cause, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 12(b). For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the Date of Termination (which Date of Termination shall be not more than thirty days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive's or the Company's respective rights hereunder. (e) DATE OF TERMINATION. "Date of Termination" means (i) if the Executive's employment is terminated by the Company for Cause, or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified in the Notice of Termination (which date shall not be more than thirty days after the giving of such notice), as the case may be, (ii) if the Executive's employment is terminated by the Company other than for Cause or Disability, the Date of Termination shall be the date on which the Company notifies the Executive of such termination and (iii) if the Executive's employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Executive or the Disability Effective Date, as the case may be. 6. OBLIGATIONS OF THE COMPANY UPON TERMINATION. (a) GOOD REASON; OTHER THAN FOR CAUSE, DEATH OR DISABILITY. If, during the Employment Period, the Company terminates the Executive's employment other than for Cause or Disability or the Executive terminates employment for Good Reason: (i) the Company shall pay to the Executive in a lump sum in cash within 30 days after the Date of Termination the aggregate of the following amounts: -8- (A) the sum of (1) the Executive's Annual Base Salary through the Date of Termination to the extent not theretofore paid, (2) the product of (x) the higher of (I) the Recent Annual Bonus and (II) the Annual Bonus paid or payable, including any bonus or portion thereof which has been earned but deferred (and annualized for any fiscal year consisting of less than twelve full months or during which the Executive was employed for less than twelve full months), for the most recently completed fiscal year during the Employment Period, if any (such higher amount being referred to as the "Highest Annual Bonus") and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365 and (3) any compensation previously deferred by the Executive (together with any accrued interest or earnings thereon) and any accrued vacation pay, in each case, to the extent not theretofore paid (the sum of the amounts described in subclauses (1), (2) and (3), (the "Accrued Obligations"); (B) the amount equal to the product of (1) three and (2) the sum of (x) the Executive's Annual Base Salary, (y) the Highest Annual Bonus and (z) the higher of (A) the Recent Long Term Bonus and (B) the amount of the Executive's long term incentive bonus payment under the Long Term Incentive Segment of the Company's Executive Compensation Plan, or any comparable bonus under any successor plan, most recently paid to the Executive during the Employment Period; (C) an amount equal to the excess of (a) the actuarial equivalent of the benefit under the Company's qualified defined benefit retirement plan (the "Retirement Plan") (utilizing actuarial assumptions no less favorable to the Executive than those in effect under the Retirement Plan immediately prior to the Effective Date) and any excess or supplemental retirement plan in which the Executive participates (together, the "SERP") which the Executive would receive if the Executive's employment continued for three years after the Date of Termination assuming for this purpose that all accrued benefits are fully vested, and, assuming that the Executive's compensation in each of the three years is that required by Sections 4(b)(i) and 4(b)(ii), over (b) the actuarial equivalent of the Executive's actual benefit (paid or payable), if any, under the Retirement Plan and the SERP as of the Date of Termination plus amounts, if any, that the Executive would have contributed under the Retirement Plan and the SERP during such three-year period; and (D) payment for any shares of restricted stock issued under the Company's Management and Sales Incentive Plan or any other plan (whether or not vested), to the extent such shares are tendered to the Company by the Executive within 20 days after the Date of Termination, at a price per share equal to the highest of (i) the market price on the New York Stock Exchange of a share of Company stock at the close of business on the date of such tender, (ii) the highest price paid for a share of Company stock in any Change of Control transaction occurring on or after the Effective Date, or (iii) the market price on the -9- New York Stock Exchange of a share of Company stock at the close of business on the date of any such Change of Control transaction; (ii) for five years after the Executive's Date of Termination, or such longer period as may be provided by the terms of the appropriate plan, program, practice or policy, the Company shall continue benefits to the Executive and/or the Executive's family at least equal to those which would have been provided to them in accordance with the plans, programs, practices and policies described in Section 4(b)(iv) of this Agreement if the Executive's employment had not been terminated or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and the Affiliated Companies and their families, provided, however, that if the Executive becomes reemployed with another employer and is eligible to receive medical or other welfare benefits under another employer provided plan, the medical and other welfare benefits described herein shall be secondary to those provided under such other plan during such applicable period of eligibility. For purposes of determining eligibility (but not the time of commencement of benefits) of the Executive for retiree benefits pursuant to such plans, practices, programs and policies, the Executive shall be considered to have remained employed until the fifth anniversary of the Date of Termination and to have retired on such fifth anniversary; (iii)the Company shall, at its sole expense as incurred, provide the Executive with outplacement services the scope and provider of which shall be selected by the Executive in the Executive's sole discretion; and (iv) to the extent not theretofore paid or provided, the Company shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive under any plan, program, policy or practice or contract or agreement of the Company and the Affiliated Companies (such other amounts and benefits shall be hereinafter referred to as the "Other Benefits"). (b) DEATH. If the Executive's employment is terminated by reason of the Executive's death during the Employment Period, the Company shall provide the Executive's estate or beneficiaries with the Accrued Obligations and the timely payment or delivery of the Other Benefits, and shall have no other severance obligations under this Agreement. The Accrued Obligations shall be paid to the Executive's estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of Other Benefits, the term "Other Benefits" as utilized in this Section 6(b) shall include, without limitation, and the Executive's estate and/or beneficiaries shall be entitled to receive, benefits at least equal to the most favorable benefits provided by the Company and the Affiliated Companies to the estates and beneficiaries of peer executives of the Company and the Affiliated Companies under such plans, programs, practices and policies relating to death benefits, if any, as in effect with respect to other peer executives and their beneficiaries at any time during the 120-day period immediately preceding the Effective Date or, it more favorable to the Executive's estate and/or the Executive's beneficiaries, as in effect on the date of the Executive's death with respect to other peer executives of the Company and the Affiliated Companies and their beneficiaries. -10- (c) DISABILITY. If the Executive's employment is terminated by reason of the Executive's Disability during the Employment Period, the Company shall provide the Executive with the Accrued Obligations and the timely payment or delivery of the Other Benefits, and shall have no other severance obligations under this Agreement. The Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of Other Benefits, the term "Other Benefits" as utilized in this Section 6(c) shall include, and the Executive shall be entitled after the Disability Effective Date to receive, disability and other benefits at least equal to the most favorable of those generally provided by the Company and the Affiliated Companies to disabled executives and/or their families in accordance with such plans, programs, practices and policies relating to disability, if any, as in effect generally with respect to other peer executives and their families at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive and/or the Executive's family, as in effect at any time thereafter generally with respect to other peer executives of the Company and the Affiliated Companies and their families. (d) CAUSE; OTHER THAN FOR GOOD REASON. If the Executive's employment is terminated for Cause during the Employment Period, the Company shall provide to the Executive (x) the Executive's Annual Base Salary through the Date of Termination, (y) the amount of any compensation previously deferred by the Executive, and (z) Other Benefits, in each case to the extent theretofore unpaid, and shall have no other severance obligations under this Agreement. If the Executive voluntarily terminates employment during the Employment Period, excluding a termination for Good Reason, the Company shall provide to the Executive the Accrued Obligations and the timely payment or delivery of Other Benefits, and shall have no other severance obligations under this Agreement. In such case, all Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination. 7. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any plan, program, policy or practice provided by the Company or the Affiliated Companies and for which the Executive may qualify, nor, subject to Section 12(f), shall anything herein limit or otherwise affect such rights as the Executive may have under any other contract or agreement with the Company or the Affiliated Companies. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with the Company or any of the Affiliated Companies at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice or program or contract or agreement except as explicitly modified by this Agreement. Notwithstanding the foregoing, if the Executive receives payments and benefits pursuant to Section 6(a) of this Agreement, the Executive shall not be entitled to any severance pay or benefits under any severance plan, program or policy of the Company and the Affiliated Companies, unless specifically provided therein in a specific reference to this Agreement. 8. FULL SETTLEMENT. The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement and such amounts shall -11- not be reduced whether or not the Executive obtains other employment. The Company agrees to pay as incurred (within ten days following the Company's receipt of an invoice from the Executive), to the full extent permitted by law, all legal fees and expenses which the Executive may reasonably incur as a result of any contest (regardless of the outcome thereof) by the Company, the Executive or others of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Executive about the amount of any payment pursuant to this Agreement), plus in each case interest on any delayed payment at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code"). 9. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY. (a) Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any Payment would be subject to the Excise Tax, then the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Executive of all taxes (and any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. (b) Subject to the provisions of Section 9(c), all determinations required to be made under this Section 9, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by PricewaterhouseCoopers LLP or such other nationally recognized certified public accounting firm as may be designated by the Executive (the "Accounting Firm"). The Accounting Firm shall provide detailed supporting calculations both to the Company and the Executive within 15 business days of the receipt of notice from the Executive that there has been a Payment, or such earlier time as is requested by the Company. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change of Control, the Executive may appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 9, shall be paid by the Company to the Executive within five days of the receipt of the Accounting Firm's determination. Any determination by the Accounting Firm shall be binding upon the Company and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to Section 9(c) and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive. (c) The Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the -12- Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after the Executive is informed in writing of such claim. The Executive shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which the Executive gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that the Company desires to contest such claim, the Executive shall: (i) give the Company any information reasonably requested by the Company relating to such claim, (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company, (iii)cooperate with the Company in good faith in order effectively to contest such claim, and (iv) permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 9(c), the Company shall control all proceedings taken in connection with such contest and, at its sole discretion, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the applicable taxing authority in respect of such claim and may, at its sole discretion, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Executive, on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties) imposed with respect to such advance or with respect to any imputed income in connection with such advance; and PROVIDED, FURTHER, that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which the Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. -13- (d) If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 9(c), the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Company's complying with the requirements of Section 9(c)) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 9(c), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. (e) Notwithstanding any other provision of this Section 9, the Company may, in its sole discretion, withhold and pay over to the Internal Revenue Service or any other applicable taxing authority, for the benefit of the Executive, all or any portion of the Gross-Up Payment, and the Executive hereby consents to such withholding. (f) DEFINITIONS. The following terms shall have the following meanings for purposes of this Section 9. (i) "Excise Tax" shall mean the excise tax imposed by Section 4999 of the Code, together with any interest or penalties imposed with respect to such excise tax. (ii) The "Net After-Tax Amount" of a Payment shall mean the Value of a Payment net of all taxes imposed on the Executive with respect thereto under Sections 1 and 4999 of the Code and applicable state and local law, determined by applying the highest marginal rates that are expected to apply to the Executive's taxable income for the taxable year in which the Payment is made. (iii)"Parachute Value" of a Payment shall mean the present value as of the date of the change of control for purposes of Section 280G of the Code of the portion of such Payment that constitutes a "parachute payment" under Section 280G(b)(2), as determined by the Accounting Firm for purposes of determining whether and to what extent the Excise Tax will apply to such Payment. (iv) A "Payment" shall mean any payment or distribution in the nature of compensation (within the meaning of Section 280G(b)(2) of the Code) to or for the benefit of the Executive, whether paid or payable pursuant to this Agreement or otherwise. (v) The "Safe Harbor Amount" means the maximum Parachute Value of all Payments that the Executive can receive without any Payments being subject to the Excise Tax. (vi) "Value" of a Payment shall mean the economic present value of a Payment as of the date of the change of control for purposes of Section 280G of the Code, as determined by the Accounting Firm using the discount rate required by Section 280G(d)(4) of the Code. -14- 10. CONFIDENTIAL INFORMATION. The Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or the Affiliated Companies, and their respective businesses, which information, knowledge or data shall have been obtained by the Executive during the Executive's employment by the Company or the Affiliated Companies and which information, knowledge or data shall not be or become public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement). After termination of the Executive's employment with the Company, the Executive shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those persons designated by the Company. In no event shall an asserted violation of the provisions of this Section 10 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. 11. SUCCESSORS. (a) This Agreement is personal to the Executive and without the prior written consent of the Company shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. Except as provided in Section 11(c), without the prior written consent of the Executive this Agreement shall not be assignable by the Company. (c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. 12. MISCELLANEOUS. (a) This Agreement shall be governed by and construed in accordance with the laws of the State of New Jersey, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives. (b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: IF TO THE EXECUTIVE: ------------------- Name Address Address 2 City, State, ZipCode -15- IF TO THE COMPANY: ----------------- Foster Wheeler Corporation Perryville Corporate Park Clinton, New Jersey 08809-4000 Attention: General Counsel or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee. (c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. (d) The Company may withhold from any amounts payable under this Agreement such United States federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation. (e) The Executive's or the Company's failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or the Company may have hereunder, including, without limitation, the right of the Executive to terminate employment for Good Reason pursuant to Sections 5(c)(i) through 5(c)(v), shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. (f) The Executive and the Company acknowledge that, except as may otherwise be provided under any other written agreement between the Executive and the Company, the employment of the Executive by the Company is "at will" and, subject to Section 1(a), prior to the Effective Date, the Executive's employment may be terminated by either the Executive or the Company at any time prior to the Effective Date, in which case the Executive shall have no further rights under this Agreement. From and after the Effective Date except as specifically provided herein, this Agreement shall supersede any other agreement between the parties with respect to the subject matter hereof. -16- IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and, pursuant to the authorization from the Board, the Company has caused this Agreement to be executed in its name on its behalf, all as of the day and year first above written. -------------------------------- Name of Executive FOSTER WHEELER CORPORATION By ------------------------------ Chairman, President and Chief Executive Officer -17- EX-10.2 3 exh10-2.txt AMENDMENT--REVOLVING CREDIT AGREE AND CONT. AMENDMENT TO AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT AND CONSENT AMENDMENT TO AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT AND CONSENT, dated as of May 31, 2000, among FOSTER WHEELER CORPORATION (herein referred to as the "BORROWER"), the guarantors party hereto (the "GUARANTORS"), the lenders party hereto (each a "LENDER" and collectively, the "LENDERS"), BANK OF AMERICA, N. A., in its capacity as administrative agent for the Lenders (in such capacity, the "ADMINISTRATIVE AGENT"), and FIRST UNION NATIONAL BANK, as Syndication Agent and ABN AMRO BANK N.V., as Documentation Agent. W I T N E S S E T H: WHEREAS, the Borrower, the Guarantors, the Lenders, the Administrative Agent, the Syndication Agent and the Documentation Agent are parties to that certain Amended and Restated Revolving Credit Agreement, dated as of December 1, 1999 (the "CREDIT AGREEMENT"); and WHEREAS, the Borrower, the Guarantors, certain of the lenders party thereto, the Administrative Agent, the Syndication Agent and the Documentation Agent are parties to that certain Amended and Restated Short Term Revolving Credit Agreement, dated as of December 1, 1999 (the "SHORT TERM CREDIT AGREEMENT") WHEREAS, the Borrower and the Guarantors have requested that the Credit Agreement be amended in certain respects; and WHEREAS, the undersigned Lenders and the Agents party hereto are willing to so amend the Credit Agreement and consent to certain actions relating to the Short Term Credit Agreement, subject to the terms and conditions hereinafter set forth; NOW, THEREFORE, the parties hereto, in consideration of their mutual covenants and agreements hereinafter set forth and intending to be legally bound thereby, covenant and agree as follows: 1. GENERAL. All terms used herein which are not otherwise specifically defined herein shall have the same meaning herein as defined in the Credit Agreement as further amended hereby. 2. PAYMENTS GENERALLY; INTEREST ON OVERDUE AMOUNTS. Section 2.15 of the Credit Agreement shall be and is hereby amended by adding in the appropriate alphabetical order a new subsection as follows: "(c) Unless the Administrative Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Lenders hereunder that the Borrower will not make such payment in full, the Administrative Agent may assume that the Borrower has made such payment in full to the Administrative Agent on such date and the Administrative Agent may, in reliance upon such assumption, cause to be distributed to each Lender on such due date an amount equal to the amount then due such Lender. If and to the extent that the Borrower shall not have so made such payment, each Lender shall repay to the Administrative Agent forthwith on demand such amount distributed to such Lender together with interest thereon, for each day from the date such amount is distributed to such Lender until the date such Lender repays such amount to the Administrative Agent, at the Federal Funds Effective Rate." 3. ASSIGNMENTS. Section 10.14 of the Credit Agreement shall be and is hereby amended by deleting the language of subsection (c)(v) thereto and inserting the following language in its place: "to the extent the Other Credit Agreement is in effect, the assigning Lender, to the extent such Lender has a commitment under the Other Credit Agreement, shall assign the same percentage of its "Commitment" under the Other Credit Agreement concurrently with such assignment." 4. CONSENT. In anticipation of the Borrower requesting that the lenders party to the Short Term Credit Agreement increase the Total Revolving Credit Commitment (as defined in the Short Term Credit Agreement) by adding additional lenders only to the Short Term Credit Agreement and after such addition the aggregate Total Revolving Credit Commitment (as defined in the Short Term Credit Agreement) shall not exceed $90,000,000, the undersigned Lenders hereby acknowledge and consent to such increase. 5. REPRESENTATIONS. In order to induce the Lenders to execute and deliver this Amendment, the Borrower hereby represents to the Lenders that as of the date hereof the representations and warranties set forth in Article III of the Credit Agreement are and shall be and remain true and correct (except that the representations contained in Section 3.06 shall be deemed to refer to the most recent financial statements of the Borrower delivered to the Lenders) and the Borrower is in compliance with the terms and conditions of the Credit Agreement and no Default or Event of Default has occurred and is continuing under the Credit Agreement or shall result after giving effect to this Amendment. 6. EFFECTIVENESS. This Amendment shall become effective (i) when it shall be executed by the Borrower and the Required Lenders, (ii) each Guarantor shall have executed and delivered to the Lenders their consent to this Amendment in the form set forth below and (iii) the Administrative Agent shall have received copies (executed or certified, as may be appropriate) of all legal documents or proceedings taken in connection with the execution and delivery of this Amendment to the extent the Administrative Agent or its counsel may reasonably request This Amendment may be executed in separate counterparts, all of which taken together shall constitute one and the same instrument. This agreement shall be construed and determined in -2- accordance with the laws of the State of New York. Except as herein specifically amended, the Credit Agreement shall be and remain in full force and effect and wherever reference is made in any note, document, letter or other communication to the Credit Agreement, such reference shall, without more, be deemed to refer to the Credit Agreement as amended hereby. The consent provided in paragraph 4 hereof shall be limited specifically as provided for therein and this Amendment and Consent shall not constitute a consent to any other transaction nor shall it be a waiver or modification of any other term, provision or condition of the Credit Agreement or waiver of any Default or Event of Default except as expressly set forth herein and shall not prejudice or be deemed to prejudice any right that the Agent or any Lender may now have or may have in the future under the Credit Agreement. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] -3- IN WITNESS WHEREOF, the parties hereto, by their officers thereunto duly authorized, have executed and delivered this Agreement as of the date first above written. ATTEST: FOSTER WHEELER CORPORATION, as Borrower By By Title: _________ Title: FOSTER WHEELER USA CORPORATION, as Guarantor By Title: FOSTER WHEELER ENERGY INTERNATIONAL, INC., as Guarantor By Title: FOSTER WHEELER ENERGY CORPORATION, as Guarantor By Title: BANK OF AMERICA, N.A., individually and as Administrative Agent By Title: FIRST UNION NATIONAL BANK, individually and as Syndication Agent By Title: ABN AMRO BANK N.V., individually and as Documentation Agent By Title: By Title: TORONTO DOMINION (TEXAS), INC. By Title: NATIONAL WESTMINSTER BANK PLC, NEW YORK BRANCH By Title: NATIONAL WESTMINSTER BANK PLC, NASSAU BRANCH BY Title: THE BANK OF NOVA SCOTIA By Title: BANK OF TOKYO-MITSUBISHI TRUST COMPANY By Title: CITIBANK, N.A. By Title: DEUTSCHE BANK AG, NEW YORK BRANCH a/o CAYMAN ISLANDS BRANCH By Title: By Title: PARIBAS By Title: PNC BANK, NATIONAL ASSOCIATION By Title: SOCIETE GENERALE, NEW YORK BRANCH By Title: STANDARD CHARTERED BANK By Title: GUARANTORS' ACKNOWLEDGEMENT AND CONSENT The undersigned, Foster Wheeler USA Corporation, Foster Wheeler Energy International, Inc. and Foster Wheeler Energy Corporation, heretofore, under Article IX of the Credit Agreement, guaranteed any and all of the Guaranteed Obligations to the Creditors. The undersigned hereby consent to the Amendment to the Credit Agreement as set forth above and confirm that all of the undersigneds' obligations under the Credit Agreement remain in full force and effect. The undersigned further agree that the consent of the undersigned to any further amendments to the Credit Agreement shall not be required as a result of this consent having been obtained, except to the extent, if any, required by the Credit Agreement. FOSTER WHEELER USA CORPORATION, as Guarantor By Title: FOSTER WHEELER ENERGY INTERNATIONAL, INC., as Guarantor By Title: FOSTER WHEELER ENERGY CORPORATION, as Guarantor By Title: EX-4.1 4 exh4-1.txt FIRST AMENDMENT FIRST AMENDMENT FIRST AMENDMENT (this "Amendment"), dated as of March 1, 2001, between Foster Wheeler Corporation, a New York corporation (the "Company"), and Mellon Investor Services LLC (formerly ChaseMellon Shareholder Services, L.L.C.), a New Jersey limited liability company (the "Rights Agent"). All capitalized terms used herein and not otherwise defined herein shall have the respective meanings provided such terms in the Rights Agreement (as defined below). W I T N E S S E T H: - - - - - - - - - - WHEREAS, the Company and the Rights Agent are party to an Amended and Restated Rights Agreement, dated as of September 30, 1997 (the "Rights Agreement"); WHEREAS, the Company and the Rights Agent may from time to time supplement or amend the Rights Agreement pursuant to Section 27 thereof; and WHEREAS, the parties hereto wish to amend the Rights Agreement as herein provided; NOW THEREFORE, it is agreed: SECTION 1. Section 13 of the Rights Agreement is hereby amended by adding the following language at the end thereof: "Notwithstanding anything to the contrary in this Section 13 or otherwise in this Agreement, the provisions of this Section 13 shall not apply to any transaction where: (i) the Board of Directors has approved such transaction, (ii) the shareholders of the Company will own all the outstanding shares of such other Person (or the ultimate parent entity of such other Person), and (iii) each individual shareholder of the Company will have the same percentage ownership interest in the other Person (or the ultimate parent entity of such other Person) as such individual shareholder previously held in the Company. Furthermore, no Person engaged in such a transaction shall be deemed to be an Acquiring Person." SECTION 2. This Amendment shall become effective on the date on which the Company and the Rights Agent shall have signed a counterpart hereof. SECTION 3. This Amendment is limited as specified and shall not constitute a modification, acceptance or waiver of any other provision of the Rights Agreement. SECTION 4. This Amendment may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which counterparts when executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. A complete set of counterparts shall be lodged with the Company. SECTION 5. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. -2- IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and their respective corporate seals to be hereunto affixed and attested, all as of the day and year first above written. FOSTER WHEELER CORPORATION Attest: By /s/ LISA FRIES GARDNER By /S/ RICHARD J. SWIFT -------------------------- -------------------------------------------- Lisa Fries Gardner Richard J. Swift Title: Secretary Title: Chairman, President and Chief Executive Officer MELLON INVESTOR SERVICES LLC Attest: By /S/ LAURA PICONE By /S/ THOMAS WATT -------------------------- -------------------------------------------- Laura Picone Thomas Watt Title: Vice President Title: Vice President -3- EX-12.1 5 exh12-1.txt STATEMENT OF COMPUTATION EXHIBIT 12-1 FOSTER WHEELER CORPORATION STATEMENT OF COMPUTATION OF CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES AND COMBINED FIXED CHARGES ($000'S) UNAUDITED 3 months 2001 EARNINGS: Net earnings $ 8,105 Taxes on income 2,402 Total fixed charges 24,037 Capitalized interest (130) Capitalized interest amortized 606 Equity earnings of non-consolidated associated companies accounted for by the equity method, net of dividends (2,782) -------- $ 32,238 ======== FIXED CHARGES: Interest expense (includes dividend on preferred security of $3,937) $ 20,765 Capitalized interest 130 Imputed interest on non-capitalized lease payment 3,142 -------- $ 24,037 ======== Ratio of Earnings to Fixed Charges 1.34 ==== Note: There were no preferred shares outstanding during the period indicated and, therefore, the consolidated ratio of earnings to fixed charges and combined fixed charges and preferred share dividend requirements would have been the same as the consolidated ratio of earnings to fixed charges and combined fixed charges for the period indicated. -----END PRIVACY-ENHANCED MESSAGE-----